Tom Moeller

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Broad-based weakness in pricing power continues to accompany moderate U.S.
economic growth. The June Consumer Price Index fell 0.1% (+1.1% y/y) for the
third consecutive monthly decline. During the first six months of this year
prices fell at a 0.3% annual rate. The latest figure fell short of Consensus
expectations for a 0.1% increase. 
A 2.9% drop in energy prices was behind much of
last month's total decline. It was the fifth consecutive monthly slip and the
latest was powered by a 4.5% decline (+3.9% y/y) in gasoline prices. Fuel oil
prices also fell 2.6% (+14.1% y/y) while natural gas &amp; electricity prices
dropped 1.6% (+0.8% y/y). Food &amp; beverage
prices also were weak posting little change for the second straight month. A
1.3% decline (-0.2 y/y) in fruit &amp; vegetable prices offset a 1.0% rise (2.0%
y/y) in meats, poultry, fish &amp; egg prices. The cost of eating out rose 0.1%
(1.2% y/y) for the second month.&nbsp; 
Core consumer pricing power picked up minimally. A 0.2% increase in
prices less food &amp; energy followed seven consecutive months of little
change. A 0.1% uptick had been expected. Year-to-date prices rose at a 0.6%
annual rate. Core goods prices rose 0.2% (1.0% y/y) for the first solid
increase this year. A 1.0% increase (8.0% y/y) in tobacco prices led the gain. Apparel
prices increased 0.8% (-0.4% y/y) while prices of home furnishings &amp;
operation declined by 0.4% (-3.1% y/y). New &amp; used motor vehicles prices
increased 0.3% (+4.4% y/y). 
Core services prices rose 0.1% (1.0% y/y) for the fourth month in the
last five. Public transportation costs fell 0.5% (+10.9% y/y) after two months
of sharp increase. Education prices rose 0.4% (4.8% y/y) following years of 5-6%
annual increase while medical care services prices increased a firm 0.4% (3.5%
y/y).&nbsp; Weakness in the housing market left shelter prices up just 0.1% but
down 0.5% y/y. Owners equivalent rent of primary residences, a measure not
equivalent to other house price measures, ticked 0.1% higher (-0.2% y/y). The
slight y/y decline in this measure was the weakest reading since the series'
start in 1983. Medical care services prices again rose 0.3% (3.7% y/y).
The chained CPI, which adjusts for shifts in consumption patterns, slipped
last month and rose 0.8% year-to-year. Chained prices less food &amp; energy
were unchanged, up only 0.6% y/y.
The consumer price data is available in Haver's USECON database while
detailed figures can be found in the CPIDATA database.
&nbsp;
<table width="979" border="0" cellspacing="0" height="204">
 <thead>
 <tr>
 <th scope="col" class="firstcol" height="21" width="360"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
 Price Index</a> (%)</th>
 <th scope="col" height="21" width="89">June</th>
 <th scope="col" height="21" width="89">May</th>
 <th scope="col" height="21" width="89">April</th>
 <th scope="col" height="21" width="89">June Y/Y</th>
 <th scope="col" height="21" width="90">2009</th>
 <th scope="col" height="21" width="90">2008</th>
 <th scope="col" height="21" width="90">2007</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" height="21" width="360">Total&nbsp;</td>
 <td height="21" width="89">-0.1</td>
 <td height="21" width="89">-0.2</td>
 <td height="21" width="89">-0.1</td>
 <td height="21" width="89">1.1</td>
 <td height="21" width="90">-0.3</td>
 <td height="21" width="90">3.8</td>
 <td height="21" width="90">2.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" height="18" width="360">Total less Food &amp; Energy</td>
 <td height="18" width="89">0.2</td>
 <td height="18" width="89">0.1</td>
 <td height="18" width="89">0.0</td>
 <td height="18" width="89">1.0</td>
 <td height="18" width="90">1.7</td>
 <td height="18" width="90">2.3</td>
 <td height="18" width="90">2.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" height="21" width="360">&nbsp; Goods less Food &amp;
 Energy</td>
 <td height="21" width="89">0.2</td>
 <td height="21" width="89">0.1</td>
 <td height="21" width="89">-0.3</td>
 <td height="21" width="89">1.0</td>
 <td height="21" width="90">1.3</td>
 <td height="21" width="90">0.1</td>
 <td height="21" width="90">-0.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" height="21" width="360">&nbsp;&nbsp;&nbsp; Services
 less Energy</td>
 <td height="21" width="89">0.1</td>
 <td height="21" width="89">0.1</td>
 <td height="21" width="89">0.2</td>
 <td height="21" width="89">1.0</td>
 <td height="21" width="90">1.9</td>
 <td height="21" width="90">3.1</td>
 <td height="21" width="90">3.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" height="21" width="360">&nbsp; Energy</td>
 <td height="21" width="89">-2.9</td>
 <td height="21" width="89">-2.9</td>
 <td height="21" width="89">-1.4</td>
 <td height="21" width="89">3.0</td>
 <td height="21" width="90">-18.1</td>
 <td height="21" width="90">13.7</td>
 <td height="21" width="90">5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" height="21" width="360">&nbsp; Food &amp; Beverages</td>
 <td height="21" width="89">-0.0</td>
 <td height="21" width="89">0.0</td>
 <td height="21" width="89">0.2</td>
 <td height="21" width="89">0.7</td>
 <td height="21" width="90">1.9</td>
 <td height="21" width="90">5.4</td>
 <td height="21" width="90">3.9</td>
 </tr>
 <tr>
 <td class="firstcol" height="21" width="360"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained
 CPI: Total (NSA)</a>&nbsp;</td>
 <td height="21" width="89">-0.2</td>
 <td height="21" width="89">0.1</td>
 <td height="21" width="89">0.2</td>
 <td height="21" width="89">0.8</td>
 <td height="21" width="90">-0.1</td>
 <td height="21" width="90">3.7</td>
 <td height="21" width="90">2.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" height="21" width="360">&nbsp; Total less Food &amp;
 Energy&nbsp;</td>
 <td height="21" width="89">0.0</td>
 <td height="21" width="89">-0.0</td>
 <td height="21" width="89">0.0</td>
 <td height="21" width="89">0.6</td>
 <td height="21" width="90">1.5</td>
 <td height="21" width="90">2.0</td>
 <td height="21" width="90">1.9</td>
 </tr>
 </tbody>
</table>
&nbsp;
U.S. Consumer Sentiment Falls Sharply 
by&nbsp;<a href="http://haver.com/comment/Moeller.html">Tom
Moeller</a> July 16, 2010
Consumers aren't upbeat about much these days. As of mid-July, the University
of Michigan reported that its consumer sentiment measure dropped sharply from
June to 66.5 which was the lowest reading since last August. Nevertheless the
index level remained up 20.3% since the low in November 2008. During the last
ten years there has been an 89% correlation between the level of sentiment and
the y/y change in real consumer spending.
The expectations index dropped sharply m/m but remained up a modest 12.4%
from the 2008 low. The readings for expected business conditions during the next
year (-5.8% y/y) and expectations for business conditions during the next five
years (0.0% y/y) both fell sharply from June. Expectations for personal finances
also fell hard from June (-6.4% y/y).
Expected price inflation during the next year ticked higher to 3.6% and
remained up from the December 2008 low of 1.7%.&nbsp;Respondents' view of
government policy, which may eventually influence economic expectations,
retraced the gains of the prior two months and remained down sharply from its
high last May. Fifteen&nbsp; percent of respondents thought that a good job was
being done by government versus 42% who thought a poor job was being done.
Sentiment about current economic conditions also fell sharply from June to
the lowest level since November. The assessment of current personal finances
reversed its improvement (7.1% y/y) since February while perceived buying
conditions for large household goods, including furniture, refrigerators, stoves
&amp; televisions fell hard to the lowest level since November (8.1% y/y).
The Reuters/University of Michigan survey data are not seasonally adjusted.
The reading is based on telephone interviews with about 500 households at
month-end. The summary indexes are in Haver's USECON database with
details in the proprietary UMSCA database. 
<table width="979" cellspacing="0">
 <thead>
 <tr>
 <th scope="col" class="firstcol" width="337"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM" ;>University
 of Michigan</a></th>
 <th scope="col" width="91">Mid- July</th>
 <th scope="col" width="91">June</th>
 <th scope="col" width="91">May</th>
 <th scope="col" width="91">June Y/Y</th>
 <th scope="col" width="91">2009</th>
 <th scope="col" width="91">2008</th>
 <th scope="col" width="92">2007</th>
 </tr>
 </thead>
 <tbody>
 <tr class="even">
 <td class="firstcol" width="337">Consumer Sentiment</td>
 <td width="91">66.5</td>
 <td width="91">76.0</td>
 <td width="91">73.6</td>
 <td width="91">0.8%</td>
 <td width="91">66.3</td>
 <td width="91">63.8</td>
 <td width="92">85.6</td>
 </tr>
 <tr>
 <td class="firstcol" width="337">Current Economic Conditions</td>
 <td width="91">75.5</td>
 <td width="91">85.6</td>
 <td width="91">81.0</td>
 <td width="91">7.1</td>
 <td width="91">69.6</td>
 <td width="91">73.7</td>
 <td width="92">101.2</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="337">Expectations</td>
 <td width="91">60.6</td>
 <td width="91">69.8</td>
 <td width="91">68.8</td>
 <td width="91">-4.1</td>
 <td width="91">64.1</td>
 <td width="91">57.3</td>
 <td width="92">75.6</td>
 </tr>
 </tbody>
</table>





