Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110d.jpg" width="353">
The rise yesterday in gold prices to $540 per ounce was to a level not attained in twenty five years. It underscored several concerns over the potential for future inflationary price pressure including 1) speculation of an end to Fed tightening with GDP growth strengthening worldwide, 2) the coming change in leadership at the Fed and 3) still high energy prices, up one third to one half from last year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110c.jpg" width="353">
Gasoline prices rose nine cents last week to a retail average $2.33 per gallon. Yesterday, the strength diminished somewhat as the spot price for regular unleaded gas fell a nickel.
Earlier declines in gasoline prices fostered a sharp rebound in petroleum demand. In December, motor gasoline demand is estimated up 5.7% from a year earlier and in the latest week up up 16.7%.
International Transmission of Inflation Among G-7 Countries: A Data Determined VAR Analysis is available <a href="http://www.fma.org/Chicago/Papers/Intlinflation.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Weekly Prices</th>
<th scope="col">01/09/06</th>
<th scope="col">01/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price (per gallon)</td>
<td>$2.33</td>
<td>$2.24</td>
<td>29.8%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr>
<td class="firstcol">Gold: Handy &amp; Harmon, $ per Troy Oz.</td>
<td>$541.5</td>
<td>$530.0</td>
<td>28.9%</td>
<td>$444.7</td>
<td>$409.2</td>
<td>$363.13</td>
</tr>
</tbody>
</table>
</body>
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The rise yesterday in gold prices to $540 per ounce was to a level not attained in twenty five years. It underscored several concerns over the potential for future inflationary price pressure including 1) speculation of an end to Fed [...]

Gold & Gasoline Prices Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110b.jpg" width="353">
The index of small business optimism from the National Federation of Independent Business (NFIB) in December recovered a marginal 0.2% of the prior month&#39;s 2.4% drop. For the fourth quarter as a whole, optimism did improve 1.4% from 3Q but sharp declines early in the year pulled the 2005 levels down 2.8% from averaged during 2004, the first annual drop since 2001.
The marginal m/m improvement reflected fewer firms (22%) firms with one or more job openings and fewer firms (21%) expecting higher real sales in six months offset by slightly more expecting the economy to improve and slightly more expecting higher earnings.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percentage of firms planning to raise average selling prices backup off sharply from the November high to 27%. The percentage of firms actually raising average selling prices also fell sharply to 18%. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The latest press release from the NFIB is available <a href="http://www.nfib.com/object/I2_24996.html">here</a>.
The National Economy and Monetary Policy in the New Year from Kansas City Federal Reserve Bank President Thomas H. Hoenig can be found <a href="http://www.kansascityfed.org/SPCH&amp;BIO/HoenigKCCentExch010906.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>101.4</td>
<td>101.2</td>
<td>-4.4%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
</tr>
</tbody>
</table>
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The index of small business optimism from the National Federation of Independent Business (NFIB) in December recovered a marginal 0.2% of the prior month's 2.4% drop. For the fourth quarter as a whole, optimism did improve 1.4% from [...]

Small Business Optimism Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110a.jpg" width="353">
Chain store sales rose a slight 0.1% to open the new year according to the International Council of Shopping Centers (ICSC)-UBS survey. The up tick followed a 0.8% decline during the closing week of 2005.
Solid increases earlier in December followed a very weak start to the month. As a result, sales in December fell 0.3% m/m but January sales started 2.2% above the prior month.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales jumped 0.9% in the latest week and pulled December average up 0.2% from November.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Now is the Time to Strengthen Our Economic Foundation from Federal Reserve of Atlanta Bank President Jack Guynn is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=B0070AA3-5056-9F06-99459F26006025F8&amp;method=display"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/07/06</th>
<th scope="col">12/31/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>464.3</td>
<td>464.0</td>
<td>3.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales rose a slight 0.1% to open the new year according to the International Council of Shopping Centers (ICSC)-UBS survey. The up tick followed a 0.8% decline during the closing week of 2005. Solid increases earlier in [...]

