Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622c.jpg" width="353">
The May Composite Index of Leading Economic Indicators fell 0.6% last month after an unrevised 0.1% dip during April, reported the Conference Board. Consensus expectations had been for a 0.4% decline and it was the third drop in the last four months.
Six month growth in the leaders fell to -0.4%, its weakest since early 2001. During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 30% in May but over a six month span 50% of the index components rose, the weakest breadth of six month gain in a year. The only positive contributions to the May index were from higher orders for consumer goods and for capital goods as well as a more positive interest rate spread.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622d.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators ticked up 0.1% following four consecutive months of 0.2% gain. Of the four component series, 75% rose last month after two months when all the components rose. During the last six months all of the coincident series rose and over the last ten years there has been a 69% correlation between the change in the coincident indicators and real GDP growth.
The lagging indicators rose 0.2% for the third consecutive month. During May, 64.3% of the series&#39; components rose and during the last six months 42.9% rose. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell slightly.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Transparency, Expectations, and Forecasts from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/erq106_bauer.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">6 Month Chg., AR</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>2.9%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>3.5%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
</body>
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The May Composite Index of Leading Economic Indicators fell 0.6% last month after an unrevised 0.1% dip during April, reported the Conference Board. Consensus expectations had been for a 0.4% decline and it was the third drop in the [...]

Leading Economic Indicators Down Third Month in Four

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622a.jpg" width="353">
Initial unemployment insurance claims increased 11,000 to 308,000 last week. The rise followed a decline of 6,000 the week prior that was slightly shallower than initially estimated and about matched Consensus expectations for 309,000 claims.
The latest figure covers the survey period for June nonfarm payrolls and claims fell 36,000 (-10.5%) from the May period.
During the last ten years there has been a 78% (negative) correlation between the level of initial claims and the m/m change in payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622b.jpg" width="353">
The four-week moving average of initial claims dropped to 311,250 (-6.7% y/y).
Continuing claims for unemployment insurance rose 18,000 following a downwardly revised 11,000 increase the previous week.
The insured rate of unemployment remained stable at 1.9% for the fifth consecutive week.
Ups and Downs: How Wages Change Over the Business Cycle from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/br_q2-2006-1_ups-and-downs.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">06/17/06</th>
<th scope="col">06/10/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>308</td>
<td>297</td>
<td>-4.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,439</td>
<td>-6.8%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
</body>
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Initial unemployment insurance claims increased 11,000 to 308,000 last week. The rise followed a decline of 6,000 the week prior that was slightly shallower than initially estimated and about matched Consensus expectations for 309,000 [...]

