Tom Moeller

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      <p>New orders to all manufacturers declined 0.5% (+2.4% y/y) in May
      following a 0.8% increase during April, revised from 0.7%. A 0.3% decline was
      expected in the Action Economics Forecast Survey. A 0.9% decline (+2.9% y/y) in durable goods
      orders led the total lower. Factory sector orders
      excluding transportation equipment dipped 0.1% (+3.0% y/y) after three
      months of firm increase. Orders for nondurable goods (which equal shipments)
      fell 0.2% (+2.0% y/y) and these orders have been moving sideways all year.
      Shipments from chemical plants were off 1.0% (-2.9% y/y) while textile
      mill shipments declined 0.6% (+2.2% y/y). Shipments of plastics &amp;
      rubber rebounded 0.6% (3.4% y/y).</p>
      
      <p>Inventories in the factory sector firmed 0.8% (3.8% y/y), the strongest
      gain since October 2011. In the durable goods sector,
      inventories rose 0.9% (5.4% y/y) led by a 2.2% rise (4.8% y/y) in
      computers &amp; electronic products. Amongst nondurable goods industries, inventories
      increased 0.6% (1.4% y/y). The gain was paced by a 2.1% jump (24.2% y/y) in
      apparel, a 1.5% improvement (6.6% y/y) in printing and a 1.5% increase
      (4.4% y/y) in petroleum inventories.</p>
      
      <p>Unfilled orders increased 0.6% (7.9% y/y), strong for the third consecutive month. Excluding the transportation sector,
      order backlogs rose 0.5% (5.8% y/y). Backlogs of electrical equipment
      gained 1.1% (10.3% y/y) and unfilled
      orders of transportation equipment improved 0.7% (9.2% y/y). Unfilled
      orders of furniture rose 0.6% (4.5% y/y) while backlogs in the machinery sector
      also rose 0.6% (11.3% y/y).</p>
      
      <p>The factory sector figures are available in Haver's <b>USECON </b>database.</p>
      
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

        <thead>
          <tr>
            <th class="firstcol" scope="col" >Factory Sector- NAICS
              Classification</th>
            <th scope="col" ><b>May</b></th>
            <th scope="col" ><b>Apr</b></th>
            <th scope="col" ><b>Mar</b></th>
            <th scope="col" ><b>Y/Y</b></th>
            <th scope="col" ><b>2013</b></th>
            <th scope="col" ><b>2012</b></th>
            <th scope="col" ><b>2011</b></th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >New Orders</td>
            <td  >-0.5</td>
            <td  >0.8</td>
            <td  >1.5</td>
            <td  >2.4</td>
            <td  >2.7</td>
            <td  >2.9</td>
            <td  >12.9</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Shipments</td>
            <td  >0.1</td>
            <td  >0.4</td>
            <td  >0.4</td>
            <td  >2.9</td>
            <td  >2.1</td>
            <td  >4.0</td>
            <td  >12.1</td>
          </tr>
          <tr>
            <td class="firstcol" >Inventories</td>
            <td  >0.8</td>
            <td  >0.5</td>
            <td  >0.2</td>
            <td  >3.8</td>
            <td  >2.3</td>
            <td  >2.4</td>
            <td  >10.2</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Unfilled Orders</td>
            <td  >0.6</td>
            <td  >0.9</td>
            <td  >0.8</td>
            <td  >7.9</td>
            <td  >7.0</td>
            <td  >3.7</td>
            <td  >10.0</td>
</tr>
              </tbody>
            </table>
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New orders to all manufacturers declined 0.5% (+2.4% y/y) in May following a 0.8% increase during April, revised from 0.7%. A 0.3% decline was expected in the Action Economics Forecast Survey. A 0.9% decline (+2.9% y/y) in durable [...]

U.S. Factory Sector Orders Pull Back but Inventories Continue to Increase

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            <p>The Mortgage Bankers Association reported that their total
            Mortgage Market Volume Index edged 0.2% lower last week (-37.5% y/y)
            and added to declines during the prior two weeks. Applications
            remained two-thirds below the peak in September 2012. Home <i>purchase</i>
            applications fell 0.7% (-15.9% y/y) while applications to <i>refinance</i>
            an existing loan were stable (-48.5% y/y).</p>
            
            <p>The effective interest rate on a 15-year mortgage declined last
            week to 3.46%, the lowest level since late-May. The effective rate
            on a 30-year fixed rate loan fell to 4.32%. The rate on a Jumbo
            30-year loan slipped to 4.28%. For adjustable 5-year mortgages, the
            effective interest rate held steady at 3.33%, its highest level
            since early-May.</p>
            
            <p>The average mortgage loan size rose to $246,600. The average loan
            size for home purchases held fairly steady at $276,200 but for
            refinancings it rose to $219,800.</p>
            
            <p>Applications for fixed interest rate loans declined 37.6% y/y
            while adjustable rate loan applications were off by 36.3% y/y.</p>
            
            <p>The survey covers over 75 percent 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 <b>SURVEYW</b> database.</p>
            
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      <a href="/comment/140702i_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140702i.png"></a></p>
      
