Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317f.jpg" width="353">
The US current account deficit fell last quarter to $172.9 billion from $177.4 billion in Q3. The Q4 deficit was shallower than Consensus expectations for a deficit of $184 billion.
The latest deficit totaled 4.9% of GDP and it peaked as a percentage of GDP nearly two years ago at 6.8% in Q4 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317e.jpg" width="353">
That shrinkage occurred even though the deficit on merchandise trade deepened. Higher oil prices lifted imports and the goods deficit grew to $208.1B from Q3&#39;s revised deficit of $200.5B. It was the deepest deficit in just over a year. During the last year only, however, exports grew 14.2% and outpaced import growth of 9.8%.
The effects of the lower U.S. dollar and the strength of foreign economies versus the U.S. is apparent greatest in the surplus in services trade which grew to a record surplus of $30.2B from $28.0B in 3Q. Exports of services during the last year grew 15.2%. Travel exports grew 21.4% y/y and passenger fares were up 19.2%. Imports grew a slower 11.5% due to moderate 7.3% growth in travel and 9.3% growth in passenger fares.
The trade surplus on earned income grew to $33.0B as the unilateral transfers deficit deepened to 28.1B.
 Friedman and Taylor on Monetary Policy Rules: A Comparison from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/08/03/Nelson.pdf"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Balance of Payments</a>,&nbsp;Bil.$, SA</th>
<th scope="col">4Q &#39;07</th>
<th scope="col">Q3 &#39;07</th>
<th scope="col">Year Ago</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Balance ($ Bil.)</td>
<td>-172.9</td>
<td>-177.4</td>
<td>-187.9</td>
<td>-738.6</td>
<td>-811.5</td>
<td>-754.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Deficit % of GDP</td>
<td>-4.9</td>
<td>-5.1</td>
<td>-5.6</td>
<td>-5.3</td>
<td>-6.2</td>
<td>-6.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on Goods ($ Bil.)</td>
<td>-208.1</td>
<td>-200.5</td>
<td>-200.3</td>
<td>-815.4</td>
<td>-838.3</td>
<td>-787.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports&nbsp;</td>
<td>2.4%</td>
<td>6.7%</td>
<td>14.2%</td>
<td>12.3%</td>
<td>14.4%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports&nbsp;</td>
<td>2.9%</td>
<td>2.9%</td>
<td>9.8%</td>
<td>5.5%</td>
<td>10.7%</td>
<td>12.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Balance on Private Services ($ Bil.)</td>
<td>30.2</td>
<td>28.0</td>
<td>23.4</td>
<td>106.9</td>
<td>79.8</td>
<td>72.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>4.4%</td>
<td>4.9%</td>
<td>15.2%</td>
<td>13.4%</td>
<td>8.8%</td>
<td>11.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>3.4%</td>
<td>3.7%</td>
<td>11.5%</td>
<td>8.6%</td>
<td>9.3%</td>
<td>8.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on Income ($ Bil.)</td>
<td>33.0</td>
<td>21.3</td>
<td>9.7</td>
<td>74.3</td>
<td>36.6</td>
<td>48.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unilateral Transfers ($ Bil.)</td>
<td>-28.1</td>
<td>-26.2</td>
<td>-20.7</td>
<td>-104.4</td>
<td>-89.6</td>
<td>-88.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The US current account deficit fell last quarter to $172.9 billion from $177.4 billion in Q3. The Q4 deficit was shallower than Consensus expectations for a deficit of $184 billion. The latest deficit totaled 4.9% of GDP and it peaked [...]

U.S. Current Account Deficit Shrank in 2007

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317d.jpg" align="left" border="0" height="265" width="353">
Stock markets around the world have taken another plunge as a
result of the latest turmoil in the financial markets. Peaks and
troughs in the stock markets have been successively lower ever since
the sub prime crisis erupted last August. The attached chart plots
daily stock price indexes for the United States (the Dow Jones), the
United Kingdom (the Financial Times All Share) and Japan (the Nikkei
225). As of last Friday, the Dow Jones was down 15% from its July 19,
2007 peak of 14,000. The Financial Times All Share was down 17% and the
Nikkei 225, 33% from their peaks of respectively 3,468 and 18,239 on
July 13, 2007. Early indicators suggests further falls today.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317c.jpg" align="right" border="0" height="265" width="353">
While stock markets been falling, commodity prices have been
soaring. In attempts to seek safety, investors have turned to
commodities, gold and oil in particular. The second chart shows the run
ups in the prices of these commodities. Over the same period that the
Dow Jones fell 15%, gold rose 47% and oil 43%.
These daily prices can be found in the Haver Data Base, INTDAILY.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">STOCK
PRICE INDEXES&nbsp;</th>
<th scope="col">Mar 14,08&nbsp;</th>
<th scope="col">Peak, Jul 07</th>
<th scope="col">% Chg&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U. S. Dow Jones</td>
<td>11951.09</td>
<td>14000.41</td>
<td>-14.64</td>
</tr>
<tr class="odd">
<td class="firstcol">U.K. Financial Times All Shares</td>
<td>2886.17</td>
<td>3467.92</td>
<td>-16.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan Nikkei
225&nbsp;Foreign</td>
<td>12240.60</td>
<td>18238.95</td>
<td>-32.88</td>
</tr>
<tr class="grey2">
<td class="firstcol"> &nbsp;COMMODITY
PRICES</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;Gold
(Engelhard Indus Bullion $ per troy oz.)</td>
<td>997.34</td>
<td>676.26</td>
<td>47.78</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Oil (Brent Crude $
per bbl.)</td>
<td>110.75</td>
<td>78.33</td>
<td>41.39</td>
</tr>
</tbody>
</table>
</body></html>

Stock markets around the world have taken another plunge as a result of the latest turmoil in the financial markets. Peaks and troughs in the stock markets have been successively lower ever since the sub prime crisis erupted last [...]

