Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070302a.jpg" width="353">
Consumer spending appears to be recovering in Japan. After a three-month-long decline last summer and early autumn, the index of household living expenditures gained 1.4% in January to 99.3 (seasonally adjusted, 2005=100), the highest value since October 2005, according to a report today by the Statistics Bureau of the Ministry of Internal Affairs and Communications. In real terms, the index was also up 1.4% in January.
The average spending amounts per household are published in yen on a nominal, not seasonally adjusted basis. The January figures show a 0.63% rise from a year ago, the first year-on-year increase since December 2005. By types of goods and services, the biggest advances were in clothing (8.3%), transportation &amp; communication (6.6%) and recreation &amp; culture (4.4%). The Statistics Bureau also reports a division by motivation: fundamental or selective. Spending on &quot;fundamental&quot; items was up 0.26%, while &quot;selective&quot; outlays gained 1.17%; each of these has shown a positive year-ago comparison in recent months, but this is the first time both have moved ahead in the same month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070302b.jpg" width="353">
Labor market data were also reported today for January, and they might be seen as helping to give consumer spending a firmer base. The number employed did decline in each December and January, by 210,000 and 220,000, respectively. But that followed four consecutive increases totaling almost the same: 440,000. So the January level of employment, 63.730 million, was about the same as the 63.720 million in July. The accompanying unemployment data show January as the third month running at 4.0%, an almost nine-year low. With the skittish conditions for employment, the low unemployment rate is obviously due in part to a downtrend in labor force participation, not a totally healthy development. Still, progress of sorts is being made in the Japanese economy. The base that is forming in the labor market and the consumer sector may well be better for longer-term expansion than spikes that might be followed by frightening plunges.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN: Household Living Expenditures</th>
<th scope="col">Jan 2007</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Index, Nominal, SA, 2005=100</td>
<td>99.3</td>
<td>97.9</td>
<td>98.4</td>
<td>98.6</td>
<td>98.1</td>
<td>100.0</td>
<td>100.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Real, SA, 2005=100</td>
<td>99.1</td>
<td>97.7</td>
<td>98.3</td>
<td>98.5</td>
<td>97.8</td>
<td>100.0</td>
<td>100.5</td>
</tr>
<tr class="odd">
<td colspan="8">Amounts, NSA, Y/Y %Chg</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>0.63</td>
<td>-1.46</td>
<td>-0.26</td>
<td></td>
<td>-1.86</td>
<td>-0.81</td>
<td>0.38</td>
</tr>
<tr class="odd">
<td class="firstcol">Fundamental Items</td>
<td>0.26</td>
<td>1.63</td>
<td>-2.40</td>
<td></td>
<td>-0.96</td>
<td>0.09</td>
<td>-1.23</td>
</tr>
<tr>
<td class="firstcol">Selective Items</td>
<td>1.17</td>
<td>-6.09</td>
<td>2.80</td>
<td></td>
<td>-3.05</td>
<td>-1.97</td>
<td>2.55</td>
</tr>
</tbody>
</table>
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Consumer spending appears to be recovering in Japan. After a three-month-long decline last summer and early autumn, the index of household living expenditures gained 1.4% in January to 99.3 (seasonally adjusted, 2005=100), the highest [...]

Household Expenditures in Japan Show First Yr/Yr Rise in 13 Months; Unemployment Holds at 4.0% for a Third Month