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

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                  <th class="firstcol" scope="col" 0918 0925 >MBA
                    Mortgage Applications (SA, 3/16/90=100)</th>
                  <th scope="col" 0918 0925 >06/27/14</th>
                  <th scope="col" 0918 0925 >06/20/14</th>
                  <th scope="col" 0918 0925 >06/13/14</th>
                  <th scope="col" 0918 0925 >Y/Y%</th>
                  <th scope="col" 0918 0925 >2013</th>
                  <th scope="col" 0918 0925 >2012</th>
                  <th scope="col" 0918 0925 >2011</th>
                </tr>
              </thead>
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                  <td class="firstcol" 0918 0925 >Total Market Index</td>
                  <td 0918 0925  >347.3</td>
                  <td 0918 0925  >348.1</td>
                  <td 0918 0925  >351.6</td>
                  <td 0918 0925  >-37.5</td>
                  <td 0918 0925  >616.6</td>
                  <td 0918 0925  >813.8</td>
                  <td 0918 0925  >572.3</td>
                </tr>
                <tr>
                  <td class="firstcol" 0918 0925 >&nbsp;Purchase</td>
                  <td 0918 0925  >175.2</td>
                  <td 0918 0925  >176.4</td>
                  <td 0918 0925  >178.6</td>
                  <td 0918 0925  >-15.9</td>
                  <td 0918 0925  >197.5</td>
                  <td 0918 0925  >187.8</td>
                  <td 0918 0925  >182.6</td>
                </tr>
                <tr class="odd">
                  <td class="firstcol" 0918 0925 >&nbsp;Refinancing</td>
                  <td 0918 0925  >1,323.9</td>
                  <td 0918 0925  >1,322.6</td>
                  <td 0918 0925  >1,334.0</td>
                  <td 0918 0925  >-48.5</td>
                  <td 0918 0925  >3,070.0</td>
                  <td 0918 0925  >4,505.0</td>
                  <td 0918 0925  >2,858.4</td>
                </tr>
                <tr>
                  <td class="firstcol" 0918 0925 >15-Year Mortgage
                    Effective Interest Rate (%)</td>
                  <td 0918 0925  >3.46</td>
                  <td 0918 0925  >3.52</td>
                  <td 0918 0925  >3.54</td>
                  <td 0918 0925  >3.56<br>
                    (6/13)</td>
                  <td 0918 0925  >3.42</td>
                  <td 0918 0925  >3.25</td>
                  <td 0918 0925  >3.97</td>
                </tr>
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The Mortgage Bankers Association reported that their total Mortgage Market Volume Index edged 0.2% lower last week (-37.5% y/y) and added to declines during the prior two weeks. Applications remained two-thirds below the peak in [...]

U.S. Mortgage Loan Applications and Interest Rates Move Lower

Robert Brusca

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PPI trends in the EMU continue to push lower. The chart shows that only intermediate goods inflation trend has a small upturn in recent months. 
</p><p>
In May the PPI (excluding construction) rose by 0.1% after a 0.2% April increase. Still, the three-month growth rate is negative at -0.4% (SAAR). Inside of one year the PPI shows inflation rather steady in a narrow range, hovering around -0.5%. But year-over-year trends still are heading lower.
</p><p>
Various EMU countries still show a good deal of PPI weakness. In May, four of eleven countries show PPI prices falling. In April, three of eleven show prices falling. Over three months, eight of eleven show dropping producer prices. Ten of eleven show dropping prices over six months. Over one year, eight of eleven show dropping prices.
</p><p>
These trends are broad although the price drop tendencies are lessening in the past two months. That is too short a time to make a dependable trend. And measures of activity in the EMU have weakened, giving us less reason to think that the environment should firm prices.
</p><p>
For now the European Central Bank's fight to stimulate credit expansion and growth in the EMU seems to be as necessary as ever. Consumer goods prices are still dropping sharply over all horizons, but capital goods prices are showing steady if moderate expansion. The consumer sector still appears to be the weak spot in Europe. Some consumer confidence measures have begun to stir.  Unemployment has been steady at still elevated levels for the past two months. Unemployment will need to fall if solid improvements in consumer confidence are to be made. 
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PPI trends in the EMU continue to push lower. The chart shows that only intermediate goods inflation trend has a small upturn in recent months. In May the PPI (excluding construction) rose by 0.1% after a 0.2% April increase. Still, [...]

