Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705a.jpg" width="353">
The Nat&#39;l Employment Report published by ADP, the payroll processors for many employers, indicated that private nonfarm payrolls in June rose 368,000. The rise was the strongest increase in the brief history of the survey.
For the prior month the increase in ADP&#39;s measure of private nonfarm payrolls of 122,000 was accompanied by a meager 67,000 rise in May private nonfarm payrolls as published by the Bureau of Labor Statistics. The June figure from BLS will be published this Friday.
ADP has compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which grew an average of 11,333 per month over the last year.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/FINAL_NER_JUNE_Report.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.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/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nonfarm Private Payroll Employment (Chg.)</td>
<td>368,000</td>
<td>122,000</td>
<td>2.1%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
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The Nat'l Employment Report published by ADP, the payroll processors for many employers, indicated that private nonfarm payrolls in June rose 368,000. The rise was the strongest increase in the brief history of the survey. For the [...]

ADP Nat'l Employment Report Indicates Strength in June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales fell another 0.7% last week following a 0.4% slip the prior period.
Sales for all of June fell 0.4% from the May average which fell 0.4% from April. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.3% (-2.7% y/y) for the second consecutive week.
The Seasonal Cycle and the Business Cycle from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060701/cover.pdf"> here</a>.
Retail gasoline prices rose seven cents in the opening week of July to an average $2.93 per gallon (31.8% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/31/06</th>
<th scope="col">06/24/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>468.3</td>
<td>473.6</td>
<td>2.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales fell another 0.7% last week following a 0.4% slip the prior period. Sales for all of June fell 0.4% from the May average which fell 0.4% from [...]

Chain Store Sales Fell Again, Gasoline Prices Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales fell another 0.7% last week following a 0.4% slip the prior period.
Sales for all of June fell 0.4% from the May average which fell 0.4% from April. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.3% (-2.7% y/y) for the second consecutive week.
The Seasonal Cycle and the Business Cycle from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060701/cover.pdf"> here</a>.
Retail gasoline prices rose seven cents in the opening week of July to an average $2.93 per gallon (31.8% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/31/06</th>
<th scope="col">06/24/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>468.3</td>
<td>473.6</td>
<td>2.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
ADP Nat'l Employment Report Indicates Strength in June 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705a.jpg" width="353">
The Nat&#39;l Employment Report published by ADP, the payroll processors for many employers, indicated that private nonfarm payrolls in June rose 368,000. The rise was the strongest increase in the brief history of the survey.
For the prior month the increase in ADP&#39;s measure of private nonfarm payrolls of 122,000 was accompanied by a meager 67,000 rise in May private nonfarm payrolls as published by the Bureau of Labor Statistics. The June figure from BLS will be published this Friday.
ADP has compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which grew an average of 11,333 per month over the last year.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/FINAL_NER_JUNE_Report.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.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/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nonfarm Private Payroll Employment (Chg.)</td>
<td>368,000</td>
<td>122,000</td>
<td>2.1%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
U.S. Vehicle Sales Up a Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706a.jpg" width="353">
US light vehicle sales in June rose 1.3% m/m to 16.30M units and recaptured a piece of the prior month&#39;s 3.9% drop, according to the Autodata Corporation. Consensus expectations had been for sales of 16.4M units.
Overall light truck sales rose 3.6% (-17.2% y/y) last month as sales of imported light trucks rose 2.3% m/m (5.1% y/y) and domestic truck sales recovered all of the prior month&#39;s decline with a 3.9% rise (-20.2% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706b.jpg" width="353">
Auto sales slipped for the second consecutive month in June with a 1.2% decline (+3.1% y/y). Domestic car sales fell 0.2% (-1.8% y/y) while sales of imported autos fell 3.1% (+14.7% y/y).
Imports&#39; share of the US light vehicle market slipped to 23.7% from a record 24.5% during May but remained up versus 20.4% during all of last year.

