Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100105h.jpg" align="left" border="0" height="265" width="353">
From its low point in mid 2008 France&#8217;s Consumer confidence is
still making a long slow recovery. Its drop of one point in December
does not signal an end to the climb which, although substantial, has
only brought the index to the 28th percentile of the range of values it
has occupied Since January 1990. By rank the index is in the 15th
percentile meaning that 85% of the 240 observations over this period
lie above it.
Despite some significant improvement in consumer confidence
the indicator remains at a very low point historically. This underlines
how severely impacted confidence was as its lows. Since April of 1991
this has been the third strongest string of increases in the index over
any sixteen month period, yet the overall measure of confidence remains
mired in a low range- reading.
The prospect of unemployment is in the 75th percentile of its
range or the 81st by rank implying that French workers infrequently
have felt as threatened by unemployment as they are now.
However French respondents mark their current financial
situation as improved and as much better than it was over the last
12-months putting it in the top third of its range and the top 11
percent by rank.
French workers put living standards in the bottom 14
percentile of their range over the last 12-months but boost that
standing to the 29th percentile (still pretty low) over the next 12
months, in their outlook
On balance the story of the French consumer is still unfolding
underpinned by positive trends. The main problem is that conditions had
deteriorated so badly and there is a long way to go to get back to
normal. This month brought a one-point set back but that hardly seems
indicative of a new, more adverse, trend. Progress still appears to be
made.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">INSEE
Household Monthly Survey </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec 
09</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>Sep 
09</td>
<td>Percentile</td>
<td>Rank %</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Household Confidence</td>
<td>-31</td>
<td>-30</td>
<td>-34</td>
<td>-35</td>
<td>28.1</td>
<td>15.0</td>
<td>10</td>
<td>-47</td>
<td>57</td>
<td>-19</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="11" class="firstcol">Living
Standards</td>
</tr>
<tr>
<td class="firstcol">&nbsp;past 12 Mos</td>
<td>-66</td>
<td>-66</td>
<td>-70</td>
<td>-72</td>
<td>14.3</td>
<td>13.3</td>
<td>18</td>
<td>-80</td>
<td>98</td>
<td>-40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Next 12-Mos</td>
<td>-37</td>
<td>-36</td>
<td>-40</td>
<td>-41</td>
<td>29.3</td>
<td>18.8</td>
<td>16</td>
<td>-59</td>
<td>75</td>
<td>-21</td>
</tr>
<tr>
<td class="firstcol">Unemployment: Next 12</td>
<td>61</td>
<td>62</td>
<td>65</td>
<td>76</td>
<td>75.4</td>
<td>81.7</td>
<td>93</td>
<td>-37</td>
<td>130</td>
<td>32</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="11" class="firstcol">Price
Developments</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Past 12Mo</td>
<td>-26</td>
<td>-27</td>
<td>-28</td>
<td>-34</td>
<td>25.6</td>
<td>47.9</td>
<td>64</td>
<td>-57</td>
<td>121</td>
<td>-16</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Next 12-Mos</td>
<td>-43</td>
<td>-46</td>
<td>-46</td>
<td>-50</td>
<td>18.3</td>
<td>31.3</td>
<td>33</td>
<td>-60</td>
<td>93</td>
<td>-35</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="11" class="firstcol">Savings</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Favorable to save</td>
<td>11</td>
<td>14</td>
<td>7</td>
<td>4</td>
<td>37.8</td>
<td>15.8</td>
<td>39</td>
<td>-6</td>
<td>45</td>
<td>22</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Ability to save Next
12</td>
<td>-6</td>
<td>-8</td>
<td>-11</td>
<td>-14</td>
<td>58.6</td>
<td>72.5</td>
<td>6</td>
<td>-23</td>
<td>29</td>
<td>-9</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="11" class="firstcol">Spending</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Favorable for major
purchase</td>
<td>-20</td>
<td>-19</td>
<td>-24</td>
<td>-27</td>
<td>37.9</td>
<td>37.1</td>
<td>16</td>
<td>-42</td>
<td>58</td>
<td>-14</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">Financial
Situation</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current</td>
<td>17</td>
<td>18</td>
<td>13</td>
<td>13</td>
<td>66.7</td>
<td>89.6</td>
<td>24</td>
<td>3</td>
<td>21</td>
<td>12</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Past 12 MOs</td>
<td>-20</td>
<td>-22</td>
<td>-24</td>
<td>-25</td>
<td>53.1</td>
<td>31.3</td>
<td>-5</td>
<td>-37</td>
<td>32</td>
<td>-17</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Next 12-Mos</td>
<td>-10</td>
<td>-8</td>
<td>-12</td>
<td>-11</td>
<td>40.0</td>
<td>15.0</td>
<td>11</td>
<td>-24</td>
<td>35</td>
<td>-2</td>
</tr>
<tr class="grey2">
<td colspan="11" class="firstcol">Number
of observations in
the period &nbsp; 240</td>
</tr>
</tbody>
</table>
</body></html>

From its low point in mid 2008 France’s Consumer confidence is still making a long slow recovery. Its drop of one point in December does not signal an end to the climb which, although substantial, has only brought the index to the [...]

