Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403d.jpg" width="353">
The service sector remains under pressure. The March Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) slipped further to 40.8 from an unrevised February reading of 41.6. Consensus expectations were for a reading of 42.0. For the quarter as a whole, the index edged up to 41.8 from the low of 40.7 during 4Q &#39;08. A level of the ISM index below 50 indicates declining activity. Since the series&#39; inception in 1997 there has been a 48% correlation between the level of the business activity index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.
Despite the decline in the overall index, the business activity index improved last month. The employment index, however, offset that rise with a decline to near the cycle low. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403e.jpg" width="353">
Pricing power fell back again after February improvement. Since its inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indices for four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm.">here</a>.
ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.
Credit Market Competition and the Nature of Firms from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr366.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/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March &#39;08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>40.8</td>
<td>41.6</td>
<td>49.9</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>41.5</td>
<td>46.5</td>
<td>75.5</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>


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The service sector remains under pressure. The March Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) slipped further to 40.8 from an unrevised February reading of 41.6. Consensus [...]

U.S. ISM Nonmanufacturing Index Falls Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403a.jpg" align="right" border="0" height="265" width="353">The March
employment figures showed that there was little, if any, diminution in
the pace of job loss. Nonfarm payrolls fell an
expected 663,000 following their unrevised 651,000 worker drop during
February. The loss of employment spread across industries. The Bureau
of Labor Statistics indicated, furthermore, that the number of payroll
jobs lost during this recession so far totals 5.1 million, the record
for a 15-month period. Even after accounting for the labor force's
larger size, that's a huge number. In percentage terms, jobs are down
3.7% since the 2007 peak, close to a record. 
The weakness in payrolls
also was associated with a jump in the unemployment rate to
an expected 8.5%, the highest level since November of 1983. The
unemployment rate reached its recent low of 4.4% in October of 2006.
Last months' increase was fueled by an 861,000 drop in household
employment (-3.5% y/y) and a 166,000 drop (+0.1% y/y) drop in the labor
force.
 Long-term unemployment has risen substantially.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403b.jpg" align="right" border="0" height="265" width="353">
The
average duration of unemployment rose even further in March to 20.1
weeks, up from 16.9 weeks during 2007. The number of those unemployed
for longer than 15 weeks more than doubled during the last year and
they accounted for nearly half of all those who are unemployed.
Long-term unemployment has discouraged workers. The ranks of those who
have dropped out of the labor force has grown by nearly one-quarter
during the last year to 5.8 million.
The payroll employment figures
indicate that the breadth of job loss continues to grow. Only 22.0% of
industries were hiring last month, half that of last March and down
from the 2006 peak of 24.9%. Over a six-month period, just 15.7% of
firms were hiring. The breadth of the downturn includes 126,000
construction industry jobs lost last month, bringing the total to 1.3
million since early 2007.&nbsp; Factory jobs were down another
161,000 in March, adding to the 10-year downtrend during which over 5
million jobs (29.1%) have been shed. The job market has turned so sour
that the somewhat immune service sector has suffered. It lost 353,000
jobs last month and 2.8 million (3.0%) since the peak in late 2007.
Even government sector hiring has slowed. The 81,000 rise in payrolls
last month left them up just 0.4% y/y. Hiring by local governments has
been unchanged since last year.
Fewer workers worked fewer hours last
month and the length of the average workweek fell to 33.2 hours, a
record low. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403c.jpg" align="right" border="0" height="265" width="353">
For the first quarter, the combination of lower employment
and fewer hours-worked brought aggregate hours down by 8.7% (AR) from
4Q' 08. That rate of decline was even faster than during 4Q and
suggests negative growth in real GDP in excess of 7% in 1Q '09.· The
weak labor market has taken a toll on average hourly earnings in
private industries. The 0.2% gains in each of the last three months
lowered the annualized rate of growth by half since last year to 2.2%.
In the construction and the goods producing sectors, growth in average
hourly earnings was negative.
 The figures referenced above
are available in Haver's USECON database.
Additional detail can be found in the LABOR and in
the EMPL databases.
Policies to Bring Us
Out of the Financial Crisis and Recession is this morning's
speech by Fed Vice Chairman Donald L. Kohn and it is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20090403a.htm">
here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Employment:
000s</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-663</td>
<td>-651</td>
<td>-741</td>
<td>-3.5%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Previous</td>
<td>--</td>
<td>-651</td>
<td>-655</td>
<td>--</td>
<td>-0.3%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-161</td>
<td>-169</td>
<td>-262</td>
<td>-9.8%</td>
<td>-3.3%</td>
<td>-2.0%</td>
<td>-0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-126</td>
<td>-107</td>
<td>-135</td>
<td>-12.5%</td>
<td>-5.5%</td>
<td>-0.8%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Service Producing</td>
<td>-358</td>
<td>-366</td>
<td>-336</td>
<td>-2.2%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Average Weekly Hours</td>
<td>33.2</td>
<td>33.3</td>
<td>33.3</td>
<td>33.8 (March '08)</td>
<td>33.6</td>
<td>33.8</td>
<td>33.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>8.5%</td>
<td>8.1%</td>
<td>7.6%</td>
<td>4.8% March '08)</td>
<td>5.8%</td>
<td>4.6%</td>
<td>4.6%</td>
</tr>
</tbody>
</table>

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The March employment figures showed that there was little, if any, diminution in the pace of job loss. Nonfarm payrolls fell an expected 663,000 following their unrevised 651,000 worker drop during February. The loss of employment [...]