<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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.30</td>
<td>16.10</td>
<td>-8.7%</td>
<td>16.92</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.69</td>
<td>7.79</td>
<td>3.1%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.61</td>
<td>8.31</td>
<td>-17.2%</td>
<td>9.27</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
High & Dry: June Temperature Near Record and Rainfall Well Below Average 
by <a href="/comment/Stone.html">Carol Stone</a> July 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705c.jpg" width="353">
The national average temperature in June was 71.4&deg;F, up 1.8&deg; from last June and 2.25&deg; higher than the average of the last 86 years. In that 86- year span, only 1933 saw a higher June figure, 72.0&deg;, although several years have been above 71.0&deg;.
Rainfall was a little short this June, and although not nearly a record low, was much less than the last several years. The national average amount was 2.58&quot;, compared with 3.15&quot; in June 2005 and 3.52&quot; in June 2004. These were relatively wet times, though, as seen in the table below, with an average since 1921 of 2.92&quot;.
These data come from the National Climatic Data Center, a branch of the Commerce Department in the division known as the National Oceanic and Atmospheric Administration. The National Weather Service is another part of the same Administration. Haver maintains temperature and precipitation by region and state in our REGIONAL database and the national averages are in USECON.
In assessing these data, we made use of some tools in Excel along with the DLX add-in for Excel. Copying codes into a spreadsheet is really easy with the latest versions of DLXVG3. Putting it in &quot;Excel mode&quot; leaves the menus visible. In Excel, we place the cursor in the cell where the first code will appear. In DLXVG3, we highlight the menu item we want, or to get a whole list, we can just click to the left of the first menu item we want and paint down the list as far as needed. Magically (seemingly), the codes and the database name will appear in the spreadsheet.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060705d.jpg" width="353">
Instead of the typical date-span entry, we begin to enter the dates manually: for June of each year, we would type in 192106 and 192206. Then, we highlight those cells, grab the box on the corner and drag it down as far as needed. Excel will see the pattern in the dates and replicate it all the way down the column. In setting the range, we&#39;ll need to highlight the entire area covering the columns of codenames and the rows of dates. Then when we retrieve the data we&#39;ll have June of each year for 86 years for whichever items are of interest to us.
For instance, I retrieved temperatures for the nine special weather regions and used Excel functions to find the maximum, minimum, median and mean. A quick look at these figures and the bottom row of data shows that only one region, the West, set a new temperature record in June, but seven of the nine regions had above-average temperatures for the month. The maximums for each show that most records occurred many years ago: three in the early 1950s, one in 1943 and one in 1933, the same year as the national record. Besides the West, recent records were in the Southwest in 2002 and in the West North Central states in 1988.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EH/@EH03/@EH03.HTM">June Weather</a></th>
<th scope="col">June 2006</th>
<th scope="col">June 2005</th>
<th scope="col">June 2004</th>
Averages for Junes
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2001-2006</td>
<td>1976-2000</td>
<td>1951-1975</td>
<td>1921-2006</td>
</tr>
<tr>
<td class="firstcol">Temperature (degrees F)</td>
<td>71.4</td>
<td>69.6</td>
<td>68.5</td>
<td>69.78</td>
<td>69.24</td>
<td>68.26</td>
<td>69.15</td>
</tr>
<tr class="odd">
<td class="firstcol">Precipitation (inches)</td>
<td>2.58</td>
<td>3.15</td>
<td>3.52</td>
<td>3.07</td>
<td>2.93</td>
<td>2.85</td>
<td>2.92</td>
</tr>
</tbody>
</table>


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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/060703e.jpg" width="353">
We&#39;ve haven&#39;t commented on the Bank of Japan&#39;s TANKAN report since December, so even though we just talked about Japan&#39;s employment data on Friday, this information bears examination promptly as well. Large manufacturing firms, the widely followed &quot;headline&quot; segment, saw business conditions in June at +21%, up 1 point from March&#39;s 20% reading (a %-balance measure: % favorable less % unfavorable). This result was just below the group&#39;s forecast of 22%. They anticipate another 21% in September.
All size firms in all industries also firmed by 1 point from March, from +5% to +6% in June. This performance met their expectations and they look to repeat the +6% in September. All large firms have been holding at 20% with a prospect for 21% in September. Medium-sized companies moved up from +7% in March to +8% in June and hope for +9% in the next period. Small firms continue to struggle, however, with a -2% reading in this survey, a little better than March&#39;s -3%, although they look to some deterioration over the summer to -4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703f.jpg" width="353">
The large manufacturing companies report that their sales growth this fiscal year continues to come mainly from export customers, with a projection of a 5.2% gain; fiscal 2005 ended with a substantial 11.7% rise, 3.1% more than their last estimate. This year&#39;s estimate represents a 6.0 point upward revision of the previous export sales forecast. Domestic sales are not doing as well. The FY2005 outcome was 5.1% growth, even with the previous estimate, but the expectation for this year is just 1.7%, a downward revision of 0.9-point from the last forecast. A breakout by customer is not shown for other firm sizes or industries, but they all expect further gains in total sales this fiscal year and have raised their forecasts after 2005 came in better than forecast.
News reports highlighted forecasts for capital investment this year. Last year&#39;s actual spending amounts were in fact somewhat lower than forecast, albeit at still good rates; for example, large manufacturing firms expanded capital spending by 13.9%, but this was 2.6% lower than expected. However, rather than revising down this year&#39;s forecasts after that modest shortfall, these firms raised their 2006 plans by 8.2 points to 16.4%. This high number prompted a number of analysts to assert that it would add to the evidence favoring an increase in the BoJ&#39;s target overnight call rate at its meeting next week (July 13 &amp; 14). The employment data we reported on Friday and another positive CPI for May (+0.6% year/year) also add to that argument. The call rate, which has been virtually 0% since September 2001, edged upward to 0.02% (2 basis points) last Friday, end-June.
Finally, as we call to your attention frequently, the TANKAN survey was dramatically reorganized two years ago, most significantly changing the very definition of &quot;size&quot; from employee-based to capital-based. Thus, for example, firms counted as &quot;small&quot; before because they employed fewer than 300 people might now be &quot;large&quot; because they have substantial capital; this is particularly true for high-tech companies. Thus, we continue to separate data for the two periods in the survey in our JAPAN database. However, in the Haver database &quot;G10&quot;, where we include some customized series that we calculate, we show a long history for &quot;all firms&quot;, which would not have been affected by the modified size criterion. That series, seen in the second graph, was +6 this quarter, the highest reading since December 1991, 14-1/2 years ago.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Conditions:&nbsp; % Favorable minus % Unfavorable</th>
June 2006
March 2006
December 2005
<th scope="col">Sept 2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Forecast for Sept</td>
<td>Actual</td>
<td>Forecast for June</td>
<td>Actual</td>
<td>Forecast for Mar</td>
<td>Actual</td>
<td>Forecast for Dec</td>
</tr>
<tr>
<td class="firstcol">All Firms</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>5</td>
<td>4</td>
<td>5</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Firms*</td>
<td>21</td>
<td>20</td>
<td>20</td>
<td>20</td>
<td>18</td>
<td>19</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol">Manufacturing (&quot;Headline Series&quot;)</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>20</td>
<td>19</td>
<td>21</td>
<td>18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonmanufacturing</td>
<td>21</td>
<td>20</td>
<td>19</td>
<td>18</td>
<td>17</td>
<td>17</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol">Medium-Sized Firms**</td>
<td>9</td>
<td>8</td>
<td>8</td>
<td>7</td>
<td>5</td>
<td>5</td>
<td>3</td>
</tr>
<tr class="odd">
<td class="firstcol">Small Firms***</td>
<td>-4</td>
<td>-2</td>
<td>-2</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-5</td>
</tr>
</tbody>
</table>
</body>
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We've haven't commented on the Bank of Japan's TANKAN report since December, so even though we just talked about Japan's employment data on Friday, this information bears examination promptly as well. Large manufacturing firms, the [...]

