Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716e.jpg" width="353">
The Central Bank of the Philippines announced today that the &quot;overall balance of payments&quot; for June amounted to $834 million, $169 million above May and $602 million above June of last year. The overall balance of payments is defined by the Bank as equal to the change in reserve assets less the change in reserve liabilities.
Because of the identity underlying the balance of payments concept, the change in reserves is shown with its sign reversed in the balance of payments table. Thus in the Balance of Payments Table in the PHILIPPINE@EMERGEPR data base, the Change in Reserves has the opposite sign of the Overall Balance of Payments, as shown in the first chart. The Overall Balance is equal to the sum of the Current Account, the Capital and Financial Account and the Net Unclassified Items (Errors and Omissions). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716f.jpg" width="353">
The Philippines balance on current account has shown a surplus, more often than not, since mid 2001. The improvement in the current account has been due mostly to remittances from citizens working abroad. The balance on trade in goods and services continues to be negative. The second chart shows the quarterly balance on current account together with the balance on trade in goods and services and the balance on transfers (largely workers&#39; remittances). These data are available only through the first quarter of 2007. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PHILIPPINE BALANCE OF PAYMENTS&nbsp; (Millions U. S. $)</th>
<th scope="col">Q1 07</th>
<th scope="col">Q4 07&nbsp;</th>
<th scope="col">Q1 06&nbsp;</th>
<th scope="col">Q/Q Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>1823</td>
<td>1676</td>
<td>1153</td>
<td>147</td>
<td>670</td>
<td>5022</td>
<td>1955</td>
<td>1628</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital and Financial Account</td>
<td>154</td>
<td>-825</td>
<td>1427</td>
<td>974</td>
<td>-1185</td>
<td>-1722</td>
<td>1661</td>
<td>-1630</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Unclassified Items</td>
<td>-559</td>
<td>297</td>
<td>-459</td>
<td>-856</td>
<td>-100</td>
<td>469</td>
<td>-1206</td>
<td>-278</td>
</tr>
<tr class="odd">
<td class="firstcol"> Overall Balance of Payments=Sum of above </td>
<td>1418</td>
<td>1150</td>
<td>2121</td>
<td>268</td>
<td>-703</td>
<td>3769</td>
<td>2410</td>
<td>-280</td>
</tr>
<tr class="odd">
<td class="firstcol">Change in Reserves</td>
<td>-1418</td>
<td>-1150</td>
<td>-2121</td>
<td>-268</td>
<td>703</td>
<td>-3769</td>
<td>-2410</td>
<td>280</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>1823</td>
<td>1676</td>
<td>1153</td>
<td>147</td>
<td>670</td>
<td>5022</td>
<td>1955</td>
<td>1628</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods and Services Balance</td>
<td>-1229</td>
<td>-2147</td>
<td>-1532</td>
<td>848</td>
<td>237</td>
<td>-7624</td>
<td>-9192</td>
<td>-7461</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Transfer Balance</td>
<td>3445</td>
<td>3747</td>
<td>2911</td>
<td>-302</td>
<td>534</td>
<td>13189</td>
<td>11391</td>
<td>9160</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jun 07</td>
<td>May&nbsp; 07&nbsp;</td>
<td>Jun&nbsp; 06&nbsp;</td>
<td>M/M Chg&nbsp;</td>
<td>Y/Y Chg&nbsp;</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall Balance of Payments</td>
<td>834</td>
<td>665</td>
<td>232</td>
<td>169</td>
<td>602</td>
<td>3769</td>
<td>2410</td>
<td>-280</td>
</tr>
<tr class="odd">
<td class="firstcol">Change in Reserves</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
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The Central Bank of the Philippines announced today that the "overall balance of payments" for June amounted to $834 million, $169 million above May and $602 million above June of last year. The overall balance of payments is defined [...]

