Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040623a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association ticked up 0.1% (-61.3% y/y) last week. So far in June applications are 11.0% below the May average which fell 18.9% from April.
Applications to refinance mortgages fell 1.7% (-82.3% y/y) last week and so far in June are 11.6% below May. Purchase applications rose for the second consecutive week, up 1.1% (+10.5% y/y), but were down 4.1% from May.
During the last ten years there has been a 63% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-Year mortgage fell to 6.46% from 6.60% the week earlier and so far this month has averaged the same 6.53% as in May. The effective rate on a 15-year mortgage fell to 5.94%.
&quot;Mortgage Refinancing&quot; is a paper published last year by the Federal Reserve Bank of San Francisco. It can be viewed <a href="http://www.sf.frb.org/publications/economics/letter/2003/el2003-29.pdf"> here</a>.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/18/04</th>
<th scope="col">06/11/04</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>601.2</td>
<td>600.6</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>454.5</td>
<td>449.5</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,454.6</td>
<td>1,479.6</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
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The index of mortgage applications compiled by the Mortgage Bankers Association ticked up 0.1% (-61.3% y/y) last week. So far in June applications are 11.0% below the May average which fell 18.9% from April. Applications to refinance [...]

Mortgage Applications Drift At Low Level

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040622c.jpg" width="353">
Inflation in producer prices in the Baltic States spiked up in the last two months. Data on producer prices for Estonia and Latvia were released yesterday and show year over year rates of increases in the seasonally unadjusted data for May 2004, of 3.05% for Estonia and 7.29% for Latvia. Lithuania had reported a 10.74% increase earlier this month.Oil prices increases appear to be the chief culprit in all three countries. In addition, Latvia reported that some administrative price adjustments associated with its entry into the European Union were made earlier in the year.
If we take the cumulative data for the January-May, 2004. compared with the comparable period of 2003, instead of just one month-to-month comparison, the result are much smaller increases for Estonia and Lithuania -- 1.45% and 1.87%, respectively. The year to date increase for Latvia remains high at almost 6.0%, suggesting that in addition to the oil price effect, the administrative price adjustments resulted in a one time upward shift in the producer price level. 

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<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">Produce Price Index (NSA)</th>
<th scope="col">May 04</th>
<th scope="col">&nbsp;Apr 04</th>
<th scope="col">May&nbsp; 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %&nbsp;</th>
<th scope="col">Jan-May 04/ Jan-May 03 % &nbsp;</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
<th scope="col">&nbsp;2001 %</th>
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</thead>
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<td class="firstcol">Latvia (2000=100)</td>
<td>113.3</td>
<td>112.5</td>
<td>105.6</td>
<td>0.71</td>
<td>7.29</td>
<td>5.96</td>
<td>3.17</td>
<td>1.02</td>
<td>1.62</td>
</tr>
<tr>
<td class="firstcol">Estonia (1995=100)</td>
<td>141.45</td>
<td>140.42</td>
<td>137.27</td>
<td>0.73</td>
<td>3.05</td>
<td>1.45</td>
<td>0.21</td>
<td>0.41</td>
<td>4.42</td>
</tr>
<tr class="odd">
<td class="firstcol">Lithuania (2000=1000</td>
<td>104.1</td>
<td>101.2</td>
<td>94.0</td>
<td>2.87</td>
<td>10.74</td>
<td>&nbsp;1.87</td>
<td>-0.56</td>
<td>-0.73</td>
<td>-1.38</td>
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</tbody>
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Signs of Increased Confidence Among German Investors and Italian Consumers 
by <a href="/comment/Curley.html">Louise Curley</a> June 22, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040622d.jpg" width="353">
Germany&#39;s institutional investors and financial analysts became a little more optimistic in June. The ZEW Financial Marketing Survey that polls some 350 investors and analysts reported that the percentage of optimists over the pessimists rose 1% from 46.4 in May to 47.4 in June. This was the first increase since last December. The outlook for continued strong export demand has apparently outweighed lackluster domestic prospects. The ZEW measure is based on a small sample and is volatile; however, it often gives an early indication of the results of the broader IFO index to be released this Friday.
Italian consumers also showed some increased confidence in June. The ISAE measure of consumer confidence rose 2.78% to 99.9 (1980=100) in June from 97.2 in May. However, confidence of the Italian consumer is still well below the ebullient levels of the pre September 11, 2001 days.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jun 04</th>
<th scope="col">May 04</th>
<th scope="col">Jun&nbsp; 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2001&nbsp;</th>
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</thead>
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<td class="firstcol">ZEW (% Balance)&nbsp;</td>
<td>47.4</td>
<td>46.4</td>
<td>18.7</td>
<td>1.0</td>
<td>26.1</td>
<td>38.4</td>
<td>45.3</td>
<td>2.8</td>
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<tr>
<td class="firstcol">ISAE&nbsp; Consumer Confidence Indicator (1980=1000</td>
<td>99.9</td>
<td>97.2</td>
<td>105.8</td>
<td>2.78</td>
<td>-4.77</td>
<td>106.1</td>
<td>115.8</td>
<td>122.7</td>
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Inflation in producer prices in the Baltic States spiked up in the last two months. Data on producer prices for Estonia and Latvia were released yesterday and show year over year rates of increases in the seasonally unadjusted data [...]