Initial Claims for Unemployment Insurance Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622a.jpg" width="353">
Initial unemployment insurance claims increased 11,000 to 308,000 last week. The rise followed a decline of 6,000 the week prior that was slightly shallower than initially estimated and about matched Consensus expectations for 309,000 claims.
The latest figure covers the survey period for June nonfarm payrolls and claims fell 36,000 (-10.5%) from the May period.
During the last ten years there has been a 78% (negative) correlation between the level of initial claims and the m/m change in payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622b.jpg" width="353">
The four-week moving average of initial claims dropped to 311,250 (-6.7% y/y).
Continuing claims for unemployment insurance rose 18,000 following a downwardly revised 11,000 increase the previous week.
The insured rate of unemployment remained stable at 1.9% for the fifth consecutive week.
Ups and Downs: How Wages Change Over the Business Cycle from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/br_q2-2006-1_ups-and-downs.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">06/17/06</th>
<th scope="col">06/10/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>308</td>
<td>297</td>
<td>-4.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,439</td>
<td>-6.8%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Down Third Month in Four 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622c.jpg" width="353">
The May Composite Index of Leading Economic Indicators fell 0.6% last month after an unrevised 0.1% dip during April, reported the Conference Board. Consensus expectations had been for a 0.4% decline and it was the third drop in the last four months.
Six month growth in the leaders fell to -0.4%, its weakest since early 2001. During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 30% in May but over a six month span 50% of the index components rose, the weakest breadth of six month gain in a year. The only positive contributions to the May index were from higher orders for consumer goods and for capital goods as well as a more positive interest rate spread.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622d.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators ticked up 0.1% following four consecutive months of 0.2% gain. Of the four component series, 75% rose last month after two months when all the components rose. During the last six months all of the coincident series rose and over the last ten years there has been a 69% correlation between the change in the coincident indicators and real GDP growth.
The lagging indicators rose 0.2% for the third consecutive month. During May, 64.3% of the series&#39; components rose and during the last six months 42.9% rose. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell slightly.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Transparency, Expectations, and Forecasts from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/erq106_bauer.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">6 Month Chg., AR</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>2.9%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>3.5%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
Refinery Gasoline Production Reaches Record in New Seasonally Adjusted Weekly Data 
by <a href="/comment/Stone.html">Carol Stone</a> June 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622e.jpg" width="353">
Total production of petroleum products has surged in the last several weeks, and refineries are operating at their highest capacity since before last September&#39;s hurricanes. These statements are based on weekly petroleum supply statistics provided by the Energy Information Administration of the Department of Energy; just in the last month, Haver Analytics has begun to seasonally adjust these data, using the same software routine used by the Fed for the money supply and other weekly data. The raw figures are contained in the OILWKLY and WEEKLY databases, and the seasonally adjusted data are in WEEKLY. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622f.jpg" width="353">
Domestic crude oil production continues its long downtrend. It was 5.05 million barrels/day (mil B/D) last week, compared with 5.10 mil B/D the week before and 5.38 mil B/D in the comparable 2005 week. So far during 2006, it has averaged 4.95 mil B/D, off 10% from 5.41 mil B/D in 2004. Domestic oil, of course, isn&#39;t nearly enough to meet today&#39;s energy needs in the US, and crude oil imports ran to 10.7 mil B/D last week, up almost exactly 8.0% from a year earlier. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060622g.jpg" width="353">
US refiners are producing more gasoline than ever, 9.34 mil B/D in the June 16 week, up 3.5% just in one week. The seasonal adjustment process is especially helpful here in smoothing the late winter/early spring slowdown due to refinery maintenance and then adjusting out the consequent rebound. This highlights the import of the latest week&#39;s jump: it&#39;s not due to some standard late-spring advance in gasoline output. Underlying gains in refinery output are also more evident in the refinery capacity utilization data, which also benefit from the seasonal adjustment. Last week&#39;s seasonally adjusted usage rate was 89.85%, which, except for one week in January, is the highest since late September 2005, just before Hurricane Rita.So gradually refiners are getting their capacity back on-stream. A hopeful note for limiting capacity pressures on product prices is that there are still a couple of percentage points of slack compared to pre-2005 levels, which were running between 91% and 92%. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@w5/@W508/@W50802/@W50802.HTM">Thous B/D,&nbsp; Seasonally Adjusted*</a> </th>
<th scope="col">June 16, 2006 </th>
<th scope="col">June 9, 2006 </th>
<th scope="col">May 19, 2006 </th>
<th scope="col">June 17, 2005 </th>
<th scope="col">2005 </th>
<th scope="col">2004 </th>
<th scope="col">2003 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Domestic Crude Oil Production </td>
<td>5,052 </td>
<td>5,095 </td>
<td>4,937 </td>
<td>5,380 </td>
<td>4,861 </td>
<td>5,410 </td>
<td>5,640 </td>
</tr>
<tr>
<td class="firstcol">Crude Oil Imports </td>
<td>10,749 </td>
<td>10,267 </td>
<td>9,166 </td>
<td>9,929 </td>
<td>10,111 </td>
<td>10,044 </td>
<td>9,511 </td>
</tr>
<tr class="odd">
<td class="firstcol">Refinery Gasoline Production </td>
<td>9,343 </td>
<td>9,028 </td>
<td>8,991 </td>
<td>8,707 </td>
<td>8,662 </td>
<td>8,681 </td>
<td>8,471 </td>
</tr>
<tr>
<td class="firstcol">Refinery Capacity Utilization (%) </td>
<td>89.85 </td>
<td>88.45 </td>
<td>87.05 </td>
<td>91.49 </td>
<td>90.29 </td>
<td>82.24 </td>
<td>91.83 </td>
</tr>
</tbody>
</table>
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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/060621c.jpg" width="353">
<span style="font-size:10.0pt;font-family:Verdana;
mso-fareast-font-family:&quot;MS Mincho&quot;;mso-bidi-font-family:&quot;Times New Roman&quot;;
mso-ansi-language:EN-US;mso-fareast-language:JA;mso-bidi-language:AR-SA">The recently instituted business survey by Japan&#39;s Ministry of Finance showed a distinct slowing in its second quarter results, reported today. The survey is just two years old, so there is obviously not much history. But these results hardly seem surprising with energy prices remaining high, and the Bank of Japan widely expected to engineer an increase in interest rates in the weeks ahead. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621d.jpg" width="353">
The overall &quot;business conditions&quot; gauge dropped from 6.1% (balance, favorable less unfavorable) in Q1 to 1.8% in Q2. It had already retreated from 10.5% in Q4/2005. In the manufacturing sector, business conditions eased this quarter to 1.4% from 3.1% last period. 
In Q2, the responding firms assessed &quot;overseas demand&quot; as stronger than &quot;domestic demand&quot;. The domestic sector was rated positively for Q2 at a net +6.9% of firms, while overseas demand conditions stood at +9.5%. However, for the prior couple of quarters, the opposite was the case, as domestic activity was positive by double-digit amounts and higher than ratings on the foreign sector by 3 to 4 points. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621e.jpg" width="353">
There is a hint in some of the associated detail, particularly sales, that Q2 may be subject to some seasonality; after companies rush to do business in the final quarter of their fiscal year, Q1 in Japan, the next quarter is something of a letdown. With so little history here, it&#39;s premature to make a conclusion about that, but it may help explain the Q2 slowdown. 
Meantime, one other aspect of the survey results really stood out. For the first time in this survey, selling prices had a positive reading. It&#39;s only +0.6%, but even so, it is still another sign that the deflationary period in Japan may have ended.Nonetheless, rising costs took a greater toll on profits, so after a couple of favorable quarters in that item, it dipped back into negative territory. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J8.HTM">JAPAN: Large Firms,</a> % Balance</th>
<th scope="col">Q2 2006 </th>
<th scope="col">Q1 2006 </th>
<th scope="col">Q4 2006 </th>
<th scope="col">Q2 2005 </th>
<th scope="col">Q2 2004 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Conditions </td>
<td>1.8</td>
<td>6.1</td>
<td>10.5</td>
<td>0.9</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Manufacturing </td>
<td>1.4</td>
<td>3.1</td>
<td>10.5</td>
<td>-2.4</td>
<td>8.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Demand </td>
<td>6.9</td>
<td>11.5</td>
<td>14.2</td>
<td>1.4</td>
<td>8.7</td>
</tr>
<tr>
<td class="firstcol">Overseas Demand </td>
<td>9.5</td>
<td>8.0</td>
<td>10.2</td>
<td>4.1</td>
<td>12.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Selling Prices </td>
<td>0.6</td>
<td>-3.2</td>
<td>-2.2</td>
<td>-3.9</td>
<td>-5.8</td>
</tr>
</tbody>
</table>
</body>
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The recently instituted business survey by Japan's Ministry of Finance showed a distinct slowing in its second quarter results, reported today. The survey is just two years old, so there is obviously not much history. But these [...]

