Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011a.jpg" width="353">
The U.S. foreign trade deficit in August narrowed very slightly to $57.6B from $59.0B in July which was revised slightly shallower from the initial report. The August deficit was below Consensus expectations for a deficit of $58.7B.
The August deficit was the lowest since January and the average deficit of $59.0B during the last eight months compares to an average of $64.7B during the first eight months of 2006.
U.S. exports rose just 0.4%, the smallest monthly increase since April.
Exports of goods rose 0.4% (13.3% y/y) though exports of capital goods fell 0.6% ( +9.9% y/y). Exports of advanced technology goods exports rose 4.8% (8.9% y/y) and recouped most of the prior month&#39;s 8.6% drop. Exports of autos &amp; products fell 8.4% (+10.3% y/y) after a 14.5% surge during July. Exports of nonauto consumer goods worked the other way and rose 1.5% (12.9% y/y) while exports of foods, feeds &amp; beverages surged 8.7% (26.2% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071011b.jpg" width="353">
U.S. exports of services rose 0.6% (11.8% y/y) after a slight slip during July. The modest increase came as exports of travel surged 2.0% (14.8% y/y) and passenger fares also surged by 2.0% (11.7% y/y).
Overall imports fell 0.4% though imports of petroleum products rose 4.4% (-3.0% y/y) as the price per barrel of crude petroleum rose 3.9% (3.0% y/y). Imports of nonauto consumer goods fell 0.5% (+5.1% y/y) though capital goods imports rose 0.9% (+3.4% y/y). Imports of advanced technology products made up all of the prior month&#39;s decline and rose 3.1% (12.1% y/y).
The U.S. trade deficit in goods with China improved slightly m/m to $22.5B versus a deficit of $22.0B the during August of &#39;06.
International Trade: Why We Don&#146;t Have More of It from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q3/ostapik-yi_international-trade.pdf"> here</a>.
Is the United States Losing Its Productivity Advantage? from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci13-8/ci13-8.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U.S. Trade Deficit</td>
<td>$57.6B</td>
<td>$59.0B</td>
<td>$67.6B (8/06)</td>
<td>$758.5</td>
<td>$714.4B</td>
<td>$612.1B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>0.4%</td>
<td>2.7%</td>
<td>12.8%</td>
<td>12.7%</td>
<td>10.9%</td>
<td>13.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>3.0%</td>
<td>10.4%</td>
<td>12.9%</td>
<td>16.8%</td>
</tr>
</tbody>
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The U.S. foreign trade deficit in August narrowed very slightly to $57.6B from $59.0B in July which was revised slightly shallower from the initial report. The August deficit was below Consensus expectations for a deficit of $58.7B. [...]

