Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616e.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector during June from the Philadelphia Fed dipped to 13.1 from an unrevised 14.4 during May. The decline was less than the Consensus expectation for a drop to 11.5.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
The index reflected declines in the sub indexes of delivery time and inventories. New orders and shipments recovered all or most of the sharp declines in May while employment recovered moderately. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616f.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index gave back a piece of the May surge but remained quite elevated . During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell sharply to its lowest level since January of 2001 although expectations for employment improved.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0606.html">here</a>.
The Effects of Globalization on Inflation and Their Implications for Monetary Policy is yesterday&#39;s speech by Federal Reserve Board Governor Donald L. Kohn and it is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060616/default.htm">here</a>l

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>13.1</td>
<td>14.4</td>
<td>0.0</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>48.7</td>
<td>55.3</td>
<td>28.2</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
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</table>
</body>
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The Index of General Business Conditions in the manufacturing sector during June from the Philadelphia Fed dipped to 13.1 from an unrevised 14.4 during May. The decline was less than the Consensus expectation for a drop to 11.5. [...]

Philadelphia Fed Business Activity Dipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616c.jpg" width="353">
Consumer sentiment early this month improved according to the University of Michigan. The preliminary June index rose to 82.4 from a low 79.1 during May but recovered less than half of that month&#39;s decline. Consensus expectations had been for a further slide to 78.5.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The reading of current economic conditions recovered more than half of the May decline with a 7.3% increase as the index of current personal finances rose 9.8% (-8.2% y/y). The reading of buying conditions for large household goods also recouped half of the May decline with a 5.4% (-9.9% y/y) increase.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616d.jpg" width="353">
Expectations for the economy improved a modest 1.5% after the 7.1% slide during May, bolstered by slightly improved expectations for personal finances and buying conditions during the next year. But long term (5 year) expectations for buying conditions fell a sharp 7.5% (-28.2% y/y) as consumers&#39; opinion about gov&#39;t economic policy cratered another 6.5% m/m (-22.6% y/y) to the lowest level since 1993.
Expected inflation during the next year slipped modestly to 4.6% but the five to ten year expected rate of inflation rose to 3.8%, near the nine year high.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Why Are Yield Curves So Flat and Long Rates So Low Globally? is a speech by Fed Governor Randall S. Kroszner and can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060615/default.htm">here</a>.
The latest Beige Book covering regional economic conditions from the Federal Reserve Board can be found at this <a href="http://www.federalreserve.gov/fomc/beigebook/2006/20060614/default.htm">link</a>.

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<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">June (Prelim.</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Consumer Sentiment</td>
<td>82.4</td>
<td>79.1</td>
<td>-14.2%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>103.1</td>
<td>96.1</td>
<td>-8.9%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>69.2</td>
<td>68.2</td>
<td>-18.6%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
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Consumer sentiment early this month improved according to the University of Michigan. The preliminary June index rose to 82.4 from a low 79.1 during May but recovered less than half of that month's decline. Consensus expectations had [...]

U.S. Consumers Felt a Little Better in Early June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616b.jpg" width="353">
The US current account deficit narrowed last quarter to $208.7B versus a revised record during 4Q &#39;05 of $223.1B. The deficit during 1Q &#39;06 equaled 6.4% of GDP, about stable with 6.3% for all of last year .
Consensus expectations had been for a 1Q deficit of $222.0B. Much of the surprise was narrowing of the unilateral transfers deficit to $19.9B from $26.2B during 4Q &#39;05.
The deficit in merchandise trade improved to $208B from the record $212.5B in 4Q which was little revised. Exports jumped another 5.0% (14.2% y/y) while imports grew just 1.6% (13.8% y/y).
The surplus in services trade fell slightly to $17.2B from an upwardly revised $17.7B surplus during 4Q. Exports of services grew 1.9% (8.4% y/y) while imports grew 3.0% (7.3% y/y), the strongest quarterly growth since 4Q &#39;04.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616a.jpg" width="353">
From the capital account, net US foreign direct investment abroad fell sharply to $61.8B, its weakest since 4Q &#39;04. Foreign direct investment in the US, however, rose to $33.3B (9.0% y/y).
Energy and the Economy, yesterday&#39;s speech by Fed Chairman Ben S. Bernanke, is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200606152/default.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">1Q 06</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Current Account Deficit</td>
<td>$208.7</td>
<td>$223.1B</td>
<td>$191.7B (1Q05)</td>
<td>$791.5B</td>
<td>$665.3B</td>
<td>$527.5B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$188.8</td>
<td>$196.9B</td>
<td>$164.5B</td>
<td>$705.4B</td>
<td>$583.7B</td>
<td>$458.3B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>5.0%</td>
<td>4.4%</td>
<td>16.9%</td>
<td>14.6%</td>
<td>15.7%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>2.3%</td>
<td>6.9%</td>
<td>16.3%</td>
<td>16.3%</td>
<td>18.7%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$19.9B</td>
<td>$26.2B</td>
<td>$27.2B</td>
<td>$86.1B</td>
<td>$81.6B</td>
<td>$69.2B</td>
</tr>
</tbody>
</table>
</body>
</html>

