Tom Moeller

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U.S. real GDP contracted by 1.4% (SAAR) last quarter following an unrevised 6.9% rise during Q4'21. It was the only quarter of negative growth since the end of the recession in Q2'20. The Action Economics Forecast Survey expected a 1.0% increase.

Deterioration in the foreign trade balance subtracted 3.2 percentage points from growth as exports fell 5.9% (+4.1% y/y) and imports jumped 17.7% (11.7% y/y). Inventory liquidation also reduced growth by 0.8 percentage points.

Growth in final demand to domestic purchasers improved last quarter. The 2.6% rise followed a 1.7% gain in Q4'21 and was the largest of three quarters of modest growth. Personal consumption rose 2.7%. Motor vehicle buying gained 10.4% (-11.7% y/y) and spending on recreational goods & vehicles increased 6.7% (5.9% y/y). Furniture & appliance purchases fell 4.7% (-5.1% y/y). ln the nondurable goods category, apparel spending declined 5.9% (+5.9% y/y) while gasoline expenditures fell 15.0% (+6.9% y/y). In the services area, recreation expenditures rose 5.4% (21.4% y/y) while restaurant & hotel spending rose 4.9% (19.5% y/y). Health care expenditures increased 3.7% (5.6% y/y) while outlays on housing & utilities firmed 2.8% (1.2% y/y).

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In the capital goods sector, spending rose 9.2% but structures investment fell 0.9% (-4.1% y/y). Equipment investment countered that decline and surged 15.4% (6.8% y/y). Investment in computers strengthened 22.4% (9.4% Y/Y) and industrial equipment investment surged 23.8% (18.9% y/y). Transportation equipment investment fell 9.2% (-7.1% y/y). Investment in intellectual property products increased 8.1% (9.6% y/y).

Residential investment rose 2.1% last quarter, equal to the gain in Q4'21. These increases followed two straight quarters of sharp decline.

In the government sector, spending declined 2.7%. Federal government outlays fell 5.9% (-5.2% y/y) as defense spending declined 8.5% (-4.4% y/y). State & local government outlays eased 0.8% (+0.6% y/y).

Pricing power continued to strengthen last quarter. The 8.0% increase in the chain-type price index exceeded expectation for a 7.3% rise. It was the largest since Q3'81 and paced by a 17.8% surge in the cost of residential investment. Overall consumer prices rose 7.0%. The nondurable consumer goods price index rose 14.9% (8.8% y/y) with the surge in gasoline prices. The durable consumer goods price index rose 6.5% (10.9% y/y) and the consumer services price index gained 4.6% both q/q and y/y. Outside of food & energy, the price index increased 5.2% both q/q and y/y. The business investment price index increased 6.8% (4.9% y/y). The government sector price index increased 9.1% (7.2% y/y).

The GDP figures can be found in Haver's **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Int'l trade deficit subtracts near-record from total GDP.
- Inventory decumulation is moderate.
- Domestic demand picks up.

U.S. GDP Declines Unexpectedly in Q1'22

Sandy Batten

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Initial claims for unemployment insurance filed in the week ended April 23 fell by 5,000 to 180,000 (-68.6% y/y) from a slightly upwardly revised 185,000 in the previous week (initially 184,000). The Action Economics Forecast Survey expected 180,000 claims for the latest week. The 4-week moving average of initial claims increased to 179,750 from 177,500 in the prior week.

In the week ended April 16, continued weeks claimed for unemployment insurance fell to 1.408 million from 1.409 million in the previous week (initially reported as 1.417 million). This was the lowest reading since February 7, 1970. The insured unemployment rate retained the record low of 1.0% reached in the prior week.

In the week ended April 9, the number of continued weeks claimed in all unemployment insurance programs continued to fall, declining to 1.516 million from 1.621 in the prior week. This total includes federal employees, newly discharged veterans, extended benefits and other specialized programs and is not seasonally adjusted. Claims in the Pandemic Unemployment Assistance program and Pandemic Emergency Unemployment Compensation are no longer included in the main Labor Department press release, since both programs have expired.