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070301b.jpg" width="353">
Personal income surged by a full 1% in January, following unrevised gains of 0.5% and 0.3% in December and November, respectively. Consensus expectations had envisioned a 0.3% increase. Income was 5.3% ahead of January 2006.
Wages &amp; salaries jumped 1.2% (5.0% y/y). Factory sector wages turned down 0.3%, reversing December&#39;s 0.4% increase; wages in this sector are now down from a year ago, by 0.6%. Wage and salary income in the private service-producing industries gained 1.6% in January (6.1% y/y) after 0.8% in December. Large bonuses and the exercise of stock options caused the outsized January increase. The annual federal government pay increase also added to total wages.
Interest income advanced 0.8% in January, offsetting part of three consecutive monthly declines of 0.4%. Dividend income rose 0.9% in the month and is 12.0% higher than in January 2006.
Personal current taxes increased 2.5% (8.7% y/y). Disposable personal income advanced 0.8% (4.8% y/y), better than the 0.5% increase during December. Real disposable personal income rose 0.8% (2.5% y/y) last month. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070301a.jpg" width="353">
Personal consumption increased 0.5% in January after an unrevised 0.7% gain in December and was marginally above expectations for 0.4%. Spending for motor vehicles, clothing, other nondurables and medical care rose noticeably. The return of colder weather pushed up outlays for home heating, but falling gasoline prices brought some offset to December&#39;s huge rise in gasoline outlays. In real terms, consumer spending rose 0.3% following increases of 0.4% in both December and November.
The personal saving rate was -1.2% in January, marginally better than December&#39;s -1.4%, a downward revision.
The increase in the PCE chain price index slowed to 0.2% in January from 0.3% in December. This overall PCE price gauge was up 2.0% from a year ago. Prices less food &amp; energy were up 0.3% after 0.1% rises in December and November. The three-month change in core prices remained low at 1.8% (annualized), and December&#39;s value was revised to 1.5% from 1.7% reported before. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Jan 2007</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>1.0%</td>
<td>0.5%</td>
<td>0.3%</td>
<td>5.3%</td>
<td>6.4%</td>
<td>5.2%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.5%</td>
<td>0.7%</td>
<td>0.4%</td>
<td>5.5%</td>
<td>6.0%</td>
<td>6.5%</td>
<td>6.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Saving Rate</td>
<td>-1.2%</td>
<td>-1.4%</td>
<td>-1.1%</td>
<td>-0.3% (Jan 06)</td>
<td>-1.1%</td>
<td>-0.4%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>2.3%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


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Personal income surged by a full 1% in January, following unrevised gains of 0.5% and 0.3% in December and November, respectively. Consensus expectations had envisioned a 0.3% increase. Income was 5.3% ahead of January 2006. Wages & [...]

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USD/EUR exchange rate uncoupling from interest rate differential

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Much lower US electricity costs gives it a competitive advantage

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

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Sandy Batten

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Total retail sales slumped 0.9% m/m (+3.3% y/y) in May following a downwardly revised 0.1% monthly decline in April (previously +0.1% m/m). The May decline was led by a 3.5% m/m (+2.5% y/y) drop in motor vehicle and parts sales and a 2.0% m/m (-6.9% y/y) price-related decline in sales at gasoline stations. This was the fourth consecutive monthly decline in gasoline sales. Sales excluding autos fell 0.3% m/m (+3.5% y/y) in May after a downwardly revised unchanged reading in April (previously +0.1% m/m). The Action Economics Forecast Survey looked for total sales to fall 0.6% m/m in May and for sales ex autos to rise 0.2% m/m. Sales excluding autos and gasoline slipped 0.1% m/m in May after a 0.1% m/m increase in April.

On a more positive note, sales in the retail control group, which excludes autos, building materials, gasoline and food services, rebounded 0.4% m/m (5.0% y/y) in May after an upwardly revised 0.1% m/m decline in April (previously -0.2% m/m). These sales are used in the construction of personal consumption expenditures in the NIPA accounts. While these sales slowed in April and May from a relatively strong February and March, the April/May average is still 2.9% at an annual rate above the Q1 average, providing a solid foundation for Q2 PCE.

By category, in addition to declines in auto and gasoline sales, building material and garden equipment sales slumped 2.7% m/m, their first monthly decline in three months. Sales at food service and drinking places declined 0.9% m/m, their first monthly decline in three months. Sales at electronics and appliance stores fell 0.6% m/m, their first decline in four months. In contrast, sales at furniture stores continued to rise, increasing 1.2% m/m, their fourth consecutive monthly gain. Sales at sporting goods, etc. stores rose 1.3% m/m but failed to offset a 3.0% m/m decline in April. Sales at nonstore retailers rose 0.9% m/m in May for their fourth consecutive monthly gain. Miscellaneous store sales jumped 2.9% m/m.

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

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- Sales fell a more-than-expected 0.9% m/m, led by a 3.5% decline in motor vehicle sales and a 2.0% drop in gasoline store sales.
- Sales excluding autos unexpectedly fell 0.3% m/m.
- In contrast, sales in the control group (used to estimate PCE) rebounded 0.4% m/m.

