Tom Moeller

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U.S. light vehicle sales rose 6.2% (2.5% y/y) to 16.13 million units (SAAR) in September following a 5.3% August decline to 15.19 million. It was the highest level of sales in four months. In Q3, the 15.79 average level of sales compared to 15.86 million units in Q2 and 15.44 million in Q1. The rise in September vehicle sales accompanied upwardly-revised 3.1% y/y growth in real disposable income through August which compared to 4.7% growth logged last year.

Sales of light trucks rose 5.6% (3.1% y/y) during September to 12.83 million units (SAAR) and recovered all but a small piece of the August decline. Purchases of domestically-made light trucks rose 5.8% (3.5% y/y) to 9.78 million units, after falling 4.6% in August. Sales of imported light trucks rose 4.8% (1.7% y/y) to 3.05 million units following August’s 7.6% weakening.

Trucks 79.5% share of the light vehicle market last month compared to 80.0% in August and 79.2% in September of last year. The share was 79.4% during all of 2023.

Auto sales rose 8.2% (0.6% y/y) to 3.30 million units (SAAR) in September following a 4.7% August decline. Purchases of domestically-produced cars improved 7.2% (3.5% y/y) last month to 2.38 million units after falling 5.9% in August. Sales of imported autos improved 10.8% (-5.2% y/y) to 0.92 million units after holding steady in August.

Imports' share of the U.S. light vehicle market held steady at 24.6% in September. It compared to a May 2023 low of 22.3% and reached a high of 26.3% in November of last year. Imports' share of the passenger car market rose to 27.9% last month from 27.2% in August. It reached a high of 37.9% in September 2021. Imports' share of the light truck market eased to 23.8% last month from 24.0% in August.

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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- Both light truck and passenger car sales rebound.
- Domestic vehicle sales improve along with imports.
- Imports' market share edges sideways.

U.S. Light Vehicle Sales Increase in September

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Job openings increased 329,000 (-14.1% y/y) during August to 8.040 million after falling 199,000 during July, revised from a 237,000 decline and dropping an unrevised 320,000 in June, according to the Job Openings and Labor Turnover Survey. The number of job openings have been trending downward since early-2022 and the latest reading is well below the recent peak of 12.182 million reached in March 2022. The job openings rate improved to 4.8% from 4.6% in July. It remains well below a high of 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings.

Private sector openings rose 227,000 in August (-14.5% y/y) to 7.066 million after falling 55,000 in July. The private sector job openings rate rose to 5.0% from 4.8% in July. It was 5.8% twelve months earlier and 7.9% at its peak in March 2022. The level of leisure & hospitality openings rose 8.3% (-11.6% y/y) while information openings increased 8.5% (-11.4% y/y). Private educational & health service openings weakened 1.1% (-19.4% y/y) and financial sector openings weakened 11.8% (-33.3% y/y). Trade, transportation & utilities openings increased 8.9% (-12.5% y/y) while openings in professional & business services rose 4.2% (-1.8% y/y). Manufacturing job openings edged 0.2% higher (-15.8% y/y) while construction openings surged 59.5% (-4.1% y/y). Mining & logging openings rose 8.7% (-10.7% y/y). Government sector openings improved 11.8% (-10.6% y/y).

Private sector hiring decreased 1.9% in August (-9.5% y/y) to 4.970 million after rising 3.4% in July. The private sector hiring rate held steady at 3.7% and compared to 4.1% twelve months earlier. It has been trending lower from its 7.1% high in May 2020. Leisure and hospitality hiring fell 4.2% in August (-22.4% y/y). Financial sector hiring fell 5.2% (+2.8% y/y) and the number of professional & business services jobs jumped 17.2% (3.1% y/y). Trade, transportation & utilities hiring weakened 12.8% (-12.3% y/y) while private educational & health services jobs were off 3.5% (-11.5% y/y). Information sector hiring weakened 7.7% (+9.1% y/y). Construction sector hiring dropped 5.8% (-9.6% y/y) and factory sector hiring fell 13.0% (-21.6% y/y). Government hiring held steady (-11.9% y/y) in August, including a 12.9% rebound (-18.6% y/y) in federal government hiring which recovered half of the July decline.

