Tom Moeller

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Industrial production increased 0.5% (7.5% y/y) during February after surging an unrevised 1.4% in January. The latest gain matched expectations in the Action Economics Forecast Survey. Manufacturing output surged 1.2% (7.4% y/y) in February after edging 0.1% higher in January. Utilities output fell by 2.7% (-1.2% y/y) following January's 10.4% surge due to cold weather. Mining output edged 0.1% higher (17.3% y/y).

The February production increase was held back by a 3.5% decline in motor vehicle output which was unchanged y/y. Output of computers & electronic products offset the decline, strengthening 1.8% (8.9% y/y). Machinery production rose 0.8% (8.3% y/y) in February and electrical equipment & appliance production rose 0.5% (5.7% y/y). In the nondurable goods sector, apparel production surged 3.0% (0.5% y/y) last month. Petroleum output strengthened 2.3% (12.5% y/y) and chemical output gained 0.8% (14.6% y/y). Food & beverage production also rose 0.8% (3.7% y/y) in February.

In the special factory classifications, factory output less the high technology sector rose 1.1% (7.4% y/y) in February while factory production excluding both high tech and autos rose 1.5% (7.9% y/y).

Capacity utilization rose to 77.6% last month from 77.3% in January. A 77.9% rate had been expected. Utilization in the factory sector rose to 78.0%, the highest rate since September 2018.

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 sector growth picks up.
- Autos continue to hold back overall increase.
- Capacity utilization strengthens.

U.S. Industrial Production Rises in February

Sandy Batten

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The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index surprised market expectations in March, rebounding to 27.4, its highest reading in four months, from 16.0 in February. The Action Economics Forecast Survey looked for an unchanged reading of 16.0. The percentage of firms reporting improved conditions jumped up to 40.2%, the highest reading in four months, from 26.3% in February, while the share reporting weaker conditions increased to 12.7% from 10.3%. Responses to this month's survey were collected from March 7 through March 14, that is, after the Russian invasion of Ukraine.

The headline index reflects responses to a single question. Haver Analytics calculates an ISM-Adjusted General Business Conditions Index from five key components using the same methodology as the national ISM index. That figure rose to 61.4 in March from 58.5 in February, indicating a rather broadly based improvement in March.

Performance of the subindexes was almost universally stronger this month. The new orders index rose to 25.8 from 14.2 in February. The shipments index jumped up to 30.4 from 13.4 in February. The delivery times index soared to 39.7, its highest reading since May 2021, after having declined in each of the preceding three months. Nearly 46% of respondents reported longer delivery ties, up from 33% in February, while only 6% reported shorter delivery times, down from 10% in February. Inventories was the only subindex to decline in March, falling to 0.5 from 4.0 in February.

The employment subindexes pointed to further strengthening of labor-market conditions. The number of employees index rose to a new record of 38.9 from 32.3 in February The average workweek reading jumped up to 21.4 from 10.8 in February.

Inflation pressures also remained intact. The prices paid reading jumped up to 81.0 in March, the highest reading since June 1979, from 69.3 in February. Just over 87% of respondents reported paying higher prices for inputs while only 6.2% reported paying lower prices. These higher input prices are being passed through to higher output prices. The prices received index increased to 54.4 in March, the second highest reading since the mid-1970s, from 49.8 in February.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. In contrast to the increase in the current conditions index, the expectations index for future activity eased to 22.7 in March from 28.1 in February. The decline in March was led by expected weaker new orders and shipments. Delivery times are expected to shorten while input prices are expected to continue to rise markedly.

In special questions asked in this survey, problems in energy markets and with supply chains replaced Covid as the major factors expected to restrain production over the coming three months.

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 (20% each). 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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- Broad-based increases in component indexes.
- Delivery times index surges after three monthly declines.
- Prices paid rise to highest since 1979.

U.S. Philly Fed Index Surprises to Upside in March

Carol Stone, CBE

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Initial claims for unemployment insurance were 214,000 in the week ended March 12 (-72.0% y/y) following 229,000 the week before. That prior week was revised from 227,000 reported before. The Action Economics Forecast Survey expected 221,000 claims for the latest week. The 4-week moving average of initial claims decreased to 223,250 from 231,750 in the prior week.

In the week ended March 5, continued weeks claimed for unemployment insurance were 1.419 million, down from 1.490 million in the previous week. These figures are below those immediately before the pandemic and are the lowest since 1970. The insured unemployment rate ticked down to 1.0% in the week ended March 5 from the 1.1% where it had been the three previous weeks. The March 5 amount is the lowest rate ever for this series, which began in 1971.