Chain Store Sales: A Firm Start to the New Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110a.jpg" width="353">
Chain store sales rose a slight 0.1% to open the new year according to the International Council of Shopping Centers (ICSC)-UBS survey. The up tick followed a 0.8% decline during the closing week of 2005.
Solid increases earlier in December followed a very weak start to the month. As a result, sales in December fell 0.3% m/m but January sales started 2.2% above the prior month.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales jumped 0.9% in the latest week and pulled December average up 0.2% from November.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Now is the Time to Strengthen Our Economic Foundation from Federal Reserve of Atlanta Bank President Jack Guynn is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=B0070AA3-5056-9F06-99459F26006025F8&amp;method=display"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/07/06</th>
<th scope="col">12/31/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>464.3</td>
<td>464.0</td>
<td>3.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Small Business Optimism Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110b.jpg" width="353">
The index of small business optimism from the National Federation of Independent Business (NFIB) in December recovered a marginal 0.2% of the prior month&#39;s 2.4% drop. For the fourth quarter as a whole, optimism did improve 1.4% from 3Q but sharp declines early in the year pulled the 2005 levels down 2.8% from averaged during 2004, the first annual drop since 2001.
The marginal m/m improvement reflected fewer firms (22%) firms with one or more job openings and fewer firms (21%) expecting higher real sales in six months offset by slightly more expecting the economy to improve and slightly more expecting higher earnings.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percentage of firms planning to raise average selling prices backup off sharply from the November high to 27%. The percentage of firms actually raising average selling prices also fell sharply to 18%. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The latest press release from the NFIB is available <a href="http://www.nfib.com/object/I2_24996.html">here</a>.
The National Economy and Monetary Policy in the New Year from Kansas City Federal Reserve Bank President Thomas H. Hoenig can be found <a href="http://www.kansascityfed.org/SPCH&amp;BIO/HoenigKCCentExch010906.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>101.4</td>
<td>101.2</td>
<td>-4.4%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
</tr>
</tbody>
</table>
Gold & Gasoline Prices Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110d.jpg" width="353">
The rise yesterday in gold prices to $540 per ounce was to a level not attained in twenty five years. It underscored several concerns over the potential for future inflationary price pressure including 1) speculation of an end to Fed tightening with GDP growth strengthening worldwide, 2) the coming change in leadership at the Fed and 3) still high energy prices, up one third to one half from last year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110c.jpg" width="353">
Gasoline prices rose nine cents last week to a retail average $2.33 per gallon. Yesterday, the strength diminished somewhat as the spot price for regular unleaded gas fell a nickel.
Earlier declines in gasoline prices fostered a sharp rebound in petroleum demand. In December, motor gasoline demand is estimated up 5.7% from a year earlier and in the latest week up up 16.7%.
International Transmission of Inflation Among G-7 Countries: A Data Determined VAR Analysis is available <a href="http://www.fma.org/Chicago/Papers/Intlinflation.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Weekly Prices</th>
<th scope="col">01/09/06</th>
<th scope="col">01/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price (per gallon)</td>
<td>$2.33</td>
<td>$2.24</td>
<td>29.8%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr>
<td class="firstcol">Gold: Handy &amp; Harmon, $ per Troy Oz.</td>
<td>$541.5</td>
<td>$530.0</td>
<td>28.9%</td>
<td>$444.7</td>
<td>$409.2</td>
<td>$363.13</td>
</tr>
</tbody>
</table>
 German Investors and Analysts More Confident of Improving Economy and Profits  
by <a href="/comment/Curley.html">Louise Curley</a> January 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110e.jpg" width="353">
After a sharp rise in confidence among institutional investors and analysts in Germany last month, confidence increased meaningfully again in January. The excess of optimists over pessimists expecting improved conditions over the next six months is now 71%. 9.4 percentage points above December, 2005, 44.1 points above January 2005 and the highest excess since January, 2004. The investors and analysts also became less pessimistic regarding current conditions. Although pessimists still exceed optimists in appraising current conditions by 31.6% in January, the excess of pessimists was 12.8% less than that of December, 2005 and 29.6% less than that of January, 2005 and well below the extreme pessimism of the first half of 2003 when the excess of pessimists averaged around 95%. The percent balances for expectations and current conditions in the German economy are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110f.jpg" width="353">
In its survey of investors and analysts, ZEW research also asks for opinions on profit expectations in a wide variety of industries. The results are expressed as the percent balance of those expecting increases over those expecting decreases. In the latest survey, the excess of those expecting increases over those expecting decreases varied from 68.7% for machinery to 3.4% for construction. The second chart shows profit expectations for the machinery and the consumption/trade industries. Expectations for rising profits have been strong for the machinery industry since Mid 2003 while those for the consumption/trade industry have been poor. The sharp rise in the excess of those expecting an increase over those expecting a decrease in the profits of the consumption/trade industry in January to 25.9% from 3.5 % last December is particularly encouraging.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110g.jpg" width="353">
As shown in the third chart the ZEW measure of confidence, which is based on a small sample of some 300 investors and analysts, frequently anticipates the results of the broader IFO measure which is based on replies from some 7000 firms engaged in manufacturing, construction, wholesaling and retailing. The IFO index is scheduled to be release on January 25.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Jan 06</th>
<th scope="col">Dec 05</th>
<th scope="col">Jan 05</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ZEW Investor Confidence Measure (% Balance) Exports</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Current Conditions</td>
<td>-31.6</td>
<td>-44.4</td>
<td>-61.2</td>
<td>12.8</td>
<td>29.6</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-92.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectation 6 Months Ahead</td>
<td>71.0</td>
<td>61.6</td>
<td>26.9</td>
<td>9.4</td>
<td>44.1</td>
<td>&nbsp;34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
<tr>
<td class="firstcol">Profit Expectations</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Machinery</td>
<td>68.7</td>
<td>51.0</td>
<td>44.4</td>
<td>17.7</td>
<td>23.3</td>
<td>44.7</td>
<td>53.4</td>
<td>7.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption/Trade</td>
<td>25.9</td>
<td>3.5</td>
<td>7.8</td>
<td>22.4</td>
<td>18.1</td>
<td>-0.4</td>
<td>-0.8</td>
<td>2.2</td>
</tr>
</tbody>
</table>


