Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070628a.jpg" width="353">
The chart on the left overlays Yr/Yr GDP growth on Q/Q annualized GDP growth. The more volatile quarterly numbers have been slowing enough to clearly reduce the growth in Y/Y GDP to just below 2% at 1.9% in Q1 2007. However, there is not much &#145;GDP weakness&#146; left in the pipeline. In fact GDP seems to have taken much of its hit from odd places in the span of a single quarter. At 1.9% Yr/Yr GDP is weaker than each of the four annualized quarters it contains except Q1 2007. So with a better Q2 the four-quarter growth rate can easily move back up above the 2% mark. Indeed, moving up above the 0.7% mark will be a piece of cake. 
 Taking inventory on the downturn. The GDP slowdown is in fact made up of factors that seem unlikely to repeat. Inventory investment is the main drag on Q1 GDP at a reading of -$4.2bil and that represents a Q/Q change of -$26.6bil &#150; it is the change in the change for inventories that feeds into GDP each quarter. So GDP suffered from its inventory malaise to the tune of minus $26.6bil not minus $4.2 bil. Inventories had grown by $22.4 bil in Q4 2006 and that was a drop off of $32bil from Q3 2006. By comparison, Q2 2006 and Q3 2006 inventory investment each were at about $55bil. So there has been an inventory correction that drastically slowed the rate of increase of inventories over the past TWO quarters and actually reduced the stock of inventories outstanding in Q1 2007. 
The damage done to GDP by so few. At the same time consumer spending for goods remains strong although capital equipment spending has been limp. Inventories could continue weak but with this sort of spending on goods that is unlikely and it is more unlikely that the DROP in inventory investment (change in the change) will come anything close to the minus $26bil posted in Q1 and that means that inventories will ADD to growth in Q2 2007. Since inventories shaved 0.9% POINTS off growth in Q1 2007 that means inventories alone could add more than one percentage point to Q2 growth. Meanwhile the bulging trade gap subtracted another $23bil off from GDP or 0.8% points of growth. These two components docked GDP growth by 1.7 percentage points (saar). In other words, without these subtractions, GDP growth might have been 2.5% in Q1 2007 - hardly a disturbing number. No wonder so many economists are now changing their tune and forecasts on the economy. 
Assessing the future by looking at the past. It is unrealistic to put all of those two subtractions back into GDP since while inventories cycle up and down, GDP growth makes the trade deficit bigger so we must allot some trade deterioration for each quarter due to trade unless foreign growth really picks up or US growth remains very weak. Still it is the point more than the numbers that I want to drive home. 
The road ahead. To correctly assess the potential for GDP in the period ahead it is also important to gauge the Q1 2007 result Vs the trend for previous quarters. We can do that by looking at Q1 Vs the Yr/Yr by components. Except for the dollar amount comparisons &#150; and we have talked about those above - this is what the final column in the table does (see table below).
GDP was weak in Q1 2007. Its growth rate fell short of trend by 1.2 percentage points. We can see that short fall just about (a bit less, actually) the impact of inventories and trade on the quarter. Consumer spending was strong in the quarter by a margin of 0.7 pct points (saar) over &#145;trend&#146;. Durables spending was much stronger than trend while non-durables and service sector spending were only slightly above trend. Business investment was slightly weaker relative to trend as spending on structures lagged and spending on equipment finally picked up relative to a very weak trend (it&#146;s still not very strong). Exports were well below trend while imports were above trend. Government spending was slightly weaker than trend. The key point of this comparison is to show that GDP has not really undergone a fundamental slowing. The slowing in TOP line GDP is real and clear. But that has been the confluence of inventory and trade patterns. I view this as evidence that the economy has been working on its problems and has made a running correction, rather than as evidence of an economy running out of gas. We would expect durable goods spending by consumers to slow in Q2 but spending on non-durables and services are simply at trend. Business capital spending has begun to pick up. As the national election cycle approaches the prospect for stronger government spending is obvious. As to the international components, imports generally follow &#150; and exceed -- trends in domestic demand; export trends have withered faster than foreign growth raising some questions on prospects there. Trade should deteriorate ahead but &#145;how fast&#146; is still a matter of conjecture. On balance, the outlook for improved growth gotten without sticking our neck out with a wild a forecast and by looking at deviations from the past trend is actually pretty bright. Despite all the moaning about housing and sub-prime woes and higher energy prices sapping consumers, the trend in the economy shows little of that. Pessimists say the worst of it lies ahead. Optimists say worst is behind us. Pragmatists say where&#146;s the beef? &#133;unless they are vegetarian. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
US GDP Summary
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">GDP GROWTH</td>
<td>2006 Q1</td>
<td>2006 Q2</td>
<td>2006 Q3</td>
<td>2006 Q4</td>
<td>2007 Q1</td>
<td>2007 Q1</td>
<td>2007 Q1</td>
<td>Current</td>
<td>Less Prev</td>
</tr>
<tr class="grey3">
<td class="firstcol">Actual/A,P,F</td>
<td>Actual</td>
<td>Actual</td>
<td>Actual</td>
<td>Actual</td>
<td>Advance</td>
<td>Prelim</td>
<td>Final</td>
<td>Yr/Yr</td>
<td>TREND</td>
</tr>
<tr class="grey2">
<td class="firstcol">Real GDP</td>
<td>5.6%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>2.5%</td>
<td>1.3%</td>
<td>0.6%</td>
<td>0.7%</td>
<td>1.9%</td>
<td>-1.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">PCE</td>
<td>4.8%</td>
<td>2.6%</td>
<td>2.8%</td>
<td>4.2%</td>
<td>3.8%</td>
<td>4.4%</td>
<td>4.2%</td>
<td>3.5%</td>
<td>0.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Durables</td>
<td>19.8%</td>
<td>-0.1%</td>
<td>6.4%</td>
<td>4.4%</td>
<td>7.3%</td>
<td>8.8%</td>
<td>8.7%</td>
<td>4.8%</td>
<td>3.9%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Nondurables</td>
<td>5.9%</td>
<td>1.4%</td>
<td>1.5%</td>
<td>5.9%</td>
<td>2.9%</td>
<td>3.5%</td>
<td>3.2%</td>
<td>3.0%</td>
<td>0.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Services</td>
<td>1.6%</td>
<td>3.7%</td>
<td>2.8%</td>
<td>3.4%</td>
<td>3.7%</td>
<td>4.0%</td>
<td>3.8%</td>
<td>3.4%</td>
<td>0.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Business Investment</td>
<td>13.7%</td>
<td>4.4%</td>
<td>10.0%</td>
<td>-3.1%</td>
<td>2.0%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>-0.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Structures</td>
<td>8.8%</td>
<td>20.3%</td>
<td>15.7%</td>
<td>0.9%</td>
<td>2.1%</td>
<td>5.0%</td>
<td>4.8%</td>
<td>10.1%</td>
<td>-5.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Equipment</td>
<td>15.6%</td>
<td>-1.4%</td>
<td>7.7%</td>
<td>-4.8%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>1.7%</td>
<td>0.7%</td>
<td>1.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Housing</td>
<td>-0.3%</td>
<td>-11.1%</td>
<td>-18.6%</td>
<td>-19.8%</td>
<td>-17.0%</td>
<td>-15.4%</td>
<td>-15.7%</td>
<td>-16.4%</td>
<td>0.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Inventories ($B)*</td>
<td>$41.2</td>
<td>$53.7</td>
<td>$55.4</td>
<td>$22.4</td>
<td>$14.8</td>
<td>($4.5)</td>
<td>($4.2)</td>
<td>$29.9</td>
<td>--</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Farm</td>
<td>$4.3</td>
<td>$1.9</td>
<td>$2.5</td>
<td>$2.4</td>
<td>$3.0</td>
<td>$2.6</td>
<td>$2.6</td>
<td>$1.1</td>
<td>--</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Nonfarm</td>
<td>$36.8</td>
<td>$52.2</td>
<td>$53.3</td>
<td>$20.0</td>
<td>$11.3</td>
<td>($7.8)</td>
<td>($7.5)</td>
<td>($64.0)</td>
<td>--</td>
</tr>
<tr class="grey1">
<td class="firstcol">Net Exports ($B)**</td>
<td>($636.6)</td>
<td>($624.2)</td>
<td>($628.8)</td>
<td>($582.6)</td>
<td>($597.8)</td>
<td>($611.8)</td>
<td>($606.2)</td>
<td>$30.4</td>
<td>--</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Exports</td>
<td>14.0%</td>
<td>6.2%</td>
<td>6.8%</td>
<td>10.6%</td>
<td>-1.2%</td>
<td>-0.6%</td>
<td>0.7%</td>
<td>6.0%</td>
<td>-5.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Imports</td>
<td>9.1%</td>
<td>1.4%</td>
<td>5.6%</td>
<td>-2.6%</td>
<td>2.3%</td>
<td>5.7%</td>
<td>5.5%</td>
<td>2.4%</td>
<td>3.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Government</td>
<td>4.9%</td>
<td>0.8%</td>
<td>1.7%</td>
<td>3.4%</td>
<td>0.9%</td>
<td>1.0%</td>
<td>1.0%</td>
<td>1.7%</td>
<td>-0.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Real Final Sales</td>
<td>5.6%</td>
<td>2.1%</td>
<td>1.9%</td>
<td>3.7%</td>
<td>1.6%</td>
<td>1.6%</td>
<td>1.7%</td>
<td>2.3%</td>
<td>-0.7%</td>
</tr>
<tr class="grey2">
<td colspan="10">For Yr/Yr: * average, ** Change from Yr ago Qtr</td>
</tr>
</tbody>
</table>
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The chart on the left overlays Yr/Yr GDP growth on Q/Q annualized GDP growth. The more volatile quarterly numbers have been slowing enough to clearly reduce the growth in Y/Y GDP to just below 2% at 1.9% in Q1 2007. However, there is [...]

