Tom Moeller

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New orders for durable goods edged 0.1% higher (-1.5% y/y) during May after increasing 0.2% in April, revised from 0.7%, and 0.8% in March. The Action Economics Forecast Survey expected a 0.2% May increase.

The May gain in new orders reflected a 0.6% increase (-6.1% y/y) in transportation sector orders, following a 0.1% April slip. Aircraft orders strengthened 2.9% after a 10.6% decline while motor vehicle & parts orders improved 0.7% (4.3% y/y) after a 1.5% gain. Excluding the transportation sector, orders eased 0.1% (+1.1% y/y) after rising 0.4% in April.

Orders for primary metals fell 0.4% (-0.3% y/y) following a 1.2% April rise. Fabricated metals orders rose 0.3% (3.2% y/y), about a they did in the prior two months. Machinery orders fell 0.5% both m/m and y/y following a 0.5% increase. Orders for computers & electronic equipment improved 0.1% (3.3% y/y) after rising 0.6% while orders for electrical equipment declined 0.4% (+0.9% y/y) following a 0.9% increase. Orders for all other durable goods eased 0.1% (+0.5% y/y) for the second straight month.

Capital goods orders moved 0.5% lower in May (-8.4% y/y), after a 0.8% April decline. Nondefense capital goods orders fell 0.9% (-9.0% y/y) and nondefense capital goods excluding aircraft weakened 0.6% (-0.2% y/y) in last month after gaining 0.3% in April. Defense capital goods orders strengthened 1.9% (-4.5% y/y) following a 14.3% jump in April.

Shipments of all manufactured goods fell 0.7% (+2.0% y/y) in May after increasing 0.8% in April. Shipments of durable goods eased 0.3% (+0.7% y/y) last month after strengthening 1.2% in April. Nondurable goods shipments weakened 1.1% in May (+3.3% y/y) after increasing 0.5% in April.

Unfilled orders of durable goods rose 0.2% (7.4% y/y) after edging 0.1% higher in April. Excluding transportation, unfilled orders slipped 0.1% (-0.8% y/y) for the fourth straight month. They’ve been edging lower since late-2022.

Manufacturers’ inventories rose 0.2% (0.9% y/y) in May after a 0.1% change in the prior month. Durable goods inventories rose 0.3% (1.5% y/y) following little changed in April. Nondurable goods inventories rose 0.1% (-0.1%) in May for the third straight month.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Aircraft orders surge as motor vehicle orders moderate.
- Excluding transportation, orders ease.
- Shipments slip but inventories & backlogs edge higher.

U.S. Durable Goods Orders Are Little Changed in May

Winnie Tapasanun

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The Pending Home Sales Index, a forward-looking measure of home sales based on contract signings, fell 2.1% m/m in May after an unrevised 7.7% drop in April and a 3.6% increase in March, according to the National Association of Realtors (NAR). The May PHSI at 70.8 was the lowest level on record. The year-on-year rate of decline was at -6.6% in May, less severe than -7.4% in April and -22.2% in May 2023. Nevertheless, the PHSI had fallen 43.4% since its October 2021 high of 125.1 and 44.7% since its August 2020 peak of 128.0.

The fall in May sales occurred as the average rate on a 30-year mortgage rose to 7.06% in May, the highest since November 2023, from 6.99% in April. Those rates were well above a low of 2.68% averaged in December 2020. Notably, weekly data showed the 30-year mortgage rate eased to a still-high 6.86% in the June 27 week from 6.87% in the June 20 week.

Month-on-month changes in pending home sales in May were mixed. Sales in the South fell 5.5% (-10.4% y/y) in May following a 7.6% drop in April and two consecutive m/m increases. Sales in the Midwest slid 0.4% (-5.6% y/y) on top of a 9.5% April decrease, registering the three straight m/m slide and the fourth in five months. To the upside, sales in the West rose 1.4% (-2.1% y/y) in May after an 8.5% drop in April and sales in the Northeast rose 1.1% (-2.3% y/y) following a 3.5% April decline; both posted the second m/m gain in three months.

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

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

- May PHSI at a record low; two straight m/m declines after rises in Mar. and Feb.
- Home sales fall m/m in the Midwest and South but rebound in the Northeast and West.
- Home sales decline y/y in the four regions, w/ the deepest fall in the South (-10.4%).

U.S. Pending Home Sales Decline Again in May

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The advance estimate of the U.S. international trade deficit in goods widened to $100.6 billion in May from $98.0 billion in April, according to the U.S. Census Bureau. A $96.0 deficit had been expected by the Action Economics Forecast Survey. The deficit reached a peak of $120.72 billion in March 2022. In Q1'24, the goods trade deficit widened to $277.73 billion, the largest since Q2'23, after rising to $264.6 billion in Q4'23. The trade deficit subtracted 0.65 percentage point from real GDP growth in Q1'24 after having added 0.25 percentage point in Q4'23.

