Robert Brusca

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EMU industrial production fell 0.7% in June with the year-on-year pace at 2.3%. But in the QTD (quarter-to-date, which now refers to the full second quarter), output is falling at an annual rate of 0.6%, led by weakness in the output of consumer durables.

Intermediate goods show weak output in the QTD as outlook slips at a 0.1% pace and capital goods output is not driver of growth as it is up at only a 0.2% annual rate.

Despite what are relatively healthy year-over-year metrics for EMU IP, the shorter term results are sputtering and there are all sorts of reasons to not dismiss this unevenness.

The trade war, Brexit, recent geopolitical turmoil centered on Turkey and a planned ECB exit from its program of super stimulus, all raise warning flags on the outlook and create opportunities for ‘something’ to go wrong.

And there is also good old fashioned entropy.

Italy is showing strains as a bridge collapse in Genoa has resulted in a multitude of deaths. Years of budget cutting forced on Italy by German-inspired austerity has left its infrastructure in poor shape. You can ‘cheer’ the ‘success’ of austerity in lowering Italy’s inflation rate, but that has been done at a cost, a real cost. The bridge collapse is only the most recent evidence that this infrastructure neglect is a clear and present danger. The Five Star Movement ran on a platform of fixing the failing infrastructure. The EU Commission must approve the new government’s budget. Of course, Italy has budget constraints imposed by its membership in the EU as the EU Commission constantly reminds it. But Italy also has a banking sector that is living on borrowed time which is not good as Turkey begins to spiral out of control. Austerity meant not just cutting out the fat from the Italian budget’s diet, but ruining the nutrition and imparting the equivalence of osteoporosis to the very bones of the economic framework. Italy remains as one of the biggest threats to euro area prosperity and continuity and it’s not just because Italians are profligate. They are needy.


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On the GDP front all of the original member current EMU reporters show GDP is expanding in the current quarter. There are quarterly decelerations in Finland, Italy and Spain. But more broadly there are decelerations in six of the eight reporting EMU members in terms of their year-over-year GDP growth rates. The EMU itself has slowed its year-on-year growth rate for three quarters in a row from 2.8% in Q3 2017 to 2.2% currently in Q2 2018.

New Jolt City...Is Goldilocks dead? 
The new jolt to global growth prospects from troubles in Turkey has spread and has prompted investors to consider that the Goldilocks environment may be in its final daze. Argentina and Venezuela are in the news, not because of any link to Turkey but because it’s time to begin to look for trouble spots and so we are beginning to look at the lumps in the carpet instead of ignoring what we previously swept under it.

Of course, the whole of EMU sits on a shaky foundation since there is a lot of dissent about what countries are forced to do because of EU membership that has percolated to the surface over the issue of migrants. Of course, only the U.K. had a nationwide vote on EU membership and we know how that ended. But it is not the only EU member with a lot of dissent about how it is treated by the EU. This conflict often is referred to as concern over the rule by the elite- the stuff our elected officials or appointed officials set as policy. The existence of this sort of dissent has become clear in Italy. It popped to the surface then was suppressed at the time of the French elections. It undermined and has permanently crippled Angela Merkel in Germany. The EU and EMU still have their foundations sunk deeply into the ground where the tectonic plates are still shifting.

Turkey or trade could be the catalyst to bring out more problems. There is just no telling what might unravel next. India, a country that seemed to be doing well, may now be drawn into a destabilizing vortex of interest rate hikes. China, the truly big - or huge- enchilada, is showing signs of slowing but is not yet any kind of threat to growth. But China has its own festering issues. Policies launched by Donald Trump are shaking the global mercantilist tree. And what falls from it may be more than too-ripe fruit.


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EMU industrial production fell 0.7% in June with the year-on-year pace at 2.3%. But in the QTD (quarter-to-date, which now refers to the full second quarter), output is falling at an annual rate of 0.6%, led by weakness in the output [...]

EMU Growth: Is it on Shakier Ground?

Tom Moeller

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The National Federation of Independent Business (NFIB)
indicated that its Small Business Optimism Index rose to 107.9 during July and
recouped its unrevised decline to 107.2 during June. It remained close to the
1983 record high.

An improved 32% of firms indicated that now was a good time
to expand the business. A higher thirty-five of firms expected the economy to
improve, though that was down from the December 2016 high of 50%. An improved
29% of firms were expecting higher real sales, and that remained up versus 22%
twelve months earlier. Thirty percent of firms planned to make capital
expenditures, up from 28% during all of last year.

The labor market remained strong. Twenty-three percent of
businesses were planning to increase employment. That was near the record high
and up from 19% twelve months earlier. Meanwhile, a near-record 55% indicated
that there were few or no qualified candidates for job openings, up from the
December 2009 low of 21%.

Pricing pressure remained strong. A net 16% of firms were
raising average selling prices, up slightly m/m and double the percentage twelve
months earlier. A steady 24% of firms were planning to raise prices, remaining
near the ten-year high. Thirty-two percent of firms increased worker
compensation, up from 27% during all of last year and a higher 22% of businesses
were planning to raise compensation.

Credit was readily available. Only four percent of businesses
reported difficulties in obtaining credit, up from two percent in June but still
near the lowest level of the economic expansion.

This survey inquires about problems facing small business.
The most pressing problem in July continued to be labor quality as a near-record
23% reported problems. A higher seven percent of firms reported the cost of
labor as the most significant problem. Government requirements were worrisome to
14% of respondents, down from 22% in 2015. Seventeen percent indicated that
taxes were the largest problem, down from a December 2014 high of 27%.
Competition from large businesses held at nine percent and insurance
costs/availability worried a steady 10%. Poor sales remained at an expansion low
of 7% while financial &amp; interest rate problems remained a negligible problem
for just two percent of respondents. Price inflation held steady as two percent
reported it as the biggest problem.

Roughly 24 million small businesses exist in the U.S. and
they create 80% of all new jobs. The index is based 1986=100. The typical NFIB
member employs 10 people and reports gross sales of about $500,000 a year.
The NFIB figures can be found in Haver's SURVEYS database.

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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" >National Federation of
 Independent Business (SA, Net % of Firms)</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Jul'17</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Small Business Optimism Index (1986=100)</td>
 <td >107.9</td>
 <td >107.2</td>
 <td >107.8</td>
 <td >105.2</td>
 <td >104.9</td>
 <td >95.3</td>
 <td >96.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Expecting Economy to Improve</td>
 <td >35</td>
 <td >33</td>
 <td >37</td>
 <td >37</td>
 <td >39</td>
 <td >-5</td>
 <td >-5</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms Expecting Higher Real Sales</td>
 <td >29</td>
 <td >26</td>
 <td >31</td>
 <td >22</td>
 <td >23</td>
 <td >5</td>
 <td >8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Reporting Now Is a Good Time to
 Expand the Business</td>
 <td >32</td>
 <td >29</td>
 <td >34</td>
 <td >23</td>
 <td >23</td>
 <td >10</td>
 <td >12</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Planning to Increase Employment</td>
 <td >23</td>
 <td >20</td>
 <td >18</td>
 <td >19</td>
 <td >18</td>
 <td >11</td>
 <td >12</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms With Few or No Qualified
 Applicants for Job Openings (%)</td>
 <td >52</td>
 <td >55</td>
 <td >48</td>
 <td >52</td>
 <td >49</td>
 <td >46</td>
 <td >46</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Reporting That Credit Was Harder
 to Get</td>
 <td >4</td>
 <td >2</td>
 <td >5</td>
 <td >3</td>
 <td >4</td>
 <td >5</td>
 <td >4</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms Raising Average Selling Prices</td>
 <td >16</td>
 <td >14</td>
 <td >19</td>
 <td >8</td>
 <td >7</td>
 <td >0</td>
 <td >2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Raising Worker Compensation</td>
 <td >32</td>
 <td >31</td>
 <td >35</td>
 <td >27l</td>
 <td >27</td>
 <td >24</td>
 <td >23</td>
 </tr>
 </tbody>
 </table>
 
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The National Federation of Independent Business (NFIB) indicated that its Small Business Optimism Index rose to 107.9 during July and recouped its unrevised decline to 107.2 during June. It remained close to the 1983 record high. An [...]