U.S. Retail Sales Fell More than Expected in May 2025

Tom Moeller

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Import prices were unchanged during May after rising 0.1% in April, and falling 0.4% in March, according to the Bureau of Labor Statistics. A 0.3% decline had been expected in the Action Economics Forecast Survey. The year-on-year increase picked up to 0.2% but remained below the recent high of 2.2% in December. Export prices fell 0.9% during May after an unrevised 0.1% April gain. A 0.2% decline had been expected. The y/y rise eased to 1.7% from 1.9% in April and was the slowest gain since November.

The steady import price index in May included a 4.0% drop (-15.8% y/y) in imported fuel prices, the third consecutive month of sharp decline. The decline in imported fuel costs reflected a 9.0% fall (+88.4% y/y) in natural gas, a 2.7% drop (-18.8% y/y) in fuel oil costs, a 3.7% decline (-17.4% y/y) in petroleum & petroleum products and a 5.4% drop (-17.1% y/y) in crude oil prices. Nonfuel import prices fell 0.2% (+7.7% y/y) in May following a 17% April increase. Import prices for nonfuel industrial supplies & materials rose 1.3% (5.4% y/y) and capital goods rose 0.2% (1.1% y/y), but foods, feeds & beverages prices declined 0.3% (+6.9% y/y). Import prices for automotive vehicles & parts edged 0.1% higher (1.1% y/y) and consumer goods excluding autos increased 0.2% (-0.7% y/y) after rising 0.3% in April.

The May decline in export prices reflected a 1.0% (1.7% y/y) drop in nonagricultural prices following a 0.1% dip. Petroleum & petroleum product prices fell 3.8% (-11.4% y/y). Industrial supplies & materials export prices dropped 2.9% (+1.0% y/y) in May, down for the third straight month. In contrast, agricultural export prices rose 0.2% (1.8%) following a 0.4% gain in April. The cost of capital goods rose 0.4% (1.9% y/y) after two straight 0.3% increases. Prices of consumer goods excluding autos rose 0.2% (1.4% y/y) after a 0.7% rise, while automotive vehicles & parts prices rose 0.2% (2.7% y/y) following a 0.9% April gain. Foods, feeds & beverages prices rose 0.3% (3.1% y/y) after increasing 0.4% in April.

These import and export price series are not seasonally adjusted; they 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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- Sharp decline in imported fuel costs is offset by increases in other products.
- Export price decline reflects lower petroleum prices.

U.S. Import Prices Hold Steady in May While Export Prices Decline

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Total business inventories were unchanged in April from March (+2.2% y/y) after having inched up 0.1% m/m in March. The Action Economics Forecast Survey had anticipated an unchanged reading. Manufacturing inventories edged down 0.1% m/m (+0.9% y/y) following five consecutive monthly gains. Retail inventories were essentially unchanged (-0.03% m/m) after having declined in three of the four previous months. In contrast, wholesale inventories rose 0.2% m/m (2.3% y/y) in April for their fourth consecutive monthly gain.

Drilling down into retail inventories, auto inventories declined 0.8% m/m in April for their sixth consecutive monthly fall. Retail inventories excluding autos increased 0.3% m/m for their fourth consecutive monthly gain. General merchandise store inventories fell 0.3% m/m, their second decline in the past three months. Inventories increased in all other major retail categories, led by a 1.0% m/m increase in food and beverage store inventories. Inventories at building materials and garden equipment stores rose 0.8% m/m following two consecutive monthly declines. Furniture store inventories increased 0.4% m/m, their third monthly increase in the past four months.

Total business sales slipped 0.1% m/m (+3.8% y/y) in April, their first monthly decline in three months. Wholesale sales edged up 0.1% (6.0% y/y), their third consecutive monthly rise. Factory sales fell 0.3% m/m (+0.6% y/y) on top of a 0.2% monthly decline in March. Retail sales decreased 0.2% m/m (+4.7% y/y) in April though in a separate report also released today, retail sales slumped 0.9% m/m in May, led by declines in auto and gasoline sales.

With the little change in both sales and inventories in April, the inventory/sales (I/S) ratio was unchanged after having fallen in four of the five previous months. The 1.38 reading in April tied the reading in the previous month as the lowest one since September 2023. The I/S ratios for retailers and wholesalers were also unchanged in April from March while the manufacturing I/S ratio increased 0.6% m/m.

The manufacturing and trade data are in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Total inventories were unchanged in April from March.
- Wholesale inventories rose for the fourth consecutive month while retail and factory inventories slipped.
- Sales edged down 0.1% m/m, the first monthly decline in three months, with declines in both factory and retail sales.
- With little change in both sales and inventories, the inventories/sales ratio was unchanged in April following two consecutive monthly declines.