</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109b.jpg" width="353">
Statistics relating to the Czech Republic, Hungary, Latvia and Slovenia were released today. These countries became members of the European Union in May, 2004 and, while it will be some time before they are able and/or willing to join the Euro Zone, it may be interesting to compare the various aspects of their economies with those of the Euro Zone as a whole. The data for these countries are found in the Haver database, EMERGECW.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109c.jpg" width="353">
The December CPI and the unemployment rate were released for the Czech Republic. The first two charts compare prices and the unemployment rate in the Czech Republic and in the Euro Zone as a whole. When the harmonized Index of Prices for the Euro Zone, which is published on a 1996=100 basis is put on a 2000=100 basis for comparison with the Czech index, the levels and trends are very similar. The rate of unemployment, however, is higher in the Czech Republic than in the Euro Zone and it was only in mid 2004 that the difference between the two rates began to narrow.
Industrial production in Latvia rose 4.9% in November from October and was almost 6% over November, 2004. As shown in the third chart, the rise in production in Latvia has been much more vigorous than that in the Euro Zone as a whole.
Finally the merchandise trade balance in both Slovenia and Hungary has generally been negative, while that of the Euro Zone has, until recently, been positive. The fourth chart shows the merchandise trade deficit for Hungary and that of the Euro Zone as a whole. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109d.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109e.jpg" width="353"> 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Dec 05</th>
<th scope="col">Nov 05 </th>
<th scope="col">Dec 04</th>
<th scope="col">M/M % or Dif&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">Y/Y % or &nbsp; Dif</th>
<th scope="col">2004&nbsp;&nbsp;</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;CZECH REPUBLIC</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; CPI&nbsp; (2000=100)</td>
<td>113.4</td>
<td>113.3</td>
<td>110.</td>
<td>0.09</td>
<td>2.25</td>
<td>109.7</td>
<td>106.7</td>
<td>106.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unemployment Rate (%)</td>
<td>8.75</td>
<td>8.63</td>
<td>9.34</td>
<td>0.12</td>
<td>-0.59</td>
<td>9.77</td>
<td>9.92</td>
<td>9.19</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Nov 05</td>
<td>Oct 05 </td>
<td>Nov 04</td>
<td>M/M % or Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>Y/Y % or Dif</td>
<td>2004&nbsp;&nbsp;</td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;LATVIA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Industrial Production&nbsp;</td>
<td>136.2</td>
<td>129.2</td>
<td>128.6</td>
<td>4.93</td>
<td>5.99</td>
<td>127.7</td>
<td>120.5</td>
<td>113.1</td>
</tr>
<tr class="odd">
<td class="firstcol">HUNGARY</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Trade Balance (Mil US$)</td>
<td>-411.7</td>
<td>-245.4</td>
<td>-378.7</td>
<td>-166.3</td>
<td>-33.0</td>
<td>-4764.8</td>
<td>-4667.3</td>
<td>-3275.1</td>
</tr>
<tr class="odd">
<td class="firstcol">SLOVENIA</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Trade Balance (Mil US$)</td>
<td>-192.7</td>
<td>-156.9</td>
<td>-143.2</td>
<td>-35.8</td>
<td>-49.5</td>
<td>-1456.5</td>
<td>-1120.7</td>
<td>-586.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Statistics relating to the Czech Republic, Hungary, Latvia and Slovenia were released today. These countries became members of the European Union in May, 2004 and, while it will be some time before they are able and/or willing to join [...]

News from Central and Eastern Europe

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109a.jpg" width="353">
The 0.6% rise in the November Leading Index of the Major 7 OECD economies was the sixth consecutive monthly increase. The rise lifted the leaders&#39; six month growth rate to 2.7%, the best since July 2004.
During the last ten years there has been a 66% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.
The leaders in Japan again paced the gains which were broad based amongst countries. A 1.0% November rise was the largest since 2002 and the sixth consecutive monthly increase. The six month growth rate rose to 4.1% and its correlation with real economic growth in Japan has been a meaningful 42% during the last ten years.
The 0.7% rise in the U.S. leaders was the firmest since June and raised six month growth in the leaders to 2.4%, also the best since August of last year. The correlation between the leaders and real GDP growth has been a high 58% during the last ten years.
The Canadian leaders showed improvement. A 0.6% gain followed an upwardly revised 0.3% October increase and pulled six month growth positive for the first time in over a year at 0.9%. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
Leaders in the European Union (15 countries) again rose by 0.4%, the sixth consecutive monthly increase and it raised the six month growth rate to 3.2%. During the last ten years there has been a 60% correlation between the change in the leading index and the q/q change in the GDP volume index for the European Union.
German leaders increased 0.8% for the second month. This seventh consecutive rise raised the six month growth rate to 5.8% but the correlation between the leaders and the change in the German GDP volume index has been a low 19% during the last ten years.
The French leaders gained 0.4% and pulled the six month growth rate 2.6%, its best in a year. The correlation between the leaders&#39; growth and France&#39;s GDP volume index has been 43% during the last ten years. The Italian leading index even managed 0.1% up tick but the six month growth remained negative at -0.6% following downwardly revised figures in earlier months. The leaders&#39; correlation with GDP growth has been a low 0.9% during the last ten years.
Also to the weak side, the UK leaders fell 0.1% for the third straight month led by lower consumer confidence and new car registrations but share prices rose. The six month growth rate remained negative for the twelfth straight month at -0.2% and its correlation with real GDP growth has been 29% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/8/10/35903549.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Leading Index&nbsp;</td>
<td>104.01</td>
<td>103.34</td>
<td>1.4%</td>
<td>102.39</td>
<td>97.87</td>
<td>96.47</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>2.7%</td>
<td>1.6%</td>
<td>&nbsp;</td>
<td>3.6%</td>
<td>2.7%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The 0.6% rise in the November Leading Index of the Major 7 OECD economies was the sixth consecutive monthly increase. The rise lifted the leaders' six month growth rate to 2.7%, the best since July 2004. During the last ten years [...]

