Tom Moeller

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050128b.jpg" width="353"></p>
<p>The employment cost index for private industry workers rose 0.7% last quarter, in line with Consensus expectations for a 0.8% increase. The y/y gain of 3.8% represented moderation from the 4.0% rates of growth logged during the prior four years.</p>
<p>Moderate wage and salary growth of just 0.4% was less than half the 3Q increase and the y/y gain of 2.4% was nearly half the peak rates of growth seen during 1998 and 2000. Wages account for roughly 70% of the compensation index.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050128c.jpg" width="353"></p>
<p>Benefit costs, on the other hand, shot up last year. The 4Q rise of 1.5% was below increases early in the year but pulled the y/y gain to 6.9%, the strongest in over twenty years. The y/y rise in the cost of health benefits eased to 7.3% after 10.5% growth in 2003.</p>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col"><b><u>4Q &#39;04</u></b></th>
<th scope="col"><u><b>3Q &#39;04</b></u></th>
<th scope="col"><b><u>Y/Y</u></b></th>
<th scope="col"><b><u>2004</u></b></th>
<th scope="col"><u><b>2003</b></u></th>
<th scope="col"><b><u>2002</u></b></th>
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<td class="firstcol">Compensation</td>
<td>0.7%</td>
<td>0.9%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>4.1%</td>
<td>3.4%</td>
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<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.4%</td>
<td>0.9%</td>
<td>2.4%</td>
<td>2.4%</td>
<td>3.0%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.5%</td>
<td>1.0%</td>
<td>6.9%</td>
<td>7.0%</td>
<td>6.5%</td>
<td>4.8%</td>
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The employment cost index for private industry workers rose 0.7% last quarter, in line with Consensus expectations for a 0.8% increase. The y/y gain of 3.8% represented moderation from the 4.0% rates of growth logged during the prior [...]

Employment Cost Index Moderate At 0.7%

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Consumer spending remains firm. Personal consumption expenditures (PCE) increased 0.8% (5.8% y/y) during March after rising an unrevised 0.8% in February. A 0.6% increase had been expected in the Action Economics Forecast Survey. Adjusted for price changes, PCE rose 0.5% last month (3.1% y/y), also steady with February.

Real spending on durable goods increased 0.9% in March (4.3% y/y) after rising 1.4% in February. Real spending on motor vehicles improved 0.8% (-2.9% y/y) after rising 2.8%. Real home furnishings & appliance outlays increased 0.8% (5.6% y/y) after rising 0.6% in February while real spending on recreational goods & vehicles jumped 1.2% (9.8% y/y) after edging 0.1% higher in February. Spending on other durable goods rose 0.7% (9.9% y/y) after a 2.2% jump.

Real spending on nondurable goods jumped 1.3% last month (3.0% y/y), after falling in each of the prior two months. Real clothing and footwear purchases were off 0.6% (+3.0% y/y) following a 0.8% decline. Real food & beverage buying surged 1.1% (2.4% y/y) after rising 0.2%. Real outlays on gasoline & other energy products rose 4.3% (-0.3% y/y) after falling sharply in three of the prior four months. Spending on other nondurable goods increased 1.2% (4.7% y/y) following a 0.3% rise.

Real spending on services increased 0.2% (2.8% y/y) in March following a 0.6% February gain. Real spending on housing & utilities held steady (0.6% y/y) after easing 0.1% in the prior month while real healthcare spending rose 0.6% (4.5% y/y) after a 0.5% rise. Real spending on food services & accommodations improved 0.3% (4.0% y/y) after gaining 0.6% in February while real spending on financial services & insurance rose 0.4% last month (3.5% y/y), about the same as in February. Real spending on transportation services fell 0.7% (+4.2% y/y) after rising 1.9% in February.

Personal income rose 0.5% (4.7% y/y) in March after increasing an unrevised 0.3% in February. A 0.5% increase had been expected. Wages & salaries rose 0.7% (5.9% y/y) for the second consecutive month. Rental income jumped 1.6% (8.4% y/y), about as it did in February and proprietors’ income rose 0.3% (4.3% y/y) after a 0.4% gain. Income from assets improved 0.1% (2.3% y/y) after a 2.0% decline and current transfer receipts rose 0.3% (3.1% y/y) after rising 0.6% in February. Government social benefits rose 0.3% (3.0% y/y) after strengthening in each of the prior two months.

Disposable personal income increased 0.5% (4.1% y/y) in March following a 0.2% February rise. After adjusting for price changes, disposable income improved 0.2% (1.4% y/y) last month after easing 0.1% in February and holding steady in January.

