Robert Brusca

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Eurozone manufacturing production in May fell by 0.4% after rising by 1% in April. The output of consumer durables fell sharply, by 2.3%, posting a second drop in a row, a drop of 1.9%. Capital goods output fell by 1.5% in May. That reversed a stronger 2.5% increase in April. Nondurables output rose by 0.6%, rising for the second month in a row. Intermediate goods output accelerated its continuing modest advance rising by 0.4% in May.


Despite the setback in May manufacturing output is on an accelerating path. After falling 1.6% over 12 months it is expanding at a 2.6% annual rate over six months and at a 3.7% annual rate over three. 


Consumer goods output echoes that trend with a -1.2% drop over 12 months turning to 2.1% gain over six months and a 2.8% gain over three months. This acceleration is despite considerable weakness and accelerating declines from durable goods output which fell 6.7% over 12 months and is falling at a 10% annual rate over three months. To combat that, nondurable goods output is advancing by 5.7% over three months after posting a 3.7% growth rate over six months and after falling by 0.4% over 12 months. 


Intermediate goods output has been gradually doing better. After falling by 2.8% over 12 months, it's up at a 1.5% annual rate over six months and at 2.1% annual rate over three months. Capital goods output has shrugged off a 0.9% decline over 12 months to grow at 4.1% pace over six months and 8.4% annual rate over three months.


In the quarter to date, echoing the country level data we've already seen, manufacturing output is up at a 5.2% annual rate in the Eurozone with consumer goods output flat. Intermediate goods output up at a 1.2% annual rate and capital goods output is surging at a 13.9% annual rate.


Production trends in the Eurozone appear to be picking up, but the chart shows how very flat industrial production has been for an extended period of time. The PMI indices from Markit are showing some improvement form weaker levels seen earlier. The indices generally still are indicating weakness in the industrial sector and that weakness is still fairly pervasive throughout the Eurozone.


Finalized data on inflation show some variability within the Zone but it is still well-contained inflation with the HICP over three months growing at just a 1.1% annualized rate compared to 1.6% over 12 months. The ECB has inflation under control and based on data in hand from 9 of the original 11 EMU members, inflation is decelerating year-over-year in about 82% of those countries. However, over the most recent three months compared to six months there has been a pickup in the inflation rate. Inflation is only declining in about one third of these countries.


The ECB which has been trying to stimulate growth in the euro area by walking a tightrope to stay within its mandate, a mandate which is broadly focused on price stability, is beginning to see challenges as international linkages are creating some blowback in European capital markets. The Federal Reserve's perceived move to taper the amount of quantitative easing has had an impact on intermediate and longer-term U.S. Treasury securities yields. Through various international channels higher interest rates in the US are impacting Europe as well, where rates are rising and spreads between two-year and 10 year notes are rising, much to the discontent of the ECB.


The ECB has been trying to use a Federal Reserve-like forward guidance policy and is finding now that it's not very useful in this environment. Markets seem to be a lot more impressed by what US rates are doing now than by a promise from the ECB about what it's going to be doing down the road. The problem with forward guidance has always been a two-fold problem. One is that it's a problem of credibility. Two is that it's a problem of technical competency. That is when central banks use forward guidance the way the Fed and the ECB are doing, we need to have the markets believe that they're going to act the way they say. Moreover, they need to have the markets believe that the main thrust of policy that they describe is the one that they are going to implement. 


This is important because forward guidance actually is not a promise. Rather it's a statement about what's likely to happen. Central banks that offer forward guidance right alongside of that guidance admit that if conditions are different from their forecast (guidance) policy will be different. 


And that's exactly the problem that is being faced by the ECB right now. As US rates are rising, Europeans are not exactly sure what set of events will be occurring in the future in Europe to accompany the conditions that are expected in United States. It looks as if Europeans are quite reluctant to keep European bond yields low as US bond yields rise. Does that mean that Europeans believe that both the US and Europe will be stronger in the next 6 to 12 months? Do the higher yields on European bonds simply offer some compensation for what's expected to be a weaker euro in the coming months as Europe continues to underperform?


On balance European industrial recovery still seems to be uneven. The region is still beset with a lot of problems and continues to be beholden to the German election schedule before it will be able to take any significant action on any important front. The rising rates in the US have put the ECB in a difficult spot. The ECB has a different mandate from the Fed and has different restrictions on what it can do. Its guidance on QE is not as powerful as the Fed's for that reason. In all likelihood the game is up for the ECB which will now be a spectator as financial markets react to the new policy in the US.



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Eurozone manufacturing production in May fell by 0.4% after rising by 1% in April. The output of consumer durables fell sharply, by 2.3%, posting a second drop in a row, a drop of 1.9%. Capital goods output fell by 1.5% in May. That [...]

E-Zone IP Dips in May

Tom Moeller

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 The consumer remains upbeat. Consumer sentiment in mid-July fell marginally
to 83.9 from 84.1 in June. The figure remained up, however, from its August
2011 low of 55.8 and was just slightly lower than its May peak of 84.5.
Consensus expectations had been for a slight increase to 84.8. During the
last ten years, there has been a 59% correlation between the level of sentiment
and the three-month change in real personal consumption expenditures.

This month's slight decline owed to offsetting movements in the index
components. The consumer expectations figure fell to 73.8 from 77.8. It
nevertheless retained its recent improvement from an August 2012 low of 65.1 and
an August 2011 nadir of 47.6. Countering this monthly decline was an increase in
the current economic conditions index to a seven year high of 99.7.&nbsp; 

The Reuters/University of Michigan survey data are not seasonally adjusted.
The final monthly readings are based on telephone interviews with at least 500
households. Data can be found in Haver's USECON database. The
expectations figure is from Action Economics and can be found in Haver's AS1REPNA
database.