EMU PPI Is Still Weak

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      <p>Employment growth picked up steam last month. The<b> ADP/Moody's
      National Employment Report indicated a 281,000</b> rise (2.1% y/y) in June
      nonfarm private sector jobs. It was the firmest rise since November 2012
      and followed unrevised increases of 179,000 and 215,000 in May and April.
      During the last three months, job increases averaged 222,000, below the
      peak of 259,000 in February of 2012. The June job gain beat the 205,000
      rise expected in the Action Economics Forecast Survey. During the last
      twenty years there has been a 95% correlation between the monthly ADP job
      gain and the rise in private sector nonfarm payrolls.</p>
      <p>The ADP survey is based on ADP's business payroll transaction system
      covering 406,000 companies and roughly 23 million employees. The data are
      processed by Moody's Analytics Inc., then calibrated and aligned with the
      BLS data. Extensive information on the methodology is available <a href="http://www.adpemploymentreport.com/common/docs/ADP-NER-Methodology-Exec-Summary.pdf">here</a>.</p>
      <p>Service-producing payrolls led the job gains with a 230,000 increase
      (2.1% y/y). Jobs in professional and business services increased 77,000
      (3.3% y/y); transportation and utilities employment grew 50,000 (2.0% y/y)
      while financial activities headcount gained 11,000 (0.5% y/y).
      Goods-producing payrolls rose 16,000 (2.0% y/y). Factory sector payrolls
      gained 12,000 (0.8% y/y), the strongest rise since December. Construction
      payrolls jumped 36,000 (4.0% y/y), the firmest rise of the expansion.</p>
      <p>Hiring amongst small businesses totaled 117,000 (2.1% y/y).
      Medium-sized firms' payrolls advanced 115,000 (1.8% y/y) while jobs at
      large-size companies rose 49,000 (2.6% y/y).</p>
      <p>The ADP National Employment Report data are maintained in Haver's <b>USECON</b>
      database; historical figures date back to March 2001. The figures in this
      report cover jobs only in the private sector. The expectation figure is
      available in Haver's <b>AS1REPNA</b> database.</p>
      <p><b>Monetary Policy and Financial Stability</b> is today's speech by Fed
      Chair Janet L. Yellen and it is available here <a href="http://www.federalreserve.gov/newsevents/speech/yellen20140702a.htm">http://www.federalreserve.gov/newsevents/speech/yellen20140702a.htm</a></p>
      <table class="centered" border="0" cellSpacing="0" width="1871">
        <thead>
          <tr>
            <th class="firstcol" scope="col" width="1109">ADP/Moody's National
              Employment Report</th>
            <th scope="col" width="108">Jun</th>
            <th scope="col" width="108">May</th>
            <th scope="col" width="108">Apr</th>
            <th scope="col" width="108">Y/Y</th>
            <th scope="col" width="108">2013</th>
            <th scope="col" width="109">2012</th>
            <th scope="col" width="109">2011</th>
          </tr>
        </thead>
        <tbody>
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            <td class="firstcol" width="1109">Nonfarm Private Payroll Employment
              (m/m chg, 000s)</td>
            <td align="center" width="108">281</td>
            <td align="center" width="108">179</td>
            <td align="center" width="108">215</td>
            <td align="center" width="108">2.1%</td>
            <td align="center" width="108">2.0%</td>
            <td align="center" width="109">2.3%</td>
            <td align="center" width="109">1.8%</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="1109">&nbsp;Small Payroll (1-49)</td>
            <td align="center" width="108">117</td>
            <td align="center" width="108">82</td>
            <td align="center" width="108">76</td>
            <td align="center" width="108">2.1</td>
            <td align="center" width="108">2.1</td>
            <td align="center" width="109">2.5</td>
            <td align="center" width="109">1.1</td>
          </tr>
          <tr>
            <td class="firstcol" width="1109">&nbsp;Medium Payroll (50-499)</td>
            <td align="center" width="108">115</td>
            <td align="center" width="108">62</td>
            <td align="center" width="108">82</td>
            <td align="center" width="108">1.8</td>
            <td align="center" width="108">1.6</td>
            <td align="center" width="109">2.0</td>
            <td align="center" width="109">2.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="1109">&nbsp;Large Payroll (&gt;500)</td>
            <td align="center" width="108">49</td>
            <td align="center" width="108">37</td>
            <td align="center" width="108">56</td>
            <td align="center" width="108">2.6</td>
            <td align="center" width="108">2.3</td>
            <td align="center" width="109">2.4</td>
            <td align="center" width="109">2.7</td>
          </tr>
          <tr>
            <td class="firstcol" width="1109">Goods-Producing</td>
            <td align="center" width="108">51</td>
            <td align="center" width="108">31</td>
            <td align="center" width="108">24</td>
            <td align="center" width="108">2.0</td>
            <td align="center" width="108">1.6</td>
            <td align="center" width="109">2.2</td>
            <td align="center" width="109">1.7</td>
          </tr>
          <tr>
            <td class="firstcol" width="1109">&nbsp;Manufacturing</td>
            <td align="center" width="108">12</td>
            <td align="center" width="108">11</td>
            <td align="center" width="108">4</td>
            <td align="center" width="108">0.8</td>
            <td align="center" width="108">0.6</td>
            <td align="center" width="109">1.6</td>
            <td align="center" width="109">1.9</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="1109">Service-Producing</td>
            <td align="center" width="108">230</td>
            <td align="center" width="108">148</td>
            <td align="center" width="108">181</td>
            <td align="center" width="108">2.1</td>
            <td align="center" width="108">2.0</td>
            <td align="center" width="109">2.3</td>
            <td align="center" width="109">1.8</td>
          </tr>
        </tbody>
      </table>
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            <span id="articletitle">U.S. Mortgage Loan Applications and Interest
            Rates Move Lower</span><br>
            <span id="byline">by <a href="http://www.haver.com/comment/Moeller.html">Tom
            Moeller</a>&nbsp;&nbsp;July 2, 2014</span><span id="articletext">
            <p>The Mortgage Bankers Association reported that their total
            Mortgage Market Volume Index edged 0.2% lower last week (-37.5% y/y)
            and added to declines during the prior two weeks. Applications
            remained two-thirds below the peak in September 2012. Home <i>purchase</i>
            applications fell 0.7% (-15.9% y/y) while applications to <i>refinance</i>
            an existing loan were stable (-48.5% y/y).</p>
            <p>The effective interest rate on a 15-year mortgage declined last
            week to 3.46%, the lowest level since late-May. The effective rate
            on a 30-year fixed rate loan fell to 4.32%. The rate on a Jumbo
            30-year loan slipped to 4.28%. For adjustable 5-year mortgages, the
            effective interest rate held steady at 3.33%, its highest level
            since early-May.</p>
            <p>The average mortgage loan size rose to $246,600. The average loan
            size for home purchases held fairly steady at $276,200 but for
            refinancings it rose to $219,800.</p>
            <p>Applications for fixed interest rate loans declined 37.6% y/y
            while adjustable rate loan applications were off by 36.3% y/y.</p>
            <p>The survey covers over 75 percent 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 <b>SURVEYW</b> database.</p>
