Tom Moeller

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 &bull; Nonrevolving borrowing edges higher.
 &bull; Credit card balances are being liquidated.

 Consumers recently grew cautious about using credit. Consumer
 credit outstanding declined $7.2 billion during August following two
 months of double-digit gain. So far this year, consumer credit has
 declined 10.3%. A $14.1 billion increase had been expected by the Action Economics Forecast Survey.

 Revolving consumer credit balances pulled back $9.4
 billion (-9.6% y/y) in August, down for the seventh month this year. Credit
 provided by depository institutions, 90% of the total and mostly credit
 card debt, declined 9.7% y/y. Credit union borrowing fell 4.7% y/y and finance company loans
 were off 21.4% y/y.

 Nonrevolving credit usage edged $2.2 billion higher
 (3.8% y/y) after double-digit increases in each of the prior three months. Federal
 government borrowing, which uses over 40% of
 nonrevolving credit, grew 5.6% y/y. Depository institution loans (29% of
 credit) gained a greatly lessened 3.1% y/y, down from 6.8% y/y growth as
 of December. Finance company borrowing
 (16.0% of loans) rose 2.3% y/y and credit union loans (14.0% of the total)
 increased 2.8% y/y.

 These Federal Reserve Board figures are break-adjusted
 and calculated by Haver Analytics. The breaks in the series in 2005, 2010
 and 2015 are the result of the incorporation of the Census and Survey of
 Finance Companies, as well as changes in the seasonal adjustment
 methodology.

 The consumer credit data are available in Haver's USECON
 database. The Action Economics figures are contained in the AS1REPNA database.

 Recent Economic Developments and the Challenges
 Ahead from Federal Reserve Chair Jerome H. Powell is available
 <a href="https://www.federalreserve.gov/newsevents/speech/powell20201006a.htm">here</a>.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th height="25" class="firstcol" scope="col" >&nbsp;Consumer
 Credit Outstanding (M/M Chg, SA)</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >Aug y/y</th>
 <th scope="col" >2019</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total ($ bil)</td>
 <td>-7.2</td>
 <td>14.7</td>
 <td>16.9</td>
 <td>0.3%</td>
 <td>4.6%</td>
 <td>4.8%</td>
 <td>5.3%</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; &nbsp;Nonrevolving</td>
 <td>2.2</td>
 <td>14.9</td>
 <td>18.6</td>
 <td>3.8</td>
 <td>4.9</td>
 <td>5.2</td>
 <td>5.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; &nbsp;Revolving</td>
 <td>-9.4</td>
 <td>-0.2</td>
 <td>-1.7</td>
 <td>-9.6</td>
 <td>3.8</td>
 <td>3.6</td>
 <td>6.0</td>
 </tr>
	 </tbody>
	 </table>
	 
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• Nonrevolving borrowing edges higher. • Credit card balances are being liquidated. Consumers recently grew cautious about using credit. Consumer credit outstanding declined $7.2 billion during August following two months of double- [...]

U.S. Consumer Credit Usage Surprisingly Reverses Course in August

Robert Brusca

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German manufacturing is stumbling according to the August industrial production report and that is very different from the PMI survey from Markit that says output is advancing nicely.

According to Markit, manufacturing diffusion is higher by 4.2 points than it was in February the last month before the virus began to seriously disrupt Germany and Europe. But compared to its February level, manufacturing output is lower than its February level by 12.1%. This is a serious disconnect of difference.

However, not everything disconnects...

The IP report remains closely tied to the data on real sector sales (presented yesterday along with the German orders data; see <a href="http://www.haver.com/comment/comment.html?c=201006C.html">here</a>). So what we seem to have is a difference between count-'em-up old-style accounting reports and the diffusion data that are so popular, sensitive and timely but less accurate.

Diffusion data measure the breadth of a trend not its strength. Strength can also be thought of as breadth weighted by size- two measures of size. One of them measuring the size of the monthly change (such as percentage change- not just toting it as 'up' or 'down') the second relates to the relative importance of that gain: how big of a gain for how important of a company? What the diffusion data lack are the two 'size' weights and that loss can be significant. So what is happening is either more small firms doing well and larger firms doing worse or there are a lot of very small increases in activity that boost 'diffusion' a lot more than they boost output. Unfortunately, we just can't tell exactly what it is. But breadth is not strength even though the two concepts are correlated.

What we are seeing is either relatively broad based but small increases that are probably being offset by some substantial weakness at some larger firms accounting for why overall output gains are still so weak. We know that some sectors of the economy are still shut down or partly impaired.

The German data show that even diffusion surveys of current activity are still weak. The IFO manufacturing gauge, for example, rose to 90.9 in August from 87.9 in July, but it is still 1.8 points below its February level. But the IFO expectations gauge for manufacturing also rose to 104.9 in August from 103.9 in July and it is some 11 points above its February level. Surveys that have forward-looking components are much stronger than IP and real sales gauges that are only about what is selling or being produced here and now, not about expectations.

In manufacturing in August, only intermediate goods output expanded. Consumer goods and capital goods output both contracted. All sectors show output declines over 12 months and six months with large annualized again in place over three months The only exception to this is the construction sector that saw output fall for three months in a row, has an output gain over 12 months but slows steadily from 12-months to six-months to three-months.

Output is also jumping out of its own skin in the quarter-to-date in each sector except construction.

Several other early-reporting European countries have issued IP data for August. Spain alone shows an August drop while Portugal, Sweden and Norway log monthly increases. Portugal and Sweden show gradually increasing output from 12 months to six months with an explosion of output over three months. Norway and Spain show declines in output over 12 months with a worsening decline over six months then an explosion in output over three months. All four countries show sharp gains in output in the unfolding quarter-to-date but only Norway reports out a more normal-sized number (but still strong number) without output up at a 12% annualized rate.


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On balance, all of Europe got the virus and everyone's data seem to reflect the same sorts of patterns for recovery after accounting for some clear idiosyncrasies by nation. However, the past has been determined but policy toward the virus and so will the future. Just yesterday WHO warned about another spread of the virus impacting the global economy. Countries are handing this reflux or second wave with limited shutdowns instead of across the board shutdowns. Those shutdowns will be adversely impacting growth as well just not as dramatically.

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German manufacturing is stumbling according to the August industrial production report and that is very different from the PMI survey from Markit that says output is advancing nicely. According to Markit, manufacturing diffusion is [...]

Surprise Drop in German IP; MFG PMI Outruns IP Itself

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&bull; Refinancing applications surge but purchase applications fall.
&bull; Mortgage interest rates reach record lows.

The Mortgage Bankers Association Mortgage Loan Applications
Index rebounded 4.6% (38.4% y/y) in the week ended October 2 after having
declined 4.8% in the previous week.

Applications to refinance an existing loan surged 8.2% (49.8%
y/y) following a 6.5% decline in the previous week. Purchase applications
declined 1.5% (+21.1% y/y) after falling 1.9% in the previous week. The
refinance share of mortgage activity rose to 65.4% of total applications. That
remained down from the recent peak of 74.4% during all of April 2020. The
adjustable-rate mortgage (ARM) share of activity held steady at 2.2% of total applications.

