Robert Brusca

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UK manufacturing sector IP growth fell sharply in April and declined for the third month in a row. Sequential rates of growth for manufacturing IP are getting progressively weaker and in the quarter-to-date (April’s growth positioned and annualized over the Q1 average). IP growth in the UK is contracting sharply. The decline in UK IP was unexpected but it fits in with a rash of IP weakness across Europe that also dove-tails with weakening European PMI gauges. And this is happening in a big week of central bank meetings where it is expected that central bankers will declare themselves to be on the yellow brick road to growth and adopt more policy normalcy…but should they?

The European and global economies are dealing with any number of subtle shocks at the moment. I call them ‘subtle’ because while some of them are a subtle as a blow by a sledgehammer they are also effects that stem from fears of events that have not yet happened. It is always difficult to judge how far ahead of an act markets or economies are going to react. It is not clear what discount factor will be applied to events that have not yet happened and especially to events that speculatively may not even come to fruition. And we have such things hanging in the balance now.


Special events 
The most pressing concern for the UK is the transition under Brexit. This is a well-known phenomenon with a relatively firm transition period. But while the transition point is relatively well pinned down, the new terms and conditions of life under a Brexit regime are not determined. Markets reacting to Brexit are reacting to the unknown and in some cases firms are switching the domicile of their business to ensure that whatever Brexit brings they will be able to continue to perform. More subtle are the restive populist political movements in Europe especially in Italy where the Five Star Movement has become the dominant political party. After some saber rattling about leaving EMU, adopting the lira, or initiating a referendum on EU and EMU membership and wanting debt forgiveness the Five Star coalition with the Northern League has put the toothpaste back into the tube but there is no certainty about how long this coalition that has nurtured some harsh language in the past will continue to be passive. Finally there are the new US pressures over trade and the clear and present dangers of tariff threats and Europe’s own threats of reprisals against the US. This also includes ongoing US angst about funding so much of Europe’s defense when many nations of Europe do not pay their way in NATO as they had once agreed.

The CBI on Brexit 
On the issue of Brexit, the Confederation of British Industry (CBI), has weighed in today; it warns that the UK economy will shift to a slower gear this year and that risks have risen that growth will remain undernourished because of the Brexit transition. The CBI says it has cut its growth forecasts for the year, because of heavy snowfall in the opening months of 2018 and lingering fears over Brexit. The group now expects the growth rate for the British economy to slow to 1.4%, from 1.8% last year. GDP growth is expected to slip again, to 1.3% the next year, as the UK bids a fond (or not so fond) farewell to the EU.

Add in the ills from the ongoing and heightened trade spat with the US that became intensified by the G7 summit and there are ample reasons to expect that businesses might not be planning and investing for a better future despite solid global growth and broadly lowered rates of unemployment globally.

This is much bigger than Brexit and the UK 
My view of much of this is that we are still transitioning from the Post War period. World War II was devastating thing to the European area and to much of Asia. The US was never geographically a site of conflict. In the post war period a lot of effort was made to rebuild relationships and to repair physical properties ranging from factories to infrastructure to simple housing. There were also massive population relocations, post-war. The US cut the combatants- both allies and former enemies some slack is setting up post war trade relationships. Europe that has always been more socialistic than the US and was allowed to keep some market protections that the US did not demand for itself in trade, But now the Post War period is far behind us. While Europeans are used to this system and their special exceptions (like imposing tariffs on US goods when the US imposes no tariffs on theirs) the time for special treatment is past. Each and every G7 country with the possible exception of the UK runs consistent and stable trade surpluses in their bilateral trade with the US. Exchange rates do not change to remove or ameliorate this condition. The affluent US market is a source of demand for everyone to tap. But the US is not as rich or as competitive as it once was- especially not at current exchange rate levels.

Moreover, the once-accepted view of "unilateral Free trade" espoused by many US economists has proved itself an Achilles heel for US growth. With the US running a system of free trade for imports but others engaged in less than free trade on US exports and with exchange rates not being allowed to adjust to clear imbalances the US has become specialized in demand while Asia has become a supply center for the global economy. AND that is NOT what free trade means. It is not what ‘specialization’ means. Donald Trump’s desire to restore better-balanced two way trade flows is not being embraced overseas where changes will be needed. And as we see today with French farmers setting up blockades because imported palm oil will be allowed to be mixed in local gasoline stocks Europeans are activists protecting their ‘historic’ interests justified or not. A Bosnian blockade is also in play in Europe over high fuel prices. Europe does suffer economic activism over change. In France PM Macron has suffered through a persistent nationwide rail strike as he has tried to introduce modernization and as workers resist. Europe is hopelessly stuck in the socialistic Post War period and attempts to jolt it out of its niche find the European press referring to Trump’s plea for Free trade as ‘spew’ (here for an example from Reuters).

US President Donald Trump seems to make enemies much faster than he makes friends. He is arrogant, narcissistic and ham-handed in his political dealings. But none of that makes him wrong in this policy pursuit. While the US has ample reason to lash out at the way its trade is affected, Trump’s choice of National Security to protect metals trade pushes the envelope of logic. But maybe that is his plan as well, to use an outlandish WTO-allowed trick to drive his point home about how the US has been treated and cheated. Sometimes it is better simply not to try to understand Mr. Trump, but to treat him and his actions as simply existential.

Any way you slice it the US has been the protector of Europe for 60-years on. Angela Merkel dissed Mr. Trump as a ‘bad ally’ for his taunts suggesting that US obligations under NATO were in some way malleable when he first took office. He made it clear that he expected European and German obligations would be paid in to support of NATO as they had agreed. And after that spat and after calling the US a ‘bad ally’ Germany this year is CHOOSING to run a budget surplus instead of paying in its full share to its NATO commitment. So who is the real bad ally here? Who are the real unfair traders? Why does Trump’s rooting around in the legacy of Post War custom and practice makes him a bad guy? Oh his demeanor? Yes I get it. But what about the substance of the issues at hand? How does Europe justify any notion of ‘retaliation for all the support that the US given it and continues to give it? And is it any wonder that firms are pulling back in the UK and elsewhere in the wake of this kind of selfishness? If Trump is ‘spewing’ by pointing out Europe’s structural intransigence, what is Europe guilty of? And is Europe really going to try to hide from its lapsed responsibilities by playing tit-for-tat each time the US does something to try to even the very uneven playing field that is made clear every month when new trade figures report further European surpluses in trade with the US?


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UK manufacturing sector IP growth fell sharply in April and declined for the third month in a row. Sequential rates of growth for manufacturing IP are getting progressively weaker and in the quarter-to-date (April’s growth positioned [...]