Total job separations fell 6.0% (-10.9% y/y) to 4.997 million in August after rising 4.5% in July. The separation rate fell to 3.1% from 3.4%. Private sector separations declined 5.8	% (-11.2% y/y) after a 4.1% July increase. Manufacturing sector separations were off 7.5% (-16.6) while construction sector separations eased 3.4% (-11.2% y/y). Trade, transportation & utilities separations fell 14.2% (-14.8% y/y) while leisure & hospitality separations were down 14.9% (-25.7% y/y). Government sector job separations fell 9.0% (-6.0% y/y).

Private sector layoffs moved 6.0% lower to 1.530 million (-3.3% y/y) in August, led by a 21.1% falloff (-20.4% y/y) in the leisure & hospitality sector. Financial sector layoffs rose 5.6% (58.3% y/y). Trade, transportation & utilities layoffs fell 6.0% (+6.5% y/y) last month. Government layoffs fell 9.3% and were down 3.7% y/y. The private sector layoff rate overall eased to 1.1% and reversed the July increase to 1.2%. The government sector layoff rate was 0.3%. Private sector quits fell 4.8% to 2.909 million (-14.2% y/y). Government quits fell 5.9% to 175,000 (-14.6% y/y). The private sector quits rate eased a reduced 2.1%, down from a high of 3.3% in April 2022.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

- Openings recover modestly after two months of decline, remaining well below 2022 high.
- Hiring reverses most of earlier increase as two years of downward momentum continues.
- Job separations approach four-year low.

U.S. JOLTS: Job Openings Increase in August but Hiring Declines

Sandy Batten

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The ISM Purchasing Managers Index of activity in the manufacturing sector was unchanged at 47.2 in September. This was the sixth consecutive month that the index has remained below the critical 50 level that separates expansion from contraction, an ongoing indication of the adverse impact of tight monetary policy on the manufacturing sector. A small increase to 47.5 in September had been expected by the Action Economics Forecast Survey.

The performance of the component indexes was mixed though generally weak in September. Both the new orders and the production indexes increased in September but remained below the critical 50 level. New orders rose to 46.1 from 44.6 while production increased to 49.8 in September, its highest reading in four months, from 44.8. The employment index weakened to 43.9 from 46.0. Eight percent of respondents increased employment in September, down from 10% in August, while 22.7% reduced employment in September, the highest reading since May 2022. Supplier delivery times slowed in September for the third consecutive month and inventories fell.

The prices index, which is not part of the composite series, fell to 48.3 (NSA) in September, its lowest reading since December 2023, from 54.0 in August. Nearly 13% of respondents reported lower price prices in September, down sharply from 21.4% in August while 16.4% reported lower prices, up from 13.4% in August. Export orders fell to 45.3 in September, the lowest reading since January.

At the industry level, the five manufacturing industries reporting growth in September were: Petroleum & Coal Products; Food, Beverage & Tobacco Products; Textile Mills; Furniture & Related Products; and Miscellaneous Manufacturing. The 13 industries reporting contraction in September were: Printing & Related Support Activities; Plastics & Rubber Products; Wood Products; Apparel, Leather & Allied Products; Primary Metals; Transportation Equipment; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Paper Products; Machinery; Chemical Products; Fabricated Metal Products; and Computer & Electronic Products.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. 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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- The headline index was below the boom-bust 50 level for sixth consecutive month.
- New orders and production indexes increased but remained below 50.
- The employment index fell to further below 50.