The state insured rates of unemployment in regular programs vary widely. The highest insured unemployment rates in the week ending April 9 were in California (2.21%), New Jersey (2.15%), Alaska (1.87%), Minnesota (1.79%) and New York (1.64%). The lowest rates were in Utah (0.18%), Virginia (0.19%), Alabama (0.19%), North Carolina (0.29%), Kansas (0.30%) and Nebraska (0.31%). Other state insured rates of unemployment in regular programs include Illinois (1.50%), Pennsylvania (1.32%), Texas (0.75%) and Florida (0.38%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims going back to 1967 are contained in Haver's **WEEKLY** database, and they are summarized monthly in **USECON**. Data for individual states are in **REGIONW**. The expectations figure is from the Action Economics Forecast Survey and is in the **AS1REPNA** database.

- Initial claims fell 5,000 to 180,000.
- Continued weeks claimed also eased to lowest in more than 50 years.
- Insured unemployment rate retained record low of 1.0%.

U.S. Unemployment Claims Fall

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The Mortgage Bankers Association's Loan Applications Index declined 8.3% w/w (-51.4% y/y) in the week ended April 22, their seventh consecutive weekly decline. They had fallen 5.0% in the previous week. The most recent decline was to the lowest level since the week ended December 28, 2018. Applications for refinancing declined 9.0% w/w (-70.8% y/y) last week after a 7.7% w/w decline in the prior week. Applications for purchase fell 7.6% w/w (-16.6% y/y) on top of a 3.0% w/w decline in the prior week.

The share of applications for refinancing fell further to 35.0% in the week ended April 22 from 35.7%, down from 65.4% at the beginning to this year. By contrast, the adjustable-rate mortgage (ARM) share of activity continued to rise, increasing to 9.3% from 8.5% in the previous week.

Mortgage interest rates continued to climb. The effective rate on 30-year fixed-rate loans increased 17bps to 5.56%, its highest level since June 2009. The effective rate on 15-year fixed-rate loans rose 25bps to 4.88%%. The rate on a Jumbo 30-year loan increased 13bps to 5.02% and the rate on a 5-year ARM rose 26bps to 4.55%.

Applications for fixed-rate loans declined 9.0% w/w (-54.3% y/y) in the week ended April 22 following a 6.1% w/w decline in the prior week. Applications for adjustable-rate mortgages slipped for the first time in three weeks, edging down 0.3% w/w (+28.8% y/y) after a 9.1% jump in the previous week.

The average size of a mortgage loan rose slipped 0.7% w/w to $393,300 from a record $396,000 in the previous week. The average size of a loan for purchase fell 1.0% w/w to $449,100 while the average size of a refinanced loan edged down 0.6% w/w to $289,700.

This survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver's **SURVEYS** database.

- Largest weekly decline since mid-February.
- Meaningful declines in both purchase and refinancing applications.
- Mortgage interest rates post significant weekly increases with 30-year rate rising to highest since mid-2009.

U.S. Mortgage Applications Fall for Seventh Straight Week

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The home buying market remains soft. The Pending Home Sales Index from the National Association of Realtors fell 1.2% in March (-8.2% y/y) following a 4.0% February fall, revised from -4.1%. It was the fifth consecutive monthly decline with total sales down 19.0% from the August 2020 peak.

Pending home sales declined throughout most of the country in March except the Northeast where they rose 4.0% (-9.2% y/y). Sales in the Midwest fell 6.1% (-4.8% y/y) to the lowest level since April 2020. In the West, sales eased 0.2% (-8.4% y/y) and were 21.7% below the August 2020 high. March sales in the South declined 0.9% (-9.5% y/y) to the lowest level since April 2020.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **SURVEYW** database.

- Sales decline to lowest level since May 2020.
- Sales fall in most sections of the country.

U.S. Pending Home Sales Continue to Fall in March

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The advance estimate of the U.S. international trade deficit in goods deteriorated to a record $125.32 billion in March from $106.35 billion in February. A $105.0 billion deficit had been expected in the Action Economics Forecast Survey. Exports of goods increased 7.2% (18.1% y/y) following a 1.7% February rise. Imports gained 11.5% (25.6% y/y) after increasing 0.6% in February.

