Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071012d.jpg" width="353">
U.S. September retail sales rise of 0.6% beat forecasts for a 0.2% uptick. The prior month&#39;s 0.3% gain was unrevised.
A 1.2% advance in motor vehicle purchases added to a 3.3% August rise.
Excluding autos, sales rose 0.4% and offset a 0.4% decline in August. A 0.3% gain had been expected.
Nonauto retail sales less gasoline rose just 0.2% (4.5% y/y) after an unrevised 0.1% decline during August. The movement followed a 0.8% July rise but no change in June.
Gasoline service station sales surged 2.0% but gas prices at the pump rose just 0.6% to an average $2.80 per gallon (9.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071012e.jpg" width="353">
Sales of discretionary items were generally weak last month. Furniture, home furnishings &amp; appliance stores rose just 0.1% (1.7% y/y) after a 0.4% August rise. Sales at general merchandise stores fell 0.1% (+3.7 y/y) and that gain is down from 5%+ increases this Summer. Apparel store sales fell 0.4% (+2.4% y/y), the third monthly decline in the last four
Building material sales recovered 0.8% (-0.6% y/y), perhaps reflecting the warm September weather.
Sales of nonstore retailers (internet &amp; catalogue) surged 1.1%% (8.7% y/y) and recovered from a 0.9% drop the prior month.
A Taylor Rule and the Greenspan Era from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2007/mehra_minton.pdf"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>0.6%</td>
<td>0.3%</td>
<td>5.0%</td>
<td>6.2%</td>
<td>6.6%</td>
<td>6.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>3.9%</td>
<td>7.3%</td>
<td>7.6%</td>
<td>7.1%</td>
</tr>
</tbody>
</table>


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U.S. September retail sales rise of 0.6% beat forecasts for a 0.2% uptick. The prior month's 0.3% gain was unrevised. A 1.2% advance in motor vehicle purchases added to a 3.3% August rise. Excluding autos, sales rose 0.4% and offset a [...]

U.S. Retail Sales Beat Forecasts, But Nonauto Sales Weak

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071012a.jpg" width="353">
Finished producer prices rose 1.1% last month and recouped virtually all of the 1.4% decline during August. The increase, led by higher food &amp; energy prices, topped consensus expectations for a 0.4% rise.
Energy prices were strongest and surged 4.1% after the prior month&#39;s 6.6% drop. Gasoline prices jumped 8.4% (21.6% y/y) after a 13.8% August drop and natural gas prices rose 3.2% (1.5% y/y).Home heating oil prices increased 2.0% (8.9% y/y.
Food prices jumped 1.5% (5.8% y/y) after four consecutive months of decline. Much higher prices for beef, eggs and fresh fruit led the advance last month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071012c.jpg" width="353">
The core finished goods PPI increased a modest 0.1% which was half the expected 0.2% rise. The three month change of 0.4% was its lowest since May. 
A 0.5% increase in household furniture prices was offset by a 1.8% decline in passenger cars.
Capital equipment prices also fell 0.1% after two months of 0.1% increases. Prices for light motor trucks fell 0.5% and civilian aircraft prices rose just 0.3%.
Intermediate goods prices made up a piece of the prior month&#39;s 1.2% decline with a 0.4% increase. The index excluding food &amp; energy prices rose a small 0.1% as prices for steel mill products fell another 1.2%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071012b.jpg" width="353"> 
The crude materials PPI rose just 0.1%, the weakness due to a 2.0% decline in energy led by lower natural gas prices. The core crude materials PPI jumped 1.6% after a 1.3% August increase. Iron &amp; steel scrap prices surged 5.8%. 
John Taylor&#39;s Contributions to Monetary Theory and Policy are today&#39;s remarks by Fed Chairman Ben S. Bernanke and they are available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20071012a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>1.1%</td>
<td>-1.4%&nbsp;</td>
<td>&nbsp; 4.4%&nbsp;</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.2%</td>
<td>&nbsp;2.0%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.4%</td>
<td>-1.2%</td>
<td>4.0%</td>
<td>6.4%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>1.7%</td>
<td>6.0%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>0.1%</td>
<td>&nbsp;-3.0%&nbsp;</td>
<td>&nbsp;11.4%</td>
<td>1.4%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.6%</td>
<td>1.3%</td>
<td>&nbsp;14.0%</td>
<td>20.9%</td>
<td>4.9%</td>
<td>&nbsp;26.5%</td>
</tr>
</tbody>
</table>


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Finished producer prices rose 1.1% last month and recouped virtually all of the 1.4% decline during August. The increase, led by higher food & energy prices, topped consensus expectations for a 0.4% rise. Energy prices were strongest [...]

