Tom Moeller

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Despite improvement in U.S. factory sector activity, the Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) weakened 1.7% during the last four weeks, though prices remained up 4.7% y/y. The decline left the price index 8.7% below its peak in the second week of March.

In the Miscellaneous group, prices weakened 5.7% during the last four weeks, led by a one-quarter decline in framing lumber prices. They have fallen 45.1% during the last year. Natural rubber prices eased 0.5% in four weeks, up 5.3% y/y.

Prices in the Metals group continue to fall, off 4.4% during the last four weeks and 22.8% since the peak in the second week of March. This decline was led by an 18.9% decline in steel scrap prices during the last four weeks while aluminum prices weakened 7.6% during that period. Tin prices fell 1.9%. Moving higher was the price of zinc, which is used in batteries, up 1.6% in four weeks and by nearly one-quarter y/y. Lead prices rose 1.0% in four weeks and copper scrap prices improved 0.4%.

Textile group prices slipped 0.2% in the last four weeks, but remained near thirty-year highs. Cotton prices weakened 2.2% in four weeks but rose by roughly nearly three-quarters y/y. The cost of burlap, used for sacks, bags and gardening, rose 1.5% in the last four weeks to a record high.

Offsetting these declines were higher prices in the Crude Oil & Benzene group, up 10.2% in four weeks. Rising 5.7% in four weeks was the per barrel price of crude oil to $118.14, which was just below the prior week's high. Prices remained up from $75.80 at the end of 2021. The price of the petro-chemical benzene strengthened 48.1% in four weeks and was 131.2% higher y/y. Excluding crude oil, industrial commodity prices weakened 2.1% in the latest four weeks but have risen 1.9% y/y.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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• Declines remain broad-based.

• Metals & wood prices are notably weak.

• Oil prices continue to strengthen.

FIBER: Industrial Commodity Prices Remain Weak

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The rate of improvement in factory sector activity slowed during May. Industrial production rose 0.2% after increasing 1.4% in April, revised from 1.1%. It was the weakest increase since a 0.2% decline in December of last year. A 0.4% increase had been expected in the Action Economics Forecast Survey.

Manufacturing output dipped 0.1% (+4.8% y/y) following an unrevised 0.8% April gain. Utilities output improved 1.0% last month (8.4% y/y) following a 5.5% increase. Mining output improved 1.3% (9.0% y/y) in May after rising 1.1% in April.

The slip in manufacturing output in May reflected uneven industry performance. Output of durable goods fell 0.2% (+6.6% y/y) after increasing 1.2% in April. Machinery production declined 2.1% (+3.3% y/y) following a 1.7% rise. Electrical equipment production fell 1.8% (+2.2% y/y) after easing 0.4%. These declines were offset by a 0.7% increase (11.6% y/y) in motor vehicle & parts production after two straight months of strong increase and a 1.2% gain (8.5% y/y) in furniture production following two straight months of decline.

Nondurable goods output edged 0.1% higher (3.0% y/y) in May following a 0.3% rise as chemical production also improved 0.1% (2.6% y/y) following a 0.6% gain. Apparel production rose 0.9% (-0.5% y/y) after increasing 0.3% in April but paper output fell 0.3% (+1.0% y/y) following no change. Petroleum & coal production strengthened 2.5% (4.8% y/y) after holding steady In April.

In the special classifications, factory output of selected high technology industries improved 0.7% (4.1% y/y) after declining 1.0% in April. Factory production excluding the high technology sector slipped 0.2% (+4.9% y/y) after rising 0.9% in April. Manufacturing production excluding both high tech and motor vehicles slipped 0.2% (+4.4% y/y) after a 0.6% April increase.

Capacity utilization rose to 79.0% in May, the highest level since December 2018, from 78.9% In April. A 79.2% rate had been expected. Utilization in the factory sector edged down to 79.1% in May from 79.2% in April, which was the highest reading since April 2007.

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

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• Factory output eases.

• Motor vehicle output improves.

• Capacity utilization increases slightly.