OECD Leaders Rose Broadly Amongst Member Countries

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109a.jpg" width="353">
The 0.6% rise in the November Leading Index of the Major 7 OECD economies was the sixth consecutive monthly increase. The rise lifted the leaders&#39; six month growth rate to 2.7%, the best since July 2004.
During the last ten years there has been a 66% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.
The leaders in Japan again paced the gains which were broad based amongst countries. A 1.0% November rise was the largest since 2002 and the sixth consecutive monthly increase. The six month growth rate rose to 4.1% and its correlation with real economic growth in Japan has been a meaningful 42% during the last ten years.
The 0.7% rise in the U.S. leaders was the firmest since June and raised six month growth in the leaders to 2.4%, also the best since August of last year. The correlation between the leaders and real GDP growth has been a high 58% during the last ten years.
The Canadian leaders showed improvement. A 0.6% gain followed an upwardly revised 0.3% October increase and pulled six month growth positive for the first time in over a year at 0.9%. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
Leaders in the European Union (15 countries) again rose by 0.4%, the sixth consecutive monthly increase and it raised the six month growth rate to 3.2%. During the last ten years there has been a 60% correlation between the change in the leading index and the q/q change in the GDP volume index for the European Union.
German leaders increased 0.8% for the second month. This seventh consecutive rise raised the six month growth rate to 5.8% but the correlation between the leaders and the change in the German GDP volume index has been a low 19% during the last ten years.
The French leaders gained 0.4% and pulled the six month growth rate 2.6%, its best in a year. The correlation between the leaders&#39; growth and France&#39;s GDP volume index has been 43% during the last ten years. The Italian leading index even managed 0.1% up tick but the six month growth remained negative at -0.6% following downwardly revised figures in earlier months. The leaders&#39; correlation with GDP growth has been a low 0.9% during the last ten years.
Also to the weak side, the UK leaders fell 0.1% for the third straight month led by lower consumer confidence and new car registrations but share prices rose. The six month growth rate remained negative for the twelfth straight month at -0.2% and its correlation with real GDP growth has been 29% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/8/10/35903549.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Leading Index&nbsp;</td>
<td>104.01</td>
<td>103.34</td>
<td>1.4%</td>
<td>102.39</td>
<td>97.87</td>
<td>96.47</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>2.7%</td>
<td>1.6%</td>
<td>&nbsp;</td>
<td>3.6%</td>
<td>2.7%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>
News from Central and Eastern Europe  
by <a href="/comment/Curley.html">Louise Curley</a> January 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109b.jpg" width="353">
Statistics relating to the Czech Republic, Hungary, Latvia and Slovenia were released today. These countries became members of the European Union in May, 2004 and, while it will be some time before they are able and/or willing to join the Euro Zone, it may be interesting to compare the various aspects of their economies with those of the Euro Zone as a whole. The data for these countries are found in the Haver data base, EMERGECW.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109c.jpg" width="353">
The December CPI and the unemployment rate were released for the Czech Republic. The first two charts compare prices and the unemployment rate in the Czech Republic and in the Euro Zone as a whole. When the harmonized Index of Prices for the Euro Zone, which is published on a 1996=100 basis is put on a 2000=100 basis for comparison with the Czech index, the levels and trends are very similar. The rate of unemployment, however, is higher in the Czech Republic than in the Euro Zone and it was only in mid 2004 that the difference between the two rates began to narrow.
Industrial production in Latvia rose 4.9% in November from October and was almost 6% over November, 2004. As shown in the third chart, the rise in production in Latvia has been much more vigorous than that in the Euro Zone as a whole.
Finally the merchandise trade balance in both Slovenia and Hungary has generally been negative, while that of the Euro Zone has, until recently, been positive. The fourth chart shows the merchandise trade deficit for Hungary and that of the Euro Zone as a whole. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109d.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060109e.jpg" width="353"> 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Dec 05</th>
<th scope="col">Nov 05 </th>