Favorable Trends in the Philippine Balance of Payments

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716d.jpg" width="353">
After deceleration through April, total business inventories in May rose 0.5% following a 0.4% increase the month prior. The increases were sufficient to raise the three month growth rates. Consensus expectations had been for a 0.3% one month rise.
Three month average growth in business inventories rose to 0.8%, its highest since last October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716c.jpg" width="353">
Business sales jumped 1.3% (4.0% y/y). Wholesale sales led the gain with a 1.3% (8.7%y/y) jump and retail sales surged 1.6% (4.9% y/y) for May. Factory shipments rose 1.0% for the second month. 
Due to the strong sales gain in May, the inventory to sales ratio fell to its lowest level since last August. 
Retail inventories rose 0.6%, double the rise in April. General merchandise inventories halved their April rise with a 0.4% (6.6% y/y) but clothing store inventories surged 0.7% (8.1% y/y) after a 0.2% April decline. Furniture inventories fell 0.7% (-0.2% y/y) after no change during April. Auto inventories fell for the fourth straight month. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.0%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.6%</td>
<td>0.3%</td>
<td>1.6%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>6.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.7%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.5%</td>
<td>0.3%</td>
<td>6.7%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>9.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>6.4%</td>
<td>7.9%</td>
<td>7.7%</td>
</tr>
</tbody>
</table>


</html>

After deceleration through April, total business inventories in May rose 0.5% following a 0.4% increase the month prior. The increases were sufficient to raise the three month growth rates. Consensus expectations had been for a 0.3% [...]

U.S. Inventory Accumulation Showed Some Life

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716a.jpg" width="353">
 The July index of manufacturing activity in New York State added slightly to the improvement in June. The Index of General Business Conditions rose 0.71 points on top of its 17.72 jump during June. Consensus expectations for the Empire State index had been for a decline to a reading of 18.0. The figures are reported by the Federal Reserve Bank of New York.
Since the series&#39; inception in 2001 there has been a 75% correlation between the index level and the three month change in U.S. factory sector industrial production.
The index for new orders improved slightly and the index for employment jumped. Conversely, the shipments index fell considerably as did inventories and the index &amp; delivery times, each into negative territory.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716b.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
Pricing pressure also fell considerably with the prices paid index and the prices received index falling into negative territory. Since 2001 there has been an 88% correlation between the index of prices paid and the three month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months improved. The index of expected new orders led the gain to the highest level in over a year.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July. &#39;06 </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>26.46</td>
<td>25.75</td>
<td>20.33</td>
<td>20.33</td>
<td>15.62</td>
<td>28.70</td>
</tr>
</tbody>
</table>


</html>

The July index of manufacturing activity in New York State added slightly to the improvement in June. The Index of General Business Conditions rose 0.71 points on top of its 17.72 jump during June. Consensus expectations for the [...]

