Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103d.jpg" width="353">
The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month&#39;s decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a lesser rise to 54.5.
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 slipped to 56.5 after a sharp September increase though the employment index gave back all of its September gain. At 51.0 it was at the lowest monthly level since 2004 and just 14% of survey respondents reported higher employment. 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103e.jpg" width="353">
Pricing power dropped to its worst since 2003. 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.

<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">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#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>57.1</td>
<td>52.9</td>
<td>59.2</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>51.9</td>
<td>56.7</td>
<td>74.1</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


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The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month's decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a [...]

ISM Nonmanufacturing Index Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103a.jpg" width="353">
Nonfarm payrolls last month rose 92,000 and for the second month fell short of Consensus expectations which were for a 125,000 rise. However, again for the second month, upward revisions to prior months&#39; increases left the impression of firmness in the labor market
For September, payrolls are now estimated to have risen 148,000, nearly triple the initial estimate. In addition, the August increase is now pegged at 230,000, up from 188,000 estimated last month. The gains pulled the three month average increase in jobs to 157,000 and the ten month average to 147,000, just below last year&#39;s average monthly gain of 165,000 and an average 175,000 during 2004.
Further evidence of a firm labor market was provided by the unemployment rate which declined to a five year low of 4.4%. The drop reflected an employment gain of 437,000 and not a typo. It was the largest monthly increase since early 2005 (1.9% y/y) and followed a 271,000 September gain. The labor force increased 199,000 (1.3% y/y) and the labor force participation rate held for the fifth month at 66.2%, up from the monthly lows during 2005 of 65.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103b.jpg" width="353">
Government payrolls increased 34,000 (1.1% y/y). As a result private payrolls rose 58,000 (1.6% y/y) following upwardly revised gains of 120,000 and 180,000 in September and August, respectively.
The breadth of one month gain in private payrolls slipped a bit to 54.9% in October from an upwardly revised 55.9% in September but the three month diffusion index fell to 55.6%, the lowest level since early 2005. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.
Private service-producing jobs rose 118,000 (1.7% y/y) and a 126,000 September increase was double the initial estimate. Professional &amp; business services employment rose 43,000 (2.8% y/y) while temporary help services jobs recovered 15,000 (1.1% y/y). Jobs in education &amp; health rose 28,000 (2.5% y/y) while leisure &amp; hospitality jobs increased 35,000 (2.5% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103c.jpg" width="353">
Factory sector payrolls fell a hard 39,000, the seventh m/m decline this year and the largest since 2003. Jobs in motor vehicle &amp; parts industries fell 14,700 (-2.9% y/y) while jobs in furniture fell 3,300 (-3.5% y/y) and fabricated metals declined 3,700 (+2.0% y/y). Jobs in wood products also fell a sharp 5,000 (-2.4% y/y) and nondurables dropped 20,000 (-1.0% y/y) with textile industries down quite hard.
Construction employment fell 26,000 (+2.0% y/y) after a little revised 5,000 worker gain during September.
Average hourly earnings doubled the previous month&#39;s increase and rose 0.4%. Factory sector earnings rose 0.4% (1.3% y/y), the largest gain in a year.
The workweek rose to 33.9 hours, back to the highest level since 2002.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/cover.pdf"> here</a>
Money and Monetary Policy for the Twenty-First Century, also from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/11/Jordan.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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>92,000</td>
<td>148,000</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-39,000</td>
<td>-12,000</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8 (Oct. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.4%</td>
<td>4.6%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
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Nonfarm payrolls last month rose 92,000 and for the second month fell short of Consensus expectations which were for a 125,000 rise. However, again for the second month, upward revisions to prior months' increases left the impression [...]