            <table class="centered" border="0" cellSpacing="0" width="1871">
              <thead>
                <tr>
                  <th class="firstcol" scope="col" 0918 0925 width="855">MBA
                    Mortgage Applications (SA, 3/16/90=100)</th>
                  <th scope="col" 0918 0925 width="144">06/27/14</th>
                  <th scope="col" 0918 0925 width="144">06/20/14</th>
                  <th scope="col" 0918 0925 width="144">06/13/14</th>
                  <th scope="col" 0918 0925 width="145">Y/Y%</th>
                  <th scope="col" 0918 0925 width="145">2013</th>
                  <th scope="col" 0918 0925 width="145">2012</th>
                  <th scope="col" 0918 0925 width="145">2011</th>
                </tr>
              </thead>
              <tbody>
                <tr class="odd">
                  <td class="firstcol" 0918 0925 width="855">Total Market Index</td>
                  <td 0918 0925 align="center" width="144">347.3</td>
                  <td 0918 0925 align="center" width="144">348.1</td>
                  <td 0918 0925 align="center" width="144">351.6</td>
                  <td 0918 0925 align="center" width="145">-37.5</td>
                  <td 0918 0925 align="center" width="145">616.6</td>
                  <td 0918 0925 align="center" width="145">813.8</td>
                  <td 0918 0925 align="center" width="145">572.3</td>
                </tr>
                <tr>
                  <td class="firstcol" 0918 0925 width="855">&nbsp;Purchase</td>
                  <td 0918 0925 align="center" width="144">175.2</td>
                  <td 0918 0925 align="center" width="144">176.4</td>
                  <td 0918 0925 align="center" width="144">178.6</td>
                  <td 0918 0925 align="center" width="145">-15.9</td>
                  <td 0918 0925 align="center" width="145">197.5</td>
                  <td 0918 0925 align="center" width="145">187.8</td>
                  <td 0918 0925 align="center" width="145">182.6</td>
                </tr>
                <tr class="odd">
                  <td class="firstcol" 0918 0925 width="855">&nbsp;Refinancing</td>
                  <td 0918 0925 align="center" width="144">1,323.9</td>
                  <td 0918 0925 align="center" width="144">1,322.6</td>
                  <td 0918 0925 align="center" width="144">1,334.0</td>
                  <td 0918 0925 align="center" width="145">-48.5</td>
                  <td 0918 0925 align="center" width="145">3,070.0</td>
                  <td 0918 0925 align="center" width="145">4,505.0</td>
                  <td 0918 0925 align="center" width="145">2,858.4</td>
                </tr>
                <tr>
                  <td class="firstcol" 0918 0925 width="855">15-Year Mortgage
                    Effective Interest Rate (%)</td>
                  <td 0918 0925 align="center" width="144">3.46</td>
                  <td 0918 0925 align="center" width="144">3.52</td>
                  <td 0918 0925 align="center" width="144">3.54</td>
                  <td 0918 0925 align="center" width="145">3.56<br>
                    (6/13)</td>
                  <td 0918 0925 align="center" width="145">3.42</td>
                  <td 0918 0925 align="center" width="145">3.25</td>
                  <td 0918 0925 align="center" width="145">3.97</td>
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      <span id="articletitle">U.S. Factory Sector Orders Pull Back but Inventories
      Continue to Increase</span><br>
      <span id="byline">by <a href="http://www.haver.com/comment/Moeller.html">Tom
      Moeller</a>&nbsp;&nbsp;July 2, 2014</span><span id="articletext">
      <p>New orders to all manufacturers declined 0.5% (+2.4% y/y) in May
      following a 0.8% increase during April, revised from 0.7%. A 0.3% decline was
      expected in the Action Economics Forecast Survey. A 0.9% decline (+2.9% y/y) in durable goods
      orders led the total lower. Factory sector orders
      excluding transportation equipment dipped 0.1% (+3.0% y/y) after three
      months of firm increase. Orders for nondurable goods (which equal shipments)
      fell 0.2% (+2.0% y/y) and these orders have been moving sideways all year.
      Shipments from chemical plants were off 1.0% (-2.9% y/y) while textile
      mill shipments declined 0.6% (+2.2% y/y). Shipments of plastics &amp;
      rubber rebounded 0.6% (3.4% y/y).</p>
      <p>Inventories in the factory sector firmed 0.8% (3.8% y/y), the strongest
      gain since October 2011. In the durable goods sector,
      inventories rose 0.9% (5.4% y/y) led by a 2.2% rise (4.8% y/y) in
      computers &amp; electronic products. Amongst nondurable goods industries, inventories
      increased 0.6% (1.4% y/y). The gain was paced by a 2.1% jump (24.2% y/y) in
      apparel, a 1.5% improvement (6.6% y/y) in printing and a 1.5% increase
      (4.4% y/y) in petroleum inventories.&nbsp;</p>
      <p>Unfilled orders increased 0.6% (7.9% y/y), strong for the third consecutive month. Excluding the transportation sector,
      order backlogs rose 0.5% (5.8% y/y). Backlogs of electrical equipment
      gained 1.1% (10.3% y/y) and unfilled
      orders of transportation equipment improved 0.7% (9.2% y/y). Unfilled
      orders of furniture rose 0.6% (4.5% y/y) while backlogs in the machinery sector
      also rose 0.6% (11.3% y/y).</p>
      <p>The factory sector figures are available in Haver's <b>USECON </b>database.</p>
      <table class="centered" border="0" cellSpacing="0" width="1871">
        <thead>
          <tr>
            <th class="firstcol" scope="col" width="983">Factory Sector- NAICS
              Classification</th>
            <th scope="col" width="126"><b>May</b></th>
            <th scope="col" width="126"><b>Apr</b></th>
            <th scope="col" width="126"><b>Mar</b></th>
            <th scope="col" width="126"><b>Y/Y</b></th>
            <th scope="col" width="126"><b>2013</b></th>
            <th scope="col" width="127"><b>2012</b></th>
            <th scope="col" width="127"><b>2011</b></th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" width="983">New Orders</td>
            <td align="center" width="126">-0.5</td>
            <td align="center" width="126">0.8</td>
            <td align="center" width="126">1.5</td>
            <td align="center" width="126">2.4</td>
            <td align="center" width="126">2.7</td>
            <td align="center" width="127">2.9</td>
            <td align="center" width="127">12.9</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="983">Shipments</td>
            <td align="center" width="126">0.1</td>
            <td align="center" width="126">0.4</td>
            <td align="center" width="126">0.4</td>
            <td align="center" width="126">2.9</td>
            <td align="center" width="126">2.1</td>
            <td align="center" width="127">4.0</td>
            <td align="center" width="127">12.1</td>
          </tr>
          <tr>
            <td class="firstcol" width="983">Inventories</td>
            <td align="center" width="126">0.8</td>
            <td align="center" width="126">0.5</td>
            <td align="center" width="126">0.2</td>
            <td align="center" width="126">3.8</td>
            <td align="center" width="126">2.3</td>
            <td align="center" width="127">2.4</td>
            <td align="center" width="127">10.2</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="983">Unfilled Orders</td>
            <td align="center" width="126">0.6</td>
            <td align="center" width="126">0.9</td>
            <td align="center" width="126">0.8</td>
            <td align="center" width="126">7.9</td>
            <td align="center" width="126">7.0</td>
            <td align="center" width="127">3.7</td>
            <td align="center" width="127">10.0</td>
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Employment growth picked up steam last month. The ADP/Moody's National Employment Report indicated a 281,000 rise (2.1% y/y) in June nonfarm private sector jobs. It was the firmest rise since November 2012 and followed unrevised [...]

