Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519d.jpg" align="left" border="0" height="265" width="353">
After rising sharply from 1% in September, inflation in
Germany has moderated somewhat. In April 2008 it dropped to 2.41% from
3.10% in March. So far, inflation has not been a serious threat to the
economy. Indexes (2005=100) of compensation of labor and the CPI, are
shown in the first chart. Compensation has generally managed to exceed
inflation, as a result real wages have advanced moderately.
From the standpoint of business, wage growth has been below
the growth in productivity so that unit labor costs have continued to
decline, as can be seen in the second chart. Since the unit labor cost
data are available only quarterly, the monthly wage and productivity
data are aggregated to a quarterly basis. The latter are available for
the first quarter of 2008, while the ULC data are only available for
the fourth quarter of 2007.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519e.jpg" align="right" border="0" height="265" width="353">
The recent trends in food and oil prices suggest that the
future impact of inflation may be less benign.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th scope="col">GERMANY&nbsp;&nbsp;
</th>
<th scope="col">Mar 08
</th>
<th scope="col">Feb&nbsp; 08&nbsp;
</th>
<th scope="col">Mar&nbsp; 07&nbsp;
</th>
<th scope="col">M/M Chg&nbsp;
</th>
<th scope="col">Y/Y Chg&nbsp;
</th>
<th scope="col">2007
</th>
<th scope="col">2006
</th>
<th scope="col">2005
</th>
</tr>
</thead><tbody>
<tr>
<td class="firstcol">Hourly Compensation (2005
=100)&nbsp;&nbsp;</td>
<td>106.0 </td>
<td>109.4 </td>
<td>104.0 </td>
<td>-0.04 </td>
<td>2.3 </td>
<td>104.8 </td>
<td>102.3 </td>
<td>100.0 </td>
</tr>
<tr>
<td class="firstcol">CPI&nbsp;(2005
=100)&nbsp;</td>
<td>106.1 </td>
<td>105.7 </td>
<td>103.0 </td>
<td>0.38 </td>
<td>3.01 </td>
<td>103.9 </td>
<td>101.6 </td>
<td>100.0 </td>
</tr>
<tr>
<td class="firstcol">Hourly Compensation (2005
=100)&nbsp;&nbsp;</td>
<td>106.0 </td>
<td>109.4 </td>
<td>104.0 </td>
<td>-0.04 </td>
<td>2.3 </td>
<td>104.8 </td>
<td>102.3 </td>
<td>100.0 </td>
</tr>
<tr class="even">
<td class="firstcol"></td>
<td style="font-weight: bold;">Q1 08</td>
<td style="font-weight: bold;">Q4 07</td>
<td style="font-weight: bold;">Q3 07</td>
<td style="font-weight: bold;">Q2 07</td>
<td style="font-weight: bold;">Q1 07</td>
<td style="font-weight: bold;">2007</td>
<td style="font-weight: bold;">2006</td>
<td style="font-weight: bold;">2005</td>
</tr>
<tr>
<td class="firstcol">Productivity(2000=100)</td>
<td>132.8</td>
<td>132.1</td>
<td>130.8</td>
<td>129.6 </td>
<td>129.7</td>
<td>129.8 </td>
<td>123.3</td>
<td>115.4</td>
</tr>
<tr>
<td class="firstcol">Compensation of Labor
(2000=100)</td>
<td>117.4</td>
<td>116.7</td>
<td>115.7</td>
<td>116.8</td>
<td>114.5</td>
<td>115.9</td>
<td>113.2</td>
<td>110.7</td>
</tr>
<tr>
<td class="firstcol">Unit Labor Cost
(2000=100)</td>
<td>--</td>
<td>96.6</td>
<td>96.6</td>
<td>97.4</td>
<td>96.0</td>
<td>96.7</td>
<td>97.0</td>
<td>99.5</td>
</tr>
</tbody>
</table>
</body></html>

After rising sharply from 1% in September, inflation in Germany has moderated somewhat. In April 2008 it dropped to 2.41% from 3.10% in March. So far, inflation has not been a serious threat to the economy. Indexes (2005=100) of [...]