U.S. Small Business Optimism Nears Record High

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Import prices remained unchanged during July (4.8% y/y)
following a 0.1% slip in June, which was revised from -0.4%. A 0.1% uptick had been expected
in the Action Economics Forecast Survey. These figures are not seasonally adjusted.

Weakness in import prices last month was led by a 0.1% slip
(+1.3% y/y) in nonpetroleum import costs which followed a 0.4% drop. The decline
was paced by a 1.8% shortfall (-3.8% y/y) in prices of foods, feeds and beverages
which followed a 2.6% decline during June. Capital goods prices eased 0.1%
(+0.3% y/y) for the third straight month. Prices of computers,
peripherals &amp; semiconductors held steady both m/m and y/y. Capital goods prices
excluding computers, semiconductors &amp; peripherals were unchanged (+0.4% y/y)
after a 0.2% decline. Motor vehicle &amp; parts prices held steady (+0.3% y/y)
after slipping 0.1% in each of the prior two months. Working 0.3% higher (0.6%
y/y) were prices of consumer goods excluding automobiles after falling 0.3%. Industrial supplies and materials prices
increased 0.2% (20.9% y/y), but prices excluding petroleum decreased 0.3% (+8.2% y/y) following a
0.2% gain. Petroleum &amp; petroleum product prices jumped 0.9% (43.6% y/y)
following two months of even stronger increase.

Export prices declined 0.5% (+4.3% y/y) in July following a
0.2% rise, revised from 0.3%. A 0.2% increase had been expected.

Agricultural export prices weakened 5.3% (-2.0% y/y)
following a 1.0% decline. Nonagricultural export prices held steady (5.0% y/y)
after a 0.4% gain. Among the end-use categories, prices of industrial supplies
and materials fell 0.4% (+12.0% y/y), as petroleum prices held steady (30.1% y/y).
Nonagricultural supplies and materials prices excluding fuels and
building materials declined 0.4% (+7.0% y/y) following a 0.3% rise. Prices of
foods, feeds and beverages were off 4.7% (-2.2% y/y) and added to the prior
month's 1.0% decline. Capital good prices held steady (1.8% y/y) following two
months of 0.1% gain as computers, peripherals &amp; semiconductors prices rose 0.2%
(1.3% y/y) after falling 0.4%. Excluding this sector, capital goods prices were unchanged (1.9% y/y) after a
0.2% rise. Prices of motor vehicles and parts eased 0.1% (+0.8% y/y) for the
second straight month. Prices of consumer goods excluding automobiles held
steady (+0.8% y/y) after a 0.1% dip in the prior month.

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 from the Action Economics Forecast Survey is in the AS1REPNA database.

Do Import Tariffs Help Reduce Trade Deficits? from the
Federal Reserve Bank of New York is available <a href="http://libertystreeteconomics.newyorkfed.org/2018/08/do-import-tariffs-help-reduce-trade-deficits.html">here</a>.

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	<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" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Imports - All Commodities</td>
 <td >0.0</td>
 <td >-0.1</td>
 <td >0.9</td>
 <td >4.8</td>
 <td >2.9</td>
 <td >-3.3</td>
 <td >-10.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Petroleum &amp; Petroleum
 Products</td>
 <td >0.9</td>
 <td >1.4</td>
 <td >7.8</td>
 <td >43.6</td>
 <td >26.6</td>
 <td >-19.7</td>
 <td >-46.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Nonpetroleum</td>
 <td >-0.1</td>
 <td >-0.4</td>
 <td >0.1</td>
 <td >1.3</td>
 <td >1.1</td>
 <td >-1.5</td>
 <td >-2.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Exports - All Commodities</td>
 <td >-0.5</td>
 <td >0.2</td>
 <td >0.7</td>
 <td >4.3</td>
 <td >2.4</td>
 <td >-3.2</td>
 <td >-6.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Agricultural</td>
 <td >-5.3</td>
 <td >-1.0</td>
 <td >1.6</td>
 <td >-2.0</td>
 <td >1.5</td>
 <td >-5.4</td>
 <td >-13.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Nonagricultural</td>
 <td >0.0</td>
 <td >0.4</td>
 <td >0.6</td>
 <td >5.0</td>
 <td >2.5</td>
 <td >-3.0</td>
 <td >-5.5</td>
 </tr>
	 </tbody>
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Import prices remained unchanged during July (4.8% y/y) following a 0.1% slip in June, which was revised from -0.4%. A 0.1% uptick had been expected in the Action Economics Forecast Survey. These figures are not seasonally adjusted. [...]

U.S. Import Prices Hold Steady; Export Prices Weaken

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Retail gasoline prices slipped to $2.84 per gallon
last week from $2.85 during the prior period, but remained up 19.3% y/y. Haver
Analytics constructs factors to adjust for the marked seasonal variation in
prices. The seasonally-adjusted gasoline price also eased one penny to $2.78 per
gallon, but remained up versus $2.60 late last year.

West Texas Intermediate crude oil prices declined to
$67.91 per barrel (+38.3% y/y) last week from $69.46 in the previous week. WTI
prices remained lower than the $73.71 peak early in July. Though prices were at
the lowest level in seven weeks, they remained up by roughly one-third y/y.
Brent crude oil prices declined to $71.42 per barrel last week (+37.5% y/y) from
$78.75 in the middle of May.

Natural gas prices increased last week to $2.93/mmbtu
(3.6% y/y), the highest level since late-June.

In the four-weeks ending August 3, gasoline demand
eased 0.7% y/y; total petroleum product demand slipped 0.6% y/y. Gasoline
inventories increased 1.2% y/y, but inventories of all petroleum products
fell 6.1% y/y. Crude oil input to refineries rose 0.3% y/y in the last four weeks.

These data are reported by the U.S. Department of Energy. The
price data can be found in Haver's WEEKLY and DAILY databases.
Greater detail on prices, as well as the demand, production and inventory data,
along with regional breakdowns, are in OILWKLY.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th scope="col" >08/13/18</th>
 <th scope="col" >08/06/18</th>
 <th scope="col" >07/30/18</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Retail Gasoline ($ per Gallon Regular,
 Monday Price)</td>
 <td >2.84</td>
 <td >2.85</td>
 <td >2.85</td>
 <td >19.3</td>
 <td >2.47</td>
 <td >2.31</td>
 <td >2.03</td>
 </tr>
 <tr>
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl,
 Previous Week's Average)</td>
 <td >67.91</td>
 <td >69.46</td>
 <td >70.01</td>
 <td >38.3</td>
 <td >50.87</td>
 <td >43.22</td>
 <td >48.90</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, Previous
 Week's Average)</td>
 <td >2.93</td>
 <td >2.80</td>
 <td >2.75</td>
 <td >3.6</td>
 <td >2.96</td>
 <td >2.49</td>
 <td >2.62</td>
 </tr>
 </tbody>
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Retail gasoline prices slipped to $2.84 per gallon last week from $2.85 during the prior period, but remained up 19.3% y/y. Haver Analytics constructs factors to adjust for the marked seasonal variation in prices. The seasonally- [...]

