Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623c.jpg" align="left" border="0" height="265" width="353">
Business confidence, as measured by the IFO Business Climate
Indicator, continued to weaken in June. The percent balance indicator
fell to 1.7% from 6.1% in May. This was the lowest value since January
2006. The 7000 business executives in manufacturing, construction,
wholesale and retail trade who participate in the survey, lowered their
appraisals of both their current conditions and their outlook for the
next six months. The percent balance between the optimists
and the pessimists regarding their current condition fell to 12.4% in
June from 15.9% in May while the percent balance of the pessimists
over the optimists regarding the outlook six months ahead rose to 8.4%
in June from 3.2% in May. The trends in the overall measure and its
components--current conditions and the six month's outlook--are shown
in the first chart.
Earlier the rise in the euro with its negative impact on
exports and the slowdown in the U. S. economy accounted for some of the
earlier loss in confidence, but now the recent sharp rises in oil and
food prices increase the possibility or an interest rate rise by the
European Central Bank.
Confidence, as measured by the business climate, declined in
manufacturing, wholesale and retail trade, but became slightly less
pessimistic in construction as shown in the second chart.
The IFO has published confidence measures for the service
sector since May, 2001. (The industry sector measures go back to 1991.)
These data are based on the opinions of 2000 executives and are not, as
yet, seasonally adjusted. Despite the difference between seasonally
adjusted and non seasonally adjusted data, the comparison between
confidence in the manufacturing industry and the services, suggests
that confidence in the services tends to be higher and less volatile
than that in manufacturing as shown in the third chart. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623d.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623e.jpg" border="0" height="265" width="312"> 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMAN
BUSINESS CONFIDENCE IFO 
&nbsp;(SA ex where noted) (% balance)</th>
<th scope="col">Jun 08</th>
<th scope="col">May 08&nbsp;</th>
<th scope="col">Jun 07&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y&nbsp; 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">Business Climate</td>
<td>1.7</td>
<td>6.1</td>
<td>13.2</td>
<td>-4.4</td>
<td>-11.5</td>
<td>11.3</td>
<td>10.1</td>
<td>-9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Conditions</td>
<td>12.4</td>
<td>15.9</td>
<td>18.5</td>
<td>-3.5</td>
<td>-6.1</td>
<td>18.1</td>
<td>12.6</td>
<td>-14.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Outlook,
Six Months Ahead</td>
<td>-8.4</td>
<td>-3.2</td>
<td>8.1</td>
<td>-5.2</td>
<td>-16.5</td>
<td>5.1</td>
<td>7.8</td>
<td>-5.1</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing Climate</td>
<td>8.2</td>
<td>15.0</td>
<td>24.0</td>
<td>-6.8</td>
<td>-15.8</td>
<td>22.3</td>
<td>19.7</td>
<td>1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction Climate</td>
<td>-18.9</td>
<td>-20.2</td>
<td>-16.2</td>
<td>1.3</td>
<td>-2.7</td>
<td>-16.2</td>
<td>-15.8</td>
<td>-37.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Trade Climate</td>
<td>-6.5</td>
<td>-4.4</td>
<td>-5.1</td>
<td>-2.1</td>
<td>-1.4</td>
<td>-6.5</td>
<td>-6.1</td>
<td>-28.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale
Trade&nbsp;Climate</td>
<td>2.1</td>
<td>4.0</td>
<td>14.1</td>
<td>-1.9</td>
<td>-12.0</td>
<td>11.0</td>
<td>11.6</td>
<td>-9.8</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Services
(NAS)&nbsp;&nbsp;</td>
<td>16.3</td>
<td>19.4</td>
<td>26.0</td>
<td>-3.1</td>
<td>-9.7</td>
<td>22.8</td>
<td>19.1</td>
<td>8.1</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body></html>

Business confidence, as measured by the IFO Business Climate Indicator, continued to weaken in June. The percent balance indicator fell to 1.7% from 6.1% in May. This was the lowest value since January 2006. The 7000 business [...]

