Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050621a.jpg" width="353">
Chain store sales inched up another 0.1% last week following gains of 0.6% and 0.4% during the prior two periods according to the International Council of Shopping Centers (ICSC)-UBS survey. So far in June sales are 0.3% below the prior month&#39;s average because of sharp declines through most of May.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC jumped 0.9% w/w (3.0% y/y) for the second consecutive week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
What Difference Would An Inflation Target Make? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/spring2005/hetzel.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/18/05</th>
<th scope="col">06/11/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.9</td>
<td>455.5</td>
<td>3.7%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
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</tbody>
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Chain store sales inched up another 0.1% last week following gains of 0.6% and 0.4% during the prior two periods according to the International Council of Shopping Centers (ICSC)-UBS survey. So far in June sales are 0.3% below the [...]

Chain Store Sales Rose For Third Week

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620b.jpg" width="353">
After last week&#39;s release of a strong rise of almost 2% in industrial production in April, Italy released more positive data today. Industrial turnover or sales rose 2.3% in April from March and were 1.5% above April, 2004. Industrial orders rose 1.5% and 2.5% respectively in the comparable periods. The sales and order data are broken down into domestic and foreign. While the rise in domestic industrial sales was stronger than that for foreign sales, orders for foreign sales increased more than those for domestic sales.
While the sales and order data for April are encouraging, the first chart showing sales and orders over the past five years, puts these recent improvements in perspective. They appear to be little more than part of an erratic but only slightly upward trend that began in early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620c.jpg" width="353">
In addition to the sales and orders data, there were also positive data in the employment situation. Employment rose 0.5% in the first quarter of 2005l and was 1.0% above the first quarter of 2004. At the same time unemployment declined 1.0% in the first quarter of 2004 and was 3.3% below the year ago figure. Italy&#39;s harmonized rate of unemployment was 7.9% in the first quarter of 2905. As the attached chart shows, Italy&#39;s unemployment rate has continued to decline while that for the Euro Zone as a whole has been rising--mainly as a result of the increasing unemployment in France and Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy</a> 2000=100</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">Apr 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Turnover (Sales)</td>
<td>106.3</td>
<td>103.9</td>
<td>104.7</td>
<td>2.31</td>
<td>1.53</td>
<td>104.2</td>
<td>101.8</td>
<td>102.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>105.7</td>
<td>102.7</td>
<td>105.1</td>
<td>2.92</td>
<td>0.57</td>
<td>104.2</td>
<td>101.9</td>
<td>102.2&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.1</td>
<td>107.1</td>
<td>103.4</td>
<td>0.93</td>
<td>4.55</td>
<td>104.2</td>
<td>101.3</td>
<td>103.4</td>
</tr>
<tr>
<td class="firstcol">Industrial Orders</td>
<td>100.2</td>
<td>98.7</td>
<td>97.8</td>
<td>1.52</td>
<td>2.45</td>
<td>99.0</td>
<td>95.3</td>
<td>99.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>96.7</td>
<td>96.2</td>
<td>95.9</td>
<td>0.52</td>
<td>0.83</td>
<td>96.9</td>
<td>93.8</td>
<td>97.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.2</td>
<td>104.4</td>
<td>102.0</td>
<td>3.64</td>
<td>6.08</td>
<td>103.7</td>
<td>98.6</td>
<td>102.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q1&nbsp; 05</td>
<td>Q4&nbsp; 04</td>
<td>Q1 04</td>
<td>Q/Q%</td>
<td>Y/Y%</td>
<td>&nbsp;2004&nbsp;&nbsp;</td>
<td>&nbsp;2003</td>
<td>&nbsp;2002</td>
</tr>
<tr>
<td class="firstcol">Employment (thousands)</td>
<td>22,564</td>
<td>22,450</td>
<td>22,334</td>
<td>0.51</td>
<td>1.03</td>
<td>22,400</td>
<td>22,230</td>
<td>21,901</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (thousands)</td>
<td>1,927</td>
<td>1,946</td>
<td>2,074</td>
<td>-0.98</td>
<td>-3.31</td>
<td>1,956</td>
<td>2,040</td>
<td>2,078</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>7.9</td>
<td>8.0</td>
<td>8.2</td>
<td>-0.1pts</td>
<td>-0.3pts</td>
<td>8.0</td>
<td>8.4</td>
<td>8.7</td>
</tr>
</tbody>
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After last week's release of a strong rise of almost 2% in industrial production in April, Italy released more positive data today. Industrial turnover or sales rose 2.3% in April from March and were 1.5% above April, 2004. Industrial [...]

