Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080207e.jpg" align="left" border="0" height="265" width="353">
German orders for December were stronger than expected, a mild
positive surprise to markets. With the economy showing weakening
signals and the euro strong, sentiment is shifting to look for some
weaker results. As a result the spin on the numbers reported today was
to sort of set them aside as though they were something that would not
last. And, indeed, they may not last. 

The German foreign orders series showed that foreign orders
from non-German Euro Area countries fell by 6.8% after a 6.7% rise in
November. This also raises questions about what is going on within the
Euro Area (EA). Foreign orders at German firms from outside the EA rose
by 0.8% in the month after falling in November. 

One thing to understand is that Germany is the STRONGEST of
the EA economies. Other EA countries will be feeling pain before
Germany does. We can see this by looking at one measure of
competitiveness, prices. HICP prices in Germany have fallen by 11.5%
relative to the EA average since January of 1996. Compare this to Italy
where its HICP has risen by 3.7% or Spain where its prices have risen
relative to the average by 12.2%. That sort of result implies a huge
difference in competitiveness for trade both within the EA and outside
it. It should come as no surprise that confidence in Italy and Spain
has been lagging. 

German data are reliable and timely. For other countries we
are not always so lucky. But if we piece together the things we know
about Germany and the geographic data in reports like today&#8217;s orders,
there is a real reason to be wary of EA growth going forward. There is
the additional unsavory point that Germany itself may be living a bit
on borrowed time. Its firms may have employed FX hedges to lock in past
more favorable exchange rates on which to do business. But these
devices eventually fail in their ability to afford a safe haven or even
partial escape. A lot of hedging is done on a six-month horizon and six
months ago the euro value Vs the dollar was at $1.34 Compared to the
current $1.45 to $1.50 rate. A year ago, a fairly long period over
which to hedge the euro rate Vs the dollar was at $1.30. Obviously if
hedges set at those times are running off German firms would have to
begin to confront business prospects at current exchange rates.
Interestingly it is the intra-EA orders that are the weakest for
Germany. But it still has a good chunk of business in capital goods
that might be a bit less price elastic in Eastern Europe and in Russia.
It is no surprise in view of these emerging risks, that ECB president
Trichet softened the rhetoric in his remarks today.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> German
Orders and Sales By Sector and Origin</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>YrAgo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Orders</td>
<td>-1.7%</td>
<td>3.0%</td>
<td>4.0%</td>
<td>22.5%</td>
<td>10.7%</td>
<td>10.2%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-2.8%</td>
<td>2.3%</td>
<td>5.3%</td>
<td>20.1%</td>
<td style="color: red;">9.6%</td>
<td>13.2%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>-0.5%</td>
<td>3.7%</td>
<td>2.5%</td>
<td>25.3%</td>
<td>11.9%</td>
<td>7.3%</td>
<td>7.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol" colspan="8">Sector
Sales</td>
</tr>
<tr>
<td class="firstcol">Manufacturing/Mining</td>
<td>0.2%</td>
<td style="color: red;">-0.7%</td>
<td>1.3%</td>
<td>3.0%</td>
<td style="color: red;">1.5%</td>
<td style="color: red;">4.4%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-0.4%</td>
<td style="color: red;">-0.6%</td>
<td>0.8%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">-0.4%</td>
<td style="color: red;">1.7%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Durables</td>
<td>2.6%</td>
<td>-0.2%</td>
<td>-1.3%</td>
<td>4.1%</td>
<td>2.1%</td>
<td style="color: red;">1.3%</td>
<td>10.0%</td>
</tr>
<tr>
<td class="firstcol">Consumer Nondurables</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-0.6%</td>
<td>1.1%</td>
<td style="color: red;">-1.5%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">1.8%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.2%</td>
<td style="color: red;">-2.1%</td>
<td>3.3%</td>
<td>3.4%</td>
<td style="color: red;">1.7%</td>
<td>6.8%</td>
<td>6.7%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.9%</td>
<td>0.8%</td>
<td>-0.6%</td>
<td>4.3%</td>
<td style="color: red;">2.1%</td>
<td style="color: red;">3.0%</td>
<td>12.1%</td>
</tr>
<tr>
<td class="firstcol">All Manufacturing Sales</td>
<td>0.2%</td>
<td style="color: red;">-0.9%</td>
<td>1.2%</td>
<td>2.0%</td>
<td style="color: red;">1.0%</td>
<td style="color: red;">3.8%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body></html>

German orders for December were stronger than expected, a mild positive surprise to markets. With the economy showing weakening signals and the euro strong, sentiment is shifting to look for some weaker results. As a result the spin [...]

