Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060508a.jpg" width="353">
The disappointing 138,000 rise in nonfarm payrolls during April generated questions. Was it typical of a series sometimes buffeted by aberrant forces, both real &amp; statistical, or was there a fundamental pressure newly exposed? 
The disappointment was caused by a 36,100 drop in retail employment. Less that decline, m/m growth in private nonfarm payrolls actually improved to 167,100 (1.9% y/y) from 155,700 during March and from 150,200 per month during the last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060508b.jpg" width="353">
And the job gains outside of retail were fairly broad based. The diffusion index of private sector employment growth last month, which is a measure of breadth, stood at 59.2%, just off the year to date average of 60.2% and up from 55.8% last year.
Strength in the labor market was further suggested by the nine cent rise in average hourly earnings to $16.61 which pulled the y/y growth rate to its highest level (3.8%) since 2001 as well as an unemployment rate at a five year low of 4.7%.
The question becomes whether there was/is news in the decline in retail jobs? Retail employment rose an average 8,500 per month in the year ended March. Therefore April&#39;s decline did break a trend that already had slowed from a 13,400 monthly average gain during 2005. Does it portend slower consumer spending growth? <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060508c.jpg" width="353">
The recent strength in consumer spending clearly has been a factor driving the growth in retail jobs. During the last ten years there has been a 69% correlation between the y/y change in retail employment and the growth in real personal consumption. The problem with making too much of this relationship is that it fails to account for efficiencies in the retail sector. During the last 25 years, the real dollar volume of sales generated by a retail worker has nearly doubled. Pick a reason; &quot;Big box&quot; retailers, improved in-store efficiencies, the internet, catalogue shopping.
Therefore, it is premature to suggest that consumer spending growth is about to tank based on the indication that retail employment fell during April. Retailers may have some prescient, telling instinct, but for the moment the evidence is distinctly unclear.

<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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Private Nonfarm Payrolls</td>
<td>131,000</td>
<td>179,000</td>
<td>1.6%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-36,100</td>
<td>23,300</td>
<td>0.3%</td>
<td>1.3%</td>
<td>0.9%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Retail</td>
<td>167,100</td>
<td>155,700</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.3%</td>
</tr>
</tbody>
</table>
 European Commission Raises Forecast for EU and Euro Zone  
by <a href="/comment/Curley.html">Louise Curley</a> May 8, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060508d.jpg" width="353">
TheDirectorate-General for Economic and Financial Affairs of the European Commission released its Spring 2006 Economic Forecasts. The complete document can be found <a href="http://europa.eu.int/comm/economy_finance/publications/european_economy/2006/ee206en.pdf">here</a>.
Forecasts for 2006 and 2007 are given for the twenty-five countries of the European Union, the candidate countries--Bulgaria, Romania, and Turkey--and Croatia, the former Yugoslav Republic of Macedonia, the U. S. Japan and China.
The Commission is forecasting growth in 2006 of 2.3% for the European Union, 0.2% higher than forecast six months ago. For the Euro Zone the forecast is 2.1%. For 2007 GDP growth for the European Union is forecast at 2.2%. The decline is due largely to forecasts for the Euro Zone, particularly Germany, where the increase in the Value Added Tax (VAT) rate by 3 percentage points on January 1, 2007 is expected to dampen consumption.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060508e.jpg" width="353">
Data on the past growth trends among the various countries of the European Union, comparable to the forecast data, can be found in the Haver Data Base--EUROSTAT. (For the non European countries, see their individual data bases.) Trends in economic growth among the EU countries have varied widely over the past four years. The Euro Zone countries have generally shown sub par performance while those in Central and Eastern Europe and in the Baltics have shown considerable dynamism. The first chart shows the year-to-year percentage changes in the Gross Domestic Product for France and Germany while the second chart shows comparable data for Latvia and Hungary.