Japanese Business Confidence Diminishes Ahead of Possible Rate Hike

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621g.jpg" width="353">
Gold prices at $567.00 per ounce yesterday were more than 20% lower than their high during May. (Since 1980 there has been a 56% correlation between the level of gold prices and the y/y change in consumer prices.)
In addition, the price of WTI crude oil at $68.94 per barrel is off 8% from the May high. These declines, however, seem more attributable to an easing of political tensions (Iran) than to some bona fide drop in inflation pressure. Measured price inflation is up, industrial commodity price inflation is up, inflation expectations are higher as well.
Consumer prices YTD have risen at a 5.2% annual rate in 2006 versus last year&#39;s 3.4% gain. The 3.1% rate of advance in &quot;core&quot; consumer price inflation is up from 3.3% growth last year, the 3.8% gain in core services prices is up one percentage point from last year and even the soft 1.2% rise in core goods prices is up from 0.5%.
The JoC-ECRI Industrial Metals Prices Index is up 25.2% this year due to higher prices for aluminum (up 35.4%), copper scrap (up 65.5%) and stainless steel scrap (up 17.6%). High grade copper prices have eased quite a bit from the earlier high but remain up 44.1% since year end &#39;05.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621f.jpg" width="353">
Growth in industrial production is behind these gains. U.S. output gains have wobbled in recent months but factory production is up at a 3.9% annual rate this year, the same rate growth as during all of 2005. Output in the OECD Major Seven countries also is firm at 3.2% y/y through March. That&#39;s comparable to growth during the prior three years but quite the improvement from a range of 0.8% to -3.0% during 2001-2003. During the last ten years there has been a 49% correlation between the level of industrial metals&#39; prices and the y/y change in OECD Big Seven industrial production.
Inflation expectations as measured in the University of Michigan survey slipped from the highs in the June survey but the trend is clearly up. And in the market for Treasury securities, the so called TIPPS spread is down as well, but the trend remains elevated.
The Fed&#39;s Inflation Objective from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060701/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">06/20/06</th>
<th scope="col">12/27/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; (per bbl.)</td>
<td>$68.94</td>
<td>$58.16</td>
<td>21.1%</td>
<td>$58.16</td>
<td>$41.78</td>
<td>$32.78</td>
</tr>
<tr>
<td class="firstcol">U.S. Retail Gasoline (per gallon)</td>
<td>$2.87</td>
<td>$2.20</td>
<td>32.9%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr class="odd">
<td class="firstcol">Gold: Handy &amp; Harmon (per Troy Oz., EOP)</td>
<td>$567.00</td>
<td>$507.40</td>
<td>30.3%</td>
<td>$507.40</td>
<td>$443.40</td>
<td>$416.25</td>
</tr>
<tr>
<td class="firstcol">High Grade Copper (Comex, /Lb., EOP)</td>
<td>$3.29</td>
<td>$2.28</td>
<td>94.9%</td>
<td>$2.28</td>
<td>$1.54</td>
<td>$1.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Stainless Steel Scrap (/ton, EOP)</td>
<td>$2,158</td>
<td>$1,268</td>
<td>30.2%</td>
<td>$1,268</td>
<td>$1,558</td>
<td>$1,265</td>
</tr>
</tbody>
</table>
</body>
</html>

Gold prices at $567.00 per ounce yesterday were more than 20% lower than their high during May. (Since 1980 there has been a 56% correlation between the level of gold prices and the y/y change in consumer prices.) In addition, the [...]

Gold Prices Crater, Oil Off a Bit But Inflation Pressure Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621a.jpg" width="353">
The total number of mortgage applications dipped 0.8% last week after the 7.0% recovery the prior week. Through early June, applications were just 0.6% below the May average but were 27.9% below the year ago level.
Applications to refinance fell 2.2% last week following the 10.6% surge during the week prior. Refis in June were 1.7% below the May average and 43.1% below the year earlier level.
Purchase applications were unchanged from the prior week of the heels of a 4.8% jump. As a result purchase applications in early June were about even with the May average, but were 13.5% below the year ago level.
During the last ten years there has been a negative 80% correlation between 30-year mortgage interest rates and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage increased thirteen basis points to 6.96%. The rate on 15-year financing also rose ten basis points to 6.65%, its highest since April 2002. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
During 2006 sales of new single family homes have fallen 11.5% from the average level during 2005, a decline very much heralded by what has been an 11.7% drop in purchase applications this year versus last year&#39;s average. But construction starts so far in 2006 are down only 2.5% from the 2005 average.
The mismatch between the decline in sales and the decline in starts has resulted in a 15% rise in the number of new single family houses for sale YTD vs. the 2005 average. Measuring the increase in unsold new homes y/y results in a 27.0% increase. Increases by region y/y break down as follows: Northeast, +63.6%; South, +36.5%; West, +26.7%; Midwest, -3.6%. These figures are available in Haver&#39;s USECON database.
The inventory of unsold existing single family homes has risen a slightly faster 33.2% y/y. Year to date that inventory is up 11.2% and the months&#39; supply on the market is 5.9 times the current sales rate, versus 3.7 times in early 2005.
Adjusting to the Next Stage of the Housing Cycle is a recent speech by Atlanta Federal Reserve Bank President Jack Guynn and it can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=AF005747-5056-9F1A-E28D889DADF9B34D&amp;method=display"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/16/06</th>
<th scope="col">06/09/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>567.6</td>
<td>571.9</td>
<td>-27.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>414.8</td>
<td>414.6</td>
<td>-13.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,466.1</td>
<td>1,499.4</td>
<td>-43.1%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications dipped 0.8% last week after the 7.0% recovery the prior week. Through early June, applications were just 0.6% below the May average but were 27.9% below the year ago level. Applications to [...]

