Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050609a.jpg" width="353">
Initial claims for unemployment insurance fell 21,000 to 330,000 last week and reversed most of the prior period&#39;s slightly revised jump. Consensus expectations had been for 335,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment. There has been a (negative) 65% correlation with the level of continuing claims.
The four week moving average of initial claims fell to 331,750 (-4.2% y/y).
Continuing claims for unemployment insurance fell 4,000 following a downwardly revised gain the prior week.
The insured unemployment rate remained stable at 2.0% for the seventh consecutive week.
Equilibrium Models of Personal Bankruptcy: A Survey from the Federal Reserve Bank of Richmond can be found <a href="http://www.rich.frb.org/publications/economic_research/economic_quarterly/pdfs/spring2005/athreya.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">06/04/05</th>
<th scope="col">05/28/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>330</td>
<td>351</td>
<td>-4.9%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,588</td>
<td>-10.3%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
More Industrial Production: Lackluster in the UK, Trending Upward in South Africa 
by <a href="/comment/Stone.html">Carol Stone</a> June 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050609c.jpg" width="353">
Industrial production picked up in the UK in April, rising 0.8%, the first increase since December. Metals, machinery, wood and paper products and electrical machinery were among the main movers in April&#39;s upturn. Beneficial to UK industry as this was, it still left production down 2.7% from a year ago. The manufacturing sector is also off by that amount and the mining sector, even more. Notably, among mining divisions, the energy sector has been lagging, while non-energy mining output is climbing. Year-on-year declines in the manufacturing sector are widespread, with output of textiles, paper, and electrical machinery all down at least 7%; thus, gains for all of these in April are gratifying, although that in textiles is quite small at 0.4%, month-on-month. Overall, the UK industrial sector appears hesitant, and with sluggishness in the industrial sector mirrored in employment and also most recent in a decline in new home construction starts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050609b.jpg" width="353">
South Africa also reported April production data today. That nation&#39;s industrial activity looks much healthier, with widespread uptrends in both factory and mining sectors. Output of manufactures is up vigorously, with a 2.8% month-on-month rise in April, capping a 7.1% yearly gain. The largest increases are in food, glass, motor vehicles and furniture. South Africa&#39;s mining sector saw a monthly decrease, but trends there are generally strong, with output of nearly every major mineral well above a year ago. Copper, for instance, has seen year-to-year increases the last two months, apparently ending a long decline. &quot;Other&quot; metals have risen 27% and diamonds, 33.5%. Only nickel and gold show year-over-year declines. Mining represents nearly a quarter of total industry in South Africa, compared with 14% in the UK.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">UK Total</td>
<td>0.8</td>
<td>-1.0</td>
<td>-2.7</td>
<td>0.5</td>
<td>-0.1</td>
<td>-2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.9</td>
<td>-1.6</td>
<td>-2.7</td>
<td>1.4</td>
<td>0.5</td>
<td>-3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining</td>
<td>0.6</td>
<td>1.3</td>
<td>-5.8</td>
<td>-7.8</td>
<td>-5.3</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">South Africa</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>2.8</td>
<td>0.7</td>
<td>7.1</td>
<td>4.3</td>
<td>-1.9</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mining</td>
<td>-3.2</td>
<td>12.9</td>
<td>7.1</td>
<td>3.9</td>
<td>4.0</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining ex Gold</td>
<td>-2.0</td>
<td>15.0</td>
<td>12.6</td>
<td>7.3</td>
<td>7.2</td>
<td>0.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance fell 21,000 to 330,000 last week and reversed most of the prior period's slightly revised jump. Consensus expectations had been for 335,000 claims. During the last ten years there has been a [...]