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Broad-based weakness in pricing power continues to accompany moderate U.S. economic growth. The June Consumer Price Index fell 0.1% (+1.1% y/y) for the third consecutive monthly decline. During the first six months of this year prices [...]

U.S. CPI: Broad-Based Declines For Third Straight Month

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Pricing pressures at the wholesale level again diminished last month. A 0.5%
decline in the June PPI was the third in a row that owed to consecutive declines
in food &amp; energy prices. The drop exceeded Consensus expectations for a 0.1%
slip. As a result of the decline, the y/y gain in prices backpedaled to 2.7%
from its March high of 6.1%.
Finished food prices fell 2.2%, the third consecutive monthly drop. Not
seasonally adjusted, the latest decline was led by lower fresh &amp; dried
vegetable prices (-11.3 y/y) and lower fresh fruit prices (+5.0% y/y). Beef
prices also declined m/m (+15.2% y/y) but dairy product prices rose (13.6% y/y).&nbsp;Finished
energy prices fell for the fourth month in the last five but remained up 8.0%
y/y. Not seasonally adjusted gasoline prices dropped 4.6% (+6.2% y/y) and home
heating oil prices fell 6.1% (+14.4% y/y). Finally, natural gas prices rose (1.2%
y/y) and electricity prices rose (3.2% y/y).&nbsp;
Core pricing power diminished. The 0.1% increase in finished producer prices
less food &amp; energy was down from the 0.2% gains during the prior two months
and matched Consensus expectations. Finished consumer goods prices less food
&amp; energy rose 0.2% leaving the 1.7% twelve-month increase nearly half the
annual gains during the last two years. Finished durables prices fell 0.3% (-0.3%
y/y) and reversed the May increase but core finished consumer nondurable goods
prices strengthened with a 0.5% rise (3.2% y/y). Capital equipment prices were
unchanged (0.3% y/y) versus annual gains between 1.0% and 3.0% back to 2004.
Earlier strength in intermediate goods prices diminished last month and they
fell 0.9% (+6.3% y/y). Core pricing power also lagged with a 0.4% decline but
prices remained up 5.4% y/y, nearly the strongest rise since late-2008. The
strength continued to reflect increases in the prices of steel (30.5% y/y),
copper (13.4% y/y) and plywood (15.5% y/y).
Price pressures fell last month at the earliest stage of processing. Crude
materials prices fell 2.4% along with a 4.8% decline in core prices. The decline
was led by lower scrap copper (+27.2% y/y) and lower iron &amp; steel scrap
(82.1% y/y) prices.
The producer price data is available in Haver's USECON database. More
detailed data is in the PPI and in the PPIR databases.
 Minutes of the Federal Open Market Committee for
June 22-23, 2010 can be found
<a href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20100623.pdf">
 here.</a>
<a href="/comment/100715b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715b.png"></a>
<a href="/comment/100715c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715c.png"></a>

<table width="100%" cellspacing="0" class="centered">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th scope="col" class="firstcol" ><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM"> Producer
 Price Index (%) </a></th>
 <th scope="col" >June</th>
 <th scope="col" >May</th>
 <th scope="col" >April</th>
 <th scope="col" >June Y/Y</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 <th scope="col" >2007</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Finished Goods</td>
 <td>-0.5</td>
 <td>-0.3</td>
 <td>-0.1</td>
 <td>2.7</td>
 <td>-2.5</td>
 <td>6.4</td>
 <td>3.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Less Food &amp; Energy</td>
 <td>0.1</td>
 <td>0.2</td>
 <td>0.2</td>
 <td>1.0</td>
 <td>2.6</td>
 <td>3.4</td>
 <td>2.0</td>
 </tr>
 <tr>
 <td class="firstcol" >Intermediate Goods</td>
 <td>-0.9</td>
 <td>0.4</td>
 <td>0.8</td>
 <td>6.3</td>
 <td>-8.4</td>
 <td>10.3</td>
 <td>4.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Less Food &amp; Energy</td>
 <td>-0.4</td>
 <td>0.3</td>
 <td>1.1</td>
 <td>5.4</td>
 <td>-4.2</td>
 <td>7.4</td>
 <td>2.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Crude Goods</td>
 <td>-2.4</td>
 <td>-2.8</td>
 <td>-1.2</td>
 <td>13.7</td>
 <td>-30.3</td>
 <td>21.4</td>
 <td>11.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Less Food &amp; Energy</td>
 <td>-4.8</td>
 <td>-1.6</td>
 <td>4.0</td>
 <td>30.4</td>
 <td>-23.5</td>
 <td>14.8</td>
 <td>15.6</td>
 </tr>
 </tbody>
</table>


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Pricing pressures at the wholesale level again diminished last month. A 0.5% decline in the June PPI was the third in a row that owed to consecutive declines in food & energy prices. The drop exceeded Consensus expectations for a 0.1% [...]