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
<thead>
 <tr>
 <th class="firstcol" scope="col" >University of Michigan (Q1'66
 = 100)</th>
 <th scope="col" >Mid-July</th>
 <th scope="col" >June</th>
 <th scope="col" >May</th>
 <th scope="col" >July'12</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Consumer Sentiment</td>
 <td >83.9</td>
 <td >84.1</td>
 <td >84.5</td>
 <td >72.3</td>
 <td >76.5</td>
 <td >67.3</td>
 <td >71.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Current Economic Conditions</td>
 <td >99.7</td>
 <td >93.8</td>
 <td >98.0</td>
 <td >82.7</td>
 <td >85.6</td>
 <td >79.1</td>
 <td >80.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Consumer Expectations</td>
 <td >73.8</td>
 <td >77.8</td>
 <td >75.8</td>
 <td >65.6</td>
 <td >70.7</td>
 <td >59.8</td>
 <td >66.0</td>
 </tr>
 </tbody>
 </table>
 
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The consumer remains upbeat. Consumer sentiment in mid-July fell marginally to 83.9 from 84.1 in June. The figure remained up, however, from its August 2011 low of 55.8 and was just slightly lower than its May peak of 84.5. Consensus [...]

U.S. Consumer Sentiment Is Fairly Stable

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 A surge in energy prices has changed the complexion of the U.S.
 inflation environment, for the worse. The producer price index for
 finished goods jumped 0.8% in June (1.8% y/y) following an unrevised
 0.5% May increase. The gain exceeded consensus expectations for a 0.5%
 rise. Prices excluding food &amp; energy rose 0.2% (1.6% y/y) following
 two months of 0.1% uptick. Another 0.1% rise had been expected.&nbsp;
 Higher energy prices were responsible for the strengthened PPI. Last
 month's 2.9% jump (4.2% y/y) followed a 1.3% May gain. Gasoline prices
 surged 7.2% (2.9% y/y) while home heating oil prices gained 6.1% (5.7%
 y/y). Electric power costs notched up 0.1% (3.0% y/y) while natural gas
 prices were unchanged. They have, however, surged 15.3% during the last
 twelve months. Food prices rose 0.2% (2.9% y/y) after a 0.6% April
 increase. The rise was led by a 4.7% jump (2.7% y/y) in beef &amp; veal
 costs. That surge, however, was offset by a 26.9% drop (-6.3% y/y) in egg
 prices as well as a 0.2% slip (+1.4% y/y) in prices of processed fruits
 &amp; vegetables.&nbsp;&nbsp; 
 Finished consumer goods prices jumped 1.1% (3.1% y/y) with the energy
 price gain. Prices excluding food &amp; energy, however, rose 0.2% (2.3%
 y/y) following two months of 0.1% upticks. Within the components, men's
 clothing costs increased 2.8% y/y while women's apparel prices rose 1.8%
 y/y. Furniture prices gained 1.5% y/y but household appliance prices
 slipped 0.3% y/y. Passenger car prices were off 0.2% y/y. Capital
 equipment prices edged up a steady 0.1% last month (0.9% y/y).
 Intermediate goods prices gained 0.5% (1.1% y/y) as energy costs
 recovered 2.0% (0.4% y/y). Food prices rose 0.7% (4.2% y/y) while core
 intermediate prices ticked up 0.1% (0.9% y/y). Crude goods prices
 were unchanged last month (11.0% y/y) as a 0.3% increase in energy prices
 (21.5% y/y) was countered by a 0.3% decline&nbsp; (+10.4% y/y) in food
 prices. Prices excluding food &amp; energy ticked up 0.1% (-2.2% y/y).
 The PPI data are contained in Haver's USECON database with
 further detail in PPI and PPIR. The expectations figures are
 available in the AS1REPNA database.&nbsp;
 
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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Producer Price Index
 (%)</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Jun Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Finished Goods</td>
 <td >0.8</td>
 <td >0.5</td>
 <td >-0.7</td>
 <td >2.5</td>
 <td >1.9</td>
 <td >6.0</td>
 <td >4.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Less Food &amp; Energy</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >0.1</td>
 <td >1.6</td>
 <td >2.6</td>
 <td >2.4</td>
 <td >1.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp;Foods</td>
 <td >0.2</td>
 <td >0.6</td>
 <td >-0.8</td>
 <td >2.9</td>
 <td >2.6</td>
 <td >6.3</td>
 <td >3.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp;Energy</td>
 <td >2.9</td>
 <td >1.3</td>
 <td >-2.5</td>
 <td >4.2</td>
 <td >-0.2</td>
 <td >15.5</td>
 <td >13.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Intermediate Goods</td>
 <td >0.5</td>
 <td >-0.0</td>
 <td >-0.6</td>
 <td >1.1</td>
 <td >0.5</td>
 <td >9.0</td>
 <td >6.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Less Food &amp; Energy</td>
 <td >0.1</td>
 <td >-0.4</td>
 <td >-0.2</td>
 <td >0.9</td>
 <td >0.3</td>
 <td >6.2</td>
 <td >4.3</td>
 </tr>
 <tr>
 <td class="firstcol" >Crude Goods</td>
 <td >0.0</td>
 <td >2.2</td>
 <td >-0.4</td>
 <td >11.0</td>
 <td >-3.2</td>
 <td >17.4</td>
 <td >21.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Less Food &amp; Energy</td>
 <td >0.1</td>
 <td >-2.3</td>
 <td >-2.8</td>
 <td >-2.2</td>
 <td >-5.2</td>
 <td >18.5</td>
 <td >32.5</td>
 </tr>
 </tbody>
 </table>
 
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A surge in energy prices has changed the complexion of the U.S. inflation environment, for the worse. The producer price index for finished goods jumped 0.8% in June (1.8% y/y) following an unrevised 0.5% May increase. The gain [...]

