Tom Moeller

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The Federal Reserve Bank of Philadelphia reported that its Composite Index of Business Conditions rose to -8.9 during January from -13.7 in December. The index remained below its peak of 45.6 in April of 2021. A reading of -11.0 had been expected in the Action Economics Forecast Survey.

The ISM-Adjusted Composite Index improved to 49.2 this month from 46.1 in December. It was the highest level in three months, but still indicated a contraction in overall activity.    

Movement amongst the component series varied. The new orders series rose to -10.9, its least negative reading in five months. An increased 28.3% of respondents reported orders improvement while a steady 39.3% reported orders deterioration. The shipments index rose to 11.1 this month from -0.9 in December. An increased 29.9% of respondents reported shipments improvement while a lessened 18.8% reported a decline. The delivery times reading rose to -5.6 from -7.2. The unfilled orders index fell to -19.2 from -14.1, negative for the eighth straight month. The inventories index rose to 0.9, the first positive reading in five months.

On the labor front, the employment index rose to 10.9 from -0.9. It remained well below its April 2022 peak of 38.4 as an increased 21.6% of respondents reported more hiring and a lessened 10.7% reported less. The hours-worked index improved to 4.0 but remained below its high of 35.3 in March of 2021.

The prices paid index fell sharply to 24.5 from 36.3 in December. It has fallen from a high of 83.6 in November 2021. A slightly higher 39.9% of respondents reported higher prices while a greatly increased 15.4% reported price declines. The prices received index rose to 29.9 from 28.1 in December.

The future activity index increased to 4.9 this month, its first positive reading since May of 2022. Component changes were mixed. The expected prices paid index declined to a recovery low.  

The Philadelphia Fed data can be found in Haver's **SURVEYS** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Index is negative for seven of last eight months.
  
- New & unfilled orders remain depressed. Employment improves.

- Prices paid index reaches new low.

Philadelphia Fed Factory Index Remains Negative in January

Carol Stone, CBE

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Initial claims for unemployment insurance declined by 15,000 to 190,000 (-20.8% y/y) during the week ended January 14 from the previous week’s 205,000, which was unrevised.  The Action Economics Forecast Survey had expected a much smaller decrease to 210,000.

The 4-week moving average of initial claims was 206,000, a decrease of 6,500 from the previous week’s average of 212,500, which was also unrevised. It again remained well below an early-August high of 249,500 but also well above an early-April low of 170,500.

In the week ended January 7, continued weeks claimed for unemployment insurance – also known as “insured unemployment” -- increased 17,000 to 1.647 million (-7.3% y/y) from 1,630 million in the prior week, which was revised from 1.634 million. The 4-week moving average was 1.673 million, a decrease of 5,500 from the previous week’s 1.678 million.

The insured unemployment rate in the week ended January 7 was 1.1%, unchanged from the prior week. The insured unemployment rate has held consistently in the range of 1.0% to 1.2% since October. It had been as low as 0.9% between May and July.

In the week ended December 31, the total number of continued weeks claimed in all unemployment insurance programs was 1.894 million, (-11.2% y/y) up from 1.734 million the week prior. This total includes federal employees, newly discharged veterans, extended benefits, and other specialized programs and is not seasonally adjusted. Claims in the Pandemic Unemployment Assistance program and Pandemic Emergency Unemployment Compensation are no longer included in the main Labor Department press release, as both programs have expired.

The insured rates of unemployment in regular programs vary widely across states. The highest insured unemployment rates in the week ending December 31 were in Rhode Island (2.62%), New Jersey (2.58%), Alaska (2.36%), Minnesota (2.32%), and Montana (2.13%). The lowest rates were in Virginia (0.27%), Alabama (0.38%), Kansas and North Carolina (0.40%), and Florida (0.43%).  Other state rates include Massachusetts (2.10%), Pennsylvania (1.79%), and Texas (0.98%).  These state rates are not seasonally adjusted.

Data on weekly unemployment claims going back to 1967 are contained in Haver's **WEEKLY** database, and they are summarized monthly in **USECON**. Data for individual states are in **REGIONW**. The expectations figure is from the Action Economics Forecast Survey, carried in the **AS1REPNA** database.

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-	Claims had been expected to rise slightly.
-	Continued weeks claimed turned back higher in the January 7 week.
-	Insured unemployment rate remained at 1.1% in the week ended January 7.

U.S. Initial Claims for Unemployment Insurance Decrease 15,000 in Latest Week

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In a sign that activity in the factory sector came under increasing pressure in the second half of 2022, industrial production declined 0.7% (+1.6% y/y) during December after falling 0.6% in November. Production held steady in October. A 0.1% decline had been expected in the Action Economics Forecast Survey.