The US current account deficit narrowed last quarter to $208.7B versus a revised record during 4Q '05 of $223.1B. The deficit during 1Q '06 equaled 6.4% of GDP, about stable with 6.3% for all of last year . Consensus expectations had [...]

U.S. Current Account Deficit Narrowed Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616b.jpg" width="353">
The US current account deficit narrowed last quarter to $208.7B versus a revised record during 4Q &#39;05 of $223.1B. The deficit during 1Q &#39;06 equaled 6.4% of GDP, about stable with 6.3% for all of last year .
Consensus expectations had been for a 1Q deficit of $222.0B. Much of the surprise was narrowing of the unilateral transfers deficit to $19.9B from $26.2B during 4Q &#39;05.
The deficit in merchandise trade improved to $208B from the record $212.5B in 4Q which was little revised. Exports jumped another 5.0% (14.2% y/y) while imports grew just 1.6% (13.8% y/y).
The surplus in services trade fell slightly to $17.2B from an upwardly revised $17.7B surplus during 4Q. Exports of services grew 1.9% (8.4% y/y) while imports grew 3.0% (7.3% y/y), the strongest quarterly growth since 4Q &#39;04.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616a.jpg" width="353">
From the capital account, net US foreign direct investment abroad fell sharply to $61.8B, its weakest since 4Q &#39;04. Foreign direct investment in the US, however, rose to $33.3B (9.0% y/y).
Energy and the Economy, yesterday&#39;s speech by Fed Chairman Ben S. Bernanke, is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200606152/default.htm">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/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">1Q 06</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Deficit</td>
<td>$208.7</td>
<td>$223.1B</td>
<td>$191.7B (1Q05)</td>
<td>$791.5B</td>
<td>$665.3B</td>
<td>$527.5B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$188.8</td>
<td>$196.9B</td>
<td>$164.5B</td>
<td>$705.4B</td>
<td>$583.7B</td>
<td>$458.3B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>5.0%</td>
<td>4.4%</td>
<td>16.9%</td>
<td>14.6%</td>
<td>15.7%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>2.3%</td>
<td>6.9%</td>
<td>16.3%</td>
<td>16.3%</td>
<td>18.7%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$19.9B</td>
<td>$26.2B</td>
<td>$27.2B</td>
<td>$86.1B</td>
<td>$81.6B</td>
<td>$69.2B</td>
</tr>
</tbody>
</table>
U.S. Consumers Felt a Little Better in Early June 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616c.jpg" width="353">
Consumer sentiment early this month improved according to the University of Michigan. The preliminary June index rose to 82.4 from a low 79.1 during May but recovered less than half of that month&#39;s decline. Consensus expectations had been for a further slide to 78.5.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The reading of current economic conditions recovered more than half of the May decline with a 7.3% increase as the index of current personal finances rose 9.8% (-8.2% y/y). The reading of buying conditions for large household goods also recouped half of the May decline with a 5.4% (-9.9% y/y) increase.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616d.jpg" width="353">
Expectations for the economy improved a modest 1.5% after the 7.1% slide during May, bolstered by slightly improved expectations for personal finances and buying conditions during the next year. But long term (5 year) expectations for buying conditions fell a sharp 7.5% (-28.2% y/y) as consumers&#39; opinion about gov&#39;t economic policy cratered another 6.5% m/m (-22.6% y/y) to the lowest level since 1993.
Expected inflation during the next year slipped modestly to 4.6% but the five to ten year expected rate of inflation rose to 3.8%, near the nine year high.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Why Are Yield Curves So Flat and Long Rates So Low Globally? is a speech by Fed Governor Randall S. Kroszner and can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060615/default.htm">here</a>.
The latest Beige Book covering regional economic conditions from the Federal Reserve Board can be found at this <a href="http://www.federalreserve.gov/fomc/beigebook/2006/20060614/default.htm">link</a>.