Stock Markets Plunge: Commodity Prices Soar

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317a.jpg" width="353">
Industrial production fell 0.5% last month after an unrevised 0.1% rise during January. The decline was greater than the 0.1% slip that was generally expected. The cause of the surprise, however, primarily was due to a 3.7% drop in utility output, caused by warm Winter temperatures during February.
Factory output fell 0.3% during February. A reading of no change in January production was revised down from a 0.1% uptick reported initially. The m/m decline was the first since October and three month growth in output fell to -0.7% (AR). Production in the high tech sector rose 1.1% last month after a 0.3% January increase. Outside the high tech sector, factory output fell 0.4% during February after having been unchanged during January. Three month output growth fell to -1.1% (AR).
Production of computers &amp; electronics again surged last month by 1.2% and three month growth totaled a strong 12.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317b.jpg" width="353">
Severe weakness has taken over output elsewhere in the durable goods area. Output of furniture &amp; appliances fell 3.1% last month after a 2.5% January decline. Three month output growth here fell to -25.4% at an annual rate. Output of automotive products dropped 1.2% and on a three month basis fell 6.2%. In the nondurables sector apparel product output fell 0.4%, the second consecutive decline, though that followed a strong 2.4% December jump. On a three month basis output growth was a still firm 3.2%.
Output of business equipment ticked up 0.1% for the second month and three month growth totaled 4.2%. Output of industrial equipment less high tech slipped 0.1% with three month growth still positive at 3.9%.
Output of construction supplies fell 0.7% during February for the second consecutive month and three month growth remained negative at -3.7%.
Capacity utilization fell to 80.9%, its lowest level since late 2005. Utilization in the factory sector slipped to 79.3%, its lowest also since late 2005. Annual growth in capacity is estimated at 1.7% y/y for 2.1% in the factory sector.
Yesterday the Federal Reserve announced two initiatives to promote financial market liquidity and orderly market functioning. The text of the announcement can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080316a.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (SA)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.5</td>
<td>0.1</td>
<td>1.1</td>
<td>1.9</td>
<td>4.0</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.3</td>
<td>0.0</td>
<td>1.7</td>
<td>1.9</td>
<td>4.7</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Utilities</td>
<td>-3.7</td>
<td>2.2</td>
<td>-5.4</td>
<td>3.1</td>
<td>0.2</td>
<td>2.0</td>
</tr>
</tbody>
</table>


</html>

Industrial production fell 0.5% last month after an unrevised 0.1% rise during January. The decline was greater than the 0.1% slip that was generally expected. The cause of the surprise, however, primarily was due to a 3.7% drop in [...]

U.S. Industrial Output Down

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317a.jpg" align="left" border="0" height="265" width="353">
Industrial production fell 0.5% last month after an unrevised
0.1% rise during January. The decline was greater than the 0.1% slip
that was generally expected. The cause of the surprise, however,
primarily was due to a 3.7% drop in utility output, caused by warm
Winter temperatures during February.
Factory output fell 0.3% during February. A reading of no
change in January production was revised down from a 0.1% uptick
reported initially. The m/m decline was the first since October and
three month growth in output fell to -0.7% (AR). Production in the high
tech sector rose 1.1% last month after a 0.3% January increase. Outside
the high tech sector, factory output fell 0.4% during February after
having been unchanged during January. Three month output growth fell to
-1.1% (AR).
Production of computers &amp; electronics again surged
last month by 1.2% and three month growth totaled a strong 12.3%.
<blockquote><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317b.jpg" align="right" border="0" height="265" width="353">

Severe weakness has taken over output elsewhere in the
durable goods area. Output of furniture &amp; appliances fell 3.1%
last month after a 2.5% January decline. Three month output growth here
fell to -25.4% at an annual rate. Output of automotive products dropped
1.2% and on a three month basis fell 6.2%. In the nondurables sector
apparel product output fell 0.4%, the second consecutive decline,
though that followed a strong 2.4% December jump. On a three month
basis output growth was a still firm 3.2%.
</blockquote>