Total exports declined 1.9% (+2.4% y/y) in May following a 0.4% April rise. The decline reflected a 3.9% fall (+1.3% y/y) in industrial supplies exports which followed a 2.6% drop. Auto exports fell 2.1% (-6.7% y/y) after rising 6.0% while foods feeds & beverage exports were off 1.1% (+3.0% y/y), off for the third straight month. Capital goods exports eased 0.5% (+5.3% y/y) after increasing 3.0% in April. To the upside, nonauto consumer goods exports rose 0.8% (2.9% y/y) after increasing 3.7% in April.

Total imports fell 0.7% (+5.2% y/y) in May following a 3.2% April increase. Auto imports fell 3.5% (+7.2% y/y) after they rose 11.3% in April. Imports of nonauto consumer goods declined 3.4% (+3.2% y/y), after falling 1.6% in April. Capital goods imports declined 0.8% (+8.3% y/y) following a 4.0% increase in April. Offsetting these declines, industrial supplies imports rose 2.6% (1.0% y/y) after rising 3.4% April. Imports of foods, feeds & beverages gained 0.1% (10.2% y/y) after falling 0.7% in April.

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

- Largest goods trade deficit since May ’22.
- Export decline reverses April increase.
- Imports fall moderately following April surge.

U.S. Goods Trade Deficit Deepens in May

Sandy Batten

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In the third estimate, real GDP growth in Q1 2024 was revised up to 1.4% from 1.3% in the second estimate. However, this is still slightly slower than the advance estimate of 1.6% and sharply slower than the 3.4% quarterly gain in last year’s Q4. A 1.4% increase had been expected by the Action Economics Forecast Survey. While the upward revision to GDP indicated a slightly bigger increase in production, demand slowed, led by a marked downward revision to personal consumption growth. Final sales to domestic purchases (a popular measure of domestic demand) slowed to 2.4% from 2.5% in the second estimate and 2.8% in the advance report. Inflation also remained elevated. The GDP price index increased 3.1% q/q SAAR, up from 3.0% in the second estimate and 1.6% in Q4.

The composition of GDP was revised meaningfully for a third estimate. (Third estimates are typically quite modest.) Personal consumption expenditure growth was revised down to 1.5% q/q from 2.0% in the second estimate and 2.5% in the advance report. This reduced the contribution from PCE to overall GDP growth by 36 basis points to 0.98%-point and stands in sharp contrast to the 2.2%-point contribution made in Q4. The downward revision to Q1 PCE was widespread. Spending on goods fell 2.3%, down from the second estimate of 1.9% with larger declines in spending on both durable (-4.5% vs -4.1%) and nondurable goods (-1.1% vs -0.6%). The drop in spending on durable goods reflected a 14.0% quarterly slump in spending on motor vehicles (revised from -13.4% in the second estimate and -9.0% in the advance report). Spending on services was revised down significantly to 3.3% from 3.9% in the second estimate.

The smaller contribution from PCE was offset by a larger contribution from fixed investment, a smaller trade deficit and faster government spending. Growth of fixed investment was revised up to 7.0% from 6.0% with upward revisions to both nonresidential (4.4% vs 3.3%) and residential (16.0% vs 15.4%) investment, raising its contribution to GDP growth by 17 bps to 1.19%-points. The 7.7% quarterly jump in imports was revised down to 6.1%. As a result, the previously estimated widening of the trade deficit was reduced by $15 billion. Consequently, the drag from net exports was revised down to 65 bps from 89 bps in the second estimate. Growth in government spending in Q1 was also revised up to 1.8% from 1.3% in the second estimate. This reflected a smaller decline in spending by the federal government and a larger increase in spending by state and local governments. The revision raised the contribution of government spending to overall growth by 8 bps.

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Inflation remained elevated in Q1 and in fact, was revised up slightly in the third estimate. GDP price inflation was revised to 3.1% from 3.0% in the second estimate, remaining well above the 1.6% quarterly increase in last year’s Q4. Elevated GDP inflation continued to be led by elevated PCE inflation which was revised up to 3.4% in the third estimated from 3.3% and up markedly from 1.8% in Q4. Core PCE inflation (that is, excluding food and energy prices) was also revised up in the third estimate, to 3.7% from 3.6% in the second estimate and 2.0% in Q4. Neither PCE inflation reading offered any confidence to the Fed that inflation was on a sustainable path to its 2% target, which it says it needs before it will begin to lower the fed funds rate. Apart from PCE inflation, inflation rates in other components of GDP were generally revised up. Prices of fixed investments increased 1.4% vs 1.1% in the second estimate. Export prices rose 2.8%, up slightly from 2.7%, and import prices increased 2.8% vs 2.5%. However, the increase in prices paid by governments slowed to 3.9% in the third estimate from 4.1% in the second estimate, due completely to a slower rise in prices paid by the federal government (4.1% vs 4.6%).