By **industry groups**, manufacturing production declined 1.3% in December (-0.5% y/y) after November’s 1.1% drop. Durable goods fell 1.1% (+0.8% y/y) after falling 1.4% in November. Computer & electronic products production fell 1.0% (-2.9% y/y), down for the fourth straight month. Motor vehicle & parts production fell 1.0% (+5.1% y/y) after falling 3.5% in November. Electrical equipment & appliance production weakened 1.5% in December (-0.4% y/y) following a 1.6% drop. Machinery output collapsed 3.4% last month (-2.9% y/y) after a 1.7% decline. Fabricated metal product output fell 1.3% (+1.7% y/y) but primary metals rose 0.8% (-2.8% y/y). 

In the nondurable goods sector, production weakened 1.5% (-1.7% y/y) after falling 0.8% in November. Apparel output weakened 0.4% in December (+10.1% y/y) after rising 1.7% in November, while petroleum & coal product output fell 3.1% (-2.3% y/y) after a 0.6% slip. Chemical output dropped 1.4% (-2.0% y/y) after falling 1.1%. Paper production fell 1.6% (-8.2% y/y), the eighth consecutive monthly decline. Food, beverages & tobacco production declined 1.0% (+0.1% y/y) after slipping 0.1% in November. 

Utilities output rose 3.8% (9.7% y/y) in December after rising 4.5% in November. Mining activity fell 0.9% in December (+5.8% y/y), after dropping 1.2% in the prior month.

By **market groups**, consumer goods output eased 0.1% (+1.7% y/y) in December, following a 0.5% decline. Business equipment production fell 2.0% (+1.5% y/y) while construction supplies production slumped 1.4% (-2.1% y/y).

Amongst **special classifications**, factory output of selected high-tech industries fell 0.2% in December (-0.6% y/y), down for the fifth straight month. Manufacturing production excluding both selected high-tech and motor vehicles & parts fell 1.3% (-0.9% y/y) after a 0.9% decline in November.

Capacity utilization fell to 78.8% in December from 79.4% in November. A 79.6% rate had been expected. Factory utilization fell to 77.5% in December from 78.5% in the prior month. This was the lowest utilization rate since September 2021.

Industrial production and capacity are located in Haver's **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- Factory production falls sharply again.

- Consumer output eases, capital equipment weakens.

- Capacity utilization declines again.


U.S. Industrial Production Declines in December

Winnie Tapasanun

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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo recovered 12.9% m/m (-57.8% y/y) to 35 in January after drops of 6.1% to 31 in December and 13.2% to 33 in November. The January reading was the first monthly increase since December 2021’s 1.2%. A reading of 31 had been expected in the INFORMA Global Markets survey. The January index was well below 83 in January 2022 and 61.1% below the record-high 90 in November 2020. The average HMI level was 59 in 2022, 81 in 2021, and 70 in 2020.

All the three HMI components increased this month. The index of present sales conditions rebounded 11.1% (-55.1% y/y) to 40 in January following 10 consecutive m/m declines. The latest reading was below 89 last January and 58.3% below the record-high 96 in November 2020. The index of expected sales over the next six months rose 5.7% (-54.9% y/y) to 37, the highest level since September, after a 12.9% December rebound to 35 and seven successive m/m drops. The January level was below 82 last January and 58.4% below the peak of 89 in November 2020. The index measuring traffic of prospective buyers gained 15.0% (-66.7% y/y) to 23 in January after holding steady at 20 and falling for eight straight months. The index was below 69 last January and 70.1% below the record-high 77 in November 2020.

All the regional HMIs posted m/m gains this month. The index for the West rebounded 16.0% (-67.4% y/y) to a four-month-high 29 in January vs. a 10.7% drop to 25 in December. The index for the South rose 11.4% (-54.7% y/y) to 39 following a 6.1% December increase and seven consecutive m/m falls. The index for the Midwest recovered 6.7% (-55.6% y/y) to 32 in January after three successive m/m drops. The index for the Northeast was up 6.3% (-52.1% y/y) to 34 this month after unchanged in December and a 31.9% slide in November. These regional series begin in December 2004.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low". The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's **SURVEYS** database. The Informa Global Markets survey is in Haver's **MMSAMER** database.

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- Home builder confidence improves to a three-month high after 12 straight m/m drops.
- All the three HMI components increase m/m with the largest in potential buyers' traffic (+15.0%).
- Regional increase is widespread with the biggest monthly gain in the West (+16.0%).

U.S. Home Builder Index Unexpectedly Rebounds in January

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Consumers continue to retrain spending behavior. Retail sales declined 1.1% (+6.0% y/y) during December following a 1.0% November weakening, revised from -0.6%. A 0.9% decline had been expected in the Action Economics Forecast Survey. Excluding autos, sales also fell 1.1% (+7.0% y/y) after a 0.6% decline in November, revised from -0.2%. A 0.5% weakening had been expected.

