Carol Stone, CBE

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Initial claims for unemployment insurance decreased to 225,000 (-6.3% y/y) during the week ended November 26 from 241,000 during the week prior, revised from 240,000. A level of 234,000 had been expected in the Action Economics Forecast Survey.

The 4-week moving average of initial claims of 228,750 compared with 227,000 in the prior week. It was again the highest level since the first week of September and remained above an early-April low of 170,500.

In the week ended November 19, continued weeks claimed for unemployment insurance increased to 1.608 million (-18.6% y/y) from 1.551 million in the prior week, which was unrevised. The 4-week moving average rose to 1.539 million from 1.509 million in the prior week. It was the highest level since the last week of March.

The insured unemployment rate in the week ended November 19 remained at the 1.1% of the prior week. This is still the highest level since the first week of April and is up from the record low range between 0.9% and 1.0% which had prevailed since mid-April. The series dates back to 1971.

In the week ended November 12, the total number of continued weeks claimed in all unemployment insurance programs rose to 1.368 million (-40.5% y/y) from 1.252 million in the prior week. This total includes federal employees, newly discharged veterans, extended benefits and other specialized programs and is not seasonally adjusted. Claims in the Pandemic Unemployment Assistance program and Pandemic Emergency Unemployment Compensation are no longer included in the main Labor Department press release, as both programs have expired.

The insured rates of unemployment in regular programs vary across states. The highest insured unemployment rates in the week ending November 5 were in Puerto Rico (2.14%), Alaska (2.01%), New Jersey (1.96%), California (1.79%) and New York (1.41%). The lowest rates were in South Dakota and Virginia (0.20%), Alabama (0.21%), Nebraska (0.28%) and Kansas (0.29%). Other major state rates include Pennsylvania (1.12%), Texas (0.82%) and Illinois (1.14%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims going back to 1967 are contained in Haver's **WEEKLY** database, and they are summarized monthly in **USECON**. Data for individual states are in **REGIONW**. The expectations figure is from the Action Economics Forecast Survey, carried in the **AS1REPNA** database.

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- Initial claims decline by 16,000 in November 26 week.
- Level of continued weeks claimed surged yet again.
- Insured unemployment rate still just above record low.

U.S. Initial Unemployment Insurance Claims Ease from 3-Month High

Tom Moeller

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The Pending Home Sales Index produced by the National Association of Realtors fell 4.6% (-37.0% y/y) to 77.1 in October following an 8.7% September decline. The latest decline was the eleventh in twelve months. Pending home sales have fallen 39.8% since their August 2020 high.

Pending home sales declined in most regions of the country last month. Sales in the Northeast fell 4.3% (-29.5% y/y), following a 6.3% September shortfall. In the South, sales declined 6.4% (-38.2% y/y), after weakening 8.2% in September. Sales in the West declined 11.3% last month (-46.2% y/y), about as they did in September. Working higher were sales in the Midwest by 3.3% (-32.1% y/y), after an 8.7% September decline.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **SURVEYW** database.

- Sales are lowest since April 2020.
- Decline spreads throughout most of country.

U.S. Pending Home Sales Continue to Fall in October

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Job openings decreased 353,000 in October (-6.9% y/y) to 10.334 million, basically reversing their September increase of 407,000, according to the Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics. The September increase reflected a revision from a 437,000 increase reported last month. The job openings rate (job openings as a percentage of the sum of establishment employment plus openings) edged down to 6.3% in October from 6.5% in September. It remained below the 7.3% high during March. These series extend back to December 2000.

The decrease in job openings extended across several industries during the last year, largely reversing the increases seen in September. Construction job openings decreased (-5.3% y/y), as did manufacturing (-19.1%), trade, transportation & utilities (-16.5%), professional & business services (-12.2% y/y), and leisure & hospitality (-3.3% y/y). Even government job openings decreased year-on-year (-1.3%) The only major sector with a year-to-year increase was education & health services (+3.6% y/y), driven by an advance in health care and social assistance, (+4.8% y/y).