U.S. GDP Revision Ticks Growth up to +0.7%

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/070627g.jpg" width="353">
We fret over the Japanese economy: is it improving or not? Is it finally breaking out of 1990s stagnation enough so that deflation will go away? We&#39;re never quite sure. So when one figure is favorable, even by a little bit, we tend to get excited about it.
Today it is retail sales. In May, consumer purchases of goods in stores rose 0.1% from a year ago. The Bloomberg news service reports that of the 23 economists in its Japanese forecast survey, only 1 predicted a positive outcome for this indicator. It was the first 12-month increase since last September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627h.jpg" width="353">
We thought perhaps rising fuel prices had been the main mover. This had certainly been the case from about mid-2004 through mid-2006. But fuel purchases have slowed recently and for May they actually edged down from May 2006, by 0.4%. Excluding fuel, retail sales were still up 0.1%.
The largest single gain was in food and beverages, which rose 1.7%. Other categories of stores -- motor vehicle dealers, clothing, household durable goods and general merchandise -- all still saw year-on-year decreases. So it&#39;s the &quot;all other&quot; segment that helped push up the total: books, sporting goods, personal care items. These increased 1.3% over the year ago.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627i.jpg" width="353">
The narrow scope of the May sales increase might suggest that it will turn out to be fleeting. However, the Ministry of Economy, Trade and Industry (METI) also calculates an index, which they seasonally adjust. As shown in the table below, this index rose 0.5% in May from April, which had been up 0.3% from March. By this measure, general merchandise store sales were up in May, as were clothing stores and &quot;other&quot;, suggesting that recent uptrends have been broadening, giving a more optimistic view going forward. Thus, Japanese consumers, who face an increasing positive employment situation and the lowest unemployment since early 1998, might be starting to spend more freely. The threads of evidence from this retail sales report are thin, but they look to be braiding a stronger rope.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN: Retail Sales</th>
<th scope="col">May 2007</th>
<th scope="col">Apr 2007</th>
<th scope="col">Mar 2007</th>
<th scope="col">Year Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Total (Bil.&yen;)</td>
<td>11,012</td>
<td>11,177</td>
<td>12,077</td>
<td>11,005</td>
<td>11,271</td>
<td>11,255</td>
<td>11,143</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5*</td>
<td>0.3*</td>
<td>-1.3*</td>
<td>0.1</td>
<td>0.2</td>
<td>1.0</td>
<td>1.0</td>
</tr>
<tr>
<td class="firstcol">ex Fuel</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>0.1</td>
<td>-0.6</td>
<td>-0.2</td>
<td>0.4</td>
</tr>
</tbody>
</table>
</body>
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We fret over the Japanese economy: is it improving or not? Is it finally breaking out of 1990s stagnation enough so that deflation will go away? We're never quite sure. So when one figure is favorable, even by a little bit, we tend to [...]