U.S. Jobless Rate Reaches 8.5%; 5.1 Million Payroll Jobs Are Lost Since Cycle Peak

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403a.jpg" align="right" border="0" height="265" width="353">The March
employment figures showed that there was little, if any, diminution in
the pace of job loss. Nonfarm payrolls fell an
expected 663,000 following their unrevised 651,000 worker drop during
February. The loss of employment spread across industries. The Bureau
of Labor Statistics indicated, furthermore, that the number of payroll
jobs lost during this recession so far totals 5.1 million, the record
for a 15-month period. Even after accounting for the labor force's
larger size, that's a huge number. In percentage terms, jobs are down
3.7% since the 2007 peak, close to a record. 
The weakness in payrolls
also was associated with a jump in the unemployment rate to
an expected 8.5%, the highest level since November of 1983. The
unemployment rate reached its recent low of 4.4% in October of 2006.
Last months' increase was fueled by an 861,000 drop in household
employment (-3.5% y/y) and a 166,000 drop (+0.1% y/y) drop in the labor
force.
 Long-term unemployment has risen substantially.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403b.jpg" align="right" border="0" height="265" width="353">
The
average duration of unemployment rose even further in March to 20.1
weeks, up from 16.9 weeks during 2007. The number of those unemployed
for longer than 15 weeks more than doubled during the last year and
they accounted for nearly half of all those who are unemployed.
Long-term unemployment has discouraged workers. The ranks of those who
have dropped out of the labor force has grown by nearly one-quarter
during the last year to 5.8 million.
The payroll employment figures
indicate that the breadth of job loss continues to grow. Only 22.0% of
industries were hiring last month, half that of last March and down
from the 2006 peak of 24.9%. Over a six-month period, just 15.7% of
firms were hiring. The breadth of the downturn includes 126,000
construction industry jobs lost last month, bringing the total to 1.3
million since early 2007.&nbsp; Factory jobs were down another
161,000 in March, adding to the 10-year downtrend during which over 5
million jobs (29.1%) have been shed. The job market has turned so sour
that the somewhat immune service sector has suffered. It lost 353,000
jobs last month and 2.8 million (3.0%) since the peak in late 2007.
Even government sector hiring has slowed. The 81,000 rise in payrolls
last month left them up just 0.4% y/y. Hiring by local governments has
been unchanged since last year.
Fewer workers worked fewer hours last
month and the length of the average workweek fell to 33.2 hours, a
record low. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403c.jpg" align="right" border="0" height="265" width="353">
For the first quarter, the combination of lower employment
and fewer hours-worked brought aggregate hours down by 8.7% (AR) from
4Q' 08. That rate of decline was even faster than during 4Q and
suggests negative growth in real GDP in excess of 7% in 1Q '09.· The
weak labor market has taken a toll on average hourly earnings in
private industries. The 0.2% gains in each of the last three months
lowered the annualized rate of growth by half since last year to 2.2%.
In the construction and the goods producing sectors, growth in average
hourly earnings was negative.
 The figures referenced above
are available in Haver's USECON database.
Additional detail can be found in the LABOR and in
the EMPL databases.
Policies to Bring Us
Out of the Financial Crisis and Recession is this morning's
speech by Fed Vice Chairman Donald L. Kohn and it is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20090403a.htm">
here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Employment:
000s</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-663</td>
<td>-651</td>
<td>-741</td>
<td>-3.5%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Previous</td>
<td>--</td>
<td>-651</td>
<td>-655</td>
<td>--</td>
<td>-0.3%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-161</td>
<td>-169</td>
<td>-262</td>
<td>-9.8%</td>
<td>-3.3%</td>
<td>-2.0%</td>
<td>-0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-126</td>
<td>-107</td>
<td>-135</td>
<td>-12.5%</td>
<td>-5.5%</td>
<td>-0.8%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Service Producing</td>
<td>-358</td>
<td>-366</td>
<td>-336</td>
<td>-2.2%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Average Weekly Hours</td>
<td>33.2</td>
<td>33.3</td>
<td>33.3</td>
<td>33.8 (March '08)</td>
<td>33.6</td>
<td>33.8</td>
<td>33.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>8.5%</td>
<td>8.1%</td>
<td>7.6%</td>
<td>4.8% March '08)</td>
<td>5.8%</td>
<td>4.6%</td>
<td>4.6%</td>
</tr>
</tbody>
</table>

U.S. ISM Nonmanufacturing Index
Falls Again 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 3, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403d.jpg" align="left" border="0" height="265" width="353">
The service sector remains under pressure. The March Composite
Index for the nonmanufacturing sector from the Institute for Supply
Management (ISM) slipped further to 40.8 from an unrevised February
reading of 41.6. Consensus expectations were for a reading of 42.0. For
the quarter as a whole, the index edged up to 41.8 from the low of 40.7
during 4Q '08. A level of the ISM index below 50 indicates declining
activity. Since the series' inception in 1997 there has been a 48%
correlation between the level of the business activity index in the
nonmanufacturing sector and the Q/Q change in real GDP for the services
and the construction sectors.
Despite the decline in the overall index, the business
activity index improved last month. The employment index, however,
offset that rise with a decline to near the cycle low. Since the
series' inception in 1997 there has been a 56% correlation between the
level of the ISM nonmanufacturing employment index and the m/m change
in payroll employment in the service-producing plus the construction
industries.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403e.jpg" align="right" border="0" height="265" width="353">
Pricing power fell back again after February improvement.
Since its inception ten years ago, there has been a 60% correlation
between the price index and the q/q change in the GDP services chain
price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report
On Business</cite>®, the composite index is calculated as an
indicator of the overall economic condition for the non-manufacturing
sector. It is a composite index based on the diffusion indices for four
of the indicators (business activity, new orders, employment and
supplier deliveries) with equal weights. The latest report from the ISM
can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm.">here</a>.
ISM surveys more than 370 purchasing managers in more than 62
industries including law firms, hospitals, government and retailers.
The nonmanufacturing survey dates back to July 1997.
Credit Market Competition and the Nature of Firms
from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr366.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/@EF03/@EF03.HTM">ISM
Nonmanufacturing Survey</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>40.8</td>
<td>41.6</td>
<td>49.9</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>41.5</td>
<td>46.5</td>
<td>75.5</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>
Market Services PMIs Turn Higher
In March 
by <a href="/comment/Brusca.html">Robert
Brusca&nbsp;</a> April 3, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090403f.jpg" align="left" border="0">
In the Market PMI framework Europe is stabilizing as the rates
of decline in MFG and Services bottom and begin to show some
improvement. But the EU framework of surveys shows declines are still
in train. The table above shows the EMU and EU EC-Commission readings
along with the Market PMI readings. They are in conflict. The EC
readings for services are mostly on their lows while the Market figures
have risen from their respective lows. 
 