<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/EUROSTAT/@U2/@U2.HTM">GDP Rate of Change</a> (%)</th>
<th scope="col">2002</th>
<th scope="col">2003</th>
<th scope="col">2004</th>
<th scope="col">2005 </th>
<th scope="col">2006F</th>
<th scope="col">2007F</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">European Union</td>
<td>1.2</td>
<td>1.2</td>
<td>2.4</td>
<td>1.6</td>
<td>2.3</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">Euro Zone</td>
<td>0.9</td>
<td>0.7</td>
<td>2.0</td>
<td>1.3</td>
<td>2.1</td>
<td>1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>1.2</td>
<td>0.8</td>
<td>2.3</td>
<td>1.4</td>
<td>1.9</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.1</td>
<td>-0.2</td>
<td>1.6</td>
<td>0.9</td>
<td>1.7</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Latvia</td>
<td>6.5</td>
<td>7.2</td>
<td>8.5</td>
<td>10.2</td>
<td>7.5</td>
<td>7.6</td>
</tr>
<tr>
<td class="firstcol">Hungary</td>
<td>&nbsp;3.8</td>
<td>3.4</td>
<td>&nbsp;4.6</td>
<td>4.1&nbsp;</td>
<td>4.6&nbsp;</td>
<td>4.2&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

The disappointing 138,000 rise in nonfarm payrolls during April generated questions. Was it typical of a series sometimes buffeted by aberrant forces, both real & statistical, or was there a fundamental pressure newly exposed? The [...]

Fewer Jobs in Retail - Fluke or a Telling Indicator?

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/060505c.jpg" width="353">
Since 2003, the European Central Bank (ECB) has conducted a bank officers&#39; lending survey similar to the Federal Reserve&#39;s &quot;Senior Loan Officer Survey&quot;, asking questions about lending policies and credit demand experienced by banks. Results of the ECB survey taken in early April were reported today; we call your attention to them because, while we have felt some concern about European economic conditions (see our note yesterday about sluggish retail trade), it appears that credit conditions have been easing and that credit demand is picking up.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505d.jpg" width="353">
Taken in April, the survey reports that the number of banks easing credit standards for business loans had exceeded those tightening standards by 9 percentage points during the previous three months. The easing trend actually began in mid-2004 and has continued since, except for one quarter. This comes off a period of significant tightening during 2003, with a net of 65 percent of banks making credit criteria more stringent in the first survey in January 2003. Credit demand in that early period was weak, falling at a net of 31 percent of participating banks in the first half of 2003. Now, however, demand for business loans is picking up noticeably, with the latest three quarters averaging +19 percent.
In the table below, we include data for lending to large businesses and in the first graph we compare that to the Fed&#39;s series for US bank lending policies covering a comparable set of businesses. The trends are similar, as might well be for large firms, which can choose among financing institutions.
Similar credit policy patterns appear in the data on consumer and housing credit, although the cycle is much less pronounced. Consumer credit lending policies are marginally easier, loosening in the three months before the survey at a net of 5 percent of reporting institutions. This extends a slight easing trend that began in Q4 2004. Interestingly, demand for consumer credit appears strong, rising on balance at 21 and 18 percent of banks in the last two quarters, respectively. In light of recently lackluster retail sales, this bears comparison with actual consumer lending data, but that&#39;s a commentary for another day!<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505e.jpg" width="353">
Meantime, demand for housing loans may have peaked. After three sharply positive quarters, reaching 45% in the January survey, the balance of banks with increased home purchase lending fell to 17% in this survey. Regarding credit standards, the behavior here is similar to consumer credit, with nearly neutral readings.
Obviously, all of these data want for lack of history, particularly through an entire business cycle. They should become more useful as that history builds. However, at this time, it seems that we can conclude that banks are increasingly willing to lend to businesses, and they are seeing some positive response in lending activity.

