Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612a.jpg" align="left" border="0" height="265" width="353">
U.S. retail sales last month were stronger-than-expected,
boosted by early receipts of the government's tax rebate checks - $600
per person and $300 per child for families. A 1.0% May jump in sales
followed an upwardly revised 0.4% April increase, initially reported as
a 0.2% decline. On a three-month basis overall retail sales were down
2.0% (AR).
Sales of motor vehicles &amp; parts ticked up 0.3% (-7.0%
y/y) following three months of decline. The increase accompanied a 1.1%
decline in unit motor vehicle sales.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612b.jpg" align="right" border="0" height="265" width="353">
Retail sales excluding autos rose 1.2% and
the April rise of 1.0% was double last month's estimate. The gain also
exceeded Consensus expectations for a 0.6% increase.
Higher prices for gasoline boosted sales at service stations
by 2.6% (13.8% y/y). Nevertheless, less gasoline &amp;
autos, retail sales still surged 1.0% (3.7% y/y) and the April increase
was about doubled to 1.1% (3.7% y/y). On a three-month basis these
sales jumped at a 10.7% annual rate.
May sales of nonstore retailers (internet &amp;
catalogue) surged 1.6% (10.0% y/y) after very much upwardly
revised gains during the prior two months of 3.2% and 1.7%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612c.jpg" align="left" border="0" height="265" width="353">
Sales of discretionary items improved. Sales at general
merchandise stores surged 1.2% (5.1% y/y) following gains
between 0.4% and 1.0% during the prior three months.Furniture,
home furnishings &amp; appliance store sales rose 0.6%
(-0.7% y/y) for the second month. The gain, however, followed four
months when sales were unchanged or down. The rise reflected higher
sales of electronics &amp; appliances which rose 0.7% (3.7% y/y)
after a 1.1% April jump. Sales of furniture &amp; home furnishings
increased just 0.4% (-4.9% y/y) after a year of monthly declines. Apparel
store sales rose 0.5% (-0.1% y/y) but the April increase was
lessened to 0.1%.
Building materials &amp; garden equipment sales surged
again by 2.4% (-3.2% y/y) following a like increase during April.
Restaurant and drinking places sales also jumped, by 0.8%
(5.1% y/y) last month after an upwardly revised 1.2% increase.
The latest Beige Book covering regional
economic conditions from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2008/20080611/default.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">&nbsp;</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail
Sales &amp; Food Services</a></td>
<td>1.0%</td>
<td>0.4%</td>
<td>2.5%</td>
<td>4.0%</td>
<td>5.8%</td>
<td>6.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>1.2%</td>
<td>1.0%</td>
<td>4.9%</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>1.0%</td>
<td>1.1%</td>
<td>3.7%</td>
<td>4.1%</td>
<td>6.2%</td>
<td>6.4%</td>
</tr>
</tbody>
</table>
U.S. Initial Unemployment
Insurance Claims Up 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 12, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612d.jpg" align="left" border="0" height="265" width="353">
Initial claims for unemployment insurance rose 25,000 last
week to 384,000 from an upwardly revised level of 359,000 during the
prior week. Consensus expectations had been for a lesser increase to
365,000 claims.
The four week moving average of initial claims rose slightly
week-to-week to 371,500 (19.4% y/y) and the recent average was up
slightly from April when claims averaged 364,000. These numbers are
down from March when initial claims averaged 375,000.
A claims level below 400,000 typically has been associated
with growth in nonfarm payrolls. During the last ten years there has
been a (negative) 76% correlation between the level of initial claims
and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance rose 58,000 and
made up all of a revised 28,000 decline during the prior week. The
latest level was the highest since February 2004. The four week average
of continuing claims rose to 3,099, 250 and the number provides some
indication of workers' ability to find employment.
The continuing claims numbers lag the initial claims figures
by one week.
The insured rate of unemployment rose to 2.4% after six weeks
at 2.3%. The latest was the highest since mid-2004.
Lessons for Central Bankers from a Phillips Curve
Framework is yesterday's speech by Fed Vice Chairman Donald
L. Kohn and it is available <a href="http://www.federalreserve.gov/newsevents/speech/Kohn20080611a.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">06/07/08</th>
<th scope="col">05/31/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;384</td>
<td>359</td>
<td>22.3%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,139</td>
<td>25.6%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
U.S. Total Import Price Surge
Quickest Since 1990 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 12, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612f.jpg" align="left" border="0" height="265" width="353">
U.S. import prices, overall, surged another 2.3% last month
and the gain was right in-line with expectations. It followed a like
2.4% April increase which was upwardly revised from 1.8%. During the
last three months import prices have risen at a 35.4% annual rate which
was the quickest since late 1990.
Petroleum prices jumped further by 7.8% and imported crude
petroleum prices already are up another 10% this month versus May.
Less petroleum, the gain in import prices eased to 0.5% from
an upwardly revised 1.3% during April. Pushed higher by the lower
foreign exchange value of the dollar, the price increases during the
last three months are the fastest on record. 
 During
the last ten years there has been a 66% (negative) correlation between
the nominal trade-weighted exchange value of the US dollar vs. major
currencies and the y/y change in non oil import prices. The correlation
is a reduced 47% against a broader basket of currencies.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612e.jpg" align="right" border="0" height="265" width="353">
Prices
for industrial supplies &amp; materials excluding oil surged
another 1.8% (17.0% y/y) in May. These prices are up at a 36.5% rate so
far this year due to strength in finished metal, chemicals and
agricultural prices. The detailed import price series can be found in
the Haver USINT database. 
Capital goods import prices increased 0.3% after an upwardly
revised 0.9% April rise. So far this year prices have risen at a 2.9%
rate after a 0.4% increase last year, but less the lower prices of
computers, capital goods prices have risen at a 7.1% in 2008 through
May. That's after a 2.7% rise during all of 2007. Prices of computers,
peripherals and accessories have fallen at a 6.4% rate this year after
the 5.1% 2007 decline.
Finally, prices for nonauto consumer goods imports have risen
at a 5.5% in 2008 after the 1.6% increase last year. This year's gain
in prices is the quickest since 1992 and has been notable for durables
(5.9%), apparel (2.4%) and other nondurable products (9.6%).
Total export prices increased 0.3% as agricultural prices rose
0.3% (33.3% y/y) after a 2.1% April drop. Nonagricultural export prices
rose 0.4% (5.7% y/y). 