German Business Confidence Weakens

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623a.jpg" width="353">
In the wake of legislation passed in October, 2005 the rules governing the filing for bankruptcy in the United States changed dramatically. Late that year, the number of bankruptcies surged five-fold from the earlier level. The data behind these filings can be found in Haver&#39;s REGIONAL database.
Before the institution of the new procedures there was roughly a 60% correlation between personal income growth and bankruptcy filings. Corporate profit growth and non-personal bankruptcies also had roughly a 60% correlation.
Economic growth, at the time of the new rules&#39; institution, was running at roughly a 3% real rate. On the income side of the National Income Account ledger, real disposable personal income growth was growing at nearly at a 4% rate while corporate profits were growing 12%.
The earlier procedure, for bankruptcy filing can be found <a href="http://www.uscourts.gov/bankruptcycourts/BBpre1005.pdf"> here</a>.
The situation changed dramatically in 2005 and bankruptcy filings surged five-fold. An outline of the new rules can be found <a href="http://www.uscourts.gov/bankruptcycourts/bankbasics04606.pdf"> here</a>.
Since 2005, the level of total bankruptcies, business &amp; non-business has jumped. The level of business bankruptcies has nearly doubled and personal bankruptcies also has nearly doubled. And the correlation between income and profits now is negligible.
Real disposable income growth has run at a 3% rate while profit growth ran between 3% and 12% since 2005.
The Economic Logic of a Fresh Start from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2008/q1/chatterjee_economic-logic-of-fresh-start.pdf"> here</a>.
Testimony by Fed Vice Chairman Donald L. Cohn, Risk Management and Its Implications for Systemic Risk, can be found <a href="http://www.federalreserve.gov/newsevents/testimony/kohn20080619a.htm"> here</a>. 

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In the wake of legislation passed in October, 2005 the rules governing the filing for bankruptcy in the United States changed dramatically. Late that year, the number of bankruptcies surged five-fold from the earlier level. The data [...]

U.S. Bankruptcies Surge and the 2005 Procedure

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623a.jpg" align="left" border="0" height="265" width="353">
In the wake of legislation passed in October, 2005 the rules
governing the filing for bankruptcy in the United States changed
dramatically. Late that year, the number of bankruptcies surged
five-fold from the earlier level. The data behind these filings can be
found in Haver's REGIONAL database.
Before the institution of the new procedures there was roughly
a 60% correlation between personal income growth and bankruptcy
filings. Corporate profit growth and non-personal bankruptcies also had
roughly a 60% correlation.
Economic growth, at the time of the new rules' institution,
was running at roughly a 3% real rate. On the income side of the
National Income Account ledger, real disposable personal income growth
was growing at nearly at a 4% rate while corporate profits were growing
12%.
The earlier procedure, for bankruptcy
filing can be found <a href="http://www.uscourts.gov/bankruptcycourts/BBpre1005.pdf">
here</a>.
The situation changed dramatically in 2005 and bankruptcy
filings surged five-fold. An outline of the new rules
can be found <a href="http://www.uscourts.gov/bankruptcycourts/bankbasics04606.pdf">
here</a>.
Since 2005, the level of total bankruptcies, business
&amp; non-business has jumped. The level of business bankruptcies
has nearly doubled and personal bankruptcies also has nearly doubled.
And the correlation between income and profits now is negligible.
Real disposable income growth has run at a 3% rate while
profit growth ran between 3% and 12% since 2005.
The Economic Logic of a Fresh Start from
the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2008/q1/chatterjee_economic-logic-of-fresh-start.pdf">
here</a>.
Testimony by Fed Vice Chairman Donald L. Cohn, Risk
Management and Its Implications for Systemic Risk, can be
found <a href="http://www.federalreserve.gov/newsevents/testimony/kohn20080619a.htm">
here</a>.