A Souring of UK IP and The Outlook

Tom Moeller

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The Industrial Materials Price Index from the Foundation for
International Business and Economic Research (FIBER) improved 1.3% during the
last four weeks and 12.9% during the last year. Industrial materials prices
overall have risen by roughly one-third versus the early-2016 low. A 1.9% y/y
increase in industrial sector output prompted the gain as it followed 1.7% growth during 2017.
Price increases have been broad-based.
Prices in&nbsp; the miscellaneous group exhibited the
most strength with a 3.0% gain during the
last four weeks and a 13.4% rise during the past year. Framing lumber prices
strengthened 10.9% last month, up by nearly one half y/y. Prices for
structural panels improved 6.2% during the last four weeks and rose 42.8% during the last year.
Lower prices for natural rubber offset some of this strength with a 3.6% decline
last month and remained down 2.7% y/y. In the metals sector, prices
firmed 1.7% during the last month and improved 21.1% y/y. The gain was led by an
8.6% rise (20.1% y/y) in the cost of lead as well as a 4.2% increase (27.7% y/y)
in zinc prices. Copper scrap costs strengthened 3.6% m/m and 25.8% y/y.
Offsetting these gains was a 3.7% one-month fall (+27.6% y/y) in steel scrap
prices as well as a 0.6% four-week easing (+21.3% y/y) in aluminum prices. In the textile group,
prices overall improved 0.9% (2.5% y/y).
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Cotton prices surged 7.2% over the last month (18.8% y/y), but burlap prices fell
1.5% m/m and were down 2.5% during the past year. In the crude
oil &amp; benzene sector, prices declined 2.3% last month, but rose 15.0% y/y.
Crude oil prices declined 7.3% m/m to an average $65.34 per barrel, but were up
by more than one-third y/y. Benzene prices rose by 2.6% in the last four weeks
(13.5% y/y).&nbsp;&nbsp;
Further strength in prices overall may be coming. The
consensus forecast for industrial output from the National Association for
Business Economics (NABE) calls for a 3.8% rise in 2018 and 2.8% growth in 2019.
During the last ten years, there has been 50% correlation between the
three-month change in prices and the change in U.S. industrial output. In
addition, factory sector production in the European Union and Japan continues to
improve.
Commodity price data can be found in Haver's DAILY,
WEEKLY, USECON and CMDTY databases. The NABE forecast is in the SURVEYS
database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <tbody>
 <tr>
 <th class="firstcol" scope="col" >FIBER Industrial Materials
 Price Index (%)</th>
 <th scope="col" >1-Mth</th>
 <th scope="col" >3-Mth</th>
 <th scope="col" >6-Mth</th>
 <th scope="col" >12-Mth</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </tbody>
 <tbody>
 <tr>
 <td class="firstcol" >All Items</td>
 <td >1.3</td>
 <td >1.7</td>
 <td >8.2</td>
 <td >12.9</td>
 <td >6.7</td>
 <td >19.2</td>
 <td >-16.3</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Textiles</td>
 <td >0.9</td>
 <td >0.5</td>
 <td >2.6</td>
 <td >2.5</td>
 <td >3.0</td>
 <td >2.8</td>
 <td >2.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Cotton (cents per pound)</td>
 <td >7.2</td>
 <td >8.6</td>
 <td >23.0</td>
 <td >18.8</td>
 <td >9.8</td>
 <td >10.2</td>
 <td >2.6</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Metals</td>
 <td >1.7</td>
 <td >2.0</td>
 <td >8.6</td>
 <td >21.1</td>
 <td >18.6</td>
 <td >32.9</td>
 <td >-27.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Aluminum ($ per metric ton)</td>
 <td >-0.6</td>
 <td >8.9</td>
 <td >13.6</td>
 <td >21.3</td>
 <td >26.0</td>
 <td >13.0</td>
 <td >-19.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Copper Scrap (cents per
 pound)</td>
 <td >3.6</td>
 <td >2.1</td>
 <td >5.6</td>
 <td >25.8</td>
 <td >29.3</td>
 <td >17.3</td>
 <td >-27.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Steel Scrap ($ per ton)</td>
 <td >-3.7</td>
 <td >6.9</td>
 <td >31.7</td>
 <td >27.6</td>
 <td >16.8</td>
 <td >74.5</td>
 <td >-53.8</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Crude Oil &amp; Benzene</td>
 <td >-2.3</td>
 <td >1.8</td>
 <td >2.8</td>
 <td >15.0</td>
 <td >8.1</td>
 <td >20.4</td>
 <td >-19.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Crude Oil (WTI, $ per Barrel)</td>
 <td >-7.3</td>
 <td >6.6</td>
 <td >14.5</td>
 <td >39.3</td>
 <td >10.9</td>
 <td >44.3</td>
 <td >-35.8</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Miscellaneous</td>
 <td >3.0</td>
 <td >2.3</td>
 <td >15.2</td>
 <td >13.4</td>
 <td >-0.5</td>
 <td >21.7</td>
 <td >-18.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Framing Lumber ($ per 1000
 board ft.)</td>
 <td >10.9</td>
 <td >13.7</td>
 <td >33.5</td>
 <td >44.8</td>
 <td >20.0</td>
 <td >12.9</td>
 <td >-16.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Natural Rubber (cents per
 pound)</td>
 <td >-3.6</td>
 <td >-0.2</td>
 <td >9.3</td>
 <td >-2.7</td>
 <td >-29.6</td>
 <td >89.4</td>
 <td >-22.5</td>
 </tr>
 </tbody>
</table>


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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) improved 1.3% during the last four weeks and 12.9% during the last year. Industrial materials prices overall have risen [...]

FIBER: Industrial Commodity Prices Strengthen

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Wholesale trade inventories increased 0.1% (5.8 y/y) during
April following a 0.2% March gain, revised from 0.3%. The April rise matched the
increase reported in the advance report released on May 30 and compared to no
change expected in the Informa Global Markets Survey.
Durable goods inventories increased 0.2% (6.2% y/y) in April
following a 0.7% rise in March. The 6.2% y/y gain compared to moderate inventory
decumulation early in 2016. Electrical product inventories increased 0.2% (7.8%
y/y) after two months of 1.0% gain while machinery inventories held steady (5.4%
y/y) following a 0.2% rise. Computer equipment inventories increased 0.9% (-1.0%
y/y) after a 2.2% decline. Inventories of nondurable goods were unchanged (5.2%
y/y) following a 0.6% decline. A 0.8% increase (-0.9% y/y) in inventories of
grocery products reversed a 0.9% fall. Apparel inventories were off 0.6% (-1.1%
y/y) after a 0.4% decline. Petroleum inventories surged 3.1% (7.3% y/y) with
higher prices while inventories of paper products declined 1.3% (+4.6% y/y), and
reversed two months of increase.
Sales at the wholesale level gained 0.8% (7.8% y/y) during
April following a 0.4% March increase which was strengthened from last month's
report. Revised data indicate strong growth through last year. A 0.4% April rise
had been expected in the Action Economics Forecast Survey.
Durable goods sales increased 0.8% (7.8% y/y) after a 0.4%
increase. Motor vehicle sales declined 0.7% (+6.2% y/y) after two months of
strong rise. Electrical product sales fell 1.5% (+6.1% y/y), following a 0.8%
rise. Machinery sales surged 1.9% (12.4% y/y) after a 0.1% dip, and furniture
sales jumped 1.6% (2.3% y/y) following a 1.9% fall. Nondurable product sales
strengthened 0.7% (7.5% y/y) after a 0.8% rise. Petroleum product sales gained
1.5% (22.5% y/y) after a 1.0% gain. Apparel sales fell 2.9% (+4.1% y/y) after
holding steady, but chemical product sales surged 2.0% (12.7 y/y) after a 1.2%
fall.
The inventory-to-sales ratio at the wholesale level eased to
1.28 in April after three months at 1.29. It remained well below its most recent
high of 1.38 in February 2016.
The I/S ratio for durable goods eased to 1.59 from 1.60. It
remains well below its most recent peak of 1.74 in January 2016. The furniture
I/S fell sharply to 1.86 from a recent high of 1.92. The machinery and equipment
I/S ratio also plummeted to a six year low of 2.57, well below the 3.02 high in
early-2016. The I/S ratio for nondurable goods declined to 0.98 from 0.99. It
was below the 1.09 ratio two years ago. The petroleum industry I/S ratio rose
slightly m/m but remained near its lowest level since 2014, down from the 0.63
high in early 2016. The I/S ratio in the chemical industry was similarly
depressed and the apparel industry ratio has been steady near 2.10 for two years.
The wholesale trade figures are available in Haver's USECON
database. The expectations figure for inventories is contained in the MMSAMER
database. Expectations for sales are from the Action Economics Database.