<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/@E807/@E807.HTM">Import/Export
Prices (NSA)</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">Import - All Commodities</td>
<td>2.3%</td>
<td>2.4%</td>
<td>17.8%</td>
<td>4.2%</td>
<td>4.9%</td>
<td>7.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>7.8%</td>
<td>5.9%</td>
<td>68.8%</td>
<td>11.6%</td>
<td>20.6%</td>
<td>37.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.5%</td>
<td>1.3%</td>
<td>6.6%</td>
<td>2.7%</td>
<td>1.7%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.3%</td>
<td>0.5%</td>
<td>8.0%</td>
<td>4.9%</td>
<td>3.6%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
U.S. Business Inventories Rose,
Recent Trend Growth Slower 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 12, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612g.jpg" align="left" border="0" height="265" width="353">
Total business inventories increased 0.5% after a
little-revised 0.2% gain during March. The April rise was greater than
expectations for a 0.3% increase. Annualized, three-month growth in
inventories backed off further to 4.7% from the elevated 8.2% growth
rate in February.
Retail inventories rose 0.4% following two month of decline.
The three-month growth rate remained negative at -1.2%. Inventories of
motor vehicle &amp; parts fell at a 4.2% annual rate during the
last three months due to further production cutbacks. Outside of autos,
retail inventories rose 0.2% after a 1.1% drop during March and they
are essentially unchanged during the last three months.
The industry detail in the retail sector indicated that
furniture inventories fell at an annual rate of 1.2% during the last
three months. Clothing &amp; accessory store inventories fell hard
at a 4.9% rate while general merchandise stores' inventories dropped at
a 2.6% rate.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612h.jpg" align="right" border="0" height="265" width="353">
Factory inventories fell just slightly in April and
three-month growth fell to 6.2% (AR) which was half the growth earlier
this year. Despite the rise in oil prices, petroleum inventories fell
at a 2.6% rate over the last three months after spiking earlier this
year. Elsewhere, factory inventory accumulation has been fairly steady
in 2008 at a 6.9% rate.
Wholesale inventories have risen at a 10.2% rate during the
last three months, juiced by the rise in oil prices. Less petroleum,
inventories still have been firm, however, rising at a 9.8% rate which
was twice the rate of increase during all of last year.
Total business sales surged again, by 1.4% led by a 2.2% surge
in factory shipments. Three-month growth held steady at a 6.2% annual
rate.
The inventory-to-sales ratio for all business fell to 1.25 in
April from 1.27 during 1Q and from 1.27 during the prior three years.
Protecting Consumers in the Credit Marketplace
is yesterday's speech by Fed Governor Randall S. Kroszner and it can be
found <a href="http://www.federalreserve.gov/newsevents/speech/kroszner20080611a.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">April</th>
<th scope="col">March</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>5.4%</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>-0.6%</td>
<td>2.5%</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>0.7%</td>
<td>-0.4%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>4.9%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>1.3%</td>
<td>0.1%</td>
<td>8.1%</td>
<td>5.5%</td>
<td>8.3%</td>
<td>7.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>6.0%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>8.9%</td>
</tr>
</tbody>
</table>
EMU Area IP Growth Confirms theStrength Across Countries 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 12, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080612i.jpg" align="left" border="0" height="265" width="353">
In April EMU-wide industrial output rose by 0.3% but that was
after a drop of 0.6% in March. While the Yr/Yr growth rate seems a lot
higher at 2.9% in April compared to 1.4% in March, growth is actually
fading. The monthly gain in April does not make up for the weakness in
March. As a result the quarter to date growth in EMU-wide IP is running
at a negative rate of 0.3%, a slight annual rate decline in 2008-Q2.
Consumer goods output is dropping at -0.5% annual rate clearly
the weak sector in 2008-Q2, despite a sharp gain of 1.7% in April.
Intermediate goods output is nearly flat and has been choppy in recent
months. Capital goods output remains as it has been, the driver of
industrial growth, rebounding sharply by 2% in April after a 1.6% drop
in March and growing at a 6.5% annual rate in 2008-Q2.
The chart on the left shows that this month&#8217;s rebound in
output comes in the face of a clear declining trend for output of
consumer and intermediate goods. For capital goods the trend is not
clear except that this month&#8217;s sharp gain arrests, for at least one
month, what had seemed to be the onset of a declining trend there.
Instead, all we can say is that capital goods output has become very
volatile. This has come at a time that weather effects and the calendar
placement of Easter have been beneficial to the euro-economy. So if
these sorts of ephemeral factors are responsible for the monthly
rebound we could see the onset of true trend and weaker growth in the
months ahead.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">Euro Area
MFG IP </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">SAAR except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Apr 
08</td>
<td>Mar 
08</td>
<td>Apr 
08</td>
<td>Mar 
08</td>
<td>Apr 
08</td>
<td>Mar 
08</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Euro Area Detail</td>
<td>Apr 
08</td>
<td>Mar 
08</td>
<td>Feb 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2- 
Date</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>3.0%</td>
<td>1.6%</td>
<td>2.2%</td>
<td>2.9%</td>
<td>1.4%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>-2.1%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.8%</td>
<td>0.6%</td>
<td>-1.1%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">C-Durables</td>
<td>1.7%</td>
<td>-1.6%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>1.2%</td>
<td>-0.3%</td>
<td>-3.4%</td>
<td>1.1%</td>
<td>-3.2%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">C-Nondurables</td>
<td>0.2%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>-2.4%</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>1.9%</td>
<td>2.5%</td>
<td>0.6%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td>2.0%</td>
<td>-1.6%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>5.9%</td>
<td>6.0%</td>
<td>4.0%</td>
<td>7.5%</td>
<td>3.6%</td>
<td>6.5%</td>
</tr>
</tbody>
</table>
</body></html>

