Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716a.jpg" align="left" border="0" height="265" width="353">
The June consumer price index (CPI-U), as
reported by the Bureau of Labor Statistics, jumped 1.1% after May's
0.6% rise. The increase, fueled by higher energy prices, was the
strongest since October 2005 and it lifted the y/y increase to 4.9%,
its strongest since 1991. Consensus expectations had been for a 0.7%
increase for last month.
Energy prices jumped 6.6% in June after
the 4.4% surge during May. Gasoline prices spiked a seasonally adjusted
10.1% and were up 32.8% y/y. (Not seasonally adjusted gasoline prices
rose 7.9% m/m last month and they are up another 1.5% so far in July.)
Fuel oil prices also were quite strong and surged 8.5% (61.2% y/y).
Natural gas &amp; electricity prices rose 1.5% (10.1% y/y).
Food &amp; beverage prices were strong
again and jumped 0.7%. That lifted the y/y gain of 5.2% to its fastest
since 1990. The three-month rate of increase jumped to an even firmer
8.1%. Prices for cereals &amp; bakery products rose at a 15.2% rate
during the last three months while dairy and related products increased
at an 11.1% rate. Prices for meats poultry &amp; fish showed upward
pressure lately and rose at a 7.8% rate while dairy product prices
surged at an 11.1% rate.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716b.jpg" align="right" border="0" height="265" width="353">
Less food &amp; energy consumer prices
again matched expectations and rose 0.2%, the same as during May.
During the last three months core prices rose at a 2.5% annual rate,
the quickest since January.
Core goods prices offset May's slip and
nudged up 0.1%. On a the three-month basis prices nudged lower at a
0.1% rate. Prices for new &amp; used motor vehicles rose 0.1% in
June but are down at a 0.7% annual rate during the last three months.
Apparel prices also ticked up 0.1% and, together with a firm 0.5% gain
in April, was enough to lift the three month increase to 1.0%, its
firmest since January. Prices for household furnishings &amp;
operations were unchanged. They posted a 0.5% uptick during the last
three months versus a 0.1% decline during all of last year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716c.jpg" align="left" border="0" height="265" width="353">
Core services prices posted 0.4% increase,
which was the largest rise since January, and it lifted the three month
growth rate to 3.6%. The strength again was led by a 3.4% (13.4% y/y)
surge in public transportation prices and they are up at a 23.6% rate
during the last three months. Medical care services prices rose a
reduced 0.3% (4.6% y/y) and shelter prices increased 0.3% (2.6% y/y).
Owners equivalent rent of primary residence, a measure not equivalent
to other house price measures, rose 0.3% (2.6% y/y) and rents rose 0.4%
(3.7% y/y). Education costs rose another 0.5% and here prices rose at
an accelerated 5.1% rate during the last three months following a 2.4%
rise during 2007.
The chained CPI, which adjusts for shifts in consumption
patterns, rose a faster 0.8%. Less food and beverages chained prices
rose 0.1%.
PCE and CPI Inflation Differentials: Converting
Inflation Forecasts from the Federal Reserve Bank of Kansas
City can be fund <a href="http://www.kansascityfed.org/Publicat/Econrev/PDF/1q08Hakkio.pdf">
here</a>.
Has the Behavior of Inflation and
Long-term Inflation Expectations Changed? also from the
Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/Publicat/ECONREV/PDF/1q08Clark.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/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>1.1</td>
<td>0.6</td>
<td>4.9</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.3</td>
<td>0.2</td>
<td>2.4</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.1</td>
<td>-0.1</td>
<td>0.2</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.4</td>
<td>0.3</td>
<td>3.3</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>6.6</td>
<td>4.4</td>
<td>24.4</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.8</td>