U.S. ADP Employment Gain is Strongest Since 2012

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      <span id="articletext">
      <p></p>
      
      <p><a href="/comment/140702a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140702a.png"></a>
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      <p>Employment growth picked up steam last month. The<b> ADP/Moody's
      National Employment Report indicated a 281,000</b> rise (2.1% y/y) in June
      nonfarm private sector jobs. It was the firmest rise since November 2012
      and followed unrevised increases of 179,000 and 215,000 in May and April.
      During the last three months, job increases averaged 222,000, below the
      peak of 259,000 in February of 2012. The June job gain beat the 205,000
      rise expected in the Action Economics Forecast Survey. During the last
      twenty years there has been a 95% correlation between the monthly ADP job
      gain and the rise in private sector nonfarm payrolls.</p>
      
      <p>The ADP survey is based on ADP's business payroll transaction system
      covering 406,000 companies and roughly 23 million employees. The data are
      processed by Moody's Analytics Inc., then calibrated and aligned with the
      BLS data. Extensive information on the methodology is available <a href="http://www.adpemploymentreport.com/common/docs/ADP-NER-Methodology-Exec-Summary.pdf">here</a>.</p>
      
      <p>Service-producing payrolls led the job gains with a 230,000 increase
      (2.1% y/y). Jobs in professional and business services increased 77,000
      (3.3% y/y); transportation and utilities employment grew 50,000 (2.0% y/y)
      while financial activities headcount gained 11,000 (0.5% y/y).
      Goods-producing payrolls rose 16,000 (2.0% y/y). Factory sector payrolls
      gained 12,000 (0.8% y/y), the strongest rise since December. Construction
      payrolls jumped 36,000 (4.0% y/y), the firmest rise of the expansion.</p>
      
      <p>Hiring amongst small businesses totaled 117,000 (2.1% y/y).
      Medium-sized firms' payrolls advanced 115,000 (1.8% y/y) while jobs at
      large-size companies rose 49,000 (2.6% y/y).</p>
      
      <p>The ADP National Employment Report data are maintained in Haver's <b>USECON</b>
      database; historical figures date back to March 2001. The figures in this
      report cover jobs only in the private sector. The expectation figure is
      available in Haver's <b>AS1REPNA</b> database.</p>
      
      <p><b>Monetary Policy and Financial Stability</b> is today's speech by Fed
      Chair Janet L. Yellen and it is available <a href="http://www.federalreserve.gov/newsevents/speech/yellen20140702a.htm">here</a>.</p>
      
      
      <p><a href="/comment/140702c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140702c.png"></a>
      <a href="/comment/140702d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140702d.png"></a></p>
      
      <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" >ADP/Moody's National
              Employment Report</th>
            <th scope="col" >Jun</th>
            <th scope="col" >May</th>
            <th scope="col" >Apr</th>
            <th scope="col" >Y/Y</th>
            <th scope="col" >2013</th>
            <th scope="col" >2012</th>
            <th scope="col" >2011</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >Nonfarm Private Payroll Employment
              (m/m chg, 000s)</td>
            <td  >281</td>
            <td  >179</td>
            <td  >215</td>
            <td  >2.1%</td>
            <td  >2.0%</td>
            <td  >2.3%</td>
            <td  >1.8%</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;Small Payroll (1-49)</td>
            <td  >117</td>
            <td  >82</td>
            <td  >76</td>
            <td  >2.1</td>
            <td  >2.1</td>
            <td  >2.5</td>
            <td  >1.1</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;Medium Payroll (50-499)</td>
            <td  >115</td>
            <td  >62</td>
            <td  >82</td>
            <td  >1.8</td>
            <td  >1.6</td>
            <td  >2.0</td>
            <td  >2.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;Large Payroll (&gt;500)</td>
            <td  >49</td>
            <td  >37</td>
            <td  >56</td>
            <td  >2.6</td>
            <td  >2.3</td>
            <td  >2.4</td>
            <td  >2.7</td>
          </tr>
          <tr>
            <td class="firstcol" >Goods-Producing</td>
            <td  >51</td>
            <td  >31</td>
            <td  >24</td>
            <td  >2.0</td>
            <td  >1.6</td>
            <td  >2.2</td>
            <td  >1.7</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;Manufacturing</td>
            <td  >12</td>
            <td  >11</td>
            <td  >4</td>
            <td  >0.8</td>
            <td  >0.6</td>
            <td  >1.6</td>
            <td  >1.9</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Service-Producing</td>
            <td  >230</td>
            <td  >148</td>
            <td  >181</td>
            <td  >2.1</td>
            <td  >2.0</td>
            <td  >2.3</td>
            <td  >1.8</td>
            </tr>
              </tbody>
            </table>
            </span>
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      <span id="articletext">
      <p></p>
      
      <p><a href="/comment/140701o_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701o.png"></a>
      <a href="/comment/140701p_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701p.png"></a></p>
      
      <p>June was a strong prelude to summer for auto-dealers. According to the 
      Autodata Corporation, <b>unit sales of light vehicles increased 1.2% (6.9% y/y) versus May to 16.98
      million (SAAR)</b>, the highest level since January 2006.<b> </b>The gain
      raised sales by 10.3% since December and 87.7% since the recession low.</p>
      
      <p><b>Auto purchases</b> improved 3.1% (5.3% y/y) to 8.30 million after a
      6.6% rise. Sales of domestic autos increased 4.2% (5.2% y/y) to 5.91
      million after a 6.5% May gain. Sales of imports edged 0.6% higher (5.5%
      y/y) to 2.39 million following a 6.8% jump.</p>
      
      <p>Sales of <b>light trucks </b>slipped 0.5% m/m (+8.6% y/y) to 8.69
      million after a 2.8% rise. For the second consecutive month, imported
      light truck sales showed notable strength. The 7.1% increase (-1.6% y/y)
      to 1.14 million followed a similar gain in May. Domestic light truck sales
      declined 1.5% (+10.3% y/y) to 7.55 million and reversed most of the prior
      month's gain.</p>
      