U.S. retail sales last month were stronger-than-expected, boosted by early receipts of the government's tax rebate checks - $600 per person and $300 per child for families. A 1.0% May jump in sales followed an upwardly revised 0.4% [...]

U.S. Retail Sales Firmed

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080611c.jpg" align="left" border="0" height="265" width="353">Bad news for the ECB&#8230;

France and the EMU ceiling - France&#8217;s HICP rate rose by 0.5%
in May 2008; its own domestic CPI measure rose by 0.4% with a tempered
core of +0.1%. The HICP core rate is not yet available. But both the
HICP and the French domestic CPI readings show accelerating headline
inflation and that is what the ECB targets and tries to limit. France&#8217;s
3.7% Yr/Yr HICP headline gain is nearly DOUBLE the EMU-wide limit of 2%
imposed by the ECB. If inflation were to get a ticket for this it would
be for reckless driving. If you were driving above the 65mph speed
limit to the same degree of excess, you would be traveling at 120mph.

ECB and its inflation ceiling - No wonder the ECB wants to
hike rates. The ECB has been below the top of its inflation
speed-ceiling in only 4 of the past 49 months. In Sept and Oct of 2005
the pace hit 2.7% and 2.8% Yr/Yr then receded. In May and June of 2006
it hit 2.7% Yr/Yr again, then receded. While many divergences have
occurred, for the most part, they had been on the orders of 0.5% or
less on a 12-month inflation rate --that is until late 2007. From
October to November of 2007 the pace jumped from 2.7% to 3.3%; it rose
to 3.6% in April. We await the EMU-wide rate for May.

France&#8217;s pressures are getting worse - France&#8217;s experience
with inflation seems to be typical rather than unusual for an EMU
nation. The news for May is that things are getting worse. Diffusion
measures on inflation acceleration show that 72% of the domestic French
CPI categories are accelerating over three months compared to six
months using annualized rates. And, over six months compared to Yr/Yr
trends, the acceleration tendency also was greater in 72% of the
categories. Inflation is on a clear widespread rising trend in France
and probably elsewhere in EMU as well. 
 

ECB trying to keep its credibility intact - No wonder the ECB
feels is has lost control and wants to hike rates again. Even so, one
suspects that there is a lot of &#8216;hike for show&#8217; not &#8216;for dough&#8217; in this
planned move. The ECB does NOT WANT to choke off growth even though it
has no growth mandate. It does not want to send the euro spiraling
higher either. It wants to get control of inflation. But it realizes
that targeting headline inflation as oil prices rise is a losing game.

Does the ECB have the dilemma of having the WRONG target? The
ECB IN FACT cannot control the rate it claims to target, at least not
in the short - or even intermediate - run. It can corral it eventually
and it can, though anchoring inflation expectations have somewhat
better medium term success with the core rate. But that rate has not
been made part of the targeting/ceiling process in any way. So viewed
in a pure way the ECB is simply blowing it big time. It undoubtedly
feels that to regain or maintain credibility it must be seen doing
something in the face of this new inflation surge. I conclude that this
is a desire to hike rates more &#8216;for show than for dough&#8217; due to Juergen
Startk&#8217;s comment this morning that the ECB seeks a rate hike, not a
series of hikes. If the ECB wanted to contain inflation here and now it
would take a series of hikes and it would also take the onset of
recession since the headline overshoot is simply too big to handle with
subtlety.