Germany, France, Italy Spain and Ireland each showed Service
sector improvement in March in the Market framework. The UK also showed
some nice improvement. All the indices are still below 50, indicating
ongoing contraction for the sector. The three-month averages are still
falling and MEU Ireland France and UK each do show current market
reading that surpass their respective three-month averages a good sign
for stability and recovery. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> NTC
Services Indices for EU/EMU</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="grey4">
<td class="firstcol">Euro-13</td>
<td>40.95</td>
<td>39.24</td>
<td>42.16</td>
<td>40.78</td>
<td>42.11</td>
<td>45.80</td>
<td>8.0%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Germany</td>
<td>42.30</td>
<td>41.32</td>
<td>45.20</td>
<td>42.94</td>
<td>44.81</td>
<td>48.70</td>
<td>5.0%</td>
</tr>
<tr class="grey4">
<td class="firstcol">France</td>
<td>43.64</td>
<td>40.18</td>
<td>42.56</td>
<td>42.13</td>
<td>43.44</td>
<td>46.64</td>
<td>14.1%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Italy</td>
<td>39.10</td>
<td>37.85</td>
<td>41.10</td>
<td>39.35</td>
<td>40.58</td>
<td>44.45</td>
<td>5.2%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Spain</td>
<td>34.11</td>
<td>31.73</td>
<td>31.84</td>
<td>32.56</td>
<td>31.71</td>
<td>35.40</td>
<td>18.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Ireland</td>
<td>35.69</td>
<td>31.78</td>
<td>33.94</td>
<td>33.80</td>
<td>34.03</td>
<td>38.10</td>
<td>10.8%</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="8">EU
only</td>
</tr>
<tr class="grey4">
<td class="firstcol">UK (CIPs)</td>
<td>45.47</td>
<td>43.24</td>
<td>42.48</td>
<td>43.73</td>
<td>42.31</td>
<td>45.31</td>
<td>26.4%</td>
</tr>
<tr class="grey4">
<td class="firstcol">US NONFMG ISM</td>
<td>#N/A</td>
<td>41.60</td>
<td>42.90</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">EU
Commission Indices for
EU and EMU</td>
</tr>
<tr class="grey2">
<td class="firstcol">EU Index</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="grey2">
<td class="firstcol">EU Services</td>
<td>-31</td>
<td>-29</td>
<td>-28</td>
<td>-32.67</td>
<td>-29.50</td>
<td>-23.25</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">EMU</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services</td>
<td>-25</td>
<td>-24</td>
<td>-22</td>
<td>-23.67</td>
<td>-17.83</td>
<td>-8.63</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Cons Confidence</td>
<td>-34</td>
<td>-33</td>
<td>-31</td>
<td>-32.67</td>
<td>-29.50</td>
<td>-13.50</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">Consumer
confidence by
country</td>
</tr>
<tr class="grey1">
<td class="firstcol">Germany-Ccon</td>
<td>-31</td>
<td>-29</td>
<td>-27</td>
<td>-29.00</td>
<td>-22.67</td>
<td>-14.08</td>
<td>0.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">France-Ccon</td>
<td>-36</td>
<td>-36</td>
<td>-35</td>
<td>-35.67</td>
<td>-33.67</td>
<td>-27.33</td>
<td>0.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Ital-Ccon</td>
<td>-31</td>
<td>-28</td>
<td>-26</td>
<td>-28.33</td>
<td>-27.33</td>
<td>-25.08</td>
<td>0.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Spain-Ccon</td>
<td>-43</td>
<td>-48</td>
<td>-44</td>
<td>-45.00</td>
<td>-44.83</td>
<td>-39.83</td>
<td>10.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">UK-Ccon</td>
<td>-28</td>
<td>-32</td>
<td>-35</td>
<td>-31.67</td>
<td>-29.67</td>
<td>-24.92</td>
<td>18.4%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">percentile
is over range since May
2000</td>
</tr>
</tbody>
</table>
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U.S. Jobless Rate Reaches 8.5%;5.1 Million Payroll Jobs Are Lost Since Cycle Peak

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402g.jpg" align="left" border="0" height="265" width="353">
Headline and sector inflation rates for France are showing
consistent declines. The core is also on a decelerating trend.
Excluding construction the PPI is falling over rapidly. Anyway you cut
the inflation signals at the PPI level France is showing weakness in
prices. 
 

Still, at the Summit in London, French and German leaders are
focused on patching up the global regulatory system. The persisting
downward pressure on prices suggests that weak growth is still public
enemy number one. The ECB got on board today with a rate cut, but once
again it was about half the magnitude of the cut that the market
expected. Markets retreated after early day strong advances when they
saw the meager cut. Markets regained some ground on the Trichet remark
that there could be more cuts. Markets are playing attention to
everything. 
 

European nations are better protected from bad times compared
to the US as evidenced by their higher continuing rates of unemployment
and more generous social welfare programs. 
 

But the recent backtracking in the Baltic Dry index and
continuing sharp downward pressure on inflation of all sorts in France
are harsh reminders that the recession is still with us and is still
virulent. France was one of the few EMU countries in which the Markit
Manufacturing PMI rose in March. Even so in the EU-Commission scheme of
things France&#8217;s industrial sector slipped in March, consumer confidence
stayed at a cycle low, the services sector was on a cycle low and
overall sentiment continued to slip. Weakening price trend are just
another way to underscore this sort of very broad weakness. It is hard
to look at the current needs of the global economy and to square it
with some of the policy work being done in international forums and by
central banks. Being mindful of fiscal discipline is good and wary of
setting of inflation too, but there is a time and place for those
worries and this time and place seem inappropriate for them. 
 