Inflation in Germany: Real Wages and Unit Labor Costs

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519c.jpg" align="left" border="0" height="265" width="353">
The Bank of France indicator for industry stands near the
bottom quartile of its two-year range and is beginning to break more
decidedly lower (see chart). The production index is at a 2-Yr low.
Overall order books are the weakest they have been in two years. Job
market readings for current and expected conditions are near mid-range.
For French production the weakest sector is agriculture and
food. Production in the consumer goods sector is in the bottom quartile
of its range. Capital goods is an enduring exception with production
near the top third of its range. The capital goods sector continues to
the firmest sector among most e-Zone countries.
The performance of orders by sector is approximately the same
as it is for production with food very weak. The consumer sector also
is weak and stands very low in its two year range; capital goods orders
again are in the top third of their range.
On balance the Bank of France Survey agrees with the notion
that the e-Zone is slowing. Food and consumer goods are the weakest
sectors with capital goods being dragged lower, but still showing
relatively firm readings for now.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> Bank of
France Monthly INDUSTRY Survey: SUMMARY</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>2Yr Percentile</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Production-latest month</td>
</tr>
<tr class="even">
<td class="firstcol">Total Industry</td>
<td>3.36</td>
<td>0.35</td>
<td>3.71</td>
<td>6</td>
<td>7</td>
<td>26.2%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Production Outlook</td>
</tr>
<tr class="even">
<td class="firstcol">Total Industry</td>
<td>5.45</td>
<td>13.2</td>
<td>12.26</td>
<td>16</td>
<td>15</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Demand</td>
</tr>
<tr class="even">
<td class="firstcol">Overall order books</td>
<td>17.64</td>
<td>18.24</td>
<td>22.11</td>
<td>25</td>
<td>5</td>
<td>0.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Foreign Orders</td>
<td>9.7</td>
<td>2.39</td>
<td>9.81</td>
<td>10</td>
<td>8</td>
<td>30.6%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">New
Orders</td>
</tr>
<tr class="even">
<td class="firstcol">Total Industry</td>
<td>8.95</td>
<td>1.36</td>
<td>8.3</td>
<td>9</td>
<td>9</td>
<td>37.1%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Stocks:
Finished Goods</td>
</tr>
<tr class="even">
<td class="firstcol">Total Industry</td>
<td>0.63</td>
<td>0.62</td>
<td>-3.21</td>
<td>-2</td>
<td>-2</td>
<td>93.2%</td>
</tr>
<tr class="even">
<td class="firstcol">Capacity Utilization</td>
<td>83.15</td>
<td>83.12</td>
<td>83.33</td>
<td>83</td>
<td>83</td>
<td>48.2%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Hiring</td>
</tr>
<tr class="even">
<td class="firstcol">Latest Month</td>
<td>-0.4</td>
<td>-2.68</td>
<td>0.14</td>
<td>0</td>
<td>-1</td>
<td>51.6%</td>
</tr>
<tr class="even">
<td class="firstcol">Outlook</td>
<td>-2.81</td>
<td>-3.81</td>
<td>-0.49</td>
<td>-2</td>
<td>-3</td>
<td>53.7%</td>
</tr>
<tr>
<td class="firstcol">Industry Sentiment
Index</td>
<td>100.81</td>
<td>104.29</td>
<td>105.99</td>
<td>106</td>
<td>107</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

The Bank of France indicator for industry stands near the bottom quartile of its two-year range and is beginning to break more decidedly lower (see chart). The production index is at a 2-Yr low. Overall order books are the weakest [...]