U.S. Producer Prices Decline For Third Month, Again With Lower Food & Energy Costs

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<a href="/comment/100715j_big.png" name="modal"> <img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715j.png" align="left"></a>
Perhaps the job market is improving. Initial claims for
jobless insurance
fell last week to 429,000 following a decline during the prior week to
458,000.
It was revised up from 454,000 claims. The latest figure was the lowest
since
August 2008 and was well below Consensus expectations for 450,000
claims. The
four-week moving average of initial claims also fell to 455,250. These
figures
are down from the recession peak of 651,000 reached in March of 2009.
Working
the other way, continuing claims for
unemployment
insurance during
the latest week increased to 4.681M which was the highest level since
late-May,
but still it was off by one-third from the June '09 peak. The overall
decline is
a function of the improved job market but also reflects the exhaustion
of 26
weeks of unemployment benefits. The four-week average of continuing
claims rose
slightly off the cycle low to 4.581M. This series dates back to
1966.&nbsp;
Ongoing
claims do not reflect those who receive
extended
benefits. Extended
benefits for unemployment insurance fell during the latest week to
409,442.&nbsp;These
figures do not include the decreased 3,911,389 benefit recipients
(+50.6% y/y)
under state administered "EUC" emergency&nbsp;programs, but paid
for
by the Federal government.
The
insured unemployment rate increased to 3.7% from
an
upwardly revised 3.5%
during the prior week. It reached a high of 4.9% during May of 2009.
During the
last ten years, there has been a 96% correlation between the level of
the
insured unemployment rate and the overall rate of unemployment
published by the
Bureau of Labor Statistics.&nbsp;
The
highest insured unemployment rates in the week
ending June
26 were in
Puerto Rico (6.3%), Oregon (5.0), Alaska (4.8), Pennsylvania (4.7),
Nevada
(4.4), California (4.3), Connecticut (4.2), Wisconsin (4.1), Rhode
Island (4.0),
Mississippi (3.9), New Jersey (3.9), and South Carolina (3.9). The
lowest
insured unemployment rates were in Virginia (1.8), Wyoming (2.0), Texas
(2.3),
Tennessee (2.6), Maine (2.7), Georgia (2.8), Maryland (2.9), Florida
(3.2), New
York (3.2), Ohio (3.2) and Massachusetts (3.5). These data are not
seasonally
adjusted but the overall insured unemployment rate is.
The
unemployment insurance claims data is available
in Haver's
WEEKLY
database and the state data is in the REGIONW
database.



<a href="/comment/100715k_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715k.png"></a><a href="/comment/100715l_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715l.png"></a>
<table>
<colgroup><col><col><col><col><col><col><col><col></colgroup><thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a></th>
<th scope="col">07/10/10</th>
<th scope="col">07/03/10</th>
<th scope="col">06/26/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead> <tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>429</td>
<td>458</td>
<td>475</td>
<td>-20.3%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr class="even">
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,681</td>
<td>4,434</td>
<td>-24.7</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr>
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.7</td>
<td>3.5</td>
<td>4.6 (7/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
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Perhaps the job market is improving. Initial claims for jobless insurance fell last week to 429,000 following a decline during the prior week to 458,000. It was revised up from 454,000 claims. The latest figure was the lowest since [...]

U.S. Weekly Initial Unemployment Insurance Claims Drop Sharply To Lowest Since 2008

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<a href="/comment/100715g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715g.png" align="left"></a>
The
Philadelphia Federal Reserve Bank indicated that as the
third quarter
began, the U.S. economy's forward momentum waned. The Bank's July index
of
regional factory sector activity fell for the second straight month to
5.1, the
lowest level since August of last year. The latest was slightly lower
than
expectations for a reading of 10.0. Nevertheless, it still suggested
positive
economic growth and compared to readings near -40.0 at the recent
recession's
weakest.
During the last ten years there has been an 76% correlation
between the level
of the Philadelphia Fed Business Conditions Index and the three-month
growth in
factory sector industrial production. There has been a 78% correlation
with q/q
growth in real GDP. The latest survey from the Philadelphia Federal
Reserve Bank
can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0710.cfm">here</a>.
Underlying the deterioration in the General Activity
Index were negative readings for new orders and (quicker) delivery
times. Shipments
also slipped but the employment reading improved to its highest since
April.
During the last ten years, there has been a 75% correlation between the
index
level and the three-month change in manufacturing sector
payrolls.&nbsp;
The prices paid index improved slightly m/m but remained well
below its April
high. During the last ten years there has been a 70% correlation
between the
prices paid index and the three-month growth in the intermediate goods
PPI.
There has been an 81% correlation with the change in core intermediate
goods
prices.
The separate index of expected business conditions in six
months deteriorated
sharply to its lowest level since January of last year. Expectations
for new
orders, shipments and employment fell sharply. However, expected
capital
expenditures improved m/m but remained well below the February high.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS
database.

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<table class="centered" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead> <tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">July '09</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead> <tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>5.1</td>
<td>8.0</td>
<td>21.4</td>
<td>-8.9</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>-4.3</td>
<td>9.0</td>
<td>6.1</td>
<td>-5.2</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">Shipments</td>
<td>4.0</td>
<td>14.2</td>
<td>15.8</td>
<td>-12.1</td>
<td>-8.0</td>
<td>-9.2</td>
<td>9.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Delivery Times</td>
<td>-8.1</td>
<td>6.8</td>
<td>-1.2</td>
<td>-12.5</td>
<td>-15.3</td>
<td>-10.6</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">Number of Employees</td>
<td>4.0</td>
<td>-1.5</td>
<td>3.2</td>
<td>-25.9</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>4.5</td>
<td>4.6</td>
<td>-7.9</td>
<td>-19.8</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>13.1</td>
<td>10.0</td>
<td>35.5</td>
<td>-8.7</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
</body></html>

The Philadelphia Federal Reserve Bank indicated that as the third quarter began, the U.S. economy's forward momentum waned. The Bank's July index of regional factory sector activity fell for the second straight month to 5.1, the [...]

Philadelphia Fed Index Suggests Further Economic Slowdown

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<a href="/comment/100715d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715d.png" align="left"></a>
The recovery in industrial output ground to a halt last month.
Overall
production ticked up just 0.1 after a little-revised 1.3 May increase.
But all
of the latest increase was due to hot temperatures and higher utility
output. In
the factory sector, output fell 0.4% for the second decline this year.
Nevertheless, output is up 8.3%&nbsp;since the end of the last
recession with
output of business equipment, usually a laggard, up 11.4%.&nbsp;

Amongst major industry groupings, it was output of business
equipment that
held up last month with a 0.9% rise. The 11.4% annual gain in equipment
output
also outpaced the gains in most other categories. In individual
industries,
output of machinery is up 16.5% y/y, computers &amp; electronic
products is up
16.3% and electrical equipment, appliances &amp; components is up
5.8%. Overall
consumer goods output has risen 6.8% y/y led by a 52.5% jump in motor
vehicle
output but in June it declined slightly. Less motor vehicles, consumer
goods
output fell 1.3% last month (+2.4% y/y). Working the other way, apparel
output
rose 1.4% last month (9.5% y/y).
Capacity utilization held stable at 74.1%, its highest level
since November
2008. In the factory sector alone, utilization fell slightly to 71.4%,
still
near the highest level since October 2008 and up from the 2009 low of
65.4%.
The industrial production data are available in Haver's USECON
database with more detail available in the IP
database.


<a href="/comment/100715e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715e.png"></a>
<a href="/comment/100715f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715f.png"></a>
<table>
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead> <tr>
<th scope="col" class="firstcol">Industrial
Production (SA,%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">June
Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead> <tbody>
<tr>
<td class="firstcol">Total Output</td>
<td>0.1</td>
<td>1.3</td>
<td>0.3</td>
<td>8.2</td>
<td>-9.3</td>
<td>-3.3</td>
<td>2.7</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.4</td>
<td>1.0</td>
<td>0.8</td>
<td>8.3</td>
<td>-11.1</td>
<td>-4.5</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>-0.5</td>
<td>1.9</td>
<td>-0.9</td>
<td>6.8</td>
<td>-5.8</td>
<td>-4.20</td>
<td>0.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.9</td>
<td>1.4</td>
<td>1.8</td>
<td>11.4</td>
<td>-12.2</td>
<td>-1.5</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.3</td>
<td>0.4</td>
<td>3.8</td>
<td>5.2</td>
<td>-16.7</td>
<td>-9.5</td>
<td>-1.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Materials</td>
<td>0.4</td>
<td>1.0</td>
<td>0.5</td>
<td>9.8</td>
<td>-9.7</td>
<td>-2.7</td>
<td>3.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>2.8</td>
<td>5.5</td>
<td>-4.3</td>
<td>7.2</td>
<td>-2.6</td>
<td>-0.1</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">Capacity Utilization
(%)</td>
<td>74.1</td>
<td>74.1</td>
<td>73.1</td>
<td>68.2 (June '09)</td>
<td>70.0</td>
<td>77.9</td>
<td>81.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Factory Utilization</td>
<td>71.4</td>
<td>71.7</td>
<td>70.9</td>
<td>65.4</td>
<td>67.2</td>
<td>75.0</td>
<td>79.6</td>
</tr>
</tbody>
</table>
</body></html>

The recovery in industrial output ground to a halt last month. Overall production ticked up just 0.1 after a little-revised 1.3 May increase. But all of the latest increase was due to hot temperatures and higher utility output. In the [...]