The second estimate of corporate profits showed a slightly larger decline than the first estimate. Corporate profits with inventory valuation and capital consumption adjustments fell 1.4% q/q not annualized in the second estimate for Q1, down from the initially reported 0.6% decline. This was the first quarterly decline in four quarters and stood in sharp contrast to the 4.1% quarterly gain in last year’s fourth quarter. The previously reported 1.4% quarterly decline in domestic profits was revised down slightly to -1.7% while the previously reported 3.8% increase in foreign profits was revised down markedly to only a 0.4% gain.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Real GDP growth in Q1 was revised up to 1.4% from 1.3%.
- PCE growth revised down markedly to 1.5%, the weakest reading in three quarters.
- Both GDP and PCE inflation revised up 0.1%-point.

Q1 2024 GDP Growth Revised Up/ Demand Down

Carol Stone, CBE

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Initial claims for unemployment insurance decreased by 6,000 in the week ended June 22 to 233,000, seasonally adjusted, from 239,000 the week before; that earlier week was revised from 238,000 reported before. The Action Economics Forecast Survey participants expected 235,000 in the latest week. This latest week’s amount makes the four-week moving average 236,000, up from 233,000 the previous week.

The total number of insured unemployment, also known as continued weeks claimed, was 1.839 million in the week ended June 15, up from 1.821 million the prior week. That earlier amount was revised from 1.828 million previously reported. The four-week moving average of continued weeks claimed was 1.816 million through the June 15 week, up from 1.804 million through the June 8 week.

The insured unemployment rate, or the number of continued weeks claimed as a percent of covered employment, was once again at 1.2%. It has been at that amount continuously since March 11, 2023.

The insured unemployment rate varies widely among individual states and territories. In the week ended June 8, the highest rates were in New Jersey (2.24%), California (2.14%), Minnesota (1.80%), Washington (1.70%) and Rhode Island (1.64%). The lowest rates were in South Dakota (0.29%), Kansas (0.37%), Florida (0.40%), Kentucky (0.42%) and Virginia 0.43%).  Rates in other notable states include New York (1.55%, Pennsylvania (1.60%), Illinois (1.58%) and Texas (1.15%). These state rates are not seasonally adjusted.

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

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- Initial claims slightly less than expected.
- Continuing claims did rise in June 15 week, but prior week revised down somewhat.
- Insured unemployment rate holds at 1.2%, same since March 2023.

U.S. Unemployment Insurance Claims Down 6,000 in June 22 Week

Robert Brusca

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Money supply growth is picking up globally except, of course, in Japan. In the European Monetary Area, money supply is up 0.6% over 12 months, it's up at a 2.1% annual rate over six months, and it's rising at a 2.8% annual rate over three months. Credit to residents in the European Monetary Area also is making a recovery, with 12- and six-month growth rates at 0.3% and with the three-month growth rate at an annual rate of 0.8%. Private credit is growing just slightly faster, with the three-month growth rate at 1.2% annualized.

In the United States, M2 money supply growth has accelerated from 0.6% over 12 months to 2.5% pace over six months and to a 4.2% annual rate over three months. Money growth in the United Kingdom, similarly, is accelerating from 0.3% over 12 months to 4.1% annualized over six months to 6.1% annual rate over three months.

Japan is the exception, with growth over 12 months at 1.8%, slowing over six months to a 1.6% annual rate and then slowing further over three months to a 0.5% annual rate.

Adjusted for the effects of inflation, money supply in the monetary union is gradually picking up as it moves from a decline of 1.9% over 12 months to an increase at a positive annual rate of 0.6% over three months. In the U.S., M2 growth is -2.6% in real terms over 12 months but flips the switch to grow at a 1.3% annual rate over three months. In the U.K., money supply M4 falls at a 3.3% annual rate over 12 months but then grows at a 2.5% annual rate over three months. Japan shows real money growth at -1% for 12 months, then at -0.4% over six months and at -3.1% annualized over three months.

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Globally inflation has been working its way lower. The process of disinflation has been uneven and has clearly slowed down. In the United States, the change in the year-over-year inflation rate measured by the PCE shows an increase of 0.1% over six months but a decline of 0.9% in the annual rate over 12 months. In the euro area, over six months the HICP has accelerated by 0.2 percentage points compared its year-over-year rate today with six-months ago. The comparison of year-over-year rates in May to a year ago shows a decline of 3.5 percentage points in the inflation rate. The U.K. shows a decline in the annual inflation rate over six months of 1.5 percentage points while compared to a year ago inflation in the U.K. is lower by 5.1 percentage points. That is a big shift-a major slowdown- in the rate of change of inflation’s fall. Japan's inflation today compared to six-months ago is unchanged while Japan’s year-over-year inflation rate today compared to what it was 12 months ago is lower by 0.4%.