A Few Encouraging Signs in Italy's Lackluster Economy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620a.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell a sharp 0.5% in May following an upwardly revised no change in April. Six-month growth in the leaders dropped to -2.2%. Growth in the leaders deeper than -2.5% preceded past US recessions.
During the last ten years there has been a 50% correlation between the six-month change in the leading indicators and the change in real GDP.
Amongst the 10 components of the leading index, the breadth of one month gain retraced the prior month&#39;s improvement and fell to just 15%. In May, a flatter interest rate yield curve, lower building permits, and higher claims for unemployment insurance made the largest negative contributions. During the last year the leading indicators have fallen 1.9%, roughly half of which was due to the flatter yield curve and the rest was due to the drop in vendor performance.
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 rose by 0.2% (2.1% y/y) for the third month in the last four.
The lagging indicators rose 0.3% in May though the prior month&#39;s gain was revised down to 0.1%.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess dipped slightly and has been roughly unchanged since last October except for an upward blip in December.
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.

<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</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>1.3%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
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The Composite Index of Leading Economic Indicators reported by the Conference Board fell a sharp 0.5% in May following an upwardly revised no change in April. Six-month growth in the leaders dropped to -2.2%. Growth in the leaders [...]

Leading Indicators Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620a.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell a sharp 0.5% in May following an upwardly revised no change in April. Six-month growth in the leaders dropped to -2.2%. Growth in the leaders deeper than -2.5% preceded past US recessions.
During the last ten years there has been a 50% correlation between the six-month change in the leading indicators and the change in real GDP.
Amongst the 10 components of the leading index, the breadth of one month gain retraced the prior month&#39;s improvement and fell to just 15%. In May, a flatter interest rate yield curve, lower building permits, and higher claims for unemployment insurance made the largest negative contributions. During the last year the leading indicators have fallen 1.9%, roughly half of which was due to the flatter yield curve and the rest was due to the drop in vendor performance.
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 rose by 0.2% (2.1% y/y) for the third month in the last four.
The lagging indicators rose 0.3% in May though the prior month&#39;s gain was revised down to 0.1%.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess dipped slightly and has been roughly unchanged since last October except for an upward blip in December.
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.