<td>0.3</td>
<td>5.3</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>&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>0.8</td>
<td>0.6</td>
<td>4.2 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.1</td>
<td>0.0</td>
<td>2.1</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
U.S. Industrial Production Up in
June 
by <a href="/comment/Moeller.html">Tom
Moeller</a> July 16, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716d.jpg" align="left" border="0" height="265" width="353">
Industrial production recovered unexpectedly by 0.5% last
month, but the gain was due mostly to warmer temperatures. The rise
followed an unrevised 0.2% decline during May. Consensus expectations
had been for no change in output last month.
Warmer temperatures lifted utility output by 2.1% during June
and that offset the decline during May.
Factory output also was better than expected and rose 0.2%
following an unrevised flat reading during May. The three-month rate
change, however, remained negative at -3.1% (AR).
Production in the high tech sector again was firm and rose
1.8% (23.6% y/y). Production of computers &amp; office equipment
rose 0.8% (14.7% y/y) but the three-month growth rate slowed further to
3.7% (AR). Output of communications equipment jumped 1.6% and
three-month growth totaled 18.4%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716e.jpg" align="right" border="0" height="265" width="353">
The trend in output outside the high-tech sector has been
decidedly weak. Less high-tech, factory output rose all of 0.2% last
month and three-month output growth remained a negative 4.1% (AR).
Output of motor vehicles &amp; parts did rise 5.4% in June but
three-month growth was still low at -4.0%. June output of furniture
fell 0.4% and at an 8.1% rate during the last three months. Electrical
equipment rose at a 4.2% rate during the last three months. Machinery
output continued to decline sharply at a 14.7% annual rate during the
last three months.
In the nondurables area, output of apparel recovered 1.3% in
June but it was still down at a 3.1% rate during the last three months.
Capacity utilization increased to 79.9% from an upwardly
revised 79.6% during May. Utilization in the factory sector, however,
was unchanged at 77.6%, near its lowest also since late-2004.
Speculative Bubbles and Overreaction to
Technological Innovation from the Federal Reserve Bank
of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-18.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">INDUSTRIAL
PRODUCTION (SA)</th>
<th scope="col">June</th>
<th scope="col">May</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>-0.2</td>
<td>0.3</td>
<td>1.7</td>
<td>2.2</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.2</td>
<td>0.0</td>
<td>-0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>0.8</td>
<td>-0.2</td>
<td>-0.8</td>
<td>1.7</td>
<td>0.3</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.2</td>
<td>0.2</td>
<td>1.6</td>
<td>3.3</td>
<td>10.4</td>
<td>7.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.8</td>
<td>0.4</td>
<td>-6.2</td>
<td>-2.5</td>
<td>2.2</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>2.1</td>
<td>-2.1</td>
<td>4.0</td>
<td>3.3</td>
<td>-0.6</td>
<td>2.1</td>
</tr>
</tbody>
</table>
Euro Area HICP Sees Core Decelerate 
by <a href="/comment/Brusca.html">Robert
Brusca</a> July 16, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080716f.jpg" align="left" border="0" height="265" width="353">Although the ECB policy remains steadfastly fixed on the
behavior of the HICP headline, it is the HICP core that is showing
signs of behaving. The six month pace of the core at 2.3% is as low as
it has been since Oct 2007 (eight months ago). The three-month pace at
1.3% is as low as that metric has been since March of 2006 (twenty
seven months ago). The trends may be too good to be true or even
lasting but for now they are a note of optimism in an otherwise rotten
policy environment. Moreover I think their message is the right one.