Producer Price Inflation in the Baltic Countries

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040622a.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales ticked up just 0.1% last week, but the gain followed small increases in the prior two weeks following three weeks of decline.
Sales improvement may have been related to the decline in the average retail price for unleaded regular gasoline which fell to $1.94 last week. Prices were down $0.13 (6.2%) from the peak in the third week of May.
Recent increases in chain store sales left the average so far in June 0.5% below May.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is based on same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040622b.jpg" width="353">
Lower spot crude oil prices have led the decline in gasoline prices with the price of West Texas Intermediate crude yesterday at $37.63 versus its peak of $41.88 on May 24th.
Moving in the other direction, wholesale natural gas prices moved higher to $6.49/mmbtu (+10.0% y/y), up 28% versus the daily low in February of $5.08/mmbtu.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">06/21/04</th>
<th scope="col">12/31/03</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Unleaded Regular Gasoline, NY ($/Gal.)</td>
<td>$1.94</td>
<td>$1.48</td>
<td>29.5%</td>
<td>$1.56</td>
<td>$1.35</td>
<td>$1.42</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$37.63</td>
<td>$32.55</td>
<td>24.3%</td>
<td>$31.10</td>
<td>$26.17</td>
<td>$25.97</td>
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<td class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></td>
<td>06/19/04</td>
<td>06/12/04</td>
<td>Y/Y</td>
<td> 2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>439.8</td>
<td>439.2</td>
<td>4.9%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales ticked up just 0.1% last week, but the gain followed small increases in the prior two weeks following three weeks of decline. Sales improvement [...]

Chain Store Sales Rose As Gasoline Prices Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040621a.jpg" width="353">
Decline through much of last month in the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) was followed by a gain in the latest period.
The declines lowered the six-month growth rate in the index to 3.6% from double digit growth that prevailed through much of 2H03 and into 1Q04.
During the last ten years there has been a 68% correlation between the six-month growth in ECRI&#39;s leading index of the US economy and two quarter growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. There has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM"> ECRI Leading Index</a></th>
<th scope="col"> 06/11/04</th>
<th scope="col"> 06/04/04</th>
<th scope="col"> Growth Rate</th>
<th scope="col"> 2003</th>
<th scope="col"> 2002</th>
<th scope="col"> 2001</th>
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</thead>
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<td class="firstcol">Weekly</td>
<td>132.7</td>
<td>132.1</td>
<td>3.6%</td>
<td>6.6%</td>
<td>1.1%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td> May</td>
<td> April</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">Monthly</td>
<td>133.6</td>
<td>134.6</td>
<td>7.1%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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Decline through much of last month in the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) was followed by a gain in the latest period. The declines lowered the six-month growth rate in [...]

