Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060907a.jpg" width="353">
Initial claims for jobless insurance fell 7,000 last week to 310,000 from an upwardly revised level during the last full week of August. Consensus expectations had been for 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims fell to 315,250 (-1.4% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060907b.jpg" width="353">
Continuing claims for unemployment insurance rose 15,000 following a decline of 6,000 the prior week that initially was reported as a modest increase.
The insured rate of unemployment was steady at 1.9% where it has been since February.
The latest Beige Book from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2006/20060906/default.htm">here</a>.
Welfare Recipiency, Job Separation Outcomes, and Postseparation Earnings: Insight from Linked Personnel and State Administrative Data from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/wp0607.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">9/02/06</th>
<th scope="col">8/26/06</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>310</td>
<td>319</td>
<td>-4.0%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,492</td>
<td>-3.5%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
July Industrial Production Expands in Germany & Hungary; Industry Remains Pillar of Growth 
by <a href="/comment/Stone.html">Carol Stone</a> September 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060907c.jpg" width="353">
We hear so much about the development of industry in various Asian nations that it&#39;s sometimes easy to think that industry elsewhere is shriveling up and fading away. This is hardly the case, as a quick look at new production data for Germany and Hungary can show.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060907d.jpg" width="353">
Industrial production increased 1.2% in Germany in July, far more than forecast survey expectations that called for 0.5%. Analysts apparently expected June&#39;s 0.4% decline to be reversed, but not exceeded, as it was. The year-on-year growth also more than reversed its prior month&#39;s performance, surging to 4.7% from a drop of 1.2%. Since the present expansion began in mid-2003, German industrial production has grown at a 3.5% annual rate.
In Hungary, production increased 1.1% in July, a third consecutive gain after a minor dip in April. The year-on-year advance is 12.2%. Growth there since early 2004 has averaged 8.7%. These figures cover firms with five or more employees; the total dataset for July will be out September 15.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060907e.jpg" width="353">
In both of these countries, the strength has come in more industrial products than in consumer goods. Germany reports details on the &quot;market groupings&quot; of its production, and during this latest 30-month recovery period, intermediate products have averaged 4.9% annualized growth, capital goods 5.5% and consumer goods 1.5%. July&#39;s industry performance over a year ago was above average for chemicals, rubber &amp; plastics, metals, machinery, electrical equipment and transport equipment. A similar pattern obtained in Hungary in its full dataset through June, with the addition of the mining sector, leather goods and &quot;not elsewhere classified&quot;, which includes furniture.
Thus, while consumer goods production, particularly nondurable goods, may have shifted to other geographic regions, &quot;heavy industry&quot; still appears to be firmly ensconced in Europe. In fact, in both Germany and Hungary, production of these industries is a major source of growth for the entire economy.

<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">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 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">Germany, 2000=100</td>
<td>109.5</td>
<td>108.2</td>
<td>108.6</td>
<td>104.6</td>
<td>104.1</td>
<td>101.7</td>
<td>98.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>1.2</td>
<td>-0.4</td>
<td>1.5</td>
<td>4.7</td>
<td>2.4</td>
<td>3.7</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary, 2000=100</td>
<td>148.4</td>
<td>146.8</td>
<td>143.9</td>
<td>133.0</td>
<td>132.0</td>
<td>122.9</td>
<td>114.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>1.1</td>
<td>2.0</td>
<td>1.6</td>
<td>12.2</td>
<td>7.4</td>
<td>7.5</td>
<td>6.6</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for jobless insurance fell 7,000 last week to 310,000 from an upwardly revised level during the last full week of August. Consensus expectations had been for 315,000 claims. During the last ten years there has been a [...]