The March increase in exports reflected a 3.1% (22.0% y/y) rise in non-auto consumer goods which followed a 6.7% February rise. Exports of foods, feeds & beverages rose 4.7% last month (11.3% y/y) about the same as in the prior month. Industrial supplies & materials exports rose 12.3% last month (30.9% y/y) after rising 3.0%. Exports of autos & parts rose 8.4% (1.5% y/y) following a 2.3% decline. Capital goods exports improved 1.7% in March (9.4% y/y) after falling 1.5% in February.

Imports increased as industrial supplies & materials strengthened 15.0% in March (48.1% y/y) after rising 5.5% in February. Nonauto consumer goods imports improved 13.6% (25.8% y/y) following a 0.7% rise. Imports of autos & parts gained 12.0% (8.0% y/y) which came after a 9.9% decline. Capital goods imports rose 7.6% (18.3% y/y), after a 1.4% gain. Increasing by 6.2% in March (25.1% y/y) were imports of foods, feeds & beverages which followed February's 3.0% decline.

The advance international trade data can be found in Haver's**USECON**database. The expectation figure is from the Action Economics Forecast Survey, which is in**AS1REPNA**.

- Export gain is firm.
- Import surge is broad-based.

U.S. Int'l Trade Deficit in Goods Sets New Record in March

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**Retail gasoline prices** rose to $4.11 gallon in the week ended April 25 (43.0% y/y) from $4.07 per gallon the prior week. The gain followed five straight weeks of decline. Prices set a record $4.32 per gallon in the second week of March. Haver Analytics adjusts the gasoline price series for normal seasonal variation, and the seasonally adjusted price was $4.18 per gallon from $4.14 in the prior week.

The price of **West Texas Intermediate crude oil** increased to $103.88 per barrel (67.1% y/y) in the week ended April 22 after rising to $101.44 per barrel in the prior week. These compare to a high of $113.33 averaged in the fourth week of March. Yesterday, the price fell to $98.44 per barrel. The average price of **Brent crude** oil was $108.40 per barrel ($64.1%), up from $106.27 the prior week. The price was $100.98 per barrel yesterday.

The price of **natural gas** fell in the week ended April 22 to $7.10/mmbtu (157.3% y/y) after rising to $6.64 in the previous week. The price has risen from a low of $1.52/mmbtu averaged in the third week of June 2020. Yesterday, the price declined to $6.42/mmbtu.

In the four weeks ended April 15, **gasoline demand** declined 3.0% y/y. Growth in demand for **all petroleum products** weakened 1.5% y/y. Growth in **crude oil input to refineries** eased to 5.5% y/y. **Gasoline inventories** decreased 1.1% y/y while **crude oil inventories** declined 11.6% y/y.

The **supply of gasoline** inventories in the week ended April 15 was1 26.8 days, down slightly from 27.1 days in the previous week. The supply of crude oil fell to 26.2 days from 26.7 days in the prior week.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price data can be found in Haver's **WEEKLY** and **DAILY** databases. Greater detail on prices, as well as the demand, production and inventory data are in **USENERGY.**

- Gasoline prices rebound.
- Crude oil prices continue to strengthen.
- Natural gas prices ease.

U.S. Energy Prices Increase

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The Conference Board Consumer Confidence Index during April weakened 0.3% (-8.7% y/y) to 107.3 from 107.6, revised from 107.2. A reading of 107.5 had been expected in the Action Economics Forecast Survey.

The Present Situation Index fell 0.8% this month (+15.7% y/y) to 152.6 after rising 7.6% in March to 153.8. The Consumer Expectations index improved 0.7% in April (-28.5% y/y) to 77.2, following three straight months of sharp decline.

The jobs gap, representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get, slipped to a 44.6% from the record 47.1% in March. Calculated by Haver Analytics, this series has had a 69% correlation with the unemployment rate over the last ten years. The jobs plentiful measure fell this month to 55.2% from the record 56.7% in March. The jobs hard-to-get measure rose to 10.6% of respondents.