<table border="0" cellspacing="0" width="100%">
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<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">June (Prelim.</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>82.4</td>
<td>79.1</td>
<td>-14.2%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>103.1</td>
<td>96.1</td>
<td>-8.9%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>69.2</td>
<td>68.2</td>
<td>-18.6%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Philadelphia Fed Business Activity Dipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616e.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector during June from the Philadelphia Fed dipped to 13.1 from an unrevised 14.4 during May. The decline was less than the Consensus expectation for a drop to 11.5.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
The index reflected declines in the sub indexes of delivery time and inventories. New orders and shipments recovered all or most of the sharp declines in May while employment recovered moderately. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060616f.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index gave back a piece of the May surge but remained quite elevated . During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell sharply to its lowest level since January of 2001 although expectations for employment improved.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0606.html">here</a>.
The Effects of Globalization on Inflation and Their Implications for Monetary Policy is yesterday&#39;s speech by Federal Reserve Board Governor Donald L. Kohn and it is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060616/default.htm">here</a>l

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>13.1</td>
<td>14.4</td>
<td>0.0</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>48.7</td>
<td>55.3</td>
<td>28.2</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060614d.jpg" width="353">
The total number of mortgage applications rose 7.0% last week and recovered most of the prior three weeks&#39; declines. Nevertheless, applications in early June remained 1.4% below the May average which fell 2.2% from April.
Applications to refinance surged 10.6% following several weeks of decline. Therefore, refis in June were still 2.6% below the May average which fell 4.1% from April.
Purchase applications rose 4.8% following stability w/w the prior period. In early June purchase applications were 0.9% below the May average which fell 0.8% versus April.
During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage was stable w/w at 6.83%. Rates began June about even with the May average of 6.86% but were up sharply from the 5.81% low last June. The rate on 15-year financing rose to 6.55% from 6.52% the prior week. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Alternative Mortgages from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/alternative.pdf"> here</a>.

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/09/06</th>
<th scope="col">06/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>571.9</td>
<td>534.4</td>
<td>-35.5%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>414.6</td>
<td>395.6</td>
<td>-21.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,499.4</td>
<td>1,356.0</td>
<td>-49.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications rose 7.0% last week and recovered most of the prior three weeks' declines. Nevertheless, applications in early June remained 1.4% below the May average which fell 2.2% from April. Applications [...]