Still European stock markets are hopeful of some sort of turn
in the economy and they are improving. That fits the policy tack of the
European policymakers which is to not worry about growth because enough
has been done. The ECB wants to turn attention to being mindful of
launching irascible inflation trends by not overdoing it. The mixed
signals of the times offer justification for just about anything. Only
time will tell if an opportunity was missed or a hand overplayed. 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">France PPI
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-0.6%</td>
<td>-2.6%</td>
<td>-1.1%</td>
<td>-15.6%</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>#N/A</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-2.4%</td>
<td>-1.6%</td>
<td>-1.0%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td>#N/A</td>
<td>-2.7%</td>
<td>-0.7%</td>
<td>-16.6%</td>
<td>-8.7%</td>
<td>-0.8%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Investment</td>
<td>#N/A</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-1.8%</td>
<td>0.4%</td>
<td>2.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">PPI excl Food and
Energy</td>
<td>#N/A</td>
<td>-1.5%</td>
<td>-0.3%</td>
<td>-8.6%</td>
<td>-4.4%</td>
<td>0.1%</td>
<td>1.7%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">HIPP excl Constructions</td>
<td>#N/A</td>
<td>-2.2%</td>
<td>-1.2%</td>
<td>-18.9%</td>
<td>-13.0%</td>
<td>-2.9%</td>
<td>5.4%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Shaded
growth rates lag by one -month</td>
</tr>
</tbody>
</table>
</body></html>

Headline and sector inflation rates for France are showing consistent declines. The core is also on a decelerating trend. Excluding construction the PPI is falling over rapidly. Anyway you cut the inflation signals at the PPI level [...]

French PPI Shows Year/Year Weakness

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402e.jpg" width="353">
The manufacturing sector continued to shed inventories during February at a record rate. A 1.2% cutback followed declines of 1.1% and 1.9% during the prior two months. Moreover, that amounted to a 15.4% annualized rate of stockpile decumulation which was a record for a three-month period. The series dates back to 1958. Of course, that accelerated rate stems somewhat from the 72.0% rate of decline in petroleum inventories, due mostly to lower prices. Nevertheless, excluding oil factory inventories fell roughly 1.0% during the last two months. The 10.6% three-month rate of decumulation was only slightly exceeded in 2001.
The three-month rates of inventory destocking in several industries have been more than notable. Inventories of electrical equipment &amp; appliances have fallen at a 27.6% rate while textile product inventories were down at a 36.6% clip. Steep production cutbacks pulled furniture inventories down at a 21.7% rate since November while inventories of primary metals fell at a 32.9% pace. Lesser rates of decline were registered in the machinery industry (-4.7%) and by computers &amp; electronic products (2.3%).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402f.jpg" width="353">
Factory shipments continued lower during February prompting the continued lowering of inventory levels. Shipments fell a modest 0.1% but even excluding oil and its lower prices shipments fell at 17.8% rate over the last three months. That was led by a 67.1% rate of decline in automobile shipments. Electrical equipment shipments also fell hard at a 22.8% rate and computers were off at a 20.8% rate. In the nondurable goods area, apparel shipments fell at a 16.4% rate, about the same as for paper products.
Total factory orders recovered during February roughly half of the sharp January drop but over three months the decline was at a 24% annual rate. That was led by a 26% rate of decline in computer orders while motor vehicle orders fell at a 25.1% rate and electrical equipment orders fell at a 13.2% rate.As for order backlogs, they are easing substantially. Sharp declines during the last three months have been at a record 18.1% annual rate.
The Manufacturers&#39; Shipments, Inventories and Orders (MSIO) data is available in Haver&#39;s USECON database.
What do we know and not know about potential output? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/papers/2009/wp09-05bk.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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS, %)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>-1.2</td>
<td>-1.1</td>
<td>-2.0</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.4</td>
<td>-1.2</td>
<td>-4.8</td>
<td>-0.6</td>
<td>2.7</td>
<td>7.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>1.8</td>
<td>-3.5</td>
<td>-18.8</td>
<td>0.1</td>
<td>1.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>1.6</td>
<td>-2.4</td>
<td>-15.1</td>
<td>3.1</td>
<td>1.2</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.1</td>
<td>-2.6</td>
<td>-14.8</td>
<td>1.7</td>
<td>1.2</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>-0.1</td>
<td>-2.4</td>
<td>-14.0</td>
<td>3.7</td>
<td>1.5</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>-1.4</td>
<td>-2.0</td>
<td>-1.7</td>
<td>3.5</td>
<td>17.1</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Transportation</td>
<td>-1.5</td>
<td>-2.8</td>
<td>-6.0</td>
<td>-1.0</td>
<td>8.2</td>
<td>16.0</td>
</tr>
</tbody>
</table>
</body>
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The manufacturing sector continued to shed inventories during February at a record rate. A 1.2% cutback followed declines of 1.1% and 1.9% during the prior two months. Moreover, that amounted to a 15.4% annualized rate of stockpile [...]

U.S. Factory Inventory Decumulation At A Record Pace

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402c.jpg" align="left" border="0" height="265" width="353">
There has been no letup in the U.S. labor market's distress.
Initial claims for unemployment insurance rose last week to the highest
level since the sharp recession of 1982. The figure of 669,000 was up
from an unrevised 657,000 during the prior week and it surpassed
Consensus expectations for 650,000 claims.
The Labor Department indicated that the largest increases in
initial claims for the week ending March 21 were in California
(+6,720), Missouri (+2,942), Kansas (+2,018), Oklahoma (+1,406), and
Iowa (+1,134), while the largest decreases were in Texas (-4,822), New
York (-3,172), Tennessee (-2,707), Illinois (-1,485), and Virginia
(-1,407).
Continuing claims for unemployment insurance reached yet
another record high of 5,728,000 and remained nearly double
that of last March. The series dates back to 1966. The
four-week average of continuing claims also rose to another record of
5,496,500. Continuing claims provide some indication of workers'
ability to find employment and they lag the initial claims figures by
one week.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402d.jpg" align="right" border="0" height="265" width="353">
Though the latest level of continuing claims was a record, the
labor force has grown as well, by nearly 30% over the last twenty
years. Therefore, the insured rate of unemployment is not at a record
high. It rose to 4.3% which was the highest since 1983. During the last
ten years there has been a 93% correlation between the level of the
insured unemployment rate and the overall rate of unemployment
published by the Bureau of Labor Statistics.
The 4.3% insured unemployment rate by far understates labor
market distress in some states. The highest insured unemployment rates
in the week ending March 14 were in Michigan (8.1 percent), Oregon
(7.7), Rhode Island (7.3), Idaho (7.2), Pennsylvania (7.0), Wisconsin
(6.8), Nevada (6.3), Montana (6.1), Alaska (6.0), and Vermont (6.0).
The unemployment insurance claim data is available in Haver's WEEKLY
database.
Fed Confronts
Financial Crisis by Expanding Its Role as Lender of Last Resort
from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2009/el0902.html">
here</a>.
A Framework for Analyzing Bank Lending is
Tuesday's speech by Fed Governor Elizabeth A. Duke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/duke20090330a.htm">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><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">03/28/09</th>
<th scope="col">03/21/09</th>
<th scope="col">03/13/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>669</td>
<td>657</td>
<td>644</td>
<td>72.0%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,728</td>
<td>5,567</td>
<td>95.8%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body></html>

