Carol Stone, CBE

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<p>
The value of construction put-in-place decreased 0.3% (2.4% y/y) during November after a 1.2% advance in October,
 revised from 1.1%; the September move was revised more noticeably, to a 0.6% increase from a 0.1% decline. 
 The November decline contrasted with expectations for a 0.3% increase in the Action Economics Forecast Survey.
</p><p>
Private sector construction outlays increased 0.3% in November (2.0% y/y), after October's 0.5% rise. 
 Residential building activity advanced 0.9%, the same as October's revised gain, originally shown as 1.3%. 
 New single-family building grew 1.0% (12.5% y/y), and multi-family building increased 0.8% (27.2% y/y). 
 Spending on improvements rose 0.7% in November (-24.6% y/y).  Nonresidential building activity was down 0.3% (+4.7% y/y),
  after October's 0.1% rise, revised from a 0.1% decrease. There were gains in power facility construction, 2.4% (-3.7% y/y),
   transportation facilities, 1.8% (+6.5% y/y) and communications infrastructure, 0.9% (-17.7% y/y). 
    Education and manufacturing were largely unchanged at +0.1% (6.5% y/y for education and 21.1% y/y for factory building). 
     There were declines in health care buildings, 4.1% (-7.8% y/y), amusement and recreation projects, also 4.1% (+0.4% y/y), 
     office buildings, 2.1% (17.5% y/y) and commercial construction, 1.8% (+8.9% y/y).
</p><p>
Building in the public sector retreated anew in November, by 1.7% (+3.2% y/y), after 
October's positive 2.8%, revised from 2.3% reported initially. The public nonresidential segment saw, 
among major categories, declines in education, 2.5% (+2.3% y/y), water facilities, 1.7% (-1.6% y/y) and
 transportation facilities, 1.1% (+4.9% y/y).  There were gains, though, in sewer and waste disposal,
  2.7% (+14.1% y/y) and highways and streets, 0.3% (5.5% y/y).
</p>

<p>The construction spending figures are in Haver's <b>USECON</b> database and
the expectations figure is contained in the <b>AS1REPNA</b> database.</p>

<p><a href="/comment/150102g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/150102g.png"></a>
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      <th class="firstcol" scope="col" >Construction Put in Place (%)</th>
      <th scope="col" >Nov</th>
      <th scope="col" >Oct</th>
      <th scope="col" >Sep</th>
      <th scope="col" >Y/Y</th>
      <th scope="col" >2013</th>
      <th scope="col" >2012</th>
      <th scope="col" >2011</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td class="firstcol" >Total</td>
      <td  >-0.3</td>
      <td  >1.2</td>
      <td  >0.6</td>
      <td  >2.4</td>
      <td  >5.7</td>
      <td  >9.2</td>
      <td  >-2.1</td>
    </tr>
  </tbody>
  <tbody>
    <tr class="odd">
      <td class="firstcol" >&nbsp; Private</td>
      <td  >0.3</td>
      <td  >0.5</td>
      <td  >1.1</td>
      <td  >2.0</td>
      <td  >10.1</td>
      <td  >16.0</td>
      <td  >-0.1</td>
    </tr>
  </tbody>
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    <tr>
      <td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
      <td  >0.9</td>
      <td  >0.9</td>
      <td  >0.1</td>
      <td  >-0.5</td>
      <td  >20.4</td>
      <td  >14.4</td>
      <td  >1.9</td>
    </tr>
  </tbody>
  <tbody>
    <tr class="odd">
      <td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
      <td  >-0.3</td>
      <td  >0.1</td>
      <td  >2.2</td>
      <td  >4.7</td>
      <td  >0.6</td>
      <td  >17.5</td>
      <td  >-1.8</td>
    </tr>
  </tbody>
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      <td class="firstcol" >&nbsp; Public</td>
      <td  >-1.7</td>
      <td  >2.8</td>
      <td  >-0.9</td>
      <td  >3.2</td>
      <td  >-3.5</td>
      <td  >-2.8</td>
      <td  >-5.4</td>
        </tr>
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The value of construction put-in-place decreased 0.3% (2.4% y/y) during November after a 1.2% advance in October, revised from 1.1%; the September move was revised more noticeably, to a 0.6% increase from a 0.1% decline. The November [...]