U.S. Payroll Report: More Upward Revisions

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103a.jpg" width="353">
Nonfarm payrolls last month rose 92,000 and for the second month fell short of Consensus expectations which were for a 125,000 rise. However, again for the second month, upward revisions to prior months&#39; increases left the impression of firmness in the labor market
For September, payrolls are now estimated to have risen 148,000, nearly triple the initial estimate. In addition, the August increase is now pegged at 230,000, up from 188,000 estimated last month. The gains pulled the three month average increase in jobs to 157,000 and the ten month average to 147,000, just below last year&#39;s average monthly gain of 165,000 and an average 175,000 during 2004.
Further evidence of a firm labor market was provided by the unemployment rate which declined to a five year low of 4.4%. The drop reflected an employment gain of 437,000 and not a typo. It was the largest monthly increase since early 2005 (1.9% y/y) and followed a 271,000 September gain. The labor force increased 199,000 (1.3% y/y) and the labor force participation rate held for the fifth month at 66.2%, up from the monthly lows during 2005 of 65.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103b.jpg" width="353">
Government payrolls increased 34,000 (1.1% y/y). As a result private payrolls rose 58,000 (1.6% y/y) following upwardly revised gains of 120,000 and 180,000 in September and August, respectively.
The breadth of one month gain in private payrolls slipped a bit to 54.9% in October from an upwardly revised 55.9% in September but the three month diffusion index fell to 55.6%, the lowest level since early 2005. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.
Private service-producing jobs rose 118,000 (1.7% y/y) and a 126,000 September increase was double the initial estimate. Professional &amp; business services employment rose 43,000 (2.8% y/y) while temporary help services jobs recovered 15,000 (1.1% y/y). Jobs in education &amp; health rose 28,000 (2.5% y/y) while leisure &amp; hospitality jobs increased 35,000 (2.5% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103c.jpg" width="353">
Factory sector payrolls fell a hard 39,000, the seventh m/m decline this year and the largest since 2003. Jobs in motor vehicle &amp; parts industries fell 14,700 (-2.9% y/y) while jobs in furniture fell 3,300 (-3.5% y/y) and fabricated metals declined 3,700 (+2.0% y/y). Jobs in wood products also fell a sharp 5,000 (-2.4% y/y) and nondurables dropped 20,000 (-1.0% y/y) with textile industries down quite hard.
Construction employment fell 26,000 (+2.0% y/y) after a little revised 5,000 worker gain during September.
Average hourly earnings doubled the previous month&#39;s increase and rose 0.4%. Factory sector earnings rose 0.4% (1.3% y/y), the largest gain in a year.
The workweek rose to 33.9 hours, back to the highest level since 2002.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/cover.pdf"> here</a>
Money and Monetary Policy for the Twenty-First Century, also from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/11/Jordan.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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>92,000</td>
<td>148,000</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-39,000</td>
<td>-12,000</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8 (Oct. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.4%</td>
<td>4.6%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103d.jpg" width="353">
The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month&#39;s decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a lesser rise to 54.5.
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 slipped to 56.5 after a sharp September increase though the employment index gave back all of its September gain. At 51.0 it was at the lowest monthly level since 2004 and just 14% of survey respondents reported higher employment. 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103e.jpg" width="353">
Pricing power dropped to its worst since 2003. 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.