New hires declined 84,000 month-on-month (-6.9% y/y) in October after falling 238,000 in September, revised from 252,000. The latest decline was again widespread across industries including construction (-8.3% y/y), manufacturing (-10.8% y/y), trade, transportation & utilities (-7.9% y/y), professional & business services (-14.3% y/y), education & health services (-1.2% y/y) and leisure & hospitality (-4.2% y/y). Government hiring did increase (+9.6% y/y).

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The total number of job separations increased slightly, by 18,000 in October (-2.9% y/y), after declining 393,000 in September. The separations rate remained at 3.7%, its lowest level since January 2021.

Quits declined modestly, by 34,000 (-2.6% y/y), in October, the fifth decline in six months. The quit rate (number of quits as a percent of total employment) fell to 2.6% from 2.7% during the prior three months. The quits rate fell sharply in information (0.9% in October) and more moderately in trade, transportation & utilities (3.1%) and professional & business services (2.9%). It was unchanged in financial services (1.7%) and education & health services (2.3%). The quits rate actually increased elsewhere, including manufacturing (2.1%), construction (2.4%) and leisure & hospitality (5.5%).

Layoffs & discharges rose 58,000 (+3.4% y/y) to 1.387 million following a decline of 161,000 in September. Layoff increases were spread across industries including professional & business services (15.8% y/y), information (25.8% y/y), education & health services (6.2% y/y) and manufacturing (2.0% y/y). The layoff rate remained at 0.9% in October.

The Job Openings and Labor Turnover Survey (JOLTS) are available in Haver's **USECON** database.

- The number of job openings fall in several industries.
- New hires decline for the 8th month this year.
- Quits down but layoffs rise in October.

JOLTS: Job Openings Decrease Moderately in October; Hiring Eases Again

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The ISM-Chicago Purchasing Managers Business Barometer declined to 37.2 in November after easing to 45.2 in October. An index level of 46.4 had been expected in the Action Economics Forecast Survey. The index stands well below the May 2021 high of 73.3. Haver Analytics constructs an ISM-Adjusted Chicago Business Barometer with methodology similar to the ISM Composite Index. It declined to 44.7 this month, the lowest level since June 2020.

The new orders measure declined to 30.7, the lowest level since June 2020 and down from 79.0 in May 2021. The production index weakened 35.9, the lowest level since June 2020 and roughly half the April 2021 high of 70.0. A greatly lessened 10% (NSA) of respondents reported higher production while a higher 38% reported a decline. The supplier delivery index weakened to 49.9 from 59.3 and remains down from 90.3 in August 2021. The order backlog measure weakened to 36.1 from 47.3, also nearly a two-year low.

To the upside, the employment index rose to 47.1, its highest level in three months. Sixteen percent of respondents reported higher employment while 19% reported fewer jobs. The inventories measure increased to 59.8 from 56.9. It was the highest level in three months but below the March 2022 high of 68.7.

Inflation pressures weakened in November. The prices paid index fell sharply to 66.2 from 74.8 in October. The reading stood far below its high of 94.1 in October 2021. A lessened 40% (NSA) of respondents reported higher prices paid while a steady 10% reported price declines.

The Chicago Business Barometer is considered to be a leading indicator of the U.S. economy. An indicator reading above 50 indicates expansion while below 50 suggests contraction. Summary data are contained in Haver's **USECON** database with detail including the ISM-style index in the **SURVEYS** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- New orders, production & supplier deliveries drop sharply.
- Employment & inventories rise.
- Prices paid index continues to weaken.

U.S. Chicago Business Barometer Tumbles in November

Kathleen Stephansen, CBE

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The advance estimate of the U.S. international trade deficit in goods widened to $99.0 billion during October from $91.9 billion during September. The deficit had reached a peak of $125.7 billion in March of this year. A $90.6 billion October deficit had been expected by the Action Economics Forecast Survey. Exports of goods fell 2.6% (+10.7% y/y) in October, following a decline of 1.9% (+24.0% y/y) during September. Imports rose 0.9% (+12.6% y/y) after the September rise of 1.0% (13.1% y/y).