U.S. Construction Spending Eases in November

Robert Brusca

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<p><a href="/comment/150102i_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/150102i.png" align="left"></a>
<b>Weakness is a problem for the European Monetary Union</b> and it has been a problem of
increasing magnitude - if not worry- over the course of 2014. 
But a bigger problem for EMU is divergence. In 2013 the divergence 
among EMU member manufacturing PMIs fell sharply and, since then,
the differences among members (those reporting this month) came into closer
alignment for a while. But in the past two months a greater divergence has emerged. 
Divergence is a difficult problem for EMU since it has only a single monetary
policy that applies to the whole of the union. There is no EMU-wide fiscal 
policy and several weak members are bumping up against fiscal rules eliminating
the possibility of unilateral stimulative action. Moreover, the ECB has no mandate
for addressing growth weakness and is only formally responsible for inflation relativ
e to its 'target' of 2% (something close to but less than 2%).
</p><p>
<b>Call to action for the ECB</b>
The EMU continues to see price level undershooting.
Today, Mario Draghi, head of the ECB, noted that if
undershooting were to continue, action would be required. "The risk that we don't fulfill our 
mandate of price stability is higher than it was six months ago," Draghi said 
in an interview with German newspaper Handelsblatt. "We are in technical
preparations to alter the size, speed and composition of our measures at
the beginning of 2015, should this become necessary, to react to a too-long 
period of low inflation. There's unanimity in the ECB council on that."
</p><p>
<b>Central banks have different target-miss responses</b>
This puts the ECB on guard for the ongoing inflation undershoot that is 
mostly likely to persist in the wake of falling global oil prices. And, 
unlike the Fed that clearly has plans to RAISE rates in 2015 even as its
long inflation undershoot continues, the ECB apparently is prepared and its
members are unanimous in their assessment of the need to take action on the undershoot.
The reference to unanimity is the most important part of this statement by Draghi,
but agreeing that the undershoot should be addressed and deciding how to do that will
be two different things.
</p><p>
Since central banks do not have a magic key to raise or lower inflation,
the ECB will take steps, probably enacting program of QE to try to reflate 
growth and prices too. 
</p><p>
<b>Policy limitations</b>
What we can see from the manufacturing sectors in Europe it that substantial 
differences remain among members. There is no ECB policy of fine tuning that 
would allow more stimulus to go one place compared to another. And we still
have to wonder the extent to which the ECB's actions will be as bold as Draghi's words. 
</p><p>
<b>EMU weakness getting worse</b>
In addition to the weakness and the differences in conditions among members,
there is some evidence that weakness is cumulating. For EMU as whole the 
average PMI level deteriorates steadily when calculated over 12-months, then
six months, then three months. That is true for several member states: Germany,
Italy, Austria and Greece and it is almost true for France, but for a tick higher 
in its 3-month average. Only Spain and Ireland have a progression of values that
show acceleration.  
In the EU-only members reporting this month, the U.K. and Sweden
also demonstrate steady erosion in their Manufacturing PMIs.
</p><p>
<b>Some members are  doing better</b>
Spain is unique and the standing of its PMI reading is quite high,
residing as it does in the 94th percentile of its historic rank of
data - higher less than 6% of the time. Ireland is even stronger 
in relative terms standing in the 97th percentile of its queue.
Greece has been so weak that its sub-growth 49.4 raw diffusion
score stands in the 86th percentile of its historic queue of data-higher 
only 14% of the time! But France stands in its 33rd queue percentile, Italy 
is in its 43rd percentile, and Austria is in its 36th percentile. Germany stands 
only in its 51st queue percentile and in December it moved back into a phase of
expansion from a one month contraction. 
</p><p>
<b>The danger of a slow policy response</b>
The ECB has been slow in adopting QE - if it does adopt
it as we expect. Within the last month- despite today's comment
by Draghi, Jens Weidmann, head of the Bundesbank, stated that he would
be opposed to QE even if there were deflation. The Germans are now at risk
to their own opposition. They have opposed QE for so long that if it commences 
soon, the prospect that QE will ultimately inflict losses on the ECB and 
require fiscal coverage down the road (from Germany!) is likely. When QE 
is begun with interest rates so low, it is more likely that when the QE-accumulated
assets are liquidated their yields will be higher and their prices lower, inflicting
loss on the central bank. This, I think, is the reason for ongoing German opposition to QE.
The more that QE is needed, the more that markets respond by pushing yields lower, 
increasing the financial risk of a QE operation - creating a sort of financial 
markets Catch 22. QE may or may not revive Europe. But its instruments are likely
to inflict dangerous losses on the ECB itself, unless the ECB takes steps to limit
these losses. It could keep QE very small so that the losses are negligible or only
it could accumulate relatively short term assets.  In either case the bang from QE
would be diminished. 
</p><p>
<b>Policy issues for 2015</b>
It seems that despite unanimity, the ECB may have a hard time putting Draghi's 
words into effective action. Meanwhile, few community members show any real
strength and several important members are showing a degrading trend for MFG,
enough to impart that trend to the EMU has a whole.
</p><p>
My caution for 2015 is to be careful about getting too optimistic about (1)
what the ECB will do, and (2) what impact that will have. Meanwhile, the stimulus
from lower energy prices is at the behest of Saudi Arabia whose own eventual
interests are NOT to keep prices so low. We should be careful about
depending too much on the kindness of strangers.  
</p>