U.S. ISM Manufacturing PMI Remained in Contraction Territory in September

Winnie Tapasanun

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The value of construction put in place dipped 0.1% m/m in August after downwardly revised decreases of 0.5% in July (-0.3% initially) and 1.1% in June (+0.04% previously), according to the U.S. Census Bureau. The August reading was the third consecutive m/m decline following a string of gains during the May 2024 to November 2022 period. A 0.2% m/m August increase had been expected in the Action Economics Forecast Survey. The year-on-year rate decelerated to 4.1% in August from 5.3% in July, registering the slowest pace since April 2023’s low of 3.8%. The latest y/y figure was lower than 6.9% in August 2023, having remained below its recent high of 9.8% in January 2024 and a peak of 18.6% in April 2022.

Private construction declined 0.2% (+3.1% y/y) in August following downwardly revised drops of 0.7% in July (-0.4% initially) and 1.4% in June (+0.3% previously). Residential private construction fell 0.3% (+2.7% y/y) in August, the third straight m/m fall, after a 1.0% drop in July. Single-family building slid 1.5% (+0.8% y/y), the fifth consecutive m/m slide, after a 1.9% July decrease; it was 46.0% of the residential private construction. Multi-family building fell 0.4% (-7.5% y/y), the ninth straight m/m fall, on top of a 0.3% July decline; it was 14.2% of the residential private construction. To the upside, home improvement building rose 1.0% (9.4% y/y) in August, the first m/m rise since May, following a 0.1% downtick in July; it was 39.8% of the residential private construction.

Nonresidential private construction eased 0.1% (+3.6% y/y) in August following a 0.4% decline in July and three successive m/m rises. The August easing reflected m/m declines in the following nonresidential private constructions. These included educational (-1.1%; +4.2% y/y), health care (-0.8%; +1.3% y/y), commercial (-0.4%; -14.8% y/y), and utilities (-0.3%; +7.6% y/y). In contrast, the following private constructions rose m/m in August: religious (1.5%; 3.8% y/y), communication (1.3%; -0.2% y/y), transportation (0.8%; 10.3% y/y), lodging (0.6%; -10.6% y/y), manufacturing (0.2%; 18.1% y/y), and office (0.2%; 1.1% y/y). Meanwhile, amusement & recreation private construction held virtually steady (-2.8% y/y) in August following a 2.7% July drop and two consecutive m/m increases.

The value of public construction rose 0.3% (7.8% y/y) in August, the sixth m/m rise in seven months, after an upwardly revised 0.5% rebound in July (+0.1% initially), reflecting gains of 1.6% (4.6% y/y) in residential public construction and 0.3% (7.9% y/y) in nonresidential public construction. The August rise reflected m/m increases in the following nonresidential public constructions. These included health care (3.4%; 8.8% y/y), conservation & development (2.2%; 4.3% y/y), amusement & recreation (1.6%; 24.4% y/y), and public safety (0.8%; 30.7% y/y). Notably, spending on highways & streets, which made up 28.9% of public construction spending, rebounded 1.1% (3.5% y/y) in August, the first m/m increase since March, reversing a 0.6% decline in July. To the downside, the following public constructions fell m/m in August: commercial (-1.5%; +35.2% y/y), office (-1.4%; +6.3% y/y), utilities (-1.2%; +13.8% y/y), water supply (-0.9%; +18.1% y/y), sewage & waste disposal (-0.5%; +4.5% y/y), and transportation (-0.2%; +3.8% y/y). Meanwhile, educational public construction was essentially unchanged (5.7% y/y) in August following two successive m/m declines.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- August construction spending -0.1% m/m (+4.1% y/y); July and June revised down.
- Residential private construction -0.3% m/m, led by a 1.5% decline in single-family building.
- Nonresidential private construction -0.1% m/m, down for the second successive month.
- Public sector construction +0.3% m/m, led by a 1.6% rebound in residential public building.

U.S. Construction Spending Unexpectedly Eases in August, the Third Straight M/M Decline

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Retail gasoline prices for all grades declined to $3.30 per gallon (-16.0% y/y) in the week ended September 30 after holding at $3.31 per gallon. Prices were below the late-April high of $3.79 per gallon and at the lowest level since the first week of February. They also stood well below the all-time high of $5.11 in the week ended June 13, 2022. Prices are increased, however, versus the low of $3.18 per gallon in the third week of December. Retail prices for on-highway diesel fuel remained at $3.54 per gallon (-22.8% y/y). These prices reached a high of $4.63 per gallon in the third week of September of last year.