U.S. Retail Gasoline Prices and Crude Oil Costs Ease

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Japan's retail sales have turned volatile, as the chart shows. The three-month growth rate in sales is more volatile than it has been since mid-2016. All that means is that it is harder for us to identify and pin down trend. And we would really like to identify and pin down trend as global conditions get topsy-turvy and as the weakness in Turkey's exchange rate has apparently spread to Indonesia. I guess time isn't the only thing that flies.

Beyond Japan's retail sales...far beyond 
As markets try to puzzle out what is going on in Turkey, they are going to go through a progression of questions. Who does Turkey trade with? Who lends to Turkey? Who lends to Turkey's banks? Who will get hurt if Turkey goes jerky? And so on. Another of those thought experiments is who ‘looks like' Turkey? As markets go through their check points, you may recall the Asian financial crisis that began with the Thai baht getting bashed and a famous market commentator saying who cares about the Thai baht? Well, before too long, people cared about the Thai baht. The currency market is the bloodstream of international trade and blood-borne diseases are contagious and to be feared. They can and do spread and sometimes do so in unexpected ways. There's no a time to be nonchalant with things you might not fully understand. It's really time to try to see where the market is going with all this and to get out in front of it. The vanguard can be a scary place to be, but it is better to be there than to be inactive and waiting for the final result or the knock-on impacts. Asia is being drawn into this orbit of unease and that is not good for Japan.

Growth in China is already under pressure as the Trade War impact is biting. And China is Japan's main trading partner. Growth in Japan would be affected if China slows. And then if some sort of financial crisis or exchange rate turbulence spread to Asia, I could get much worse for Japan whose domestic options already are limited. And why might market unrest spread? Turkey and the U.S. are at policy loggerheads and the U.S. has had other policy spats as well. Any one of them might mushroom into something more....

Japan for now... 
For now Japan's retail sales look solid. They are less dependable because of the volatility, but still the thrust of sales shows more strength than weakness. Sales rose by 3.6% in April, fell by 2.3% in May and then gained 1.3% in June. The three-month growth rate is now at a 10.5% annual pace, up from a pace of -0.6% over six months and up from 1.7% over 12 months.

Sales, however, are not underpinned by a lot of improvement in consumer confidence. The confidence metric in June stands at 43.7, the same as its quarterly average and up from a year-ago mark of 43.3. Confidence is up in June by 0.4% from its 12-month average. None of these moves are particularly impressive. However, in the quarter–to-date, which now refers to the just completed second quarter, the recent volatility in sales growth rates does add up to an expansion at a 6.3% annual rate.

The bottom line on this is that future sales growth will not stem from trend as much as from employment and wage developments and all of this is wrapped in a cloak of some sort of confidence. For now Japan's job growth and wage growth are more or less steady. But it is the outlook that is uncertain and that goes for more than just Japan since the global trade framework is being shaken.

The geopolitical background is uneven and there are a lot of global hot spots. Donald Trump's ‘scorched earth' methodology of ‘diplomacy' has created at least some unrest almost everywhere. Neither friend nor foe has been spared as the President has worked to reset global responsibilities and realign U.S. trade interests in a way that he thinks will be fairer to the U.S. Of course, everyone else was more or else comfortable the way things were so this series of changes is stirring up a lot adverse sentiment. But the counterpoint is that this is what ‘America' wanted in some sense and it is why a nonpolitician like Donald Trump was elected.

The New Global framework: Danger- under construction 
There is almost no foreign theme that you can name that is going to play out without reference to how it will collide with U.S. policy in this new global environment. Start out talking about Japanese retail sales prospects and you wonder about jobs, incomes, inflation trends, China, North Korea and the list goes on. There are a lot of balls in the air that might yet have a meaningful and positive impact on the outlook although most people seem to be holding their breath about the prospect that one of more of these balls gets dropped. The U.S. stand on Iran is very unpopular and there is lingering skepticism on North Korea. What we have seen out of U.S. foreign policy is that Mr. Trump is willing to be bold and brash and also willing to backtrack and re-set, under his own terms. He does not admit defeat, but he will change tactics. This is like your GPS device that might find you going in the wrong direction, but can still reroute you to your final destination with a few extra turns here and there. Starting out, even in the wrong direction, is not lethal. So we are on the GTS or (Global Trump System) and it is taking us for a ride that does not always wind up where you might think based upon the journey's start. We will have to hold on and see where it takes us. In the meantime no trend is safe from this bumper-car ride. Japan's retail sales are only one of the variables that will hang in the balance on what U.S. policy does. But it is not just the U.S. It is also how flexible or inflexible other countries are about re-setting new true post war relationships. Europe is still being coddled by the U.S. (special trade treatment and the U.S. carrying NATO on its back are examples) and Trump's view is that Europe should take off the training wheels and fend for itself but still be an ally. Europe can't understand why we won't donate a pint of blood for it every month as we used to. The question for Europe is this: does that work for you? Asia has a whole different slate of issues. But it's all in play.


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Japan's retail sales have turned volatile, as the chart shows. The three-month growth rate in sales is more volatile than it has been since mid-2016. All that means is that it is harder for us to identify and pin down trend. And we [...]

Japan's Retail Sales Rebound in June; But Is That Meaningful?

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<body>
	 
 
 
 

 <a href="/comment/180813a.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/180813a.png"></a>
 <a href="/comment/180813b.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/180813b.png"></a>

The U.S. Treasury Department reported that during the first
ten months of fiscal year 2018, the federal government budget deficit totaled $684.0
billion, up 20.8% versus $566.0 billion in the first ten months of FY'17. During
July alone, the federal government ran a $76.9 billion budget deficit. That
compared to an $42.9 billion deficit during July 2017. An $88 billion had been
expected in the Action Economics Forecast Survey.

Net revenues rose 1.0% y/y so far in FY'18 after a 1.5%
increase during all of last fiscal year. Individual income taxes increased 7.8%
y/y as employment continued to improve. That compared to a 2.7% rise during all
of last fiscal year. Corporate income tax receipts declined by more than one-quarter
y/y due to newly enacted tax cuts. That followed last fiscal year's 0.8%
decline. Social insurance receipts were fairly steady y/y following last year's
4.2% rise, and excise taxes improved 8.5% y/y after last year's 11.8% decline.

Government spending increased 4.4% y/y so far in FY'18
compared to 3.3% growth during all of FY'17. National defense spending rose 5.6%
y/y after slight increases during the last two fiscal years. Health insurance
spending grew a steady 3.8% y/y, while Medicare outlays increased an accelerated
3.5% y/y. With the lower unemployment rate, income security payments slipped 0.1%
y/y after their 2.1% FY'17 decline. Social Security payments rose an accelerated
4.5% y/y. Interest payments have gained 20.4% y/y so far in FY'18 after increasing
9.2% last fiscal year.