Initial Unemployment Insurance Claims Back Down

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/050608c.jpg" width="353">
Manufacturing activity advanced in three Euro-Asian nations in April, according to industrial production data published today by national statistical offices. In the Netherlands, manufacturing output gained 1.8%, partially reversing two down months. A generally sluggish pattern has prevailed there, so that April&#39;s amount was down 0.7% (working day adjusted) from April 2004. Total industrial output eased in the month by 0.5% as mining activity contracted.
In Slovakia, factory output surged 6% in April, a welcome gain after more than a year of basically no movement. Several diverse industries, especially machinery, textiles and wood products, contributed to the rise. Total industrial production also increased 6% in the month and was 5.5% ahead of a year ago.
For Turkey, a 3.7% rise in manufacturing production for April offset a 4.2% decline in March. Output there has been on a fairly firm uptrend so that year-on-year gains have run 5 to 6% over the past six months and were higher previously. As in Slovakia, a variety of industries are participating in this growth, although in both places, production in specific sectors varies widely from month to month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050608d.jpg" width="353">
These three countries represent three differing macro-models: the well-developed economy, the emerging economy that&#39;s fairly advanced and a more emergent emerging economy. It&#39;s intriguing to compare the position of industry within each one. In the Netherlands, industry contributes the smallest portion of the country&#39;s gross value added -- about 20%, compared with 26% for Slovakia and 29% for Turkey. Among other contrasts, finance and services come in the reverse order: they total about 25% of GDP in the Netherlands, but 15.5% in Slovakia and a mere 4% in Turkey. One might envision the mature economy as having the largest industrial sector, but on a relative basis, it&#39;s the &quot;younger&quot; economy, which is perhaps developing through its emphasis on manufacturing. The movement and trading of goods and services are about midway in the ranking of their contributions to GDP, with support services, such as finance, real estate and other business services coming in last in the younger economy (but first in the mature region). Relative patterns of growth fit this structure as well. Turkey has the most rapid growth rate: about 8% over the past five years, with Slovakia at 5% and the Netherlands just 0.5%-1% recently. This reminds us of the standard product cycle in an individual industry: rapid growth at first that moderates and then plateaus as the market for the product matures. Whole countries, it seems, can behave the same way.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Apr 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Netherlands: 2000 = 100</td>
<td>98.5</td>
<td>99.0</td>
<td>97.8</td>
<td>100.2</td>
<td>97.7</td>
<td>100.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>95.7</td>
<td>94.0</td>
<td>96.9</td>
<td>96.2</td>
<td>95.8</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining &amp; Quarrying</td>
<td>111.4</td>
<td>118.6</td>
<td>108.7</td>
<td>120.2</td>
<td>103.8</td>
<td>107.1</td>
</tr>
<tr>
<td class="firstcol">Slovakia: 2000 = 100</td>
<td>131.5</td>
<td>124.1</td>
<td>124.7</td>
<td>124.7</td>
<td>120.9</td>
<td>114.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>142.7</td>
<td>134.6</td>
<td>133.3</td>
<td>134.5</td>
<td>129.9</td>
<td>120.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mining &amp; Quarrying</td>
<td>84.1</td>
<td>86.6</td>
<td>90.8</td>
<td>94.4</td>
<td>105.5</td>
<td>111.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Turkey: 1997 = 100</td>
<td>131.1</td>
<td>126.5</td>
<td>125.0</td>
<td>123.4</td>
<td>112.4</td>
<td>103.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>131.1</td>
<td>126.4</td>
<td>126.1</td>
<td>123.7</td>
<td>112.1</td>
<td>102.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining &amp; Quarrying</td>
<td>91.4</td>
<td>87.7</td>
<td>72.4</td>
<td>82.6</td>
<td>79.4</td>
<td>82.0</td>
</tr>
</tbody>
</table>
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Manufacturing activity advanced in three Euro-Asian nations in April, according to industrial production data published today by national statistical offices. In the Netherlands, manufacturing output gained 1.8%, partially reversing [...]

Industrial Production Shows Three-Tiered Performance in Netherlands, Slovakia and Turkey

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050608b.jpg" width="353">
Total mortgage applications last week recovered more than all of the prior week&#39;s decline and rose 6.5%. Applications began the month 3.5% ahead of the May average which rose 6.5% versus April, according to the Mortgage Bankers Association.
Applications to refinance were quite strong posting a 10.3% w/w increase and began June 9.7% higher than in May which rose 11.2% from April.
Purchase applications rose 3.6% after the prior week&#39;s 4.1% decline to begin the month down modestly from May which rose 3.1% from April. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage fell to 5.78% from 5.83% the week prior. During only two other weeks this year has the 30 year rate been lower. The effective rate on a 15-year mortgage fell slightly to 5.41%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
U.S. Economy: We&#39;re All Living on Borrowed Time from William G. Gale and Peter R. Orszag at the Brookings Institution can be found <a href="http://www.brookings.edu/views/op-ed/20050601galeorszag.htm"> here</a>.
Banking, Markets and Efficiency from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr210.html"> 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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/03/05</th>
<th scope="col">05/27/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>755.5</td>
<td>709.1</td>
<td>32.8%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>479.3</td>
<td>462.7</td>
<td>10.9%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,362.1</td>
<td>2,142.1</td>
<td>73.3%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Total mortgage applications last week recovered more than all of the prior week's decline and rose 6.5%. Applications began the month 3.5% ahead of the May average which rose 6.5% versus April, according to the Mortgage Bankers [...]