Headline inflation, the ostensible ECB target rate, is not
supposed to rise more that 2% Y/Y. I fact the headline pace has not
been below 2% since August of 2007. The current pace is 4.0% double the
targeted top pace.

However the sharp drop in the Zew index this week has everyone
in Europe thinking about coming weakness. This may be one reason that
oil prices finally became vulnerable on Mr Bernanke&#8217;s remarks
yesterday, as oil fell an outsized $6/bbl.

There has been a certain denial of the transmission of the US
business cycle to Europe and to the rest of the world. But with so many
benefiting from US demand it is hard to understand where that view
originated. Europeans seemed to foster a view of newfound invincibility
but the jump in inflation has undermined that. And the view itself
helped the euro to climb to new heights, but now there is evidence of
growth fading more severely and that will test the ECB and likely bring
the euro down a notch or two.

While the ECB does not make the core HICP the centerpiece of
policy the fact that core inflation has decelerated to 1.3% over three
months from 2.3% over six months and 2.5% over 12-months seems to say
that there is some progress on the inflation front apart for the
headline where oil especially is wreaking such havoc. The ECB does have
some authentic scope to be a bit pragmatic on the inflation front due
to the kind trend in core inflation. A weakening economy will give it
more lee way still.
<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>Jun-08</td>
<td>May-08</td>
<td>Apr-08</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>0.5%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>4.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.2%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>0.4%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>7.6%</td>
<td>6.0%</td>
<td>4.9%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.5%</td>
<td>0.6%</td>
<td>-0.4%</td>
<td>2.7%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>4.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>4.2%</td>
<td>4.6%</td>
<td>4.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.6%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>4.9%</td>
<td>4.5%</td>
<td>5.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">Core
excl Food Energy
&amp; Alcohol</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.1%</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>1.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.5%</td>
</tr>
</tbody>
</table>
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The June consumer price index (CPI-U), as reported by the Bureau of Labor Statistics, jumped 1.1% after May's 0.6% rise. The increase, fueled by higher energy prices, was the strongest since October 2005 and it lifted the y/y increase [...]

U.S. Consumer Price Index Jumped 1.1%, Y/Y Gain The Most Since 1991

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715j.jpg" width="353">
The Federal Reserve Bank of New York reported that its July index of manufacturing activity in the Empire State remained negative at -4.92 after the unrevised -8.68 during June. It was the fifth negative reading this year. A more negative reading of -8.0 for July had been the Consensus expectation.
The figure is a diffusion index. Since the series&#39; inception in 2001 there has been a 55% correlation between the index level and the three-month change in U.S. factory sector industrial production.
Negative readings for inventories and unfilled orders weighed heavily on the July index. The new orders and shipments indexes, however, improved to their first positive readings since April.
The employment index turned to its most negative reading since 2003. In the (perhaps too) short seven year history of the NY employment index, there has been an 86% correlation between it and the three-month growth in overall factory sector employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715k.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
Pricing pressure rose to the highest level in the series&#39; history. The latest index level was 77.89. Since the series&#39; inception in 2001 there has been an 81% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months fell to its lowest level since the recession year of 1981.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">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/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>-4.92</td>
<td>-8.68</td>
<td>25.73</td>
<td>17.23</td>
<td>20.24</td>
<td>15.53</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>77.89</td>
<td>66.28</td>
<td>34.57</td>
<td>35.64</td>
<td>41.88</td>
<td>44.74</td>
</tr>
</tbody>
</table>


</html>

The Federal Reserve Bank of New York reported that its July index of manufacturing activity in the Empire State remained negative at -4.92 after the unrevised -8.68 during June. It was the fifth negative reading this year. A more [...]

U.S. Empire State Index Remained Negative

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715h.jpg" width="353">
The retail price for a gallon of regular gasoline held at $4.11 per gallon last week, according to the U.S. Department of Energy survey. For all grades of gasoline the average price also held steady w/w at an average $4.16 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline was $3.31 per gallon, about where it has been since early June.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database, daily prices are in the DAILY database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715i.jpg" width="353">
According to the U.S. Department of Energy the demand for gasoline during the latest four weeks fell 2.9% from a year earlier due to the increase in gasoline prices, along with the slowdown in economic growth. That was the weakest reading for gasoline demand in three years.
The DOE figures are available in Haver&#39;s OILWKLY database.
Last week the price for a barrel of West Texas Intermediate crude oil slipped to $140.16 per barrel, down slightly from $142.46 during all of last week.
Price for natural gas also have been quite strong but last week slipped to $12.240 per mmbtu (92..1% y/y), near the record high reached in late-2005.
Consumer Sentiment and Consumer Spending from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-19.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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">07/14/08</th>
<th scope="col">07/07/08</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>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>4.11</td>
<td>4.11</td>
<td>34.9%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>140.16</td>
<td>142.46</td>
<td>98.4%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
</body>
</html>

The retail price for a gallon of regular gasoline held at $4.11 per gallon last week, according to the U.S. Department of Energy survey. For all grades of gasoline the average price also held steady w/w at an average $4.16 per gallon. [...]