The weakening in exports during October reflected a decline of 9.4% (-6.3% y/y) in nonauto consumer goods in October after a 0.4% drop in September, and a 4.7% (+20.7% y/y) drop in industrial supplies & materials exports, following a 3.1% decline during September and marking the fourth straight monthly decline. Exports of nonauto capital goods eased 0.1% (+9.9% y/y) in October after a 2.4% rise in September, while exports of autos & auto parts rose 2.5% (10.9% y/y), after a 5.1% advance in September. Food, feeds & beverage exports rebounded 3.7% (-4.8% y/y) in October following the 13.6% contraction in September, while exports of "other" goods declined 0.3% (+18.1% y/y) after an 8.8% contraction in September.

The rise in imports during October reflected a 2.9% (11.1% y/y) rise in food, feeds & beverage imports after a 1.3% decline during September, a 2.2% (30.0% y/y) rise in automotive vehicles, following a 1.8% rise in the prior month, and a 1.5% (13.1% y/y) rise in industrial supplies & materials imports after a 2.9% drop in September. “Other” goods imports rose 16.2% (-6.6% y/y) in October following a 1.5% decline in September. Nonauto capital goods imports declined 0.7% (+14.4% y/y) in October after a 4.6% rise in the prior month, while nonauto consumer goods imports contracted 1.2% (+6.7% y/y) after a 1.7% rise in September.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- The trade deficit in goods widened by more than expected during October.
- Exports posted their second consecutive monthly decline.
- Imports rose for the second consecutive month.

U.S. Goods Trade Deficit Widened During October

Nonfarm private sector payrolls increased 127,000 (3.1% y/y) during November after rising an unrevised 239,000 during October. The 192,000 September increase also was unrevised. The latest increase was the weakest since a 109,000 decline in January 2021. Average growth of 186,000 during the last three months was little changed from October and the weakest since March 2021, down from a high of 529,000 in September of last year. A 200,000 increase had been expected in the Action Economics Forecast Survey.

Median annual pay for "job stayers" was a fairly steady at 7.6% y/y during November. That stood significantly above a low of 1.6% in March of last year. The earnings increase was led by a 10.8% gain in leisure & hospitality earnings, though it was slower than 16.9% y/y growth in March. Factory sector pay rose a steady 7.5% y/y while professional & business service sector earnings rose a steady 6.8% y/y. By gender, female median pay rose 7.9% y/y while men's earnings rose 7.4% y/y. Pay gains have been strongest in the 16-to-24-year-old age group (14.8% y/y) followed by 10.8% in the 25-34 age group. Earnings in the 35-54 age group rose 7.4% y/y and 5.0% in the 55-85 age bracket. These increases are up versus early last year.

Small businesses hiring (1-49 employees) declined 51,000 (+1.3% y/y) and reversed two months of increase. The 2,000-average gain during the last three months compared to 151,000 in January. Employment at firms with 50-499 employees rose 246,000 (4.4% y/y) after a 218,000 October gain. The 189,000 three-month average increase was improved from 124,000 in September. Employment at large firms (500+ employees) declined 68,000 (+5.4% y/y) last month after easing 4,000 in October. Large-sized payrolls fell an average 5,000 during the last three months compared to a 107,000 average gain as of April.

By industry group, goods-producing employment declined 86,000 (+2.1% y/y) after an 8,000 October decline. Factory sector jobs declined 100,000 (+0.2% y/y) the largest of three consecutive monthly declines. Construction employment eased 2,000 (+3.4% y/y), down for the second month in the last three.