U.S. PPI Is Strengthened By Higher Energy Prices

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 The Federal Government ran a $116.5B budget surplus during June of
 FY'13. During June of last year, the government ran a $59.7B deficit. The
 2013 figure compared to consensus expectations for a $40.0B surplus. So
 far this fiscal year the deficit totaled $509.8B, nearly half the $904.2B
 during the first nine months of FY'12.
 Driving the improvement in June's budget balance was a 49.4% m/m
 decline in net outlays. Year-to-date outlays thus fell 4.8% versus 2012.
 Behind these declines was a nearly two-thirds m/m drop in Medicare
 spending that left YTD spending up a minimal 1.5% versus last year.
 National defense spending also dropped nearly one-quarter m/m pulling
 year-to-date outlays 6.6% below last year. The improved economy dropped
 YTD income security payments 2.2% below last year. Also to the downside
 were net interest payments by 3.9%. A 5.3% YTD increase in social security
 outlays as well as a 2.6% rise in health spending countered these
 declines. In addition, veterans benefits gained
 6.8%.&nbsp;&nbsp;&nbsp;&nbsp; 
 An improved economy raised revenues a strong 14.4% so far this fiscal
 year versus last. That reflected an 18.0% y/y gain in individual income
 taxes and a 16.9% y/y rise in corporate income tax payments. Social
 insurance receipts jumped an accelerated 11.2% y/y while excise taxes grew
 6.6% y/y.
 Haver's basic data on Federal Government outlays and receipts, and
 summary presentations of the Budget from both OMB and CBO are contained in
 USECON. Considerable detail is given in the separate GOVFIN
 database.
 Debt Overhang: Why Recovery from a Financial Crisis Can Be Slow
 from the Federal Reserve Bank of Philadelphia is available <a href=" http://www.philadelphiafed.org/research-and-data/publications/business-review/2013/q2/brq213_debt-overhang-why-recovery-from-financial-crisis-can-be-slow.pdf">here</a>.
 
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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
 <thead>
 <tr>
 <th class="firstcol" scope="col">&nbsp;US Government
 Finance</th>
 <th scope="col" ></th>
 <th scope="col" >June</th>
 <th scope="col" >FY'12</th>
 <th scope="col" >FY'11</th>
 <th scope="col" >FY'10</th>
 <th scope="col" >FY'09</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol">Budget Balance</td>
 <td>--</td>
 <td>$116.5B</td>
 <td>$-1,089B</td>
 <td>$-1,298.7B</td>
 <td>$-1,294.2B</td>
 <td>$-1,415.7B</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;As a percent of GDP</td>
 <td>--</td>
 <td>--</td>
 <td>7.0</td>
 <td>8.6</td>
 <td>8.0</td>
 <td>9.5</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol"></td>
 <td>% of Total</td>
 <td>YTD FY'13</td>
 <td></td>
 <td></td>
 <td></td>
 <td></td>
 </tr>
 <tr>
 <td class="firstcol">Net Revenues (Y/Y % Change)</td>
 <td>100</td>
 <td>14.4%</td>
 <td>6.4%</td>
 <td>6.5%</td>
 <td>2.7%</td>
 <td>-16.6%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Individual Income Taxes</td>
 <td>47</td>
 <td>18.0</td>
 <td>3.7</td>
 <td>21.5</td>
 <td>-1.8</td>
 <td>-20.1</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Corporate Income Taxes</td>
 <td>8</td>
 <td>16.9</td>
 <td>33.8</td>
 <td>-5.4</td>
 <td>38.5</td>
 <td>-54.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Social Insurance Taxes</td>
 <td>36</td>
 <td>11.2</td>
 <td>3.2</td>
 <td>-5.3</td>
 <td>-2.9</td>
 <td>-1.0</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Excise Taxes</td>
 <td>3</td>
 <td>6.6</td>
 <td>9.2</td>
 <td>8.2</td>
 <td>7.1</td>
 <td>-7.2</td>
 </tr>
 <tr>
 <td class="firstcol"></td>
 <td></td>
 <td></td>
 <td></td>
 <td></td>
 <td></td>
 <td></td>
 </tr>
 <tr>
 <td class="firstcol">Net Outlays (Y/Y % Change)</td>
 <td>100</td>
 <td>-4.8</td>
 <td>-1.7</td>
 <td>4.1</td>
 <td>-1.8</td>
 <td>18.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;National Defense</td>
 <td>20</td>
 <td>-6.6</td>
 <td>-3.6</td>
 <td>1.7</td>
 <td>4.6</td>
 <td>7.6</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Health</td>
 <td>10</td>
 <td>2.6</td>
 <td>-7.0</td>
 <td>1.0</td>
 <td>10.4</td>
 <td>19.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Medicare</td>
 <td>20</td>
 <td>1.5</td>
 <td>-2.8</td>
 <td>7.5</td>
 <td>5.0</td>
 <td>10.1</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Income Security</td>
 <td>17</td>
 <td>-2.2</td>
 <td>-9.2</td>
 <td>-4.1</td>
 <td>16.7</td>
 <td>24.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Social Security</td>
 <td>20</td>
 <td>5.3</td>
 <td>5.8</td>
 <td>3.4</td>
 <td>3.5</td>
 <td>10.7</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Veterans Benefits</td>
 <td>4</td>
 <td>6.8</td>
 <td>-2.0</td>
 <td>17.3</td>
 <td>13.6</td>
 <td>12.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Interest</td>
 <td>6</td>
 <td>-3.9</td>
 <td>-2.1</td>
 <td>15.8</td>
 <td>2.9</td>
 <td>-24.6</td>
 </tr>
 </tbody>
 </table>
 
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The Federal Government ran a $116.5B budget surplus during June of FY'13. During June of last year, the government ran a $59.7B deficit. The 2013 figure compared to consensus expectations for a $40.0B surplus. So far this fiscal year [...]