BOF Industry Indicator Continues to Drop

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519a.jpg" width="353">
The composite index of leading economic indicators, reported by the Conference Board, increased 0.1% last month after an unrevised 0.1% uptick in March. Consensus expectations had been for no change in the April leaders and the latest two gains followed consecutive declines during the five prior months.
The leaders may not yet indicate that the U.S. economy is entering recession. Since their peak in early 2006, the leading index has fallen 2.6%. Prior to the recession of 2001 the leading index declined a greater 3.7% over a shorter, roughly ten month span.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators index and the lagged change in real GDP.
The breadth of one month increase amongst the leaders&#39; 10 components improved to 65% after its revised 50% breadth of March gain. Over a six month period the breadth of gain amongst the leaders&#39; components also improved moderately but remained quite low at 40%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519b.jpg" width="353">
Last month higher building permits, stock prices, a more positively sloped yield curve and lower claims for unemployment insurance made the largest positive contributions to the leader&#39;s rise. These gains were offset by lower weekly hours worked and lower consumer expectations.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators were unchanged for the second month in the last five. Over the last ten years there has been an 86% correlation between the y/y change in the coincident indicators and real GDP growth. Half of the coincident series components fell last month and the series is down 0.4% from its October peak.
The lagging index ticked up 0.1% after two months of 0.4% increase. The ratio of coincident to lagging indicators (a measure of economic excess) fell and was at its lowest since early 1991. 
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Credit Access, Labor Supply, and Consumer Welfare from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/winter2008/athreya.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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Jan., 6 Month % (AR)</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-2.3%</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>1.7%</td>
<td>2.4%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1%</td>
<td>0.4%</td>
<td>3.7%</td>
<td>2.9%</td>
<td>3.1%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>


</html>

The composite index of leading economic indicators, reported by the Conference Board, increased 0.1% last month after an unrevised 0.1% uptick in March. Consensus expectations had been for no change in the April leaders and the latest [...]

U.S. Leading Economic Indicators Again Up Slightly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519a.jpg" align="left" border="0" height="265" width="353">
The composite index of leading economic indicators, reported
by the Conference Board, increased 0.1% last month after an unrevised
0.1% uptick in March. Consensus expectations had been for no change in
the April leaders and the latest two gains followed consecutive
declines during the five prior months.
The leaders may not yet indicate that the U.S. economy is
entering recession. Since their peak in early 2006, the leading index
has fallen 2.6%. Prior to the recession of 2001 the leading index
declined a greater 3.7% over a shorter, roughly ten month span.
During the last ten years there has been a 59% correlation
between the y/y change in the leading indicators index and the lagged
change in real GDP.
The breadth of one month increase amongst the leaders' 10
components improved to 65% after its revised 50% breadth of March gain.
Over a six month period the breadth of gain amongst the leaders'
components also improved moderately but remained quite low at 40%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519b.jpg" align="right" border="0" height="265" width="353">
Last month higher building permits, stock prices, a more
positively sloped yield curve and lower claims for unemployment
insurance made the largest positive contributions to the leader's rise.
These gains were offset by lower weekly hours worked and lower consumer
expectations.
The method of calculating the contribution to the leading
index from the spread between 10 year Treasury securities and the Fed
funds rate has been revised. A negative contribution will now occur
only when the spread inverts rather than when declining as in the past.
More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported
economic data series. Two series, orders for consumer goods and orders
for capital goods, are estimated.
The coincident indicators were unchanged for the second month
in the last five. Over the last ten years there has been an 86%
correlation between the y/y change in the coincident indicators and
real GDP growth. Half of the coincident series components fell last
month and the series is down 0.4% from its October peak.
The lagging index ticked up 0.1% after two months of 0.4%
increase. The ratio of coincident to lagging indicators (a measure of
economic excess) fell and was at its lowest since early 1991. 
Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world.