German Orders Still Strong, but More Are Disbelieving

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080207d.jpg" width="353">
The National Association of Realtors reported that the level of pending home sales in December fell 1.5% from November following that month&#39;s decline of 3.0%. These notable declines, however, followed increases during the prior two months. The December decline therefore left sales at the cycle&#39;s low set in August. The pattern of sales since then has been essentially sideways.
Despite the sideways movement, the latest monthly figure is about one third below the peak level during the Summer of 2005. The data date back only to 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080207c.jpg" width="353">
These figures are analogous to the new home sales data from the Commerce Dept. They measure existing home sales when the sales contract is signed, not at the time the sale is closed.
The Realtors also indicated in an earlier report that the number of homes on the market and available for sale fell 7.4% to 390,500 units in December. That was the lowest level since March. For all of 2007, however, the inventory of unsold homes rose 13.2% after huge increases of 21.2% and 26.8% during the prior two years.
In the Northeast, pending home sales fell 1.7% after a 13.0% m/m decline in November. For the year sales fell 12.6% following 2006&#39;s decline of 9.2%. Sales out West also fell a sharp 3.1% after a 2.1% November drop and for the year were down 15.8% after a 14.8% shortfall in 2006.
Sales in the Midwest sales ended the year with a 3.4% gain and since August have shown a very slight upward tilt. For the year sales fell 12.0% after the 12.4% 2006 decline. In the South sales fell another 3.0% in December to a new cycle low. For the year sales in the South fell 15.7% after a relatively moderate 5.5% decline in 2006.
The pending home sales data are available in Haver&#39;s PREALTOR database and the number of homes on the market are in the REALTOR database.

<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">Pending Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>85.9</td>
<td>&nbsp;87.2</td>
<td>&nbsp;&nbsp; -24.2%</td>
<td>95.9</td>
<td>112.1&nbsp;</td>
<td>124.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>68.9</td>
<td>70.1</td>
<td>-26.0</td>
<td>85.7</td>
<td>98.0</td>
<td>108.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>84.9</td>
<td>82.1</td>
<td>-17.3</td>
<td>89.7</td>
<td>102.0</td>
<td>116.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>96.4</td>
<td>99.4</td>
<td>-27.0</td>
<td>107.4</td>
<td>127.4</td>
<td>134.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>83.9</td>
<td>86.6</td>
<td>-24.1</td>
<td>92.3</td>
<td>109.6</td>
<td>128.7</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Realtors reported that the level of pending home sales in December fell 1.5% from November following that month's decline of 3.0%. These notable declines, however, followed increases during the prior two [...]

U.S. Pending Home Sales Seeking a Bottom?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080207a.jpg" width="353">
Initial claims for jobless insurance slipped 22,000 last week to 356,000. The decline pulled back only a piece of the prior week&#39;s upwardly revised 72,000 surge. The latest remained near the highest level since October of 2005.
The four-week moving average of initial claims, a measure which smoothes out most of the series&#39; w/w volatility, rose again to 335,000 (+7.5% y/y).
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080207b.jpg" width="353">
Continuing claims for unemployment insurance jumped 75,000 following a 41,000 increase during the week prior. That was revised down just slightly. The figure provides some indication of workers&#39; ability to find employment but here again difficulties of seasonal adjustment this time of year are great.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment rose w/w back to 2.1%.
Business Volatility, Job Destruction and Unemployment from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/economics/conferences/0711/haltiwanger.pdf">here</a>.
A Minimum Wager from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/pubs/fedgaz/07-03/wage.cfm"> 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>&nbsp;</th>
<th scope="col">02/02/08</th>
<th scope="col">01/26/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;356</td>
<td>378</td>
<td>13.4%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,785</td>
<td>12.8%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance slipped 22,000 last week to 356,000. The decline pulled back only a piece of the prior week's upwardly revised 72,000 surge. The latest remained near the highest level since October of 2005. The [...]

