Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702f.jpg" width="353">
The Bank of Japan&#39;s quarterly Tankan Survey, or short term business outlook, was released today. The Bank surveyed 2,469 large, 2.915 medium and 5,455 small-sized enterprises over the period from May 28 to June 29.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702e.jpg" width="353">
The headline series, a diffusion index for large manufacturing enterprises, rose from 20% in the March Survey to 22% in the current survey. The index has ranged between 20% and 22% since the second quarter of 2006 and has probably been the longest run of optimism manufactures have expressed since the late eighties. As noted in the Japan Data Base, major revisions in early 2004 have created a discontinuity in the time series data between December 2003 and March 2004. Pre revisions series are maintained in the data base and marked DISCONTINUED. Although they are not strictly comparable, we have plotted the DISCONTINUED and the current series in the first chart to place the current situation in a longer term perspective.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702g.jpg" width="353">
Caution on the part of the business men surveyed is evident in the fact that their forecasts have generally been below their appraisal of their actual results. The second chart compares the forecasts and appraisals of actual results for the large manufacturers. Optimists in medium-sized firms outweigh the pessimists by a margin of 10% in the current survey, but the margin has been rising as shown in the third chart. This chart also shows that medium-sized business owners, have also tended to forecast conditions below their appraisals of actual conditions. Small business owners are still pessimistic on balance. Although the degree of pessimism lessened significantly until mid 2006. it has since stagnated within a range of -2% to -4%%, as shown in the fourth chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN&#39;S TANKAN SURVEY&nbsp;</th>
<th scope="col">Q3 2007</th>
<th scope="col">Q2 2007&nbsp;</th>
<th scope="col">Q1 2007&nbsp;</th>
<th scope="col">Q4 2006&nbsp;</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006&nbsp;</th>
<th scope="col">Q1 2006&nbsp;</th>
<th scope="col">Q4 2005&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="9">Forecast (Diffusion Indexes %)</td>
</tr>
<tr class="odd">
<td colspan="9">&nbsp;Large firms</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing &nbsp;(HEADLINE SERIES)</td>
<td>22</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>22</td>
<td>19</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non Manufacturing</td>
<td>23</td>
<td>23</td>
<td>20</td>
<td>21</td>
<td>21</td>
<td>19</td>
<td>17</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Medium-sized firms </td>
<td>10</td>
<td>8</td>
<td>6</td>
<td>7</td>
<td>9</td>
<td>8</td>
<td>5</td>
<td>3</td>
</tr>
<tr>
<td class="firstcol"> Small firms</td>
<td>-5</td>
<td>-4</td>
<td>-4</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-4</td>
<td>-5</td>
</tr>
<tr class="even">
<td colspan="9">Actual Results&nbsp; (Diffusion Indexes %)</td>
</tr>
<tr class="odd">
<td colspan="9">&nbsp;Large firms</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing &nbsp; (HEADLINE SERIES)</td>
<td>--</td>
<td>23</td>
<td>23</td>
<td>25</td>
<td>24</td>
<td>21</td>
<td>20</td>
<td>21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non Manufacturing</td>
<td>--</td>
<td>22</td>
<td>22</td>
<td>22</td>
<td>20</td>
<td>20</td>
<td>18</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Medium-sized firms </td>
<td>--</td>
<td>10</td>
<td>10</td>
<td>10</td>
<td>9</td>
<td>8</td>
<td>7</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol"> Small firms</td>
<td>--</td>
<td>5</td>
<td>7</td>
<td>8</td>
<td>9</td>
<td>10</td>
<td>10</td>
<td>10</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bank of Japan's quarterly Tankan Survey, or short term business outlook, was released today. The Bank surveyed 2,469 large, 2.915 medium and 5,455 small-sized enterprises over the period from May 28 to June 29. The headline [...]

Japan's Tankan Survey: Confidence among Large Manufactures Remains Strong: Actual Results Continue Better than Forecast