French Consumers Take A Step Back After Fourth Months of Improved Confidence

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100105i.jpg" align="right" border="0" height="265" width="353"> For the
second straight month factory inventories increased, a turn following
thirteen consecutive months of decline. Moreover, October gains were
revised up slightly. The latest monthly increase owed largely to a 3.8%
jump (-26.5% y/y) in auto inventories which was the second consecutive
month of strong gain. That rise was offset by a 1.9% drop (+6.0% y/y)
in defense aircraft and a 0.3% slip (+2.4% y/y) in nondefense aircraft
inventories. Elsewhere, the inventory turn has been limited to the
metals and petroleum industries along with higher prices.
Apparel inventories (-18.6% y/y) continued their decline of
more than a
year as did machinery inventories (-13.3% y/y), though the latter's
decline has slowed significantly. Electrical equipment inventories
(-18.9% y/y) also continued to fall but, again, the monthly rates of
decline have slowed as they have for computers &amp; electronic
products (-9.9% y/y).
Higher factory shipments are likely to
encourage the holding and/or building of inventories. Shipments rose
1.0% during November for the third straight month of strong increase.
Shipments of electrical equipment shipments (-9.2% y/y) have been
strong for two months as have machinery shipments (-20.3% y/y) for two
of the last three. Primary metals (-16.6% y/y) have shown notable
monthly increases since May and furniture inventories (-14.5% y/y) also
seem to have turned toward accumulation.
Improved factory
new orders are part of the sector's improvement. They rose 1.1% in
November, in part reflecting the strength in petroleum prices. A 0.5%
monthly increase had been expected. Elsewhere, metals orders (-7.3%
y/y) have improved as have orders for machinery (-14.2% y/y) and
computers (-2.4% y/y). New orders for electrical equipment &amp;
appliances have perhaps turned the most, moving to a 0.7% y/y gain from
a 30.5% decline as of June. 
The Manufacturers' Shipments,
Inventories and Orders (MSIO) data are available in Haver's USECON
database.
The Economic Outlook is yesterday's
speech by Fed Governor Elizabeth A. Duke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/duke20100104a.htm">here</a>.&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100105j.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100105k.jpg" border="0" height="265" width="312">
<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/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a>
(NAICS, %)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.2</td>
<td>0.6</td>
<td>-1.3</td>
<td>-10.3</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>0.3</td>
<td>0.5</td>
<td>-1.0</td>
<td>-11.8</td>
<td>-0.6</td>
<td>2.7</td>
<td>7.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>1.1</td>
<td>0.8</td>
<td>1.6</td>
<td>-3.2</td>
<td>0.1</td>
<td>1.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>1.9</td>
<td>1.0</td>
<td>1.5</td>
<td>-2.1</td>
<td>3.1</td>
<td>1.2</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.0</td>
<td>1.5</td>
<td>1.3</td>
<td>-3.8</td>
<td>1.7</td>
<td>1.2</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>1.3</td>
<td>2.2</td>
<td>0.6</td>
<td>-3.6</td>
<td>3.7</td>
<td>1.5</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>-0.7</td>
<td>-0.6</td>
<td>-0.4</td>
<td>-10.9</td>
<td>3.5</td>
<td>17.1</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Transportation</td>
<td>0.2</td>
<td>-0.4</td>
<td>0.6</td>
<td>-11.3</td>
<td>-1.0</td>
<td>8.2</td>
<td>16.0</td>
</tr>
</tbody>
</table>

</body></html>

For the second straight month factory inventories increased, a turn following thirteen consecutive months of decline. Moreover, October gains were revised up slightly. The latest monthly increase owed largely to a 3.8% jump (-26.5% [...]