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Weakness is a problem for the European Monetary Union and it has been a problem of increasing magnitude - if not worry- over the course of 2014. But a bigger problem for EMU is divergence. In 2013 the divergence among EMU member [...]

EMU PMI Gauges Weaken as Divergence Reappears

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<p>
The ISM Report on Business Manufacturing Index decreased 3.2 points in December to 55.5 from November's 58.7, indicating somewhat slower but still expanding activity in the manufacturing sector.  Expectations in the Action Economics Forecast Survey had looked for a smaller decline, to 57.5.  In 2014 as a whole, the index averaged 55.8, the highest annual number since 57.3 in 2010.  The ISM indexes are diffusion measures, where readings above 50 indicate expansion and those below 50, contractions.
</p><p>
The December decrease in the overall index included reductions in three of the components: new orders, production and inventories.  New orders, while still expanding on balance, did drop from 66.0 in November to 57.3 last month; the proportion of firms reporting better order flow fell from 38% to 25% and those with falling orders increased from 15% to 18%.  The production index fell to 58.8 in December from 64.4 the prior month.  Inventories showed an outright decline last month, and at 45.5, compared to 51.5 in November. The share of firms with larger inventories went down from 21% to 17%, while those with smaller stocks rose from 18% to 26%, the highest number since last January.
</p><p>
Other components did show improvements in December. Employment moved to 56.8 from 54.9. During the last ten years, there has been an 88% correlation between this index level and the m/m change in factory sector payroll employment. Supplier deliveries increased to 59.3 from 56.8, indicating that more firms were waiting longer for suppliers to provide materials, a sign of increased activity at the suppliers.
</p><p>
After a gain in November to a seven-month high of 55.0, order backlogs basically retraced that gain, moving to 52.5.
</p><p>
The prices paid index showed an outright decline in December for a second consecutive month, and that decline was more widespread as the index fell another six points to 38.5 from 44.5. The share of firms paying lower prices rose from 25% to 35% and those paying higher prices edged down from 14% to 12%.
</p><p>
The figures from the Institute for Supply Management (ISM) are found in Haver's <b> USECON</b> database. The Action Economics expectations number is in the <b>AS1REPNA</b> database.
</p>

