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Construction of data centers has overtaken transportation construction in US

Robert Brusca

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Retail sales in the euro area declined in volume terms in April, falling 0.4% on the month after rising 0.8% in March and falling 0.5% in February. Food and beverage volume recovered to post an expansion after two monthly declines.

**Sales trends slip**: However, the headline for retail volume growth shows that there has been steady slippage, with growth over 12 months weaker than it was over the previous 12 months, growth over six months at a weaker pace than it was over 12 months, and growth over three months posting an outright decline compared to a gain over six months. The highlighted red background in the table shows this string of continuous slowing that marks decelerating retail spending in the euro area as of April. In the quarter to date, retail sales volumes are declining at a 0.2% annual rate—a very slight contraction but a net reduction in sales volume, nonetheless, to start the second quarter.

**Contrarian strength in vehicle demand**: Motor vehicle registrations pulled back in April after some strong gains in earlier months. Motor vehicle registrations are accelerating as the growth rate rises from 12 months to six months to three months; growth actually explodes over three months, rising at a 52.4% annualized rate. With this strength, naturally, motor vehicle registrations are logging strong growth at the beginning of this new quarter, rising at a 33.6% annual rate.

Despite the strength in motor vehicle registrations, registrations are still a lot lower in comparison to January 2020. They have averaged a decline of 1.2% per year over this period. Since January 2020, just before COVID struck, retail sales in the euro area have risen by 6.7%, implying an average annual growth rate of 1% per year. This has generally been a lethargic period for retail sales.

**Sales trends by country**
Looking at the individual countries in the table, we chronicle developments for EMU members Germany and the Netherlands, EU member Denmark, and Northern European countries Norway and Sweden, plus former EU member the United Kingdom. We see that all of these countries have had a long period of weak growth going back to January 2020. Among these countries, only Denmark and the Netherlands have averaged retail volume growth of over 1% for this date-span; Denmark averages 1.5% per year, and the Netherlands averages 1.3%. Sweden and Norway’s trends average 0.8% and 0.7% growth per year back to January 2020. Germany posted a compounded annual increase of only 0.6% annually, while in the U.K., in the wake of the problems that COVID and Brexit created, saw its retail sales volumes decline annually by 0.4%, marking a 2.2 percentage point decline in retail sales since January 2020. It has been a weak environment for retailing.

**Recent sales performance**: Up-to-date observations for April show declines in retail sales volume in Germany, Denmark, and the U.K., with flat sales in Sweden. Norway logs an increase of 0.3% month-to-month, and the Netherlands logs an increase of 1.6% month-to-month. The sequential data, looking at sales over 12 months to six months to three months, largely points to a continuation of this period of lethargic sales. Germany, the U.K., and Norway each are posting a sequential deceleration, as the rate of sales slows over progressively shorter time periods. Denmark and the Netherlands have somewhat erratic performance on retail sales, with no clear trends. Sweden stands alone as the only country with retail sales clearly accelerating, rising 4.2% at an annual rate over 12 months, at a 4.4% annual rate over six months, and at a 5.8% annual rate over three months.

**Challenging outlook**
The retail environment remains challenging in Europe. Oil prices are rising; the European Central Bank is expected to take steps to deal with excessive inflation and rising oil prices with at least one rate hike. The war in Ukraine remains hot; the war in the Middle East may be cooling down, but the Strait of Hormuz is still not open for business. The global economy continues to face significant challenges.

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Europe

Retail Sales in Europe Continue to Struggle

Michael J. Moran

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New orders for manufactured goods jumped 4.8 percent in April, led by a surge of 8.0% in the durable-goods sector and reinforced by an advance of 1.4% in orders for nondurable goods.