Mortgage Applications Recovered Last Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060614b.jpg" width="353">
Consumer prices (CPI-U) rose 0.4% last month and matched Consensus expectations. The 0.3% rise in prices less food &amp; energy, however, was firmer than expectations for a 0.2% gain.
While slight, the upside surprise in the measure of &quot;core&quot; price inflation does indicate a renewed up trend in the rate of price increase.
Core goods prices rose 0.1% for the second month, but those two gains followed a 0.3% increase in March. Whether this is normal volatility (core goods prices declined 0.1% in February) or an uptrend emerging will be more evident with the release of the June price data.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060614a.jpg" width="353">
Apparel prices rose 0.2% (0.0% y/y) in May following m/m gains of 0.6% and 1.0%. Household appliance prices rose 0.2% (1.3% y/y) and furniture prices rose 0.2% (0.4% y/y), the second m/m increase after three consecutive months of decline. New &amp; used motor vehicle prices were unchanged (0.1% y/y) and tobacco prices fell 0.1% +3.9% y/y), the second consecutive down month. Medical care commodity prices rose 0.4% (4.3% y/y) for the fourth month in the last five.
Core services prices rose 0.4% during May, an uptick after three consecutive months of 0.3% increase. The acceleration was due to a 1.0% (5.1% y/y) jump in public transportation costs. Shelter prices also increased a more rapid 0.4% (3.3% y/y) after a 0.3% rise during April, an increase that very much reflected a 0.6% (3.3% y/y) jump in the rental equivalence measure of owners&#39; primary residences. In addition, a 3.3% y/y gain in rents is an acceleration from the low of 2.5% in early 2004. Finally, education costs rose 0.5% (6.0% y/y) for the third consecutive month and medical care services prices rose 0.3% (4.1% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060614c.jpg" width="353">
A 4.9% m/m jump in gasoline prices (33.3% y/y) caused energy prices to surge another 2.4% though in June gas prices have leveled at an average $2.90 per gallon. Natural gas &amp; electricity prices fell 0.6% (+12.7% y/y), the fifth decline in the last six months.
Food prices rose 0.2%. Meat, fish &amp; poultry prices fell 0.5% (-0.1% y/y).
The chained CPI, which adjusts for shifts in the mix of consumer purchases halved the prior month&#39;s increase and rose 0.3%. Less food &amp; energy the increase in prices also decelerated to just 0.1%.
Borrowing by U.S. Households from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/annual_report/2005/pdf/ar.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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.6%</td>
<td>4.1%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.3%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>2.4%</td>
<td>3.9%</td>
<td>23.3%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.9%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.3%</td>
<td>0.6%</td>
<td>3.4%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer prices (CPI-U) rose 0.4% last month and matched Consensus expectations. The 0.3% rise in prices less food & energy, however, was firmer than expectations for a 0.2% gain. While slight, the upside surprise in the measure of [...]