U.S. Factory Inventories & Shipments Increase Again

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100105a.jpg" align="right" border="0" height="265" width="353">Advanced
estimates indicate that Singapore's Gross Domestic Product declined at
an annual rate of 6.8% in the fourth quarter, after having risen
sharply in the two previous quarters.&nbsp; Such a pattern is not
unusual in Singapore's experience, as can be seen in the first
chart,&nbsp;and it does not necessarily suggest that Singapore is
in for another recession.&nbsp;&nbsp; Preliminary data for the
fourth quarter and all of 2009 will be published in
February.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100105b.jpg" align="right" border="0" height="265" width="353">The
advanced estimates are based largely
on production data for the first two months of the quarter--October and
November in this case.&nbsp; In addition to a typical industrial
production index, Singapore produces indexes based on clusters of
production in the chemical, electronic, biomedical, precision
engineering and transport engineering
industries.&nbsp;&nbsp;The second chart shows&nbsp; the
trends in the indexes of the production for four of the five industry
clusters.&nbsp; Movements in the index for the fifth cluster,
Precision Engineering, are shown in the table below.
&nbsp;Production in the chemical&nbsp; and in the precision
engineering clusters increased in October and November.&nbsp;
Production&nbsp; in the electronics cluster increased in October
but fell off in November while production in the transport engineering
declined in both October and November.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100105c.jpg" align="right" border="0" height="265" width="353">
But the biggest change
was the sharp declines in the production of biomedicals, mainly
pharmaceuticals, in both October and November.&nbsp; Production in
the biomedical cluster has been subject to much wider swings than those
of the other clusters and is responsible, in large part, for the
erratic path of the quarterly changes in Singapore's
GDP.
 The year to year changes in real GDP are,
perhaps, a better indicator of the course of Singapore's economy. These
data are shown in the third chart and suggest that Singapore's recovery
from recession is continuing. &nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Real Gross
Domestic Product</th>
<th scope="col">Q4 09</th>
<th scope="col">Q3&nbsp; 09</th>
<th scope="col">Q2&nbsp; 09</th>
<th scope="col">Q1 09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3&nbsp; 08</th>
<th scope="col">Q2&nbsp; 08</th>
<th scope="col">Q1 08</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">M/M Annual Rate of Change in
Real GDP&nbsp; (%0</td>
<td>-6.8</td>
<td>14.9</td>
<td>21.6</td>
<td>-11.5</td>
<td>-16.4</td>
<td>-2.1</td>
<td>-7.7</td>
<td>12.2</td>
<td>--&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Y/Y Rate of Change (%)</td>
<td>3.5</td>
<td>0.9</td>
<td>-3.2</td>
<td>-9.4</td>
<td>-4.2</td>
<td>0.0</td>
<td>2.5</td>
<td>6.7</td>
<td>&nbsp;--</td>
</tr>
<tr>
<td class="firstcol">Production by Industry Cluster
(2007=100)</td>
<td>&nbsp;</td>
<td>Nov 09</td>
<td>Oct&nbsp; 09</td>
<td>Sep 09</td>
<td>Aug 09</td>
<td>Jul 09&nbsp;</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
</tr>
<tr class="odd">
<td class="firstcol">Electronics</td>
<td>&nbsp;--</td>
<td>98.1</td>
<td>99.7</td>
<td>90.7</td>
<td>90.3</td>
<td>96.9</td>
<td>81.4</td>
<td>78.8</td>
<td>77.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Chemicals</td>
<td>&nbsp;--</td>
<td>92.6</td>
<td>91.2</td>
<td>92.9</td>
<td>90.2</td>
<td>95.9</td>
<td>89.4</td>
<td>82.9</td>
<td>80.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Biomedical</td>
<td>&nbsp;--</td>
<td>53.6</td>
<td>77.1</td>
<td>90.8</td>
<td>133.5</td>
<td>146.8</td>
<td>106.5</td>
<td>132.7</td>
<td>131.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Precision Engineering</td>
<td>--</td>
<td>85.4</td>
<td>84.7</td>
<td>83.0</td>
<td>78.6</td>
<td>76.8</td>
<td>78.8</td>
<td>93.8</td>
<td>95.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport Engineering</td>
<td>--</td>
<td>89.3</td>
<td>94.0</td>
<td>96.9</td>
<td>98.4</td>
<td>95.9</td>
<td>96.3</td>
<td>101.9</td>
<td>121.8</td>
</tr>
</tbody>
</table>

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Advanced estimates indicate that Singapore's Gross Domestic Product declined at an annual rate of 6.8% in the fourth quarter, after having risen sharply in the two previous quarters. Such a pattern is not unusual in Singapore's [...]

A Double Dip In Singapore's GDP?

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104h.jpg" align="right" border="0" height="265" width="353">While
Indonesia has had extensive damage from earthquakes, it has so far
escaped a recession.&nbsp; The closest it has come was the fourth
quarter of 2008 when real gross domestic product increased at an annual
rate of only 0.80%.&nbsp; Subsequent increases have been 3.58% in
the first quarter of 2009, 5.49% in the second and 6.64 in the third
quarter. The annual rates of increase in real GDP over the past six
years are shown in the first chart.
Today, the consumer price
index for December was released.&nbsp;Inflation continues to be
well behaved although there has been a slight increase in the last two
months.&nbsp; The rate of inflation as measured by the year to year
increase in the seasonally unadjusted consumer price index was 2.78%
down from 11.06% in December of 2008.&nbsp; The course of inflation
in Indonesia is shown in the second chart.
Also released
today were Indonesia's exports, imports and balance of trade.&nbsp;
There has been a rising trend in the balance of trade from the 640
million USD deficit in October,2008.&nbsp; Exports at 11,562
million USD are below the peak level of 12,499 million USD reached in
June of 2008 and imports at 9,563 million USD are well below the peak
of 12,142 million USD reached&nbsp; in July 2008.&nbsp; The
third chart shows exports, imports and the balance of trade over the
past six years.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104i.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104j.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col">INDONESIA</th>
<th scope="col">Q4 09</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1 09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08</th>
<th scope="col">Q2 08</th>
<th scope="col">Q1 08</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="10" class="firstcol"> Real Gross Domestic
Product</td>
</tr>
<tr class="odd">
<td class="firstcol">Q/Q Annual Rate of Change in
Real GDP&nbsp; (%)</td>
<td>--</td>
<td>6.64</td>
<td>5.49</td>
<td>3.58</td>
<td>0.80</td>
<td>6.08</td>
<td>7.50</td>
<td>6.75</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Aug 09</td>
<td>Jul 09&nbsp;</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI Y/Y % Change (%)</td>
<td>2.78</td>
<td>2.41</td>
<td>2.57</td>
<td>2.83</td>
<td>2.75</td>
<td>2.71</td>
<td>3.65</td>
<td>6.04</td>
<td>7.31</td>
</tr>
<tr>
<td class="firstcol">Trade</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Aug 09</td>
<td>Jul 09&nbsp;</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports&nbsp; (Millions US
$)</td>
<td>--</td>
<td>11562</td>
<td>12108</td>
<td>9588</td>
<td>10257</td>
<td>9260</td>
<td>9135</td>
<td>8756</td>
<td>8872</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports (Millions US $)</td>
<td>--</td>
<td>9563</td>
<td>9903</td>
<td>8288</td>
<td>8963</td>
<td>8161</td>
<td>7645</td>
<td>7165</td>
<td>6512</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance (Millions US $)</td>
<td>--</td>
<td>1999</td>
<td>2205</td>
<td>1308</td>
<td>1294</td>
<td>1099</td>
<td>1490</td>
<td>1591</td>
<td>2362</td>
</tr>
</tbody>
</table>