U.S. PPI Strong, Core Weak

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011i.jpg" width="353">
The South African Reserve Bank bucked the current trend among world central banks by tightening monetary policy today. They raised their key policy rate, the repurchase rate, by 50 basis points to 10.50%. The Bank conducts an inflation-target style monetary policy, and the specific CPI measure, &quot;CPIX&quot;, has been running above the upper band of the target 3%-6% range since April.
The tightening cycle began in June 2006, when inflation started to move higher and the Bank first became concerned that it was indeed likely to breach the upper end of the target range. This was occurring in the context of consistent economic growth at around a 5% annual rate, but a declining currency, this latter adding to inflation worries, according to the Bank&#39;s monetary policy statement at the time. Thus, it raised the key repo rate from 7% to 7.5% and has continued to increase the rate in 0.5% steps to today&#39;s 10.5% level.
As we browsed the South African data in Haver&#39;s EMERGEMA database, we were impressed with the breadth as well as the persistence of good growth trends in the country. Consumer spending has been strong, in excess of 7% growth during 2006 and into 2007, although it has moderated more recently, with &quot;just&quot; 5.5% expansion in Q2 and evidence of some flattening in monthly retail sales. However, capital investment has remained quite vigorous. A nearly 22% rate of expansion in Q1 was hardly sustainable, but the slowing in Q2 still left it at over a 14% annualized pace then. In addition to the real demand growth, credit growth has been rapid. Monetary financial institutions&#39; lending to the &quot;domestic private sector&quot; has been surging at rates of 20% - 25% over the past two years.
Thus, it is not surprising that the central bank would want to take action to rein in inflationary forces. At the same time, they are cognizant of world financial factors as well, and the opening lines of the statement accompanying today&#39;s rate hike (found <a href="http://www.reservebank.co.za/internet/Publication.nsf/WCEV/F5137D25EB68694542257371004640EB/">here</a>) indicate that some settling of world markets had the highest priority in their decision-making. They note that the Johannesburg Stock Exchange All Shares Index has reached new highs and that the rand, which had suffered a bit during the worst of the turmoil, has also recovered. They seem then today to be taking advantage of a relatively attractive international financial position presently to get their interest rates where they want them for the longer-term benefit of their domestic economy.
In contrast, the Bank of Japan, in its monetary policy meeting today, determined that it should not rock the boat in the sea of its domestic markets and left its own rates unchanged.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011j.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011k.jpg">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">SOUTH AFRICA: Select Indicators</th>
<th scope="col">Latest</th>
<th scope="col">Q2 2007</th>
<th scope="col">Q1 2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP Growth, SAAR1</td>
<td>--</td>
<td>4.5</td>
<td>4.7</td>
<td>5.0</td>
<td>5.1</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumption</td>
<td>--</td>
<td>5.5</td>
<td>7.4</td>
<td>7.3</td>
<td>6.6</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Domestic Fixed Investment</td>
<td>--</td>
<td>14.2</td>
<td>21.8</td>
<td>12.7</td>
<td>9.6</td>
<td>8.9</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan=7>&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Repo Rate</td>
<td>10.50</td>
<td>9.13</td>
<td>9.00</td>
<td>7.63</td>
<td>7.15</td>
<td>7.81</td>
</tr>
<tr class="odd">
<td class="firstcol">CPIX2 Yr/Yr</td>
<td>6.3</td>
<td>6.4</td>
<td>5.2</td>
<td>4.6</td>
<td>3.9</td>
<td>4.3</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI - Food Yr/Yr</td>
<td>11.3</td>
<td>9.1</td>
<td>8.0</td>
<td>6.7</td>
<td>2.1</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Credit Growth3</td>
<td>22.9</td>
<td>24.8</td>
<td>24.1</td>
<td>25.8</td>
<td>19.5</td>
<td>13.8</td>
</tr>
</tbody>
</table>
1 Quarters are Qtr/Qtr-SAAR; annual figures are based on NSA data 
2 CPI excluding mortgage interest rates, the measure used by the Central Bank. Yr/Yr inflation based on NSA data.
 3Lending to domestic private sector borrowers


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The South African Reserve Bank bucked the current trend among world central banks by tightening monetary policy today. They raised their key policy rate, the repurchase rate, by 50 basis points to 10.50%. The Bank conducts an [...]