Initial Jobless Insurance Claims Fell

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/060906h.jpg" width="353">
There&#39;s a nip of autumn in the air in the New York region, and that change in the weather begins to shift our attention from the price of gasoline to heating fuel costs. Haver has three new databases that help us assess &quot;how much it costs to produce heat&quot; and many other energy questions. Coming from Energy Intelligence, a leading oil industry consulting firm, Oil Market Intelligence (OMI), Natural Gas Week (NGW) and World Gas Intelligence (WGI) contain extensive price, supply, demand and stock data for several energy sources in the US and around the world.
For instance, we can compare the cost of various fuels on a common basis, since NGW and WGI contain prices expressed in both the unit each fuel is commonly sold in, as well as in millions of Btu of energy produced. Last week, WTI Cushing crude was priced at $70.54/barrel and $12.16 per million Btu, and heating oil at the New York harbor was $1.9312/gallon and $13.92/MMBtu. By contrast, coal from Big Sandy River, Ohio, was $46.50 a ton, which translates into $1.94/MMBtu.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906i.jpg" width="353">
These databases also facilitate comparisons across geographic markets. So in the winter of 2000/2001, we can quickly see how distorted the natural gas market was in California. As evident from the second graph, the New York &quot;City Gate&quot; price was about $4.50/MMBtu in late summer and peaked over the New Year in a range of $10-$16. It has shown seasonal spikes during the winter in most other years. However, in California, there looks to be only the mildest of seasonal swings then, as one might surmise from the temperate climate there. Except in 2001. In August 2000, the price was $5 to $6. In December it was $26, reaching a peak of $37.12 in the third week of December and remaining above $10/MMBtu until early May. A casual observer [in truth, someone just now passing by my desk] remarked, &quot;my, what was wrong in LA that winter!&quot; Lots. Similarly, it&#39;s easy to see the impact of Hurricanes Katrina and Rita in 2005.
The frequencies of these data vary, with some daily, some weekly and some monthly. Coverage of Europe is quite detailed, and supply and demand information on Asia is extensive. These databases, well established in the industry, should be very useful to Haver clients.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">Selected Fuel Prices prices, $</th>
<th scope="col">9/4/06</th>
<th scope="col">8/28/06</th>
<th scope="col">July 2006</th>
<th scope="col">Aug 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">Heating Oil: New York Harbor, &nbsp;&nbsp; $/bbl</td>
<td>1.9312</td>
<td>1.9764</td>
<td>1.9270</td>
<td>1.7059</td>
<td>1.6109</td>
<td>1.1089</td>
<td>0.8418</td>
</tr>
<tr>
<td class="firstcol">&nbsp; $/MMBtu</td>
<td>13.92</td>
<td>14.25</td>
<td>13.89</td>
<td>12.30</td>
<td>11.82</td>
<td>8.05</td>
<td>6.13</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas: New York City Gate, &nbsp; $/MMBtu</td>
<td>5.92</td>
<td>7.72</td>
<td>6.85</td>
<td>9.54</td>
<td>10.01</td>
<td>6.78</td>
<td>6.41</td>
</tr>
<tr>
<td class="firstcol">Natural Gas: Los Angeles City Gate, &nbsp; $/MMBtu</td>
<td>--</td>
<td>6.81</td>
<td>6.22</td>
<td>8.04</td>
<td>7.93</td>
<td>5.93</td>
<td>5.61</td>
</tr>
<tr class="odd">
<td class="firstcol">Coal: Sandy River, Ohio, &nbsp; $/ton</td>
<td>46.50</td>
<td>47.25</td>
<td>46.85</td>
<td>57.05</td>
<td>56.26</td>
<td>54.56</td>
<td>32.96</td>
</tr>
<tr>
<td class="firstcol">&nbsp; $/MMBtu</td>
<td>1.94</td>
<td>1.97</td>
<td>1.95</td>
<td>2.40</td>
<td>2.38</td>
<td>2.28</td>
<td>1.38</td>
</tr>
</tbody>
</table>
</body>
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There's a nip of autumn in the air in the New York region, and that change in the weather begins to shift our attention from the price of gasoline to heating fuel costs. Haver has three new databases that help us assess "how much it [...]

How Much Does It Cost To Produce Heat?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906g.jpg" width="353">
The total number of mortgage applications recovered 1.8% last week, according to the Mortgage Bankers Association, after a 0.9% decline at the end of August. The gain lifted the opening September level 1.5% versus the August average which rose 2.9% from July.
A 3.7% w/w increase in purchase applications followed several weeks of decline and lifted applications 1.7% above the August average which fell 3.5% from July.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance slipped 0.9%.
The effective interest rate on a conventional 30-year mortgage fell to 6.53% from 6.60% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell to 6.25% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
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>.