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702d.jpg" width="353">
Tankan forward-looking survey shows some weakness. 
 In the Tankan Survey, size matters; Tankan index shows that the smaller the firm the less robust and &#145;lasting&#146; the recovery.
Japan&#146;s Tankan index was flat in June (Q2) and its index edged lower in its outlook for Q3. For large firms (the headline group) the Tankan was flat in Q2. But for medium sized firms responses faded to their weakest point since Q2 2006. For small firms the two-quarter slide in the index took them back to where they were in Q4 2006. The headline large company outlook index is off by one point for Q3; for the small and medium sized companies the drop-off is two points. Moreover the forecasting performance of the TANKAN is not very impressive.
The clear message from this report is that business activity in Japan has slowed and has done so across all types of business hurting small business the most. While other current indicators have been weak, Japanese officials set those reports aside, such as the drop in industrial production, and opting for looking at forecasts of gains for the months ahead.
It is not clear how strong the months&#146; ahead demand will be with weakness across sectors and reflected in consumer confidence readings as well as indicators such as the economy-watchers index.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Tankan Results Large Enterprises
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>1-Y Avg</td>
<td>Since Q3&#39;03</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG</td>
<td>23.0</td>
<td>23.0</td>
<td>25.0</td>
<td>24.0</td>
<td>23.8</td>
<td>20.7</td>
</tr>
<tr class="grey4">
<td class="firstcol">Nonmanufacturing</td>
<td>22.0</td>
<td>22.0</td>
<td>22.0</td>
<td>20.0</td>
<td>21.5</td>
<td>15.6</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>22.0</td>
<td>22.0</td>
<td>22.0</td>
<td>20.0</td>
<td>21.5</td>
<td>15.6</td>
</tr>
<tr class="grey4">
<td class="firstcol">Construction</td>
<td>2.0</td>
<td>-1.0</td>
<td>3.0</td>
<td>4.0</td>
<td>2.0</td>
<td>-4.6</td>
</tr>
<tr class="grey4">
<td class="firstcol">Real Estate</td>
<td>53.0</td>
<td>53.0</td>
<td>46.0</td>
<td>45.0</td>
<td>49.3</td>
<td>31.8</td>
</tr>
<tr class="grey4">
<td class="firstcol">Wholesale</td>
<td>23.0</td>
<td>22.0</td>
<td>24.0</td>
<td>21.0</td>
<td>22.5</td>
<td>20.4</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail</td>
<td>11.0</td>
<td>13.0</td>
<td>13.0</td>
<td>15.0</td>
<td>13.0</td>
<td>7.1</td>
</tr>
<tr class="grey4">
<td class="firstcol">Transportation</td>
<td>24.0</td>
<td>22.0</td>
<td>21.0</td>
<td>15.0</td>
<td>20.5</td>
<td>13.9</td>
</tr>
<tr class="grey4">
<td class="firstcol">Services for Business</td>
<td>35.0</td>
<td>37.0</td>
<td>32.0</td>
<td>20.0</td>
<td>31.0</td>
<td>23.8</td>
</tr>
<tr class="grey4">
<td class="firstcol">Personal Services</td>
<td>10.0</td>
<td>19.0</td>
<td>10.0</td>
<td>13.0</td>
<td>13.0</td>
<td>9.7</td>
</tr>
<tr class="grey4">
<td class="firstcol">Restaurants &amp; Hotels</td>
<td>11.0</td>
<td>17.0</td>
<td>19.0</td>
<td>18.0</td>
<td>16.3</td>
<td>7.1</td>
</tr>
<tr class="grey3">
<td colspan="7">Forecast</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG - Outlook</td>
<td>20.0</td>
<td>22.0</td>
<td>21.0</td>
<td>22.0</td>
<td>21.3</td>
<td>17.9</td>
</tr>
<tr class="grey4">
<td class="firstcol">NonMFG - Outlook</td>
<td>23.0</td>
<td>20.0</td>
<td>21.0</td>
<td>21.0</td>
<td>21.3</td>
<td>14.5</td>
</tr>
<tr class="grey4">
<td class="firstcol">All Industry - Outlook</td>
<td>22.0</td>
<td>20.0</td>
<td>20.0</td>
<td>21.0</td>
<td>20.8</td>
<td>15.9</td>
</tr>
<tr class="grey2">
<td colspan="7">Tankan Results Medium Enterprises</td>
</tr>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>1-Y Avg</td>
<td>Since Q3&#39;03</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG</td>
<td>13.0</td>
<td>16.0</td>
<td>17.0</td>
<td>14.0</td>
<td>15.0</td>
<td>11.0</td>
</tr>
<tr class="grey4">
<td class="firstcol">NonMFG</td>
<td>8.0</td>
<td>5.0</td>
<td>4.0</td>
<td>5.0</td>
<td>5.5</td>
<td>0.9</td>
</tr>
<tr class="grey3">
<td colspan="7">Forecast</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG - Outlook</td>
<td>12.0</td>
<td>12.0</td>
<td>11.0</td>
<td>13.0</td>
<td>12.0</td>
<td>6.9</td>
</tr>
<tr class="grey4">
<td class="firstcol">NonMFG - Outlook</td>
<td>4.0</td>
<td>2.0</td>
<td>4.0</td>
<td>6.0</td>
<td>4.0</td>
<td>-0.1</td>
</tr>
<tr class="grey4">
<td class="firstcol">All Industry - Outlook</td>
<td>8.0</td>
<td>6.0</td>
<td>7.0</td>
<td>9.0</td>
<td>7.5</td>
<td>2.9</td>
</tr>
<tr class="grey1">
<td colspan="7">Tankan Results Small Enterprises</td>
</tr>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>1-Y Avg</td>
<td>Since Q3&#39;03</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG</td>
<td>6.0</td>
<td>8.0</td>
<td>10.0</td>
<td>6.0</td>
<td>7.5</td>
<td>4.6</td>
</tr>
<tr class="grey4">
<td class="firstcol">Nonmanufacturing</td>
<td>-7.0</td>
<td>-6.0</td>
<td>-6.0</td>
<td>-8.0</td>
<td>-6.8</td>
<td>-11.1</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>-7.0</td>
<td>-6.0</td>
<td>-6.0</td>
<td>-8.0</td>
<td>-6.8</td>
<td>-11.1</td>
</tr>
<tr class="grey3">
<td colspan="7">Forecast</td>
</tr>
<tr class="grey4">
<td class="firstcol">MFG - Outlook</td>
<td>7.0</td>
<td>5.0</td>
<td>7.0</td>
<td>7.0</td>
<td>6.5</td>
<td>2.4</td>
</tr>
<tr class="grey4">
<td class="firstcol">NonMFG - Outlook</td>
<td>-10.0</td>
<td>-10.0</td>
<td>-9.0</td>
<td>-9.0</td>
<td>-9.5</td>
<td>-13.9</td>
</tr>
<tr class="grey4">
<td class="firstcol">All Industry - Outlook</td>
<td>-4.0</td>
<td>-4.0</td>
<td>-3.0</td>
<td>-4.0</td>
<td>-3.8</td>
<td>-7.9</td>
</tr>
</tbody>
</table>


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Tankan forward-looking survey shows some weakness.

Tankan Shows Flatness Q to Q

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702a.jpg" width="353">
The national purchasing managers&#146; report for activity in July rose to 56 from an unrevised levels of 55 during June, according to the Institute of Supply Management. 
Strength in the sub-index of production was notable with a 4.6 point increase which was its largest monthly increase in two years. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702b.jpg" width="353">
New orders also rose but the gain was a moderate 0.7 points to a still high level of 660.3. Any reading above 50 indicates growth. 
Export orders slipped three points but still indicated expansion in order books with a reading of 56.0. For the quarter, the index was at its highest level since 1Q06. 
The employment index fell for the second consecutive month to 51.1. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702c.jpg" width="353">
To the downside also were the speed of vendor deliveries and the inventories index which fell for the third consecutive month. 
Pricing pressure eased for the second month but the index remained at a high 68.0. That is up from the lows just below 50 during the last quarter of 2006. 

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">June 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>56.0</td>
<td>55.0</td>
<td>54.0</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>68.0</td>
<td>71.0</td>
<td>76.5</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>


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The national purchasing managers report for activity in July rose to 56 from an unrevised levels of 55 during June, according to the Institute of Supply Management. Strength in the sub-index of production was notable with a 4.6 point [...]