      <p><b>Imports' share </b>of the U.S. light vehicle market improved to 20.8%
      last month. By vehicle type, imports' share of the U.S. car market fell to
      28.8%. Imports' share of the light truck market increased to 13.1%.</p>
      
      <p>U.S. vehicle sales figures can be found in Haver's<b> USECON </b>database.</p>
      
      <p><b>Increasing House Values Playing Significant Role in Wealth Recovery</b>
      from the Federal Reserve Bank of St. Louis is available <a href="http://www.stlouisfed.org/on-the-economy/increasing-house-values-playing-significant-role-in-wealth-recovery">here</a>.</p>

      <p><a href="/comment/140701q_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701q.png"></a>
      <a href="/comment/140701r_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701r.png"></a></p>
      
      <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" >Light Vehicle Sales
              (SAAR, Mil. Units)</th>
            <th scope="col" ><b>Jun</b></th>
            <th scope="col" ><b>May</b></th>
            <th scope="col" ><b>Apr</b></th>
            <th scope="col" ><b>Y/Y %</b></th>
            <th scope="col" ><b>2013</b></th>
            <th scope="col" ><b>2012</b></th>
            <th scope="col" ><b>2011</b></th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >Total</td>
            <td  >16.98</td>
            <td  >16.77</td>
            <td  >16.04</td>
            <td  >6.9</td>
            <td  >15.55</td>
            <td  >14.49</td>
            <td  >12.78</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;Autos</td>
            <td  >8.30</td>
            <td  >8.04</td>
            <td  >7.55</td>
            <td  >5.3</td>
            <td  >7.77</td>
            <td  >7.42</td>
            <td  >6.23</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
            <td  >5.91</td>
            <td  >5.67</td>
            <td  >5.33</td>
            <td  >5.2</td>
            <td  >5.47</td>
            <td  >5.10</td>
            <td  >4.21</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Imported</td>
            <td  >2.39</td>
            <td  >2.37</td>
            <td  >2.22</td>
            <td  >5.5</td>
            <td  >2.29</td>
            <td  >2.32</td>
            <td  >2.02</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;Light Trucks</td>
            <td  >8.69</td>
            <td  >8.73</td>
            <td  >8.49</td>
            <td  >8.6</td>
            <td  >7.79</td>
            <td  >7.08</td>
            <td  >6.55</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
            <td  >7.55</td>
            <td  >7.67</td>
            <td  >7.51</td>
            <td  >10.3</td>
            <td  >6.71</td>
            <td  >6.10</td>
            <td  >5.55</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Imported</td>
            <td  >1.14</td>
            <td  >1.06</td>
            <td  >0.99</td>
            <td  >-1.6</td>
            <td  >1.08</td>
            <td  >0.97</td>
            <td  >1.00</td>
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June was a strong prelude to summer for auto-dealers. According to the Autodata Corporation, unit sales of light vehicles increased 1.2% (6.9% y/y) versus May to 16.98 million (SAAR), the highest level since January 2006. The gain [...]

U.S. Vehicle Sales Reach Highest Level Since 2006

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      <p><a href="/comment/140701k_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701k.png"></a>
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      <p>The value of construction put-in-place edged up 0.1% (6.6% y/y) during
      May following a 0.8% April increase, revised from 0.2%. Figures back to
      January 2008 were revised. Since December, the value of construction
      spending has fallen 0.5%. The latest increase disappointed expectations
      for a 0.4% rise in the Action Economics Forecast Survey.</p>
      
      <p>Private sector construction outlays slipped 0.3% in May (+9.0% y/y) and
      reversed a 0.3% April gain. Residential building declined 1.5% (+7.5% y/y)
      and forward momentum has slowed drastically since early-2013.
      Single-family homebuilding declined 1.4% in May after a 2.1% increase
      while y/y growth of 10.9% was down from 35.0% y/y early-last year.
      Multi-family building was off 0.5% in May after a 2.1% rise. Momentum here
      also was off significantly. Year-to-year growth of 30.7% was roughly half
      that of late-2012. Spending on improvements fell 1.9% in May, the fifth
      consecutive month of decline. Growth turned to a negative 2.4% y/y versus
      the peak of +13.1% y/y early-last year. To the up-side, nonresidential
      building activity gained 1.1% in May and the year-to-year rise of 10.7%
      followed a 0.6% uptick last year.</p>
      
      <p>The story also is firm in the public sector. The value of 
      building activity here improved 1.0% in May after strong gains
      during the prior two months. Annual growth of 1.2% compares to declines
      ranging from 2.8% to 5.4% since 2010. Spending on education rose 1.7% y/y
      in May after declining as much as 13.4% y/y in 2010. Spending on highways
      &amp; streets rose 2.3% y/y. That's versus the 2.9% y/y decline in 2011
      and little rise since. Still falling at an accelerated 36.0% y/y rate is
      commercial construction, the worst growth rate on record.</p>
      
      <p>The construction spending figures are in Haver's
      <b>USECON</b> database and the expectations figure is contained in the <b>AS1REPNA</b>
      database.</p>
      
      <p><a href="/comment/140701m_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701m.png"></a>
      <a href="/comment/140701n_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701n.png"></a></p>
      