<table border="0" cellspacing="0" width="100%">
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<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">09/01/06</th>
<th scope="col">08/25/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>566.3</td>
<td>556.5</td>
<td>-26.6%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.7</td>
<td>375.9</td>
<td>-21.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,594.7</td>
<td>1,609.2</td>
<td>-26.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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The total number of mortgage applications recovered 1.8% last week, according to the Mortgage Bankers Association, after a 0.9% decline at the end of August. The gain lifted the opening September level 1.5% versus the August average [...]

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/060906b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales rose another 0.3% last week after the 0.6% increase at the end of August.
The gains were the first back to back weekly increases in a month and lifted sales in early September 0.6% above the August average which rose 0.4% from July.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
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.
The leading indicator of chain store sales from ICSC-UBS slipped another 0.1% (-2.5% y/y) in the latest week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906a.jpg" width="353">
The retail price for a gallon of regular unleaded gasoline dropped a sharp twelve cents to an average $2.73 (-11.1% y/y), the lowest level since early April. In spot market trading yesterday, regular unleaded gasoline prices fell again to $1.67, down twelve cents from last week&#39;s average.
Oil prices also fell with the spot price of WTI crude down to $68.61 per bbl. (+4.0% y/y). Natural gas prices similarly fell to $5.49/mmbtu (-52.6% y/y) in spot trading.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<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">09/02/06</th>
<th scope="col">08/26/06</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">Total Weekly Chain Store Sales</td>
<td>473.2</td>
<td>471.7</td>
<td>3.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales rose another 0.3% last week after the 0.6% increase at the end of August. The gains were the first back to back weekly increases in a [...]

Chain Store Sales Up Again, Gasoline Prices Down Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906f.jpg" width="353">
The August Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) improved to 57.0 and exceeded Consensus expectations for stability near 55.0.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index fell for the fourth consecutive month to the lowest level in three years while the employment index also fell to its lowest level since January. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power fell for the second month in the last three and was somewhat below the 2Q average. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
Barreling Down the Road to Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060901/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.0</td>
<td>54.8</td>
<td>64.8</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.4</td>
<td>74.8</td>
<td>67.2</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


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The August Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) improved to 57.0 and exceeded Consensus expectations for stability near 55.0. Since the series' inception in 1997 there [...]

ISM Nonmanufacturing Index Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906d.jpg" width="353">
Non-farm labor productivity growth last quarter was revised upward to 1.6%, about as expected. The gain remained, however, quite a bit slower than the 2.7% average quarterly growth during the prior four quarters.
Compensation growth also was revised up, but to a much greater degree. The revised 6.6% 2Q increase compared to a preliminary report of a 5.4% gain and the revised 13.7% surge during 1Q was more than double the initial report.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906c.jpg" width="353">
Unit labor costs, therefore, surged. The revised 2Q increase of 4.9% was up from the initial report of a 4.2% gain and the 9.0% increase now estimated for 1Q compares to a 2.5% increase reported last month.
Factory sector productivity growth was revised down slightly to 2.6% (3.7% y/y) after a 3.7% 1Q increase. Factory sector compensation per hour, however, was revised up to a 4.0% (6.1% y/y) gain from 1.7%.
The previous sense that unit labor costs in the factory sector were under control, therefore, was revised away. Costs rose 1.3% (2.4% y/y) after a 9.3% 1Q rise that was revised from 1.4%.
In the nonfinancial corporate sector 2Q productivity, reported for the first time, grew 2.2% (4.8% y/y) after an 11.1% surge during 1Q. Unit labor costs grew 4.2% (2.6% y/y), the most since 3Q &#39;05.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906e.jpg" width="353">
Prices in the nonfinancial corporate sector rose and the implicit price deflator increased 3.4% (3.3% y/y). As a result the ratio of prices to unit labor costs fell. Corporate profit growth of 3.2% last quarter was down from 12.6% during 1Q and was the slowest in nearly a year. During the last ten years there has been a 46% correlation between the ratio and the y/y change in corporate profits.
Do Inflation Targeters Outperform Non-targeters? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf">here</a><a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf">.</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">2Q&#39; 06 (Revised)</th>
<th scope="col">1Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.6%</td>
<td>4.3%</td>
<td>2.5%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>6.6%</td>
<td>13.7%</td>
<td>7.7%</td>
<td>4.4%</td>
<td>3.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>4.9%</td>
<td>9.0%</td>
<td>5.0%</td>
<td>2.0%</td>
<td>0.7%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>


</html>

Non-farm labor productivity growth last quarter was revised upward to 1.6%, about as expected. The gain remained, however, quite a bit slower than the 2.7% average quarterly growth during the prior four quarters. Compensation growth [...]