Current business conditions were perceived as good by an increased 20.8% of respondents in April. Expectations that business conditions would improve in six months fell to 18.1% of respondents, down from 42.5% in April 2020. More jobs were expected in six months by a lessened 17.4% of respondents, half the percentage twelve months ago. The percentage expecting rising income improved to 16.5% of respondents.

The expected inflation rate in twelve months slipped to 7.5% from 7.9% in March. It remained up from a 4.4% low in January of 2020. Roughly two-thirds of respondents expected that interest rates would rise over the next twelve months, the most in three years. The share of respondents planning to buy a home within six months held fairly steady m/m at 5.9% and remained below a June 2020 high of 6.8%. Those planning to buy a major appliance rose sharply m/m to 49.8% of respondents, but remained below 53.9% registered in July 2021.

The Consumer Confidence data are available in Haver's **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Present situation & expectations are little changed m/m.
- Expectations for employment deteriorates.
- Expectations for inflation dip.

U.S. Consumer Confidence Slips in April

Winnie Tapasanun

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New single-family home sales fell 8.6% m/m (-12.6% y/y) to 763,000 units at an annual rate in March after drops of 1.2% to 835,000 in February (initially 772,000) and 3.0% to 845,000 in January (previously 788,000), according to the U.S. Census Bureau. The March level was the lowest since November. The Action Economics Forecast Survey expected 774,000 sales in March. Supply continues its revival as the number of new homes for sale rose to 407,000 in March, the highest level since August 2008, from 392,000 in February.

By region, sales in March fell in all the major regions. Sales in the South slid 10.2% (-24.7% y/y) to 414,000 at an annual rate after a 1.1% decline to 461,000, registering the third consecutive monthly slide to the lowest level since October. Sales in the Midwest dropped 8.7% (-13.8% y/y) to 94,000, reversing a 9.6% gain to 103,000. Sales in the West fell 6.0% (+21.0% y/y) to 202,000, the third straight m/m fall to a five-month low, after a 14.3% decrease to 215,000. Sales in the Northeast declined 5.4% (+12.8% y/y) to 53,000 after having recovered 64.7% to 56,000.

The median price of a new home rebounded 3.6% (21.4% y/y) to a record high $436,700 in March following a 2.2% decline to $421,600 in February. The average sales price of a new home increased 3.1% (26.3% y/y), the third successive m/m rise to a record high $523,900. These sales price data are not seasonally adjusted.

The seasonally adjusted supply of new homes for sale rose to 6.4 months in March, the highest since October, from 5.6 in February. The record low was 3.5 months in August, September and October of 2020. The median number of months a new home stayed on the market edged up to 3.0 months in March from 2.9 in February. The record low was October's 2.5 months These figures date back to January 1975.

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

- 763,000 units SAAR in March, a four-month low; upward revisions to February and January.
- Sales drops are widespread in all the major regions, especially in the South.
- Median sales price rebounds to a record high.

U.S. New Home Sales Fall for the Third Straight Month in March

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

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The U.S. trade deficit in goods and services (BOP basis) narrowed to $60.18 billion in June after widening to $71.66 billion in May ($71.52 billion originally), according to the U.S. Census Bureau. This was the second month in three in which the deficit had narrowed. The June deficit was the smallest since September 2023 and much smaller than the $73.89 billion in June 2024. A deficit of $61.6 billion had been expected in the Action Economics Forecast Survey. Exports declined 0.5% m/m (+3.3% y/y) in June following a 4.1% drop in May (-4.0% previously) and four successive m/m increases. Imports fell 3.7% (-1.4% y/y) after an unrevised 0.1% downtick in May, registering the third consecutive m/m fall and the fourth in five months.

The real (inflation-adjusted) goods trade deficit (customs value; chained 2017 dollars) narrowed to $84.61 billion in June after widening to $93.32 billion in May; it was smaller than the $92.82 billion in June 2024. The $87.43 billion average monthly real trade deficit in Q2'25 was the smallest since Q4'23 and significantly smaller than the record $143.28 billion in Q1'25. A trade balance (net exports) added 4.99%-points to Q2'25 real GDP growth after subtracting 4.61%-points in Q1'25.