The effective rate on a 30-year fixed rate interest rate
declined to a record low of 3.12% from 3.20% in the week ended September 25. The
rate on 15-year loans fell to 2.68% from 2.77%. The effective rate for a Jumbo
mortgage loan eased six basis points to 3.39%. The rate on the 5-year adjustable
rate mortgage weakened 23 basis points to 2.92%.

The average mortgage loan size edged 0.4% higher (-1.9% y/y)
to $322,500. The average size of a purchase loan improved 0.2% (12.4% y/y) to
$371,500. The average loan size to refinance gained 1.5% (-9.4% y/y) to $296,600.

Applications for fixed-rate loans rebounded 4.6% (42.7% y/y)
and applications for adjustable rate mortgages increased 3.2% (-43.3% y/y).

The survey covers over 75% of all U.S. retail residential
mortgage applications and has been conducted weekly since 1990. Respondents
include mortgage bankers, commercial banks and thrifts. The base period and
value for all indexes is March 16, 1990=100. The figures for weekly mortgage
applications and interest rates are available in Haver's SURVEYW database.

The minutes to the latest FOMC meeting can be found <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20200916.pdf">here</a>.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >MBA Mortgage Applications (%,
 SA)</th>
 <th>10//2/20</th>
 <th>09/25/20</th>
 <th>09/18/20</th>
 <th>Y/Y</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total Market Index</td>
 <td>4.6</td>
 <td>-4.8</td>
 <td>6.8</td>
 <td>38.4</td>
 <td>32.4</td>
 <td>-10.4</td>
 <td>-17.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Purchase</td>
 <td>-1.5</td>
 <td>-1.9</td>
 <td>3.4</td>
 <td>21.1</td>
 <td>6.6</td>
 <td>2.1</td>
 <td>5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Refinancing</td>
 <td>8.2</td>
 <td>-6.5</td>
 <td>8.8</td>
 <td>49.8</td>
 <td>71.1</td>
 <td>-24.3</td>
 <td>-34.</td>
 </tr>
 <tr>
 <td class="firstcol" >30-Year Effective Mortgage Interest Rate
 (%)</td>
 <td>3.12</td>
 <td>3.20</td>
 <td>3.24</td>
 <td>4.08
 (Oct '19)
 </td>
 <td>4.34</td>
 <td>4.94</td>
 <td>4.32</td>
 </tr>
 </tbody>
 </table>
 
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• Refinancing applications surge but purchase applications fall. • Mortgage interest rates reach record lows. The Mortgage Bankers Association Mortgage Loan Applications Index rebounded 4.6% (38.4% y/y) in the week ended October 2 [...]

Mortgage Applications Move Higher as Interest Rates Decline

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<a href="http://www.haver.com/comment/Moeller.html">Tom
Moeller</a>&nbsp;&nbsp; &nbsp;October 7, 2020
• Refinancing applications surge but purchase
applications fall.
• Mortgage interest rates reach record lows.
The Mortgage Bankers Association Mortgage Loan Applications
Index rebounded 4.6% (38.4% y/y) in the week ended October 2 after having
declined 4.8% in the previous week. 
Applications to refinance an existing loan surged 8.2% (49.8%
y/y) following a 6.5% decline in the previous week. Purchase applications
declined 1.5% (+21.1% y/y) after falling 1.9% in the previous week. The
refinance share of mortgage activity rose to 65.4% of total applications. That
remained down from the recent peak of 74.4% during all of April 2020. The
adjustable-rate mortgage (ARM) share of activity held steady at 2.2% of total
applications.
The effective rate on a 30-year fixed rate interest rate
declined to a record low of 3.12% from 3.20% in the week ended September 25. The
rate on 15-year loans fell to 2.68% from 2.77%. The effective rate for a Jumbo
mortgage loan eased six basis points to 3.39%. The rate on the 5-year adjustable
rate mortgage weakened 23 basis points to 2.92%.
The average mortgage loan size edged 0.4% higher (-1.9% y/y)
to $322,500. The average size of a purchase loan improved 0.2% (12.4% y/y) to
$371,500. The average loan size to refinance gained 1.5% (-9.4% y/y) to $296,600.
Applications for fixed-rate loans rebounded 4.6% (42.7% y/y)
and applications for adjustable rate mortgages increased 3.2% (-43.3% y/y).
The survey covers over 75% of all U.S. retail residential
mortgage applications and has been conducted weekly since 1990. Respondents
include mortgage bankers, commercial banks and thrifts. The base period and
value for all indexes is March 16, 1990=100. The figures for weekly mortgage
applications and interest rates are available in Haver's SURVEYW
database.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="851">MBA Mortgage Applications (%,
 SA)</th>
 <th width="145">10//2/20</th>
 <th width="145">09/25/20</th>
 <th width="145">09/18/20</th>
 <th width="145">Y/Y</th>
 <th width="145">2019</th>
 <th width="145">2018</th>
 <th width="146">2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="851">Total Market Index</td>
 <td align="center" width="145">4.6</td>
 <td align="center" width="145">-4.8</td>
 <td align="center" width="145">6.8</td>
 <td align="center" width="145">38.4</td>
 <td align="center" width="145">32.4</td>
 <td align="center" width="145">-10.4</td>
 <td align="center" width="146">-17.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="851">&nbsp;&nbsp;Purchase</td>
 <td align="center" width="145">-1.5</td>
 <td align="center" width="145">-1.9</td>
 <td align="center" width="145">3.4</td>
 <td align="center" width="145">21.1</td>
 <td align="center" width="145">6.6</td>
 <td align="center" width="145">2.1</td>
 <td align="center" width="146">5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="851">&nbsp; Refinancing</td>
 <td align="center" width="145">8.2</td>
 <td align="center" width="145">-6.5</td>
 <td align="center" width="145">8.8</td>
 <td align="center" width="145">49.8</td>
 <td align="center" width="145">71.1</td>
 <td align="center" width="145">-24.3</td>
 <td align="center" width="146">-34.</td>
 </tr>
 <tr>
 <td class="firstcol" width="851">30-Year Effective Mortgage Interest Rate
 (%)</td>
 <td align="center" width="145">3.12</td>
 <td align="center" width="145">3.20</td>
 <td align="center" width="145">3.24</td>
 <td align="center" width="145">4.08 
 (Oct '19)
 &nbsp;
 </td>
 <td align="center" width="145">4.34</td>
 <td align="center" width="145">4.94</td>
 <td align="center" width="146">4.32</td>
 </tr>
 </tbody>
</table>