The increase in orders for durable goods was heavily influenced by the volatile aircraft category, which posted a striking advance of 113.3%. However, the jump did little to influence the underlying trend, as it followed a cumulative decline of 51.6% over the prior four months. Excluding aircraft orders, the durable component rose 0.9%, reinforcing a strong upward trend that began late last year (chart, above right). Bookings for computers, despite a dip in April, have been a force behind the advance excluding aircraft, but other areas have been firm as well (machinery, primary metals, fabricated metals). The results in the durable sector were in line with the preliminary estimate released last week, which showed an increase of 7.9% overall and 0.8% ex-aircraft.

The strong performance in new orders for durable goods has generated an upward trend in unfilled orders. Backlogs started to move higher in the second half of last year, and they added to that trend with an increase of 0.6% in April (chart, lower left).

The increase of 1.4% in the nondurable sector was led by a jump of 4.0% in the petroleum and coal category, which followed an average increase of 6.8% in the prior three months. These increases, of course, primarily reflected price changes rather than shifts in real activity. However, bookings outside of petroleum and coal have been firm on balance, increasing 0.8% in April after advances of 0.6% and 0.7% in the prior two months (chart, lower right). Nondurable orders also rose in the four months before this recent burst, but the changes were small. Orders for nondurable goods are typically shipped upon arrival, and thus backlogs are not tracked, but the recent flow of bookings certainly represents a solid trend.

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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- Aircraft bookings fueled durable bookings in April, accenting solid gains in prior months.
- Petroleum prices inflated nondurable orders in April, but orders ex-petrol advanced as well.

Factory Orders: Lots of Noise, but Also Firm Trends in Recent Months

Winnie Tapasanun

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U.S. nonfarm private sector payrolls jumped a more-than-expected 122,000 (0.5% y/y) in May—the largest of 11 straight m/m gains and the strongest since January 2025—after rises of 105,000 in April (+109,000 initially) and 61,000 in March (unrevised), according to the ADP National Employment Report. The Action Economics Forecast Survey expected a 110,000 May increase. The three-month average change rose to 96,000 in May, the highest since February 2025, from 77,000 in April and 46,000 in March.

Small business hiring (less than 50 employees) rose 67,000 (0.9% y/y) in May, the 11th consecutive m/m rise, after a 63,000 gain in April (+65,000 initially), with employment in very small firms (1-19 employees) up 49,000 and employment in small firms (20-49 employees) up 18,000. Employment at medium-sized firms (50-499 employees) advanced 17,000 (-0.3% y/y) in May following a 2,000 increase in April (unrevised) and two successive m/m declines. Large business hiring (500+ employees) rose 40,000 (1.6% y/y), the third m/m rise in four months, after a 42,000 April rebound (unrevised).

Service-producing jobs jumped 114,000 (0.7% y/y) in May, the 12th straight m/m gain, on top of a 91,000 rise in April (+94,000 initially). May’s gain was led by education & health services (+57,000), followed by trade, transportation & utilities (+36,000), professional & business services (+11,000), leisure & hospitality (+8,000), financial activities (+7,000), and other services (+4,000). In contrast, employment fell m/m in information (-9,000) in May, the only declining category, following three consecutive m/m increases.

Goods-producing employment increased 8,000 (-0.4% y/y) in May, the smallest of four straight m/m gains, following a 14,000 rise in April (+15,000 initially). May’s increase was led by construction (+8,000) and manufacturing (+3,000, the first m/m increase since March 2024), while natural resources & mining (-3,000) fell m/m for the first time since January.

By region, nonfarm private payroll employment rose m/m across all major regions in May, reflecting m/m gains in the West (+45,000; +1.0% y/y), Northeast (+35,000; +0.4% y/y), South (+23,000; +0.5% y/y), and Midwest (+21,000; +0.2% y/y).

Wage growth for job changers eased to 6.5% y/y in May from 6.6% in April and March, remaining well below a high of 16.1% in April 2022. Wage growth for job stayers held steady at 4.4% y/y for the second consecutive month in May, holding in a narrow 4.4%-4.5% range since April 2025. Pay growth was unchanged across major industries, including financial activities (5.1% y/y), manufacturing (4.8% y/y), construction (4.5% y/y), leisure & hospitality (4.5% y/y), trade, transportation & utilities (4.4% y/y), education & health services (4.2% y/y), other services (4.1% y/y), and professional & business services (4.1% y/y), while pay growth in natural resources & mining dipped to 4.2% in May from 4.3% in April.

