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/040329a.jpg" width="353"></p>
<p>Home prices as tallied by the Office of Federal Housing Enterprise Oversight (OFHEO) surged in 4Q 2003 by the most for any one period since 1Q 1979. The 3.7% jump last quarter pulled home price appreciation for the year to 6.9%.</p>
<p><span class="mainarttxt">The acceleration in home prices was notable versus the prior two years when prices rose an average of 1.6% each quarter. It was attributed to the economy&#39;s emergence from recession combined with the continued low level of interest rates. </span></p>
<p><span class="mainarttxt">Home price appreciation accelerated across the country&#39;s regions</span>. The greatest accelerations occurred in Vermont, New York and the District of Columbia.</p>
<p>The OFHEO house price index is a geometric weighted average based on more than 26.5 million repeat transactions over 29 years and 12,000 transactions annually.</p>
<p>View the latest OFHEO release <a href="http://www.ofheo.gov/media/pdf/4q03hpi.pdf">here</a>.</p>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E911/@E91101/@E91101.HTM"> OFHEO</a></th>
<th scope="col"><u><b>4Q03</b></u></th>
<th scope="col"><u><b>3Q03</b></u></th>
<th scope="col"><b><u>Y/Y</u></b></th>
<th scope="col"><u><b>2003</b></u></th>
<th scope="col"><b><u>2002</u></b></th>
<th scope="col"><u><b>2001</b></u></th>
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<td class="firstcol">House Price Index</td>
<td>3.7%</td>
<td>1.6%</td>
<td>8.0%</td>
<td>6.9%</td>
<td>7.1%</td>
<td>8.0%</td>
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Home prices as tallied by the Office of Federal Housing Enterprise Oversight (OFHEO) surged in 4Q 2003 by the most for any one period since 1Q 1979. The 3.7% jump last quarter pulled home price appreciation for the year to 6.9%. The [...]

Home Prices Surged in 4Q03

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Nonfarm payrolls increased 175,000 (1.8% y/y) in April after rising 315,000 in March, revised from 303,000, and 236,000 in February, revised from 270,000. Expectations had been for a 250,000 rise in the Action Economics Forecast Survey. The three-month average change of 242,000 is the slowest since December of	 last year.

Average hourly earnings increased 0.2% in April after an unrevised 0.3% March gain and a 0.1% uptick in February, revised from 0.2%. The 3.9% y/y earnings increase remains below the 5.9% high in March 2022. It is the weakest rise since June 2021.

The unemployment rate, measured in the household survey, rose to 3.9% and reversed its decline to 3.8% in March. An unchanged 3.8% had been expected. Household employment rose 25,000 after increasing 498,000 in March. The labor force rose 87,000 after a 469,000 March gain. The overall unemployment rate, including workers who were marginally attached & working part-time for economic reasons edged up to 7.4%. It was the highest rate since November 2021.

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.

- Job increase slows to weakest in just over one year.
- Earnings increase moderates.
- Jobless rate moves up as employment increase is negligible.

U.S. Payroll Employment & Wage Growth Moderate in April; Jobless Rate Edges Up

Andrew Cates

**Consensus interest rate forecasts**
Despite heightened concerns about the potential for lower US interest rates in the coming months, recent forecasts still show a broad consensus that an easing cycle will unfold in the period ahead across most major economies. The latest Blue Chip Financial Forecasts survey, for instance, indicates that policy rate reductions of approximately 100 basis points are anticipated from the Fed over the next 12 months. Additionally, the European Central Bank and the Bank of England are expected to implement cumulative cuts of 166 and 111 basis points, respectively, during the same timeframe. In contrast, Japan is expected to see further rate hikes, specifically an increase of 17 basis points over the year ahead.

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**US data surprises and 2 year bond yields**
The anxiety in financial markets about the Fed’s scope to lower interest rates can be largely traced to the US economy’s resilience – and its tight labour market in particular – together with sticky inflation. The former, however, namely economic resilience, has arguably being challenged in recent days by some, though by no means all, US data releases. These include, for example, a weaker-than expected consumer confidence report and ISM survey of manufacturing. Citigroup’s US growth surprise index has, against that backdrop, turned sharply lower.

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**US and euro area data surprises versus the euro**
A corresponding trend has also unfolded in the FX market. While US data have been a little more disappointing this contrasts with euro area data, which have been more resilient. Yet, thanks to still-firm US/Europe yield differentials, the US dollar has remained fairly resilient versus the euro (see chart 3).