Hints of Improvement in Japanese Retailing as May Sales Show Gain from Year-Ago

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627e.jpg" width="353">
French climate and outlook are on strong improving trend.
The services sector is still doing well. The climate and outlook indicators are strong in their respective ranges. Observed and expected sales are still strong but both are off peak. Observed and expected employment indicators are also off peak. The expected responses for these two indicators are sharply lower in June. Expected series are firm but only in about the 60th percentile of their respective ranges.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627f.jpg" width="353">
The second table below summarizes France&#146;s Industry survey for June. The report scrapped and got back two of the four points it lost in May. The trends are still firm with climate nearly in the upper 25 percentile of its range. Recent and likely trend assessments spurted in June. Foreign and also domestic orders are slipping slightly with both having peaks in April. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
France INSEE Services Survey Jan 2000-date
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Climate Indicator</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>109</td>
<td>78.8</td>
<td>8</td>
<td>116</td>
<td>83</td>
<td>33</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Climate: 3-Mo MAV</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>108</td>
<td>81.6</td>
<td>14</td>
<td>114</td>
<td>85</td>
<td>29</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Climate: 12-Mo MAV</td>
<td>109</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>92.4</td>
<td>3</td>
<td>110</td>
<td>91</td>
<td>20</td>
<td>101</td>
</tr>
<tr>
<td class="firstcol">Outlook</td>
<td>9</td>
<td>8</td>
<td>8</td>
<td>6</td>
<td>86.1</td>
<td>6</td>
<td>14</td>
<td>-22</td>
<td>36</td>
<td>-1</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed 3-Mos</td>
<td>14</td>
<td>17</td>
<td>12</td>
<td>11</td>
<td>83.3</td>
<td>9</td>
<td>19</td>
<td>-11</td>
<td>30</td>
<td>6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected 3-Mos</td>
<td>12</td>
<td>14</td>
<td>13</td>
<td>14</td>
<td>68.8</td>
<td>19</td>
<td>22</td>
<td>-10</td>
<td>32</td>
<td>7</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales Price</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed over 3-Mos</td>
<td>1</td>
<td>0</td>
<td>2</td>
<td>-2</td>
<td>41.7</td>
<td>29</td>
<td>8</td>
<td>-4</td>
<td>12</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected over 3-Mos</td>
<td>1</td>
<td>3</td>
<td>0</td>
<td>-1</td>
<td>60.0</td>
<td>38</td>
<td>5</td>
<td>-5</td>
<td>10</td>
<td>1</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed over 3-Mos</td>
<td>13</td>
<td>15</td>
<td>13</td>
<td>12</td>
<td>70.6</td>
<td>11</td>
<td>23</td>
<td>-11</td>
<td>34</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected over 3-Mos</td>
<td>10</td>
<td>16</td>
<td>8</td>
<td>11</td>
<td>60.0</td>
<td>17</td>
<td>20</td>
<td>-5</td>
<td>25</td>
<td>5</td>
</tr>
</tbody>
</table>
</body>
</html>

French climate and outlook are on strong improving trend. The services sector is still doing well. The climate and outlook indicators are strong in their respective ranges. Observed and expected sales are still strong but both are off [...]

France’s Service and Industry Sector Outlook Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627e.jpg" width="353">
French climate and outlook are on a strong improving trend.
The services sector is still doing well. The climate and outlook indicators are strong in their respective ranges. Observed and expected sales are still strong but both are off peak. Observed and expected employment indicators are also off peak. The expected responses for these two indicators are sharply lower in June. Expected series are firm but only in about the 60th percentile of their respective ranges.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627f.jpg" width="353">
The second table below summarizes France&#146;s Industry survey for June. The report scrapped and got back two of the four points it lost in May. The trends are still firm with climate nearly in the upper 25 percentile of its range. Recent and likely trend assessments spurted in June. Foreign and also domestic orders are slipping slightly with both having peaks in April. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
France INSEE Services Survey Jan 2000-date
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Climate Indicator</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>109</td>
<td>78.8</td>
<td>8</td>
<td>116</td>
<td>83</td>
<td>33</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Climate: 3-Mo MAV</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>108</td>
<td>81.6</td>
<td>14</td>
<td>114</td>
<td>85</td>
<td>29</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Climate: 12-Mo MAV</td>
<td>109</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>92.4</td>
<td>3</td>
<td>110</td>
<td>91</td>
<td>20</td>
<td>101</td>
</tr>
<tr>
<td class="firstcol">Outlook</td>
<td>9</td>
<td>8</td>
<td>8</td>
<td>6</td>
<td>86.1</td>
<td>6</td>
<td>14</td>
<td>-22</td>
<td>36</td>
<td>-1</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed 3-Mos</td>
<td>14</td>
<td>17</td>
<td>12</td>
<td>11</td>
<td>83.3</td>
<td>9</td>
<td>19</td>
<td>-11</td>
<td>30</td>
<td>6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected 3-Mos</td>
<td>12</td>
<td>14</td>
<td>13</td>
<td>14</td>
<td>68.8</td>
<td>19</td>
<td>22</td>
<td>-10</td>
<td>32</td>
<td>7</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales Price</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed over 3-Mos</td>
<td>1</td>
<td>0</td>
<td>2</td>
<td>-2</td>
<td>41.7</td>
<td>29</td>
<td>8</td>
<td>-4</td>
<td>12</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected over 3-Mos</td>
<td>1</td>
<td>3</td>
<td>0</td>
<td>-1</td>
<td>60.0</td>
<td>38</td>
<td>5</td>
<td>-5</td>
<td>10</td>
<td>1</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed over 3-Mos</td>
<td>13</td>
<td>15</td>
<td>13</td>
<td>12</td>
<td>70.6</td>
<td>11</td>
<td>23</td>
<td>-11</td>
<td>34</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected over 3-Mos</td>
<td>10</td>
<td>16</td>
<td>8</td>
<td>11</td>
<td>60.0</td>
<td>17</td>
<td>20</td>
<td>-5</td>
<td>25</td>
<td>5</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
INSEE Industry Survey
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr class="odd">
<td class="firstcol">Climate</td>
<td>110</td>
<td>108</td>
<td>112</td>
<td>109</td>
<td>74.0</td>
<td>41</td>
<td>123</td>
<td>73</td>
<td>50</td>
<td>101</td>
</tr>
<tr>
<td colspan="11">Production</td>
</tr>
<tr class="odd">
<td class="firstcol">Recent Trend</td>
<td>24</td>
<td>14</td>
<td>10</td>
<td>-2</td>
<td>80.4</td>
<td>30</td>
<td>44</td>
<td>-58</td>
<td>102</td>
<td>-6</td>
</tr>
<tr class="odd">
<td class="firstcol">Likely trend</td>
<td>28</td>
<td>22</td>
<td>21</td>
<td>23</td>
<td>63.5</td>
<td>33</td>
<td>63</td>
<td>-33</td>
<td>96</td>
<td>7</td>
</tr>
<tr>
<td colspan="11">Orders/Demand</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders &amp; Demand</td>
<td>4</td>
<td>3</td>
<td>5</td>
<td>6</td>
<td>75.9</td>
<td>27</td>
<td>25</td>
<td>-62</td>
<td>87</td>
<td>-15</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Orders &amp; Demand</td>
<td>4</td>
<td>6</td>
<td>10</td>
<td>9</td>
<td>69.7</td>
<td>48</td>
<td>31</td>
<td>-58</td>
<td>89</td>
<td>-11</td>
</tr>
<tr>
<td colspan="11">Prices</td>
</tr>
<tr class="odd">
<td class="firstcol">Likely Sales Prices Trend</td>
<td>9</td>
<td>9</td>
<td>4</td>
<td>10</td>
<td>68.1</td>
<td>31</td>
<td>24</td>
<td>-23</td>
<td>47</td>
<td>0</td>
</tr>
</tbody>
</table>
</body>
</html>