U.S. Budget Surplus Emerges as Medicare and Defense Payments Decline

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 First time claims for unemployment insurance increased
 to 360,000 (-0.8% y/y) during the week ended July 6 from a
 little-revised 344,000 during the week prior. Consensus expectations
 were for 335,000 claims. The four week moving average of claims rose
 to 351,750, its highest level since late-May. During the last ten
 years, there has been a 74% correlation between the level of claims
 and the m/m change in nonfarm payrolls.
 Continuing claims for unemployment insurance in the week ended
 June 29 backed up slightly to 2.977 million (-10.1% y/y) from 2.953
 million. The four week moving average of continuing claims slipped
 to a cycle-low of&nbsp; 2.971 million. The insured rate of
 unemployment held at 2.3%, where it's been since early-April. This
 particular count covers only &quot;regular&quot; programs and does
 not include all extended benefit and other specialized jobless
 insurance programs. In the week of June 22, the latest figure
 available, the grand total of all benefit recipients slipped w/w at
 4.506 million, (-23.3% y/y). That compares to a cycle peak of 12.060
 million in January 2010. The number of individuals who were
 collecting emergency and extended payments fell to a cycle low of
 1.645 million (-36.9% y/y).
 By state, the insured rate of unemployment continued to vary
 greatly with South Dakota (0.44%), Virginia (1.25%), Oklahoma
 (1.40%), Indiana (1.53%), Texas (1.59%), Ohio (1.61%), Tennessee
 (1.67%) and Georgia (1.68%) at the low end of the range. At the high
 end were Michigan (1.88%), Massachusetts (2.30%), New York (2.53%),
 Illinois (2.61%), Nevada (2.79%), California (3.01%), New Jersey
 (3.09%) and Pennsylvania (3.15%).
 Data on weekly unemployment insurance are contained in Haver's WEEKLY
 database and they are summarized monthly in USECON. Data for
 individual states are in REGIONW. The consensus estimates
 come from the Action Economics survey, carried in the AS1REPNA
 database.
 The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20130710a.htm">here.</a>
 
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 <a href="/comment/130711h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130711h.png"></a> 
 
 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup> 
 
 <thead>
 <tr>
 <th class="firstcol" >Unemployment Insurance (000s)</th>
 <th>07/06/13</th>
 <th>06/29/13</th>
 <th>06/22/13</th>
 <th>Y/Y %</th>
 <th>2012</th>
 <th>2011</th>
 <th>2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Initial Claims</td>
 <td >360</td>
 <td >344</td>
 <td >348</td>
 <td >-0.8</td>
 <td >375</td>
 <td >409</td>
 <td >459</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Continuing Claims</td>
 <td >--</td>
 <td >2,977</td>
 <td >2,953</td>
 <td >-10.1</td>
 <td >3,318</td>
 <td >3,744</td>
 <td >4,544</td>
 </tr>
 <tr>
 <td class="firstcol" >Insured Unemployment Rate (%)</td>
 <td >--</td>
 <td >2.3</td>
 <td >2.3</td>
 <td >2.6 
 (6/12)</td>
 <td >2.6</td>
 <td >3.0</td>
 <td >3.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total &quot;All
 Programs&quot; (NSA)</td>
 <td >--</td>
 <td >--</td>
 <td >4.506 mil.</td>
 <td >-23.3</td>
 <td >6.047M</td>
 <td >7.750M</td>
 <td >9.850M</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

First time claims for unemployment insurance increased to 360,000 (-0.8% y/y) during the week ended July 6 from a little-revised 344,000 during the week prior. Consensus expectations were for 335,000 claims. The four week moving [...]

U.S. Initial Unemployment Insurance Claims Surprisingly Move Higher

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				 Import prices fell 0.2% last month (+0.2% y/y) following a
 revised 0.7% May decline, initially reported as -0.6%. No
 change in prices had been expected in the Action Economics
 survey. In a switch from prior months, lower prices for
 nonpetroleum products were the catalyst for the decline.
 Conversely, petroleum prices ticked 0.2% higher (2.9% y/y) as
 crude oil prices jumped. 
 Nonpetroleum import prices declined another 0.3% (-0.5%
 y/y). The shortfall was led by a 1.2% drop (0.0% y/y) in food,
 feeds &amp; beverage prices. Nonoil industrial supplies &amp;
 material costs fell 1.0% (-1.0% y/y) pulled lower by a decline
 in building material costs. Motor vehicle &amp; parts prices
 were off 0.3% (-0.4% y/y). Capital goods prices outside of the
 high-tech area slipped 0.2% (-0.6% y/y) but computers,
 peripheral &amp; semiconductor costs were unchanged (-0.9%
 y/y). Prices for nonauto consumer goods slipped 0.1% and were
 stable y/y.
 U.S. export prices continued weak and slipped an expected
 0.1% (+0.8% y/y), the fourth consecutive monthly shortfall. A
 decline in nonagricultural prices led the way lower with a 0.2%
 decline (-0.3% y/y), also down for the fourth straight month.
 Industrial supplies and material prices fell 0.4% (-0.5% y/y)
 while nonauto consumer goods prices slipped 0.1% (-1.5% y/y).
 That followed eight consecutive months of decline. Capital
 goods prices were unchanged (0.6% y/y) while motor vehicle
 &amp; parts prices also were unchanged (0.4% y/y).
 Agricultural export prices continued quite firm and posted a
 0.6% increase (9.3% y/y).
 The import and export price series can be found in Haver's USECON
 database. Detailed figures are available in the USINT
 database. The expectations figure is in the AS1REPNA
 database.
 A Century of U.S. Central Banking: Goals, Frameworks,
 Accountability is the title of yesterday's speech by
 Federal Reserve Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20130710a.htm">here</a>.
 
 <a href="/comment/130711c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130711c.png"></a>
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 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup> 
 
 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export
 Prices (NSA, %)</a></th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Jun Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Imports - All
 Commodities</td>
 <td >-0.2</td>
 <td >-0.7</td>
 <td >-0.6</td>
 <td >0.2</td>
 <td >0.3</td>
 <td >10.9</td>
 <td >6.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Petroleum</td>
 <td >0.2</td>
 <td >-2.0</td>
 <td >-2.9</td>
 <td >2.9</td>
 <td >-0.3</td>
 <td >36.5</td>
 <td >28.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Nonpetroleum</td>
 <td >-0.3</td>
 <td >-0.3</td>
 <td >0.0</td>
 <td >-0.5</td>
 <td >0.3</td>
 <td >4.5</td>
 <td >2.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Exports - All
 Commodities</td>
 <td >-0.1</td>
 <td >-0.5</td>
 <td >-0.7</td>
 <td >0.8</td>
 <td >0.4</td>
 <td >8.1</td>
 <td >4.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Agricultural</td>
 <td >0.6</td>
 <td >1.1</td>
 <td >-2.3</td>
 <td >9.3</td>
 <td >2.4</td>
 <td >22.3</td>
 <td >7.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Nonagricultural</td>
 <td >-0.2</td>
 <td >-0.7</td>
 <td >-0.5</td>
 <td >-0.3</td>
 <td >0.1</td>
 <td >6.6</td>
 <td >4.6</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Import prices fell 0.2% last month (+0.2% y/y) following a revised 0.7% May decline, initially reported as -0.6%. No change in prices had been expected in the Action Economics survey. In a switch from prior months, lower prices for [...]