Haver's data on Federal Government outlays and receipts are
contained in USECON. Considerable detail is given in the separate GOVFIN
database. The Action Economics Forecast Survey numbers are in the AS1REPNA
database.

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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" >United States Government
 Finance</th>
 <th scope="col" ></th>
 <th scope="col" >July 2018</th>
 <th scope="col" >FY'17</th>
 <th scope="col" >FY'16</th>
 <th scope="col" >FY'15</th>
 <th scope="col" >FY'14</th>
 <th scope="col" >FY'13</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Budget Balance (Billions)</td>
 <td >--</td>
 <td >$-76.9</td>
 <td >$-665.7</td>
 <td >$-585.6</td>
 <td >$-439.1</td>
 <td >$-483.4</td>
 <td >$-680.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;As a percent of GDP</td>
 <td >--</td>
 <td >--</td>
 <td >3.5%</td>
 <td >3.2%</td>
 <td >2.5%</td>
 <td >2.8%</td>
 <td >4.1%</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" ></td>
 <td >% of Total</td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 </tr>
 <tr>
 <td class="firstcol" >Net Revenues (Fiscal Year YTD 2018, Y/Y %
 Change)</td>
 <td >100</td>
 <td >1.0%</td>
 <td >1.5%</td>
 <td >0.6%</td>
 <td >7.6%</td>
 <td >8.9%</td>
 <td >13.3%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Individual Income Taxes</td>
 <td >47</td>
 <td >7.8</td>
 <td >2.7</td>
 <td >0.3</td>
 <td >10.5</td>
 <td >5.9</td>
 <td >16.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Corporate Income Taxes</td>
 <td >9</td>
 <td >-28.5</td>
 <td >-0.8</td>
 <td >-12.9</td>
 <td >7.2</td>
 <td >17.3</td>
 <td >12.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Social Insurance Taxes</td>
 <td >34</td>
 <td >0.2</td>
 <td >4.2</td>
 <td >4.7</td>
 <td >4.1</td>
 <td >8.0</td>
 <td >12.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Excise Taxes</td>
 <td >3</td>
 <td >8.5</td>
 <td >-11.8</td>
 <td >-3.3</td>
 <td >5.3</td>
 <td >11.1</td>
 <td >6.3</td>
 </tr>
 <tr>
 <td class="firstcol" ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 </tr>
 <tr>
 <td class="firstcol" >Net Outlays&nbsp; (Fiscal Year 2017 YTD,
 Y/Y % Change)</td>
 <td >100</td>
 <td >4.4</td>
 <td >3.3</td>
 <td >4.5</td>
 <td >5.3</td>
 <td >1.4</td>
 <td >-2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;National Defense</td>
 <td >16</td>
 <td >5.6</td>
 <td >0.8</td>
 <td >0.7</td>
 <td >-2.3</td>
 <td >-4.7</td>
 <td >-6.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Health</td>
 <td >12</td>
 <td >3.8</td>
 <td >4.1</td>
 <td >6.2</td>
 <td >17.8</td>
 <td >14.3</td>
 <td >3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Medicare</td>
 <td >14</td>
 <td >3.5</td>
 <td >0.6</td>
 <td >8.7</td>
 <td >6.7</td>
 <td >2.8</td>
 <td >5.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Income Security</td>
 <td >12</td>
 <td >-0.1</td>
 <td >-2.1</td>
 <td >1.0</td>
 <td >-0.9</td>
 <td >-4.3</td>
 <td >-1.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Social Security</td>
 <td >24</td>
 <td >4.5</td>
 <td >3.1</td>
 <td >3.2</td>
 <td >4.4</td>
 <td >4.5</td>
 <td >5.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Veterans Benefits &amp; Services</td>
 <td >4</td>
 <td >6.0</td>
 <td >1.2</td>
 <td >9.3</td>
 <td >6.8</td>
 <td >7.7</td>
 <td >11.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Education, Training, Employment
 &amp; Social Services</td>
 <td >2</td>
 <td >-36.4</td>
 <td >31.6</td>
 <td >-10.2</td>
 <td >34.7</td>
 <td >25.9</td>
 <td >-21.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Interest</td>
 <td >9</td>
 <td >20.4</td>
 <td >9.2</td>
 <td >7.8</td>
 <td >-1.8</td>
 <td >2.8</td>
 <td >0.4</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The U.S. Treasury Department reported that during the first ten months of fiscal year 2018, the federal government budget deficit totaled $684.0 billion, up 20.8% versus $566.0 billion in the first ten months of FY'17. During July [...]