<div id="content">
 <div id="rightside">
 <div class="col" id="entire">
 &nbsp;
 U.S. Consumer Credit Usage Firms Again in July 
 by <a href="http://www.haver.com/comment/Moeller.html">Tom
 Moeller</a>&nbsp;&nbsp;October 7, 2020
 • Nonrevolving borrowing usage surges.
 • Charge card balances ease further.
 Consumers continue to buy more using credit. Consumer
 credit outstanding increased $12.2 billion during July (0.5% y/y)
 following an $11.4 billion June increase, revised from $9.0 billion.
 Credit usage had fallen in each month from March through May. A $13.0
 billion rise had been expected by the Action Economics Forecast Survey.
 Nonrevolving credit usage rose $12.6 billion (3.9% y/y)
 after increasing $13.2 billion in June, revised from $11.3 billion.
 Borrowing from the federal government, which issues over 40% of
 nonrevolving credit, grew 5.9% y/y. Depository institution loans (29% of
 credit) gained a greatly lessened 3.6% y/y. Finance company borrowing
 (16.0% of loans) rose 1.6% y/y and credit union loans (14.0% of the total)
 increased 2.3% y/y.
 Revolving consumer credit balances weakened $0.3
 billion (-8.7% y/y) in July, down for the sixth month this year. Credit
 provided by depository institutions, 90% of the total and mostly credit
 card debt, declined an accelerated 8.7% y/y. Credit union borrowing
 dropped a quickened 5.9% y/y and finance company loans fell 22.3% y/y.
 These Federal Reserve Board figures are break-adjusted
 and calculated by Haver Analytics. The breaks in the series in 2005, 2010
 and 2015 are the result of the incorporation of the Census and Survey of
 Finance Companies, as well as changes in the seasonal adjustment
 methodology.
 The consumer credit data are available in Haver's USECON
 database. The Action Economics figures are contained in the AS1REPNA
 database.
 <table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th height="25" class="firstcol" scope="col" width="1021">Consumer
 Credit Outstanding (M/M Chg, SA)</th>
 <th scope="col" width="120">Aug</th>
 <th scope="col" width="121">Jul</th>
 <th scope="col" width="121">Jun</th>
 <th scope="col" width="121">Aug y/y</th>
 <th scope="col" width="121">2019</th>
 <th scope="col" width="121">2018</th>
 <th scope="col" width="121">2017</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="1021">Total ($ bil)</td>
 <td align="center" width="120"></td>
 <td align="center" width="121">12.2</td>
 <td align="center" width="121">11.4</td>
 <td align="center" width="121">0.5%</td>
 <td align="center" width="121">4.6%</td>
 <td align="center" width="121">4.8%</td>
 <td align="center" width="121">5.3%</td>
 </tr>
 <tr>
 <td class="firstcol" width="1021">&nbsp; &nbsp;Nonrevolving</td>
 <td align="center" width="120"></td>
 <td align="center" width="121">12.6</td>
 <td align="center" width="121">13.2</td>
 <td align="center" width="121">3.9</td>
 <td align="center" width="121">4.9</td>
 <td align="center" width="121">5.2</td>
 <td align="center" width="121">5.1</td>
 </tr>
 <tr>
 <td class="firstcol" width="1021">&nbsp; &nbsp;Revolving</td>
 <td align="center" width="120"></td>
 <td align="center" width="121">-0.3</td>
 <td align="center" width="121">-1.8</td>
 <td align="center" width="121">-8.7</td>
 <td align="center" width="121">3.8</td>
 <td align="center" width="121">3.6</td>
 <td align="center" width="121">6.0</td>
 </tr>
 </tbody>
 </table>
 
 </div>
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&bull; Job openings are fewer in number.
&bull; Hiring increases modestly.
&bull; Layoffs and quits decline.

The Bureau of Labor Statistics reported that on the last
business day of August, the total job openings rate eased to 4.4% from 4.6%
during July, revised from 4.5%. The openings rate is calculated as job openings
as a percent of total employment plus jobs that have not yet been filled. The
August figure remained below the 4.8% record in January 2019. The hiring rate
held steady at 4.2%. July's rate was revised from 4.1%. The overall layoff and
discharge rate fell to 1.0% versus 1.3% in July. The quits rate eased to 2.0%
from a five-month high of 2.1%. It nevertheless remained below the record 2.4%
in July of last year. These figures date back to December 2000.

The job openings level dropped 3.0% to 6.493 million, down
9.4% y/y. The job openings level in the construction sector fell 25.2% y/y but
in manufacturing, it rose 3.4% y/y. It fell by 17.1% y/y in leisure &amp;
hospitality and by 8.2% y/y in the professional &amp; business service sector.
In government, the number of job openings rose 16.1% y/y.

The private-sector job openings rate declined to 4.5% and
remained below the record rate of 5.1% reached in January 2019. The construction
sector's job openings rate fell sharply to 3.5% and remained well below its 5.4%
peak in April 2019. The rate in manufacturing rose m/m to 3.7%, the highest
level since June 2019. The rate in leisure &amp; hospitality held steady at 5.8%
but was below the record 6.6% in June. The rate in professional &amp; business
services held at 5.6%, up from 4.8% three month earlier. The government sector
job openings rate rose to a record high of 3.8%. July was revised sharply higher to 3.7%.

In August, the level of hiring improved 0.3% to 5.919 million (1.4% y/y)
following a 15.3% July decline. The hiring rate held steady at 4.2%, down from
the record 5.4% in May. The private sector hiring rate eased to 4.5% but the
government sector hiring rate surged to a near-record 2.6%. The factory sector
hiring rate improved to 3.2% but the leisure &amp; hospitality rate fell
sharply to 7.5%. The professional &amp; business service sector hiring rate
eased to 5.6% after being elevated at 5.8% in July and the education &amp;
health services hiring rate declined to 3.1%, after surging to 4.9% in May.

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Data on job separations reflect a combination of layoffs and
quits. The separations rate of 3.3% compared to the record 9.7% in March. The
level of separations declined 18.8% y/y. Private sector separations fell 18.6%
y/y and the separations rate fell to 3.6%, just above the record low of 3.5% in
May. The separations rate fell to 5.4% in leisure &amp; hospitality, lower than
32.7% in March. Professional &amp; business realized a separations rate of 4.4%
after surging to a record 8.0% in March. At 2.7%, the separations rate in
education &amp; health services was unchanged, just above May's record low of 2.4%.

The layoff &amp; discharge rate in the private sector
declined to a record low of 1.2% in August. It was a record low of 0.3% in
government. The fairly steady 2.8% rate in construction compared to a lessened
0.9% in manufacturing. The 0.9% rate in the information sector was below the
record 3.7% in April. It compared to 0.6% in finance. The professional &amp;
business services layoff &amp; discharge rate was a record low of 1.5% and
compared to an all-time high of 5.1% in March.

The higher quits rate of 2.2% in the private sector remained
up from 1.6% in April. It compared to an increased 0.6% in government. In
manufacturing, the job quits rate surged to a near-record 1.7%, up from 0.9% in
April. In finance, it jumped to 1.4% from a 0.8% cycle low in April. The quits
rate in professional &amp; business services eased to 2.6% and fell sharply to
3.7% y/y in leisure &amp; hospitality. The level of job quits in the private
sector fell 21.0% y/y and 24.3% y/y in government.

The Job Openings and Labor Turnover Survey (JOLTS) dates to
December 2000; the figures are available in Haver's USECON database.