Chicago Fed Index Still Gives A
Recession Signal 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 23, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623b.jpg" align="left" border="0" height="265" width="353">
The Chicago Fed National Activity Index (CFNAI), published by
the Chicago Federal Reserve Bank, for May remained negative at -0.96.
The reading left the three-month moving average of the figure to -1.08
which was near 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_june2008.pdf">here</a>
and the historical data are available in Haver's SURVEYS
database.
The modest improvement in May owed to production-related
indicators. Employment, consumption and housing 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">May</th>
<th scope="col">April</th>
<th scope="col">May '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>-0.96</td>
<td>-1.23</td>
<td>-0.29</td>
<td>-0.42</td>
<td>-0.05</td>
<td>0.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Average</td>
<td>-1.08</td>
<td>-1.27</td>
<td>-0.15</td>
<td></td>
<td></td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
German Business Confidence Weakens 
by <a href="/comment/Curley.html">Louise
Curley</a> June 23, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623c.jpg" align="left" border="0" height="265" width="353">
Business confidence, as measured by the IFO Business Climate
Indicator, continued to weaken in June. The percent balance indicator
fell to 1.7% from 6.1% in May. This was the lowest value since January
2006. The 7000 business executives in manufacturing, construction,
wholesale and retail trade who participate in the survey, lowered their
appraisals of both their current conditions and their outlook for the
next six months. The percent balance between the optimists
and the pessimists regarding their current condition fell to 12.4% in
June from 15.9% in May while the percent balance of the pessimists
over the optimists regarding the outlook six months ahead rose to 8.4%
in June from 3.2% in May. The trends in the overall measure and its
components--current conditions and the six month's outlook--are shown
in the first chart.
Earlier the rise in the euro with its negative impact on
exports and the slowdown in the U. S. economy accounted for some of the
earlier loss in confidence, but now the recent sharp rises in oil and
food prices increase the possibility or an interest rate rise by the
European Central Bank.
Confidence, as measured by the business climate, declined in
manufacturing, wholesale and retail trade, but became slightly less
pessimistic in construction as shown in the second chart.
The IFO has published confidence measures for the service
sector since May, 2001. (The industry sector measures go back to 1991.)
These data are based on the opinions of 2000 executives and are not, as
yet, seasonally adjusted. Despite the difference between seasonally
adjusted and non seasonally adjusted data, the comparison between
confidence in the manufacturing industry and the services, suggests
that confidence in the services tends to be higher and less volatile
than that in manufacturing as shown in the third chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623d.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623e.jpg" border="0" height="265" width="312"> 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMAN
BUSINESS CONFIDENCE IFO 
&nbsp;(SA ex where noted) (% balance)</th>
<th scope="col">Jun 08</th>
<th scope="col">May 08&nbsp;</th>
<th scope="col">Jun 07&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y&nbsp; 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">Business Climate</td>
<td>1.7</td>
<td>6.1</td>
<td>13.2</td>
<td>-4.4</td>
<td>-11.5</td>
<td>11.3</td>
<td>10.1</td>
<td>-9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Conditions</td>
<td>12.4</td>
<td>15.9</td>
<td>18.5</td>
<td>-3.5</td>
<td>-6.1</td>
<td>18.1</td>
<td>12.6</td>
<td>-14.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Outlook,
Six Months Ahead</td>
<td>-8.4</td>
<td>-3.2</td>
<td>8.1</td>
<td>-5.2</td>
<td>-16.5</td>
<td>5.1</td>
<td>7.8</td>
<td>-5.1</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing Climate</td>
<td>8.2</td>
<td>15.0</td>
<td>24.0</td>
<td>-6.8</td>
<td>-15.8</td>
<td>22.3</td>
<td>19.7</td>
<td>1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction Climate</td>
<td>-18.9</td>
<td>-20.2</td>
<td>-16.2</td>
<td>1.3</td>
<td>-2.7</td>
<td>-16.2</td>
<td>-15.8</td>
<td>-37.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Trade Climate</td>
<td>-6.5</td>
<td>-4.4</td>
<td>-5.1</td>
<td>-2.1</td>
<td>-1.4</td>
<td>-6.5</td>
<td>-6.1</td>
<td>-28.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale
Trade&nbsp;Climate</td>
<td>2.1</td>
<td>4.0</td>
<td>14.1</td>
<td>-1.9</td>
<td>-12.0</td>
<td>11.0</td>
<td>11.6</td>
<td>-9.8</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Services
(NAS)&nbsp;&nbsp;</td>
<td>16.3</td>
<td>19.4</td>
<td>26.0</td>
<td>-3.1</td>
<td>-9.7</td>
<td>22.8</td>
<td>19.1</td>
<td>8.1</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
PPI Pressures Begin to Spread inGermany 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 23, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080623f.jpg" align="left" border="0" height="265" width="353">
Price trends deteriorate 
Manufacturing prices were up strongly in May. All major divisions of
the PPI are showing some pressure even capital goods inflation is
rising. Core PPI prices are up by 2.9% Yr/Yr and at a faster paced 3.6%
over three-and six-months. 
 

Inflation accelerates 
At least the acceleration in consumer prices where inflation has been
the virulent has begun to slow. Yet, over the past year the Yr/Yr
inflation rate has accelerated by four percentage points while Core PPI
inflation has accelerated by 0.3 percentage points. 
 