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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- Private payrolls +122K in May, largest of 11 straight m/m gains, indicating sustained labor-market momentum.
- Broad-based hiring across company sizes, driven by small businesses (+67K).
- Service-sector jobs up (+114K), led by education & health svs. (+57K) and trade, transp. & utilities (+36K), partly offset by information (-9K).
- Goods-producing jobs up (+8K), driven by construction (+8K).
- Wage growth down marginally y/y for job changers (6.5%) but steady for job stayers (4.4%).

U.S. ADP Private Employment Growth in May Strongest Since Jan. ’25

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With 25 countries in the mix, it can be hard to draw a simple summary statement about the condition of the global economy judging from the S&P composite PMIs. The manufacturing sector has recently been doing better, while the services sector is still in an extreme bout of lethargy globally. Fewer countries issue specific services sector indexes than issue manufacturing or composite PMI results.

The services sector tends to dominate the composite readings, so what we see this month is a great deal of weakness in the S&P composites, reflecting service sector weakness. The 18 early reporting manufacturing reporters registered a median queue ranking in their 67.7 percentile; that compared to a median ranking of 26.2% for this group of 25. However, the two groups are not the same. If we recalculate for the 10 common reporters, we get a median manufacturing ranking of 61.5% compared to a composite median ranking of 23.8%; for those same ten, the services sector median ranking was in its 16.9 percentile. That is a ranking that seems to flirt with recession potentially. To that point, in May 2026, eleven of twenty-five composite PMIs registered diffusion values below 50, indicating contraction.

In May, among the 25 reporting composite PMI reporters, 44% of them were weakening month-to-month, which is less than half but still a very large proportion and not particularly good news; this followed 48% weakening in April and 84% weakening in March. So, with the heating up of war in the Middle East and the closure of the Strait of Hormuz, service sector conditions have gotten a lot worse even though it might have seemed logical that it would be the manufacturing sector that would suffer. The PMI data do not bear out that expectation. In March, the global PMI data improved only in Spain, Sweden, Zambia, and Ghana—thin gruel for good news.

On a monthly basis, there is sequential weakening in progress in the European Monetary Union, France, Ireland, and Japan.

If we look at the broader sequential data over three months, six months, and 12 months, we see that conditions have gotten progressively weaker, with 82.6% of these reporters weaker over three months, 78.3% weaker over six months, and 43.5% weaker over 12 months. There is progressive weakening on this broader timeline in the United States, Spain, India, Saudi Arabia, and the United Arab Emirates. There's sequential improvement indicated only in Singapore.

The queue percentile standing evaluations at the far right of the table rank and therefore order the data across these reporters, on observations back to January 2021. On that relatively long timeline, only 5 reporters have current readings above their respective 4.5-year. medians. Those are Singapore, China, Nigeria, India, and Sweden. On this timeline, the French composite is at its absolute lowest ranking of the period. The European Monetary Union reading is in its lower 10th percentile, with the four largest monetary union economies each having a ranking below their respective 35th percentiles. The U.S. ranking is in its 26th percentile, roughly just above the bottom quarter of its raked results. The U.K. is in its lower 18th percentile. Japan is near its median, at its 49th percentile; however, none of these readings are reassuring. For example, Japan’s near 50th percentile ranking compares to a weaker U.S. ranking, but the U.S. composite PMI diffusion value at 51.5 is stronger than Japan’s at 51.1. But the U.S. value is weaker relative to its history back to January 2021. Japan’s higher ranking actually simply refers to performance that is still quite weak, but nearly as good as it has done over the past 4.5 years. It is important to keep the relative (ranking) and the absolute (diffusion value) comparisons separate. Diffusion values are not presented in the table—except for a few averages/medians—because putting those data in table for the countries is prohibited by the data provider.