U.S. Initial Unemployment Insurance Claims Slipped

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206e.jpg" align="left" border="0" height="265" width="353">
French sequential growth rates are working their way lower for
the volume of total retail sales. Passenger car registrations have,
however, picked up a bit. The spike up in car registrations has to do
with some changing regulations in France and are clustering sales into
the current periods much as they did at the end of 2006 for Germany as
buyers there tried to avoid the coming VAT hike. The overall retail
numbers do not show much of this effect since the impact is for an
auto-specific change related to environmental concerns. 
 

Retail sales volumes in France continue to move ahead at a 2%
pace over three months, a bit less than their 3% yr/yr rate and the
same as the year ago pace of 2%. French consumers, like other Euro Area
consumers are having a hard time getting spending on track. With the
new financial turmoil, higher energy prices, strong euro and slowing
economy, the consumer may not turn that corner to better times. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">French Real Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr Ago</td>
<td>QTR: SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">VOLUME</td>
</tr>
<tr>
<td class="firstcol">Retail Volume</td>
<td>0.9%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">Registrations</td>
</tr>
<tr>
<td class="firstcol">Passenger Cars</td>
<td>10.7%</td>
<td>0.5%</td>
<td>0.3%</td>
<td>54.7%</td>
<td>35.4%</td>
<td>19.8%</td>
<td>-4.4%</td>
<td>26.7%</td>
</tr>
</tbody>
</table>
</body></html>

French sequential growth rates are working their way lower for the volume of total retail sales. Passenger car registrations have, however, picked up a bit. The spike up in car registrations has to do with some changing regulations in [...]

French Retail Sales Trend Slips

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206d.jpg" align="left" border="0" height="265" width="353">
Not every inflation report or trend in the EMU is bad news.
But the news is still not pleasing to an ECB that is trying to inherit
the mantel of inflation fighting respectability from the Bundesbank.
Inflation in the Euro Area consists of an overall HICP measure but
there is also the country level data that contribute to the HICP.
Italy&#8217;s new inflation report is shown below. Headline inflation slowed
sharply in January and the three-month growth rate edged slightly lower
from its six-month value. Even so, that rate is unacceptably high.
Across categories inflation slowed producing a diffusion rate of 42%
implying that the deceleration was relatively widespread. But over six
months diffusion shows that it has accelerated and over 12 months it is
about the same as it was a year ago in terms of the breadth of the
acceleration/deceleration (diffusion) even though it is higher in terms
of the headline and the core. 
 