U.S. Import and Export Prices Continue Lower

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 But What About The Rest Of The Economy?
 
 
 
 

 
	 <a href="/comment/130710k_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130710k.png" align="left"></a>
	 
EMU-wide industrial production figures are not yet available. However, we have data available for wide group of the EU- and EMU- member countries. In the month of May, nine of these countries have already reported industrial production data with four of them showing month-to-month increases. In April the same group of countries showed month-to-month improvement in seven of nine instances in March there was month-to-month improvement in five of nine instances.

Germany, the largest country in the euro-Zone, saw its industrial output rise in two of the last three months. France, the second-largest euro-Zone economy, showed industrial production rise in one of three months. Italy, the third-largest country, say its industrial production rise in one of those months, go flat in the other, and decline in the third. Spain, the fourth largest e-Zone economy, saw industrial production rise in each of those three-months.

The chart at the top shows he industrial production path in terms of year-over-year growth rates for Germany, for France, and for Spain three of the four largest economies in the Eurozone. They are plotted on a same-scale chart and it's clear that industrial production has gone from being persistently negative year-over-year to closing in very close to a flat year-over-year performance for each of them.

Turning to data in the table, however, we see that Germany, France and Spain have some of the smallest year-over-year declines in industrial output among the currently-reporting euro-Zone members. And that would be true for last month as well when Germany posted 1.7% year-over-year increase France, a 0.3% decline and Spain a 0.7% increase; they were three of the four strongest economies in the table in April. As a result the chart of those top economies may slightly exaggerate the extent of progress in the Zone overall
<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130710.png" width="625" height="250">
However, as trends go it's quite clear that progress is being made. Over three months five of the nine countries show net increases in industrial production and the same is true over six months. If we look at the simple average of the various columns' percent changes, we see another hint of improvement in those metrics. However, let me warn that these are merely summaries of how countries are doing on average and in the euro-Zone we really need to look at weighted averages to know how the Zone is doing. E-Zone member countries are of very, very different sizes and therefore countries carry very, very different weights in the overall euro-Zone system. It is interesting and useful (for some purposes) to see how well member countries are doing,, but that does not always carryover to how the Zone itself is performing, even though the countries are Zone members.. 

We see the progress much more clearly if we look at what's going on in the quarter to date. We now have two months of hard data out of three available for the quarter. While that final month can always change things quite a bit, it seems quite clear that the euro-Zone is going to post a substantial increase in industrial production in the second quarter. The average increase right now is 3% for countries in the table. Germany, the largest economy, is growing at an 11.4% annual rate, France, the second-largest country, is going on at 8.7% annual rate Spain, the fourth-largest country, is growing at an 11% annual rate. Italy, the third-largest economy, will be detracting with the 5% annual rate of decline. With industrial production ramping up like this in the quarter it's a pretty good bet that we could see EMU GDP post a positive Q2 number. 

Meanwhile, the European Union members that are not part of the single currency system whose data are in this table (see the table bottom) namely the UK, Sweden and Norway are not faring quite as well. All three of them showed industrial production declines in May, Two of three of them showed declines in April. In the quarter to date data two of them to show increases, the UK at a 0.5% annual rate and Norway at an elevated 8.9% annual rate, as compared to Sweden's decline at a -5.7% annual rate.

PMI data from Markit's PMI survey is indicating some industrial progress although clearly there is still a great deal of weakness exhibited in the industrial part of that survey. But the signal from the Markit indices seems to be largely on the money.
<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1307101.png" width="500" height="250">
Still, if we look closely at the data in the table as well as at the trends in the chart, it's clear that while there may be some healing in train there is still a long way to go. Even for Germany, the strongest economy in many respects, recent data on industrial orders have not been as strong; moreover, after two months of increasing industrial output Germany posted a decline in May and its year-over-year increase in April turned to a decline in May. While the three-month and six-month trends show that there are more countries where output is increasing -not declining- the year-over-year data still show that eight of nine countries' output is still lower than it was one year ago. While we do like to look at sequential growth rates (the movement from 12-months, to six-months, to three-months) these trends can sometimes be illusory because of the volatility of the data. Still, when you see broad-based improvement like we are seeing in the euro-Zone it is more likely that this improvement represents something that's real rather than something that is ephemeral. But it may not be so clear what the reason is for the turnabout. 

When we think about economic improvement we need to take a holistic approach. Either the whole body of the economy is getting healthier or the economy is not really getting healthier. The improvement of the industrial sector in an economy where everything else is still unhealthy will probably not last. Indications currently are that the EMU improvements are rather widespread with, of course, a great deal of variation across member countries. Too many countries are still dealing with ongoing austerity programs or, like France, are limping along without having made much adjustment to their ailing fiscal situation. For example, France seems to be doing better than United Kingdom however the United Kingdom has spent a lot more attention and effort a gaining control of its fiscal situation that has France. As we look to the future we would expect the UK have a stronger economy with more flexibility than we would expect from France quite apart from what the current growth rates seems to say at the moment. Indeed, the IMF has just upgraded growth prospects for the UK and downgraded them for France.

There are still political pitfalls throughout Europe. In France Hollande is still under pressure. In Italy Berlusconi is on his way out of the political limelight and it's unclear what role he will play in the background. Portugal has clear instability in its ruling faction. Greece is staying within 'a stone's throw' of its austerity requirements but it seems to be slipping and the consensus is that it will be in need of another haircut for bondholders sooner or later! Yes another. Cyprus is a land where the euro is not really a euro because if you got them on deposit in Cyprus you can't spend them anyplace else. And we continue to wait for the conclusion of the German elections. Angela Merkel still seems to hold a strong position but you never know what bit of news could become destabilizing. She has seen some local election losses and there are some hints that there could be negative fallout from the Snowden affair given his German linkages.