ECB is acting as the Fed would while the Fed has inflation
corralled - Despite all the ECB macho rhetoric it is acting more like
Fed would in its position. Indeed, the difference is that he Fed
informally targets a Core rate of inflation at 2.4% for the CPI and
with its core-CPI pace rising by 2.5% Yr/Yr the Fed can claim virtual
success despite the headline inflation rate that is worse than the one
in Europe. Still, in the US people wonder why target the core when they
have to live in the real world and pay headline inflation since
everyone uses fuel and food. So even the Fed&#8217;s inflation fighting
success relative to its soft &#8216;target&#8217; has not bought it credibility

Policy credibility Vs integrity&#8230; It is interesting to ponder
whether credibility/integrity is better served by targeting the
headline rate everyone sees and pays but that you cannot control at all
or the core rate you can influence but will be criticized for having
when a gap opens up between it and headline inflation. In either case
Central banks seem to need some rhetoric (that is lacking) to inform
the public of how their approach will work &#8211; to bridge either the
credibility gap (missing the target) or the policy integrity gap
(hitting the wrong one). All we hear from these banks is that they will
not let inflation run wild. Still in the case of the Fed or the ECB in
2008, headline inflation is such that it can hardly be called under
control. While I, as an economist, give both these banks credit for
limiting (so far) the pass-through into core inflation, they are both
lacking in their willingness to get detailed with the public about what
is going on and how their plan will successfully keep inflation in
check. It&#8217;s an interesting dilemma. In the case of the ECB it is a
numeric ceiling that has been exceeded nearly every month over the past
four years. In the case of the Fed it&#8217;s a vague pledge to control
inflation buttressed by a number that has no formal status and a pledge
to control an inflation rate that people think is not the right one.
France&#8217;s May consumer prices report suggests that this dilemma will be
with us for some time. 
 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> France
HICP and CPI details</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>May-08</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">HICP Total</td>
<td>0.5%</td>
<td>0.1%</td>
<td>0.5%</td>
<td>4.6%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.4%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">CPI</td>
</tr>
<tr>
<td class="firstcol">All</td>
<td>0.4%</td>
<td>0.1%</td>
<td>0.5%</td>
<td style="color: red;">4.0%</td>
<td style="color: red;">3.5%</td>
<td>3.3%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">CPI excl food and energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">2.5%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>0.6%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>5.6%</td>
<td style="color: red;">6.8%</td>
<td style="color: red;">6.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Alcohol</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td style="color: red;">2.8%</td>
<td>2.4%</td>
<td style="color: red;">4.9%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">Clothing &amp; Shoes</td>
<td>0.0%</td>
<td>0.2%</td>
<td>1.0%</td>
<td style="color: red;">4.6%</td>
<td style="color: red;">0.8%</td>
<td style="color: red;">0.7%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Rent &amp; Utilities</td>
<td>1.0%</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">6.3%</td>
<td style="color: red;">5.6%</td>
<td style="color: red;">5.6%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Health Care</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>-0.2%</td>
<td style="color: red;">0.3%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Transport</td>
<td>1.0%</td>
<td>-0.2%</td>
<td>1.0%</td>
<td style="color: red;">7.6%</td>
<td style="color: red;">6.3%</td>
<td style="color: red;">6.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Communication</td>
<td>0.6%</td>
<td>0.1%</td>
<td>2.7%</td>
<td style="color: red;">14.4%</td>
<td style="color: red;">2.6%</td>
<td style="color: red;">2.1%</td>
<td>-0.7%</td>
</tr>
<tr>
<td class="firstcol">Recreation &amp; Culture</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td style="color: red;">-1.7%</td>
<td>-1.9%</td>
<td style="color: red;">-1.6%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.7%</td>
<td style="color: red;">3.2%</td>
<td style="color: red;">3.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.4%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">2.9%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td style="color: red;">3.1%</td>
<td style="color: red;">1.9%</td>
<td>1.9%</td>
<td>2.2%</td>
</tr>
<tr class="even">
<td class="firstcol">Diffusion</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>72.7%</td>
<td>72.7%</td>
<td>90.9%</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>
</tbody>
</table>
</body></html>

Bad news for the ECB… France and the EMU ceiling - France’s HICP rate rose by 0.5% in May 2008; its own domestic CPI measure rose by 0.4% with a tempered core of +0.1%. The HICP core rate is not yet available. But both the HICP and [...]