</body></html>

While Indonesia has had extensive damage from earthquakes, it has so far escaped a recession. The closest it has come was the fourth quarter of 2008 when real gross domestic product increased at an annual rate of only 0.80%. [...]

Indonesia Avoids Recession

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104e.jpg" align="right" border="0" height="265" width="353">Though its
rate of decline has moderated, construction spending has continued to
move lower. During November construction outlays fell 0.6% after a
little-revised 0.5% October shortfall. The latest decline left the y/y
change at -13.2% which was improved just modestly from the weakest
-15.8% September comparison. The latest decline about matched Consensus
estimates. Residential building activity renewed its decline with a
1.6% fall following a 4.8% October gain. The decline owed to a 4.1%
(-44.4% y/y) drop in multi-family building and a 3.9% (-2.8% y/y)
shortfall in spending on improvements. Single-family construction rose
1.3% (-25.2% y/y) for the sixth consecutive monthly increase. 
Nonresidential building activity was roughly unchanged after a steep
4.8% October decline. Since the 2008 peak, activity has fallen by
22.5%. Spending in the food &amp; beverage industry declined 44.1%
y/y while expenditures in the lodging were off by nearly one-half.
Commercial building overall fell 40.5% y/y while office building
dropped by more than one-third. Relatively moderate were the declines
in the education (-18.8% y/y), religious (-18.3% y/y) and health care
(-16.1% y/y) sectors.&nbsp;Factory sector spending (-7.0% y/y) was
buoyed by gains in the chemical and in the
computer/electronic/electrical sectors.In the public sector,
construction overall fell a modest 0.4% during November but y/y
expenditures rose despite lower tax revenues. Building activity on
highways &amp; streets fell 2.9% m/m but rose 5.7% y/y due to the
focus on infrastructure rebuilding. Public spending on health care
facilities increased a strong 12.2% y/y but building in the education
sector was off 2.6% y/y. The construction put-in-place figures are
available in Haver's USECON database.&nbsp;&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104f.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104g.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Construction
(%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.6</td>
<td>-0.5</td>
<td>-1.6</td>
<td>-13.2</td>
<td>-6.9</td>
<td>-1.6</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7</td>
<td>-0.8</td>
<td>-2.4</td>
<td>-20.0</td>
<td>-11.1</td>
<td>-5.7</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.6</td>
<td>4.8</td>
<td>-0.6</td>
<td>-19.2</td>
<td>-29.1</td>
<td>-19.7</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.0</td>
<td>-4.8</td>
<td>-3.7</td>
<td>-20.6</td>
<td>13.2</td>
<td>23.1</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>-0.4</td>
<td>0.0</td>
<td>-0.1</td>
<td>2.7</td>
<td>5.6</td>
<td>13.1</td>
<td>9.3</td>
</tr>
</tbody>
</table>
</body></html>

Though its rate of decline has moderated, construction spending has continued to move lower. During November construction outlays fell 0.6% after a little-revised 0.5% October shortfall. The latest decline left the y/y change at [...]

