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/041202e.jpg" width="353">
The unemployment rate in Germany rose to 10.8% in November, the highest in almost six years, since December 1998. The number of people unemployed rose 7,000 in the month, an increase of 2.2% from November a year ago. At the same time, Germany is in the anomalous position that both unemployment and employment are rising. While the number employed dipped 1,000 in September (latest available, also published today), this was the sixth month in which that figure was higher than a year ago, marking a turn from 29 consecutive months of year-on-year declines. At 0.3%, the current gain is obviously not large, but clearly the stabilization is welcome.
In Spain, the labor market is much more vigorous. The unemployment rate there, 10.5% in the third quarter, is nearly as high as in Germany, but it has come down markedly, and the number unemployed for November (which was reported today) is 1.0% lower than the year-earlier level. Jobs are growing, with third quarter employment up 2.5% from a year ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202f.jpg" width="353">
It is widely argued that German regulations keep labor costs so high that companies are encouraged to move operations elsewhere. This may be the case, but it&#39;s not evident in German labor cost data. Over the last year, hourly compensation per worker in Germany has been virtually flat and labor cost per unit of GDP has actually declined 1.3%. In contrast, these costs are rising in Spain. Thus, labor mobility -- perhaps described better as business operations mobility -- in Europe may be pushing labor costs toward convergence as conditions ease in the high-cost country but firm in the low-cost region.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Nov 2004</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany: Unemployment (Thous, SA)</td>
<td>4,464</td>
<td>4,457</td>
<td>4,445</td>
<td>4,417</td>
<td>4,367</td>
<td>4,383</td>
<td>4,075</td>
<td>3,861</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%, SA)</td>
<td>10.8</td>
<td>10.7</td>
<td>10.7</td>
<td>10.6</td>
<td>10.5</td>
<td>10.5</td>
<td>9.8</td>
<td>9.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (Thous, SA)</td>
<td>NA</td>
<td>NA</td>
<td>38,391</td>
<td>38,392</td>
<td>38,291</td>
<td>38,316</td>
<td>38,699</td>
<td>38,923</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change (NSA)</td>
<td>NA</td>
<td>NA</td>
<td>0.3</td>
<td>0.3</td>
<td>-0.5</td>
<td>-1.0</td>
<td>-0.6</td>
<td>0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain: Unemployment (Thous, NSA)</td>
<td>1,683</td>
<td>1,649</td>
<td>1,618</td>
<td>1,598</td>
<td>1,699</td>
<td>1,658</td>
<td>1,621</td>
<td>1,530</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change</td>
<td>-1.0</td>
<td>-1.1</td>
<td>0.7</td>
<td>1.2</td>
<td>1.3</td>
<td>2.2</td>
<td>6.0</td>
<td>-1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%, NSA)</td>
<td></td>
<td></td>
<td>Q3 2004</td>
<td>Q2 2004</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">NA</td>
<td>NA</td>
<td>10.5</td>
<td>10.9</td>
<td>11.2</td>
<td>11.3</td>
<td>11.4</td>
<td>13.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (Thous, NSA)</td>
<td>NA</td>
<td>NA</td>
<td>17,240</td>
<td>17,050</td>
<td>16,818</td>
<td>16,695</td>
</tr>
<tr>
<td class="firstcol">16,258</td>
<td>15,946</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Change</td>
<td>NA</td>
<td>NA</td>
<td>2.5</td>
<td>2.3</td>
<td>2.8</td>
<td>2.7</td>
<td>2.0</td>
<td>3.7</td>
</tr>
</tbody>
</table>
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The unemployment rate in Germany rose to 10.8% in November, the highest in almost six years, since December 1998. The number of people unemployed rose 7,000 in the month, an increase of 2.2% from November a year ago. At the same time, [...]