U.S. Industrial Production Increase Is Weaker Than Expected in May

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The Conference Board's Composite Leading Economic Indicators index declined 0.4% during May (+3.0% y/y) after falling 0.4% in April, revised from -0.3%. The index also eased 0.1% in March. The May decline matched expectations in the Action Economics Forecast Survey.

Four of the Leading index's components fell in May including ISM orders, building permits, stock prices and consumer expectations. Five components increased including initial jobless insurance claims, consumer goods orders, nondefense capital goods orders, the interest rate yield curve and the leading credit index. The average workweek held steady.

The Index of Coincident Economic Indicators rose 0.2% (3.0% y/y) in May following a 0.5% increase in April, revised from 0.4%. Three of the index's four components rose including nonagricultural employment, personal income less transfers and real manufacturing & trade sales. Industrial production fell.

The Index of Lagging Economic Indicators increased 0.8% (4.7% y/y) after rising an unrevised 0.4% in April. Four of the index's seven components contributed positively to the overall increase in May including the average duration of unemployment, the prime rate charged by banks, commercial & industrial loans outstanding and the services CPI. Factory sector unit labor costs subtracted from the index and two components held steady including the business sector inventory/sales ratio and the consumer installment credit/income ratio.

The Conference Board figures are available in Haver's **BCI** database; the components are available there, and most are also in **USECON**. The expectations are in the **AS1REPNA** database. Visit the Conference Board's site for coverage of leading indicator series from around the world.

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• Housing, stock prices & consumer expectations lead decline.

• Coincident indicators increase lessens.

• Lagging indicators strengthen.

U.S. Leading Economic Indicators Fall in May for Third Straight Month

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Initial claims for unemployment insurance filed in the week ended June 11 declined by 3,000 to 229,000 (-46.6% y/y); the June 4 week's initial claims were revised up by 3,000 to 232,000. Weekly claims have been trending up modestly over the past few months but remain historically quite low and indicative of rather tight labor-market conditions. The Action Economics Forecast Survey expected 215,000 claims for the latest week. The four-week moving average of initial claims rose to 218,500 from 215,750 in the prior week.

In the week ended June 4, continued weeks claimed for unemployment insurance rose 3,000 to 1.312 million; the prior week was revised up by 3,000 to 1.309 million. The week before that, which ended May 21, with 1.306 continued weeks claimed, was the lowest count since the week ended December 27, 1969. The insured unemployment rate remained at the series low of 0.9% first reached in the week ended May 7.

In the week ended May 28, the total number of continued weeks claimed in all unemployment insurance programs decreased to 1.282 million, the lowest since January 1986, from 1.284 million in the previous week. This total includes federal employees, newly discharged veterans, extended benefits and other specialized programs and is not seasonally adjusted. Claims in the Pandemic Unemployment Assistance program and Pandemic Emergency Unemployment Compensation are no longer included in the main Labor Department press release, since both programs have expired.

The state insured rates of unemployment in regular programs vary widely. The highest insured unemployment rates in the week ending May 28 were in California (1.78%), New Jersey (1.77%), Alaska (1.54%), New York (1.37%) and Pennsylvania (1.35%). The lowest rates were in South Dakota (0.15%), Alabama (0.22%), New Hampshire (0.26%), Virginia (0.27%0) and Kansas (0.29%). Other state insured rates of unemployment in regular programs include Illinois (1.10%), Texas (0.78%), Ohio (0.57%) and Florida (0.37%). These state rates are not seasonally adjusted.

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

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- Initial claims decrease 3,000 to 229,000 in the week ended June 11.
- Continued weeks claimed edge higher by 3,000, holding in range prevailing in late 1960s.
- The insured unemployment rate maintains series low of 0.9%.

U.S. Unemployment Claims Decrease Slightly

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The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index declined to -3.3 during June from +2.6 in May. It was the first negative reading since May 2020. The Action Economics Forecast Survey expected an improvement to 6.0. The percentage of firms reporting improved conditions fell to 16.3% from 22.2% in May. The share reporting weaker conditions was fairly steady at 19.6%. Responses to this month's survey were collected from June 6 through June 16.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index from five key components using the same methodology as the national ISM index. The index fell to 53.3 this month from 59.9 in May.