Output of business equipment ticked up 0.1% for the second
month and three month growth totaled 4.2%. Output of industrial
equipment less high tech slipped 0.1% with three month growth still
positive at 3.9%.
Output of construction supplies fell 0.7% during February for
the second consecutive month and three month growth remained negative
at -3.7%.
Capacity utilization fell to 80.9%, its lowest level since
late 2005. Utilization in the factory sector slipped to 79.3%, its
lowest also since late 2005. Annual growth in capacity is estimated at
1.7% y/y for 2.1% in the factory sector.
Yesterday the Federal Reserve announced two initiatives to
promote financial market liquidity and orderly market functioning. The
text of the announcement can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080316a.htm">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.5</td>
<td>0.1</td>
<td>1.1</td>
<td>1.9</td>
<td>4.0</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Manufacturing</td>
<td>-0.3</td>
<td>0.0</td>
<td>1.7</td>
<td>1.9</td>
<td>4.7</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Utilities</td>
<td>-3.7</td>
<td>2.2</td>
<td>-5.4</td>
<td>3.1</td>
<td>0.2</td>
<td>2.0</td>
</tr>
</tbody>
</table>
Stock Markets Plunge:
Commodity Prices Soar 
by <a href="/comment/Curley.html">Louise
Curley</a> March 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317d.jpg" align="left" border="0" height="265" width="353">
Stock markets around the world have taken another plunge as a
result of the latest turmoil in the financial markets. Peaks and
troughs in the stock markets have been successively lower ever since
the sub prime crisis erupted last August. The attached chart plots
daily stock price indexes for the United States (the Dow Jones), the
United Kingdom (the Financial Times All Share) and Japan (the Nikkei
225).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317c.jpg" align="right" border="0" height="265" width="353"> As of last Friday, the Dow
Jones was down 15% from its July 19, 2007 peak of 14,000. The Financial
Times All Share was down 17% and the Nikkei 225, 33% from their peaks
of respectively 3,468 and 18,239 on July 13, 2007. Early indicators
suggests further falls today.
While stock markets been falling, commodity prices have been
soaring. In attempts to seek safety, investors have turned to
commodities, gold and oil in particular. The second chart shows the run
ups in the prices of these commodities. Over the same period that the
Dow Jones fell 15%, gold rose 47% and oil 43%.
These daily prices can be found in the Haver Data Base, INTDAILY.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">STOCK
PRICE INDEXES&nbsp;</th>
<th scope="col">Mar 14,08&nbsp;</th>
<th scope="col">Peak, Jul 07</th>
<th scope="col">% Chg&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U. S. Dow Jones</td>
<td>11951.09</td>
<td>14000.41</td>
<td>-14.64</td>
</tr>
<tr class="odd">
<td class="firstcol">U.K. Financial Times
All Shares</td>
<td>2886.17</td>
<td>3467.92</td>
<td>-16.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan Nikkei
225&nbsp;Foreign</td>
<td>12240.60</td>
<td>18238.95</td>
<td>-32.88</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;COMMODITY
PRICES</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;Gold
(Engelhard Indus Bullion $ per troy oz.)</td>
<td>997.34</td>
<td>676.26</td>
<td>47.78</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Oil (Brent
Crude $ per bbl.)</td>
<td>110.75</td>
<td>78.33</td>
<td>41.39</td>
</tr>
</tbody>
</table>
U.S. Current Account Deficit
Shrank in 2007 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317f.jpg" align="left" border="0" height="265" width="353">
The US current account deficit fell last quarter to $172.9
billion from $177.4 billion in Q3. The Q4 deficit was shallower than
Consensus expectations for a deficit of $184 billion.
The latest deficit totaled 4.9% of GDP and it peaked as a
percentage of GDP nearly two years ago at 6.8% in Q4 2005.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317e.jpg" align="right" border="0" height="265" width="353">
That shrinkage occurred even though the deficit on merchandise
trade deepened. Higher oil prices lifted imports and the goods deficit
grew to $208.1B from Q3's revised deficit of $200.5B. It was the
deepest deficit in just over a year. During the last year only,
however, exports grew 14.2% and outpaced import growth of 9.8%.
The effects of the lower U.S. dollar and the strength of
foreign economies versus the U.S. is apparent greatest in the surplus
in services trade which grew to a record surplus of $30.2B from $28.0B
in 3Q. Exports of services during the last year grew 15.2%. Travel
exports grew 21.4% y/y and passenger fares were up 19.2%. Imports grew
a slower 11.5% due to moderate 7.3% growth in travel and 9.3% growth in
passenger fares.
The trade surplus on earned income grew to $33.0B as the
unilateral transfers deficit deepened to 28.1B.
 Friedman and Taylor on Monetary Policy Rules: A
Comparison from the Federal Reserve Bank of St. Louis is
available <a href="http://research.stlouisfed.org/publications/review/08/03/Nelson.pdf">
here</a>. 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US
Balance of Payments</a>,&nbsp;Bil.$, SA</th>
<th scope="col">4Q '07</th>
<th scope="col">Q3 '07</th>
<th scope="col">Year Ago</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account
Balance ($ Bil.)</td>
<td>-172.9</td>
<td>-177.4</td>
<td>-187.9</td>
<td>-738.6</td>
<td>-811.5</td>
<td>-754.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Deficit % of GDP</td>
<td>-4.9</td>
<td>-5.1</td>
<td>-5.6</td>
<td>-5.3</td>
<td>-6.2</td>
<td>-6.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on
Goods ($ Bil.)</td>
<td>-208.1</td>
<td>-200.5</td>
<td>-200.3</td>
<td>-815.4</td>
<td>-838.3</td>
<td>-787.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Exports&nbsp;</td>
<td>2.4%</td>
<td>6.7%</td>
<td>14.2%</td>
<td>12.3%</td>
<td>14.4%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imports&nbsp;</td>
<td>2.9%</td>
<td>2.9%</td>
<td>9.8%</td>
<td>5.5%</td>
<td>10.7%</td>
<td>12.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Balance on
Private Services ($ Bil.)</td>
<td>30.2</td>
<td>28.0</td>
<td>23.4</td>
<td>106.9</td>
<td>79.8</td>
<td>72.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Exports</td>
<td>4.4%</td>
<td>4.9%</td>
<td>15.2%</td>
<td>13.4%</td>
<td>8.8%</td>
<td>11.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imports</td>
<td>3.4%</td>
<td>3.7%</td>
<td>11.5%</td>
<td>8.6%</td>
<td>9.3%</td>
<td>8.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on
Income ($ Bil.)</td>
<td>33.0</td>
<td>21.3</td>
<td>9.7</td>
<td>74.3</td>
<td>36.6</td>
<td>48.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unilateral
Transfers ($ Bil.)</td>
<td>-28.1</td>
<td>-26.2</td>
<td>-20.7</td>
<td>-104.4</td>
<td>-89.6</td>
<td>-88.5</td>
</tr>
</tbody>
</table>
</body></html>

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314h.jpg" align="left" border="0" height="265" width="353">
The upward-revised headline EMU inflation rate leaves the ECB
even more perturbed over events. While a tenth of a percentage point
upward revision is no big deal, it makes the highest inflation on
record since the Euro Area was formed even higher. Some members have
said that the revision is a further risk to second round effects. To
the extent that the public sees it and makes that their wage target
based on that higher rate, it is so.
The chart on the lest shows the &#8216;core&#8217; inflation rate, without
food and energy and &#8216;sin&#8217; (alcohol and tobacco).
The core rate is in better shape and it shows a muted
pass-through of inflation. At 2.4% year/year it is about what US core
inflation is (2.3% for ex food and energy inflation). The ECB is making
a big deal of inflation over its ceiling of 2% while the Fed
&#8216;references&#8217; the core PCE which is lower than the Core CPI. The Core
CPI is now below its Core-PCE-equivalent &#8216;reference ceiling&#8217; of 2.4%.
But since the ECB thinks in terms of headline inflation only, its
shortfall is not 2.4% (core) Vs 2% but 3.3% Vs 2% and that is a much
bigger distance. For the record US headline inflation is even higher.
Who is doing this the right way?
Central banks are what they make themselves into and what
their mandate demands. The US has seen enough weakness to react to the
economy and financial strife by cutting rates. And that works for a
central bank with a dual growth and inflation mandate. The ECB has no
such mandate. It is strictly to fight inflation and so it is doing
that, for better or worse. Meanwhile,
however, the euro continues to climb and that has its own deflationary
consequences for the Euro Area. It seems everyone in the Euro Area is
worried about it. Perhaps that is the way out for the ECB to see what
the strong euro is doing to help fight inflation as well as undermine
growth. Holding policy steady until inflation breaks noticeably could
be a problem since commodity prices are high enough that even with euro
strength they are and will be an inflation contributor for a while
longer. Central banks have entered the very foggy &#8216;judgment zone.&#8217;
One thing we can conclude is that with the weaker economy in
the US and the brunt of the financial problems there, it is a good
thing that the Fed is the central bank with the dual mandate and not
vice versa. In the meantime look for central banks to muddle though
under their own existing rules. Inflation may be near peaking since
it&#8217;s hard to imagine another move up in commodity prices to any
significant degree from these levels.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Trends in HICP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.8%</td>
<td>4.5%</td>
<td>3.3%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>2.4%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>5.3%</td>
<td>3.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>0.9%</td>
<td>4.9%</td>
<td>1.1%</td>
<td>2.5%</td>
<td>2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>1.1%</td>
<td>3.9%</td>
<td>2.9%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>4.2%</td>
<td>4.7%</td>
<td>3.1%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>4.6%</td>
<td>6.1%</td>
<td>4.4%</td>
<td>2.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">Core:xFE&amp;A</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>3.3%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body></html>