French climate and outlook are on a strong improving trend. The services sector is still doing well. The climate and outlook indicators are strong in their respective ranges. Observed and expected sales are still strong but both are [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627a.jpg" width="353">
The upswing in durable goods trends is still in progress although the weakness in May has reduced much of its clout and blunted the Yr/Yr gain. 
Durable goods orders are down by a sharp 2.8% m/m in May after gains of 1.1% in April and 5.1% in March. For non-transportation the May loss is -1% and compares to gains of 2.5% in April and 1.6% in March. The accompanying chars plot the trends from this series and they are still turning higher. Inventory growth is being cut to zero and order backlog growth is slowing, but still strong.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627b.jpg" width="353"> 
Inventory-to-sales ratios are being cut across sectors as shipment growth surpasses inventory growth in six of seven major industry groups over the past 3 months. That result holds for five of seven industries over a six month horizon as well. Yr/Yr, however, inventory growth has still surpassed the growth in shipments for ALL seven industries, indicating why stock-paring is still going on. Over three months inventories were cut outright in three of seven industries. 
These statistics describe a sort of running correction in the durable goods sector. Shipment growth rates are extremely strong (annualized) over the past three months. Six-month growth in shipments is mostly firm to strong across sectors, but much more varied. Yr/Yr shipment growth is mostly modest to weak. So the recent strength has not vaulted trends into a strong positive reading. 
Regional MFG surveys released this month carrying data for the month of JUNE have been strong for the most part: NY, Philadelphia and Richmond (the Dallas report that is new and not seasonally adjusted was an exception) were all strong. 
Reliability diminished? The monthly pull back in orders is in keeping with the usual volatility of the sector although volatility has grown beyond what has been normal in recent months. Out of 170 observations of 12-month volatility (standard deviation of m/m % changes over a moving 12-month period) the 4.7% volatility reading in May ranks 20th which puts it in the top 12% of all volatility rankings in the past 14 years. And the high volatility is not just &#145;May&#146; it is a result that is shared among recent months. While m/m ex transportation orders do not seem to have become more volatile, the volatility of Yr/Yr ex-transportation orders series is quite high. We have no choice but to admit that the orders series has been blasted with volatility from several sources and has become LESS RELIABLE. There is some evidence that shipments may also have been afflicted with extra volatility. 
While the ISM reports and other regional MFG surveys continue to be upbeat, they map into the durable goods data rather too-poorly to assess any change in pattern there. Suffice it so say that with the regional MFG surveys for a more current month so strong it is reasonable to think that the downshift in durable goods orders in May is not some step back but is still part of what erratic orders do in an expanding cycle. Still, with this sort of sharp drop in May orders, all eyes will be more firmly glued on what happens in June. 

<table border="0" cellspacing="0" width="100%">
<tr>
<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627c.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627d.jpg" width="353"> </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Inventory-Shipment Balance By Major MFG Sector and Tenor
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007.May</td>
<td colspan="2">3-months</td>
<td colspan="2">6-months</td>
<td colspan="2">12-months</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Sectors</td>
<td>Shipments</td>
<td>Inventory</td>
<td>Shipments</td>
<td>Inventory</td>
<td>Shipments</td>
<td>Inventory</td>
</tr>
<tr>
<td class="firstcol">Primary metals</td>
<td>36.5%</td>
<td>6.7%</td>
<td>14.9%</td>
<td>1.5%</td>
<td>4.1%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">Fabricated Metal Products</td>
<td>10.9%</td>
<td>1.5%</td>
<td>7.9%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Machinery</td>
<td>24.2%</td>
<td>2.5%</td>
<td>3.3%</td>
<td>7.9%</td>
<td>2.2%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Computers and Electronics</td>
<td>25.3%</td>
<td>-4.0%</td>
<td>6.5%</td>
<td>-1.5%</td>
<td>3.6%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Electrical Equipment, Appliances &amp; Computers</td>
<td>9.2%</td>
<td>-1.1%</td>
<td>13.6%</td>
<td>2.0%</td>
<td>4.0%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">Transportation Equipment</td>
<td>10.4%</td>
<td>12.0%</td>
<td>0.6%</td>
<td>7.4%</td>
<td>-2.1%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">All Other Durables</td>
<td>8.2%</td>
<td>-3.6%</td>
<td>1.3%</td>
<td>-1.0%</td>
<td>-4.0%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">% Sectors with rising I/S Ratio:</td>
<td>14.29%</td>
<td>--</td>
<td>28.57%</td>
<td>--</td>
<td>100.00%</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

The upswing in durable goods trends is still in progress although the weakness in May has reduced much of its clout and blunted the Yr/Yr gain. Durable goods orders are down by a sharp 2.8% m/m in May after gains of 1.1% in April and [...]

U.S. Durable Goods Month Down, Trends Still Up - but for How Long?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627a.jpg" width="353">
The upswing in durable goods trends is still in progress although the weakness in May has reduced much of its clout and blunted the Yr/Yr gain. 
Durable goods orders are down by a sharp 2.8% m/m in May after gains of 1.1% in April and 5.1% in March. For non-transportation the May loss is -1% and compares to gains of 2.5% in April and 1.6% in March. The accompanying chars plot the trends from this series and they are still turning higher. Inventory growth is being cut to zero and order backlog growth is slowing, but still strong.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627b.jpg" width="353"> 
Inventory-to-sales ratios are being cut across sectors as shipment growth surpasses inventory growth in six of seven major industry groups over the past 3 months. That result holds for five of seven industries over a six month horizon as well. Yr/Yr, however, inventory growth has still surpassed the growth in shipments for ALL seven industries, indicating why stock-paring is still going on. Over three months inventories were cut outright in three of seven industries. 
These statistics describe a sort of running correction in the durable goods sector. Shipment growth rates are extremely strong (annualized) over the past three months. Six-month growth in shipments is mostly firm to strong across sectors, but much more varied. Yr/Yr shipment growth is mostly modest to weak. So the recent strength has not vaulted trends into a strong positive reading. 
Regional MFG surveys released this month carrying data for the month of JUNE have been strong for the most part: NY, Philadelphia and Richmond (the Dallas report that is new and not seasonally adjusted was an exception) were all strong. 
Reliability diminished? The monthly pull back in orders is in keeping with the usual volatility of the sector although volatility has grown beyond what has been normal in recent months. Out of 170 observations of 12-month volatility (standard deviation of m/m % changes over a moving 12-month period) the 4.7% volatility reading in May ranks 20th which puts it in the top 12% of all volatility rankings in the past 14 years. And the high volatility is not just &#145;May&#146; it is a result that is shared among recent months. While m/m ex transportation orders do not seem to have become more volatile, the volatility of Yr/Yr ex-transportation orders series is quite high. We have no choice but to admit that the orders series has been blasted with volatility from several sources and has become LESS RELIABLE. There is some evidence that shipments may also have been afflicted with extra volatility. 
While the ISM reports and other regional MFG surveys continue to be upbeat, they map into the durable goods data rather too-poorly to assess any change in pattern there. Suffice it so say that with the regional MFG surveys for a more current month so strong it is reasonable to think that the downshift in durable goods orders in May is not some step back but is still part of what erratic orders do in an expanding cycle. Still, with this sort of sharp drop in May orders, all eyes will be more firmly glued on what happens in June. 