<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</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>1.3%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
A Few Encouraging Signs in Italy's Lackluster  Economy 
by <a href="/comment/Curley.html">Louise Curley</a> June 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620b.jpg" width="353">
After last week&#39;s release of a strong rise of almost 2% in industrial production in April, Italy released more positive data today. Industrial turnover or sales rose 2.3% in April from March and were 1.5% above April, 2004. Industrial orders rose 1.5% and 2.5% respectively in the comparable periods. The sales and order data are broken down into domestic and foreign. While the rise in domestic industrial sales was stronger than that for foreign sales, orders for foreign sales increased more than those for domestic sales.
While the sales and order data for April are encouraging, the first chart showing sales and orders over the past five years, puts these recent improvements in perspective. They appear to be little more than part of an erratic but only slightly upward trend that began in early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620c.jpg" width="353">
In addition to the sales and orders data, there were also positive data in the employment situation. Employment rose 0.5% in the first quarter of 2005l and was 1.0% above the first quarter of 2004. At the same time unemployment declined 1.0% in the first quarter of 2004 and was 3.3% below the year ago figure. Italy&#39;s harmonized rate of unemployment was 7.9% in the first quarter of 2905. As the attached chart shows, Italy&#39;s unemployment rate has continued to decline while that for the Euro Zone as a whole has been rising--mainly as a result of the increasing unemployment in France and Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy</a> 2000=100</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">Apr 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Turnover (Sales)</td>
<td>106.3</td>
<td>103.9</td>
<td>104.7</td>
<td>2.31</td>
<td>1.53</td>
<td>104.2</td>
<td>101.8</td>
<td>102.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>105.7</td>
<td>102.7</td>
<td>105.1</td>
<td>2.92</td>
<td>0.57</td>
<td>104.2</td>
<td>101.9</td>
<td>102.2&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.1</td>
<td>107.1</td>
<td>103.4</td>
<td>0.93</td>
<td>4.55</td>
<td>104.2</td>
<td>101.3</td>
<td>103.4</td>
</tr>
<tr>
<td class="firstcol">Industrial Orders</td>
<td>100.2</td>
<td>98.7</td>
<td>97.8</td>
<td>1.52</td>
<td>2.45</td>
<td>99.0</td>
<td>95.3</td>
<td>99.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>96.7</td>
<td>96.2</td>
<td>95.9</td>
<td>0.52</td>
<td>0.83</td>
<td>96.9</td>
<td>93.8</td>
<td>97.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.2</td>
<td>104.4</td>
<td>102.0</td>
<td>3.64</td>
<td>6.08</td>
<td>103.7</td>
<td>98.6</td>
<td>102.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q1&nbsp; 05</td>
<td>Q4&nbsp; 04</td>
<td>Q1 04</td>
<td>Q/Q%</td>
<td>Y/Y%</td>
<td>&nbsp;2004&nbsp;&nbsp;</td>
<td>&nbsp;2003</td>
<td>&nbsp;2002</td>
</tr>
<tr>
<td class="firstcol">Employment (thousands)</td>
<td>22,564</td>
<td>22,450</td>
<td>22,334</td>
<td>0.51</td>
<td>1.03</td>
<td>22,400</td>
<td>22,230</td>
<td>21,901</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (thousands)</td>
<td>1,927</td>
<td>1,946</td>
<td>2,074</td>
<td>-0.98</td>
<td>-3.31</td>
<td>1,956</td>
<td>2,040</td>
<td>2,078</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>7.9</td>
<td>8.0</td>
<td>8.2</td>
<td>-0.1pts</td>
<td>-0.3pts</td>
<td>8.0</td>
<td>8.4</td>
<td>8.7</td>
</tr>
</tbody>
</table>
</body>
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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/050617d.jpg" width="353">
Orders received by Japan&#39;s machinery industry rebounded sharply in April, according to data reported yesterday and today by the Japanese Cabinet Office. Total orders, seasonally adjusted, were up 14.8% in the month, after three successive declines. These order flows are very erratic, as seen in the chart, and we have plotted a 6-month moving average to show the trend. This measure increased 2.2% from March. April orders were 8.3% ahead of April 2004.
A broad division of these orders into domestic and foreign sources indicates that Japanese industry is still led by external demand. Foreign orders were up 31.3% in April and 18.3% over a year ago. These have a loose negative correlation with the value of the yen, as might be expected (see second graph). And while the yen has strengthened against the dollar (and therefore against the Chinese yuan), it has remained weak relative to the euro, at least until very recently. Taking account other currencies as well, a weighted &quot;effective&quot; exchange rate published by the Bank of Japan has been basically flat for the last three years, and therefore largely a neutral force on total foreign demand for Japanese products.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617e.jpg" width="353">
Domestic orders are creeping upward. Machinery orders from private non-manufacturing industries are also basically flat. However, manufacturing industry orders for machines are rising. This sector was up 14.4% in April alone, reaching &yen;511 billion, the largest single month since May 1997. These orders are volatile, too, and such a jump and level are likely unsustainable in the near term. Even so, this sign of firmer domestic demand in Japan is encouraging.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/JAPAN.HTM">Japan</a>(Billion &yen;)</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year Ago (Yr/Yr)</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total Orders*</td>
<td>2,421.6</td>
<td>2,109.5</td>
<td>2,243.7</td>
<td>2,202.7</td>
<td>2,113.1</td>
<td>1,836.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>14.8</td>
<td>-2.4</td>
<td>8.3</td>
<td>4.2</td>
<td>15.0</td>
<td>-10.9</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>1,380.4</td>
<td>1,320.5</td>
<td>1,347.0</td>
<td>1,323.5</td>
<td>1,295.6</td>
<td>1,217.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>4.5</td>
<td>-4.7</td>
<td>2.6</td>
<td>2.2</td>
<td>6.4</td>
<td>-14.8</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>915.0</td>
<td>696.9</td>
<td>781.4</td>
<td>770.4</td>
<td>708.4</td>
<td>521.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>31.3</td>
<td>2.9</td>
<td>18.1</td>
<td>8.8</td>
<td>35.9</td>
<td>-0.7</td>
</tr>
</tbody>
</table>
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Orders received by Japan's machinery industry rebounded sharply in April, according to data reported yesterday and today by the Japanese Cabinet Office. Total orders, seasonally adjusted, were up 14.8% in the month, after three [...]