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**Japan’s economy**
This week’s disappointing retail sales data from Japan could call into question the scope for further policy rate hikes from the Bank of Japan (BoJ) in the coming months. Retail sales specifically slowed to 1.2% y/y in March from 4.7% in February. That slowdown, moreover, was broadly-based, with reduced sales activity seen across various product categories.

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**Airport traffic in China**
The latest monthly dataflow from China have been a little more upbeat but that was not the message from this week’s official PMI surveys for April. Other less widely monitored data are also yielding sobering messages about the current economic environment. For instance, while aircraft movements at Beijing Airport have risen from their low points, they still remain well below pre-COVID pandemic levels (see chart 5). Similarly, specific data on cargo volumes and passenger traffic lead to the same conclusion.

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**Global warming and water levels**
Finally, on more structural matters, climate change continues to generate profound shifts in the economic landscape, influencing everything from agricultural productivity to energy markets and global supply chains. One manifestation of these shifts is low water levels in many areas and for example, in the Panama Canal. More specifically Gatun Lake has seen prolonged drought conditions, exacerbated by the El Niño phenomenon and broader climate change anomalies. The drought has resulted in lower-than-average rainfall and delayed rainy seasons, leading to reduced water availability not only for canal operations but also for over half of Panama's population relying on this water source. To that supply chain point above, the canal has also had to reduce the number of ships it can accommodate per day.

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Lingering concerns about the US Fed's inclination to lower interest rates in coming months have continued to unsettle financial markets over the past few days. That said, comments from Fed Chair Powell after this week’s FOMC meeting have calmed some of those nerves. In our charts this week we delve into the latest Blue Chip consensus on policy rates across the world’s major economies (chart 1). We also compare market expectations for US policy rates, inferred from 2-year Treasury yields, with a trend toward more negative US data surprises in recent days (chart 2). In addition we contrast that more negative US growth trend with the relative resilience of the euro area dataflow and some recent downward pressure on the EUR/USD exchange rate (chart 3). Turning to Asia, we assess Japan's economy with a focus on some recent disappointing retail sales data (chart 4), and provide insights into China's economic activity through aircraft movements at Beijing Airport (chart 5). Finally, and with a nod to climate change and its impact, we look at reduced water levels on the Panama Canal and how these contrast with above-average land and sea temperatures over the past few years (chart 6).

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Charts of the Week: Policy Surprises Versus Data Surprises

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The U.S. trade deficit in goods and services (BOP basis) of $69.4 billion in March compared to a $69.5 billion in February, revised from $68.9 billion, and an unrevised $67.6 billion in January, according to the U.S. Census Bureau. The deficit remained nearly the largest since April 2023 which was $72.2 billion. A $69.1 billion deficit had been expected in the Action Economics Forecast Survey. Exports fell 2.0% and were roughly unchanged y/y, reversing a 2.2% February rise. Imports declined 1.6% (+3.1% y/y) in March, following three straight months of moderate gain.

The deficit in goods trade (BOP basis) increased to $92.5 billion in March from $91.7 billion in February. Goods exports fell 2.9% (-2.8% y/y) after rising 2.8% in February. Imports of goods declined 1.6% (+2.5% y/y) following three straight monthly increases. The services trade surplus increased to $23.1 billion in March from $22.2 billion in February but remained down from a peak surplus of $25.2 billion last August. Services exports eased 0.2% (+6.0% y/y) following four consecutive monthly increases. Services imports declined 1.7% (+5.4% y/y) after rising 4.7% in February.

The real (inflation-adjusted) goods trade deficit (customs value; chained 2017 dollars), widened to $88.6 billion in March, the largest deficit since April of last year, from $87.4 billion in February. Real exports of goods declined 3.2% (-0.7% y/y) after rising 2.0% in February. Real imports of goods fell 1.5% (+2.5% y/y) after three straight monthly increases. In the first quarter of this year, a widening of the trade deficit (net exports) subtracted 0.86 percentage points from GDP growth after adding 0.25 percentage points to growth in Q4 2023.

The customs value goods trade deficit widened to $91.5 billion in March from $90.5 billion in February. The latest figure compared to a $91.8 billion deficit in the advance report released on April 25. Customs value exports fell 3.0% (-1.7% y/y) in March after a 2.8% February increase. Automotive vehicles, parts & engines rose 0.6% (-1.7% y/y) while nonfood consumer goods excluding autos declined 1.8% (-5.1% y/y). Capital goods exports excluding autos weakened 3.7% (+3.1% y/y) while exports of industrial supplies & materials fell 3.0% (-4.1% y/y). Foods, feeds & beverages exports were off 8.2% (-1.5% y/y).