Performance of the sub-indexes remained mixed. The new orders index declined to -12.4 this month from +22.1 in May. The unfilled orders index declined to -7.0 from +17.9 last month. The inventories series weakened to -2.2 from +3.2 in May.

Elsewhere, the sub-indexes declined m/m but remained positive. The shipments series fell to 10.8 from 35.3, while the delivery times reading declined to 9.9 from 17.5. The average workweek measure fell to 11.8 this month from 16.1 in May.

Moving higher was the employment measure to 28.1, which came after May’s drop to 25.5 from the record 41.4 in April. An improved 31.3% of respondents raised employment versus 26.7% in May, while 3.2% reduced payroll sizes after 1.2% did so in May.

Inflation pressures eased. The prices paid reading declined to 64.5 after falling to 78.9 in May. A lessened 70.1% of respondents reported paying higher prices while 5.6% reported paying lower prices. The prices received index declined to 49.2 in June, the lowest level since January.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity collapsed to -6.8 in June. It reached a high of 69.2 twelve months ago. All of the sub-indexes declined m/m. New & unfilled orders, along with delivery times and inventories were greatly negative. Expected prices paid eased slightly from after a sharp decline in May.

The survey panel consists of 150 manufacturing companies in the third Federal Reserve District (which consists of southeastern Pennsylvania, southern New Jersey and Delaware). The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease in activity. The ISM-adjusted figure, calculated by Haver Analytics, is the average of five diffusion indexes: new orders, shipments, employment, delivery times and inventories with equal weights. Each ISM-adjusted index is the sum of the percent responding "higher" and one-half of the percent responding "no change."

The figures from the Philadelphia Federal Reserve dating back to 1968 can be found in Haver's **SURVEYS** database. The expectation from the Action Economics Forecast Survey is available in **AS1REPNA**.

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- New and unfilled orders decline.
- Employment strengthens.
- Prices paid continue to ease.

U.S. Philadelphia Fed Index Turns Negative in June

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New residential building activity is feeling the pressure from rising interest rates. Housing starts declined 14.4% during May (-3.5% y/y) to 1.549 million units (SAAR) from 1.810 units in April, revised from 1.724 million. The Action Economics Forecast Survey expected 1.71 million starts.

Single-family starts declined 9.2% (-5.3% y/y) last month to 1.051 million units from 1.157 million in April, revised from 1.100 million. Starts of multi-family units weakened 23.7% (+0.6% y/y) to 498,000 from 653,000.

By region, housing starts were mixed last month. Starts in the South declined 20.7% (-0.7% y/y) to 803,000. In the West, housing starts fell 17.8% (-10.1% y/y) to 356,000. Elsewhere, starts firmed. In the Northeast, starts surged 14.6% (26.3% y/y) to 173,000. Starts in the Midwest rose 1.9% (-17.5% y/y) to 217,000.

Building permits declined 7.0% (+0.2% y/y) to 1.695 million from 1.823 million in April. Permits to build single-family homes declined 5.5% (-7.9% y/y) in May to 1.048 million units. Permits to build multi-family weakened 9.4% (+17.0% y/y) to 647,000.

The housing starts and permits figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Starts level is lowest since April 2021.
- Both single- & multi-family weaken.
- Building permits fall to eight-month low.

U.S. Housing Starts Fall Sharply in May

Carol Stone, CBE

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The Mortgage Bankers Association's Loan Applications Index rebounded 6.6% w/w (-54.3 y/y) in the week ended June 10 to 307.4 (week ended March 16, 1990 =100), basically reversing the prior week's 6.5% decline.

Applications for home purchase bounced 8.1% w/w (-15.5% y/y) versus the 7.1% decline the week before. Refinancing applications rose 3.7% w/w (-75.7% y/y), after a 5.6% decline the prior week, which was the twelfth reductions in the previous 13 weeks.

The share of applications for refinancing edged down to 31.7% in the week ended June 10 from 32.2% in the previous week. The percentage of applications that are ARMs fell for a fifth consecutive week, reaching 8.1%.