U.S. Factory Inventories &Shipments Increase Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104b.jpg" align="right" border="0" height="265" width="353">Improvement
in the U.S. factory sector continued last month from its nadir reached
twelve months earlier. The National Association of Purchasing
Management reported that its December composite index showed unexpected
strength with a rise to 55.9 from 53.6 during November. The latest
figure was the highest since April 2006 and it was up from the low of
32.9 reached last December. A more modest gain to 54.0 had been the
Consensus expectation. (Any reading above the break-even point of 50
suggests rising activity.) The ISM data is available in Haver's USECON
database. The positive factory-sector growth rate
suggested by the ISM index is in line with recoveries accompanying past
upturns from severe recessions. To mirror the strength of those
recoveries, however, the index still needs to rise to a level near or
above the level of 60.The new orders index showed the greatest m/m
gain with its increase to a high of 65.5 from 60.3 in November. Working
the other way, the export order index fell moderately to 54.5 from its
recent high. Nevertheless the index was up from its low of 35.5 last
December. During the last ten years there has been a 53% correlation
between the index and the q/q change in real exports of goods in the
GDP accounts. The employment index showed a smaller gain 52.0.
Nevertheless, the level indicated positive growth in factory-sector
payrolls. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104c.jpg" align="right" border="0" height="265" width="353">
It has increased from a low reading of 26.1 last February.
Seventeen percent of respondents indicated higher payrolls versus only
seven percent last December. Eighteen percent indicated a lower level
of hiring versus fifty percent last December. During the last ten years
there has been a 90% correlation between the index level and the
three-month change in manufacturing payrolls. The production component
rose modestly to 61.8 but remained lower than its October high of 63.3.
During the last ten years there has been an 84% correlation between the
level of the production component of the composite index and the
three-month growth in factory sector industrial production. It
is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104d.jpg" align="right" border="0" height="265" width="353">
A two point gain in the inventory
component to 43.4 recovered some of its November decline but it still
was down from the October high. Thirteen percent (NSA) of respondents
indicated that they were raising inventory levels versus 18% last
December. During the strong 2005 inventory accumulation 26% of firms
indicated that they were raising inventories. Thirty percent of
respondents indicated lower inventories.The separate index of prices
paid made up more than half of its November decline and was up from the
December low of 18.0. During the last twenty years there has been a 79%
correlation between the price index and the three-month change in the
PPI for intermediate goods.The ISM data are available in Haver's USECON
database.Monetary Policy and the Housing Bubble
is the title of yesterday's speech by Fed Chairman Ben S. Bernanke and
it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20100103a.htm">here</a>.&nbsp;
<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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Dec. '08</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>55.9</td>
<td>53.6</td>
<td>55.7</td>
<td>32.9</td>
<td>46.3</td>
<td>45.5</td>
<td>51.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>65.5</td>
<td>60.3</td>
<td>58.5</td>
<td>23.1</td>
<td>51.7</td>
<td>42.1</td>
<td>54.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>52.0</td>
<td>50.8</td>
<td>53.1</td>
<td>29.9</td>
<td>40.6</td>
<td>43.2</td>
<td>50.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Production</td>
<td>61.8</td>
<td>59.9</td>
<td>63.3</td>
<td>26.3</td>
<td>50.3</td>
<td>45.2</td>
<td>54.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Supplier Deliveries</td>
<td>56.6</td>
<td>55.7</td>
<td>56.9</td>
<td>45.7</td>
<td>51.4</td>
<td>51.6</td>
<td>51.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>43.4</td>
<td>41.3</td>
<td>46.9</td>
<td>39.6</td>
<td>37.2</td>
<td>45.5</td>
<td>45.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>61.5</td>
<td>55.0</td>
<td>65.0</td>
<td>18.0</td>
<td>48.3</td>
<td>66.5</td>
<td>64.6</td>
</tr>
</tbody>
</table>
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Improvement in the U.S. factory sector continued last month from its nadir reached twelve months earlier. The National Association of Purchasing Management reported that its December composite index showed unexpected strength with a [...]

ISM Manufacturing Series Show Broad-Based Gains

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104a.jpg" align="left" border="0" height="265" width="353">
The PMI indices for MFG from Markit show an ongoing
improvement across the e-zone. The e-Zone index is still some 8.9
points from its cycle peak but it has risen by 18 points from its cycle
low. Greece at 10.6 points above its cycle low has had the smallest
recovery from its low point. The UK Germany and France have risen the
most from their respective low points but the UK stands the closest to
its cycle peak reading standing only 2.2 points below its cycle peak
reading in December. Spain, Greece and France are still the farthest
away from their respective cycle peaks.
In December among the countries in the table only Spain saw a
set back. This is marked improvement from November when five of these
countries experienced a set back in the month&#8217;s MFG PMI reading.
Spain&#8217;s index has fallen on balance over the last three
months. It is the only one in this group to do so. However Austria and
Greece rose by less than 0.5 points on balance over the last three
months compared to an e-Zone index rise of 2.3points. .The e-Zone
advance is now being led by improvements in Italy and in Germany but
all the e-Zone countries in the table above are advancing at a slower
rate than they had over six months (multiply the respective three month
gains by a factor of two to see this). The UK, an EU member, is an
exception to this trend as it is still accelerating.
Spain, Greece and Ireland are the only countries in the table
that are not back into pre-recession ranges for their MFG PMI readings
(levels). The UK is the only country that is near the top of its
pre-recession range in terms of its overall PMI index (March 2000- Jan
2008).
On balance the e-Zone is still making progress. Some
choppiness in the indices in this region is to be expected if the
recovery is going to continue but lose some of its gusto. If the
recovery is going to gain speed we will need to see these indices
continue to advance. The signals right now seem to favor a period of
consolidation and of continued but slow growth progress.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col"> Changes in Markit MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Changes Mo/Mo</td>
<td colspan="3">Change on Frequency</td>
<td colspan="2">&nbsp;&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>From Peak</td>
<td>From Low</td>
</tr>
<tr>
<td class="firstcol">Euro-13</td>
<td>0.39</td>
<td>0.47</td>
<td>1.44</td>
<td>2.30</td>
<td>8.97</td>
<td>17.72</td>
<td>-8.9</td>
<td>18.0</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.25</td>
<td>1.40</td>
<td>1.39</td>
<td>3.04</td>
<td>11.81</td>
<td>20.03</td>
<td>-8.2</td>
<td>20.7</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.31</td>
<td>-1.21</td>
<td>2.62</td>
<td>1.72</td>
<td>8.85</td>
<td>19.80</td>
<td>-10.1</td>
<td>19.9</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.71</td>
<td>0.85</td>
<td>1.66</td>
<td>3.22</td>
<td>8.11</td>
<td>15.26</td>
<td>-9.2</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-0.09</td>
<td>-1.02</td>
<td>0.48</td>
<td>-0.63</td>
<td>2.43</td>
<td>16.70</td>
<td>-12.3</td>
<td>16.7</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>0.88</td>
<td>-1.12</td>
<td>0.74</td>
<td>0.50</td>
<td>8.80</td>
<td>15.80</td>
<td>-8.0</td>
<td>17.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Greece</td>
<td>1.54</td>
<td>-0.72</td>
<td>-0.49</td>
<td>0.33</td>
<td>1.12</td>
<td>7.83</td>
<td>-10.6</td>
<td>10.6</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>0.02</td>
<td>0.78</td>
<td>1.44</td>
<td>2.24</td>
<td>6.34</td>
<td>10.94</td>
<td>-7.6</td>
<td>15.6</td>
</tr>
<tr class="even">
<td colspan="9" class="firstcol">EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>2.33</td>
<td>-1.16</td>
<td>2.94</td>
<td>4.11</td>
<td>6.87</td>
<td>18.53</td>
<td>-2.2</td>
<td>19.1</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Percentile is over range since March
2000</td>
</tr>
</tbody>
</table>
</body></html>

