Tom Moeller

Nonfarm private sector payrolls increased 235,000 during December after rising 182,000 in November, revised from 127,000. The 239,000 October gain was unrevised. The 3.0% rise during all of last year compared to 3.7% growth in 2021 and a 4.3% decline in 2020. A 133,000 December increase had been expected in the Action Economics Forecast Survey.

Growth in median annual pay for "job stayers" eased to 7.3% y/y last month from a September high of 7.8% y/y. These compare to a low of 1.6% in March of 2021. The earnings increase was led by 10.1% growth in leisure & hospitality earnings, but down from 16.9% y/y growth in March 2022. Financial sector earnings rose a lessened 7.5% y/y. Factory sector pay rose a diminished 7.3% y/y while professional & business service sector earnings rose a smaller 6.6% y/y. By gender, female median pay rose 7.5% y/y while men’s earnings rose 7.1% y/y. Pay gains have been strongest in the 16-to-24-year-old age group (14.1% y/y) followed by 10.4% in the 25-34 age group. Earnings in the 35-54 age group rose 7.1% y/y and 4.8% y/y in the 55-85 age bracket, both up versus early 2021.

Small businesses hiring (1-49 employees) strengthened 195,000 (1.6% y/y) after increasing 49,000 in November, revised from a 51,000 decline. Employment at firms with 50-499 employees rose 191,000 (3.9% y/y) after a 26,000 November decline. The 128,000 three-month average increase compared to 98,000 in November. Employment at large firms (500+ employees) declined 151,000 (+5.1% y/y) last month after rising 55,000 in November. Large-sized payrolls fell an average 33,000 during the last three months compared to a 107,000 average three-month gain as of April.

By industry group, goods-producing employment rose 22,000 (2.4% y/y) after a 19,000 November rise. Factory sector jobs declined 5,000 (+0.7% y/y), the fourth straight monthly drop. Construction employment rose 41,000 (3.9% y/y) after increasing 55,000 in November.

Service-producing jobs rose 213,000 last month following a 163,000 November increase. Annual growth of 3.2% compares to a 4.9% high as of April 2022. Leisure & hospitality employment led the gain with a 123,000 increase (7.8% y/y) after rising 156,000 in November. Professional & business services employment improved 52,000 (1.8% y/y) after four consecutive monthly declines. Education & health care sector employment improved 42,000 (1.4% y/y) after strengthening 166,000 in November. Information sector jobs edged 1,000 higher (3.1% y/y) following a 12,000 increase. To the downside, trade, transportation & utilities payrolls fell 24,000 (+3.1% y/y) after a 19,000 November decline while financial activities employment fell 12,000 (-0.9% y/y), off for the fifth month in the last six.

By Census region, employment in the South surged 253,000 (2.8% y/y) following three straight monthly declines. Employment in the Northeast improved 54,000 (3.8% y/y) following a 33,000 November increase. Jobs in the Midwest rose 70,000 (1.6% y/y) after increasing 29,000 in November. In the West, payrolls declined 142,000 last month (+4.2% y/y) after surging 210,000 in November.

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 strength is seen in small- and medium-sized firms.

- Leisure & hospitality, professional & education lead employment increase.

- Pay gains decelerate across industry groups.

ADP Employment Growth Improves in December; Earnings Gain Slips

The Autodata Corporation reported that December light vehicle sales fell 5.6% (+5.3% y/y) to 13.59 million units (SAAR) after declining 6.1% in November. Sales remain significantly below the April 2021 peak of 18.37 million. Vehicle sales comprise about four percent of real consumer expenditures.

Auto sales fell 8.7% during December (+4.8% y/y) to 3.04 million units from 3.33 million in November. Purchases of domestically-made autos declined 10.8% in December (+9.7% y/y) to 2.15 million units following a 2.0% November decline. Sales of imported autos weakened 3.3% (-5.3% y/y) to 0.89 million units after rising 4.5% in November.

Sales of light trucks weakened 4.7% last month (+5.5% y/y) to 10.55 million after falling 7.7% in November to 11.07 million units. Purchases of domestically-produced light trucks weakened 5.1% last month (+2.7% y/y) to 8.02 million units after falling 8.2% in November. Sales of imported light trucks were off 3.1% (+16.1% y/y) to 2.53 million after weakening 6.5% in November.

Trucks' share of the light vehicle market rose to 77.6% in December, but remained below a 79.7% high in March 2022.

Imports' total share of the U.S. vehicle market improved to 25.2% last month after rising to 24.5% in November. It was the highest share since February 2022. Imports' share of the passenger car market rose to 29.3% last month but remained down from the September 2021 high of 37.9%. Imports' share of the light truck market edged higher to 24.0%, also the highest since September 2021.

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

- Sales are lowest since August.

- Both light truck & auto sales fall.

- Imported vehicle sales ease.

