Tom Moeller

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Consumers continued to exhibit their inclination to spend as
holiday shopping got underway. Total retail sales rose 0.2% during November
(4.9% y/y) following a 1.1% October jump, revised from 0.8%. The latest increase
matched expectations in the Action Economics Forecast Survey. Excluding motor
vehicles and parts, retail sales gained 0.2% (5.7% y/y) after a 1.0% increase,
revised from 0.7%. A 0.3% improvement had been expected.

 A measure of the underlying pace of retail
spending is nonauto sales growth excluding gasoline and building materials.
These sales surged 0.9% (5.2% y/y) and built on a 0.7% October gain, revised from 0.3%.

Strength in sales was notable for online retailers whose
sales increased 2.3% (12.1% y/y) following two months of strong gain. Purchases at electronics &amp;
appliance stores similarly were firm as they rose 1.4% (5.0% y/y), about as they
did during the prior month. Furniture &amp; home furnishings store sales grew
1.2% (2.9% y/y) after a moderate decline. General
merchandise store sales gained 0.4% (4.2% y/y) after a 0.8% rise.
Sporting goods, hobby shop, book &amp; music store sales also improved 0.4%
(-7.8% y/y) following a 1.1% increase. Motor vehicle &amp; parts dealership
sales gained 0.2% (1.4% y/y) even as unit motor vehicle sales eased 0.2% m/m.

Reflecting lower prices, gasoline service station sales
declined 2.3% (+8.7% y/y) after a 3.2% jump. Also working lower were
clothing &amp; accessory store sales by 0.2% (+4.1% y/y) after two months of
firm increase. Building materials &amp; garden equipment store sales also were
weak. They fell 0.3% (+3.5% y/y) on the heels of a 1.5% strengthening.

Sales of nondiscretionary items were firm last month. Health
&amp; personal care product store sales increased 0.9% (3.6% y/y) after falling
for three straight months. Food &amp; beverage store sales gained 0.4% (3.3% y/y)
after a 0.3% rise.

Eating out was less in vogue during November as restaurant &amp; drinking
establishment sales declined 0.5% after a 0.6% increase, revised up from a
moderate decline. Sales have lost forward momentum, however, as the 6.9% y/y
increase moderated from 10.9% y/y growth just three months earlier.

The retail sales data can be found in Haver's USECON
database. The Action Economics forecast is 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" >Retail Spending (% chg)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr class="grey2">
 <td class="firstcol" >Total Retail Sales &amp; Food Services</td>
 <td >0.2</td>
 <td >1.1</td>
 <td >-0.2</td>
 <td >4.9</td>
 <td >4.3</td>
 <td >3.1</td>
 <td >2.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Excluding Autos</td>
 <td >0.2</td>
 <td >1.0</td>
 <td >-0.3</td>
 <td >5.7</td>
 <td >4.3</td>
 <td >2.7</td>
 <td >1.4</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol" >Retail Sales</td>
 <td >0.3</td>
 <td >1.2</td>
 <td >-0.0</td>
 <td >4.6</td>
 <td >4.5</td>
 <td >2.8</td>
 <td >1.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Motor Vehicle &amp; Parts</td>
 <td >0.2</td>
 <td >1.5</td>
 <td >-0.0</td>
 <td >1.4</td>
 <td >4.3</td>
 <td >4.6</td>
 <td >7.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Retail Less Autos</td>
 <td >0.4</td>
 <td >1.1</td>
 <td >-0.0</td>
 <td >5.5</td>
 <td >4.5</td>
 <td >2.2</td>
 <td >0.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Gasoline Stations</td>
 <td >-2.3</td>
 <td >3.2</td>
 <td >-1.3</td>
 <td >8.7</td>
 <td >8.8</td>
 <td >-5.7</td>
 <td >-17.6</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol" >Food Service &amp; Drinking Places
 Sales</td>
 <td >-0.5</td>
 <td >0.6</td>
 <td >-1.6</td>
 <td >6.9</td>
 <td >2.7</td>
 <td >5.6</td>
 <td >8.2</td>
 </tr>
 </tbody>
 </table>
 
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Consumers continued to exhibit their inclination to spend as holiday shopping got underway. Total retail sales rose 0.2% during November (4.9% y/y) following a 1.1% October jump, revised from 0.8%. The latest increase matched [...]

U.S. Retail Sales Start Holiday Season on Solid Ground

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The U.S. Treasury Department reported that the federal
government ran a $204.9 billion budget deficit during November. The deficit compared to a shortfall of
$138.5 billion during November 2017. A $165 billion deficit had been expected in the Action
Economics Forecast Survey. So far this fiscal year, the federal government ran a
$305.4 billion budget deficit compared to a $201.8 billion deficit in the first
two months of last fiscal year.

Net revenues increased 3.4% y/y so far this fiscal year. Individual income taxes
declined 1.9% y/y, compared to a 6.1% rise during all of FY'17. Social insurance receipts rose 3.0% y/y following
last year's 0.8% gain, and excise taxes rose by roughly one-half y/y after last year's
13.3% increase. Corporate income taxes declined 23.0% due to the tax cut.

Government spending increased 18.4% y/y so far this fiscal
year. National defense spending rose 16.8% y/y after a 5.3% gain last
year. Health insurance spending increased 4.0% y/y while Medicare outlays rose
by nearly two-thirds y/y. Growth in income security payments surged 29.7% y/y. Social Security
payments increased a steady 5.1% y/y. Interest payments rose 9.0% y/y with
the larger budget deficit.