The weakness is broad-based. While the manufacturing sectors have been digging out, the services sectors have continued to worsen during the improvement in manufacturing—which I take to be a bad sign. Manufacturing tends to be the more sensitive signal, and we often think of manufacturing showing a turnaround in the economy before it becomes a process involving the entire economy. But in this case, it doesn't look like the manufacturing revival is progressing across the various economies. Certainly, one reason could be rising oil prices and the fact that oil prices eventually become an input to just about every single business—because if it's not a direct input, it's an indirect input through its impact on transportation costs.

**Broad but mild slippage**
If we look at the average and median PMI values, we can see that while there has been broad slippage, the slippage has been quite slow. The average reading for this group over 12 months is the PMI at 52; that has slipped to 50.8 over three months and sits at 50.8 in May. The median for the group is 51.8 over 12 months; it has slipped to 50.6 over three months and registers 50.2 in May. The bad news is more that these economies have lingered at very weak readings than that there is technical slippage in progress. Over 12 months, there were only four of 25 reporters with PMIs below 50. Over three months, that figure has mushroomed to 9, and as of May, there are 11 reporters with PMIs below 50, indicating economic contraction. These are poor trends and clearly ones to watch. Weakness has been driven by the services sector where we get fewer observations and data, and this is a sharp counterpoint to some of the manufacturing data that have been improving.

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**Summing up**
In the U.S., for example, not only have some of the manufacturing data been improving but job market data—which had scraped to very low levels around the turn of the year—have been rising and returning to show more encouraging job growth for an economy with closed borders and weak labor force growth. Europe, on the same metrics, faces greater challenges. Monetary policy still has to be concerned with inflation that is over the top and rate hikes are coming to be expected. In the U.S., some revival in productivity creates a counterpoint, even though service sector readings continue to be weak. Forecasting in this environment, of course, is absolutely treacherous; even discerning what the current trend is from current data has become a challenging process. Markets for the most part remain relatively upbeat as stocks continue their advance in the U.S. Bond yields have been creeping up, but without damage to stocks, so far. Financial markets, exchange rates, and central bank activity are all going to be important features to keep an eye on. The usual detailed economic reports are confusing as uncertainty stirs the pot, increasing the turbidity surrounding the economic outlook.

Composite PMIs Ride Weakening Trend

Sandy Batten

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Total job openings jumped 10.6% m/m (7.3% y/y) to 7.618 million in April, the highest level since May 2024, from a slightly upwardly revised 6.887 million in March (previously 6.866 million), according to the Job Openings and Labor Turnover Survey. Accordingly, the job openings rate (the ratio of openings to nonfarm employment plus openings) rose to 4.6% in April, its highest reading since November 2024, from an upwardly revised 4.2% in March (previously 4.1%). In April, while both the number of job openings and the number of unemployed both rose, the number of openings rose much more, leaving the number of openings above the number of unemployed for the first time in ten months, another sign that previously observed softening of labor market conditions may be stabilizing.

An 11.1% m/m jump (8.9% y/y) in private sector openings to 6.841 million, the highest level since March 2024, led the overall rise. The private sector openings rate to 4.8% in April from 4.4% in March. Gains in openings were widespread across major industries with only accommodation and food services (-74k, their third consecutive monthly decline) experiencing a monthly decline in April. Leading the rise was a 668k jump in professional and business openings, by far the largest monthly gain in the series history, more than offsetting an outsized 256k decline in March. Construction and manufacturing openings rose for the second consecutive month. Total government openings increased 47K to 777k in April, their fourth monthly increase in the past five months, with a 30k increase in state and local government openings.