National PMI Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702a.jpg" width="353">
The national purchasing managers&#146; report for activity in July rose to 56 from an unrevised levels of 55 during June, according to the Institute of Supply Management. 
Strength in the sub-index of production was notable with a 4.6 point increase which was its largest monthly increase in two years. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702b.jpg" width="353">
New orders also rose but the gain was a moderate 0.7 points to a still high level of 660.3. Any reading above 50 indicates growth. 
Export orders slipped three points but still indicated expansion in order books with a reading of 56.0. For the quarter, the index was at its highest level since 1Q06. 
The employment index fell for the second consecutive month to 51.1. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702c.jpg" width="353">
To the downside also were the speed of vendor deliveries and the inventories index which fell for the third consecutive month. 
Pricing pressure eased for the second month but the index remained at a high 68.0. That is up from the lows just below 50 during the last quarter of 2006. 

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">June 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>56.0</td>
<td>55.0</td>
<td>54.0</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>68.0</td>
<td>71.0</td>
<td>76.5</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>
 Japan's Tankan Survey: Confidence among Large Manufactures Remains Strong: Actual Results Continue Better than Forecast 
by <a href="/comment/Curley.html">Louise Curley</a> July 2, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702f.jpg" width="353">
The Bank of Japan&#39;s quarterly Tankan Survey, or short term business outlook, was released today. The Bank surveyed 2,469 large, 2.915 medium and 5,455 small-sized enterprises over the period from May 28 to June 29.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702e.jpg" width="353">
The headline series, a diffusion index for large manufacturing enterprises, rose from 20% in the March Survey to 22% in the current survey. The index has ranged between 20% and 22% since the second quarter of 2006 and has probably been the longest run of optimism manufactures have expressed since the late eighties. As noted in the Japan Data Base, major revisions in early 2004 have created a discontinuity in the time series data between December 2003 and March 2004. Pre revisions series are maintained in the data base and marked DISCONTINUED. Although they are not strictly comparable, we have plotted the DISCONTINUED and the current series in the first chart to place the current situation in a longer term perspective.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702g.jpg" width="353">
Caution on the part of the business men surveyed is evident in the fact that their forecasts have generally been below their appraisal of their actual results. The second chart compares the forecasts and appraisals of actual results for the large manufacturers. Optimists in medium-sized firms outweigh the pessimists by a margin of 10% in the current survey, but the margin has been rising as shown in the third chart. This chart also shows that medium-sized business owners, have also tended to forecast conditions below their appraisals of actual conditions. Small business owners are still pessimistic on balance. Although the degree of pessimism lessened significantly until mid 2006. it has since stagnated within a range of -2% to -4%%, as shown in the fourth chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070702h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN&#39;S TANKAN SURVEY&nbsp;</th>
<th scope="col">Q3 2007</th>
<th scope="col">Q2 2007&nbsp;</th>
<th scope="col">Q1 2007&nbsp;</th>
<th scope="col">Q4 2006&nbsp;</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006&nbsp;</th>
<th scope="col">Q1 2006&nbsp;</th>
<th scope="col">Q4 2005&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="9">Forecast (Diffusion Indexes %)</td>
</tr>
<tr class="odd">
<td colspan="9">&nbsp;Large firms</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing &nbsp;(HEADLINE SERIES)</td>
<td>22</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>22</td>
<td>19</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non Manufacturing</td>
<td>23</td>
<td>23</td>
<td>20</td>
<td>21</td>
<td>21</td>
<td>19</td>
<td>17</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Medium-sized firms </td>
<td>10</td>
<td>8</td>
<td>6</td>
<td>7</td>
<td>9</td>
<td>8</td>
<td>5</td>
<td>3</td>
</tr>
<tr>
<td class="firstcol"> Small firms</td>
<td>-5</td>
<td>-4</td>
<td>-4</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-4</td>
<td>-5</td>
</tr>
<tr class="even">
<td colspan="9">Actual Results&nbsp; (Diffusion Indexes %)</td>
</tr>
<tr class="odd">
<td colspan="9">&nbsp;Large firms</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing &nbsp; (HEADLINE SERIES)</td>
<td>--</td>
<td>23</td>
<td>23</td>
<td>25</td>
<td>24</td>
<td>21</td>
<td>20</td>
<td>21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non Manufacturing</td>
<td>--</td>
<td>22</td>
<td>22</td>
<td>22</td>
<td>20</td>
<td>20</td>
<td>18</td>
<td>17</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Medium-sized firms </td>
<td>--</td>
<td>10</td>
<td>10</td>
<td>10</td>
<td>9</td>
<td>8</td>
<td>7</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol"> Small firms</td>
<td>--</td>
<td>5</td>
<td>7</td>
<td>8</td>
<td>9</td>
<td>10</td>
<td>10</td>
<td>10</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/070629e.jpg" width="353">
New construction put-in-place surged by 0.9% in May, following 0.2% in April and 0.1% in March. This was the best performance since February 2006 and compared with Action Economics&#39; forecast survey that called for just 0.1%. This month&#39;s report includes annual revisions of the construction data; besides the usual seasonal adjustment changes, a new sampling procedure is being used for public construction projects. Other alterations were made. As seen in the first graph, the net result is a downward shift in construction spending in the most recent months, with April lower by 2%, although the peak in early 2006 is now seen to be somewhat higher than before.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070629f.jpg" width="353">
Residential building continued its contraction, although May&#39;s 0.8% decrease and April&#39;s -0.4% were not as bad as many recent months. This sector has declined continuously beginning in March 2006 and the monthly shrinkage has averaged 1.6%. So, indeed, April and May definitely look &quot;less bad&quot; with their smaller losses. Among types of residential construction, multi-family eked out a 0.3% increase in May and home improvements were flat after a 0.9% rise in April. These helped steady the sector even as single-family home construction weakened somewhat to a 1.4% decline after two smaller monthly reductions.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070629g.jpg" width="353">
Private nonresidential and public construction both had impressive gains in May: 2.7% and 2.2%, respectively. And both have been strong for some time. Public construction has been up in 7 of the last 8 months, particularly at the state and local level. Private nonresidential has seen only 1 decrease since the middle of 2005. The wide range of building and structure types and uses probably helps this latter strength. Office building, for example, has slowed, but it is offset currently by advances in amusements and recreation. The biggest year-to-year growth is in hotel construction, up a whopping 65% over May 2006. There have been uptrends recently in communications and transportation. Health care and education spending, by contrast, are slowing.
These construction put-in-place data are in Haver&#39;s &quot;flagship&quot; USECON database. &quot;Old&quot; data, prior to the latest annual revisions, is in USARC07. The forecast of the monthly headline number comes from ASREP1NA, which includes Action Economics weekly forecast surveys and each indicator&#39;s initially reported figure for each period.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Construction Put-in-Place</th>
<th scope="col">May 2007*</th>
<th scope="col">Apr 2007*</th>
<th scope="col">Mar 2007*</th>
<th scope="col">Year/ Year</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.9</td>
<td>0.2</td>
<td>0.1</td>
<td>-3.2</td>
<td>5.3</td>
<td>10.6</td>
<td>11.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Former</td>
<td>--</td>
<td>0.1</td>
<td>0.6</td>
<td>--</td>
<td>4.7</td>
<td>10.5</td>
<td>11.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Residential</td>
<td>-0.8</td>
<td>-0.4</td>
<td>-1.3</td>
<td>-17.7</td>
<td>0.0</td>
<td>13.5</td>
<td>18.7</td>
</tr>
<tr>
<td class="firstcol">Private Nonresidential </td>
<td>2.7</td>
<td>0.9</td>
<td>1.4</td>
<td>18.2</td>
<td>15.2</td>
<td>7.6</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>2.2</td>
<td>0.6</td>
<td>1.6</td>
<td>12.8</td>
<td>9.0</td>
<td>6.3</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
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New construction put-in-place surged by 0.9% in May, following 0.2% in April and 0.1% in March. This was the best performance since February 2006 and compared with Action Economics' forecast survey that called for just 0.1%. This [...]