U.S. Gasoline Price Held at $4.11 per Gallon

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715g.jpg" width="353">
Total business inventories rose 0.3% during May after a 0.5% April gain. The latest increase fell short of expectations and it reduced three-month growth in inventories to 4.1% (AR) which was its slowest since November.
Retail inventories fell 0.4% and reversed all of the March increase. The three-month growth rate fell further to a negative 2.2% which reflects the draw-down of automobile inventories. Inventories of motor vehicle &amp; parts fell at a 7.6% annual rate during the last three months due to further production cutbacks. Outside of autos, retail inventories rose at a slight 0.4 rate over the last three months versus a 2.7% rise last year and a 4.9% increase during 2006.
The industry detail in the retail sector indicated that furniture inventories fell at a 1.4% rate during the last three months. Clothing &amp; accessory store inventories continued to fall sharply at a 4.1% rate while general merchandise stores&#39; inventories dropped at a 2.0% rate.
Wholesale inventories rose at a 9.7% rate during the last three months, boosted by the rise in oil prices but less petroleum inventories also rose at a firm 9.8% rate which was twice the rate of increase during all of last year.
Factory inventories rose 0.5% after the sight decline during April. Three-month growth fell to 5.9% (AR) which was half the growth earlier this year. Despite the rise in oil prices, petroleum inventories still rose at a modest 2.1% rate over the last three months. Elsewhere, factory inventory accumulation has been fairly steady in 2008 at a 6.2% rate.
Total business sales surged again, in May by 0.8%. Three-month growth jumped to a 15.1% annual rate.
The inventory-to-sales ratio for all business fell to 1.24 in May which was the low for this cycle.
Fed Chairman ChairmanBen S. Bernanke&#39;s Semiannual Monetary Policy Report to the Congress can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20080715a.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"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">May</th>
<th scope="col">April</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>0.3%</td>
<td>0.5%</td>
<td>5.3%</td>
<td>3.8%</td>
<td>5.9%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>1.7%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Auto</td>
<td>-0.2%</td>
<td>0.7%</td>
<td>1.6%</td>
<td>2.7%</td>
<td>4.9%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.8%</td>
<td>1.4%</td>
<td>8.7%</td>
<td>5.5%</td>
<td>8.3%</td>
<td>7.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.5%</td>
<td>-0.0%</td>
<td>6.1%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>8.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Total business inventories rose 0.3% during May after a 0.5% April gain. The latest increase fell short of expectations and it reduced three-month growth in inventories to 4.1% (AR) which was its slowest since November. Retail [...]

U.S. Business Inventories' Trend Growth Slower

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715f.jpg" align="left" border="0" height="265" width="353">
The Zew index took a real turn for the worse. Expectations are
on an all time low. German denial is coming rapidly to a close. Belief
in the de-linked business cycle is going the way of belief in the tooth
fairy. It&#8217;s something you just have to grow out of even if you once
believed in it. The current conditions index is still relative high
valued standing in the 61st percentile of its range. But it fell very
sharply in July to an index reading of 17.1 from 37.6 the month before.
German optimists are becoming a rarer breed.

German expectations for various stock sectors is at its lowest
reading since the full series began in April of 1999. Sector
expectations rank at 122 out of 122 months of history. Profit
expectations are abysmal.

But the German story is still more complicated. Ordinarily a
drop like this would bring expectations that the ECB would not continue
hiking rates or might even foster expectations of cutting them and
undermine the euro exchange rate. But this time the euro has popped up
to anew high Vs the dollar showing that US troubles have for the moment
trumped concerns that Germans might have about their own economy and
the EMU economy at large. I think this will pass. One thing that is
clear is that energy and financial problems are dragging down the
growth rates in the European economies but that at the current level,
the euro is just too high. I cannot see the euro moving significantly
higher from here.