<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/EUROSTAT/@U4/@U417/@U417.HTM">Net Percentages: last 3 months</a></th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Overall Business: Tighter Credit Standards </td>
<td>-9</td>
<td>-4</td>
<td>-10</td>
<td>-7</td>
<td>7</td>
<td>40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Credit Demand</td>
<td>18</td>
<td>23</td>
<td>-1</td>
<td>1</td>
<td>-8</td>
<td>-26</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Businesses: Tighter Credit Standards</td>
<td>-3</td>
<td>-3</td>
<td>-5</td>
<td>-5</td>
<td>4</td>
<td>40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Credit Demand</td>
<td>17</td>
<td>10</td>
<td>-6</td>
<td>-4</td>
<td>-7</td>
<td>-21</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Credit: Tighter Standards</td>
<td>-5</td>
<td>1</td>
<td>-7</td>
<td>-3</td>
<td>1</td>
<td>15</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Credit Demand</td>
<td>18</td>
<td>21</td>
<td>0</td>
<td>6</td>
<td>4</td>
<td>-3</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing Loans: Tighter Standards</td>
<td>-9</td>
<td>2</td>
<td>-7</td>
<td>-3</td>
<td>4</td>
<td>12</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Credit Demand</td>
<td>17</td>
<td>45</td>
<td>-1</td>
<td>18</td>
<td>13</td>
<td>27</td>
</tr>
</tbody>
</table>
</body>
</html>

Since 2003, the European Central Bank (ECB) has conducted a bank officers' lending survey similar to the Federal Reserve's "Senior Loan Officer Survey", asking questions about lending policies and credit demand experienced by banks. [...]

Euro-Zone Banks Ease Credit Standards for Business, See Stronger Loan Demand

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505a.jpg" width="353">
Nonfarm payrolls rose just 138,000 last month and the March increase was revised down to 200,000. The April gain fell short of Consensus expectations for a 200,000 rise. 
Private sector jobs were up 131,000, thus undershooting the new ADP indicator for this subset which was issued Wednesday and had projected a 178,000 gain. The difference of 47,000 is somewhat less than that implied in the Consensus figure, while government employment, with a 7,000 rise, grew less than its recent average. 
The 0.5% gain in average hourly earnings exceeded the Consensus expectation for a 0.3% rise and followed an upwardly revised 0.3% March increase. Factory sector earnings accelerated to 0.3% (1.9% y/y) following four consecutive months of 0.1% gain while private service-producing wages rose 0.6% (4.3% y/y). Professional &amp; business services wages jumped 0.9% (5.8% y/y) and finance, insurance &amp; real estate earnings increased 0.7% (4.3% y/y).
From the household survey the unemployment rate matched Consensus expectations and held steady at 4.7%. Employment rose just 47,000 (1.8% y/y) after a 384,000 surge during March while the labor force rose 159,000 (1.3% y/y).
The decline in teen labor force participation from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2006_part1_aaronson_et_al.pdf">here</a>. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505b.jpg" width="353">
Payroll employment in private service-producing industries rose just 94,000 (1.7% y/y) last month following a downwardly revised 164,000 March rise. Jobs in retail trade reversed all of the prior month&#39;s increase with a 36,100 (+0.3% y/y) decline and job cutbacks were widespread. Financial sector jobs rose 26,000 (2.6% y/y) while professional &amp; business services employment was similarly firm with a 28,000 (2.7% y/y) gain. Jobs in education &amp; health rose 35,000 (2.4% y/y) while leisure &amp; hospitality employment increased 20,000 (1.8% y/y).
Factory sector payrolls posted the best month of job gain in two years with a 19,000 April worker increase. Employment in the motor vehicles &amp; parts industries rebounded 12,200 (-1.0% y/y) from earlier declines while computer &amp; electronics payrolls rose 6,500 (0.9% y/y). However, the breadth of gain in factory payrolls over the last three months fell to 45.2% indicating broad based job loss.
Construction employment rose 10,000 (3.7% y/y) but government employment rose just 7,000 (0.6% y/y) following somewhat stronger gains during the prior two months.
&quot;I always avoid prophesying beforehand because it is much better to prophesy after the event has already taken place.&quot; -- Winston Churchill

<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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>138,000</td>
<td>200,000</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>19,000</td>
<td>1,000</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8 (April &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.8%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.7%</td>
<td>4.7%</td>
<td>5.1% (April &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm payrolls rose just 138,000 last month and the March increase was revised down to 200,000. The April gain fell short of Consensus expectations for a 200,000 rise. Private sector jobs were up 131,000, thus undershooting the new [...]