In the week ended February 26, the number of continued weeks claimed in all unemployment insurance programs rose 59,516 to 1.969 million. This total includes federal employee, newly discharged veterans, extended benefits and other specialized programs. Continued claims for the Pandemic Unemployment Assistance program and for Pandemic Emergency Unemployment Compensation are no longer reported as both programs have expired; they were last reported for the week ended February 19.

The state insured rates of unemployment in regular programs vary widely. In the week ending February 26, the highest insured unemployment rates were in Rhode Island (2.70%), California (2.56%), New Jersey (2.39%), Alaska (2.37%) and New York (2.35%). The lowest rates were in Virginia (0.18%), Alabama (0.23%), North Carolina (0.34%), Mississippi (0.43%) and Florida (0.45%) Other state insured rates of unemployment in regular programs include Illinois (2.11%), Pennsylvania (1.84%), Ohio (1.13%) and Texas (0.83%). 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 and is in the **AS1REPNA** database.

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- Initial claims decrease somewhat more than expected.
- Continued claims rose slightly but remain well below pre-pandemic levels.
- Insured unemployment rate = 1.0%, lowest ever.

U.S. Unemployment Claims Decrease; Rate Hits Record Low

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Housing starts increased 6.8% (22.3% y/y) during February to 1.769 million (SAAR) and more than recovered the January decline to 1.657 million, revised from 1.638 million. It was the highest level of starts since June 2006. December starts also were revised up to 1.754 million from 1.708 million. The Action Economics Forecast Survey expected 1.700 million starts during February.

Starts of single-family units rose 5.7% (13.7% y/y) in February to 1.215 million after declining to 1.150 million in January. Multi-family housing starts improved 9.3% (46.6% y/y) to 554,000 from 507,000.

By region, housing starts in the Northeast rose 28.7% (19.3% y/y) in February to 130,000. Starts in the Midwest improved 15.3% (66.2% y/y) to 226,000. In the South, housing starts rose 11.4% (31.9% y/y) to 1.017 million units. To the downside, starts in the West fell 11.4% (-8.1% y/y) to 396,000.

Building permits fell 1.9% (+7.7% y/y) to 1.859 million from 1.895 million in January. Permits to build single-family homes eased 0.5% (+5.4% y/y) in February to 1.207 million units. Permits to build multi-family homes fell 4.4% (+12.2% y/y) to 652,000.

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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- Severe winter weather depressed January building activity.
- Regional changes remain mixed.
- Building permits decline.

U.S. Housing Starts Rebound in February

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The Mortgage Bankers Association's Loan Applications Index eased 1.2% (-35.2% y/y) in the week ending March 11 after the previous week’s 8.5% increase. The latest week’s decline came from applications to refinance, which fell 2.8% (-49.3% y/y) after an 8.5% advance in the March 4 week. Applications to purchase a home increased 0.7% (-8.4% y/y) following an advance of 8.6% in the March 4 week.

The share of applications for refinancing fell to 48.4% in the week ended March 11 from 49.5% the previous week. This latest week has the smallest refinance share since May 31, 2019, when it was 42.2%. The adjustable-rate mortgage (ARM) share of activity in the latest week was 5.6%, up from 5.2% the week before.

Mortgage interest rates resumed increasing in the March 11 week, rising to 4.42% for 30-year fixed-rate loans from 4.22% the week before. The effective rate on a 15-year mortgage was 3.66% in the latest week after the prior week’s 3.50%. The rate on a Jumbo 30-year mortgage rose to 4.13% from 3.91% while that on a 5-year adjustable-rate mortgage declined to 3.44% from 3.49%.

Applications for fixed-rate loans decreased 1.5% in the March 11 week (-37.1% y/y) following their advance of 8.6% in March 4 week. Applications for adjustable-rate mortgages increased 4.9% (31.4% y/y) after rising 7.1% in the previous week.

The average size of a mortgage loan edged down marginally, 0.03% (14.9% y/y), in the week of March 11 to $376,100. The average size of a loan for purchase rose 0.5% (+11.6% y/y) to $453,200. The average size of a refinanced loan decreased 2.0% (4.8% y/y) to $294,000.

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

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- March 11 week decrease follows sizable advance the week before.
- Applications to purchase edge higher as refinance activity declines.
- Mortgage interest rates advance 20 basis points.