Construction Spending Up 0.9% in May, Much Better Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070629c.jpg" width="353">
The EU sentiment reading is strong in June at 114.9 but off from 115.0 in May. 
The accompanying charts plot the main component indicators for EU. Construction seems already to have hit a peak since it has been moving sideways for a number of months after peaking in September of 2006. Retail reached a reading of 5 in November 2006 and since has peaked at 6 in April. It is off in May and June. Clearly retailing is another sector that has lost the thrust of upward momentum. The services sector is a bit harder to read. It has backtracked in June but the series seems, other than that, to be in an uptrend but one that has lost a good degree of its up thrust. Consumer confidence spurted in May but has taken a strong setback in June. It&#146;s too soon to read anything into that. The industrial sector is one clear bright spot for the EU region. It is moving up at what has been a slower but unrelenting pace since roughly April of 2006 after a period of much more rapid growth. 
The table below provides some specifics on the indexes and their trends plus some country detail as to overall sentiment. First note that among the various EU indexes only the industrial sector is at its top reading. Retail is also strong in its 92nd percentile and construction, while flat for months, is in its 96th percentile. The consumer is lagging with an index that is only in its 86th percentile and services in the top 30 percentile of its somewhat shorter range. Clearly we are assessing different things here. The percentiles speak of the absolute strength of the sector relative to past readings. In the graphs we looked more at momentum, whether sectors are advancing or advancing as strongly as they had been. Both concepts are valid. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070629d.jpg" width="353">
In the country section we look at the changes in recent sentiment readings m/m as well as the position of index levels relative to history. All key EMU countries have showed some waffling for their overall sentiment sometime within the past three months. But only the UK is on a two month back-to-back string of very strong increases. Italy has seen its sentiment fall for three months in a row. France, Germany and EMU are experiencing single month declines in overall sentiment. None of the key countries is experiencing super strong levels in sentiment since most are only in about the top 25 percentile of their respective country ranges. Spain is weaker as it is only in the top 40% of its range. Among the largest countries France is doing better, in the top 14 percentile of its range; Germany is in the top 23rd percentile. Overall the EU/EMU readings are stronger, in the 87th percentile, implying that the smaller countries of EMU must be doing relatively better. 
There is evidence of a loss in momentum in EU/EMU. But the industrial sector is still very strong. 
A similar table with values for the EMU industrial sector shows surprisingly that the relatively strongest component for industry across EMU is export orders &#150; despite the relatively strong value for the euro. Order value is strong overall. But production expectations and selling price expectations are relatively weaker with prices only in the top third of their range and expected production in the top 18 percentile of its range. These are not weak showings, it&#146;s just that they are showings that are weaker than other MFG components and they may be &#145;telling us something&#146;, especially as they are explicitly forward-looking. 
As for countries, Germany and the UK (the later, an EU member not an EMU member) have the strongest industrial readings relative to their own history. France and Italy are lagging to some extent. 
EMU industrial components by and large saw their momentum peak in June of 2006 (Yr/Yr gain) and have been losing momentum ever since. For example, industry confidence had gained 13 points Yr/Yr back in June of 2006; in June of 2007 its Yr/Yr gain is +3. The same is true for countries with the notable exception of non-EMU member UK whose 17 point gain Yr/Yr in June of 2007 for industrial confidence represents acceleration and it matches its current cycle peak of 17 made in February of this year.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
EU Sectors and Country level Overall Sentiment R-SQ
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>w/Confid</td>
</tr>
<tr>
<td class="firstcol">Overall</td>
<td>114.9</td>
<td>115</td>
<td>113.6</td>
<td>113.8</td>
<td>95.4</td>
<td>6</td>
<td>117</td>
<td>74</td>
<td>43</td>
<td>100</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>7</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>100.0</td>
<td>1</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.89</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-2</td>
<td>-1</td>
<td>-4</td>
<td>-4</td>
<td>86.2</td>