These comparisons show inflation progress has been substantial but at the same time undergoing process is in transition The U.S. and the European Monetary Union both have significant inflation declines compared to a year-ago but are not showing any progress in year-over-year inflation over the last six months. The U.K. is showing inflation progress over six months, but it's substantially less than the progress that it had made year-over-year. Japan with inflation running barely over its target and with mixed results on the headline and core inflation rates shows no change in inflation over six months and a modest decline in the annual inflation rate today compared to a year ago. These factors are going to put central banks on guard. We have already seen the Federal Reserve stick its neck out for three rate cuts at the end of last year and then pull back to a position where now it sees, maybe one cut, in the immediate outlook - and that may even be in jeopardy.

Monetary policy is increasingly becoming a political football. In the U.S., the election season is approaching with presidential debates set for tonight and the presidential elections coming in November. The U.K. has snap election called, as does France. A relatively sharp turn towards more conservative views among representatives in the EU has created a jolt to the political process there. Time will tell if that has any implications for policy particularly for monetary policy in the EMU.

Globally Money Growth Recovers, Moderates – Still Weak

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New single-family home sales weakened 11.3% (-16.5% y/y) to 619,000 (SAAR) in May from 698,000 in April, revised from 634,000, according to the U.S. Census Bureau. Sales were 16.5% below the recent high of 741,000 in May of 2023. The Action Economics Forecast Survey expected sales of 645,000 new homes. Sales remained 40.0% below their peak of 1.031 million in October 2020 and were at the lowest level since November of last year.

New home sales declined throughout the country last month. In the Northeast, sales fell 43.8% in May to 18,000, the fourth consecutive monthly decline which left them down 43.9% y/y. Sales in the West declined 4.5% (-20.9% y/y) to 148,000 after falling 6.6% in April. In the South sales weakened 12.0% (-17.7% y/y) to 368,000 after rising 5.8% in April. New home sales in the Midwest declined 8.6% (+13.3% y/y) to 85,000 after rising 12.0% in April.

The median sales price of a new home eased 0.1% (-0.9% y/y) to $417,400 (NSA) in May following a 4.3% April decrease. The median sales price remained 9.3% below its October 2022 peak of $460,300. The average sales price of a new home improved 3.2% (4.9% y/y) to $520,000 in May. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market rose 1.5% (12.9% y/y) to 481,000 in May, the fifth consecutive monthly rise. It was the highest level since January 2008. The latest figure was well above a low of 282,000 in October 2020. The seasonally adjusted months' supply of new homes for sale rose to 9.3 months in May, down from a high of 10.6 months in July 2022.

The median number of months a new home stayed on the market edged up to 2.3 months in May from 2.2 months in April. The reading remained up from the record low of 1.5 months in both September and October of 2022 but down from a high of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- Sales fall to six-month low.
- Declines are logged throughout the country.
- Median sales price eases.

U.S. New Home Sales Decline Sharply in May

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Mortgage applications rose 0.8% (-1.9% y/y) in the week ended June 21 following a 0.9% gain in the prior week. Applications for home purchase rose 1.2% (-13.2% y/y), following two previous gains. Applications for refinancing eased 0.1% (+25.8% y/y) following a 0.4% decline. These data came from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey.

The effective interest rate on a 30-year fixed-rate loan of 7.10% last week compared to 7.12% in the week prior and stood below the recent high of 8.12% in mid-October of last year. It was increased from a low of 6.87% in the fourth week of December. The rate on 15-year fixed-rate mortgages of 6.64% last week compared to 6.62% in the prior week. The rate on 30-year Jumbo loans eased to 7.21% last week, while the rate on the 5-year ARM fell to 6.48% from 6.63%.

The share of applications for refinancing an existing loan was little changed at 35.1% in the week ended June 21. That compared to a recent high of 39.7% in mid-December. The percentage of applications which were ARMs rose to 6.1% from 6.0% in the previous week. The recent low of 5.4% was reached in early January.

The average loan size rose 0.5% to $374,100 in the week ended June 21 from $372,300 in the prior week. The average loan for purchase loans rose to $430,500 from $430,300 while the average loan for refinancing increased 1.8% to $270,000 from $265,300.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Increase last week is third straight gain.
- More purchase applications offset by dip in refinancing.
- 15-year mortgage rate is little changed.

U.S. Mortgage Applications Continue to Rise in Latest Week

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

Announcement of snap French election is causing concern across Europe

The UK economy’s post-pandemic under-performance relative to its pre-pandemic trend

US Beveridge Curve back to near pre-pandemic levels

Negative economic surprises in the US but positive in Europe, especially the UK

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

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The U.S. ISM Services Purchasing Managers Index rose to 56.0 in October from 54.9 in September. It was the highest level since July 2022, according to the Institute for Supply Management. The index is up from a four-year low 48.8 in June. The Action Economics Forecast Survey expected a reading of 53.5 for October.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading released on Friday. This index improved to 54.8 in October after rising to 53.9 in September, indicating an increase in activity for the fourth month in the last five. The latest figure was well above a four-year-low 48.8 in June. These series date back to July 1997.