U.S. Government Budget Deficit Continues to Widen

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The U.S. Treasury Department reported that during the first
ten months of fiscal year 2018, the federal government budget deficit totaled $684.0
billion, up 20.8% versus $566.0 billion in the first ten months of FY'17. During
July alone, the federal government ran a $76.9 billion budget deficit. That
compared to an $42.9 billion deficit during July 2017. An $88 billion had been
expected in the Action Economics Forecast Survey.
Net revenues rose 1.0% y/y so far in FY'18 after a 1.5%
increase during all of last fiscal year. Individual income taxes increased 7.8%
y/y as employment continued to improve. That compared to a 2.7% rise during all
of last fiscal year. Corporate income tax receipts declined by more than one-quarter
y/y due to newly enacted tax cuts. That followed last fiscal year's 0.8%
decline. Social insurance receipts were fairly steady y/y following last year's
4.2% rise, and excise taxes improved 8.5% y/y after last year's 11.8%
decline.
Government spending increased 4.4% y/y so far in FY'18
compared to 3.3% growth during all of FY'17. National defense spending rose 5.6%
y/y after slight increases during the last two fiscal years. Health insurance
spending grew a steady 3.8% y/y, while Medicare outlays increased an accelerated
3.5% y/y. With the lower unemployment rate, income security payments slipped 0.1%
y/y after their 2.1% FY'17 decline. Social Security payments rose an accelerated
4.5% y/y. Interest payments have gained 20.4% y/y so far in FY'18 after increasing
9.2% last fiscal year.
Haver's data on Federal Government outlays and receipts are
contained in USECON. Considerable detail is given in the separate GOVFIN
database. The Action Economics Forecast Survey numbers are in the AS1REPNA
database.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <colgroup>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 </colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="869">United States Government
 Finance</th>
 <th scope="col" width="142"></th>
 <th scope="col" width="142">July 2018</th>
 <th scope="col" width="142">FY'17</th>
 <th scope="col" width="143">FY'16</th>
 <th scope="col" width="143">FY'15</th>
 <th scope="col" width="143">FY'14</th>
 <th scope="col" width="143">FY'13</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="869">Budget Balance (Billions)</td>
 <td align="center" width="142">--</td>
 <td align="center" width="142">$-76.9</td>
 <td align="center" width="142">$-665.7</td>
 <td align="center" width="143">$-585.6</td>
 <td align="center" width="143">$-439.1</td>
 <td align="center" width="143">$-483.4</td>
 <td align="center" width="143">$-680.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="869">&nbsp;&nbsp;As a percent of GDP</td>
 <td align="center" width="142">--</td>
 <td align="center" width="142">--</td>
 <td align="center" width="142">3.5%</td>
 <td align="center" width="143">3.2%</td>
 <td align="center" width="143">2.5%</td>
 <td align="center" width="143">2.8%</td>
 <td align="center" width="143">4.1%</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" width="869"></td>
 <td align="center" width="142">% of Total</td>
 <td align="center" width="142"></td>
 <td align="center" width="142"></td>
 <td align="center" width="143"></td>
 <td align="center" width="143"></td>
 <td align="center" width="143"></td>
 <td align="center" width="143"></td>
 </tr>
 <tr>
 <td class="firstcol" width="869">Net Revenues (Fiscal Year YTD 2018, Y/Y %
 Change)</td>
 <td align="center" width="142">100</td>
 <td align="center" width="142">1.0%</td>
 <td align="center" width="142">1.5%</td>
 <td align="center" width="143">0.6%</td>
 <td align="center" width="143">7.6%</td>
 <td align="center" width="143">8.9%</td>
 <td align="center" width="143">13.3%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="869">&nbsp;&nbsp;Individual Income Taxes</td>
 <td align="center" width="142">47</td>
 <td align="center" width="142">7.8</td>
 <td align="center" width="142">2.7</td>
 <td align="center" width="143">0.3</td>
 <td align="center" width="143">10.5</td>
 <td align="center" width="143">5.9</td>
 <td align="center" width="143">16.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="869">&nbsp;&nbsp;Corporate Income Taxes</td>
 <td align="center" width="142">9</td>
 <td align="center" width="142">-28.5</td>
 <td align="center" width="142">-0.8</td>
 <td align="center" width="143">-12.9</td>
 <td align="center" width="143">7.2</td>
 <td align="center" width="143">17.3</td>
 <td align="center" width="143">12.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="869">&nbsp;&nbsp;Social Insurance Taxes</td>
 <td align="center" width="142">34</td>
 <td align="center" width="142">0.2</td>
 <td align="center" width="142">4.2</td>
 <td align="center" width="143">4.7</td>
 <td align="center" width="143">4.1</td>
 <td align="center" width="143">8.0</td>
 <td align="center" width="143">12.1</td>
 </tr>
 <tr>
 <td class="firstcol" width="869">&nbsp; Excise Taxes</td>
 <td align="center" width="142">3</td>
 <td align="center" width="142">8.5</td>
 <td align="center" width="142">-11.8</td>
 <td align="center" width="143">-3.3</td>
 <td align="center" width="143">5.3</td>
 <td align="center" width="143">11.1</td>
 <td align="center" width="143">6.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="869"></td>
 <td align="center" width="142"></td>
 <td align="center" width="142"></td>
 <td align="center" width="142"></td>
 <td align="center" width="143"></td>
 <td align="center" width="143"></td>
 <td align="center" width="143"></td>
 <td align="center" width="143"></td>
 </tr>
 <tr>
 <td class="firstcol" width="869">Net Outlays&nbsp; (Fiscal Year 2017 YTD,
 Y/Y % Change)</td>
 <td align="center" width="142">100</td>
 <td align="center" width="142">4.4</td>
 <td align="center" width="142">3.3</td>
 <td align="center" width="143">4.5</td>
 <td align="center" width="143">5.3</td>
 <td align="center" width="143">1.4</td>
 <td align="center" width="143">-2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="869">&nbsp;&nbsp;National Defense</td>
 <td align="center" width="142">16</td>
 <td align="center" width="142">5.6</td>
 <td align="center" width="142">0.8</td>
 <td align="center" width="143">0.7</td>
 <td align="center" width="143">-2.3</td>
 <td align="center" width="143">-4.7</td>
 <td align="center" width="143">-6.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="869">&nbsp;&nbsp;Health</td>
 <td align="center" width="142">12</td>
 <td align="center" width="142">3.8</td>
 <td align="center" width="142">4.1</td>
 <td align="center" width="143">6.2</td>
 <td align="center" width="143">17.8</td>
 <td align="center" width="143">14.3</td>
 <td align="center" width="143">3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="869">&nbsp;&nbsp;Medicare</td>
 <td align="center" width="142">14</td>
 <td align="center" width="142">3.5</td>
 <td align="center" width="142">0.6</td>
 <td align="center" width="143">8.7</td>
 <td align="center" width="143">6.7</td>
 <td align="center" width="143">2.8</td>
 <td align="center" width="143">5.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="869">&nbsp;&nbsp;Income Security</td>
 <td align="center" width="142">12</td>
 <td align="center" width="142">-0.1</td>
 <td align="center" width="142">-2.1</td>
 <td align="center" width="143">1.0</td>
 <td align="center" width="143">-0.9</td>
 <td align="center" width="143">-4.3</td>
 <td align="center" width="143">-1.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="869">&nbsp;&nbsp;Social Security</td>
 <td align="center" width="142">24</td>
 <td align="center" width="142">4.5</td>
 <td align="center" width="142">3.1</td>
 <td align="center" width="143">3.2</td>
 <td align="center" width="143">4.4</td>
 <td align="center" width="143">4.5</td>
 <td align="center" width="143">5.2</td>
 </tr>
 <tr>
 <td class="firstcol" width="869">&nbsp; Veterans Benefits &amp; Services</td>
 <td align="center" width="142">4</td>
 <td align="center" width="142">6.0</td>
 <td align="center" width="142">1.2</td>
 <td align="center" width="143">9.3</td>
 <td align="center" width="143">6.8</td>
 <td align="center" width="143">7.7</td>
 <td align="center" width="143">11.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="869">&nbsp; Education, Training, Employment
 &amp; Social Services</td>
 <td align="center" width="142">2</td>
 <td align="center" width="142">-36.4</td>
 <td align="center" width="142">31.6</td>
 <td align="center" width="143">-10.2</td>
 <td align="center" width="143">34.7</td>
 <td align="center" width="143">25.9</td>
 <td align="center" width="143">-21.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="869">&nbsp;&nbsp;Interest</td>
 <td align="center" width="142">9</td>
 <td align="center" width="142">20.4</td>
 <td align="center" width="142">9.2</td>
 <td align="center" width="143">7.8</td>
 <td align="center" width="143">-1.8</td>
 <td align="center" width="143">2.8</td>
 <td align="center" width="143">0.4</td>
 </tr>
 </tbody>
</table>