Receipt &amp; outlay figures often are quite variable y/y
near the start of a new 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" >Nov</th>
 <th scope="col" >FY'18</th>
 <th scope="col" >FY'17</th>
 <th scope="col" >FY'16</th>
 <th scope="col" >FY'15</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Budget Balance (Billions)</td>
 <td >--</td>
 <td >$-204.9</td>
 <td >$-779.0</td>
 <td >$-665.8</td>
 <td >$-585.6</td>
 <td >$-439.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;As a percent of GDP</td>
 <td >--</td>
 <td >--</td>
 <td >3.9%</td>
 <td >3.5%</td>
 <td >3.2%</td>
 <td >2.5%</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" ></td>
 <td >% of Total</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 >3.4%</td>
 <td >0.4%</td>
 <td >1.5%</td>
 <td >0.6%</td>
 <td >7.6%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Individual Income Taxes</td>
 <td >51</td>
 <td >-1.9</td>
 <td >6.1</td>
 <td >2.7</td>
 <td >0.3</td>
 <td >10.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Corporate Income Taxes</td>
 <td >--</td>
 <td >-23.0</td>
 <td >-31.1</td>
 <td >-0.8</td>
 <td >-12.9</td>
 <td >7.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Social Insurance Taxes</td>
 <td >35</td>
 <td >3.0</td>
 <td >0.8</td>
 <td >4.2</td>
 <td >4.7</td>
 <td >4.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Excise Taxes</td>
 <td >3</td>
 <td >51.3</td>
 <td >13.3</td>
 <td >-11.8</td>
 <td >-3.3</td>
 <td >5.3</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&nbsp; (Fiscal Year 2017 YTD,
 Y/Y % Change)</td>
 <td >100</td>
 <td >18.4</td>
 <td >3.2</td>
 <td >3.3</td>
 <td >4.5</td>
 <td >5.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;National Defense</td>
 <td >16</td>
 <td >16.8</td>
 <td >5.3</td>
 <td >6.1</td>
 <td >0.7</td>
 <td >-2.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Health</td>
 <td >13</td>
 <td >4.0</td>
 <td >3.3</td>
 <td >-1.9</td>
 <td >6.2</td>
 <td >17.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Medicare</td>
 <td >14</td>
 <td >60.1</td>
 <td >-1.4</td>
 <td >0.6</td>
 <td >8.7</td>
 <td >6.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Income Security</td>
 <td >12</td>
 <td >29.7</td>
 <td >-1.6</td>
 <td >-2.1</td>
 <td >1.0</td>
 <td >-0.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Social Security</td>
 <td >24</td>
 <td >5.1</td>
 <td >4.5</td>
 <td >3.1</td>
 <td >3.2</td>
 <td >4.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Veterans Benefits &amp; Services</td>
 <td >4</td>
 <td >84.5</td>
 <td >1.3</td>
 <td >1.2</td>
 <td >9.3</td>
 <td >6.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Education, Training, Employment
 &amp; Social Services</td>
 <td >2</td>
 <td >13.7</td>
 <td >-34.0</td>
 <td >31.6</td>
 <td >-10.2</td>
 <td >34.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Interest</td>
 <td >8</td>
 <td >9.0</td>
 <td >23.6</td>
 <td >9.1</td>
 <td >7.8</td>
 <td >-1.8</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The U.S. Treasury Department reported that the federal government ran a $204.9 billion budget deficit during November. The deficit compared to a shortfall of $138.5 billion during November 2017. A $165 billion deficit had been [...]

U.S. Government Budget Deficit Surges Unexpectedly

Robert Brusca

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	 Then What? The Role of Trade...
 
 
 
 

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The ECB targets inflation of just under 2%. The ECB claims (without any proof that I am sure of…) that inflation that is below but close to 2% allows the economy to reap maximum benefits. This month the HICP is up at 2% or 1.96% if we split hairs and carry more decimal places. And splitting hairs drops the HICP back down into the ECBs' sweet spot.

Headline inflation had been ‘too high' for four months running. Prior to that, from June 2018 through February 2013, it had been constantly ‘too low' much farther below 2% than ‘just a bit.' The core rate on the other hand has been running at a pace below 2% since January 2009. The core (the HICP excluding energy and unprocessed foods) has no official standing. But with the economy having underperformed and with Mario Draghi as the ECB head, the bank has been emphasizing the core gauge over the headline rate especially since oil prices have been gyrating and have been the main reason that headline inflation has come close to or exceeded its mandated profile in its recent oscillations.

Still, the ECB has its stalwarts. There is a important cadre of board members that views inflation as relative to target on the headline gauge month-to-month with no institutional memory of the past.

Germany continues to overshoot the ECB's global gauge of 2% although the German ex-energy rate is still running below 2%. The German headline pace is accelerating from 12-months to six-months to three-months although the ex-energy profile is not as clear cut at that. Of course, German inflation is simply inflation in Germany and has no official policy standing at the ECB.

Bon voyage ECB 
Needless to say, a split view on policy continues under the surface at the ECB, with inflation hawks looking to a return of policy to normalcy. The ECB did take that step today by agreeing to end its program of QE. The ECB will end this program in December in line with what it had tentatively agreed to previously. The ECB joins the Fed on is voyage to normalcy.


<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/181213.png" width="660" height="290">


It does so in an environment in which headline inflation is back in line and has been consistently well contained over the past five years, in an environment with falling global oil prices and at a time when growth in the euro area has been withering.

The ECB has no growth mandate and only has an inflation mandate. With the special QE program ended, the ECB can look ahead to normalizing its functioning and eventually to raising interest rates back to more normal levels...conditions permitting.

Yesterday European industrial production rose after a sharp drop prompting headlines saying that European growth is back on track. I think that assessment is premature.

The Markit indexes for manufacturing and services for the EMU are still weak and withering. Trade conflicts endure and that is a major element of risk to any outlook.

What activity on the trade front means for growth 
China's recent grab of a former Canadian diplomat and its action to probe a second Canadian for security violations are ample evidence that China is not and may never be Free Trader simply because it cannot be trusted to separate political from economic matters. For China, everything is political. Free trade works best in an environment with capitalism and freedom… while China is a communist country. China seems to treat its corporate executives as though they are important party members first.

China owns companies. It directs bank lending. It has a national policy to steal and transfer technology. It does not recognize trademarks. It grabbed the South China Sea and thumbed its nose at the World Court when it said essentially ‘give it back.' How does one trade ‘freely' with an entity like that that does not respect the rule of law? China also controls its exchange rate, another clear free trade no-no.

The risk of a trade war remains high. I would judge the probability of emerging from this episode with anything that even mimics free trade as being extremely low. People who thought we were ‘close enough to free trade before' probably think that baseball with 2 strikes and you're out and a walk on three balls is close enough to being real baseball too. In fact, I have no idea what a trade system would like or how it might imitate free trade given all the issues involved in integrating China as ‘trusted' partner is such a process.