In contrast to the surge in openings, total hiring fell 7.6% m/m (-419k) to 5.116 million in April from a slightly downwardly revised 5.535 million in March (previously 5.554 million). The hiring rate slumped to 3.2% in April from 3.5% in March. Private sector hiring declined 423k to 4.794 million with the private sector hiring rate falling to 3.5% from 3.9% in March. Declines were widespread across major industries with only construction (+17k) and arts and entertainment (+25k, the first monthly gain in five months) posting increases. Government hiring increased 5k following a 15k decline in March.

Total separations fell 7.4% m/m (-399k) to 4.978 million in April, the lowest level since August 2020, with declines in quits (-183k), layoffs (-192k) and other separations (-23k). The separation rate fell to 3.1%, the lowest since March 2013, from 3.4% in March. Private separations plunged 413k in April, the largest monthly decline since January 2021, reflecting a 204k drop in private quits and a 194k decline in private layoffs. The decline in layoffs was concentrated in retail trade (-88k, the first monthly decline in three months) and in professional and business services (-112k). The April decline in private quits was rather widely spread across major industries, led by an 83k decrease in trade, transportation and utilities with only construction (+6k) posting a monthly increase. One implication of the widespread decline in quits is that workers do not feel comfortable with their employment prospects and hence are choosing to remain in their current job.

On the whole, employers remain cautious in hiring. Furthermore, workers are sufficiently unsure of their alternative employment prospects that they are refraining from leaving their current position. Amid all this caution on the part of both employers and workers, openings have gradually risen since the end of last year.

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

- Openings increased to their highest level since May 2024.
- However, hiring slumped, reversing most of the March increase.
- Separations fell with declines in quits, layoffs and other separations.

U.S. JOLTS: Openings Rose and Hires Fell in April

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The chart shows European Monetary Union inflation using seasonally adjusted data to produce 12-month, 6-month, and 3-month compounded annual rates of change for the core, yielding a clear picture of acceleration. The core rate is supposed to be relatively less affected when energy prices spurt. However, in this case, the increase in energy prices is so large that it is being passed on across commodity classes because of its impact on transportation costs, an effect that is ubiquitous.

Every product must be brought to market, and apart from that, products have different intrinsic exposures to energy as a direct or indirect input, either because it's a chemical, it uses plastic, or it's more insulated as a service. However, the impact on transportation costs is broad.

The table shows year-over-year inflation monthly, and there you can see that the headline is moving up more than the core. However, the core rate is moving up, and at 2.5%, it's far enough above the ECB's 2% target for it to be considered too strong. The headline rate in May at 3.2% is considerably higher and stronger, but it's also more affected by energy prices and therefore it may represent something the ECB could view with a bit more flexibility. However, the strength in the core is going to cause the ECB more problems.

Along the bottom of the table, we look at the details on inflation to see the incidence of acceleration of inflation over three-month and six-month periods to give trends a bit of breathing room to develop. For both the headline and the core, the breadth of inflation is rising. Headline and core measures both are rising in nearly two-thirds of the categories (62.5%).

We take a broader look to see where inflation ranks historically on data back to 2001. The headline measure has inflation at the 88.5 percentile, while core is at the 86.2 percentile. Both demonstrate considerable strength in May. Looking at the details by category by stepping back one month to April, we find that one of the highest standings for inflation is in transportation, which is no surprise given what's going on with energy prices. Communications products, however, have a high inflation at their 98.7 percentile. Personal care products have a standing on their 92nd percentile, another high standing. Inflation for recreation and culture has a relatively low standing in its 36th percentile, and house furniture and maintenance prices have only a 16.4 percentile standing.

There are differences in inflation rates and inflation pass-throughs from energy effects. But the dispersion of inflation is only about a top one-third phenomenon—high but not extreme. That suggests that the impact on inflation, while significant, is not—at least not yet—dominant. We'll be watching indicators like this to get some idea of how impactful and broad the effects of inflation from the Middle East conflict are and how they will develop. For now, the impact is substantial and still seems to be in full swing.