<th scope="col">Dec 04</th>
<th scope="col">M/M % or Dif&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">Y/Y % or &nbsp; Dif</th>
<th scope="col">2004&nbsp;&nbsp;</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;CZECH REPUBLIC</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; CPI&nbsp; (2000=100)</td>
<td>113.4</td>
<td>113.3</td>
<td>110.</td>
<td>0.09</td>
<td>2.25</td>
<td>109.7</td>
<td>106.7</td>
<td>106.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unemployment Rate (%)</td>
<td>8.75</td>
<td>8.63</td>
<td>9.34</td>
<td>0.12</td>
<td>-0.59</td>
<td>9.77</td>
<td>9.92</td>
<td>9.19</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Nov 05</td>
<td>Oct 05 </td>
<td>Nov 04</td>
<td>M/M % or Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>Y/Y % or Dif</td>
<td>2004&nbsp;&nbsp;</td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;LATVIA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Industrial Production&nbsp;</td>
<td>136.2</td>
<td>129.2</td>
<td>128.6</td>
<td>4.93</td>
<td>5.99</td>
<td>127.7</td>
<td>120.5</td>
<td>113.1</td>
</tr>
<tr class="odd">
<td class="firstcol">HUNGARY</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Trade Balance (Mil US$)</td>
<td>-411.7</td>
<td>-245.4</td>
<td>-378.7</td>
<td>-166.3</td>
<td>-33.0</td>
<td>-4764.8</td>
<td>-4667.3</td>
<td>-3275.1</td>
</tr>
<tr class="odd">
<td class="firstcol">SLOVENIA</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Trade Balance (Mil US$)</td>
<td>-192.7</td>
<td>-156.9</td>
<td>-143.2</td>
<td>-35.8</td>
<td>-49.5</td>
<td>-1456.5</td>
<td>-1120.7</td>
<td>-586.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060106c.jpg" width="353">
Canada&#39;s labor market was fairly firm in 2005, despite a modest reversal in employment for December, data for which were published this morning by Statistics Canada. In December, employment fell by 2,100 from November, but both November and October had good gains, so that Q4 as a whole added 97,000 jobs, the best since Q2 2004. Consequently, unemployment in Canada has come down. The 6.4% in November was the lowest since December 1974, with this December&#39;s 6.5% still the lowest since early 1975.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060106d.jpg" width="353">
The age distribution of employment in December suggests that the slight reversal in total employment should have only limited overall economic impact. Jobs still increased in the major livelihood-earning segment, ages 15-64, with the decline more than accounted for among the elderly population. The former mid-range group increased in all but one month of 2005; the gains were not as large as in some months of the prior couple of years, but they were clearly steadier.
For the elderly population, the last four years have seen remarkable job growth accompanying a major increase in labor force participation. We can calculate a participation rate for the population over 65 and find that it has risen from 6% of that population in 2000 and 2001 to 8% in 2005. At the same time, the growth of that population group turned upward from a long, secular decline, bottoming at 1.56% in the year to January 2000 and reaching 2.17% in the year to December 2005. So the population is growing and so are employment opportunities for this age group. This process paused in November and December, but we&#39;d surmise that it will resume soon. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CANSIM/@C6/@C6.HTM">Canada</a> (SA, Thous or %)</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Dec 2004</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment, Age 15+</td>
<td>16,296</td>
<td>16,298</td>
<td>16,267</td>
<td>16,063</td>
<td>16,175</td>
<td>15,952</td>
<td>15,664</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>-2</td>
<td>31</td>
<td>69</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Age 15-64</td>
<td>15,988</td>
<td>15,974</td>
<td>15,943</td>
<td>15,763</td>
<td>15,868</td>
<td>15,664</td>
<td>15,393</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>14</td>
<td>31</td>
<td>51</td>
<td>1.4%</td>
<td>1.3%</td>
<td>1.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Age 65+</td>
<td>307</td>
<td>323</td>
<td>324</td>
<td>300</td>
<td>307</td>
<td>287</td>
<td>271</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>-16</td>
<td>-1</td>
<td>18</td>
<td>2.4%</td>
<td>6.8%</td>
<td>5.9%</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate, Age 15+</td>
<td>6.5%</td>
<td>6.4%</td>
<td>6.6%</td>
<td>7.0%</td>
<td>6.8%</td>
<td>7.2%</td>
<td>7.6%</td>
</tr>
<tr>
<td class="firstcol">Age 15-64</td>
<td>6.6%</td>
<td>6.4%</td>
<td>6.8%</td>
<td>7.2%</td>
<td>6.8%</td>
<td>7.3%</td>
<td>7.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Canada's labor market was fairly firm in 2005, despite a modest reversal in employment for December, data for which were published this morning by Statistics Canada. In December, employment fell by 2,100 from November, but both [...]