Having said that, I will say also I am not sure what that means for the future. China and other Asian counties have co-opted the international trading system to become the low cost suppliers to the world fulfilling demand in the West and achieving the nirvana of export-led growth. They keep costs down in part by controlling their exchanger rates- something that is forbidden if there is real free trade. Of course, free trade is not really ever about having specialist consumer and producer countries. And when that happens, the sustainability of the trading system built on such a shaky base is called into question. No country can run deficits forever. Still, a system like that might endure for a substantial period of time before it blew itself up, especially if the persistent deficit country were rich enough to start. You can compare such a trading system to a hot air balloon with a slow leak. It will keep you up for a while and you may or may not have enough hot air to get to your destination depending on the size of the hole.

For now globally inflation – what little there is- is being stuffed back in the tube by falling oil prices. The Fed continues to shrink its balance sheet and may slow the procession of rates to their historic norms. The ECB is stopping its QE program. The BOE is still in a wait and see mode over Brexit where the odds increasingly are dicey and looking slanted toward a ‘bad' outcome.

While I am one of the few who is ‘happy' that the U.S. is finally pressuring China and others over unfair trade and trying to right unfair trade deals, there is a lot in the arena of international trade and finance that is broken and in dire need for fixing. Little enough of it is on the agenda. Chief among the broken parts is the exchange rate system. There is no surveillance of exchange rates and all too many countries (AKA governments) guide their rates according to some official policy goal. As long as that happens, Free Trade will remain elusive. That means the gains expected from Free Trade will not flow.

China is just too big and still has too many parts of it that are undeveloped to allow it to continue to develop as it has in the past. The cost of lost of jobs in the U.S. and elsewhere has been too high and already has become economically and politically destabilizing in the West. China must become a better consumer nation and must cut its relentless pursuit of domination through trade. Trade is supposed to be mutually beneficial –not warfare. Even the most cursory glimpse of trade patterns show that it is not and has not been that.

</html>

The ECB targets inflation of just under 2%. The ECB claims (without any proof that I am sure of…) that inflation that is below but close to 2% allows the economy to reap maximum benefits. This month the HICP is up at 2% or 1.96% if we [...]

EMU Inflation Falls Back into Place

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 Import prices fell 1.6% (+0.7% y/y) during November following an
 unrevised 0.5% October rise. A 0.1% uptick had been expected in the Action Economics
 Forecast Survey. These figures are not seasonally adjusted.

 The decline in import prices last month was led by a
 12.1% drop (+4.4% y/y) in petroleum import costs which followed a 2.7%
 rise. Nonpetroleum import prices eased 0.3% during November (+0.4% y/y)
 and reversed October's 0.2% increase. Industrial supplies &amp; materials costs
 declined 5.3%% (+3.2% y/y), with lower oil prices, as it followed a 1.4% rise.
 Industrial materials prices excluding petroleum ticked 0.1% higher (2.5% y/y)
 after a 0.5% increase. Capital goods prices eased 0.1% (-0.2% y/y) following
 stability during the prior month. Motor vehicle &amp; parts prices held steady
 (+0.3% y/y) for the fourth month in the last five. Nonauto consumer goods
 prices also were unchanged (0.4% y/y) following a 0.3% decline.

 Export prices declined 0.9% during November (+1.8% y/y)
 after a 0.5% gain, revised from 0.4%. A 0.4% decline in prices had been expected.

 Agricultural commodities prices increased 1.8% last month
 (-1.7% y/y) after easing 0.2% in October. Nonagricultural costs declined
 1.0% (+2.2% y/y) after a 0.5% rise. Foods, feeds &amp; beverage prices improved 1.9% (-1.4% y/y)
 following a 0.2% gain. The cost of industrial supplies &amp; materials
 weakened 3.0% (+4.0% y/y) after rising 1.4%. Excluding fuels &amp; building materials,
 these prices slipped 0.2% (+2.5% y/y). Capital goods prices held steady (1.5% y/y) for the third straight
 month. Motor vehicle &amp; parts prices eased 0.1% (+0.7% y/y) and have
 been little-changed for four consecutive months. Nonauto consumer goods prices
 also slipped 0.1% (+0.4% y/y) after holding steady for four straight months.

 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.

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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" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov 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 >-1.6</td>
 <td >0.5</td>
 <td >0.0</td>
 <td >0.7</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 >-12.1</td>
 <td >2.7</td>
 <td >0.0</td>
 <td >4.4</td>
 <td >26.6</td>
 <td >-19.7</td>
 <td >-46.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Nonpetroleum</td>
 <td >-0.3</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >0.4</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 >-0.9</td>
 <td >0.5</td>
 <td >0.0</td>
 <td >1.8</td>
 <td >2.4</td>
 <td >-3.2</td>
 <td >-6.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Agricultural</td>
 <td >1.8</td>
 <td >-0.2</td>
 <td >-1.2</td>
 <td >-1.7</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 >-1.0</td>
 <td >0.5</td>
 <td >0.2</td>
 <td >2.2</td>
 <td >2.5</td>
 <td >-3.0</td>
 <td >-5.5</td>
 </tr>
		 </tbody>
		 </table>
		 
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Import prices fell 1.6% (+0.7% y/y) during November following an unrevised 0.5% October rise. A 0.1% uptick had been expected in the Action Economics Forecast Survey. These figures are not seasonally adjusted. The decline in import [...]

U.S. Import Prices Weaken As Petroleum Prices Fall; Export Prices Also Decline

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Initial claims for unemployment insurance fell to 206,000
(-7.6% y/y) during the week ended December 8 from 233,000 during the prior week,
revised from 231,000. Initial claims were near the lowest level since 1969.
The Action Economics Forecast Survey expected 227,000
initial claims. The four-week moving average of initial claims
eased to 224,750. During the last ten years there has been a 73% between the
level of initial claims and the m/m change in nonfarm payrolls.

Continuing claims for unemployment insurance fell to 1.661 million
(-11.7% y/y) in the week ending December 1, from a little-revised 1.636 million in the
prior week. The four-week moving average of continuing claims slipped to 1.666 million.

The insured unemployment rate ticked higher to 1.2% but remained near
the record low. The insured unemployment figures date back to 1971.