Japan's "TANKAN" Steady at Higher Readings; High Investment Forecast Adds to Expectations of Hike in BoJ Interest Rate

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703c.jpg" width="353">
The value of construction put in place fell another 0.4% in May following a little revised 0.2% slip during April. Consensus expectations had been for a 0.2% gain and revisions to the data extended back to January 2003.
Lower residential building activity led the decline during May with a 0.8% drop. New single family building fell a notable 1.7% (+3.7% y/y) after a similar drop the month prior. Spending on multi-family projects slipped a more moderate 0.5% (+23.1% y/y) while the value of spending on improvements jumped 1.8% (-6.8% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP. During April and May the value of residential building activity was down 1.3% from the 1Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703d.jpg" width="353">
Nonresidential building slipped 0.3% following downwardly revised during prior months but the 2Q level so far is up 3.1% from the prior quarter. Office construction added 0.2% to the 2.5% surge during April (8.8% y/y) and commercial building slipped 0.8% (+5.4% y/y). Multi-retail building jumped another 5.1% (36.9% y/y) as building activity at shopping malls (39.3% y/y) and shopping centers (57.7% y/y) was firm.
Public construction spending increased 0.7% though construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose just 0.1% (16.3% y/y) after several months of strong gain.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>6.0%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.6%</td>
<td>-0.3%</td>
<td>5.3%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.8%</td>
<td>-1.2%</td>
<td>2.4%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>1.6%</td>
<td>12.7%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.7%</td>
<td>0.5%</td>
<td>8.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place fell another 0.4% in May following a little revised 0.2% slip during April. Consensus expectations had been for a 0.2% gain and revisions to the data extended back to January 2003. Lower [...]

U.S. Construction Spending Off Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703a.jpg" width="353">
The June Composite Index of factory sector activity reported by the Institute of Supply Management (ISM) slipped to 53.8 from 54.4 the month prior. Consensus expectations had been for a slight increase to 55.0.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
A 4.2 point drop in the employment index to 48.7 dropped the reading below the break even level of 50 for the first time in over a year. During the last twenty years there has been a 66% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The production index also fell for the second consecutive month to its lowest (55.1) since early 2003 and the inventory index (46.9) fell for the fourth month this year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703b.jpg" width="353">
New orders (57.9) improved for the first month in the last four and recovered most of the prior two months&#39; decline. New export orders slipped modestly m/m and at 55.4 were down from the highs of the prior nine months. During the last nineteen years there has been a 68% correlation between the level of the ISM export index and the y/y change in real exports of goods.
An index of order backlogs rose moderately to 54.0 following two months of sharp decline while the import index was unchanged at a still strong 56.5.
The price index slipped modestly following several m/m jumps earlier this year. During the last twenty years there has been a 91% correlation between the price index and the three month change in the PPI for intermediate goods less food &amp; energy.
The Puzzling Convergence in Foreign Exchange Volatility from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/aiet/20060701/cover.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/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>53.8</td>
<td>54.4</td>
<td>54.0</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>57.9</td>
<td>53.7</td>
<td>57.2</td>
<td>57.4</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>76.5</td>
<td>77.0</td>
<td>50.5</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
</body>
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The June Composite Index of factory sector activity reported by the Institute of Supply Management (ISM) slipped to 53.8 from 54.4 the month prior. Consensus expectations had been for a slight increase to 55.0. During the last twenty [...]