Empire State Index Adds To June Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716a.jpg" width="353">
 The July index of manufacturing activity in New York State added slightly to the improvement in June. The Index of General Business Conditions rose 0.71 points on top of its 17.72 jump during June. Consensus expectations for the Empire State index had been for a decline to a reading of 18.0. The figures are reported by the Federal Reserve Bank of New York.
Since the series&#39; inception in 2001 there has been a 75% correlation between the index level and the three month change in U.S. factory sector industrial production.
The index for new orders improved slightly and the index for employment jumped. Conversely, the shipments index fell considerably as did inventories and the index &amp; delivery times, each into negative territory.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716b.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
Pricing pressure also fell considerably with the prices paid index and the prices received index falling into negative territory. Since 2001 there has been an 88% correlation between the index of prices paid and the three month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months improved. The index of expected new orders led the gain to the highest level in over a year.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July. &#39;06 </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>26.46</td>
<td>25.75</td>
<td>20.33</td>
<td>20.33</td>
<td>15.62</td>
<td>28.70</td>
</tr>
</tbody>
</table>
U.S. Inventory Accumulation Showed Some Life 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716d.jpg" width="353">
After deceleration through April, total business inventories in May rose 0.5% following a 0.4% increase the month prior. The increases were sufficient to raise the three month growth rates. Consensus expectations had been for a 0.3% one month rise.
Three month average growth in business inventories rose to 0.8%, its highest since last October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716c.jpg" width="353">
Business sales jumped 1.3% (4.0% y/y). Wholesale sales led the gain with a 1.3% (8.7%y/y) jump and retail sales surged 1.6% (4.9% y/y) for May. Factory shipments rose 1.0% for the second month. 
Due to the strong sales gain in May, the inventory to sales ratio fell to its lowest level since last August. 
Retail inventories rose 0.6%, double the rise in April. General merchandise inventories halved their April rise with a 0.4% (6.6% y/y) but clothing store inventories surged 0.7% (8.1% y/y) after a 0.2% April decline. Furniture inventories fell 0.7% (-0.2% y/y) after no change during April. Auto inventories fell for the fourth straight month. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.0%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.6%</td>
<td>0.3%</td>
<td>1.6%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>6.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.7%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.5%</td>
<td>0.3%</td>
<td>6.7%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>9.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>6.4%</td>
<td>7.9%</td>
<td>7.7%</td>
</tr>
</tbody>
</table>
 Favorable Trends in the Philippine Balance of Payments   
by <a href="/comment/Curley.html">Louise Curley</a> July 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716e.jpg" width="353">
The Central Bank of the Philippines announced today that the &quot;overall balance of payments&quot; for June amounted to $834 million, $169 million above May and $602 million above June of last year. The overall balance of payments is defined by the Bank as equal to the change in reserve assets less the change in reserve liabilities.
Because of the identity underlying the balance of payments concept, the change in reserves is shown with its sign reversed in the balance of payments table. Thus in the Balance of Payments Table in the PHILIPPINE@EMERGEPR data base, the Change in Reserves has the opposite sign of the Overall Balance of Payments, as shown in the first chart. The Overall Balance is equal to the sum of the Current Account, the Capital and Financial Account and the Net Unclassified Items (Errors and Omissions). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716f.jpg" width="353">
The Philippines balance on current account has shown a surplus, more often than not, since mid 2001. The improvement in the current account has been due mostly to remittances from citizens working abroad. The balance on trade in goods and services continues to be negative. The second chart shows the quarterly balance on current account together with the balance on trade in goods and services and the balance on transfers (largely workers&#39; remittances). These data are available only through the first quarter of 2007. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PHILIPPINE BALANCE OF PAYMENTS&nbsp; (Millions U. S. $)</th>
<th scope="col">Q1 07</th>
<th scope="col">Q4 07&nbsp;</th>
<th scope="col">Q1 06&nbsp;</th>
<th scope="col">Q/Q Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>1823</td>
<td>1676</td>
<td>1153</td>
<td>147</td>
<td>670</td>
<td>5022</td>
<td>1955</td>
<td>1628</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital and Financial Account</td>
<td>154</td>
<td>-825</td>
<td>1427</td>
<td>974</td>
<td>-1185</td>
<td>-1722</td>
<td>1661</td>
<td>-1630</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Unclassified Items</td>
<td>-559</td>
<td>297</td>
<td>-459</td>
<td>-856</td>
<td>-100</td>
<td>469</td>
<td>-1206</td>
<td>-278</td>
</tr>
<tr class="odd">
<td class="firstcol"> Overall Balance of Payments=Sum of above </td>
<td>1418</td>
<td>1150</td>
<td>2121</td>
<td>268</td>
<td>-703</td>
<td>3769</td>
<td>2410</td>
<td>-280</td>
</tr>
<tr class="odd">
<td class="firstcol">Change in Reserves</td>
<td>-1418</td>
<td>-1150</td>
<td>-2121</td>
<td>-268</td>
<td>703</td>
<td>-3769</td>
<td>-2410</td>
<td>280</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>1823</td>
<td>1676</td>
<td>1153</td>
<td>147</td>
<td>670</td>
<td>5022</td>
<td>1955</td>
<td>1628</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods and Services Balance</td>
<td>-1229</td>
<td>-2147</td>
<td>-1532</td>
<td>848</td>
<td>237</td>
<td>-7624</td>
<td>-9192</td>
<td>-7461</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Transfer Balance</td>
<td>3445</td>
<td>3747</td>
<td>2911</td>
<td>-302</td>
<td>534</td>
<td>13189</td>
<td>11391</td>
<td>9160</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jun 07</td>
<td>May&nbsp; 07&nbsp;</td>
<td>Jun&nbsp; 06&nbsp;</td>
<td>M/M Chg&nbsp;</td>
<td>Y/Y Chg&nbsp;</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall Balance of Payments</td>
<td>834</td>
<td>665</td>
<td>232</td>
<td>169</td>
<td>602</td>
<td>3769</td>
<td>2410</td>
<td>-280</td>
</tr>
<tr class="odd">
<td class="firstcol">Change in Reserves</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
HICP Trends Show Pressure 
by <a href="/comment/Brusca.html">Robert Brusca</a> July 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716g.jpg" width="353">
The chart on select core HICP readings violates the rule on how many lines to plot on a graph (sorry). But the clear message is that few of these are trending lower and most are trending up. Among those that have any trend lower, there is usually abysmally high inflation rate anyway (Greece and Spain, for example).
The table below presents the discernable detail on core inflation trends on data that were not available last week. The table shows that inflation is accelerating in too many countries for comfort. In the same table we slice the data into a number of 12-month periods ended in June since that is the most recent observation.
As of June 2007 inflation was accelerating in half of the select 12 EMU members. Over the past year inflation also was higher on a year/year basis in seven countries than it had been in June of 2004. Any way you look at the inflation comparisons there is a hint of inflation. And these data look at core prices excluding the direct effects of food and energy inflation. These four presentations, the chars and the table below, make it clear why the ECB remains wary about inflation forces.
Inflation is simply trending higher into many categories to be ignored and across too many EMU countries to assume that it will go down all by itself. 