French Inflation Continues to Escalate Over the Top

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<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080611a.jpg" width="353">
The Bureau of Labor Statistics reported in the Job Openings &amp; Labor Turnover Survey (JOLTS) that for April, the number of job openings rose 0.9% from March. That followed declines during most of the prior year. Since their peak in January of 2007, the number of job openings have fallen 14%. In addition, the job openings rate during that period fell from a 3.0% high to 2.6% in April, unchanged from March. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of job openings in the construction industry was unchanged in April versus March but the level of openings was down by more than one-half from the February &#39;07 peak. Job openings in manufacturing were off by one-third from the late &#39;06 peak while professional &amp; business services job openings were off 7.9% from the peak. Job openings in the education &amp; health sectors were off 8.2% from late &#39;06.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080611b.jpg" width="353">
By region, openings in the Northeast were down 23.2% from the late &#39;06 peak and they were down 20.1% in the South. In the Midwest openings were off a lesser 6.9% from the peak and by 15.2% in the West since mid-2007.
The hires rate improved in April to 3.5% versus March but but remained well below the levels of the last several years. The hires rate is the number of hires during the month divided by employment.The actual number of hires rose in April by 4.7% from March after a 2.3% during all of 2007.
The job separations rate was unchanged m/m at 3.2% in April but that was down from 3.7% at the peak. Separations include quits, layoffs, discharges, and other separations as well as retirements. The level of job separations fell 10.3% from the peak.
The JOLTS survey dates only to December 2000 but has since followed the movement in nonfarm payrolls, though the actual correlation between the two series is low.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.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/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor &nbsp;Turnover Survey)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;07</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">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Job Openings, Total&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.6</td>
<td>2.6</td>
<td>2.9</td>
<td>2.8</td>
<td>3.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>3,705</td>
<td>3,672</td>
<td>4,148</td>
<td>3,974</td>
<td>4,272</td>
<td>3,863</td>
</tr>
<tr class="odd">
<td class="firstcol">Hires, Total </td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>3.5</td>
<td>3.3</td>
<td>3.5</td>
<td>41.9</td>
<td>43.4</td>
<td>43.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,784</td>
<td>4,569</td>
<td>4,816</td>
<td>57,771</td>
<td>59,153</td>
<td>57,501</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bureau of Labor Statistics reported in the Job Openings & Labor Turnover Survey (JOLTS) that for April, the number of job openings rose 0.9% from March. That followed declines during most of the prior year. Since their peak in [...]

JOLTS: April Job Openings & Hires Rose, Trend Down Hard

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080611a.jpg" align="left" border="0" height="265" width="353">
The Bureau of Labor Statistics reported in the Job Openings
&amp; Labor Turnover Survey (JOLTS) that for April, the number of
job openings rose 0.9% from March. That followed declines during most
of the prior year. Since their peak in January of 2007, the number of
job openings have fallen 14%. In addition, the job openings rate during
that period fell from a 3.0% high to 2.6% in April, unchanged from
March. The job openings rate is the number of job openings on
the last business day of the month as a percent of total employment
plus job openings.
The actual number of job openings in the construction industry was
unchanged in April versus March but the level of openings was down by
more than one-half from the February '07 peak. Job openings in
manufacturing were off by one-third from the late '06 peak while
professional &amp; business services job openings were off 7.9%
from the peak. Job openings in the education &amp; health sectors
were off 8.2% from late '06.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080611b.jpg" align="right" border="0" height="265" width="353">
By region, openings in the Northeast were down 23.2% from the
late '06 peak and they were down 20.1% in the South. In the Midwest
openings were off a lesser 6.9% from the peak and by 15.2% in the West
since mid-2007.
The hires rate improved in April to 3.5% versus March but but
remained well below the levels of the last several years. The
hires rate is the number of hires during the month divided by
employment.The actual number of hires rose in April by 4.7%
from March after a 2.3% during all of 2007.
The job separations rate was unchanged m/m at 3.2% in April
but that was down from 3.7% at the peak. Separations include
quits, layoffs, discharges, and other separations as well as
retirements. The level of job separations fell 10.3% from
the peak.
The JOLTS survey dates only to December 2000 but has since
followed the movement in nonfarm payrolls, though the actual
correlation between the two series is low.
A description of the Jolts survey and the latest release from
the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.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/@EB/@EB14/@EB14.HTM">JOLTS</a>
(Job Openings &amp; Labor &nbsp;Turnover Survey)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April '07</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">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Job Openings, Total&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.6</td>
<td>2.6</td>
<td>2.9</td>
<td>2.8</td>
<td>3.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>3,705</td>
<td>3,672</td>
<td>4,148</td>
<td>3,974</td>
<td>4,272</td>
<td>3,863</td>
</tr>
<tr class="odd">
<td class="firstcol">Hires, Total </td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>3.5</td>
<td>3.3</td>
<td>3.5</td>
<td>41.9</td>
<td>43.4</td>
<td>43.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,784</td>
<td>4,569</td>
<td>4,816</td>
<td>57,771</td>
<td>59,153</td>
<td>57,501</td>
</tr>
</tbody>
</table>
French Inflation Continues toEscalate Over the Top 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080611c.jpg" align="left" border="0" height="265" width="353">Bad news for the ECB&#8230;

France and the EMU ceiling - France&#8217;s HICP rate rose by 0.5%
in May 2008; its own domestic CPI measure rose by 0.4% with a tempered
core of +0.1%. The HICP core rate is not yet available. But both the
HICP and the French domestic CPI readings show accelerating headline
inflation and that is what the ECB targets and tries to limit. France&#8217;s
3.7% Yr/Yr HICP headline gain is nearly DOUBLE the EMU-wide limit of 2%
imposed by the ECB. If inflation were to get a ticket for this it would
be for reckless driving. If you were driving above the 65mph speed
limit to the same degree of excess, you would be traveling at 120mph.

ECB and its inflation ceiling - No wonder the ECB wants to
hike rates. The ECB has been below the top of its inflation
speed-ceiling in only 4 of the past 49 months. In Sept and Oct of 2005
the pace hit 2.7% and 2.8% Yr/Yr then receded. In May and June of 2006
it hit 2.7% Yr/Yr again, then receded. While many divergences have
occurred, for the most part, they had been on the orders of 0.5% or
less on a 12-month inflation rate --that is until late 2007. From
October to November of 2007 the pace jumped from 2.7% to 3.3%; it rose
to 3.6% in April. We await the EMU-wide rate for May.