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      <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM
        Nonmanufacturing Survey (SA)</a></th>
      <th scope="col" >Dec</th>
      <th scope="col" >Nov</th>
      <th scope="col" >Oct</th>
      <th scope="col" >Dec'13</th>
      <th scope="col" >2014</th>
      <th scope="col" >2013</th>
      <th scope="col" >2012</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td class="firstcol" >Composite Index</td>
      <td  >55.5</td>
      <td  >58.7</td>
      <td  >59.0</td>
      <td  >56.5</td>
      <td  >55.8</td>
      <td  >53.9</td>
      <td  >51.8</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;&nbsp; New Orders</td>
      <td  >57.3</td>
      <td  >66.0</td>
      <td  >65.8</td>
      <td  >64.4</td>
      <td  >59.2</td>
      <td  >57.2</td>
      <td  >53.1</td>
    </tr>
      <tr>
      <td class="firstcol" >&nbsp;&nbsp; Production</td>
      <td  >58.8</td>
      <td  >64.4</td>
      <td  >64.8</td>
      <td  >61.7</td>
      <td  >59.5</td>
      <td  >57.7</td>
      <td  >53.8</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;&nbsp; Employment</td>
      <td  >56.8</td>
      <td  >54.9</td>
      <td  >55.5</td>
      <td  >55.8</td>
      <td  >54.5</td>
      <td  >53.2</td>
      <td  >53.8</td>
    </tr>
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      <td class="firstcol" >&nbsp;&nbsp; Supplier Deliveries (NSA)</td>
      <td  >59.3</td>
      <td  >56.8</td>
      <td  >56.2</td>
      <td  >53.7</td>
      <td  >55.0</td>
      <td  >51.9</td>
      <td  >50.0</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;&nbsp; Inventories</td>
      <td  >45.5</td>
      <td  >51.5</td>
      <td  >52.5</td>
      <td  >47.0</td>
      <td  >50.8</td>
      <td  >49.4</td>
      <td  >48.2</td>
    </tr>
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      <td class="firstcol" >Prices Paid Index (NSA)</td>
      <td  >38.5</td>
      <td  >44.5</td>
      <td  >53.5</td>
      <td  >53.5</td>
      <td  >55.8</td>
      <td  >53.8</td>
      <td  >53.2</td>
    </tr>
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The ISM Report on Business Manufacturing Index decreased 3.2 points in December to 55.5 from November's 58.7, indicating somewhat slower but still expanding activity in the manufacturing sector. Expectations in the Action Economics [...]

U.S. ISM Manufacturing Index Slows in December; 2014 Best Year Since 2010

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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Tom Moeller

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Retail gasoline prices for all grades slipped to $3.15 per gallon (-1.3% y/y), on average, in the week ended November 3 after rising to $3.16 in the previous week. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. Haver Analytics seasonally adjusts the retail prices of regular grade gasoline. That price held at $3.05 last week versus $3.05 in the previous week.

The price of West Texas Intermediate crude oil rose to $60.70 per barrel (-11.2% y/y) in the week ended October 31 after improving to $59.43 per barrel in the prior week. It was the highest price in three weeks but prices remained below a recent high of $74.17 during the third week of June. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $61.05 per barrel. The price of European Brent crude increased to $65.02 per barrel (-10.5% y/y) in the week of October 31 after rising to $63.22 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. Yesterday, the price was $65.79 per barrel.

Natural gas prices rose to an average $3.43/mmbtu (88.5% y/y) in the week ended October 31 after rising to $3.25/mmbtu in the prior week. The rise left prices at the highest level since the second week of April and well above the low of $1.40/mmbtu in the week of March 15, 2024. Yesterday, the price was $3.37 per mmbtu.

Gasoline demand declined 4.2% y/y in the four weeks ending October 24, following a 3.6% y/y decline in the prior four weeks. Demand for all petroleum products weakened 0.9% y/y in the four weeks ending October 24, after slipping 0.1% y/y in the previous four-week period. Crude oil input to refineries declined 1.7% y/y in the four weeks ending October 24, after a 0.3% y/y gain in the prior four weeks.

Gasoline inventories ease 0.1% y/y in the week ending October 24 following a 1.5% y/y gain in the prior week. Residual fuel oil inventories fell 10.0% y/y in the October 24 week after falling 13.0% y/y in the prior week. Working higher, crude oil inventories rose 1.7% y/y in the week of October 24 after rising 2.6% y/y in the previous week.