In the latest services survey, the business activity index declined to 57.2 in October from 59.9 in September. The index was up from its recent low of 49.6 in June but below a record high 69.5 in November 2021. A lessened 22.5% of respondents (NSA) reported higher activity in October while a fairly steady 8.5% reported an activity decline. The new orders index weakened to 57.4 in October	 from 59.4 in September. The index remained up from its recent low of 47.3 in June but down from a record high 69.5 in October 2021. A lessened 20.8% of respondents (NSA) reported higher orders last month and a lessened 8.1% reported a decline. Meanwhile, the supplier deliveries index (NSA) rose to 56.4 from 52.1 in September, indicating slower supplier delivery performance.

On the jobs front, the employment index strengthened to 53.0 in October from 48.1 in September, indicating a rise in services sector employment. The latest reading was above a low of 43.8 in December 2023, but below a high of 54.1 in August 2023. An increased 17.9% of respondents (NSA) indicated higher employment in October while 14.1% reported a decline.

Regarding inflation, the prices index fell to 58.1 in October after an increase to 59.4 in September, indicating a continued rise in prices paid. The index was increased from its recent low of 53.4 in March but below a record-high 83.8 in March 2022. A lessened 20.5% of respondents (NSA) reported price increases in October and a lessened 4.7% reported price declines.

Additionally, the new export orders index declined to 51.7 in October following an increase to 56.7 in September. Nonetheless, new export orders rose eleven times in the last twelve months. The imports index fell to 50.2 in October from 52.7 in September. The inventory change index declined to 57.2 in October from 58.1 in September, though inventories expanded for the third consecutive month. The order backlog index fell to 47.7 last month after rising to 48.3 in September. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes (25% each): Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Index level is highest in over two years.
- Business activity & employment firm.
- Despite a modest backpedal, prices reading remains firm.

U.S. ISM Services PMI Improves in October; Prices Ease

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The U.S. trade deficit in goods and services (BOP basis) widened to $84.36 billion in September after narrowing to $70.79 billion in August ($70.43 billion originally), according to the U.S. Census Bureau. This was the second month in three in which the deficit had widened. The September deficit was the biggest since April 2022 and much larger than the $62.22 billion in September 2023. A deficit of $84.1 billion had been expected in the Action Economics Forecast Survey. Exports fell 1.2% m/m (+2.4% y/y) in September, the first monthly fall since May, after a 1.8% increase in August (+2.0% originally). Imports rose 3.0% (8.8% y/y), the third m/m rise in four months, following a 1.0% August drop (-0.9% previously).

The deficit in goods trade (BOP basis) ballooned to $108.99 billion in September, the largest since March 2022, after narrowing to $94.83 billion in August; it was much larger than the $85.72 billion in September 2023. Goods exports slid 1.8% (+0.6% y/y) in September, the first m/m slide since May, after a 2.4% gain in August. Imports of goods increased 4.0% (9.3% y/y), up for the third month in four, after a 1.5% August drop. The services trade surplus rose to $24.63 billion in September, the biggest since May, from $24.04 billion in August; it was slightly larger than $23.49 billion in September 2023. Services exports dipped 0.02% (+6.1% y/y) in September after a 0.5% increase in August. Services imports fell 0.9% (+6.6% y/y), the first m/m fall since March, following a 1.1% August rise.

The customs value goods trade deficit widened to $108.69 billion in September, the biggest since March 2022, from $94.24 billion in August; it was much bigger than the $86.06 billion in September 2023. The latest figure was in line with a $108.23 billion deficit in the advance report released on October 29. Custom value exports decreased 2.0% (+1.2% y/y) in September, the second m/m decline in three months, after a 2.9% rebound in August. This reflected m/m drops of 6.3% (-3.9% y/y) in nonfood consumer goods excluding autos, 3.3% (+8.9% y/y) in capital goods excluding autos, and 2.3% (-3.4% y/y) in industrial supplies & materials. To the upside, exports for foods, feeds & beverages (5.0%; 5.1% y/y), automotive vehicles, parts & engines (3.6%; -5.9% y/y), and other goods (0.5%; 7.9% y/y) increased m/m in September.

Customs value imports rebounded 4.0% (9.5% y/y) in September, the third m/m increase in four months, following a 1.4% drop in August. This reflected m/m rises of 6.0% (11.8% y/y) in nonfood consumer goods excluding autos, 4.7% (12.4% y/y) in foods, feeds & beverages, 4.1% (0.2% y/y) in industrial supplies & materials, 3.4% (20.6% y/y) in capital goods excluding autos, and 3.1% (-0.8% y/y) in automotive vehicles, parts & engines. In contrast, imports for other goods (-1.0%; +4.9% y/y) were the only category with a monthly decline in September. Meanwhile, petroleum imports fell 1.9% (-12.4% y/y) in September, the third m/m fall in four months, on top of a 6.8% decrease in August. Nonpetroleum imports recovered 4.5% (11.5% y/y), the third m/m advance in four months, after a 0.9% August decline.