<table border="0" cellspacing="0" width="100%">
<tr>
<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716h.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716i.jpg" width="353"> </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area Select Members: Core Inflation Yr/Yr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td>Jun-07</td>
<td>Jun-06</td>
<td>Jun-05</td>
<td>Jun-04</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>1.9%</td>
<td>1.3%</td>
<td>1.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Belgium</td>
<td>1.7%</td>
<td>1.7%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>1.4%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>2.1%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>2.9%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>2.4%</td>
<td>2.1%</td>
<td>1.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>1.8%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Luxembourg</td>
<td>2.3%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">The Netherlands</td>
<td>1.5%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Portugal</td>
<td>2.4%</td>
<td>2.5%</td>
<td>0.2%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>2.4%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">EMU Core HICP</td>
<td>1.9%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>


</html>

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713n.jpg" width="353">
The accompanying charts show those EMU countries for which we have an early read on June inflation. Finland, Belgium and France show rates of change below the 2% mark. Germany, Italy and The Netherlands are also below the 2% ceiling, but by the skin of their teeth. Luxembourg and Spain are over the top.
It is heartening to see that some of the larger countries have the lower rates of inflation. And for most the pattern is clear. An oil price shock cranked up the inflation rates, but afterward those rates have come back down and are for the most part tolerably closer to the ECB&#146;s ceiling.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713o.jpg" width="353">
Still only France has an extended period in which its year/year pace has been consistently well below the ceiling pace of 2%. Finland&#146;s and Belgium&#146;s rates have just fallen into a more comfortable part of the zone recently. The Netherlands rate has recently risen toward the ceiling. While Germany and Italy are technical successes they have no reassuring history for us. Belgium and Luxembourg show no tendency to do better.
So it is quite understandable that the ECB would be wary in such an environment. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends in HICP
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.0%</td>
<td>2.4%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.8%</td>
<td>9.0%</td>
<td>3.2%</td>
<td>1.4%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.4%</td>
<td>2.6%</td>
<td>3.9%</td>
<td>2.6%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.6%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.0%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>3.3%</td>
<td>2.4%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td colspan="2">Core: xFE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.7%</td>
<td>2.5%</td>
<td>3.1%</td>
</tr>
<tr>
<td colspan="4">Blue shaded area data trail by one month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
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The accompanying charts show those EMU countries for which we have an early read on June inflation. Finland, Belgium and France show rates of change below the 2% mark. Germany, Italy and The Netherlands are also below the 2% ceiling, [...]