ISM Index Disappointing Again in June, but Orders Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703a.jpg" width="353">
The June Composite Index of factory sector activity reported by the Institute of Supply Management (ISM) slipped to 53.8 from 54.4 the month prior. Consensus expectations had been for a slight increase to 55.0.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
A 4.2 point drop in the employment index to 48.7 dropped the reading below the break even level of 50 for the first time in over a year. During the last twenty years there has been a 66% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The production index also fell for the second consecutive month to its lowest (55.1) since early 2003 and the inventory index (46.9) fell for the fourth month this year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703b.jpg" width="353">
New orders (57.9) improved for the first month in the last four and recovered most of the prior two months&#39; decline. New export orders slipped modestly m/m and at 55.4 were down from the highs of the prior nine months. During the last nineteen years there has been a 68% correlation between the level of the ISM export index and the y/y change in real exports of goods.
An index of order backlogs rose moderately to 54.0 following two months of sharp decline while the import index was unchanged at a still strong 56.5.
The price index slipped modestly following several m/m jumps earlier this year. During the last twenty years there has been a 91% correlation between the price index and the three month change in the PPI for intermediate goods less food &amp; energy.
The Puzzling Convergence in Foreign Exchange Volatility from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/aiet/20060701/cover.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/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>53.8</td>
<td>54.4</td>
<td>54.0</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>57.9</td>
<td>53.7</td>
<td>57.2</td>
<td>57.4</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>76.5</td>
<td>77.0</td>
<td>50.5</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Off Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703c.jpg" width="353">
The value of construction put in place fell another 0.4% in May following a little revised 0.2% slip during April. Consensus expectations had been for a 0.2% gain and revisions to the data extended back to January 2003.
Lower residential building activity led the decline during May with a 0.8% drop. New single family building fell a notable 1.7% (+3.7% y/y) after a similar drop the month prior. Spending on multi-family projects slipped a more moderate 0.5% (+23.1% y/y) while the value of spending on improvements jumped 1.8% (-6.8% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP. During April and May the value of residential building activity was down 1.3% from the 1Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703d.jpg" width="353">
Nonresidential building slipped 0.3% following downwardly revised during prior months but the 2Q level so far is up 3.1% from the prior quarter. Office construction added 0.2% to the 2.5% surge during April (8.8% y/y) and commercial building slipped 0.8% (+5.4% y/y). Multi-retail building jumped another 5.1% (36.9% y/y) as building activity at shopping malls (39.3% y/y) and shopping centers (57.7% y/y) was firm.
Public construction spending increased 0.7% though construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose just 0.1% (16.3% y/y) after several months of strong gain.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>6.0%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.6%</td>
<td>-0.3%</td>
<td>5.3%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.8%</td>
<td>-1.2%</td>
<td>2.4%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>1.6%</td>
<td>12.7%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.7%</td>
<td>0.5%</td>
<td>8.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Japan's "TANKAN" Steady at Higher Readings; High Investment Forecast Adds to Expectations of Hike in BoJ Interest Rate 
by <a href="/comment/Stone.html">Carol Stone</a> July 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703e.jpg" width="353">
We&#39;ve haven&#39;t commented on the Bank of Japan&#39;s TANKAN report since December, so even though we just talked about Japan&#39;s employment data on Friday, this information bears examination promptly as well. Large manufacturing firms, the widely followed &quot;headline&quot; segment, saw business conditions in June at +21%, up 1 point from March&#39;s 20% reading (a %-balance measure: % favorable less % unfavorable). This result was just below the group&#39;s forecast of 22%. They anticipate another 21% in September.
All size firms in all industries also firmed by 1 point from March, from +5% to +6% in June. This performance met their expectations and they look to repeat the +6% in September. All large firms have been holding at 20% with a prospect for 21% in September. Medium-sized companies moved up from +7% in March to +8% in June and hope for +9% in the next period. Small firms continue to struggle, however, with a -2% reading in this survey, a little better than March&#39;s -3%, although they look to some deterioration over the summer to -4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060703f.jpg" width="353">
The large manufacturing companies report that their sales growth this fiscal year continues to come mainly from export customers, with a projection of a 5.2% gain; fiscal 2005 ended with a substantial 11.7% rise, 3.1% more than their last estimate. This year&#39;s estimate represents a 6.0 point upward revision of the previous export sales forecast. Domestic sales are not doing as well. The FY2005 outcome was 5.1% growth, even with the previous estimate, but the expectation for this year is just 1.7%, a downward revision of 0.9-point from the last forecast. A breakout by customer is not shown for other firm sizes or industries, but they all expect further gains in total sales this fiscal year and have raised their forecasts after 2005 came in better than forecast.