U.S. August Trade Deficit Smallest Since January

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/071010e.jpg" width="353">
Last Friday, we wrote here about the current ECB survey of bank lending policies. A couple of weeks ago, the Bank of England published the first results of a similar, brand new survey of bank and nonbank lenders in the UK. These survey results for Q2 and Q3 were published together on September 26 and they were added to Haver&#39;s UK database this past Monday. Survey questions cover secured loans to households and small business, unsecured loans to households and small business and overall lending to corporations, each queried for the lenders&#39; experience over the past three months and their expectations for the coming three months. The Q2 survey was taken between May 21 and June 14 and Q3 between August 20 and September 13. Here is a brief summary of what the survey showed. Keep in mind that there are just two datapoints for each item so far; responses are shown as net balance figures compiled from a 5-point rating scheme: down or negative a lot, down a little, unchanged, up a little and up a lot.
Secured Lending to Households. Lenders reported in June that they had reduced the availability of secured credit to households just slightly during the spring, with a reading of -2.9 on this question. They expected then to increase availability distinctly over the summer, with a &quot;next 3 months&quot; reading of +13.4. However, by the September survey dates, it turns out that this credit supply was basically unchanged, at +0.1, but lenders still expect to be somewhat more liberal in the coming months, at +5.8. Changes in the economic outlook and in the lenders&#39; views on risk are the main factors making secured credit less available than expected in Q3. On the demand side, developments were mixed: demand for credit for house purchase, whether for owner-occupied or &quot;buy-to-let&quot;, was stronger (or less weak) than expected in Q3, but demand for &quot;remortgaging&quot; and other secured credit was less than expected. Other survey questions cover pricing, including both spreads and fees and other lending terms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010f.jpg" width="353"> 
Unsecured Lending to Households. In June, lenders said they had been restrictive on balance in granting unsecured credit to households during Q2, with a reading of -14.3, but they were planning to be more liberal, at +4.9, over the summer. However, as it turned out, they remained restrictive in Q3, again showing a double-digit negative, at -10.2. Further, they expected to remain a little tight in Q4 at -2.9. At the same time, the proportion of loan applications approved has gone up. Compared with the expectation of +5.2, the Q3 outcome was +15.0; both credit card and &quot;other&quot; unsecured loan categories had this general pattern. Demand for this type of borrowing was mildly weaker than expected, showing slightly negative readings in contrast to expectations of small positives. Small business credit demand was more clearly negative than expected. Pricing, i.e., spreads, was more favorable for lending in Q3 than in Q2 and also more favorable than had been expected. 
Lending to Corporations. Major business lending policies were significantly more restrictive in Q3 than they had been in Q2 and also than they were expected to be then. Credit availability was +1.8 in Q2 and anticipated to be flat in Q3. Instead, it was -20.2 in Q3 and it is expected to become much more restricted in Q4 at -49.3. All factors on credit supply which are queried on the survey were more negative in the later polling. These include sector-specific risks and pressure from capital markets, as well as more general factors also queried with household lending: economic outlook, appetite for risk, cost and availability of funding and market share objectives. Loan demand from both large and medium-size nonfinancial corporations (PNFCs) became weaker over the summer. That from &quot;other financial corporations&quot; (OFCs) generally went from flat or modestly positive to modestly negative. Balance sheet restructuring and a slowing commercial real estate market are seen as the factors impinging most on the demand shifts. 
In our third graph, we show one of the non-price features of lending policy, the lender&#39;s fees and commissions. The graph shows the impact of this on credit volume, so the positive bars indicate a reduction in fees and the negative bars show a increase. Thus, these survey results say that lenders had cut their fees in Q2 and expected to do so again in Q3. But instead they raised their fees -- discouraging borrowing -- and intend to do so even more in Q4.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010g.jpg" width="353">
As is evident from these overly terse comments, this survey is comprehensive, covering many of the determinants of credit supply and demand at lending institutions. The Bank of England points out that when data on flows and outstandings are examined, it is not possible to tell whether a change is due to supply or demand factors. This survey will help considerably to assess those developments, and as we see here, they are not uniform over credit sectors, so the three-part survey is a most helpful approach. The present results are too sketchy, though, to compare with actual lending patterns. It will take time to accumulate results that permit matching survey readings, such as a +10 or a -20, with specific loan volumes. We wish we could do that now!

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Last Friday, we wrote here about the current ECB survey of bank lending policies. A couple of weeks ago, the Bank of England published the first results of a similar, brand new survey of bank and nonbank lenders in the UK. These [...]

New Bank of England Credit Survey Shows Tightening Availability Amidst Mixed Demand from Borrowers

Robert Brusca

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<img align="left" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010d.jpg">
Survey backs off and points to weaker conditions ahead&#133; 
The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business expectations now sit at the lowest level among the respective percentiles of the components and that reading is still in the 83rdpercentile. The overall for economics conditions is in the 91stpercentile. The remaining indexes are all in their respective low 90s.
The chart on the left also looks at changes over one two and three years. (Survey reports three observations per year; plot on the chart is quarterly.) Economic conditions are up by 35 points over three years and 31 points over two years, so most of the rise has been in the last two years. In the current year the index is up by seven points compared to 31 points over two years. This is clear evidence that the rate of optimism is slowing down. The four point drop in the current quarter has not taken the year/year rise out of the series yet. The investment and hiring intention series show a similar slowing in the optimism in the past year after an outsized gain of the year before.
DIHK shows that while readings remain elevated, a slowing of some degree is in prospect.


<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">DIHK-Balance of Economic Opinion</th>
</tr>
</thead>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Net Balance Readings</td>
<td colspan="3">Change</td>
<td>Range Q4&#39;91</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q4-07</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Yr Ago</td>
<td>2-Yr</td>
<td>3-Yr</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Economic Conditions</td>
<td>31</td>
<td>35</td>
<td>36</td>
<td>7</td>
<td>31</td>
<td>35</td>
<td>91.9</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Business Expectations</td>
<td>15</td>
<td>24</td>
<td>17</td>
<td>6</td>
<td>12</td>
<td>12</td>
<td>83.9</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Export Expectations</td>
<td>39</td>
<td>38</td>
<td>42</td>
<td>4</td>
<td>7</td>
<td>4</td>
<td>95.2</td>
</tr>

<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Investment Intentions</td>
<td>13</td>
<td>16</td>
<td>13</td>
<td>6</td>
<td>19</td>
<td>24</td>
<td>93.5</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Hiring Intentions</td>
<td>9</td>
<td>12</td>
<td>8</td>
<td>9</td>
<td>23</td>
<td>26</td>
<td>93.3</td>
</tr>




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Survey backs off and points to weaker conditions ahead The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business [...]