      
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

        <thead>
          <tr>
            <th class="firstcol" scope="col" >Construction Put in
              Place (%)</th>
            <th scope="col" >May</th>
            <th scope="col" >Apr</th>
            <th scope="col" >Mar</th>
            <th scope="col" >Y/Y</th>
            <th scope="col" >2013</th>
            <th scope="col" >2012</th>
            <th scope="col" >2011</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >Total</td>
            <td  >0.1</td>
            <td  >0.8</td>
            <td  >0.0</td>
            <td  >6.6</td>
            <td  >5.7</td>
            <td  >9.2</td>
            <td  >-2.1</td>
          </tr>
        </tbody>
          <tr class="odd">
            <td class="firstcol" >&nbsp; Private</td>
            <td  >-0.3</td>
            <td  >0.3</td>
            <td  >-0.6</td>
            <td  >9.0</td>
            <td  >10.1</td>
            <td  >16.0</td>
            <td  >-0.1</td>
          </tr>
        <tbody>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
            <td  >-1.5</td>
            <td  >0.5</td>
            <td  >0.2</td>
            <td  >7.5</td>
            <td  >20.4</td>
            <td  >14.4</td>
            <td  >1.9</td>
          </tr>
        </tbody>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
            <td  >1.1</td>
            <td  >0.1</td>
            <td  >-1.4</td>
            <td  >10.7</td>
            <td  >0.6</td>
            <td  >17.5</td>
            <td  >-1.8</td>
          </tr>
        <tbody>
          <tr>
            <td class="firstcol" >&nbsp; Public</td>
            <td  >1.0</td>
            <td  >2.1</td>
            <td  >1.6</td>
            <td  >1.2</td>
            <td  >-3.5</td>
            <td  >-2.8</td>
            <td  >-5.4</td>
             </tr>
              </tbody>
            
            
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The value of construction put-in-place edged up 0.1% (6.6% y/y) during May following a 0.8% April increase, revised from 0.2%. Figures back to January 2008 were revised. Since December, the value of construction spending has fallen [...]

U.S. Construction Spending Nudges Higher

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      <p></p>

<p><a href="/comment/140701j_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701j.png" align="left"></a>
The chart on the left makes it quite clear that manufacturing in the euro area has turned lower, according to the Markit manufacturing PMIs. France, after lingering behind Germany and the EMU totals, surged to its cycle high two months ago but has fallen from that very sharply and now shows the weakest PMI reading of this group. France has been struggling throughout the recovery. It continues to struggle more than the average EMU member.
</p><p>
The EMU manufacturing measure slipped from its preliminary reading and now sits at a level of 51.8 in June. At that level the EMU manufacturing gauge sits in the 55th percentile of its historic queue, not a very strong reading. The raw PMI reading shows EMU is only 1.8 points above being neutral. While the queue percentile reading shows us that the queue standing is only 5.3 percentage points above its historic median. In this case, these are equivalent characterizations of how poorly the EMU is doing: barely expanding and only 5% above its median.
</p><p>
The German PMI slipped to 52 in June from 52.3 in May, marking its lowest reading in seven months. German manufacturing is not only of moderate valuation compared to other PMI measures in June, but in the queue sense it is the fourth weakest reading for the EMU members in the table. The German queue standing is in the 52nd percentile, the same value as its raw diffusion reading of 52. However, Italy's raw reading of 52.6 is just above the German raw reading; yet it sits in the 73rd percentile of its historic queue, a much higher standing than for Germany. Remember that the percentile standings are relative measures. What this difference between Italy and Germany tells us is that the German manufacturing PMI is used to being much higher so that at a level of 52, it's considered weak against its historic metrics. But Italy's manufacturing sector is not usually so strong. The level of 52.6 is much stronger when compared with its historic queue.
</p><p>
The strongest queue reading from the EMU countries in the table comes from Spain in the 90.1 percentile of its historic queue. That's followed by Italy in the 73rd percentile and the Netherlands in the 56.6 percentile. Below the Netherlands comes Germany at the 52nd percentile, then Greece at its 43rd percentile, Austria in the 33.6 percentile, and France in the 25th percentile. The French PMI for manufacturing is weaker than its current level of 48.2 only 25% of the time. Clearly France continues to struggle mightily.
</p><p>
Outside of the EMU area, but inside the European Union, we list for members with the UK being the strongest on a manufacturing queue percentile standing in the 94th percentile. It's followed by Sweden in the 71st percentile, Hungary in the 47th percentile, and Denmark in the 23rd percentile.
</p><p>
Returning to the EMU members, eight of the 10 reporting members saw their PMI values reduced in June. Clearly momentum in the euro area has hit a wall of some sort around midyear. We have seen in some of the individual country statistics erode, with the German ZEW and Ifo indices backing off; still, the German consumer confidence gauge from GfK has continued to be elevated. 
</p><p>
Europe's labor market data are up to date only through May. The EU shows some further step down in the unemployment rate from 10.4% in April to 10.3% in May. The EMU rate of 11.6% has held for two months in a row. The number unemployed has fallen in May in both the EU and in the EMU areas by 0.2% in each case. Of 11 EMU countries that have reported topical unemployment rates, eight of them show net declines in unemployment over the last three months. Seven of them show unemployment declines over six months and five of them show unemployment declines over 12 months. On a trend basis, unemployment is still falling in the euro area. But the pace of the decline has tapered off. In Germany this month, there's been a slight increase in a number of unemployed even though the German unemployment rate has remained the same at 5.1% for two months running.
</p><p>
One of things that the euro area is trying to deal with is a tremendous degree of variation among its member countries' economic circumstances. Among a group of the 12 oldest EMU members, we find that the standard deviation among the levels of unemployment rates is hovering near an all-time high since the euro area was formed. This measure of disparity within the EU peaked in June of last year and has edged down slightly but not by much. For example, before the financial crisis hit the dispersion among these 12 countries had gotten down to two percentage points while currently it sits above 7.25 percentage points. This is just one measure what the European Central Bank is trying to deal with as it looks across the euro area and tries to set a one-size fits all policy.
</p><p>
So far, the evidence is that the EMU continues to make its progress. Most the labor market information shows that labor market progress continues although it has slowed. However, other indicators don't show such continuing improvement. Moreover, as revealed by the unemployment rate dispersion gauge, the variability of conditions around the union creates the largest headache for the ECB, which is the only agency with overarching macroeconomic abilities to affect conditions in the euro area. Simply put, monetary policy is trying to make progress under the most adverse conditions.
</p><p>
The manufacturing PMIs this month show that progress in the euro area has slowed and even backtracked for a majority of the members. However, the euro area itself still has a manufacturing PMI whose value is 18.2 points higher than its low and only 7.2 points below its past cycle peak. For the four largest economies, it's also true that for all of them, including France, they are higher from their cycle low than they are down from their cycle peak. In most cases, this is a two to one difference although it's much less than that for France.
</p><p>
It has now become a continuing theme to dwell over the weakness in France and to wonder how the euro area is going to move ahead and deal with one of its largest economies that is struggling so greatly. However, even Germany with the best all-around performance has showed some tendency to slow down in the last month or so and to backtrack from its highs. Whatever specific country problems exist, there also seems to be a euro area-wide problem that has been slowing growth. Yet, the IMF is urging central banks to get their base interest rates back to `normal' while the ECB has only just launched a policy meant to provide credit stimulus. Europe is not yet out of the woods.
</p>

<p><img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140701.png" width="660" height="350"></p></html>

The chart on the left makes it quite clear that manufacturing in the euro area has turned lower, according to the Markit manufacturing PMIs. France, after lingering behind Germany and the EMU totals, surged to its cycle high two [...]