CPI Rising More Quickly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060614b.jpg" width="353">
Consumer prices (CPI-U) rose 0.4% last month and matched Consensus expectations. The 0.3% rise in prices less food &amp; energy, however, was firmer than expectations for a 0.2% gain.
While slight, the upside surprise in the measure of &quot;core&quot; price inflation does indicate a renewed up trend in the rate of price increase.
Core goods prices rose 0.1% for the second month, but those two gains followed a 0.3% increase in March. Whether this is normal volatility (core goods prices declined 0.1% in February) or an uptrend emerging will be more evident with the release of the June price data.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060614a.jpg" width="353">
Apparel prices rose 0.2% (0.0% y/y) in May following m/m gains of 0.6% and 1.0%. Household appliance prices rose 0.2% (1.3% y/y) and furniture prices rose 0.2% (0.4% y/y), the second m/m increase after three consecutive months of decline. New &amp; used motor vehicle prices were unchanged (0.1% y/y) and tobacco prices fell 0.1% +3.9% y/y), the second consecutive down month. Medical care commodity prices rose 0.4% (4.3% y/y) for the fourth month in the last five.
Core services prices rose 0.4% during May, an uptick after three consecutive months of 0.3% increase. The acceleration was due to a 1.0% (5.1% y/y) jump in public transportation costs. Shelter prices also increased a more rapid 0.4% (3.3% y/y) after a 0.3% rise during April, an increase that very much reflected a 0.6% (3.3% y/y) jump in the rental equivalence measure of owners&#39; primary residences. In addition, a 3.3% y/y gain in rents is an acceleration from the low of 2.5% in early 2004. Finally, education costs rose 0.5% (6.0% y/y) for the third consecutive month and medical care services prices rose 0.3% (4.1% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060614c.jpg" width="353">
A 4.9% m/m jump in gasoline prices (33.3% y/y) caused energy prices to surge another 2.4% though in June gas prices have leveled at an average $2.90 per gallon. Natural gas &amp; electricity prices fell 0.6% (+12.7% y/y), the fifth decline in the last six months.
Food prices rose 0.2%. Meat, fish &amp; poultry prices fell 0.5% (-0.1% y/y).
The chained CPI, which adjusts for shifts in the mix of consumer purchases halved the prior month&#39;s increase and rose 0.3%. Less food &amp; energy the increase in prices also decelerated to just 0.1%.
Borrowing by U.S. Households from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/annual_report/2005/pdf/ar.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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.6%</td>
<td>4.1%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.3%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>2.4%</td>
<td>3.9%</td>
<td>23.3%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.9%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.3%</td>
<td>0.6%</td>
<td>3.4%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Mortgage Applications Recovered Last Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060614d.jpg" width="353">
The total number of mortgage applications rose 7.0% last week and recovered most of the prior three weeks&#39; declines. Nevertheless, applications in early June remained 1.4% below the May average which fell 2.2% from April.
Applications to refinance surged 10.6% following several weeks of decline. Therefore, refis in June were still 2.6% below the May average which fell 4.1% from April.
Purchase applications rose 4.8% following stability w/w the prior period. In early June purchase applications were 0.9% below the May average which fell 0.8% versus April.
During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage was stable w/w at 6.83%. Rates began June about even with the May average of 6.86% but were up sharply from the 5.81% low last June. The rate on 15-year financing rose to 6.55% from 6.52% the prior week. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Alternative Mortgages from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/alternative.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/09/06</th>
<th scope="col">06/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>571.9</td>
<td>534.4</td>
<td>-35.5%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>414.6</td>
<td>395.6</td>
<td>-21.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,499.4</td>
<td>1,356.0</td>
<td>-49.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060613h.jpg" width="353">
Two recent indicators of confidence in Germany show a mixed picture. Yesterday, the German Chamber of Commerce reported that a June survey of industrialists in some 25,000 companies showed that the balance of those expecting improvement in the outlook over those expecting worsening conditions rose to 21% from 16% in the February survey. There was an even greater increase from 11% to 18% in the industrialists appraisal of current conditions. The first chart shows the DIHK&#39;s (Deutscher Industrie und Handelskammertag) measures of confidence in the current situation and expectations for the future. (Since the surveys are conducted in only three months, February, June and October, we have interpolated the data in the chart.)<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060613i.jpg" width="353">
While industrialist remain positive about the prospects for the economy, the financial community in Germany is becoming increasingly concerned. The ZEW Center for European Economic Research announced today that its measure of confidence in the outlook, which polls some 350 institutional investors and analysts, dropped to 37.8% in June from 50.0% in May. The measure, which is the balance of optimists over pessimists, has been declining in each month since a recent peak of 71.0% was reached in January and it is the lowest value since July 2005. At the same time that fears over the outlook have risen, these investors continue to acknowledge that current conditions are improving. The second chart shows the balances of optimists over pessimists viewing the current situation and the outlook.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060613j.jpg" width="353">
Perhaps the main reason for the loss of confidence among the financial community is the fear that further increases in interest rates may be necessary to counteract inflation. Already this fear has resulted in sharp declines in world stock markets. From May 8 to June 12, world stock prices as measured by MSCI (Morgan Stanley Capital International) fell by almost 10%. Stock prices in Germany fell by an even greater amount--14.5%. The third chart compares the MSCI indexes of world stock prices and those of Germany. (We have indexed both series to a common base--12/98=100).

<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/GERMANY/@D8/@D8.HTM">Germany</a></th>
<th scope="col">Jun 06</th>
<th scope="col">May 06</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 06 </th>
<th scope="col">Feb 06</th>
<th scope="col">Jan 06</th>
<th scope="col">Oct 05&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">DIHK Current Conditions&nbsp;</td>
<td>18</td>
<td></td>
<td></td>
<td></td>
<td>11</td>
<td></td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">DIHK&nbsp; Expectations</td>
<td>21</td>
<td></td>
<td></td>
<td></td>
<td>16</td>
<td></td>
<td>3</td>
</tr>
<tr class="odd">
<td class="firstcol">ZEW Current Conditions</td>
<td>11.9</td>
<td>8.7</td>
<td>2.9</td>
<td>-8.4</td>
<td>-19.5</td>
<td>-31.6</td>
<td></td>
</tr>
<tr>
<td class="firstcol">ZEW Expectations</td>
<td>37.8</td>
<td>50.0</td>
<td>62.7</td>
<td>63.4</td>
<td>69.8</td>
<td>71.0</td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Jun 12</td>
<td>May 8</td>
<td>Pct Chg</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">MSCI World Stock Price (12/31/98=100)</td>
<td>1269.595</td>
<td>1406.276</td>
<td>9.72</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">MSCI German Stock Price (12/31/69=100)&nbsp;</td>
<td>1482.815</td>
<td>1734.694</td>
<td>14.52</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
</html>

Two recent indicators of confidence in Germany show a mixed picture. Yesterday, the German Chamber of Commerce reported that a June survey of industrialists in some 25,000 companies showed that the balance of those expecting [...]