Measured in days’ supply, gasoline inventories fell to 24.3 days in the week of October 24. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil held steady at 26.7 days in the week of October 24. The supply remained below a recent 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** and **USENERGY** databases.

- Gasoline prices are minimally changed.
- Crude oil costs rise further.
- Natural gas prices strengthen.

U.S. Energy Prices Are Mixed in Latest Week

251103F4.jpg

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U.S. light vehicle sales dove 6.9% (-4.5% y/y) in October to 15.48 million units (SAAR) after holding steady at 16.62 million units in September. Sales fell broadly. 

Light truck sales slid 6.9% (-1.4% y/y) in October to 12.90 million units, after rising 0.9% in September. Purchases of domestically-made light trucks fell 7.9% (+1.4% y/y) to 10.10 million units, the lowest level since February, after rising 3.4% in September. Sales of imported light trucks fell 2.8% (-10.3% y/y) to 2.80 million units, following a 7.4% September decline.

Trucks’ 83.3% share of the light vehicle market last month was steady with September and compared to 82.6% in August, and to 80.7% in October of last year. The share has averaged 82.4% so far this year versus 56.5% ten years earlier.

Passenger car sales declined 6.9% (-17.6% y/y) last month to 2.58 million, after falling 4.8% in September. Purchases of domestically-produced cars fell 7.2% (-16.5% y/y) last month to 1.93 million units, after weakening 7.1% in September. Imported auto sales declined 4.5% (-22.0% y/y) to 0.64 million units after holding steady in September.

Imports' 22.2% share of the U.S. light vehicle market rose from 21.4% in September. These compared to a high of 26.3% in November of 2023. Imports' share of the passenger car market edged up to 24.8% last month from 24.2% in September. It reached a high of 38.1% in September 2021. Imports' share of the light truck market increased to 21.7% last month from 20.8% in September.

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

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- Light truck sales and auto purchases decline m/m.
- Total sales decline sharply y/y.
- Imports' market share declines.

U.S. Light Vehicle Sales Fall Sharply in October

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Factory sector activity remains under pressure. The ISM U.S. manufacturing PMI declined to 48.7 in October after rising to 49.1 during September from 48.7 in August, according to the Institute for Supply Management. These figures are below the 50 expansion-contraction dividing line. As a result, they continue to indicate that the U.S. manufacturing sector weakened for the eighth consecutive month. The reading remained remain above, however, a low of 46.9 in October of last year. A November index of 49.4 had been expected in the Action Economics Forecast Survey.

The production component declined to 48.2 last month after rising to 51.0 in September. It remained increased from an April low of 44.0. A lessened 27.3% (NSA) of respondents reported higher production while an increased 22.0% reported lower output levels. The inventory reading fell to a 12-month low of 45.8 from 47.7 in September. A lessened 13.2% (NSA) of respondents raised inventories while a higher 21.7% shed them.

Working higher, the new orders index rose to 49.4 during October from 48.9 in September. An increased 20.4% (NSA) of respondents reported new orders improvement while 26.0% reported a decline. The employment index increased to a five-month high of 46.0 last month after rising to 45.3 in September. An increased 13.1% (NSA) of respondents more hiring while 22.3% reported less. The supplier delivery index rose to 54.2 in October from 52.6 in September. Twelve percent (NSA) of respondents reported slower product delivery speeds while 3.2% reported a quickening.

The prices index weakened to 58.0 (NSA) during October from 61.9 in September. It was below a high of 69.8 in April, and well above its low of 39.4 in December 2022. A lessened 27.3% of respondents reported higher prices, a nine month low, while an increased 8.7% reported lower.

In other series, the export orders index rose to a seasonally adjusted 44.5 in October after falling sharply to 43.0 in September. It remained up from 40.1 May low. The imports index edged up to 45.2 last month from 44.7 in September. The index is below a high of 52.6 in February.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Decline reverses all of September increase.					
- Lower production offsets new orders rise.
- Price index falls to nine-month low.