France&#8217;s pressures are getting worse - France&#8217;s experience
with inflation seems to be typical rather than unusual for an EMU
nation. The news for May is that things are getting worse. Diffusion
measures on inflation acceleration show that 72% of the domestic French
CPI categories are accelerating over three months compared to six
months using annualized rates. And, over six months compared to Yr/Yr
trends, the acceleration tendency also was greater in 72% of the
categories. Inflation is on a clear widespread rising trend in France
and probably elsewhere in EMU as well. 
 

ECB trying to keep its credibility intact - No wonder the ECB
feels is has lost control and wants to hike rates again. Even so, one
suspects that there is a lot of &#8216;hike for show&#8217; not &#8216;for dough&#8217; in this
planned move. The ECB does NOT WANT to choke off growth even though it
has no growth mandate. It does not want to send the euro spiraling
higher either. It wants to get control of inflation. But it realizes
that targeting headline inflation as oil prices rise is a losing game.

Does the ECB have the dilemma of having the WRONG target? The
ECB IN FACT cannot control the rate it claims to target, at least not
in the short - or even intermediate - run. It can corral it eventually
and it can, though anchoring inflation expectations have somewhat
better medium term success with the core rate. But that rate has not
been made part of the targeting/ceiling process in any way. So viewed
in a pure way the ECB is simply blowing it big time. It undoubtedly
feels that to regain or maintain credibility it must be seen doing
something in the face of this new inflation surge. I conclude that this
is a desire to hike rates more &#8216;for show than for dough&#8217; due to Juergen
Startk&#8217;s comment this morning that the ECB seeks a rate hike, not a
series of hikes. If the ECB wanted to contain inflation here and now it
would take a series of hikes and it would also take the onset of
recession since the headline overshoot is simply too big to handle with
subtlety.

ECB is acting as the Fed would while the Fed has inflation
corralled - Despite all the ECB macho rhetoric it is acting more like
Fed would in its position. Indeed, the difference is that he Fed
informally targets a Core rate of inflation at 2.4% for the CPI and
with its core-CPI pace rising by 2.5% Yr/Yr the Fed can claim virtual
success despite the headline inflation rate that is worse than the one
in Europe. Still, in the US people wonder why target the core when they
have to live in the real world and pay headline inflation since
everyone uses fuel and food. So even the Fed&#8217;s inflation fighting
success relative to its soft &#8216;target&#8217; has not bought it credibility

Policy credibility Vs integrity&#8230; It is interesting to ponder
whether credibility/integrity is better served by targeting the
headline rate everyone sees and pays but that you cannot control at all
or the core rate you can influence but will be criticized for having
when a gap opens up between it and headline inflation. In either case
Central banks seem to need some rhetoric (that is lacking) to inform
the public of how their approach will work &#8211; to bridge either the
credibility gap (missing the target) or the policy integrity gap
(hitting the wrong one). All we hear from these banks is that they will
not let inflation run wild. Still in the case of the Fed or the ECB in
2008, headline inflation is such that it can hardly be called under
control. While I, as an economist, give both these banks credit for
limiting (so far) the pass-through into core inflation, they are both
lacking in their willingness to get detailed with the public about what
is going on and how their plan will successfully keep inflation in
check. It&#8217;s an interesting dilemma. In the case of the ECB it is a
numeric ceiling that has been exceeded nearly every month over the past
four years. In the case of the Fed it&#8217;s a vague pledge to control
inflation buttressed by a number that has no formal status and a pledge
to control an inflation rate that people think is not the right one.
France&#8217;s May consumer prices report suggests that this dilemma will be
with us for some time. 
 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> France
HICP and CPI details</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>May-08</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">HICP Total</td>
<td>0.5%</td>
<td>0.1%</td>
<td>0.5%</td>
<td>4.6%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.4%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">CPI</td>
</tr>
<tr>
<td class="firstcol">All</td>
<td>0.4%</td>
<td>0.1%</td>
<td>0.5%</td>
<td style="color: red;">4.0%</td>
<td style="color: red;">3.5%</td>
<td>3.3%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">CPI excl food and energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">2.5%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>0.6%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>5.6%</td>
<td style="color: red;">6.8%</td>
<td style="color: red;">6.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Alcohol</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td style="color: red;">2.8%</td>
<td>2.4%</td>
<td style="color: red;">4.9%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">Clothing &amp; Shoes</td>
<td>0.0%</td>
<td>0.2%</td>
<td>1.0%</td>
<td style="color: red;">4.6%</td>
<td style="color: red;">0.8%</td>
<td style="color: red;">0.7%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Rent &amp; Utilities</td>
<td>1.0%</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">6.3%</td>
<td style="color: red;">5.6%</td>
<td style="color: red;">5.6%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Health Care</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>-0.2%</td>
<td style="color: red;">0.3%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Transport</td>
<td>1.0%</td>
<td>-0.2%</td>
<td>1.0%</td>
<td style="color: red;">7.6%</td>
<td style="color: red;">6.3%</td>
<td style="color: red;">6.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Communication</td>
<td>0.6%</td>
<td>0.1%</td>
<td>2.7%</td>
<td style="color: red;">14.4%</td>
<td style="color: red;">2.6%</td>
<td style="color: red;">2.1%</td>
<td>-0.7%</td>
</tr>
<tr>
<td class="firstcol">Recreation &amp; Culture</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td style="color: red;">-1.7%</td>
<td>-1.9%</td>
<td style="color: red;">-1.6%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.7%</td>
<td style="color: red;">3.2%</td>
<td style="color: red;">3.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.4%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">2.9%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td style="color: red;">3.1%</td>
<td style="color: red;">1.9%</td>
<td>1.9%</td>
<td>2.2%</td>
</tr>
<tr class="even">
<td class="firstcol">Diffusion</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>72.7%</td>
<td>72.7%</td>
<td>90.9%</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080610j.jpg" align="left" border="0" height="265" width="353">
Industrial output has held firm-to-strong in most of the large
EMU countries in April. France shows strengthening IP trends. In Italy
the three- and six- month growth rates are just above 2%. Spain&#8217;s
numbers are simply too volatile to tell. They are on a strong upswing
in April (see table) but only after showing some extreme weakness in
their March trends (also in table). In the UK, output continues to edge
higher. But Germany, surprisingly, shows the weakest trends in April.
At -0.7%; Aprils 3-mo growth rate for Germany is now at -4.1% below the
+3.3% six month pace and the +5.7% Yr/Yr pace.