<td>18</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-11</td>
<td>0.81</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>4</td>
<td>5</td>
<td>6</td>
<td>4</td>
<td>92.6</td>
<td>4</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.46</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>1</td>
<td>1</td>
<td>1</td>
<td>1</td>
<td>95.6</td>
<td>6</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-18</td>
<td>0.43</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>21</td>
<td>23</td>
<td>22</td>
<td>22</td>
<td>71.1</td>
<td>55</td>
<td>32</td>
<td>-6</td>
<td>38</td>
<td>17</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="4">% m/m</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>-0.4%</td>
<td>1.0%</td>
<td>-0.1%</td>
<td>1.3%</td>
<td>87.0</td>
<td>21</td>
<td>117</td>
<td>74</td>
<td>44</td>
<td>100</td>
<td>0.94</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>1.3%</td>
<td>1.4%</td>
<td>77.5</td>
<td>17</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>100</td>
<td>0.60</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>-0.1%</td>
<td>3.0%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>86.1</td>
<td>18</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-1.3%</td>
<td>-1.4%</td>
<td>-1.0%</td>
<td>1.1%</td>
<td>72.0</td>
<td>58</td>
<td>121</td>
<td>72</td>
<td>49</td>
<td>100</td>
<td>0.80</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>1.2%</td>
<td>-1.2%</td>
<td>-2.2%</td>
<td>1.1%</td>
<td>61.9</td>
<td>138</td>
<td>118</td>
<td>67</td>
<td>50</td>
<td>100</td>
<td>0.68</td>
</tr>
<tr>
<td class="firstcol">Memo: UK</td>
<td>1.6%</td>
<td>3.4%</td>
<td>-0.8%</td>
<td>1.5%</td>
<td>93.7</td>
<td>5</td>
<td>119</td>
<td>69</td>
<td>50</td>
<td>100</td>
<td>0.36</td>
</tr>
<tr>
<td colspan="5">Since 1990 except Services (Oct 1996)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 208</td>
<td>-Count</td>
<td>Services:</td>
<td>126</td>
<td>-Count</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan="12">Sentiment is an index, sector readings are net balance diffusion measures</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
EMU Industrial Sectors and Country level Performance R-SQ
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EMU</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>w/Confid</td>
</tr>
<tr>
<td class="firstcol">Industry Confidence</td>
<td>6</td>
<td>6</td>
<td>7</td>
<td>6</td>
<td>97.3</td>
<td>2</td>
<td>7</td>
<td>-30</td>
<td>37</td>
<td>-7</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Prod Expectations</td>
<td>15</td>
<td>14</td>
<td>15</td>
<td>14</td>
<td>82.5</td>
<td>16</td>
<td>22</td>
<td>-18</td>
<td>40</td>
<td>6</td>
<td>0.90</td>
</tr>
<tr>
<td class="firstcol">Order Volume</td>
<td>7</td>
<td>8</td>
<td>9</td>
<td>8</td>
<td>96.8</td>
<td>5</td>
<td>9</td>
<td>-54</td>
<td>63</td>
<td>-17</td>
<td>0.96</td>
</tr>
<tr>
<td class="firstcol">Stocks (finished)</td>
<td>4</td>
<td>5</td>
<td>4</td>
<td>4</td>
<td>9.5</td>
<td>186</td>
<td>23</td>
<td>2</td>
<td>21</td>
<td>10</td>
<td>0.91</td>
</tr>
<tr>
<td class="firstcol">Export Order (Vol)</td>
<td>5</td>
<td>6</td>
<td>5</td>
<td>5</td>
<td>98.2</td>
<td>2</td>
<td>6</td>
<td>-51</td>
<td>57</td>
<td>-19</td>
<td>0.90</td>
</tr>
<tr>
<td class="firstcol">Selling Prod Expectations</td>
<td>14</td>
<td>12</td>
<td>11</td>
<td>13</td>
<td>66.7</td>
<td>27</td>
<td>26</td>
<td>-10</td>
<td>36</td>
<td>6</td>
<td>0.37</td>
</tr>
<tr>
<td class="firstcol">Prod Trend (recent)</td>
<td>13</td>
<td>13</td>
<td>14</td>
<td>12</td>
<td>93.5</td>
<td>7</td>
<td>15</td>
<td>-16</td>
<td>31</td>
<td>1</td>
<td>0.92</td>
</tr>
<tr>
<td class="firstcol">Employment Expect</td>
<td>3</td>
<td>3</td>
<td>2</td>
<td>2</td>
<td>95.8</td>
<td>4</td>
<td>4</td>
<td>-20</td>
<td>24</td>
<td>-9</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Sentiment:</td>
<td colspan="4">Level</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>w/EMU</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>9</td>
<td>9</td>
<td>9</td>
<td>9</td>
<td>95.7</td>
<td>6</td>
<td>11</td>
<td>-35</td>
<td>46</td>
<td>-10</td>
<td>0.79</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>2</td>
<td>0</td>
<td>2</td>
<td>2</td>
<td>76.8</td>
<td>40</td>
<td>15</td>
<td>-41</td>
<td>56</td>
<td>-8</td>
<td>0.82</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>5</td>
<td>6</td>
<td>8</td>
<td>5</td>
<td>77.1</td>
<td>34</td>
<td>13</td>
<td>-22</td>
<td>35</td>
<td>-3</td>
<td>0.78</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0</td>
<td>0</td>
<td>2</td>
<td>3</td>
<td>86.3</td>
<td>44</td>
<td>7</td>
<td>-44</td>
<td>51</td>
<td>-8</td>
<td>0.65</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>10</td>
<td>4</td>
<td>2</td>
<td>4</td>
<td>98.0</td>
<td>2</td>
<td>11</td>
<td>-40</td>
<td>51</td>
<td>-11</td>
<td>0.17</td>
</tr>
<tr>
<td class="firstcol">Since 1990</td>
<td></td>
<td></td>
<td>208</td>
<td>-Count</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
</html>