U.S. Light Vehicle Sales Weaken at Yearend

Sandy Batten

The ISM U.S. manufacturing index slipped further into contraction territory in December, falling to 48.4 from 49.0 in November and 50.2 in October, according to the Institute for Supply Management. The December reading was the second consecutive one below the critical value of 50 that separates contraction in the manufacturing sector from expansion and stands at the lowest level since May 2020. ISM research indicates that a reading above 48.7 for the headline index is consistent with an expanding overall economy. Thus, the December reading indicates that the economy may have begun to contract in December. The Action Economics Forecast Survey expected a decline to 48.3 in December.

The new orders index fell to 45.2 in December from 47.2 in November, the sixth month in the last seven that this index was below the break-even level of 50. The percent of respondents reporting an increase in orders rose to 15.8% (NSA) in December from 12.7% in November, but the percent reporting a decrease rose even more, to 31.5% from 25.0%. The production index fell to 48.5 in December from 51.5 in November, its first time below the critical 50 level in 2-1/2 years.

Supplier delivery times continued to increase in December with the index declining to 45.1 from 47.2. This was the third consecutive monthly reading below 50. Recently, faster delivery times have been welcomed as they have been interpreted to indicate repairing supply chains. However, historically faster times have pointed to slowing demand, which is likely the case now. The inventories index rose to 51.8 in December from 50.9 in November.

The employment index increased to 51.4 from 48.4, indicating that employment rose during December. The percent of respondents reporting an increase in employment rose to 15.6% (NSA) from 12.8% while the percent reporting a decrease edged up to 16.9% from 16.6%.

The prices index fell sharply for the second consecutive month, to 39.4 (NSA) in December from 43.0 in November from 46.6 in October. It stands well below its high of 92.1 in June of last year, indicating that input prices are now falling, in marked contrast to their rapid increase in most of 2021 and the first half of 2022.

In other ISM series, the new export orders index fell to 46.2 in December from 48.4 in November. The imports index declined to 45.1 from 46.6 in November, the lowest point since May 2020. The order backlog index edged up to 41.4 from to 40.0 in November.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. 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.

- Production index fell into contraction territory for the first time in 2-1/2 years.

- New orders fell to the weakest level since May 2020.

- Raw materials prices fell for third straight month and delivery times were faster.

U.S. ISM Manufacturing Index Fell Further in December

Kathleen Stephansen, CBE

Mortgage applications decreased 13.2% from two weeks earlier in the week ended December 30. These data come from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey, with data for the weeks ending December 23 and 30 released simultaneously. Applications declined by 3.3% (-66.1% y/y) in the week ended December 23 and by 10.3% (-67.8% y/y) in the week ended December 30. Applications for loans to purchase a house declined 0.2% (-41.0% y/y) in the week ended December 23 and by 12.0% (-42.2% y/y) in the week ended December 30. Applications for refinancing a loan decreased by 12.4% (-86.5% y/y) in the December 23 week and by 4.4% (-86.8% y/y) in the December 30 week.

The share of applications for refinancing an existing loan was 28.8% in the week of December 23 and increased to 30.3% in the week of December 30. The percentage of applications that were ARMs was 7.9% in the December 23 week and 7.3% the following week.

The effective rate on a 30-year fixed-rate loan continued to rise over the latest two-week period, by 10bps to 6.61% in the week ended December 23 and to 6.79% in the week ended December 30. Similarly, the rate on 15-year fixed-rate mortgages rose 18bps to 6.12% in the week of December 23 and to 6.23% in the December 30 week, its highest since October 2008. The rate on 30-year Jumbo loan rose 10bps to 6.22% in the December 23 week and to 6.26% the following week. The rate on the 5-year ARM edged up 2bps to 5.80% in the week of December 23 and to 5.83% in the week of December 30.

The average loan size rose 1.1% w/w to $362,400 in the week ended December 23 but decreased 4.1% w/w to $347,600 in the week ended December 30. The series high of $401,900 was reached in the week ended May 6. The average size of a purchase loan decreased 0.1% w/w to $397,600 in the week ended December 23 and by 2.5% w/w to $387,600 in the week ended December 30. The average loan size to refinance a mortgage rose 1.6% w/w to $275,400 in the December 23 week but declined 7.3% to $255,400 in the week ended December 30.

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.

- Total mortgage applications dropped 13.2% in the week of December 30 from 2 weeks earlier.

- Applications for loans to purchase and to refinance dropped in the last two weeks of 2022.

- The average effective rates on fixed-rate loans remain at multi-year highs.

U.S. Mortgage Applications Dropped in the Latest Two-Week Period

Job openings slipped 0.5% (-4.2% y/y) to 10.458 million during November 2022 from 10.512 million in October, according to the Bureau of Labor Statistics' Job Openings and Labor Turnover report. The decline followed a 1.6% October drop and left openings 11.8% below the March 2022 high of 11.855 million. The job openings rate (job openings as a percentage of the sum of establishment employment plus openings) held m/m at 6.4% in November. The series high was 7.3% eight months earlier.

New hires weakened 0.9% (-9.7% y/y) to 6.055 million from 6.111 million in October. It left the level of new hires 11.4% below the February high of 6.832 million. The hiring rate eased to 3.9% from 4.0%. The hiring rate reached a peak of 4.5% in February 2022.