Mortgage Applications Dip, # of Unsold Homes Soar

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621a.jpg" width="353">
The total number of mortgage applications dipped 0.8% last week after the 7.0% recovery the prior week. Through early June, applications were just 0.6% below the May average but were 27.9% below the year ago level.
Applications to refinance fell 2.2% last week following the 10.6% surge during the week prior. Refis in June were 1.7% below the May average and 43.1% below the year earlier level.
Purchase applications were unchanged from the prior week of the heels of a 4.8% jump. As a result purchase applications in early June were about even with the May average, but were 13.5% below the year ago level.
During the last ten years there has been a negative 80% correlation between 30-year mortgage interest rates and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage increased thirteen basis points to 6.96%. The rate on 15-year financing also rose ten basis points to 6.65%, its highest since April 2002. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
During 2006 sales of new single family homes have fallen 11.5% from the average level during 2005, a decline very much heralded by what has been an 11.7% drop in purchase applications this year versus last year&#39;s average. But construction starts so far in 2006 are down only 2.5% from the 2005 average.
The mismatch between the decline in sales and the decline in starts has resulted in a 15% rise in the number of new single family houses for sale YTD vs. the 2005 average. Measuring the increase in unsold new homes y/y results in a 27.0% increase. Increases by region y/y break down as follows: Northeast, +63.6%; South, +36.5%; West, +26.7%; Midwest, -3.6%. These figures are available in Haver&#39;s USECON database.
The inventory of unsold existing single family homes has risen a slightly faster 33.2% y/y. Year to date that inventory is up 11.2% and the months&#39; supply on the market is 5.9 times the current sales rate, versus 3.7 times in early 2005.
Adjusting to the Next Stage of the Housing Cycle is a recent speech by Atlanta Federal Reserve Bank President Jack Guynn and it can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=AF005747-5056-9F1A-E28D889DADF9B34D&amp;method=display"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/16/06</th>
<th scope="col">06/09/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>567.6</td>
<td>571.9</td>
<td>-27.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>414.8</td>
<td>414.6</td>
<td>-13.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,466.1</td>
<td>1,499.4</td>
<td>-43.1%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Japanese Business Confidence Diminishes Ahead of Possible Rate Hike 
by <a href="/comment/Stone.html">Carol Stone</a> June 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621c.jpg" width="353">
<span style="font-size:10.0pt;font-family:Verdana;
mso-fareast-font-family:&quot;MS Mincho&quot;;mso-bidi-font-family:&quot;Times New Roman&quot;;
mso-ansi-language:EN-US;mso-fareast-language:JA;mso-bidi-language:AR-SA">The recently instituted business survey by Japan&#39;s Ministry of Finance showed a distinct slowing in its second quarter results, reported today. The survey is just two years old, so there is obviously not much history. But these results hardly seem surprising with energy prices remaining high, and the Bank of Japan widely expected to engineer an increase in interest rates in the weeks ahead. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621d.jpg" width="353">
The overall &quot;business conditions&quot; gauge dropped from 6.1% (balance, favorable less unfavorable) in Q1 to 1.8% in Q2. It had already retreated from 10.5% in Q4/2005. In the manufacturing sector, business conditions eased this quarter to 1.4% from 3.1% last period. 
In Q2, the responding firms assessed &quot;overseas demand&quot; as stronger than &quot;domestic demand&quot;. The domestic sector was rated positively for Q2 at a net +6.9% of firms, while overseas demand conditions stood at +9.5%. However, for the prior couple of quarters, the opposite was the case, as domestic activity was positive by double-digit amounts and higher than ratings on the foreign sector by 3 to 4 points. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621e.jpg" width="353">
There is a hint in some of the associated detail, particularly sales, that Q2 may be subject to some seasonality; after companies rush to do business in the final quarter of their fiscal year, Q1 in Japan, the next quarter is something of a letdown. With so little history here, it&#39;s premature to make a conclusion about that, but it may help explain the Q2 slowdown. 
Meantime, one other aspect of the survey results really stood out. For the first time in this survey, selling prices had a positive reading. It&#39;s only +0.6%, but even so, it is still another sign that the deflationary period in Japan may have ended.Nonetheless, rising costs took a greater toll on profits, so after a couple of favorable quarters in that item, it dipped back into negative territory. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J8.HTM">JAPAN: Large Firms, </a> &nbsp;% Balance</th>
<th scope="col">Q2 2006 </th>
<th scope="col">Q1 2006 </th>
<th scope="col">Q4 2006 </th>
<th scope="col">Q2 2005 </th>
<th scope="col">Q2 2004 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Conditions </td>
<td>1.8</td>
<td>6.1</td>
<td>10.5</td>
<td>0.9</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Manufacturing </td>
<td>1.4</td>
<td>3.1</td>
<td>10.5</td>
<td>-2.4</td>
<td>8.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Demand </td>
<td>6.9</td>
<td>11.5</td>
<td>14.2</td>
<td>1.4</td>
<td>8.7</td>
</tr>
<tr>
<td class="firstcol">Overseas Demand </td>
<td>9.5</td>
<td>8.0</td>
<td>10.2</td>
<td>4.1</td>
<td>12.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Selling Prices </td>
<td>0.6</td>
<td>-3.2</td>
<td>-2.2</td>
<td>-3.9</td>
<td>-5.8</td>
</tr>
</tbody>
</table>
Gold Prices Crater, Oil Off a Bit But Inflation Pressure Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621g.jpg" width="353">
Gold prices at $567.00 per ounce yesterday were more than 20% lower than their high during May. (Since 1980 there has been a 56% correlation between the level of gold prices and the y/y change in consumer prices.)
In addition, the price of WTI crude oil at $68.94 per barrel is off 8% from the May high. These declines, however, seem more attributable to an easing of political tensions (Iran) than to some bona fide drop in inflation pressure. Measured price inflation is up, industrial commodity price inflation is up, inflation expectations are higher as well.
Consumer prices YTD have risen at a 5.2% annual rate in 2006 versus last year&#39;s 3.4% gain. The 3.1% rate of advance in &quot;core&quot; consumer price inflation is up from 3.3% growth last year, the 3.8% gain in core services prices is up one percentage point from last year and even the soft 1.2% rise in core goods prices is up from 0.5%.