Germany's DIHK Survey Points to Slowdown

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010c.jpg" width="353">
EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain it&#146;s up at an 8% rate. Even Italy shows a 4.4% rate of increase. The UK, an EU member, is showing slower IP growth in Q3 as output is up at just a 0.8% rate of increase. Sequential IP growth figures show us that growth has been accelerating in Germany, France and Italy. Spain shows sudden weakness in the most recent three months The UK shows some sporadic slowing as the recent rates of growth reveal a slow down over three months but over six months, a speed up.
On balance, despite weakening orders and slowdown assessment from Germany&#146;s Chamber of Commerce (DIHK) and weaker surveys from the Reuters NTC survey as well as from various national surveys, actual production has been on an accelerating run. What we see is that this acceleration is counter to what surveys say they now expect. Some of the divergence reflects inter-temporal discord and mismatch. Since the financial market situation only began to turn abruptly in August before mid month, it is the reports of the next several months that should be most revealing as far as output is concerned. Up to now what we see is that, despite some weaker (and more topical) survey findings, actual output has remained firm through August for the main economies of EMU. Separately what survey data tell us is this: don&#146;t get used to it.

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th scope="col" colspan="8">Main Euro Area Countries and UK IP in MFG</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>

<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Month</td>
<td>6-month</td>
<td>12-month</td>
<td>Q2-Date</td>
</tr>
<tr>
<td class="firstcol">Germany: Mfg IP</td>

<td>1.8%</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>7.2%</td>
<td>5.6%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP ex Construction</td>

<td>0.3%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>6.3%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">Italy: Mfg IP</td>

<td>1.5%</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>5.9%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain: Mfg IP</td>

<td>1.3%</td>
<td>1.7%</td>
<td>-4.2%</td>
<td>-5.3%</td>
<td>3.9%</td>
<td>0.5%</td>
<td>8.0%</td>
</tr>
<tr>
<td class="firstcol">UK: Mfg IP</td>

<td>0.4%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>3.4%</td>
<td>0.6%</td>
<td>0.8%</td>
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EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain its up at an 8% rate. Even [...]

IP in Euro Area Still Growing Despite Slowing Signs

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010b.jpg" width="353">
The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices have moved sideways.
The lack of a further decline in gasoline prices continues to reflect the positive fundamentals including low inventories of gasoline, very low gasoline production and higher crude oil prices.
It might have been hoped that the recent downtick in crude oil prices would help gasoline prices decline further. That downtick likely reflects speculation of a warm Winter in the northern hemisphere and higher OPEC production.
But WTI crude oil prices of roughly $80 per barrel remain up 15% from the recent low of $70 per barrel in early August. The recent downtick in prices is from late September highs above $83 which were held for only a few days.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010a.jpg" width="353">
Spot market prices for home heating oil have moved slightly lower as well to $2.14 per gallon from the daily high of $2.22 reached last week. That price is, however, up from the low of $1.50 reached early this year.
Henry Hub prices for natural gas have moved higher ahead of the home heating season. The rise to 6.76 per million BTU is from the weekly low in early September. But those prices are down from last winter&#39;s high near 8.00
Energy statistics are available daily in Haver Analytics&#39; DAILY database, weekly in WEEKLY and OILWKLY, monthly/quarterly in USECON and OGJ, and annual in OGJANN. Data from Energy Intelligence are also available in OMI, NGW and WGI.
The minutes from the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071009a.htm">here</a>.
A Pattern of Regional Differences in the Effects of Monetary Policy from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q3/crone_pattern-regional-differences.pdf">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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">Department of Energy</a></th>
<th scope="col">10/08/07</th>
<th scope="col">10/01/07 </th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Gasoline ($/gallon)</td>
<td>2.77</td>
<td>2.79</td>
<td>2.80</td>
<td>2.79</td>
<td>2.58</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Home Heating Oil ($/gallon)</td>
<td>--</td>
<td>2.14</td>
<td>2.15</td>
<td>1.96</td>
<td>1.59</td>
<td>1.63</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas $/mmbtu)</td>
<td>--</td>
<td>6.76</td>
<td>6.06</td>
<td>6.24</td>
<td>6.74</td>
<td>8.68</td>
</tr>
<tr>
<td class="firstcol">WTI Crude Oil ($/bbl.)</td>
<td>--</td>
<td>80.06</td>
<td>79.12</td>
<td>71.51</td>
<td>61.11</td>
<td>58.16</td>
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The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices [...]