U.S. Job Growth Slowed, Wage Inflation Accelerated

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505a.jpg" width="353">
Nonfarm payrolls rose just 138,000 last month and the March increase was revised down to 200,000. The April gain fell short of Consensus expectations for a 200,000 rise. 
Private sector jobs were up 131,000, thus undershooting the new ADP indicator for this subset which was issued Wednesday and had projected a 178,000 gain. The difference of 47,000 is somewhat less than that implied in the Consensus figure, while government employment, with a 7,000 rise, grew less than its recent average. 
The 0.5% gain in average hourly earnings exceeded the Consensus expectation for a 0.3% rise and followed an upwardly revised 0.3% March increase. Factory sector earnings accelerated to 0.3% (1.9% y/y) following four consecutive months of 0.1% gain while private service-producing wages rose 0.6% (4.3% y/y). Professional &amp; business services wages jumped 0.9% (5.8% y/y) and finance, insurance &amp; real estate earnings increased 0.7% (4.3% y/y).
From the household survey the unemployment rate matched Consensus expectations and held steady at 4.7%. Employment rose just 47,000 (1.8% y/y) after a 384,000 surge during March while the labor force rose 159,000 (1.3% y/y).
The decline in teen labor force participation from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2006_part1_aaronson_et_al.pdf">here</a>. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505b.jpg" width="353">
Payroll employment in private service-producing industries rose just 94,000 (1.7% y/y) last month following a downwardly revised 164,000 March rise. Jobs in retail trade reversed all of the prior month&#39;s increase with a 36,100 (+0.3% y/y) decline and job cutbacks were widespread. Financial sector jobs rose 26,000 (2.6% y/y) while professional &amp; business services employment was similarly firm with a 28,000 (2.7% y/y) gain. Jobs in education &amp; health rose 35,000 (2.4% y/y) while leisure &amp; hospitality employment increased 20,000 (1.8% y/y).
Factory sector payrolls posted the best month of job gain in two years with a 19,000 April worker increase. Employment in the motor vehicles &amp; parts industries rebounded 12,200 (-1.0% y/y) from earlier declines while computer &amp; electronics payrolls rose 6,500 (0.9% y/y). However, the breadth of gain in factory payrolls over the last three months fell to 45.2% indicating broad based job loss.
Construction employment rose 10,000 (3.7% y/y) but government employment rose just 7,000 (0.6% y/y) following somewhat stronger gains during the prior two months. 
&quot;I always avoid prophesying beforehand because it is much better to prophesy after the event has already taken place.&quot; -- Winston Churchill

<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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>138,000</td>
<td>200,000</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>19,000</td>
<td>1,000</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8 (April &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.8%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.7%</td>
<td>4.7%</td>
<td>5.1% (April &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
Euro-Zone Banks Ease Credit Standards for Business, See Stronger Loan Demand 
by <a href="/comment/Stone.html">Carol Stone</a> May 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505c.jpg" width="353">
Since 2003, the European Central Bank (ECB) has conducted a bank officers&#39; lending survey similar to the Federal Reserve&#39;s &quot;Senior Loan Officer Survey&quot;, asking questions about lending policies and credit demand experienced by banks. Results of the ECB survey taken in early April were reported today; we call your attention to them because, while we have felt some concern about European economic conditions (see our note yesterday about sluggish retail trade), it appears that credit conditions have been easing and that credit demand is picking up.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505d.jpg" width="353">
Taken in April, the survey reports that the number of banks easing credit standards for business loans had exceeded those tightening standards by 9 percentage points during the previous three months. The easing trend actually began in mid-2004 and has continued since, except for one quarter. This comes off a period of significant tightening during 2003, with a net of 65 percent of banks making credit criteria more stringent in the first survey in January 2003. Credit demand in that early period was weak, falling at a net of 31 percent of participating banks in the first half of 2003. Now, however, demand for business loans is picking up noticeably, with the latest three quarters averaging +19 percent.
In the table below, we include data for lending to large businesses and in the first graph we compare that to the Fed&#39;s series for US bank lending policies covering a comparable set of businesses. The trends are similar, as might well be for large firms, which can choose among financing institutions.
Similar credit policy patterns appear in the data on consumer and housing credit, although the cycle is much less pronounced. Consumer credit lending policies are marginally easier, loosening in the three months before the survey at a net of 5 percent of reporting institutions. This extends a slight easing trend that began in Q4 2004. Interestingly, demand for consumer credit appears strong, rising on balance at 21 and 18 percent of banks in the last two quarters, respectively. In light of recently lackluster retail sales, this bears comparison with actual consumer lending data, but that&#39;s a commentary for another day!<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060505e.jpg" width="353">
Meantime, demand for housing loans may have peaked. After three sharply positive quarters, reaching 45% in the January survey, the balance of banks with increased home purchase lending fell to 17% in this survey. Regarding credit standards, the behavior here is similar to consumer credit, with nearly neutral readings.
Obviously, all of these data want for lack of history, particularly through an entire business cycle. They should become more useful as that history builds. However, at this time, it seems that we can conclude that banks are increasingly willing to lend to businesses, and they are seeing some positive response in lending activity.