German Unemployment Up; Spain's Comes Down

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202c.jpg" width="353">
Factory orders rose 0.5% last month following an upwardly revised unchanged reading for September. The recovery was due to a 2.4% gain in nondurable orders (which equal shipments) that primarily reflected an 8.3% jump in shipments from petroleum refineries.
Durable goods orders fell 1.1%, revised from the advance report of a 0.4% drop. The advance report of a 3.3% decline in nondefense capital goods orders was revised to show a 3.9% decline and less aircraft, the decline was revised to -4.2% from -3.6%.
Total shipments out of the US manufacturing sector reversed the prior month&#39;s decline with a 1.2% surge, but less petroleum &amp; coal shipments recovered just half of the prior months 1.2% drop (+7.7% y/y). Shipments of computers &amp; electronic products rose 2.8% (+9.4% y/y) after the 2.7% September decline but electrical equipment shipments only gained back 0.4% (4.6% y/y) of a 3.0% September skid.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202d.jpg" width="353">
Factory inventory accumulation picked up to 0.5% following a downwardly revised 0.1% September up tick, however the inventory to sales ratio in the factory sector scaled back to 1.24 due to the surge in shipments. Inventories of consumer durables fell 0.1% (+9.7% y/y) after two months of strong accumulation.
Unfilled orders rose 0.5% and the ratio of unfilled orders to shipments for durables added to the sharp gain in September. Supply bottlenecks also are indicated by the ISM&#39;s index of vendor delivery speed.

<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">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.5%</td>
<td>0.1%</td>
<td>5.9%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.5%</td>
<td>0.0%</td>
<td>8.7%</td>
<td>3.7%</td>
<td>-1.9%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.2%</td>
<td>-1.1%</td>
<td>10.6%</td>
<td>2.6%</td>
<td>-2.0%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.5%</td>
<td>0.9%</td>
<td>8.5%</td>
<td>4.2%</td>
<td>-6.1%</td>
<td>-5.9%</td>
</tr>
</tbody>
</table>
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Factory orders rose 0.5% last month following an upwardly revised unchanged reading for September. The recovery was due to a 2.4% gain in nondurable orders (which equal shipments) that primarily reflected an 8.3% jump in shipments [...]

US Factory Orders & Shipments Recover

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202a.jpg" width="353">
Initial claims for unemployment insurance unexpectedly jumped 25,000 to 349,000 during Thanksgiving week. Holiday periods are notable for seasonal adjustment difficulties. Not seasonally adjusted, claims fell by 36,300. The Consensus expectation had been for 330,000 claims.
The four week moving average of initial claims rose moderately to 336,500 (-8.9% y/y).
During the last ten years there has been a (negative) 82% correlation between the level of initial claims and the y/y change in payroll employment.
Continuing claims for unemployment insurance slumped 20,000 following a downwardly revised 38,000 decline the prior week. The latest is the lowest level since April 2001.
The insured rate of unemployment remained at 2.2% for the eighth week.
The latest Beige Book on regional economic conditions from The Federal Reserve Board is available <a href="http://www.federalreserve.gov/FOMC/BeigeBook/2004/20041201/Default.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/27/04</th>
<th scope="col">11/20/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>349</td>
<td>324</td>
<td>-6.2%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,723</td>
<td>-18.9%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance unexpectedly jumped 25,000 to 349,000 during Thanksgiving week. Holiday periods are notable for seasonal adjustment difficulties. Not seasonally adjusted, claims fell by 36,300. The Consensus [...]

Initial Unemployment Insurance Claims Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202b.jpg" width="353">
Unit sales of light vehicles fell another 3.4% m/m last month on top of the 3.1% decline in October to a 16.39M selling rate. Consensus expectations had been for sales of 16.6M.
Sales of light trucks again were notably weak, falling 4.1% to the lowest sales rate since June. Domestic light truck sales fell 3.8% m/m (-2.1% y/y) and imported light truck sales were off 5.9% (+1.7% y/y).
Lower sales of imported autos, down 9.7% (+5.4% y/y), led total auto sales 2.5% m/m lower following two months of gain. Sales of domestic autos rose 1.0% (-9.2% y/y).
Imports&#39; share of the US market for new vehicles slipped to 21.0%.

<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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.39</td>
<td>16.96</td>
<td>-3.3%</td>
<td>16.69</td>
<td>16.81</td>
<td>17.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.34</td>
<td>7.53</td>
<td>-5.3%</td>
<td>7.63</td>
<td>8.07</td>
<td>8.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.05</td>
<td>9.43</td>
<td>-1.6%</td>
<td>9.06</td>
<td>8.74</td>
<td>8.78</td>
</tr>
</tbody>
</table>
</body>
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Unit sales of light vehicles fell another 3.4% m/m last month on top of the 3.1% decline in October to a 16.39M selling rate. Consensus expectations had been for sales of 16.6M. Sales of light trucks again were notably weak, falling [...]