 <thead>
 <tr>
 <th class="firstcol" scope="col" width="958">Wholesale Sector - NAICS
 Classification (%)</th>
 <th scope="col" width="129">Apr</th>
 <th scope="col" width="130">Mar</th>
 <th scope="col" width="130">Feb</th>
 <th scope="col" width="130">Y/Y</th>
 <th scope="col" width="130">2017</th>
 <th scope="col" width="130">2016</th>
 <th scope="col" width="130">2015</th>
 </tr>
 </thead>
 
 <tr class="odd">
 <td class="firstcol" width="958">Inventories</td>
 <td align="center" width="129">0.1</td>
 <td align="center" width="130">0.2</td>
 <td align="center" width="130">0.8</td>
 <td align="center" width="130">5.8</td>
 <td align="center" width="130">3.6</td>
 <td align="center" width="130">2.2</td>
 <td align="center" width="130">1.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="958">Sales</td>
 <td align="center" width="129">0.8</td>
 <td align="center" width="130">0.4</td>
 <td align="center" width="130">0.9</td>
 <td align="center" width="130">7.8</td>
 <td align="center" width="130">7.4</td>
 <td align="center" width="130">-1.3</td>
 <td align="center" width="130">-4.92</td>
 </tr>
 
 <tr class="odd">
 <td class="firstcol" width="958">I/S Ratio</td>
 <td align="center" width="129">1.28</td>
 <td align="center" width="130">1.29</td>
 <td align="center" width="130">1.29</td>
 <td align="center" width="130">1.30 (Apr.'17)</td>
 <td align="center" width="130">1.29</td>
 <td align="center" width="130">1.35</td>
 <td align="center" width="130">1.33</td>
 </tr>
 


&nbsp;
U.S. Home Affordability Continues to Fall 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;
June 8, 2018
The National Association of Realtors reported that the
Composite Index of Home Affordability declined 8.8% y/y during April to 145.8,
the lowest level since October 2008. The index was 32.0% below its peak in
January 2013. During the last ten years, there has been a 60% correlation
between the affordability index level and the y/y change in existing
single-family home
sales.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Higher prices have reduced affordability. The median sales
price of an existing home strengthened 5.5% y/y to $259,900. The price rise was
accompanied by a higher average mortgage rate of 4.66%, up from a 3.43% in
December 2012. Together, principal &amp; interest payments rose to $1,073 or 17.1%
of median income, the highest percentage since August 2007. That percentage
compared to a low of 11.7% early in 2013. Growth in median family income slowed
to 2.8% y/y from 3.9% during all of 2016.
The Housing Affordability Index equals 100 when median family
income qualifies for an 80% mortgage on a median priced existing single-family
home. A rising index indicates more buyers can afford to enter the home-buying
market. Data on Home Affordability can be found in Haver's REALTOR
database. Interest rate data can be found in the WEEKLY and DAILY
databases.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" 0801 width="839">Housing Affordability</th>
 <th 0801 align="center" width="146">Apr</th>
 <th 0801 align="center" width="147">Mar</th>
 <th 0801 align="center" width="147">Feb</th>
 <th 0801 align="center" width="147">Apr Y/Y</th>
 <th 0801 align="center" width="147">2017</th>
 <th 0801 align="center" width="147">2016</th>
 <th 0801 align="center" width="147">2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" 0801 width="839">Composite Index</td>
 <td 0801 align="center" width="146">145.8</td>
 <td 0801 align="center" width="147">150.0</td>
 <td 0801 align="center" width="147">160.1</td>
 <td 0801 align="center" width="147">-8.8%</td>
 <td 0801 align="center" width="147">158.5</td>
 <td 0801 align="center" width="147">168.2</td>
 <td 0801 align="center" width="147">168.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 width="839">&nbsp; Median Sales Price (Existing
 Single Family Home)</td>
 <td 0801 align="center" width="146">$259,900</td>
 <td 0801 align="center" width="147">$251,500</td>
 <td 0801 align="center" width="147">$242,600</td>
 <td 0801 align="center" width="147">5.5%</td>
 <td 0801 align="center" width="147">$247,508</td>
 <td 0801 align="center" width="147">$233,642</td>
 <td 0801 align="center" width="147">$221,350</td>
 </tr>
 <tr>
 <td class="firstcol" 0801 width="839">&nbsp; Monthly Mortgage Rate&nbsp;&nbsp;</td>
 <td 0801 align="center" width="146">4.66%</td>
 <td 0801 align="center" width="147">4.63%</td>
 <td 0801 align="center" width="147">4.42%</td>
 <td 0801 align="center" width="147">4.11%</td>
 <td 0801 align="center" width="147">4.20%</td>
 <td 0801 align="center" width="147">3.88%</td>
 <td 0801 align="center" width="147">4.03%</td>
 </tr>
 <tr>
 <td class="firstcol" 0801 width="839">&nbsp; Principal and Interest
 Payment</td>
 <td 0801 align="center" width="146">$1,073</td>
 <td 0801 align="center" width="147">$1,035</td>
 <td 0801 align="center" width="147">$974</td>
 <td 0801 align="center" width="147">12.6%</td>
 <td 0801 align="center" width="147">$967</td>
 <td 0801 align="center" width="147">$880</td>
 <td 0801 align="center" width="147">$849</td>
 </tr>
 <tr>
 <td class="firstcol" 0801 width="839">&nbsp; Median Family Income</td>
 <td 0801 align="center" width="146">$75,093</td>
 <td 0801 align="center" width="147">$74,944</td>
 <td 0801 align="center" width="147">$74,828</td>
 <td 0801 align="center" width="147">2.8%</td>
 <td 0801 align="center" width="147">$73,545</td>
 <td 0801 align="center" width="147">$70,941</td>
 <td 0801 align="center" width="147">$68,267</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 width="839">&nbsp; Payment as a Percent of
 Income</td>
 <td 0801 align="center" width="146">17.1</td>
 <td 0801 align="center" width="147">16.6</td>
 <td 0801 align="center" width="147">15.6</td>
 <td 0801 align="center" width="147">15.6</td>
 <td 0801 align="center" width="147">15.8</td>
 <td 0801 align="center" width="147">14.9</td>
 <td 0801 align="center" width="147">14.9</td>
 </tr>
 </tbody>
</table>





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Wholesale trade inventories increased 0.1% (5.8 y/y) during April following a 0.2% March gain, revised from 0.3%. The April rise matched the increase reported in the advance report released on May 30 and compared to no change expected [...]