ECRI Leading Indicators Slow

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040618a.jpg" width="353">
Exchange rates matter. The latest data on Italian industry orders indicate that trends in orders from foreign customers and in the value of the euro tend to shift more or less at the same time. In our graph of year-on-year percent changes, the euro exchange rate slowed its rate of gain (inverted in the chart) at almost the same time that foreign orders turned toward a slower rate of decline. These orders are now rising rapidly and the exchange rate has fallen outright, although it remains higher than a year ago (and has stabilized over the last few weeks).
Domestic orders at Italian industry have also picked up somewhat since early last year, but not nearly as vigorously as foreign orders. In fact, in the latest month, April, domestic orders were barely above those in April 2003, although other recent months have seen stronger comparisons. Even so, while April&#39;s domestic orders stand 6.9% above their low last May, foreign orders are 11.4% above their low in March 2003.
Renewed growth in total orders over the past year has been spread across a number of industries. Textiles, wood products, furniture, metals and precision equipment are all rising. Specialized fibers and machinery are mixed and leather and paper are still weak.

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<colgroup><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">Index 2000=100</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">Feb 2004</th>
<th scope="col">Yr/Yr % Change</th>
Annual Average
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>99.6</td>
<td>98.5</td>
<td>99.2</td>
<td>3.4</td>
<td>94.9</td>
<td>99.0</td>
<td>97.0</td>
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<td class="firstcol">Domestic</td>
<td>97.8</td>
<td>98.7</td>
<td>98.0</td>
<td>0.1</td>
<td>93.5</td>
<td>97.4</td>
<td>96.6</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>103.7</td>
<td>98.1</td>
<td>101.9</td>
<td>11.3</td>
<td>98.1</td>
<td>102.6</td>
<td>97.7</td>
</tr>
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<td class="firstcol">Memo: Euro ($/&#128;)</td>
<td>1.1989</td>
<td>1.2261</td>
<td>1.2640</td>
<td>10.4</td>
<td>1.1317</td>
<td>0.9453</td>
<td>0.8955</td>
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Exchange rates matter. The latest data on Italian industry orders indicate that trends in orders from foreign customers and in the value of the euro tend to shift more or less at the same time. In our graph of year-on-year percent [...]

Italy Industrial Orders Gain as Euro Softens

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040617e.jpg" width="353">
The labor market in Hong Kong looks to be improving gradually. Employment is rising month by month and has done so six of the last seven months. This is a distinct turnaround from declines that spanned most of the previous nine months. Hong Kong reports its labor market data as trailing three-month averages, so the turn to a new trend is more impressive.
This employment growth has been accompanied by a slowly falling trend in unemployment. At 7.0% in May, the unemployment rate is still historically high, but is well off a peak of 8.7% in July 2003. An accompanying measure of underutilization, so-called &quot;underemployment&quot; is more stubborn. It too is down from a peak last June and July, but has drifted back upward this spring. &quot;Underemployment&quot; represents employed workers who work involuntarily fewer than 35 hours per week. The comparable US concept is &quot;part-time for economic reasons&quot;. Thus, even though employment is growing, a sizable share of workers -- near an all-time large share -- are forced to work an abbreviated workweek.
In the accompanying graph, we see that the recent peak in these &quot;underutilization rates&quot; (our term) was likely related to the protracted recession in Japan. Now that that economy has started to expand more definitively, both unemployment and underemployment in Hong Kong may well dissipate more consistently.