The JoC-ECRI Industrial Metals Prices Index is up 25.2% this year due to higher prices for aluminum (up 35.4%), copper scrap (up 65.5%) and stainless steel scrap (up 17.6%). High grade copper prices have eased quite a bit from the earlier high but remain up 44.1% since year end &#39;05.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060621f.jpg" width="353">
Growth in industrial production is behind these gains. U.S. output gains have wobbled in recent months but factory production is up at a 3.9% annual rate this year, the same rate growth as during all of 2005. Output in the OECD Major Seven countries also is firm at 3.2% y/y through March. That&#39;s comparable to growth during the prior three years but quite the improvement from a range of 0.8% to -3.0% during 2001-2003. During the last ten years there has been a 49% correlation between the level of industrial metals&#39; prices and the y/y change in OECD Big Seven industrial production.
Inflation expectations as measured in the University of Michigan survey slipped from the highs in the June survey but the trend is clearly up. And in the market for Treasury securities, the so called TIPPS spread is down as well, but the trend remains elevated.
The Fed&#39;s Inflation Objective from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060701/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">06/20/06</th>
<th scope="col">12/27/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; (per bbl.)</td>
<td>$68.94</td>
<td>$58.16</td>
<td>21.1%</td>
<td>$58.16</td>
<td>$41.78</td>
<td>$32.78</td>
</tr>
<tr>
<td class="firstcol">U.S. Retail Gasoline (per gallon)</td>
<td>$2.87</td>
<td>$2.20</td>
<td>32.9%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr class="odd">
<td class="firstcol">Gold: Handy &amp; Harmon (per Troy Oz., EOP)</td>
<td>$567.00</td>
<td>$507.40</td>
<td>30.3%</td>
<td>$507.40</td>
<td>$443.40</td>
<td>$416.25</td>
</tr>
<tr>
<td class="firstcol">High Grade Copper (Comex, /Lb., EOP)</td>
<td>$3.29</td>
<td>$2.28</td>
<td>94.9%</td>
<td>$2.28</td>
<td>$1.54</td>
<td>$1.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Stainless Steel Scrap (/ton, EOP)</td>
<td>$2,158</td>
<td>$1,268</td>
<td>30.2%</td>
<td>$1,268</td>
<td>$1,558</td>
<td>$1,265</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060620f.jpg" width="353">
Italy&#39;s labor force survey for the first quarter shows commendable improvement in the employment situation throughout the country. Total employment rose almost 1% to 22.8 million in the first quarter from the last quarter of 2005 and was 1.2% above the first quarter or 2005. Employment in the North, where more than half the work force is employed, increased 1.2% over a year ago, while employment in the Central Region, where about 20% of the work force is employed, increased 1.9% over a year ago. Even in the depressed South, where almost 30% of the work force is employed, employment increased 0.6% above a year ago.Employment in the North and Central Regions has grown virtually steadily over the past five years while employment in the south has, more or less, stagnated. The first chart contrasts the trends in employment in the North and the South.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060620g.jpg" width="353">
The unemployment rate for the country as a whole was 7.4%, the lowest rate during the period for which data are available (Fourth quarter of 1992 to date). In the North the unemployment rate was 4.1%, in the central region, 6.1% and in the depressed south region, 13.6%. This last figure is also the lowest rate during the period for which data are available and is down from a peak of 19.7% in the second quarter of 1988.
Industrial orders for April rose 6.8% in the month and were 15.5% above a year ago. The big rise took place in export orders which rose 15.6% in the month and were 29.0% above a year ago. The increases in domestic orders were more subdued, 2.2% and 8.7%, respectively. The second chart shows the indexes (2000=100) for domestic and export orders.
Industrial sales declined in April from March, but were 5.7% above April, 2005. Domestic sales were 4.6% and foreign sales, 8.2% above their respective April, 2005 values. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Italy</th>
<th scope="col">Apr&nbsp; 06</th>
<th scope="col">Mar 05</th>
<th scope="col">Apr 05</th>
<th scope="col">M/M</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Orders (2000=100)&nbsp;</td>
<td>115.0</td>
<td>107.7</td>
<td>99.6</td>
<td>6.78</td>
<td>15.46</td>
<td>102.0</td>
<td>98.9</td>
<td>95.4</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>105.</td>
<td>102.7</td>
<td>96.6</td>
<td>2.24</td>
<td>8.70</td>
<td>98.9</td>
<td>96.8</td>
<td>93.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>137.5</td>
<td>119.0</td>
<td>106.6</td>
<td>15.55</td>
<td>25.99</td>
<td>111.6</td>
<td>103.6</td>
<td>98.7</td>
</tr>
<tr>
<td class="firstcol">Industrial Sales (2000=100)&nbsp;</td>
<td>112.8</td>
<td>115.0</td>
<td>106.7</td>
<td>-1.91</td>
<td>5.72</td>
<td>107.6</td>
<td>104.1</td>
<td>101.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic</td>
<td>110.9</td>
<td>112.8</td>
<td>106.0</td>
<td>-1.68</td>
<td>4.62</td>
<td>106.4</td>
<td>104.1</td>
<td>101.9</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>117.7</td>
<td>120.8</td>
<td>108.8</td>
<td>-2.57</td>
<td>8.18</td>
<td>110.8</td>
<td>104.1</td>
<td>101.4&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Q1 06</td>
<td>Q4 05</td>
<td>Q1 05</td>
<td>Q/Q</td>
<td>Y/Y</td>
<td>20 05</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Employment (thousands)</td>
<td>22,814</td>
<td>22,598</td>
<td>22,549</td>
<td>0.96</td>
<td>1.18</td>
<td>22,571</td>
<td>22,404</td>
<td>22,240</td>
</tr>
<tr class="odd">
<td class="firstcol">North</td>
<td>11,687</td>
<td>11,601</td>
<td>11,546</td>
<td>0.74</td>
<td>1.22</td>
<td>11,591</td>
<td>11,433</td>
<td>11,364</td>
</tr>
<tr>
<td class="firstcol">Central</td>
<td>4,655</td>
<td>45-,594</td>
<td>4,567</td>
<td>1.32</td>
<td>1.93</td>
<td>4,577</td>
<td>4,539</td>
<td>4,424</td>
</tr>
<tr class="odd">
<td class="firstcol">South</td>
<td>6,472</td>
<td>6,403</td>
<td>6,436</td>
<td>1.08</td>
<td>0.56</td>
<td>6,414</td>
<td>6,431</td>
<td>6,452</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>7.4</td>
<td>7.7</td>
<td>7.8</td>
<td>-0.3</td>
<td>-0.4</td>
<td>7.7</td>
<td>8.8</td>
<td>8.4</td>
</tr>
<tr class="odd">
<td class="firstcol">North</td>
<td>4.1</td>
<td>4.3</td>
<td>4.3</td>
<td>-0.2</td>
<td>-0.2</td>
<td>4.2</td>
<td>4.3</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol">Central</td>
<td>6.1</td>
<td>6.6</td>
<td>6.3</td>
<td>-0.5</td>
<td>-0.2</td>
<td>6.4</td>
<td>6.5</td>
<td>6.9</td>
</tr>
<tr class="odd">
<td class="firstcol">South</td>
<td>13.6</td>
<td>14.0</td>
<td>14.5</td>
<td>-0.4</td>
<td>-0.9</td>
<td>14.3</td>
<td>14.9</td>
<td>16.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Italy's labor force survey for the first quarter shows commendable improvement in the employment situation throughout the country. Total employment rose almost 1% to 22.8 million in the first quarter from the last quarter of 2005 and [...]