<a href="/comment/201006n.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/201006n.png"></a>
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 
 
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS
 (Job Openings &amp; Labor Turnover Survey, SA)</a></th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 Jun
 <th scope="col" >Aug'19</th>
 <th scope="col" >Aug'18</th>
 <th scope="col" >Aug'17</th>
 

<tbody>
 <tr class="grey3">
 <td class="firstcol" colSpan="7" >Job Openings, Total</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Rate (%)</td>
 <td>4.4</td>
 <td>4.6</td>
 <td>4.2</td>
 <td>4.5</td>
 <td>4.6</td>
 <td>4.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Total (000s)</td>
 <td>6,493</td>
 <td>6,697</td>
 <td>6,001</td>
 <td>7,166</td>
 <td>7,249</td>
 <td>6,335</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="7" >Hires, Total</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Rate (%)&nbsp;</td>
 <td>4.2</td>
 <td>4.2</td>
 <td>5.1</td>
 <td>3.9</td>
 <td>3.9</td>
 <td>3.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Total (000s)</td>
 <td>5,919</td>
 <td>5,903</td>
 <td>6,970</td>
 <td>5,839</td>
 <td>5,792</td>
 <td>5,528</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="7" >Layoffs &amp; Discharges,
 Total</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Rate (%)</td>
 <td>1.0</td>
 <td>1.3</td>
 <td>1.4</td>
 <td>1.2</td>
 <td>1.2</td>
 <td>1.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Total (000s)</td>
 <td>1,473</td>
 <td>1,745</td>
 <td>1,995</td>
 <td>1,792</td>
 <td>1,796</td>
 <td>1,866</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="7" >Quits, Total</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Rate (%)</td>
 <td>2.0</td>
 <td>2.1</td>
 <td>1.9</td>
 <td>2.3</td>
 <td>2.3</td>
 <td>2.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Total (000s)</td>
 <td>2,793</td>
 <td>2,932</td>
 <td>2,605</td>
 <td>3,544</td>
 <td>3,446</td>
 <td>3,126</td>
 </tr>
 </tbody>
 
 

</html>

• Job openings are fewer in number. • Hiring increases modestly. • Layoffs and quits decline. The Bureau of Labor Statistics reported that on the last business day of August, the total job openings rate eased to 4.4% from 4.6% during [...]

U.S. JOLTS: Job Opportunities Fall but Hiring Improves

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German orders are up strongly for four months in a row. Orders surged in May as they broke out from their April pit in the wake of lifted restrictions on the economy. Then orders spurted in June as the get-back-to-work phase deepened. Orders rose by 3.3% in July and now by 4.5% in August. And yet with all this surging and spiking and growing, orders are still 3.6% below their level of February of this year just before the virus struck. Foreign orders are 1.4% below their February level while domestic orders in Germany are 6.6% below their February level.

A familiar story from order growth 
Sequential growth rates tell a familiar story. Over 12 months orders fall by 2%. Over six months they drop at a 7.1% annual rate. Over three months orders are jumping wildly at a 273.8% annualized rate. Foreign and domestic orders echo these patterns with different rates of growth, of course.

QTD growth rates are stupendous 
Two months into Q3, the quarter-to-date growth rates show a 224.2% annualized growth in overall orders lead with a nearly 400% rate splurge in foreign orders and an 83.5% pace in domestic orders. The growth rate and growth patterns are still too erratic to try to extract a real trend, but recovery is still afoot.

Sales by sector are recovering 
Real sales by sector are bit more grounded as they require actual production and physical shipping not just orders on paper. Even so, they manage some strong growth rates especially over three months. Total manufacturing and mining sales fall by 9.6% over 12 months and fall again at an 18.5% annual rate over six months. Over three months sales surged at a 100% annual rate. In the quarter-to-date, sales are advancing at a 114.7% annual rate. And despite all this growth, sales are still nearly 10% below their February level. Among the sectors only durable consumer goods have real sales above their February level (1.2% higher). Sales of capital goods lag their February level the most (by 11.2%). But then capital goods are posting the strongest growth rate over three months at 204%, annualized.

...but sales by sector are slowing too 
However, sector sales are decelerating broadly across all sectors over the last two months. The only exception is a pick-up in the sales of consumer durables in August. So despite all the growing and surging and advancing and the support of very strong orders in the background, real sector sales are not building momentum. Sales overall were flat in August and falling in two of the three major sectors (consumer goods, capital goods and intermediate goods) as well as declining slightly in manufacturing overall.


<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/201006.png" width="660" height="290">


And the outlook is guarded 
Of course, no discussion of momentum or trend or the future is complete these days without a mention of the virus. And there the news is bad and there is some further spreading and countermeasures taken to slow the spread that also impedes growth. As of October 5, German infections were still rising and up to 3,100 per day. This compares to a low of 16 back in June. German infections are still not all that high by the standards of other countries, but they are rising and they are at about 45% of their past peak in late-March. It would appear that Germany will be fighting this ‘rear guard’ action against rising infections for a while longer--and that damps the outlook despite a strong trend in orders and in the presence of a weakening trend in sales.

</html>

German orders are up strongly for four months in a row. Orders surged in May as they broke out from their April pit in the wake of lifted restrictions on the economy. Then orders spurted in June as the get-back-to-work phase deepened. [...]

German Orders Continue to Surge...Still They Lag Below February Level

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&bull; Gasoline prices continue sideways trend.
&bull; Crude oil prices decline.
&bull; Natural gas prices ease w/w; firm yesterday.

Regular gasoline prices were unchanged at $2.17 per
gallon (-17.9% y/y) in the week ended October 5, having hovered around that
level since late-June. Haver Analytics adjusts the gasoline price series for
usual seasonal variation. The seasonally adjusted price held at $2.12 per gallon
versus the previous week. The reformulated RBOB Regular Gasoline Spot Price rose
three cents to $1.29 per gallon in the week ended October 2.

The cost of West Texas Intermediate crude oil fell
1.8% last week (-26.4% y/y) to average $39.10 per barrel in the week ended
October 2 from $39.82 in the previous week. Yesterday, the price was $39.22 per
barrel. The price of Brent crude oil dipped 1.2% w/w (-29.4% y/y) to average
$41.19 per barrel versus $41.70 in the previous week. The price was $41.41 per
barrel yesterday.

Natural gas prices also slipped 1.8% w/w (-29.2% y/y)
to $1.65/mmbtu in the week ended October 2 from $1.68/mmbtu in the previous
week. The weekly average was at its lowest level since late-June, Yesterday, the
price rebounded to $1.92/mmbtu.

In the four weeks ended September 25, gasoline demand
declined 8.9% y/y. Total petroleum product demand fell 14.4% y/y. Crude oil
input to refineries was down 20.1% y/y in the past four weeks. Gasoline
inventories moved 0.8% below a year ago, while inventories of all petroleum
products rose 6.6% y/y.

These data are reported by 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,
along with regional breakdowns, are in OILWKLY.