Insured rates of unemployment vary widely by state. During
the week ending November 24, the lowest rates were in South Dakota (0.35%),
Nebraska (0.41%), North Carolina (0.44%), Indiana (0.49%) and Florida (0.51%).
The highest rates were in Illinois (1.53%), Pennsylvania (1.71%),
Connecticut (1.82%), California (1.85%), New Jersey (2.16%) and Alaska (3.13%). Among the other
largest states by population, the rate was 0.91% in Ohio, 1.01% in Texas, 1.50%
in New York, 0.69% in Georgia and 0.54% in Virginia.
These state data are not seasonally adjusted.

Data on weekly unemployment claims going back to 1967 are
contained in Haver's WEEKLY database, and they are summarized monthly in USECON.
Data for individual states are in REGIONW. The expectations figure is
from the Action Economics Forecast Survey, carried 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" >Unemployment Insurance (SA, 000s)</th>
 <th>12/08/18</th>
 <th>12/01/18</th>
 <th>11/24/18</th>
 <th>Y/Y %</th>
 <th>2017</th>
 <th>2016</th>
 <th>2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Initial Claims</td>
 <td >206</td>
 <td >233</td>
 <td >235</td>
 <td >-7.6</td>
 <td >245</td>
 <td >263</td>
 <td >278</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Continuing Claims</td>
 <td >--</td>
 <td >1,661</td>
 <td >1,636</td>
 <td >-11.7</td>
 <td >1,961</td>
 <td >2,136</td>
 <td >2,267</td>
 </tr>
 <tr>
 <td class="firstcol" >Insured Unemployment Rate (%)</td>
 <td >--</td>
 <td >1.2</td>
 <td >1.1</td>
 <td >
 1.3 
 (Dec. 2017)
 </td>
 <td >1.4</td>
 <td >1.6</td>
 <td >1.7</td>
 </tr>
 </tbody>
 </table>
 
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Initial claims for unemployment insurance fell to 206,000 (-7.6% y/y) during the week ended December 8 from 233,000 during the prior week, revised from 231,000. Initial claims were near the lowest level since 1969. The Action [...]

U.S. Initial Unemployment Insurance Claims Decline

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The Mortgage Bankers Association reported that its total
Mortgage Applications Index rose 1.6% (-13.2% y/y) during the week ended
December 7, the third consecutive monthly gain. Applications to purchase a home
jumped 2.5% (3.3% y/y) after a 0.8% rise, while applications to refinance a mortgage
increased 1.8% (-33.5% y/y) after a 6.2% improvement during the prior week.

The effective interest rate on a 15-year fixed-rate mortgage
slipped w/w to 4.52%, down from a 4.71% high in early November. The rate
remained above the 3.01% averaged in July 2016. The effective rate on a 30-year
fixed-rate loan fell to 5.09%. The rate on a Jumbo 30-year loan eased to 4.89%, and
for adjustable 5-year mortgages, the effective interest rate was little changed at 4.37%.

The average mortgage loan size increased to $292,200 (4.7%
y/y). For purchases, the average loan size rose to $308,000 (0.8% y/y)
compared to a higher $269,900 (5.9% y/y) for refinancings.

Applications for fixed-rate loans fell 15.1% y/y while
applications for adjustable-rate loans increased 17.2% y/y.

The survey covers over 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 SURVEYW 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" >MBA Mortgage Applications (%,
 SA)</th>
 <th scope="col" >12/07/08</th>
 <th scope="col" >11/30/18</th>
 <th scope="col" >11/23/18</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" >Total Market Index</td>
 <td >1.6</td>
 <td >2.0</td>
 <td >5.5</td>
 <td >-13.2</td>
 <td >-17.8</td>
 <td >15.6</td>
 <td >17.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Purchase</td>
 <td >2.5</td>
 <td >0.8</td>
 <td >8.8</td>
 <td >3.3</td>
 <td >5.6</td>
 <td >13.3</td>
 <td >15.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Refinancing</td>
 <td >1.8</td>
 <td >6.2</td>
 <td >0.5</td>
 <td >-33.5</td>
 <td >-34.0</td>
 <td >17.3</td>
 <td >19.7</td>
 </tr>
 <tr>
 <td class="firstcol" >15-Year Mortgage Effective Interest Rate
 (%)</td>
 <td >4.52</td>
 <td >4.65</td>
 <td >4.65</td>
 <td >3.72 (Dec.'17)</td>
 <td >3.59</td>
 <td >3.22</td>
 <td >3.47</td>
 </tr>
 </tbody>
 </table>
 
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The Mortgage Bankers Association reported that its total Mortgage Applications Index rose 1.6% (-13.2% y/y) during the week ended December 7, the third consecutive monthly gain. Applications to purchase a home jumped 2.5% (3.3% y/y) [...]

U.S. Mortgage Loan Applications Post Another Strong Increase

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The Consumer Price Index held steady during November (2.2%
y/y) following a 0.3% October rise. The result matched expectations in the
Action Economics Forecast Survey. The CPI excluding food &amp; energy improved
an expected 0.2% (2.2% y/y) for a second month.

The rise in the &quot;core&quot; CPI reflected the fourth
consecutive 0.2% increase in services prices. The gain was paced by a 0.5%
increase (2.3% y/y) in recreation services costs which followed stability in
October. A 0.4% rise (2.4% y/y) in medical care services prices came after two
months of 0.2% gain. A 0.3% increase (3.2% y/y) in shelter prices reflected a
0.4% strengthening (3.6% y/y) in rents of primary residences which followed two
months of 0.3% increase. The owners' equivalent rent of primary residences rose
0.3% (3.3% y/y) for a second straight month. Hotel costs improved 0.2% (-1.5%
y/y). Education &amp; communication costs declined 0.4% (+0.6% y/y), dragged
down by a 1.6% decline (-2.1% y/y) in telephone service charges. Tuition other
school fees rose 0.3% (2.7% y/y). Working 0.3% lower (-0.9% y/y) was the cost of
public transportation.