Why it matters&#8230; 
While the ECB&#8217;s inflation ceiling applies to HICP prices only, the
worry from the ECB&#8217;s standpoint is that producer price inflation could
become embedded in prices at the consumer level. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">Germany PPI
</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td colspan="4">%-SAAR</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>May-08</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-moY-Ago</td>
<td>IN Q1</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>1.1%</td>
<td>0.9%</td>
<td>0.5%</td>
<td>10.5%</td>
<td>7.7%</td>
<td>5.9%</td>
<td>1.9%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.6%</td>
<td>3.6%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>4.1%</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080620b.jpg" width="353">
Do higher prices for something modify behavior? Probably. Do higher relative prices affect demand for something, maybe by a lot? Yes indeed. Consumers will buy less of the affected item or service whose price is rising more than the prices for other goods or services.
Through this past May, retail gasoline prices over the prior twelve months rose 21%. For all other goods and services, prices rose 2.7%. That left the relative price of gasoline up a very significant 17.5%. The increase was especially notable since it followed a year-on-year gain through the twelve months ended last November of 33.3%. That&#39;s when retail prices first moved above $3.00 per gallon.
This rise in gasoline prices, along with slower jobs growth, dropped demand growth (the rise in vehicle miles driven) to -1.8% y/y after -0.8% growth last year. Those declines are versus positive growth rates between 1% and 3% during each year back to 1993.The figures on miles driven are available in Haver&#39;s USECON database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080620c.jpg" width="353">
By state the results are very diversified. Large year-to-year declines on the order of -3.0% have been logged in California, Florida, Virginia, Michigan, Wisconsin and South Carolina. Still growing were miles driven in Ohio, New Hampshire, New Jersey, Pennsylvania and New York. About unchanged were miles driven in Texas, Colorado, Connecticut, Delaware and Massachusetts. The figures on miles driven by state are available in Haver&#39;s REGIONAL database.
Ok, so what is it that consumers shifted their spending to? Here&#39;s the rub. It&#39;s not clear they could shift anything. Overall consumer spending growth through April, adjusted for inflation, fell to 1.6% y/y after 3.0% growth during the prior several years. And during the last three months the level of real spending was unchanged.
Consumers only can shift their spending pattern if they have money to shift. But there&#39;s been not as much of it. During the last year nominal disposable income growth moved lower to a 5.0% rate from roughly 6.0% during 2006 and 2007. Annualized three-month growth through April downshifted even further to 4.3%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080620d.jpg" width="353">
In real terms, disposable income during the last three months ran at a 1.5% annualized rate, half the growth during the prior several years. Much of the that slowdown is due to slower jobs growth. Respectable gains in nominal average hourly earnings helped this growth remain positive, but here again the news is bad. Nominal earnings rose at a 0.9% rate during the last three months and they were down during the last two.
How will all this finally shake out? In a bona fide economic recession. That is the conclusion of many and that certainly is the buzz in the popular press. But so far the Consensus opinion is that a recession will be skirted, but just barely. Positive real GDP growth, of just 0.7% during the last two quarters, generally is expected to extend through yearend &#39;08 at a 1.5% rate according to a Consensus of roughly forty economists (in the Forecasters Club of New York). The range of expectations is, however, wide with roughly -2% as the minimum and +4% as the maximum.
Further increases in energy prices could easily tip that Consensus into negative territory, but so far...
Crude Awakening: Behind the Surge in Oil Prices from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2008/el0805.pdf"> here</a>.

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Do higher prices for something modify behavior? Probably. Do higher relative prices affect demand for something, maybe by a lot? Yes indeed. Consumers will buy less of the affected item or service whose price is rising more than the [...]