<a href="/comment/201006h.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/201006h.png"></a>
 <a href="/comment/201006i.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/201006i.png"></a>

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th>10/05/20</th>
 <th>09/28/20</th>
 <th>09/21/20</th>
 <th>Y/Y %</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Retail Gasoline ($ per Gallon Regular,
 Monday Price, End of Period)</td>
 <td>2.17</td>
 <td>2.17</td>
 <td>2.17</td>
 <td>-17.9</td>
 <td>2.57</td>
 <td>2.27</td>
 <td>2.47</td>
 </tr>
 <tr>
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl,
 Previous Week's Average)</td>
 <td>39.10</td>
 <td>39.82</td>
 <td>39.55</td>
 <td>-26.4</td>
 <td>56.91</td>
 <td>64.95</td>
 <td>50.87</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, Previous
 Week's Average)</td>
 <td>1.65</td>
 <td>1.68</td>
 <td>1.93</td>
 <td>-29.2</td>
 <td>2.57</td>
 <td>3.18</td>
 <td>2.99</td>
 </tr>
	 </tbody>
	 </table>
	 
</body></html>

• Gasoline prices continue sideways trend. • Crude oil prices decline. • Natural gas prices ease w/w; firm yesterday. Regular gasoline prices were unchanged at $2.17 per gallon (-17.9% y/y) in the week ended October 5, having hovered [...]

U.S. Gasoline Prices Steady While Crude Oil Costs Ease

Sandy Batten

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&bull; Both exports and imports increase.
&bull; Real trade balance also widened, points to meaningful drag on Q3 GDP.

The U.S. trade deficit in goods and services widened further in August to $67.1 billion from $63.4 billion in July (revised from $63.6 billion). A $66.0 billion deficit had been expected in the Action Economics Forecast Survey. Exports increased 2.2% m/m (-18.3% y/y), a slowdown from 9.6% m/m and 8.3% m/m jumps in June and July, respectively. Imports rose 3.2% m/m (-8.5% y/y) following a 10.9% m/m surge in July as the economy continued to rebound from the coronavirus shutdown.

The nominal deficit in goods trade widened to another record, $83.9 billion in August from $80.8 billion in July. The August reading was slightly larger than the $82.9 billion deficit in the advance report. Exports of goods increased 3.0% m/m (-13.3% y/y) following double-digit monthly jumps in June and July. The August increase was led by a 10.9% m/m jump in exports of industrial supplies and materials and a 10.5% m/m rise in exports of foods, feeds and beverages. Imports of goods rose 3.3% m/m (-4.2% y/y) following a 12.4% jump in July. The August gain was led by a 7.1% m/m rise in imports of nonauto consumer goods and a 6.3% m/m increase in imports of autos and parts (while large, a slowdown from 41.5% m/m in July and 107.8% m/m in June. Even with their sharp rebound in June, July and August, auto imports are still 8.3% below their pre-COVID level.

The real goods trade balance widened further to a record $92.3 billion (chain-weighted 2012$) in August from an upwardly revised $91.1 billion in July. The marked widening of the real deficit in July and August indicate that the trade sector will be a meaningful drag on Q3 real GDP.

The surplus on trade in services narrowed to $16.8 billion in August from $17.4 billion in July. Exports of services edged up 0.3% m/m (-27.8% y/y) led by a 1.3% m/m increase in exports of "other business services." Reflecting the ongoing adverse impact of the pandemic, exports of travel services fell 5.8% m/m (-77.2% y/y), their sixth consecutive monthly decline. Imports of services rose 2.4% m/m (-26.9% y/y). Rebounds in imports of travel and transportation accounted for most of the August increase.

The seasonally adjusted goods trade deficit with China narrowed to $26.4 billion in August from $28.3 billion in July. Exports to China surged 18.5% m/m while imports slipped 0.4% m/m. The SA trade deficit with the European Union widened to $15.7 billion in August from $13.1 billion. Exports fell 1.4% m/m while imports rose 7.3% m/m. The trade deficit with Japan widened to $4.3 billion in August from $3.4 billion in July. Exports jumped up 12.4% m/m, but imports surged 19.1% m/m.

The international trade data, including relevant data on oil prices, can be found in Haver's USECON database.
Detailed figures on international trade are available in the USINT database. The expectations figures are
from the Action Economics Forecast Survey, which is carried in AS1REPNA.

<a href="/comment/201006c.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/201006c.png"></a>
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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Foreign Trade in Goods &amp;
 Services (Current $)</th>
 <th>Aug</th>
 <th>Jul</th>
 <th>Jun</th>
 <th>Aug Y/Y</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >U.S. Trade Deficit ($ bil.)</td>
<td >67.10</td>
<td >63.37</td>
<td >53.46</td>
<td >50.78</td>
<td >576.86</td>
<td >579.94</td>
<td >513.79</td>
 </tr>
 <tr>
 <td class="firstcol" >Exports of Goods &amp; Services (% Chg)</td>
<td >2.2</td>
<td >8.3</td>
<td >9.6</td>
<td >-18.3</td>
<td >-0.4</td>
<td >6.4</td>
<td >6.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Imports of Goods &amp; Services (% Chg)</td>
<td >3.2</td>
<td >10.9</td>
<td >4.6</td>
<td >-8.5</td>
<td >-0.5</td>
<td >7.5</td>
<td >6.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Petroleum (% Chg)</td>
<td >14.6</td>
<td >16.2</td>
<td >16.9</td>
<td >-41.0</td>
<td >-14.0</td>
<td >20.8</td>
<td >27.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Nonpetroleum Goods (% Chg)</td>
<td >2.8</td>
<td >12.2</td>
<td >4.7</td>
<td >-1.0</td>
<td >-0.4</td>
<td >7.4</td>
<td >5.5</td>
 </tr>
	 </tbody>
	 </table>
	 
</body></html>

• Both exports and imports increase. • Real trade balance also widened, points to meaningful drag on Q3 GDP. The U.S. trade deficit in goods and services widened further in August to $67.1 billion from $63.4 billion in July (revised [...]

U.S. Trade Deficit Widened Further in August

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

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

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260629E.jpg

Headline indexes for the European Monetary Union improved in June to a reading of 95.0 from 93.7 in May. The index had been stronger at 96.4 in March; however, it fell to 93.3 in April, recovered slightly to 93.7 in May, and has now reached 95.0. While still below its March high, the index has made progress in the wake of the outbreak of war-like conditions and the closure of the Strait of Hormuz.

**Sector performance**
The industrial reading for the sector, at -8, has a 36.3 percentile standing, which better than the headline index for the Monetary Union with a 25.4 percentile standing. The EMU-wide sector index, consumer confidence, improved to a net diffusion reading of -17.7 in June from -19 in May, but that still leaves it with a very weak 8.1 percentile standing, the lowest among sector readings. Retailing improved to a net diffusion reading of -10 in June from -11 in May and posted a 38.1 percentile standing. The construction sector deteriorated, falling back to -5 from -4 in May; it has been undergoing steady degradation since at least March, but it still has a 68.4 percentile standing. It is the only sector with a percentile standing above 50, placing it above its historic median. The services sector had a net diffusion reading of +3, identical to its May reading and has a 24-percentile standing.