<table border="0" cellspacing="0" width="100%">
<tr>
<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627c.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627d.jpg" width="353"> </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Inventory-Shipment Balance By Major MFG Sector and Tenor
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007.May</td>
<td colspan="2">3-months</td>
<td colspan="2">6-months</td>
<td colspan="2">12-months</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Sectors</td>
<td>Shipments</td>
<td>Inventory</td>
<td>Shipments</td>
<td>Inventory</td>
<td>Shipments</td>
<td>Inventory</td>
</tr>
<tr>
<td class="firstcol">Primary metals</td>
<td>36.5%</td>
<td>6.7%</td>
<td>14.9%</td>
<td>1.5%</td>
<td>4.1%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">Fabricated Metal Products</td>
<td>10.9%</td>
<td>1.5%</td>
<td>7.9%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Machinery</td>
<td>24.2%</td>
<td>2.5%</td>
<td>3.3%</td>
<td>7.9%</td>
<td>2.2%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Computers and Electronics</td>
<td>25.3%</td>
<td>-4.0%</td>
<td>6.5%</td>
<td>-1.5%</td>
<td>3.6%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Electrical Equipment, Appliances &amp; Computers</td>
<td>9.2%</td>
<td>-1.1%</td>
<td>13.6%</td>
<td>2.0%</td>
<td>4.0%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">Transportation Equipment</td>
<td>10.4%</td>
<td>12.0%</td>
<td>0.6%</td>
<td>7.4%</td>
<td>-2.1%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">All Other Durables</td>
<td>8.2%</td>
<td>-3.6%</td>
<td>1.3%</td>
<td>-1.0%</td>
<td>-4.0%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">% Sectors with rising I/S Ratio:</td>
<td>14.29%</td>
<td>--</td>
<td>28.57%</td>
<td>--</td>
<td>100.00%</td>
<td>--</td>
</tr>
</tbody>
</table>
France’s Service and Industry Sector Outlook Strong 
by <a href="/comment/Brusca.html">Robert Brusca</a> June 27, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627e.jpg" width="353">
French climate and outlook are on a strong improving trend.
The services sector is still doing well. The climate and outlook indicators are strong in their respective ranges. Observed and expected sales are still strong but both are off peak. Observed and expected employment indicators are also off peak. The expected responses for these two indicators are sharply lower in June. Expected series are firm but only in about the 60th percentile of their respective ranges.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627f.jpg" width="353">
The second table below summarizes France&#146;s Industry survey for June. The report scrapped and got back two of the four points it lost in May. The trends are still firm with climate nearly in the upper 25 percentile of its range. Recent and likely trend assessments spurted in June. Foreign and also domestic orders are slipping slightly with both having peaks in April. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
France INSEE Services Survey Jan 2000-date
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Climate Indicator</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>109</td>
<td>78.8</td>
<td>8</td>
<td>116</td>
<td>83</td>
<td>33</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Climate: 3-Mo MAV</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>108</td>
<td>81.6</td>
<td>14</td>
<td>114</td>
<td>85</td>
<td>29</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Climate: 12-Mo MAV</td>
<td>109</td>
<td>109</td>
<td>109</td>
<td>108</td>
<td>92.4</td>
<td>3</td>
<td>110</td>
<td>91</td>
<td>20</td>
<td>101</td>
</tr>
<tr>
<td class="firstcol">Outlook</td>
<td>9</td>
<td>8</td>
<td>8</td>
<td>6</td>
<td>86.1</td>
<td>6</td>
<td>14</td>
<td>-22</td>
<td>36</td>
<td>-1</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed 3-Mos</td>
<td>14</td>
<td>17</td>
<td>12</td>
<td>11</td>
<td>83.3</td>
<td>9</td>
<td>19</td>
<td>-11</td>
<td>30</td>
<td>6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected 3-Mos</td>
<td>12</td>
<td>14</td>
<td>13</td>
<td>14</td>
<td>68.8</td>
<td>19</td>
<td>22</td>
<td>-10</td>
<td>32</td>
<td>7</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales Price</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed over 3-Mos</td>
<td>1</td>
<td>0</td>
<td>2</td>
<td>-2</td>
<td>41.7</td>
<td>29</td>
<td>8</td>
<td>-4</td>
<td>12</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected over 3-Mos</td>
<td>1</td>
<td>3</td>
<td>0</td>
<td>-1</td>
<td>60.0</td>
<td>38</td>
<td>5</td>
<td>-5</td>
<td>10</td>
<td>1</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</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>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Observed over 3-Mos</td>
<td>13</td>
<td>15</td>
<td>13</td>
<td>12</td>
<td>70.6</td>
<td>11</td>
<td>23</td>
<td>-11</td>
<td>34</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expected over 3-Mos</td>
<td>10</td>
<td>16</td>
<td>8</td>
<td>11</td>
<td>60.0</td>
<td>17</td>
<td>20</td>
<td>-5</td>
<td>25</td>
<td>5</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
INSEE Industry Survey
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr class="odd">
<td class="firstcol">Climate</td>
<td>110</td>
<td>108</td>
<td>112</td>
<td>109</td>
<td>74.0</td>
<td>41</td>
<td>123</td>
<td>73</td>
<td>50</td>
<td>101</td>
</tr>
<tr>
<td colspan="11">Production</td>
</tr>
<tr class="odd">
<td class="firstcol">Recent Trend</td>
<td>24</td>
<td>14</td>
<td>10</td>
<td>-2</td>
<td>80.4</td>
<td>30</td>
<td>44</td>
<td>-58</td>
<td>102</td>
<td>-6</td>
</tr>
<tr class="odd">
<td class="firstcol">Likely trend</td>
<td>28</td>
<td>22</td>
<td>21</td>
<td>23</td>
<td>63.5</td>
<td>33</td>
<td>63</td>
<td>-33</td>
<td>96</td>
<td>7</td>
</tr>
<tr>
<td colspan="11">Orders/Demand</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders &amp; Demand</td>
<td>4</td>
<td>3</td>
<td>5</td>
<td>6</td>
<td>75.9</td>
<td>27</td>
<td>25</td>
<td>-62</td>
<td>87</td>
<td>-15</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Orders &amp; Demand</td>
<td>4</td>
<td>6</td>
<td>10</td>
<td>9</td>
<td>69.7</td>
<td>48</td>
<td>31</td>
<td>-58</td>
<td>89</td>
<td>-11</td>
</tr>
<tr>
<td colspan="11">Prices</td>
</tr>
<tr class="odd">
<td class="firstcol">Likely Sales Prices Trend</td>
<td>9</td>
<td>9</td>
<td>4</td>
<td>10</td>
<td>68.1</td>
<td>31</td>
<td>24</td>
<td>-23</td>
<td>47</td>
<td>0</td>
</tr>
</tbody>
</table>
Hints of Improvement in Japanese Retailing as May Sales Show Gain from Year-Ago 
by <a href="/comment/Stone.html">Carol Stone</a> June 27, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627g.jpg" width="353">
We fret over the Japanese economy: is it improving or not? Is it finally breaking out of 1990s stagnation enough so that deflation will go away? We&#39;re never quite sure. So when one figure is favorable, even by a little bit, we tend to get excited about it.
Today it is retail sales. In May, consumer purchases of goods in stores rose 0.1% from a year ago. The Bloomberg news service reports that of the 23 economists in its Japanese forecast survey, only 1 predicted a positive outcome for this indicator. It was the first 12-month increase since last September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627h.jpg" width="353">
We thought perhaps rising fuel prices had been the main mover. This had certainly been the case from about mid-2004 through mid-2006. But fuel purchases have slowed recently and for May they actually edged down from May 2006, by 0.4%. Excluding fuel, retail sales were still up 0.1%.
The largest single gain was in food and beverages, which rose 1.7%. Other categories of stores -- motor vehicle dealers, clothing, household durable goods and general merchandise -- all still saw year-on-year decreases. So it&#39;s the &quot;all other&quot; segment that helped push up the total: books, sporting goods, personal care items. These increased 1.3% over the year ago.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070627i.jpg" width="353">
The narrow scope of the May sales increase might suggest that it will turn out to be fleeting. However, the Ministry of Economy, Trade and Industry (METI) also calculates an index, which they seasonally adjust. As shown in the table below, this index rose 0.5% in May from April, which had been up 0.3% from March. By this measure, general merchandise store sales were up in May, as were clothing stores and &quot;other&quot;, suggesting that recent uptrends have been broadening, giving a more optimistic view going forward. Thus, Japanese consumers, who face an increasing positive employment situation and the lowest unemployment since early 1998, might be starting to spend more freely. The threads of evidence from this retail sales report are thin, but they look to be braiding a stronger rope.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN: Retail Sales</th>
<th scope="col">May 2007</th>
<th scope="col">Apr 2007</th>
<th scope="col">Mar 2007</th>
<th scope="col">Year Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Total (Bil.&yen;)</td>
<td>11,012</td>
<td>11,177</td>
<td>12,077</td>
<td>11,005</td>
<td>11,271</td>
<td>11,255</td>
<td>11,143</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5*</td>
<td>0.3*</td>
<td>-1.3*</td>
<td>0.1</td>
<td>0.2</td>
<td>1.0</td>
<td>1.0</td>
</tr>
<tr>
<td class="firstcol">ex Fuel</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>0.1</td>
<td>-0.6</td>
<td>-0.2</td>
<td>0.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