U.S. Light Vehicle Sales Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202b.jpg" width="353">
Unit sales of light vehicles fell another 3.4% m/m last month on top of the 3.1% decline in October to a 16.39M selling rate. Consensus expectations had been for sales of 16.6M.
Sales of light trucks again were notably weak, falling 4.1% to the lowest sales rate since June. Domestic light truck sales fell 3.8% m/m (-2.1% y/y) and imported light truck sales were off 5.9% (+1.7% y/y).
Lower sales of imported autos, down 9.7% (+5.4% y/y), led total auto sales 2.5% m/m lower following two months of gain. Sales of domestic autos rose 1.0% (-9.2% y/y).
Imports&#39; share of the US market for new vehicles slipped to 21.0%.

<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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.39</td>
<td>16.96</td>
<td>-3.3%</td>
<td>16.69</td>
<td>16.81</td>
<td>17.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.34</td>
<td>7.53</td>
<td>-5.3%</td>
<td>7.63</td>
<td>8.07</td>
<td>8.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.05</td>
<td>9.43</td>
<td>-1.6%</td>
<td>9.06</td>
<td>8.74</td>
<td>8.78</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 2, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202a.jpg" width="353">
Initial claims for unemployment insurance unexpectedly jumped 25,000 to 349,000 during Thanksgiving week. Holiday periods are notable for seasonal adjustment difficulties. Not seasonally adjusted, claims fell by 36,300. The Consensus expectation had been for 330,000 claims.
The four week moving average of initial claims rose moderately to 336,500 (-8.9% y/y).
During the last ten years there has been a (negative) 82% correlation between the level of initial claims and the y/y change in payroll employment.
Continuing claims for unemployment insurance slumped 20,000 following a downwardly revised 38,000 decline the prior week. The latest is the lowest level since April 2001.
The insured rate of unemployment remained at 2.2% for the eighth week.
The latest Beige Book on regional economic conditions from The Federal Reserve Board is available <a href="http://www.federalreserve.gov/FOMC/BeigeBook/2004/20041201/Default.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/27/04</th>
<th scope="col">11/20/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>349</td>
<td>324</td>
<td>-6.2%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,723</td>
<td>-18.9%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
</tbody>
</table>
US Factory Orders & Shipments Recover 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 2, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202c.jpg" width="353">
Factory orders rose 0.5% last month following an upwardly revised unchanged reading for September. The recovery was due to a 2.4% gain in nondurable orders (which equal shipments) that primarily reflected an 8.3% jump in shipments from petroleum refineries.
Durable goods orders fell 1.1%, revised from the advance report of a 0.4% drop. The advance report of a 3.3% decline in nondefense capital goods orders was revised to show a 3.9% decline and less aircraft, the decline was revised to -4.2% from -3.6%.
Total shipments out of the US manufacturing sector reversed the prior month&#39;s decline with a 1.2% surge, but less petroleum &amp; coal shipments recovered just half of the prior months 1.2% drop (+7.7% y/y). Shipments of computers &amp; electronic products rose 2.8% (+9.4% y/y) after the 2.7% September decline but electrical equipment shipments only gained back 0.4% (4.6% y/y) of a 3.0% September skid.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041202d.jpg" width="353">
Factory inventory accumulation picked up to 0.5% following a downwardly revised 0.1% September up tick, however the inventory to sales ratio in the factory sector scaled back to 1.24 due to the surge in shipments. Inventories of consumer durables fell 0.1% (+9.7% y/y) after two months of strong accumulation.
Unfilled orders rose 0.5% and the ratio of unfilled orders to shipments for durables added to the sharp gain in September. Supply bottlenecks also are indicated by the ISM&#39;s index of vendor delivery speed.

<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">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.5%</td>
<td>0.1%</td>
<td>5.9%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.5%</td>
<td>0.0%</td>
<td>8.7%</td>
<td>3.7%</td>
<td>-1.9%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.2%</td>
<td>-1.1%</td>
<td>10.6%</td>
<td>2.6%</td>
<td>-2.0%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.5%</td>
<td>0.9%</td>
<td>8.5%</td>
<td>4.2%</td>
<td>-6.1%</td>
<td>-5.9%</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041201f.jpg" width="353">
The PMI Index for Euro-Zone manufacturing edged down almost 2 points in November and at 50.42, is barely above the 50% expansion threshold. Output and new orders both weakened. The PMI surveys in Europe and a number of other countries are published by NTC Research, a London firm, in conjunction with Reuters.
Among countries, the index in Germany actually fell below 50, to 49.85, indicating outright contraction, albeit not widely spread. Besides output and new orders, employment also decreased, with the weakest reading since November last year. Results for Italy were also in the contractionary zone. France&#39;s index decreased but remained above 50%, while that for Spain edged upward, with a level just above 51%.
The general slowing is attributed by analysts to the recent strengthening of the euro. In the two years ended last February, the euro gained 45% against the dollar. It then lost some ground during the spring before flattening and then heading higher again in mid-October to a record $1.3288 on November 26, up another 5% over February&#39;s already high average.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041201g.jpg" width="353">
The strong euro tends, of course, to make European products less competitive in world markets. But it also has a benefit: it takes some of the sting away from surging energy costs, which are priced mostly in dollars. In the second graph alongside, we illustrate the price of Brent crude, which hit a near-term bottom in May 2003 at $22.94 and &#128;20.62 per barrel. Since then, it has risen 92% in dollar terms, but &quot;only&quot; 59% in euro prices. This is obviously still a significant input price burden for European manufacturers, but far less harsh than what US producers face.