2Q U.S. Productivity Revised Up, Compensation Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906d.jpg" width="353">
Non-farm labor productivity growth last quarter was revised upward to 1.6%, about as expected. The gain remained, however, quite a bit slower than the 2.7% average quarterly growth during the prior four quarters.
Compensation growth also was revised up, but to a much greater degree. The revised 6.6% 2Q increase compared to a preliminary report of a 5.4% gain and the revised 13.7% surge during 1Q was more than double the initial report.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906c.jpg" width="353">
Unit labor costs, therefore, surged. The revised 2Q increase of 4.9% was up from the initial report of a 4.2% gain and the 9.0% increase now estimated for 1Q compares to a 2.5% increase reported last month.
Factory sector productivity growth was revised down slightly to 2.6% (3.7% y/y) after a 3.7% 1Q increase. Factory sector compensation per hour, however, was revised up to a 4.0% (6.1% y/y) gain from 1.7%.
The previous sense that unit labor costs in the factory sector were under control, therefore, was revised away. Costs rose 1.3% (2.4% y/y) after a 9.3% 1Q rise that was revised from 1.4%.
In the nonfinancial corporate sector 2Q productivity, reported for the first time, grew 2.2% (4.8% y/y) after an 11.1% surge during 1Q. Unit labor costs grew 4.2% (2.6% y/y), the most since 3Q &#39;05.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906e.jpg" width="353">
Prices in the nonfinancial corporate sector rose and the implicit price deflator increased 3.4% (3.3% y/y). As a result the ratio of prices to unit labor costs fell. Corporate profit growth of 3.2% last quarter was down from 12.6% during 1Q and was the slowest in nearly a year. During the last ten years there has been a 46% correlation between the ratio and the y/y change in corporate profits.
Do Inflation Targeters Outperform Non-targeters? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf">here</a><a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf">.</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">2Q&#39; 06 (Revised)</th>
<th scope="col">1Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.6%</td>
<td>4.3%</td>
<td>2.5%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>6.6%</td>
<td>13.7%</td>
<td>7.7%</td>
<td>4.4%</td>
<td>3.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>4.9%</td>
<td>9.0%</td>
<td>5.0%</td>
<td>2.0%</td>
<td>0.7%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906f.jpg" width="353">
The August Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) improved to 57.0 and exceeded Consensus expectations for stability near 55.0.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index fell for the fourth consecutive month to the lowest level in three years while the employment index also fell to its lowest level since January. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power fell for the second month in the last three and was somewhat below the 2Q average. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
Barreling Down the Road to Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060901/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/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.0</td>
<td>54.8</td>
<td>64.8</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.4</td>
<td>74.8</td>
<td>67.2</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>
Chain Store Sales Up Again, Gasoline Prices Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales rose another 0.3% last week after the 0.6% increase at the end of August.
The gains were the first back to back weekly increases in a month and lifted sales in early September 0.6% above the August average which rose 0.4% from July.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
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.
The leading indicator of chain store sales from ICSC-UBS slipped another 0.1% (-2.5% y/y) in the latest week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906a.jpg" width="353">
The retail price for a gallon of regular unleaded gasoline dropped a sharp twelve cents to an average $2.73 (-11.1% y/y), the lowest level since early April. In spot market trading yesterday, regular unleaded gasoline prices fell again to $1.67, down twelve cents from last week&#39;s average.
Oil prices also fell with the spot price of WTI crude down to $68.61 per bbl. (+4.0% y/y). Natural gas prices similarly fell to $5.49/mmbtu (-52.6% y/y) in spot trading.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/02/06</th>
<th scope="col">08/26/06</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">Total Weekly Chain Store Sales</td>
<td>473.2</td>
<td>471.7</td>
<td>3.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Mortgage Applications Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906g.jpg" width="353">
The total number of mortgage applications recovered 1.8% last week, according to the Mortgage Bankers Association, after a 0.9% decline at the end of August. The gain lifted the opening September level 1.5% versus the August average which rose 2.9% from July.
A 3.7% w/w increase in purchase applications followed several weeks of decline and lifted applications 1.7% above the August average which fell 3.5% from July.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance slipped 0.9%.
The effective interest rate on a conventional 30-year mortgage fell to 6.53% from 6.60% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell to 6.25% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
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>.

