Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521a.jpg" width="353">
Worry abounds that inflationary pressure has built in the U.S. Indeed, the Consumer Price Index rose 4.5% at an annual rate during the last six months versus a 2.9% increase during all of last year. Typically, however, underlying price pressures do not build overnight.
It&#39;s handy to look at the &quot;core&quot; CPI to gauge those underlying pressures, and the news is not bad. The 2.2% rate of six month increase in core prices is down from a 2.3% rise last year. Though this simple measure does approximate what rate price inflation will return to after some short term shock has passed, it also misses the underlying process that generates longer-lived price pressure.
Real worry about pricing power should focus on pressure from any one of three fronts, the first is from demand-pull forces. They can be thought of as how fast is economic growth, on a medium term five year basis, exceeding its potential? The latter is measured by adding labor productivity growth to the growth in the labor force.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521b.jpg" width="353">
From this perspective, there has been little buildup of price pressure. Productivity growth during the last five years averaged 2.3%. When added to the 1.0% growth in the labor force that&#39;s generating the productivity, the resulting potential for overall real economic growth of 3.3% even exceeds slightly the 2.9% GDP growth rate averaged during the past five years.
The second source of potential pressure is from cost-push pressures. Here is where current concerns about inflation are rampant. Commodity prices have shot higher with surging prices for energy, foods and metals. Overall these components account for a quarter to one third of a product&#39;s retail price with the rest coming from processing and distribution. As an aside, these increases have been quite sufficient to squash corporate profitability. The recent 2.4% year-to-year growth rate profits, as of 4Q08, is well off the 24.0% rise during 2004 and well off the double digit gains logged during the last five consecutive years. During the last two quarters, profits have fallen at an average 8.7% annual rate. With a few exceptions, that&#39;s a decline of recession proportion.
And indeed, labor costs have risen as shown by 5.0% growth in compensation last year which was up from 4.0% growth during the prior several years. But again, workers seem to have earned the higher pay by working more productively. Nonfarm productivity grew 3.2% during the last four quarters versus 1.8% growth last year and 1.0% in 2006. That improvement limited the growth in unit labor costs to 0.2% during the last year, down from 3.0% in 2006 and 2007. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521c.jpg" width="353">
But whether costs get passed along to consumers, and sustained, depends on two things. The first is whether the economy is strong enough to support faster price increases. The recent slowdown in economic growth to 0.6% (AR) during the last two quarters is well off the 2.0-3.5% growth averaged during the last five years. While the forecast for growth from the National Association for Business Economists projects improvement during the next year, it doesn&#39;t ramp up to a barely inflation-neutral 2.7% rate until 2Q09. Additionally, global forces need examination and growth is up slightly. In the OECD economic growth during the last ten years averaged 2.6%. Last year it was a slightly quicker 2.8% and was 3.1% in 2006. The nature of the global relationship between growth and prices is examined in <a href="http://dallasfed.org/research/staff/2007/staff0701.pdf">Globalization, Aggregate Productivity, and Inflation</a> from the Federal Reserve Bank of Dallas.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521d.jpg" width="353">
The third, and probably the more important, factor which will determine price inflation (with a lag) is liquidity growth, i.e., money. The basics behind this relationship are examined in this <a href="http://research.stlouisfed.org/publications/review/76/06/link_Jun1976.pdf">1976 paper</a> from the Federal Reserve Bank of St. Louis and the recent picture should not be disturbing. Narrowly defined money (M2) in the U.S. during the last year did grow 6-6.5% and it was enough to raise the three year growth rate to 5.5%. That was up moderately from 4.2% as of 3Q06 but still well below 8% growth back in 2003. Growth in bank reserves has been even weaker. The St. Louis Fed&#39;s adjusted monetary base last year grew 1.2% and 2.4% on a three year basis, well below the 6-8% rates of growth earlier this decade. Finally, non-borrowed bank reserves fell 3.1% last year. The liquidity to fuel higher prices just seems not to be there.
Despite any good news about the prospect that inflation will remain contained, consumer&#39;s aren&#39;t buying it ... for the time being. The University of Michigan&#39;s May survey indicated that the expected twelve month rate of consumer price inflation rose to 7.0% from a low of roughly 4.0% from 2005-2007. Yet expectations for the five to ten year rate of inflation rose much more moderately, to 3.8% from lows in the 3.0-3.5% range earlier this decade. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521e.jpg" width="353">
Is it possible that the U.S. consumer&#39;s long term price expectations reflect the potential suggested by the demand-pull and the liquidity forces outlined above and that the short term expectations are formed by the cost-push pressures? In a word; probably. After all, the consumer has been called &quot;rational.&quot; With luck the current expectations are right.
The data behind the comments above can be found in Haver&#39;s USECON, USWEEKLY, SURVEYS, UMSCA (Michigan Survey) and the OECDMEI databases.
The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080521a.htm">here</a>.
The Federal Funds Rate in Extraordinary Times is today&#39;s speech by Fed Governor Kevin Warsh and it is available <a href="http://www.federalreserve.gov/newsevents/speech/warsh20080521a.htm">here</a>.



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Worry abounds that inflationary pressure has built in the U.S. Indeed, the Consumer Price Index rose 4.5% at an annual rate during the last six months versus a 2.9% increase during all of last year. Typically, however, underlying [...]