The deficit in goods trade (BOP basis) narrowed to $85.88 billion in June, the smallest since September 2023, after widening to $97.30 billion in May; it was much smaller than the $99.56 billion in June 2024. Goods exports fell 0.7% (+3.3% y/y) in June following a 5.9% drop in May and four straight m/m rises. Imports of goods decreased 4.5% (-2.9% y/y), down for the fourth month in five, after a 0.1% May easing.

The customs value goods trade deficit fell to $84.85 billion in June, the smallest since September 2023, after widening to $96.21 billion in May; it was much smaller than the $98.81 billion in June 2024. The latest figure was slightly smaller than an $85.99 billion deficit in the advance report released on July 29. Custom value exports fell 0.7% (+3.5% y/y) in June following a 5.6% drop in May and four consecutive m/m gains. This reflected m/m falls of 7.4% (+0.7% y/y) in industrial supplies & materials and 2.6% (+22.8% y/y) in other goods. To the upside, exports for the following end-use categories rose m/m in June: nonfood consumer goods excluding autos (4.6%; 4.3% y/y), foods, feeds & beverages (4.4%; 1.2% y/y), capital goods excluding autos (3.4%; 9.7% y/y), and automotive vehicles, parts & engines (1.6%; -15.8% y/y).

Customs value imports slid 4.6% (-2.9% y/y) in June, the third straight m/m slide and the fourth in five months, after a 0.1% downtick in May. This reflected m/m drops of 12.7% (-13.3% y/y) in nonfood consumer goods excluding autos, 5.2% (-12.4% y/y) in industrial supplies & materials, 4.9% (+7.8% y/y) in other goods, 3.6% (-12.2% y/y) in automotive vehicles, parts & engines, and 1.5% (+3.8% y/y) in foods, feeds & beverages. In contrast, imports of capital goods excluding autos, the only end-use category with a monthly increase in June, rose 0.7% (14.0% y/y), the seventh m/m rise in eight months, on top of a 0.3% May rebound. Meanwhile, petroleum imports fell 3.8% (-24.7% y/y) in June, the fourth m/m fall in five months, reversing a 1.5% rise in May. Nonpetroleum imports slid 4.6% (-1.1% y/y), the third straight m/m slide, after a 0.2% May decline.

The services trade surplus rose to $25.70 billion in June after narrowing to $25.64 billion in May; it was in line with $25.67 billion in June 2024. Services exports fell 0.2% (+3.3% y/y) in June, the fifth m/m fall in six months, on top of a 0.6% decline in May. This reflected m/m drops of 4.8% (-11.3% y/y) in government goods & services, 2.1% (+30.8% y/y) in maintenance & repair services, and 1.1% (-0.02% y/y) in travel services, while exports for construction services (0.9%; -5.7% y/y), insurance services (0.7%; 18.9% y/y) and charges for the use of intellectual property (0.5%; 7.0% y/y) increased m/m in June. Services imports fell 0.3% (+4.5% y/y) after a 0.3% May fall and two successive m/m increases. This reflected m/m drops of 1.9% (+48.0% y/y) in maintenance & repair services, 1.5% (+2.9% y/y) in travel services, and 1.3% (-1.3% y/y) in transport services, while imports for construction services (2.0%; 82.3% y/y), charges for the use of intellectual property (0.8%; 1.3% y/y) and financial services (0.5%; 4.9% y/y) rose m/m in June.

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $9.38 billion in June, the smallest on record, after falling to $13.97 billion in May. Exports surged 45.4% (-16.6% y/y) following a 19.9% May slump, while imports fell 6.9% (-45.6% y/y) on top of a 26.3% May plunge. The goods trade deficit with the European Union narrowed markedly to $9.52 billion in June, the smallest since June 2013, after widening to $22.54 billion in May, with exports up 6.8% (16.6% y/y) and imports down 19.2% (-8.2% y/y). The trade shortfall with Japan narrowed marginally to $5.72 billion in June, the smallest since February, from $5.77 billion in the previous month, reflecting declines of 3.4% (-7.5% y/y) in exports and 2.3% (-0.4% y/y) in imports.