U.S. Wholesale Inventories Inch Higher; Sales Strengthen

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Wholesale trade inventories increased 0.1% (5.8 y/y) during
April following a 0.2% March gain, revised from 0.3%. The April rise matched the
increase reported in the advance report released on May 30 and compared to no
change expected in the Informa Global Markets Survey.

Durable goods inventories increased 0.2% (6.2% y/y) in April
following a 0.7% rise in March. The 6.2% y/y gain compared to moderate inventory
decumulation early in 2016. Electrical product inventories increased 0.2% (7.8%
y/y) after two months of 1.0% gain while machinery inventories held steady (5.4%
y/y) following a 0.2% rise. Computer equipment inventories increased 0.9% (-1.0%
y/y) after a 2.2% decline. Inventories of nondurable goods were unchanged (5.2%
y/y) following a 0.6% decline. A 0.8% increase (-0.9% y/y) in inventories of
grocery products reversed a 0.9% fall. Apparel inventories were off 0.6% (-1.1%
y/y) after a 0.4% decline. Petroleum inventories surged 3.1% (7.3% y/y) with
higher prices while inventories of paper products declined 1.3% (+4.6% y/y), and
reversed two months of increase.

Sales at the wholesale level gained 0.8% (7.8% y/y) during
April following a 0.4% March increase which was strengthened from last month's
report. Revised data indicate strong growth through last year. A 0.4% April rise
had been expected in the Action Economics Forecast Survey.

Durable goods sales increased 0.8% (7.8% y/y) after a 0.4%
increase. Motor vehicle sales declined 0.7% (+6.2% y/y) after two months of
strong rise. Electrical product sales fell 1.5% (+6.1% y/y), following a 0.8%
rise. Machinery sales surged 1.9% (12.4% y/y) after a 0.1% dip, and furniture
sales jumped 1.6% (2.3% y/y) following a 1.9% fall. Nondurable product sales
strengthened 0.7% (7.5% y/y) after a 0.8% rise. Petroleum product sales gained
1.5% (22.5% y/y) after a 1.0% gain. Apparel sales fell 2.9% (+4.1% y/y) after
holding steady, but chemical product sales surged 2.0% (12.7 y/y) after a 1.2% fall.

The inventory-to-sales ratio at the wholesale level eased to
1.28 in April after three months at 1.29. It remained well below its most recent
high of 1.38 in February 2016.

The I/S ratio for durable goods eased to 1.59 from 1.60. It
remains well below its most recent peak of 1.74 in January 2016. The furniture
I/S fell sharply to 1.86 from a recent high of 1.92. The machinery and equipment
I/S ratio also plummeted to a six year low of 2.57, well below the 3.02 high in
early-2016. The I/S ratio for nondurable goods declined to 0.98 from 0.99. It
was below the 1.09 ratio two years ago. The petroleum industry I/S ratio rose
slightly m/m but remained near its lowest level since 2014, down from the 0.63
high in early 2016. The I/S ratio in the chemical industry was similarly
depressed and the apparel industry ratio has been steady near 2.10 for two years.

The wholesale trade figures are available in Haver's USECON
database. The expectations figure for inventories is contained in the MMSAMER
database. Expectations for sales are from the Action Economics Database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Wholesale Sector - NAICS
 Classification (%)</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Inventories</td>
 <td>0.1</td>
 <td>0.2</td>
 <td>0.8</td>
 <td>5.8</td>
 <td>3.6</td>
 <td>2.2</td>
 <td>1.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Sales</td>
 <td>0.8</td>
 <td>0.4</td>
 <td>0.9</td>
 <td>7.8</td>
 <td>7.4</td>
 <td>-1.3</td>
 <td>-4.92</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >I/S Ratio</td>
 <td>1.28</td>
 <td>1.29</td>
 <td>1.29</td>
 <td>1.30 (Apr.'17)</td>
 <td>1.29</td>
 <td>1.35</td>
 <td>1.33</td>
 </tr>
 </tbody>
 </table>
 
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German trends but more broadly European trends are pointing lower. Germany's IP drop is formally listed as ‘unexpected.' But after four months in a row of orders declining one has to wonder why would a drop in output be unexpected with that legacy? Clearly there has been some denial in the mx so beware of that. It is probably a phenomenon that is broader than just denial about weakness in German industrial output.

German IP fell across the board in April falling by 1% overall by 2.1% for consumer goods output, by 1.3% for capital goods, and by 2% for intermediate goods. The sequential growth rates from 12-months to 6-months to 3-months generally show a moderate 12-month expansion, a slightly greater 6-month pace then a collapse into decisive decline across the board over three-months. Intermediate goods pose a slight exception to these output trends; they show monotonically declining rates of growth across these horizons.

The construction sector in Germany is a true exception to those trends. Construction shows positive rates of growth on all horizons. Trends in that sector tilt slightly upward. The strongest growth rate is for six months; the three-month growth rate is faster than 12-month growth. Still the year-on-year growth rate in construction is 2.8% not that much stronger than for IP overall that is at 2%.

In the quarter to date all German sector growth rates are negative but again construction is an exception and it is knocking down an amazing 40% annual rate expansion early in Q2. In its public sector Germany is prioritizing the running of a budget surplus and it is planning to cut back on infrastructure spending this year. That could slow down spending in this sector.

Across Europe IP is weak over the last three-months. With eight other European nations reporting IP at this time, we find declines in half of them in April. But it is the broader trend that is disturbing. Over 3-months six of eight show declines in IP; only one, The Netherlands, logs a ‘slow' pace of decline at -2.1%. Spain and Ireland show declines at annual rates of around -30 percent. Moreover, over six months there are declines in five of eight reporters. And the pace of decline is generally large.

Only the Netherlands logs a growth rate over six months that is "strong" at a pace of 4.4%. Norway shows a +1.8% pace and Sweden registers a 0.9% positive pace. After that the rest are all declines. As we also saw for Germany, the 12-month growth rate shows smooth sailing.

Only Ireland has a decline in IP over 12-months (and a relatively severe decline at that). Spain and The Netherlands show growth of over 4% over 12-months, Portugal is at 3.8%, Sweden at 3.5% and France at 3%. The annual figures look just fine. That simply underscores the switch that we have seen in a short period of time to go from growth rates that average (unweighted) 2.1% over 12-months to annualized rates that average -9.8% over three-months.

Both Germany and the rest of Europe are seeing a step-down in growth. Whether it is the fear of trade sanctions and trade warfare or something else is hard to tell. There has been acceleration in place from 2016 through 2017 but at the turn of 2018 there was really something else that happened and redirected growth. The PMI gauges have captured the turnaround. But the ECB is still set to ponder a full exit from its batch of stimulus programs.