U.S. Inflation Pressures -- Demand-Pull, Cost-Push & Money

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521a.jpg" align="left" border="0" height="265" width="353">
Worry abounds that inflationary pressure has built in the U.S.
Indeed, the Consumer Price Index rose 4.5% at an annual rate during the
last six months versus a 2.9% increase during all of last year.
Typically, however, underlying price pressures do not build overnight.
It's handy to look at the "core" CPI to gauge those underlying
pressures, and the news is not bad. The 2.2% rate of six month increase
in core prices is down from a 2.3% rise last year. Though this simple
measure does approximate what rate price inflation will return to after
some short term shock has passed, it also misses the underlying process
that generates longer-lived price pressure.
Real worry about pricing power should focus on pressure from
any one of three fronts, the first is from demand-pull forces.
They can be thought of as how fast is economic growth, on a medium term
five year basis, exceeding its potential? The latter is measured by
adding labor productivity growth to the growth in the labor force.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521b.jpg" align="right" border="0" height="265" width="353">
From this perspective, there has been little buildup
of price pressure. Productivity growth during the last five
years averaged 2.3%. When added to the 1.0% growth in the labor force
that's generating the productivity, the resulting potential for overall
real economic growth of 3.3% even exceeds slightly the 2.9% GDP growth
rate averaged during the past five years.
The second source of potential pressure is from cost-push
pressures. Here is where current concerns about
inflation are rampant. Commodity prices have shot higher with
surging prices for energy, foods and metals. Overall these components
account for a quarter to one third of a product's retail price with the
rest coming from processing and distribution. As an aside, these
increases have been quite sufficient to squash corporate profitability.
The recent 2.4% year-to-year growth rate profits, as of 4Q08, is well
off the 24.0% rise during 2004 and well off the double digit gains
logged during the last five consecutive years. During the last two
quarters, profits have fallen at an average 8.7% annual rate. With a
few exceptions, that's a decline of recession proportion.
And indeed, labor costs have risen as shown by 5.0% growth in
compensation last year which was up from 4.0% growth during the prior
several years. But again, workers seem to have earned the higher pay by
working more productively. Nonfarm productivity grew 3.2% during the
last four quarters versus 1.8% growth last year and 1.0% in 2006. That
improvement limited the growth in unit labor costs to 0.2% during the
last year, down from 3.0% in 2006 and 2007. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521c.jpg" align="left" border="0" height="265" width="353">
But whether costs get passed along to consumers, and
sustained, depends on two things. The first is whether the economy is
strong enough to support faster price increases. The recent slowdown in
economic growth to 0.6% (AR) during the last two quarters is well off
the 2.0-3.5% growth averaged during the last five years. While the
forecast for growth from the National Association for Business
Economists projects improvement during the next year, it doesn't ramp
up to a barely inflation-neutral 2.7% rate until 2Q09. Additionally,
global forces need examination and growth is up slightly. In the OECD
economic growth during the last ten years averaged 2.6%. Last year it
was a slightly quicker 2.8% and was 3.1% in 2006. The nature of the
global relationship between growth and prices is examined in <a href="http://dallasfed.org/research/staff/2007/staff0701.pdf">Globalization,
Aggregate Productivity, and Inflation</a> from the
Federal Reserve Bank of Dallas.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521d.jpg" align="right" border="0" height="265" width="353">
The third, and probably the more important, factor which will
determine price inflation (with a lag) is liquidity growth, i.e.,
money. The basics behind this relationship are examined in this <a href="http://research.stlouisfed.org/publications/review/76/06/link_Jun1976.pdf">1976
paper</a> from the Federal Reserve Bank of St. Louis and the
recent picture should not be disturbing. Narrowly defined money (M2) in
the U.S. during the last year did grow 6-6.5% and it was enough to
raise the three year growth rate to 5.5%. That was up moderately from
4.2% as of 3Q06 but still well below 8% growth back in 2003. Growth in
bank reserves has been even weaker. The St. Louis Fed's adjusted
monetary base last year grew 1.2% and 2.4% on a three year basis, well
below the 6-8% rates of growth earlier this decade. Finally,
non-borrowed bank reserves fell 3.1% last year. The liquidity to fuel
higher prices just seems not to be there.
Despite any good news about the prospect that inflation will
remain contained, consumer's aren't buying it ... for the time being.
The University of Michigan's May survey indicated that the expected
twelve month rate of consumer price inflation rose to 7.0% from a low
of roughly 4.0% from 2005-2007. Yet expectations for the five to ten
year rate of inflation rose much more moderately, to 3.8% from lows in
the 3.0-3.5% range earlier this decade. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521e.jpg" align="left" border="0" height="265" width="353">
Is it possible that the U.S. consumer's long term price
expectations reflect the potential suggested by the demand-pull and the
liquidity forces outlined above and that the short term expectations
are formed by the cost-push pressures? In a word; probably. After all,
the consumer has been called "rational." With luck the current
expectations are right.
The data behind the comments above can be found in Haver's USECON,
USWEEKLY, SURVEYS, UMSCA (Michigan Survey) and the OECDMEI
databases. 
 

The minutes to the latest FOMC meeting can
be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080521a.htm">here</a>.
The Federal Funds Rate in Extraordinary Times is
today's speech by Fed Governor Kevin Warsh and it is available <a href="http://www.federalreserve.gov/newsevents/speech/warsh20080521a.htm">here</a>.

Germany&#8217;s IFO in Surprise Rise by <a href="/comment/Brusca.html">Robert
Brusca</a>May 21, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080521f.jpg" align="left" border="0" height="265" width="353">
Germany continues to show resilience even in the face of weak
reports it has issued. Here is a reversal that fits in with the strong
2008-Q1 GDP that Germany reported. Not surprisingly this report also
boosted the euro. Oddly with this rebound in hand the stronger GDP
behind us the IFO&#8217;s Gernot Nerb declares autumn as the proper time for
the ECB to cut rates. With Germany showing such &#8216;strength&#8217; and with
inflation pressures swirling and engulfing even core inflation measures
why should the ECB do any such thing, let alone ponder it?

IFO measures remain at firm level in their respective ranges
since 1991. The total index is in the 75th percentile of its range and
most readings are in the 70s in terms of percentile readings.
Wholesaling is a bit weaker and services sports a percentile reading
that is pushing the 80th percentile (79.4). All sector readings also
are well above their averages since 1991. The monthly rebound in May is
robust and spans alls sectors except construction.

So is Germany recovering now? Is it merely cutting the losses
from last month? Where does it stand?

Clearly the Nerb comments view this as a bit of a wry smile in
the land of bad jokes. The improvement is not expected to continue if
he is calling for an ECB rate cut buy August. But any continued
strength could be a greater conduit for inflation pressures in the
meantime. Those pressures clearly still are dogging the EMU economy.
Granted that Germany is the strongest economy of all of these, and
still it has the best inflation record. Those weaker economies in EMU
have been pushing higher inflation results for some time. On the whole
that growth/inflation mix remains a nettlesome problem for the ECB to
attack.