The total number of job separations increased 2.0% (-5.3% y/y) to 5.870 million from 5.756 million in October. Layoffs and discharges, involuntary separations, declined 6.6% in November (+4.2% y/y) to 1.350 from 1.445 million in October. They have been trending sideways since April 2021. The number of jobs quit rose 3.1% (-7.5% y/y) to 4.173 million. Fewer quits versus 2021 indicate that jobs became less readily available. The quit rate edged higher to 2.7% but remained below the December 2021 high of 3.0%.

Private-sector job openings eased 0.3% (-4.4% y/y) to 9.501 million following a 1.0% October decline. The private-sector job openings rate held m/m at 6.8% but remained down from the 7.7% high in March of last year. Leisure & hospitality job openings fell 8.8% y/y while factory sector openings weakened 3.3% y/y. Education & health services openings declined 1.6% y/y. Offsetting these declines was a 6.4% y/y rise in openings in the professional & business services sector.

Total hires in the private sector fell 1.3% (-10.5% y/y) to 5.645 million in October while total private-sector separations rose 2.2% (-5.3% y/y) to 5.503 million.

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

• The number of job openings are well below March 2022 high.

• New hires continue to decline.

• Layoffs & discharges remain low.

JOLTS: Job Openings & Hiring Weaken in November

Retail gasoline prices increased last week to $3.22 per gallon (-1.8% y/y) after falling to $3.09 per gallon during the previous week. Prices had been declining since the mid-June peak of $5.01 per gallon. The retail cost of diesel fuel rose to $4.58 per gallon (26.8% y/y) last week from $4.54 in the prior week. The price reached a peak of $5.81per gallon in the third week of June.

West Texas Intermediate crude oil prices rose to an average $79.33 per barrel (4.3% y/y) in the week ended December 30 from $77.26 per barrel in the prior week. It was the highest price in four weeks, though prices remained down from a high of $120.46 in the second week of June. Yesterday, the price was $76.93 per barrel. The average price of Brent crude oil rose to $81.98 per barrel last week (4.9% y/y) from $80.68 in the prior week. The price peaked at $127.40 in mid-June. Yesterday, the price was $80.36 per barrel.

The price of natural gas declined to $4.06/mmbtu (+14.0% y/y) in the week ended December 30 after easing to $6.35/mmbtu in the previous week, when prices were near a three-month high. Prices peaked at $9.56/mmbtu in the last week of August and were up from a low of $3.56/mmbtu in the last week of December, 2021. Yesterday, the price was $3.64/mmbtu.

In the four weeks ended December 23, gasoline demand declined 6.7% from a year earlier after falling 7.1% y/y during the prior four weeks. These declines compare to 15.2% y/y growth at the end of last year. Demand for all petroleum products weakened 2.8 y/y in the latest four weeks in contrast to the 14.4% growth at the end of 2021. Crude oil input to refineries increased 3.0% y/y.

Gasoline inventories edged 0.2% higher y/y in the week ended December 23, while crude oil inventories declined 21.8% y/y.

Measured in days' supply, gasoline inventories in the week ended December 23 slipped w/w to 25.7 days and remained lower than the 29.2 days in early-February. The supply of crude oil fell to 25.8 days and remained down from 41.8 days in early-March of last year.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price data can be found in Haver’s **WEEKLY** and **DAILY** databases. Greater detail on prices, as well as the demand, production and inventory data are in **USENERGY**.

- Gasoline prices rebound.

- Crude oil prices continue to rise.

- Natural gas prices fall sharply.

U.S. Gasoline and Crude Oil Prices Increase

The value of construction put-in-place improved 0.2% during November following a 0.2% October weakening. The 8.5% y/y gain compared to a February high of 11.7% y/y. A 0.5% November decline had been expected in the Action Economics Forecast Survey.

Private nonresidential building led the overall November gain in activity with a 1.7% increase (12.6% y/y) after a 0.6% October decline. Factory construction rose 6.5% (43.2% y/y) while power construction increased 1.2% (-11.0% y/y). Health care construction improved 0.1% (6.9% y/y). A 2.0% decline (+10.6% y/y) in amusement & recreation building offset these gains while office building eased 0.1% (+2.3% y/y).

Private residential construction declined 0.5% in November (+5.3% y/y), the sixth straight month of decline. Single-family construction fell 2.9% (-10.2% y/y) for the second straight month. Multi-family building rose 2.4% (10.7% y/y), also for the second consecutive month. Spending on improvements increased 1.3% (27.6% y/y).

The value of public building eased 0.1% in November (+10.4% y/y) after two straight 1.6% increases. Office building rose 3.0% (5.9% y/y) but commercial construction fell 1.4% (+17.8% y/y). Highways & streets building fell 1.0% (+14.5% y/y) but education building edged 0.1% higher (1.5% y/y). Water supply construction declined 2.0% (+31.6% y/y).

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

- Small increase reverses October decline.

- Nonresidential building leads improvement.

- Single-family construction weakens further.

U.S. Construction Spending Edges Higher in November

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: January 2023