U.S. Gasoline Prices Move Further Sideways

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010b.jpg" width="353">
The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices have moved sideways.
The lack of a further decline in gasoline prices continues to reflect the positive fundamentals including low inventories of gasoline, very low gasoline production and higher crude oil prices.
It might have been hoped that the recent downtick in crude oil prices would help gasoline prices decline further. That downtick likely reflects speculation of a warm Winter in the northern hemisphere and higher OPEC production.
But WTI crude oil prices of roughly $80 per barrel remain up 15% from the recent low of $70 per barrel in early August. The recent downtick in prices is from late September highs above $83 which were held for only a few days.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010a.jpg" width="353">
Spot market prices for home heating oil have moved slightly lower as well to $2.14 per gallon from the daily high of $2.22 reached last week. That price is, however, up from the low of $1.50 reached early this year.
Henry Hub prices for natural gas have moved higher ahead of the home heating season. The rise to 6.76 per million BTU is from the weekly low in early September. But those prices are down from last winter&#39;s high near 8.00
Energy statistics are available daily in Haver Analytics&#39; DAILY database, weekly in WEEKLY and OILWKLY, monthly/quarterly in USECON and OGJ, and annual in OGJANN. Data from Energy Intelligence are also available in OMI, NGW and WGI.
The minutes from the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071009a.htm">here</a>.
A Pattern of Regional Differences in the Effects of Monetary Policy from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q3/crone_pattern-regional-differences.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/@EF14/@EF1402/@EF1402.HTM">Department of Energy</a></th>
<th scope="col">10/08/07</th>
<th scope="col">10/01/07 </th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Gasoline ($/gallon)</td>
<td>2.77</td>
<td>2.79</td>
<td>2.80</td>
<td>2.79</td>
<td>2.58</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Home Heating Oil ($/gallon)</td>
<td>--</td>
<td>2.14</td>
<td>2.15</td>
<td>1.96</td>
<td>1.59</td>
<td>1.63</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas $/mmbtu)</td>
<td>--</td>
<td>6.76</td>
<td>6.06</td>
<td>6.24</td>
<td>6.74</td>
<td>8.68</td>
</tr>
<tr>
<td class="firstcol">WTI Crude Oil ($/bbl.)</td>
<td>--</td>
<td>80.06</td>
<td>79.12</td>
<td>71.51</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>
IP in Euro Area Still Growing Despite Slowing Signs 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010c.jpg" width="353">
EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain it&#146;s up at an 8% rate. Even Italy shows a 4.4% rate of increase. The UK, an EU member, is showing slower IP growth in Q3 as output is up at just a 0.8% rate of increase. Sequential IP growth figures show us that growth has been accelerating in Germany, France and Italy. Spain shows sudden weakness in the most recent three months The UK shows some sporadic slowing as the recent rates of growth reveal a slow down over three months but over six months, a speed up.
On balance, despite weakening orders and slowdown assessment from Germany&#146;s Chamber of Commerce (DIHK) and weaker surveys from the Reuters NTC survey as well as from various national surveys, actual production has been on an accelerating run. What we see is that this acceleration is counter to what surveys say they now expect. Some of the divergence reflects inter-temporal discord and mismatch. Since the financial market situation only began to turn abruptly in August before mid month, it is the reports of the next several months that should be most revealing as far as output is concerned. Up to now what we see is that, despite some weaker (and more topical) survey findings, actual output has remained firm through August for the main economies of EMU. Separately what survey data tell us is this: don&#146;t get used to it.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th scope="col" colspan="8">Main Euro Area Countries and UK IP in MFG</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>

<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Month</td>
<td>6-month</td>
<td>12-month</td>
<td>Q2-Date</td>
</tr>
<tr>
<td class="firstcol">Germany: Mfg IP</td>

<td>1.8%</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>7.2%</td>
<td>5.6%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP ex Construction</td>

<td>0.3%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>6.3%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">Italy: Mfg IP</td>

<td>1.5%</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>5.9%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain: Mfg IP</td>