The PMI indices for MFG from Markit show an ongoing improvement across the e-zone. The e-Zone index is still some 8.9 points from its cycle peak but it has risen by 18 points from its cycle low. Greece at 10.6 points above its cycle [...]

Manufacturing Is Digging Out

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

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

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

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Nonfarm payrolls increased 177,000 (1.2% y/y) during April after rising 185,000 in March, revised from 228,000, and 102,000 in February, revised from 117,000. Expectations had been for a 130,000 rise in the Action Economics Forecast Survey. The latest figure left the three-month average change at 155,000 in April, down from 232,000 in January.

Average hourly earnings rose 0.2% during April after unrevised increases of 0.3% in March and 0.2% in February. Earnings growth of 3.8% y/y was below the 5.9% high in March 2022.

The unemployment rate, measured in the household survey, held m/m at an expected 4.2% in April, and compared to 4.1% in February and 4.0% in January. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, eased to 7.8% in April from 7.9% in March.

In the **establishment survey**, private-sector employment rose 167,000 (1.2% y/y) after a 170,000 March increase. Factory sector jobs edged 1,000 lower (-0.7% y/y) following a 3,000 gain. Construction sector employment increased 11,000 (1.7% y/y), after rising 7,000 in March.

Private service-producing sector employment increased 156,000 (1.4% y/y) in April after improving 161,000 in March. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 70,000 (3.4% y/y) last month following a 74,000 March increase. Leisure & hospitality employment rose 24,000 (1.3% y/y) after a 38,000 gain. Trade, transportation & utilities rose 32,000 (0.9% y/y) in April following a 25,000 March increase. Professional & business services employment rose 17,000 (-0.1% y/y) following a 3,000 rise while temporary help employment rose 3,600 (-3.9% y/y) following a 2,700 decline. Financial activities employment improved 14,000 (1.2% y/y) after a 6,000 gain. The number of information sector jobs held steady (-0.4% y/y) last month after falling 2,000 in March.

Government sector payrolls rose 10,000 (1.3% y/y) last month after increasing 15,000 in March. The number of local government jobs increased 13,000 (1.4% y/y) following a 17,000 gain. State government employment rose 6,000 (1.8% y/y) following a 2,000 March increase but federal government payrolls fell 9,000 (-0.3% y/y), the third consecutive monthly decline.

Private-sector average hourly earnings rose 0.2% (3.8% y/y) in April after increasing 0.3% in March. Earnings in the goods-producing sector eased 0.1% (+4.0% y/y) following a 0.6% gain. Earnings in construction rose 0.3% (3.6% y/y), after a 0.2% rise but factory sector earnings declined 0.3% (+4.3% y/y) after surging 0.8% in March. In the private services-sector, earnings rose 0.2% (3.7% y/y) in April for the third straight month. Information sector pay increased 1.0% (5.2% y/y) last month after easing 0.1%, and financial activities earnings rose 0.5% (4.3% y/y) for the second straight month. Trade, transportation & utilities sector pay increased 0.4% (3.4% y/y) after 0.6%. Professional & business sector earnings increased 0.1% (4.4% y/y) after 0.2% in March. Leisure & hospitality earnings held steady (+3.8% y/y) following a 0.6% March increase.

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The length of the average workweek held steady at 34.3 hours in April. The workweek in the goods-producing sector eased to 39.8 hours from 40.0 hours. The construction sector average workweek eased to 39.0 hours from 39.3 hours while the factory sector workweek moved lower to 40.0 hours from 40.2. The average workweek in the private service sector held at 33.2 hours. Professional & business service hours fell to 36.3 hours from 36.4 while trade, transportation & utilities hours improved to 34.3 from 34.0 hours. Private education hours rose slightly to 32.8, but leisure & hospitality held steady at 25.5 hours.