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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Select Labor Market Indicators (%, except where noted)</th>
<th scope="col">May 2004</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">May 2003</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Employment, Mo/MoChange (Thous)</td>
<td>2.7</td>
<td>5.3</td>
<td>11.7</td>
<td>40.2</td>
<td>-20.0</td>
<td>14.6</td>
<td>-11.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % change</td>
<td>1.2</td>
<td>0.7</td>
<td>0.4</td>
<td>--</td>
<td>-0.6</td>
<td>0.5</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Underemployment&nbsp; % of Employment</td>
<td>3.6</td>
<td>3.8</td>
<td>3.7</td>
<td>4.0</td>
<td>3.8</td>
<td>3.3</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Underemployment Rate&nbsp; &nbsp; % of Labor Force</td>
<td>3.4</td>
<td>3.5</td>
<td>3.4</td>
<td>3.6</td>
<td>3.5</td>
<td>3.0</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate </td>
<td>7.0</td>
<td>7.1</td>
<td>7.2</td>
<td>8.3</td>
<td>7.9</td>
<td>7.3</td>
<td>5.1</td>
</tr>
<tr>
<td class="firstcol">Underutilized Labor Force (Sum of Unemployment and Underemployment)</td>
<td>10.4</td>
<td>10.6</td>
<td>10.6</td>
<td>11.9</td>
<td>11.4</td>
<td>10.3</td>
<td>7.6</td>
</tr>
</tbody>
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The labor market in Hong Kong looks to be improving gradually. Employment is rising month by month and has done so six of the last seven months. This is a distinct turnaround from declines that spanned most of the previous nine [...]

Hong Kong Employment Rises, But Underemployment Still High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040617b.jpg" width="353">
Finished producer prices rose somewhat more than expected last month, up 0.8% versus Consensus expectations for a 0.6% gain. The rise followed a 0.7% jump in April and pulled the y/y change to 4.9%, its highest since 1990.
Strength in energy prices, up 4.0% (15.0% y/y), and food prices, up 1.8% (7.4% y/y), again powered the PPI. In addition, prices less food &amp; energy rose 0.3%, more than Consensus expectations for a 0.2% gain.
Prices of finished consumer goods less food &amp; energy rose a firm 0.4% (1.8% y/y) and are up at a 2.6% annual rate since December. Consumer durable prices jumped 0.7% (+1.8% y/y) but core non-durable prices inflation eased to 0.2% (+1.7% y/y).
Finished capital goods prices rose 0.3% (1.5% y/y).
Intermediate goods prices were strong showing a 1.1% rise last month. Core intermediate prices also were firm, up 0.9% (5.1% y/y). Plywood prices continued earlier months&#39; strength (54.3% y/y) as did softwood lumber (39.1% y/y). Steel (31.0% y/y) &amp; aluminum (5.8% y/y) prices also were strong.
Crude goods prices were strong again due to higher energy prices, up 5.8% (16.9% y/y) and higher food prices, up 3.2% (28.1% y/y). Core crude prices fell for the second consecutive month reflecting recent weakness in commodity prices. 