<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/EUROSTAT/@U4/@U417/@U417.HTM">Net Percentages: last 3 months</a></th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Overall Business: Tighter Credit Standards </td>
<td>-9</td>
<td>-4</td>
<td>-10</td>
<td>-7</td>
<td>7</td>
<td>40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Credit Demand</td>
<td>18</td>
<td>23</td>
<td>-1</td>
<td>1</td>
<td>-8</td>
<td>-26</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Businesses: Tighter Credit Standards</td>
<td>-3</td>
<td>-3</td>
<td>-5</td>
<td>-5</td>
<td>4</td>
<td>40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Credit Demand</td>
<td>17</td>
<td>10</td>
<td>-6</td>
<td>-4</td>
<td>-7</td>
<td>-21</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Credit: Tighter Standards</td>
<td>-5</td>
<td>1</td>
<td>-7</td>
<td>-3</td>
<td>1</td>
<td>15</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Credit Demand</td>
<td>18</td>
<td>21</td>
<td>0</td>
<td>6</td>
<td>4</td>
<td>-3</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing Loans: Tighter Standards</td>
<td>-9</td>
<td>2</td>
<td>-7</td>
<td>-3</td>
<td>4</td>
<td>12</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Credit Demand</td>
<td>17</td>
<td>45</td>
<td>-1</td>
<td>18</td>
<td>13</td>
<td>27</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504e.jpg" width="353">
Retailers in several diverse regions are seeing mixed demand, according to data available today for February and March. In the EuroZone12 (the grouping that includes Greece throughout), sales were down 0.8% in March after a 0.1% decrease in February. The March drop carried the total down 0.2% below the year-ago amount. As seen in the table below, retailing in the major European nations has hardly been robust over recent years, and these latest data indicate that the trend is not improving. Food stores are the leader in the downward movement, but sales volume at nonfood stores is also weakening.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504f.jpg" width="353">
Just on the south side of the Euro-Zone, Slovenia&#39;s retail sector looks fairly mixed. Total sales fell in both January and February, but some of February&#39;s weakness is due to quirks in the arithmetic of combining the food and nonfood segments into a common index. Each of these categories actually increased, food stores by 2.0% and nonfood outlets by 1.3%. Food recovered somewhat from a steep 13.5% fall in January. In general, though, consumers in Slovenia have been increasing their spending in stores, with 2005 showing total growth of 7.6%.
Significantly further south, retail trade in South Africa seems to be going strong. After a hesitation in January, sales in February expanded 3.8%, putting the year-on-year gain at 10.4%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504g.jpg" width="353">
All of these retail sales figures are seasonally adjusted and adjusted for inflation. They also exclude motor vehicles. To give these data some context, we consulted some US information, the retail sales dataset prepared by the BEA, which includes comparable adjustments. These sales were flat in March and eased by 0.2% in February. So they&#39;ve slowed too, then, in the last couple of months, although they remain a hefty 7.6% ahead of a year ago. Thus, while European consumers appear to be dragging, in other select regions, they have been spending at a good clip. Now that gasoline prices have taken off again, it will be interesting to see what the reaction of these other spending patterns will be.
The EuroZone data are contained in Haver&#39;s EUROSTAT database as is that for Slovenia. Other Slovenia data are in EMERGECW, and South Africa in EMERGEMA. The US series is from those compiled by the BEA from the original Census data; these appear in USECON in the menu just beneath the main Census entry and also in USNA in the Underlying Detail tables.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mo/Mo &amp; Yr/Yr % Changes, SA*</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EuroZone12</td>
<td>-0.8</td>
<td>-0.1</td>
<td>0.5</td>
<td>-0.2</td>
<td>1.3</td>
<td>1.5</td>
<td>0.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food</td>
<td>-1.0</td>
<td>-0.1</td>
<td>0.8</td>
<td>-0.9</td>
<td>0.7</td>
<td>1.2</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonfood</td>
<td>-0.5</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.5</td>
<td>1.8</td>
<td>1.7</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Slovenia</td>
<td>--</td>
<td>-1.1</td>
<td>-5.3</td>
<td>4.8</td>
<td>7.6</td>
<td>2.6</td>
<td>3.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food</td>
<td>--</td>
<td>2.0</td>
<td>-13.5</td>
<td>-1.7</td>
<td>7.4</td>
<td>3.3</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonfood</td>
<td>--</td>
<td>1.3</td>
<td>0.4</td>
<td>12.7</td>
<td>7.1</td>
<td>2.6</td>
<td>8.0</td>
</tr>
<tr class="odd">
<td class="firstcol">South Africa</td>
<td>--</td>
<td>3.8</td>
<td>-1.0</td>
<td>10.4</td>
<td>6.7</td>
<td>9.7</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">United States**</td>
<td>0.0</td>
<td>-0.2</td>
<td>2.2</td>
<td>7.6</td>
<td>6.1</td>
<td>6.3</td>
<td>4.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Retailers in several diverse regions are seeing mixed demand, according to data available today for February and March. In the EuroZone12 (the grouping that includes Greece throughout), sales were down 0.8% in March after a 0.1% [...]