Mortgage Applications Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050608a.jpg" width="353">
The Bureau of Labor Statistics reported that the job openings rate, from the Job Openings &amp; Labor Turnover Survey (JOLTS), firmed to nearly a four year high of 2.7%. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings. The total number of job openings also rose 1.8% m/m (17.8% y/y) after an upwardly revised gain in March.
The hires rate backpedaled to 3.4% from a downwardly revised March level. The hires rate is the number of hires during the month divided by employment.
Job separations were stable, indicated by a separation rate of 3.4%. Total separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Job Openings Rate: Total</td>
<td>2.7%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.4%</td>
<td>3.6%</td>
<td>3.4%</td>
<td>3.4%</td>
<td>3.2%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bureau of Labor Statistics reported that the job openings rate, from the Job Openings & Labor Turnover Survey (JOLTS), firmed to nearly a four year high of 2.7%. The job openings rate is the number of job openings on the last [...]

JOLTS: U.S. Job Openings Firm Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050608a.jpg" width="353">
The Bureau of Labor Statistics reported that the job openings rate, from the Job Openings &amp; Labor Turnover Survey (JOLTS), firmed to nearly a four year high of 2.7%. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings. The total number of job openings also rose 1.8% m/m (17.8% y/y) after an upwardly revised gain in March.
The hires rate backpedaled to 3.4% from a downwardly revised March level. The hires rate is the number of hires during the month divided by employment.
Job separations were stable, indicated by a separation rate of 3.4%. Total separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Job Openings Rate: Total</td>
<td>2.7%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.4%</td>
<td>3.6%</td>
<td>3.4%</td>
<td>3.4%</td>
<td>3.2%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
Mortgage Applications Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 8, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050608b.jpg" width="353">
Total mortgage applications last week recovered more than all of the prior week&#39;s decline and rose 6.5%. Applications began the month 3.5% ahead of the May average which rose 6.5% versus April, according to the Mortgage Bankers Association.
Applications to refinance were quite strong posting a 10.3% w/w increase and began June 9.7% higher than in May which rose 11.2% from April.
Purchase applications rose 3.6% after the prior week&#39;s 4.1% decline to begin the month down modestly from May which rose 3.1% from April. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage fell to 5.78% from 5.83% the week prior. During only two other weeks this year has the 30 year rate been lower. The effective rate on a 15-year mortgage fell slightly to 5.41%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
U.S. Economy: We&#39;re All Living on Borrowed Time from William G. Gale and Peter R. Orszag at the Brookings Institution can be found <a href="http://www.brookings.edu/views/op-ed/20050601galeorszag.htm"> here</a>.
Banking, Markets and Efficiency from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr210.html"> 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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/03/05</th>
<th scope="col">05/27/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>755.5</td>
<td>709.1</td>
<td>32.8%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>479.3</td>
<td>462.7</td>
<td>10.9%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,362.1</td>
<td>2,142.1</td>
<td>73.3%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Industrial Production Shows Three-Tiered Performance in Netherlands, Slovakia and Turkey 
by <a href="/comment/Stone.html">Carol Stone</a> June 8, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050608c.jpg" width="353">
Manufacturing activity advanced in three Euro-Asian nations in April, according to industrial production data published today by national statistical offices. In the Netherlands, manufacturing output gained 1.8%, partially reversing two down months. A generally sluggish pattern has prevailed there, so that April&#39;s amount was down 0.7% (working day adjusted) from April 2004. Total industrial output eased in the month by 0.5% as mining activity contracted.
In Slovakia, factory output surged 6% in April, a welcome gain after more than a year of basically no movement. Several diverse industries, especially machinery, textiles and wood products, contributed to the rise. Total industrial production also increased 6% in the month and was 5.5% ahead of a year ago.
For Turkey, a 3.7% rise in manufacturing production for April offset a 4.2% decline in March. Output there has been on a fairly firm uptrend so that year-on-year gains have run 5 to 6% over the past six months and were higher previously. As in Slovakia, a variety of industries are participating in this growth, although in both places, production in specific sectors varies widely from month to month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050608d.jpg" width="353">