Credit Access, Labor Supply, and Consumer Welfare from
the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/winter2008/athreya.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/BCI/BCI.HTM">Business
Cycle Indicators</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Jan., 6 Month % (AR)</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-2.3%</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>1.7%</td>
<td>2.4%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1%</td>
<td>0.4%</td>
<td>3.7%</td>
<td>2.9%</td>
<td>3.1%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
BOF Industry Indicator Continuesto
Drop 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 19, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519c.jpg" align="left" border="0" height="265" width="353">
The Bank of France indicator for industry stands near the
bottom quartile of its two-year range and is beginning to break more
decidedly lower (see chart). The production index is at a 2-Yr low.
Overall order books are the weakest they have been in two years. Job
market readings for current and expected conditions are near mid-range.
For French production the weakest sector is agriculture and
food. Production in the consumer goods sector is in the bottom quartile
of its range. Capital goods is an enduring exception with production
near the top third of its range. The capital goods sector continues to
the firmest sector among most e-Zone countries.
The performance of orders by sector is approximately the same
as it is for production with food very weak. The consumer sector also
is weak and stands very low in its two year range; capital goods orders
again are in the top third of their range.
On balance the Bank of France Survey agrees with the notion
that the e-Zone is slowing. Food and consumer goods are the weakest
sectors with capital goods being dragged lower, but still showing
relatively firm readings for now.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> Bank of
France Monthly INDUSTRY Survey: SUMMARY</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>2Yr Percentile</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Production-latest
month</td>
</tr>
<tr class="even">
<td class="firstcol">Total Industry</td>
<td>3.36</td>
<td>0.35</td>
<td>3.71</td>
<td>6</td>
<td>7</td>
<td>26.2%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Production
Outlook</td>
</tr>
<tr class="even">
<td class="firstcol">Total Industry</td>
<td>5.45</td>
<td>13.2</td>
<td>12.26</td>
<td>16</td>
<td>15</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Demand</td>
</tr>
<tr class="even">
<td class="firstcol">Overall order books</td>
<td>17.64</td>
<td>18.24</td>
<td>22.11</td>
<td>25</td>
<td>5</td>
<td>0.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Foreign Orders</td>
<td>9.7</td>
<td>2.39</td>
<td>9.81</td>
<td>10</td>
<td>8</td>
<td>30.6%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">New
Orders</td>
</tr>
<tr class="even">
<td class="firstcol">Total Industry</td>
<td>8.95</td>
<td>1.36</td>
<td>8.3</td>
<td>9</td>
<td>9</td>
<td>37.1%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Stocks:
Finished Goods</td>
</tr>
<tr class="even">
<td class="firstcol">Total Industry</td>
<td>0.63</td>
<td>0.62</td>
<td>-3.21</td>
<td>-2</td>
<td>-2</td>
<td>93.2%</td>
</tr>
<tr class="even">
<td class="firstcol">Capacity Utilization</td>
<td>83.15</td>
<td>83.12</td>
<td>83.33</td>
<td>83</td>
<td>83</td>
<td>48.2%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Hiring</td>
</tr>
<tr class="even">
<td class="firstcol">Latest Month</td>
<td>-0.4</td>
<td>-2.68</td>
<td>0.14</td>
<td>0</td>
<td>-1</td>
<td>51.6%</td>
</tr>
<tr class="even">
<td class="firstcol">Outlook</td>
<td>-2.81</td>
<td>-3.81</td>
<td>-0.49</td>
<td>-2</td>
<td>-3</td>
<td>53.7%</td>
</tr>
<tr>
<td class="firstcol">Industry Sentiment
Index</td>
<td>100.81</td>
<td>104.29</td>
<td>105.99</td>
<td>106</td>
<td>107</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
Inflation in Germany: Real Wages
and Unit Labor Costs 
by <a href="/comment/Curley.html">Louise
Curley</a> May 19, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519d.jpg" align="left" border="0" height="265" width="353">
After rising sharply from 1% in September, inflation in
Germany has moderated somewhat. In April 2008 it dropped to 2.41% from
3.10% in March. So far, inflation has not been a serious threat to the
economy. Indexes (2005=100) of compensation of labor and the CPI, are
shown in the first chart. Compensation has generally managed to exceed
inflation, as a result real wages have advanced moderately.
From the standpoint of business, wage growth has been below
the growth in productivity so that unit labor costs have continued to
decline, as can be seen in the second chart. Since the unit labor cost
data are available only quarterly, the monthly wage and productivity
data are aggregated to a quarterly basis. The latter are available for
the first quarter of 2008, while the ULC data are only available for