As spending growth again outpaced the gain in disposable income, the personal saving rate fell to 3.2% from an unrevised 3.6% in February. The rate was down from a May 2023 high of 5.3% and the lowest since October 2022. Personal saving declined 9.2% (-35.9% y/y) after falling 13.7% in February.

The PCE chain price index rose 0.3% (2.7% y/y) in March, the same as it did in February but down from 0.4% in January. These increases were up from minimal monthly change during the fourth quarter of last year. The price index excluding food and energy rose 0.3% (2.8% y/y), the same as it did in February, but these were below a 0.5% January rise. Goods prices rose 0.1% last month (0.1% y/y) following a 0.5% rise. Services prices rose 0.4% (4.0% y/y) following a 0.3% increase. Services prices excluding energy & healthcare increased 0.5% (4.4% y/y) after rising 0.3% in February. Food prices eased slightly (+1.5% y/y) last month after rising 0.1% in February. Energy goods & services prices rose 1.2% (2.6% y/y) following a 2.3% rise.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Spending growth holds at strongest rate since June.
- Disposable income increase picks up.
- Core PCE price index gain stabilizes at lessened rate.

U.S. Personal Spending Remains Firm; Core Price Rise Steadies in March

Robert Brusca

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**Money growth still contracting; credit growth is flat**
**EMU Money Growth-** Money and credit growth in the European Monetary System has ground to a halt with M2 money supply still decelerating in nominal terms. Three-year growth is at 2.6% at an annual rate, two-year growth at a 0.5% annual rate, and growth over three months is flat. When viewed in real terms, there's a little more progress that appears but the growth rates for real money supply are negative. Over three years European Monetary Union money grows at a rate of -2.7%; over two years it is weaker at a -3.8% annual rate; over 12 months real money supply declines at a 2.5% annual rate. Over three months, real money supply has declined at a 1.3% annual rate, reversing the step-down in contraction. There's a gradual and somewhat uneven movement toward money growth contraction to be less restrictive; however, negative real money growth rates persist and when it comes to nominal money growth the performance is simply flat.

**EMU Credit Growth-** Credit growth in the monetary union faces similar trends. Private credit grows at 2.7% at an annual rate over three years, at a 1.9% annual rate over two years, but private credit growth over three months has only a 0.2% annual rate of growth. Nominal private credit growth has slowed its pace so much that over three months its pace has been close to zero. Looking at private credit growth in real terms, we see it shrinks at a 2.7% annual rate over three years; it shrinks at a 2.5% annual rate over two years, that's further reduced to a -2% annual rate over 12 months. Over three months, the annual rate for credit growth is further reduced to -1.1%. The degree of contraction for credit in the European Monetary Union has been reduced; however, the EMU continues to demonstrate weak nominal credit growth and declining inflation adjusted credit growth.

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**Global money center monetary conditions**
**Japan makes its own way-** Globally, Japan stands alone among major monetary centers, in terms of nominal money growth. Japan's money growth in nominal terms has been extremely steady at a 2.8% annual rate over three years, at a 2.5% annual rate over two years, and at a 2.5% annual rate over one year. Over three months, money growth in has ticked up to 3.2% at an annualized rate. These are extremely stable nominal growth rates. The chart clearly demonstrates Japan’s relative stability comparing only year-on-year rates. In real terms, Japan's money growth shows mixed patterns with growth of 0.5% over three years, which weakens and shows declines over two years and over one year. Those declines in real money growth transition to a 0.5% annual rate over six months and a 2.1% annual rate of real growth over the last three months, as real balance growth accelerates.

**U.S. and U.K. trends; commonalities and differences-** U.S. and U.K. nominal money growth rates show a swale pattern with nominal growth rates over three years strong, giving way to declines (or weakness) in nominal money growth over two years and 12 months and then swinging up toward expansion and rising in the most recent three months. U.S. nominal money growth, for example, declines by 0.3% over 12 months and gains at a 1.3% annual rate over six months and at a 1.7% annual rate over three months. In the U.K., over 12 months M4 declines at a 2% pace; it trims that to an annualized rate of decline at a -0.2% pace over six months and then it grows at a 4% annual rate over three months. Real money balance growth in the U.K. and in the US shows ongoing contraction with the increase in money supply not sufficient to compensate for the increase in inflation that has been experienced. Over three years U.S. and U.K. money growth rates have a 3% ‘handle,’ over two years the ‘handle’ grows to 6%. Then U.S. and U.K. trends diverge. Over 3 months, real M2 declines in the U.S. to a -2.8% pace while U.K. real M4 growth declines at a -0.9% annual rate. How each country gets there in terms of growth rates differs. Short-term trends are mixed globally.