Goods prices less food &amp; energy improved 0.2% as used car
&amp; truck prices jumped 2.4% (2.3% y/y) after a 2.6% increase. Also firm were
medical care product prices as they increased 0.4% (0.6% y/y) after four
straight months of decline. New vehicle prices were roughly unchanged (0.3% y/y)
after two months of decline. Recreation goods prices also held steady (-3.0%
y/y) while video &amp; audio equipment costs fell 0.8% (-12.1% y/y). Apparel
prices also declined by 0.9% (-0.4% y/y) after a 0.1% uptick.

Food prices increased 0.2% (1.4% y/y) as cereal &amp; bakery
product prices strengthened 0.6% (1.3% y/y) and made up October's decline. Meat,
poultry &amp; fish prices rose 0.4% (0.2% y/y) while egg prices declined 0.8%
(3.6% y/y). Dairy product prices eased 0.2% (-0.5% y/y) while the cost of fruits
&amp; vegetables held steady (-0.1% y/y). Nonalcoholic beverage prices
declined 0.4% (+1.0 y/y).

Energy product prices declined 2.2% as gasoline prices
dropped 4.2% (+5.0% y/y) and reversed the October increase. Fuel oil prices also
weakened by 2.9% (+16.1% y/y) after a 3.7% rise. The price of electricity rose
0.3% (0.6% y/y) following a 2.3% jump and natural gas prices improved 0.3% (-2.1% y/y).

The gain in consumer prices caused real average hourly
earnings to rise 0.3% (0.8% y/y) and recover the decline during October.

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.

Labor Market Not Overly Tight, Demographically Adjusted
Measure Shows from the Federal Reserve Bank of Dallas can be found
<a href="https://www.dallasfed.org/~/media/documents/research/eclett/2018/el1810.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" >Consumer Price Index, All
 Urban Consumers (% chg)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov 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 >0.0</td>
 <td >0.3</td>
 <td >0.1</td>
 <td >2.2</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 >0.1</td>
 <td >2.2</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 >0.2</td>
 <td >0.3</td>
 <td >-0.3</td>
 <td >0.2</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 >0.2</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >2.9</td>
 <td >2.7</td>
 <td >3.1</td>
 <td >2.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Food</td>
 <td >0.2</td>
 <td >-0.1</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 >-2.2</td>
 <td >2.4</td>
 <td >-0.5</td>
 <td >3.1</td>
 <td >7.9</td>
 <td >-6.6</td>
 <td >-16.7</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The Consumer Price Index held steady during November (2.2% y/y) following a 0.3% October rise. The result matched expectations in the Action Economics Forecast Survey. The CPI excluding food & energy improved an expected 0.2% (2.2% [...]

U.S. CPI Is Unchanged; Core Prices Increase Steadily

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EMU IP (total excluding construction) gained 0.2% in October after a 0.6% decrease in September. However, IP had gained strongly in August and that has helped to drive the three-month rate of growth to a 3.5% annual pace and to establish an accelerating profile for output from 12-months to six-months to three-months. Still, the patterns of gains over the last three months belie any notion that IP is simply gathering a head of steam. In the quarter-to-date (see Q4-Date), IP is up at only a 1.3% annual rate, below its three-month and six-month rates of growth.

Manufacturing IP shows much the same results and patterns with a 0.2% rise in October after a 0.4% decline in September.

However, sector results for consumer goods, intermediate goods and capital goods all show growth rates accelerating from 12-months to six-months to three-months. And all sectors show drops in output in September with strong-to-solid gains in August. Capital goods also show a strong 1% rise in output in October while consumer goods show output falling by 0.2% in October marking two declines in a row despite its 'accelerating' trajectory. The lesson for those IP data is that trends can be difficult to characterize or to pin down.

In the quarter-to-date, manufacturing output is up at a solid 2.1% annual rate. Consumer goods output is falling at a 1.5% annual rate. Intermediate goods output is up at a mild 0.9% annual rate. But capital goods output is expanding at a hefty 9.3% annual rate early in the year's final quarter. Still, a look at the chart of year-on-year sector growth rates makes it clear that sector output trends broadly measured have been slowing down, not speeding up. And since year-over-year trends are very broad and relatively free from problems of 'seasonal adjustment,' their signal is to be preferred when signal conflict.

Among the 11-early EMU members in the table, five show declines in output in October. This is after six showed declines in September and two others were dead flat. That, however, followed an August that had only one country (Greece) with an output decline. The three-month growth rates find three members with output declines (France, Greece, and Portugal) with output flat in Germany. Spain, Malta, and Ireland post strong double-digit rates of growth in contrast. Over six months, Germany, Luxembourg, and Portugal log output declines as Ireland and Spain surge on double-digit rates of growth. Year-on-year overall manufacturing output in the EMU is up by 1.3%, the median for EMU members in this tables is up by 1.2% and only France, Greece and Portugal have 12-month output declines. All in all five countries have output changes of 1% or less and three have output changes of more than 2% over 12 months (the Netherlands, Spain, and Ireland).

The data obviously show a lot of cross currents whether arrayed by country or by sector. And the broad year-on-year trends point to an overall deceleration for output growth. Year-on-year trends by country confirm slowdowns in IP growth in Germany, France, Italy, and in the U.K. – all the largest European economics. Spain may also be in that mix. It isn't only because its extreme volatility makes it too hard to gauge its trend not because it clearly does not belong there.


<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/181212.png" width="660" height="550">


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Trends also confirm broad slowing in train for intermediate goods and consumer goods. The bright spot is capital goods. It has run cycles of its own. Capital goods output boomed from early-2015 to mid-2016 then slowed its pace through early-2017. It accelerated into late-2017. Since then, it has been slowing, but the slowdown in capital goods output seems to have been arrested 4-6-months ago when the tailing of growth gave way to firmness around the 2% growth mark. Manufacturing output in the EMU is now at 99.4% of its past cycle peak. Capital goods output has reached a new peak. It is very consistent that with output having made a full recovery that capital goods output and investment would be firming or on an upswing.

Still, consumer goods and intermediate goods are lagging behind the performance of the capital goods sector. IP trends are actually still good-looking trends, especially in the face of the recent trends we see for the manufacturing surveys from Markit. Measured manufacturing output (as opposed to diffusion-based surveys) is growing and despite decelerating trends is also stabilizing as manufacturing PMI readings continue to weaken but have steadied above the key 50 boom-bust precipice. Nothing is pointing to declines in production, but there is a widespread slowing in place. Central bankers will have to exercise judgement as to whether this represents a state of stability or of fragility.
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EMU IP (total excluding construction) gained 0.2% in October after a 0.6% decrease in September. However, IP had gained strongly in August and that has helped to drive the three-month rate of growth to a 3.5% annual pace and to [...]