The chart shows that the core rate has been steadily
accelerating. But if energy prices abate that trend should be
truncated. In short Italy&#8217;s data are the exact reason that the ECB
remains wary. While the current month hints at a break in the pace the
trends are simply not good enough to take the ECB off guard.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy HICP
and CPI details </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP Total</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>3.5%</td>
<td>3.9%</td>
<td>3.1%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>--</td>
<td>0.3%</td>
<td>0.2%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.6%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">CPI</td>
</tr>
<tr class="odd">
<td class="firstcol">All</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.4%</td>
<td style="color: red;">4.9%</td>
<td style="color: red;">3.8%</td>
<td>2.9%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI excl Tobacco</td>
<td>--</td>
<td>0.4%</td>
<td>0.4%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>6.0%</td>
<td style="color: red;">6.9%</td>
<td style="color: red;">4.5%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Alcohol</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>4.6%</td>
<td style="color: red;">4.7%</td>
<td>3.5%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing &amp; Shoes</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td style="color: red;">1.8%</td>
<td style="color: red;">1.6%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rent &amp; Utilities</td>
<td>1.1%</td>
<td>0.5%</td>
<td>0.7%</td>
<td style="color: red;">9.8%</td>
<td style="color: red;">7.4%</td>
<td>4.0%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing &amp; Furniture</td>
<td>0.8%</td>
<td>0.2%</td>
<td>0.2%</td>
<td style="color: red;">4.7%</td>
<td style="color: red;">3.6%</td>
<td style="color: red;">3.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Health Care</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-1.0%</td>
<td>0.5%</td>
<td style="color: red;">0.7%</td>
<td>-1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>0.9%</td>
<td>1.1%</td>
<td>0.7%</td>
<td style="color: red;">11.7%</td>
<td style="color: red;">7.4%</td>
<td style="color: red;">5.5%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Communication</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td style="color: red;">-3.4%</td>
<td style="color: red;">-4.2%</td>
<td>-8.4%</td>
<td>-4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation &amp; Culture</td>
<td>-1.1%</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-1.6%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other</td>
<td>0.4%</td>
<td>0.1%</td>
<td>0.4%</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">3.1%</td>
<td>2.3%</td>
</tr>
<tr class="even">
<td class="firstcol">Diffusion</td>
<td colspan="3">&nbsp;</td>
<td>41.7%</td>
<td style="color: red;">66.7%</td>
<td>50.0%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>
</tbody>
</table>
</body></html>

Not every inflation report or trend in the EMU is bad news. But the news is still not pleasing to an ECB that is trying to inherit the mantel of inflation fighting respectability from the Bundesbank. Inflation in the Euro Area [...]

Italy’s Inflation Rate Shows Core Pressure Through Dec; In Jan Headline Abates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206a.jpg" width="353">
Nonfarm labor productivity growth last quarter slowed considerably to 1.8% from a little revised 6.0% during 3Q07. The preliminary 4Q figure beat Consensus expectations for a 0.5% rise. Despite the 4Q slowdown, productivity growth of 1.6% for all of last year was up from the measly 1.0% rate during 2006 due to that 6.0% 3Q spurt.
Output growth last quarter did indeed decelerate sharply to just 0.4% from 5.6% during 3Q but a decline in hours worked to a 1.5% rate of decline was the sharpest fall of three during 2007. For all of last year hours worked rose 0.7% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206b.jpg" width="353">
Compensation per hour last quarter held roughly steady with 3Q at a 3.9% rate of growth. Despite that stability compensation growth for the year accelerated to a 4.8% rate of growth which was the quickest since 2000.
That stability of compensation in the face of slower productivity raised unit labor cost growth to 2.1% from its 3Q decline by a like amount. The Consensus expectation had been for 3.5% growth in unit labor costs. The 4Q rise was enough to lift the gain in labor costs for the full year by 3.1% That was slightly ahead of the 2006 increase but it also was the quickest since 2000.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206c.jpg" width="353">
Productivity in the factory sector eased to a 2.5% growth rate from a downwardly revised 4.0% during 3Q. For all of 2007 factory sector productivity rose 2.9%, the slowest rate of growth since 2001. The weakness in productivity resulted as output growth slowed to -1.9% from 3.9% in 3Q and that outpaced the slowdown in hours worked to -4.3% from -0.1%. The 4.2% rise in factory sector compensation pulled unit labor costs up 1.7% after a 2.9% 3Q decline. For the full year unit labor costs in the factory sector rose 1.6% after two years of negative growth and that rate of increase was the quickest since 2000.
The January 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200801/fullreport.pdf"> here</a>.
How well do wages follow productivity growth? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070301/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">Q4 &#39;07</th>
<th scope="col">Q3 &#39;07</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.8%</td>
<td>6.0%</td>
<td>2.6%</td>
<td>1.6%</td>
<td>1.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.7%</td>
<td>4.8%</td>
<td>3.9%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.1%</td>
<td>-1.9%</td>
<td>1.0%</td>
<td>3.1%</td>
<td>2.9%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


</html>

Nonfarm labor productivity growth last quarter slowed considerably to 1.8% from a little revised 6.0% during 3Q07. The preliminary 4Q figure beat Consensus expectations for a 0.5% rise. Despite the 4Q slowdown, productivity growth of [...]