U.S. ISM Manufacturing PMI Eases in October; Price Index Declines Sharply

Tian Yong Woon

This week, we review a wave of key developments across Asia following US President Trump’s tour of the region last week. A central theme concerned countries courting closer ties with the US to avoid harsher actions, while also boosting regional cooperation amid trade barriers and scrutiny of China. This push for closer ties has manifested through new and updated trade agreements—ironically driven by ongoing uncertainty in global trade and supply chains, with US–China relations at the core. A major outcome of Trump’s trip was the new US–China trade agreement, which included the US halving tariffs on Chinese fentanyl-related products to 10%, while China suspended rare earth export controls and resumed soybean purchases vital to the US (chart 1). Perhaps more importantly, the deal signalled a small conciliatory shift and avoided a potentially worse outcome. Beyond the US–China agreement at the APEC Summit in South Korea, the US–South Korea trade deal also gained more clarity. Under the deal, US auto tariffs on South Korea has fallen to 15%, matching the rate applied to Japan and likely providing relief for South Korean automakers (chart 2).

Trump’s visit to Japan was another highlight. Relations with new Prime Minister Takaichi got off to a strong start, and further details emerged on Japan’s previously cited $550 billion investment commitment in the US—substantial even relative to Japan’s existing direct investment there (chart 3). However, specifics on the timing and implementation of the investment remain limited. Meanwhile, at the ASEAN Summit earlier in the week, aside from Trump’s engagements, the bloc officially welcomed its 11th member—Timor-Leste—the first new member in decades—granting it access to the bloc’s mechanisms and potentially supporting a catch-up in economic development (chart 5). Looking ahead, the focus on China and Japan is likely to continue, with China set to release its October trade (chart 6) and CPI data, and Japan scheduled to report employee wages and household spending.

**The APEC summit**
The US and China made a modest but meaningful step forward on trade following the Trump–Xi meeting at the APEC Summit in South Korea. The US lowered tariffs on Chinese fentanyl-related products to 10% from 20% and suspended enforcement of rules targeting subsidiaries of blacklisted firms—previous points of contention for Beijing. In return, China pledged stronger efforts to curb fentanyl flows, paused rare earth export controls for a year, and resumed purchases of US soybeans—significant given its historically large share of US export demand (chart 1). While not a comprehensive reset, these moves eased immediate tensions and helped avert more severe outcomes, including Trump’s previously threatened 100% tariff hike. The tone of the meeting also suggests a more conciliatory shift, though relations remain fragile and the risk of renewed escalation is still material.

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Beyond the headline-grabbing US–China trade deal, the APEC Summit in South Korea also saw the US reach a trade agreement with South Korea. Under the deal, US tariffs on South Korean autos and auto parts have fallen to 15% from 25%, matching the US tariff rate on Japanese autos and providing relief to South Korea’s sizable automotive export sector (chart 2). The agreement also clarified South Korea’s supposed $350 billion investment in the US: $200 billion in cash, capped at $20 billion per year to avoid currency market distortions, with the remaining $150 billion directed toward shipbuilding cooperation. While also not a major breakthrough, the deal represents incremental progress, addressing prior uncertainties and signalling steps toward a more favourable trade framework.

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**US President Trump’s Japan Visit**
Turning to US President Trump’s visit to Japan last week, new Prime Minister Takaichi appears to have gotten off to a strong start, with Trump hailing US–Japan relations as entering a “NEW GOLDEN AGE.” The two countries signed several agreements, including a Technology Prosperity Deal, and deepened cooperation on critical minerals and rare earths. Japan’s previously vague $550 billion investment commitment in the US is now somewhat clearer: up to $332 billion will support critical US infrastructure, $30 billion will target AI, and $15 billion will go toward electronics and supply chains, among other areas. While the headline figure is substantial—even relative to Japan’s already significant direct investment assets in the US (chart 3)—the open-ended nature of the commitment and the lack of a clear timeline leave its actual impact uncertain.