<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">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.8%</td>
<td>0.7%</td>
<td>4.9%</td>
<td>3.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3%</td>
<td>0.2%</td>
<td>1.7%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.1%</td>
<td>1.4%</td>
<td>7.1%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.9%</td>
<td>1.1%</td>
<td>5.1%</td>
<td>2.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>2.8%</td>
<td>3.0%</td>
<td>22.0%</td>
<td>25.1%</td>
<td>-10.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-3.8%</td>
<td>-3.9%</td>
<td>21.6%</td>
<td>12.4%</td>
<td>3.8%</td>
<td>-10.0%</td>
</tr>
</tbody>
</table>
Initial Claims for Unemployment Insurance Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 17, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040617a.jpg" width="353">
Initial claims for jobless insurance fell 15,000 last week to 336,000. The prior week&#39;s level was little revised. Consensus expectations had been for 345,000 claims.
The latest figure is for the June survey period of nonfarm payrolls and initial claims were down 11,000 (3.2%) from the May period.
The 4-week moving average of initial claims fell to 343,250 (-19.2% y/y).
Continuing claims for unemployment insurance rose 31,000 following a 123,000 decline the prior week which was deeper than initially reported.
The insured rate of unemployment was stable at 2.3% versus 2.8% for all of last year.
&quot;Employment Surveys Are Telling the Same (Sad) Story&quot; from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/Research/Com2004/05-15.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/@W5/@W507/@W507.HTM"> Unemployment Insurance (000s)</a></th>
<th scope="col">6/12/04</th>
<th scope="col">6/05/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;&nbsp; 336</td>
<td>351</td>
<td>-20.2%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>&nbsp;&nbsp; --</td>
<td>2,895</td>
<td>-21.0%</td>
<td>3,533</td>
<td>3,573</td>
<td>3,023</td>
</tr>
</tbody>
</table>
Leading Indicators Signal Further Growth 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 17, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040617c.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board signaled continued US economic growth by rising a slightly more than expected 0.5% in May. The current uptrend in the leaders began April of last year.
Recent firming of the leaders&#39; uptrend was led last month by gains in 80% of the component series. Over a six-month span 90% of the leaders&#39; components have risen. During the last ten years there has been a 62% correlation between the six-month diffusion index of the leaders and quarterly growth in real GDP.
Longer manufacturing hours, a higher money supply and a steeper yield curve had the largest positive influences on the leaders in May, offset somewhat by lower stock prices and lower consumer expectations.
The leading index is based on eight previously reported economic data series and two that are estimated.
The coincident indicators rose the same 0.3% as in April and all of the component series were higher over one and six month spans.
The ratio of coincident-to-lagging indicators rose 0.3% to another record level. The ratio is an indicator of excess relative to actual economic performance.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM"> Business Cycle Indicators</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.4%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.9%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-2.6%</td>
<td>-2.2%</td>
<td>-2.8%</td>
<td>-1.4%</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Firmed 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 17, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040617d.jpg" width="353">
The Philadelphia Fed&#146;s June index of general business conditions in the manufacturing sector improved to 28.9. The 5.1 point increase versus May was greater than Consensus expectations for a rise to 25.0.
During the last twenty years there has been a 58% correlation between the level of the Philadelphia Fed Business Conditions Index and quarterly growth in real GDP. The correlation with quarterly growth in factory sector industrial production has been 74%.
The separate index of expected business conditions in six months fell moderately to 39.5 versus 42.3 in May and 50.5 during all of last year.
Most of the sub indexes improved m/m except employment and delivery times.
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index reversed all of the increase in May.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0604.html">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/@S504/@S504.HTM"> Philadelphia Fed Business Outlook</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>28.9</td>
<td>23.8</td>
<td>2.2</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>51.9</td>
<td>59.6</td>
<td>5.4</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Finished producer prices rose somewhat more than expected last month, up 0.8% versus Consensus expectations for a 0.6% gain. The rise followed a 0.7% jump in April and pulled the y/y change to 4.9%, its highest since 1990. Strength in [...]

PPI Jumped Again in May

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

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

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The NFIB Small Business Optimism Index rose 0.5% (10.5%) to 100.8 in August after strengthening 1.7% to an unrevised 100.3 in July and easing 0.2% to 98.6 in June, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. Four of the ten index components increased last month. The NFIB Small Business Uncertainty Index fell 4.1% (+1.1% y/y) to 93 after rising 9.0% in July.

The outlook for business conditions was mixed in the latest survey. The net balance of respondents expecting the economy to improve stood at 34% last month after rising to 36% in July. A higher 12% expected higher real sales in six months, compared to 6% in July. A lessened 14%, compared to 16% in July, of respondents indicated that now was a good time to expand the business. The figure remained up from 4% last September.