This divergence points up the erratic and out of step nature
of these economic trends. Germany alone shows a clear decelerating
pattern for output but gives mixed signals for industry overall.
Germany boasts still strong exports but also dropping production and
fading &#8211; but still growing &#8211; industrial order books. And despite growth
in industrial output in other EMU countries, German export orders were
dropping the most in other EMU countries, too. So that is yet another
mixed or inconsistent signal.

As the EMU&#8217;s largest economy Germany has supported growth in
adjacent EMU members. For the time being, other EMU countries continue
to register growth in April. Still, there is little sign of vigor. The
European consumer is still struggling and we know that the strong euro,
financial distress and spiking energy prices are continuing to take a
toll. The capital goods sector continues to be the mainstay of growth
in Europe. But growth overall seems to be challenged despite the spate
of firm industrial output numbers reported out by the UK, Italy and
France today. The risk is that Germany&#8217;s slowdown is the vanguard and
weakness in the other countries will follow.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> Main
E-zone Countries and UK IP in MFG</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Apr 
08</td>
<td>Mar 
08</td>
<td>Apr 
08</td>
<td>Mar 
08</td>
<td>Apr 
08</td>
<td>Mar 
08</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">MFG Only</td>
<td>Apr 
08</td>
<td>Mar 
08</td>
<td>Feb 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2- 
Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany:</td>
<td>-0.7%</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>-4.1%</td>
<td>3.6%</td>
<td>3.3%</td>
<td>4.4%</td>
<td>5.7%</td>
<td>5.0%</td>
<td>-5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP excl Construction</td>
<td>1.4%</td>
<td>-1.0%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>-0.8%</td>
<td>0.8%</td>
<td>1.9%</td>
<td>3.2%</td>
<td>0.7%</td>
<td>5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>2.1%</td>
<td>7.0%</td>
<td>2.1%</td>
<td>-1.2%</td>
<td>-0.1%</td>
<td>-1.8%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>27.0%</td>
<td>-16.9%</td>
<td>2.6%</td>
<td>37.5%</td>
<td>-40.3%</td>
<td>10.9%</td>
<td>-20.4%</td>
<td>11.5%</td>
<td>-13.8%</td>
<td>106.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>0.2%</td>
<td>-0.5%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>1.2%</td>
<td>0.4%</td>
<td>1.0%</td>
<td>0.1%</td>
<td>0.5%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

Industrial output has held firm-to-strong in most of the large EMU countries in April. France shows strengthening IP trends. In Italy the three- and six- month growth rates are just above 2%. Spain’s numbers are simply too volatile to [...]