Applications for fixed-rate loans rose 6.7% w/w (-56.3% y/y) in the June 10 week following a 6.0% decline the previous week. Meanwhile, applications for adjustable-rate mortgages increased 5.5% w/w (-2.8% y/y), their first increase since the week ended May 6.

The effective interest rate on 30-year fixed-rate loans rose 29 basis points to 5.86% in the week ended June 10 and was the highest since 6.23% in the week ended November 21, 2008. In the June 10 week, the rate on 15-year fixed-rate mortgages was 4.99% in the June 10 week, up 21 basis points from the prior week. The rate on 30-year Jumbos increased 30 basis points to 5.41%. The rate on 5-year ARMs rose ten basis points to 4.86%.

The average loan size eased $4,000 to $376,000 in the June 10 week, that is, a 1.1% w/w decrease. It has fallen from $401,900 in the week ended May 6. The average size of a purchase loan declined 1.5% w/w to $419,000, its smallest amount since the week ended January 14. The average refinancing loan size edged back up slightly to $283,400 in the June 10 week from $281,500 the week before.

This 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.

These figures for weekly mortgage applications and interest rates are available in Haver's **SURVEYS** database.

- Both purchase and refinance loan applications increased.
- Both fixed rate and adjustable rate loan applications increased.
- Interest rate on 30-year fixed rate loan highest since November 2008.

U.S. Mortgage Applications Rebound in June 10 Week

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Consumers faced higher gasoline prices, higher interest rates and rising inflation in May. For many products, limited availability also was an issue. Consequently, retail sales declined 0.3% (+8.1% y/y) last month following a 0.7% April rise, revised from 0.9% reported initially. It was the first decline in five months. The Action Economics Forecast Survey expected a 0.2% rise.

Retail sales excluding motor vehicles improved 0.5% in May (11.2% y/y) after increasing 0.4% in April, revised from 0.6%. A 0.8% increase had been expected.

Motor vehicle sales weakened 3.5% last month (-3.7% y/y) after a 1.8% gain during in April. The decline contrasts with a 12.1% decline in unit light vehicle sales. Gasoline sales jumped 4.0% in May with higher prices (43.2% y/y), following a 1.9% decline.

Sales in the retail control group, which excludes autos, gas stations, building materials & food services, were little changed (+6.2% y/y) after increasing 0.5% in April, revised from 1.0% m/m. These sales are used in the construction of personal consumption expenditures in NIPA accounts.

Sales' performance varied by category. Sales via the internet declined 1.0% (7.0% y/y) and reversed the 1.0% April rise. Furniture & home furnishings sales fell 0.9% (+1.9%) after improving 1.6% in April. Sales of electronics and appliances weakened 1.3% (-4.5%) after rising 1.8% in April. Apparel stores edged 0.1% higher (6.1% y/y) after increasing 0.5%. General merchandise store sales also rose 0.1% (2.5% y/y) after falling 0.5%. Within that category, department store sales rose 0.9% both m/m and y/y after rising 0.4% in April. Sporting goods store sales improved 0.4% (-0.2% y/y) after a 0.2% April gain. Sales of building materials & garden equipment edged up 0.2% (6.4% y/y) and reversed April's decline.

In the nondiscretionary sales categories, food & beverage store sales rose 1.2% last month with higher prices (7.9% y/y) after easing 0.1% in April. Health & personal care store sales weakened 0.2% (+4.8% y/y) after two months of roughly 1.0% increase.

Restaurant sales increased 0.7% in May (17.5% y/y) following three straight months when sales surged an average 3.8% per month

The retail sales data can be found in Haver's **USECON** database. The Action Economics forecast is in the **AS1REPNA** database.

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- Auto sales fall sharply.
- Gain in nonauto spending fueled by gasoline and food.
- Spending elsewhere is modest.

U.S. Retail Sales Dip Unexpectedly in May

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

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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The U.S. Treasury Department reported a U.S. government budget surplus of $27.0 billion during June, which compared to a deficit of $71.0 billion twelve months earlier. The Action Economics Forecast Survey expected a $43.5 deficit. During the first nine months of the current fiscal year, the government ran a budget deficit of $1.337 trillion versus a deficit of $1.273 trillion in the first nine months of FY’24.