U.S. Industrial Production Recovery Stutters

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<a href="/comment/100715a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715a.png" align="left"></a>
Pricing pressures at the wholesale level again diminished last month. A 0.5%
decline in the June PPI was the third in a row that owed to consecutive declines
in food &amp; energy prices. The drop exceeded Consensus expectations for a 0.1%
slip. As a result of the decline, the y/y gain in prices backpedaled to 2.7%
from its March high of 6.1%.
Finished food prices fell 2.2%, the third consecutive monthly drop. Not
seasonally adjusted, the latest decline was led by lower fresh &amp; dried
vegetable prices (-11.3 y/y) and lower fresh fruit prices (+5.0% y/y). Beef
prices also declined m/m (+15.2% y/y) but dairy product prices rose (13.6% y/y).&nbsp;Finished
energy prices fell for the fourth month in the last five but remained up 8.0%
y/y. Not seasonally adjusted gasoline prices dropped 4.6% (+6.2% y/y) and home
heating oil prices fell 6.1% (+14.4% y/y). Finally, natural gas prices rose (1.2%
y/y) and electricity prices rose (3.2% y/y).&nbsp;
Core pricing power diminished. The 0.1% increase in finished producer prices
less food &amp; energy was down from the 0.2% gains during the prior two months
and matched Consensus expectations. Finished consumer goods prices less food
&amp; energy rose 0.2% leaving the 1.7% twelve-month increase nearly half the
annual gains during the last two years. Finished durables prices fell 0.3% (-0.3%
y/y) and reversed the May increase but core finished consumer nondurable goods
prices strengthened with a 0.5% rise (3.2% y/y). Capital equipment prices were
unchanged (0.3% y/y) versus annual gains between 1.0% and 3.0% back to 2004.
Earlier strength in intermediate goods prices diminished last month and they
fell 0.9% (+6.3% y/y). Core pricing power also lagged with a 0.4% decline but
prices remained up 5.4% y/y, nearly the strongest rise since late-2008. The
strength continued to reflect increases in the prices of steel (30.5% y/y),
copper (13.4% y/y) and plywood (15.5% y/y).
Price pressures fell last month at the earliest stage of processing. Crude
materials prices fell 2.4% along with a 4.8% decline in core prices. The decline
was led by lower scrap copper (+27.2% y/y) and lower iron &amp; steel scrap
(82.1% y/y) prices.
The producer price data is available in Haver's USECON database. More
detailed data is in the PPI and in the PPIR databases.
 Minutes of the Federal Open Market Committee for
June 22-23, 2010 can be found
<a href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20100623.pdf">
 here.</a>
<a href="/comment/100715b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715b.png"></a>
<a href="/comment/100715c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100715c.png"></a>


<table width="100%" cellspacing="0" class="centered">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th scope="col" class="firstcol" ><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer
 Price Index (%) </a></th>
 <th scope="col" >June</th>
 <th scope="col" >May</th>
 <th scope="col" >April</th>
 <th scope="col" >June Y/Y</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 <th scope="col" >2007</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Finished Goods</td>
 <td>-0.5</td>
 <td>-0.3</td>
 <td>-0.1</td>
 <td>2.7</td>
 <td>-2.5</td>
 <td>6.4</td>
 <td>3.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Less Food &amp; Energy</td>
 <td>0.1</td>
 <td>0.2</td>
 <td>0.2</td>
 <td>1.0</td>
 <td>2.6</td>
 <td>3.4</td>
 <td>2.0</td>
 </tr>
 <tr>
 <td class="firstcol" >Intermediate Goods</td>
 <td>-0.9</td>
 <td>0.4</td>
 <td>0.8</td>
 <td>6.3</td>
 <td>-8.4</td>
 <td>10.3</td>
 <td>4.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Less Food &amp; Energy</td>
 <td>-0.4</td>
 <td>0.3</td>
 <td>1.1</td>
 <td>5.4</td>
 <td>-4.2</td>
 <td>7.4</td>
 <td>2.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Crude Goods</td>
 <td>-2.4</td>
 <td>-2.8</td>
 <td>-1.2</td>
 <td>13.7</td>
 <td>-30.3</td>
 <td>21.4</td>
 <td>11.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Less Food &amp; Energy</td>
 <td>-4.8</td>
 <td>-1.6</td>
 <td>4.0</td>
 <td>30.4</td>
 <td>-23.5</td>
 <td>14.8</td>
 <td>15.6</td>
 </tr>
 </tbody>
</table>

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<a href="/comment/100714a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100714a.png" align="left"></a>
Consumers began the summer season on a cautious note.
Retail sales unexpectedly fell 0.5% last month. To emphasize the notion of lost
momentum, May's decline was revised to 1.1% from 1.2% but the gain in April
sales was halved to 0.3%. The drop in June sales
disappointed Consensus expectations for a 0.2% decline and for 2Q as a whole,
retail sales rose 4.1% (AR), half the 1Q increase and the weakest of the last
four quarters.
Much of the weakness in sales last month was due to a 2.3% decline in motor
vehicles and parts purchases which owed to the 4.7% m/m decline in unit vehicle
sales. Also, sales at gasoline service stations fell 2.0% (+8.8% y/y) as pump
prices fell. The 0.1% slip in nonauto retail sales
about matched Consensus expectations for a -0.0% reading. Excluding both auto
and gasoline purchases, sales ticked 0.1% higher after a 1.0% May decline. For
the quarter sales rose at a 3.8% annual rate, also half the 1Q gain and the
weakest of the last three quarters. Last month's decline in retail sales again
was paced by a 1.0% drop in sales at building materials &amp; hardware stores
which followed a 9.3% May shortfall.
&quot;Core&quot; discretionary spending also remained soft last month. A 0.6%
gain (5.7% y/y) in apparel store sales recouped May's decline but the 4.1%
advance for the quarter was down from the 13.9% 1Q gain. General merchandise
store sales ticked up 0.2% (2.6% y/y) last month but for the quarter sales
declined at a 1.9% annual rate. Finally, sales of furniture, home furnishings
&amp; electronics rose 0.2% (4.6% y/y) during June but for the quarter fell at a
0.1% rate after an 11.4% 1Q gain. Furniture sales alone fell hard for the third
straight month. The 1.1% decline (+1.7% y/y) was accompanied by a 1.3% increase
(7.3% y/y) in sales of electronics &amp; appliances. Sales by internet &amp;
catalogue vendors rose 1.0% (12.1% y/y) and May sales were revised sharply
higher.&nbsp;Food service sales ticked 0.2% higher (2.8% y/y) after two months
of slight decline.
The retail sales data are available in Haver's USECON database.
<a href="/comment/100714b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100714b.png"></a>
<a href="/comment/100714c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100714c.png"></a>
<table width="100%" cellspacing="0" class="centered">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th scope="col"class="firstcol" ></th>
 <th scope="col">June</th>
 <th scope="col">May</th>
 <th scope="col">April</th>
 <th scope="col">June y/y</th>
 <th scope="col">2009</th>
 <th scope="col">2008</th>
 <th scope="col">2007</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" ><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM" ; >Total
 Retail Sales &amp; Food Services</a> (%)</td>
 <td>-0.5</td>
 <td>-1.1</td>
 <td>0.3</td>
 <td>4.8</td>
 <td>-6.3</td>
 <td>-1.0</td>
 <td>3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp;
 Motor Vehicle &amp; Parts</td>
 <td>-2.3</td>
 <td>-0.6</td>
 <td>0.5</td>
 <td>6.8</td>
 <td>-12.0</td>
 <td>-13.9</td>
 <td>0.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Retail Sales excluding
 Autos</td>
 <td>-0.1</td>
 <td>-1.2</td>
 <td>0.3</td>
 <td>4.4</td>
 <td>-5.1</td>
 <td>2.3</td>
 <td>3.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp;
 Gasoline</td>
 <td>-2.0</td>
 <td>-2.5</td>
 <td>0.1</td>
 <td>8.8</td>
 <td>-24.8</td>
 <td>9.9</td>
 <td>6.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Non-Auto Sales Less
 Gasoline</td>
 <td>0.1</td>
 <td>-1.0</td>
 <td>0.3</td>
 <td>3.9</td>
 <td>-1.9</td>
 <td>1.2</td>
 <td>3.5</td>
 </tr>
 </tbody>
</table>