These three countries represent three differing macro-models: the well-developed economy, the emerging economy that&#39;s fairly advanced and a more emergent emerging economy. It&#39;s intriguing to compare the position of industry within each one. In the Netherlands, industry contributes the smallest portion of the country&#39;s gross value added -- about 20%, compared with 26% for Slovakia and 29% for Turkey. Among other contrasts, finance and services come in the reverse order: they total about 25% of GDP in the Netherlands, but 15.5% in Slovakia and a mere 4% in Turkey. One might envision the mature economy as having the largest industrial sector, but on a relative basis, it&#39;s the &quot;younger&quot; economy, which is perhaps developing through its emphasis on manufacturing. The movement and trading of goods and services are about midway in the ranking of their contributions to GDP, with support services, such as finance, real estate and other business services coming in last in the younger economy (but first in the mature region). Relative patterns of growth fit this structure as well. Turkey has the most rapid growth rate: about 8% over the past five years, with Slovakia at 5% and the Netherlands just 0.5%-1% recently. This reminds us of the standard product cycle in an individual industry: rapid growth at first that moderates and then plateaus as the market for the product matures. Whole countries, it seems, can behave the same way.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Apr 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Netherlands: 2000 = 100</td>
<td>98.5</td>
<td>99.0</td>
<td>97.8</td>
<td>100.2</td>
<td>97.7</td>
<td>100.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>95.7</td>
<td>94.0</td>
<td>96.9</td>
<td>96.2</td>
<td>95.8</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining &amp; Quarrying</td>
<td>111.4</td>
<td>118.6</td>
<td>108.7</td>
<td>120.2</td>
<td>103.8</td>
<td>107.1</td>
</tr>
<tr>
<td class="firstcol">Slovakia: 2000 = 100</td>
<td>131.5</td>
<td>124.1</td>
<td>124.7</td>
<td>124.7</td>
<td>120.9</td>
<td>114.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>142.7</td>
<td>134.6</td>
<td>133.3</td>
<td>134.5</td>
<td>129.9</td>
<td>120.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mining &amp; Quarrying</td>
<td>84.1</td>
<td>86.6</td>
<td>90.8</td>
<td>94.4</td>
<td>105.5</td>
<td>111.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Turkey: 1997 = 100</td>
<td>131.1</td>
<td>126.5</td>
<td>125.0</td>
<td>123.4</td>
<td>112.4</td>
<td>103.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>131.1</td>
<td>126.4</td>
<td>126.1</td>
<td>123.7</td>
<td>112.1</td>
<td>102.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining &amp; Quarrying</td>
<td>91.4</td>
<td>87.7</td>
<td>72.4</td>
<td>82.6</td>
<td>79.4</td>
<td>82.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050607c.jpg" width="353">
Industrial production data for April were released today for Germany, Norway, Brazil and Hungary--a large and a small developed economy and a large and a small emerging economy.
The first chart compares the trend in manufacturing production for Germany and Norway. Indexes for manufacturing rather than the total are used as the total indexes for these countries are particularly erratic, including such volatile industries as construction in Germany and oil and gas extraction and mining and quarrying in Norway. For instance, the increase in the total index for Germany was 1.1% from March to April but after excluding the 18.6% rise in construction, manufacturing was up only 0.5%. In Norway the total was up 4.7%, but excluding the rise of 6.3% in oil and gas extraction and of 17.9% in mining and quarrying, up, manufacturing was up only 2.2% Production has increased in recent months in both countries, but there has been no strong trend since 2000. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050607d.jpg" width="353">
In contrast industrial production in the two emerging market countries has been in a strong uptrend since 2000 as can be seen in the second chart. While index numbers tell us nothing of magnitudes, they do reveal changes in the levels of production. To make it easier to compare the growth in production in the four countries we have adjusted the figures for Norway and Brazil, putting both on a bases of 2000 =100. The official Norway data are based on 1995=100 and those for Brazil, on 2002=100. These calculations are shown in the table below.
Currently production in the emerging market economies is well above 2000 levels--some 15% in Brazil and 30% in Hungary while manufacturing production in Norway is slightly below the level of 2000 and in Germany, only slightly above. Production in Brazil is beginning to falter, but production in Hungary is still strong.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany Mfg 2000=100</td>
<td>105.1</td>
<td>104.6</td>
<td>0.48</td>
<td>2.64</td>
<td>102.7</td>
<td>99.5</td>
<td>99.3</td>
</tr>
<tr>
<td class="firstcol">Norway Mfg 2000=100 Computed</td>
<td>98.4</td>
<td>96.2</td>
<td>2.22</td>
<td>5.63</td>
<td>95.3</td>
<td>93.9</td>
<td>98.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Norway Mfg 1995 =100 Official&nbsp;</td>
<td>101.4</td>
<td>99.2</td>
<td>2.22</td>
<td>5.63</td>
<td>98.2</td>
<td>96.8</td>
<td>101.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary 2000=100</td>
<td>130.50</td>
<td>126.58</td>
<td>3.10</td>
<td>7.26</td>
<td>123.10</td>
<td>114.37</td>
<td>107.82</td>
</tr>
<tr>
<td class="firstcol">Brazil 2000=100&nbsp; Computed</td>
<td>115.69</td>
<td>115.79</td>
<td>-0.04</td>
<td>4.68</td>
<td>112.78</td>
<td>104.37</td>
<td>104.37</td>
</tr>
<tr class="odd">
<td class="firstcol">Brazil 2002=100 Official</td>
<td>110.84</td>
<td>110.88</td>
<td>-0.04</td>
<td>4.68</td>
<td>108.05</td>
<td>100.0</td>
<td>100.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production data for April were released today for Germany, Norway, Brazil and Hungary--a large and a small developed economy and a large and a small emerging economy. The first chart compares the trend in manufacturing [...]