<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr>
<th scope="col" colspan="8">ZEW Economic Index For Germany</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Level of Zew Index</td>
<td colspan="3">Averages</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>Yr Ago</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Current</td>
<td>17</td>
<td>37.6</td>
<td>38.6</td>
<td>88.2</td>
<td>31.1</td>
<td>32.0</td>
<td>50.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>-63.9</td>
<td>-52.4</td>
<td>-41.4</td>
<td>10.4</td>
<td>-52.6</td>
<td>-45.0</td>
<td>-35.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3">Percentiles</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current</td>
<td>61.7</td>
<td>72.7</td>
<td>73.2</td>
<td>99.7</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>0.0</td>
<td>7.5</td>
<td>14.7</td>
<td>48.4</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Percentiles are readings in this
period as percentile of the full range of values back to 1/92</td>
</tr>
</tbody>
</table>
</body></html>

The Zew index took a real turn for the worse. Expectations are on an all time low. German denial is coming rapidly to a close. Belief in the de-linked business cycle is going the way of belief in the tooth fairy. It’s something you [...]

ZEW Components Weak Expectations Are a Disaster

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715d.jpg" width="353">
U.S. retail sales during June inched up just 0.1% after having risen a downwardly revised 0.8% in May. On a three-month basis overall retail sales rose at a 4.5% annual rate. The latest rise fell short of Consensus expectations for a 0.4% increase.
Sales of motor vehicles &amp; parts fell another 3.6% (-10.5% y/y) and they are down at a 27.0% annual rate during the last three months. The decline accompanied a 4.6% (-13.1% y/y) drop in unit motor vehicle sales last month.
Retail sales excluding autos rose 0.8% and the strong 1.2% rise in May was unrevised, boosted recently by receipts of the government&#39;s tax rebate checks. The latest increase was double Consensus expectations for a 0.4% rise, but a 4.6% (24.5% y/y) increase in sales at gasoline service stations accounted for much of the strength.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715e.jpg" width="353">
Less gasoline &amp; autos retail sales inched up just 0.2% (3.6% y/y) which was the weakest increase since February. Nevertheless, on a three-month basis these sales still were strong and surged at an 8.8% annual rate during the last three months.
Folks attempted to avoid the higher gas prices by purchasing online. June sales of nonstore retailers (internet &amp; catalogue) rose 0.8% (8.1% y/y) following downwardly revised, but still strong, gains which exceeded 1.0% during the prior three months.
Sales at general merchandise stores rose 0.4% (5.6% y/y) following the 1.3% pop in May. Sales offurniture, home furnishings &amp; appliance, however, reversed all of the upwardly revised May surge of 1.0% (-0.1% y/y). Sales of furniture &amp; home furnishings declined 1.4% (-5.4% y/y). Apparel store sales rose 0.6% (2.9% y/y), about the same as they did during the prior three months.
Building materials &amp; garden equipment sales fell 0.9% (+1.5%% y/y) after gains which exceeded 2.0% during the prior two months.
Released yesterday, the Federal Reserve Board&#39;s final rule for home mortgage loans to better protect consumers and facilitate responsible lending can be found <a href="http://www.federalreserve.gov/newsevents/press/bcreg/20080714a.htm"> here</a>.
Doom &amp; Gloom in the Housing Markets: The Sequel from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20080501/netpub.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">&nbsp;</th>
<th scope="col">June</th>
<th scope="col">May</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>0.1%</td>
<td>0.8%</td>
<td>3.0%</td>
<td>4.0%</td>
<td>5.8%</td>
<td>6.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.8%</td>
<td>1.2%</td>
<td>6.2%</td>
<td>4.5%</td>
<td>6.8%</td>
<td>7.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>0.2%</td>
<td>0.8%</td>
<td>3.6%</td>
<td>4.1%</td>
<td>6.2%</td>
<td>6.4%</td>
</tr>
</tbody>
</table>


</html>

U.S. retail sales during June inched up just 0.1% after having risen a downwardly revised 0.8% in May. On a three-month basis overall retail sales rose at a 4.5% annual rate. The latest rise fell short of Consensus expectations for a [...]