&nbsp;
U.S. Retail Gasoline Prices and Crude Oil Costs Ease 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;August
13, 2018
Retail gasoline prices slipped to $2.84 per gallon
last week from $2.85 during the prior period, but remained up 19.3% y/y. Haver
Analytics constructs factors to adjust for the marked seasonal variation in
prices. The seasonally-adjusted gasoline price also eased one penny to $2.78 per
gallon, but remained up versus $2.60 late last year.
West Texas Intermediate crude oil prices declined to
$67.91 per barrel (+38.3% y/y) last week from $69.46 in the previous week. WTI
prices remained lower than the $73.71 peak early in July. Though prices were at
the lowest level in seven weeks, they remained up by roughly one-third y/y.
Brent crude oil prices declined to $71.42 per barrel last week (+37.5% y/y) from
$78.75 in the middle of May. 
Natural gas prices increased last week to $2.93/mmbtu
(3.6% y/y), the highest level since late-June.
In the four-weeks ending August 3, gasoline demand
eased 0.7% y/y; total petroleum product demand slipped 0.6% y/y. Gasoline
inventories increased 1.2% y/y, but inventories of all petroleum products
fell 6.1% y/y. Crude oil input to refineries rose 0.3% y/y in the last four
weeks.
These data are reported by the U.S. Department of Energy. The
price data can be found in Haver's WEEKLY and DAILY databases.
Greater detail on prices, as well as the demand, production and inventory data,
along with regional breakdowns, are in OILWKLY.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="1028">Weekly Energy Prices</th>
 <th scope="col" width="119">08/13/18</th>
 <th scope="col" width="120">08/06/18</th>
 <th scope="col" width="120">07/30/18</th>
 <th scope="col" width="120">Y/Y %</th>
 <th scope="col" width="120">2017</th>
 <th scope="col" width="120">2016</th>
 <th scope="col" width="120">2015</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="1028">Retail Gasoline ($ per Gallon Regular,
 Monday Price)</td>
 <td align="center" width="119">2.84</td>
 <td align="center" width="120">2.85</td>
 <td align="center" width="120">2.85</td>
 <td align="center" width="120">19.3</td>
 <td align="center" width="120">2.47</td>
 <td align="center" width="120">2.31</td>
 <td align="center" width="120">2.03</td>
 </tr>
 <tr>
 <td class="firstcol" width="1028">Light Sweet Crude Oil, WTI ($ per bbl,
 Previous Week's Average)</td>
 <td align="center" width="119">67.91</td>
 <td align="center" width="120">69.46</td>
 <td align="center" width="120">70.01</td>
 <td align="center" width="120">38.3</td>
 <td align="center" width="120">50.87</td>
 <td align="center" width="120">43.22</td>
 <td align="center" width="120">48.90</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1028">Natural Gas ($/mmbtu, LA, Previous
 Week's Average)</td>
 <td align="center" width="119">2.93</td>
 <td align="center" width="120">2.80</td>
 <td align="center" width="120">2.75</td>
 <td align="center" width="120">3.6</td>
 <td align="center" width="120">2.96</td>
 <td align="center" width="120">2.49</td>
 <td align="center" width="120">2.62</td>
 </tr>
 </tbody>
</table>

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Consumer prices rose 0.2% (2.9% y/y) during July following a
0.1% June increase. The gain matched expectations in the Action Economics
Forecast Survey. The CPI excluding food &amp; energy also rose an expected 0.2%
(2.4% y/y) for the third straight month.

Last month's CPI increase was led by a 0.3% rise (3.1% y/y)
in services prices. Transportation prices rose 0.5% (4.0% y/y) led by a 1.7%
strengthening (-1.5% y/y) in the cost of public transportation. Shelter costs
increased 0.3% (3.5% y/y) as the owners' equivalent rent of residences also rose
0.3%; the 3.4% y/y rate of increase is up from 3.1% earlier this year. Rent of
primary residences also rose 0.3%, but the 3.6% y/y gain is down from 3.9% in
the middle of last year. Shelter accounts for a dominant 33% of the total CPI.
Education &amp; communication services prices rose 0.4%, and the 1.5% y/y
increase compares to last year's decline in costs. Medical care services costs
rose 0.1%. The 2.3% y/y gain is half what it was in the middle of 2016.
Recreation services prices rose 0.1% (1.8% y/y).

Goods prices excluding food &amp; energy notched 0.1% higher
(-0.0% y/y) compared to declines in prices during each of the prior four months.
Appliance prices jumped 1.5% (2.8% y/y). New vehicle prices gained 0.3% and the
0.2% y/y gain compares to a 1.6% y/y decline as of June. Recreation goods prices
improved 0.2% (-2.7% y/y) following three straight months of decline. Furniture
&amp; bedding costs eased 0.1% and were unchanged y/y, but that compares to
price deflation during the last several years. Apparel prices eased 0.3% (+0.3%
y/y) following a 0.9% decline. Medical care product prices were off 1.1% (+0.4%
y/y) and reversed the strength during the prior two months.

Food prices improved 0.1% (1.4% y/y) led by a 1.0% gain (0.9%
y/y) in fruit &amp; vegetable prices. That was accompanied by a 0.3% rise (-0.7%
y/y) in meat prices which followed two months of decline. These gains were
countered by a 0.6% decline (-0.4% y/y) in dairy &amp; related product prices.
Egg prices fell 0.2% (+16.7% y/y) following two months of larger decline. Cereal
&amp; bakery product prices also eased 0.2% (+0.5% y/y). The cost of eating out
rose a strengthened 2.8% y/y.

Energy prices declined 0.5% (+12.1% y/y) as gasoline prices
fell 0.6%, but they still were up by one-quarter y/y. Natural gas prices fell
0.5% (-1.3% y/y) and added to declines during the prior four months. Electricity
prices fell 0.4% (-0.8% y/y) following a 1.4% decline. Working higher were fuel
oil prices by 1.2%; they were up by one-third y/y.

The consumer price data can be found in Haver's USECON
database with additional detail in CPIDATA. The Action Economics survey
figure is in the AS1REPNA database.

<a href="/comment/180810c.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/180810c.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" >Consumer Price Index, All
 Urban Consumers (% chg)</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Jul Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >2.9</td>
 <td >2.1</td>
 <td >1.3</td>
 <td >0.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total less Food &amp; Energy</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >2.4</td>
 <td >1.8</td>
 <td >2.2</td>
 <td >1.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Goods less Food &amp; Energy</td>
 <td >0.1</td>
 <td >-0.0</td>
 <td >-0.1</td>
 <td >-0.0</td>
 <td >-0.7</td>
 <td >-0.5</td>
 <td >-0.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Services less Energy</td>
 <td >0.3</td>
 <td >0.2</td>
 <td >0.3</td>
 <td >3.1</td>
 <td >2.7</td>
 <td >3.1</td>
 <td >2.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Food</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >0.0</td>
 <td >1.4</td>
 <td >0.9</td>
 <td >0.3</td>
 <td >1.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Energy</td>
 <td >-0.5</td>
 <td >-0.3</td>
 <td >0.9</td>
 <td >12.1</td>
 <td >7.9</td>
 <td >-6.6</td>
 <td >-16.7</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Consumer prices rose 0.2% (2.9% y/y) during July following a 0.1% June increase. The gain matched expectations in the Action Economics Forecast Survey. The CPI excluding food & energy also rose an expected 0.2% (2.4% y/y) for the [...]

U.S. CPI Increase Picks Up; Core Prices Remain Firm

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

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

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Andrew Cates

**The Blue Chip interest rate consensus**
The latest Blue Chip Financial Forecasts survey suggests that monetary policy across most major advanced economies is expected to loosen modestly over the next six months. Central banks in the US, Canada, UK, Australia, and the euro area are all forecast to cut rates to varying degrees, with Australia expected to deliver the largest reduction. In contrast, Japan continues to stand out as the only major economy where forecasters see scope for a slight increase in rates, highlighting its unique position in the global policy cycle. Overall, the chart reflects a broad but uneven tilt towards monetary easing as policymakers respond to softer inflation and growth signals.

250702Z1.jpg

**The US dollar and data surprises** 
This next chart shows that the recent bout of US dollar weakness has coincided with a period in which US economic data surprises have turned more negative relative to the euro area. The surprise index differential between the US and euro area —measuring US growth surprises minus euro surprises—has declined, pointing to a run of weaker-than-expected US data and stronger euro area outturns. Historically, this has tended to pull the euro higher relative to the dollar. However, the scale of the dollar’s recent slide appears larger than the data surprises alone would imply, suggesting that other forces are potentially weighing on the currency as well.