U.S. Mortgage Application Volume Eases, Rates Rise

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At today's meeting of the Federal Open Market Committee (FOMC), the Fed announced that it will raise the target for the Federal funds rate to a range of 0.25% - 0.50% from 0.0% - 0.25%. The current rate has been in place since March 2020.

The Fed indicated that "the invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity."

It also stated, "With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong."

The statement issued following today's meeting can be found [here](https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a.htm).

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FOMC Lifts Funds Rate Target; Adjusts 2022 Economic Projections

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Total business inventories rose 1.1% m/m (11.4% y/y) in January on top of a 2.4% m/m jump in December and monthly gains above 1% in both October and November. A 1.1% gain had been expected in the Informa Global Markets Survey. Business sales rebounded 3.7% m/m (15.5% y/y) in January following a 0.5% m/m decline in December. With sales rising faster than inventories in January, the inventory-to-sales ratio fell from 1.29 in December to 1.25 in January, just 0.01 above the all-time low of 1.24.

As had been the case in December, the January increase in inventories was broadly based and led by a 2.0% m/m (6.1% y/y) increase in retail inventories on top of a 4.7% m/m surge in December and a 2.0% rise in November. In the retail sector, general merchandise store inventories posted the largest monthly increase, rising 5.1% m/m in January top of a 4.3% jump in December. Clothing store inventories rose 4.0% m/m, their fifth consecutive solid monthly increase. Inventories at building materials and garden supplies stores increased 3.3%m/m, building on a 3.8% m/m gain in December. Furniture and appliance store inventories gained 2.0% m/m after a 5.6% m/m jump in December, and auto inventories were up 2.4% m/m. Auto inventories have risen 14.1% over the three months to January. Wholesale inventory growth in January moderated to 0.8% m/m from 2.6% m/m in December. Factory inventories rose 0.7% m/m in January following a 0.4% m/m increase in December.

Led by a 5.7% m/m rebound in retail sales in January, total business sales increased 3.7% m/m following a 0.5% m/m decline in December. The rebound reflected a 6.9% m/m jump in auto sales, a 5.4% m/m gain in furniture and appliance store sales, a 4.5% m/m rise in general merchandise store sales and a 2.7% m/m increase in sales at building supply and garden supply stores. In a separate release this morning, it was reported that retail trade sales were unchanged in February while retail trade sales excluding autos slipped 0.2% m/m in February. In January wholesale sales climbed 4.0% m/m, their strongest monthly gain since March 2021, after a 0.8% m/m rise in December. Manufacturing sales posted a 1.2% m/m gain in January, their largest monthly gain in three months.

With the rise in total sales outpacing the rise in inventories, the overall inventory-to-sales ratio fell from 1.29 in December to 1.25 in January, just 0.01 above the all-time low of 1.24 last reached in October 2021. The retail I/S ratio declined to 1.13 from 1.17. It had reached an all-time low of 1.07 in October 2021. The wholesale I/S ratio declined from 1.24 in December to 1.20 in January, tying the lowest reading since July 2014. The manufacturing I/S ratio edged down to 1.45 in January, its lowest since May 2019, from 1.46 in December.

The manufacturing and trade data are in Haver's **USECON** database.

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Europe

- Led again by a strong gain in retail inventories.
- Sales post marked rebound after December decline.
- Inventory-to-sales ratio drops to just a tick above all-time low.

U.S. Business Inventories Posted Another Solid Rise in January

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Housing market activity weakened this month. The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell to 79 in March after weakening to 81 in February, revised from 82. Down for the third straight month, the decline compared to expectations for no change in the INFORMA Global Markets survey.

The index of expected sales in the next six months dropped to 70 in March from 80 in February, off 15.7% y/y. The index peaked at 89 in November 2020. The current sales reading fell to 86 from 89 and stood at its lowest since October 2021. The index measuring traffic of prospective buyers rose to 67 and made up half of its February fall. It was down 6.9% y/y.

Regional activity was varied in March. The index for the Northeast weakened to 60 (-30.2% y/y), its lowest point since June 2020. In the South, the home builder index fell to 80 (-2.4% y/y), down for the third straight month. To the upside, the home builders index rose m/m to 73 in the Midwest but has fallen 6.4% y/y. In the West, the home builders index held steady m/m and stood 3.4% higher y/y. These regional series begin in December 2004.

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

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- Decline is to lowest level in six months.
- Current & future sales indexes decline.
- Regional readings are mixed.

U.S. Home Builder Index Falls Again in March

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: March 2022

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