The rise in the euro to a new one-month high Vs the dollar is
telling. This report has shattered a paradigm that was in place. We
cannot be sure how much staying power this monthly rise really has. But
the Zew financial experts also saw it and flagged it correctly. Looking
back at history it is hard to see how Germany and the rest of EMU can
do well with such a strong euro value &#8211; looking at it in trade-weighted
and inflation-adjusted terms. Orders data have been withering too.
There are signs that weakness is still the operative trend.

The April diffusion reading from the IFO was the lowest since
January of 2006. Plus it represents a sharp 4.7 point drop from its
March value. The drop in March was the largest overall index drop since
Sept of 2001. Even with the rebound in May, weakness shows though. May
can be viewed as technical rebound and as still preserving the
down-trend that has been put in place for the IFO barometer. But for
the moment the outlook is confused enough to have boosted the euro FX
rate. That strength is not going to be able to last either. But a
stronger Germany makes the ECB more wary of rate-cutting and that, in
turn, gives the stronger euro some fundamental support, at least for a
while.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">Summary of
IFO Sector Diffusion readings: CLIMATE </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">CLIMATE Sum</td>
<td>Current</td>
<td>Last Mo</td>
<td colspan="6">Since Jan 1991*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>May-08</td>
<td>Apr-08</td>
<td>Average</td>
<td>Median</td>
<td>Max</td>
<td>Min</td>
<td>range</td>
<td>% range</td>
</tr>
<tr class="odd">
<td class="firstcol">All Sectors</td>
<td>6.2</td>
<td>4.0</td>
<td>-6.8</td>
<td>-10.0</td>
<td>16.7</td>
<td>-26.4</td>
<td>43.1</td>
<td>75.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>15.0</td>
<td>13.3</td>
<td>3.5</td>
<td>3.5</td>
<td>27.4</td>
<td>-22.7</td>
<td>50.1</td>
<td>75.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>-20.3</td>
<td>-20.0</td>
<td>-33.4</td>
<td>-39.2</td>
<td>-8.0</td>
<td>-50.5</td>
<td>42.5</td>
<td>71.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale</td>
<td>4.0</td>
<td>1.6</td>
<td>-10.6</td>
<td>-15.7</td>
<td>23.4</td>
<td>-39.4</td>
<td>62.8</td>
<td>69.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>-4.4</td>
<td>-10.9</td>
<td>-20.3</td>
<td>-19.6</td>
<td>1.3</td>
<td>-39.7</td>
<td>41.0</td>
<td>86.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>19.4</td>
<td>18.9</td>
<td>9.8</td>
<td>9.0</td>
<td>28.5</td>
<td>-15.7</td>
<td>44.2</td>
<td>79.4%</td>
</tr>
<tr>
<td colspan="9" class="firstcol">* May 2001
for Services</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520h.jpg" width="353">
The Center for European Economic Research (ZEW) released today the results of its latest survey of some 300 analysts and institutional investors. While these representatives of the financial community reported an improvement in their appraisal of the current German situation, they down graded slightly their appraisal of its future. In May the percent balance between those who saw an improvement in the current situation and those who saw a worsening was 38.6%, up from 33.2% in April. The percent balance between those who saw a worsening of the outlook and whose who saw an improvement was -41.4%, 0.7 percentage points below the April balance of -40.7%<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520i.jpg" width="353">
In addition to its survey of the financial community&#39;s opinions on Germany, ZEW also surveys their opinions of current conditions and expectations for the future of the Euro Area. The trends in opinions for the Euro Area in May were the opposite of those shown for Germany. In May the percent balance on those seeing an improvement over those seeing a deterioration in current conditions fell from 15.5% in April to 11.4% in May. and the percent balance between those expecting worsening of the outlook over those expecting an improvement decreased by 1.2 percentage points from -44.8 in April to -43.6 in May. The first chart shows the current conditions and expectations for the future for both Germany and the Euro Area. For the most part, there is a close correlation between the opinions for Germany and those for the Euro Area.
Although still negative, profit expectations in Germany have begun to improve, particularly in those industries that were hardest hit by the fallout from the sub prime crisis in the United States. The second chart shows the profit expectations for the banking and insurance industries.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW INDICATORS (% BALANCE)&nbsp;</th>
<th scope="col">May 08</th>
<th scope="col">Apr 08&nbsp;</th>
<th scope="col">May 07&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>38.6</td>
<td>33.2</td>
<td>88.0</td>
<td>5.4</td>
<td>-49.4</td>
<td>75.4</td>
<td>18.3</td>
<td>-61.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expectations</td>
<td>-41.4</td>
<td>-40.7</td>
<td>24.0</td>
<td>-0.7</td>
<td>-65.4</td>
<td>-3.0</td>
<td>22.3</td>
<td>34.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>11.4</td>
<td>15.5</td>
<td>86.8</td>
<td>-4.1</td>
<td>-70.4</td>
<td>70.0</td>
<td>23.8</td>
<td>-29.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expectations</td>
<td>-43.6</td>
<td>-44.8</td>
<td>22.3</td>
<td>1.2</td>
<td>-65.9</td>
<td>-3.5</td>
<td>26.6</td>
<td>32.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The Center for European Economic Research (ZEW) released today the results of its latest survey of some 300 analysts and institutional investors. While these representatives of the financial community reported an improvement in their [...]

ZEW Indicator: Current Conditions In Germany Up, Expectations Down--Current Conditions In Euro Area Down, [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520g.jpg" width="353">
The International Council of Shopping Centers reported that chain store sales fell another 0.4% last week after the prior period&#39;s 1.0% drop. It was the third consecutive weekly decline.
So far in May sales are down 0.5% from the April average which rose 1.0% from March.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
During the latest week, the leading indicator of chain store sales from ICSC-UBS was roughly stable with the prior week but down 3.5% y/y.
The chain store sales figures are available in Haver&#39;s SURVEYW database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/16/08</th>
<th scope="col">05/09/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>488.3</td>
<td>490.3</td>
<td>1.6%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers reported that chain store sales fell another 0.4% last week after the prior period's 1.0% drop. It was the third consecutive weekly decline.