EMU Area IP Is Slowing But Still Growing; IP Makes Modest Rebound

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

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

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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Andrew Cates

**US Outperformance Holds; Europe and China Continue to Disappoint**
One of the most persistent features of the global macro landscape in 2026 has been the widening divergence between growth outcomes in the United States and those in Europe and China. Citigroup’s global growth surprise indices—which measure the gap between actual economic releases and consensus expectations—capture this divergence with unusual clarity. US data have continued to surprise on the upside, supported by resilient consumer spending, a stronger-than-expected labour market and the ongoing AI-driven capital spending boom. The picture elsewhere is less encouraging. Growth surprises have turned negative across the euro area, reflecting the cumulative toll of elevated energy costs, weak industrial activity and subdued business confidence. And China's growth surprise index has also fallen sharply in recent weeks, with weaker-than-expected retail sales and fixed asset investment data for May this week reinforcing concerns that domestic demand remains fragile and that policy support is yet to gain meaningful traction.

260618Z1.jpg

**The Oil Risk Premium in the UK Has Been Fading**
One of the more notable features of UK markets this year has been the close relationship between oil prices and two-year gilt yields. The link is not mechanical, but in an economy heavily exposed to imported energy, swings in oil prices can materially alter the inflation outlook and, by extension, expectations for Bank of England policy. That relationship was on display again this week. A softer-than-expected UK CPI reading for May—helped in part by easing energy price pressures—led investors to scale back expectations that inflation would remain persistently above target, pushing two-year gilt yields to their lowest level in six weeks. The question now is whether this marks the start of a more sustained easing in inflation pressures or merely a temporary reprieve. Much will depend on whether the recent decline in oil prices following the US-Iran ceasefire agreement proves durable.

260618Z2.jpg

**The AI Investment Boom Is Rewriting the Rule Book for the Chip Industry**
If the divergence in global growth surprises noted above tells a story of a world economy under strain, the semiconductor sales data tell a very different one — of a technology-driven investment cycle that is accelerating almost regardless of the broader macro environment. Global semiconductor sales have surged to record levels over the past twelve months, driven primarily by insatiable demand for the chips that underpin AI infrastructure: graphics processing units, high-bandwidth memory, and advanced logic chips. Data centre capital expenditure from the hyperscalers continues to exceed even the most optimistic forecasts from a year ago, and the investment pipeline shows no sign of moderating. The gains are concentrated in AI-adjacent products; legacy chips for consumer electronics and industrial applications remain relatively soft.

260618Z3.jpg

**Copper Holds Firm As Oil Retreats**
The commodity markets are telling two quite different stories this week, and the contrast is instructive. Oil has moved sharply lower on the US-Iran MoU news as investors trim the conflict risk premium that has been embedded in energy markets since March — a welcome development for inflation and central bank optionality alike. But the three commodities shown in this chart tell a different story. Copper, one of the most reliable proxies for global electricity infrastructure investment, remains near multi-year highs, reflecting the extraordinary volume of data centre construction, grid expansion and electrification spending flowing through the global economy. Aluminium — energy-intensive to produce and increasingly in demand for the structural components of both data centres and electric vehicles — has, until quite recently, held its ground. Lithium hydroxide, the battery-grade refining product that sits at the heart of the energy storage supply chain, has seen some cyclical softness but remains structurally underpinned by the scale of demand being projected for grid-scale storage and electric mobility over the next decade.

260618Z4.jpg

**Is Energy Availability a Binding Constraint on Growth?**
This next chart is a scatter plot that maps electricity generation per capita against GDP growth per capita across a broad sample of countries over the past five years. The positive relationship is striking. Economies with higher electricity generation per capita, including the United States, have generally delivered stronger GDP growth, while those with more constrained electricity systems have tended to lag. The obvious objection is reverse causality: richer economies generate more electricity because they have more to power. That is partly true. But the broader evidence is difficult to dismiss. The US shale revolution delivered an abundance of cheap energy that supported a sustained period of industrial outperformance relative to many advanced economies. Mainstream commentary often attributed this advantage to factors such as labour market flexibility or technological innovation, but energy costs were arguably at least as important.

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**Corporate America Is Investing from a Position of Unusual Financial Strength**
The surge in US corporate investment—particularly in AI infrastructure, data centres and semiconductors—has inevitably drawn comparisons with the late-1990s dot-com boom. Yet the financial balance data suggest an important difference. During the dot-com era, US non-financial corporates moved into a financial deficit approaching 4% of GDP, relying heavily on external financing to fund investment. Today, despite another ambitious investment cycle, the sector remains in surplus, currently around 1.8% of GDP. Corporate America is investing aggressively, but it is still generating more cash than it is spending. The boom is being financed largely through profits rather than debt. Risks remain—not least the growing fiscal burden on the federal government—but the balance-sheet fragilities that turned previous investment booms into systemic crises appear far less pronounced. If a major constraint emerges in the years ahead, it may be energy and resources rather than leverage.