**Sector index ranking**
The sector readings clearly show that the monetary union is exhibiting a number of sectors with subpar growth; beyond ‘subpar,’ many are quite weak. The exception is—and has been for some time—the construction sector, which continues to perform above average and post an above-median metric. It is, perhaps surprising that we often think of consumer confidence as being relatively forward-looking, but in this schematic, consumer confidence is the weakest of the sectors; in fact, like statistics from the U.S., we find the same prevailing situation with consumer readings exceptionally weak. These weak consumer readings coexist with much stronger retailing readings and stronger industrial readings, although both of those are below their historic medians in Europe. This report is a sort of gut check for what consumer confidence means; it may not be as important as we used to think it was. Although the business cycle at this juncture seems to be concentrated more on the supply side and on recovery in the business community, that effect compounded by the influence of AI is much stronger in the U.S. than in Europe.

**Country detail – Large economies**
The country detail shows 16 of 20 early reporting countries with only one of the top four countries showing a decline month-to-month, and that's France. France recorded a 0.2% decline in June, while Germany posted a 1.9% increase, Italy gained 1.3%, and Spain rose 0.7%. Spain had the lone small decrease in May, while in April all of the large countries showed significant monthly declines in their overall indexes in the wake of the onset of the war with Iran.

**Smaller economies in EMU**
Apart from the Big Four economies, 12 other EMU members report in June; of those, 5 showed month-to-month declines in their country level indexes. This was up from three showing declines in May, although it was a vast improvement from April, when all of the country indexes turned negative and generated substantial month-to-month declines, except for Slovakia and Lithuania.

**Big Four economy rankings**
Among the Big Four economies, the strongest ranking reading in June is Spain at a 52.3 percentile standing, followed by Italy at a 41.6 percentile standing, France at a 22.7 percentile standing, and Germany at an 18.7 percentile standing.

**Other economy rankings**
Among the other 12 countries, the percentile standing readings range from a high of 76.1% for Greece to a low of 9.3% for Austria. Five of 12 of the smaller EMU members have percentile standings of 50% or greater, putting them above their historic medians, while the other 7 have rankings that range from a high of 44.6% in Portugal to a low of 9.3% in Austria.

**Summing up**
Conditions in the monetary union have improved over the last two months after a substantial stumble in the wake of the war in the Middle East with Iran and the closure of the Strait of Hormuz. However, the rebound in the European recovery is in gear; it is slow and measured. Conditions are still weak on balance.

260629.jpg

Europe

EU Indexes Show European Improvement in June

Tian Yong Woon

In this week's Letter, we explore the significant pullback in oil prices that followed the US-Iran memorandum of understanding and consider its broader economic implications. The agreement saw a fragile ceasefire ensue and a gradual resumption of shipping flows through the Strait of Hormuz (chart 1). We acknowledge that this major pullback will certainly be welcome to policymakers across the region and beyond. Previously elevated energy prices had added to the fiscal burdens of governments and sharpened the dilemma facing central banks (chart 2). That dilemma pits the need to rein in inflation against the risk of choking off economic growth. That said, while one source of inflationary pressure seems to be ebbing, another looks to be emerging on the horizon. It stems from a potential "Super El Niño" event, which meteorologists have been warning about for some time now. Asia sits at the centre of such risks, as past strong El Niño events have directly and adversely affected crop production (chart 3). The impact is not limited to potential surges in headline inflation via food supply shocks, especially in Asia. It extends directly to growth as well (chart 4), given the nontrivial share of GDP that agriculture still commands in many Asian economies (chart 5). Should price pressures simply rotate from energy to food, government subsidies may follow suit (chart 6). Central bankers, for their part, may find themselves unable to ease off the tightening pedal just yet. Some Asian economies, however, would still manage to offset such a growth shock through other engines. Electronics and semiconductors, buoyed by the current AI upcycle, offer one such cushion for the more fortunate. For others, lacking such offsets, the agricultural hit may simply have to be borne in full.

**The US-Iran conflict and oil prices**
The recent memorandum of understanding between the US and Iran, aimed at working towards a final deal, has already brought visible relief to crude oil markets (chart 1). This relief has held despite the renewed tensions that have followed the agreement, which markets seem to have largely looked past. The easing in prices should go a long way towards unwinding the inflation concerns that elevated oil prices had previously stoked. Much of the pullback reflects anticipation of the substantial supply now expected to return to global markets. Yet some shipping trackers, such as the IMF's, already point to a marked pickup in traffic through the Strait of Hormuz. Even so, those volumes still remain well below the levels seen before the conflict began in the region. 

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**Oil prices and inflation in Asia**
Should this normalisation of shipping flows through the Strait of Hormuz persist, it would support a corresponding easing in oil prices and energy inflation. That moderation in energy costs would, in turn, help bring down broader headline inflation across the economy. As chart 2 shows, energy has been a large contributor to headline inflation in recent years, though other important forces have been at play too. Such an outcome, in which restored oil supply cools energy inflation, would be a welcome development for central bankers. They face the delicate task of reining in price pressures without tightening policy so far that growth stalls or tips into contraction. That said, while one driver of price pressures now seems to be ebbing, albeit not without the risk of renewed tensions, another source of inflation is building on the horizon.

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**Risks of a “Super El Niño”**
As meteorological agencies have warned for some time, the world may be on the cusp of a Super El Niño. The probability of such an event has risen sharply in recent months. Were it to materialise, it would unleash a range of disruptions from the second half of this year, chief among them shifts in weather and climate patterns that can severely dent crop yields. Asian staples such as rice, wheat and palm oil are especially exposed, since strong El Niño events tend to bring drier conditions and reduced rainfall, in turn cutting output across affected economies in the region. Chart 3 illustrates just how tightly some crops are bound to these conditions: SOI readings correlate closely with certain economies' production, notably Thailand's rice harvest, underscoring how dependent such output remains on the weather. These supply shortfalls would then feed inflationary pressures through the food channel. So central bankers may not be able to rest entirely easy following the easing of tensions between the US and Iran, finding themselves wrestling with a fresh set of emerging inflation risks instead.

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Delving deeper, an examination of recent strong El Niño episodes against the growth of Asian economies' agricultural sectors shows that extreme weather weighs not just on food prices but on economic growth itself. As chart 4 shows, previous major El Niño episodes—notably in 2014–16 and 2023–24—were associated with weaker agricultural growth across parts of Asia, with India and Thailand appearing particularly vulnerable. This is understandable, since these episodes coincided with reduced crop production and, in turn, lower crop revenue. Should these past episodes serve as a gauge and given that the coming event is potentially the worst on record, these economies stand to suffer once more should it hit as hard as feared.

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Beyond the sensitivity of individual economies to extreme El Niño events, vulnerability also depends on the size of the agricultural sector itself. Economies where agriculture accounts for a larger share of output are naturally more exposed to weather-related disruptions. As chart 5 shows, economies such as India, Indonesia and, to a lesser extent, Vietnam carry a comparatively higher share of agriculture in their GDP, which presents a further source of risk. That said, this dimension should not be read in isolation, since the eventual impact would turn on a combination of factors: the degree of exposure, the intensity of El Niño's effect on each economy's agricultural output, and the actual weather conditions that come to pass.