U.S. Chain Store Sales Fell a Third Straight Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520f.jpg" width="353">
The April National Activity Index (CFNAI), published by the Chicago Federal Reserve Bank, fell to -1.17 after a slight improvement in March. The decline lowered the three month moving average of the figure to -1.24 which was its lowest level since the end of the 2001 recession.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth of roughly 3%. During the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP. An index level at or below -0.70 typically has indicated negative U.S. economic growth.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_may2008.pdf">here</a> and the historical data are available in Haver&#39;s Surveys database.
Each of the four broad categories of indicators &#151; employment, production, consumption and housing &#151; continued to make negative contributions to the CFNAI during April.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production &amp; income, the labor market, personal consumption &amp; housing, manufacturing &amp; trade sales, and inventories &amp; orders.
Economic Trends and the Chicago Fed National Activity Index from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflmay2008_250.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-1.17</td>
<td>-0.98</td>
<td>-0.20</td>
<td>-0.42</td>
<td>-0.05</td>
<td>0.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Average</td>
<td>-1.24</td>
<td>-1.05</td>
<td>-0.15</td>
<td>-0.34</td>
<td>-0.03</td>
<td>0.26</td>
</tr>
</tbody>
</table>
</body>
</html>

The April National Activity Index (CFNAI), published by the Chicago Federal Reserve Bank, fell to -1.17 after a slight improvement in March. The decline lowered the three month moving average of the figure to -1.24 which was its [...]

Chicago Fed Index Continues to Indicate Recession

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520e.jpg" width="353">
The retail price for a gallon of regular gasoline surged seven cents last week to $3.79 per gallon, according to the U.S. Department of Energy survey. That followed an eleven cent increase during the prior week. So far in May prices have risen 25 cents from the April average after that month&#39;s 21 cent jump.
During April, a 6.6% surge in the average price of gasoline translated into a 2.0% decline in prices in the April CPI report. The difference was due to seasonal factors. In the CPI report the data are seasonally adjusted and the factor &quot;expected&quot; a 7.7% increase based on historical April price patterns. For May, however, the gas price increase will boost the CPI as the seasonal expects a 3.6% increase and actual prices already have risen by 7.3%. (These numbers don&#39;t work out exactly due to product type differences).
Spot market prices for gasoline rose further yesterday. The wholesale price for a gallon of non-oxygenated gasoline was $3.11 per gallon, up five cents from last week&#39;s average.
The price of a barrel of WTI crude oil rose ten dollars from the last week of April to $124.94. Yesterday prices rose further to a record $127.06.
Natural gas prices recently have moved slightly lower. Yesterday&#39;s wholesale price of natural gas at $11.10 per mmbtu was down from Friday&#39;s record price and down from last week&#39;s average of $11.34/mmbtu. Prices are still nearly double this time last year.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database, daily prices are found in the DAILY database.
FOMC Consensus Forecasts from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/08/05/GavinPande.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">05/19/08</th>
<th scope="col">05/05/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.79</td>
<td>3.72</td>
<td>17.8%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>124.94</td>
<td>123.0</td>
<td>96.4%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>


</html>

The retail price for a gallon of regular gasoline surged seven cents last week to $3.79 per gallon, according to the U.S. Department of Energy survey. That followed an eleven cent increase during the prior week. So far in May prices [...]

U.S. Gasoline Prices Up to $3.79 per Gallon. "Seasonal" Will Raise The CPI Report

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520a.jpg" width="353">
The increase in U.S. finished producer prices eased last month to 0.2% after the unrevised 1.1% spike during March. The latest gain fell short of Consensus expectations for a 0.4% rise and it was the lightest month to month increase this year.
The price gain&#39;s easing owed to a 0.2% (+17.1% y/y) decline in finished energy prices which was led by a 4.6% (+23.0% y/y) decline in gasoline prices. Elsewhere, energy prices were quite strong. Natural gas prices jumped 5.4% (9.1% y/y) and home heating oil prices increased 2.2% (48.6% y/y) after a 13.1% spike during March. Residential electric power prices also were strong and rose 1.2% (5.0% y/y).
Why Do Gasoline Prices React to Things That Have Not Happened? from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2007/c/pages/gas-prices.html">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520b.jpg" width="353">
Past strength in finished consumer food prices took a breather and they were unchanged (5.1% y/y) after a 1.2% spike during March. The easing was led by a 12.3% (+39.7% y/y) decline in egg prices. Beef &amp; veal prices also continued their recent weakness and fell 1.7% (-4.6% y/y) while fresh vegetable prices fell 4.1% (-16.2% y/y). Coffee prices fell 3.5% (+10.3% y/y). These declines were offset by higher prices for fish, turkeys and chicken.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520c.jpg" width="353">
Less food &amp; energy the increase in finished goods prices accelerated to 0.4% and that was faster than expectations for a 0.3% rise. Prices of core finished consumer goods rose 0.4% (3.6% y/y) due to more strength in nondurable prices which rose 0.3% (4.5% y/y). Durable consumer goods prices also were quite firm and rose 0.5% (2.3% y/y) due to a 0.9% (2.7% y/y) spike in household furniture prices while appliance prices increased 0.4% (0.9% y/y). Capital equipment prices also have firmed and rose 0.3% while the year to year gain rose to 2.3% from 1.4% as of last December.
Intermediate goods prices rose 0.9% after the 2.3% March surge. Excluding food &amp; energy these prices spiked 1.2% due to 1.2% (8.7% y/y) jump in materials prices for manufacturing.
The crude materials PPI surged 3.2% further after the 8.0% March jump. Crude food prices took a breather after recent strength and fell 0.9% (+15.6% y/y). Energy materials prices jumped another 4.1% (52.0% y/y). The core crude materials PPI more than doubled its March increase and jumped 7.9% as prices for iron &amp; steel scrap ballooned 32.2% (57.3% y/y).
This morning&#39;s speech by Fed Vice Chairman Donald L. Kohn, The Economic Outlook, is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080520a.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a> (%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.2</td>
<td>1.1</td>
<td>6.4</td>
<td>3.9</td>
<td>3.0</td>
<td>&nbsp;4.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4</td>
<td>0.2</td>
<td>3.0</td>
<td>1.9</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.9</td>
<td>2.3</td>
<td>10.4</td>
<td>4.1</td>
<td>6.4</td>
<td>&nbsp;8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2</td>
<td>1.1</td>
<td>5.8</td>
<td>2.8</td>
<td>6.0</td>
<td>&nbsp;5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>3.2</td>
<td>8.0</td>
<td>34.1</td>
<td>12.1</td>
<td>1.4</td>
<td>14.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>7.9</td>
<td>3.5</td>
<td>&nbsp;24.5</td>
<td>15.7</td>
<td>20.8</td>
<td>4.9</td>
</tr>
</tbody>
</table>