</body>

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Consumers began the summer season on a cautious note. Retail sales unexpectedly fell 0.5% last month. To emphasize the notion of lost momentum, May's decline was revised to 1.1% from 1.2% but the gain in April sales was halved to [...]

U.S. Retail Spending Declines Unexpectedly

Robert Brusca

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<a href="/comment/100714j_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100714j.png" align="left"></a>While Euro-Area IP made strong gains in May again and its three-month growth rate picked up, the Yr/Yr rate of growth is giving back ground. It looks as though Europe's rate of industrial production growth is set to slow. The three major sectors each have a distinct flat spot at the end of their Yr-on-Yr growth profiles (see graphic). 
It is not surprising to see that the consumer sector in the zone is still floundering. The output of consumer goods decelerated over three months compared to six months ago but is still better over three months that its 12-month growth rate. It has never gotten in gear in this expansion. 
Intermediate and capital goods rates of growth for output are about five times stronger than for consumer goods and they are still showing acceleration. But how long that remains a trend is anyone's guess. I'd look for a slowdown in those hot sectors unless the consumer wakes up .
In the ongoing quarter with two months worth of data in hand, capital goods output is rising at a strong 15% annual rate. Intermediate goods output is rising at a 23% annual rate. Consumer goods output is rising at a puny 0.5% annual rate. The consumer sector is simply not in gear. And since this is a measure of industrial output it reflects weakness in all consumer goods output not just output for domestic consumption but for export markets as well. Taken as whole, the consumers in the Zone as well as those served by producers in the Zone are not very active. Unless they pick up their pace it is hard to imagine other industrial measures remaining strong. 
On a country by country basis nearly all the large Euro-Area economies are all showing acceleration in output from 12-months to 6-months to 3-months. Germany's output has accelerated very sharply. Spain's industrial output often is volatile and may not be as reliable but it too is showing some real pick-up over the recent three months. In the quarter-to-date Germany's IP is rising at a 27% annual rate, Spain is up at a 17% annual rate and Italy's output is up at a pace just short of 9%. France and the UK are showing growth rates of 6.5% to 7% in the new quarter. 
On balance Europe is still showing some strong rates of growth. But there also are some potent signs of slowing. Europe's growth is not balanced. It is not balanced across sectors nor is it balanced across the various zone member countries. The consumer continues to be a major problem area for growth and is missing in action.
<table cellspacing="0" width="100%" class="centered">
<colgroup><col><col><col><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th colspan="11" scope="col">Euro-Area MFG IP</th>
 </tr>
 </thead>
 <tbody>
 <tr class="even">
 <td class="firstcol">Saar except m/m</td>
 <td colspan="3">Mo/Mo</td>
 <td>May 10</td>
 <td>Apr 10</td>
 <td>May 10</td>
 <td>Apr 10</td>
 <td>May 10</td>
 <td>Apr 10</td>
 <td>&nbsp;</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol">Euro-Area Detail</td>
 <td>May 10</td>
 <td>Apr 10</td>
 <td>Mar 10</td>
 <td>3Mo</td>
 <td>3Mo</td>
 <td>6mo</td>
 <td>6mo</td>
 <td>12mo</td>
 <td>12mo</td>
 <td>Q-1</td>
 </tr>
 <tr>
 <td class="firstcol">MFG</td>
 <td>0.8%</td>
 <td>0.8%</td>
 <td>2.1%</td>
 <td>16.3%</td>
 <td>10.2%</td>
 <td>8.0%</td>
 <td>10.3%</td>
 <td>9.3%</td>
 <td>9.6%</td>
 <td>12.6%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Consumer</td>
 <td>0.7%</td>
 <td>-1.2%</td>
 <td>1.5%</td>
 <td>4.1%</td>
 <td>0.8%</td>
 <td>5.0%</td>
 <td>6.0%</td>
 <td>3.7%</td>
 <td>2.9%</td>
 <td>0.5%</td>
 </tr>
 <tr>
 <td class="firstcol">C-Durables</td>
 <td>2.4%</td>
 <td>0.1%</td>
 <td>0.4%</td>
 <td>12.4%</td>
 <td>0.1%</td>
 <td>4.1%</td>
 <td>4.3%</td>
 <td>5.9%</td>
 <td>1.1%</td>
 <td>&nbsp;</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">C-Non-durables</td>
 <td>0.6%</td>
 <td>-1.3%</td>
 <td>1.7%</td>
 <td>3.9%</td>
 <td>1.2%</td>
 <td>4.9%</td>
 <td>5.9%</td>
 <td>3.5%</td>
 <td>3.2%</td>
 <td>&nbsp;</td>
 </tr>
 <tr>
 <td class="firstcol">Intermediate</td>
 <td>0.8%</td>
 <td>2.1%</td>
 <td>2.5%</td>
 <td>23.8%</td>
 <td>22.9%</td>
 <td>12.7%</td>
 <td>16.6%</td>
 <td>14.7%</td>
 <td>15.8%</td>
 <td>23.1%</td>
 </tr>
 <tr>
 <td class="firstcol">Capital</td>
 <td>1.0%</td>
 <td>1.8%</td>
 <td>1.9%</td>
 <td>20.3%</td>
 <td>9.5%</td>
 <td>9.0%</td>
 <td>10.7%</td>
 <td>8.4%</td>
 <td>9.1%</td>
 <td>15.7%</td>
 </tr>
 <tr class="grey3">
 <td colspan="11" class="firstcol">Main Euro-Area Countries
and UK IP in MFG</td>
 </tr>
 <tr class="even">
 <td>&nbsp;</td>
 <td colspan="3">Mo/Mo</td>
 <td>May 10</td>
 <td>Apr 10</td>
 <td>May 10</td>
 <td>Apr 10</td>
 <td>May 10</td>
 <td>Apr 10</td>
 <td>&nbsp;</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol">MFG Only</td>
 <td>May 10</td>
 <td>Apr 10</td>
 <td>Mar 10</td>
 <td>3Mo</td>
 <td>3Mo</td>
 <td>6mo</td>
 <td>6mo</td>
 <td>12mo</td>
 <td>12mo</td>
 <td>Q:4 Date</td>
 </tr>
 <tr>
 <td class="firstcol">Germany:</td>
 <td>3.4%</td>
 <td>1.1%</td>
 <td>3.5%</td>
 <td>37.2%</td>
 <td>19.3%</td>
 <td>17.8%</td>
 <td>12.4%</td>
 <td>13.6%</td>
 <td>15.0%</td>
 <td>27.3%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">France: IPxConstruct'n</td>
 <td>1.7%</td>
 <td>-0.5%</td>
 <td>1.3%</td>
 <td>10.5%</td>
 <td>4.5%</td>
 <td>7.5%</td>
 <td>6.4%</td>
 <td>8.2%</td>
 <td>8.1%</td>
 <td>6.5%</td>
 </tr>
 <tr>
 <td class="firstcol">Italy</td>
 <td>1.2%</td>
 <td>0.9%</td>
 <td>0.2%</td>
 <td>9.6%</td>
 <td>5.7%</td>
 <td>7.4%</td>
 <td>6.8%</td>
 <td>7.3%</td>
 <td>7.8%</td>
 <td>8.7%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Spain</td>
 <td>1.9%</td>
 <td>-1.4%</td>
 <td>5.2%</td>
 <td>24.7%</td>
 <td>23.4%</td>
 <td>6.4%</td>
 <td>2.2%</td>
 <td>5.8%</td>
 <td>2.7%</td>
 <td>17.7%</td>
 </tr>
 <tr>
 <td class="firstcol">UK: EU member</td>
 <td>0.3%</td>
 <td>-0.8%</td>
 <td>2.3%</td>
 <td>7.4%</td>
 <td>12.9%</td>
 <td>6.0%</td>
 <td>6.8%</td>
 <td>4.3%</td>
 <td>3.0%</td>
 <td>6.9%</td>
 </tr>
 </tbody>
</table>
</html>