the fourth quarter of 2007.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080519e.jpg" align="right" border="0" height="265" width="353">
The recent trends in food and oil prices suggest that the
future impact of inflation may be less benign.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th scope="col">GERMANY&nbsp;&nbsp;
</th>
<th scope="col">Mar 08
</th>
<th scope="col">Feb&nbsp; 08&nbsp;
</th>
<th scope="col">Mar&nbsp; 07&nbsp;
</th>
<th scope="col">M/M Chg&nbsp;
</th>
<th scope="col">Y/Y Chg&nbsp;
</th>
<th scope="col">2007
</th>
<th scope="col">2006
</th>
<th scope="col">2005
</th>
</tr>
</thead><tbody>
<tr>
<td class="firstcol">Hourly Compensation (2005
=100)&nbsp;&nbsp;</td>
<td>106.0 </td>
<td>109.4 </td>
<td>104.0 </td>
<td>-0.04 </td>
<td>2.3 </td>
<td>104.8 </td>
<td>102.3 </td>
<td>100.0 </td>
</tr>
<tr>
<td class="firstcol">CPI&nbsp;(2005
=100)&nbsp;</td>
<td>106.1 </td>
<td>105.7 </td>
<td>103.0 </td>
<td>0.38 </td>
<td>3.01 </td>
<td>103.9 </td>
<td>101.6 </td>
<td>100.0 </td>
</tr>
<tr>
<td class="firstcol">Hourly Compensation (2005
=100)&nbsp;&nbsp;</td>
<td>106.0 </td>
<td>109.4 </td>
<td>104.0 </td>
<td>-0.04 </td>
<td>2.3 </td>
<td>104.8 </td>
<td>102.3 </td>
<td>100.0 </td>
</tr>
<tr class="even">
<td class="firstcol"></td>
<td style="font-weight: bold;">Q1 08</td>
<td style="font-weight: bold;">Q4 07</td>
<td style="font-weight: bold;">Q3 07</td>
<td style="font-weight: bold;">Q2 07</td>
<td style="font-weight: bold;">Q1 07</td>
<td style="font-weight: bold;">2007</td>
<td style="font-weight: bold;">2006</td>
<td style="font-weight: bold;">2005</td>
</tr>
<tr>
<td class="firstcol">Productivity(2000=100)</td>
<td>132.8</td>
<td>132.1</td>
<td>130.8</td>
<td>129.6 </td>
<td>129.7</td>
<td>129.8 </td>
<td>123.3</td>
<td>115.4</td>
</tr>
<tr>
<td class="firstcol">Compensation of Labor
(2000=100)</td>
<td>117.4</td>
<td>116.7</td>
<td>115.7</td>
<td>116.8</td>
<td>114.5</td>
<td>115.9</td>
<td>113.2</td>
<td>110.7</td>
</tr>
<tr>
<td class="firstcol">Unit Labor Cost
(2000=100)</td>
<td>--</td>
<td>96.6</td>
<td>96.6</td>
<td>97.4</td>
<td>96.0</td>
<td>96.7</td>
<td>97.0</td>
<td>99.5</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080516d.jpg" width="353">
The preliminary May reading of consumer sentiment from the University of Michigan fell another 5.0% m/m to a level of 59.5. The decline was larger than Consensus expectations for a reading of 62.0. The latest level was the lowest since the brief &quot;credit crunch&quot; recession during 1980. 
During the last ten years there has been a 47% correlation between the level of sentiment and the three month change in real consumer spending.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080516f.jpg" width="353">
The current conditions index nearly matched its April decline and fell 6.9% to the lowest level since 1981. The view of current conditions for buying large household goods dropped hard again, this month by 6.3% (-34.4% y/y) and the view of current personal finances fell 8.1% (-30.1% y/y).Far fewer respondents indicated that their income was higher.
The expectations component of overall sentiment fell 3.0% after its 11.3% April dive. The index fell to its lowest level since late 1990. Expectations for personal finances fell slightly after a sharp April decline. Expectations for business conditions during the next year fell much more strongly by 12.5% (-63.9% y/y), about the same as during April. Expectations for conditions over the next five years just dipped m/m (-21.3% y/y).
Opinions about government policy, which apparently influence economic expectations, cratered 21.9% m/m (-43.2% y/y). The percentage of those surveyed who indicated that they thought government was doing a good job was stable at 6% but those who thought a poor job was being done shot up to a record 56% from 43% in April.
The mean expected rate of inflation during the next twelve months surged to 7.0% from 5.7% in April, the highest level since 1981.Has the Behavior of Inflation and Long-Term Inflation Expectations Changed? from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/1q08Clark.pdf">here</a>. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080516e.jpg" width="353">
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
Yesterday&#39;s speech by Fed GovernorFrederic S. Mishkin How Should We Respond to Asset Price Bubbles? can be found <a href="http://www.federalreserve.gov/newsevents/speech/mishkin20080515a.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">May (Prelim.)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>59.5</td>
<td>62.6</td>
<td>&nbsp;69.5</td>
<td>-32.6% </td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>71.7</td>
<td>77.0</td>
<td>84.2</td>
<td>-31.8%</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>51.7</td>
<td>53.3</td>
<td>60.1</td>
<td>-33.4%</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The preliminary May reading of consumer sentiment from the University of Michigan fell another 5.0% m/m to a level of 59.5. The decline was larger than Consensus expectations for a reading of 62.0. The latest level was the lowest [...]