There has been no letup in the U.S. labor market's distress. Initial claims for unemployment insurance rose last week to the highest level since the sharp recession of 1982. The figure of 669,000 was up from an unrevised 657,000 [...]

U.S. Initial Claims for Jobless Insurance Rise To The Highest Level Since 1982; Continuing Claims Reach A Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402a.jpg" width="353">
Perhaps replacement demand was a factor when it came to light vehicle sales last month. Possibly, it was deep price discounts. Or was this the beginning of a bona fide uptrend? For whatever reason, U.S. unit sales of light vehicles increased 7.8% from February to 9.83M units (SAAR). The result was an upside surprise versus expectations for a 9.2M sales rate. Though sales were up slightly from February as well as from January, the latest figure still was near the lowest since 1982 according to the Autodata Corporation and Ward&#39;s Automotive News. (Seasonal adjustment of the figures is provided by the U.S. Bureau of Economic Analysis).
Sales of domestically-made light vehicles registered an impressive 10.1% month-to-month increase from February to 6.92M units. That was enough to fully recover the 6.8% February drop. Sales of domestically made light trucks recovered more than half of their February decline with an 8.7% increase to 3.70M units. While impressive, that rise was outpaced by an 11.7% increase in auto sales to 3.23M units, their highest level since December.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402b.jpg" width="353">
Imported light vehicle sales rose a more modest 2.8% m/m last month but that followed a slight February increase. Still outpacing domestics, the year-to-year decline in sales of imported vehicles amounted to just 27.6%. That was far less than the decline for U.S. made vehicles. Sales of imported autos rose an impressive 5.1% during March to their highest level since last October. Light truck sales fell a modest 0.8% after four months of increase.
Overall, import&#39;s share of the U.S. light vehicle market totaled 29.6% following the record 31.1% during February. That latest figures were up nearly five percentage points from the 2008 average. (Imported vehicles are those produced outside the United States.) Imports&#39; share of the U.S. car market totaled 36.2% while the share of the light truck market was 22.7%.
The U.S. vehicle sales figures can be found in Haver&#39;s USECON database.
Steps toward a New Financial Regulatory Architecture is yesterday&#39;s speech by Cleveland Fed President &amp; CEO Sandra Pianalto and it can be found <a href="http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20090401.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">March Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>9.83</td>
<td>9.12</td>
<td>9.57</td>
<td>-34.9%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>5.05</td>
<td>4.63</td>
<td>4.60</td>
<td>-32.6</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>3.23</td>
<td>2.89</td>
<td>2.84</td>
<td>-33.9</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.83</td>
<td>1.74</td>
<td>1.76</td>
<td>-30.1</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.78</td>
<td>4.50</td>
<td>4.97</td>
<td>-37.1</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>3.70</td>
<td>3.40</td>
<td>3.91</td>
<td>-40.3</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.09</td>
<td>1.10</td>
<td>1.06</td>
<td>-23.0</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>


</html>

Perhaps replacement demand was a factor when it came to light vehicle sales last month. Possibly, it was deep price discounts. Or was this the beginning of a bona fide uptrend? For whatever reason, U.S. unit sales of light vehicles [...]