The global economy does have a lot up in the air. The US threat of tariffs is more than just a threat. The US has long been the butt of international trade abuse and Donald Trump has vowed to put a stop to it – it was part of the platform on which he ran for office. The rest of Europe is not in the right as much as they think. They just like the way things have been and like the exceptions they have been allowed...and want it to continue. With US wages stagnant and too many low wage jobs being created in the US Donald Trump is no longer willing to have the US milked for its income to shore up other economies. He wants something more like what FREE TRADE is supposed to produce: equal opportunities. Every G7 member runs a long bilateral trade surplus Vs the US except the UK. Germany has the highest current account surplus as a ratio to its GDP of any industrialized economy. And with that Germany is running a budget surplus and does not plan on paying its share into NATO defenses this year.

Yes, the US is "isolated" but it is hardly in the wilderness. I think Europeans need some perspective before they decide to gang up on the US. They may outnumber the US, and in GDP they maybe an equal, but in terms of intransigence THEY are the violators much more than the US a country that is only seeking redress from advantages Europe has had through much of the Post-War period.


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German trends but more broadly European trends are pointing lower. Germany's IP drop is formally listed as ‘unexpected.' But after four months in a row of orders declining one has to wonder why would a drop in output be unexpected [...]

German IP Follows Orders Lower...Much of Europe Joins Trend

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The National Association of Realtors reported that the
Composite Index of Home Affordability declined 8.8% y/y during April to 145.8,
the lowest level since October 2008. The index was 32.0% below its peak in
January 2013. During the last ten years, there has been a 60% correlation
between the affordability index level and the y/y change in existing
single-family home sales.

Higher prices have reduced affordability. The median sales
price of an existing home strengthened 5.5% y/y to $259,900. The price rise was
accompanied by a higher average mortgage rate of 4.66%, up from a 3.43% in
December 2012. Together, principal &amp; interest payments rose to $1,073 or 17.1%
of median income, the highest percentage since August 2007. That percentage
compared to a low of 11.7% early in 2013. Growth in median family income slowed
to 2.8% y/y from 3.9% during all of 2016.
The Housing Affordability Index equals 100 when median family
income qualifies for an 80% mortgage on a median priced existing single-family
home. A rising index indicates more buyers can afford to enter the home-buying
market. Data on Home Affordability can be found in Haver's REALTOR
database. Interest rate data can be found in the WEEKLY and DAILY
databases.


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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" 0801 >Housing Affordability</th>
 <th 0801 >Apr</th>
 <th 0801 >Mar</th>
 <th 0801 >Feb</th>
 <th 0801 >Apr Y/Y</th>
 <th 0801 >2017</th>
 <th 0801 >2016</th>
 <th 0801 >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" 0801 >Composite Index</td>
 <td 0801 >145.8</td>
 <td 0801 >150.0</td>
 <td 0801 >160.1</td>
 <td 0801 >-8.8%</td>
 <td 0801 >158.5</td>
 <td 0801 >168.2</td>
 <td 0801 >168.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >&nbsp; Median Sales Price (Existing
 Single Family Home)</td>
 <td 0801 >$259,900</td>
 <td 0801 >$251,500</td>
 <td 0801 >$242,600</td>
 <td 0801 >5.5%</td>
 <td 0801 >$247,508</td>
 <td 0801 >$233,642</td>
 <td 0801 >$221,350</td>
 </tr>
 <tr>
 <td class="firstcol" 0801 >&nbsp; Monthly Mortgage Rate&nbsp;&nbsp;</td>
 <td 0801 >4.66%</td>
 <td 0801 >4.63%</td>
 <td 0801 >4.42%</td>
 <td 0801 >4.11%</td>
 <td 0801 >4.20%</td>
 <td 0801 >3.88%</td>
 <td 0801 >4.03%</td>
 </tr>
 <tr>
 <td class="firstcol" 0801 >&nbsp; Principal and Interest
 Payment</td>
 <td 0801 >$1,073</td>
 <td 0801 >$1,035</td>
 <td 0801 >$974</td>
 <td 0801 >12.6%</td>
 <td 0801 >$967</td>
 <td 0801 >$880</td>
 <td 0801 >$849</td>
 </tr>
 <tr>
 <td class="firstcol" 0801 >&nbsp; Median Family Income</td>
 <td 0801 >$75,093</td>
 <td 0801 >$74,944</td>
 <td 0801 >$74,828</td>
 <td 0801 >2.8%</td>
 <td 0801 >$73,545</td>
 <td 0801 >$70,941</td>
 <td 0801 >$68,267</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >&nbsp; Payment as a Percent of
 Income</td>
 <td 0801 >17.1</td>
 <td 0801 >16.6</td>
 <td 0801 >15.6</td>
 <td 0801 >15.6</td>
 <td 0801 >15.8</td>
 <td 0801 >14.9</td>
 <td 0801 >14.9</td>
 </tr>
 </tbody>
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The National Association of Realtors reported that the Composite Index of Home Affordability declined 8.8% y/y during April to 145.8, the lowest level since October 2008. The index was 32.0% below its peak in January 2013. During the [...]