Retail Trade Stagnates in Europe, But Shows Some Vigor in Slovenia and South Africa

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504c.jpg" width="353">
Initial claims for jobless insurance rose 5,000 last week to 322,000 from an upwardly revised level the prior period. Consensus expectations had been for 310,000 claims.
The increase pulled the level of claims filed last month up to 314,000. The 1.6% increase versus March was the third m/m rise since the January low when just 286,000 claims were filed.
The four week moving average of initial claims rose to 314,250 (-4.4% y/y).
Continuing claims for unemployment insurance rose for the third consecutive week. The 21,000 increase followed a downwardly revised 14,000 increase the prior week.
The insured unemployment rate remained at 1.9%, where it&#39;s been since early February.
Assessing the impact of job loss on workers and firms from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflapril2006_225a.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">04/29/06</th>
<th scope="col">04/22/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>322</td>
<td>317</td>
<td>-5.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,462</td>
<td>-5.5%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for jobless insurance rose 5,000 last week to 322,000 from an upwardly revised level the prior period. Consensus expectations had been for 310,000 claims. The increase pulled the level of claims filed last month up to [...]

Initial Unemployment Insurance Claims Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504a.jpg" width="353">
Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average quarterly growth rates during 2004 (2.7%) and 2005 (2.5%).
Output growth surged to 5.8% (4.1% y/y) from just 1.5% during 4Q. That surge was on the back of only a 2.5% (1.7% y/y) rise in hours worked after a 1.8% increase the prior quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504b.jpg" width="353">
Unit labor cost growth of 2.5% was slower than the 4Q increase but nevertheless represented an acceleration in labor cost pressures from a quarterly average of 1.3% during 2005.
Factory sector productivity grew 4.2% (4.1% y/y), right on the firm 4.3% quarterly pace of last year. Compensation grew just 1.5% (3.0% y/y). Therefore unit labor costs in the factory sector declined for the third of the last four quarters, off 2.6% (-1.1% y/y) during 1Q06.
A Leaner, More Skilled U.S. Manufacturing Workforce from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-2.pdf"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504d.jpg" width="353">
The implicit price deflator for the nonfarm business sector rose 2.8% (3.1% y/y) after a 3.6% jump during 4Q05.The rise lifted the ratio of prices to unit labor costs to near the highest level since 1997. During the last ten years there has been an 81% correlation between this ratio and corporate profit margins.
In Why Did U.S. Market Hours Boom in the 1990s?, the Federal Reserve Bank of Minneapolis examines the impact of longer hours worked on productivity &amp; profits. The paper can be found <a href="http://www.minneapolisfed.org/research/SR/SR369.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>3.2%</td>
<td>-0.3%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>3.4%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>5.7%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>5.4%</td>
<td>4.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.5%</td>
<td>3.0%</td>
<td>1.4%</td>
<td>2.5%</td>
<td>1.1%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
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Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average [...]