Plans to make capital outlays eased to 21% of firms after rising to 22% in July. Plans to add to inventories were unchanged at 1% of survey respondents, having been negative or zero early in the year. The index of expected credit conditions held steady with five of the prior six months at -4%. It remained up from a low of -11 in November 2023. On the labor front, the percent planning to increase employment edged up to 15% from 14% in July. The increase was to the highest level since February. It was increased from a low of 12% in both March and May, but stood substantially below its high of 32% in August 2021. A lessened 43% of businesses reported few or no qualified workers to fill job openings in August, down from the most recent high of 50% in June. These readings remained below a high of 56% in August of last year.

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The net percent of firms reporting higher earnings improved to -19% last month after holding steady at 22% in July. The figure was increased from the August 2024 low of -37%.

On the pricing front, the net percent raising their average selling prices fell to 21% last month from 24% in July. It had grown to 32% in February. The percentage planning to raise prices declined to 26% in August, down from a 32% high in June. Worker compensation improved as a net 29% of respondents lifted compensation during the last three months versus 27% in the last survey. Compensation gains peaked at 50% of firms in January 2022. A higher net 20% of firms are making plans to raise worker compensation in the next three months, below November’s high of 28%.

Taxes were reported by a steady 17% of member firms as the single most important issue facing small businesses. Also steady was the 11% citing inflation as the most important problem. Other major concerns were the cost of labor reported by 9% of firms and government requirements, also at 9%.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

- Sales & employment expectations improve.
- Economic & business expansion plans ease.
- Percent raising prices and price expectations decline.

U.S. NFIB Small Business Optimism Index Improves in August

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Retail gasoline prices for all grades rose to $3.32 per gallon (-1.2% y/y), on average, last week after rising to $3.30 per gallon one week earlier. Gasoline prices are at the highest level since the fourth week of June, and above their low of $3.13 in the week of December 9. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel increased to $3.77 per gallon (5.9% y/y) last week after rising to $3.73 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil fell to $63.73 per barrel (-8.4% y/y) in the week ended September 5 after rising in the prior week to $64.16 per barrel. Prices remained below a high of a $74.17 during the third week of June. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $62.26 per barrel. The price of European Brent crude fell to $66.85 per barrel (-11.2% y/y) in the week of September 5 from $67.77 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. The price yesterday was $65.44 per barrel.

Natural gas prices rose an average $2.97/mmbtu (47.0% y/y) in the week ended September 5, after steadying at an average $2.85/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $3.10 per mmbtu.

Gasoline demand declined 0.8% y/y in the four weeks ending August 29, following a 1.1% y/y decline in the prior four weeks. Demand for all petroleum products rose 2.5% y/y in the four weeks ending August 29, after a 2.5% y/y increase in the previous four-week period. Crude oil input to refineries rose 1.8% y/y in the four weeks ending August 29, after a 3.0% y/y gain in the prior four weeks.

Gasoline inventories eased 0.3% y/y in the week ending August 29 after rising 1.8% y/y in the prior week. Residual fuel oil inventories fell 22.5% y/y in the week of August 29, after falling 23.8% y/y in the prior week. Crude oil inventories rose 3.4% y/y in the week of August 29 after a 2.4% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell to 24.1 days in the week of August 29 from 24.6 days in the prior week. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil edged higher to 24.7 days in the week of August 29 from 24.5 days in the prior week and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by	 the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices increase to late-June high.
- Crude oil prices ease after prior week’s increase.
- Natural gas prices rise to four-week high.

U.S. Energy Prices Are Mixed Last Week

Robert Brusca

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The end of summer is turning out to be a difficult time for France even though industrial output is in a seemingly solid trend. Output in June rose by 3.5%, it did that after a weak May when output fell by 1.1% and now in July output is falling by 1.6%. By itself, the manufacturing trend is simply not that worrisome, but it is built upon somewhat more convoluted trends with July’s drop. Add this complication to a political environment that is quite difficult as in real time, in September, France's government is being dissolved, the Prime Minister is being dismissed, and President Macron is under pressure. There is a decidedly split and fractured legislature to deal with as he is going to have to appoint yet another prime minister, the second lost government in less than a year. Macron continues to resist calling elections or stepping down himself.