The EU sentiment reading is strong in June at 114.9 but off from 115.0 in May. The accompanying charts plot the main component indicators for EU. Construction seems already to have hit a peak since it has been moving sideways for a [...]

EU Sentiment Reading is Strong in June at 114.9 but Off from 115.0 in May

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070629b.jpg" width="353">
The Chicago PMI is a good guide to the ISM but not infallible; often its strength overshoots the ISM. Still any reasonable reading of the historic relationship leaves you positive on the outlook for the ISM in June. 
The Chicago index keeps to stronger readings than the ISM in general. That explains why the strong Chicago readings are not so elevated when displayed as percentile standings within their historic ranges. The 60.2 headline reading stands in the top 25% of the measure&#146;s range since 1996. It is 6% above its median reading. Indeed, if the ISM for this period is also some 6% above its median it will post a value of 56.3 this month, an increase of more than one point on the month. 
Most Chicago survey components are in the upper 25 percent (or so) of their range of values since 1996. Deliveries are an exception as they have been for some time and as they are in many other regional MFG surveys. I take this as a sign that there is still a lot of slack in MFG; it&#146;s a sign that orders can be filled quickly when they rise. Order back logs are only in the top third of their range and that component dropped three points this month in Chicago. Order backlogs and jobs are well correlated so it is not surprising to see the Chicago job component fell very sharply to 52.7 from 57.3, but it still stands well above its April reading of 50.5. Employment trends have become volatile but this month is the first pull-back in a job recovery in the Chicago region that dates back to a low reading in January of this year. The Cincinnati MFG report that was also released today shows an improvement from 27 previously to 30 in June. 
On balance, the Chicago report is more upbeat than expected and it points to a strong ISM reading for June. It sides more with the strong reports we have seen in NY and Philadelphia and is NOT part of the weak reading reports such as we have seen in Dallas and Kansas City. The final column in the table below applies ISM-type weights to the Chicago components to recast the headline. On that basis the Chicago index is even stronger at least in its historic range. That tells us that the Chicago components are strong as a group although m/m they fell by a bit more that the &#145;headline&#146; barometer.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Chicago Regional Survey: Analytical Properties
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Since 1996</td>
<td>Index</td>
<td>Orders</td>
<td>Production</td>
<td>Delivery</td>
<td>Inventories</td>
<td>Prices Paid</td>
<td>Employment</td>
<td>Backlogs</td>
<td>Weight</td>
</tr>
<tr class="grey3">
<td class="firstcol">Date</td>
<td colspan="9">1994 To Date</td>
</tr>
<tr class="grey2">
<td class="firstcol">Jun.07</td>
<td>60.2</td>
<td>65.7</td>
<td>66.5</td>
<td>52.1</td>
<td>55.9</td>
<td>68.2</td>
<td>52.7</td>
<td>50.8</td>
<td>60.2</td>
</tr>
<tr class="grey2">
<td class="firstcol">May.07</td>
<td>61.7</td>
<td>71.1</td>
<td>69.8</td>
<td>45.3</td>
<td>52.6</td>
<td>70.2</td>
<td>57.3</td>
<td>53.0</td>
<td>62.4</td>
</tr>
<tr class="grey2">
<td class="firstcol">Apr.07</td>
<td>52.9</td>
<td>56.5</td>
<td>62.2</td>
<td>43.4</td>
<td>43.2</td>
<td>64.9</td>
<td>50.5</td>
<td>48.4</td>
<td>53.9</td>
</tr>
<tr class="grey2">
<td class="firstcol">Std Dev</td>
<td>6.6</td>
<td>8.3</td>
<td>7.9</td>
<td>5.5</td>
<td>6.4</td>
<td>12.1</td>
<td>6.7</td>
<td>6.6</td>
<td>6.4</td>
</tr>
<tr class="grey2">
<td class="firstcol">Median</td>
<td>56.6</td>
<td>59.6</td>
<td>60.8</td>
<td>51.7</td>
<td>48.4</td>
<td>61.2</td>
<td>50.6</td>
<td>49.4</td>
<td>56.3</td>
</tr>
<tr class="grey2">
<td class="firstcol">Mean</td>
<td>55.0</td>
<td>57.9</td>
<td>59.1</td>
<td>52.2</td>
<td>48.3</td>
<td>61.6</td>
<td>48.6</td>
<td>48.7</td>
<td>54.4</td>
</tr>
<tr class="grey2">
<td class="firstcol">SD%MN</td>
<td>12.0</td>
<td>14.3</td>
<td>13.4</td>
<td>10.5</td>
<td>13.3</td>
<td>19.7</td>
<td>13.7</td>
<td>13.6</td>
<td>11.8</td>
</tr>
<tr class="grey2">
<td class="firstcol">Max</td>
<td>67.2</td>
<td>74.9</td>
<td>74.9</td>
<td>67.6</td>
<td>66.7</td>
<td>87.8</td>
<td>63.1</td>
<td>60.8</td>
<td>65.9</td>
</tr>
<tr class="grey2">
<td class="firstcol">Min</td>
<td>37.2</td>
<td>36.5</td>
<td>37.8</td>
<td>41.0</td>
<td>33.3</td>
<td>34.8</td>
<td>23.6</td>
<td>30.2</td>
<td>36.6</td>
</tr>
<tr class="grey1">
<td class="firstcol">% MEDIAN</td>
<td>106%</td>
<td>110%</td>
<td>109%</td>
<td>101%</td>
<td>116%</td>
<td>111%</td>
<td>104%</td>
<td>103%</td>
<td>107%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Percent-Range</td>
<td>76.7%</td>
<td>76.0%</td>
<td>77.4%</td>
<td>41.7%</td>
<td>67.7%</td>
<td>63.0%</td>
<td>73.7%</td>
<td>67.3%</td>
<td>80.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">%of2stdev</td>
<td>69.7%</td>
<td>73.5%</td>
<td>73.3%</td>
<td>49.4%</td>
<td>79.5%</td>
<td>63.6%</td>
<td>65.3%</td>
<td>58.0%</td>
<td>72.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">% Average</td>
<td>109%</td>
<td>113%</td>
<td>113%</td>
<td>100%</td>
<td>116%</td>
<td>111%</td>
<td>108%</td>
<td>104%</td>
<td>111%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Chicago PMI is a good guide to the ISM but not infallible; often its strength overshoots the ISM. Still any reasonable reading of the historic relationship leaves you positive on the outlook for the ISM in June. The Chicago index [...]