<html>
<head>
<style>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626b.jpg" width="353">
The Netherlands released June data on consumer and business confidence today and Italy released data on business confidence, having released data on consumer confidence last week. In Italy confidence is expressed as an index with 2000=100 while in the Netherlands it is measured by the percent of optimists over the percent of pessimists.
Business confidence in both countries showed little change in the month of June. In Italy it was a little stronger--96.3 vs. 96.2--and in the Netherlands, a little weaker--8.5% vs. 8.9%. However, it appears that the level of business confidence is higher in the Netherlands than in Italy. The first chart compares the two measures of business confidence since 2000 when both measures were at historical highs. Business confidence in the Netherlands is above its 2000 highs while business confidence in Italy is still below its 2000 highs.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626c.jpg" width="353">
A different picture emerges when consumer confidence is compared between the two countries. Dutch consumer confidence rose by five percentage points in June while Italian consumer confidence fell by 2.1%. Over the longer period, however, until early 2006, Italian consumers were more optimistic than their Dutch counterparts. It has only been since then that Dutch consumers have become more confident than Italian consumers as can be seen in the second chart.
Confidence measures do have an impact on consumer and business behavior, however, the connection is tentative at best. To illustrate the point we plot the year to year changes in the series, Monthly Household Consumption for the Netherlands and the consumer confidence measure in the third chart. The correlation (R) between the two series is 68%. The R-square is 46%, which means that the confidence measure explains about 46% of the variations in the two series. We also plot the year to year change in Italian industrial production and the Italian business confidence indicator in the fourth. In this case, the correlation and R-square are even lower, 46% and 21%. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626e.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070626d.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">CONFIDENCE MEASURES&nbsp;</th>
<th scope="col">Jun&nbsp; 07</th>
<th scope="col">May 07</th>
<th scope="col">Jun 06</th>
<th scope="col">M/M</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Italy&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Confidence</td>
<td>&nbsp;96.3</td>
<td>96.2</td>
<td>98.3</td>
<td>0.10</td>
<td>-2.03</td>
<td>65.8</td>
<td>87.5</td>
<td>89.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Confidence</td>
<td>107.2</td>
<td>109.4</td>
<td>107.0</td>
<td>-2.10</td>
<td>0.19</td>
<td>108.7</td>
<td>104.2</td>
<td>101.5</td>
</tr>
<tr class="odd">
<td class="firstcol"> Netherlands (% Balance) </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Confidence</td>
<td>8.4</td>
<td>8.9</td>
<td>6.4</td>
<td>-0.5</td>
<td>2</td>
<td>6.7</td>
<td>0.6</td>
<td>-0.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Confidence</td>
<td>18</td>
<td>13</td>
<td>5</td>
<td>5</td>
<td>13</td>
<td>-1</td>
<td>-22</td>
<td>-25</td>
</tr>
</tbody>
</table>
</body>
</html>

The Netherlands released June data on consumer and business confidence today and Italy released data on business confidence, having released data on consumer confidence last week. In Italy confidence is expressed as an index with [...]