U.S. Productivity Down in Q4 But Up for All of 2007; Factory Sector Costs Up

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206a.jpg" align="left" border="0" height="265" width="353">
Nonfarm labor productivity growth last
quarter slowed considerably to 1.8% from a little revised 6.0% during
3Q07. The preliminary 4Q figure beat Consensus expectations
for a 0.5% rise. Despite the 4Q slowdown, productivity growth of 1.6%
for all of last year was up from the measly 1.0% rate during 2006 due
to that 6.0% 3Q spurt.
Output growth last quarter did indeed decelerate sharply to
just 0.4% from 5.6% during 3Q but a decline in hours worked to a 1.5%
rate of decline was the sharpest fall of three during 2007. For all of
last year hours worked rose 0.7% y/y.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206b.jpg" align="right" border="0" height="265" width="353">
Compensation per hour last quarter held
roughly steady with 3Q at a 3.9% rate of growth. Despite that stability
compensation growth for the year accelerated to a 4.8% rate of growth
which was the quickest since 2000.
That stability of compensation in the face of slower
productivity raised unit labor cost growth to 2.1%
from its 3Q decline by a like amount. The Consensus expectation had
been for 3.5% growth in unit labor costs. The 4Q rise was enough to
lift the gain in labor costs for the full year by 3.1% That was
slightly ahead of the 2006 increase but it also was the quickest since
2000.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206c.jpg" align="left" border="0" height="265" width="353">
Productivity in the factory sector eased
to a 2.5% growth rate from a downwardly revised 4.0% during 3Q. For all
of 2007 factory sector productivity rose 2.9%, the slowest rate of
growth since 2001. The weakness in productivity resulted as output
growth slowed to -1.9% from 3.9% in 3Q and that outpaced the slowdown
in hours worked to -4.3% from -0.1%. The 4.2% rise in factory sector
compensation pulled unit labor costs up 1.7% after a 2.9% 3Q decline.
For the full year unit labor costs in the factory sector rose 1.6%
after two years of negative growth and that rate of increase was the
quickest since 2000.


The January 2008 Senior Loan Officer Opinion Survey
on Bank Lending Practices from the Federal Reserve Board is
available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200801/fullreport.pdf">
here</a>.
How well do wages follow productivity growth? from
the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070301/cover.pdf">here</a>.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm
Business Sector</a> (SAAR)</th>
<th scope="col">Q4 '07</th>
<th scope="col">Q3 '07</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.8%</td>
<td>6.0%</td>
<td>2.6%</td>
<td>1.6%</td>
<td>1.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.7%</td>
<td>4.8%</td>
<td>3.9%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.1%</td>
<td>-1.9%</td>
<td>1.0%</td>
<td>3.1%</td>
<td>2.9%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
Italy&#8217;s Inflation Rate Shows Core
Pressure Through Dec; In Jan Headline Abates&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 6, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206d.jpg" align="left" border="0" height="265" width="353">
Not every inflation report or trend in the EMU is bad news.
But the news is still not pleasing to an ECB that is trying to inherit
the mantel of inflation fighting respectability from the Bundesbank.
Inflation in the Euro Area consists of an overall HICP measure but
there is also the country level data that contribute to the HICP.
Italy&#8217;s new inflation report is shown below. Headline inflation slowed
sharply in January and the three-month growth rate edged slightly lower
from its six-month value. Even so, that rate is unacceptably high.
Across categories inflation slowed producing a diffusion rate of 42%
implying that the deceleration was relatively widespread. But over six
months diffusion shows that it has accelerated and over 12 months it is
about the same as it was a year ago in terms of the breadth of the
acceleration/deceleration (diffusion) even though it is higher in terms
of the headline and the core. 
 

