Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403e.jpg" width="353">
Manufacturing PMI&#39;s (Purchasing Manager&#39;s Indexes) were released today by NTC Research, Ltd. The index for the Euro Zone has been in an expansion mode (i.e. above 50) since last July. The March figure released today, 56.07, was the highest since September, 2000 as can be seen in the first chart. All of the Euro Zone members surveyed by NTC Research except the Netherlands, showed increases in March over February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403f.jpg" width="353">
NTC Research also surveys the non Euro Zone countries--Czech Republic, Poland and Russia. In March, the PMI for the Czech Republic showed a small increase while those for Poland and Russia showed decline. All three countries, however, are still in an expansion mode.
Over the next two days, NTC Research will publish diffusion indexes for the service and construction industries. At that time they will produce their Gross Domestic Product Indicator, which is based on a weighted combination of the three industries. The GDP indicator has proved to be a fairly good indicator of the year to year changes in real GDP as can be seen in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">March 2006</th>
<th scope="col">February 2006</th>
<th scope="col">% Change</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Zone</td>
<td>56.07</td>
<td>54.47</td>
<td>&nbsp;2.9</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>54.57</td>
<td>52.22</td>
<td>&nbsp;4.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>58.09</td>
<td>55.86</td>
<td>&nbsp;4.0</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>55.47</td>
<td>55.11</td>
<td>&nbsp;0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>54.74</td>
<td>52.75</td>
<td>&nbsp;3.8</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>52.64</td>
<td>52.42</td>
<td>&nbsp;0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>56.18</td>
<td>56.97</td>
<td>-1.4</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>56.52</td>
<td>54.46</td>
<td>&nbsp;3.8</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Other Europe</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Czech Republic</td>
<td>55.74</td>
<td>55.10</td>
<td>&nbsp;1.2</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>51.97</td>
<td>52.93</td>
<td>-1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Russia</td>
<td>52.48</td>
<td>53.63</td>
<td>-2.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Manufacturing PMI's (Purchasing Manager's Indexes) were released today by NTC Research, Ltd. The index for the Euro Zone has been in an expansion mode (i.e. above 50) since last July. The March figure released today, 56.07, was the [...]

Purchasing Managers in Europe Report Good Improvement in the Manufacturing Sector

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403c.jpg" width="353">
After a lackluster performance during January, the February value of construction put in place rose 0.8%, double the upwardly revised gain the prior month. Consensus expectations had been for a 0.5% increase.
Residential building surged 1.3% after an unrevised 0.1% January up tick. New single family building ballooned 1.3% (14.0% y/y) and the value of improvements rose 1.9% (-10.2% y/y), recovering all of the prior month&#39;s decline.
Your House Just Doubled in Value? Don&#39;t Uncork the Champagne Just Yet! from the Federal Reserve Bank of Philadelphia is available <a href="http://www.phil.frb.org/files/br/Q1_06_Housevalue.pdf"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403d.jpg" width="353">
Nonresidential building gained 0.8%. Office construction jumped again, by 1.5% (16.1% y/y), and the previously reported slip during January was revised to an increase of 2.1%. Commercial building, however, fell 2.1% (+11.2% y/y) following much strength during the final nine months of 2005.
Public construction spending slipped 0.5%. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose a modest 0.7% (3.8% 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">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.8%</td>
<td>0.4%</td>
<td>7.4%</td>
<td>9.2%</td>
<td>10.9%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>1.2%</td>
<td>0.4%</td>
<td>7.8%</td>
<td>9.7%</td>
<td>13.6%</td>
<td>6.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>1.3%</td>
<td>0.1%</td>
<td>7.1%</td>
<td>11.5%</td>
<td>18.2%</td>
<td>12.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.8%</td>
<td>1.2%</td>
<td>9.6%</td>
<td>5.4%</td>
<td>3.9%</td>
<td>-5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.5%</td>
<td>0.6%</td>
<td>6.0%</td>
<td>7.6%</td>
<td>2.5%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
</body>
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After a lackluster performance during January, the February value of construction put in place rose 0.8%, double the upwardly revised gain the prior month. Consensus expectations had been for a 0.5% increase. Residential building [...]

U.S. Construction Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403a.jpg" width="353">
The March Composite Index of activity in the factory sector fell to 55.2. The Institute of Supply Management (ISM) reported that most of the prior month&#39;s increase was reversed and that the 1Q average level was the lowest since the second quarter of last year. Consensus expectations had been for an increase to 57.5 last month.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The new orders index reversed nearly all of the sharp improvement during February and dropped back into the range of the last nine months. Export orders slipped m/m although the 1Q index was at its highest level in nearly two years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403b.jpg" width="353">
The employment index also fell sharply to its lowest level since last June. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment. Production was roughly stable m/m. The inventory index slipped but the quarterly level sustained its improved 4Q level. The supplier deliveries index rose moderately after a sharp decline during February.
The price index increased 4.0 points to its highest level since November. The Institute reported that the following commodities were up in price; aluminum, aluminum extrusions, aluminum products, carbon black, copper, copper products, corrugated containers, electronic components, flour, freight, natural rubber, paper, particle board, stainless steel, steel, hot rolled steel and sugar but that there were no commodities in short supply. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.
Are We Engineering Ourselves Out of Manufacturing Jobs? from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/Research/Com2006/0101.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/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>55.2</td>
<td>56.7</td>
<td>55.3</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>58.4</td>
<td>61.9</td>
<td>57.2</td>
<td>57.4</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>66.5</td>
<td>62.5</td>
<td>73.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The March Composite Index of activity in the factory sector fell to 55.2. The Institute of Supply Management (ISM) reported that most of the prior month's increase was reversed and that the 1Q average level was the lowest since the [...]