U.S. Home Affordability Continues to Fall

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<a href="http://haver.com/comment/Moeller.html">Tom
Moeller</a>&nbsp;&nbsp; June 7, 2018
Initial claims for unemployment insurance eased to 222,000
during the week ended June 1 from 223,000 during the prior week, revised from
221,000. Expectations in the Action Economics Forecast Survey were for 220,000
claims. The four-week moving average of claims rose to 225,500, its highest
level since late April. During the last ten years, there has been a 73%
correlation between the level of initial claims and the month-to-month change in
nonfarm payroll employment.
In the week ending May 26, continuing claims for unemployment
insurance rose to 1.741 million from a little-revised 1.720 million. The
four-week moving average of claimants fell to 1.729 million from 1.752 million,
the lowest since December 1973.
The insured rate of unemployment remained at the record low
of 1.2% for a fourth consecutive week.
Insured rates of unemployment varied widely by state. During
the week ended May 18, the lowest rates were in South Dakota (0.26%), Nebraska
(0.37%), North Carolina (0.45%), Florida (0.45%) and Indiana (0.46%). The
highest rates were in Pennsylvania (1.59%), Connecticut (1.92%), California (
1.95%), New Jersey (2.02%) and Alaska (2.61%). These state data are not
seasonally adjusted.
Data on weekly unemployment insurance are contained in
Haver's WEEKLY database, and they are summarized monthly in USECON.
Data for individual states are in REGIONW. The expectations figure is
from the Action Economics Forecast Survey, carried in the AS1REPNA
database.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" width="736">Unemployment Insurance (SA, 000s)</th>
 <th width="161">06/01/18</th>
 <th width="161">05/26/18</th>
 <th width="161">05/19/18</th>
 <th width="162">Y/Y %</th>
 <th width="162">2017</th>
 <th width="162">2016</th>
 <th width="162">2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="736">Initial Claims</td>
 <td align="center" width="161">222</td>
 <td align="center" width="161">223</td>
 <td align="center" width="161">234</td>
 <td align="center" width="162">-9.8</td>
 <td align="center" width="162">245</td>
 <td align="center" width="162">262</td>
 <td align="center" width="162">278</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="736">Continuing Claims</td>
 <td align="center" width="161">--</td>
 <td align="center" width="161">1,741</td>
 <td align="center" width="161">1,720</td>
 <td align="center" width="162">-10.1</td>
 <td align="center" width="162">1,961</td>
 <td align="center" width="162">2,135</td>
 <td align="center" width="162">2,266</td>
 </tr>
 <tr>
 <td class="firstcol" width="736">Insured Unemployment Rate (%)</td>
 <td align="center" width="161">--</td>
 <td align="center" width="161">1.2</td>
 <td align="center" width="161">1.2</td>
 <td align="center" width="162">
 1.4 
 (Jun 2017)
 </td>
 <td align="center" width="162">1.4</td>
 <td align="center" width="162">1.6</td>
 <td align="center" width="162">1.7S</td>
 </tr>
 </tbody>
</table>
&nbsp;
U.S. Consumer Credit Usage Slows Broadly 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;June
7, 2018
Consumer credit outstanding rose $9.26 billion during April
following a $12.29 billion March gain, revised from $11.62 billion. It was the
weakest monthly increase since September. A $14.0 billion rise had been expected
in the Action Economics Forecast Survey. During the past ten years, there has
been a 51% correlation between the y/y gain in consumer credit and y/y growth in
personal consumption expenditures.
Nonrevolving credit usage led the slowdown as it grew $6.99
billion (4.8% y/y) after a $13.38 billion March rise. Federal government
borrowing (38% of the total) rose 8.4% y/y. Finance company balances (22% of the
total) fell 1.1% y/y. Borrowing from depository institutions (25% of the total)
improved 3.6% y/y and credit union loans (12% of the total) strengthened 9.4%
y/y. 
Revolving consumer credit balances increased $2.26 billion
(5.0% y/y) following a $1.11 billion decline during the prior month. Balances at
depository institutions (84% of the total) increased 7.8% y/y. Finance company
holdings (6% of the total) fell 7.2% y/y, while borrowing from credit unions (5%
of the total) strengthened 8.9% y/y. Borrowing by nonfinancial business (2% of
the total) fell 4.0% y/y.
During the first quarter of this year, student loan balances
rose 5.4% y/y, down from 14.7% y/y growth at its peak in 2008. Motor vehicle
loans rose 3.6% y/y versus a peak 9.0% y/y gain in 2014. 
These Federal Reserve Board figures are break-adjusted and
calculated by Haver Analytics. There is a break in the credit outstanding data
from November 2010 to December 2010 due to the Fed's benchmarking process.
Benchmark estimates are based on the Census of Finance Companies (CFC) and the
Survey of Finance Companies (SFC) conducted in 2010 and 2011, respectively.
The consumer credit data are available in Haver's USECON
database. The Action Economics figures are contained in the AS1REPNA
database.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="890">Consumer Credit
 Outstanding (M/M Chg, SA)</th>
 <th scope="col" width="139">Apr</th>
 <th scope="col" width="139">Mar</th>
 <th scope="col" width="139">Feb</th>
 <th scope="col" width="140">Apr Y/Y</th>
 <th scope="col" width="140">2017</th>
 <th scope="col" width="140">2016</th>
 <th scope="col" width="140">2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="890">Total</td>
 <td align="center" width="139">$9.26 bil.</td>
 <td align="center" width="139">$12.29 bil.</td>
 <td align="center" width="139">$13.75 bil.</td>
 <td align="center" width="140">4.8%</td>
 <td align="center" width="140">5.2%</td>
 <td align="center" width="140">6.8%</td>
 <td align="center" width="140">7.1%</td>
 </tr>
 <tr>
 <td class="firstcol" width="890">&nbsp; &nbsp;Nonrevolving</td>
 <td align="center" width="139">6.99</td>
 <td align="center" width="139">13.38</td>
 <td align="center" width="139">13.55</td>
 <td align="center" width="140">4.8</td>
 <td align="center" width="140">4.8</td>
 <td align="center" width="140">6.7</td>
 <td align="center" width="140">7.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="890">&nbsp; &nbsp;Revolving</td>
 <td align="center" width="139">2.26</td>
 <td align="center" width="139">-1.11</td>
 <td align="center" width="139">0.21</td>
 <td align="center" width="140">5.0</td>
 <td align="center" width="140">6.1</td>
 <td align="center" width="140">6.8</td>
 <td align="center" width="140">5.4</td>
 </tr>
 </tbody>
</table>

&nbsp;

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Initial claims for unemployment insurance eased to 222,000 during the week ended June 1 from 223,000 during the prior week, revised from 221,000. Expectations in the Action Economics Forecast Survey were for 220,000 claims. The four- [...]

U.S. Initial Unemployment Insurance Applications Slip

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Consumer credit outstanding rose $9.26 billion during April
following a $12.29 billion March gain, revised from $11.62 billion. It was the
weakest monthly increase since September. A $14.0 billion rise had been expected
in the Action Economics Forecast Survey. During the past ten years, there has
been a 51% correlation between the y/y gain in consumer credit and y/y growth in
personal consumption expenditures.
Nonrevolving credit usage led the slowdown as it grew $6.99
billion (4.8% y/y) after a $13.38 billion March rise. Federal government
borrowing (38% of the total) rose 8.4% y/y. Finance company balances (22% of the
total) fell 1.1% y/y. Borrowing from depository institutions (25% of the total)
improved 3.6% y/y and credit union loans (12% of the total) strengthened 9.4%
y/y. 
Revolving consumer credit balances increased $2.26 billion
(5.0% y/y) following a $1.11 billion decline during the prior month. Balances at
depository institutions (84% of the total) increased 7.8% y/y. Finance company
holdings (6% of the total) fell 7.2% y/y, while borrowing from credit unions (5%
of the total) strengthened 8.9% y/y. Borrowing by nonfinancial business (2% of
the total) fell 4.0% y/y.
During the first quarter of this year, student loan balances
rose 5.4% y/y, down from 14.7% y/y growth at its peak in 2008. Motor vehicle
loans rose 3.6% y/y versus a peak 9.0% y/y gain in 2014. 
These Federal Reserve Board figures are break-adjusted and
calculated by Haver Analytics. There is a break in the credit outstanding data
from November 2010 to December 2010 due to the Fed's benchmarking process.
Benchmark estimates are based on the Census of Finance Companies (CFC) and the
Survey of Finance Companies (SFC) conducted in 2010 and 2011, respectively.
The consumer credit data are available in Haver's USECON
database. The Action Economics figures are contained in the AS1REPNA
database.

<a href="/comment/180607l.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/180607l.png"></a>
 <a href="/comment/180607m.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/180607m.png"></a>



<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Consumer Credit
 Outstanding (M/M Chg, SA)</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Apr Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >$9.26 bil.</td>
 <td >$12.29 bil.</td>
 <td >$13.75 bil.</td>
 <td >4.8%</td>
 <td >5.2%</td>
 <td >6.8%</td>
 <td >7.1%</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; &nbsp;Nonrevolving</td>
 <td >6.99</td>
 <td >13.38</td>
 <td >13.55</td>
 <td >4.8</td>
 <td >4.8</td>
 <td >6.7</td>
 <td >7.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; &nbsp;Revolving</td>
 <td >2.26</td>
 <td >-1.11</td>
 <td >0.21</td>
 <td >5.0</td>
 <td >6.1</td>
 <td >6.8</td>
 <td >5.4</td>
 </tr>
 </tbody>
</table>

&nbsp;

</body>

</html>

Consumer credit outstanding rose $9.26 billion during April following a $12.29 billion March gain, revised from $11.62 billion. It was the weakest monthly increase since September. A $14.0 billion rise had been expected in the Action [...]

