Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050202c.jpg" width="353">
Challenger, Gray &amp; Christmas reported that job cut announcements in January dropped 15.3% m/m to the lowest level since August.
During the last ten years there has been an 85% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Reductions of job cut announcements were widespread across industries last month except in apparel (+86.2% y/y), computers (+167.0% y/y), electronics (+400.9% y/y), financial (-26.0% y/y), services (-0.6% y/y) and government (+81.0% y/y).
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.

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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">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>92,351</td>
<td>109,045</td>
<td>-21.4%</td>
<td>1,039,175</td>
<td>1,236,426</td>
<td>1,431,052</td>
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</tbody>
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Challenger, Gray & Christmas reported that job cut announcements in January dropped 15.3% m/m to the lowest level since August. During the last ten years there has been an 85% (inverse) correlation between the three month moving [...]

Challenger Layoff Count Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050202a.jpg" width="353">
Unit sales of light vehicles in January matched Consensus expectations and gave back all of the prior month&#39;s jump with an 11.6% decline to 16.26M.
Sales of light trucks dropped 12.2% as sales of domestics skid 12.8% m/m (-4.2% y/y) and imports fell 8.2% (+1.7% y/y).
Total auto sales fell 10.9% m/m paced by a 14.6% (+6.8% y/y) drop in imports. Sales of domestic autos slid 9.5% (+1.5% y/y).
Imports&#39; share of the US market for new vehicles fell slightly to 19.9% in January, about the same as last year&#39;s average.

<table border="0" cellspacing="0" width="100%">
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<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">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.26</td>
<td>18.40</td>
<td>-0.7%</td>
<td>16.88</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.39</td>
<td>8.30</td>
<td>2.9%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.87</td>
<td>10.11</td>
<td>-3.5%</td>
<td>9.39</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
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Unit sales of light vehicles in January matched Consensus expectations and gave back all of the prior month's jump with an 11.6% decline to 16.26M. Sales of light trucks dropped 12.2% as sales of domestics skid 12.8% m/m (-4.2% y/y) [...]

U.S. Light Vehicle Sales Fell Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050202a.jpg" width="353">
Unit sales of light vehicles in January matched Consensus expectations and gave back all of the prior month&#39;s jump with an 11.6% decline to 16.26M.
Sales of light trucks dropped 12.2% as sales of domestics skid 12.8% m/m (-4.2% y/y) and imports fell 8.2% (+1.7% y/y).
Total auto sales fell 10.9% m/m paced by a 14.6% (+6.8% y/y) drop in imports. Sales of domestic autos slid 9.5% (+1.5% y/y).
Imports&#39; share of the US market for new vehicles fell slightly to 19.9% in January, about the same as last year&#39;s average.

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<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">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.26</td>
<td>18.40</td>
<td>-0.7%</td>
<td>16.88</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.39</td>
<td>8.30</td>
<td>2.9%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.87</td>
<td>10.11</td>
<td>-3.5%</td>
<td>9.39</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
Challenger Layoff Count Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050202c.jpg" width="353">
Challenger, Gray &amp; Christmas reported that job cut announcements in January dropped 15.3% m/m to the lowest level since August.
During the last ten years there has been an 85% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Reductions of job cut announcements were widespread across industries last month except in apparel (+86.2% y/y), computers (+167.0% y/y), electronics (+400.9% y/y), financial (-26.0% y/y), services (-0.6% y/y) and government (+81.0% y/y).
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.