In the **household survey**, the unemployment rate held at 4.2% in April as employment rose 436,000 and the size of the labor force increased 518,000. The labor force participation rate edged up to 62.6% last month from 62.5% in March. It remained below the high of 63.3% early in 2020. The rate for teenagers declined to 36.9%. For workers aged 20-24, the rate held steady at 72.1%, up from 71.8% six months earlier. For workers aged 25-54 the rate rose to 83.6%, a five-month high. For individuals 55 and over, the rate improved to 38.4% in April.

The employment/population ratio for all workers in April rose to 60.0%. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Job growth spreads across most sectors.
- Earnings growth trend decelerates.
- Jobless rate holds steady.

U.S. Job Growth Is Firm in April but March Gain Is Lessened

Winnie Tapasanun

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Total factory orders rose a slightly less-than-expected 4.3% m/m in March after rises of 0.5% in February and 1.8% in January, data from the U.S. Census Bureau showed. A 4.5% m/m March increase had been expected in the Action Economics Forecast Survey. The March reading was the third successive monthly rise and the largest since July 2024. The year-on-year rate accelerated to 6.0% in March, the highest since November 2022, from 2.3% in February. Notably, orders for nondefense aircraft & parts soared 139.0% in March following a 7.4% drop in February and a 92.9% surge in January. Factory orders excluding defense rose 4.8% (5.9% y/y), the largest of three straight m/m/ rises, after a 0.4% February increase. Factory orders excluding the transportation sector fell 0.2% (+1.1% y/y), the first m/m fall since August, after rising 0.3% in February, January and December.

Durable goods orders jumped 9.2% (11.9% y/y) in March, the third consecutive m/m gain and the biggest since July 2024, on top of a 0.8% increase in February (matching +9.2% m/m in the advance report on April 24). The March jump reflected m/m orders increases of 27.1% (the largest m/m surge since July 2024; 31.2% y/y) in transportation equipment, 1.1% (4.9% y/y) in primary metals, 0.5% (-0.4% y/y) in furniture & related products, 0.1% (2.5% y/y) in fabricated metal products, and 0.1% (0.9% y/y) in machinery. To the downside, durable goods orders for computers & electronic products (-1.3%; +2.7% y/y) and electrical equipment, appliances & components (-1.0%; +4.2% y/y) declined m/m in March.

Nondurable goods orders, which equal nondurable goods shipments, fell 0.3% (+0.4% y/y) in March, the first m/m fall since September, after a 0.1% uptick in February. The March fall reflected m/m drops of 2.4% (-9.3% y/y) in petroleum & coal products and 0.9% (-1.2% y/y) in apparel. To the upside, the following nondurable goods shipments rose m/m in March: leather & allied products (1.5%; 8.6% y/y), beverage & tobacco products (0.7%; 5.8% y/y), paper products (0.6%; 2.3% y/y), printing (0.3%; 3.8% y/y), textile mills (0.3%; 0.8% y/y), chemical products (0.2%; 5.4% y/y), plastics & rubber products (0.2%; 0.4% y/y), food products (0.1%; 1.8% y/y), and textile products (0.1%; 2.1% y/y).

Total shipments slipped 0.1% (+2.0% y/y) in March, the first m/m easing since October, after a 0.7% increase in February. Excluding transportation, shipments were virtually unchanged m/m (+1.1% y/y) in March following six straight m/m gains. Shipments of durable goods industries inched up 0.1% (3.8% y/y) in March, the smallest of four consecutive m/m increases, after a 1.3% advance in February. This reflected m/m durable goods shipments rises of 1.2% (5.6% y/y) in primary metals, 0.9% (0.1% y/y) in furniture & related products, 0.8% (-0.2% y/y) in nonmetallic mineral products, 0.4% (0.0% y/y) in machinery, 0.3% (1.8% y/y) in fabricated metal products, 0.2% (4.5% y/y) in computers & electronic products, 0.2% (-2.1% y/y) in wood products, and 0.1% (3.0% y/y) in electrical equipment, appliances & components. In contrast, durable goods shipments for transportation equipment (-0.5%; +7.3% y/y) and miscellaneous durable goods (-0.1%; +2.9% y/y) fell m/m in March following three successive m/m increases.

Unfilled orders rose 2.0% (2.3% y/y) in March, up for the eighth month in nine, after a 0.1% uptick in February. Excluding transportation, unfilled orders dipped 0.1% (+0.7% y/y) in March, the first m/m easing since May 2024, after holding steady in February. Backlogs of durable goods rose 2.0% (2.3% y/y) in March, reflecting m/m rises of 3.1% (3.1% y/y) in transportation equipment and 0.2% (2.4% y/y) in electrical equipment, appliances & components.

Inventories edged up 0.1% (0.9% y/y) in March, the fifth straight m/m increase, after rising at the same pace in the prior two months. Excluding transportation, inventories were up 0.1% (0.5% y/y) in March, the fifth consecutive m/m rise. Durable goods inventories ticked up 0.1% (1.0% y/y) in March after holding steady in February and January; nondurable goods inventories edged up 0.1% (0.8% y/y), the fifth successive m/m increase.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- March manufacturers’ new orders +4.3% m/m; +6.0% y/y, highest since Nov. ’22.
- Durable goods orders (+9.2%) jump m/m, while nondurable goods orders (-0.3%) and shipments (-0.1%) decline m/m.
- Transportation equipt. orders +27.1% m/m, w/ a 139.0% m/m surge in nondefense aircraft & parts orders.
- Unfilled orders +2.0%, the eighth m/m rise in nine months.
- Inventories +0.1%, the fifth consecutive m/m increase.

