Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103g.jpg" width="353">
With recession on the horizon, questions have arisen as to how deep, how widespread and how long it will be. Forecasts of Gross Domestic Product for a number of countries, which may help in answering some of these questions, can be found in various Haver databases.
For the United States, Macroeconomic Advisors provides short-term quarterly and long-term annual forecasts of GDP that are updated quarterly. The most recent forecast covers the period from the third quarter of 2008 to the fourth quarter of 2010 and was updated on October 24. Oxford Economics provides quarterly and annual forecasts for ten years into the future for most countries. Their latest forecasts were issued October 16. The first chart shows the Oxford Economics annual forecasts for India and China and the second shows forecasts for Germany, Japan and the United States.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103h.jpg" width="353">
Eurostat publishes an annual series of GDP for all European Union countries as well as Croatia, Macedonia, Turkey, Norway and Switzerland. The last two years published are forecasts. For example, currently data are given for 2008 and 2009, both of which are forecasts. The latest data for these series were published on October 8. The OECD Outlook also publishes forecasts. These, however, are released only twice a year, in June and December. Sometimes the forecasts are outdated by subsequent events as at present.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">OXFORD ECONOMIC FORECASTS&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">&nbsp;2008</th>
<th scope="col">2009</th>
<th scope="col">2010&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France</td>
<td>2.11</td>
<td>0.85</td>
<td>0.11</td>
<td>1.63</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.39</td>
<td>1.47</td>
<td>0.16</td>
<td>1.47</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>1.36</td>
<td>-0.11</td>
<td>-018</td>
<td>0.91</td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>2.01</td>
<td>1.46</td>
<td>0.41</td>
<td>2.73</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan</td>
<td>2.01</td>
<td>0.70</td>
<td>-0.10</td>
<td>1.10</td>
</tr>
<tr class="odd">
<td class="firstcol">China</td>
<td>11.87</td>
<td>10.03</td>
<td>8.25</td>
<td>8.00</td>
</tr>
<tr class="odd">
<td class="firstcol">India</td>
<td>9.34</td>
<td>7.80</td>
<td>6.23</td>
<td>7.56</td>
</tr>
<tr>
<td class="firstcol">EUROSTAT FORECASTS</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>--</td>
<td>1.58</td>
<td>1.37</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>--</td>
<td>1.85</td>
<td>1.54</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>--</td>
<td>0.54</td>
<td>0.76</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

With recession on the horizon, questions have arisen as to how deep, how widespread and how long it will be. Forecasts of Gross Domestic Product for a number of countries, which may help in answering some of these questions, can be [...]