EMU Manufacturing PMIs Turn Lower in June

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

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

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**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

260427T2.jpg

**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

260427T3.jpg

**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

260427T4.jpg

The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

260427T5.jpg

**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

260427T6.jpg

Asia

Economic Letter from Asia: Not Just About the Strait

260427E.jpg

**The Distributive Trades Survey**

The U.K. Distributive Trades Survey for April 2026 and the look-ahead expectation readings for May paint an extremely soured outlook for the U.K. economy.

**Retail ranking**: Surveys for retail sales compared to a year ago, orders compared to a year ago, and sales evaluated for the time of year all have rankings near zero, which is the worst result on this timeline. This zero distinction applies to retail sales compared to a year ago. The best ranking is 11.6%; that is for sales evaluated for the time of year. Orders compared to a year ago have a 4.2 percentile standing. The stock-to-sales ratio—which is a completely different concept—shows that the inventory-to-sales ratio has a 29.9 percentile standing.

**Retail diffusion**: The raw April diffusion readings (up minus down diffusion) show that sales compared to a year ago slipped to a reading of -68 in April from -52 in March. Orders fell to -46 in April from -26 in March. Sales evaluated for the time of year fell to -32 April from -23 in March. All three measures weakened, and all three weakened decisively, resulting in extremely weak rankings. All of the rankings are executed on data back to 2002.

**Expectations for retailing**: The expectations readings for May show slippage again across all three metrics: expected sales compared to a year ago, expected orders compared to a year ago, and expected sales for the time of year. Expected sales compared to a year ago fell to -60 in May from -49 in April. Orders compared to a year ago declined to -45 in May from -30 in April, and sales for the time of year slipped to -43 from -19. In May, these readings have rankings in a 0.4 percentile standing for sales compared to a year ago, a 1.8 percentile standing for sales evaluated relative to the time of year, and a 4.6 percentile standing for orders compared to a year ago. These two panels on current and expected retail sales volumes are just simply terrible: weak monthly, weak in ranking terms, and showing slipping momentum.

The distributor trade series also provides data on the wholesale sector. While the wholesale sector is not quite as beat up as the retail sector, it's still extremely weak. There is no cause for any kind of hope that things are getting better based on wholesaling trends.

**Wholesaling**: The wholesale survey for sales compared to a year ago edged lower to -32 in April from -31 in March. Orders compared to a year ago remained at a reading of -41 in April. Sales evaluated for the time of year improved to a reading of -20 in April from -39 in March—a significant step up, but still very weak. The percentile standings for these three categories show sales compared to a year ago at the 8.8 percentile, orders compared to a year ago at the 5.6 percentile, and sales evaluated for the time of year at the 14.8 percentile.

**Wholesale Expectations**: The look-ahead observations, which provide expectations for wholesaling in May, show a similar constellation of readings, with sales compared to a year ago falling to -37 in May from -27 in April and orders compared to a year ago falling to -42 from -38, while sales evaluated for the time of year improved to  16 from  37. That category for wholesale sales improved both in April in real time and in May for expectations; however, it continues to have a very weak percentile standing, at the 17.9 percentile in May, while sales for a year ago have a 6.7 percentile standing and orders for a year ago have a 6.0 percentile standing.

260427.jpg

While some of the global PMI data have improved, these survey data for the U.K. are particularly dour. The war in Ukraine drags on, and there's a new conflict in Iran that has shut the Strait of Hormuz, creating energy problems for much of Europe. More broadly, supply chains have been harmed. In addition, the U.K. is undergoing a bout of political instability, as its Prime Minister is under pressure and a good deal of political uncertainty is being worsened by deteriorating economic performance.

Both the U.K. and the European Monetary Union had been showing some progress on inflation until the Iran war hit. Now, as the oil prices are up so sharply, headline inflation is going to be worse everywhere and there will probably be a bit more attention directed to the core inflation rate. However, the U.K. has had inflation too hot for a while, and it has failed to settle down. At its last meeting, the Bank of England’s Monetary Policy Committee warned that if the war was still ongoing at the next meeting, there would be a risk of a rate hike. So, it would seem that a rate hike is going to be in play unless the economy falls off a cliff first, which, based on the distributive trades data, is also something that could happen. The U.K. economy appears to be on very unsound footing, and what happens next is just about anybody's guess.

United Kingdom

U.K. Retail Sales: Worse Than During Covid

260424E.jpg

The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

260424.jpg

Germany

German Ifo Plunges Everywhere

Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

260423Z1.jpg

**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

260423Z2.jpg

**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

260423Z3.jpg

**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

260423Z4.jpg

**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

260423Z5.jpg

**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

260423Z6.jpg

Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

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Charts of the Week: Risks Build, Markets Shrug

Sandy Batten

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The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Economy in Brief: 2014

Jump to:

U.S. Factory Sector Orders Pull Back but Inventories Continue to Increase

U.S. Mortgage Loan Applications and Interest Rates Move Lower

EMU PPI Is Still Weak

U.S. ADP Employment Gain is Strongest Since 2012

U.S. ADP Employment Gain is Strongest Since 2012

U.S. Vehicle Sales Reach Highest Level Since 2006

U.S. Construction Spending Nudges Higher

EMU Manufacturing PMIs Turn Lower in June