U.S. Consumer Credit Usage Slows Broadly

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

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Sales of new single-family home sales improved 0.6% (-6.6% y/y) in June to 627,000 (SAAR) after falling 11.6% to an unrevised 623,000 in May, and rising to 705,000 in April, revised from 722,000 according to the U.S. Census Bureau. The Action Economics Forecast Survey expected sales of 650,000 in June. The sales gain occurred as the average 30-year fixed-rate mortgage held steady m/m at an average 6.82% in June, according to Freddie Mac. So far in July the 30-year mortgage rate has fallen to an average 6.71% and compares to a low of 6.18% averaged in September of last year.

By region, new home sales varied across the country last month. Sales of new homes in the Midwest rose 6.3% (9.0% y/y) to 85,000, after falling 3.6% during May. In the South, new home sales rebounded 5.1% (-4.4% y/y) to 390,000, following a 15.1% May decline. Offsetting these gains, sales of new homes in the West weakened 8.4% (-14.4% y/y) to 131,000, after declining 8.3% in May. Showing even more weakness, new home sales in the Northeast were off 27.6% last month (-34.4% y/y) to 21,000, after holding steady in May.

The median sales price of a new home declined 4.9% (-2.9% y/y) to $401,800 (NSA) in June after rising 2.3% to $422,700 in May. New home prices were 12.7% below the all-time peak of $460,300 in October 2022. The average sales price of a new home fell 2.1% (+1.1% y/y) to $501,000 in June, following a 0.4% May decline. The average price was 7.4% below a high of $541,200 in July 2022. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market rose 1.2% (8.5% y/y) to 511,000 (SA) in June, after a 1.0% May increase. The seasonally adjusted months' supply of new homes for sale rose to 9.8 months in June, the highest level since September 2022, after increasing to 9.7 months in May. The latest reading remained above a low of 6.9 months in May 2023.

The median number of months a new home stayed on the market increased to 2.8 months in June, remaining above a June 2024 low of 2.1 months. The latest number stood well above its record low of 1.5 months in both September and October of 2022, but remained below a high of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- Small gain in sales follows sharp decline.
- Sales are mixed throughout the country.
- Median sales price is lowest since November.

U.S. New Home Sales Improve Slightly in June; Prices Decline Sharply

Winnie Tapasanun

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The Kansas City Fed manufacturing composite index inched up to 1 in July from -2 in June and -3 in May, the July 2025 Manufacturing Survey by the Federal Reserve Bank of Kansas City showed, indicating Tenth District manufacturing activity increased slightly this month. The headline index was last positive in September 2022 (with a reading of 6). The July index was up from -11 in July 2024 but well below a high of 30 in March 2022. “The increase from last month was driven by nondurable manufacturing, while durable manufacturing activity continued to fall,” the Kansas City Fed reported.

The ISM-adjusted index calculated by Haver Analytics rebounded to 50.2 (NSA) in July after a 1.3-point decline to 49.8 in June, indicating expansion in factory activity for the fourth time in five months. The latest ISM-adjusted figure was above a low of 43.7 in July 2024 but well below a record-high 68.9 in March 2022.

In the latest survey, the new orders index rose to 2 in July, the first positive reading and the highest since July 2022, after a seven-point increase to -2 in June. Thirty percent of respondents (NSA) reported orders gains in July while 33% reported declines. The production index, however, fell to -3 this month after a 15-point rebound to 5 in June; these readings were well below a high of 35 in March 2022. The shipments index decreased to 3 in July after an 18-point jump to 8 in June; thus, having remained down from a peak of 39 in March 2022.

The raw materials inventory index rose to 8 in July following a 12-point drop to -9 in June, registering the second positive reading in three months and the highest since September 2022. These figures were above a low of -17 in July 2024 but well below a high of 28 in March 2022. The order backlog index, having remained negative since October 2022, plunged to -30 in July, the lowest reading since September 2024, after a 12-point rebound to -11 in June; these numbers were significantly below a record-high 43 in July 2021. Meanwhile, the supplier delivery time index rose to 7 in July, the highest reading since April, after rising to 5 in June; these readings remained well below a high of 51 in March 2022.

On the labor front, the employment index declined to -11 in July after an 11-point drop to -8 in June, posting the fifth negative reading in six months and the lowest in three months. The index was down from a high of 30 in May 2022. A lessened 13% of respondents (NSA) reported increases in the number of employees in July while a steady 23% reported decreases.

On the pricing front, the prices received index for finished products fell to 18 in July following a four-point increase to 21 in June. These readings, while up from a low of -5 in September 2024, remained well below a high of 50 in June 2022 and a record-high 63 in August 2021. Twenty-one percent of respondents (NSA) reported higher prices received in July while 6% reported price declines. The prices paid index for raw materials fell to 47 this month after a 17-point jump to 51 in June. These figures were up from a low of -1 in October 2023 but significantly down from a high of 72 in April 2022 and a record-high 85 in October 2021.

Expectations for future activity continued to stay positive, with activity in most categories expected to gain. The expectations index for six months ahead was at 8 in July, slightly down from 9 in June and up from 5 in May. The expectations indexes for raw materials inventories (8) and supplier delivery time (5) rose in July, while those for production (14), shipments (11), new orders (8), and employment (4) fell for the month; nevertheless, they remained in positive territory. To the negative side, the expectations indexes for new orders for exports (-8), backlog of orders (-5), and capital expenditures (-4) registered negative readings. The expectations index for raw materials prices held steady at a still-high 64 in July compared to a low of 13 in June 2023; the index for finished goods prices was unchanged at 48 vs. a low of 15 in October 2023.

The latest survey was conducted for a six-day period from July 16-21, 2025 and included 105 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Data for the Kansas City Fed Survey can be found in Haver’s **SURVEYS** database.

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- July Composite Index at 1 reflects positive numbers in materials inventories (8) and new orders (2), while employment (-11) and production (-3) post negative readings.
- Price growth cools somewhat, w/ prices paid down 4 pts. to 47 and prices received down 3 pts. to 18.
- Expectations for future activity, while edging down to 8, remain in positive territory.

Kansas City Fed Manufacturing Index Rises in July; First Positive Reading Since Sept. ’22

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The National Activity Index (CFNAI), reported by the Federal Reserve Bank of Chicago, stood at -0.10 in June following a reading of -0.16 in May, revised from -0.28, and -0.41 in April, revised from -0.36.

The index's three-month moving average, which smooths out the m/m volatility in the index, fell to -0.22 last month from -0.14 in May. This reading compares to its zero value, which equals trend real GDP growth. Research at the Chicago Fed indicates that an average reading of -0.70 or below is consistent with the economy being in a recession.