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**Money balances are not promoting growth-** As a result of these patterns, it's not possible to make a particular overarching statement about money supplies except the money supply is not particularly stimulative right now. Japan is a partial exception to this statement but looking at the U.S., the U.K., and the European Monetary Union, we see weak-to-declining nominal money supply growth and we see declining real balances for money supply. The growth rates all show contraction, but the pace of contraction is mixed. The bottom line is that money growth isn't stimulative. It isn’t helping to promote growth in these developed money-center economies. Meanwhile, all eyes and ears are glued to clues on interest rate prospects.

**The transition fails to transition-** Central banks have generated these results while looking to transition from their tightening modes to an easing mode. This process was led by the rhetoric in the U.S. where three rate cuts at one point were queued up for this year and were relatively widely anticipated by the public statements and projections of Federal Open Market Committee members and by the markets. However, with the turnabout in short-term U.S. inflation trends, the outlook for rate cuts has been reduced – for some it has been eliminated. The Federal Reserve is talking about not having seen enough inflation progress. In the European Monetary Union, there are still expectations of a rate reduction by mid-year but, of course, that's going to depend on what happens on the inflation front, which has become somewhat touch-and-go. Japan is looking to hike interest rates. Inflation there remains higher than its target, but it hasn't accelerated as much as the Bank of Japan and market participants thought that it might. This could put the outlook for Japanese monetary policy in a state of uncertainty. It has also helped to muddy the waters in forex markets where Japan rates hikes, and a series of U.S. rate cuts had been expected to drive market trends and now all that is in a state of flux.

**Growth and inflation trends are mixed-** Inflation rates and the money center countries have uniformly been reduced when comparing year-over-year rates of change. However, over the last six months, inflation rates on a national or regional level have flattened out or annual rates of inflation have begun to show less decline than they did previously. Meanwhile, growth trends judged from industrial production show ongoing strong declines in Japan, declines in the EMU while the U.S. and the U.K. feature industrial vacillation.

**A muddy picture-** The global picture right now can only be considered muddy. Currently growth is mostly low, poor and in some places, showing contraction. However, central banks have reduced inflation, which is no longer accelerating in major way, but it may not be making the kind of progress central bankers would prefer to stay on a rate-cut path. Inflation is over target generally and central bankers are on the fence about how much longer they need to hold rates at elevated levels to make the inflation progress they desire. Still, no Western money center central banks have rate hikes as their base case. There are still some things Western central bankers can agree on.

Money and Credit Growth Are Stuck in a Transition Phase

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Real GDP grew 1.6% (SAAR) in Q1’24 in this advance estimate, following a 3.4% gain in Q4’23 and a 4.9% Q3’23 rise. A 2.4% increase had been expected in the Action Economics Forecast Survey. Real GDP grew 3.0% on a Q1/Q1 basis after a 3.1% rise in 2023 and a 0.7% gain in 2022.

The growth slowdown last quarter stemmed from reduced contributions to growth from the change in business inventories and international trade. Inventories subtracted 0.35 percentage point from growth last quarter following a 0.47 point subtraction in Q. Net exports subtracted 0.86 percentage point after adding 0.25 percentage point in Q4. Exports grew 0.9% (0.3% y/y) which followed a 5.0% Q4 rise. Imports strengthened 7.2% (1.3% y/y) after rising 2.2% in Q4.

Growth in real final sales to domestic purchasers of 2.8% (2.9% y/y) followed two quarters of 3.5% gain. Personal consumption expenditures rose 2.5% (2.4% y/y) after a 3.3% increase in Q4, adding 1.7 percentage points to Q1 growth.

Durable goods spending declined 1.2% (+2.0% y/y) last quarter following a 3.2% gain. Motor vehicle expenditures fell 9.0% (-5.3% y/y) after declining 1.7%. Furniture & appliance buying rose 4.0% (2.8% y/y) after a 1.7% gain in Q4. Recreational goods & vehicle purchases fell 1.5% (+8.3% y/y) after strengthening 7.5% in Q4.

Nondurable goods outlays held steady (+1.9% y/y), following 2.9% growth in Q4. Apparel outlays rose 5.3% (1.8% y/y) after a 3.4% increase while food & beverage spending rose 1.0% (1.2% y/y) following a 0.8% gain. Outlays on gasoline & other energy products declined 10.9% (+0.1% y/y) after rising 4.3% in Q4.