Canada Employment Eases in December, But Only in Elderly Age Group

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The U.S. trade deficit in goods and services (BOP basis) in March grew to $140.5 billion after narrowing slightly to $123.2 billion in February, revised from $122.7 billion, after widening to $130.7 billion in January according to the U.S. Census Bureau. A $136.7 billion deficit was expected by the Action Economics Forecast Survey. Exports rose 0.2% (6.7% y/y) in March after increasing 2.8% in February. This was accompanied by a 4.4% rise (27.1% y/y) rise in imports which came after m/m stability in February. In Q1’25, the deficit grew to an average $131.4 billion, after rising to an average $83.3 billion in Q4’24.

The trade deficit in goods (BOP basis) widened to a record $163.2 billion in March from $147.9	 billion in February, revised from $147.0 billion. Goods exports (customs value) rose 1.4% (7.0% y/y) in March, after increasing 3.6% in February. The latest increase reflected an 8.2% (8.4% y/y) surge in auto exports which came after a 12.7% strengthening. A 3.5% (4.0% y/y) gain occurred in industrial supplies & materials exports which followed a 5.1% rise. Foods, feeds & beverage exports rose 6.6% (1.4% y/y) after declining in four of the prior five month. Working lower, capital goods exports fell 2.5% (+13.9% y/y) in March after a 4.	8% increase and nonauto consumer goods exports were off 1.1% (+3.4% y/y) in March after a 2.4% gain.

Imports of goods increased 5.5% (31.4% y/y) in March after a 0.2% February easing. Imports of nonauto consumer goods imports surged 27.9% (56.0% y/y) following a 3.1% February gain. Auto imports rose 6.6% (8.7% y/y) after a 1.2% rise. Capital goods imports rose 4.2% (22.5% y/y) following a 1.1% rise. Foods, feeds & beverage imports eased 0.4% (+11.1% y/y) following a 2.0% weakening. Industrial supplies & materials imports declined 12.4% (+39.5% y/y) after weakening 4.6% in February. Petroleum imports by end-use fell 4.1% (-10.2% y/y) after a 2.9% decline. Nonpetroleum imports increased 6.0% (34.8% y/y) after holding steady in February.

The inflation-adjusted goods trade deficit (customs value) deepened to $150.9 billion in March from $136.9 billion in February. Real exports rose 1.6% (5.3% y/y) after a 3.0% February increase, while real imports rose 5.8% (29.8% y/y) in March following a 0.5% February slip.

The services trade surplus narrowed to $23.0 billion in March after decreasing to $23.8 billion in February. It reached a peak of $25.7 billion in November of last year. Service exports fell 0.9% (+5.7% y/y) after a 0.8% decline in February. Construction services exports rose 1.0% (37.7% y/y) after increasing 2.6% in February. Travel services exports fell 7.1% (-3.7% y/y) and financial exports increased 0.9% (7.3% y/y). Transport exports rose 3.1% (2.4% y/y). Service imports eased 0.1% (+10.8% y/y) in March following a 0.8% gain. Maintenance & repair services declined 1.5% (+32.1% y/y) while imported transport services increased 1.2% (1.7% y/y). Imported travel services fell 2.2% (5.3% y/y) while charges for use of intellectual property rose 1.0% (13.6 y/y).

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $24.8 billion in March from $26.6 billion in February. Exports to China declined 8.2% (-10.5% y/y) while imports weakened 7.2% (-2.7% y/y). The deficit with the European Union deepened to a record $48.3 billion in March from $30.9 billion in February. Exports rose 10.9% (14.5% y/y) while imports soared 34.0% (65.4% y/y). The deficit with Japan deepened to $5.8 billion from $5.2 billion in February. Exports rose 1.8% (8.8% y/y) and imports rose 6.4% (9.9% 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** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Goods deficit grows as imports surge ahead of tariff imposition.
- Exports edge higher, led by autos.
- Petroleum product imports fall as crude oil prices decline.

U.S. Trade Deficit Deepens to Record in March

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Retail gasoline prices for all grades improved to an average $3.27 per gallon (-13.1% y/y) in the week ended May 5 and reversed the prior week’s easing to $3.26. Prices were $3.37 per gallon to begin the month but remained above their low of $3.13 in the week of December 9. An earlier high was $3.79 in the week ending April 22, 2024. The all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel eaed to $3.50 per gallon (-10.2% y/y) in the week of May 5 from $3.51 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil declined to $59.64 per barrel (-26.4% y/y) in the week ended May 2, after rising to $63.09 per barrel in the prior week. Prices remained below a high of $91.45 in the week of September 29, 2023. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $57.13 per barrel. The price of European Brent crude oil declined to $63.50 per barrel (-25.9% y/y) in the week of May 2 from $67.92 in the previous week. Prices remained well below a recent high of $95.61 in the week of September 29, 2023 and compared to a peak of $127.40 in the week of June 10, 2022.

Natural gas prices improved to an average $3.09 per mmbtu (+88.4% y/y) in the week ended May 2, after falling to $3.00/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday’s price was $3.26/mmbtu.

Gasoline demand rose 3.2% y/y in the four weeks ending April 25 following a 0.4% y/y decline in the prior four weeks. Demand for all petroleum products improved 0.3% y/y in the four weeks ending April 25 after a 0.4% y/y rise in the previous four-week period. Crude oil input to refineries eased 0.1% y/y in the four weeks ending April 25 after a 1.3% y/y decline in the prior four weeks.

Gasoline inventories slipped 0.7% y/y in the week ending April 25 after a 1.2% y/y rise in the week ending April 18. Residual fuel oil inventories fell 18.7% y/y in the week of April 25, after a 19.0% y/y fall in the prior week. Crude oil inventories rose 1.4% y/y in the week of April 25 after a 2.6% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell w/w to 25.5 days in the week of April 25 from 26.4 days in the prior. The recent low was 22.9 days in the week of November 8. The supply of crude oil eased w/w to 27.9 days in the week of April 25 after three weeks at 28.3 days, and remained below 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 prices edge higher.
- Crude oil prices decline.
- Natural gas costs rise.