Service-producing jobs rose 213,000 last month following a 247,000 October increase. Annual growth of 3.3% compares to a 4.9% high as of April. Leisure & hospitality employment led the gain with a 224,000 (8.8% y/y) after rising 210,000 in October. Trade, transportation & utilities payrolls rose 62,000 (3.7% y/y) while education & health services jobs grew 55,000 (0.8% y/y). Elsewhere, employment declined. Professional & business services employment fell 77,000 (+2.4% y/y), off for the fourth straight month. Financial activities employment declined 34,000 (-1.3% y/y), down for the fifth straight month while information sector jobs fell 25,000 (+1.9% y/y), off for the fourth straight month.

By Census region, employment in the Northeast improved 158,000 (4.5% y/y) following a 50,000 increase. In the West, payrolls rose 12,000 (4.9% y/y) after surging 229,000 in October. Elsewhere in the country employment declined. Jobs in the Midwest fell 41,000 (1.3% y/y), down for the fifth consecutive month. Employment in the South weakened 2,000 (+2.7% y/y) and was off for the third straight month.

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

- Employment weakness is widespread across company size. 
- Leisure & hospitality hiring counters factory sector layoffs.
- Pay gains vary greatly by age group.

ADP Employment Growth Disappoints in November; Earnings Remain Firm

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Mortgage applications fell modestly in the week ended November 25, down 0.8% (-65.6% y/y) after rising 2.2% the week before, according to the Mortgage Bankers Association survey. Applications for loans to purchase a home did rise 3.8% (-41.7% y/y) after the prior week’s 2.8% increase. But applications for refinancing a loan dropped 12.9% (-85.9% y/y) in the November 25 week after increasing 1.8% in the previous week.

The share of applications for refinancing an existing loan thus also fell to 26.1% in the November 25 week, down from 28.4% the week before. These latest weeks’ shares compare with 65% during the last weeks of 2021. The percentage of loan applications that are ARM ticked up to 9.0% in the latest week from 8.8% the week before.

The effective rate on a 30-year fixed-rate loan declined 19 basis points to 6.68% in the November 25 week from 6.87% in the week before; the latest is still up significantly from 3.39% in December of last year. The rate on 15-year fixed-rate mortgages was 6.19%, down from 6.25% the week before. The rate on 30-year Jumbo loans was unchanged at 6.52% while that on a 5-year ARM fell in the latest week to 5.81% from 6.05%.

The average loan size increased to $367,400 in the November 25 week from $363,300 in the November 18 week. The series high of $401,900 was reached in the week ended May 6. The average size of a purchase loan was $399,900 (-3.6% y/y) in the latest week, down from $400,100 the week before while the average size of a loan to refinance a mortgage increased to $275,100 (-10.7% y/y) from $270,700.

The Mortgage Bankers 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.

- Applications for loans to purchase rose...
- While applications to refinance fell 12.9%.
- Mortgage rates declined again on fixed-rate loans, and also decreased for ARMs.

U.S. Mortgage Applications Decrease Modestly and So Do Rates

Sandy Batten

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The initially reported 2.6% q/q saar increase in U.S. real GDP was revised up to 2.9% in the second estimate. The Action Economics Forecast Survey had looked for a smaller upward revision to 2.7%. Real personal consumption expenditure growth was revised up to 1.7% from 1.4%, boosting its contribution to overall GDP growth to 1.2%-points from 1.0%-point in the advance report. The largest contribution to Q3 GDP growth was still provided by net exports. The narrowing of the trade deficit in Q3 was revised even larger with the contribution to GDP growth from net exports revised up to 2.93%-points from 2.77%-points in the advance report. However, as noted in the advance October trade report, also released this morning, the trade deficit has begun to widen again and so, trade is unlikely to provide a boost to GDP in Q4.