Tighter Monetary Policy in South Africa, Where Inflation, Growth and Credit Expansion All Look Strong

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011h.jpg" width="353">
The UK RICs survey is a net balance survey and therefore samples the breadth of gains or drops across the area and dimension surveyed. In September the net balance for prices fell to -15 from -3 in August, a sharp month-to-month drop.Both sales expectations and prices are now dropping. Price expectations are dropping as well and the reading for expectations lies below that for prices, a signal in the past that price reductions could continue for some time. The RICs assessment for housing is quite negative. It&#146;s the worst since late 2005 for prices and since early 2003 for sales.


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th colspan=7 scope="col">RICS: House Prices and Expectations for Prices and Sales</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3MoAvg</td>
<td>6MoAVg</td>
<td>12MoAvg</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>-15</td>
<td>-3</td>
<td>11</td>
<td>-2</td>
<td>9</td>
<td>22</td>
</tr>
<tr class="odd">
<td class="firstcol">Price Expectations</td>
<td>-20</td>
<td>-13</td>
<td>-9</td>
<td>-14</td>
<td>-5</td>
<td>11</td>
</tr>
<tr>
<td class="firstcol">Sales expectations</td>
<td>-9</td>
<td>-4</td>
<td>-6</td>
<td>-6</td>
<td>2</td>
<td>11</td>
</tr>
<tr class="odd">
<td class="firstcol">New Sales</td>
<td>-28</td>
<td>-20</td>
<td>-17</td>
<td>-22</td>
<td>-11</td>
<td>-3</td>
</tr>
</tbody>
</table>


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The UK RICs survey is a net balance survey and therefore samples the breadth of gains or drops across the area and dimension surveyed. In September the net balance for prices fell to -15 from -3 in August, a sharp month-to-month [...]

UK RICS Survey Shows Price Drop and Expectations Lower for Sales and Future Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011g.jpg" width="353">
While auto sales have revived in August, the rest of retail sales remain lethargic.In real terms retail sales excluding auto sales fell by 1.6% in August. For the third quarter, sales are off to a weak start as nominal retail sales excluding autos are off at a 0.9% rate; real retail sales excluding autos are off at a 1% annual rate. Food and tobacco plus clothing and footwear categories are off sharply in the new quarter as well. But auto and parts sales are up at a strong 25% annual rate. Since The German VAT was hiked in January retail sales are still hampered.



<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" colspan=8>German Real and Nominal Retail Sales</th>
<th scope="col">New QTR</th>
</tr>
</thead>
<tbody>
<tr class="grey2">
<td class="firstcol">Nominal</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>SAAR</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.4%</td>
<td>0.7%</td>
<td>1.4%</td>
<td>3.0%</td>
<td>-0.9%</td>
<td>-2.1%</td>
<td>7.0%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">MV and Parts</td>
<td>3.6%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>19.1%</td>
<td>26.3%</td>
<td>-0.4%</td>
<td>17.5%</td>
<td>25.6%</td>
</tr>
<tr>
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>-1.2%</td>
<td>-0.1%</td>
<td>0.8%</td>
<td>-1.8%</td>
<td>-1.8%</td>
<td>-1.3%</td>
<td>5.1%</td>
<td>-5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing footwear</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>5.5%</td>
<td>23.8%</td>
<td>-1.9%</td>
<td>-3.4%</td>
<td>11.8%</td>
<td>-3.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan=9>Real</td>

</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.6%</td>
<td>0.7%</td>
<td>1.4%</td>
<td>2.3%</td>
<td>-1.3%</td>
<td>-3.0%</td>
<td>6.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>


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While auto sales have revived in August, the rest of retail sales remain lethargic.In real terms retail sales excluding auto sales fell by 1.6% in August. For the third quarter, sales are off to a weak start as nominal retail sales [...]