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EMU Inflation Accelerates 

Tian Yong Woon

In this week’s Letter, we examine a tale of two halves between China and India, highlighting the contrasting relationship between economic fundamentals and currency performance in Asia’s two largest emerging economies. In China, a recent run of softer economic data has pointed to slowing growth (chart 1), yet the Chinese yuan has remained one of the region’s strongest-performing currencies this year (chart 2). India presents the opposite picture: economic growth prospects remain among the brightest in Asia, but the Indian rupee has continued to face downward pressure amid persistent foreign investor outflows and a marked decline in central bank foreign exchange reserves (chart 3).

Beyond China and India, the broader region is also confronting emerging inflation risks. In addition to elevated energy prices stemming from the closure of the Strait of Hormuz, concerns are growing over the potential development of a “Super El Niño” event, which could weaken agricultural output and add further inflationary pressure through the food channel (chart 4). At the same time, the battle between inflation concerns and AI-driven optimism continues to shape market sentiment. Equity markets in major AI beneficiaries such as Taiwan and South Korea have seen their market capitalisations surpass those of several larger developed markets, including Germany (chart 5). 

Moreover, the benefits of the current AI investment cycle are not confined to the region’s technology leaders. Economies such as Thailand are also seeing positive spillovers from the current AI investment cycle. In particular, Thailand has recorded a surge in FDI linked to investments in digital infrastructure and AI-related industries (chart 6). Countries across the region are increasingly positioning themselves to participate in the ongoing buildout phase.

**China**
China’s unofficial manufacturing PMI was released earlier in the week, showing a pullback to 51.8 in May (chart 1), though it remained in expansionary territory. The decline mirrors the weakness seen in the official PMI readings and was accompanied by a sharp drop in new export orders, which fell into contractionary territory for the first time in months. These developments come amid a run of disappointing economic data from China, with growth slowing even in the export-oriented industrial sector, generally regarded as a stronger driver of activity than more domestically focused sectors. This perhaps suggests that while China may be relatively insulated from the effects of the Strait of Hormuz closure compared with other Asian economies, such insulation is not complete, and some adverse spillovers are nonetheless becoming apparent.

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Yet despite signs of slowing growth in China’s recent data releases, the yuan has continued to trend higher (chart 2), making it the best-performing Asian currency year-to-date. Observers have attributed the yuan’s relative strength to several factors. These include resilient export growth, particularly in higher-value-added goods, as well as possible safe-haven inflows amid heightened geopolitical uncertainty. Some have also pointed to weakness in the currencies of several of China’s major trading partners as a contributing factor. In contrast, the Indian rupee and Indonesian rupiah have been among the region’s weakest performers this year. For the rupiah, much of the depreciation has been linked to concerns over Indonesia’s economic outlook, particularly on the fiscal front, as authorities pursue costly policy initiatives alongside broader policy changes that may have unsettled investors. India’s situation is examined in greater detail in the next section.

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**India**
In contrast to the Chinese yuan, India’s rupee has depreciated. While the yuan has strengthened this year despite recent signs of slowing growth in China, the rupee has remained under pressure despite robust actual and expected growth in the Indian economy. In fact, the rupee’s weakness has been relatively persistent, dating back to the period when US tariff announcements—and the broader threat of escalating trade tensions—first began unsettling financial markets. The currency has remained weak despite a range of measures introduced by Indian authorities, including suspected stabilisation interventions in the foreign exchange market and restrictions on gold imports, among other steps. Even so, continued investor outflows throughout the year (chart 3) have contributed to sustained downward pressure on the rupee. Meanwhile, the central bank’s foreign exchange reserves have fallen markedly from the peaks reached earlier in the year.

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**Possible El Nino effects**
While the world continues to grapple with the inflationary consequences of the prolonged closure of the Strait of Hormuz, new inflation risks are already emerging on the horizon. In particular, concerns have recently grown over the potential development of a “Super El Niño” event in the coming months. Should such an event materialise, higher temperatures and reduced rainfall could weigh on agricultural production across parts of Asia. This would create an additional supply-side shock for the region, exerting upward pressure on food prices at a time when inflation concerns are already elevated. Indeed, food price pressures are beginning to emerge even before any material impact on crop production has been observed, as anticipatory buying has started to lift prices. As shown in chart 4, previous El Niño episodes have been associated with weaker agricultural output in parts of Asia, including lower rice production in Thailand. However, the effects have varied considerably across countries and crops, extending well beyond Thailand and rice alone.