Business and Consumer Confidence in Italy and the Netherlands

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

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Tom Moeller

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) eased 0.2% (-3.6% y/y) in January to 100.7 after rising 1.5% to 100.9 in December and falling 2.9% in November to 99.4. The level of home affordability has risen 12.0% from its low of 89.9 in October 2023. It remains 43.8% below the high of 179.2 in April 2020.

The slip in affordability in January reflected a 1.6% drop (+5.0% y/y) in the median price of an existing single-family home to $402,000 which was offset by a rise in mortgage rates to 7.04% from 6.80% in December. The price decline was the sixth in the last seven months from the record $432,900 in June. The rise in mortgage rates compared to a September low of 6.26% and a 7.14% high during May. It remained increased from a December 2020 low of 2.73%. These changes raised the principal & interest payment by 0.8% (8.4% y/y) to $2,148 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a steady 24.8% of income during January. They remained up from a low of 14.0% in April 2020.

The rise in housing costs in January was accompanied by improvement in median family income. It increased 0.7% (4.5% y/y) to a record $103,850 after rising 0.3% in December and 0.4% in November.

Housing affordability was mixed m/m across the country in January. The index rose 0.4% (-5.9% y/y) to 134.2 in the Midwest. It remains the most affordable region of the country. In the South, the index eased 0.6% (-2.5% y/y) to 103.3 and the affordability index in the Northeast fell 1.9% (-8.7% y/y) to 89.9. In the West, where homes are the least affordable, the index weakened 1.8% (-5.5% y/y) to 69.8 in January.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022 (98.8).

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

250314H0.jpg

250314I0.jpg

- Home prices ease but mortgage rates rise.
- Median income strengthens.
- Affordability weakens in most of country.

U.S. Housing Affordability Is Little Changed in January

250314F2.jpg

250314G2.jpg

Yesterday, March 13, the Federal Reserve published the Financial Accounts for Q4 2024. They show, among numerous other things, that domestic nonfinancial participants in the U.S. economy had borrowings that represented 11.4% of GDP during Q4. This is down moderately from 12.3% in Q3 and produced an amount for the whole year of 2024 of 11.9% of GDP. The quarterly amounts cited here are at seasonally adjusted annual rates.

In Q4, the largest borrowing sector was the federal government, which used $2,602.9 billion, or 8.8% of GDP, up from $2,261 billion in Q3, or 7.7% of GDP.  Households borrowed $624.3 billion or 2.1% of GDP; this amount included $294.3 billion of home mortgages and $133.1 billion of consumer credit.

Nonfinancial business corporations actually paid down debt of $64.1 billion in Q4, or 0.2% of GDP. In Q1 of 2024, businesses had borrowed $698.2 billion and for the whole year, they borrowed $436.6 billion or 1.5% of GDP. State and local governments paid down $46.0 billion in Q4; for the whole year they did use $97.8 billion or 0.3% of GDP.

In addition to domestic borrowers, the foreign sector borrowed $341.3 billion in Q4, or 1.1% of GDP and up from $196.7 billion in Q3.  For all of 2024, foreign participants used $345.5 billion, or 1.2% of GDP.

The Financial Accounts data are in Haver's **FFUNDS** database. The Federal Reserve is the main source, while associated information is compiled in the Integrated Macroeconomic Accounts produced jointly with the Bureau of Economic Analysis (BEA); those nonfinancial data are carried in Haver's **USNA** database as well as in **FFUNDS**. Note that revisions are common throughout the accounts with every quarterly release.

250314H2.jpg

250314I2.jpg

- Nonfinancial sectors together borrowed 11.4% of GDP in Q4.
- Not surprisingly, the largest borrowing sector was the federal government.
- Households had sizable amounts of home mortgage borrowing, though this was less than in Q3.
- Businesses paid down debt in Q4.

U.S. Economic Sectors Borrowed Moderately in Q4 and for All of 2024

Andrew Cates

**Falling US growth momentum**
The latest Blue Chip Economic Indicators survey reflects a shifting global economic landscape, with the US experiencing a notable loss of momentum. After climbing above 2.0% on the back of a strong economic performance in late 2024, consensus forecasts for US growth in 2025 have now been revised downward for the first time in nearly a year. This reversal reflects weaker-than-expected economic data and emerging challenges tied to the policy shifts of the new administration. The downgrade in US growth projections also coincides with a further downward revision to an already subdued outlook for the UK and the euro area, reinforcing concerns about a sluggish global growth outlook (chart 1).

250313Z1.jpg

**Global inflation expectations**
In the meantime the same survey reveals growing concerns about the inflation outlook in the US and Europe this year, and possibly reflecting the impact of US tariff policies on global price pressures. Japan’s inflation forecast for 2025 has also surged, as rising import costs and shifting trade dynamics have additionally contributed to stronger price pressures. This all stands in contrast to China with inflation expectations for this year falling below 1%, reinforcing concerns about deflation and weak demand (chart 2).

250313Z2.jpg

**Global bond markets**
Recent shifts in 10-year government bond yields reflect changing market expectations. While yields have risen sharply in Germany, China, and Japan, they have fallen in the US. Germany’s increase is tied to expanded defense spending and industrial subsidies, while China’s reflects a shift toward more aggressive fiscal easing, with its deficit target rising to 4% of GDP to counter deflation and weak demand. In contrast, falling US yields signal a reassessment of growth expectations under the new administration. This divergence suggests capital may be flowing toward economies with stronger fiscal stimulus, potentially weakening the dollar, increasing borrowing costs for US businesses, and complicating efforts to revive domestic manufacturing.

250313Z3.jpg

**Overseas holdings of US Securities**
Latest data show that foreign-holdings of US long-term securities have risen steadily over the past decade, with a notable acceleration in the past two years. The most recent data additionally highlights a significant increase in foreign ownership of US corporate equities, reflecting, until recently, investor confidence in US companies.

250313Z4.jpg

**Industrialisation versus de-industrialisation**
Recent US policy shifts—particularly higher tariffs on Chinese imports—aim to address the long-term decline in domestic manufacturing jobs. However, their effectiveness is uncertain, given the growing role of automation and AI in reshaping industrial production. While tariffs may offer short-term relief, they are unlikely to reverse decades of global manufacturing shifts. China’s rise from a low-value agrarian economy to an industrial powerhouse has reshaped trade patterns, while US industrial employment has steadily declined, mirroring trends in other advanced economies. Meanwhile, Vietnam and other emerging markets have absorbed manufacturing capacity, benefiting from shifting supply chains. The real challenge for US policymakers is not just bringing back jobs but ensuring domestic industries stay competitive amid changing cost structures and technological advancements.