The upward-revised headline EMU inflation rate leaves the ECB even more perturbed over events. While a tenth of a percentage point upward revision is no big deal, it makes the highest inflation on record since the Euro Area was formed [...]

Inflation Flares Further in the Euro Area

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314g.jpg" align="left" border="0" height="265" width="353">
The Bank of France has put the logical spin on its survey as
showing that growth continues.
After a marked slowdown in French GDP growth in 4Q, the new
BoF survey shows that activity has picked up somewhat, although the
Industry sentiment index is still below its 12-month average.On the basis of its February business
survey, the central bank actually has revised down its projection for
Q1 GDP growth to 0.4% from the 0.5% it initially forecast. This is just
below the December forecast of the national statistics institute Insee
and just above the 0.3% gain in 4Q.
Industry output continued to expand in February but less
strongly than in January, to say the least. The February reading for
production is 4.55 compared to 19.17 for January and a 12-month average
of +7. Weaker gains were
reported in most sectors. Autos posted an outright decline in February
after a spike in January and a decline in the auto output in December.
Manufacturing capacity utilization slipped to 83.4% after a rebound in
January to 83.5%, remaining above the long-term average of 83 since
1987 but below the average of 84 for the last 12 months.
Executives said new domestic orders slowed in February and
overall order books were somewhat lighter, in fact at 8.76 they are
below the 12-month average for orders and below the long-term average
of 9. 
Growth also slowed in most segments of the services sector in
February.
Activity is expected to continue to expand in most branches
but at a more moderate pace. Foreign orders gains were much weaker in
February, as the euro climbed. Importantly, service providers indicated
that price hikes would be slightly less rapid in the months ahead. Cleary the BoF has put some positive
spin on the report in which growth is indicated but momentum seems to
be fading.
Going back to 1987 the semi-finished goods sector is in dire
straits with the lowest production outlook and lowest new orders it has
ever seen. Production in this sector is in the bottom 16 percent of the
range for orders in the past 30 years. Auto sector production is in the
bottom third of its range as is the agriculture and food sector;
consumer goods production is in the bottom 42 percent of its range. The production outlook for capital
goods and consumer goods is the lower 36th
percentile and lower 15th percentile of their
respective ranges. This report is really very weak.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> Bank of France Monthly INDUSTRY Survey: SUMMARY</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>2Yr Percentile</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Production-latest mo</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>5.44</td>
<td>19.17</td>
<td>-4.13</td>
<td>7</td>
<td>7</td>
<td>32.5%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Production Outlook</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>12.91</td>
<td>15.86</td>
<td>22.21</td>
<td>16</td>
<td>15</td>
<td>29.4%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Demand</td>
</tr>
<tr>
<td class="firstcol">Overall order books</td>
<td>22.81</td>
<td>24.85</td>
<td>25.33</td>
<td>27</td>
<td>4</td>
<td>39.7%</td>
</tr>
<tr class="even">
<td class="firstcol">Foreign Orders</td>
<td>10.24</td>
<td>10.87</td>
<td>8.89</td>
<td>11</td>
<td>9</td>
<td>27.0%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">New Orders</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>8.76</td>
<td>12.28</td>
<td>9.3</td>
<td>10</td>
<td>9</td>
<td>18.9%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Stocks: Finished Gds</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>-3.76</td>
<td>-1.88</td>
<td>-4.76</td>
<td>-3</td>
<td>-2</td>
<td>22.1%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>83.35</td>
<td>83.48</td>
<td>80.86</td>
<td>84</td>
<td>83</td>
<td>57.2%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol"> Hiring</td>
</tr>
<tr>
<td class="firstcol">Latest Mo</td>
<td>0.41</td>
<td>2.74</td>
<td>-1.43</td>
<td>0</td>
<td>-1</td>
<td>74.8%</td>
</tr>
<tr class="even">
<td class="firstcol">Outlook</td>
<td>-0.44</td>
<td>-1.48</td>
<td>-0.67</td>
<td>-2</td>
<td>-4</td>
<td>88.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Industry Sentiment
Index</td>
<td>106.8</td>
<td>106.47</td>
<td>105.68</td>
<td>107</td>
<td>107</td>
<td>48.3%</td>
</tr>
</tbody>
</table>
</body></html>

The Bank of France has put the logical spin on its survey as showing that growth continues. After a marked slowdown in French GDP growth in 4Q, the new BoF survey shows that activity has picked up somewhat, although the Industry [...]