The international trade data, including relevant data on oil prices, can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- $60.2 bil. trade deficit, reflecting $85.9 bil. goods deficit & $25.7 bil. services surplus.
- Exports -0.5% m/m, down for the second consecutive month.
- Imports -3.7% m/m, down for the third straight month.
- Real goods trade deficit narrows to $84.6 bil. after May’s widening.
- Goods trade deficits w/ China at a record low, w/ EU at a June ’13 low, and w/ Japan at a 4-month low.

U.S. Trade Deficit Narrows in June; the Smallest Since Sept. ’23

Robert Brusca

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The S&P Global PMI indexes once again showed mixed performance in July. Most large economies continue to do better, and the total PMI services sectors continue to make up for shortcomings in manufacturing.

**Stability on a low growth path**
In July, 24% of the reporting countries showed activity was slowing; that's down from 48% in both June and May and indicates some progress. Only five of the reporting jurisdictions have PMI values below 50 indicating economic contraction in July; that July figure compares to five in June and seven in May. Declining activity continues to be an unusual event. Medians and average readings for the group of 25 countries or regions show extreme stability in the recent months as well as across sequential averages.

**Growth moderately improves**
Comparing period averages from 12-months to six-months to three-months, unweighted readings of the U.S., the U.K., and European monetary union show extremely flat PMI values oscillating between values of 51.2 to 51.7 on those period averages; over three months, six months, and 12 months. The jurisdictions in the table show PMI readings below 50 are rare; once again declining activity is an unusual event. The proportion of reporters slowing over three months is 34.8% compared to 52.2% over six months and 30.4% over 12 months. Once again, we see these statistics tilted toward improving growth rather than towards slowing

**Summing up**
The queue percentile standings for the group in July have an average value at 48.4% which is below the 50% mark that coincides with the median for the period. This tells us the growth is largely worse than what its median has been over the past 4 1/2 years. On a queue ranking basis, the largest economies consistently perform better with readings above the 50% mark for the U.S. and for the European Monetary System including each of its four largest EMU economies (Germany, France, Italy, and Spain). Japan has a queue standing in its 57th percentile. However, China’s percentile standing is in its 26th percentile and the U.K. is at its 40.5 percentile. Not all large economies are in the catbird seat, but most are faring well despite the moderate growth track globally.

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Service Sectors Prop-up Global Economy

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Total factory orders declined 4.8% (+5.6% y/y) in June after surging 8.3% in May, revised from 8.2%, as reported by the U.S. Census Bureau. A 4.9% decline had been expected in the Action Economics Forecast Survey. A halving in orders for nondefense aircraft accounted for much of the June decline. Factory orders excluding transportation altogether rose 0.4% after increasing 0.3% in May, revised from 0.2%.

Durable goods orders fell 9.4% (+10.9% y/y) in June after 16.5% rise in May. The advance report indicated a 9.3% decline. Transportation orders fell 22.4% (+30.5% y/y). Automobile orders declined 3.1% (-2.7% y/y). Computer & electronic product orders increased 0.6% (5.2% y/y) while electrical equipment, appliances & components rose 0.1% (4.5% y/y). Machinery orders improved 0.3% (3.0% y/y). Furniture & related products increased 0.1% (1.1% y/y). Primary metals orders increased 0.6% (-0.5% y/y) while fabricated metals orders edged 0.1% (3.1% y/y) higher.

Nondurable goods orders, which equal nondurable goods shipments, rose 0.5% (0.6% y/y) in June after edging 0.1% higher in May. Shipments of petroleum & coal products rose 1.4% (-4.5% y/y) and beverage & tobacco products rose 1.5% (4.2% y/y). Food product shipments improved 0.4% (0.9% y/y) and textile product shipments rose a minimal 0.1% (1.9% y/y). To the downside, apparel shipments declined 0.9% (-4.7% y/y) and chemical product shipments eased 0.1% (+3.6% y/y). Paper products declined 0.3% (+0.7% y/y).