The 0.02% September dip (+6.1% y/y) in services exports reflected m/m drops of 9.0% (+30.8% y/y) in maintenance & repair services, 1.6% (-18.0% y/y) in personal, cultural & recreational services, and 0.4% (+9.6% y/y) in travel services, while exports for government goods & services (4.5%; -8.5% y/y), transport services (1.2%; 3.4% y/y), and construction services (1.0%; 48.1% y/y) rose m/m in September. The September 0.9% fall (+6.6% y/y) in services imports was led by m/m drops of 14.8% (+14.1% y/y) in charges for the use of intellectual property and 1.6% (+7.0% y/y) in travel services, while imports for maintenance & repair services (4.7%; 17.9% y/y) and transport services (2.6%; 11.3% y/y) rebounded m/m in September.

The real (inflation-adjusted) goods trade deficit (customs value; chained 2017 dollars) ballooned to $100.13 billion in September, the largest since March 2022, after narrowing to $88.53 billion in August; it was much larger than the $85.66 billion in September 2023. The $95.33 billion average monthly real trade deficit in Q3 2024 was slightly larger than the $93.06 billion deficit in Q2 2024. A widening trade balance (net exports) subtracted 0.56%-points from Q3 2024 real GDP growth after subtracting 0.90%-points in Q2 2024.

The U.S. goods trade deficit with China rose to $26.89 billion in September after narrowing to $24.65 billion in August. Exports fell 6.7% (-5.0% y/y) in September following a 9.7% August rebound, while imports rose 3.7% (8.7% y/y) after a 3.8% August decline. The goods trade deficit with the European Union widened to $23.84 billion in September, a record high, after rising to $19.10 billion in August, with exports down 6.5% (+0.8% y/y) and imports up 5.1% (15.9% y/y). The trade shortfall with Japan increased to $5.34 billion in September after narrowing to $4.87 billion in the previous month, reflecting rebounds of 5.1% (5.2% y/y) in exports and 7.1% (-8.9% y/y) in imports. The trade deficit with China was the largest among the three trading partners.

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** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- $84.36 bil. trade deficit (reflecting $108.99 bil. goods deficit & $24.63 bil. services surplus).
- Exports drop 1.2% after three straight m/m rises, while imports rebound 3.0%, up for the third month in four.
- Real goods trade deficit widens to $100.13 bil., the biggest since March ’22.
- Goods trade deficits w/ China and Japan rise; trade shortfall w/ EU widens to a record high.

U.S. Trade Deficit Widens in September; the Largest Since April ’22

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Retail gasoline prices for all grades fell to $3.19 per gallon (-9.3% y/y) in the week ended November 4 from $3.22 per gallon the prior week. The latest week was the lowest since the fourth week of January. The recent high was $3.79 in the week ended April 22, and an all-time high of $5.11 in the week ended June 11, 2022. The latest measure of on-highway diesel fuel prices was $3.54 per gallon (-19.0% y/y) versus $3.55 per gallon the prior week. Diesel prices have ranged between $2.37 per gallon in the week ended November 2, 2020 to $5.81 in the week of June 20, 2022.

Crude oil prices weakened to $68.39 per barrel (-16.2% y/y) in the week ended October 25 from $71.08 in the prior week. The recent range of average West Texas Intermediate crude oil prices has run between $69.41 in the week of March 24, 2023 to $91.45 in the week of September 29, 2023. Yesterday, the price was $71.47 per barrel. The price of European Brent crude oil stood at $72.61 per barrel last week (-17.7% y/y) versus $74.69 in the week prior. Yesterday’s price was $74.89 per barrel.

Natural gas prices declined to $1.82 per mmbtu (-42.4% y/y) from $1.88 in the prior week. Prices were below a $2.73 high in the second week of June. The price was $1.35 per mmbtu yesterday.

Gasoline demand rose 3.4% y/y in the four weeks ended October 25, compared to 3.6% y/y in the prior four weeks. Demand for all petroleum products increased 2.7% in the four weeks ended October 25 after a 1.4% y/y increase in the prior four weeks.

Crude oil input to refineries rose 4.0% y/y in the four-week period ended October 25 after a 2.8% y/y increase in the prior four weeks.

Gasoline inventories fell 5.7% y/y in the week ended October 25 after decreasing 4.4% y/y in the week prior. Inventories of residual fuel oil fell 11.8% in the October 25 week after decreasing 7.8% y/y in the prior week. In contrast, crude oil inventories grew 4.9% y/y in the latest week following a 5.0% y/y increase during the prior week.