BoF Indicator Continues to be Weak

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314d.jpg" width="353">
The University of Michigan&#39;s consumer sentiment index, in the preliminary reading for March, fell another 0.4% m/m to 70.5 after the 9.7% plunge during February. Consensus expectations had been for a somewhat sharper decline to a reading of 70.1 for early this month.
A lower index of expected business conditions during the next year accounted for all of the decline in overall March sentiment. The 1.6% decline followed an 8.4% February drop and left the index at its lowest since early 1992. Expectations for business conditions during the next year fell 6.0% (-49.5% y/y) but expectations for conditions over the next five years rose, making up virtually all of a February decline. They remained down 7.4% y/y. Expectations for personal finances also improved and made up a February drop but still were down 7.4% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314d.jpg" width="353">
Opinions about government policy were stable m/m (-22.5% y/y) following the sharp 11.5% shortfall during February. The percentage of those surveyed who indicated that they thought government was doing a good job made up the February decline. They rose to 13% but an increased 44% had a poor opinion.
Expectations for inflation during the next twelve months surged to 4.6%, the highest level in nearly two years though inflation expectations during the next five to ten years fell slightly to 3.3%.
The current conditions index rose a slight 1.0% m/m after the 11.2% February slide. The view of current conditions for buying large household goods ticked up 1.6% after falling 15.8% m/m in February and the view of current personal finances was unchanged after a 4.1% (-15.3% y/y) February drop.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
Assessing Employment Growth in 2007 from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-09.pdf"> here</a>.

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">March (Prelim)</th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">March y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>70.5</td>
<td>70.8</td>
<td>78.4</td>
<td>-20.2% </td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>84.6</td>
<td>83.8</td>
<td>94.4</td>
<td>-18.3%</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>61.4</td>
<td>62.4</td>
<td>68.1</td>
<td>-22.0%</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan's consumer sentiment index, in the preliminary reading for March, fell another 0.4% m/m to 70.5 after the 9.7% plunge during February. Consensus expectations had been for a somewhat sharper decline to a [...]

Michigan Consumer Sentiment Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314a.jpg" width="353">
The consumer price index (CPI-U) was unchanged in February following two consecutive months of 0.4% increase. It compared to expectations for a 0.3% rise and was the weakest since prices were unchanged last August. A slight dip in the y/y rate of increase to 4.0% left it still at the second strongest growth rate since 2005.
Less food &amp; energy, consumer prices also were unchanged m/m after January&#39;s elevated 0.3% increase. That also fell short of expectations for a 0.2% increase and it was the weakest reading since November 2006. The lack of an increase brought the y/y gain down to 2.3%, its lowest since last October. A Comparison of Measures of Core Inflation from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/07v13n3/0712rich.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314b.jpg" width="353">
Inflation of food &amp; beverage prices took a breather last month and dipped to 0.4% after a 0.7% January increase. It nevertheless left the y/y gain elevated at 4.6%, up from a 4.0% rate of increase last year. Prices for meats poultry &amp; fish actually fell 0.1% m/m (4.7% y/y) after a 0.8% January pop and prices for fruits &amp; vegetables also fell by 1.3% (+1.4% y/y) after the 2.2% rise during January. Cereal &amp; bakery product prices, however, surged 1.8%. The y/y increase here of 6.6% was the strongest since 1990.
Energy prices prices also were tame last month and posted a 0.5% decline. The drop owed to a 2.0% m/m decline in gasoline prices but that still left them up 32.7% from twelve months earlier. Moreover, the weekly data for this month already indicate that the respite from price strength has ended. A 5.5% m/m rise in average gasoline prices so far in March to $3.23 per gallon would be the strongest since November. Also, it will add by itself 0.3% to the March CPI increase. Prices for fuel oil &amp; other fuels in February backed off 1.3% (+33.0% y/y) after a strong 3.7% January surge. Natural gas &amp; electricity prices, however, worked the other way and rose 1.7% (3.5% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314c.jpg" width="353">
Core goods prices in February dipped 0.1%, the first m/m decline since last June. It reflected a 0.3% decline (-1.0% y/y) in apparel prices and no change (-0.6% y/y) in household furnishings &amp; operations (-0.6% y/y). Prices for new &amp; used motor vehicles also fell by 0.2% (0.0% y/y) during February.
Core services price inflation also took a breather in February and eased to 0.1%. Shelter prices, which constitute 33% of the total CPI, were unchanged (2.9% y/y). Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, ticked up 0.1% (2.6% y/y). Medical care services prices also rose just 0.1% after a 0.6% January surge. Prices were up a strong 5.0% y/y after last year&#39;s 5.3% increase. Tuition costs rose 0.3% (5.5% y/y), about equal to the strong 5.6% gain during all of last year. Public transportation prices dipped 0.1% (+5.2% y/y).
Stable Prices, Stable Economy: Keeping Inflation in Check Must be No. 1 Goal of Monetary Policymakers from the Federal Reserve bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2008/a/pdf/inflation.pdf"> here</a>.A Falling Dollar Raises Inflation in the Gulf also from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20080201/cover.pdf"> here</a>.

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Feb. Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.0</td>
<td>0.4</td>
<td>0.4</td>
<td>4.0&nbsp;</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.3</td>
<td>0.2</td>
<td>2.3&nbsp;</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.0</td>
<td>0.0&nbsp;</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.1</td>
<td>0.4</td>
<td>0.3</td>
<td>3.2</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-0.5</td>
<td>0.7</td>
<td>1.7</td>
<td>18.9</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.4</td>
<td>0.7</td>
<td>0.1</td>
<td>4.6&nbsp;</td>
<td>4.0</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.3</td>
<td>0.5</td>
<td>-0.1</td>
<td>3.7 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9 </td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.3</td>
<td>0.3</td>
<td>-0.1</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The consumer price index (CPI-U) was unchanged in February following two consecutive months of 0.4% increase. It compared to expectations for a 0.3% rise and was the weakest since prices were unchanged last August. A slight dip in the [...]

U.S. CPI Total & Core Unchanged

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

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

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Mortgage applications increased 3.1% (17.8% y/y) in the week ending August 1, after declining 3.8% in the prior week, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loan refinancing jumped 5.2% (17.5% y/y) last week, following three straight weeks of decline. Applications for loans to purchase a home rose 1.5% (18.0% y/y) last week, following a 5.8% decline in the week of July 25.

The effective interest rate on a 30-year fixed-rate loan slipped to 6.94% in the week ending August 1, from 7.00% in the prior week. It was the lowest rate since the first week of April. The rate on 15-year fixed-rate mortgages declined to 6.19% in the latest week from 6.28% in the week of July 25. The rate on 30-year Jumbo loans dropped to 6.82% last week from 6.89% one week earlier. The rate on a 5-year ARM dropped to 6.25% in the week of August 1 after rising to 6.40% in the prior week. It was above a low of 5.84% in the week of September 13, 2024.