European banking reform continues to move ahead but in some ways perhaps with better headlines than substance. The new plan for bank bailout authority could be the law of the land soon but that will be moot since the fund the authority will use to affect bailouts will be filled by placing a tariff on banks and will not be big enough to use for another 10 years. So, good luck with that! On the monetary front, M2 money supply growth in EMU continues to snake up to about foreign half percent year-over-year. But loans to the private sector are still extremely anemic with a growth rate that is near zero and is on a declining trend.

When we look at the European industrial sector we may be looking at the best part of the European economy and that is somewhat surprising since the global recovery is weak and the most recent Chinese trade data show how badly China is being affected by weak global demand and its own structural changes.. Since industrial output involves tradable goods we might expect that the tradable goods part of the economy (manufacturing) would perform somewhat worse than the non-tradable goods part of the economy (services). Yet that's not how things are playing out. It's a reminder to all of us how much European austerity which works through repressing the domestic economy is still driving events in Europe. As weak as the global economy is, it seems to be the driving force for European recovery. And, as we look to the future, that is something to bear in mind.




	 
 
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EMU-wide industrial production figures are not yet available. However, we have data available for wide group of the EU- and EMU- member countries. In the month of May, nine of these countries have already reported industrial [...]

Europe's Industrial Healing Seems To Be Underway

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 Inventories at the wholesale level fell 0.5% (+3.3% y/y) during May
 following a 0.1% slip in April. A 6.0% decline (-6.3% y/y) in farm product
 inventories led the decline. Inventories of metals fell 1.7% (-3.1% y/y)
 following sharp declines during the prior two months. Machinery, equipment
 &amp; supplies inventories were off 0.7% but up 9.1% y/y). Offsetting
 these declines was a 3.0% increase (5.5% y/y) in inventories at drug
 stores and a 1.9% gain (3.6% y/y) in chemical inventories. Petroleum
 inventories rose 0.7% (-5.2% y/y) while inventories of electrical goods
 increased 0.6% (5.5% y/y). Motor vehicle and parts inventories were
 unchanged (-0.3% y/y).&nbsp;&nbsp;
 Wholesale sector sales increased 1.6% (4.1% y/y) led higher by a 5.3%
 (-0.5% y/y) surge in apparel sales. Grocery &amp; related products sales
 gained 3.8% (8.6% y/y) with higher prices. Also quite firm was the 3.5%
 gain (10.9% y/y) in purchases of farm products. Motor vehicle sales grew
 3.0% (7.0% y/y) while higher prices led petroleum sales up 1.1% (-4.3%
 y/y). To the downside, metals purchases dropped 4.5% (-6.8% y/y) and sales
 of lumber fell 0.6% (+15.0% y/y). Electronic goods inventories were off
 0.3% (+3.6% y/y). 
 The wholesale sector's inventory-to-sales ratio fell to 1.18, the
 lowest level since April of last year. The durable goods ratio fell to 1.57
 but the I/S ratio in the nondurables sector plunged to 0.84, a low for the
 economic recovery.
 The wholesale trade figures are available in Haver's USECON database.
 The expectation figure is in AS1REPNA.

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 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Wholesale Sector -
 NAICS Classification (%)</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Inventories</td>
 <td >-0.5</td>
 <td >-0.1</td>
 <td >0.3</td>
 <td >3.3</td>
 <td >5.5</td>
 <td >9.2</td>
 <td >10.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Sales</td>
 <td >1.6</td>
 <td >0.7</td>
 <td >-1.4</td>
 <td >4.1</td>
 <td >4.3</td>
 <td >12.8</td>
 <td >12.1</td>
 </tr>
 <tr>
 <td class="firstcol" >I/S Ratio</td>
 <td >1.18</td>
 <td >1.21</td>
 <td >1.22</td>
 <td >1.19(May 2012)</td>
 <td >1.19</td>
 <td >1.17</td>
 <td >1.17</td>
 </tr>
 </tbody>
 </table>
 
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Inventories at the wholesale level fell 0.5% (+3.3% y/y) during May following a 0.1% slip in April. A 6.0% decline (-6.3% y/y) in farm product inventories led the decline. Inventories of metals fell 1.7% (-3.1% y/y) following sharp [...]

U.S. Wholesale Inventories Decline As Sales Rebound

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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Nonfarm payrolls increased 177,000 (1.2% y/y) during April after rising 185,000 in March, revised from 228,000, and 102,000 in February, revised from 117,000. Expectations had been for a 130,000 rise in the Action Economics Forecast Survey. The latest figure left the three-month average change at 155,000 in April, down from 232,000 in January.

Average hourly earnings rose 0.2% during April after unrevised increases of 0.3% in March and 0.2% in February. Earnings growth of 3.8% y/y was below the 5.9% high in March 2022.

The unemployment rate, measured in the household survey, held m/m at an expected 4.2% in April, and compared to 4.1% in February and 4.0% in January. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, eased to 7.8% in April from 7.9% in March.

In the **establishment survey**, private-sector employment rose 167,000 (1.2% y/y) after a 170,000 March increase. Factory sector jobs edged 1,000 lower (-0.7% y/y) following a 3,000 gain. Construction sector employment increased 11,000 (1.7% y/y), after rising 7,000 in March.

Private service-producing sector employment increased 156,000 (1.4% y/y) in April after improving 161,000 in March. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 70,000 (3.4% y/y) last month following a 74,000 March increase. Leisure & hospitality employment rose 24,000 (1.3% y/y) after a 38,000 gain. Trade, transportation & utilities rose 32,000 (0.9% y/y) in April following a 25,000 March increase. Professional & business services employment rose 17,000 (-0.1% y/y) following a 3,000 rise while temporary help employment rose 3,600 (-3.9% y/y) following a 2,700 decline. Financial activities employment improved 14,000 (1.2% y/y) after a 6,000 gain. The number of information sector jobs held steady (-0.4% y/y) last month after falling 2,000 in March.

