Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905c.jpg" width="353">
Announced job cuts in August, reported by Challenger, Grey &amp; Christmas, reversed nearly all of a whopping July decline. The 28,100 increase to 65,278 pulled the three month moving average up 7.3% but it was still 40.4% than last year.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs rose sharply m/m in the automotive (83.9% y/y), consumer goods (42.2% y/y), electronics (-72.9% y/y), and retail (107.0 % y/y) industries but fell in financial (-21.3% y/y), services (-73.3% y/y) and telecommunications (-77.3% y/y).
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans dropped sharply m/m (-73.6% y/y).
Remarks by Fed Chairman Ben S. Bernanke in South Carolina on Friday can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060901/default.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">August</th>
<th scope="col">July</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>
<td class="firstcol">Announced Job Cuts</td>
<td>65,278</td>
<td>37,178</td>
<td>-7.5%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
</body>
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Announced job cuts in August, reported by Challenger, Grey & Christmas, reversed nearly all of a whopping July decline. The 28,100 increase to 65,278 pulled the three month moving average up 7.3% but it was still 40.4% than last year. [...]

Challenger Layoffs Back Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905d.jpg" width="353">
The Office of Federal Housing Enterprise Oversight (OFHEO) reported that during 2Q &#39;06, home prices rose 1.2% q/q and that it was the slowest gain since 4Q &#39;99.
The OFHEO house price index is a geometric weighted average based on more than 26.5 million repeat transactions (purchase or refinance) over 29 years and 12,000 transactions annually.
Year to year, the 10.1% gain in prices nationwide also represented slower growth, the slowest in nearly two years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905e.jpg" width="353">
The purchase only home price index rose just 1.2% (8.3% y/y), its slowest quarterly gain since 1997.
The Middle Atlantic (11.0% y/y) and the South Atlantic (13.7% y/y) regions of the country along with the Mountain (14.1% y/y) and the Pacific (14.1% y/y) regions continued to experience firm y/y home price gains, double &amp; triple the rates of appreciation elsewhere in the country.
Slower growth in home prices y/y ranged across the country but prices declined 0.4% q/q in Massachusetts (+3.4% y/y). Prices also fell 0.7% q/q in Michigan (+1.0% y/y) and very slightly in Ohio (+2.1% y/y).
In New York, house prices rose a modest 0.9% (9.9% y/y) and in California prices increased 1.2% (14.3% y/y), a slowdown from the 28.0% y/y gain in late 2004. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905f.jpg" width="353">
House price appreciation continued strong in Florida as evidenced by a 2.5% q/q gain (21.3% y/y). Last year prices in Florida rose 25.9% and in 2004 were up 17.0%.In New Jersey prices also were firm and rose 1.9% (12.4% y/y).
View the latest OFHEO release <a href="http://www.ofheo.gov/media/pdf/2q06hpi.pdf">here</a>.
What Happens to Banks When House Prices Fall? U.S. Regional Housing Busts of the 1980s and 1990s from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Wheelock.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E911/@E91101/@E91101.HTM">OFHEO</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;06</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>
<td class="firstcol">House Price Index</td>
<td>1.2%</td>
<td>2.2%</td>
<td>10.1%</td>
<td>13.3%</td>
<td>10.8%</td>
<td>6.9%</td>
</tr>
</tbody>
</table>
</body>
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The Office of Federal Housing Enterprise Oversight (OFHEO) reported that during 2Q '06, home prices rose 1.2% q/q and that it was the slowest gain since 4Q '99. The OFHEO house price index is a geometric weighted average based on more [...]

Home Prices: Sporadic Regional Declines

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905a.jpg" width="353">
In July, the value of construction put in place dropped 1.2% following a little revised 0.4% gain during June. Consensus expectations had been for a 0.1% decline. The m/m drop was the largest since July 2001 and lowered the opening level for 3Q spending 1.0% below the 2Q average.
The 2.0% July drop in residential building activity was an accelerated rate of decline versus the 1.0% to 1.6% range of monthly shortfalls during the prior three months. New single family building collapsed 3.0% (-6.0% y/y) and the July level was down 9.9% from the peak in February. Moving in the other direction, spending on multi-family projects rose 1.6% (14.9% y/y) but the value of spending on improvements fell 0.8% (-0.2% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP. During April and May the value of residential building activity was down 1.3% from the 1Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905b.jpg" width="353">
Nonresidential building ticked up 0.3% following strong monthly gains which have now lifted spending by roughly one quarter since the low last year. Office construction surged 5.5% (29.3% y/y) while multi-retail building increased another 3.0% (38.6% y/y). Building by the factory sector fell 3.1% (+26.3% y/y).
Public construction spending fell 0.7%. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, fell by 0.6% (+18.2% y/y), the second consecutive monthly decline.
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.
Recent Trends in Homeownership from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/09/Garriga.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">July</th>
<th scope="col">June</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>-1.2%</td>
<td>0.4%</td>
<td>5.1%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.3%</td>
<td>0.4%</td>
<td>4.0%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.0%</td>
<td>-1.0%</td>
<td>3.0%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.3%</td>
<td>3.7%</td>
<td>22.0%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.7%</td>
<td>0.4%</td>
<td>9.5%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

In July, the value of construction put in place dropped 1.2% following a little revised 0.4% gain during June. Consensus expectations had been for a 0.1% decline. The m/m drop was the largest since July 2001 and lowered the opening [...]