Higher U.S. Gasoline Prices Crimp Miles Driven, and Economic Growth

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080620b.jpg" width="353">
Do higher prices for something modify behavior? Probably. Do higher relative prices affect demand for something, maybe by a lot? Yes indeed. Consumers will buy less of the affected item or service whose price is rising more than the prices for other goods or services.
Through this past May, retail gasoline prices over the prior twelve months rose 21%. For all other goods and services, prices rose 2.7%. That left the relative price of gasoline up a very significant 17.5%. The increase was especially notable since it followed a year-on-year gain through the twelve months ended last November of 33.3%. That&#39;s when retail prices first moved above $3.00 per gallon.
This rise in gasoline prices, along with slower jobs growth, dropped demand growth (the rise in vehicle miles driven) to -1.8% y/y after -0.8% growth last year. Those declines are versus positive growth rates between 1% and 3% during each year back to 1993.The figures on miles driven are available in Haver&#39;s USECON database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080620c.jpg" width="353">
By state the results are very diversified. Large year-to-year declines on the order of -3.0% have been logged in California, Florida, Virginia, Michigan, Wisconsin and South Carolina. Still growing were miles driven in Ohio, New Hampshire, New Jersey, Pennsylvania and New York. About unchanged were miles driven in Texas, Colorado, Connecticut, Delaware and Massachusetts. The figures on miles driven by state are available in Haver&#39;s REGIONAL database.
Ok, so what is it that consumers shifted their spending to? Here&#39;s the rub. It&#39;s not clear they could shift anything. Overall consumer spending growth through April, adjusted for inflation, fell to 1.6% y/y after 3.0% growth during the prior several years. And during the last three months the level of real spending was unchanged.
Consumers only can shift their spending pattern if they have money to shift. But there&#39;s been not as much of it. During the last year nominal disposable income growth moved lower to a 5.0% rate from roughly 6.0% during 2006 and 2007. Annualized three-month growth through April downshifted even further to 4.3%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080620d.jpg" width="353">
In real terms, disposable income during the last three months ran at a 1.5% annualized rate, half the growth during the prior several years. Much of the that slowdown is due to slower jobs growth. Respectable gains in nominal average hourly earnings helped this growth remain positive, but here again the news is bad. Nominal earnings rose at a 0.9% rate during the last three months and they were down during the last two.
How will all this finally shake out? In a bona fide economic recession. That is the conclusion of many and that certainly is the buzz in the popular press. But so far the Consensus opinion is that a recession will be skirted, but just barely. Positive real GDP growth, of just 0.7% during the last two quarters, generally is expected to extend through yearend &#39;08 at a 1.5% rate according to a Consensus of roughly forty economists (in the Forecasters Club of New York). The range of expectations is, however, wide with roughly -2% as the minimum and +4% as the maximum.
Further increases in energy prices could easily tip that Consensus into negative territory, but so far...
Crude Awakening: Behind the Surge in Oil Prices from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2008/el0805.pdf"> here</a>.

© 2008  HAVER ANALYTICS. All rights reserved. 
by <a href="/comment/Brusca.html">Robert Brusca</a> Italian and French Orders Give MIXED Signals  June 20, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080620a.jpg" width="353">
Italian orders rose by 1.2% in April after falling in March. France has experienced the same sort of orders volatility recently but with more extreme movements. Foreign trends are gradually slipping for Italy while French foreign orders are holding fairly strong. French domestic order weakness is dragging down its overall trends while for Italy domestic orders are strong. 
The chart above shows that over longer periods French and Italian orders march to the same tune. Currently French and Italian total orders are on the same growth track year-over-year despite compositional differences is the source of the orders. Growth rates (Yr/Yr) seem to be cycling lower but not very dramatically and sequential growth rates do not tell a clear story about developing trends. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Italy Orders
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Saar exept m/m</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total</td>
<td>1.2%</td>
<td>-0.5%</td>
<td>2.2%</td>
<td>12.3%</td>
<td>6.0%</td>
<td>6.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Foreign</td>
<td>-1.6%</td>
<td>-0.8%</td>
<td>1.5%</td>
<td>-3.7%</td>
<td>-1.1%</td>
<td>4.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Domestic</td>
<td>2.6%</td>
<td>-0.2%</td>
<td>2.5%</td>
<td>21.8%</td>
<td>10.0%</td>
<td>7.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Sales</td>
<td>2.2%</td>
<td>-1.5%</td>
<td>0.9%</td>
<td>6.5%</td>
<td>8.1%</td>
<td>6.9%</td>
</tr>
<tr class="grey2">
<td colspan="7">French Orders</td>
</tr>
<tr class="grey1">
<td class="firstcol">Saar exept m/m</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total</td>
<td>5.2%</td>
<td>-6.4%</td>
<td>1.6%</td>
<td>0.3%</td>
<td>2.8%</td>
<td>6.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Foreign</td>
<td>4.4%</td>
<td>-4.7%</td>
<td>2.7%</td>
<td>8.6%</td>
<td>12.1%</td>
<td>8.5%</td>
</tr>
</tbody>
</table>
</body>
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Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080619e.jpg" align="left" border="0" height="265" width="353">
Retail sales surged by 4% in May marking the strongest gain in
22 years. Economists&#8217; estimates had looked for sales to drop slightly.
The gain has flummoxed observers who are not quite sure what to make of
the new developing trend. The chart above shows that sales had been
volatile but the sharp gain in May has created a new uptrend in sales
trends. The jump in May has doubled the Yr/Yr growth rate for sales in
one fell swoop.