April Machinery Orders Jump in Japan; Foreign Sector and Domestic Manufacturing Lead

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in June improved a sharp 9.1% versus May to 94.8. Sentiment rose to the highest level since January. Consensus expectations had been for a level of 88.7.
During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE, although the correlation has fallen in recent years.
Consumer expectations surged a sharp 12.6% following five months of decline.
The reading of current economic conditions also rose 5.2% to the highest level since January.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>94.8</td>
<td>86.9</td>
<td>-0.8%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>104.9</td>
<td>3.5%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>84.8</td>
<td>75.3</td>
<td>-4.2%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
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The University of Michigan's preliminary reading of consumer sentiment in June improved a sharp 9.1% versus May to 94.8. Sentiment rose to the highest level since January. Consensus expectations had been for a level of 88.7. During [...]

U.S. Consumer Sentiment Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617b.jpg" width="353">
The 1Q05 US current account deficit deepened to another record of $195.1B, or 6.4% of GDP. Consensus expectations had been for a deficit of $189.0B. Trade account deterioration was estimated to have subtracted 0.7 percentage points from 1Q growth in real GDP, an estimate which may be increased. Earlier estimates of the current account deficit were deepened slightly for 2004. 
The deficit in merchandise trade deteriorated to $186.3B from a revised $182.2B in 4Q. Exports grew 2.4% (10.3% y/y) and imports rose 2.3% (15.9% y/y).
The surplus on services improved for the second consecutive quarter to $14.6B, the highest level since 4Q03 but remained down from the annual peak in 1997 of $89.8B. Exports of services grew 4.3% in 1Q (12.7% y/y and imports rose 2.9% (12.1% y/y).
From the capital account, US foreign direct investment abroad dropped sharply to $32.2B following a 4Q surge while foreign direct investment in the US slipped to $28.8B.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">1Q &#39;05</th>
<th scope="col">4Q &#39;04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Deficit</td>
<td>$195.1B</td>
<td>$188.4B</td>
<td>$146.1B</td>
<td>$668.1B</td>
<td>$519.7B</td>
<td>$475.2B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$168.0B</td>
<td>$166.0B</td>
<td>$123.8B</td>
<td>$587.1B</td>
<td>$448.5B</td>
<td>$411.2B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>2.1%</td>
<td>5.0%</td>
<td>13.8%</td>
<td>14.9%</td>
<td>6.8%</td>
<td>-3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>1.9%</td>
<td>6.3%</td>
<td>19.4%</td>
<td>18.1%</td>
<td>7.3%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$27.1B</td>
<td>$22.4B</td>
<td>$22.3B</td>
<td>$80.9B</td>
<td>$71.2B</td>
<td>$64.0B</td>
</tr>
</tbody>
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The 1Q05 US current account deficit deepened to another record of $195.1B, or 6.4% of GDP. Consensus expectations had been for a deficit of $189.0B. Trade account deterioration was estimated to have subtracted 0.7 percentage points [...]