250313Z5.jpg

**Global competitiveness**
Historically, China's low unit labour costs provided it with a significant advantage, fuelling its manufacturing boom and accelerating the offshoring of US industrial jobs. However, as China's wages have risen due to economic development and increased productivity, and as US unit labour costs have remained relatively stable, the gap has narrowed considerably. Yet, still high labour costs in the US – coupled with rising trade barriers and rising input costs - still pose a challenge to the effectiveness of US policies, as firms may still find it difficult to maintain competitiveness without significant productivity gains. Indeed, as suggested above, there is a real risk that firms may instead accelerate their shift toward automation or relocate production to other low-cost regions (e.g. Vietnam), undermining the broader economic rationale for these interventions. The erosion of economic goodwill, combined with rising costs and financial market instability, additionally suggest that while the strategic objectives of US policy may be clear, the long-term implications remain highly uncertain.

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The recent financial market volatility, marked by sharp swings in bond yields and equity market repricing, reflects growing uncertainty about the trajectory of the US economy amid a rapidly shifting policy environment. The US administration’s latest tariff measures, and their conflicting objectives, have amplified uncertainty, stifled risk appetite and further ignited inflation concerns (charts 1 and 2). Markets are grappling with the inflationary impact of rising import costs, the potential supply chain disruptions caused by abrupt shifts in trade policy, and the broader implications of protectionism on corporate investment. Meanwhile, recent policy announcements from Germany and China, coupled with firming inflationary pressures in Japan, have pushed global (ex-US) bond yields sharply higher, potentially amplifying global financial instability (charts 3 and 4). These shifts could profoundly reshape global trade and investment, not just through economic fundamentals but also through a growing erosion of goodwill toward the United States. As policy unpredictability forces companies and governments to hedge against potential disruptions, trust in the stability of US economic leadership is weakening. At the same time, concerns are mounting over the effectiveness of US policy choices, particularly in relation to one of its core ambitions—reshoring manufacturing jobs (charts 5 and 6). The question remains whether these interventions will achieve their intended goals or simply accelerate automation and supply chain realignment elsewhere.

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Charts of the Week: From Blue to Red

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The Producer Price Index for final demand held steady (+3.2% y/y) during February after increasing 0.6% in January, revised from 0.4% and rising an unrevised 0.5% in December according to the Bureau of Labor Statistics (BLS). The February reading compared to a 0.2% rise expected in the Action Economics Forecast Survey. Producer prices excluding food, energy & trade services rose 0.2% (3.3% y/y) last month after an unrevised 0.3% January increase, and an unrevised 0.4% gain in December. The PPI excluding food & energy eased 0.1% (+3.4% y/y) after rising 0.5% in January, revised from 0.3%. A 0.3% increase had been expected.

Energy prices declined 1.2% (-3.7% y/y) during February, after rising 1.8% in January. Gasoline costs fell 4.7% (-8.2% y/y) after rising 0.3% while home heating oil prices declined 9.8% (-12.2% y/y) after a 6.5% strengthening. Electric power prices rose 0.5% (0.9% y/y) in February following a 0.4% January decline and natural gas costs strengthened 1.3% (6.7% y/y) following a 3.8% surge. Diesel fuel prices declined 3.9% (-18.5% y/y) after a 10.5% jump.

Final demand food prices rose 1.7% (5.9% y/y) in February, following a 1.0% January gain. Egg prices jumped 28.1% (136.6% y/y) following a 44.0% increase. Prices for fresh and dry vegetables rose 6.0% (-16.3% y/y) after falling 22.3% in January. Beef & veal prices declined 1.8% (+9.5% y/y) after a 5.7% rise while dairy product prices rose 0.1% (5.7% y/y) after a 0.4% increase.

Final demand goods prices excluding food & energy rose 0.4% (2.1% y/y) in February following a 0.2% rise. Core finished consumer goods prices rose 0.4% (2.1% y/y) after a decline of 0.2% in January. Core nondurable goods prices strengthened 0.6% (2.3% y/y) last month after falling 0.4% in January. Durable consumer goods prices improved 0.2% (1.6% y/y), after edging 0.1% higher in January. Capital equipment prices rose 0.2% (2.5% y/y) last month following a 0.3% gain. Core government-purchased goods prices rose 0.2% (2.4% y/y) in January, after a 0.6% January increase.

Final demand services prices declined 0.2% (+3.9% y/y) last month after rising 0.6% in January. Trade services prices fell 1.0% (+4.0% y/y) last month following a 1.2% gain. Trade of finished goods prices declined 1.1% (3.6% y/y) and reversed the January rise. Prices for final demand transportation and warehousing services held steady (+2.6% y/y) in February, after strengthening 0.9% in January. Services prices less these costs rose 0.2% (4.0% y/y) last month, after a rise of 0.3% in January.

Construction costs eased 0.1% (+1.7% y/y) in February, after increasing 0.4% during January.

Prices for intermediate demand of processed goods rose 0.5% (0.3% y/y) following a 1.0% jump. Processed energy goods prices rose 0.5% last month after increasing 3.6% in January, while food prices rose 2.0% following a 0.7% January gain.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Energy prices weaken and food prices firm.
- Price gains in core goods pick up.
- Services prices decline.

U.S. PPI Is Unchanged in February; Rise in Core Index Moderates

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Initial claims for unemployment insurance were 220,000 seasonally adjusted in the week ended March 8, just slightly less than the 222,000 the week before; that earlier amount was revised marginally from 221,000 reported before. In the latest week, the Action Economics Forecast Survey had expected 230,000. In this March 8 week, the four-week moving average was 226,000.

The total number of unemployment insurance beneficiaries was 1.87 million in the week ended March 1, down from 1.897 million in the week ended February 22. The four-week moving average was 1.872 million through the March 1st week, up from 1.866 million the week before.

The insured unemployment rate, that is, the total number of beneficiaries as a percent of covered employment, remained at 1.2%, which has held since March 2023.

Economic conditions vary widely across states and territories. In the week ended February 22, the highest rates were in Rhode Island (3.37%), New Jersey (2.90%), Massachusetts (2.58%), Minnesota (2.57%) and California (2.42%). The lowest rates were in Florida (0.36%), Alabama (0.44%), Virginia (0.46%), Tennessee and North Carolina (both 0.56%) and Mississippi (0.58%). Rates in other notable states include New York (2.08%), Pennsylvania (2.03%) and Texas (1.12%). These state rates 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. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims were less than forecast.
- Total recipients of unemployment insurance also fell.
- Insured unemployment rate still 1.2%.

Economy in Brief: June 2007

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U.S. GDP Revision Ticks Growth up to +0.7%

U.S. GDP Revision Ticks Growth up to +0.7%

Hints of Improvement in Japanese Retailing as May Sales Show Gain from Year-Ago

France’s Service and Industry Sector Outlook Strong

France’s Service and Industry Sector Outlook Strong

U.S. Durable Goods Month Down, Trends Still Up - but for How Long?

U.S. Durable Goods Month Down, Trends Still Up - but for How Long?

Business and Consumer Confidence in Italy and the Netherlands