France has been called out by the markets for the size of its government sector and its debt as Macron’s earlier tax cuts produced fiscal deficits not growth. French deficits continue to push up bond yields toward levels being paid by Italy. The U.K. is also under pressure for its substantial indebtedness and its inability to get control of its economy and generate growth. None of these are new trends and certainly not foreign to anyone in the United States where large fiscal deficits, concerns about future fiscal deficits, and President Trump's own concern about deficits as exhibited by his attempt to try to push interest rates down to reduce the interest cost of the debt. This has pushed the fiscal budgeting process into the mainstream of making monetary policy creating a clash over central bank independence in the United States- with reverberations abroad.

The best way to keep debt or the size of the government sector from becoming a problem is to control it and none of these governments seem to have been able to do that. A country that is going to rely on debt and increasing indebtedness is pushing the day of reckoning out on the future generations. That becomes increasingly unpalatable as population growth has been slowing. Slowing population growth and rising debt levels are an extremely bad combination and yet we see these as real international trends.

In France, the one-year trend for industrial production in manufacturing is still relatively solid at 1.5% growth over 12 months, stepping up to 4.5% at an annual rate over six months and up to 8.2% annualized over three months. On the face of these figures, if they hold up, the progression for growth is pretty good. However, when we see what produces these results in the table, which is a sharp drop in May and July, with a sharper increase sandwiched in between, we are left wondering whether the sequential trend is going to hold up at all. Consumer durable goods output trends are one of the reasons that that output trend in manufacturing is so strong with positive growth in May, June and July; the sector logs 12-month growth of 3.7%, 6-month growth at 9.2% at an annualized rate, and 3-month growth at a stunning 17% annual rate. That would seem to be a lot of strength to carry the day, but consumer nondurables output trends point in the opposite direction with -0.6% over 12 months, a -1.2% annual rate decline over six months and then -5.7% at an annual rate over three months. The capital goods sector sides with growth with a 4% rate over 12 months and an 8.5% pace over six months and that largely holds up at 8.1% over three months. However, the sequential growth rate for intermediate goods shows a drop in output of 0.8% over 12 months, a nice rebound with a 3.9% annual rate over six months and then the declining pace of 1% annualized over three months – a bit less coherence.

Transportation output in France is considerably stronger than the trends in motor vehicle registrations. Even though output in the auto sector continues to be quite firm to strong, registrations are weakening. That can’t be good.

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France is clearly in a difficult spot with President Macron also caught between a political rock and a hard place given the importance of Algerians in the French economy and given the conflict in Israel involving Hamas in the Gaza Strip. His political base domestically is severely fractured, and economic performance now is spotty. One good bit of news for the European Monetary Union is that, while inflation runs mildly over the top of its target, it is not accelerating; the ECB seems content to let inflation set at a pace slightly above its target as long as it continues to mind its business there.

It's certainly a bad time for France to be dealing with geopolitical tensions in the Middle East and Ukraine and with these political divisions at home they're deepened by those kinds of divisions as well as an economy that's showing signs of stress, signs that have been inevitable to show up in the wake of the recovery from COVID since governments did so much to try to bail their economies out. The unwinding of those actions has been destined, for some time, to create management problems for the economy and for continuing growth globally. For the time being, governments have managed the situation by tolerating inflation overshoots and pretending that having inflation over target is fine. However, Trump's tariffs seem to be calling the bluff on that to some extent. Tariffs will exacerbate inflation pressures and probably chill growth prospects at least by increasing uncertainty in the short run. This means that the risk of a downturn has risen but it's not clear that it's risen to a point that should be concerning although it certainly could be. It's more likely to be an issue and economies that have continued to place a great deal of emphasis on government efforts to sustain growth.