<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">09/01/06</th>
<th scope="col">08/25/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>566.3</td>
<td>556.5</td>
<td>-26.6%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.7</td>
<td>375.9</td>
<td>-21.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,594.7</td>
<td>1,609.2</td>
<td>-26.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
How Much Does It Cost To Produce Heat? 
by <a href="/comment/Stone.html">Carol Stone</a> September 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906h.jpg" width="353">
There&#39;s a nip of autumn in the air in the New York region, and that change in the weather begins to shift our attention from the price of gasoline to heating fuel costs. Haver has three new databases that help us assess &quot;how much it costs to produce heat&quot; and many other energy questions. Coming from Energy Intelligence, a leading oil industry consulting firm, Oil Market Intelligence (OMI), Natural Gas Week (NGW) and World Gas Intelligence (WGI) contain extensive price, supply, demand and stock data for several energy sources in the US and around the world.
For instance, we can compare the cost of various fuels on a common basis, since NGW and WGI contain prices expressed in both the unit each fuel is commonly sold in, as well as in millions of Btu of energy produced. Last week, WTI Cushing crude was priced at $70.54/barrel and $12.16 per million Btu, and heating oil at the New York harbor was $1.9312/gallon and $13.92/MMBtu. By contrast, coal from Big Sandy River, Ohio, was $46.50 a ton, which translates into $1.94/MMBtu.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906i.jpg" width="353">
These databases also facilitate comparisons across geographic markets. So in the winter of 2000/2001, we can quickly see how distorted the natural gas market was in California. As evident from the second graph, the New York &quot;City Gate&quot; price was about $4.50/MMBtu in late summer and peaked over the New Year in a range of $10-$16. It has shown seasonal spikes during the winter in most other years. However, in California, there looks to be only the mildest of seasonal swings then, as one might surmise from the temperate climate there. Except in 2001. In August 2000, the price was $5 to $6. In December it was $26, reaching a peak of $37.12 in the third week of December and remaining above $10/MMBtu until early May. A casual observer [in truth, someone just now passing by my desk] remarked, &quot;my, what was wrong in LA that winter!&quot; Lots. Similarly, it&#39;s easy to see the impact of Hurricanes Katrina and Rita in 2005.
The frequencies of these data vary, with some daily, some weekly and some monthly. Coverage of Europe is quite detailed, and supply and demand information on Asia is extensive. These databases, well established in the industry, should be very useful to Haver clients.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Selected Fuel Prices prices, $</th>
<th scope="col">9/4/06</th>
<th scope="col">8/28/06</th>
<th scope="col">July 2006</th>
<th scope="col">Aug 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">Heating Oil: New York Harbor, &nbsp;&nbsp; $/bbl</td>
<td>1.9312</td>
<td>1.9764</td>
<td>1.9270</td>
<td>1.7059</td>
<td>1.6109</td>
<td>1.1089</td>
<td>0.8418</td>
</tr>
<tr>
<td class="firstcol">&nbsp; $/MMBtu</td>
<td>13.92</td>
<td>14.25</td>
<td>13.89</td>
<td>12.30</td>
<td>11.82</td>
<td>8.05</td>
<td>6.13</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas: New York City Gate, &nbsp; $/MMBtu</td>
<td>5.92</td>
<td>7.72</td>
<td>6.85</td>
<td>9.54</td>
<td>10.01</td>
<td>6.78</td>
<td>6.41</td>
</tr>
<tr>
<td class="firstcol">Natural Gas: Los Angeles City Gate, &nbsp; $/MMBtu</td>
<td>--</td>
<td>6.81</td>
<td>6.22</td>
<td>8.04</td>
<td>7.93</td>
<td>5.93</td>
<td>5.61</td>
</tr>
<tr class="odd">
<td class="firstcol">Coal: Sandy River, Ohio, &nbsp; $/ton</td>
<td>46.50</td>
<td>47.25</td>
<td>46.85</td>
<td>57.05</td>
<td>56.26</td>
<td>54.56</td>
<td>32.96</td>
</tr>
<tr>
<td class="firstcol">&nbsp; $/MMBtu</td>
<td>1.94</td>
<td>1.97</td>
<td>1.95</td>
<td>2.40</td>
<td>2.38</td>
<td>2.28</td>