ISM Index Off Unexpectedly, Pricing Pressure Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403a.jpg" width="353">
The March Composite Index of activity in the factory sector fell to 55.2. The Institute of Supply Management (ISM) reported that most of the prior month&#39;s increase was reversed and that the 1Q average level was the lowest since the second quarter of last year. Consensus expectations had been for an increase to 57.5 last month.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The new orders index reversed nearly all of the sharp improvement during February and dropped back into the range of the last nine months. Export orders slipped m/m although the 1Q index was at its highest level in nearly two years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403b.jpg" width="353">
The employment index also fell sharply to its lowest level since last June. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment. Production was roughly stable m/m. The inventory index slipped but the quarterly level sustained its improved 4Q level. The supplier deliveries index rose moderately after a sharp decline during February.
The price index increased 4.0 points to its highest level since November. The Institute reported that the following commodities were up in price; aluminum, aluminum extrusions, aluminum products, carbon black, copper, copper products, corrugated containers, electronic components, flour, freight, natural rubber, paper, particle board, stainless steel, steel, hot rolled steel and sugar but that there were no commodities in short supply. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.
Are We Engineering Ourselves Out of Manufacturing Jobs? from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/Research/Com2006/0101.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/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>55.2</td>
<td>56.7</td>
<td>55.3</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>58.4</td>
<td>61.9</td>
<td>57.2</td>
<td>57.4</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>66.5</td>
<td>62.5</td>
<td>73.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
U.S. Construction Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403c.jpg" width="353">
After a lackluster performance during January, the February value of construction put in place rose 0.8%, double the upwardly revised gain the prior month. Consensus expectations had been for a 0.5% increase.
Residential building surged 1.3% after an unrevised 0.1% January up tick. New single family building ballooned 1.3% (14.0% y/y) and the value of improvements rose 1.9% (-10.2% y/y), recovering all of the prior month&#39;s decline.
Your House Just Doubled in Value? Don&#39;t Uncork the Champagne Just Yet! from the Federal Reserve Bank of Philadelphia is available <a href="http://www.phil.frb.org/files/br/Q1_06_Housevalue.pdf"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403d.jpg" width="353">
Nonresidential building gained 0.8%. Office construction jumped again, by 1.5% (16.1% y/y), and the previously reported slip during January was revised to an increase of 2.1%. Commercial building, however, fell 2.1% (+11.2% y/y) following much strength during the final nine months of 2005.
Public construction spending slipped 0.5%. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose a modest 0.7% (3.8% 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">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.8%</td>
<td>0.4%</td>
<td>7.4%</td>
<td>9.2%</td>
<td>10.9%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>1.2%</td>
<td>0.4%</td>
<td>7.8%</td>
<td>9.7%</td>
<td>13.6%</td>
<td>6.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>1.3%</td>
<td>0.1%</td>
<td>7.1%</td>
<td>11.5%</td>
<td>18.2%</td>
<td>12.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.8%</td>
<td>1.2%</td>
<td>9.6%</td>
<td>5.4%</td>
<td>3.9%</td>
<td>-5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.5%</td>
<td>0.6%</td>
<td>6.0%</td>
<td>7.6%</td>
<td>2.5%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
 Purchasing Managers in Europe Report Good Improvement in the Manufacturing Sector 
by <a href="/comment/Curley.html">Louise Curley</a> April 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403e.jpg" width="353">
Manufacturing PMI&#39;s (Purchasing Manager&#39;s Indexes) were released today by NTC Research, Ltd. The index for the Euro Zone has been in an expansion mode (i.e. above 50) since last July. The March figure released today, 56.07, was the highest since September, 2000 as can be seen in the first chart. All of the Euro Zone members surveyed by NTC Research except the Netherlands, showed increases in March over February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060403f.jpg" width="353">
NTC Research also surveys the non Euro Zone countries--Czech Republic, Poland and Russia. In March, the PMI for the Czech Republic showed a small increase while those for Poland and Russia showed decline. All three countries, however, are still in an expansion mode.
Over the next two days, NTC Research will publish diffusion indexes for the service and construction industries. At that time they will produce their Gross Domestic Product Indicator, which is based on a weighted combination of the three industries. The GDP indicator has proved to be a fairly good indicator of the year to year changes in real GDP as can be seen in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">March 2006</th>
<th scope="col">February 2006</th>
<th scope="col">% Change</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Zone</td>
<td>56.07</td>
<td>54.47</td>
<td>&nbsp;2.9</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>54.57</td>
<td>52.22</td>
<td>&nbsp;4.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>58.09</td>
<td>55.86</td>
<td>&nbsp;4.0</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>55.47</td>
<td>55.11</td>
<td>&nbsp;0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>54.74</td>
<td>52.75</td>
<td>&nbsp;3.8</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>52.64</td>
<td>52.42</td>
<td>&nbsp;0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>56.18</td>
<td>56.97</td>
<td>-1.4</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>56.52</td>
<td>54.46</td>
<td>&nbsp;3.8</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Other Europe</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Czech Republic</td>
<td>55.74</td>
<td>55.10</td>
<td>&nbsp;1.2</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>51.97</td>
<td>52.93</td>
<td>-1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Russia</td>
<td>52.48</td>
<td>53.63</td>
<td>-2.1</td>
</tr>
</tbody>
</table>
</body>
</html>

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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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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.

U.S. Trade Deficit Deepens to Record in March

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

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

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

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

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

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

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

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

U.S. Energy Prices Remain Mixed in Latest Week

Robert Brusca

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

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

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

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

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

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

Economy in Brief: April 2006

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Purchasing Managers in Europe Report Good Improvement in the Manufacturing Sector

U.S. Construction Rose

ISM Index Off Unexpectedly, Pricing Pressure Up

ISM Index Off Unexpectedly, Pricing Pressure Up