U.S. Business Inventories Unchanged in April as Sales Slipped

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The National Association for Business Economics expects that following a 2.8% gain in 2024, real GDP growth will slow to 1.3% this year, revised from 1.9% in the June survey and 1.4% in 2026, revised from 2.0%. Growth from Q4-to-Q4 is expected to slow to 0.7% in 2025 from 2.5% in 2024, then rise a minimally changed 1.9% next year. Quarterly GDP is expected to grow 0.6% in Q3’25 and 0.9% in Q4. In the first two quarters of 2026, real growth of 1.6% followed by 1.8% is expected, followed by 2.0% in both Q3’26 and Q4’26.

Real growth in personal consumption expenditures was reduced. Expected PCE growth in 2025 was shaved to 2.3% from 2.8%, and reduced to 1.4% from 2.8% in 2026. The projection for business fixed investment growth was little-changed at 1.6% this year followed by 0.9% in 2026. An expected 0.5% gain in residential fixed investment this year has been reduced from 1.1%, followed by 0.9% growth in 2026, reduced substantially from 2.4%. Government spending growth of 1.3% this year compares to 1.7% projected earlier, and 0.5% growth in 2026 lessened from 0.8%.

The net export deficit is expected to widen to $1.204 trillion in 2025, revised from $1.118, then narrow to $1.085 trillion in 2026, revised from $1.150 trillion expected earlier. Exports should increase 1.1% this year, revised from 2.3% expected earlier, then 1.6% in 2026, revised from 2.0%. Imports are projected to rise 4.7% in 2025, revised from 4.0%, then fall 0.9% in 2026, down sharply from up 1.7% as expected earlier. Inventory accumulation should rise this year to little-revised $55.0 from $39 billion in 2024, then ease to $40.0 billion in 2026, revised from $52.0 billion expected earlier.

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Housing starts are expected to steady at 1.36 million, then rise to 1.39 million in 2026, revised from 1.40 million. They have been trending lower since the 2021 peak of 1.60 million. Light vehicle sales should ease to 15.5 million units, revised from 16.0. then improve to 15.5 million next year, revised from 16.2 million. The average gain in payroll employment should soften to 91 million per month in the current year, revised from 115,000, then increase to 99,000 in 2026, revised from 125,000. Payrolls increased 216,000 in 2023. The unemployment rate in 2025 has been nudged up to 4.4% from 4.3% projected earlier. The jobless rate is now expected to rise to 4.7% in 2026, revised from 4.3%.

Inflation pressures are expected to eventually abate. After falling in 2024 to 2.7% (Q4/Q4), the increase in the CPI is forecast to first rise to 3.4% this year, revised from 3.0%, then fall to 2.6% in 2026, revised from 2.5% a 2.7%. These increases compare to a 7.1% rise in 2022. Price inflation, as measured by the PCE chain price index, is expected to rise to 3.1% in 2025, revised from 2.3%, then fall to an unrevised 2.3% in 2026. It hit 6.0% in 2022. The gain in the chain PCE price index excluding food & energy is projected to rise to 3.1% this year, revised from 2.8%, then fall to 2.4% in 2026. The index rose to its high of 5.2% in 2022. The projected cost of crude oil of $65 per barrel compares to $70 projected earlier. The $68 per barrel at the end of next year compares to $66 expected earlier, and $70 per barrel at the end of 2024.

Long-term interest rates are expected to ease. The forecast of 4.19% at the end of this year compares to 4.23% expected earlier, with 4.00% forecast at the end of next year compared to 4.06% previously projected. The Fed is expected to continue its easing of monetary policy. The Federal funds rate is forecast to decline to 3.88% at the end of 2025 from 4.37% at the end of 2024, then fall to an unrevised 3.38% by the end of 2026. After-tax corporate profits are predicted to rise 2.1% this year, revised from 2.7%, and a minimally-changed 3.3% next year.

The figures from the latest NABE report can be found in Haver's **SURVEYS** database.

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- Consumer spend growth is reduced.
- Business investment growth unchanged.
- Price inflation is forecast to pick up, then moderate.