Michigan Consumer Sentiment Lowest Since 1980

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080516c.jpg" align="left" border="0" height="265" width="353">
European exports fell across the board in March as imports
were steady. This plunged the trade balance back into deficit.
Sequential growth rates are still upbeat with exports accelerating over
12-mo to 6-mo to 3-mo. But imports are accelerating even faster on this
sequence. Over a broader swath of time the Yr/Yr trends show that
imports are outpacing exports and that import growth has been firmer
while export growth is fading (see chart). Indeed, there is no reason
to believe the message in the short-term sequential growth rates since
the euro keeps climbing and undermining export growth prospects. Also
growth surveys in Europe are getting progressively weaker. We did get a
surprise pop in GDP growth in 2008-Q1 &#8211; but would you want to take that
one to the bank? 
 

Euro- Japan growth figures are less prone to adjust for the
extra leap day that we had in the first quarter. Moreover, GDP&#8217;s
&#8216;resilience only implies that the effects of the slowdown are being
gradually phased in. Weakness in orders and in consumer confidence will
lead to weaker economic growth overall in Europe. Sometimes the lag
between what the surveys predict and what happens is longer than
expected, but the survey message is clear and so widespread it is
unlikely to be wrong. 
 

While Germany&#8217;s DIW has hiked its growth outlook for German
growth in Q2, maybe it should be cutting it instead... Often unexpected
strong growth turns out to have borrowed growth from subsequent
quarters. One thing it does is to RAISE the level of spending to a
point that if spending goes back to trend a downside growth number will
emerge in the next quarter &#8211; that&#8217;s the arithmetic of it. In the case
of Germany and Europe I think that sort of a setback &#8211; or something
even more dramatic-- is a likely outcome in 2008-Q2. 


<table border="0" cellspacing="0" width="100%">
</table>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Euro Area 13-Trade trends for goods </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>12-Mo Ago</td>
</tr>
<tr class="grey4">
<td class="firstcol">Balance*</td>
<td>&#8364;&#8364; (2,382)</td>
<td>&#8364;&#8364; 1,567</td>
<td>&#8364;&#8364; (714)</td>
<td>&#8364;&#8364; (236)</td>
<td>&#8364;&#8364; 1,144</td>
<td>&#8364;&#8364; 50</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="7">Exports</td>
</tr>
<tr class="grey1">
<td class="firstcol">All Exports</td>
<td>-2.9%</td>
<td>0.6%</td>
<td>18.2%</td>
<td>3.2%</td>
<td>4.6%</td>
<td>9.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food and Drinks</td>
<td>-1.4%</td>
<td>0.6%</td>
<td>10.9%</td>
<td>4.2%</td>
<td>7.4%</td>
<td>9.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Raw materials</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>35.4%</td>
<td>10.0%</td>
<td>8.4%</td>
<td>11.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other</td>
<td>-3.1%</td>
<td>0.6%</td>
<td>18.3%</td>
<td>3.0%</td>
<td>4.3%</td>
<td>9.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">MFG</td>
<td>-4.8%</td>
<td>1.4%</td>
<td>11.9%</td>
<td>-4.8%</td>
<td>-0.1%</td>
<td>11.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="7">Imports</td>
</tr>
<tr class="grey1">
<td class="firstcol">All Imports</td>
<td>0.0%</td>
<td>-1.5%</td>
<td>20.3%</td>
<td>12.2%</td>
<td>11.6%</td>
<td>2.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food and Drinks</td>
<td>-3.3%</td>
<td>-2.0%</td>
<td>-11.7%</td>
<td>-6.3%</td>
<td>7.0%</td>
<td>7.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Raw materials</td>
<td>0.4%</td>
<td>0.6%</td>
<td>10.5%</td>
<td>6.2%</td>
<td>5.2%</td>
<td>14.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other</td>
<td>0.2%</td>
<td>-1.6%</td>
<td>23.1%</td>
<td>13.7%</td>
<td>12.2%</td>
<td>1.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">MFG</td>
<td>-3.2%</td>
<td>-0.4%</td>
<td>4.0%</td>
<td>-7.6%</td>
<td>-0.9%</td>
<td>9.8%</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">*Eur mlns; mo or period average</td>
</tr>
</tbody>
</table>
</body></html>