March U.S. Light Vehicle Sales Increase From 27-Year low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402a.jpg" align="left" border="0" height="265" width="353">
Perhaps replacement demand was a factor when it came to light
vehicle sales last month. Possibly, it was deep price discounts. Or was
this the beginning of a bona fide uptrend? For whatever reason, U.S.
unit sales of light vehicles increased 7.8% from February to 9.83M
units (SAAR). The result was an upside surprise versus expectations for
a 9.2M sales rate. Though sales were up slightly from February as well
as from January, the latest figure still was near the lowest since 1982
according to the Autodata Corporation and Ward's Automotive News.
(Seasonal adjustment of the figures is provided by the U.S. Bureau of
Economic Analysis).
Sales of domestically-made light vehicles
registered an impressive 10.1% month-to-month increase from February to
6.92M units. That was enough to fully recover the 6.8% February drop.
Sales of domestically made light trucks recovered more than half of
their February decline with an 8.7% increase to 3.70M units. While
impressive, that rise was outpaced by an 11.7% increase in auto sales
to 3.23M units, their highest level since December.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402b.jpg" align="right" border="0" height="265" width="353">
Imported light vehicle sales rose a more
modest 2.8% m/m last month but that followed a slight February
increase. Still outpacing domestics, the year-to-year decline in sales
of imported vehicles amounted to just 27.6%. That was far less than the
decline for U.S. made vehicles. Sales of imported autos rose an
impressive 5.1% during March to their highest level since last October.
Light truck sales fell a modest 0.8% after four months of increase.
Overall, import's share of the U.S. light
vehicle market totaled 29.6% following the record 31.1% during
February. That latest figures were up nearly five percentage points
from the 2008 average. (Imported vehicles are those produced outside
the United States.) Imports' share of the U.S. car market totaled 36.2%
while the share of the light truck market was 22.7%.
The U.S. vehicle sales figures can be found in Haver's
USECON database.
Steps toward a New Financial Regulatory Architecture
is yesterday's speech by Cleveland Fed President &amp; CEO Sandra
Pianalto and it can be found <a href="http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20090401.cfm">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light
Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">March Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>9.83</td>
<td>9.12</td>
<td>9.57</td>
<td>-34.9%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>5.05</td>
<td>4.63</td>
<td>4.60</td>
<td>-32.6</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>3.23</td>
<td>2.89</td>
<td>2.84</td>
<td>-33.9</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>1.83</td>
<td>1.74</td>
<td>1.76</td>
<td>-30.1</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.78</td>
<td>4.50</td>
<td>4.97</td>
<td>-37.1</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>3.70</td>
<td>3.40</td>
<td>3.91</td>
<td>-40.3</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>1.09</td>
<td>1.10</td>
<td>1.06</td>
<td>-23.0</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>
U.S. Initial Claims for Jobless
Insurance Rise To The Highest Level Since 1982; Continuing Claims Reach
A Record 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402c.jpg" align="left" border="0" height="265" width="353">
There has been no letup in the U.S. labor market's distress.
Initial claims for unemployment insurance rose last week to the highest
level since the sharp recession of 1982. The figure of 669,000 was up
from an unrevised 657,000 during the prior week and it surpassed
Consensus expectations for 650,000 claims.
The Labor Department indicated that the largest increases in
initial claims for the week ending March 21 were in California
(+6,720), Missouri (+2,942), Kansas (+2,018), Oklahoma (+1,406), and
Iowa (+1,134), while the largest decreases were in Texas (-4,822), New
York (-3,172), Tennessee (-2,707), Illinois (-1,485), and Virginia
(-1,407).
Continuing claims for unemployment insurance reached yet
another record high of 5,728,000 and remained nearly double
that of last March. The series dates back to 1966. The
four-week average of continuing claims also rose to another record of
5,496,500. Continuing claims provide some indication of workers'
ability to find employment and they lag the initial claims figures by
one week.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402d.jpg" align="right" border="0" height="265" width="353">
Though the latest level of continuing claims was a record, the
labor force has grown as well, by nearly 30% over the last twenty
years. Therefore, the insured rate of unemployment is not at a record
high. It rose to 4.3% which was the highest since 1983. During the last
ten years there has been a 93% correlation between the level of the
insured unemployment rate and the overall rate of unemployment
published by the Bureau of Labor Statistics.
The 4.3% insured unemployment rate by far understates labor
market distress in some states. The highest insured unemployment rates
in the week ending March 14 were in Michigan (8.1 percent), Oregon
(7.7), Rhode Island (7.3), Idaho (7.2), Pennsylvania (7.0), Wisconsin
(6.8), Nevada (6.3), Montana (6.1), Alaska (6.0), and Vermont (6.0).
The unemployment insurance claim data is available in Haver's WEEKLY
database.
Fed Confronts
Financial Crisis by Expanding Its Role as Lender of Last Resort
from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2009/el0902.html">
here</a>.
A Framework for Analyzing Bank Lending is
Tuesday's speech by Fed Governor Elizabeth A. Duke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/duke20090330a.htm">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><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">03/28/09</th>
<th scope="col">03/21/09</th>
<th scope="col">03/13/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>669</td>
<td>657</td>
<td>644</td>
<td>72.0%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,728</td>
<td>5,567</td>
<td>95.8%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
U.S. Factory Inventory
Decumulation At A Record Pace 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402e.jpg" align="left" border="0" height="265" width="353">
The manufacturing sector continued to shed inventories during
February at a record rate. A 1.2% cutback followed declines of 1.1% and
1.9% during the prior two months. Moreover, that amounted to a 15.4%
annualized rate of stockpile decumulation which was a record for a
three-month period. The series dates back to 1958. Of course, that
accelerated rate stems somewhat from the 72.0% rate of decline in
petroleum inventories, due mostly to lower prices. Nevertheless,
excluding oil factory inventories fell roughly 1.0% during the last two
months. The 10.6% three-month rate of decumulation was only slightly
exceeded in 2001.
The three-month rates of inventory destocking in several
industries have been more than notable. Inventories of electrical
equipment &amp; appliances have fallen at a 27.6% rate while
textile product inventories were down at a 36.6% clip. Steep production
cutbacks pulled furniture inventories down at a 21.7% rate since
November while inventories of primary metals fell at a 32.9% pace.
Lesser rates of decline were registered in the machinery industry
(-4.7%) and by computers &amp; electronic products (2.3%).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402f.jpg" align="right" border="0" height="265" width="353">
Factory shipments continued lower during February prompting
the continued lowering of inventory levels. Shipments fell a modest
0.1% but even excluding oil and its lower prices shipments fell at
17.8% rate over the last three months. That was led by a 67.1% rate of
decline in automobile shipments. Electrical equipment shipments also
fell hard at a 22.8% rate and computers were off at a 20.8% rate. In
the nondurable goods area, apparel shipments fell at a 16.4% rate,
about the same as for paper products.
Total factory orders recovered during February roughly half of
the sharp January drop but over three months the decline was at a 24%
annual rate. That was led by a 26% rate of decline in computer orders
while motor vehicle orders fell at a 25.1% rate and electrical
equipment orders fell at a 13.2% rate.As for order backlogs, they are
easing substantially. Sharp declines during the last three months have
been at a record 18.1% annual rate.
The Manufacturers' Shipments, Inventories and Orders (MSIO)
data is available in Haver's USECON database.
What do we know and not know about potential output?
from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/papers/2009/wp09-05bk.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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory
Survey</a> (NAICS, %)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>-1.2</td>
<td>-1.1</td>
<td>-2.0</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>-1.4</td>
<td>-1.2</td>
<td>-4.8</td>
<td>-0.6</td>
<td>2.7</td>
<td>7.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>1.8</td>
<td>-3.5</td>
<td>-18.8</td>
<td>0.1</td>
<td>1.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>1.6</td>
<td>-2.4</td>
<td>-15.1</td>
<td>3.1</td>
<td>1.2</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.1</td>
<td>-2.6</td>
<td>-14.8</td>
<td>1.7</td>
<td>1.2</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>-0.1</td>
<td>-2.4</td>
<td>-14.0</td>
<td>3.7</td>
<td>1.5</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>-1.4</td>
<td>-2.0</td>
<td>-1.7</td>
<td>3.5</td>
<td>17.1</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Transportation</td>
<td>-1.5</td>
<td>-2.8</td>
<td>-6.0</td>
<td>-1.0</td>
<td>8.2</td>
<td>16.0</td>
</tr>
</tbody>
</table>
French PPI Shows Year/YearWeakness 
by <a href="/comment/Brusca.html">Robert
Brusca</a> April 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402g.jpg" align="left" border="0" height="265" width="353">
Headline and sector inflation rates for France are showing
consistent declines. The core is also on a decelerating trend.
Excluding construction the PPI is falling over rapidly. Anyway you cut
the inflation signals at the PPI level France is showing weakness in
prices. 
 