News reports highlighted forecasts for capital investment this year. Last year&#39;s actual spending amounts were in fact somewhat lower than forecast, albeit at still good rates; for example, large manufacturing firms expanded capital spending by 13.9%, but this was 2.6% lower than expected. However, rather than revising down this year&#39;s forecasts after that modest shortfall, these firms raised their 2006 plans by 8.2 points to 16.4%. This high number prompted a number of analysts to assert that it would add to the evidence favoring an increase in the BoJ&#39;s target overnight call rate at its meeting next week (July 13 &amp; 14). The employment data we reported on Friday and another positive CPI for May (+0.6% year/year) also add to that argument. The call rate, which has been virtually 0% since September 2001, edged upward to 0.02% (2 basis points) last Friday, end-June.
Finally, as we call to your attention frequently, the TANKAN survey was dramatically reorganized two years ago, most significantly changing the very definition of &quot;size&quot; from employee-based to capital-based. Thus, for example, firms counted as &quot;small&quot; before because they employed fewer than 300 people might now be &quot;large&quot; because they have substantial capital; this is particularly true for high-tech companies. Thus, we continue to separate data for the two periods in the survey in our JAPAN database. However, in the Haver database &quot;G10&quot;, where we include some customized series that we calculate, we show a long history for &quot;all firms&quot;, which would not have been affected by the modified size criterion. That series, seen in the second graph, was +6 this quarter, the highest reading since December 1991, 14-1/2 years ago.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Conditions:&nbsp; % Favorable minus % Unfavorable</th>
June 2006
March 2006
December 2005
<th scope="col">Sept 2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Forecast for Sept</td>
<td>Actual</td>
<td>Forecast for June</td>
<td>Actual</td>
<td>Forecast for Mar</td>
<td>Actual</td>
<td>Forecast for Dec</td>
</tr>
<tr>
<td class="firstcol">All Firms</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>5</td>
<td>4</td>
<td>5</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Firms*</td>
<td>21</td>
<td>20</td>
<td>20</td>
<td>20</td>
<td>18</td>
<td>19</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol">Manufacturing (&quot;Headline Series&quot;)</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>20</td>
<td>19</td>
<td>21</td>
<td>18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonmanufacturing</td>
<td>21</td>
<td>20</td>
<td>19</td>
<td>18</td>
<td>17</td>
<td>17</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol">Medium-Sized Firms**</td>
<td>9</td>
<td>8</td>
<td>8</td>
<td>7</td>
<td>5</td>
<td>5</td>
<td>3</td>
</tr>
<tr class="odd">
<td class="firstcol">Small Firms***</td>
<td>-4</td>
<td>-2</td>
<td>-2</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-5</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060630d.jpg" width="353">
For Japan, as was the case yesterday with Germany, the last time we wrote about the labor market was three months ago. Back then, we were all excited about rising employment in Japan and falling unemployment, particularly for February. In the intervening months, however, Japanese labor conditions have hesitated somewhat, although employment has been basically stable with February&#39;s strong performance.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060630e.jpg" width="353">
In May, employment gained 270,000 after a cumulative loss of 280,000 in March and April. The total amount in May, 63.91 million workers, remains above the levels of all but two months in the last 4 1/2 years. The highest was 63.93 million in September 2005, followed by February&#39;s 63.92 million. Other months, as evident from the graph and the table below, have been noticeably weaker.
The news headlines today highlighted May&#39;s low unemployment rate, 4.0%, which, as seen in the second graph, is the lowest since early 1998. However, our own enthusiasm was tempered by a look at labor force data. Japan&#39;s Ministry of Internal Affairs and Communications doesn&#39;t publish the labor force series on a seasonally adjusted basis, but we can calculate it by adding employment and unemployment. Last time we assessed these data, we were pleased to describe growth in the labor force, which meant that the decline in unemployment was coming from the strength of employment. This time, though, as we describe above, employment has been flat for three months and the second graph shows that the labor force has also stopped growing. Thus, May&#39;s dip in unemployment is not a sign of further strength, but of hesitation by workers, who likely remain skittish about the prospects for continuing growth.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060630f.jpg" width="353">
At the same time, we don&#39;t want to downplay the employment performance. Two key sectors, manufacturing and construction are looking better. The third graph indicates that these have both stabilized after declines that began in about 1997. These industry data are not seasonally adjusted either, so they&#39;re a bit erratic. But manufacturing is notable for not experiencing the jobs decline that has characterized the spring months in several recent years; instead, gains from last summer have largely held, a situation we see as impressive with the competition Japan manufacturing faces from its neighbors. Construction job gains are a good sign that investment is picking up, a quite tangible expression of confidence.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>0.7%</td>
<td>5.4%</td>
<td>5.4%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.4%</td>
<td>0.7%</td>
<td>6.7%</td>
<td>6.5%</td>
<td>6.5%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-1.7%</td>
<td>-1.6%</td>
<td>0.0% (May &#39;05)</td>
<td>-0.5%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.4%</td>
<td>0.5%</td>
<td>3.3%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
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For Japan, as was the case yesterday with Germany, the last time we wrote about the labor market was three months ago. Back then, we were all excited about rising employment in Japan and falling unemployment, particularly for [...]