The average price of West Texas Intermediate crude oil fell to $69.84 per barrel (-23.6% y/y) in the week ended September 27 after rising to $71.77 per barrel in the prior week. Prices were lower than the $91.45 high in the last week of September 2023. They peaked at $142.46 per barrel in the week of September 20. Yesterday, the price of West Texas Intermediate crude oil was $68.17 per barrel. The price of European Brent crude oil eased to $74.07 per barrel (-22.5% y/y) in the week ended September 27 after rising to $74.98 in the prior week. The price of Brent has recently ranged from a low of $73.55 in the week ended June 30, 2023 to a high of $127.40 in the week ended June 10, 2022. Yesterday, the price was $72.35 per barrel.

Natural gas prices rose sharply to an average $2.56/mmbtu (-3.8% y/y) in the week ended September 27 from $2.26 in the prior week. Prices recently touched a high of $2.73/ mmbtu in the second week of June and they remained above their low of $1.40/mmbtu in the second week of March. Prices reached a high of $9.56/mmbtu averaged in the last week of August 2022. Yesterday, the price of natural gas moved higher to $2.65/mmbtu.

Gasoline demand increased 2.1% y/y in the four weeks ended September 20 after improving 1.1% in the prior four weeks. This compares to a high of 4.2% y/y growth at the end of July. Demand for all petroleum products weakened 1.4% y/y in the last four weeks after falling 2.7% y/y in the previous period. Crude oil input to refineries rose 1.1% y/y in the four weeks ended September 20 after a 1.0% y/y increase during the previous four-week period.

Gasoline inventories eased 0.2% y/y in the week of September 20 after rising 1.0% y/y in the prior week. Inventories of residual fuel oil fell 13.7% y/y after declining 7.4% y/y in the previous week. Crude oil inventories, including the Strategic Petroleum Reserve, rose 3.6% y/y in the week of September 20 after increasing 3.7% y/y in the prior week.

Measured in days’ supply, gasoline inventories stood at 24.9 days in the week ended September 20 compared to 25.0 days one week earlier. The recent low was 23.4 days in the week of June 30, 2023. Crude oil inventories slipped to 24.8 days in the week of September 20. These compare to a recent high of 31.9 days in the week of March 3, 2023 and a low of 25.0 days in the week of September 1, 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 remain at seven-month low.
- Crude oil costs reverse most of earlier gain.
- Natural gas prices rise further.

U.S. Gasoline & Crude Oil Prices Fall in Latest Week as Natural Gas Prices Jump

Robert Brusca

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Japan’s Tankan for 2024-Q3 scored a +13.0 for large manufacturing firms, the same as in Q2. Large manufacturing firms are the bellwether reading for this survey. However, there also was an improvement for nonmanufacturing firms in Q3.

There is also a look ahead reading for Q4 in the survey. Again, on this basis, the large manufacturers log a reading of +14, the same as in Q3. Nonmanufacturers show a one-point improvement in their outlook.

The percentile standing data show large manufacturers have a 69.3 percentile standing in Q3. Nonmanufacturing firms are stronger with a 98.7 percentile standing. The outlook shows manufacturing firms at a 76-percentile standing with nonmanufacturing firms at a 100% percentile range standing – at their strongest standing on data back to 2006.

Across the various detailed nonmanufacturing sectors, six of these sectors have rankings in their 90th percentile. The sector, taken as a whole, has a 97.1 percentile standing. Personal services have a ranking only in its 50.7 percentile. Construction has a 65.3 percentile standing.

None of the Tankan sector readings are weak. The industry series are essentially at their medians or better- personal services is essentially a median reading. All nonmanufacturing industries except wholesaling and personal services are above their respective one-year averages. Manufacturing also is above its one-year average.