1Q U.S. Productivity Improved, Profits' Implication Good

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504a.jpg" width="353">
Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average quarterly growth rates during 2004 (2.7%) and 2005 (2.5%).
Output growth surged to 5.8% (4.1% y/y) from just 1.5% during 4Q. That surge was on the back of only a 2.5% (1.7% y/y) rise in hours worked after a 1.8% increase the prior quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504b.jpg" width="353">
Unit labor cost growth of 2.5% was slower than the 4Q increase but nevertheless represented an acceleration in labor cost pressures from a quarterly average of 1.3% during 2005.
Factory sector productivity grew 4.2% (4.1% y/y), right on the firm 4.3% quarterly pace of last year. Compensation grew just 1.5% (3.0% y/y). Therefore unit labor costs in the factory sector declined for the third of the last four quarters, off 2.6% (-1.1% y/y) during 1Q06.
A Leaner, More Skilled U.S. Manufacturing Workforce from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-2.pdf"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504d.jpg" width="353">
The implicit price deflator for the nonfarm business sector rose 2.8% (3.1% y/y) after a 3.6% jump during 4Q05.The rise lifted the ratio of prices to unit labor costs to near the highest level since 1997. During the last ten years there has been an 81% correlation between this ratio and corporate profit margins.
In Why Did U.S. Market Hours Boom in the 1990s?, the Federal Reserve Bank of Minneapolis examines the impact of longer hours worked on productivity &amp; profits. The paper can be found <a href="http://www.minneapolisfed.org/research/SR/SR369.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>3.2%</td>
<td>-0.3%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>3.4%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>5.7%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>5.4%</td>
<td>4.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.5%</td>
<td>3.0%</td>
<td>1.4%</td>
<td>2.5%</td>
<td>1.1%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504c.jpg" width="353">
Initial claims for jobless insurance rose 5,000 last week to 322,000 from an upwardly revised level the prior period. Consensus expectations had been for 310,000 claims.
The increase pulled the level of claims filed last month up to 314,000. The 1.6% increase versus March was the third m/m rise since the January low when just 286,000 claims were filed.
The four week moving average of initial claims rose to 314,250 (-4.4% y/y).
Continuing claims for unemployment insurance rose for the third consecutive week. The 21,000 increase followed a downwardly revised 14,000 increase the prior week.
The insured unemployment rate remained at 1.9%, where it&#39;s been since early February.
Assessing the impact of job loss on workers and firms from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflapril2006_225a.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">04/29/06</th>
<th scope="col">04/22/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>322</td>
<td>317</td>
<td>-5.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,462</td>
<td>-5.5%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
Retail Trade Stagnates in Europe, But Shows Some Vigor in Slovenia and South Africa 
by <a href="/comment/Stone.html">Carol Stone</a> May 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504e.jpg" width="353">
Retailers in several diverse regions are seeing mixed demand, according to data available today for February and March. In the EuroZone12 (the grouping that includes Greece throughout), sales were down 0.8% in March after a 0.1% decrease in February. The March drop carried the total down 0.2% below the year-ago amount. As seen in the table below, retailing in the major European nations has hardly been robust over recent years, and these latest data indicate that the trend is not improving. Food stores are the leader in the downward movement, but sales volume at nonfood stores is also weakening.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504f.jpg" width="353">
Just on the south side of the Euro-Zone, Slovenia&#39;s retail sector looks fairly mixed. Total sales fell in both January and February, but some of February&#39;s weakness is due to quirks in the arithmetic of combining the food and nonfood segments into a common index. Each of these categories actually increased, food stores by 2.0% and nonfood outlets by 1.3%. Food recovered somewhat from a steep 13.5% fall in January. In general, though, consumers in Slovenia have been increasing their spending in stores, with 2005 showing total growth of 7.6%.
Significantly further south, retail trade in South Africa seems to be going strong. After a hesitation in January, sales in February expanded 3.8%, putting the year-on-year gain at 10.4%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504g.jpg" width="353">
All of these retail sales figures are seasonally adjusted and adjusted for inflation. They also exclude motor vehicles. To give these data some context, we consulted some US information, the retail sales dataset prepared by the BEA, which includes comparable adjustments. These sales were flat in March and eased by 0.2% in February. So they&#39;ve slowed too, then, in the last couple of months, although they remain a hefty 7.6% ahead of a year ago. Thus, while European consumers appear to be dragging, in other select regions, they have been spending at a good clip. Now that gasoline prices have taken off again, it will be interesting to see what the reaction of these other spending patterns will be.
The EuroZone data are contained in Haver&#39;s EUROSTAT database as is that for Slovenia. Other Slovenia data are in EMERGECW, and South Africa in EMERGEMA. The US series is from those compiled by the BEA from the original Census data; these appear in USECON in the menu just beneath the main Census entry and also in USNA in the Underlying Detail tables.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mo/Mo &amp; Yr/Yr % Changes, SA*</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EuroZone12</td>
<td>-0.8</td>
<td>-0.1</td>
<td>0.5</td>
<td>-0.2</td>
<td>1.3</td>
<td>1.5</td>
<td>0.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food</td>
<td>-1.0</td>
<td>-0.1</td>
<td>0.8</td>
<td>-0.9</td>
<td>0.7</td>
<td>1.2</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonfood</td>
<td>-0.5</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.5</td>
<td>1.8</td>
<td>1.7</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Slovenia</td>
<td>--</td>
<td>-1.1</td>
<td>-5.3</td>
<td>4.8</td>
<td>7.6</td>
<td>2.6</td>
<td>3.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food</td>
<td>--</td>
<td>2.0</td>
<td>-13.5</td>
<td>-1.7</td>
<td>7.4</td>
<td>3.3</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonfood</td>
<td>--</td>
<td>1.3</td>
<td>0.4</td>
<td>12.7</td>
<td>7.1</td>
<td>2.6</td>
<td>8.0</td>
</tr>
<tr class="odd">
<td class="firstcol">South Africa</td>
<td>--</td>
<td>3.8</td>
<td>-1.0</td>
<td>10.4</td>
<td>6.7</td>
<td>9.7</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">United States**</td>
<td>0.0</td>
<td>-0.2</td>
<td>2.2</td>
<td>7.6</td>
<td>6.1</td>
<td>6.3</td>
<td>4.5</td>
</tr>
</tbody>
</table>
</body>
</html>