250702Z2.jpg

**US stagflation risk**
Latest ISM manufacturing survey data highlight a worrying decoupling between input costs and underlying demand that points to potential stagflation pressures in the US economy. Historically, the ISM New Orders Index and the Prices Paid Index have tended to move broadly in sync, reflecting cycles where stronger demand drives both production and cost pressures higher. However, the chart shows that while prices paid have recently rebounded sharply, new orders have remained subdued and stuck near contractionary territory. This breakdown suggests that firms are facing rising input costs without a corresponding pickup in demand—an imbalance that could be amplified by US tariff measures, which tend to push up costs for imported materials and components while weighing on new orders through weaker trade flows.

250702Z3.jpg

**US Supply Chain Risks** 
Added to this, the number of vessels queuing at the Los Angeles and Long Beach harbours has climbed to elevated levels in recent weeks, highlighting supply chain bottlenecks on the US West Coast. While various factors may be driving this congestion—including seasonal trade patterns and shifts in global shipping routes—recent tariff measures could be contributing as well. New or increased tariffs sometimes distort normal trade flows by prompting importers to front-load shipments ahead of cost increases or reroute sourcing strategies in ways that strain particular ports.

250702Z4.jpg

**Global warming** 
Pivoting to more structural issues, the next chart highlights the persistent upward trend in global surface temperature anomalies over the past century, with both land and ocean temperatures now averaging well over one degree Celsius. This long-term warming signal continues to manifest in extreme weather events and record-breaking heat waves, including the unusually high temperatures that have swept parts of Europe in recent days, pushing June readings to historic highs in several regions.

250702Z5.jpg

**Climate change and productivity** 
This final chart illustrates the projected impact of heat stress on labour productivity in Europe under current climate policy scenarios, highlighting how rising temperatures could steadily erode worker efficiency over the coming decades. As shown, the median estimates from the Climate Analytics group suggest that productivity losses could deepen from around 0.3 percentage points today to nearly 0.9 percentage points by mid-century if climate conditions remain unchanged. These figures reflect the physical limits of the human body’s capacity to perform work in increasingly hot and humid environments, a challenge that will become more acute if climate change continues on its current path. With recent record-high June temperatures across parts of Europe underscoring the reality of more frequent heat extremes, these projections serve as a clear reminder of the economic stakes involved in addressing climate risks and investing in adaptation measures to protect labour productivity and economic resilience.

250702Z6.jpg

Financial markets have remained generally buoyant in recent days, with global equity indices advancing on the back of relatively upbeat global growth data, benign European inflation readings and the prospect of further policy easing from major central banks. At the same time, the US dollar has continued to weaken, reflecting a run of disappointing US economic data and rising investor concerns about the fiscal outlook, even as European growth surprises have turned more positive. This divergence, combined with the prospect of lower US policy rates relative to some (though not all) peers, has added to the dollar’s drift lower (charts 1 and 2). Supply chain strains—highlighted by elevated vessel queues at US West Coast ports—also feed into the narrative that US tariff measures may be contributing to sticky input costs and stagflation risks (charts 3 and 4). Meanwhile, record temperatures in parts of Europe this week have reinforced the climate challenge facing policymakers, with the final two charts illustrating how rising global temperatures and heat stress could increasingly weigh on productivity and growth potential if left unchecked. With trading volumes light ahead of the July 4th holiday and markets awaiting tomorrow’s US non-farm payrolls report, the interplay between softer US data, resilient equities, a weaker dollar, and climate-related risks remains firmly in focus.

Charts of the Week: Headwinds and Heatwaves

250702J4.jpg

250702K4.jpg

The ADP National Employment Report reported that nonfarm private sector payrolls declined 33,000 (+1.1% y/y) during June after rising 29,000 in May, revised from 37,000 and increasing an unrevised 60,000 in April. It was the first monthly decline since March 2023. A 110,000 June rise had been expected in the in the Action Economics Forecast Survey.

Small business hiring (less than 50 employees) declined 47,000 (+0.4% y/y), after falling 13,000 in May. These were the first back-to-back monthly declines since the end of 2023. Employment at medium-sized firms (50-499,000 employees) declined 15,000 (1.1% y/y), after rising 46,000 in May, revised from 49,000. Large business hiring (500+ employees) increased 30,000 (2.7% y/y) after easing 4,000 in May.

Goods-producing employment rose 32,000 (1.4% y/y) in June after falling a minimally revised 3,000 in May. Manufacturing jobs increased 15,000, unchanged y/y, following a 6,000 decline in May. The number of construction sector jobs rose 9,000 (2.8% y/y) after increasing 6,000 in May. Natural resources & mining jobs rose 8,000 (4.3% y/y) in June after falling 3,000 in May.

The decline in payrolls overall reflected weakness in the service sector where the number of service-producing jobs declined 66,000 last month (+1.1% y/y) after increasing 32,000 in May, revised from 36,000. Professional & business services employment fell 56,000 (+0.2% y/y), after declining 13,000 in May. These weak readings came after a 1,000 April gain and a 46,000 March increase. Education & health services employment declined 52,000 (+0.8% y/y), the third consecutive month of decline. Employment in the financial industry weakened 14,000 (+1.8% y/y) last month, after rising 17,000 in May.

Offsetting these declines, leisure & hospitality employment increased 32,000 in June (3.2% y/y), following a 43,000 May gain. Monthly increases have averaged 36,000 this year. Trade, transportation & utilities employment increased 14,000 (0.3% y/y) after falling 8,000 in May. Information sector employment rose 5,000 (0.2% y/y) after a 4,000 May increase and a 10,000 April decline. Employment in “other” services sectors rose 5,000 in June (2.9% y/y), the same as in May.

Growth in median annual pay for "job stayers" slipped to 4.4% y/y in June, down from a high of 7.8% in September 2022. Manufacturing sector pay grew 4.6% y/y, steady with May. Construction sector pay also rose a steady 4.6% y/y. Natural resource & mining sector pay grew 4.5% y/y last month. Financial sector earnings rose an improved 5.2% y/y, while education & health services pay rose a lessened 4.6% y/y. Leisure & hospitality pay increased 4.7% y/y in June. Professional & business service sector pay increased a lessened 4.2% y/y as did trade, transportation & utilities pay, up 4.2% y/y. Information pay rose a lessened 4.1% y/y. Median annual pay for “job changers” rose 6.8% y/y in June, down from a high of 16.1% y/y in April 2022.

By region, employment in the Midwest declined 24,000 (+1.3% y/y) to 28,761 million after a 17,000 rise in May. Employment in the West, declined 20,000 to 31,363 million (+0.5% y/y) last month, and reversed a 31,000 rise during May. Employment in the Northeast fell 3,000 to 24,116 million (+1.4% y/y) in June, following a 23,000 decline in May. Partially offsetting these declines, in the South employment increased 13,000 to 50,092 million (1.0% y/y) in June, after rising 2,000 in May.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

250702L4.jpg

250702M4.jpg

- Employment declines in several service industries; factory & building industry jobs rise.
- Wage growth moderates further.
- Small- & medium-sized shed jobs.