U.S. Energy Prices Remain Mixed in Latest Week

Robert Brusca

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Not many respondents are showing absolute slowing. Only five this month. Only six over the last three months on average. The median total PMI score fell to 49.7 showing contraction in April from 51.1 in March. The average fared slightly better. The 12-months to 6-months to 3-months show a moderate but consistent slowing. The breadth of slowing is wide with 60.9% of survey respondents slowing over three months compared to six months.

The percentile standings show the most strength for the BRIC group with reading above 50% (that marks the median). All other groupings have standings below the 50% mark indicating that they are below their respective medians of the last four-plus years.

Over every horizon from 12-months to 6-months to 3-months, more than 50% of the respondents show a weakening (slowing) in their PMI responses.

Among the largest economies, only Italy has a composite PMI standing above its median (above 50%).

Only 9 of 24 respondents have PMI ranked percentile standings above the 50% mark. That underlines the weakness in composite conditions and the breadth of the weakness.
 
Services sectors no longer are providing the lift to offset ongoing weakness in manufacturing. The differences among countries are narrowing.

Economic conditions across countries may be narrowing for several reasons, one being that the COVID period and then the shock reaction to Russia's invasion from Ukraine put all countries on the same timeline as central banks have been leaning against the shockwaves from those 2 events. As a result of those events, inflation flared but has more recently been falling. Still, inflation continues to be over the top of targets with the European Monetary Union right now making the most progress and Japan facing more late cycle weakness with excessive inflation than other countries in the mix. More recently aggressive tariff policy the United States has put all countries on their back foot and puts everyone on notice that the future has become a lot more uncertain. Central banks that were progressing toward rate cuts now are worried about the possibility of more inflation from tariffs or from the possibility of recession from tariffs - tariffs up the ante on uncertainty as well as on risk. What we see in this month's PMI statistics is a gradual continued erosion as the perceived risk here is that things get steadily but slowly worse as firms, investors, and consumers began to pull in their horns and prepare for something bad to happen not knowing what that might be.

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Global Composite PMIs Erode

Tian Yong Woon

This week, we focus on trade developments between the US and major Asian economies. Early indications coming out of US-India trade talks seem encouraging, with terms such as “forward most-favoured-nation” for the US and “zero-for-zero” tariffs appearing in news reports — terms which, if enacted, would represent a significant win for the US. India stands to benefit greatly as well if key exports to the US, such as pharmaceuticals (chart 1), receive substantial tariff relief. The benefits could be strongly mutual if a deal also grants the US greater access to India’s large auto consumer market, particularly for major US electric vehicle (EV) producers, given that EV adoption in India remains at a very early stage (chart 2).

Turning to South Korea, discussions also appear to be progressing at a healthy pace, although details remain limited and ongoing domestic political challenges continue to hinder substantive breakthroughs. Nonetheless, the South Korean won has shown signs of stabilisation, while local equity markets have remained buoyant (chart 3). Recent trade data for April has also provided some investor relief, as weak exports to the US were more than offset by a strong performance in semiconductor shipments (chart 4).

In Japan, the race to secure a trade deal with the US is well underway, with automotive exports expected to be a key focal point given their significance to Japan’s economy and the US being a major export destination (chart 5). China, however, remains a notable outlier, with formal trade talks with the US not yet underway. Still, the US-China trade relationship continues to be the most closely watched, given its scale and potential impact on global growth and trade dynamics. While markets await China’s official April trade data, early indicators such as port activity already suggest a decline in bilateral trade flows (chart 6).

**US-India trade talks**
US-India trade discussions have reportedly been progressing rapidly, with both sides having already finalized in April the terms of reference for talks, setting the stage for formal negotiations. One early sign of favourable momentum is India’s possible offering of a “forward most-favoured-nation” clause to the US. This would ensure the US always receives the most favourable tariff terms, ahead of any other trade partner. If enacted, this would be a significant win for the US and a major leap forward in the US-India trade relationship. Another reported breakthrough involves India’s reported proposal of “zero-for-zero” tariffs on steel, auto components, and pharmaceuticals—offered on a reciprocal basis up to a certain quantity. If agreed, this would be mutually beneficial, especially as pharmaceuticals remain one of the US economy’s key imports from India, as shown in chart 1. On a separate note, and more recently, India’s phone exports to the US have reportedly gained prominence. With steep US tariffs on China, firms like Apple are increasingly incentivised to accelerate production shifts to India.

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Additionally, India’s proposed “zero-for-zero” tariff plan for auto parts may galvanise US access to India’s large domestic auto market, which has remained comparatively insulated due to high import tariffs. Another area to watch in the trade talks is electric vehicle (EV) imports, especially given US EV giant Tesla’s continued interest in expanding into the Indian market. That said, EV adoption in India remains in its early stages by many measures. While India has an immense middle class with future sales potential, EVs accounted for only about 2% of new cars sold in 2023, as shown in chart 2. This is well below levels seen in other Asian economies like China, or leaders in this space like Norway, where nearly all new cars sold are EVs. Challenges remain in unlocking the domestic Indian market—particularly around affordability and the underdeveloped state of EV infrastructure.