The jump in retail sales is a tremendous conundrum for policy
since it is difficult to believe that we are at the dawn of a new
spending spree and it is difficult to reconcile the jump in spending
with past trends and current circumstances. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">UK Real
and Nominal Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Nominal</td>
<td>May-08</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAGo</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Total</td>
<td>4.0%</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>14.6%</td>
<td>11.6%</td>
<td>7.8%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>4.2%</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>14.9%</td>
<td>12.5%</td>
<td>8.8%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing footwear</td>
<td>8.8%</td>
<td>-2.1%</td>
<td>-3.3%</td>
<td>12.8%</td>
<td>14.5%</td>
<td>8.4%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="8">Real</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Ex auto</td>
<td>3.4%</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>11.9%</td>
<td>10.3%</td>
<td>8.1%</td>
<td>3.7%</td>
</tr>
</tbody>
</table>
</body></html>

Retail sales surged by 4% in May marking the strongest gain in 22 years. Economists’ estimates had looked for sales to drop slightly. The gain has flummoxed observers who are not quite sure what to make of the new developing trend. [...]

UK Retail Sales Surge in 22-Yr High Gain

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080619f.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s all-industry index was up sharply in April and stands
in the 92nd percentile of its range of values since 1993. Construction
is about at weak as the all industry index is strong standing in the
bottom 2% of its range. 
 

The all-industries index rose by 0.2 percent in April from its
year-earlier level following a 1.0 percent fall in March. The
all-industries index combines data from the primary sector (comprising
fishing, farming, forestry and mining) with the secondary or
manufacturing sector and data from the tertiary, or services, sector.
The services sector employs more than half of Japan's workforce.
Spending on services such as retailing, dining and travel drive this
sector. Its index stands in the 97th percentile of its range in April. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col">Up to date Japan Industry Surveys </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>107.0</td>
<td>106.2</td>
<td>105.9</td>
<td>106.4</td>
<td>106.9</td>
<td>107.2</td>
<td>108.1</td>
<td>93.8</td>
<td>92.3%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>72.0</td>
<td>72.5</td>
<td>70.7</td>
<td>71.7</td>
<td>72.1</td>
<td>74.2</td>
<td>124.6</td>
<td>70.7</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>110.4</td>
<td>108.5</td>
<td>108.5</td>
<td>109.1</td>
<td>109.7</td>
<td>110.0</td>
<td>110.9</td>
<td>92.0</td>
<td>97.4%</td>
</tr>
<tr>
<td class="firstcol" colspan="10">Ranges, Max, Min since
1993</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s all-industry index was up sharply in April and stands in the 92nd percentile of its range of values since 1993. Construction is about at weak as the all industry index is strong standing in the bottom 2% of its range. The all- [...]

All Industry Index Advances and Shows Resilience

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080619c.jpg" width="353">
The Index of General Business conditions in the manufacturing sector for June, from the Philadelphia Federal Reserve Bank, slipped to -17.1 following improvement during May. A level of -10 had been expected.
The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub indexes. The business conditions index reflects a separate survey question, not the sub-indexes.
During the last ten years there has been a 61% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 43% correlation with q/q growth in real GDP.
The new orders sub-index deteriorated sharply and lost half of the improvement during May. Shipments also fell sharply as did the employment index.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080619d.jpg" width="353">
The prices paid index surged to the highest level since 1980. During the last ten years there has been a 67% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 82% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell in June to 21.2 from 28.2 in May. The level of index was still below the full-year, 2007 reading of 24.7. Expectations for the production, shipments and employment indexes all fell. Prices rose sharply.
The latest Business Outlook Survey from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/bos/bos0608.pdf">here.</a>
Liquidity Crises from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2008/q2/elul_liquidity-crises.pdf"> here</a>.
The Evolution of the World Income Distribution*, also from the Federal Reserve Bank of Philadelphia, can be found <a href="http://www.philadelphiafed.org/files/br/2008/q2/sill_evolution-of-world-income-distribution.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">Philadelphia Fed (%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#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">General Activity Index</td>
<td>-17.1</td>
<td>-15.6</td>
<td>17.7</td>
<td>5.1</td>
<td>8.1</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>69.3</td>
<td>&nbsp;53.8</td>
<td>&nbsp;27.4</td>
<td>26.4</td>
<td>36.6</td>
<td>40.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The Index of General Business conditions in the manufacturing sector for June, from the Philadelphia Federal Reserve Bank, slipped to -17.1 following improvement during May. A level of -10 had been expected. The Philadelphia Fed [...]

Philadelphia Fed Index Slipped, Prices Surged

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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250801A4.jpg

250801D4.jpg

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

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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: June 2008

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