U.S. Current Account Deficit Another Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617a.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed went negative in June for the first month in just over two years. The 9.5 point m/m decline to -2.2 added to declines earlier this year which have lowered the index 27.6 points since December. Consensus expectations had been for a positive reading of 10.0 in June.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The new orders index dropped 12.5 points to the lowest level in two years and shipments also fell hard to 6.6 versus a high near 40 about one year ago. The index covering the number of employees rose slightly to 7.1 but that is down versus last year&#39;s high of 22.9. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months improved versus a downwardly revised May level.
The prices paid index fell sharply for the second month and at 23.5 is down 43 points from the January high. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0605.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-2.2</td>
<td>7.3</td>
<td>30.0</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>23.5</td>
<td>30.9</td>
<td>50.8</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
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</body>
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The Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed went negative in June for the first month in just over two years. The 9.5 point m/m decline to -2.2 added to declines earlier this year [...]

Philadelphia Fed Index Negative

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

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

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

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Initial claims for unemployment insurance dropped 10,000 to 214,000 in the week of December 20, from 224,000 during the week of December 13. The four-week moving average of initial claims was 216,750, a decrease of 750 from the prior week’s unrevised 217,500.

Federal government employees initially filed 805 (NSA) jobless insurance claims in the week ended December 13, after filing 1091 claims in the week ended December 6.

Continuing claims for unemployment insurance rose 38,000 to 1.923 million in the week ending December 13, after rising 55,000 to 1.885 million, revised from 1.897 million in the week ending December 6. The four-week moving average was 1.894 million in the week ending December 13, down 5,250 from 1.899 million, revised from 1,902,000 in the week ending December 6. The insured unemployment rate stood at 1.3% in the week of December 13, up from 1.2% in the week of December 6.

Federal government employees’ continuing benefits claims were 12,887 (NSA) in the week ending December 6, from 14,077 (NSA) in the week of November 29. 

The insured unemployment rate varied greatly across individual states and territories. In the week ending December 6, the highest unemployment rates were in New Jersey and Washington (both 2.40%), Massachusetts and Minnesota (both 2.10%), California and Rhode Island (both 2.00%). The lowest rates were in Florida (0.30%), and Alabama, Louisiana, North Carolina (all 0.40%). Rates in other notable states include New York (1.80%), Illinois and Pennsylvania (both 1.70%), and Texas (1.10%). 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.


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- Initial claims declined from the prior week.
- Continuing claims rose from the prior week.
- The insured unemployment rate edged up.


U.S. Initial Claims for Unemployment Insurance Dropped in Latest Week

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Mortgage applications dropped 5.0% w/w (+49.8% y/y) in the week of December 19, after a drop of 3.8% w/w (+40.9% y/y) in the week of December 12, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 3.7% w/w (+15.9% y/y) in the latest week, the third consecutive weekly decline, following a drop of 2.8% w/w (+12.3% y/y) in the December 12 week. Applications for loan refinancing dropped 5.6% w/w (+110.1% y/y) in the December 19 week after a decline of 3.6% w/w (+86.0% y/y) in the week of December 12. 

The effective interest rate on a 30-year fixed-rate loan fell 8bps to 6.48% in the week ending December 19 from 6.56% in the week ending December 12. The rate on 15-year fixed-rate mortgages dropped 5bps to 5.86% in the latest week from 5.91% in the prior week. The 30-year Jumbo rate rose 8bps to 6.63% in the December 19 week from 6.55% in the December 12 week. The rate on a 5-year ARM jumped 20bps to 5.96% in the latest week from 5.76% in the December 12 week.

The share of applications for refinancing an existing loan edged up to 59.1% of total applications in the December19 week from 59.0% in the week ending December 12. The adjustable-rate mortgage (ARM) share of activity rose to 8.1% in the latest week from 7.2% in the December 12 week.

The average size of a mortgage loan edged down 0.1% w/w (+7.8% y/y) to $399,700 in the week ending December 19, following a rise of 1.5% w/w (6.4% y/y) to $400,000 in the December 12 week. The average size of a purchase loan rose 1.0% w/w (1.1% y/y) to $428,600 in the latest week, after rising 0.6% w/w (-0.3% y/y) to $424,200 in the prior week. The average size of a loan to refinance a mortgage declined 0.9% w/w (+24.9% y/y) to $379,700 in the December 19 week, following a rise of 2.3% w/w (19.8% y/y) to $383,300 in the week ending December 12.