Japan Employment Hesitates, But Remains High; Unemployment Rate at 8-Year Low

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

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Andrew Cates

**A Tug of War Between AI Hope and Geopolitical Shock**
The latest Blue Chip Economic Indicators survey highlights a growing divergence between economies benefiting from AI-driven optimism and those more exposed to the inflationary consequences of renewed geopolitical instability. Taiwan stands out as the clearest AI beneficiary, with growth forecasts revised sharply higher while inflation expectations have risen only modestly, reflecting surging semiconductor demand and continued investment in global technology supply chains. China also remains relatively resilient, supported by ongoing AI-related capital spending and stronger technology sectors. By contrast, the euro area and UK have seen much larger upward revisions to inflation forecasts alongside weaker or declining growth expectations, underscoring their greater vulnerability to the recent Middle East shock and higher energy costs. Korea sits somewhere in between: benefiting from the AI hardware cycle but still exposed to trade and energy headwinds. Overall, the chart illustrates the increasingly important push-and-pull shaping the global outlook: AI optimism and productivity hopes on one side, and geopolitical fragmentation, energy insecurity and supply-side inflation pressures on the other.

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**Forecasters See Contained Pass-Through**
Against this backdrop, our latest Blue Chip special question sought to gauge whether economists believe the recent rise in energy prices will remain largely contained — or whether it risks spilling more meaningfully into underlying global inflation dynamics. The results suggest forecasters have become somewhat less concerned about a broad and persistent inflationary impulse since April. A larger share of respondents in the May survey now expect only a “limited and temporary” pass-through into core inflation, while the proportion anticipating “moderate and persistent” effects has declined noticeably. Very few panelists expect significant second-round effects, implying that most still believe inflation expectations and wage-setting behaviour remain relatively well anchored. In part, this reflects confidence in central bank credibility and the view that softer global demand conditions will constrain firms’ pricing power. Yet the persistence of a sizeable minority still expecting moderate pass-through underscores the uncomfortable tension facing policymakers. 

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**Energy Reawakens as a US Inflation Driver**
While survey respondents generally expect only limited pass-through from higher energy prices into broader inflation, the latest US CPI data provide a reminder that the process may already be underway at the margin. April’s CPI report showed core inflation coming in slightly firmer than expected, suggesting underlying price pressures remain more persistent than many policymakers had hoped. The decomposition of CPI inflation highlights that services continue to dominate overall inflation dynamics, reflecting still-elevated wage and labour-intensive price pressures across the economy. However, the more notable recent development has been the renewed contribution from energy prices, which had previously acted as a disinflationary force through much of 2025. Food inflation has also remained comparatively steady, while non-energy goods prices continue to exert only modest upward pressure despite ongoing tariff and supply-chain concerns. Taken together, the data reinforce the idea that the US economy is not facing a classic demand collapse, but rather a more uncomfortable supply-side environment in which geopolitical energy shocks risk colliding with still-resilient domestic demand, AI-related investment spending and sticky service-sector inflation.

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**AI: The Powerful Counterweight to Geopolitical Headwinds**
If rising energy prices and geopolitical instability represent one major force shaping the current macroeconomic outlook, the extraordinary surge in AI-related investment represents the other. The latest data from Our World in Data show global private investment in AI accelerating sharply again in 2025, reaching close to $300 billion — more than double the level seen just two years earlier. The United States continues to dominate the global AI landscape, accounting for the overwhelming majority of private investment spending, while China and Europe remain considerably smaller contributors despite continued growth. The scale and speed of the 2025 increase is particularly striking given the broader backdrop of elevated policy uncertainty, trade fragmentation and concerns about slowing global productivity growth. In effect, the global economy is now being pulled in two competing directions: on one side, geopolitical tensions, supply-chain fragilities and more recent energy shocks are weighing on confidence and raising supply-side costs; on the other, AI enthusiasm is driving an enormous wave of capital expenditure, infrastructure build-out and technology-related demand. This helps explain why growth expectations — particularly in the US and parts of Asia — have remained comparatively resilient despite an increasingly uncertain global environment.

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**Industrial Winners and Losers in a Fragmenting Global Economy**
The divergence in industrial performance across advanced economies has become increasingly striking. Taiwan has emerged as one of the clearest beneficiaries of the global AI boom, with industrial production surging as semiconductor demand, data-centre investment and advanced electronics exports continue to accelerate. Denmark has also significantly outperformed, though for very different reasons, with the extraordinary global success of its pharmaceutical sector — particularly weight-loss and diabetes drugs — driving a powerful expansion in manufacturing output. By contrast, the UK and Germany have experienced a far weaker industrial recovery. In both cases, elevated energy costs and greater dependence on imported energy have weighed heavily on industrial competitiveness since the post-pandemic energy shock. Germany’s large manufacturing sector has been particularly exposed to higher natural gas prices and weaker external demand, while the UK has continued to struggle with a combination of high energy costs, weak productivity growth and subdued business investment. The chart highlights an increasingly important feature of the global economy: countries exposed to powerful structural growth themes such as AI or pharmaceuticals are pulling away from those still burdened by energy dependence and deteriorating industrial competitiveness.

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**China’s Pulse Is Picking Up Again**
China’s economic backdrop has shown clearer signs of improvement in recent months, with both the Citigroup Economic Surprise Index and the Yicai High Frequency Economic Activity Index moving higher. The rebound suggests that incoming data have begun consistently outperforming expectations after a prolonged period of disappointment. Part of the recent improvement likely reflects the cumulative effects of policy easing, including targeted fiscal support, infrastructure spending and further efforts to stabilise the property sector. Export demand has also remained more resilient than many expected, helped in part by the continued strength of global technology and AI-related supply chains. At the same time, improving domestic mobility and energy usage indicators point to firmer underlying activity momentum. The Yicai index itself is designed to provide a near real-time pulse of the Chinese economy using a basket of high-frequency indicators including subway usage, air pollution, coal consumption, freight activity, unemployment and bankruptcy trends. While China still faces significant structural headwinds — including weak household confidence, property-sector fragilities and deflationary pressures — the recent pickup suggests that growth momentum may be stabilising at a time when several other major economies are becoming more vulnerable to geopolitical and energy-related shocks.