The share of applications for refinancing an existing loan rose to 41.5% of total applications in the week ending August 1, from 40.7% in the prior week. The adjustable-rate mortgage (ARM) share of activity rose to 8.50% in the latest week from 8.30% in the week of July 25.

The average size of a mortgage loan rose 1.9% (0.6% y/y) to $381,400 in the week of August 1, following a 0.7% rise in the prior week. The average size of a purchase loan rose 0.7% (1.3% y/y) to $432,300 in the latest week after gaining 0.6% in the week ending July 27. The average size of a loan to refinance a mortgage rose 5.2% (-0.8% y/y) to $309,800 last week, after rising 2.3% in the prior 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.

- Loan refinancing jumps as purchase applications edge higher.
- Effective fixed-interest rate eases on 30-year loans. 
- Average loan size increases again.

U.S. Mortgage Applications Rise Last Week as Interest Rates Slip

Winnie Tapasanun

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The U.S. trade deficit in goods and services (BOP basis) narrowed to $60.18 billion in June after widening to $71.66 billion in May ($71.52 billion originally), according to the U.S. Census Bureau. This was the second month in three in which the deficit had narrowed. The June deficit was the smallest since September 2023 and much smaller than the $73.89 billion in June 2024. A deficit of $61.6 billion had been expected in the Action Economics Forecast Survey. Exports declined 0.5% m/m (+3.3% y/y) in June following a 4.1% drop in May (-4.0% previously) and four successive m/m increases. Imports fell 3.7% (-1.4% y/y) after an unrevised 0.1% downtick in May, registering the third consecutive m/m fall and the fourth in five months.

The real (inflation-adjusted) goods trade deficit (customs value; chained 2017 dollars) narrowed to $84.61 billion in June after widening to $93.32 billion in May; it was smaller than the $92.82 billion in June 2024. The $87.43 billion average monthly real trade deficit in Q2'25 was the smallest since Q4'23 and significantly smaller than the record $143.28 billion in Q1'25. A trade balance (net exports) added 4.99%-points to Q2'25 real GDP growth after subtracting 4.61%-points in Q1'25.

The deficit in goods trade (BOP basis) narrowed to $85.88 billion in June, the smallest since September 2023, after widening to $97.30 billion in May; it was much smaller than the $99.56 billion in June 2024. Goods exports fell 0.7% (+3.3% y/y) in June following a 5.9% drop in May and four straight m/m rises. Imports of goods decreased 4.5% (-2.9% y/y), down for the fourth month in five, after a 0.1% May easing.

The customs value goods trade deficit fell to $84.85 billion in June, the smallest since September 2023, after widening to $96.21 billion in May; it was much smaller than the $98.81 billion in June 2024. The latest figure was slightly smaller than an $85.99 billion deficit in the advance report released on July 29. Custom value exports fell 0.7% (+3.5% y/y) in June following a 5.6% drop in May and four consecutive m/m gains. This reflected m/m falls of 7.4% (+0.7% y/y) in industrial supplies & materials and 2.6% (+22.8% y/y) in other goods. To the upside, exports for the following end-use categories rose m/m in June: nonfood consumer goods excluding autos (4.6%; 4.3% y/y), foods, feeds & beverages (4.4%; 1.2% y/y), capital goods excluding autos (3.4%; 9.7% y/y), and automotive vehicles, parts & engines (1.6%; -15.8% y/y).

Customs value imports slid 4.6% (-2.9% y/y) in June, the third straight m/m slide and the fourth in five months, after a 0.1% downtick in May. This reflected m/m drops of 12.7% (-13.3% y/y) in nonfood consumer goods excluding autos, 5.2% (-12.4% y/y) in industrial supplies & materials, 4.9% (+7.8% y/y) in other goods, 3.6% (-12.2% y/y) in automotive vehicles, parts & engines, and 1.5% (+3.8% y/y) in foods, feeds & beverages. In contrast, imports of capital goods excluding autos, the only end-use category with a monthly increase in June, rose 0.7% (14.0% y/y), the seventh m/m rise in eight months, on top of a 0.3% May rebound. Meanwhile, petroleum imports fell 3.8% (-24.7% y/y) in June, the fourth m/m fall in five months, reversing a 1.5% rise in May. Nonpetroleum imports slid 4.6% (-1.1% y/y), the third straight m/m slide, after a 0.2% May decline.

The services trade surplus rose to $25.70 billion in June after narrowing to $25.64 billion in May; it was in line with $25.67 billion in June 2024. Services exports fell 0.2% (+3.3% y/y) in June, the fifth m/m fall in six months, on top of a 0.6% decline in May. This reflected m/m drops of 4.8% (-11.3% y/y) in government goods & services, 2.1% (+30.8% y/y) in maintenance & repair services, and 1.1% (-0.02% y/y) in travel services, while exports for construction services (0.9%; -5.7% y/y), insurance services (0.7%; 18.9% y/y) and charges for the use of intellectual property (0.5%; 7.0% y/y) increased m/m in June. Services imports fell 0.3% (+4.5% y/y) after a 0.3% May fall and two successive m/m increases. This reflected m/m drops of 1.9% (+48.0% y/y) in maintenance & repair services, 1.5% (+2.9% y/y) in travel services, and 1.3% (-1.3% y/y) in transport services, while imports for construction services (2.0%; 82.3% y/y), charges for the use of intellectual property (0.8%; 1.3% y/y) and financial services (0.5%; 4.9% y/y) rose m/m in June.

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $9.38 billion in June, the smallest on record, after falling to $13.97 billion in May. Exports surged 45.4% (-16.6% y/y) following a 19.9% May slump, while imports fell 6.9% (-45.6% y/y) on top of a 26.3% May plunge. The goods trade deficit with the European Union narrowed markedly to $9.52 billion in June, the smallest since June 2013, after widening to $22.54 billion in May, with exports up 6.8% (16.6% y/y) and imports down 19.2% (-8.2% y/y). The trade shortfall with Japan narrowed marginally to $5.72 billion in June, the smallest since February, from $5.77 billion in the previous month, reflecting declines of 3.4% (-7.5% y/y) in exports and 2.3% (-0.4% y/y) in imports.