The Mortgage Bankers Association Survey covers 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.


- Both purchase applications and refinancing loan applications fell in the latest week.
- Effective interest rate on 30-year fixed loans fell to 6.48%.
- Average loan size edged down.


U.S. Mortgage Applications Dropped in the Week of December 19

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Real GDP grew 4.3% (SAAR) during the third quarter following a 3.8% Q2 gain, revised from 3.3% reported initially. These increases followed a minimally revised 0.6% decline in Q1. A 3.0% rise had been expected in the Action Economics Forecast Survey. Growth during the last four quarters of 2.3% compared to 2.1% y/y in Q2 and remained below its most recent high of 3.4% in Q4 2023.

After-tax corporate profits without IVA & CCA adjustment surged 7.0% (4.2% y/y) last quarter after edging 0.6% higher in Q2. Before-tax earnings with IVA & CCA rose 4.2% (9.1% y/y) after improving 0.2% in Q2. Financial sector earnings rose 6.2% (21.1% y/y) after rising 1.1% in Q2. Nonfinancial corporate profits rose 2.5% (3.3% y/y) after edging 0.5% higher in Q2. Earnings from abroad jumped 10.6% (26.3% y/y) following a 2.9% Q2  decline.

Foreign trade balance improvement added 1.59 percentage points to growth last quarter after adding 4.83 percentage points in Q2. Real exports increased 2.1% (1.5% y/y) after falling 0.5% in Q2. Real imports declined 1.2% (-1.8% y/y) after declining 8.3% in Q2. Inventories subtracted 0.22 percentage points from growth after subtracting 3.44 percentage point from Q2 growth.

Real final sales to private domestic purchasers grew 3.0% (2.6% y/y) last quartter after rising 2.9% in Q2, revised from 1.6%. Personal consumption expenditures rose 3.5% (2.6% y/y) after a 2.5% rise, revised from 1.6%. Durable goods spending rose 1.6% (3.2% y/y) after increasing 2.3% in Q2. Motor vehicle purchases declined 6.7% (+1.6% y/y) after strengthening 9.7% in Q2. Spending on home furnishings & appliances weakened 4.2% (+0.7% y/y) following a 2.0% fall. Recreational goods & vehicle buying surged 15.7% (7.0% y/y) last quarter after falling 2.5% in Q2.

Nondurable goods outlays in constant dollars rose 3.9% (3.0% y/y) last quarter following 2.2% growth in Q2. Apparel spending strengthened 6.7% (7.0% y/y) following a 5.8% rise. Food & beverage buying gained 2.0% (1.3% y/y) after edging 0.2% higher. Gasoline & fuel oil purchases improved 1.3% (-0.2% y/y) after falling 2.8% in Q2.



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Real spending on services increased 3.7% (2.4% y/y) in Q3 after a 2.6% Q2 gain. Outlays on housing & utilities edged 0.3% higher (1.0% y/y) after easing 0.2% in Q2. Health care expenditures surged 6.8% (4.5% y/y) after a 4.8% increase. Transportation outlays gained 3.1% both  q/q and y/y after a 7.0% rise, while recreation spending jumped 6.6% (2.4% y/y) following a 3.9% rise. Restaurant & hotel expenditures increased 1.2% (2.0% y/y) after strengthening 5.9% in Q2. Financial services expenditures rose 2.6% both q/q and y/y following a 4.8% Q2 increase.

Business fixed investment in constant dollars increased 2.8% (3.9% y/y) last  quarter following a 7.3% Q2 rise, revised from 5.7%. Expenditures on structures declined 6.3% both q/q and y/y, after falling for six consecutive quarters. Expenditures on producers’ durable equipment increased 5.4% (7.4% y/y), after strengthening 8.5% in Q2. Outlays on information processing equipment rose 8.4% (18.6% y/y), after strengthening 11.7% during Q2. Industrial equipment investment rose 2.0% (3.4% y/y) after a 6.5% rise. Transportation equipment investment fell  2.7% (+3.0% y/y) after strengthening 25.2%. Intellectual property product spending rose 5.4% last quarter (6.4% y/y), after surging 15.0% in Q2.