EMU Industrial Production Held Firm in April

Louise Curley

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The Monetary policy of the Central Bank of Denmark has
shadowed that of the European Central Bank while those of Sweden and
Norway have tended to be tighter. Currently the official interest rate
in Norway is 5.5% and in Sweden, 4.25%, while in Denmark and the Euro
Area, it is 4%. The first chart plots the official interest rates of
the three countries and the Euro Area. Denmark and the Euro Area have
had identical official interest rates.
Current trends in inflation in the three countries will keep
their central banks vigilant. The second chart shows the inflation
rates in Denmark, Norway and Sweden. Inflation has been rising since
early 2007, but with rising interest rates, real interest rates remain
positive in contrast to the situation in the Far East where negative
interest are the rule as monetary policy has continued easy in the face
of rising inflation. (See June 2nd Commentary "Far East Inflation and
Easy Monetary Policy Mean Negative Real Interest Rates in the Area.")
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080610h.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080610i.jpg" border="0" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INFLATION
(%)</th>
<th scope="col">May 08</th>
<th scope="col">Apr 08&nbsp;</th>
<th scope="col">May 07&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y&nbsp;Chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Denmark</td>
<td>3.56</td>
<td>3.38</td>
<td>1.60</td>
<td>0.18</td>
<td>1.89</td>
<td>1.67</td>
<td>1.85</td>
<td>1.70</td>
</tr>
<tr class="odd">
<td class="firstcol">Norway</td>
<td>2.81</td>
<td>2.72</td>
<td>0.58</td>
<td>0.09</td>
<td>2.23</td>
<td>0.72</td>
<td>2.48</td>
<td>1.48</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden</td>
<td>4.0</td>
<td>3.4</td>
<td>1.7</td>
<td>0.6</td>
<td>2.3</td>
<td>2.21</td>
<td>1.36</td>
<td>0.45</td>
</tr>
<tr>
<td class="firstcol" colspan="9">OFFICIAL
INTEREST
RATES EOP (%)</td>
</tr>
<tr class="odd">
<td class="firstcol">Denmark</td>
<td>4.00</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>4.00</td>
<td>4.0</td>
<td>2.25</td>
</tr>
<tr class="odd">
<td class="firstcol">Norway</td>
<td>5.50</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>5.25</td>
<td>3.50</td>
<td>2.25</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden</td>
<td>4.25</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>4.00</td>
<td>3.00</td>
<td>1.50</td>
</tr>
<tr class="odd">
<td class="firstcol">ECB</td>
<td>4.00</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>4.00</td>
<td>3.50</td>
<td>2.25</td>
</tr>
</tbody>
</table>
</body></html>

The Monetary policy of the Central Bank of Denmark has shadowed that of the European Central Bank while those of Sweden and Norway have tended to be tighter. Currently the official interest rate in Norway is 5.5% and in Sweden, 4.25%, [...]

Inflation and Monetary Policy in Denmark, Norway and Sweden

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080610g.jpg" width="353">
The International Council of Shopping Centers reported that chain store sales recovered 1.7% from the week earlier. The latest was the highest level in one month.
During all of May sales fell 0.9% from April; during which sales rose 1.0%.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
During the latest week, the leading indicator of chain store sales from ICSC-UBS rose 0.6%, its first increase since early April. from one year earlier.
The chain store sales figures are available in Haver&#39;s SURVEYW database.

<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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/07/08</th>
<th scope="col">05/31/08</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">Total Weekly Chain Store Sales</td>
<td>492.3</td>
<td>484.3</td>
<td>1.8%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers reported that chain store sales recovered 1.7% from the week earlier. The latest was the highest level in one month.

U.S. Chain Store Sales Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080610e.jpg" width="353">
The retail price for a gallon of regular gasoline rose six cents last week to $4.04 per gallon, according to the U.S. Department of Energy survey. The rise followed the previous week&#39;s four cent increase. For all grades of gasoline the average price also rose six cents to an average $4.09 per gallon last week.
Yesterday, the spot market price for a gallon of regular gasoline fell a nickel from Friday to $3.28 but that was still up four cents from last week&#39;s average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080610f.jpg" width="353">
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database, daily prices are in the DAILY database.
According to the U.S. Department of Energy the increase in gasoline prices, along with the slowdown in economic growth, have lowered the demand for gasoline during the latest four weeks by 1.6% from a year earlier. Refinery production of gasoline is down 3.9% year-to-year.
The DOE figures are available in Haver&#39;s OILWKLY database.
During all of last week, the price of a barrel of WTI crude oil slipped slightly to an average of $128.14 but yesterday the price held above $130 at $134.35.
Natural gas prices rose to the highest level since late-2005. At $12.715/mmbtu up 70.0% versus a year earlier.

<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">06/09/08</th>
<th scope="col">06/02/08</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>4.04</td>
<td>3.98</td>
<td>31.3%</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>128.47</td>
<td>130.15</td>
<td>100.9%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>


</html>

The retail price for a gallon of regular gasoline rose six cents last week to $4.04 per gallon, according to the U.S. Department of Energy survey. The rise followed the previous week's four cent increase. For all grades of gasoline [...]

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

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

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

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

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

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

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

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

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- $60.2 bil. trade deficit, reflecting $85.9 bil. goods deficit & $25.7 bil. services surplus.
- Exports -0.5% m/m, down for the second consecutive month.
- Imports -3.7% m/m, down for the third straight month.
- Real goods trade deficit narrows to $84.6 bil. after May’s widening.
- Goods trade deficits w/ China at a record low, w/ EU at a June ’13 low, and w/ Japan at a 3-month low.

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

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

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

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

**Summing up**
The queue percentile standings for the group in July have an average value at 65.9% which is above the 50% mark that coincides with the median for the period. This tells us the growth is largely better than what its median has been over the past 4 1/2 years. On a queue ranking basis, the largest economies consistently perform better with readings above the 50% mark for the U.S. and for the European Monetary System including each of its largest EMU economies: Germany, France, Italy, and Spain. Japan has a queue standing in its 57th percentile. However, China’s percentile standing is in its 26th percentile and the U.K. is at its 40.5 percentile. Not all large economies are in the catbird seat, but most are faring well despite the moderate growth track globally.

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Service Sectors Prop-up Global Economy

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

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

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

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

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

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

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

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

Tian Yong Woon

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

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

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

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

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

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

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

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

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

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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.

Economy in Brief: June 2008

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