Motor vehicle sales declined 1.2% last month (+1.8% y/y) after weakening 2.6% in November. The decline compared to a 5.6% fall in unit vehicle sales which came after 6.1% November drop. Lower prices dragged gasoline station sales down by 4.6% (+5.2% y/y), after falling 1.6% in November. 

Sales amongst other stores were weak. Sales in the retail control group, which excludes autos, building materials, gasoline & restaurants, fell 0.7% (+6.7% y/y) after easing 0.2%% in November. 

Furniture & home furnishing store sales fell 2.5% (+0.3% y/y) after a 2.2% November decline. Electronics & appliance store sales weakened 1.1% (-5.6% y/y) after a 1.2% November drop. Sales of nonstore retailers fell 1.1% (+13.7% y/y) after a 0.1% uptick while apparel sales eased 0.3% (+2.9% y/y) in December following a 0.8% drop. General merchandise sales weakened 0.8% (+3.8% y/y) after two months of slight decline. Sporting goods & hobby shop store sales improved 0.1% (3.9% y/y) after falling 0.3% in November. Building materials store sales rose 0.3% (2.3% y/y) after falling 3.1% in November.

In the nondiscretionary sales categories, food & beverage store sales held steady last month (6.9% y/y) following a 0.4% November increase. Health & personal care store sales declined 0.9% (+2.8% y/y) after a 0.6% rise.

Restaurant & drinking place sales declined 0.9% (+12.1% y/y) after easing 0.1% in November.

The Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Decline is broad-based.

- Discretionary spending weakens.

- Falling gasoline prices accentuate decline.

U.S. Retail Sales Tumble in December

Sandy Batten

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The Producer Price Index for Final Demand fell 0.5% m/m in December following a downwardly revised 0.2% m/m gain in November (initially +0.3% m/m). The y/y rate of advance continued to moderate, slowing to 6.2% y/y in December from 7.3% in November and a recent peak of 11.7% last March. The Action Economics Forecast Survey had expected a 0.1% m/m decline.

The PPI less food, energy and trade services edged up 0.1% m/m in December, in line with expectations, after a 0.3% m/m increase in November. The y/y rate also slowed to 4.6% in December from 4.9% in November and a recent peak of 7.1% in March 2022. The PPI excluding just food and energy prices rose 0.1% last month, also in line with expectations, with the y/y rate slowing to 5.5% from 6.2% in November. 

The December decline was concentrated in lower final demand goods prices, which fell 1.6% m/m (+8.0% y/y) following a 0.1% m/m rise in November. Food prices fell 1.2% m/m in December, their first decline in four months, but were still up 14.3% from a year ago. Energy prices tumbled 7.9% m/m, their second consecutive monthly decline (-3.2% m/m in November) and were up just 9.1% from a year ago, their slowest annual rate of advance since February 2021 and well below the June 2022 peak rate of 52.9%. Nearly half of the December decrease in the index for final demand goods prices can be traced to a 13.4% m/m decline in the price of gasoline. 

By contrast, final demand services prices increased 0.1% m/m in December, a slight slowdown from the 0.2% monthly gains in both October and November. The y/y rate slowed to 5.0% in December, its slowest since April 2021, from 5.8% in November. Much of the increase in services prices in December was due to a 0.3% m/m (8.7% y/y) in the prices of final demand trade services, its largest advance in four months. This reflected a 17.6% m/m jump in margins for fuels and lubricants retailing. Conversely, the index for final demand transportation and warehousing services fell 0.2% m/m, while prices for final demand services less trade, transportation, and warehousing were unchanged.

Construction product prices were unchanged (+18.5% y/y) in December following a 0.1% monthly gain in November. Construction product prices for private capital investment edged up 0.1% (+19.9% y/y) and government construction costs were unchanged (+16.1% y/y).

Intermediate goods prices fell 2.8% m/m (+4.7% y/y) in December, their sixth consecutive monthly decline. Processed food prices fell 0.8% m/m and processed energy goods prices plunged 10.9% m/m, their largest monthly decline since April 2020.

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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- The first monthly decline in four months.

- Decline concentrated in goods prices; services prices ticked up.

- Headline and core annual rates slowed to slowest pace since March 2021.

U.S. Producer Prices Fell in December

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Total business inventories rose 0.4% m/m (15.1% y/y) in November following 0.2% monthly increases in both September and October. A 0.4% gain had been expected by the Informa Global Markets Survey. Business sales fell 0.8% mm/m (+7.4% y/y), their first monthly decline in four months. The annual pace was the slowest since February 2021. With sales falling while inventories rose, the inventory-to-sales ratio rose to 1.35 in November, its highest level since December 2020, up from 1.33 in October and well above the recent low of 1.25 reached in October 2021.