Economic Forecasts in Haver Analytics

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103f.jpg" align="left" border="0" height="265" width="353">
The e-Zone economy shrank by 0.2% in 2008-Q2 and further
weakness lies ahead according to the EU Commission. The EU Commission
issued a statement warning that &#8220;In 2009, the EU economy is expected to
grind to a standstill.&#8217; The
Commission forecasts tiny GDP declines for the Zone in Q4 2008 and in
Q1 of 2009.
But the Markit PMI&#8217;s today seem to hint at the potential for
deeper declines. MFG tends to be one of the more volatile sectors in
recession so these PMIs, taken alone, overstate the case. The service
sector holds up better and service sector employment typically holds up
much better in recession in comparison to MFG. But both the Services
and the MFG PMIs for Europe have been weak. The e-Zone has not
experienced a recession since its formation. But as of September the
EMU services PMI was in the bottom 12% of its range and now the MFG
sector in EMU is the worst ever. 
Sneezing in Frankfurt -
Some might view the lack of recession since the region&#8217;s formation as
an asset for the region, but to me, it&#8217;s another sign: it points out
how poorly interconnected the various countries still are in EMU. It is
not a sign of greater resilience - far form it. Europe&#8217;s economy is
much less flexible than the US economy. One
view is that a diversified area has been put together and since we add
up GDP across the whole region it has become more stable than its
individual parts. But that is a portfolio theory argument and the parts
can only do this if they are not highly mutually correlated or less
that fully integrated. So the lack of commonality proves the point of
poor integration. Until someone can sneeze in Frankfurt and give
someone a cold in Paris, Europe is fragmented. 
The US is a much larger geographic and economic region and it
is so connected that the region &#8211; even with its differences -
experiences recessions. The resilience of EMU is yet another
manifestation of how the region is not yet fully integrated. Workers
within Europe are NOT indifferent as to whether they work in London, in
Frankfurt or in Paris, or more broadly, the UK, Germany or France.
Language and culture still separate European nations. Yet the downturn
this time has such common themes that it is dragging even the disparate
EMU into recession. That&#8217;s testament to the strength of the negative
forces this time around.
Some Structural differences Persist:
Not surprisingly, for Germany, France, Italy, Spain, Ireland and the
UK, the average country level correlation with OVERALL EMU MFG is 0.86.
For SERVICES it is a lower 0.82. Only in the UK and Ireland is the
service sector better correlated with the EMU&#8211;wide measure than is the
MFG index with its Europe-wide measure. That is probably due to the
UK&#8217;s separate use of the pound in lieu of the euro and the faster
impact on MFG flows than on services that FX rates exhibit. In the case
of Ireland, the fact that Ireland is geographically more plugged into
the UK economy and its cycles drives the rogue result. So it is basically the similarity in
MFG that binds Europe together while Services differences largely
persist across regions and tend to isolate euro-regions. This is in
keeping with the way competition has been meted out within Europe and
with the obviously more competitive nature of MFG with MFG anywhere &#8211;
at least in comparison with services. Even with wide open competition
in services, some services simply are local, like table service by a
waiter at a restaurant, plumbing and electrician services on site and
dry cleaning. Still, we know that some services that seem to be
&#8216;intrinsically local&#8217; have found ways to break down borders (ie video
rentals delivered either over the internet or by mail instead of via
the neighborhood store).
We will have to wait and see if the recession in Europe turns
out to be as benign as the EU commission forecast suggests. The German
finance ministry continues to tell how much better prepared Germany is
to take this recession than other countries. Time will tell. I remain a
Euro-skeptic.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> NTC MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-08</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr>
<td class="firstcol">Euro-13</td>
<td>41.10</td>
<td>44.97</td>
<td>47.55</td>
<td>44.54</td>
<td>46.79</td>
<td>49.50</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>42.88</td>
<td>47.36</td>
<td>49.68</td>
<td>46.64</td>
<td>49.49</td>
<td>51.81</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>40.59</td>
<td>42.97</td>
<td>45.79</td>
<td>43.12</td>
<td>46.19</td>
<td>49.52</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>39.67</td>
<td>44.42</td>
<td>47.07</td>
<td>43.72</td>
<td>45.24</td>
<td>47.72</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>34.60</td>
<td>38.32</td>
<td>42.40</td>
<td>38.44</td>
<td>39.82</td>
<td>43.94</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>43.44</td>
<td>46.01</td>
<td>48.61</td>
<td>46.02</td>
<td>47.20</td>
<td>50.09</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Greece</td>
<td>48.14</td>
<td>50.81</td>
<td>52.46</td>
<td>50.47</td>
<td>51.77</td>
<td>52.37</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>39.69</td>
<td>43.70</td>
<td>44.88</td>
<td>42.76</td>
<td>43.60</td>
<td>45.86</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td>45.28</td>
<td>48.30</td>
<td>49.82</td>
<td>47.80</td>
<td>48.99</td>
<td>51.03</td>
<td>16.2%</td>
</tr>
<tr class="odd">
<td colspan="8">EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>41.49</td>
<td>41.15</td>
<td>45.28</td>
<td>42.64</td>
<td>44.51</td>
<td>48.05</td>
<td>2.2%</td>
</tr>
<tr>
<td colspan="6" class="firstcol">Percentile is over range since March
2000</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body></html>

The e-Zone economy shrank by 0.2% in 2008-Q2 and further weakness lies ahead according to the EU Commission. The EU Commission issued a statement warning that “In 2009, the EU economy is expected to grind to a standstill.’ The [...]