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Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

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**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

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**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

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**The US economy’s structural outperformance and the dollar**
A second dynamic, captured in the next chart, reveals a tight correlation between the US real effective exchange rate and the potential GDP growth differential between the US and euro area over the past 50-60 years. This raises the question: has dollar strength (until recently) merely been a reflection of US growth leadership—or are capital inflows themselves helping to sustain this growth outperformance? In effect, the tail may be wagging the dog. Global investors have long allocated capital to the US, attracted by its macroeconomic resilience, technological leadership, and deep, liquid financial markets. The danger now is that the US trade war may disrupt this equilibrium. A sharp or sustained reduction in capital inflows could undermine growth, weaken the dollar, and trigger broader financial instability. Moreover, reversing this dynamic is not straightforward—barring a credible structural resurgence in European (or Asian) growth, the global investment landscape remains tilted toward the US.

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**US competitiveness versus Europe, China and Japan** 
The next chart below examines relative unit labour costs across major economies since 2011. The US and China have seen a broadly similar trajectory, with steady increases in relative cost structures, while the euro area has remained flat and Japan has seen dramatic improvement. This suggests that, from a cost competitiveness standpoint, the US is not uniquely disadvantaged vis-à-vis China. However, as we discuss further below, this parallel erosion of cost competitiveness is occurring at much higher nominal wage levels in the US, which blunts its ability to regain export share through tariff-related shifts alone. The trade war strategy—absent a corresponding improvement in productivity or structural reforms—risks imposing costs without delivering material competitiveness gains.

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**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

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Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.

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Charts of the Week: Tariff Truce, Tenuous Trust

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U.S. light vehicle sales dropped 2.9% (+6.5% y/y) to 17.31 million units (SAAR) in April after surging 10.8% to 17.82 million units in March. The retreat in April vehicle sales accompanied a 1.7% y/y rise in real disposable income through March, which compared to 2.0% growth last year.

Sales declines were broad-based last month. Light truck sales fell 1.3% (+9.9% y/y) during April to 14.34 million units (SAAR), after rising 12.4% in March. Purchases of domestically-made light trucks declined 1.2% (+11.9% y/y) to 11.02 million units, after jumping 12.5% in March. Sales of imported light trucks fell 1.8% (+4.4% y/y) to 3.32 million units, following an 11.6% March surge.

Trucks’ record 82.8% share of the light vehicle market last month compared to 81.5% in March and 80.3% in April of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales also declined last month, down 9.5% (-7.5%) to 2.97 million units (SAAR) following a 3.5% March rise. The decline reversed all of the increase over the prior two months. Purchases of domestically-produced cars fell 9.8% (-4.3% y/y) last month to 2.22 million units, after rising 3.8% in March. Sales of imported autos declined 9.6% (-15.7% y/y) to 0.75 million units, following a 2.5% March increase.

Imports' 23.5% share of the U.S. light vehicle market was little changed from 23.6% in March and compared 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 held steady at 25.3% last month and compared to 27.7% in April of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market eased to 23.2% last month after falling to 23.3% in March.

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

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- Light truck sales pull back, while auto sales tumble.
- Both domestic and imported sales decline.
- Imports' market share slips further.

U.S. Light Vehicle Sales Fall in April

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The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. 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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- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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The value of construction put in place unexpectedly fell 0.5% m/m in March after rises of 0.6% in February (+0.7% initially) and 0.1% in January (-0.5% previously), data from the U.S. Census Bureau showed. The March reading was the first m/m fall following five straight m/m gains. A 0.3% m/m March rise had been expected in the Action Economics Forecast Survey. The year-on-year rate of increase decelerated to 2.8% in March, the lowest since May 2019, after registering at 3.4% in February and January. The latest y/y figure was lower than 8.7% in March 2024; thus, having remained below its recent high of 9.8% in January 2024 and a peak of 18.6% in April 2022.