Customs value imports of goods declined 1.6% (+2.6% y/y) in March after increasing for three straight months. Automotive vehicles, parts & engines imports fell 11.1% (+6.1% y/y) while capital goods imports excluding autos rose 0.1% (7.4% y/y). Foods, feeds & beverage imports declined 3.5% (+5.2% y/y). Imports of industrial supplies & materials fell 2.9% (-7.0% y/y) but nonfood consumer goods excluding autos rose 4.8% (4.1% y/y). Meanwhile, petroleum imports declined 2.5% and were unchanged y/y in March, following a 1.6% February rise. Nonpetroleum imports weakened 1.5% (+2.8% y/y) following three straight monthly increases.

The rise in services exports reflected a 0.7% increase (12.4% y/y) in personal, cultural & recreational services and a 1.3% decline (+24.9% y/y) in travel services exports. Exports of construction services declined 1.3% (+2.6% y/y) while government goods & services exports declined 0.9% (-23.0% y/y). The increase in services imports was due to construction services imports which rose 1.0% (35.1% y/y) but travel services imports fell 2.6% (+21.7% y/y). Imports of transport services declined 5.8% (-0.1% y/y) while charges for the use of intellectual property eased 0.1% (+3.2 y/y) in March.

The U.S. goods trade deficit with China widened to a seasonally adjusted $24.1 billion in March from $21.9 billion in February. Exports fell 3.6% (-10.3% y/y) while imports rose 4.8% (unchanged y/y). The goods trade deficit with the European Union deepened to $19.5 billion from $17.6 billion in February as exports fell 3.4% (-6.4% y/y), off for the third straight month, and imports rose 1.8% (4.2% y/y). The trade deficit with Japan narrowed to a seasonally adjusted $5.3 billion in March after narrowing to $6.2 billion in the previous month. Exports declined 1.9% (+3.0% y/y) while imports fell 8.7% (-2.2% y/y).

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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- Exports and imports both fall.
- Adjusted for inflation, goods trade deficit increases to eleven-month high.
- Goods trade deficits with China & Europe deepen.

U.S. Trade Deficit Deepens in March

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The Commerce Department reported that inventories in the factory sector remained unchanged (0.6% y/y) during March after a 0.2% February rise. Transportation equipment inventories held steady (6.9% y/y). Furniture inventories increased 0.3% (-4.4% y/y) while electrical equipment inventories dropped 0.4% (-0.5% y/y). Amongst nondurable goods industries, petroleum inventories were 0.5% higher (2.6% y/y) and plastics & rubber inventories rose 0.2% (-4.8% y/y). These changes were accompanied by a 0.5% rise (-1.7% y/y) in apparel. Basic chemical inventories were unchanged (-0.6% y/y) for a second consecutive month while paper product inventories gained 0.2% (-2.6% y/y).

Orders to all manufacturers improved 1.6% (1.7% y/y) in March following a 1.2% February rise. The gain was led by a 2.6% rise (1.2% y/y) in durable goods orders, as commercial aircraft surged 30.6% (-50.9% y/y) in. New orders excluding transportation gained 0.5% (1.6% y/y). Orders for nondurable goods (which equal shipments) rose 0.6% (2.1% y/y). The rise reflected a 1.5% increase (4.9% y/y) in shipments from oil refineries and a 0.7% gain (2.1% y/y) in basic chemicals. Orders for textile products declined 1.4% (-1.7% y/y) and apparel orders fell 0.2% (-1.9% y/y). Orders for food products rose 0.2% (-0.3% y/y). Paper product shipments held steady (-2.0% y/y).

Unfilled orders improved 0.4% in March (9.1% y/y) and, excluding the transportation sector, they eased 0.1% (-0.9% y/y). Backlogs of electrical equipment slipped 0.1% (+0.7% y/y). Unfilled orders in the machinery sector eased 0.3% (-3.9% y/y) and unfilled orders for transportation equipment rose 0.7% (15.5% y/y). Unfilled orders of furniture rose 0.6% (-5.6% y/) and fabricated metals backlogs were off 0.1%, unchanged y/y.

The factory sector figures are available in Haver's **USECON** database.

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- Inventories levels are flat.
- Order improvement led by aircraft.
- Unfilled orders rise.

Home Prices Surged in 4Q03

Summary

Tom Moeller

More Economy in Brief

U.S. Payroll Employment & Wage Growth Moderate in April; Jobless Rate Edges Up

Charts of the Week: Policy Surprises Versus Data Surprises

U.S. Trade Deficit Deepens in March

U.S. Factory Inventories Hold Steady While Orders Rise in March