Still No Life in German Retail Sales

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011d.jpg" width="353">U.S. September import prices jumped 5.4% as petroleum prices surged. Consensus expectations had been for a 1.0% increase.
Some stabilization of that upward pressure seems likely for October since so far in the month, Brent crude oil prices have averaged $77.71 per barrel versus an average of $77.02 last month.
Less petroleum, import price inflation seemed tame posting a 0.2% decline after 0.1% dip in September.
The lower dollar, down by nearly one third since early 2002, may nevertheless be having an effect in raising import prices. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a reduced 47% against a broader basket of currencies.
The effect of the lower dollar can be seen in the turnaround in capital goods prices. Less the high tech sector, where prices continue to fall, capital goods prices rose 2.9% y/y in September, an acceleration from the less than one percent gains early last year. Consumer goods prices were rising at a 1.5% y/y rate in September versus a modest deflation of prices as recently as early 2006. Inflation of motor vehicle &amp; parts prices also has picked up to 1.1% from 0.2% early last year.
Why a Dollar Depreciation May Not Close the U.S. Trade Deficit from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci13-5/ci13-5.html">here</a>.
Prices for industrial supplies &amp; materials excluding petroleum indeed fell 1.4% (+3.6% y/y) as inflation of chemical prices (+3.4% y/y) and iron &amp; steel mill products was under control. In fact, prices for most metal products has decelerated with the downturn in the U.S. housing market. The detailed import price series can be found in the Haver USINT database. 
Overall export prices rose 0.3% and annual increases of roughly 4% have been stable for at least the last year. Prices for agricultural products surged 4.1% (23.3% y/y) but nonagricultural export prices were unchanged (2.9% y/y).
A Falling Dollar: Good News or Bad News? from the Federal Reserve Bank of Atlanta can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=8FBC5CFC-5056-9F12-12DEE2A422FA9E30&amp;method=display_body">here</a>.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011e.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011f.jpg">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>1.0%</td>
<td>-0.3%</td>
<td>5.2%</td>
<td>4.9%</td>
<td>7.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>5.4%</td>
<td>-1.1%</td>
<td>20.1%</td>
<td>20.6%</td>
<td>37.6%</td>
<td>30.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>2.0%</td>
<td>1.7%</td>
<td>2.7%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.3%</td>
<td>0.2%</td>
<td>4.5%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>


</html>

U.S. September import prices jumped 5.4% as petroleum prices surged. Consensus expectations had been for a 1.0% increase. Some stabilization of that upward pressure seems likely for October since so far in the month, Brent crude oil [...]

U.S. Import Price Deflation Ended by Lower Dollar

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011c.jpg" width="353">
Initial claims for unemployment insurance opened the month of October with a reversal of most of prior week&#39;s rise and fell 12,000 to 308,000. The labor Department indicated that there were no special factors that distorted these readings.
The drop exceeded expectations for a decline to 316,000 claims and the four-week moving average of initial claims fell to 310,250 (-1.3% y/y).
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance fell for the third week in the last four by a large 15,000 to 2,521. The drop added to the decline during the prior week which was revised from a slight increase. The latest declines suggest that the pace of rehiring may have picked up.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment was stable at 1.9%, off the peaks in August of 2.0% held for two consecutive weeks at month- end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/06/07 </th>
<th scope="col">09/29/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;308</td>
<td>320</td>
<td>-0.3%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,521</td>
<td>3.7%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance opened the month of October with a reversal of most of prior week's rise and fell 12,000 to 308,000. The labor Department indicated that there were no special factors that distorted these [...]

U.S. Initial Jobless Insurance Claims Down

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: October 2007

Jump to:

U.S. Retail Sales Beat Forecasts, But Nonauto Sales Weak

U.S. PPI Strong, Core Weak

U.S. PPI Strong, Core Weak

Tighter Monetary Policy in South Africa, Where Inflation, Growth and Credit Expansion All Look Strong

UK RICS Survey Shows Price Drop and Expectations Lower for Sales and Future Prices

Still No Life in German Retail Sales

U.S. Import Price Deflation Ended by Lower Dollar

U.S. Initial Jobless Insurance Claims Down