<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">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>92,351</td>
<td>109,045</td>
<td>-21.4%</td>
<td>1,039,175</td>
<td>1,236,426</td>
<td>1,431,052</td>
</tr>
</tbody>
</table>
Mortgage Applications Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050202b.jpg" width="353">
Mortgage applications recovered 7.3% last week but the average level in January remained below the December average by 1.9% according to the Mortgage Bankers Association (MBA) Survey.
Applications to refinance jumped 16.6% w/w and that was enough to pull the January average 8.0% ahead of December.
Purchase applications rose a slight 0.3% w/w and the January average fell 8.6% below December. 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 slightly to 5.86% versus an average 6.05% during 2004 and 5.95% in December. The effective rate on a 15-year mortgage also rose to 5.42% last week.
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>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">01/28/05</th>
<th scope="col">01/21/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>706.4</td>
<td>658.1</td>
<td>-17.4%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>440.3</td>
<td>439.0</td>
<td>-0.8%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,253.9</td>
<td>1,932.8</td>
<td>-30.7%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Federal Funds Rate Raised to 2.50% 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050202f.jpg" width="353">
As expected the Federal Open Market Committee raised the target rate for federal funds by 25 basis points to 2.50%. The discount rate also was raised 25 basis points to 3.50%.
The decision was unanimous and it was the sixth increase since last June.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050202/default.htm">here</a>.
A Neutral Fed Funds Rate from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20041201/cover.pdf">here</a>.
Comparing Forecast-Based and Backward-Looking Taylor Rules: A &quot;Global&quot; Analysis from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr198.html">here</a>.

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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050202d.jpg" width="353">
While activity in the Euro Zone&#39;s and Japan&#39;s manufacturing sectors increased for the second month in January according to the purchasing managers surveyed by NTC Research, Ltd, for Reuters Group Plc., the purchasing managers indicated no special interest in increasing employment. As a result there is little likelihood that unemployment rates will be coming down soon in these areas. However, there are other factors at work, besides employment that affect the unemployment rate.
This is apparent in the comparison of unemployment rates in the Euro Zone and Japan. Although the unemployment in the Euro Zone fell to 8.8% in December from 8.9% in November, the rate of unemployment has kept within a narrow range of 8.8% to 9.0% for the past two years. Japan&#39;s unemployment rate fell to 4.4% in December from 4.5% in November. In contrast to the Euro Zone, Japan has experienced a significant decline in the unemployment rate from 5.7% in mid 2002 to 4.4% in December. The two unemployment rates are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050202e.jpg" width="353">
In Japan, employment has shown little change. With steady employment and rising unemployment, one would expect the labor force to increase but it has declined significantly as a result, largely of workers leaving the labor force. The second chart shows the rise in the numbers of Japanese workers not in the labor force. There are no comparable data for the Euro Zone, however, in contrast to Japan, employment has continue to rise as employment in the service sector has more than offset the declines in the industrial sector. With rising employment and rising unemployment, the labor force in the Euro Zone has continued to rise. This suggests that the number of workers leaving the labor force are probably on a much smaller scale than those in Japan .

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Dec 05</th>
<th scope="col">Nov&nbsp;04</th>
<th scope="col">Dec 04</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y &nbsp;Dif</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp; 2002&nbsp; &nbsp;</th>
<th scope="col"></th>
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<td class="firstcol">Euro-Zone: Unemployment Rate (%)</td>
<td>8.8</td>
<td>8.9</td>
<td>8.9</td>
<td>-0.1</td>
<td>-0.1</td>
<td>8.9</td>
<td>8.9</td>
<td>8.5</td>
<td></td>
</tr>
<tr>
<td class="firstcol">Japan: Unemployment Rate&nbsp;(%)&nbsp;</td>
<td>4.4</td>
<td>4.5</td>
<td>4.9</td>
<td>-0.1</td>
<td>-0.5</td>
<td>4.7</td>
<td>5.3</td>
<td>5.4</td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Japan: Not in Labor Force (millions)</td>
<td>4.30</td>
<td>4.25</td>
<td>4.20</td>
<td>1.2%</td>
<td>2.23%</td>
<td>4.22</td>
<td>4.12</td>
<td>4.06</td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
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<td class="firstcol">&nbsp;</td>
<td>Q4 04</td>
<td>Q3 04</td>
<td>Q2 O4</td>
<td>Q3 03</td>
<td>Q4 03</td>
<td>Q3/Q3</td>
<td>Y/Y</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Euro-Zone: Employment (millions)</td>
<td></td>
<td>134.7</td>
<td>134.5</td>
<td>133.2</td>
<td></td>
<td>0.15</td>
<td>0.40</td>
<td>134.1</td>
<td>133.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan: Employment (mil)</td>
<td>63.2</td>
<td>63.8</td>
<td>63.7</td>
<td></td>
<td>64.0</td>
<td>-0.05</td>
<td>0.08</td>
<td>63.3</td>
<td>63.2</td>
</tr>
</tbody>
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While activity in the Euro Zone's and Japan's manufacturing sectors increased for the second month in January according to the purchasing managers surveyed by NTC Research, Ltd, for Reuters Group Plc., the purchasing managers [...]