Industrial Production: Germany, Norway, Brazil and Hungary

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050607b.jpg" width="353">
April sales of semiconductors in the Americas as published by the Semiconductor Industry Association fell a sharp 21.1% following a like increase the month prior. This sideways movement in American sales of semis has been in place for roughly a year.
American sales of semiconductors account for 18% of the worldwide total, about half the percentage in 2000. Sales growth in the Asia/Pacific region averaged 41.3% last year, twice the American average, while sales in Japan rose 17.5%. The Asia/Pacific region currently accounts for just under one half of worldwide sales of semiconductors, up from less than one quarter in 2000.
During the last ten years there has been a 66% correlation between the y/y change in American sales of semiconductors and the change in real U.S. investment in equipment &amp; software.

<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/INDUSTRY/@I02/@I0211/@I021101/@I021101.HTM">Semiconductor Sales </a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Worldwide</td>
<td>$16.679B</td>
<td>$20.556B</td>
<td>4.7%</td>
<td>28.0%</td>
<td>18.3%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Americas</td>
<td>$2.920B</td>
<td>$3.701B</td>
<td>3.8%</td>
<td>20.8%</td>
<td>3.4%</td>
<td>-12.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

April sales of semiconductors in the Americas as published by the Semiconductor Industry Association fell a sharp 21.1% following a like increase the month prior. This sideways movement in American sales of semis has been in place for [...]

Semiconductor Sales Eased

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050607a.jpg" width="353">
Chain store sales rose a modest 0.4% during the opening week of June following three consecutive periods of decline according to the International Council of Shopping Centers (ICSC)-UBS survey. The slim increase left sales 0.7% below the May average which rose 0.3% versus April.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slipped 0.3% w/w (+0.8% y/y), the first decline in four weeks.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Last night&#39;s remarks by Fed Chairman Alan Greenspan are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050606/default.htm"> here</a>.
Battle at Bond Bluff: Forecasters vs. Financial Markets from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20050601/cover.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/04/05</th>
<th scope="col">05/28/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>452.9</td>
<td>451.2</td>
<td>3.3%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales rose a modest 0.4% during the opening week of June following three consecutive periods of decline according to the International Council of Shopping Centers (ICSC)-UBS survey. The slim increase left sales 0.7% below [...]

Chain Store Sales Recovered Some Last Week

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

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

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

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

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

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

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

250502C5.jpg

250502D5.jpg

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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Globally Manufacturing Weakens

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

Economy in Brief: June 2005

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