A meaningful upward revised to business investment in structures also contributed to the overall upward revision. Business spending on structures fell a much more modest 6.9% q/q saar in Q3 rather than the initially reported 15.3% q/q collapse. By contrast, the drag from the slowdown in inventory investment was revised larger. Inventories rose a revised $49.6 billion (2012$) in Q3, down from $61.9 billion in the advance report. This increased their drag on Q3 GDP growth to 1.0%-point from the initially reported 0.7%-point. The initially reported sharp 26.4% quarterly drop in residential investment was little revised to -26.8% and still subtracted 1.4%-points from overall GDP growth as the Federal Reserve's aggressive increase in interest rates continues to take its toll on the housing sector. Government spending growth was revised up to 3.0% from 2.4% in the advance report with the revision totally accounted for by an increase in spending by state and local governments.

Private domestic demand was considerably stronger in Q3 upon revision though it remained very weak. Growth of final sales to private domestic purchasers was revised up to a 0.5% q/q saar increase from the extremely anemic 0.1% in the advance report.

The second estimate of quarterly GDP contains the first estimate of quarterly corporate profits. They slipped 1.1% q/q (not annualized) in Q3 after a 4.6% quarterly jump in Q2. Domestic profits fell 1.1% q/q in Q3 after a 4.4% q/q increase in Q2 while foreign profits declined 1.0% q/q following a 5.8% increase in Q2. Annual growth in corporate profits continued to slow under the weight of rising interest rates and a slowing global economy. Compared to a year ago, total corporate profits were up 4.4% versus 7.7% y/y in Q2 and 10.9% y/y in Q1.

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Inflation as measured by the GDP price index was revised higher in the second estimate—to 4.3% q/q saar from 4.1% in the advance report, down sharply from the 40-year high of 9.0% in Q2. The Action Economics Forecast Survey had expected no revision. The slowdown in inflation continued to be driven by a decline in energy prices. This can be seen in the PCE price index. The PCE price index excluding energy increased 5.2% in Q3 revised up from 5.1% in the advance report, but that was only a modest slowing from 5.4% in Q2. Overall PCE inflation was also revised up to 4.3% from 4.1% in the advance report. The only other meaningful revision to inflation was an upward revision to the prices paid by governments. They rose 3.7% in Q3, up from 3.2% in the advance report, reflecting upward revisions to prices paid by all levels of government.

The GDP figures can be found in Haver's **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- The initially reported 2.6% q/q saar increase in real GDP in Q3 was revised up to 2.9%.
- Outsized boost from trade revised even larger; inventories a larger drag.
- Corporate profits slipped 1.1% q/q in Q3 after a strong 4.6% jump in Q2.
- Quarterly rise in GDP price index revised up to 4.3% from 4.1% initially.

U.S. Q3 GDP Growth Revised Up in Second Estimate

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

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Nonfarm payrolls increased 147,000 (1.1% y/y) during June after rising 144,000 in May, revised from 139,000, and 158,000 in April, revised from 147,000. Expectations had been for a 113,000 rise in the Action Economics Forecast Survey. The three-month average change of 150,000 in June compared to 232,000 in January.

Average hourly earnings rose 0.2% during June after an unrevised 0.4% May gain, and a 0.2% April increase. Earnings growth of 3.7% y/y is down from a high of 4.2% last November, and has been trending lower from the 5.9% high in March 2022. A 0.3% increase expected for June.

The unemployment rate, measured in the household survey, fell m/m to 4.1%. It compared to 4.2% in May where it had been for three straight months. A rise to 4.3% was expected. 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, eased to 7.7% last month from 7.8% In May. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in June rose 74,000 (1.0% y/y) after a 137,000 May increase. Factory sector jobs declined 7,000 (-0.7% y/y) for the second consecutive month. Construction sector employment increased 15,000 (1.4% y/y), after rising 6,000 in May.

Private service-producing sector employment increased 68,000 (1.2% y/y) in June after improving 141,000 in May. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 51,000 (3.3% y/y) last month while leisure & hospitality employment rose 20,000 (1.4% y/y). Trade, transportation & utilities employment gained 3,000 (0.6% y/y) and financial activities employment improved 3,000 (1.0% y/y).