The Difference in Unemployment Rates in the Euro Zone and Japan Due Largely to Japanese Workers' Withdrawal from [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050201c.jpg" width="353">
The total value of construction put in place surged 1.1% in December following declines in prior months that were lessened. Consensus expectations had been for a 0.6% gain.The yearend jump lifted the y/y gain in spending to 8.8%, its strongest since 1996.
Private residential building activity recovered 0.7% following two months of decline to finish the year up 13.5%, the biggest gain in ten years. New single family building only rose 0.3% in December but the year&#39;s gain of 18.9% was the series&#39; largest.
Nonresidential building jumped 1.2% and rose to the highest level since early 2002 led by a 1.3% gain in office building (+2.9% y/y) and another pop (+2.3%) in multi-retail (27.2% y/y).
Public construction jumped 1.8% and the prior month&#39;s gain was revised up sharply. Spending on highways &amp; streets, nearly one third of the value of public construction spending, surged 3.2% (9.1% y/y) for the third consecutive month of strength.Educational spending also was strong for the second month, up 1.7% (8.5% 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.

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<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">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.1%</td>
<td>0.3%</td>
<td>8.7%</td>
<td>8.8%</td>
<td>5.1%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.9%</td>
<td>-0.2%</td>
<td>8.5%</td>
<td>10.4%</td>
<td>6.0%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>9.5%</td>
<td>13.5%</td>
<td>13.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.2%</td>
<td>-0.7%</td>
<td>6.3%</td>
<td>3.7%</td>
<td>-7.1%</td>
<td>-12.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.8%</td>
<td>2.3%</td>
<td>9.4%</td>
<td>3.6%</td>
<td>2.6%</td>
<td>7.0%</td>
</tr>
</tbody>
</table>
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The total value of construction put in place surged 1.1% in December following declines in prior months that were lessened. Consensus expectations had been for a 0.6% gain.The yearend jump lifted the y/y gain in spending to 8.8%, its [...]

U.S. Construction Spending Jump Lifted Last Year's Gain To 8.8%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050201b.jpg" width="353">
The Institute of Supply Management reported that its Composite Index of activity in the manufacturing sector slipped last month to 56.4, the lowest level since September 2003. Consensus expectations had been for 56.9 and new seasonal adjustment factors led to revisions of prior months&#39; levels.
During the last twenty years there has been a 69% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The new orders component reversed all of the gains in the prior two months and fell 6.1 points to 56.5, the lowest level since June 2003. Conversely, the separate index of export orders ticked up 0.3 points to a near record high. A 2.4 point decline in the supplier delivery index additionally contributed to the composite index&#39;s drop.
Other composite index components rose with a 4.8 rise in the employment index recovering nearly all of recent months&#39; declines. During the last twenty years there has been a 69% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment. Production recovered some of the prior three months&#39; decline and inventories were unchanged.
The prices paid index fell for the third straight month, down nineteen points from the high last April.

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>56.4</td>
<td>57.3</td>
<td>62.8</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>56.5</td>
<td>62.6</td>
<td>69.2</td>
<td>&nbsp;63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>69.0</td>
<td>72.0</td>
<td>75.5</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The Institute of Supply Management reported that its Composite Index of activity in the manufacturing sector slipped last month to 56.4, the lowest level since September 2003. Consensus expectations had been for 56.9 and new seasonal [...]