Government sector payrolls rose 10,000 (1.3% y/y) last month after increasing 15,000 in March. The number of local government jobs increased 13,000 (1.4% y/y) following a 17,000 gain. State government employment rose 6,000 (1.8% y/y) following a 2,000 March increase but federal government payrolls fell 9,000 (-0.3% y/y), the third consecutive monthly decline.

Private-sector average hourly earnings rose 0.2% (3.8% y/y) in April after increasing 0.3% in March. Earnings in the goods-producing sector eased 0.1% (+4.0% y/y) following a 0.6% gain. Earnings in construction rose 0.3% (3.6% y/y), after a 0.2% rise but factory sector earnings declined 0.3% (+4.3% y/y) after surging 0.8% in March. In the private services-sector, earnings rose 0.2% (3.7% y/y) in April for the third straight month. Information sector pay increased 1.0% (5.2% y/y) last month after easing 0.1%, and financial activities earnings rose 0.5% (4.3% y/y) for the second straight month. Trade, transportation & utilities sector pay increased 0.4% (3.4% y/y) after 0.6%. Professional & business sector earnings increased 0.1% (4.4% y/y) after 0.2% in March. Leisure & hospitality earnings held steady (+3.8% y/y) following a 0.6% March increase.

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The length of the average workweek held steady at 34.3 hours in April. The workweek in the goods-producing sector eased to 39.8 hours from 40.0 hours. The construction sector average workweek eased to 39.0 hours from 39.3 hours while the factory sector workweek moved lower to 40.0 hours from 40.2. The average workweek in the private service sector held at 33.2 hours. Professional & business service hours fell to 36.3 hours from 36.4 while trade, transportation & utilities hours improved to 34.3 from 34.0 hours. Private education hours rose slightly to 32.8, but leisure & hospitality held steady at 25.5 hours.

In the **household survey**, the unemployment rate held at 4.2% in April as employment rose 436,000 and the size of the labor force increased 518,000. The labor force participation rate edged up to 62.6% last month from 62.5% in March. It remained below the high of 63.3% early in 2020. The rate for teenagers declined to 36.9%. For workers aged 20-24, the rate held steady at 72.1%, up from 71.8% six months earlier. For workers aged 25-54 the rate rose to 83.6%, a five-month high. For individuals 55 and over, the rate improved to 38.4% in April.

The employment/population ratio for all workers in April rose to 60.0%. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic.

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

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- Job growth spreads across most sectors.
- Earnings growth trend decelerates.
- Jobless rate holds steady.

U.S. Job Growth Is Firm in April but March Gain Is Lessened

Winnie Tapasanun

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Total factory orders rose a slightly less-than-expected 4.3% m/m in March after rises of 0.5% in February and 1.8% in January, data from the U.S. Census Bureau showed. A 4.5% m/m March increase had been expected in the Action Economics Forecast Survey. The March reading was the third successive monthly rise and the largest since July 2024. The year-on-year rate accelerated to 6.0% in March, the highest since November 2022, from 2.3% in February. Notably, orders for nondefense aircraft & parts soared 139.0% in March following a 7.4% drop in February and a 92.9% surge in January. Factory orders excluding defense rose 4.8% (5.9% y/y), the largest of three straight m/m/ rises, after a 0.4% February increase. Factory orders excluding the transportation sector fell 0.2% (+1.1% y/y), the first m/m fall since August, after rising 0.3% in February, January and December.

Durable goods orders jumped 9.2% (11.9% y/y) in March, the third consecutive m/m gain and the biggest since July 2024, on top of a 0.8% increase in February (matching +9.2% m/m in the advance report on April 24). The March jump reflected m/m orders increases of 27.1% (the largest m/m surge since July 2024; 31.2% y/y) in transportation equipment, 1.1% (4.9% y/y) in primary metals, 0.5% (-0.4% y/y) in furniture & related products, 0.1% (2.5% y/y) in fabricated metal products, and 0.1% (0.9% y/y) in machinery. To the downside, durable goods orders for computers & electronic products (-1.3%; +2.7% y/y) and electrical equipment, appliances & components (-1.0%; +4.2% y/y) declined m/m in March.

Nondurable goods orders, which equal nondurable goods shipments, fell 0.3% (+0.4% y/y) in March, the first m/m fall since September, after a 0.1% uptick in February. The March fall reflected m/m drops of 2.4% (-9.3% y/y) in petroleum & coal products and 0.9% (-1.2% y/y) in apparel. To the upside, the following nondurable goods shipments rose m/m in March: leather & allied products (1.5%; 8.6% y/y), beverage & tobacco products (0.7%; 5.8% y/y), paper products (0.6%; 2.3% y/y), printing (0.3%; 3.8% y/y), textile mills (0.3%; 0.8% y/y), chemical products (0.2%; 5.4% y/y), plastics & rubber products (0.2%; 0.4% y/y), food products (0.1%; 1.8% y/y), and textile products (0.1%; 2.1% y/y).

Total shipments slipped 0.1% (+2.0% y/y) in March, the first m/m easing since October, after a 0.7% increase in February. Excluding transportation, shipments were virtually unchanged m/m (+1.1% y/y) in March following six straight m/m gains. Shipments of durable goods industries inched up 0.1% (3.8% y/y) in March, the smallest of four consecutive m/m increases, after a 1.3% advance in February. This reflected m/m durable goods shipments rises of 1.2% (5.6% y/y) in primary metals, 0.9% (0.1% y/y) in furniture & related products, 0.8% (-0.2% y/y) in nonmetallic mineral products, 0.4% (0.0% y/y) in machinery, 0.3% (1.8% y/y) in fabricated metal products, 0.2% (4.5% y/y) in computers & electronic products, 0.2% (-2.1% y/y) in wood products, and 0.1% (3.0% y/y) in electrical equipment, appliances & components. In contrast, durable goods shipments for transportation equipment (-0.5%; +7.3% y/y) and miscellaneous durable goods (-0.1%; +2.9% y/y) fell m/m in March following three successive m/m increases.