Still, at the Summit in London, French and German leaders are
focused on patching up the global regulatory system. The persisting
downward pressure on prices suggests that weak growth is still public
enemy number one. The ECB got on board today with a rate cut, but once
again it was about half the magnitude of the cut that the market
expected. Markets retreated after early day strong advances when they
saw the meager cut. Markets regained some ground on the Trichet remark
that there could be more cuts. Markets are playing attention to
everything. 
 

European nations are better protected from bad times compared
to the US as evidenced by their higher continuing rates of unemployment
and more generous social welfare programs. 
 

But the recent backtracking in the Baltic Dry index and
continuing sharp downward pressure on inflation of all sorts in France
are harsh reminders that the recession is still with us and is still
virulent. France was one of the few EMU countries in which the Markit
Manufacturing PMI rose in March. Even so in the EU-Commission scheme of
things France&#8217;s industrial sector slipped in March, consumer confidence
stayed at a cycle low, the services sector was on a cycle low and
overall sentiment continued to slip. Weakening price trend are just
another way to underscore this sort of very broad weakness. It is hard
to look at the current needs of the global economy and to square it
with some of the policy work being done in international forums and by
central banks. Being mindful of fiscal discipline is good and wary of
setting of inflation too, but there is a time and place for those
worries and this time and place seem inappropriate for them. 
 

Still European stock markets are hopeful of some sort of turn
in the economy and they are improving. That fits the policy tack of the
European policymakers which is to not worry about growth because enough
has been done. The ECB wants to turn attention to being mindful of
launching irascible inflation trends by not overdoing it. The mixed
signals of the times offer justification for just about anything. Only
time will tell if an opportunity was missed or a hand overplayed. 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">France PPI
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-0.6%</td>
<td>-2.6%</td>
<td>-1.1%</td>
<td>-15.6%</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>#N/A</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-2.4%</td>
<td>-1.6%</td>
<td>-1.0%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td>#N/A</td>
<td>-2.7%</td>
<td>-0.7%</td>
<td>-16.6%</td>
<td>-8.7%</td>
<td>-0.8%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Investment</td>
<td>#N/A</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-1.8%</td>
<td>0.4%</td>
<td>2.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">PPI excl Food and
Energy</td>
<td>#N/A</td>
<td>-1.5%</td>
<td>-0.3%</td>
<td>-8.6%</td>
<td>-4.4%</td>
<td>0.1%</td>
<td>1.7%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">HIPP excl Constructions</td>
<td>#N/A</td>
<td>-2.2%</td>
<td>-1.2%</td>
<td>-18.9%</td>
<td>-13.0%</td>
<td>-2.9%</td>
<td>5.4%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Shaded
growth rates lag by one -month</td>
</tr>
</tbody>
</table>
</body></html>

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

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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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

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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 shows a moderate but consistent slowing. The breadth of slowing is wide with 60.9% of survey respondents slowing over 3-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-month to 6-month to 3-month, 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.

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Global Composite PMIs Erode

Tian Yong Woon

This week, we focus on trade developments between the US and major Asian economies. Early indications coming out of US-India trade talks seem encouraging, with terms such as “forward most-favoured-nation” for the US and “zero-for-zero” tariffs appearing in news reports — terms which, if enacted, would represent a significant win for the US. India stands to benefit greatly as well if key exports to the US, such as pharmaceuticals (chart 1), receive substantial tariff relief. The benefits could be strongly mutual if a deal also grants the US greater access to India’s large auto consumer market, particularly for major US electric vehicle (EV) producers, given that EV adoption in India remains at a very early stage (chart 2).

Turning to South Korea, discussions also appear to be progressing at a healthy pace, although details remain limited and ongoing domestic political challenges continue to hinder substantive breakthroughs. Nonetheless, the South Korean won has shown signs of stabilisation, while local equity markets have remained buoyant (chart 3). Recent trade data for April has also provided some investor relief, as weak exports to the US were more than offset by a strong performance in semiconductor shipments (chart 4).

In Japan, the race to secure a trade deal with the US is well underway, with automotive exports expected to be a key focal point given their significance to Japan’s economy and the US being a major export destination (chart 5). China, however, remains a notable outlier, with formal trade talks with the US not yet underway. Still, the US-China trade relationship continues to be the most closely watched, given its scale and potential impact on global growth and trade dynamics. While markets await China’s official April trade data, early indicators such as port activity already suggest a decline in bilateral trade flows (chart 6).

**US-India trade talks**
US-India trade discussions have reportedly been progressing rapidly, with both sides having already finalized in April the terms of reference for talks, setting the stage for formal negotiations. One early sign of favourable momentum is India’s possible offering of a “forward most-favoured-nation” clause to the US. This would ensure the US always receives the most favourable tariff terms, ahead of any other trade partner. If enacted, this would be a significant win for the US and a major leap forward in the US-India trade relationship. Another reported breakthrough involves India’s reported proposal of “zero-for-zero” tariffs on steel, auto components, and pharmaceuticals—offered on a reciprocal basis up to a certain quantity. If agreed, this would be mutually beneficial, especially as pharmaceuticals remain one of the US economy’s key imports from India, as shown in chart 1. On a separate note, and more recently, India’s phone exports to the US have reportedly gained prominence. With steep US tariffs on China, firms like Apple are increasingly incentivised to accelerate production shifts to India.