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Bringing it all together, the recent de-escalation between the US and Iran and the early normalisation of flows through the Strait of Hormuz are certainly welcome news. Businesses, consumers and policymakers alike stand to benefit from the relief that lower energy prices would bring. Yet the formation of extreme El Niño conditions presents a looming inflation risk over the months ahead. It may displace energy as the dominant driver, shifting the pressure from the energy channel to the food channel. For Asia's central bankers, this could mean they are unable to ease off the tightening pedal just yet (chart 6). Food inflation may simply pick up where energy inflation leaves off, keeping price pressures elevated for longer. Regional governments, too, may have to redirect funds from energy subsidies to food subsidies should the supply shock play out. On growth, however, the picture may prove more uneven across the region than a single narrative suggests. Economies exposed to the current AI upcycle could keep leaning on those sectors for continued support. Those less exposed, by contrast, may simply have to absorb the hit to agriculture with little to offset it.

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Asia

Economic Letter from Asia: Oil Down, Emerging Risks

Winnie Tapasanun

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The U.S. international trade deficit in goods ballooned to a larger-than-expected $105.75 billion in May after narrowing to $83.01 billion in April, according to the advance estimate from the U.S. Census Bureau. The May reading marked the third widening in the goods trade deficit in four months, exceeding a $91.55 billion shortfall in May 2025. A deficit of $84.0 billion for May had been expected by the Action Economics Forecast Survey. The deficit reached a low of $61.44 billion in October 2025 (the smallest since February 2020) and a record high of $158.73 billion in March 2025. On a quarterly basis, the deficit averaged $94.38 billion so far in Q2'26 versus $81.96 billion in Q1'26.

Total goods exports fell 5.4% m/m (+14.7% y/y) to $207.67 billion in May, the first monthly fall since December and a three-month low, following a 3.8% rise to a record-high $219.52 billion in April. Exports were up 27.7% from a June 2023 low. The m/m fall in exports in May reflected declines of 9.2% (-5.0% y/y) in nonfood consumer goods excluding autos, 7.0% (+23.2% y/y) in industrial supplies & materials, 6.8% (+19.5% y/y) in other goods, and 5.0% (+14.8% y/y) in capital goods excluding autos. To the upside, exports of foods, feeds & beverages (+3.9%; +19.1% y/y) and automotive vehicles & parts (+0.5%; -3.6% y/y) rebounded m/m in May.

Total goods imports, up for the fourth consecutive month, rose 3.6% m/m (15.0% y/y) to $313.43 billion in May, after a 2.0% increase to $302.53 billion in April, marking the highest level since the March 2025 record high of $340.11 billion. Imports were up 25.0% from a March 2023 low. The m/m rise in imports in May was broad-based across all end-use categories, led by an 11.5% gain (22.0% y/y) in other goods, followed by increases of 6.3% (1.4% y/y) in automotive vehicles & parts, 5.7% (-9.1% y/y) in nonfood consumer goods excluding autos, 4.8% (11.7% y/y) in industrial supplies & materials, 4.3% (-0.2% y/y) in foods, feeds & beverages, and 0.4% (41.9% y/y) in capital goods excluding autos. 

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Deficit: $105.75 bil. in May, up $22.75 bil. (+27.4%) from April’s $83.01 bil.
- Exports -5.4%, first m/m decline since Dec., led by a 9.2% drop in nonauto consumer goods exports.
- Imports +3.6%, fourth straight m/m rise to highest level since Mar. ’25, driven by an 11.5% gain in imports of other goods.

U.S. Goods Trade Deficit Balloons in May, Largest Since March ’25

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In June, there's a slight divergence in the performance of industry climate and service sector climate, although broadly the two sectors have seen their composite indexes moving in more or less the same direction. Since 2024, the industry survey has moved up slightly after falling faster than the services gauge. The services survey has been locked in a slow trend of deterioration, largely since it reached a peak in 2021 in the wake of COVID.

The industry climate gauge has a 30.8 percentile standing, but the recent production trend, while declining, logs a more substantial 42.8 percentile standing. Contributing survey members find their own industry ‘likely trend’ much weaker, at a 21.2 percentile standing. Demand overall, however, has standings above the 50th percentile, putting overall and foreign orders & demand each above their respective medians for this period of ranking back to 2001. Inventories have a strong 81-percentile ranking. Prices are extremely strong, with 87-percentile and 86-percentile standings for respondents for their personal industry trend for prices as well as for the overarching manufacturing sector estimate of prices. Higher prices seem to be the one thing that everyone can agree on by a large margin.

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As for services, the service climate index improved slightly to 93.4 in June from 92.6 in May. The three-month moving average was weaker in June than in May as well; the 12-month moving average has been stuck at its current level for a number of months. The outlook in June improved slightly to a reading of -12 from -15 in May, but the outlook ranking is still a weak 26.8 percentile standing. The three-month expectations and observations of past sales trends haven't changed much in the last two months, but there has been a slight improvement for sales expectations. However, both sales metrics have low 20th percentile standings. Sales prices have deteriorated slightly in June compared to May for both the observed and the expected trends, but prices have standings above their 50th percentiles, logging above-median performance. Employment over the last three months has weakened noticeably, and expected employment is weaker by a small amount.

In terms of rankings, all of the sector rankings are below the 50th percentile on all of these observations, including the climate headline except for sales prices where both the past three-month observed trend and the expected trend have readings above their respective 50th percentiles, indicating past and expected price pressures in excess of normal.

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**Assessment**
On balance, the readings for the French industry, manufacturing sector and services are not encouraging. In addition, concerns about prices linger. The services sector, those concerns seem moderate compared to the concerns in manufacturing.

The hot war continues between Ukraine and Russia, while in the Middle East there was talk of some improvement and a potential peace deal between the United States and Iran, but every time there is some talk of a breakthrough, there appears to be a breakdown. In the most recent development, Iran has asserted its right to control traffic through the Strait of Hormuz, and it's not clear how that demand would ever be consistent with the U.S. allowing a ceasefire. It appears that Iran may have traded its irreconcilable demand for nuclear weapons for a more pragmatic and real-world argument—that it will control the traffic through the Strait of Hormuz simply because it can—and it still is doing exactly that, even after all the destruction it suffered.

Stopping Iran from controlling the Strait would take a commitment to restart the war. All this makes me personally more pessimistic. I think Iran sees the need for Trump to cut a deal and stop the war before the U.S. mid-term elections, and it is pressing that need to its advantage. Trading its nuclear ambitions for real world control of the Strait would elevate Iran’s power from being dangerous but ethereal to a real world event with constant consequences.