Employment Situation in Italy Improves: Foreign New Orders up Sharply

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

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Andrew Cates

**A Tug of War Between AI Hope and Geopolitical Shock**
The latest Blue Chip Economic Indicators survey highlights a growing divergence between economies benefiting from AI-driven optimism and those more exposed to the inflationary consequences of renewed geopolitical instability. Taiwan stands out as the clearest AI beneficiary, with growth forecasts revised sharply higher while inflation expectations have risen only modestly, reflecting surging semiconductor demand and continued investment in global technology supply chains. China also remains relatively resilient, supported by ongoing AI-related capital spending and stronger technology sectors. By contrast, the euro area and UK have seen much larger upward revisions to inflation forecasts alongside weaker or declining growth expectations, underscoring their greater vulnerability to the recent Middle East shock and higher energy costs. Korea sits somewhere in between: benefiting from the AI hardware cycle but still exposed to trade and energy headwinds. Overall, the chart illustrates the increasingly important push-and-pull shaping the global outlook: AI optimism and productivity hopes on one side, and geopolitical fragmentation, energy insecurity and supply-side inflation pressures on the other.

260513Z1.jpg

**Forecasters See Contained Pass-Through**
Against this backdrop, our latest Blue Chip special question sought to gauge whether economists believe the recent rise in energy prices will remain largely contained — or whether it risks spilling more meaningfully into underlying global inflation dynamics. The results suggest forecasters have become somewhat less concerned about a broad and persistent inflationary impulse since April. A larger share of respondents in the May survey now expect only a “limited and temporary” pass-through into core inflation, while the proportion anticipating “moderate and persistent” effects has declined noticeably. Very few panelists expect significant second-round effects, implying that most still believe inflation expectations and wage-setting behaviour remain relatively well anchored. In part, this reflects confidence in central bank credibility and the view that softer global demand conditions will constrain firms’ pricing power. Yet the persistence of a sizeable minority still expecting moderate pass-through underscores the uncomfortable tension facing policymakers. 

260513Z2.jpg

**Energy Reawakens as a US Inflation Driver**
While survey respondents generally expect only limited pass-through from higher energy prices into broader inflation, the latest US CPI data provide a reminder that the process may already be underway at the margin. April’s CPI report showed core inflation coming in slightly firmer than expected, suggesting underlying price pressures remain more persistent than many policymakers had hoped. The decomposition of CPI inflation highlights that services continue to dominate overall inflation dynamics, reflecting still-elevated wage and labour-intensive price pressures across the economy. However, the more notable recent development has been the renewed contribution from energy prices, which had previously acted as a disinflationary force through much of 2025. Food inflation has also remained comparatively steady, while non-energy goods prices continue to exert only modest upward pressure despite ongoing tariff and supply-chain concerns. Taken together, the data reinforce the idea that the US economy is not facing a classic demand collapse, but rather a more uncomfortable supply-side environment in which geopolitical energy shocks risk colliding with still-resilient domestic demand, AI-related investment spending and sticky service-sector inflation.

260513Z3.jpg

**AI: The Powerful Counterweight to Geopolitical Headwinds**
If rising energy prices and geopolitical instability represent one major force shaping the current macroeconomic outlook, the extraordinary surge in AI-related investment represents the other. The latest data from Our World in Data show global private investment in AI accelerating sharply again in 2025, reaching close to $300 billion — more than double the level seen just two years earlier. The United States continues to dominate the global AI landscape, accounting for the overwhelming majority of private investment spending, while China and Europe remain considerably smaller contributors despite continued growth. The scale and speed of the 2025 increase is particularly striking given the broader backdrop of elevated policy uncertainty, trade fragmentation and concerns about slowing global productivity growth. In effect, the global economy is now being pulled in two competing directions: on one side, geopolitical tensions, supply-chain fragilities and more recent energy shocks are weighing on confidence and raising supply-side costs; on the other, AI enthusiasm is driving an enormous wave of capital expenditure, infrastructure build-out and technology-related demand. This helps explain why growth expectations — particularly in the US and parts of Asia — have remained comparatively resilient despite an increasingly uncertain global environment.

260513Z4.jpg

**Industrial Winners and Losers in a Fragmenting Global Economy**
The divergence in industrial performance across advanced economies has become increasingly striking. Taiwan has emerged as one of the clearest beneficiaries of the global AI boom, with industrial production surging as semiconductor demand, data-centre investment and advanced electronics exports continue to accelerate. Denmark has also significantly outperformed, though for very different reasons, with the extraordinary global success of its pharmaceutical sector — particularly weight-loss and diabetes drugs — driving a powerful expansion in manufacturing output. By contrast, the UK and Germany have experienced a far weaker industrial recovery. In both cases, elevated energy costs and greater dependence on imported energy have weighed heavily on industrial competitiveness since the post-pandemic energy shock. Germany’s large manufacturing sector has been particularly exposed to higher natural gas prices and weaker external demand, while the UK has continued to struggle with a combination of high energy costs, weak productivity growth and subdued business investment. The chart highlights an increasingly important feature of the global economy: countries exposed to powerful structural growth themes such as AI or pharmaceuticals are pulling away from those still burdened by energy dependence and deteriorating industrial competitiveness.