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The signing of a Memorandum of Understanding (MoU) between the United States and Iran earlier this week has offered financial markets their most significant moment of geopolitical relief since the Middle East conflict escalated in early March. Oil prices fell sharply on the news, short-dated bond yields moved lower across several major economies, and risk assets recovered ground. But relief, as investors have learnt repeatedly over the past three months, is arguably not the same as resolution. The MoU sets a framework for negotiations rather than a final settlement, and the history of US-Iran diplomacy is not one that encourages complacency. Meanwhile, the Federal Reserve — concluding its June meeting yesterday under new chair Kevin Warsh — held rates steady but delivered a distinctly hawkish dot plot that shifted the median year-end projection from a cut to a hike, a reminder that the easing cycle the market had been pricing is no longer the base case. Against this backdrop, this week's charts take stock of where the global economy presently stands — and what the underlying data, beneath the geopolitical noise, are telling us. The picture that emerges is one of divergence. The United States continues to outperform consensus growth expectations while Europe and China disappoint (chart 1). UK short-dated yields have tracked oil prices with unusual consistency this year, and today's softer-than-expected CPI print for May — arriving just as the MoU has knocked crude lower — potentially changes the policy calculus for the Bank of England (chart 2). Global semiconductor sales, meanwhile, are storming ahead regardless of the geopolitical noise, powered by AI infrastructure spending that shows no sign of fatigue (chart 3). A cross-section of commodity prices tells two stories simultaneously: the geopolitical risk premium is draining out of oil, but the metals and materials the AI economy actually needs — copper, uranium, critical minerals — are holding firm (chart 4). Meanwhile a cross-country scatter of electricity generation and GDP growth over the past five years raises a question that deserves more attention than it typically gets: is energy availability a constraint on growth, or merely a consequence of it? The evidence, we would argue, points firmly in one direction (chart 5). And finally, for all the comparisons being drawn between the current investment boom and the late 1990s, the financial balance of the US corporate sector tells a rather different story — one that matters for how any correction might unfold (chart 6).

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Charts of the Week: Between Relief and Reality

Winnie Tapasanun

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The current general activity diffusion index rebounded to a slightly stronger-than-expected 10.3 in June following a 27.1-point drop to -0.4 in May, the latest Manufacturing Business Outlook Survey (MBOS) from the Federal Reserve Bank of Philadelphia showed, indicating a return to expansion in manufacturing activity in the Third Federal Reserve District this month. A reading of 10.0 for June had been expected by the Action Economics Forecast Survey. June marked the fifth m/m increase in six months, showing a sharp improvement from -1.4 in June 2025. In June, 32.1% of firms reported increases in current general activity (up from 22.5% in May), while 21.9% reported decreases (down from 22.9%); 45.4% reported no change (down from 54.6%). Survey responses were collected from June 8 to June 15.

Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology along the lines of the national ISM index. The index rose to 53.1 in June after a 4.8-point decline to a contraction-level 49.7 in May, indicating manufacturing activity expanded for the third time in four months; it was slightly above 51.0 in June 2025.

In the latest survey, the new orders index surged to 27.3 in June following a 34.7-point plunge to -1.7 in May, signaling new orders expanded for the sixth time in seven months. The shipments index rebounded to 14.9 this month from 4.9 in May, registering the seventh consecutive expansion. The unfilled orders index advanced to 10.5 from -2.5, indicating expansion for the first time since July 2025 and the highest level since January 2025. In contrast, the inventories index dropped to -8.5 in June from 6.6 in May, showing inventories contracted for the second time in three months and at the lowest level since July 2024. Meanwhile, the delivery times index increased to -2.6 this month from -10.4 in May (the lowest reading since March 2024).

On the labor front, the number of employees index climbed to 7.9 in June from -2.8 in May, indicating employment expanded for the first time in three months and at the highest level since January. In June, a higher 17.0% of respondents reported increases in employment, while 9.2% reported declines; 73.8% reported no change in employment levels. The average employee workweek index fell to -6.5 this month, the first negative reading and lowest since February, from 1.2 in May.

Inflation indicators were mixed in June. The prices paid index rose to 53.2 this month following an 11.4-point drop to 47.9 in May. A higher 53.5% of respondents reported increases in input prices in June, while only 0.4% reported decreases. The prices received index fell to 20.3, a four-month low, after a 7.2-point May decline to 26.3. In June, 20.3% of respondents reported increases in prices received, while 0.0% reported decreases.

The future indexes remained in positive territory, signaling continued overall growth over the next six months, with most future indicators rising. The future general activity diffusion index edged down to 50.2 in June from 53.2 in May, staying positive since February 2024. Future indexes for new orders (60.8 vs. 53.5) and shipments (60.3 vs. 45.7) increased in June (vs. May) and remained positive. Notably, the future capital expenditures index rose to 41.2 this month, the highest level since June 2021, from 30.9 in May. The following future indexes slipped in June (vs. May) but stayed in positive territory: employment (30.8 vs. 31.7), unfilled orders (17.3 vs. 19.2), and inventories (10.0 vs. 11.8). Prices continued to increase, with the future prices paid index easing to a still-elevated 63.2 in June from 70.0 in May and the future prices received index rising to 67.2, the highest level since August 2021, from 60.5.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The indexes range from -100 to +100 with positive values indicating an increase in activity. The series from the survey dating back to May 1968 can be found in Haver’s **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Current General Activity Index up 10.7 pts. to 10.3 in June; fifth rise in six months.
- New Orders (27.3), sixth expansion in seven mths.; Shipments (14.9), seventh straight expansion; Unfilled Orders (10.5), first expansion since July ’25.
- Employment (7.9), a five-month high after two mths. of contraction.
- Inflation indicators: Prices Paid up (53.2); Prices Received down (20.3, a four-month low).
- Future General Activity Index down to a still-expansion-level 50.2; most subindexes up and positive; future price indexes remaining above long-run avgs.

U.S. Philadelphia Fed Index Returns to Positive Territory in June

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Unemployment in the European Monetary Union stayed at 6.3% in April, just a tick above its all-time low. In the more inclusive EU, the unemployment rate hovered at 6%, just two tenths of a percentage point above its all-time low. Unemployment conditions in the monetary union remain low without many signs of acceleration.

The unemployment rate in April fell in Italy, Ireland, Greece, Portugal, and the Netherlands. The unemployment rate increased month-to-month in Finland.

In March, the unemployment rate declined in Austria, Belgium, Germany, Finland, Italy, and the Netherlands. It rose month-to-month in Greece and Luxembourg.

Over three months, the unemployment rate in these 12-early reporting monetary union members fell in five countries: Belgium, Germany, Italy, Ireland, and the Netherlands. In contrast, unemployment rose in five countries: Portugal, Greece, France, Finland, and Austria.

Over six months, unemployment rates fell in six countries: the Netherlands, Portugal, Italy, Germany, Belgium, and Austria. This was against increases in six countries: Greece, Finland, France, Luxembourg, Spain, and Ireland.

Year over year, the degree of inflation progress is much thinner, with the unemployment rates falling in only three countries Italy, Spain, and Portugal with increases in unemployment for all the other countries in the table.