Government sector payrolls strengthened 73,000 (1.5% y/y) last month following a 7,000 rise in May. State government employment increased 47,000 (2.8% y/y) while the number of local government jobs rose 33,000 (1.7% y/y). Federal government payrolls fell 7,000 (-2.1% y/y), the fifth straight monthly decline.

Private-sector average hourly earnings rose 0.2% (3.7% y/y) in June following unrevised increases of 0.4% in May and 0.2% in April. Earnings in the goods-producing sector edged 0.1% (3.6% y/y) higher. In construction earnings rose 0.4% (3.9% y/y) but factory sector earnings eased 0.1% (+3.5% y/y). In the private services-sector, earnings rose 0.2% (3.7% y/y) in June.

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The length of the average workweek shortened to 34.2 hours in June from 34.3 hours in May. The workweek in the goods-producing sector was unchanged at 39.8 hours. The construction sector average workweek eased to 38.9 hours while the factory sector workweek held steady at 40.1 hours. The average workweek in the private service sector eased to 33.1 hours.

In the **household survey**, the unemployment rate dipped to 4.1% in June from 4.2% in May as employment rose 96,000 and the size of the labor force declined 130,000, off for the second straight month. The labor force participation rate eased to 62.3% last month and remained below the high of 63.3% early in 2020. The rate for teenagers plunged to 35.1%, a five-year low. For workers aged 20-24, the rate declined to 71.0%. For workers aged 25-54, the participation rate edged up to 83.5%. For individuals 55 and over, the rate eased to nearly a 20-year low of 38.0% in June.

The employment/population ratio for all workers held steady at 59.7% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic.

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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- Job growth improves with strength in state & local gov’t hiring.
- Earnings gain decelerates.
- Jobless rate falls to four-month low.

U.S. Employment Growth Firms in June, While Earnings Growth & Jobless Rate Decline

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The U.S. trade deficit in goods and services (BOP basis) widened to $71.5 billion in May from a downwardly revised $60.3 billion in April (previously -$61.6 billion), according to the U.S. Census Bureau. The actual widening met the Action Economics Forecast Survey expectation. Exports fell 4.0% m/m (+5.3% y/y), the first monthly decline in five months, led by a 5.7% m/m decline in goods exports. Imports edged down 0.1% m/m (+3.3% y/y) in May after a 16.3% m/m plunge in April. Imports of goods have cooled markedly in the past two months after surging during Q1 as importers attempted to front run expected increases in tariffs.

The real (inflation adjusted) goods trade deficit widened to $92.5 billion (2017$) in May from $84.4 billion in April. The real trade deficit had widened to record levels during the first quarter with net exports subtracting 4.6%-points from Q1 GDP. The April/May figures put the real balance on course to narrow by roughly $150 billion in Q2 (at a quarterly rate), which would mean that net exports in the national accounts could add 2-1/2 to 3%-points to Q2 GDP.

The trade deficit in goods widened to $97.5 billion in May from $86.3 billion in April. Goods exports fell 5.7% m/m, the first monthly decline in five months. Exports of nonmonetary gold fell $5.5 billion (-56.4% m/m) while exports of finished metal shapes (which includes other forms of nonmonetary gold) fell $1.0 billion (-10.0% m/m). Both of these had surged in April, reflecting re-exports of previous nonmonetary gold imports that had risen markedly in Q1 in an attempt to front run expected tariff increases. More generally, exports of industrial supplies and materials slumped 13.3% m/m in May after a 16.1% m/m jump in April. Capital goods ex autos declined 3.1% m/m, and food exports fell 2.5% m/m, the fifth monthly decline in the past six months. In contrast, auto exports rebounded, rising 3.6% m/m, but failed to come close to reversing the 21.5% plunge in April. Exports of nonfood consumer goods ex autos posted a solid 6.9% monthly gain after having declined in each of the preceding two months.