</html>

The increase in U.S. finished producer prices eased last month to 0.2% after the unrevised 1.1% spike during March. The latest gain fell short of Consensus expectations for a 0.4% rise and it was the lightest month to month increase [...]

U.S. PPI Gain Eased Last Month, Core Prices Firmed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520a.jpg" width="353">
The increase in U.S. finished producer prices eased last month to 0.2% after the unrevised 1.1% spike during March. The latest gain fell short of Consensus expectations for a 0.4% rise and it was the lightest month to month increase this year.
The price gain&#39;s easing owed to a 0.2% (+17.1% y/y) decline in finished energy prices which was led by a 4.6% (+23.0% y/y) decline in gasoline prices. Elsewhere, energy prices were quite strong. Natural gas prices jumped 5.4% (9.1% y/y) and home heating oil prices increased 2.2% (48.6% y/y) after a 13.1% spike during March. Residential electric power prices also were strong and rose 1.2% (5.0% y/y).
Why Do Gasoline Prices React to Things That Have Not Happened? from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2007/c/pages/gas-prices.html">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520b.jpg" width="353">
Past strength in finished consumer food prices took a breather and they were unchanged (5.1% y/y) after a 1.2% spike during March. The easing was led by a 12.3% (+39.7% y/y) decline in egg prices. Beef &amp; veal prices also continued their recent weakness and fell 1.7% (-4.6% y/y) while fresh vegetable prices fell 4.1% (-16.2% y/y). Coffee prices fell 3.5% (+10.3% y/y). These declines were offset by higher prices for fish, turkeys and chicken.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520c.jpg" width="353">
Less food &amp; energy the increase in finished goods prices accelerated to 0.4% and that was faster than expectations for a 0.3% rise. Prices of core finished consumer goods rose 0.4% (3.6% y/y) due to more strength in nondurable prices which rose 0.3% (4.5% y/y). Durable consumer goods prices also were quite firm and rose 0.5% (2.3% y/y) due to a 0.9% (2.7% y/y) spike in household furniture prices while appliance prices increased 0.4% (0.9% y/y). Capital equipment prices also have firmed and rose 0.3% while the year to year gain rose to 2.3% from 1.4% as of last December.
Intermediate goods prices rose 0.9% after the 2.3% March surge. Excluding food &amp; energy these prices spiked 1.2% due to 1.2% (8.7% y/y) jump in materials prices for manufacturing.
The crude materials PPI surged 3.2% further after the 8.0% March jump. Crude food prices took a breather after recent strength and fell 0.9% (+15.6% y/y). Energy materials prices jumped another 4.1% (52.0% y/y). The core crude materials PPI more than doubled its March increase and jumped 7.9% as prices for iron &amp; steel scrap ballooned 32.2% (57.3% y/y).
This morning&#39;s speech by Fed Vice Chairman Donald L. Kohn, The Economic Outlook, is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080520a.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a> (%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.2</td>
<td>1.1</td>
<td>6.4</td>
<td>3.9</td>
<td>3.0</td>
<td>&nbsp;4.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4</td>
<td>0.2</td>
<td>3.0</td>
<td>1.9</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.9</td>
<td>2.3</td>
<td>10.4</td>
<td>4.1</td>
<td>6.4</td>
<td>&nbsp;8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2</td>
<td>1.1</td>
<td>5.8</td>
<td>2.8</td>
<td>6.0</td>
<td>&nbsp;5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>3.2</td>
<td>8.0</td>
<td>34.1</td>
<td>12.1</td>
<td>1.4</td>
<td>14.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>7.9</td>
<td>3.5</td>
<td>&nbsp;24.5</td>
<td>15.7</td>
<td>20.8</td>
<td>4.9</td>
</tr>
</tbody>
</table>
U.S. Gasoline Prices Up to $3.79 per Gallon. "Seasonal" Will Raise The CPI Report 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 20, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520e.jpg" width="353">
The retail price for a gallon of regular gasoline surged seven cents last week to $3.79 per gallon, according to the U.S. Department of Energy survey. That followed an eleven cent increase during the prior week. So far in May prices have risen 25 cents from the April average after that month&#39;s 21 cent jump.
During April, a 6.6% surge in the average price of gasoline translated into a 2.0% decline in prices in the April CPI report. The difference was due to seasonal factors. In the CPI report the data are seasonally adjusted and the factor &quot;expected&quot; a 7.7% increase based on historical April price patterns. For May, however, the gas price increase will boost the CPI as the seasonal expects a 3.6% increase and actual prices already risen by 7.3%. (These numbers don&#39;t work out exactly due to product type differences).
Spot market prices for gasoline rose further yesterday. The wholesale price for a gallon of non-oxygenated gasoline was $3.11 per gallon, up five cents from last week&#39;s average.
The price of a barrel of WTI crude oil rose ten dollars from the last week of April to $124.94. Yesterday prices rose further to a record $127.06.
Natural gas prices recently have moved slightly lower. Yesterday&#39;s wholesale price of natural gas at $11.10 per mmbtu was down from Friday&#39;s record price and down from last week&#39;s average of $11.34/mmbtu. Prices are still nearly double this time last year.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database, daily prices are found in the DAILY database.
FOMC Consensus Forecasts from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/08/05/GavinPande.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">05/19/08</th>
<th scope="col">05/05/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.79</td>
<td>3.72</td>
<td>17.8%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>124.94</td>
<td>123.0</td>
<td>96.4%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Fell a Third Straight Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 20, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520g.jpg" width="353">
The International Council of Shopping Centers reported that chain store sales fell another 0.4% last week after the prior period&#39;s 1.0% drop. It was the third consecutive weekly decline.
So far in May sales are down 0.5% from the April average which rose 1.0% from March.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
During the latest week, the leading indicator of chain store sales from ICSC-UBS was roughly stable with the prior week but down 3.5% y/y.
The chain store sales figures are available in Haver&#39;s SURVEYW database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/16/08</th>
<th scope="col">05/09/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>488.3</td>
<td>490.3</td>
<td>1.6%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Chicago Fed Index Continues to Indicate Recession 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 20, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520f.jpg" width="353">
The April National Activity Index (CFNAI), published by the Chicago Federal Reserve Bank, fell to -1.17 after a slight improvement in March. The decline lowered the three month moving average of the figure to -1.24 which was its lowest level since the end of the 2001 recession.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth of roughly 3%. During the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP. An index level at or below -0.70 typically has indicated negative U.S. economic growth.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_may2008.pdf">here</a> and the historical data are available in Haver&#39;s Surveys database.
Each of the four broad categories of indicators &#151; employment, production, consumption and housing &#151; continued to make negative contributions to the CFNAI during April.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production &amp; income, the labor market, personal consumption &amp; housing, manufacturing &amp; trade sales, and inventories &amp; orders.
Economic Trends and the Chicago Fed National Activity Index from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflmay2008_250.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-1.17</td>
<td>-0.98</td>
<td>-0.20</td>
<td>-0.42</td>
<td>-0.05</td>
<td>0.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Average</td>
<td>-1.24</td>
<td>-1.05</td>
<td>-0.15</td>
<td>-0.34</td>
<td>-0.03</td>
<td>0.26</td>
</tr>
</tbody>
</table>
ZEW Indicator: Current Conditions In Germany Up, Expectations Down--Current Conditions In Euro Area Down, Expectations Up 
by <a href="/comment/Curley.html">Louise Curley</a> May 20, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520h.jpg" width="353">
The Center for European Economic Research (ZEW) released today the results of its latest survey of some 300 analysts and institutional investors. While these representatives of the financial community reported an improvement in their appraisal of the current German situation, they down graded slightly their appraisal of its future. In May the percent balance between those who saw an improvement in the current situation and those who saw a worsening was 38.6%, up from 33.2% in April. The percent balance between those who saw a worsening of the outlook and whose who saw an improvement was -41.4%, 0.7 percentage points below the April balance of -40.7%<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080520i.jpg" width="353">
In addition to its survey of the financial community&#39;s opinions on Germany, ZEW also surveys their opinions of current conditions and expectations for the future of the Euro Area. The trends in opinions for the Euro Area in May were the opposite of those shown for Germany. In May the percent balance on those seeing an improvement over those seeing a deterioration in current conditions fell from 15.5% in April to 11.4% in May. and the percent balance between those expecting worsening of the outlook over those expecting an improvement decreased by 1.2 percentage points from -44.8 in April to -43.6 in May. The first chart shows the current conditions and expectations for the future for both Germany and the Euro Area. For the most part, there is a close correlation between the opinions for Germany and those for the Euro Area.
Although still negative, profit expectations in Germany have begun to improve, particularly in those industries that were hardest hit by the fallout from the sub prime crisis in the United States. The second chart shows the profit expectations for the banking and insurance industries.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW INDICATORS (% BALANCE)&nbsp;</th>
<th scope="col">May 08</th>
<th scope="col">Apr 08&nbsp;</th>
<th scope="col">May 07&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>38.6</td>
<td>33.2</td>
<td>88.0</td>
<td>5.4</td>
<td>-49.4</td>
<td>75.4</td>
<td>18.3</td>
<td>-61.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expectations</td>
<td>-41.4</td>
<td>-40.7</td>
<td>24.0</td>
<td>-0.7</td>
<td>-65.4</td>
<td>-3.0</td>
<td>22.3</td>
<td>34.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>11.4</td>
<td>15.5</td>
<td>86.8</td>
<td>-4.1</td>
<td>-70.4</td>
<td>70.0</td>
<td>23.8</td>
<td>-29.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expectations</td>
<td>-43.6</td>
<td>-44.8</td>
<td>22.3</td>
<td>1.2</td>
<td>-65.9</td>
<td>-3.5</td>
<td>26.6</td>
<td>32.3</td>
</tr>
</tbody>
</table>