U.S. Factory Orders Increase for the Third Straight Month in March

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The global manufacturing data showed broad weakening in April as conditions weakened across more than half of the contributing early reporters in the S&P survey of manufacturing. Of the 18 early reporting countries, more than half of them showed deceleration over six months and 12 months. Over three months, only 8 of 18 showed deterioration and that's about as good as it got in this report. In the current month, month-to-month changes showed more than half of the survey contributors showing weaker results than the month before. In the S&P framework, manufacturing improved month-to-month for the U.S.; however, looking at sequential averages for the U.S., U.K., European monetary union, Canada, and Japan, we see a steady weakening and results over 12 months, over six months versus 12 months, and for three months versus 6 months. The highly developed countries are not doing particularly well.

Asian economies are also showing slight deterioration but doing a little better than the developed countries in general.

Only five of the 18 reporting countries have queue percentile standings in their data back to January 2021 that are above their medians. Readings at or above the 50% mark are at or above the median standing. Canada is showing the weakest manufacturing result on record over this span, in terms of its queue percentile standing which is at 0 in the current month.

I showed the graphic for the Baltic dry goods index in this report rather than statistics on the manufacturing PMI data because the Baltic data, which reflect shipping volume for dry goods - that is excluding things like oil - is weak but it's only in the neighborhood where it's been for some time. There has been a great deal of talk about how tariffs may have impacted trade flows, expected trade flows, shipping, shipping rates, and the like. However, according to the Baltic dry goods index, there isn't much evidence that this is occurring right now and affecting the current data. That may still lie ahead but for now it's not baked in the cake.

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Globally Manufacturing Weakens

Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

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**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

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**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

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**The US economy’s structural outperformance and the dollar**
A second dynamic, captured in the next chart, reveals a tight correlation between the US real effective exchange rate and the potential GDP growth differential between the US and euro area over the past 50-60 years. This raises the question: has dollar strength (until recently) merely been a reflection of US growth leadership—or are capital inflows themselves helping to sustain this growth outperformance? In effect, the tail may be wagging the dog. Global investors have long allocated capital to the US, attracted by its macroeconomic resilience, technological leadership, and deep, liquid financial markets. The danger now is that the US trade war may disrupt this equilibrium. A sharp or sustained reduction in capital inflows could undermine growth, weaken the dollar, and trigger broader financial instability. Moreover, reversing this dynamic is not straightforward—barring a credible structural resurgence in European (or Asian) growth, the global investment landscape remains tilted toward the US.

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**US competitiveness versus Europe, China and Japan** 
The next chart below examines relative unit labour costs across major economies since 2011. The US and China have seen a broadly similar trajectory, with steady increases in relative cost structures, while the euro area has remained flat and Japan has seen dramatic improvement. This suggests that, from a cost competitiveness standpoint, the US is not uniquely disadvantaged vis-à-vis China. However, as we discuss further below, this parallel erosion of cost competitiveness is occurring at much higher nominal wage levels in the US, which blunts its ability to regain export share through tariff-related shifts alone. The trade war strategy—absent a corresponding improvement in productivity or structural reforms—risks imposing costs without delivering material competitiveness gains.

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**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

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Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.

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Charts of the Week: Tariff Truce, Tenuous Trust

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U.S. light vehicle sales dropped 2.9% (+6.5% y/y) to 17.31 million units (SAAR) in April after surging 10.8% to 17.82 million units in March. The retreat in April vehicle sales accompanied a 1.7% y/y rise in real disposable income through March, which compared to 2.0% growth last year.

Sales declines were broad-based last month. Light truck sales fell 1.3% (+9.9% y/y) during April to 14.34 million units (SAAR), after rising 12.4% in March. Purchases of domestically-made light trucks declined 1.2% (+11.9% y/y) to 11.02 million units, after jumping 12.5% in March. Sales of imported light trucks fell 1.8% (+4.4% y/y) to 3.32 million units, following an 11.6% March surge.

Trucks’ record 82.8% share of the light vehicle market last month compared to 81.5% in March and 80.3% in April of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales also declined last month, down 9.5% (-7.5%) to 2.97 million units (SAAR) following a 3.5% March rise. The decline reversed all of the increase over the prior two months. Purchases of domestically-produced cars fell 9.8% (-4.3% y/y) last month to 2.22 million units, after rising 3.8% in March. Sales of imported autos declined 9.6% (-15.7% y/y) to 0.75 million units, following a 2.5% March increase.

Imports' 23.5% share of the U.S. light vehicle market was little changed from 23.6% in March and compared to a May 2023 low of 22.9% and a high of 26.3% in November of 2023. Imports' share of the passenger car market held steady at 25.3% last month and compared to 27.7% in April of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market eased to 23.2% last month after falling to 23.3% in March.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the I**NDUSTRY** database.

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- Light truck sales pull back, while auto sales tumble.
- Both domestic and imported sales decline.
- Imports' market share slips further.

Economy in Brief: January 2010

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French Consumers Take A Step Back After Fourth Months of Improved Confidence

U.S. Factory Inventories & Shipments Increase Again

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