MFG is HOW Weak? Worst Since at Least March 2000 Across Much of EMU

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103d.jpg" width="353">
The value of construction put in place fell 0.3% during September. That reversed an August rise which was revised up slightly and the September decline was less than expectations for a 0.8% drop.Year-to-year, the decline in construction activity remained steady at a -6.6% pace.
A drop in the value of residential building activity led the September decline in overall construction. The 1.3% m/m fall reversed most an August increase and it was led by a 4.7% (-41.3% y/y) drop in single-family construction, off by two-thirds from its peak in early-2006. Building activity on multi-family units reversed nearly half of the August decline with a 2.7% (-1.7% y/y) rise while spending on improvements added to an August increase, up 2.4% m/m (-6.6% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103e.jpg" width="353">
The value of nonresidential building activity recovered 1.2% after an August decline. A 4.4% (5.7% y/y) rise in the educational category led the increase while airport building rose by nearly one-half. Increases here were offset by a 2.3% (-11.3% y/y) decline in the multi-retail category. Spending on health care facilities inched up 0.1% (4.5% y/y) while office construction increased 1.7% (7.4% y/y).
Public construction reversed its August gain with a 1.3% decline. The value of construction spending on highways &amp; streets led the weakness with a 1.5% drop (+1.7% y/y). The value of construction on highways &amp; streets is roughly one-third of the value of total public construction spending. Building activity of office space continued firm and rose 1.6% (34.4% y/y) but spending on health care facilities fell 3.5% (+4.0% y/y).
The more detailed categories of construction represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/@E9/@E907/@E907.HTM">Construction</a> (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.3</td>
<td>0.3</td>
<td>-6.6</td>
<td>-2.7</td>
<td>6.3</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.1</td>
<td>-0.1</td>
<td>-10.3</td>
<td>-6.9</td>
<td>5.5</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.3</td>
<td>1.9</td>
<td>-27.7</td>
<td>-19.8</td>
<td>1.0</td>
<td>14.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.2</td>
<td>-1.6</td>
<td>11.4</td>
<td>19.6</td>
<td>16.2</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>-1.3</td>
<td>1.3</td>
<td>3.8</td>
<td>12.3</td>
<td>9.3</td>
<td>6.2</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place fell 0.3% during September. That reversed an August rise which was revised up slightly and the September decline was less than expectations for a 0.8% drop.Year-to-year, the decline in [...]

U.S. Construction Spending Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103a.jpg" width="353">
The Composite Index of Manufacturing Sector Activity, reported by the Institute for Supply Management (ISM), fell during October to its lowest level since the end of the 1981-82 recession. The 4.6 point m/m decline to a level of 38.9 exceeded Consensus expectations for a decline to 41.5. The break-even level for this measure of factory sector activity is 50.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three-month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures.
During the last two months, the ISM index composite index fell by eleven points. A decline of that degree was exceeded only by the drop during the short &quot;credit crunch&quot; recession of 1980. Following that decline, the index bounced back smartly only then to fall again during the sharp recession of 1981-82. How severe was that economic downturn? During all of 1982 the average level of the ISM (then called the Nat&#39;l Association of Purchasing Management) index was 38.5 versus an average 52.5 during 1979. The index level signaled a 5.4% decline in factory sector industrial production during 1982 as reported by the Federal Reserve Board.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103b.jpg" width="353">
The new orders index during November fell a sharp 6.6 points to 32.2. The decline followed a 9.5 point plunge during September and it was to the lowest level since 1981. Economic weakness outside of the U.S. was signaled by the new export orders sub-series. It fell eleven points to a less than break-even level of 41.0, its lowest level in this index&#39;s short twenty year history. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
The production sub-series fell another 6.7 points, to 34.1, after the sharp 11.3 point decline during September. This weakness was mirrored by a decline in the employment index which repeated its September performance and fell 7.2 points to 34.6, the lowest reading since early 1991. During the last twenty years there has been a 67% correlation between the level of the ISM employment index and the three-month growth in factory sector employment.
The shedding of inventories continued at its recent rate as indicated by a an index level of 44.3 which was up just slightly from September. The index gauging the speed of supplier deliveries fell, but just moderately, and order backlogs declined to their lowest level in the series&#39; history.
Prices paid plunged another 16.5 points to 37.0, the lowest level since late 2001 and that further reflected the decline in oil prices. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103c.jpg" width="353">
According to the National Association of Business Economists, 90% of the 102 members responding were more pessimistic about the economy than they were in July. A recession was viewed likely to continue at least through the end of next year, with 79% saying the economy will grow less than 1% and 38% saying the economy will shrink next year.
The Future of Mortgage Finance in the United States is Friday&#39;s speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20081031a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">October &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>38.9</td>
<td>43.5</td>
<td>50.4</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>32.2</td>
<td>38.8</td>
<td>52.8</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>34.6</td>
<td>41.8</td>
<td>51.8</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>37.0</td>
<td>53.5</td>
<td>63.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The Composite Index of Manufacturing Sector Activity, reported by the Institute for Supply Management (ISM), fell during October to its lowest level since the end of the 1981-82 recession. The 4.6 point m/m decline to a level of 38.9 [...]

ISM Index Lowest Since 1982 Recession

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

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

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Andrew Cates

**The global business cycle** 
The recent sharp decline in the Future Output Balance in the global composite PMI survey reflects a sudden deterioration in global business expectations. The sweeping tariffs, introduced in April 2025, have generated heightened uncertainty around trade policy and sparked fears of retaliatory actions from key trading partners. As a result, businesses worldwide are scaling back their expectations for future output, wary of rising costs, disrupted demand flows, and a broader shift toward protectionism that could undermine global economic momentum.