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**AI optimism**
Inflationary risks continue to build, whether from elevated oil prices linked to the Strait of Hormuz closure, the prospect of weaker crop yields, or other factors. Yet the tug-of-war between inflation concerns on one side and AI optimism on the other remains ongoing. In some Asian equity markets, notably South Korea and Taiwan, AI-driven enthusiasm has fuelled substantial capital gains, lifting overall market capitalisation to levels that have already surpassed those of several major markets, including Germany’s (chart 5). Much of this rise has been driven by capital appreciation alone, underscoring the sheer scale of the current AI-driven rally and highlighting its potential macroeconomic implications, including possible wealth effects on consumption and investment.

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Nor are the benefits of AI-driven optimism confined to the sector’s largest players and producers. Other parts of Asia, including Southeast Asia, are also benefiting from the ongoing AI investment cycle and infrastructure buildout. As shown in chart 6, Thailand’s Board of Investment recorded a sharp increase in approved foreign direct investment (FDI) last year, driven primarily by digital industries. These investments were concentrated in areas such as data centres and cloud services, underscoring Thailand’s efforts to expand its AI-related infrastructure and increase its exposure to a rapidly growing sector. Notably, investment approvals in digital industries far exceeded those directed towards most other sectors. Thailand is not alone in this regard. Similar AI-related infrastructure buildouts are underway, albeit at different scales and stages of development, across several Southeast Asian economies, including Singapore, Malaysia, and Vietnam.

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Asia

Economic Letter from Asia: Two Halves, Emerging Risks

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The value of construction put in place rose a more-than-expected 0.4% m/m in April to a seasonally adjusted annual rate of $2,172.4 billion following a downwardly revised 0.2% increase in March (+0.6% initially) and a downwardly revised 0.8% decline in February (-0.2% previously), according to data from the U.S. Census Bureau. A 0.3% m/m April increase had been expected in the Action Economics Forecast Survey. The year-on-year rate accelerated to 0.9% in April, the strongest since December, from 0.6% in March (-2.4% in April 2025), though remaining well below a high of 12.9% in December 2023 and a peak of 18.4% in April 2022.

Private construction rose 0.4% (0.0% y/y) to $1,639.7 billion in April following a downwardly revised 0.2% increase in March (+0.8% initially) and two consecutive m/m declines. Residential private construction climbed 0.8% (1.7% y/y) to $909.9 billion in April after a downwardly revised 0.6% gain in March (+1.7% initially). Single-family building grew 1.4% (-2.9% y/y), the fourth m/m increase in five months, after a 2.1% March rebound; it was 45.7% of the residential private construction. Home improvement building rose 0.4% (7.5% y/y), the first m/m rise in four months, after a 0.8% March drop; it was 41.5% of the residential private construction. Multi-family building, however, fell 0.3% (+1.1% y/y), the first m/m fall since January, reversing a 0.2% March increase; it was 12.7% of the residential private construction.

Nonresidential private construction declined 0.2% (-2.1% y/y) to $729.8 billion in April following a 0.4% decrease in March (-0.2% initially) and little change in the prior two months. The April decline reflected m/m drops in nonresidential private construction categories for manufacturing (-1.2%; -18.5% y/y), commercial (-0.7%; +1.5% y/y), and amusement & recreation (-0.6%; +11.0% y/y). To the upside, several nonresidential private constructions rose m/m in April, led by office (+1.0%; +9.4% y/y), followed by transportation (+0.7%; +4.7% y/y), utilities (+0.6%; +6.0% y/y), educational (+0.5%; +6.3% y/y), religious (+0.5%; +20.3% y/y), lodging (+0.3%; +5.4% y/y), communication (+0.1%; +2.6% y/y), and health care (+0.1%; +1.9% y/y).