European exports fell across the board in March as imports were steady. This plunged the trade balance back into deficit. Sequential growth rates are still upbeat with exports accelerating over 12-mo to 6-mo to 3-mo. But imports are [...]

Export Trends Are Faltering in Europe As Imports Sustain

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080516a.jpg" width="353">
Housing starts rose unexpectedly during April to 1,032,000 units (AR), an increase of 8.2% following the March decline of 13.8% which was deeper than reported initially. The latest figure was firmer than Consensus expectations for 940,000 starts.
All of the rise in starts last month was due to a 36.0% m/m increase in starts of multi-family units. It recovered nearly all of a March decline that was deeper than reported last month.
Single family starts last month fell 1.7% to 692,000 but the March decline of 2.5% was roughly half the drop reported initially. Nevertheless, single family starts in April were at the lowest level since January of 1991. They have fallen 62.0% since their January 2006 peak. Starts began this quarter 4.6% below the 1Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080516b.jpg" width="353">
By region, declines in April starts were spread evenly across the country. In the Northeast single family starts fell 7.2% (-38.5% y/y) to a record low. In the South, single family starts fell 6.6% (-42.9% y/y) to the lowest level since 1991 but in the West single family starts reversed the March decline. Starts rose 8.3% (-43.3% y/y) although they remained down by nearly two-thirds from the August 2005 peak. In the Midwest single family starts rose 5.0% (-40.1% y/y) and they were down 71.0% from the February 2005 peak.
Building permits reversed the March decline. The total rose 4.9% paced by a 4.0% (-40.1% y/y) increase in single-family permits.
Boom and Gloom in the Housing Markets: The Sequel from the Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20080501/cover.pdf">here</a>.
The Federal Response to Home Mortgage Distress: Lessons from the Great Depression, also from the Federal Reserve Bank of St. Louis, is available <a href="http://research.stlouisfed.org/publications/review/08/05/Wheelock.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/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,032</td>
<td>954</td>
<td>-30.6%</td>
<td>1,344</td>
<td>1,812</td>
<td>2,073</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family</td>
<td>692</td>
<td>704</td>
<td>-42.2%</td>
<td>1,039</td>
<td>1,474</td>
<td>1,719</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-Family</td>
<td>340</td>
<td>250</td>
<td>17.6%</td>
<td>304</td>
<td>338</td>
<td>354</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>978</td>
<td>932</td>
<td>-34.3%</td>
<td>1,371</td>
<td>1,842</td>
<td>2,159</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts rose unexpectedly during April to 1,032,000 units (AR), an increase of 8.2% following the March decline of 13.8% which was deeper than reported initially. The latest figure was firmer than Consensus expectations for [...]

U.S. Housing Starts April Rise Due to Multi-Family, Single-Family at 27 Year Low

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

U.S. Light Vehicle Sales Rebound in July

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

Michael J. Moran

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

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

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

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

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

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

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

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

U.S. Construction: Sluggish in June

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

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

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

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

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

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

Economy in Brief: May 2008

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Inflation in Germany: Real Wages and Unit Labor Costs

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U.S. Housing Starts April Rise Due to Multi-Family, Single-Family at 27 Year Low

U.S. Housing Starts April Rise Due to Multi-Family, Single-Family at 27 Year Low