Residential structures investment in real terms declined 5.1% (-1.8% y/y), the same as in Q2. It was the third consecutive quartly decline.

Government spending rose 2.2% (1.1% y/y) during the third quarter after an unrevised 0.1% easing in Q2. Federal government expenditures rose 2.9% (-1.0% y/y) after falling 5.3% in Q2. National defense expenditures increased 5.8% (1.0% y/y) after rising 0.9% in Q2. State & local government spending rose 1.8% (2.4% y/y) following a 3.1% rise.

The GDP chain price index rose 3.8% (3.0% y/y) last quarter vs. 2.1% in Q2. The PCE chain price index increased 2.8% (2.7% y/y) following a 2.1% rise. The PCE price index excluding food and energy rose 2.9% (2.9% y/y) after increasing 2.6% in Q2. The business fixed investment price index rose 5.2% (1.5% y/y) in Q3 after a 0.4% decline. The residential price index rose 4.5% (3.3% y/y) last quarter after a 2.2% rise, while the government price index increased 4.4% (3.5% y/y) following a 3.3% rise.

The GDP data 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. The Action Economics consensus estimates can be found in **AS1REPNA**.



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- Consumer spending strengthens; growth in business investment decelerates.
- Corporate profit growth led by earnings abroad.
- Rise in chain price index accelerates.


U.S. GDP Growth is Strong in Q3; Profits Jump

Sandy Batten

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Industrial production fell 0.1% m/m in October but rose 0.2% m/m (2.5% y/y) in November. The Action Economics Forecast Survey expected 0.1% monthly gains in both months. Manufacturing activity was tepid with manufacturing production falling 0.4% m/m in October and unchanged in November. Manufacturing output has not posted a monthly gain since July. Mining output fell 0.8% m/m in October but rebounded 1.7% m/m in November. Utilities output surged 2.6% m/m in October but fell 0.4% m/m in November. Compared to a year ago, manufacturing production is up 1.9%; mining output is up 3.9%; and utilities output is up 4.8%.

By market group, output of durable consumer goods plunged 2.6% m/m in October and fell another 0.2% in November. Production of durable consumer goods has declined in five of the previous six months. Production of nondurable consumer goods rose 0.5% m/m in both October and November. Compared to a year ago, durable consumer goods production has fallen 5.9% while nondurable consumer goods output has risen 2.7%. Business equipment production fell 0.3% m/m in October but rebounded 0.3% m/m in November and is up 11.2% y/y. Production of nonindustrial supplies fell 0.3% m/m in both October and November.

By industry group, output of durable goods fell 0.5% m/m in October and declined 0.1% m/m in November but were up 3.2% from a year ago. Motor vehicle and parts production slumped 5.1% m/m in October and declined 1.0% m/m in November to be down 5.6% from a year ago. Monthly motor vehicle output has declined in five of the previous six months. In contrast, production of computers and electronic products increased 1.5% m/m in October and rose 0.8% m/m in November. Aerospace production continued to rise, increasing 2.0% m/m in October and 1.1% m/m in November to be up 25.2% from a year ago. Output of nondurable goods fell 0.2% m/m in October and edged up 0.1% m/m in November. Their output is up 0.9% from a year ago. Apparel output fell 1.3% m/m in October but recovered in November, rising 2.3% m/m. Food and beverage output rose 0.3% m/m in October and another 1.2% in November.

Output of selected high-technology industries rebounded in October and November. After having declined 1.0% m/m in both August and September, production jumped 1.9% m/m in October and 1.1% m/m in November to stand 11.8% higher than a year ago. Manufacturing output excluding selected high-tech industries fell 0.4% m/m in October and was unchanged in November. It has risen only 1.6% over the past year. Manufacturing excluding motor vehicle production was unchanged in October and edged up 0.1% m/m in November; it is up 2.6% y/y.