The international trade data, including relevant data on oil prices, can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- $60.2 bil. trade deficit, reflecting $85.9 bil. goods deficit & $25.7 bil. services surplus.
- Exports -0.5% m/m, down for the second consecutive month.
- Imports -3.7% m/m, down for the third straight month.
- Real goods trade deficit narrows to $84.6 bil. after May’s widening.
- Goods trade deficits w/ China at a record low, w/ EU at a June ’13 low, and w/ Japan at a 4-month low.

U.S. Trade Deficit Narrows in June; the Smallest Since Sept. ’23

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The S&P Global PMI indexes once again showed mixed performance in July. Most large economies continue to do better, and the total PMI services sectors continue to make up for shortcomings in manufacturing.

**Stability on a low growth path**
In July, 24% of the reporting countries showed activity was slowing; that's down from 48% in both June and May and indicates some progress. Only five of the reporting jurisdictions have PMI values below 50 indicating economic contraction in July; that July figure compares to five in June and seven in May. Declining activity continues to be an unusual event. Medians and average readings for the group of 25 countries or regions show extreme stability in the recent months as well as across sequential averages.

**Growth moderately improves**
Comparing period averages from 12-months to six-months to three-months, unweighted readings of the U.S., the U.K., and European monetary union show extremely flat PMI values oscillating between values of 51.2 to 51.7 on those period averages; over three months, six months, and 12 months. The jurisdictions in the table show PMI readings below 50 are rare; once again declining activity is an unusual event. The proportion of reporters slowing over three months is 34.8% compared to 52.2% over six months and 30.4% over 12 months. Once again, we see these statistics tilted toward improving growth rather than towards slowing

**Summing up**
The queue percentile standings for the group in July have an average value at 48.4% which is below the 50% mark that coincides with the median for the period. This tells us the growth is largely worse than what its median has been over the past 4 1/2 years. On a queue ranking basis, the largest economies consistently perform better with readings above the 50% mark for the U.S. and for the European Monetary System including each of its four largest EMU economies (Germany, France, Italy, and Spain). Japan has a queue standing in its 57th percentile. However, China’s percentile standing is in its 26th percentile and the U.K. is at its 40.5 percentile. Not all large economies are in the catbird seat, but most are faring well despite the moderate growth track globally.

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Service Sectors Prop-up Global Economy

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Total factory orders declined 4.8% (+5.6% y/y) in June after surging 8.3% in May, revised from 8.2%, as reported by the U.S. Census Bureau. A 4.9% decline had been expected in the Action Economics Forecast Survey. A halving in orders for nondefense aircraft accounted for much of the June decline. Factory orders excluding transportation altogether rose 0.4% after increasing 0.3% in May, revised from 0.2%.

Durable goods orders fell 9.4% (+10.9% y/y) in June after 16.5% rise in May. The advance report indicated a 9.3% decline. Transportation orders fell 22.4% (+30.5% y/y). Automobile orders declined 3.1% (-2.7% y/y). Computer & electronic product orders increased 0.6% (5.2% y/y) while electrical equipment, appliances & components rose 0.1% (4.5% y/y). Machinery orders improved 0.3% (3.0% y/y). Furniture & related products increased 0.1% (1.1% y/y). Primary metals orders increased 0.6% (-0.5% y/y) while fabricated metals orders edged 0.1% (3.1% y/y) higher.

Nondurable goods orders, which equal nondurable goods shipments, rose 0.5% (0.6% y/y) in June after edging 0.1% higher in May. Shipments of petroleum & coal products rose 1.4% (-4.5% y/y) and beverage & tobacco products rose 1.5% (4.2% y/y). Food product shipments improved 0.4% (0.9% y/y) and textile product shipments rose a minimal 0.1% (1.9% y/y). To the downside, apparel shipments declined 0.9% (-4.7% y/y) and chemical product shipments eased 0.1% (+3.6% y/y). Paper products declined 0.3% (+0.7% y/y).

Total shipments increased 0.5% (1.8% y/y) in June following a 0.2% May increase. Excluding transportation, shipments rose 0.4% (1.3% y/y) in June after a 0.1% uptick in May. Shipments of durable goods industries rose 0.5% (3.0% y/y) in April, the seventh consecutive m/m rise.  Transportation equipment shipments rose 0.8% (4.3% y/y) as nondefense aircraft shipments fell 6.2% (+13.8% y/y). Machinery shipments rose 1.0% (1.5% y/y), and electrical equipment, appliances & components shipments increased 0.6 (4.6% y/y). Primary metals shipments rose 0.6% (2.4% y/y), fabricated metals shipment rose 0.2% (1.9% y/y), but furniture & related products eased 0.2% (+1.4% y/y).

Unfilled orders rose 1.0% (7.1% y/y) in June after a 3.4% jump in May. Excluding transportation, unfilled orders held steady (+0.8 y/y) after a 0.1% rise in May. Backlogs of durable goods increased 1.0% (7.1% y/y), reflecting a 2.1% rise (14.7% y/y) in nondefense aircraft and a 0.1% decline (-1.8% y/y) in machinery. Electrical equipment, appliances & components backlogs also rose 0.1% (1.0% y/y) while computer & electronic equipment backlogs eased 0.1% both m/m and y/y.
 
Inventories increased 0.2% (1.1% y/y) in June after edging 0.1% higher in May. Excluding transportation, inventories rose 0.2% (1.0% y/y) in June after a 0.1% uptick in May. Durable goods inventories rose 0.2% (1.5% y/y) in June, the same as in May, and rose 0.1% in both of the prior two months. Nondurable goods inventories increased 0.2% 0.5% y/y) after declines in both of the prior two months.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Total orders less transportation rise moderately.
- Shipments pick up.  
- Unfilled orders surge as inventories rise modestly.

U.S. Factory Orders Retreat in June, Largely Centered in Aircraft

Tian Yong Woon

This week, we examine the latest wave of trade developments across Asia as the US unveiled a full list of its modified reciprocal tariff rates, set to take effect on August 7. As anticipated, many of the updated rates are now lower than the original tariffs, with Cambodia and Vietnam seeing the sharpest reductions (chart 1). However, from peak tariff levels, China stands out—continuing to benefit from a 10% pause rate, down from triple-digit highs.