Overall revenues in the first nine months of FY’25 increased 6.8% y/y compared to a 10.0% y/y rise in the first nine months of last year. Customs duties surged 94.3% y/y in the first nine months of FY’25 after an 8.0% y/y decline last fiscal year. Individual income tax receipts rose 9.2% y/y compared to last year’s 11.3% y/y gain. The level of corporate tax receipts fell 6.7% y/y so far this year after a 28.4% y/y rise in the first nine months of FY’24. Social insurance revenues increased 3.1% y/y after a 5.2% y/y rise in the first nine months of FY’24, while excise taxes rose 17.3% y/y so far in FY’25 compared to an 8.1% gain in the first nine months of last fiscal year.

Federal government outlays grew 6.3% y/y so far in FY’25 versus a 4.6% y/y rise in the first nine months of FY’24. Defense spending rose 6.0% y/y after a 5.5% y/y rise in the first nine months of last fiscal year. Social Security outlays rose 8.4% y/y in the first nine months of FY’25 versus an 8.2% increase last fiscal year. Interest payments rose 9.7% y/y so far in FY’25 after a 38.1% rise in the first nine months of last fiscal year. Health program spending rose 6.7% y/y after falling 0.5% in the first nine months of FY’24 while Medicare payments surged 15.0% y/y versus a 1.0% y/y decline last year. Income security outlays rose 9.2% y/y in the first nine months of this year compared to an 18.5% y/y decline last year.

Haver's data on Federal Government receipts & outlays are contained in **USECON**. The expectations figure is in the **AS1REPNA** database.

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- Federal receipts strengthen while outlays decline.
- Customs duties increase but interest payments slow.
- Year-to-date deficit increases.

U.S. Federal Government Posts Budget Surplus in June

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) declined 3.8% (+5.3% y/y) during May to 97.2 after falling an unrevised 2.3% in April to 101.0, following moderate gains in each of the prior four months. The recent high was 104.9 in September of last year. The level of home affordability remained 8.1% higher than its low of 89.9 in October 2023. The latest level was 45.8% below the high of 179.2 in April 2020.

The decline in affordability in May occurred as the median price of an existing single-family home rose 2.3% (1.3% y/y) to $427,800, and mortgage rates rose to 6.90% from 6.81% in April. The price compared to the record $432,900 in June 2024. The rise in mortgage rates left them above their a low of 6.26% in September of last year, though below a 7.70% high in October of 2023. They remained well above a December 2020 low of 2.73%. In May, the principal & interest payments rose 3.3% (-1.1% y/y) to $2,254 per month, well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a higher 25.7% of income during May, up from a low of 14.0% of income in April 2020.

The rise in housing costs in May was accompanied by a deterioration in median family income. It fell 0.6% (+4.1% y/y) to $105,204 after rising 1.0% in April. Qualifying income rose 3.3% (-1.1% y/y) to $108,192 after rising 3.5% in April.

Housing affordability declined m/m across the country in May. The index fell 5.7% (+3.1% y/y) to 122.7 in the Midwest, though it remains the most affordable region of the country. In the South, the index declined 2.5% (+7.5% y/y) to 103.0 and the affordability index in the Northeast declined 6.4% (-1.3% y/y) to 86.1. In the West, where homes are the least affordable, the index fell 2.4% (+5.6% y/y) to 69.3 in May.

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

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

**Demystifying the Federal Reserve's Balance Sheet** from Fed Governor Christopher J. Waller can be found [here](https://www.federalreserve.gov/newsevents/speech/waller20250710a.htm).

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- Home prices & mortgage rates continue to rise.
- Median income declines.
- Affordability falls across country.

U.S. Housing Affordability Weakens in May

Robert Brusca

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French inflation jumped in June, rising by 0.4% in the month on the HICP metric, the same as the monthly rise for France’s CPI and its CPI excluding energy. Not surprisingly the monthly diffusion reading tracks the breadth of inflation rise monthly to 72.7% in June affirming that the breadth of the gain in monthly inflation was substantial. Breadth is sharply higher in June after looking very weak at 18.2% in May. But the month of May followed a broad acceleration with breadth at 90.9% in April. Monthly breadth reading can be quite unstable. Diffusion values above 50% revel inflation acceleration period a period in which inflation acceleration is more common than deceleration.