While Euro-Area IP made strong gains in May again and its three-month growth rate picked up, the Yr/Yr rate of growth is giving back ground. It looks as though Europe's rate of industrial production growth is set to slow. The three [...]

Euro-Area IP Continues Its Gains But Trends Slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

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

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Texas manufacturing sector activity improved in July, according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. The General Business Activity index rose to 0.9% this month from -12.7% in June, but remained below a high of +14.1 in January. A higher 22.1% of respondents reported improved business activity in July. The Future Business Activity index strengthened to 19.0 this month to its highest level since January. The data were collected from July 15 to 23 from 81 manufacturing firms.

The production index strengthened to 21.3 from 1.3 in June and stood at the highest level since December 2021. A higher 35.2% of respondents reported increasing production. The employment index rose in July to 8.4, its best reading since September 2023 as 17.4% of respondents reported higher employment for the month. The hours worked measure surged to 7.7 from -8.4. The capital expenditures index remained positive at 6.8 after surging to 10.9 in June. The shipments reading increased to 2.7 after falling to -7.3 in June. The growth rate of new orders index rose to -9.1 from -17.2; it has not been positive since January.

Inflation indicators weakened this month. The index for prices received for finished goods declined to 11.1 after rising to 26.1 in June. It was the lowest level since March. A lessened 15.8% of respondents reported raising prices this month while a higher 4.7% reported lowering prices. The index of prices paid for raw materials fell to 41.7 from 43.0, but remained up from a low of 1.0 in June 2023. The wages & benefits index eased to 13.2 this month after falling to 13.4 in June, and has been trending lower since a high of 50.6 in May 2022.

The rise in the Future Manufacturing Activity Index reflected a strengthening in expected new orders growth to 18.8 from 15.3 and expected production to 30.3 from 22.6. The future employment reading strengthened to 27.3, its highest level since January. The future wages & benefits reading rose to 37.2 after doubling to 32.1 in June. The future capital spending reading, however, eased to 15.5 and remained below its January high of 27.3.

Each index is calculated by subtracting the percentage reporting a decrease in activity from the percentage reporting an increase. When all firms report rising activity, an index will register 100. An index will register -100 when all firms report a decrease. An index will be zero when the number of firms reporting an increase equals the number reporting a decrease. Data for the Texas Manufacturing Outlook, conducted by the Federal Reserve Bank of Dallas, can be found in Haver's **SURVEYS** database.

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- Survey turns positive for first time in six months.
- Production, employment & hours-worked readings improve.
- Prices and wages & benefits indicators weaken.

Texas Manufacturing Activity Index Turns Positive in July; Expectations Strengthen

Tian Yong Woon

This week, we examine a series of major US trade and tariff developments since early July. The US has expanded its network of bilateral trade deals, including deals with Indonesia and the Philippines, both securing tariff rates of 19%. Meanwhile, former President Trump has seemingly raised the general tariff floor from 10% to 15%, potentially affecting countries like Australia, New Zealand, and Singapore (see chart 1). India, once expected to be among the first to reach a deal, has yet to finalize an agreement ahead of the August 1 deadline. Attention remains on China’s suspected use of transshipments through third countries to circumvent tariffs. One possible, though inconclusive, indicator is the decline in China’s direct exports to the US alongside stable overall export levels—suggesting either the use of transshipment routes or a broader redirection of exports to other markets (see chart 2).

Japan also recently struck a significant deal with the US, reducing its reciprocal tariff from 24% to 15%. This announcement boosted Japanese equities and the yen (see chart 3). However, Japan’s auto exports to the US continue to decline, with firms absorbing tariff-related costs to maintain competitiveness (see chart 4). Despite political uncertainty following the ruling LDP’s losses in recent upper house elections, Japanese markets have remained resilient (see chart 5). As the Bank of Japan prepares to announce its next rate decision, real wages have posted their sharpest decline in two years, while household spending—driven by car purchases—has surged (see chart 6).

**Latest US tariff developments**
Several significant US trade developments have occurred since early July. Notably, the number of bilateral trade deals secured by the US has increased. For instance, Indonesia reached an agreement that reduced tariffs from 32% to 19%, while the Philippines avoided a previously threatened 20% rate, settling instead at 19%. Meanwhile, former President Trump has reportedly raised the tariff floor from 10% to 15%. This suggests that countries previously facing the 10% rate—such as Australia, New Zealand, and Singapore (which runs a trade surplus with the US)—will now be subject to higher duties, as illustrated in chart 1. In contrast, India, once expected to be among the first to reach a deal, has yet to produce a substantive agreement as the August 1 deadline approaches.

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Among the ongoing discussions, a key talking point remains the US's continued concern over China’s use of transshipments through third countries to circumvent US tariffs. One Asian economy that has come under scrutiny is Vietnam. While Vietnam has secured a trade deal with the US—lowering its general tariff rate to 20%—the agreement includes a specific provision: “transshipments” of goods face a 40% tariff. As shown in chart 2, there are signs, though not confirmations, that such practices may be occurring. For example, while China’s direct exports to the US have been declining, its overall export growth has remained steady. This could suggest, among other causes, the use of transshipment routes or simply a rerouting of Chinese exports to other markets to sustain growth.

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**The US-Japan trade deal**
Japanese equities and the yen have surged following the announcement of the US–Japan trade deal (chart 3), which lowered Japan’s reciprocal tariff rate from an original 24% to 15%. In exchange, Japan has reportedly agreed to, among other terms, a $550 billion package of investments in, and loans to, the US. The country’s auto industry, which had previously faced a 27.5% tariff—due to the US’s 25% sectoral tariff and an existing 2.5% duty—also saw its rate reduced to 15%, likely to the great relief of Japanese carmakers. That said, while the new 15% rate marks a substantial drop from the earlier 24%, Japan remains worse off compared to the pre–Liberation Day baseline. As for the yen, it had already begun to strengthen prior to the deal’s announcement. Despite the ruling Liberal Democratic Party (LDP) suffering a notable loss in the recent upper house elections, the outcome appeared to fall within investor expectations, possibly triggering a round of precautionary yen selling beforehand. More on Japan’s elections will be covered in a later section.