The value of public construction rose 0.4% (3.7% y/y) to $532.7 billion in April, the fourth successive m/m rise, after an upwardly revised 0.2% increase in March (-0.2% initially), reflecting gains of 0.7% (1.3% y/y) in residential public construction and 0.4% (3.7% y/y) in nonresidential public construction. Several nonresidential public construction categories rose m/m in April, led by conservation & development (+5.0%; +17.5 y/y), followed by commercial (+2.8%; -10.9% y/y), public safety (+1.8%; +2.9% y/y), health care (+1.4%; +6.0% y/y), office (+1.3%; -2.9% y/y), utilities (+1.1%; +13.9% y/y), and educational (+0.6%; +1.2% y/y). Notably, spending on highways & streets, which accounted for 28.1% of public construction spending, advanced 0.4% (3.9% y/y), the sixth straight m/m gain, following a 0.1% March uptick. In contrast, the following public constructions fell m/m in April, led by amusement & recreation (-1.1%; +5.0% y/y), followed by transportation (-0.8%; +2.4% y/y), sewage & waste disposal (-0.7%; +6.1% y/y), and water supply (-0.2%; +4.8% 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**.

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- Headline +0.4% m/m in Apr., second straight monthly rise; +0.9% y/y, highest since Dec.
- Residential private construction +0.8% m/m, driven by a 1.4% gain in single-family building.
- Nonresidential private construction -0.2% m/m, second consecutive monthly decline.
- Public construction +0.4% m/m, led by a 0.7% rebound in residential public building.

U.S. Construction Spending Up for Second Straight Month After Two Prior Monthly Declines

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Nonfarm payrolls rose 172k in May, noticeably stronger than the expectation of 92k shown in the Action Economics survey. Moreover, results for the prior two months combined were revised higher by 93k. The gain in May does not appear to be an isolated event, as payrolls have now posted firm showings for three consecutive months (average advance of 188k). This performance represents a marked improvement from late 2025, when payrolls were showing essentially no net gain.

A good portion of the job growth in May occurred in the local government sector (55k), but the health care and leisure & hospitality sectors also were strong. The construction and manufacturing industries (highly cyclical areas) were both in the plus column. Soft spots were limited, with only the financial services sector showing notable job cuts (-22k).

The improvement in the labor market also was evident in the payroll diffusion index. This measure shows the share of industries expanding payrolls plus one-half the share holding payrolls steady; a reading of 50 separates net expansion from contraction. This index was in sub-50 territory during much of 2024–25, but it moved into 50+ territory in March and climbed a bit higher in April and May (53.8 in May).

The unemployment rate was reported as steady at 4.3%, but a more precise calculation shows a slight improvement (4.296% versus 4.337% in April). Moreover, the dip was meaningful, as it was driven by employment growth as measured by the household survey (149k) that exceeded the increase in the size of the labor force (83k). The broad unemployment rate (the so-called U-6 measure) fell 0.1 percentage point to 8.1%. Both additional components of the broad unemployment rate contributed to the improvement (the number of individuals working part time involuntarily and the number of individuals who would like a job but are not actively searching).

Average hourly earnings rose 0.3% in May, a touch firmer than readings of 0.2% in the prior two months. Although earnings posted a solid advance in May, the increase was lighter than the 0.4% gain in May of last year, and thus the year-over-year change eased to 3.4% from 3.6% in April. Year-over-year changes in average hourly earnings had been larger than those in the consumer price index, indicating that many workers were registering gains in purchasing power. However, with the pickup in inflation, individuals fell behind in April, and the CPI for May (to be published on June 10) could show additional slippage in purchasing power.

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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- Nonfarm payrolls post their third consecutive firm advance.
- Unemployment showed marginal improvement.

May Employment Report: Revival in the Labor Market

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