The June reading reflected a negative contribution from each of the four component series. The Production & Income index of -0.01 compared to -0.06 in May and -0.19 in April. The Personal Consumption & Housing contribution of -0.01 in June compared to -0.10 in May and -0.02 in April. The Sales, Orders & Inventories index series of -0.04 in June compared to +0.01 in May and -0.18 in April. The Employment, Unemployment & Hours index weakened to -0.05 last month after contributing -0.01 in May and -0.02 in April.

The CFNAI Diffusion Index, which measures the breadth of change in the component series and is also a three-month moving average, stood at -0.37 in June compared to -0.32 in May and -0.08 in April. A reading of zero indicates that all of the indicators are growing at their long-term average. Thirty-seven of the 85 individual data series made positive contributions to the total index in June while 48 contributed negatively.

The CFNAI is a weighted average of 85 indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

These figures are available in Haver's **SURVEYS** database.

- Latest reading improves versus May.
- Each of four components are negative.
- Three-month trend weakens.

Chicago Fed’s National Activity Index Remains Negative in June

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined by 4,000 to 217,000 (-8.1% y/y) in the week ended July 19, from the unrevised level of 221,000 (-7.9% y/y) in the previous week. Initial claims have declined for six consecutive weeks. The Action Economics Forecast Survey expected 230,000 initial claims for last week. The four-week moving average of initial claims declined by 5,000 to 224,500 from the previous week’s unrevised average of 229,500. It was the lowest level since the third week of April.

In the week ended July 12, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – rose 4,000 to 1.955 million (5.5% y/y) from 1.951 million (4.56% y/y) in the prior week, revised down from 1.956 million. The four-week moving average was 1.954 million, a decline of 2,250 from 1.956 million, revised from 1.957 million.

In the week ending July 12, the insured rate of unemployment (the number of beneficiaries as a percent of covered employment) was unchanged at 1.3% for the seventh straight week. It had increased from 1.2% since the beginning of 2023 and 1.0% in November 2022.

The insured unemployment rate varied greatly across individual states and territories. In the week ended July 5, the highest unemployment rates were in New Jersey (2.79%), Rhode Island (2.69%), Puerto Rico (2.65%), Minnesota (2.35%), California (2.21%), Massachusetts (2.15%) and Washington (2.10%). The lowest were in South Dakota (0.31%), Florida (0.42%), and North Carolina (0.48%). Rates in other notable states include Pennsylvania (1.90%), New York (1.74%), Illinois (1.71%), and Texas (1.25%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims have declined for six consecutive weeks in the July 19 week.
- Continuing claims rose slightly in the July 12 week.
- Insured unemployment rate was unchanged for the seventh consecutive week.

U.S. Initial Unemployment Insurance Claims Fell Again in Latest Week

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German consumer climate fell to -21.5 in August after logging -20.3 in July; July had posted a slight deterioration compared to June which had a -20.0 reading; however, previously in May the reading had improved sharply to -20.8 from -24.3 in April. The month of May had seemed to signal an improvement that took the climate readings from the -24 to -25 range into the -20 range. And while the -20 level held for three months in a row, there's now been a deterioration back to -21.5 in August and some renewed concerns about the economy.

**Resilience and questions...**
So far there has been a good deal of economic resilience in Germany and in Europe; however, the recent deal by NATO members to spend 5% of GDP on defense is channeling a lot of that money to the United States to purchase missiles to help Ukraine in defense against Russia. However, 1 1/2 percentage points of that military spending pledge can actually be infrastructure spending that can be used for domestic purposes to bolster military preparedness and operations. Therefore, that portion of the spending, at least, remains as stimulus for the European economy.

**The inflation setting**
Inflation in the euro area is basically at ‘target’ for the headline and close to it for the core; the year-over-year core rate is about 2.3%. Even so, Europe is looking at a pace that's close to 2%, but still higher than 2% after a long stretch of inflation being over the 2% target. In today's press conference, ECB President Christine Lagarde, speaking on the inflation picture and outlook in the EMU, said that the bank's target was an intermediate target and that the ECB expected inflation to be at its target over the intermediate term. The question I would have for her and for the ECB at this point is whether that means that the inflation target has become “aspirational” and is no longer operational? If the ECB is going to be happy with an inflation rate that stays above 2% as long as it thinks that ‘in the intermediate term’ inflation is going back to 2% has something significant changed? And since all forecasts are notoriously wrong – is this now a credibility issue for the ECB?

**German eco-climate**
In Germany, the GfK measure is for August; components for the climate measure are up-to-date through July. Economic expectations took a turn lower after posting 20.1 in June; they slipped to 10.1 in July. The most recent observation of record for income expectations, however, advanced from 12.8 in June to 15.2 in July, continuing a string of improvements. The propensity to buy metric worsened and remained negative at -9.2 in July compared to -6.2 in June. The overall climate metric is now at its weakest since April 2025; economic expectations are their lowest since April 2025. Income expectations are trending higher, nonetheless. The propensity to buy metric at -9.2 in July is at its weakest reading since February 2025; but that was a single-isolated low, setting that observation aside, the ‘propensity to buy’ is the weakest it's been since August 2024. The German consumer clearly hasn't recovered in terms of having faith and purchasing power restored even though income expectations have risen more substantially.

**Queue standing assessments**
In terms of the queue percentile standings (ranked data observations), climate has been weaker than this 11.5% of the time, economic expectations have been weaker 59% of the time, income expectations have been weaker 50.7% of the time, while the propensity to buy has been weaker only 29.1% of the time. Economic expectations are above their median - above a ranking value of 50% - while income expectations have only returned to their median estimate, marginally above 50%, at a reading of 50.7%. The propensity to buy languishes at the bottom 1/3 of its historic queue of values. The climate headline remains in disaster territory.

**Other Europe: Other EMU and the U.K.**
These observations for Germany contrast to observations in the rest of Europe where data lag. Consumer confidence metrics for Italy, France, and the U.K. are up-to-date only through June. And through that period, Italy shows the last two observations a little bit stronger, France shows the most recent two observations as, very similar, but weaker than April, while the U.K. shows the progression towards stronger readings from April to May to June. However, the rankings for these countries are quite mixed. For Italy consumers held confidence in June at a 73.2 percentile standing, relatively firm, while in France the standing is at its 26.4 percentile and in the U.K. it is at its 37.5 percentile. The climate in Germany is exceptionally low although the readings for the European countries in the table are somewhat more similar to the readings for the German climate components that are up-to-date through July.

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**Summing up**
The GfK report for August continues to send the same message that the German economy is weak; it no longer has a silver lining of any significance, apart from income expectations. The rest of Europe is emitting signals that, for the most part, are weak with the exception of the U.K. The U.K. might be giving us somewhat better consumer confidence readings, but it is still an economy fighting off its own devils of various sorts.

Economy in Brief: 2018

Jump to:

A Souring of UK IP and The Outlook

FIBER: Industrial Commodity Prices Strengthen

U.S. Wholesale Inventories Inch Higher; Sales Strengthen

U.S. Wholesale Inventories Inch Higher; Sales Strengthen

German IP Follows Orders Lower...Much of Europe Joins Trend

U.S. Home Affordability Continues to Fall

U.S. Initial Unemployment Insurance Applications Slip

U.S. Consumer Credit Usage Slows Broadly