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The PMI Index for Euro-Zone manufacturing edged down almost 2 points in November and at 50.42, is barely above the 50% expansion threshold. Output and new orders both weakened. The PMI surveys in Europe and a number of other countries [...]

European Manufacturing Slows; Oil Price & Strong Euro Blamed

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Mortgage applications dropped another 5.8% last week, the third sharp w/w decline in November. The decline lowered the average level of activity in November to just 1.0% above October according to the Mortgage Bankers Association (MBA).
Applications to refinance plunged 12.3% w/w, pulling the November average 1.3% below October.
Purchase applications slipped 0.6% after a 3.5% decline the prior week. The November average was up versus 2.8% versus October. During the last ten years there has been a 59% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-year mortgage rose to 6.03% and averaged 5.97% last month versus 5.92% in October. The effective rate on a 15-year mortgage rose to 5.49%, the highest level since early October.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">11/26/04</th>
<th scope="col">11/19/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>673.3</td>
<td>715.0</td>
<td>-1.7%</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>460.3</td>
<td>463.3</td>
<td>4.2%</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,912.3</td>
<td>2,179.3</td>
<td>-8.9%</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
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Mortgage applications dropped another 5.8% last week, the third sharp w/w decline in November. The decline lowered the average level of activity in November to just 1.0% above October according to the Mortgage Bankers Association [...]

Mortgage Applications Down Further

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The total value of construction put in place remained stalled in October for the third straight month versus the Consensus expectation for a 0.7% rise.
Private residential building activity fell 0.3% for the second consecutive month as new single family building slipped (+14.4% y/y).
&quot;Housing and the Business Cycle&quot; from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200411/200411abs.html"> here</a>.
Nonresidential building also slipped 0.4% (+2.5% y/y) but so far this year has risen 3.8% due to huge gains in lodging (+42.8%) and retail 29.2%).
Public construction jumped 1.2% as spending on highways &amp; streets, nearly one third of the value of public construction spending, recovered 6.4% (4.9% y/y).
These more detailed categories 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/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.0%</td>
<td>0.1%</td>
<td>7.1%</td>
<td>5.1%</td>
<td>1.5%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>8.3%</td>
<td>6.0%</td>
<td>-0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>10.9%</td>
<td>13.1%</td>
<td>8.4%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>2.5%</td>
<td>-7.1%</td>
<td>-12.8%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.2%</td>
<td>0.9%</td>
<td>3.5%</td>
<td>2.6%</td>
<td>7.0%</td>
<td>10.7%</td>
</tr>
</tbody>
</table>
</body>
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The total value of construction put in place remained stalled in October for the third straight month versus the Consensus expectation for a 0.7% rise. Private residential building activity fell 0.3% for the second consecutive month [...]

U.S. Construction Spending Flat Again in October

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.

250507Z1.jpg

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.

250507Z2.jpg

**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.

250507Z3.jpg

**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.

250507Z4.jpg

**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.

250507Z5.jpg

**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.

250507Z6.jpg

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

250507A20.jpg

250507B20.jpg

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

250506J8.jpg

250506K8.jpg

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**.

250506L8.jpg

250506M8.jpg

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

U.S. Trade Deficit Deepens to Record in March

250506C2.jpg

250506D2.jpg

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

250506E.jpg

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

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

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

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

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

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

Economy in Brief: December 2004

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German Unemployment Up; Spain's Comes Down

US Factory Orders & Shipments Recover

Initial Unemployment Insurance Claims Jumped

U.S. Light Vehicle Sales Lower

U.S. Light Vehicle Sales Lower

European Manufacturing Slows; Oil Price & Strong Euro Blamed

Mortgage Applications Down Further

U.S. Construction Spending Flat Again in October