<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">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#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>57.1</td>
<td>52.9</td>
<td>59.2</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>51.9</td>
<td>56.7</td>
<td>74.1</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>
Rebound in Canadian Labor Market after Summer Pause 
by <a href="/comment/Stone.html">Carol Stone</a> November 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103f.jpg" width="353">
Canadian labor markets seem to be staging a comeback after something of a sinking spell during the summer. In October data reported this morning by StatCan, employment gained by 50,500 and the unemployment rate fell to 6.2%, the lowest since 6.1% in May and June.
Back in September we were puzzled about whether recent months&#39; job losses were a sign of sagging activity, or merely a correction after an outsized rise in May. After two months of increases, we probably can conclude that the latter is the more valid conclusion. In October, at 16,555,500, employment in Canada reached a new high.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103g.jpg" width="353">
Further, the downtrend we thought we were seeing in the goods-producing sector may also be &quot;just a phase&quot;. September and October had gains of 18,000 and 9,000, respectively, in construction, mining and utilities. We&#39;d attribute these increases to added supply efforts in Canada&#39;s energy production. It is still the case that manufacturing jobs are declining.
Service industries have mixed performances. Some, like finance, business support services and accommodation and food services, are growing vigorously. But others, including professional and technical activities and information services, are waffling after extended uptrends. The service sector as a whole is gaining, but the sources of growth seem to be different most every month.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103h.jpg" width="353">
The unemployment rate fell 0.2 point in October. Not all of that move represents good news, though. Along with the employment growth, the number of people in the labor force flattened out. The so-called participation rate, the labor force as a portion of the population over age 15, has edged lower, reaching 67.08%, the lowest since February&#39;s 67.02%; this rate peaked at 67.34% in July. These may look like small differences, but in Canada, each 0.1% in the participation rate represents about 26,000 people who are seeking work or deciding not to seek work. All these caveats aside, the decline in the unemployment rate obviously contains more good news than bad, and we are encouraged by the October labor data, which indeed seem to confirm that the declines in the summer were perhaps a &quot;vacation&quot; and labor markets have picked up once again.
These national Canadian data are contained in Haver&#39;s CANSIM database. Some detail is also available for the Provinces; those data are in CANSIMR.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CANSIM/@C6/@C6.HTM">Canada&nbsp;</a> (Seasonally Adjusted)</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 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">Employment (000s)</td>
<td>16,555</td>
<td>16,505</td>
<td>16,488</td>
<td>16,268</td>
<td>16,169</td>
<td>15,949</td>
<td>15,672</td>
</tr>
<tr>
<td class="firstcol">Change, 000s/%</td>
<td>+50</td>
<td>+16</td>
<td>-16</td>
<td>1.8%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods-Producing </td>
<td>+9</td>
<td>+18</td>
<td>-18</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>1.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Service-Producing</td>
<td>+2</td>
<td>+2</td>
<td>+30</td>
<td>2.8%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (000s)</td>
<td>1,086</td>
<td>1,131</td>
<td>1,141</td>
<td>1,155</td>
<td>1,173</td>
<td>1,235</td>
<td>1,286</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.2</td>
<td>6.4</td>
<td>6.5</td>
<td>6.6</td>
<td>6.8</td>
<td>7.2</td>
<td>7.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>67.08</td>
<td>67.14</td>
<td>67.21</td>
<td>67.20</td>
<td>67.20</td>
<td>67.54</td>
<td>67.54</td>
</tr>
</tbody>
</table>


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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/061102j.jpg" width="353">
German labor market data for September and October were reported today. We last checked in with these data at the end of June. The most notable factor then was an increase in job vacancies, and we wondered if they would translate into actual jobs. This may have happened -- at least to some extent.
Total employment in September was 39.17 million, up 24,000 from August and 334,000 or 0.9% from September 2005. It has risen for seven consecutive months (seasonally adjusted), and marks the longest such span since 1999/2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102k.jpg" width="353">
Moreover, the number of job vacancies has continued to rise. In October employers reported opportunities for 662,000 workers, and increase of 45,000 from September and 179,000 from a year ago. This increase in vacancies, when filled, would add about 0.5% to total employment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102l.jpg" width="353">
The unemployment situation is mixed and depends on what measure one looks at. The harmonized &quot;ILO&quot; unemployment rate was 8.3% in September, steady with August, but up from a recent low of 7.9% in April. Germans prefer their own measure of &quot;registered&quot; unemployment rate, and it has declined, dipping to 10.4% in October, the lowest since April 2004. Among labor force groups, all sectors of the population have seen some year-on-year improvement in recent months (the individual categories are not seasonally adjusted, necessitating comparisons with like periods of prior years) and the rate for men in particular has reached down to 9.1%, the lowest since October 2001. Thus, job opportunities are increasing in Germany, and with a record number of vacancies shown in this report, that may yield more workers in the months ahead.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D5/@D5.HTM">Germany: Seas Adj, ex as noted</a></th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 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">LFS Employment (mil)</td>
<td>--</td>
<td>39.17</td>
<td>39.14</td>
<td>38.84</td>
<td>38.82</td>
<td>38.87</td>
<td>38.72</td>
</tr>
<tr>
<td class="firstcol">Change (thous)</td>
<td>--</td>
<td>+24</td>
<td>+34</td>
<td>+334</td>
<td>-53</td>
<td>+150</td>
<td>-370</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Chg NSA</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>+0.9</td>
<td>-0.1</td>
<td>+0.4</td>
<td>-0.9</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%, ILO Def.)</td>
<td>--</td>
<td>8.3</td>
<td>8.3</td>
<td>8.0</td>
<td>7.1</td>
<td>9.1</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Registered Unemployment Rate (%)</td>
<td>10.4</td>
<td>10.6</td>
<td>10.6</td>
<td>11.6</td>
<td>11.7</td>
<td>10.6</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Job Vacancies (thous)</td>
<td>662</td>
<td>617</td>
<td>589</td>
<td>483</td>
<td>488</td>
<td>278</td>
<td>318</td>
</tr>
</tbody>
</table>
</body>
</html>