The next few months could be pivotal for global growth not just in France, as we begin to see what challenges tariffs are going to propose for local economies in terms of adversely affecting growth and adversely affecting inflation. The problems have been manageable so far, will that continue? That essentially is the question for the outlook.

France

French IP Is Expanding But Had a Tough Month

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Consumer credit outstanding increased $16.0 billion (2.2% y/y) during July after rising $9.6 billion in June, revised from $7.4 billion, and $7.9 billion in May, revised from $5.1 billion. A $10.3 billion July rise had been expected in the Action Economics Forecast Survey. As a percentage of disposable personal income, consumer credit outstanding of 22.4% in July was steady with June and compared to 22.9% one year earlier. It reached a high of 26.4% during all of 2017. The figures are reported by the Federal Reserve Board.

In July, revolving credit outstanding, which includes credit cards, rose $10.5 billion (3.1% y/y) after rising $0.8 billion in June, revised from a $1.0 billion decline, and falling $1.6 billion in May, revised from down $3.8 billion. Revolving credit outstanding held by depository institutions fell a steady 2.3% y/y. Revolving credit held by finance companies fell 13.8% y/y in July after falling 15.0% y/y in June, while credit union debt rose a steady 4.1% y/y in July.

Nonrevolving credit outstanding rose $5.5 billion (1.8% y/y) in July after increasing $8.8 billion in June, revised from $8.4 billion, and increasing $9.5 billion in May, revised from $8.9 billion. Nonrevolving credit held by depository institutions declined 7.7% y/y in July after falling 8.1% y/y in June. Finance company debt holdings fell 1.3% y/y after a 0.4% slip, while credit union holdings rose a steady 11.1% y/y in July. Nonrevolving debt of the federal government rose 3.9% y/y in July following a 4.1% y/y rise in June.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPNA** database.

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- Notable gain in credit usage follows two months of moderate growth.
- Revolving credit picks up as nonrevolving credit eases.

U.S. Consumer Credit Surges in July

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The **Industrial Materials Price Index** from the Foundation for International Business and Economic Research (FIBER) declined 1.0% during the last four weeks, after weakening 1.9% in the prior four weeks. Despite these declines, prices rose 0.5% during the last twelve months. During July, factory sector production held steady but rose an improved 1.4% y/y.

**Crude Oil & Benzene** group costs continued to lead the overall price weakening as they moved 1.9% lower (-10.3% y/y) in the latest four week period. The price of West Texas Intermediate crude oil declined 1.7% to $64.27 per barrel and remained 8.9% lower y/y. It had fallen to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, weakened 6.5% (-31.7% y/y). Excluding crude oil, the industrial commodity price index weakened 0.9% (+1.1% y/y) during the last four weeks.

Lower **Miscellaneous** group prices followed with a 4.0% decline in the latest four week period, but prices remained up 1.8% y/y. Lumber prices fell 21.2% (+10.2% y/y) during the last four weeks, and tallow costs (used in the soap industry) declined 3.9% (+34.4% y/y). Moving higher, the cost of rubber rose 2.8% in four weeks, but fell 18.6% y/y.

**Metals** group prices rose 1.7% (4.1% y/y) over four weeks. Copper scrap prices rose 2.3% (9.6% y/y). Aluminum prices increased 1.3% in four weeks (9.1% y/y), and the cost of zinc moved up 3.8% in four weeks, and did the same y/y. Tin prices rose 4.8% (13.1% y/y) in four weeks. Lead prices edged up 0.7% (-2.3% y/y) but steel scrap costs fell 1.9% (-6.3% y/y) over the same period.

Prices in the **Textile** group moved 0.5% higher (1.6% y/y) during the last four weeks. Burlap costs surged 6.9% (22.2% y/y), but cotton prices fell 1.3% (-3.4% y/y).

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

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- Decline extends last month’s weakness. 
- Crude oil costs & lumber costs decline.
- Metals prices improve.

Economy in Brief: 2004

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