Spending on services increased 4.0% last quarter (2.6% y/y) after a 3.4% gain. Housing & utilities outlays rose 1.4% (1.3% y/y) after a 0.1% Q4 improvement. Health care purchases rose 5.5% (4.6% y/y) following a 7.8% increase. Transportation services outlays growth of 4.6% (3.3% y/y) was improved from a 4.2% Q4 rise. Restaurant & hotel accommodations fell 2.0% (+2.6% y/y) after gaining 6.5% in Q4, while growth in recreation outlays jumped 4.8% (2.2% y/y) after a 0.4% rise in Q4.

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Business fixed investment increased 2.9% (3.9% y/y) last quarter, following a 3.8% Q4 rise, but spending on nonresidential structures eased 0.1% (+9.4% y/y) after surging 10.9% in Q4. Equipment investment increased 2.1% (1.0% y/y) after falling 1.1%. Information processing investment strengthened 12.2% (+2.2% y/y) following an 11.4% rise, while industrial equipment outlays grew 17.8% (1.4% y/y), after holding steady. Transportation equipment spending offset these gains and weakened 25.6% (-1.3% y/y) about as they did in Q4. Investment in intellectual property products rose 5.4% (3.6% y/y), after a 4.3% rise.

Residential structures investment surged 13.9% (5.1% y/y) in Q1, adding to two consecutive quarters of firm increase.

Government spending increased 1.2% (3.7% y/y), accounting for 0.21 percentage points of GDP growth, after a 4.6% rise. Federal government spending eased 0.2% (+2.5% y/y) following a 2.4% increase. State & local government spending grew 2.0% (4.4% y/y), after a 6.0% Q4 rise.

The GDP price index rose 3.1% (2.5% y/y) last quarter after a 1.6% Q4 gain. The rise was double expectations for a 1.6% Q1 increase. The PCE price index increased 3.4% (2.6% y/y) after a 1.8% rise. The PCE price index excluding food and energy prices rose 3.7% (2.9% y/y) after increasing 2.0% for two straight quarters. The PCE goods price index fell 0.5% (-0.2% y/y) after falling 1.4% and services prices rose 5.4% (4.0% y/y), after a 3.4% rise. The services price index less energy & housing rose 5.1% (3.5% y/y) after a 2.6% rise.

The business fixed investment price index rose 1.4% (1.1% y/y) following a 2.0% rise. The residential investment price index increased 0.6% (2.1% y/y) following two quarters of roughly 4.0% gain. The government spending price index rose 3.8% (2.4% y/y) after rising 1.9% in the fourth quarter.

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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- Quarterly growth is slowest since mid-2022.
- Inventories & foreign trade subtract from growth.
- Domestic final demand gain moderates.
- Price index growth accelerates.

U.S. GDP Growth Weakens in Q1’24

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The Pending Home Sales Index from the National Association of Realtors increased 3.4% (0.1% y/y) to 78.2 after rising 1.6% to 75.6 in February. These gains followed a 4.7% January decline. Sales were 38.9% below the peak in August 2020. The index reflects sales contract signings.

The rise in March sales occurred as the average rate on a 30-year mortgage increased to an average 6.82% from 6.78% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales increased in three out of four regions. Sales in the South surged 7.0% (-1.5% y/y) following a 1.1% February decline. Sales in the West jumped 6.8% (3.6% y/y) after falling 6.5% in February. Sales in the Northeast rose 2.7% (-0.3% y/y) in March after declining 0.3%. Moving lower, sales in the Midwest fell 4.3% (+1.3% y/y) in March after a 10.6% February improvement.

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.

- Increase is fourth in five months.
- Sales rise in most regions of the country.

Employment Cost Index Moderate At 0.7%

Summary

Tom Moeller

More Economy in Brief

U.S. Personal Spending Remains Firm; Core Price Rise Steadies in March

Money and Credit Growth Are Stuck in a Transition Phase

U.S. GDP Growth Weakens in Q1’24

U.S. Pending Home Sales Strengthen in March

ECI- Private Industry Workers	4Q '04	3Q '04	Y/Y	2004	2003	2002
Compensation	0.7%	0.9%	3.8%	3.7%	4.1%	3.4%
Wages & Salaries	0.4%	0.9%	2.4%	2.4%	3.0%	2.7%
Benefit Costs	1.5%	1.0%	6.9%	7.0%	6.5%	4.8%