German labor market data for September and October were reported today. We last checked in with these data at the end of June. The most notable factor then was an increase in job vacancies, and we wondered if they would translate into [...]

German Labor Markets Show More Distinct Gain

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102m.jpg" width="353">
Announced job cuts reported by Challenger, Grey &amp; Christmas for October retraced most of the prior month&#39;s jump with a 31,138 decline to 69,177. The three month moving average of layoff announcements nevertheless rose to 78,257, its highest level since March.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs fell sharply m/m in the automotive (210.3% y/y), commodities (77.2% aerospace (-70.7% y/y), consumer goods (-23.9% y/y), industrial goods (-32.6% y/y), and pharmaceutical (-74.1% y/y) industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans fell sharply m/m (-54.3% y/y).

<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/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">October</th>
<th scope="col">September</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">Announced Job Cuts</td>
<td>69,177</td>
<td>100,315</td>
<td>-14.9%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
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Announced job cuts reported by Challenger, Grey & Christmas for October retraced most of the prior month's jump with a 31,138 decline to 69,177. The three month moving average of layoff announcements nevertheless rose to 78,257, its [...]

Challenger Layoffs Back Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102h.jpg" width="353">
Factory inventories rose 0.6% last month. That matched the gain during July, which was upwardly revised, and it pulled the y/y change up to 7.4%, the fastest since early 2005.
Though petroleum inventories have fallen in recent months, higher prices have lifted the y/y gain to 15.7%. Despite this distortion, factory inventories less petroleum grew 7.0% y/y in September, the fastest since 2005.
Primary metals inventories rose another, firm 2.8% (16.3% y/y). Inventories of computers &amp; electronic products actually fell slightly (9.3% y/y) after a strong 1.5% August increase and inventories of electrical equipment fell 0.3% (+11.6% y/y) after near 2% jumps during each of the prior three months. Machinery inventories spiked 1.4% (6.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102i.jpg" width="353">
Total factory orders recovered a strong 2.1% after an August dip. That strength reflected an 8.3% pop in durable goods orders which was little revised from the advance report and reflected higher aircraft orders. Factory orders less transportation fell 2.4% (+3.0% y/y), the weakness reflecting a 4.6% decline in nondurables and a 14.8% drop in petroleum.
Factory shipments fell 3.5% due to the drop in petroleum. Transportation shipments also collapsed 4.5% due to a 7.3% drop in autos. Still, factory shipments less transportation &amp; petroleum fell 2.0% (+5.0% y/y) due to across the board declines.
Unfilled orders surged 3.9% due to the jump in civilian aircraft. Less the transportation sector altogether backlogs rose 1.2% (13.1% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">September</th>
<th scope="col">August</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">Inventories</td>
<td>0.6%</td>
<td>0.6%</td>
<td>7.4%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.1%</td>
<td>-0.3%</td>
<td>7.7%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-3.5%</td>
<td>0.8%</td>
<td>2.4%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>3.9%</td>
<td>0.5%</td>
<td>22.0%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
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Factory inventories rose 0.6% last month. That matched the gain during July, which was upwardly revised, and it pulled the y/y change up to 7.4%, the fastest since early 2005. Though petroleum inventories have fallen in recent months, [...]