Total shipments increased 0.5% (1.8% y/y) in June following a 0.2% May increase. Excluding transportation, shipments rose 0.4% (1.3% y/y) in June after a 0.1% uptick in May. Shipments of durable goods industries rose 0.5% (3.0% y/y) in April, the seventh consecutive m/m rise.  Transportation equipment shipments rose 0.8% (4.3% y/y) as nondefense aircraft shipments fell 6.2% (+13.8% y/y). Machinery shipments rose 1.0% (1.5% y/y), and electrical equipment, appliances & components shipments increased 0.6 (4.6% y/y). Primary metals shipments rose 0.6% (2.4% y/y), fabricated metals shipment rose 0.2% (1.9% y/y), but furniture & related products eased 0.2% (+1.4% y/y).

Unfilled orders rose 1.0% (7.1% y/y) in June after a 3.4% jump in May. Excluding transportation, unfilled orders held steady (+0.8 y/y) after a 0.1% rise in May. Backlogs of durable goods increased 1.0% (7.1% y/y), reflecting a 2.1% rise (14.7% y/y) in nondefense aircraft and a 0.1% decline (-1.8% y/y) in machinery. Electrical equipment, appliances & components backlogs also rose 0.1% (1.0% y/y) while computer & electronic equipment backlogs eased 0.1% both m/m and y/y.
 
Inventories increased 0.2% (1.1% y/y) in June after edging 0.1% higher in May. Excluding transportation, inventories rose 0.2% (1.0% y/y) in June after a 0.1% uptick in May. Durable goods inventories rose 0.2% (1.5% y/y) in June, the same as in May, and rose 0.1% in both of the prior two months. Nondurable goods inventories increased 0.2% 0.5% y/y) after declines in both of the prior two months.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Total orders less transportation rise moderately.
- Shipments pick up.  
- Unfilled orders surge as inventories rise modestly.

U.S. Factory Orders Retreat in June, Largely Centered in Aircraft

Tian Yong Woon

This week, we examine the latest wave of trade developments across Asia as the US unveiled a full list of its modified reciprocal tariff rates, set to take effect on August 7. As anticipated, many of the updated rates are now lower than the original tariffs, with Cambodia and Vietnam seeing the sharpest reductions (chart 1). However, from peak tariff levels, China stands out—continuing to benefit from a 10% pause rate, down from triple-digit highs.

South Korea secured a deal just before the deadline, lowering its tariff from 25% to 15%. The new rate also applies to auto exports, offering relief to Korean automakers (chart 2). Thailand and Cambodia followed with US trade agreements after agreeing to an unconditional ceasefire following earlier military clashes. Their US-imposed tariffs dropped from 36% to 19%, highlighting how US trade policy can intersect with geopolitical interests and, in this case, may help reduce trade uncertainty (chart 3).

Malaysia, a key mediator in the ceasefire, also finalized a trade deal, reducing its tariff rate to 19% and gaining exemptions on key exports such as semiconductors (chart 4). Turning to Japan, while its US trade deal helped avert immediate tensions, the vague terms and a headline $550 billion investment—mostly in the form of loans—leave room for future friction (chart 5). China, however, remains a wildcard. Talks to extend its tariff pause are ongoing, but failure could see a return to extreme tariff levels (chart 6). Meanwhile, tech tensions linger, despite eased restrictions on Nvidia AI chip exports.

**Latest US tariff developments**
We gained further clarity on the new reciprocal tariff rates announced by the US administration last week, as the White House released a full list of the modified rates on Thursday. It also announced that the new rates will take effect on August 7, giving partner countries a bit more time to negotiate new terms. Overall, as earlier indications suggested, Trump’s post-pause tariff rates—regardless of whether trade deals were secured—have often ended up lower than the original rates, as shown in chart 1. The largest reductions from original tariff levels have so far come from Cambodia and Vietnam. However, when looking at the steepest reductions from peak tariff rates, China stands out. It continues to benefit from a 10% tariff pause—down sharply from the triple-digit rates imposed at the height of US-China trade tensions earlier this year. On the flipside, a handful of economies—including New Zealand, the Philippines, and Brunei—are now facing modified tariff rates that are actually higher than their original Liberation Day levels. Notably, the Philippines ended up in this group despite having secured a trade deal with the US.