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**US-South Korea trade talks**
Discussions on the US-South Korea trade front also appear to be progressing at a steady pace, with technical talks reportedly having concluded in Washington last week. However, details remain limited, and full-scale negotiations have not yet begun. Complicating matters is South Korea’s domestic political landscape. With the country heading into a snap presidential election on June 3, Vice Industry Minister Park has said there is no chance of a comprehensive deal being reached before then. Still, both sides have committed to working toward an agreement before the expiration of Trump’s 90-day reciprocal tariff pause on July 8. In financial markets, the won continues to swing but remains above its year-to-date lows (chart 3). Meanwhile, South Korean equities have been lifted by a softening in trade rhetoric from both the US and China, as well as optimism around the US-South Korea talks.

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Turning to the hard trade data, South Korea’s more complete April numbers offered some initial relief to investors. The economy still managed to post moderate export growth, surprising many, despite a nearly 7% y/y decline in exports to the US, as shown in chart 4. One of the key drivers was semiconductors, which recorded double-digit y/y growth for the second consecutive month. However, these figures likely do not yet reflect the full initial impact of the steep mutual tariffs between the US and China. Firmer indications may emerge in the coming months. By then, though, attention will likely have shifted toward the outcome of US trade talks with key partners, as the end of its 90-day reciprocal tariff pause draws near.

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**US-Japan trade talks**
Turning to Japan, there is a sense of cautious optimism, with Japan’s chief trade negotiator Akazawa expressing hope for a US-Japan trade deal by June, following the second and most recent round of talks held in Washington last week. A key point of interest is whether Japan can negotiate an exemption from the current 25% automotive tariffs imposed by the US. This is especially significant given the importance of the US as a destination for Japanese auto exports, as shown in chart 5, and the central role the sector plays in Japan’s broader manufacturing economy. Also worth noting is a recent clarification by Japan’s Finance Minister Kato, who walked back earlier remarks and stated that Japan will not use the sale of US Treasuries as a bargaining tool. The clarification may help defuse a potential point of friction between the two sides as trade discussions continue.

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**US-China trade developments**
Turning to US-China trade developments — while progress here has lagged, this relationship remains the most closely watched, given its potentially large impact if meaningful movement occurs. Recent messaging from both sides has softened, stepping back from the fiery exchanges and tariff escalations seen earlier in April, offering some interim relief for investors. China has reportedly exempted certain US imports from tariffs, including specific pharmaceutical and industrial chemical products. However, on US-China trade talks, they remain at a very early stage, with China merely “evaluating” the prospect of negotiations with the US. This suggests we are still far from anything resembling a formal deal. Investors are now closely watching for first-round effects of US tariffs, which are expected to appear in China’s April trade numbers due later this week. Early signs point to a slowdown. For example, vessel traffic at the Los Angeles–Long Beach port remains at range lows, hinting at reduced shipments from China.

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Asia

Economic Letter from Asia: Art of the Deal

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The U.S. ISM Services PMI rose to 51.6 during April, after falling sharply to 50.8 in March from 53.5 in February, according to today’s report by the Institute for Supply Management. The reading indicated service sector expansion for the tenth consecutive month, although the rate of expansion has slowed significantly. The index hit a recent high of 55.8 in October of last year and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected 50.2 for April.

Haver Analytics constructs a composite index combining the services index and the manufacturing index released on Thursday. This index rose to 51.2 in Apri from 50.6 in March. The latest figure remains above its June low of 49.1.

Amongst the services component series, the employment index led last month’s improvement in the overall index. It rose to 49.0 after falling sharply to 46.2 in March. Higher employment was reported by a slightly improved 14.6% (NSA) of respondents while a lessened 16.4% reported a decline. The new orders index rose to 52.3 after falling to 50.4 in March. A higher 22.4% (NSA) of respondents reported a rise in orders while a lessened 15.3% reported a decline. Reporting slower delivery speeds, the supplier delivery series edged up to 51.3 in April after falling to 50.6 in March. Working lower, the business activity series declined to 53.7 after rising to 55.9 in March. A higher 26.2% (NSA) of respondents reported improved activity while a lessened 14.0% reported deterioration.

On the inflation front, the prices index surged to 68.9 in April after easing to 62.8 in March. A greatly increased 39.6% (NSA) of respondents reported higher prices while a lessened 1.9% reported lower prices. The index was increased from its December 2022 low 53.1 and stood at its highest level since October 2022.

Additionally, the new export orders index increased to 48.6 (NSA) in April following a decline to 45.8 in March from 52.1 in February. Just 14.8% of survey respondents reported higher exports while an increased 17.7% reported a decline. The imports index plummeted to 44.3 last month from 52.6 in March. A greatly lessened 4.7% of respondents reported higher imports while a doubled 16.2% reported a decline. The inventory change index jumped to 53.4, a six-month high. The order backlog index edged up to 48.0 in April after falling sharply to 47.4 in March. A lessened 12.2% of respondents reported higher backlogs while a fewer 16.2% reported a decline. 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: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while 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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- Total index remains near nine-month low.
- Employment, new orders & supplier deliveries edge up. Business activity weakens. 
- Prices Index strengthens to roughly two-year high.

Economy in Brief: January 2006

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