Imports of goods edged down 0.1% m/m (+2.8% y/y) in May on top of a 19.9% monthly plunge in April, indicating that the surge in imports in Q1 ahead of expected tariff hikes has run its course. Auto imports jumped 10.3% m/m after a 19.9% monthly decline in April. Imports of “other” goods rebounded 8.4% m/m in May following a 3.3% m/m decline in April. In contrast, imports of industrial supplies and materials fell 1.8% m/m, the fourth consecutive monthly decline. Imports of nonfood consumer goods ex autos fell 5.7% m/m on top of a 32.0% drop in April. Food imports posted a small monthly decline while imports of capital goods ex autos posted a small increase.

The services trade surplus narrowed marginally to $25.99 billion in May from $26.05 billion in April. Exports of services slid 0.2% m/m after a 2.2% monthly increase in April. Exports of transport services fell 2.0% m/m, the third monthly decline in the past four months. Travel exports declined 1.8% m/m, the fourth monthly decline in the past five months. In contrast, maintenance services exports rose 2.1% m/m; exports of insurance services increased 1.5% m/m; exports of intellectual property rose 0.9% m/m; and construction service exports gained 1.4% m/m. Services imports declined 0.2% m/m in May, the first monthly decline in three months. Imported transport services fell 3.3% m/m, the fourth monthly decline in the past five months. Travel imports declined 1.0% m/m, also the fourth monthly decline in the past five months. In contrast, imported construction services jumped 3.9% m/m and imported intellectual property rose 1.6% m/m.

The U.S. goods trade deficit with China narrowed markedly to a seasonally adjusted $14.0 billion from $19.7 billion in April and $24.2 billion March. This is the smallest monthly deficit with China in the history of the series, which dates back to 2009. Exports to China plunged 19.9% m/m while imports from China plummeted 26.3% m/m. The trade deficit with the European Union widened to $22.5 billion from $17.9 billion in April. The trade deficit with Japan narrowed marginally to $5.77 billion in May from $5.81 billion in April.

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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- Trade deficit widened in May on decline in goods exports.
- Still, the real deficit in April/May points to net exports making a meaningful positive contribution to Q2 GDP.
- Both exports and imports declined in May.
- Series low trade deficit with China.

U.S. Trade Deficit Widened in May

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Initial claims for unemployment insurance were 233,000 in the week of June 28, down 4,000 from 237,000 in the week ending June 21, revised from 236,000. The Action Economics Forecast Survey expected 240,000. These data are seasonally adjusted by the Department of Labor. The 4-week moving average was 241,500, a decrease of 3,750 from the previous week’s average of 245,250, revised from 245,000.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended June 21 was 1.964 million, unchanged from the prior week’s level, which was revised down from 1.974 million. The 4-week moving average was 1.954 million, up from 1.938 million in the previous week, revised from 1.941 million. This is the highest level for this average since November 20, 2021, when it was 2.004 million.

The insured unemployment rate for the week ending June 21, that is, the number of unemployment beneficiaries as a % of covered employment, was unchanged at 1.3% for the fourth consecutive week.

Economic conditions vary widely across states and territories. In the week ended June 14, the highest unemployment rates were in New Jersey (2.23%), Minnesota (2.22%), Puerto Rico (2.20%), California (2.16%), Washington (1.98%), and Rhode Island (1.95%). The lowest rates were in South Dakota (0.27%), Florida (0.41%), North Carolina (0.47%), and Alabama (0.48%). Rates in other notable states include Pennsylvania (1.71%), Illinois (1.67%), New York (1.55%), and Texas (1.26%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims for unemployment insurance declined by 4,000 in the week ended June 28.
- Total number of beneficiaries was unchanged in the week of June 21 week.
- The insured unemployment rate was unchanged at 1.3%.

U.S. Initial Jobless Claims Decreased in Latest Week

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Headwinds and Heatwaves

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

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

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

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

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

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

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

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

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

Economy in Brief: 2022

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