</html>

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

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Nonfarm payrolls increased 73,000 during July after rising 14,000 in June, revised from 147,000, and 19,000 in May, revised from 144,000. Expectations had been for a 102,000 rise in the Action Economics Forecast Survey. The three-month average change in payrolls of 35,000 compared to 64,000 in June. The Bureau of Labor Statistics indicates that monthly revisions result from additional reports received from businesses and government agencies since the last published estimates.

Average hourly earnings rose an expected 0.3% during July after unrevised gains of 0.2% and 0.4% in June & May. Earnings growth of 3.9% y/y is little changed over twelve months, but has been trending lower from its 5.9% high in March 2022.

The unemployment rate, measured in the household survey, edged up m/m to an expected 4.2% from 4.1% and compared to 4.2% in the previous three months. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, rose to 7.9% last month from 7.7% In June. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in July rose 83,000, factory sector jobs declined 11,000, off for the third straight month. Construction sector employment increased 2,000, after rising 3,000 in June. The number of mining & logging industry jobs declined 4,000 after falling in both of the prior two months. 

Private service sector employment increased 96,000 July after improving 16,000 in June. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 79,000 last month, following a 52,000 increase in June. The number of trade, transportation & utilities jobs gained 11,000, following a 22,000 decline and financial activities employment improved 15,000 after a 2,000 drop, while leisure & hospitality employment rose just 5,000 after a 4,000 gain. The number of professional & business services jobs fell 14,000, down for the third straight month.  Information sector employment fell 2,000, after holding steady in June.