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**Japan’s auto industry**
Meanwhile, sectoral tariffs on key Japanese industries—particularly autos—continue to weigh on the country’s economic outlook. Many of Japan’s major car exporters have reportedly avoided raising prices significantly, choosing instead to absorb most of the cost from US auto tariffs, likely in an effort to maintain market share. However, gradual price increases may follow if automakers can no longer sustain these margins. As shown in chart 5, the value of Japan’s motor vehicle exports to the US has already declined sharply. This is likely due to manufacturers absorbing the tariff burden, a trend also reflected in Japan’s export price data. As such, the impact on Japanese automakers’ bottom lines is already becoming evident. That said, the production capacity of Japanese carmakers in the US—which many firms are actively working to expand—offers some relief from declining exports. Additionally, the recently announced reduction in US auto tariffs on Japan will likely alleviate, though not eliminate, the pressure on Japan’s auto industry.

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**Japan’s upper house elections**
Japanese assets have rallied despite heightened policy uncertainty (chart 5), as the ruling Liberal Democratic Party (LDP) suffered a major setback in recent upper house elections, losing its majority along with coalition partner Komeito. This follows an earlier defeat in the October 2024 snap elections, when the LDP also lost its majority in the lower house. As a result, the coalition must now rely on support from opposition parties to pass legislation in both chambers—granting opposition groups, which hold diverse and often conflicting policy views, greater influence over future policymaking. The election results come amid mounting domestic challenges, particularly inflation, with rising rice prices drawing widespread concern. Speculation has intensified over whether Prime Minister Ishiba may resign, though he has consistently denied any such plans.

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**The Bank of Japan**
Lastly, we turn to the Bank of Japan (BoJ), which is set to announce its interest rate decision this week. Markets broadly expect the BoJ to keep rates unchanged for now, with any further hikes likely deferred. This comes amid heightened political uncertainty following the ruling LDP’s significant defeat in the recent upper house elections, casting fresh doubt on Prime Minister Ishiba’s leadership. The BoJ’s path toward further policy normalisation is also being complicated by weakening wage growth. Earlier momentum has faded, with nominal wages rising just 1.4% year-on-year in May, as shown in chart 6. Combined with still-elevated inflation, real wages posted their sharpest decline in two years during the month. Nonetheless, household spending saw a notable surge in May. However, this was largely driven by car purchases, which benefited from low base effects due to safety-related scandals a year earlier.

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Asia

Economic Letter from Asia: Dealing with it

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Durable goods orders fell 9.3% (+10.9% y/y) in during June after rising 16.5% in May, revised from 16.4%. Orders in April fell 6.6%. A 10.0% decline had been expected in the Action Economics Forecast Survey.

The decline reflected a near-halving of orders for commercial aircraft which pulled total transportation equipment orders down 22.4% (+30.5% y/y). Orders excluding transportation rose 0.2% last month (2.2% y/y) after a 0.6% rise in May. Orders for computers & electronic products rose 0.6% (4.8% y/y) after rising 1.7% in May. Orders for machinery gained 0.4% (3.2% y/y) for the second straight month while electrical equipment, appliances & components orders inched 0.1% higher (4.7% y/y) following a 0.8% May rise. Primary metals orders gained 0.6% (-0.5% y/y) in June following a 0.7% gain and fabricated metals orders rose 0.2% (3.2% y/y) after surging 1.1% in May. Defense aircraft orders rose 9.1% (7.4% y/y) after a 10.2% May decline.

Total shipments increased 0.4% (1.8% y/y) in June following a 0.2% May rise. Shipments of durable goods industries rose 0.5% (2.9% y/y) in June after improving 0.2% in May. Transportation equipment shipments rose 0.8% (4.2% y/y) and machinery shipments gained 1.0% (1.5% y/y). Computer & electronic product shipments edged 0.1% higher (6.3% y/y) and electrical equipment & appliance & components shipments rose 0.7% (4.9% y/y). Primary metals shipments gained 0.6% (2.5% y/y) while fabricated metals shipments rose 0.2% (1.9% y/y). Shipments of nondurable goods 	rose 0.4% (0.6% y/y) following a 0.1% gain.

Unfilled orders for all manufactured products jumped 1.0% (7.1% y/y) in June after a 3.4% May rise. Excluding transportation, unfilled orders rose 0.1% (0.8% y/y), the same as in May. Backlogs of durable goods rose 1.0% (7.1% y/y) in June, reflecting a 1.6% jump (11.4% y/y) in transportation equipment, led by a 2.1% rise (14.7% y/y) in nondefense aircraft. Machinery backlogs eased 0.1% (-1.8% y/y) in June. Electrical equipment, appliances & component backlogs rose 0.1% (1.0% y/y). Order backlogs of computers & electronic products eased 0.1% (-0.2% y/y), off slightly for the third straight month.

Inventories of all manufactured products rose 0.2% (1.1% y/y) in June following a 0.1% gain in May and a 0.1% April decline. Durable goods inventories rose 0.2% (1.5% y/y) for the second straight month. Inventories of machinery gained 0.4% (2.3% y/y) while computer & electronic product inventories rose 0.1% (0.3% y/y) for the second straight month. Transportation inventories eased 0.1% (+1.6% y/y).

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Orders excluding transportation weaken.
- Shipments strengthen.
- Unfilled orders surge, led by aircraft; inventories increase slightly.

U.S. Advance Durable Goods Orders Decline in June as Aircraft Bookings Plunge

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Hypnotists are just trying to get you to focus on something and concentrate on it so that you can relax and they can put you into a hypnotic trance. Right now, you want to make sure that does not happen as you watch what is going on with money supply. It is not ‘entrancing’ and ought to be followed. The chart shows you that trends - and often excesses in ‘global money supply’ growth have begun in that money center country, the United States of America. And… well… here we go again? While it's very early in the game, it looks like, after a period of monetary weakness and re-escalation, U.S. money growth is now beginning to step up in the U.S. Meanwhile, in Europe and in the United Kingdom, money growth, especially real money growth, is beginning to tail off. All this is at a time when Japan's money growth, of course, has been marching to the step of a different drummer showing regular, consistent, nominal weakness and actual declines in the real money stock to try to tame its incipient inflation.

**The Policy Zone**
We are no longer in the COVID era; or even in the post-COVID era. We are now in the post post-COVID era. And monetary policy is being made based on conditions rather than remedy perceived legacy problems in the economy from COVID. We need to make that transition in our analysis too, and ask ourselves, “What's really happening?” In the U.S., the popular dogma is to claim that central bank independence is being undercut and that Donald Trump's tariffs are going to raise the inflation rate and that the Fed is losing its battle with inflation and inflation is coming because of excessive fiscal policy and the imposition of tariffs. It's a story you can believe if you want to. There's certainly some evidence to support those points; whether they completely justify that point of view, it is still too early to say. However, clearly, money supply growth in the U.S. is ramping up. The U.S. 12-month growth rate is up to 4.5%, over six months the annualized rate hits 5.5%, and over three months the annualized rate hits 6.9%. It's hard to say that that's occurring because of Trump's tariffs. At the same time, the growth rate in real money balances - that's money supply deflated by the CPI - has boosted its growth rate from 1.8% over 12 months to a 2.9% annual rate over six months to a 4.4% annual rate over three months. Is the chase on for an inflation ‘uptick’ that will not be temporary?