Retail inventories increased 0.1% m/m in November, their first increase in three months, following a 0.4% monthly decline in October. Motor vehicle inventories increased 1.1% m/m in November after a 0.4% rise in October. Excluding autos, the remainder of inventories slumped 0.3% m/m in November, their third consecutive monthly decline with falls relatively widely spread across sectors. Inventories at furniture, home furnishings, and electronics and appliances stores declined 1.7% m/m in November, their fifth consecutive monthly decline. Inventories at general merchandise stores fell 1.0% m/m in November on top of a 2.7% monthly decline in October and a 4.3% monthly fall in September.

Wholesale inventories gained 1.0% m/m in November after 0.6% monthly increases in both September and October. Manufacturing inventories were unchanged in November following a 0.1% m/m increase in October.

Retail sales slumped 1.1% m/m in November and were reported in a separate release this morning to have fallen 1.2% m/m in December, indicating a very weak holiday selling season. Wholesale sales declined 0.6% m/m in November after having been essentially unchanged in October. Factory shipments declined 0.6% m/m in November, their first decline in four months.

The increase in inventories along with the fall in sales drove up the inventory-to-sales ratio to 1.35 in November, its highest since December 2020. The retail I/S rose to 1.24 from 1.22. The wholesale I/S increased to 1.35 in November, its highest since June 2020, from 1.32 in October. The manufacturing I/S edged up to 1.47 in November from 1.46 in October.

The manufacturing and trade data are in Haver’s **USECON** database. The Informa Global Markets forecast is in the **MMSAMER** database.

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-	Inventories continued to increase.
-	Sales posted first decline since July.
-	Inventory-to-sales ratio rose to highest in nearly two years.

U.S. Business Inventories Rose While Sales Fell in November

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Retail gasoline prices increased yet again in the week ended January 16, rising to $3.31 per gallon (+0.1% y/y) from $3.26 the week before.  This was the third consecutive increase, but the price was still lower than in early December ($3.39) and well below the mid-June peak of $5.01 per gallon. The retail cost of diesel fuel edged down to $4.52 per gallon from $4.55 per gallon (+21.4% y/y) last week. That price had reached a peak of $5.81 per gallon in the third week of June.

West Texas Intermediate crude oil prices rose to an average $77.09 per barrel (-5.5% y/y) in the week ended January 13 from an average of $74.29 the week before, reversing some of that week’s decrease.  The latest week remained well below a high of $120.46 in the second week of June. Nonetheless, yesterday, the price was $80.25 per barrel. The average price of Brent crude oil increased to an average of $80.45 per barrel last week (-5.4% y/y) from $77.20 in the prior week. The price peaked at $127.40 in mid-June. Yesterday, the price was $84.38 per barrel.

The price of natural gas declined to $3.46/mmbtu (-21.7% y/y) in the week ended January 13 after falling to $3.65/mmbtu in the previous week. The latest weeks were down from $6.78/mmbtu in the third week of December. Prices peaked at $9.56/mmbtu in the last week of August, up from a low of $3.56/mmbtu in the last week of December 2021. Yesterday, the price was $3.43/mmbtu.

In the four weeks ended January 6, gasoline demand was down 4.8% y/y after falling 7.0% y/y during the prior four weeks. These declines compare to 15.2% y/y growth at the end of 2021. Demand for all petroleum products was down 4.3% y/y in the latest four weeks, the same as in the prior four week and in contrast to the 14.4% growth at the end of 2021. Crude oil input to refineries fell 3.8% y/y in the latest four weeks.

Gasoline inventories fell 5.8% y/y in the week ended January 6, while crude oil inventories declined 19.4% y/y.

Measured in days’ supply, gasoline inventories in the week ended January 6 rose w/w to 27.4 days but remained below the 30.4 days in late January of last year. The supply of crude oil rose to 29.0 days, the largest since 29.6 days in mid-June 2021. 

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price data can be found in Haver’s **WEEKLY** and **DAILY** databases. Greater detail on prices, as well as the demand, production and inventory data are in **USENERGY**.

- Gasoline prices up, but still down from early December.

- Crude oil prices reverse some of recent decline. 

- Natural gas prices decline slightly in latest week after sharp drop the week before.

U.S. Crude Oil and Gasoline Prices Rise

PMIs showing widespread revival of global economy

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

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Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Growth Holds Firm

Robert Brusca

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

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

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

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

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

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

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

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Europe

Industrial Sector Remains Under Pressure in EMU

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

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

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

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

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

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

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

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

Kathleen Stephansen, CBE

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

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

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

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

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

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

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

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

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

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

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

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