ISM Factory Index Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050201a.jpg" width="353">
Chain store sales fell 1.9% last week, the third decline this year according to the International Council of Shopping Centers (ICSC)-UBS survey.
The decline lowered the average of sales in January to just 0.9% ahead of December.
During the last ten years there has been a 58% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.
The leading indicator of chain store sales from ICSC added 0.5% to the prior week&#39;s 1.1% (-0.7% y/y) jump.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/29/05</th>
<th scope="col">01/22/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>436.0</td>
<td>444.3</td>
<td>2.5%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales fell 1.9% last week, the third decline this year according to the International Council of Shopping Centers (ICSC)-UBS survey. The decline lowered the average of sales in January to just 0.9% ahead of December. [...]

Chain Store Sales Fell Hard

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050201a.jpg" width="353">
Chain store sales fell 1.9% last week, the third decline this year according to the International Council of Shopping Centers (ICSC)-UBS survey.
The decline lowered the average of sales in January to just 0.9% ahead of December.
During the last ten years there has been a 58% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.
The leading indicator of chain store sales from ICSC added 0.5% to the prior week&#39;s 1.1% (-0.7% y/y) jump.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/29/05</th>
<th scope="col">01/22/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>436.0</td>
<td>444.3</td>
<td>2.5%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
ISM Factory Index Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050201b.jpg" width="353">
The Institute of Supply Management reported that its Composite Index of activity in the manufacturing sector slipped last month to 56.4, the lowest level since September 2003. Consensus expectations had been for 56.9 and new seasonal adjustment factors led to revisions of prior months&#39; levels.
During the last twenty years there has been a 69% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The new orders component reversed all of the gains in the prior two months and fell 6.1 points to 56.5, the lowest level since June 2003. Conversely, the separate index of export orders ticked up 0.3 points to a near record high. A 2.4 point decline in the supplier delivery index additionally contributed to the composite index&#39;s drop.
Other composite index components rose with a 4.8 rise in the employment index recovering nearly all of recent months&#39; declines. During the last twenty years there has been a 69% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment. Production recovered some of the prior three months&#39; decline and inventories were unchanged.
The prices paid index fell for the third straight month, down nineteen points from the high last April.

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>56.4</td>
<td>57.3</td>
<td>62.8</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>56.5</td>
<td>62.6</td>
<td>69.2</td>
<td>&nbsp;63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>69.0</td>
<td>72.0</td>
<td>75.5</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Jump Lifted Last Year's Gain To 8.8%  
by <a href="/comment/Moeller.html">Tom Moeller</a> February 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050201c.jpg" width="353">
The total value of construction put in place surged 1.1% in December following declines in prior months that were lessened. Consensus expectations had been for a 0.6% gain.The yearend jump lifted the y/y gain in spending to 8.8%, its strongest since 1996.
Private residential building activity recovered 0.7% following two months of decline to finish the year up 13.5%, the biggest gain in ten years. New single family building only rose 0.3% in December but the year&#39;s gain of 18.9% was the series&#39; largest.
Nonresidential building jumped 1.2% and rose to the highest level since early 2002 led by a 1.3% gain in office building (+2.9% y/y) and another pop (+2.3%) in multi-retail (27.2% y/y).
Public construction jumped 1.8% and the prior month&#39;s gain was revised up sharply. Spending on highways &amp; streets, nearly one third of the value of public construction spending, surged 3.2% (9.1% y/y) for the third consecutive month of strength.Educational spending also was strong for the second month, up 1.7% (8.5% 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">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.1%</td>
<td>0.3%</td>
<td>8.7%</td>
<td>8.8%</td>
<td>5.1%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.9%</td>
<td>-0.2%</td>
<td>8.5%</td>
<td>10.4%</td>
<td>6.0%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>9.5%</td>
<td>13.5%</td>
<td>13.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.2%</td>
<td>-0.7%</td>
<td>6.3%</td>
<td>3.7%</td>
<td>-7.1%</td>
<td>-12.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.8%</td>
<td>2.3%</td>
<td>9.4%</td>
<td>3.6%</td>
<td>2.6%</td>
<td>7.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

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

250507J1.jpg

250507K1.jpg

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.”

250507L1.jpg

250507M1.jpg

- 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

250507F4.jpg

250507G4.jpg

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.

250507H4.jpg

250507I4.jpg

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


U.S. Consumer Credit Rebounded in March

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

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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: February 2005

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