France

French Industry and Services Confidence Diverge in June

Andrew Cates

**Equity Momentum and Global Surprises — Still Moving Together**
One of the more telling features of global equity markets in 2026 has been the persistence of the correlation between non-US equity momentum and global growth and inflation surprise indices. Equity markets outside the United States have generally prospered when economic data have beaten consensus expectations and when inflation surprises have been negative  — a combination that has historically been associated with stronger corporate earnings and a more benign policy backdrop in economies other than the US. That correlation has held reasonably well through the turbulence of the past few months, even as the Middle East conflict introduced significant noise into both the economic data and the financial market signal. What the chart reveals this week is a picture of moderate but not alarming deterioration: global growth surprises have softened at the margin, consistent with the energy cost headwinds that have weighed on European and Asian activity, but the relationship between equity momentum and the broader data pulse remains intact. It is a signal that market participants continue to track economic fundamentals rather than purely geopolitical newsflow — a modestly reassuring sign that the underlying framework for assessing the global cycle has not broken down.

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**The Fed Decouples: Why Oil and US Two-Year Yields Have Parted Ways**
For much of 2026, oil prices and US two-year Treasury yields moved in close alignment. The logic was straightforward: higher oil prices raised inflation expectations, which in turn pushed market participants to anticipate a more hawkish Federal Reserve, lifting short-dated yields in the process. That relationship held with notable consistency through the March escalation and the months that followed, as energy market shocks and monetary policy expectations fed off each other. What this week’s chart captures is a striking breakdown in that correlation. As oil prices have fallen on the back of the US-Iran memorandum of understanding and the associated unwinding of the geopolitical risk premium, US two-year yields have not followed them lower. The reason is last week’s Federal Reserve meeting. Under new chair Kevin Warsh, the Fed delivered a hawkish dot plot that shifted the median year-end projection to a hike, making clear that the easing cycle previously priced by some market participants is no longer the central scenario. The message is important: the deflationary impulse from lower oil prices is being offset — at least in the Fed’s framing — by persistent underlying inflation pressures and a commitment to keeping policy tight.

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**Flash PMIs Signal Easing Supply Chain Stress and Softer Price Pressures**
June’s flash PMI surveys, released this week across the major advanced economies, provide a timely read on how the global manufacturing and services sectors are absorbing the shifting macro backdrop. Two findings stand out. First, supplier delivery times have improved (or not lengthened as much as they had in the prior two months). This finding coheres naturally with the broader narrative: lower oil prices reduce transport and energy input costs, while the resumption of Strait of Hormuz shipping flows — examined in more detail in chart 4 — is beginning to reduce the freight disruption and re-routing costs that had been building since the conflict escalated. Second, output price inflation in manufacturing has softened, suggesting that some of the pipeline pressure from earlier energy cost spikes is beginning to fade.

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**Hormuz Traffic and Oil: A Coherent Story of Tentative Normalisation**
The recent US-Iran memorandum of understanding to work towards a final deal, though not without subsequent flare-ups, has already brought relief to markets, most visibly in crude oil prices. This should go a long way towards unwinding the inflation-related concerns that previously elevated oil prices had stoked. While the pullback has owed much to anticipation of the glut of pent-up supply expected to follow, certain trackers of shipping volume through the Strait of Hormuz, such as the IMF’s, already point to a marked pickup in traffic, even if it remains well below pre-conflict levels. Should this normalisation of shipping flows persist, it would lend continued justification to a corresponding easing in oil prices, energy-related inflation and, by extension, headline inflation — a welcome development for central banks grappling with the delicate balancing act of reining in price pressures without dampening growth too sharply.

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**South Korea’s Trade Data Flag a Modest Softening in Global Demand**
South Korea’s trade data serve as one of the global economy’s most useful early warning systems. As one of the world’s most open economies, with exports spanning semiconductors, petrochemicals, steel, automobiles and consumer electronics, South Korea’s monthly trade figures provide a timely and broad-based read on the state of global demand. This week’s data show a slightly softer picture than the strong prints that characterised much of the first quarter. Headline export growth has moderated at the margin, and crucially, semiconductor exports — which had been the most dynamic component of the trade data, propelled by AI-related chip demand — have also come in a touch below the exceptional run rates seen earlier in the year. This is not, in itself, alarming: some moderation from peak rates was always to be expected, and the semiconductor cycle remains structurally supported by the scale of AI infrastructure investment globally.

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**A Super El Niño on the Horizon — The Next Inflation Risk**
With that said, while one driver of price pressures seems to be ebbing for now — albeit not without the risk of future flare-ups — another potential inflationary risk looms on the horizon. The chart illustrates the transmission mechanism. It plots Thailand’s milled rice production (left axis) against Australia’s Southern Oscillation Index (right axis), a well-established barometer of El Niño and La Niña conditions. The convention is straightforward: SOI readings persistently above +8 indicate La Niña, associated with above-average rainfall across Southeast Asia and broadly supportive crop conditions; readings persistently below -8 signal El Niño, which brings drought stress and reduced water availability across the region. The historical relationship is striking. The sharp negative SOI troughs around 2002–03, 2009–10 and most dramatically around 2015 all coincide with visible falls in Thai milled rice output. The severe El Niño of 2014–16 produced both the deepest SOI trough in the series and the sharpest single drop in rice production, to below 24,000 thousand tonnes. As meteorological authorities have been warning for some time, the world appears to be facing an imminent Super El Niño event, with the SOI already drifting back towards negative territory in recent months. Were a significant El Niño to materialise in the second half of this year, the implications for Thai rice output — and by extension for Asian food price inflation — could be substantial. Central bankers, in other words, may find themselves having to wrestle with a new inflationary impulse just as they had begun to hope the worst was behind them.

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The mood in global financial markets this week is more settled, though “settled” should not be confused with resolved. The US-Iran memorandum of understanding, signed last week, has continued to do its work: oil prices have fallen further, Strait of Hormuz shipping traffic has picked up measurably, and the risk premium that had been embedded in energy markets since the conflict escalated in March is now visibly unwinding. That is a material development for the inflation outlook, and central bankers will be watching carefully. Yet the picture is not without its complications. Technology stocks — the most conspicuous beneficiary of the prevailing low-rate, high-growth narrative — have been subject to renewed jitters this week, as investors grow more attentive to stretched valuations and the implications of a Federal Reserve that, under new chair Kevin Warsh, is no longer signalling the easing cycle previously priced into markets. Against this backdrop, this week’s charts draw on the latest data to assess where the global economic cycle stands. Equity momentum outside the United States has tracked closely with global growth and inflation surprises, a correlation that tells us something important about how activity is being perceived (chart 1). Meanwhile, the breakdown of the previously tight relationship between oil prices and US two-year yields is arguably one of the more telling market signals of recent weeks (chart 2). June’s flash PMI surveys point to easing supply chain stress and softer output price inflation in manufacturing — a finding that chimes naturally with lower crude prices and the resumption of Hormuz flows (chart 3). The Strait of Hormuz itself deserves a closer look: traffic data and the mechanics of the oil price pullback are telling a coherent story that supports the PMI picture (chart 4). South Korea’s trade data, including semiconductors, offer a slightly softer read on global demand momentum at the margin (chart 5). And looming on the horizon, one new risk is drawing the attention of meteorological authorities: a Super El Niño event whose probability has been rising, with potentially significant implications for food commodity prices and Asian agriculture (chart 6).

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