**Follow the leader, or go your own way?**
It will take some time to tell if the other money center countries are going to follow the leader or not. So far it looks like ‘or not.’ Money supply growth in the European Monetary Union (EMU) is actually decelerating slightly from 2.8% over 12 months to a 1.7% pace over six months to a 1.3% pace over three months. Similarly, in the EMU the growth of real balances has slipped from 0.8% over 12 months to a 0.2% annual rate over six months to a -0.6% annual rate (contraction) over three months. So far, euro area money supply is not tagging along with the U.S. trend.

**Euro-credit trends**
Meanwhile, private credit growth in Europe has stabilized with the 12-month growth rate of 2.3% that moves up to 2.4% over six months and settles back to 2% over three months, a relatively stable performance that would seem to signal ongoing moderate growth. The growth rate of private credit, deflated for the effects of inflation, shows continued growth, and beyond that the trend is unclear. Over 12 months the growth rate is 0.3%, over six months that improves to 0.8%, and over three months it drops back to a 0.1% pace. I'm not good enough at splitting hair to be able to tell you what that trend is.

**U.K. money weakens**
In the U.K., nominal money supply growth seems to be slowing, but that isn't crystal clear, with the 3.5% annual rate over 12 months moving up to a 4.1% annual rate over six months been slipping back to 1.7% over three months. It may take a few months to be able to tell if the step down to 1.7% is real or just volatility averaging out the step up over six months. U.K. money growth does not appear to be excessive or rogue; when we look at real balances, 12-month growth is -0.4%, six-month growth is -0.1% and the three-month growth rate is -1.6%. On that profile, real money growth in the U.K. does not appear to be following the U.S. rule book either.

**Japan- dealing with its own complex issues**
We know that Japan has been off on its own for a while. Japan clearly has been fighting off a bout of inflation. But, since that development is relatively new, and the previous battle with deflation was relatively long-lived, if we think in terms of inflation averaging, Japan is still dealing with an extremely small problem. Despite the appearance of some real inflation (depending on the price index you look at to establish Japanese inflation trends), Japan's inflation overshoot in contexts is only making up for lost time.

Money growth in Japan is 0.9% over 12 months; however, it's only running at a 0.1% annualized over six months and over three months. The growth of real money balances in Japan is negative. Real balance growth rates are negative on balance over three years and two years; the 12-month growth rate for real money balances is -2.3%, over six months it is -2.2%, and over three months it is -2%. The degree of restriction has faded but faded only very marginally. The main point is that in Japan, real money balances are contracting and so there is a fight to reduce inflation going on behind the scenes and that's clearing up; you can see it in the money growth rates on the chart as well if not from the level or real interest rates. Japan is balancing complex needs.

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**Are tariffs a threat or benign?**
As we sharpen our pencils or fill in our spreadsheets with guesses at the independent variables, and try to predict the future, let's not obsess too much about the independence and credibility of central banks and put too much of the blame on developing tariff policy. I'm not prepared to argue the tariffs are unimportant. In the short run, they could create some difficult decisions for monetary policy agencies. And beyond tariffs, let’s remember that the collapse of Bretton Woods and the installation of fluctuations exchange rates also did usher in an age of higher inflation. Exchange rate changes, like tariffs, are not formally inflationary but they do change (like tariffs) relative prices. There is more discussion about inflation and exchange rates than about inflation and tariffs mostly because exchange rate fluctuations became more pronounced after 1971 while tariffs were mostly being cut in periodic multilateral rounds until recently. The absence of a literature on tariffs and inflation is an artifact of economic circumstance.

**The road ahead and the traffic around us**
Whatever the ‘threat’ of tariffs, the trends in money supply are more fundamental and certainly something you don't want to lose track of although many people do lose track of money supply these days. Central banks have certainly downgraded money supply. In the U.S., relevant money supply data are released much less frequently and the data we are provided with is much less thorough than it used to be. Central banks want to be known for their interest rate policy and inflation targeting. A strange desire after they have been so unsuccessful at hitting those targets over the past four years… But of course, there are policy tools to focus on: the official interest rate the central bank implements, the guidance it gives us about the future, the way that markets price themselves relative to the central bank rate which affects the way interest rates work their way into the economy… And then, of course, there is the issue of what inflation is, and what it will be, and what assumptions monetary policy makes when it evaluates itself to decide how it's going to be presented to the public by the central bank. All of this leaves a lot of room for discretion and slippage and what monetary policy really is. It puts the central bank in a position to - as always - occupy the bully pulpit and to steer the discussion in the direction they want which inevitably is the direction that justifies the kind of policy they've decided to run. Now is a good time to pull yourself out of that cycle to step back and to look objectively at what's happening with money supply and policy and to think about what happens next. Policy is not completely about politics after all. Tariffs are not the keystone to build an outlook for the future.

Global Money Supply Begins to Show Divergences; Watch the Green Line and Don’t Get Sleepy

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Sales of new single-family home sales improved 0.6% (-6.6% y/y) in June to 627,000 (SAAR) after falling 11.6% to an unrevised 623,000 in May, and rising to 705,000 in April, revised from 722,000 according to the U.S. Census Bureau. The Action Economics Forecast Survey expected sales of 650,000 in June. The sales gain occurred as the average 30-year fixed-rate mortgage held steady m/m at an average 6.82% in June, according to Freddie Mac. So far in July the 30-year mortgage rate has fallen to an average 6.71% and compares to a low of 6.18% averaged in September of last year.

By region, new home sales varied across the country last month. Sales of new homes in the Midwest rose 6.3% (9.0% y/y) to 85,000, after falling 3.6% during May. In the South, new home sales rebounded 5.1% (-4.4% y/y) to 390,000, following a 15.1% May decline. Offsetting these gains, sales of new homes in the West weakened 8.4% (-14.4% y/y) to 131,000, after declining 8.3% in May. Showing even more weakness, new home sales in the Northeast were off 27.6% last month (-34.4% y/y) to 21,000, after holding steady in May.

The median sales price of a new home declined 4.9% (-2.9% y/y) to $401,800 (NSA) in June after rising 2.3% to $422,700 in May. New home prices were 12.7% below the all-time peak of $460,300 in October 2022. The average sales price of a new home fell 2.1% (+1.1% y/y) to $501,000 in June, following a 0.4% May decline. The average price was 7.4% below a high of $541,200 in July 2022. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market rose 1.2% (8.5% y/y) to 511,000 (SA) in June, after a 1.0% May increase. The seasonally adjusted months' supply of new homes for sale rose to 9.8 months in June, the highest level since September 2022, after increasing to 9.7 months in May. The latest reading remained above a low of 6.9 months in May 2023.

The median number of months a new home stayed on the market increased to 2.8 months in June, remaining above a June 2024 low of 2.1 months. The latest number stood well above its record low of 1.5 months in both September and October of 2022, but remained below a high of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- Small gain in sales follows sharp decline.
- Sales are mixed throughout the country.
- Median sales price is lowest since November.

Economy in Brief: 2010

Jump to:

U.S. CPI: Broad-Based Declines For Third Straight Month

U.S. Producer Prices Decline For Third Month, Again With Lower Food & Energy Costs

U.S. Weekly Initial Unemployment Insurance Claims Drop Sharply To Lowest Since 2008

Philadelphia Fed Index Suggests Further Economic Slowdown

U.S. Industrial Production Recovery Stutters

U.S. Producer Prices Decline For Third Month, Again With Lower Food & Energy Costs

U.S. Retail Spending Declines Unexpectedly

Euro-Area IP Continues Its Gains But Trends Slow