260513Z5.jpg

**China’s Pulse Is Picking Up Again**
China’s economic backdrop has shown clearer signs of improvement in recent months, with both the Citigroup Economic Surprise Index and the Yicai High Frequency Economic Activity Index moving higher. The rebound suggests that incoming data have begun consistently outperforming expectations after a prolonged period of disappointment. Part of the recent improvement likely reflects the cumulative effects of policy easing, including targeted fiscal support, infrastructure spending and further efforts to stabilise the property sector. Export demand has also remained more resilient than many expected, helped in part by the continued strength of global technology and AI-related supply chains. At the same time, improving domestic mobility and energy usage indicators point to firmer underlying activity momentum. The Yicai index itself is designed to provide a near real-time pulse of the Chinese economy using a basket of high-frequency indicators including subway usage, air pollution, coal consumption, freight activity, unemployment and bankruptcy trends. While China still faces significant structural headwinds — including weak household confidence, property-sector fragilities and deflationary pressures — the recent pickup suggests that growth momentum may be stabilising at a time when several other major economies are becoming more vulnerable to geopolitical and energy-related shocks.

260513Z6.jpg

The global economy is still caught between two powerful and competing forces. On one side, the AI investment boom continues to support growth, industrial activity and equity markets, particularly in the US and parts of Asia. On the other, renewed Middle East tensions and higher energy prices are adding to inflation risks and broader policy uncertainty. The latest Blue Chip survey reflects this divide clearly: growth expectations have generally held up best in economies tied to AI-related investment and technology supply chains, while inflation forecasts have risen more sharply in more energy-exposed economies such as the UK and euro area (chart 1). Forecasters still largely expect only limited pass-through from higher energy prices into core inflation, although recent US CPI data suggest underlying price pressures remain somewhat sticky (charts 2 and 3). At the same time, the extraordinary continued surge in global AI investment — now approaching $300 billion annually — highlights the sheer scale of capital being deployed into semiconductors, data centres and digital infrastructure, particularly in the United States (chart 4). The divergence in industrial production trends also reinforces the growing gap between economies benefiting from structural growth drivers — such as Taiwan’s semiconductor sector and Denmark’s pharmaceutical industry — and those struggling with higher energy costs and weaker competitiveness, notably Germany and the UK (chart 5). Meanwhile, improving Chinese activity indicators suggest policy support and stronger technology demand may finally be helping to stabilise growth (chart 6). Overall, the world economy remains resilient, but increasingly uneven, with AI-related investment continuing to offset — though not eliminate — the drag from geopolitical fragmentation and rising energy insecurity.

Charts of the Week: The Tug of War

Sandy Batten

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260514w5.jpg

Total retail sales rose a solid 0.5% m/m (4.9% y/y) in April on top of a slightly downwardly revised 1.6% monthly jump in March (previously 1.7%), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 05% m/m gain. Excluding autos, other sales increased 0.7% m/m (6.3% y/y) in April following an unrevised 1.9% monthly jump in March. Expectations were for a 0.6% monthly increase. The strong performance in March and the additional solid gain in April put the April level up 7.8% at an annual rate from the Q1 average, providing a very solid start for Q2.

As expected, the continued rise in retail gasoline prices boosted gasoline sales further in April. Gasoline sales increased 2.8% m/m in April following a 13.7% m/m surge in March and accounted for more than 40% of the April increase in total sales. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.3% m/m in April versus a 0.7% monthly gain in March. Sales excluding both autos and gasoline increased 0.5% m/m in April following a 0.7% m/m rise in March.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in March, rising 0.5% m/m in April following an upwardly revised 0.8% m/m increase in March (previously (0.7% m/m). The solid performances of the control group sales in March and April provide a strong start to Q2. April control-group sales are 5.4% at an annual rate above the Q1 average, in line with the 5.7% annualized increase in Q1. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales across major sectors were varied in April. Consumers clearly spent more on necessities, owing largely to higher prices. Food sales increased 0.8% m/m in April on top of a 1.0% m/m rise in March. And as already noted, gasoline sales posted another outsized monthly increase. By contrast, department store sales slumped 3.2% m/m, clothing sales fell 1.5% m/m, auto sales declined 0.4% m/m and furniture sales fell 2.0% m/m. More encouragingly, sales of nonstore retailers rose 1.1% m/m, their fourth consecutive solid monthly gain. And sales at restaurants increased 0.6% m/m in April, their third consecutive monthly rise. Analysts frequently use restaurant sales as a barometer of consumer attitudes, believing that consumers would not eat out regularly if they were under serious financial stress.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.


260514x5.jpg

260514y5.jpg

- Total sales increase 0.5% m/m in April after a 1.6% monthly jump in March.
- Gasoline sales rose 2.8% m/m in April on top of a 13.7% surge in March.
- Auto sales fell 0.4% m/m after a 0.6% m/m rise in March.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in April versus a 0.7% m/m rise in March.
- Sales of the retail control group that is used to construct PCE rose 0.5% m/m in April and are 5.4% annualized above the Q1 average, providing a good start to Q2.


U.S. Retail Sales Slowed in April But Remained Solid

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 12,000 to 211,000 in the week ending May 9, from 199,000 in the week ending May 2, revised from 200,000. The four-week average rose 750 to 203,750 in the week ending May 9, from 203,000 the May 2 week, revised from 203,250. The Action Economics/Haver Analytics Survey looked for 205,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 24,000 to 1.782 million in the week ending May 2, from 1.758 million in the week ending April 25, revised from 1.766 million. The four-week moving average declined to 1.781 million in the latest week from 1.788 million in the April 25 week. The four-week moving average reached the lowest level since May 2024. The insured unemployment rate rose back to 1.2% in the week of May 2 from the one-week dip to 1.1% in the April 25 week. It had been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 25, the highest unemployment rates were in Rhode Island (2.29%), New Jersey and Massachusetts (both 2.20%), and Washington (2.15%). The lowest rates were in Florida and Louisiana (both 0.31%), South Dakota (0.32%), Alabama and Arkansas (both 0.36%), North Carolina (0.38%), Tennessee (0.47%) and Iowa, Kansas and Virginia (all 0.48%). Rates in other notable states include California (1.99%), New York (1.66%), Illinois (1.56%), Pennsylvania (1.28%), and Texas (1.03%). These state data are not seasonally adjusted.