<td>1.3%</td>
<td>1.7%</td>
<td>-4.2%</td>
<td>-5.3%</td>
<td>3.9%</td>
<td>0.5%</td>
<td>8.0%</td>
</tr>
<tr>
<td class="firstcol">UK: Mfg IP</td>

<td>0.4%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>3.4%</td>
<td>0.6%</td>
<td>0.8%</td>
</tr>
</tbody>
</table>
Germany's DIHK Survey Points to Slowdown 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 10, 2007


<img align="left" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010d.jpg">
Survey backs off and points to weaker conditions ahead&#133; 
The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business expectations now sit at the lowest level among the respective percentiles of the components and that reading is still in the 83rdpercentile. The overall for economics conditions is in the 91stpercentile. The remaining indexes are all in their respective low 90s.
The chart on the left also looks at changes over one two and three years. (Survey reports three observations per year; plot on the chart is quarterly.) Economic conditions are up by 35 points over three years and 31 points over two years, so most of the rise has been in the last two years. In the current year the index is up by seven points compared to 31 points over two years. This is clear evidence that the rate of optimism is slowing down. The four point drop in the current quarter has not taken the year/year rise out of the series yet. The investment and hiring intention series show a similar slowing in the optimism in the past year after an outsized gain of the year before.
DIHK shows that while readings remain elevated, a slowing of some degree is in prospect.


<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">DIHK-Balance of Economic Opinion</th>
</tr>
</thead>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Net Balance Readings</td>
<td colspan="3">Change</td>
<td>Range Q4&#39;91</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q4-07</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Yr Ago</td>
<td>2-Yr</td>
<td>3-Yr</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Economic Conditions</td>
<td>31</td>
<td>35</td>
<td>36</td>
<td>7</td>
<td>31</td>
<td>35</td>
<td>91.9</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Business Expectations</td>
<td>15</td>
<td>24</td>
<td>17</td>
<td>6</td>
<td>12</td>
<td>12</td>
<td>83.9</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Export Expectations</td>
<td>39</td>
<td>38</td>
<td>42</td>
<td>4</td>
<td>7</td>
<td>4</td>
<td>95.2</td>
</tr>

<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Investment Intentions</td>
<td>13</td>
<td>16</td>
<td>13</td>
<td>6</td>
<td>19</td>
<td>24</td>
<td>93.5</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Hiring Intentions</td>
<td>9</td>
<td>12</td>
<td>8</td>
<td>9</td>
<td>23</td>
<td>26</td>
<td>93.3</td>
</tr>