However, breadth over the sequential periods 3-months, 6-months and 12-months shows inflation acceleration is creeping up as the breadth reading advances on the timeline from 36.4% over 12 months, to 54.5% over 6 months, and to 63.6% over 3 months.

France has been an inflation success story and a growth failure story. The HICP headline inflation last higher than 2% in August 2024 and the domestic CPI excluding energy was over 2% for its 12-month gain in March of 2024. And while the HICP has signs of ongoing slowing, the domestic CPI excluding energy has been relatively stable since September 2024. The CPI excluding energy inflation is running at a weak and well contained pace of 1.6% over 12 months and the weakening HICP undoubtedly has benefited from the ongoing drop in energy prices where Brent costs in euro-terms show an 18.5% drop over 12 months.

The headline HICP for France shows a mixed trend from 12-months to 6-months to 3-months. The domestic CPI is closer to showing steady acceleration. The CPI excluding energy shows persistent acceleration. But the domestic CPI gauge also shows inflation at a pace of just 2.2% over 6 months and 2.6% over 3 months compared to a low 12-month pace of 1.6%. The acceleration in French inflation is mild and the pace of inflation is really controlled.

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France does not look like a percolating pot of inflation, but it may be migrating more to a 2% mode. Much of the improved inflation performance has been on the back of weak economic conditions. France has logged S&P composite PMI readings below 50%, indicating private sector contraction in the economy, since May 2023.

France is the weakest of the big four EMU economies on the PMI metric and on GDP especially since early 2023. Italy, and Spain have PMI readings over 50% going back five-months; for Spain reading is over 50% back to the end of 2023. Germany has posted five composite PMI readings above 50 over the last six months. Even the U.K. that has been struggling has PMI readings above 50% back to 2023 with just one exception.

The EU Commission indexes have Germany as the weakens EMU economy among the Big Four since late 2023; however, that survey has France worsening sharply in weakening in the current month and showing a weaker reading than German in June.

Now that growth in Europe is set to take root, we will see where fundamental inflation progress is able to persist. The Trump tariff threats are still out here and the deadline for imposition is approaching. Trump seems willing to put relatively large tariffs in place. Trump tariffs are going to be a big factor in how all of this will shake out. And a good part of that is going to be how much other countries want to retaliate. The U.S. is simply a huge source of demand for the global economy. If the U.S. current account deficit were a county it would be the 13th largest country in the world; if its imports were a county, they would be the fifth or sixth largest country in the world. The U.S. is a massive source of global demand. And the international community has leaned on the U.S. to provide demand and export markets and jobs for them. But the U.S. now finds itself with massive current account deficit- one that has existed for 33 years in a row. And the U.S. also faces large fiscal deficits. It is in a position where the goose needs to attend its own diet if it is to continue to produce golden eggs. So, the evolution of U.S. tariffs, global growth, and future inflation, all are intertwined. The future remains obscure.

France

French Inflation Moves Up But Stays Low

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Initial claims for unemployment insurance declined to 227,000 (+2.3% y/y, SA) in the week ended July 5, from 232,000 in the previous week, which was revised from 233,000. Initial claims have declined for four straight weeks. The Action Economics Forecast Survey expected 234,000 initial claims for last week. The four-week moving average of initial claims weakened to 236,000 from 241,000. It was the lowest level since the last week of May.

In the week ended June 28, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – rose to 1.965 million (5.9% y/y) in the last week of June after easing to 1.955 million in the prior week. The figure has risen sharply since a low of 1.833 million in the second week of April. 

At the end of June, the insured rate of unemployment (the number of beneficiaries as a percent of covered employment) was 1.3% for the fifth straight week. It has increased from 1.2% since the beginning of 2023 and 1.0% in November 2022.