Unemployment rates continue to rank low in the monetary union, with only three monetary union countries having their unemployment rates ranked above 50%, putting them above their respective medians on data back to the year 2000. Those three countries are Luxembourg, Finland, and Austria. For the remaining countries, the rankings of their unemployment rates over this period are not even as high as their 30th percentiles. Italy, at present, is experiencing its lowest unemployment rate of the period.

Unemployment conditions in the monetary union remain solid. The past two weeks were significant for monetary policy and global economics, with the ECB raising rates, Japan raising rates, and the United States keeping rates unchanged but moving away from an easing bias in policy that had been in effect for quite a number of months. Today the Bank of England, after experiencing some significant inflation progress, decided to keep its policy on hold for another session. An agreement between the U.S. and Iran securing an opening of the Strait of Hormuz was signed, paving the way for potentially improved oil flows, lower inflation, and less uncertainty in the period ahead.

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Europe

EMU Unemployment Remains Low

Sandy Batten

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Total retail sales rose a much larger-than-expected 0.9% m/m (6.9%y/y) in May following a slightly downwardly revised 0.4% monthly gain in April (previously 0.5% m/m), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 0.5% m/m gain. Excluding autos, other sales increased 0.8% m/m (7.5% y/y) after an unrevised 0.7% m/m increase in April. Expectations were for a 0.5% monthly rise.

Elevated retail gasoline prices continued to boost the value of gasoline sales in May. Gasoline sales increased 3.4% m/m (26.5% y/y) in May on top of a 2.8% m/m increase in April. However, both monthly increases were slower than the 14.2% monthly jump reported in March. Gasoline sales accounted for 31% of total sales in May. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.7% m/m in April, up from 0.2% m/m in April. Sales excluding both autos and gasoline increased 0.5% m/m in May, the same monthly gain as in April.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in May, rising 0.7% m/m (6.3% y/y) following an unrevised 0.5% monthly increase in April. The strong performance at the end of Q1 followed by solid gains in April and May put the April-May level of control group sales up 8.6% at an annual rate from the Q1 average, pointing to another solid contribution by consumption to overall GDP growth in Q2. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales generally increased across major sectors in May. Auto sales rebounded, rising 1.2% m/m in May and more than reversing the 0.9% monthly decline in April. This was the third gain in auto sales in the past four months. Furniture sales rose 1.0% m/m but sales at electronics and appliance stores slipped 0.5% m/m. Building material sales gained 1.0% m/m on top of a 1.1% monthly increase in April. Clothing sales rose 0.3% m/m. Sales at general merchandise stores gained 0.4% m/m in May. Miscellaneous sales jumped 2.3% m/m in May, their first monthly gain in three months. Sales by nonstore retailers continued their strong performance, increasing 1.5% m/m in May on top of a 1.1% monthly rise in April. Over the first five months of this year, nonstore retail sales have risen 7.2%, not annualized. By contrast, food sales were unchanged in May from April while sales at restaurants edged down 0.1% m/m in May, their first monthly decline in four months.

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

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- Total sales increased 0.9% m/m in May, nearly twice expectations.
- Auto sales rebounded, rising 1.2% m/m in May, more than reversing a 0.9% monthly decline in April. 
- Gasoline sales rose 3.4% m/m in May.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in May, the same monthly increase as in April.
- Sales of the retail control group that is used to construct PCE rose 0.7% m/m in May and are 8.6% annualized above the Q1 average.

U.S. Retail Sales Jumped More than Expected in May

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Mortgage applications fell 3.8% w/w (+8.6% y/y) in the week ending June 12 following a 10.8% rebound in the week ending June 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the fourth w/w fall in five weeks, lowering the index to 269.5. Applications for loans to purchase a house slid 3.4% (+3.0% y/y) in the June 12 week, down for the fourth time in five weeks, after a 7.3% rise in the previous week. Applications for loan refinancing dropped 4.5% (+17.0% y/y) in the June 12 week, the seventh w/w decline in eight weeks, following a 15.3% jump in the June 5 week.

The effective interest rate on a 30-year fixed-rate loan was unchanged at 6.78% in the week ending June 12; it was above a low of 6.24% in the February 27 week but below a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages edged up 2bps to 6.18% in the June 12 week, the highest in three weeks, from 6.16% in the previous week; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. Meanwhile, the rate on 30-year jumbo loans declined 4bps to 6.78% in the June 12 week from 6.82% in the prior week; it was above a low of 6.25% in the February 27 week but below a high of 7.99% in the week of October 27, 2023. The rate on a 5-year ARM fell 7bps to 6.16% in the June 12 week, the first w/w decline in six weeks, from 6.23% in the previous week (the highest since the week of August 15, 2025); it was above a low of 5.38% in the February 20 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan edged up to 40.3% of total applications in the week ending June 12—the fourth w/w increase in five weeks and the highest level since the May 15 week—after rising to 40.2% in the week ending June 5; it remained below a peak of 61.9% in the January 16 week but above a low of 34.6% in the week of May 23, 2025. The adjustable-rate mortgage (ARM) share of activity slipped to 8.5% in the June 12 week from 8.6% in the prior week; it was below a peak of 12.9% in the week of September 12, 2025 but above a low of 4.7% in the week of January 3, 2025.

The average size of a mortgage loan fell 1.5% w/w (+3.7% y/y) to $394,100 in the June 12 week, the lowest level since the April 3 week, after a 0.4% rebound to $399,900 in the June 5 week. The average size of a purchase loan dropped 1.9% (+4.0% y/y) to $456,600 in the June 12 week following a 2.8% recovery to $465,300 in the prior week. The average size of a loan to refinance a mortgage fell 0.4% (+7.0% y/y) to $301,400 in the June 12 week on top of a 2.3% decline to $302,500 in the previous week, marking the third consecutive w/w fall, the sixth decline in seven weeks, and the lowest level since the week of July 25, 2025.

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 -3.4% w/w, down for fourth time in five weeks; refinance applications -4.5% w/w, seventh fall in eight weeks.
- Effective interest rate on 30-year fixed loans unchanged at 6.78%, up from a late-February low of 6.24%.
- Average loan size down for the second time in three weeks, lowest since the April 3 week.