New Bank of England Credit Survey Shows Tightening Availability Amidst Mixed Demand from Borrowers 
by <a href="/comment/Stone.html">Carol Stone</a> October 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010e.jpg" width="353">
Last Friday, we wrote here about the current ECB survey of bank lending policies. A couple of weeks ago, the Bank of England published the first results of a similar, brand new survey of bank and nonbank lenders in the UK. These survey results for Q2 and Q3 were published together on September 26 and they were added to Haver&#39;s UK database this past Monday. Survey questions cover secured loans to households and small business, unsecured loans to households and small business and overall lending to corporations, each queried for the lenders&#39; experience over the past three months and their expectations for the coming three months. The Q2 survey was taken between May 21 and June 14 and Q3 between August 20 and September 13. Here is a brief summary of what the survey showed. Keep in mind that there are just two datapoints for each item so far; responses are shown as net balance figures compiled from a 5-point rating scheme: down or negative a lot, down a little, unchanged, up a little and up a lot.
Secured Lending to Households. Lenders reported in June that they had reduced the availability of secured credit to households just slightly during the spring, with a reading of -2.9 on this question. They expected then to increase availability distinctly over the summer, with a &quot;next 3 months&quot; reading of +13.4. However, by the September survey dates, it turns out that this credit supply was basically unchanged, at +0.1, but lenders still expect to be somewhat more liberal in the coming months, at +5.8. Changes in the economic outlook and in the lenders&#39; views on risk are the main factors making secured credit less available than expected in Q3. On the demand side, developments were mixed: demand for credit for house purchase, whether for owner-occupied or &quot;buy-to-let&quot;, was stronger (or less weak) than expected in Q3, but demand for &quot;remortgaging&quot; and other secured credit was less than expected. Other survey questions cover pricing, including both spreads and fees and other lending terms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010f.jpg" width="353"> 
Unsecured Lending to Households. In June, lenders said they had been restrictive on balance in granting unsecured credit to households during Q2, with a reading of -14.3, but they were planning to be more liberal, at +4.9, over the summer. However, as it turned out, they remained restrictive in Q3, again showing a double-digit negative, at -10.2. Further, they expected to remain a little tight in Q4 at -2.9. At the same time, the proportion of loan applications approved has gone up. Compared with the expectation of +5.2, the Q3 outcome was +15.0; both credit card and &quot;other&quot; unsecured loan categories had this general pattern. Demand for this type of borrowing was mildly weaker than expected, showing slightly negative readings in contrast to expectations of small positives. Small business credit demand was more clearly negative than expected. Pricing, i.e., spreads, was more favorable for lending in Q3 than in Q2 and also more favorable than had been expected. 
Lending to Corporations. Major business lending policies were significantly more restrictive in Q3 than they had been in Q2 and also than they were expected to be then. Credit availability was +1.8 in Q2 and anticipated to be flat in Q3. Instead, it was -20.2 in Q3 and it is expected to become much more restricted in Q4 at -49.3. All factors on credit supply which are queried on the survey were more negative in the later polling. These include sector-specific risks and pressure from capital markets, as well as more general factors also queried with household lending: economic outlook, appetite for risk, cost and availability of funding and market share objectives. Loan demand from both large and medium-size nonfinancial corporations (PNFCs) became weaker over the summer. That from &quot;other financial corporations&quot; (OFCs) generally went from flat or modestly positive to modestly negative. Balance sheet restructuring and a slowing commercial real estate market are seen as the factors impinging most on the demand shifts. 
In our third graph, we show one of the non-price features of lending policy, the lender&#39;s fees and commissions. The graph shows the impact of this on credit volume, so the positive bars indicate a reduction in fees and the negative bars show a increase. Thus, these survey results say that lenders had cut their fees in Q2 and expected to do so again in Q3. But instead they raised their fees -- discouraging borrowing -- and intend to do so even more in Q4.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010g.jpg" width="353">
As is evident from these overly terse comments, this survey is comprehensive, covering many of the determinants of credit supply and demand at lending institutions. The Bank of England points out that when data on flows and outstandings are examined, it is not possible to tell whether a change is due to supply or demand factors. This survey will help considerably to assess those developments, and as we see here, they are not uniform over credit sectors, so the three-part survey is a most helpful approach. The present results are too sketchy, though, to compare with actual lending patterns. It will take time to accumulate results that permit matching survey readings, such as a +10 or a -20, with specific loan volumes. We wish we could do that now!

<table border="0" cellspacing="0" width="100%">

</table>


</html>

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

The trade deficit in goods (BOP basis) widened to a record $163.2 billion in March from $147.9	 billion in February, revised from $147.0 billion. Goods exports (customs value) rose 1.4% (7.0% y/y) in March, after increasing 3.6% in February. The latest increase reflected an 8.2% (8.4% y/y) surge in auto exports which came after a 12.7% strengthening. A 3.5% (4.0% y/y) gain occurred in industrial supplies & materials exports which followed a 5.1% rise. Foods, feeds & beverage exports rose 6.6% (1.4% y/y) after declining in four of the prior five month. Working lower, capital goods exports fell 2.5% (+13.9% y/y) in March after a 4.	8% increase and nonauto consumer goods exports were off 1.1% (+3.4% y/y) in March after a 2.4% gain.

Imports of goods increased 5.5% (31.4% y/y) in March after a 0.2% February easing. Imports of nonauto consumer goods imports surged 27.9% (56.0% y/y) following a 3.1% February gain. Auto imports rose 6.6% (8.7% y/y) after a 1.2% rise. Capital goods imports rose 4.2% (22.5% y/y) following a 1.1% rise. Foods, feeds & beverage imports eased 0.4% (+11.1% y/y) following a 2.0% weakening. Industrial supplies & materials imports declined 12.4% (+39.5% y/y) after weakening 4.6% in February. Petroleum imports by end-use fell 4.1% (-10.2% y/y) after a 2.9% decline. Nonpetroleum imports increased 6.0% (34.8% y/y) after holding steady in February.

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

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

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

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

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

U.S. Trade Deficit Deepens to Record in March

250506C2.jpg

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

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

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

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

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

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

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

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

U.S. Energy Prices Remain Mixed in Latest Week

250506E.jpg

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

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

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

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

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

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

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Global Composite PMIs Erode

Tian Yong Woon

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

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

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

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

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

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

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

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

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

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Asia

Economic Letter from Asia: Art of the Deal

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

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

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

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

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

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

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

Economy in Brief: October 2007

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