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


260514c8.jpg

260514d8.jpg

- New claims rose by 12,000 to 211,000.
- Continuing claims rose by 24,000 to 1.782 million.
- The insured unemployment rate was back up to 1.2% in the week of May 2, from the one-week dip to 1.1% the prior week.

U.S. Initial Unemployment Claims rose in the Week of May 9

Michael J. Moran

260513M9.jpg

260513N9.jpg

The Producer Price Index surged 1.4% in April, far in excess of the expected increase of 0.5%. Energy prices accounted for much of the increase with a jump of 7.8%, a much sharper change than the advance of 3.8% in the CPI. The marked difference between the energy components of the CPI and the PPI was primarily due to the nature of the customers. The Consumer Price Index, naturally, collects prices paid by individuals; the PPI, in addition to individuals, collects prices paid by businesses, governments, and exporters. Energy prices paid by governments and exporters rose sharply (12.1% and 15.8%, respectively). The PPI also showed a sharp increase in energy prices paid by individuals (6.1% versus 3.8% in the CPI).

Service prices also contributed to the high-side surprise in the PPI, posting an increase of 1.2%. This area often moves erratically, but still the latest move can be viewed as unusual, as it marked the second largest increase in service prices since the current structure of the PPI began in 2010 (three other observations were close with increases of 1.1%; the largest increase was 1.3% during the inflation burst in 2022).

Goods prices other than energy items were tame compared with service prices, but they too were unsettling. This grouping posted an increase of 0.6%, a reading in the upper end of the range from the past few years. The increase, although pronounced, was not broadly based. In a list of 53 non-energy goods provided by the BLS, only 13 posted increases of 0.4% or more, although a handful were especially sharp (electronic components 8.1%, industrial chemicals 4.4%, household furniture 1.8%).

Food represented the only major grouping that was not troubling, registering an increase of 0.2%. 


260513O9.jpg

260513P9.jpg

- The energy component led the sharp increase in the PPI, but it had support from many other areas
- Excluding energy, most service prices rose sharply; prices of non-energy goods also were under pressure
- The food component went against the grain with an increase of only 0.2%


April PPI: Broad-Based Pressure

Robert Brusca

260513e.jpg

Industrial production in the European monetary area in March rose by 0.2%. Manufacturing output rose by 0.4%, marking two-months in a row of output increases. Output is still falling overall and in manufacturing over three months. Over three-months total manufacturing output excluding construction falls 2.7% annualized, over 6-months, it falls at a 0.4% annual rate, and over three-months the pace of decline steps back up again to -1.2% at an annual rate. The declines in manufacturing are more or less along the same lines.

**Sectors**
Output of consumer goods fell in March, driven by a decline in the output of nondurable goods that fell 4.5% month-to-month. Intermediate goods output rose by 0.9% in the month, increasing for the second month in a row. Capital goods output rose 1.1% after rising 0.8% in February.

**Sequential growth**
However sequential growth rates find headline growth negative over 12-months, six-months, and three-months- the same as for manufacturing. Consumer goods output declines at an accelerating pace dropping 11.6% over 12-months, at a 13.6% annual rate over six-months and at a 24.9% annual-rate over three-months. Those declines are led by reduction in consumer nondurables output. Intermediate goods output is mostly weak over the horizon, falling by 1.5% over 12-months and by 0.9% over 3 months annualized. The exception is capital goods sector where output rises by 2.2% over 12 months and accelerates to 4.6% over 6-months but then tails back, trimming growth to a 1.2% annual rate over three-months.

**Country Performance**
On a country basis declines occur in only two early-reporting members; those are Malta and Germany in March. Over three months output declines in the monetary area occurs in Ireland and Luxembourg and in Germany- with increases elsewhere. Output declines over 12-months, six-months, and three-months in the monetary area only for Germany, Luxembourg, and Ireland. There are consistent output increases in the monetary union in Austria, France, Finland, Italy, Greece, and Portugal. For most countries, increasing output is the rule despite the weak headlines, indicating that large economies are faring worse than smaller economies.

**Q1 Growth**
In the completed first quarter, we have manufacturing output falling by 1.8% at an annual rate and overall output falling at a 1.9% annual rate. Output declines in the quarter and in all major sectors. As for country reporters output falls in the quarter for Austria, Germany, Luxembourg, and Ireland.

**Growth rate rankings**
So, the percentile queue standings presented in the right-hand column are rankings of industrial production growth rates over 12-months. Compared to recent history, overall output has a 17-percentile standing which is relatively weak, in the lower one-fifth of its ranked results over the period (back to 2006). Only capital goods output at 52.5% has a standing above the 50% level which places it above its median result for the period. Among reporting countries seven have percentile standings above 50%, above their respective medians. The countries where output does not grow at a pace in excess of its median are Germany, Luxembourg, Malta, and Ireland.

On balance the smaller countries seem to be faring better in the European monetary union. The last two months have been relatively good months for output across the union; however, January had been so weak that the two months have not been able to recover from the weakness experienced in January. And the March data hardly reflect the hardships that are going to be visiting these economies because of the rise in oil prices and concerns about the situation in Iran and the strait of Hormuz. The future is unlikely to get better.





Economy in Brief: 2006

Jump to:

Leading Economic Indicators Down Third Month in Four

Initial Claims for Unemployment Insurance Up Slightly

Initial Claims for Unemployment Insurance Up Slightly

Japanese Business Confidence Diminishes Ahead of Possible Rate Hike

Gold Prices Crater, Oil Off a Bit But Inflation Pressure Up

Mortgage Applications Dip, # of Unsold Homes Soar

Mortgage Applications Dip, # of Unsold Homes Soar

Employment Situation in Italy Improves: Foreign New Orders up Sharply