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Note: The extreme declines in the Future Output Balance that were recorded in the early months of 2020 (at the height of the COVID pandemic) have been removed from this chart.

**Global supply chain pressures**
Still, despite the marked deterioration in global business expectations, this second chart below provides a reassuring counterpoint: as of now, there is little evidence that global supply chain pressures have materially intensified. Both the New York Fed’s Global Supply Chain Pressure Index and the Baltic Exchange Dry Index remain relatively subdued, especially compared to the pandemic-era spikes of 2020–2022. While there has been heightened concern following the April 2025 US tariff announcements, these trade policy shifts have yet to translate into measurable physical disruption in logistics or freight rates. The stability of these indices suggests that although sentiment has taken a hit, global shipping networks and supply flows are, for now, absorbing the shock. However, this calm may prove fragile if the policy environment hardens further or retaliatory trade actions begin to compound the strain.

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**Expectations for central banks’ policy rates** 
Adding to the picture of mounting economic caution, the latest Blue Chip Financial Forecasts survey reveals that expectations for policy easing over the next 12 months have become even more pronounced than in previous months. While earlier surveys had already pointed to a further extension of the global rate-cutting cycle, the latest results suggest forecasters now anticipate a deeper and more aggressive round of monetary easing—most notably from the US Federal Reserve, which is now expected to deliver nearly a full percentage point in rate cuts over the next 12 months. The sharp deterioration in business sentiment is reshaping the macro narrative: central banks are no longer simply guiding inflation lower, but are instead preparing to confront the risk of a deeper, demand-driven slowdown.

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**Energy prices and inflation** 
Adding further context to the growing expectations for policy easing, oil prices have dropped sharply in recent weeks—driven by mounting concerns over global growth, as reflected in weakening business sentiment and softer demand indicators. The chart below provides a longer-run perspective on why this matters: energy prices have historically played a central role in shaping the global inflation trajectory. The strong positive correlation (r = 0.83) between median world energy price inflation and median core consumer price inflation underscores the powerful pass-through effects energy costs can have on broader price dynamics. While core inflation tends to be stickier, this historical relationship makes clear that sustained declines in energy prices often foreshadow broader disinflationary trends.

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**Intangibles versus tangibles** 
Shifting focus from short-term cyclical risks to longer-term structural dynamics, the next chart below underscores a fundamental transformation in the composition of US investment: the economy has increasingly been built on intangibles. Over the past several decades, investment in intangible assets—such as software, intellectual property, R&D, and brand equity—has steadily climbed and, since the mid-2010s, has overtaken investment in both structures and equipment as a share of GDP. This shift reflects the rise of a knowledge-based, innovation-driven economy, but it also introduces new forms of vulnerability. Unlike physical capital, intangible assets rely heavily on trust, reputation, legal protections, and global openness. In this context, escalating trade frictions and a more confrontational US economic stance—as signalled by the recent tariff wave—risk eroding the goodwill and institutional credibility that underpin much of the value created by intangibles. If geopolitical uncertainty undermines the perceived reliability of US intellectual property protections or weakens global collaboration, it could pose a deeper structural challenge to future growth than any immediate cyclical downturn.

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**Investment in Artificial Intelligence**
The centrality of intangibles to the US growth model is nowhere more evident than in the explosion of private investment in artificial intelligence. As this chart illustrates, global AI investment has surged over the past decade—reaching new highs in 2024—and the United States has consistently accounted for the lion’s share of that spending. This reflects not only America’s previous leadership in frontier technologies but also its dependence on intangible capital, from algorithms and data infrastructure to human expertise and institutional trust. However, this dominance also underscores the strategic stakes of current policy choices. In an environment of rising trade tensions and potential fragmentation, the foundations of US leadership in AI—cross-border collaboration, data openness, and global market access—could be at risk.