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Japan’s Tankan puts the economy in a better light than the S&P PMI data. PMI data rank current manufacturing as ‘strong’ only on the last four- and one-half years of data when PMI values in manufacturing has been chronically weak and consistently below a reading of 50 since late-2022. The Tankan data span a longer period and rate all industries as solid-to-strong over that profile. There is no evidence of any impact on the economy from the sharp run-up in the yen’s value on current manufacturing performance or embedded in expectations.

The Tankan is a much more solid report that would seem to off the BOJ plenty of room to raise rates again if it desires to do that to get Japan’s interest rate levels back to a more normal zone.

Japan

Tankan Shows Steady MFG Reading in Q3

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

The trade deficit in goods (BOP basis) widened to a record $163.2 billion in March from $147.9	 billion in February, revised from $147.0 billion. Goods exports (customs value) rose 1.4% (7.0% y/y) in March, after increasing 3.6% in February. The latest increase reflected an 8.2% (8.4% y/y) surge in auto exports which came after a 12.7% strengthening. A 3.5% (4.0% y/y) gain occurred in industrial supplies & materials exports which followed a 5.1% rise. Foods, feeds & beverage exports rose 6.6% (1.4% y/y) after declining in four of the prior five month. Working lower, capital goods exports fell 2.5% (+13.9% y/y) in March after a 4.8% increase and nonauto consumer goods exports were off 1.1% (+3.4% y/y) in March after a 2.4% gain.

Imports of goods increased 5.5% (31.4% y/y) in March after a 0.2% February easing. Imports of nonauto consumer goods imports surged 27.9% (56.0% y/y) following a 3.1% February gain. Auto imports rose 6.6% (8.7% y/y) after a 1.2% rise. Capital goods imports rose 4.2% (22.5% y/y) following a 1.1% rise. Foods, feeds & beverage imports eased 0.4% (+11.1% y/y) following a 2.0% weakening. Industrial supplies & materials imports declined 12.4% (+39.5% y/y) after weakening 4.6% in February. Petroleum imports by end-use rose 1.5% (-4.2% y/y) after a 2.2% decline. Nonpetroleum imports increased 6.0% (32.5% y/y) after slipping 0.4% in February.

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

The services trade surplus narrowed to $23.0 billion in March after increasing to $23.8 billion in February. It reached a peak of $25.7 billion in November of last year. Service exports fell 0.9% (+5.7% y/y) after a 0.8% decline in February. Construction services exports rose 1.0% (37.7% y/y) after increasing 2.0% in February. Travel services exports fell 7.1% (-3.7% y/y) and financial exports increased 0.9% (7.3% y/y). Transport exports rose 3.1% (2.4% y/y). Service imports eased 0.1% (+10.8% y/y) in March following a 0.8% gain. Maintenance & repair services declined 1.5% (+32.1% y/y) while imported transport services increased 3.1% (2.4% y/y). Imported travel services fell 7.1% (-3.7% y/y) while charges for use of intellectual property rose 0.2% (14.4% y/y).

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

The international trade data, including relevant data on oil prices, can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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

U.S. Trade Deficit Deepens to Record in March

Tian Yong Woon

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

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

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

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

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

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

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

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

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

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Asia

Economic Letter from Asia: Art of the Deal

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

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

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

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

Additionally, the new export orders index increased to 48.6 (NSA) in April following a decline to 45.8 in March from 52.1 in February. Just 14.8% of survey respondents reported higher exports while an increased 17.7% reported a decline. The imports index plummeted to 44.3 last month from 52.6 in March. A greatly lessened 4.7% of respondents reported higher imports while a doubled 16.2% reported a decline. The inventory change index jumped to 53.4, a six-month high. The order backlog index edged up to 48.0 in April after falling sharply to 47.4 in March. A lessened 12.2% of respondents reported higher backlogs while a fewer 16.2% reported a decline. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests	 contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Total index remains near nine-month low.
- Employment, new orders & supplier deliveries edge up. Business activity weakens. 
- Prices Index strengthens to roughly two-year high.

U.S. ISM Services PMI Edges Higher in April; Prices Strengthen

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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

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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.