EMU Inflation Trends Show Success and Reason to be Wary…

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713m.jpg" width="353">
The BOF Outlook index hit a local peak from Mar 07; It is flat in June.
The Bank of France Business report is a comprehensive survey on businesses and their expectations. The table below is a summary of the more extensive report with industry detail. In that report the sentiment index at 108.2 is above its average since January 1987 that stands at 105. However, the index was flat on the month and it had reached its peak in this cycle at 111.89 in March. The index fell sharply from that peak and has stayed in a very tight range over the next three months.
French elections have taken place and the past few months are in the post election period; French consumer confidence has been on an extended rise in the wake of the elections.
As for business, the production outlook at 8.7 is below its average value of 12, although production in the current month at 10.8 is above its average value of 9.
Overall order books are stuffed compared with historic averages. The average for order books is +3 while the June reading is 26.8, the strongest category relative to its average by far. Foreign orders are also above normal at 12.1 compared to an average of 9. New orders are, however, not as robust at a level of 10.9 in June compared to an historic average of 10.
At 85.9, capacity use is above the historic norm of 84. Hiring in the current month at -1.8 is weaker than the monthly average of -1 while the outlook at -3.9 is better than the historic average of -6. 
On balance, the BOF index is better than average. And while many of its component readings are above normal, most are not far above normal and there is some evidence of a loss in momentum.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Bank of France Monthly INDUSTRY Survey:SUMMARY
</tr>
</thead>
<tbody>
<tr class="grey4">
<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="grey4">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="grey3">
<td colspan="7">Production-latest month</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>10.77</td>
<td>9.52</td>
<td>6.59</td>
<td>8</td>
<td>9</td>
<td>61.3%</td>
</tr>
<tr class="grey3">
<td colspan="7">Production Outlook</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>8.7</td>
<td>17.66</td>
<td>7.34</td>
<td>9</td>
<td>12</td>
<td>51.1%</td>
</tr>
<tr class="grey3">
<td colspan="7">Demand</td>
</tr>
<tr class="grey4">
<td class="firstcol">Overall order books</td>
<td>26.85</td>
<td>29.77</td>
<td>30.57</td>
<td>25</td>
<td>3</td>
<td>84.5%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Foreign Orders</td>
<td>12.12</td>
<td>13.35</td>
<td>11.56</td>
<td>13</td>
<td>9</td>
<td>61.2%</td>
</tr>
<tr class="grey3">
<td colspan="7">New Orders</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>10.89</td>
<td>13.11</td>
<td>8.68</td>
<td>11</td>
<td>10</td>
<td>49.4%</td>
</tr>
<tr class="grey3">
<td colspan="7">Stocks: Finished Goods</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>-1.4</td>
<td>-2.68</td>
<td>-5.36</td>
<td>-2</td>
<td>-2</td>
<td>57.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capacity Utilization</td>
<td>85.96</td>
<td>85.72</td>
<td>86.05</td>
<td>85</td>
<td>84</td>
<td>89.0%</td>
</tr>
<tr class="grey3">
<td colspan="7">Hiring</td>
</tr>
<tr class="grey4">
<td class="firstcol">Latest Month</td>
<td>-1.84</td>
<td>2.25</td>
<td>0.36</td>
<td>0</td>
<td>-1</td>
<td>28.4%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Outlook</td>
<td>-3.92</td>
<td>-4.52</td>
<td>-5.28</td>
<td>-4</td>
<td>-6</td>
<td>82.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Industry Sentiment Index</td>
<td>108.21</td>
<td>108.26</td>
<td>108.36</td>
<td>107</td>
<td>105</td>
<td>75.4%</td>
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The BOF Outlook index hit a local peak from Mar 07; It is flat in June. The Bank of France Business report is a comprehensive survey on businesses and their expectations. The table below is a summary of the more extensive report with [...]

Bank of France Business Index is Flat in June

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713i.jpg" width="353">
Gasoline prices turned up slightly in the latest week, ending July 9, but they remain below their May peaks. The latest reading from the Department of Energy (DOE) was $2.981/gallon, up 2.2 cents on the week. At least one reason for the week-to-week increase is the July 4 holiday and the beginning in earnest of the vacation driving season. The same week in 2006 saw $2.973/gallon, so the current level is less than a penny higher. Crude oil prices have also increased from week to week, and they are above their June levels. However, these are below year-ago prices.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713j.jpg" width="353">
These steadier price trends suggest that pressures in the world oil market are diminishing. Indeed, conditions are easing, but relatively so. World product demand appears to have flattened out, with the latest estimate at about 84 million barrel/day through May, according to Oil Market Intelligence. [In Haver&#39;s OMI database; June figures are due out shortly.] This peaked in February at 86.2 mil. b/d. In the last several years, February has been each year&#39;s peak month, with June and August nearly as high. Year-on-year percentage increases are running somewhat slower than they did back in the autumn. So there are hints here that total demand has at least stopped accelerating, but potential increases due to seasonal needs over the summer keep us from a firm conclusion that it has stopped growing altogether.
In the US, total product demand was 20.8 mil b/d in the latest DOE 4-week reading, almost exactly flat with a year ago. Aggregated to monthly averages, these data show an abrupt slowing of demand growth in June after 4 months that ran 2% to as much as 5.6% ahead of a year ago. Gasoline usage, similarly, is still increasing year-to-year, but noticeably less in the last 2 months than earlier this year. [These US product demand data are in OILWKLY; we have used the &quot;Aggregation&quot; feature of DLXVG3 to facilitate the monthly comparisons here.] 