Private construction slid 0.6% (+2.3% y/y) in March, down for the first time since September, following increases of 0.7% in February (+0.9% initially) and 0.1% in January (-0.7% previously). Residential private construction fell 0.4% (+2.8% y/y) in March, the first m/m fall in six months, after an unrevised 1.3% gain in February. Home improvement building dropped 1.2% (+13.4% y/y), the first m/m decline since December, following a 2.3% February gain; it was 41.1% of the residential private construction. Single-family building edged up 0.1% (-0.8% y/y), the smallest of seven consecutive m/m increases, after a 0.8% February rise; it was 46.6% of the residential private construction. Meanwhile, multi-family building was essentially unchanged m/m (-12.1% y/y) in March following 15 straight m/m decreases; it was 12.3% of the residential private construction.

Nonresidential private construction fell 0.8% (+1.6% y/y) in March after a 0.1% increase in February (+0.4% initially) and a 0.1% easing in January (-0.2% previously). The March fall reflected m/m drops in the following nonresidential private constructions. These included religious (-2.9%; +16.4% y/y), health care (-2.2%; -5.2% y/y), office (-1.8%; +2.7% y/y), educational (-1.7%; -4.2% y/y), lodging (-1.6%; -1.0% y/y), commercial (-1.0%; -5.8% y/y), manufacturing (-0.4%; +3.6% y/y), communication (-0.3%; +2.2% y/y), and utilities (-0.1%; +7.0% y/y). In contrast, private constructions for amusement & recreation (1.5%; 7.0% y/y) and transportation (0.7%; 10.2% y/y) rose m/m in March.

The value of public construction declined 0.2% (+4.7% y/y) in March after holding steady in February (+0.2% initially), reflecting a 0.2% increase (-1.9% y/y) in residential public construction and a 0.2% easing (+4.8% y/y) in nonresidential public construction. The March decline reflected m/m drops in the following nonresidential public constructions. These included utilities (-4.8%; -12.8% y/y), commercial (-1.6%; +40.3% y/y), amusement & recreation (-1.0%; +19.1% y/y), educational (-0.6%; +7.6% y/y), sewage & waste disposal (-0.6%; +10.6% y/y), and health care (-0.4%; +13.0% y/y). Notably, spending on highways & streets, which made up 28.7% of public construction spending, fell 0.5% (-2.4% y/y) in March, the first m/m fall since October, following a 0.9% increase in February. To the upside, the following public constructions rose m/m in March: office (1.6%; 6.0% y/y), transportation (1.4%; 7.3% y/y), public safety (0.7%; 4.1% y/y), conservation & development (0.6%; 4.7% y/y), and water supply (0.6%; 12.2% y/y).

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

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- March construction spending -0.5% m/m; +2.8% y/y, the lowest y/y rate since May ’19.
- Residential private construction -0.4% m/m, led by a 1.2% drop in home improvement building.
- Nonresidential private construction -0.8% m/m, down for the second month in three.
- Public sector construction -0.2% m/m, reflecting a 0.2% decline in nonresidential public building.

U.S. Construction Spending Unexpectedly Drops in March, the First M/M Fall Since September

Carol Stone, CBE

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Initial claims for unemployment insurance rose 18,000 in the week ended April 26 to 241,000, seasonally adjusted.  This is higher by 16,000 than the Action Economics Forecast Survey amount of 225,000 and is the largest amount since the week of February 22. The previous week’s actual count was revised up by 1,000 to 223,000, from 222,000 reported initially.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended April 19 was 1.916 million, up 83,000 from the prior week’s 1.833 million; that earlier amount was revised down by 8,000.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, was 1.3% in the April 19 week, following 1.2% continuously since the week of January 6, 2024.

Economic conditions vary widely across states and territories.  In the week ended April 12, the highest unemployment rates were in New Jersey (2.39%), California (2.24%), Washington (2.19%), Rhode Island (2.17%) and Massachusetts (1.93%).  The lowest rates were in Florida (0.35%), South Dakota (0.40%), Alabama (0.41%), Virginia (0.45%) and Tennessee (0.48%).  Rates in other notable states include the Illinois (1.85%), New York (1.71%), Pennsylvania (1.54%) and Texas (1.09%). 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 U**SECON**. 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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- Actual initial claims amount is 16,000 more than forecast.
- Total beneficiaries rose by 83,000.
- Insured unemployment rate ticked up to 1.3% after 15 months at 1.2%.

Economy in Brief: June 2006

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