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Financial market sentiment has rebounded in recent weeks, buoyed by signs of de-escalation in the US-led trade war and growing confidence that central banks—particularly the Federal Reserve—will step in with more rate cuts to cushion any fallout. Yet beneath the surface, a more sobering picture of the global economy persists. For example, latest PMI surveys reveal that global business expectations have slumped to their lowest levels since the pandemic, reflecting widespread unease about the growth outlook (chart 1). While supply chain pressures have so far remained contained, suggesting no repeat of the logistical chaos seen during the pandemic (chart 2), the latest Blue Chip Financial Forecasts survey reveals that forecasters are now pencilling in deeper and more widespread monetary easing than previously anticipated—an acknowledgment that demand is faltering (chart 3). Falling oil prices further reinforce this view: they are both a symptom of weakening global demand and a potential source of disinflation, reducing the urgency for central banks to maintain tight policy (chart 4). At the structural level, the US economy's increasing reliance on intangible assets—ranging from intellectual property to reputation—has made it more vulnerable to geopolitical frictions and the erosion of global trust (chart 5). This risk is compounded by America's dominant role in AI investment, a sector symbolic of both its economic strengths and its exposure to international perceptions (chart 6). The longer-term challenge, then, is not just navigating the current downturn, but ensuring that the institutional goodwill and cross-border openness that support the modern US economy are not sacrificed in a more fragmented and uncertain global order.

Charts of the Week: Relief Rally Meets Recession Risk

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At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was left unchanged at 4.25% to 4.50%. This followed reductions at three consecutive meetings in the fall of 2024. Rates remain below the high of 5.25% to 5.50% in place in mid-September. Today’s target range matched expectations in the Action Economics Forecast Survey.

The statement following the meeting indicated that, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”

“The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

The Fed continued, “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.”

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- FOMC holds funds rate target at late-December level.
- Risk assessments include higher unemployment & inflation.

FOMC Targeted Funds Rate Range Is Unchanged; Increased Risks Acknowledged

Kathleen Stephansen, CBE

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Consumer credit outstanding rose $10.2 billion (1.9% y/y) during March after declining by $0.6 billion (+1.7% y/y) during February, revised from a decline of $0.8 billion (+1.7% y/y. A $10.0 billion rise had been expected in the Action Economics Forecast Survey. As a percentage of disposable personal income, consumer credit was 22.4% in March, compared to 22.9% one year earlier.

Nonrevolving credit outstanding rose $8.3 billion (1.5% y/y) in March after easing $0.3 billion (1.3% y/y) in February. Nonrevolving credit held by depository institutions declined 7.8% y/y in March after declining 9.0% y/y in February. Finance company debt holdings rose 0.8% y/y, while credit union holdings eased 1.9% y/y in March. Nonrevolving debt held by the federal government rose 3.4% y/y.

In March, revolving credit outstanding, which includes credit cards, rose $1.9 billion (2.9% y/y) following a decline of $0.3 billion (2.9% y/y) in February. Revolving credit outstanding held by depository institutions fell 1.5% y/y. Revolving credit held by finance companies dropped 12.2% y/y, while that held by credit unions rose 3.7% y/y.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPNA** database.

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- Consumer credit rises close to expectations.
- Nonrevolving and revolving credit rise.


U.S. Consumer Credit Rebounded in March

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Mortgage applications increased 11.0% (26.0% y/y) in the week ended May 2, after declining 4.2% in the week ended April 25, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications to purchase a home rose 11.1% (12.9% y/y) in the week ended May 2 after declining 4.4% in the previous week. Loan applications to refinance a home loan also increased 11.1% (51.0% y/y) in the latest week after falling 3.7% in the prior week.

The effective interest rate on a 30-year fixed rate loan of 7.03% in the week ended May 2 compared to 7.08% in the prior week. The effective rate on a 15-year fixed rate loan of 6.34% in the week ended May 2 followed 6.36% in the prior week. The rate on a 30-year jumbo loan declined to 6.99% in the latest week from 7.06% in the prior week, while the rate on a 5-year ARM eased	to 6.08% in the week ended May 2 from 6.12% in the prior week.

The share of applications to refinance an existing mortgage slipped to 37.1% in the week ended May 2 from 37.3% in the prior week. The share of loans with an adjustable rate rose to 8.3% in the latest week from 7.4% one week earlier.

The average size of a mortgage loan rose 4.2% (3.8% y/y) to $400,200 in the week ended May 2, after slipping 0.7% to $384,100 in the prior week. The average size of a loan to purchase a home increased 1.0% (0.2% y/y) to $444,300 in the latest week from $440,100 in the week prior. The average size of a loan to refinance an outstanding mortgage increased 12.3% (27.6% y/y) last week to $325,400 from $289,800 one week earlier.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase & refinancing loan applications jump.
- Effective interest rates remain range-bound.
- Average loan size increases.

Mortgage Applications Surge as Interest Rates Ease Last Week

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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.

Economy in Brief: November 2008

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Economic Forecasts in Haver Analytics

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