U.S. Retail Sales Rose Just Slightly in June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715a.jpg" width="353">
U.S. finished producer prices jumped another 1.8% during June after the 1.4% surge during May. The increase surpassed Consensus expectations for a 1.3% rise.
Finished energy prices led the increase with a 6.0% pop as gasoline prices surged another 9.0% (39.7% y/y). Natural gas prices continued strong and surged 6.6% (17.6% y/y). Residential electric power costs rose 0.8% (4.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715b.jpg" width="353">
Finished consumer food prices surged by 1.5% (8.4% y/y), double the May increase. The strength continued to be led by fresh vegetables (34.0% y/y) and pasta products (37.3% y/y).
Less food &amp; energy, the gain in finished goods prices rose the same 0.2% as they did during May. The latest figure fell slightly short of expectations for a 0.3% rise. Prices of core finished consumer goods rose the same 0.3% (3.5% y/y) as they did in May and the three-month rate of rise remained down somewhat at 4.2%. Durable consumer goods prices rose 0.3% (1.6% y/y) after the 0.4% May fall. Capital equipment prices gained 0.3% (2.4% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080715c.jpg" width="353">
Intermediate goods prices surged yet again, last month by 2.1%. Excluding food &amp; energy these prices jumped another 1.3%.
The crude materials PPI surged 3.7% due to a 5.4% (72.1% y/y) jump in energy prices. Crude food prices also doubled their May strength and surged 3.5% (20.8% y/y). Less food &amp; energy crude prices fell 0.2%.
Back to the Future with Keynes from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/QR/QR3212.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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a> (%)</th>
<th scope="col">June</th>
<th scope="col">May</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">Finished Goods</td>
<td>1.8</td>
<td>1.4</td>
<td>9.1</td>
<td>3.9</td>
<td>3.0</td>
<td>&nbsp;4.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2</td>
<td>0.2</td>
<td>3.1</td>
<td>1.9</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>2.1</td>
<td>2.9</td>
<td>12.5</td>
<td>4.1</td>
<td>6.4</td>
<td>&nbsp;8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.3</td>
<td>2.0</td>
<td>8.4</td>
<td>2.8</td>
<td>6.0</td>
<td>&nbsp;5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>3.7</td>
<td>6.7</td>
<td>45.7</td>
<td>12.1</td>
<td>1.4</td>
<td>14.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.2</td>
<td>5.0</td>
<td>&nbsp;33.2</td>
<td>15.7</td>
<td>20.8</td>
<td>4.9</td>
</tr>
</tbody>
</table>
</body>
</html>

U.S. finished producer prices jumped another 1.8% during June after the 1.4% surge during May. The increase surpassed Consensus expectations for a 1.3% rise. Finished energy prices led the increase with a 6.0% pop as gasoline prices [...]

U.S. PPI Surged Again

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

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

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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.

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Asia

Economic Letter from Asia: New Duty Roster

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Nonfarm payrolls increased 73,000 during July after rising 14,000 in June, revised from 147,000, and 19,000 in May, revised from 144,000. Expectations had been for a 102,000 rise in the Action Economics Forecast Survey. The three-month average change in payrolls of 35,000 compared to 64,000 in June. The Bureau of Labor Statistics indicates that monthly revisions result from additional reports received from businesses and government agencies since the last published estimates.

Average hourly earnings rose an expected 0.3% during July after unrevised gains of 0.2% and 0.4% in June & May. Earnings growth of 3.9% y/y is little changed over twelve months, but has been trending lower from its 5.9% high in March 2022.