Measured in days’ supply, gasoline inventories eased to 23.3 days in the week ended October 25, down from 24.0 days in the prior week. Data in the latest week show the lowest inventories since the first week of November 2022. Crude oil inventories slipped to 26.8 days’ supply in the October 25 week from 27.0 days in the prior week. These compare to a low of 24.8 days in the week ended September 20, 2024 and a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline, crude oil & natural gas prices weaken.	
- Demand for gasoline increases moderately.
- Inventories of gasoline & crude oil slip.

U.S. Energy Prices Decline in Latest Week

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The OECD leading economic indicators normalized or amplitude adjusted uniformly show that expansion is still underway in the global economy. The OECD-7 metric is up by 0.1% in September for the normalized leading indicators after being flat in August. There are positive expansions indicated over 12 months, six months, and three months. Apart from looking at growth rates, the level of the indicator for the OECD 7 has a 55.8 percentile standing, placing it above its historic median value. For the core group of OECD countries, expansion remains firmly signaled underway, even if not strongly.

The normalized indicator for Japan is flat in September after being flat in August. It shows a decline over 12 months but net increases over six months and three months with a queue percentile standing on the index at 50.7% which barely puts Japan over its median and puts it into growth territory; however, it does stay in growth territory slightly above median growth.

For the United States, the change in the normalized leading indicator in September is zero after zero in August as well. The U.S. has an increase of 0.1% over 12 months; it increases to 0.3% at an annual rate over three months and six months, hardly strong readings. However, the queue standing on the LEI level for the United States has a 57.2 percentile standing, a solid standing, clearly above the historic median (at a 50% standing) and clearly putting the United States into growth territory.

The OECD likes to look at six-month changes in its metrics. The second panel of this table looks at the changes in six-month averages month-to month and the net change over six months over progressive 6-month periods. On this score, we see September and August expansions in the OECD-7 grouping as moderate and consistent increases in September and August. For Japan, there are small consistent increases; from the United States strong increases in September and August. China logs two severe monthly declines. However, over broader periods based on six-month changes, we see increases logged even for China. The exception is having a decline from 6-months ago in Japan in its six-month change. Turning to the queue percentiles where we rank the different regions or countries on six-month growth rates, the OECD 7, Japan, and the U.S. have percentile standings in a range of 55% to 65% clearly above their historic medians while China comes in with a standing at its 39th percentile below its historic median.

The bottom panel of the chart shows the amplitude adjusted leading indicators from the OECD and here we look at the levels of the indicators with levels above 100 indicating normal to above normal growth and levels below 100 indicating below normal or below average growth. We see negative scores for France, Italy, Spain, and China consistently over the last four months. The ratio of the current index to six-months ago provides a negative reading for Spain and for China. The other metrics in the table signal ongoing expansion in the United States, the United Kingdom, Japan, the OECD 7, and Germany. These are relatively broad readings indicating continuity and global growth. However, the growth rates aren't particularly strong. For example, the German index has only at 50.7 percentile standing, the same as Japan's. These are razor edges standings, barely above their historic medians but again signaling growth but growth that is above the historic median value by only a small margin. The OECD 7 has a standing at its 55.8 percentile. Italy, France, and the United States have readings that are in their 57th percentile, again, relatively firm above their historic medians. For now, the strongest reading is coming from the U.K. with a 93.5 percentile standing. Spain and China both have percentile standings below their 50th percentile and are at the mid-30th percentile mark.

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The OECD indicators seem to produce a brighter picture than other metrics seem to show since the signals are uniformly in favor of growth. However, the rankings are a bit of a come down since there are few indications of strength in the OECD metrics looked at as rankings on levels in any of their formats. The global economy continues to press ahead. Unemployment rates continue to be low. And inflation continues to hover above central bank targets. Growth is not strong enough to impress anyone. It is solid enough to be real and push unemployment rates lower or keep them below historic norms for the most part globally. But there is not enough growth to satisfy policy markers at central banks who have chosen to be in a rate cutting cycle despite ongoing low unemployment and inflation overshooting, but not accelerating inflation.

OECD LEIs Global Expansion Still Broadly Underway

Tian Yong Woon

In this week’s letter, we focus on political uncertainty and its potential risks to economic growth. We begin with Japan, where the long-ruling Liberal Democratic Party (LDP) faced a significant electoral setback last weekend, losing its ability to form a majority in the lower house, even with its coalition partner's support. This development has sparked a period of political flux, complicating efforts to predict Japan's policy trajectory. Market reactions have partially reflected these concerns (Chart 1), though responses to the Bank of Japan's decision to maintain its current policy settings have been muted (Chart 2), which is understandable given that the outcome was largely anticipated.