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 fell 4.1% (-10.2% y/y) after a 2.9% decline. Nonpetroleum imports increased 6.0% (34.8% y/y) after holding steady in February.

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

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

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

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

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

U.S. Trade Deficit Deepens to Record in March

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

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

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

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

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

Measured in days’ supply, gasoline inventories fell w/w to 25.5 days in the week of April 25 from 26.4 days in the prior. The recent low was 22.9 days in the week of November 8. The supply of crude oil eased w/w to 27.9 days in the week of April 25 after three weeks at 28.3 days, and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices edge higher.
- Crude oil prices decline.
- Natural gas costs rise.

U.S. Energy Prices Remain Mixed in Latest Week

Robert Brusca

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

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

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

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

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

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

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Global Composite PMIs Erode

Tian Yong Woon

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

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

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

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

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

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

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

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

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

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Asia

Economic Letter from Asia: Art of the Deal

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

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

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

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

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

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

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

Economy in Brief: May 2006

Jump to:

Fewer Jobs in Retail - Fluke or a Telling Indicator?

Euro-Zone Banks Ease Credit Standards for Business, See Stronger Loan Demand

U.S. Job Growth Slowed, Wage Inflation Accelerated

U.S. Job Growth Slowed, Wage Inflation Accelerated

Retail Trade Stagnates in Europe, But Shows Some Vigor in Slovenia and South Africa

Initial Unemployment Insurance Claims Up

1Q U.S. Productivity Improved, Profits' Implication Good

1Q U.S. Productivity Improved, Profits' Implication Good