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The global economy is still caught between two powerful and competing forces. On one side, the AI investment boom continues to support growth, industrial activity and equity markets, particularly in the US and parts of Asia. On the other, renewed Middle East tensions and higher energy prices are adding to inflation risks and broader policy uncertainty. The latest Blue Chip survey reflects this divide clearly: growth expectations have generally held up best in economies tied to AI-related investment and technology supply chains, while inflation forecasts have risen more sharply in more energy-exposed economies such as the UK and euro area (chart 1). Forecasters still largely expect only limited pass-through from higher energy prices into core inflation, although recent US CPI data suggest underlying price pressures remain somewhat sticky (charts 2 and 3). At the same time, the extraordinary continued surge in global AI investment — now approaching $300 billion annually — highlights the sheer scale of capital being deployed into semiconductors, data centres and digital infrastructure, particularly in the United States (chart 4). The divergence in industrial production trends also reinforces the growing gap between economies benefiting from structural growth drivers — such as Taiwan’s semiconductor sector and Denmark’s pharmaceutical industry — and those struggling with higher energy costs and weaker competitiveness, notably Germany and the UK (chart 5). Meanwhile, improving Chinese activity indicators suggest policy support and stronger technology demand may finally be helping to stabilise growth (chart 6). Overall, the world economy remains resilient, but increasingly uneven, with AI-related investment continuing to offset — though not eliminate — the drag from geopolitical fragmentation and rising energy insecurity.

Charts of the Week: The Tug of War

Sandy Batten

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Total retail sales rose a solid 0.5% m/m (4.9% y/y) in April on top of a slightly downwardly revised 1.6% monthly jump in March (previously 1.7%), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 05% m/m gain. Excluding autos, other sales increased 0.7% m/m (6.3% y/y) in April following an unrevised 1.9% monthly jump in March. Expectations were for a 0.6% monthly increase. The strong performance in March and the additional solid gain in April put the April level up 7.8% at an annual rate from the Q1 average, providing a very solid start for Q2.

As expected, the continued rise in retail gasoline prices boosted gasoline sales further in April. Gasoline sales increased 2.8% m/m in April following a 13.7% m/m surge in March and accounted for more than 40% of the April increase in total sales. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.3% m/m in April versus a 0.7% monthly gain in March. Sales excluding both autos and gasoline increased 0.5% m/m in April following a 0.7% m/m rise in March.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in March, rising 0.5% m/m in April following an upwardly revised 0.8% m/m increase in March (previously (0.7% m/m). The solid performances of the control group sales in March and April provide a strong start to Q2. April control-group sales are 5.4% at an annual rate above the Q1 average, in line with the 5.7% annualized increase in Q1. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales across major sectors were varied in April. Consumers clearly spent more on necessities, owing largely to higher prices. Food sales increased 0.8% m/m in April on top of a 1.0% m/m rise in March. And as already noted, gasoline sales posted another outsized monthly increase. By contrast, department store sales slumped 3.2% m/m, clothing sales fell 1.5% m/m, auto sales declined 0.4% m/m and furniture sales fell 2.0% m/m. More encouragingly, sales of nonstore retailers rose 1.1% m/m, their fourth consecutive solid monthly gain. And sales at restaurants increased 0.6% m/m in April, their third consecutive monthly rise. Analysts frequently use restaurant sales as a barometer of consumer attitudes, believing that consumers would not eat out regularly if they were under serious financial stress.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.


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- Total sales increase 0.5% m/m in April after a 1.6% monthly jump in March.
- Gasoline sales rose 2.8% m/m in April on top of a 13.7% surge in March.
- Auto sales fell 0.4% m/m after a 0.6% m/m rise in March.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in April versus a 0.7% m/m rise in March.
- Sales of the retail control group that is used to construct PCE rose 0.5% m/m in April and are 5.4% annualized above the Q1 average, providing a good start to Q2.


U.S. Retail Sales Slowed in April But Remained Solid

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 12,000 to 211,000 in the week ending May 9, from 199,000 in the week ending May 2, revised from 200,000. The four-week average rose 750 to 203,750 in the week ending May 9, from 203,000 the May 2 week, revised from 203,250. The Action Economics/Haver Analytics Survey looked for 205,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 24,000 to 1.782 million in the week ending May 2, from 1.758 million in the week ending April 25, revised from 1.766 million. The four-week moving average declined to 1.781 million in the latest week from 1.788 million in the April 25 week. The four-week moving average reached the lowest level since May 2024. The insured unemployment rate rose back to 1.2% in the week of May 2 from the one-week dip to 1.1% in the April 25 week. It had been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 25, the highest unemployment rates were in Rhode Island (2.29%), New Jersey and Massachusetts (both 2.20%), and Washington (2.15%). The lowest rates were in Florida and Louisiana (both 0.31%), South Dakota (0.32%), Alabama and Arkansas (both 0.36%), North Carolina (0.38%), Tennessee (0.47%) and Iowa, Kansas and Virginia (all 0.48%). Rates in other notable states include California (1.99%), New York (1.66%), Illinois (1.56%), Pennsylvania (1.28%), and Texas (1.03%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.


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- New claims rose by 12,000 to 211,000.
- Continuing claims rose by 24,000 to 1.782 million.
- The insured unemployment rate was back up to 1.2% in the week of May 2, from the one-week dip to 1.1% the prior week.