The insured unemployment rate varied greatly across individual states and territories. In the week ended June 21, the highest unemployment rates were in New Jersey (2.27%) California (2.15%), Washington (2.02%), Massachusetts (1.94%) and Pennsylvania (1.83%). The lowest were in South Dakota (0.28%), Florida (0.39%), Alabama (0.49%) and Virginia & Kentucky, both at 0.53%. Rates in other notable states include Tennessee (0.60%), Texas (1.25%) and Illinois (1.67%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Unexpected decline to lowest level since mid-May.
- Continuing claims continue to rise.
- Insured unemployment rate remains elevated.

U.S. Initial Unemployment Insurance Claims Fall in Latest Week

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Germany is HICP inflation measure (12-month) came in at 2% in June, below its May reading 2.1% but above its April reading of 1.9%. There have been a few recent readings for Germany at 2% or below and these are the first traces of 2% inflation in Germany since mid-2021 when inflation first began to climb above the 2% target that is the objective by the ECB for all of the European Monetary Union.

**Inflation progress is evident**
The German domestic CPI is also up by 2% year-over-year, and this is the fifth time that it has posted an increase of 2% or less since August 2024. This is good news because it suggests that German inflation isn't just flirting but perhaps trending and will eventually stabilize around the 2% mark. However, Germany also still has work to do because the domestic CPI gauge excluding energy in June is still at 2.5% year-over-year; that pace dropped from 2.8% in May and it's generally been higher over the past year with some fluctuations up as high as a 3.1% year-over-year pace, as was the case in December. But it's also been as low as 2.6% in August of last year. Core inflation in Germany remains stubborn. We see that clearly from its domestic CPI excluding energy reading. The core reading in the HICP series is not yet available for June but the core reading from May came in at 2.9%, an acceleration from 2.8% in April.

**Sequential inflation**
The sequential inflation readings in this report are quite good for domestic inflation, and even for the ex-energy reading, but not quite as good for the HICP which is the measure of inflation used by the European Central Bank. German HICP inflation is 2% over 12 months, drops to 0.9% over 6 months, and then the annualized rate rises to 2.2%, again, over 3 months. For the domestic measure of inflation, the annualized CPI rates are 2% over 12 months, 1.5% over 6 months and 1% over 3 months - a clear decelerating pattern. That decelerating pattern is echoed for the domestic CPI excluding energy which is at 2.5% over 12 months, 1.7%. over 6 months and 1.3% over 3 months.

**Inflation Diffusion -monthly**
Inflation diffusion, which calculates the breadth of inflation for the domestic CPI, shows diffusion of 27.3% for June, 54.5% for May, and 18.2% for April. The June and April readings clearly point toward more decelerating than accelerating inflation as they are below the neutral 50% mark. The May report suggests just slightly more acceleration than deceleration at 54.5%.

**Sequential Diffusion**
Sequentially, diffusion over 12 months, 6 months and 3 months gives us readings below 50% on each horizon which is good because that points to inflation decelerating rather than accelerating. However, the diffusion readings are consistently rising from 18.2% over 12 months, to 27.3% over 6 months, to 45.5% over 3 months – and moving more toward diffusion neutrality.

**Weak oil has been a tailwind for lower inflation**
Inflation progress has been helped along by weak oil prices in June. Brent oil prices measured in euros rose by 6.7%; they had fallen by 4.1% in May and by 10.7% in April. These are month-to-month calculations. Sequentially, Brent oil prices fell by 20.7% over 12 months, they fell at a 23.4% annual rate over 6 months, and they're falling at a 30% annual rate over 3 months. All of these metrics should have helped the inflation numbers to look more contained. When inflation falls over a relatively long period of time, it also has a chance to permeate non-energy measures and cause even non-energy inflation to edge a little bit lower. For now, weakness in oil prices has been a tailwind for German inflation progress.

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**Summing up**
The inflation report in June logs a month-to-month headline gain of 0.2% against domestic prices being unchanged in the month and prices also unchanged excluding energy. These are good developments. However, German inflation still has more work to do as the core or ex-energy metrics testify. At the same time, there's been some revival in the economy. And there's going to be a step-up in spending for military purposes. The step-up in activity, prompted in part by more military spending, could pause or slow the inflation progress that's underway. It's something to keep an eye on.

Germany

German Inflation Settles Lower

Economy in Brief: 2022

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