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**South Korea**
As for South Korea, the US reduced its tariff rate to 15% just ahead of the August 1 deadline, a significant drop from the original Liberation Day rate of 25%. In return, South Korea committed to, among other terms, $350 billion in investments into the US. Of that total, $150 billion will go specifically toward shipbuilding cooperation—supporting the entry of Korean firms into the US shipbuilding industry—while the remaining $200 billion will be directed toward semiconductors and other sectors. Similar to Japan’s arrangement, the new 15% tariff rate will also apply to South Korean auto exports, likely providing relief to the country’s automakers. As shown in chart 2, South Korea’s vehicle exports—and, by extension, its export-driven growth—have come under pressure, with more recent headwinds stemming from the broad 25% auto tariffs imposed by the US. Notably, South Korea’s dealmaking pace with the US has been considered exceptionally swift, especially given that the country had only recently undergone an administrative transition following its presidential elections, leaving limited time to initiate formal trade negotiations.

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**Thailand and Cambodia**
Moving to other parts of Asia, one of the more notable developments last week was the signing of two additional US trade deals—specifically with Thailand and Cambodia. The two countries had recently been engaged in escalating border clashes but agreed to an unconditional ceasefire after mediation by Malaysia and the US. In reality, tensions between Thailand and Cambodia had been simmering for some time, likely driving in part the heightened uncertainty shown in chart 3, though other factors may have played a role. Notably, US President Trump stated that he had made it clear to both governments that no trade deal would be considered while they remained in conflict—an ultimatum that may have incentivized both sides to pursue de-escalation. Ultimately, US trade deals with both countries were announced, reducing their tariff rates from the original Liberation Day level of 36% to 19%. This illustrates how the US approach to dealmaking goes beyond trade, sometimes factoring in broader geopolitical considerations as well.

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**Malaysia**
Touching further on Malaysia, which played a key role in mediating the Thailand-Cambodia conflict mentioned earlier, a last-minute US-Malaysia trade deal also materialized shortly after the agreements with Thailand and Cambodia were hinted at. Under the new terms, Malaysia’s tariff rate was reduced to 19%, down from the original 24%. Malaysian Trade Minister Zafrul described the deal as a “win-win,” noting that Malaysia has either reduced or eliminated tariffs on nearly all American products. Notably—and perhaps offering some interim relief—Malaysia also secured tariff exemptions for its exports of semiconductors and pharmaceuticals. This is especially significant, as semiconductor exports account for a substantial share of Malaysia’s shipments to the US, as shown in chart 4.

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**Japan**
Turning to Japan, the recent US-Japan trade deal appears to have averted the worst for now. However, many key details remain unclear, particularly regarding Japan’s reported $550 billion investment into the US. While the headline figure is striking, Japan’s chief trade negotiator, Akazawa, later clarified that only 1–2% of the amount would constitute actual investment, with the remainder largely consisting of loans. More critically, the deal—like several other recent US-Asia trade agreements—was not accompanied by formal documentation, leaving its terms vague and, perhaps more concerning, open to future revision. These loose ends present ongoing risks to US-Japan economic relations and could potentially unwind recent market gains driven by trade optimism, as uncertainty remains and may yet resurface (see chart 5). This lingering uncertainty likely contributed to the Bank of Japan’s decision to hold its policy rate steady last week. The central bank adopted a wait-and-see approach before considering further rate hikes, while notably revising its inflation forecasts upward and presenting a slightly improved growth outlook for the fiscal year.

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**China**
Amid the recent flurry of US trade deals, one critical issue that may have slipped from the spotlight—but remains central to the global outlook —is China. Ongoing discussions between the two countries aim to extend China’s current tariff pause. If talks break down, US Treasury Secretary Scott Bessent has warned that the existing 10% tariff on Chinese exports could “boomerang” back to its previously exorbitant levels. This could potentially drive the US effective import tariff rate on China well above its already-elevated levels, as shown in chart 6. Meanwhile, the recent reversal of export restrictions by the US on Nvidia’s H20 AI chips may have brought temporary relief to China’s AI sector. However, Chinese authorities have raised national security concerns over the chips’ built-in tracking features and potential remote shutdown capabilities—adding yet another layer of complexity to the already tense US-China trade relationship and broader economic rivalry.

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Asia

Economic Letter from Asia: New Duty Roster

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: 2022

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