NABE Forecasts Sharply Reduced Growth for 2025 & 2026

Winnie Tapasanun

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The Empire State Manufacturing Index of General Business Conditions decreased to -16.0 in June, down from -9.2 in May and -8.1 in April, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of -6.0 for June had been expected in the Action Economics Forecast Survey. The unexpected decrease in the June index indicated that the business activity in New York State contracted for the fifth time in six months and to the lowest level since March; it was also down from -7.7 in June 2024. The percentage of respondents reporting an increase in general business conditions was 16.9% in June, down from 28.3% in May; the percentage reporting a decrease was 32.9%, down from May’s 37.5%. The latest survey was conducted between June 2 and June 9.

The headline index reflects the answer to a single question concerning the state of economic activity. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index dropped to 48.6 in June, down from 51.1 in May and 49.3 in April, indicating contraction for the third month in four and to the lowest level since October. It was up from 48.5 in June 2024 and a low of 42.5 in January 2024; however, registering below 50, the breakeven point between expansion and contraction. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index dropped to -14.2 in June after a 15.8-point jump to 7.0 in May, indicating new orders contracted for the third time in four months and to the lowest level since March; nevertheless, it was an improvement from a low of -35.0 in January 2024. The shipments index slid to a three-month-low -7.2 in June following a 6.4-point rise to 3.5 in May, but it was up from a low of -22.7 in April 2024. The unfilled orders index decreased to -8.3 in June after a 0.7-point increase to 4.8 in May, indicating unfilled orders contracted this month following two successive months of expansion; the index reached a low of -24.2 in January 2024. The inventories index fell to 0.9 in June after a 2.6-point decline to 4.8 in May, suggesting that inventories expanded at the slowest pace in eight straight months of expansion. Meanwhile, the delivery times index increased to 1.8 in June, the highest reading since February, from 1.0 in May, with 14.7% of respondents reporting higher delivery times and 12.8% of respondents reporting lower delivery times.

On the labor front, the number of employees index rebounded to a positive 4.7 in June after a 2.5-point decline to -5.1 in May, showing employment expanded for the first time since January and at the highest level since December 2022. The index was up from a low of -9.7 in December 2023. A higher 14.6% of respondents reported an increase in employment in June while a lessened 9.9% reported a decline. The average workweek index increased to -1.5 in June, the highest reading since February, from -3.4 in May; however, having remained in negative territory for the seventh consecutive month.

Inflation indicators were mixed this month. The prices paid index dropped to 46.8 in June, the lowest level since March, following an 8.2-point rise to 59.0 in May. The index was up from its recent low of 21.1 in December and a low of 16.7 in December 2023 but significantly down from a high of 86.4 in April 2022. A 49.5% of respondents reported higher prices paid in June while only 2.8% reported lower prices paid. The prices received index rose to 26.6 in June following a 5.8-point drop to 22.9 in May. The index was up from its recent low of 4.2 in December and a low of 3.9 in July 2023 but well below a peak of 56.1 in March 2022. An increased 29.4% of respondents reported higher prices received in June while a lessened 2.8% reported lower prices received.

Firms grew optimistic about the future business outlook in the latest survey. The index for future business conditions jumped to 21.2 in June, the highest reading since February, from -2.0 in May and a near-record-low -7.4 in April, with an increased 38.4% of respondents expecting business conditions to improve in the next six months. Future new orders (26.1 vs. -2.7) and shipments (23.0 vs. -3.4) expanded in June after contracting in May. Growth in employment (10.4 vs. 11.6) weakened slightly in June vs. May but still showed continued expansion. Capital spending plans remained soft, with expectations for capital spending falling to -7.3 in June, the lowest reading since May 2020, from -6.7 in May. Expected prices paid fell to 59.6 in June, the lowest level since March, from 66.7 in May, while expected prices received rebounded to 41.3 from May’s five-month-low 35.2.

The headline index reflects the answer to only one question concerning general business conditions and is not calculated from the components. The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- June General Business Conditions Index down 6.8 pts. to -16.0.
- Negative numbers for new orders (-14.2), shipments (-7.2), and unfilled orders (-8.3), but positive readings for employment (4.7, highest since Dec. ’22) and inventories (0.9).
- Current prices paid drops 12.2 pts. to a three-month-low 46.8.
- Firms are optimistic about the future business outlook, w/ Future Business Conditions Index up to a four-month-high 21.2 and future prices paid down to a three-month-low 59.6.

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Economy in Brief: March 2007

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