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**The ASEAN summits**
Whilst US President Trump’s attendance at the ASEAN–US Summit in Malaysia dominated headlines, there were also several other notable developments at last week’s ASEAN meetings in Kuala Lumpur. Most prominently, Timor-Leste was officially admitted as ASEAN’s eleventh member, following a two-decade accession process during which the country actively aligned its political and economic frameworks with ASEAN standards. Membership grants Timor-Leste access to the bloc’s broader security and economic mechanisms and could open further avenues for trade, investment, and development cooperation. Nonetheless, the country still has considerable ground to make up relative to its new ASEAN peers, particularly in terms of both GDP and GDP per capita (chart 4).

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The accession of Timor-Leste into ASEAN aside, last week’s summits also brought a number of economic developments for the bloc. More concretely, ASEAN and China signed an upgrade to their free trade agreement last week, bringing the deal to so-called version 3.0. The upgraded deal (ACFTA 3.0) introduces commitments in new areas such as Digital Economy, Green Economy, and Supply Chain Connectivity, among other themes. And notably, just as the US and ASEAN have found common ground to collaborate in fields such as those relating to rare earths, given how the US has seen vulnerabilities arising from this space given China’s dominance in the field, China has taken the year’s US-China frictions to foster closer ties with its neighbours in the region, including the collectively sizable ASEAN bloc. Just by the trade dimension alone, China-ASEAN-11 trade has growth significantly this year (chart 2), although the economies’ total trade with the US also rose, and at a more significant pace, despite tariff measures.

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Looking ahead, investors will focus on a series of China-related releases this week, notably the Caixin PMI readings, as well as October trade and CPI inflation data. These indicators will help gauge the economy’s performance under ongoing US tariffs and assess domestic demand and supply conditions, all in the broader context of recent US–China interactions during Trump’s Asia tour. In Japan, attention will turn to updated data on employee wages and household spending, which—together with developments in the external environment—will shape expectations for the Bank of Japan’s future policy stance. Elsewhere in the region, investors will watch interest rate decisions from Australia and Malaysia, where rates are expected to remain unchanged, as well as GDP readings from Indonesia and the Philippines.

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Asia

Economic Letter from Asia: Come Together

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) improved 0.3% during the four weeks ended October 31, 2025 after holding steady in the prior four week period. The index increased 0.8% y/y.

**Metals** group prices increased 4.3% (6.1% y/y) in the last four weeks as the cost of aluminum rose 7.0% (9.5% y/y). Copper scrap prices improved 6.5% (16.4% y/y) while zinc prices strengthened 6.8% in four weeks (3.0% y/y). Steel scrap prices rose 2.3% (-6.6% y/y) and tin prices increased 2.2% (16.1% y/y). Lead prices improved 1.1% (unchanged y/y) in four weeks.

Prices in the **Textile** group increased 1.2% during the last four weeks, and rose 2.4% y/y. The cost of burlap strengthened 14.5% in the last four weeks while surging 37.6% over the last year. Offsetting this rise, cotton prices fell 1.2% and declined 5.8% y/y.

**Miscellaneous** group prices weakened 3.0% in the last four weeks, unchanged y/y, as framing lumber prices fell 6.5% (+4.1% y/y). The cost of tallow, used for frying & baking, declined 13.1% (+11.2% y/y) in four weeks. Offsetting this weakness, natural rubber prices held steady (-10.1% y/y).

Prices in the **crude oil & benzene** group declined 1.7% (-9.3% y/y) in the last four weeks. The cost of West Texas Intermediate crude oil fell 3.1% in four weeks to $60.80 per barrel and declined 11.7% y/y. The price was increased from a low of $58.47 in the third week of the month. The price of the petro-chemical benzene fell 2.9% (-23.3% y/y) in four weeks.

**Excluding crude oil**, the industrial commodity price index rose 0.5% (1.6% y/y) over the last four weeks, the same as during the prior four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Metals and textile prices strengthen.
- Framing lumber costs backpedal.
- Crude oil prices weaken.

Economy in Brief: January 2015

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