The unemployment rate, measured in the household survey, edged up m/m to an expected 4.2% from 4.1% and compared to 4.2% in the previous three months. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, rose to 7.9% last month from 7.7% In June. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in July rose 83,000, factory sector jobs declined 11,000, off for the third straight month. Construction sector employment increased 2,000, after rising 3,000 in June. The number of mining & logging industry jobs declined 4,000 after falling in both of the prior two months. 

Private service sector employment increased 96,000 July after improving 16,000 in June. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 79,000 last month, following a 52,000 increase in June. The number of trade, transportation & utilities jobs gained 11,000, following a 22,000 decline and financial activities employment improved 15,000 after a 2,000 drop, while leisure & hospitality employment rose just 5,000 after a 4,000 gain. The number of professional & business services jobs fell 14,000, down for the third straight month.  Information sector employment fell 2,000, after holding steady in June.

Government sector payrolls declined 10,000 last month and revered June’s 11,000 rise. Federal government employment weakened 12,000 and has fallen for six straight months. Local government employment eased 3,000 after rising 10,000 in June while state government payrolls rose 5,000 after increasing 10,000.

Private-sector average hourly earnings rose 0.3% (3.9% y/y) in July. Earnings in the goods-producing sector edged up 0.1% (3.6% y/y). In construction, earnings rose 0.2% (3.7% y/y) following a 0.4% rise, but factory sector earnings eased 0.1% (+3.6% y/y). In the service sector, earnings rose 0.4% (4.0% y/y) in July after increasing 0.2% in June.

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The length of the average workweek rose to 34.3 hours in July from 34.2 hours in June. The workweek in the goods-producing sector lengthened to 39.9 hours from 39.7 hours. The construction sector average workweek rose to 39.1 hours from 38.9 while the factory sector workweek held steady at 40.1 hours. The average workweek in the private service sector edged up to 33.2 hours from 33.1 hours.

In the **household survey**, the unemployment rate increased to 4.2% in July after falling to 4.1% as employment fell 260,000 after rising 93,000 in June and the size of the labor force declined 38,000, off for the third straight month. The labor force participation rate eased to 62.2% last month from 62.3% and remained below the high of 63.3% early in 2020. The rate for teenagers declined to 35.0%, after plunging to 35.1%. For workers aged 20-24, the rate declined to 70.9%. For workers aged 25-54, the participation rate eased to 83.4%. For individuals 55 and over, the rate improved slightly to 38.1% but remained near a 20-year low of 38.0% in June.

The employment/population ratio for all workers slipped to 59.6% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic. For men, the rate fell to 64.7% in July from 64.9% and for women, the rate eased to 54.7% from 54.8% in June.

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

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- Recent job growth reduced by fewer factory & government jobs.
- Earnings gain remains steady y/y.
- Jobless rate reverses June decline.

U.S. Employment Report Shows Weakness in July, While Revisions Reduce Earlier Gains; Jobless Rate Picks Up

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U.S. light vehicle sales increased 7.6% (6.0% y/y) to 16.87 million units (SAAR) in July after falling 0.3% to 15.68 million units in June. The gain followed three straight months of decline. The improvement in July vehicle sales accompanied a 1.7% y/y rise in real disposable income through June, which compared to 2.1% growth last year.

Increases in sales were broad-based last month. Light truck sales rose 7.7% (10.0% y/y) in July to 14.02 million units, after easing 0.2% to 13.02 million in June and weakening 8.7% in May to 13.04 million. Purchases of domestically-made light trucks improved 7.1% (12.0% y/y) to 10.79 million units, after falling 1.0% in June to 10.07 million. Sales of imported light trucks rose 9.8% (3.8% y/y) to 3.24 million units, following a 3.9% rise in June.

Trucks’ record 83.1% share of the light vehicle market last month compared to 83.0% in June and 80.1% in July of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales rose 6.4% last month, down 9.8% y/y, to 2.84 million units (SAAR) following a 0.4% June decline. Purchases of domestically-produced cars rebounded 10.1% (-6.4% y/y) last month to 2.18 million units, after declining 2.5% in June. Sales of imported autos fell 2.9% (-20.5% y/y) to 0.66 million units, after a 4.6% June gain.