The chart shows that the core rate has been steadily
accelerating. But if energy prices abate that trend should be
truncated. In short Italy&#8217;s data are the exact reason that the ECB
remains wary. While the current month hints at a break in the pace the
trends are simply not good enough to take the ECB off guard.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy HICP
and CPI details </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP Total</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>3.5%</td>
<td>3.9%</td>
<td>3.1%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>--</td>
<td>0.3%</td>
<td>0.2%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.6%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">CPI</td>
</tr>
<tr class="odd">
<td class="firstcol">All</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.4%</td>
<td style="color: red;">4.9%</td>
<td style="color: red;">3.8%</td>
<td>2.9%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI excl Tobacco</td>
<td>--</td>
<td>0.4%</td>
<td>0.4%</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.5%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>6.0%</td>
<td style="color: red;">6.9%</td>
<td style="color: red;">4.5%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Alcohol</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>4.6%</td>
<td style="color: red;">4.7%</td>
<td>3.5%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing &amp; Shoes</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td style="color: red;">1.8%</td>
<td style="color: red;">1.6%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rent &amp; Utilities</td>
<td>1.1%</td>
<td>0.5%</td>
<td>0.7%</td>
<td style="color: red;">9.8%</td>
<td style="color: red;">7.4%</td>
<td>4.0%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing &amp; Furniture</td>
<td>0.8%</td>
<td>0.2%</td>
<td>0.2%</td>
<td style="color: red;">4.7%</td>
<td style="color: red;">3.6%</td>
<td style="color: red;">3.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Health Care</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-1.0%</td>
<td>0.5%</td>
<td style="color: red;">0.7%</td>
<td>-1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>0.9%</td>
<td>1.1%</td>
<td>0.7%</td>
<td style="color: red;">11.7%</td>
<td style="color: red;">7.4%</td>
<td style="color: red;">5.5%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Communication</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td style="color: red;">-3.4%</td>
<td style="color: red;">-4.2%</td>
<td>-8.4%</td>
<td>-4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation &amp; Culture</td>
<td>-1.1%</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-1.6%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other</td>
<td>0.4%</td>
<td>0.1%</td>
<td>0.4%</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">3.1%</td>
<td>2.3%</td>
</tr>
<tr class="even">
<td class="firstcol">Diffusion</td>
<td colspan="3">&nbsp;</td>
<td>41.7%</td>
<td style="color: red;">66.7%</td>
<td>50.0%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>
</tbody>
</table>
French Retail Sales Trend Slips 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 6, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080206e.jpg" align="left" border="0" height="265" width="353">
French sequential growth rates are working their way lower for
the volume of total retail sales. Passenger car registrations have,
however, picked up a bit. The spike up in car registrations has to do
with some changing regulations in France and are clustering sales into
the current periods much as they did at the end of 2006 for Germany as
buyers there tried to avoid the coming VAT hike. The overall retail
numbers do not show much of this effect since the impact is for an
auto-specific change related to environmental concerns. 
 

Retail sales volumes in France continue to move ahead at a 2%
pace over three months, a bit less than their 3% yr/yr rate and the
same as the year ago pace of 2%. French consumers, like other Euro Area
consumers are having a hard time getting spending on track. With the
new financial turmoil, higher energy prices, strong euro and slowing
economy, the consumer may not turn that corner to better times. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">French
Real Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr Ago</td>
<td>QTR: SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">VOLUME</td>
</tr>
<tr>
<td class="firstcol">Retail Volume</td>
<td>0.9%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">Registrations</td>
</tr>
<tr>
<td class="firstcol">Passenger Cars</td>
<td>10.7%</td>
<td>0.5%</td>
<td>0.3%</td>
<td>54.7%</td>
<td>35.4%</td>
<td>19.8%</td>
<td>-4.4%</td>
<td>26.7%</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.

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

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

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

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

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

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

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

Charts of the Week: Relief Rally Meets Recession Risk

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

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

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

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

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

FOMC Targeted Funds Rate Range Is Unchanged; Increased Risks Acknowledged

Kathleen Stephansen, CBE

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

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

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

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

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


U.S. Consumer Credit Rebounded in March

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

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

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

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

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

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

Mortgage Applications Surge as Interest Rates Ease Last Week

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

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

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

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

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

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

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

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

Economy in Brief: February 2008

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