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<td> <img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713k.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713l.jpg" width="353">&nbsp;</td>
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<th scope="col" class="firstcol">&middot;&nbsp;The tightness in these markets can be gauged by the adequacy of inventories.&nbsp; Here again, year-ago comparisons are still unfavorable, but they have been less bad lately than in prior months.&nbsp; The size of US gasoline stocks is down 3.3% in the July 9 week from the 2006 week, but in mid-May, they had been down 5.7% from the year-ago amount.&nbsp; With the less weak inventories and the less strong demand growth, the sector&#39;s version of an &quot;inventory/sales ratio&quot;, the &quot;days&#39; supply&quot; has stopped eroding.&nbsp; Gasoline stocks stood at 21.4 days&#39; worth of gasoline demand last week, the same as the week before.&nbsp; The year-ago figure was 22.2 days; so this inventory measure is down from a year ago, but actually better than in late April, when it sank as low as 20.8 days.&nbsp; That was the lowest days&#39; supply reading in the 16-1/2 years of this series, apart from those impacted by hurricanes in 2003 and 2005.&nbsp; Again, July and August are the most sensitive seasonal periods, so the performance of this measure too in the immediately coming weeks will tell more definitively about the vulnerability of oil and gasoline markets to higher prices. </th>
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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol">Select Oil Market Indicators</th>
<th scope="col">July 9</th>
<th scope="col">July 2</th>
<th scope="col">June</th>
<th scope="col">Year- Ago Week</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gasoline, US Regular Grade (cents/gal)</td>
<td>298.1</td>
<td>295.9</td>
<td>305.6</td>
<td>297.3</td>
<td>257.2</td>
<td>227.0</td>
<td>185.2</td>
</tr>
<tr>
<td class="firstcol">Crude: WTI ($/barrel)</td>
<td>71.79</td>
<td>69.19</td>
<td>66.87</td>
<td>75.30</td>
<td>66.13</td>
<td>56.50</td>
<td>41.33</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude: UK Brent ($/barrel)</td>
<td>72.75</td>
<td>71.69</td>
<td>70.58</td>
<td>73.80</td>
<td>65.19</td>
<td>54.58</td>
<td>38.10</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stocks:&nbsp; Days&#39; Supply</td>
<td>21.4</td>
<td>21.4</td>
<td>21.4</td>
<td>22.2</td>
<td>22.7</td>
<td>22.8</td>
<td>23.2</td>
</tr>
</tbody>
</table>
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Gasoline prices turned up slightly in the latest week, ending July 9, but they remain below their May peaks. The latest reading from the Department of Energy (DOE) was $2.981/gallon, up 2.2 cents on the week. At least one reason for [...]

Gasoline Prices Stay Below Peaks; Will July & August Reverse This Improvement?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713g.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment this month jumped 8.3% to 92.4, the highest level since January.The latest contrasted with Consensus expectations for only a reading of 86.
The consumer expectations contributed the most to the rise with a 12.3% surge m/m.Current conditions also rose 3.7% to the highest level since January.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713h.jpg" width="353">
An improved expectation for business conditions during the next year contributed with a 17.0% m/m rise and a better outlook for the next five years contributed with an 18.2% surge.
The view of current personal finances rose 7.3% (7.3% y/y) but the perspective of current buying conditions rose just 1.3% (-1.3% y/y).
The assessment of government policy improved 6.1% (6.1% y/y) after falling sharply during the prior two months.
The University of Michigan survey is not seasonally adjusted.This mid-month survey was based on telephone interviews with about 340 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month-end. 

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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">July (Prelim.)</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.4</td>
<td>85.3</td>
<td>9.1%</td>
<td>87.3</td>
<td>88.6</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>105.7</td>
<td>101.9</td>
<td>2.1%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.9</td>
<td>74.7</td>
<td>15.7%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
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The University of Michigan's preliminary reading of consumer sentiment this month jumped 8.3% to 92.4, the highest level since January.The latest contrasted with Consensus expectations for only a reading of 86. The consumer [...]

Michigan Consumer Sentiment Rebounded

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

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

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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: July 2007

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