The uncertainty surrounding elections extends to the United States, where the presidential race between Donald Trump and Kamala Harris remains too close to call by many measures. Observers are particularly interested in how the election results might impact relations with China. US-China relations have been the focus of various trade-related measures by the US over the past decade, including tariffs and product controls (Chart 3). However, it's worth noting that the US's hawkish stance on China may well persist regardless of the incoming president. On a more optimistic note, expectations for China’s near-term growth have improved (Chart 4), bolstered by a recent series of easing measures from its authorities. Nevertheless, uncertainty lingers regarding the economy's ability to achieve its 5% growth target for the year.

Finally, we examine developments in other advanced Asian economies, where industrial production growth has shown signs of easing in recent months (Chart 5). We discuss the potential implications of continued declines in this growth on exports and, consequently, on the growth rate of these economies, many of which rely heavily on exports as a primary growth driver (Chart 6).

**Japan’s lower house elections and the October BoJ meeting**
Japan’s ruling party, the Liberal Democratic Party (LDP), experienced a significant electoral upset last weekend, losing its majority in the lower house of Parliament. Even with the support of its coalition partner, Komeito, the LDP is now unable to form a majority. This shift puts Prime Minister Ishiba's position at risk, as he may need to seek support from parties outside his usual allies to advance his policy agenda if he remains in office. Given this uncertainty, political maneuvering is expected to intensify in the coming weeks, with a special parliamentary session scheduled for November 11 to elect Japan’s next Prime Minister. In response to the initial news, the yen weakened further, reflecting market concerns, while equities saw a slight uptick (Chart 1).

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Amid the interim political uncertainty, the Bank of Japan (BoJ) left its policy settings unchanged at its October meeting, as widely anticipated. However, the bank’s updated outlook report revealed some shifts in its expectations for the near future. Specifically, the BoJ now forecasts slightly higher real GDP growth but lower headline inflation for fiscal year 2025, based on median projections, while keeping most other forecasts unchanged. While the anticipated outcome did not lead to significant market movements, some nuances caught the market’s attention. Notably, BoJ Governor Ueda indicated that the bank will no longer state it has “ample time” to determine the timing of rate hikes, suggesting a potential increase in the pace of tightening. Nevertheless, while markets are eyeing the BoJ's December meeting as a potential opportunity for further policy adjustments, the implied probabilities of a rate hike currently suggest anything but certainty.

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**China, US elections, and growth prospects**
Uncertainty extends beyond Japan to include China, particularly regarding the outcome of the upcoming US presidential elections. Much remains uncertain for China as observers closely assess the potential actions of an incoming US president. Key concerns include the possibility of continued US efforts to curb China's advancements in critical technologies, such as artificial intelligence, and trade-related restrictions aimed at addressing overcapacity in electric vehicles (EVs) and other sectors (Chart 3). Notably, presidential candidate and former President Trump has proposed significantly raising tariffs on goods imported from China if elected. However, regardless of who takes office, it is likely that China will continue to face frictions with the US, as the latter has maintained a hawkish stance toward China over the past decade, regardless of the sitting president.

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Nonetheless, China may be looking at slightly brighter economic prospects ahead, although growth risks—particularly from ongoing tensions with the US—could intensify. The IMF continues to project, in its latest Regional Economic Outlook (REO) report, that China’s economy will grow by 4.8% in 2024, consistent with its October WEO report and up 0.2 ppts from its April forecast (Chart 4). However, if this expectation is realized, it would mean China will miss its 5% growth target for this year, a risk that economists increasingly believe will unfold. Admittedly, however, much of the potential for a rebound in China’s economy hinges on the effectiveness of the recent easing measures announced by authorities in the past weeks. The IMF also cautioned that persistent downward price pressure stemming from China could provoke trade tensions, as competitors facing squeezed margins might resort to retaliatory actions.

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**More on advanced Asia**
In advanced Asian economies, recent data on the industrial sector indicates a slowdown (Chart 5). Notably, South Korea’s industrial production, excluding construction, fell into contraction in September, declining by 1.3% y/y. This decrease was largely driven by a 3% drop in semiconductor production, raising concerns among observers as it marks the first decline in over a year. Some analysts worry this may signal a temporary cooling in AI-related chip demand. Meanwhile, Japan’s industrial production, although showing slight improvement, is still contracting, with a y/y decrease of 2.8%. In Taiwan, industrial production continued to register double-digit growth, but the latest figures have reinforced a trend of slowing growth in recent months.

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The trends of weak or declining growth in industrial production directly impact the growth dynamics of advanced Asian economies, where much of the manufacturing is geared towards exports. This issue is particularly pronounced in South Korea and Taiwan, which rely heavily on goods exports. In contrast, Japan has seen contributions from exports to real GDP growth diminish in recent quarters (Chart 6). Furthermore, these advanced economies have experienced only modest growth contributions from other sources, such as private consumption. If the current downturn in production continues—potentially due to waning demand—it could significantly affect exports. This would be especially detrimental for export-reliant economies, which have few alternative growth drivers to sustain their economies. This situation contrasts with many other Asian economies, particularly those in ASEAN, where domestic consumption has played a meaningful role in driving growth.