U.S. Initial Unemployment Claims rose in the Week of May 9

Michael J. Moran

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The Producer Price Index surged 1.4% in April, far in excess of the expected increase of 0.5%. Energy prices accounted for much of the increase with a jump of 7.8%, a much sharper change than the advance of 3.8% in the CPI. The marked difference between the energy components of the CPI and the PPI was primarily due to the nature of the customers. The Consumer Price Index, naturally, collects prices paid by individuals; the PPI, in addition to individuals, collects prices paid by businesses, governments, and exporters. Energy prices paid by governments and exporters rose sharply (12.1% and 15.8%, respectively). The PPI also showed a sharp increase in energy prices paid by individuals (6.1% versus 3.8% in the CPI).

Service prices also contributed to the high-side surprise in the PPI, posting an increase of 1.2%. This area often moves erratically, but still the latest move can be viewed as unusual, as it marked the second largest increase in service prices since the current structure of the PPI began in 2010 (three other observations were close with increases of 1.1%; the largest increase was 1.3% during the inflation burst in 2022).

Goods prices other than energy items were tame compared with service prices, but they too were unsettling. This grouping posted an increase of 0.6%, a reading in the upper end of the range from the past few years. The increase, although pronounced, was not broadly based. In a list of 53 non-energy goods provided by the BLS, only 13 posted increases of 0.4% or more, although a handful were especially sharp (electronic components 8.1%, industrial chemicals 4.4%, household furniture 1.8%).

Food represented the only major grouping that was not troubling, registering an increase of 0.2%. 


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- The energy component led the sharp increase in the PPI, but it had support from many other areas
- Excluding energy, most service prices rose sharply; prices of non-energy goods also were under pressure
- The food component went against the grain with an increase of only 0.2%


April PPI: Broad-Based Pressure

Robert Brusca

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Industrial production in the European monetary area in March rose by 0.2%. Manufacturing output rose by 0.4%, marking two-months in a row of output increases. Output is still falling overall and in manufacturing over three months. Over three-months total manufacturing output excluding construction falls 2.7% annualized, over 6-months, it falls at a 0.4% annual rate, and over three-months the pace of decline steps back up again to -1.2% at an annual rate. The declines in manufacturing are more or less along the same lines.

**Sectors**
Output of consumer goods fell in March, driven by a decline in the output of nondurable goods that fell 4.5% month-to-month. Intermediate goods output rose by 0.9% in the month, increasing for the second month in a row. Capital goods output rose 1.1% after rising 0.8% in February.

**Sequential growth**
However sequential growth rates find headline growth negative over 12-months, six-months, and three-months- the same as for manufacturing. Consumer goods output declines at an accelerating pace dropping 11.6% over 12-months, at a 13.6% annual rate over six-months and at a 24.9% annual-rate over three-months. Those declines are led by reduction in consumer nondurables output. Intermediate goods output is mostly weak over the horizon, falling by 1.5% over 12-months and by 0.9% over 3 months annualized. The exception is capital goods sector where output rises by 2.2% over 12 months and accelerates to 4.6% over 6-months but then tails back, trimming growth to a 1.2% annual rate over three-months.

**Country Performance**
On a country basis declines occur in only two early-reporting members; those are Malta and Germany in March. Over three months output declines in the monetary area occurs in Ireland and Luxembourg and in Germany- with increases elsewhere. Output declines over 12-months, six-months, and three-months in the monetary area only for Germany, Luxembourg, and Ireland. There are consistent output increases in the monetary union in Austria, France, Finland, Italy, Greece, and Portugal. For most countries, increasing output is the rule despite the weak headlines, indicating that large economies are faring worse than smaller economies.

**Q1 Growth**
In the completed first quarter, we have manufacturing output falling by 1.8% at an annual rate and overall output falling at a 1.9% annual rate. Output declines in the quarter and in all major sectors. As for country reporters output falls in the quarter for Austria, Germany, Luxembourg, and Ireland.

**Growth rate rankings**
So, the percentile queue standings presented in the right-hand column are rankings of industrial production growth rates over 12-months. Compared to recent history, overall output has a 17-percentile standing which is relatively weak, in the lower one-fifth of its ranked results over the period (back to 2006). Only capital goods output at 52.5% has a standing above the 50% level which places it above its median result for the period. Among reporting countries seven have percentile standings above 50%, above their respective medians. The countries where output does not grow at a pace in excess of its median are Germany, Luxembourg, Malta, and Ireland.

On balance the smaller countries seem to be faring better in the European monetary union. The last two months have been relatively good months for output across the union; however, January had been so weak that the two months have not been able to recover from the weakness experienced in January. And the March data hardly reflect the hardships that are going to be visiting these economies because of the rise in oil prices and concerns about the situation in Iran and the strait of Hormuz. The future is unlikely to get better.





Economy in Brief: 2006

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ADP Nat'l Employment Report Indicates Strength in June

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Chain Store Sales Fell Again, Gasoline Prices Rose

Japan's "TANKAN" Steady at Higher Readings; High Investment Forecast Adds to Expectations of Hike in BoJ Interest Rate

U.S. Construction Spending Off Again

ISM Index Disappointing Again in June, but Orders Up

ISM Index Disappointing Again in June, but Orders Up

Japan Employment Hesitates, But Remains High; Unemployment Rate at 8-Year Low