Government sector payrolls declined 10,000 last month and revered June’s 11,000 rise. Federal government employment weakened 12,000 and has fallen for six straight months. Local government employment eased 3,000 after rising 10,000 in June while state government payrolls rose 5,000 after increasing 10,000.

Private-sector average hourly earnings rose 0.3% (3.9% y/y) in July. Earnings in the goods-producing sector edged up 0.1% (3.6% y/y). In construction, earnings rose 0.2% (3.7% y/y) following a 0.4% rise, but factory sector earnings eased 0.1% (+3.6% y/y). In the service sector, earnings rose 0.4% (4.0% y/y) in July after increasing 0.2% in June.

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The length of the average workweek rose to 34.3 hours in July from 34.2 hours in June. The workweek in the goods-producing sector lengthened to 39.9 hours from 39.7 hours. The construction sector average workweek rose to 39.1 hours from 38.9 while the factory sector workweek held steady at 40.1 hours. The average workweek in the private service sector edged up to 33.2 hours from 33.1 hours.

In the **household survey**, the unemployment rate increased to 4.2% in July after falling to 4.1% as employment fell 260,000 after rising 93,000 in June and the size of the labor force declined 38,000, off for the third straight month. The labor force participation rate eased to 62.2% last month from 62.3% and remained below the high of 63.3% early in 2020. The rate for teenagers declined to 35.0%, after plunging to 35.1%. For workers aged 20-24, the rate declined to 70.9%. For workers aged 25-54, the participation rate eased to 83.4%. For individuals 55 and over, the rate improved slightly to 38.1% but remained near a 20-year low of 38.0% in June.

The employment/population ratio for all workers slipped to 59.6% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic. For men, the rate fell to 64.7% in July from 64.9% and for women, the rate eased to 54.7% from 54.8% in June.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Recent job growth reduced by fewer factory & government jobs.
- Earnings gain remains steady y/y.
- Jobless rate reverses June decline.

U.S. Employment Report Shows Weakness in July, While Revisions Reduce Earlier Gains; Jobless Rate Picks Up

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U.S. light vehicle sales increased 7.6% (6.0% y/y) to 16.87 million units (SAAR) in July after falling 0.3% to 15.68 million units in June. The gain followed three straight months of decline. The improvement in July vehicle sales accompanied a 1.7% y/y rise in real disposable income through June, which compared to 2.1% growth last year.

Increases in sales were broad-based last month. Light truck sales rose 7.7% (10.0% y/y) in July to 14.02 million units, after easing 0.2% to 13.02 million in June and weakening 8.7% in May to 13.04 million. Purchases of domestically-made light trucks improved 7.1% (12.0% y/y) to 10.79 million units, after falling 1.0% in June to 10.07 million. Sales of imported light trucks rose 9.8% (3.8% y/y) to 3.24 million units, following a 3.9% rise in June.

Trucks’ record 83.1% share of the light vehicle market last month compared to 83.0% in June and 80.1% in July of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales rose 6.4% last month, down 9.8% y/y, to 2.84 million units (SAAR) following a 0.4% June decline. Purchases of domestically-produced cars rebounded 10.1% (-6.4% y/y) last month to 2.18 million units, after declining 2.5% in June. Sales of imported autos fell 2.9% (-20.5% y/y) to 0.66 million units, after a 4.6% June gain.

Imports' 23.1% share of the U.S. light vehicle market edged down from 23.2% in June. These compare to a May 2023 low of 22.9% and a high of 26.3% in November of 2023. Imports' share of the passenger car market fell to 23.2% last month and compared to 26.4% in July of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market rose to 23.1% last month after rising to 22.7% in June.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

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- Both light truck and auto sales recover.
- Domestic and imports each increase.
- Imports' market share steadies.

U.S. Light Vehicle Sales Rebound in July

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to 48.0 in July from 49.0 in June and 48.5 in May, according to the Institute for Supply Management. The July manufacturing PMI, below the 50 expansion-contraction dividing line, indicated that the U.S. manufacturing sector contracted for the fifth consecutive month and to the lowest level since October 2024. The July reading, while slightly higher than a low of 46.9 in October and 47.0 in July of last year, was below its recent high of 50.9 in January and a peak of 63.8 in March 2021. A reading of 49.5 for July had been expected in the Action Economics Forecast Survey.

The production index rose to 51.4 in July after rising to 50.3 in June, suggesting production expanded for the second successive month and to the highest level since January; it was up from its most recent low of 44.0 in April but slightly below a high of 53.7 in March 2024. Twenty percent (NSA) of respondents reported higher production in July while 19.2% reported lower.

The new orders index increased to 47.1 in July after falling to 46.4 in June, indicating new orders contracted for the sixth straight month but at a slightly less severe pace. The Index, while below its recent high of 55.1 in January, was up from a low of 42.7 in January 2023. Nearly nineteen percent (NSA) of respondents reported higher new orders in July while 25.9% reported declines. The inventories index, however, fell to 48.9 in July after rising to 49.2 in June, showing inventories contracted for the third consecutive month. The index was down from its recent high of 53.4 in March and a high of 56.5 in July 2022. Meanwhile, the supplier deliveries index fell to 49.3 in July from 54.2 in June, indicating faster delivery performance following seven straight months in slower territory. An 8.7% (NSA) of respondents reported slower delivery speeds in July while an increased 10.2% reported faster speeds.

On the labor front, the employment index fell to 43.4 in July after falling to 45.0 in June, indicating employment contracted for the sixth straight month and to the lowest level since June 2020. The index was down from its recent high of 50.3 in January and a high of 56.5 in March 2022. A 12.6% (NSA) of respondents reported higher employment in July while an increased 25.0% reported less hiring.

On the pricing front, the prices paid index declined to 64.8 (NSA) in July after rising to 69.7 in June, indicating raw materials prices rose for the 10th straight month but at the slowest rising rate since February. The July index remained well above a low of 39.4 in December 2022 but meaningfully below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. A decreased 35.4% (NSA) of respondents reported higher prices in July while 5.8% reported price declines.