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Additionally, India’s proposed “zero-for-zero” tariff plan for auto parts may galvanise US access to India’s large domestic auto market, which has remained comparatively insulated due to high import tariffs. Another area to watch in the trade talks is electric vehicle (EV) imports, especially given US EV giant Tesla’s continued interest in expanding into the Indian market. That said, EV adoption in India remains in its early stages by many measures. While India has an immense middle class with future sales potential, EVs accounted for only about 2% of new cars sold in 2023, as shown in chart 2. This is well below levels seen in other Asian economies like China, or leaders in this space like Norway, where nearly all new cars sold are EVs. Challenges remain in unlocking the domestic Indian market—particularly around affordability and the underdeveloped state of EV infrastructure.

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**US-South Korea trade talks**
Discussions on the US-South Korea trade front also appear to be progressing at a steady pace, with technical talks reportedly having concluded in Washington last week. However, details remain limited, and full-scale negotiations have not yet begun. Complicating matters is South Korea’s domestic political landscape. With the country heading into a snap presidential election on June 3, Vice Industry Minister Park has said there is no chance of a comprehensive deal being reached before then. Still, both sides have committed to working toward an agreement before the expiration of Trump’s 90-day reciprocal tariff pause on July 8. In financial markets, the won continues to swing but remains above its year-to-date lows (chart 3). Meanwhile, South Korean equities have been lifted by a softening in trade rhetoric from both the US and China, as well as optimism around the US-South Korea talks.

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Turning to the hard trade data, South Korea’s more complete April numbers offered some initial relief to investors. The economy still managed to post moderate export growth, surprising many, despite a nearly 7% y/y decline in exports to the US, as shown in chart 4. One of the key drivers was semiconductors, which recorded double-digit y/y growth for the second consecutive month. However, these figures likely do not yet reflect the full initial impact of the steep mutual tariffs between the US and China. Firmer indications may emerge in the coming months. By then, though, attention will likely have shifted toward the outcome of US trade talks with key partners, as the end of its 90-day reciprocal tariff pause draws near.

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**US-Japan trade talks**
Turning to Japan, there is a sense of cautious optimism, with Japan’s chief trade negotiator Akazawa expressing hope for a US-Japan trade deal by June, following the second and most recent round of talks held in Washington last week. A key point of interest is whether Japan can negotiate an exemption from the current 25% automotive tariffs imposed by the US. This is especially significant given the importance of the US as a destination for Japanese auto exports, as shown in chart 5, and the central role the sector plays in Japan’s broader manufacturing economy. Also worth noting is a recent clarification by Japan’s Finance Minister Kato, who walked back earlier remarks and stated that Japan will not use the sale of US Treasuries as a bargaining tool. The clarification may help defuse a potential point of friction between the two sides as trade discussions continue.

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**US-China trade developments**
Turning to US-China trade developments — while progress here has lagged, this relationship remains the most closely watched, given its potentially large impact if meaningful movement occurs. Recent messaging from both sides has softened, stepping back from the fiery exchanges and tariff escalations seen earlier in April, offering some interim relief for investors. China has reportedly exempted certain US imports from tariffs, including specific pharmaceutical and industrial chemical products. However, on US-China trade talks, they remain at a very early stage, with China merely “evaluating” the prospect of negotiations with the US. This suggests we are still far from anything resembling a formal deal. Investors are now closely watching for first-round effects of US tariffs, which are expected to appear in China’s April trade numbers due later this week. Early signs point to a slowdown. For example, vessel traffic at the Los Angeles–Long Beach port remains at range lows, hinting at reduced shipments from China.

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Asia

Economic Letter from Asia: Art of the Deal

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The U.S. ISM Services PMI rose to 51.6 during April, after falling sharply to 50.8 in March from 53.5 in February, according to today’s report by the Institute for Supply Management. The reading indicated service sector expansion for the tenth consecutive month, although the rate of expansion has slowed significantly. The index hit a recent high of 55.8 in October of last year and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected 50.2 for April.

Haver Analytics constructs a composite index combining the services index and the manufacturing index released on Thursday. This index rose to 51.2 in Apri from 50.6 in March. The latest figure remains above its June low of 49.1.

Amongst the services component series, the employment index led last month’s improvement in the overall index. It rose to 49.0 after falling sharply to 46.2 in March. Higher employment was reported by a slightly improved 14.6% (NSA) of respondents while a lessened 16.4% reported a decline. The new orders index rose to 52.3 after falling to 50.4 in March. A higher 22.4% (NSA) of respondents reported a rise in orders while a lessened 15.3% reported a decline. Reporting slower delivery speeds, the supplier delivery series edged up to 51.3 in April after falling to 50.6 in March. Working lower, the business activity series declined to 53.7 after rising to 55.9 in March. A higher 26.2% (NSA) of respondents reported improved activity while a lessened 14.0% reported deterioration.

On the inflation front, the prices index surged to 68.9 in April after easing to 62.8 in March. A greatly increased 39.6% (NSA) of respondents reported higher prices while a lessened 1.9% reported lower prices. The index was increased from its December 2022 low 53.1 and stood at its highest level since October 2022.

Additionally, the new export orders index increased to 48.6 (NSA) in April following a decline to 45.8 in March from 52.1 in February. Just 14.8% of survey respondents reported higher exports while an increased 17.7% reported a decline. The imports index plummeted to 44.3 last month from 52.6 in March. A greatly lessened 4.7% of respondents reported higher imports while a doubled 16.2% reported a decline. The inventory change index jumped to 53.4, a six-month high. The order backlog index edged up to 48.0 in April after falling sharply to 47.4 in March. A lessened 12.2% of respondents reported higher backlogs while a fewer 16.2% reported a decline. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests	 contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Total index remains near nine-month low.
- Employment, new orders & supplier deliveries edge up. Business activity weakens. 
- Prices Index strengthens to roughly two-year high.

Economy in Brief: April 2009

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