Total industry capacity utilization edged down to 75.9% in October from 76.0% in September and then recovered the decline in November, edging up to 76.0%. In the manufacturing sector, the utilization rate slumped to 75.4% in October from 75.8% in September and remained at 75.4% in November. The October/November reading is the lowest since January.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.



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- Today’s release contained figures for both October and November that had been delayed by the federal government shutdown.
- IP fell in October but recovered in November.
- Manufacturing output was tepid, falling in October and unchanged in November.
- A surge in utilities output in October prevented a larger decline in total production.
- A jump in mining output in November accounted for all of the increase in total production.


U.S. Industrial Production Fell in October and Recovered in November

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New orders for durable goods fell a more-than-expected 2.2% (+4.8% y/y) in October following an upwardly revised 0.7% m/m rise in September (previously +0.5% m/m) and a 3.0% monthly jump in August. The Action Economics Forecast Survey expected a 1.5% m/m decline. A 23.7% m/m drop in aircraft orders more than accounted for the overall decline. Orders excluding aircraft increased 0.2% m/m (4.0% y/y) in October on top of a 0.5% monthly increase in September.

More generally, transportation orders fell 6.5% m/m (+7.3% y/y) in October following a 0.6% m/m increase in September and an 8.0% monthly jump in August. In addition to the drop in aircraft orders, orders for motor vehicles and parts edged up 0.1% m/m in October, their sixth consecutive monthly increase. Across other sectors, orders for primary metals fell 0.7% m/m, their first monthly decline in ten months. Orders for electrical equipment and appliances slumped 1.5% m/m, their first monthly decline in seven months. In contrast, orders for fabricated metal products rose 0.5% m/m, their fourth consecutive monthly gain. Machinery orders increased 0.8% m/m, their eighth consecutive monthly rise. Orders for computers and electronic products increased a solid 1.0% m/m on top of a 1.2% monthly increase in September.

Shipments of core capital goods (nondefense capital goods shipments excluding aircraft) are a reliable coincident indicator of business spending on equipment in the national accounts. They rose 0.7% m/m in October following an upwardly revised 1.2% monthly gain in September (previously +0.9%). The was the second consecutive monthly increase and the fifth in the past six months. The strong end to Q3 and the continued rise in the first month of Q4 provides a solid starting point for all of Q4. The October shipments figure was 5.9% at an annual rate above the Q3 average. Core capital goods orders rose 0.5% m/m in October on top of an upwardly revised 1.1% m/m increase in September (previously +0.9%). This was the fourth consecutive monthly rise.

Total manufacturing shipments edged up 0.1% m/m (+2.8% y/y) in October after having been essentially unchanged in September. Shipments of durable goods increased 0.6% m/m (5.9% y/y), led by 1.4% monthly jump in transportation shipments. However, apart from a 0.1% m/m decline in shipments of other durable goods, all of the other major sectors posted monthly gains in October. In contrast, shipments of nondurable goods fell 0.4% m/m (-0.3% y/y) in October for their third consecutive monthly decline. The monthly decline was led by a 2.4% m/m fall in shipments of petroleum and coal products although it was relatively widely spread across major sectors. The one exception was a 2.1% m/m increase in leather product shipments, but this came after four consecutive sizeable monthly declines.

Unfilled durable goods orders increased 0.2% m/m (7.9% y/y) in October for their third consecutive monthly gain following a 0.8% m/m rise in September and a 0.7% m/m increase in August. Total factory inventories were unchanged in October (+1.4% y/y) following 0.1% monthly declines in both August and September. Durable goods inventories edged up 0.1% m/m in October while inventories of nondurable goods fell 0.2% m/m, the third consecutive monthly decline.

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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- New orders for durable goods slumped 2.2% m/m in October following increases in both August and September
- A 24% monthly drop in aircraft orders drove the overall decline
- Orders excluding aircraft rose 0.2% m/m in October
- Core capital goods shipments and orders continued to rise in October with small upward revisions to September


Economy in Brief: 2005

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