Imports' 23.1% share of the U.S. light vehicle market edged down from 23.2% in June. These compare to a May 2023 low of 22.9% and a high of 26.3% in November of 2023. Imports' share of the passenger car market fell to 23.2% last month and compared to 26.4% in July of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market rose to 23.1% last month after rising to 22.7% in June.

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

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- Both light truck and auto sales recover.
- Domestic and imports each increase.
- Imports' market share steadies.

U.S. Light Vehicle Sales Rebound in July

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to 48.0 in July from 49.0 in June and 48.5 in May, according to the Institute for Supply Management. The July manufacturing PMI, below the 50 expansion-contraction dividing line, indicated that the U.S. manufacturing sector contracted for the fifth consecutive month and to the lowest level since October 2024. The July reading, while slightly higher than a low of 46.9 in October and 47.0 in July of last year, was below its recent high of 50.9 in January and a peak of 63.8 in March 2021. A reading of 49.5 for July had been expected in the Action Economics Forecast Survey.

The production index rose to 51.4 in July after rising to 50.3 in June, suggesting production expanded for the second successive month and to the highest level since January; it was up from its most recent low of 44.0 in April but slightly below a high of 53.7 in March 2024. Twenty percent (NSA) of respondents reported higher production in July while 19.2% reported lower.

The new orders index increased to 47.1 in July after falling to 46.4 in June, indicating new orders contracted for the sixth straight month but at a slightly less severe pace. The Index, while below its recent high of 55.1 in January, was up from a low of 42.7 in January 2023. Nearly nineteen percent (NSA) of respondents reported higher new orders in July while 25.9% reported declines. The inventories index, however, fell to 48.9 in July after rising to 49.2 in June, showing inventories contracted for the third consecutive month. The index was down from its recent high of 53.4 in March and a high of 56.5 in July 2022. Meanwhile, the supplier deliveries index fell to 49.3 in July from 54.2 in June, indicating faster delivery performance following seven straight months in slower territory. An 8.7% (NSA) of respondents reported slower delivery speeds in July while an increased 10.2% reported faster speeds.

On the labor front, the employment index fell to 43.4 in July after falling to 45.0 in June, indicating employment contracted for the sixth straight month and to the lowest level since June 2020. The index was down from its recent high of 50.3 in January and a high of 56.5 in March 2022. A 12.6% (NSA) of respondents reported higher employment in July while an increased 25.0% reported less hiring.

On the pricing front, the prices paid index declined to 64.8 (NSA) in July after rising to 69.7 in June, indicating raw materials prices rose for the 10th straight month but at the slowest rising rate since February. The July index remained well above a low of 39.4 in December 2022 but meaningfully below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. A decreased 35.4% (NSA) of respondents reported higher prices in July while 5.8% reported price declines.

In other ISM series not included in the composite index, the new export orders index slipped to 46.1 in July after increasing to 46.3 in June, indicating new export orders contracted for the fifth straight month. It was down from its recent high of 52.4 in January and a high of 57.1 in February 2022. The imports index edged up to 47.6 in July after rising to 47.4 in June, remaining at a contraction level for the fourth consecutive month; it was down from its recent high of 52.6 in February and a high of 55.4 in February 2022. The order backlog index increased to 46.8 (NSA) in July after declining to 44.3 in June, indicating falling backlog levels since October 2022. It was up from a low of 37.5 in May 2023 but down from a peak of 70.6 in May 2021.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- 48.0 in July vs. 49.0 in June; the fifth consecutive month of contraction.
- Production (51.4) expands to a six-month high.
- New orders (47.1) contract for the sixth successive month.
- Employment (43.4) contracts to the lowest level since June ’20.
- Prices Index (64.8) indicates prices rise for the 10th straight month; exports & imports contracting.

Economy in Brief: July 2008

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