U.S. ADP Payroll Employment Unexpectedly Declines in June

Winnie Tapasanun

250702A13.jpg

250702B13.jpg

Mortgage applications rose 2.7% w/w (24.7% y/y) in the week ending June 27 after a 1.1% rise in the week ending June 20, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the third w/w rise in four weeks to the index level of 257.5, the highest since the April 11 week. Applications for loans to purchase a house inched up 0.1% (15.7% y/y) in the June 27 week, the first w/w increase in three weeks, following a 0.4% decline in the June 20 week. Applications for loan refinancing advanced 6.5% (39.6% y/y) in the June 27 week, up for the third week in four, after a 3.0% rebound in the previous week.

The effective interest rate on a 30-year fixed-rate loan fell 9bps to 6.97% in the week ending June 27 after rising to 7.06% in the week ending June 20; it was up from a low of 6.29% in the September 20 week but down from a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages declined 6bps to 6.23% in the June 27 week after easing to 6.29% in the previous week; it was up from a low of 5.60% in the September 20 week but down from a high of 7.44% in the week of October 27, 2023. The rate on 30-year jumbo loans dropped 16bps to 6.89% in the June 27 week after rising to 7.05% in the prior week; it was up from a low of 6.57% in the September 13 week but below a high of 7.99% in the week of October 27, 2023. These mentioned three rates were at the lowest since the April 4 week. The rate on a 5-year ARM decreased 15bps to 6.21% in the June 27 week, the lowest since the May 2 week, after rising to 6.36% in the previous week; it was above a low of 5.84% in the September 13 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan rose to 40.1% of total applications in the week ending June 27 from 38.4% in the week ending June 20, registering the fifth consecutive w/w rise and the highest since the April 11 week; nevertheless, that was well below a peak of 55.7% in the September 20 week. The adjustable-rate mortgage (ARM) share of activity, up for the first week in three, increased to 7.8% in the June 27 week, the highest since the May 2 week, after declining to 6.9% in the prior week; it was up from a low of 4.7% in the January 3 week but below its recent high of 9.6% in the April 11 week and a high of 10.7% in the week of October 27, 2023.

The average size of a mortgage loan, up for the first time in three weeks, rose 3.5% w/w (4.4% y/y) to $391,500 in the June 27 week, the highest level since the May 9 week, after a 0.5% decline to $378,300 in the June 20 week. The average size of a purchase loan recovered 1.7% (2.1% y/y) to $443,500 in the June 27 week, the highest level since the May 16 week, reversing a 0.6% decrease to $436,300 in the prior week. The average size of a loan to refinance a mortgage, up for the third week in four, jumped 10.0% (17.1% y/y) to $313,700 in the June 27 week, the highest level since the May 2 week, on top of a 1.2% rebound to $285,100 in the previous week.

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

- Purchase applications edge up 0.1% w/w; refinancing loan applications jump 6.5% w/w.
- Effective interest rate on 30-year fixed-rate loans drops to 6.97%, the lowest since the Apr. 4 week.
- Average loan size rebounds to the highest level since the May 9 week.

U.S. Mortgage Applications Rise 2.7% in the June 27 Week

250702E.jpg

The EU unemployment rate fell to within a tick of its all-time low in April at 5.9% and stayed there in May. In the European Monetary Union (EMU), the unemployment rate in April fell from 6.4% in March to 6.2% in April, its all-time low; then in May it ticked up to 6.3%. This can hardly be construed as a weakening of the European labor market.

At the same time, the EMU HICP has registered 2% growth year-over-year in June. In May it was at 1.9% with the core up at a 2.4% rise year-over-year. In June, Italian and Spanish core readings are 2.1% and 2.2%, respectively. In Germany, ex-energy inflation is at 2.5%. The core for the EMU is not yet available but clearly inflation, broadly considered, is very close to touching all the bases the ECB wants it to touch. And at the same time, Europe’s rate of unemployment is at or near all-time lows at least since the EMU was formed. That looks almost like policy nirvana.

The Monetary Union is experiencing low inflation rates even for those countries (largely Mediterranean countries) that had stubbornly high inflation rates in the past. Interestingly, those formerly high-inflation countries have substantially reduced their rates of unemployment. In the U.S., it was the long low, extra-low, inflation span after the Great recession that brought the inflation rate down slowly but eventually to 50–60-year lows. The U.S. rate got to 3.5% under Trump and briefly to 3.4% under Biden. Now with similar inflation progress -and for the EMU, there is a long train of progress not looking just since Covid but looking at the collective progress since the EMU was formed.

Among the 12 EMU members listed in the table, only three Luxembourg, Finland, and Austria have unemployment rates above their median rate compared to data since 1994. Spain’s unemployment rate is still in double digits at 10.8% but is much lower than it used to be. The Greek unemployment rate is at 7.9%; Portugal’s is at 6.3%. Spain’s unemployment rate is in the 15th percentile of its ordered queue of rates; the Greek rate has been lower only 3% of the time; in Portugal, the current rate has been lower less than 20% of the time. Low inflation and low unemployment go hand in hand. But when they diverge, the solution is not to coddle unemployment. It is to backdown inflation to allow the economy to move forward thereafter and prosper with lower inflation and lower unemployment in the future. I don’t think this lesson has been broadly enough learned, but looking at Europe and the U.S. the lesson simply presents itself with exceptional clarity.

250702.jpg

Unemployment Rates Remain Low, Stable

250701F5.jpg

250701G5.jpg

U.S. light vehicle sales dipped 0.5% (+2.4% y/y) to 15.65 million units (SAAR) in June after falling 8.8% to 15.73 million units in May. The retreat in June vehicle sales accompanied a 1.7% y/y rise in real disposable income through May, which compared to 2.1% growth last year.

Sales declines were mixed last month. Light truck sales fell 0.4% (+4.9% y/y) during June to 12.97 million units (SAAR), after falling 8.9% to 13.02 million in May and weakening 1.7% in April to 14.29 million. Purchases of domestically-made light trucks declined 1.8% (+4.6% y/y) to 9.99 million units, after falling 7.5% in May. Sales of imported light trucks rose 4.6% (5.7% y/y) to 2.97 million units, following a 14.5% fall during May.

Trucks’ record 83.0% share of the light vehicle market last month compared to 82.8% in May and 80.8% in June of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales rose a slight 0.4% last month, down 8.5% y/y, to 2.69 million units (SAAR) following an 8.8% May decline. Purchases of domestically-produced cars were off 2.5% (-9.2% y/y) last month to 1.98 million units, after declining 8.6% in May. Sales of imported autos rose 9.2% (-6.6% y/y) to 0.71 million units, following a 12.2% May decline.

Imports' 23.5% share of the U.S. light vehicle market was increased from 22.2% in May. It 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 rose to 26.4% last month and compared to 25.9% in June of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market rose to 22.9% last month after falling to 21.8% in May.

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

250701H5.jpg

250701I5.jpg

- Light truck sales ease while auto sales improve.
- Domestic sales tumble but imports increase.
- Imports' market share recovers May decline.

Economy in Brief: August 2018

Jump to:

EMU Growth: Is it on Shakier Ground?

U.S. Small Business Optimism Nears Record High

U.S. Import Prices Hold Steady; Export Prices Weaken

U.S. Retail Gasoline Prices and Crude Oil Costs Ease

Japan's Retail Sales Rebound in June; But Is That Meaningful?

U.S. Government Budget Deficit Continues to Widen

U.S. Government Budget Deficit Continues to Widen

U.S. CPI Increase Picks Up; Core Prices Remain Firm