Unfilled orders rose 2.0% (2.3% y/y) in March, up for the eighth month in nine, after a 0.1% uptick in February. Excluding transportation, unfilled orders dipped 0.1% (+0.7% y/y) in March, the first m/m easing since May 2024, after holding steady in February. Backlogs of durable goods rose 2.0% (2.3% y/y) in March, reflecting m/m rises of 3.1% (3.1% y/y) in transportation equipment and 0.2% (2.4% y/y) in electrical equipment, appliances & components.

Inventories edged up 0.1% (0.9% y/y) in March, the fifth straight m/m increase, after rising at the same pace in the prior two months. Excluding transportation, inventories were up 0.1% (0.5% y/y) in March, the fifth consecutive m/m rise. Durable goods inventories ticked up 0.1% (1.0% y/y) in March after holding steady in February and January; nondurable goods inventories edged up 0.1% (0.8% y/y), the fifth successive m/m increase.

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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- March manufacturers’ new orders +4.3% m/m; +6.0% y/y, highest since Nov. ’22.
- Durable goods orders (+9.2%) jump m/m, while nondurable goods orders (-0.3%) and shipments (-0.1%) decline m/m.
- Transportation equipt. orders +27.1% m/m, w/ a 139.0% m/m surge in nondefense aircraft & parts orders.
- Unfilled orders +2.0%, the eighth m/m rise in nine months.
- Inventories +0.1%, the fifth consecutive m/m increase.

U.S. Factory Orders Increase for the Third Straight Month in March

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The global manufacturing data showed broad weakening in April as conditions weakened across more than half of the contributing early reporters in the S&P survey of manufacturing. Of the 18 early reporting countries, more than half of them showed deceleration over six months and 12 months. Over three months, only 8 of 18 showed deterioration and that's about as good as it got in this report. In the current month, month-to-month changes showed more than half of the survey contributors showing weaker results than the month before. In the S&P framework, manufacturing improved month-to-month for the U.S.; however, looking at sequential averages for the U.S., U.K., European monetary union, Canada, and Japan, we see a steady weakening and results over 12 months, over six months versus 12 months, and for three months versus 6 months. The highly developed countries are not doing particularly well.

Asian economies are also showing slight deterioration but doing a little better than the developed countries in general.

Only five of the 18 reporting countries have queue percentile standings in their data back to January 2021 that are above their medians. Readings at or above the 50% mark are at or above the median standing. Canada is showing the weakest manufacturing result on record over this span, in terms of its queue percentile standing which is at 0 in the current month.

I showed the graphic for the Baltic dry goods index in this report rather than statistics on the manufacturing PMI data because the Baltic data, which reflect shipping volume for dry goods - that is excluding things like oil - is weak but it's only in the neighborhood where it's been for some time. There has been a great deal of talk about how tariffs may have impacted trade flows, expected trade flows, shipping, shipping rates, and the like. However, according to the Baltic dry goods index, there isn't much evidence that this is occurring right now and affecting the current data. That may still lie ahead but for now it's not baked in the cake.

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Globally Manufacturing Weakens

Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

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**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

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**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

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**The US economy’s structural outperformance and the dollar**
A second dynamic, captured in the next chart, reveals a tight correlation between the US real effective exchange rate and the potential GDP growth differential between the US and euro area over the past 50-60 years. This raises the question: has dollar strength (until recently) merely been a reflection of US growth leadership—or are capital inflows themselves helping to sustain this growth outperformance? In effect, the tail may be wagging the dog. Global investors have long allocated capital to the US, attracted by its macroeconomic resilience, technological leadership, and deep, liquid financial markets. The danger now is that the US trade war may disrupt this equilibrium. A sharp or sustained reduction in capital inflows could undermine growth, weaken the dollar, and trigger broader financial instability. Moreover, reversing this dynamic is not straightforward—barring a credible structural resurgence in European (or Asian) growth, the global investment landscape remains tilted toward the US.

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**US competitiveness versus Europe, China and Japan** 
The next chart below examines relative unit labour costs across major economies since 2011. The US and China have seen a broadly similar trajectory, with steady increases in relative cost structures, while the euro area has remained flat and Japan has seen dramatic improvement. This suggests that, from a cost competitiveness standpoint, the US is not uniquely disadvantaged vis-à-vis China. However, as we discuss further below, this parallel erosion of cost competitiveness is occurring at much higher nominal wage levels in the US, which blunts its ability to regain export share through tariff-related shifts alone. The trade war strategy—absent a corresponding improvement in productivity or structural reforms—risks imposing costs without delivering material competitiveness gains.

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**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

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Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.

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Charts of the Week: Tariff Truce, Tenuous Trust

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U.S. light vehicle sales dropped 2.9% (+6.5% y/y) to 17.31 million units (SAAR) in April after surging 10.8% to 17.82 million units in March. The retreat in April vehicle sales accompanied a 1.7% y/y rise in real disposable income through March, which compared to 2.0% growth last year.

Sales declines were broad-based last month. Light truck sales fell 1.3% (+9.9% y/y) during April to 14.34 million units (SAAR), after rising 12.4% in March. Purchases of domestically-made light trucks declined 1.2% (+11.9% y/y) to 11.02 million units, after jumping 12.5% in March. Sales of imported light trucks fell 1.8% (+4.4% y/y) to 3.32 million units, following an 11.6% March surge.

Trucks’ record 82.8% share of the light vehicle market last month compared to 81.5% in March and 80.3% in April of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales also declined last month, down 9.5% (-7.5%) to 2.97 million units (SAAR) following a 3.5% March rise. The decline reversed all of the increase over the prior two months. Purchases of domestically-produced cars fell 9.8% (-4.3% y/y) last month to 2.22 million units, after rising 3.8% in March. Sales of imported autos declined 9.6% (-15.7% y/y) to 0.75 million units, following a 2.5% March increase.

Imports' 23.5% share of the U.S. light vehicle market was little changed from 23.6% in March and compared to a May 2023 low of 22.9% and a high of 26.3% in November of 2023. Imports' share of the passenger car market held steady at 25.3% last month and compared to 27.7% in April of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market eased to 23.2% last month after falling to 23.3% in March.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the I**NDUSTRY** database.

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- Light truck sales pull back, while auto sales tumble.
- Both domestic and imported sales decline.
- Imports' market share slips further.

Economy in Brief: July 2013

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