In other ISM series not included in the composite index, the new export orders index slipped to 46.1 in July after increasing to 46.3 in June, indicating new export orders contracted for the fifth straight month. It was down from its recent high of 52.4 in January and a high of 57.1 in February 2022. The imports index edged up to 47.6 in July after rising to 47.4 in June, remaining at a contraction level for the fourth consecutive month; it was down from its recent high of 52.6 in February and a high of 55.4 in February 2022. The order backlog index increased to 46.8 (NSA) in July after declining to 44.3 in June, indicating falling backlog levels since October 2022. It was up from a low of 37.5 in May 2023 but down from a peak of 70.6 in May 2021.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- 48.0 in July vs. 49.0 in June; the fifth consecutive month of contraction.
- Production (51.4) expands to a six-month high.
- New orders (47.1) contract for the sixth successive month.
- Employment (43.4) contracts to the lowest level since June ’20.
- Prices Index (64.8) indicates prices rise for the 10th straight month; exports & imports contracting.

U.S. ISM Manufacturing PMI Contracts in July to a Nine-Month Low

Michael J. Moran

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Total construction activity fell 0.4 percent in June, continuing a soft trend that began in the middle of last year. After peaking in May 2024, total outlays have declined 3.6%. The retreat was modest at first, but the softness began to intensify last fall. Activity has now declined in nine of the past ten months, with the drop over this span totaling 3.1%. The private sector accounts for nearly all of the softness, with both residential and nonresidential contributing; public construction has continued to advance, although gains in recent months have been modest.

Private residential construction fell 0.7% in June, marking the 12th decline in the past 13 months and leaving activity 7.3% below the peak in May 2024. Hints of softness in private residential construction first appeared in mid-2023, when multi-family construction first stalled and then moved notably downward throughout 2024. Following the swoon in 2024, multi-family activity has stabilized in recent months.

However, single family building has taken the lead in pulling activity lower, declining for four consecutive months with pronounced retreats in the past three (average of -1.8%). Prospects for single-family construction do not seem bright, as the ups and downs in single-family housing starts have left little net growth in the past year; the past four months have been especially soft.

Improvements to existing structures contributed to weakness with sharp declines early in the year, but this area has posted small gains in the past three months. Home improvements (i.e. additions and renovations) should not be ignored in assessing residential construction, as they typically represent 35 to 40 percent of private activity.

Private nonresidential construction fell 0.3 percent in June, reinforcing the downward drift that has been in place since the start of 2024. This sector has posted 11 declines in the past 18 months. While activity grew in several months over this span, most of the increases were minuscule. The net effect of the ups and downs was a drop of 6.6% (annual rate of 4.4%). Total nonresidential activity has several components, and some have advanced in the past year or so, but none has posted an impressive performance. Two areas, lodging (hotel, motels, resorts) and commercial (retail and wholesale), have been notably soft.

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The public sector has started to sputter after two years of strong activity. Building was vigorous in 2023, growing 21.8% (December to December), and activity advanced an additional 2.4% in 2024. Growth so far this year has been modest on balance. Most months have registered gains, but they offset declines in the closing months of last year by only a small margin. Activity in June was 0.1% above the reading in October (the high point in 2024). Both state and Local governments and the federal sector have posted similar performances: robust in 2023, moderate in 2024, and hesitating this year.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

- Private building, both residential and nonresidential, drifting lower.
- Public construction hesitating after two strong years.

U.S. Construction: Sluggish in June

Robert Brusca

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Manufacturing PMIs in the S&P framework were mixed in July. However, the median reading edged slightly higher rising to 48.6 in July from 48.5 in June. But both of these are significantly weaker than the 49.1 reading in May. Manufacturing continues to post PMI readings that are below 50 indicating sector contraction on a fairly broad basis in July among the 17 reporting countries in the table plus the euro area. Only India and Vietnam reported PMI readings above 50 indicating sector expansion in July. In June, three of these jurisdictions showed readings above 50; in May, only three had readings above 50 as well. It remains a difficult time for manufacturing globally.

The readings for the manufacturing PMIs also show slippage in the medians from 12-months to six-months to three-months. The 12-month median is 49.2, the six-month median at 48.8, and the three-month median at 48.7. The bottom line is that most manufacturing sectors show contraction, and the contractions are generally getting slightly worse.

However, on an individual basis over three months about two-thirds of the reporters showed an improvement. Over six months just under 40% showed improvement and over a year about 44% of them showed improvement compared to the year before. Only the three-month versus six-month comparison shows a majority of reporters indicating better performance in July.

The ranked or queue standings metrics that place these individual readings for July in their queue of data over the last 4 ½ years, show standings above 50% which put the individual readings above their medians for this period. And only six of these eighteen reporting jurisdictions sported readings above 50%. Those were for the euro area, Germany, France, and India. India has a rating well above 50% at its 96th percentile; Malaysia has a reading above 50% and Vietnam has a reading well above 50% at its 74th percentile.

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The global economy has been put through the ringer with shocks from a war in Ukraine, stepped up military action in the Middle East, threats in the Straits of Hormuz, and an aggressive tariff policy from the United States, affecting global trade- a significant factor for manufacturing. These events have wrong-footed manufacturing globally. During this period, the inflation threat has dissipated; however, in most countries, inflation still slightly overshoots its target where central banks have such targets.

The U.S. has a particularly large number of policy changes afoot. Its manufacturing sector is still struggling. And recent employment data there indicate what appears to be a broader slowdown in the economy. Job growth in the U.S. has slowed and U.S. trends now show consumer spending slowing along with weaker and downwardly revised job growth. Put together, these are signals to watch closely.

Economy in Brief: May 2008

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U.S. Inflation Pressures -- Demand-Pull, Cost-Push & Money

U.S. Inflation Pressures -- Demand-Pull, Cost-Push & Money

ZEW Indicator: Current Conditions In Germany Up, Expectations Down--Current Conditions In Euro Area Down, [...]

U.S. Chain Store Sales Fell a Third Straight Week

Chicago Fed Index Continues to Indicate Recession

U.S. Gasoline Prices Up to $3.79 per Gallon. "Seasonal" Will Raise The CPI Report

U.S. PPI Gain Eased Last Month, Core Prices Firmed

U.S. PPI Gain Eased Last Month, Core Prices Firmed