<td>1.38</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905i.jpg" width="353">
Data on the volume of retail trade in the twelve members of the Euro-zone and the twenty-five members of the European Union are, for the most part, reported on a seasonally unadjusted basis, a working day adjusted basis, which is also unadjusted for seasonality, a seasonally adjusted basis, which includes the working day adjustment and an estimate of the trend. Eurostat highlights the year over year changes in the working day adjusted series and the month to month changes in the seasonally adjusted series.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905g.jpg" width="353">
Preliminary data were released today for July. In the Euro-zone, based on partial data (data for Greece, Ireland, Italy, Luxembourg and the Netherlands are not yet available*), the volume of trade was 2.5% above July, 2005 and, on a seasonally adjusted basis, 0.6% above June. 2006. Similar figures for the European Union 25 were 3.3% and 0.3%. In addition to the missing Euro-zone data, data for the Czech Republic, Cyprus, Malta and Hungary are not available**.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905h.jpg" width="353">
The trends of the volume of trade in the two series are shown in the first chart. The increasing gap between the two series, indicates that the growth in the volume of retail trade in the eastern European countries, the Baltic states, and Denmark, Sweden and the U. K. the European, has, on average, been greater than that of the Euro-zone countries as a whole. Growth in retail trade. however, has varied widely in both the Euro-zone and the non-Euro-zone countries in the European Union. As an example of the different growth rates in the Euro-zone, the second chart compares, the volume of retail trade in France and Germany. In July, 2006, the volume of retail trade in Germany was only 2.4% above the volume in 2000, while the volume in France was 18.0% above the 2000 volume. As an example of the different growth rates in the non Euro-zone countries, the third chart compares the volume of trade in Poland and in Estonia. Although Poland&#39;s growth in retail trade is low when compared to that of Estonia, it is within the range of that of France which is one of the faster growth countries in the Euro-zone. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Volume of Retail Trade (2000=100)</th>
<th scope="col">Jul&nbsp; 06</th>
<th scope="col">Jun 06</th>
<th scope="col">Jul 05</th>
<th scope="col">M/M Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dif&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</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">France&nbsp;</td>
<td>118.0</td>
<td>116.2</td>
<td>114.3</td>
<td>1.55</td>
<td>3.24</td>
<td>114.7</td>
<td>113.2</td>
<td>109.7</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>102.4</td>
<td>104.0</td>
<td>101.6</td>
<td>-1.54</td>
<td>0.79</td>
<td>101.6</td>
<td>100.1</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Estonia</td>
<td>218.5</td>
<td>211.9</td>
<td>183.4</td>
<td>3.11</td>
<td>19.14</td>
<td>181.84</td>
<td>158.98</td>
<td>141.34</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>122.2</td>
<td>124.3</td>
<td>112.1</td>
<td>-1.69</td>
<td>9.01</td>
<td>111.59</td>
<td>110.24</td>
<td>105.14</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-zone</td>
<td>108.8</td>
<td>108.1</td>
<td>106.</td>
<td>0.65</td>
<td>2.64</td>
<td>106.58</td>
<td>105.21</td>
<td>103.73</td>
</tr>
<tr>
<td class="firstcol">European Union</td>
<td>115.1</td>
<td>114.5</td>
<td>111.5</td>
<td>0.26</td>
<td>3.23</td>
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Data on the volume of retail trade in the twelve members of the Euro-zone and the twenty-five members of the European Union are, for the most part, reported on a seasonally unadjusted basis, a working day adjusted basis, which is also [...]

Retail Trade Volume in the Euro-zone and the European Union: The Gap Continues to Widen

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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: September 2006

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Retail Trade Volume in the Euro-zone and the European Union: The Gap Continues to Widen