U.S. Factory Inventory Accumulation Continued

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102f.jpg" width="353">
Non-farm labor productivity last quarter was unchanged from 2Q and the figure fell short of Consensus expectations for a 1.3% rise. While the q/q change was disappointing, similar weakness just last year was followed by recovery. This year, however, the y/y increase dropped to 1.3% as a result of the decline, the weakest since 1997.
The weakness fueled the growth in unit labor costs. A 3.8% gain lifted the y/y increase in costs to 5.3%, the strongest since 1990. During the last thirty years there has been an 85% correlation between labor cost growth the growth in the GDP chain price deflator, although that correlation has fallen sharply in recent years.
Compensation grew a much diminished 3.7, but here again the y/y growth remained elevated near 7%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102g.jpg" width="353">
Factory sector productivity growth remained quite firm last quarter at 5.9% (4.3% y/y. Growth in factory sector compensation per hour slowed to 2.9% (5.1% y/y) from 4.0% during 2Q and 13.3% during 1Q and that fostered a decline in unit labor costs. The 2.9% (+0.8% y/y) decline was the first this year.
Freedom, Trade, and Growth from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20061101/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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q&#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>0.0%</td>
<td>1.2%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.7%</td>
<td>6.6%</td>
<td>6.7%</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>3.8%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>2.0%</td>
<td>0.6%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

Non-farm labor productivity last quarter was unchanged from 2Q and the figure fell short of Consensus expectations for a 1.3% rise. While the q/q change was disappointing, similar weakness just last year was followed by recovery. This [...]

U.S. Productivity Unchanged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102a.jpg" width="353">
Initial claims for unemployment insurance jumped 18,000 last week to 327,000 from a little revised level during the prior period. Consensus expectations had been for 310,000 claims during the latest week.
There apparently were no special factors to explain the increase but it occurred after the period, which includes the twelfth of the month, when the nonfarm payrolls survey occurs. Therefore Consensus estimates of a 125,000 rise in October jobs, to be released tomorrow, should not change.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102b.jpg" width="353">
The four-week moving average of initial claims rose to 311,250 (-8.2% y/y).
Continuing claims for unemployment insurance fell 27,000 following a revised 4,000 decline the prior week that initially was reported as a slight increase.
The insured rate of unemployment revisited the six year low at 1.8% after being steady most of 2006 at 1.9%.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/28/06</th>
<th scope="col">10/21/06</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>327</td>
<td>309</td>
<td>1.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,415</td>
<td>-12.2%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance jumped 18,000 last week to 327,000 from a little revised level during the prior period. Consensus expectations had been for 310,000 claims during the latest week. There apparently were no [...]

Initial Claims for Unemployment Insurance Jumped

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

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

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

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

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

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

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

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

U.S. Trade Deficit Deepens to Record in March

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

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

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

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

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

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

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

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

U.S. Energy Prices Remain Mixed in Latest Week

Robert Brusca

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

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

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

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

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

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

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Global Composite PMIs Erode

Tian Yong Woon

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

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

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

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

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

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

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

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

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

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Asia

Economic Letter from Asia: Art of the Deal

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

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

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

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

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

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

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

Economy in Brief: November 2006

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ISM Nonmanufacturing Index Recovered

U.S. Payroll Report: More Upward Revisions

U.S. Payroll Report: More Upward Revisions

German Labor Markets Show More Distinct Gain

Challenger Layoffs Back Down

U.S. Factory Inventory Accumulation Continued

U.S. Productivity Unchanged

Initial Claims for Unemployment Insurance Jumped