Chicago PMI Off at 60.32 from 61.7

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070629a.jpg" width="353">
Personal income +0.4% in May. 
Real PCE spending is up by just 01% in May as services spending falls by 0.1%.
Core PCE +0.1% and +1.9% Yr/Yr.
Consumption has a moderate contribution to growth in Q2 advancing by just 1.6% in the quarter after its weak performance in May (see far right-hand column in table). The 0.5% gain in the overall PCE hit spending hard, reducing it. 
Real disposable personal income is falling in Q2 down by 1.5%. 
Core inflation continues lower&#133; much like with CPI. 
Inflation took a large bite out of nominal spending trends this month. Previously Q2 spending was on a much stronger track. On top of that, current dollar spending was weaker than expected, posting at a gain of 0.5%. That was made worse when translated into real terms by the 0.5% hike in the overall PCE deflator. As a result real spending was left with a gain of just 0.1% reducing its growth in Q2 to just 1.6%. (SAAR). The jump in the deflator also cut real disposable personal income down and it is now falling in the quarter as well as falling by 0.1% in the month. The saving rate continues negative and shows no sign of rising. 
Perhaps the most surprising development in the report is the drop in services spending. While it spurted in April it had also fallen sharply in May. Services spending has now dropped in two of the past three months and is growing at just an annual rate of 0.7% over those three months. This is very weak for a sector that supplies the bulk of our employment. This weakness is the most troubling thing in this report. 
The core deflator is, however, well behaved and the Fed will be happy with its trend. At 2.9% it is now inside the Fed&#146;s comfort zone and the CPI is well inside of its zone as well. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Consumer Spending And Income Trends
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="6">Percentage Changes At Annualized Rates: Various Horizons</td>
</tr>
<tr class="odd">
<td class="firstcol">Inflation-adjusted</td>
<td>1-Mo:AR</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>One Year</td>
<td>Q2/Q1</td>
</tr>
<tr>
<td class="firstcol">Consumption</td>
<td>0.8%</td>
<td>0.9%</td>
<td>2.8%</td>
<td>3.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>3.7%</td>
<td>1.3%</td>
<td>3.0%</td>
<td>3.7%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Durable Goods</td>
<td>7.0%</td>
<td>3.5%</td>
<td>5.3%</td>
<td>5.9%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Nondurable Goods</td>
<td>2.0%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.6%</td>
<td>-0.4%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-1.0%</td>
<td>0.7%</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Income</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Real DPI</td>
<td>-1.1%</td>
<td>-1.5%</td>
<td>1.5%</td>
<td>3.4%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">Per Capita</td>
<td>-2.0%</td>
<td>-2.4%</td>
<td>0.7%</td>
<td>2.4%</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo:</td>
<td>May.07</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>One-Year</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Savings Rate (Pct)</td>
<td>-1.4</td>
<td>-1.0</td>
<td>-1.0</td>
<td>-1.1</td>
<td>--</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">113%</th>
<th scope="col">113%</th>
<th scope="col">100%</th>
<th scope="col">116%</th>
<th scope="col">111%</th>
<th scope="col">108%</th>
<th scope="col">104%</th>
<th scope="col">111%</th>
</tr>
</thead>

</table>
</body>
</html>

Personal income +0.4% in May. Real PCE spending is up by just 01% in May as services spending falls by 0.1%. Core PCE +0.1% and +1.9% Yr/Yr. Consumption has a moderate contribution to growth in Q2 advancing by just 1.6% in the quarter [...]

PCE Report is Weaker Than Expected With Good Inflation

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

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

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Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

260205Z1.jpg

**US manufacturing activity**
The second chart underscores the recent improvement in US economic momentum, highlighted by an unexpected surge in the January ISM manufacturing PMI. After spending much of the past year hovering below the 50 threshold consistent with stagnation, the index jumped sharply back into expansionary territory, signalling a renewed pickup in industrial activity. This rebound has coincided with a broader run of stronger-than-anticipated US economic data, as reflected in the upswing in the Citigroup Economic Surprise Index. Together, these developments point to a US economy that continues to display notable resilience, complicating expectations of monetary easing in the near term.

260205Z2.jpg

**US Bank Lending Standards and Financial Stress** 
The next chart turns to US financial conditions, highlighting the latest readings from the Senior Loan Officer Opinion Survey. The net proportion of banks tightening lending standards on corporate loans and mortgages is now more modest by historical standards, and well below the extremes seen during past episodes of financial stress. Some easing in credit headwinds has occurred alongside relatively subdued readings on the OFR Financial Stress Index, which continues to hover below its long-run average. Together, these indicators suggest that the US financial system has continued to avoid the kind of acute stress typically associated with sharp slowdowns in credit availability—helping to underpin the recent resilience in economic activity.

260205Z3.jpg

**Semiconductor Sales**
The fourth chart highlights the renewed surge in global semiconductor sales, with momentum strengthening sharply over recent months across the Americas, China and the broader Asia-Pacific region. After the cyclical downturn in 2022–23, sales have rebounded to fresh highs, reflecting a powerful revival in demand for advanced chips and related technologies. This upswing has taken place amid intense investor preoccupation with artificial intelligence, with expectations that AI adoption will drive a sustained wave of capital spending on data centres, cloud infrastructure and high-performance computing. In contrast, semiconductor sales in Europe remain comparatively subdued, reflecting the region’s smaller footprint in high-end chip manufacturing, weaker industrial demand, and the ongoing impact of slower economic growth. While semiconductors are inherently cyclical, markets have increasingly interpreted the current rebound elsewhere as structural rather than purely cyclical—underpinned by the belief that AI represents a transformative and durable source of demand growth.

260205Z4.jpg

**Large-Scale AI Models**
The next chart illustrates the rapid proliferation of large-scale AI models globally, with newly updated data for 2025 pointing to a further sharp acceleration in development activity. The United States continues to lead by a wide margin, while China has also seen a steep rise in model deployment in recent years, underscoring the intensifying technological competition between the two economies. Growth in the UK and other regions has been more modest by comparison, highlighting the increasingly concentrated nature of AI innovation. Taken together with the surge in semiconductor sales, these trends help explain the market’s strong preoccupation with AI as a potential driver of future productivity and investment cycles—although the geographic concentration of activity also raises questions about the uneven distribution of any resulting economic gains.

260205Z5.jpg

**An AI Bubble?** 
The final chart draws on the latest Blue Chip Financial Forecasts special questions, highlighting market participants’ perceptions of the economic gains likely to be delivered by artificial intelligence. While a sizeable share of respondents still believe that financial markets may be overestimating AI’s potential benefits, an increasing proportion now judge current expectations to be broadly accurate, with only a small minority viewing the gains as underestimated. Notably, this represents a softening in scepticism compared with the survey results from last month, when concerns about excessive market optimism were more pronounced. The shift suggests a growing acceptance that AI-related investment and innovation could translate into meaningful economic impacts—though uncertainty remains high around the scale, timing and distribution of these gains.