South Korea secured a deal just before the deadline, lowering its tariff from 25% to 15%. The new rate also applies to auto exports, offering relief to Korean automakers (chart 2). Thailand and Cambodia followed with US trade agreements after agreeing to an unconditional ceasefire following earlier military clashes. Their US-imposed tariffs dropped from 36% to 19%, highlighting how US trade policy can intersect with geopolitical interests and, in this case, may help reduce trade uncertainty (chart 3).

Malaysia, a key mediator in the ceasefire, also finalized a trade deal, reducing its tariff rate to 19% and gaining exemptions on key exports such as semiconductors (chart 4). Turning to Japan, while its US trade deal helped avert immediate tensions, the vague terms and a headline $550 billion investment—mostly in the form of loans—leave room for future friction (chart 5). China, however, remains a wildcard. Talks to extend its tariff pause are ongoing, but failure could see a return to extreme tariff levels (chart 6). Meanwhile, tech tensions linger, despite eased restrictions on Nvidia AI chip exports.

**Latest US tariff developments**
We gained further clarity on the new reciprocal tariff rates announced by the US administration last week, as the White House released a full list of the modified rates on Thursday. It also announced that the new rates will take effect on August 7, giving partner countries a bit more time to negotiate new terms. Overall, as earlier indications suggested, Trump’s post-pause tariff rates—regardless of whether trade deals were secured—have often ended up lower than the original rates, as shown in chart 1. The largest reductions from original tariff levels have so far come from Cambodia and Vietnam. However, when looking at the steepest reductions from peak tariff rates, China stands out. It continues to benefit from a 10% tariff pause—down sharply from the triple-digit rates imposed at the height of US-China trade tensions earlier this year. On the flipside, a handful of economies—including New Zealand, the Philippines, and Brunei—are now facing modified tariff rates that are actually higher than their original Liberation Day levels. Notably, the Philippines ended up in this group despite having secured a trade deal with the US.

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**South Korea**
As for South Korea, the US reduced its tariff rate to 15% just ahead of the August 1 deadline, a significant drop from the original Liberation Day rate of 25%. In return, South Korea committed to, among other terms, $350 billion in investments into the US. Of that total, $150 billion will go specifically toward shipbuilding cooperation—supporting the entry of Korean firms into the US shipbuilding industry—while the remaining $200 billion will be directed toward semiconductors and other sectors. Similar to Japan’s arrangement, the new 15% tariff rate will also apply to South Korean auto exports, likely providing relief to the country’s automakers. As shown in chart 2, South Korea’s vehicle exports—and, by extension, its export-driven growth—have come under pressure, with more recent headwinds stemming from the broad 25% auto tariffs imposed by the US. Notably, South Korea’s dealmaking pace with the US has been considered exceptionally swift, especially given that the country had only recently undergone an administrative transition following its presidential elections, leaving limited time to initiate formal trade negotiations.

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**Thailand and Cambodia**
Moving to other parts of Asia, one of the more notable developments last week was the signing of two additional US trade deals—specifically with Thailand and Cambodia. The two countries had recently been engaged in escalating border clashes but agreed to an unconditional ceasefire after mediation by Malaysia and the US. In reality, tensions between Thailand and Cambodia had been simmering for some time, likely driving in part the heightened uncertainty shown in chart 3, though other factors may have played a role. Notably, US President Trump stated that he had made it clear to both governments that no trade deal would be considered while they remained in conflict—an ultimatum that may have incentivized both sides to pursue de-escalation. Ultimately, US trade deals with both countries were announced, reducing their tariff rates from the original Liberation Day level of 36% to 19%. This illustrates how the US approach to dealmaking goes beyond trade, sometimes factoring in broader geopolitical considerations as well.

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**Malaysia**
Touching further on Malaysia, which played a key role in mediating the Thailand-Cambodia conflict mentioned earlier, a last-minute US-Malaysia trade deal also materialized shortly after the agreements with Thailand and Cambodia were hinted at. Under the new terms, Malaysia’s tariff rate was reduced to 19%, down from the original 24%. Malaysian Trade Minister Zafrul described the deal as a “win-win,” noting that Malaysia has either reduced or eliminated tariffs on nearly all American products. Notably—and perhaps offering some interim relief—Malaysia also secured tariff exemptions for its exports of semiconductors and pharmaceuticals. This is especially significant, as semiconductor exports account for a substantial share of Malaysia’s shipments to the US, as shown in chart 4.

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**Japan**
Turning to Japan, the recent US-Japan trade deal appears to have averted the worst for now. However, many key details remain unclear, particularly regarding Japan’s reported $550 billion investment into the US. While the headline figure is striking, Japan’s chief trade negotiator, Akazawa, later clarified that only 1–2% of the amount would constitute actual investment, with the remainder largely consisting of loans. More critically, the deal—like several other recent US-Asia trade agreements—was not accompanied by formal documentation, leaving its terms vague and, perhaps more concerning, open to future revision. These loose ends present ongoing risks to US-Japan economic relations and could potentially unwind recent market gains driven by trade optimism, as uncertainty remains and may yet resurface (see chart 5). This lingering uncertainty likely contributed to the Bank of Japan’s decision to hold its policy rate steady last week. The central bank adopted a wait-and-see approach before considering further rate hikes, while notably revising its inflation forecasts upward and presenting a slightly improved growth outlook for the fiscal year.

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**China**
Amid the recent flurry of US trade deals, one critical issue that may have slipped from the spotlight—but remains central to the global outlook —is China. Ongoing discussions between the two countries aim to extend China’s current tariff pause. If talks break down, US Treasury Secretary Scott Bessent has warned that the existing 10% tariff on Chinese exports could “boomerang” back to its previously exorbitant levels. This could potentially drive the US effective import tariff rate on China well above its already-elevated levels, as shown in chart 6. Meanwhile, the recent reversal of export restrictions by the US on Nvidia’s H20 AI chips may have brought temporary relief to China’s AI sector. However, Chinese authorities have raised national security concerns over the chips’ built-in tracking features and potential remote shutdown capabilities—adding yet another layer of complexity to the already tense US-China trade relationship and broader economic rivalry.

Economy in Brief: March 2008

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U.S. CPI Total & Core Unchanged