260205Z6.jpg

Financial markets have experienced renewed gyrations in recent weeks, as shifting geopolitical risks, questions around Federal Reserve independence, renewed talk of US dollar “debasement,” and ongoing enthusiasm surrounding artificial intelligence have combined to drive volatility across asset classes. These cross-currents have also contributed to a degree of rotation away from high-flying technology stocks, as investors reassess valuations and the timing of anticipated AI-driven gains. Against this backdrop, the charts in this week’s COTW highlight several important themes. Policy rate expectations now appear more balanced globally, marking a clear shift away from the one-sided easing bias of the past two years (chart 1), even as resilient US data—underscored by the unexpected jump in the January ISM index and a run of positive economic surprises—continues to complicate the outlook for monetary easing (chart 2). At the same time, US financial conditions remain relatively benign, with limited evidence of widespread credit stress or aggressive tightening in lending standards (chart 3). Meanwhile, the sharp rebound in semiconductor sales and the accelerating rollout of large-scale AI models underscore why investors remain so focused on the AI narrative, even as Europe lags behind due to weaker industrial momentum and a smaller footprint in advanced chip production (charts 4 and 5). Finally, while some scepticism about AI’s ultimate economic impact persists, the latest survey results suggest a moderation in concerns that markets are materially overestimating its gains (chart 6). Taken together, these developments paint a picture of a US economy that remains more resilient than many had anticipated, set against a financial landscape increasingly shaped by powerful—if sometimes competing—narratives around geopolitics, policy, and technological transformation.

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

260206E.jpg

With the December report, Germany’s production and some of the early European industrial production data reveal a good deal of chaos in terms of the embedded trends. On the month, German industrial production fell by 1.9%, with consumer goods output up by 0.5%, capital goods output falling by 5.3%, and intermediate goods output falling by 1.2%. Among the early reporters in the monetary union—France, Spain, and Portugal—only Spain showed an increase in manufacturing IP in December; however, Spanish industrial production is notoriously volatile.

**Broader IP trends in Germany and elsewhere in Europe**
As for other early industrial production reporters, both Sweden and Norway showed strong-to-solid gains in December and each of them showed two-months of gains in a row. Beyond that, sequential growth rates from 12-months to six-months to three-months show accelerating growth in German consumer goods output against decelerating growth for intermediate goods. Real manufacturing output and real sales show mixed results- no clear trends; however, real manufacturing orders in Germany are off the map strong. 

**German manufacturing/industrial Surveys**
German industrial surveys from the IFO for manufacturing shows persistent weakening as well as for IFO manufacturing expectations, and in the EU Commission industrial index in the last three months. More broadly, Germany shows some modest but ongoing step up all of these based on average levels from 12-months to six-months to three-months for IFO expectations and the EU Commission industrial readings with mixed results for other survey readings.

**IP trends in Europe**
For the early reporting EMU members France, Spain, and Portugal, who report industrial production trends, each show mixed monthly trends against ongoing decelerations for manufacturing output over the broader sequential periods (12-month, to 6-month, to 3-month). However, for other Europe, Sweden and Norway, manufacturing trends are steadily accelerating on this broader timeline.

**A feeling of ‘Deja- What?’**
These combinations of opposed trends mixed with a lack of trends leave us with this sense of confusion about what's going on in manufacturing. For Germany, the extreme strength in orders is reassuring since orders should be forward-looking rather than backward-looking or even contemporaneous. But orders can also be a fickle series and so we'll have to watch it to see if the trends for German orders hold up.

**Current quarter-What’s been happening now**
In addition, current quarter growth for Germany actually looks quite good with industrial production up 3.7% at an annual rate in the current quarter, led by output increases in manufacturing against a decline in the intermediate goods output. Real orders in the quarter are surging at a 44% growth rate, while real sales in manufacturing only had a 0.1% uptick at an annual rate. The industrial indicators for Germany in the quarter show weakness or flatness with the only exception being IFO manufacturing expectations that advanced by a small amount. The three EMU members who report industrial production data show positive growth in the just-completed quarter except for Portugal where industrial production is falling at a 2.9% rate in the fourth quarter. Sweden and Norway, European countries but not monetary union members, show a strong 22% annual rate gain in Sweden against the 3% annual rate decline in Norway.

260206.jpg

**Rankings**
**How growth rates stack up…**
Moving away from short-term trends, the rankings of growth rates of these various metrics using 12-month growth rates on data back to 2006, show below-median growth rates for German industrial production and all three of its major sectors. All of them have rankings below the 50% mark where the median resides. Germany’s manufacturing output growth rate is below its median as is the growth of real sales; and once again real manufacturing orders break out and show a stunning 90th percentile standing, extremely strong compared to other growth rates on this period.

**Indicator rankings are poor**
However, the survey based industrial indicators for Germany, ranked based on their index levels, are all extremely weak and much weaker than German sector or other German metrics. The strongest indicator reading is the 29th percentile standing for IFO manufacturing expectations while the current ZEW index, IFO manufacturing index, and the EU Commission industrial readings, all reside below their 15th percentile. The survey rankings suggest that industrial sentiment is in much worse shape than activity and growth.

**IP elsewhere in Europe**
However, the growth ranking of manufacturing industrial production for the reporting EMU members and other European members are all quite solid, with percentile standings ranging from the 66th up to the 93rd percentile.

**Summing up**
From these data, Germany emerges as the weak economy compared with historic norms based on industrial production growth and indicator readings. However, there's a glimpse of positivity from the growth of real orders, and at the same time, some concern about ongoing sentiment for manufacturing in Germany as distinct from actual performance.

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

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**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

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- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

Sandy Batten

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Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). These state data are not seasonally adjusted.

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

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- New claims jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

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German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.

Economy in Brief: 2007

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Japan's Tankan Survey: Confidence among Large Manufactures Remains Strong: Actual Results Continue Better than Forecast

Tankan Shows Flatness Q to Q

National PMI Up Slightly

National PMI Up Slightly

Construction Spending Up 0.9% in May, Much Better Than Expected

EU Sentiment Reading is Strong in June at 114.9 but Off from 115.0 in May

Chicago PMI Off at 60.32 from 61.7

PCE Report is Weaker Than Expected With Good Inflation