U.S. Construction Spending Drop Largest Since 2001

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905a.jpg" width="353">
In July, the value of construction put in place dropped 1.2% following a little revised 0.4% gain during June. Consensus expectations had been for a 0.1% decline. The m/m drop was the largest since July 2001 and lowered the opening level for 3Q spending 1.0% below the 2Q average.
The 2.0% July drop in residential building activity was an accelerated rate of decline versus the 1.0% to 1.6% range of monthly shortfalls during the prior three months. New single family building collapsed 3.0% (-6.0% y/y) and the July level was down 9.9% from the peak in February. Moving in the other direction, spending on multi-family projects rose 1.6% (14.9% y/y) but the value of spending on improvements fell 0.8% (-0.2% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP. During April and May the value of residential building activity was down 1.3% from the 1Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905b.jpg" width="353">
Nonresidential building ticked up 0.3% following strong monthly gains which have now lifted spending by roughly one quarter since the low last year. Office construction surged 5.5% (29.3% y/y) while multi-retail building increased another 3.0% (38.6% y/y). Building by the factory sector fell 3.1% (+26.3% y/y).
Public construction spending fell 0.7%. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, fell by 0.6% (+18.2% y/y), the second consecutive monthly decline.
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.
Recent Trends in Homeownership from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/09/Garriga.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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">July</th>
<th scope="col">June</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>-1.2%</td>
<td>0.4%</td>
<td>5.1%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.3%</td>
<td>0.4%</td>
<td>4.0%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.0%</td>
<td>-1.0%</td>
<td>3.0%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.3%</td>
<td>3.7%</td>
<td>22.0%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.7%</td>
<td>0.4%</td>
<td>9.5%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Home Prices: Sporadic Regional Declines 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905d.jpg" width="353">
The Office of Federal Housing Enterprise Oversight (OFHEO) reported that during 2Q &#39;06, home prices rose 1.2% q/q and that it was the slowest gain since 4Q &#39;99.
The OFHEO house price index is a geometric weighted average based on more than 26.5 million repeat transactions (purchase or refinance) over 29 years and 12,000 transactions annually.
Year to year, the 10.1% gain in prices nationwide also represented slower growth, the slowest in nearly two years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905e.jpg" width="353">
The purchase only home price index rose just 1.2% (8.3% y/y), its slowest quarterly gain since 1997.
The Middle Atlantic (11.0% y/y) and the South Atlantic (13.7% y/y) regions of the country along with the Mountain (14.1% y/y) and the Pacific (14.1% y/y) regions continued to experience firm y/y home price gains, double &amp; triple the rates of appreciation elsewhere in the country.
Slower growth in home prices y/y ranged across the country but prices declined 0.4% q/q in Massachusetts (+3.4% y/y). Prices also fell 0.7% q/q in Michigan (+1.0% y/y) and very slightly in Ohio (+2.1% y/y).
In New York, house prices rose a modest 0.9% (9.9% y/y) and in California prices increased 1.2% (14.3% y/y), a slowdown from the 28.0% y/y gain in late 2004. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905f.jpg" width="353">
House price appreciation continued strong in Florida as evidenced by a 2.5% q/q gain (21.3% y/y). Last year prices in Florida rose 25.9% and in 2004 were up 17.0%.In New Jersey prices also were firm and rose 1.9% (12.4% y/y).
View the latest OFHEO release <a href="http://www.ofheo.gov/media/pdf/2q06hpi.pdf">here</a>.
What Happens to Banks When House Prices Fall? U.S. Regional Housing Busts of the 1980s and 1990s from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Wheelock.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/@E9/@E911/@E91101/@E91101.HTM">OFHEO</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;06</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>
<td class="firstcol">House Price Index</td>
<td>1.2%</td>
<td>2.2%</td>
<td>10.1%</td>
<td>13.3%</td>
<td>10.8%</td>
<td>6.9%</td>
</tr>
</tbody>
</table>
Challenger Layoffs Back Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905c.jpg" width="353">
Announced job cuts in August, reported by Challenger, Grey &amp; Christmas, reversed nearly all of a whopping July decline. The 28,100 increase to 65,278 pulled the three month moving average up 7.3% but it was still 40.4% than last year.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs rose sharply m/m in the automotive (83.9% y/y), consumer goods (42.2% y/y), electronics (-72.9% y/y), and retail (107.0 % y/y) industries but fell in financial (-21.3% y/y), services (-73.3% y/y) and telecommunications (-77.3% y/y).
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans dropped sharply m/m (-73.6% y/y).
Remarks by Fed Chairman Ben S. Bernanke in South Carolina on Friday can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060901/default.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">August</th>
<th scope="col">July</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>
<td class="firstcol">Announced Job Cuts</td>
<td>65,278</td>
<td>37,178</td>
<td>-7.5%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
Retail Trade Volume in the Euro-zone and the European Union:  The Gap Continues to Widen 
by <a href="/comment/Curley.html">Louise Curley</a> September 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905i.jpg" width="353">
Data on the volume of retail trade in the twelve members of the Euro-zone and the twenty-five members of the European Union are, for the most part, reported on a seasonally unadjusted basis, a working day adjusted basis, which is also unadjusted for seasonality, a seasonally adjusted basis, which includes the working day adjustment and an estimate of the trend. Eurostat highlights the year over year changes in the working day adjusted series and the month to month changes in the seasonally adjusted series.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905g.jpg" width="353">
Preliminary data were released today for July. In the Euro-zone, based on partial data (data for Greece, Ireland, Italy, Luxembourg and the Netherlands are not yet available*), the volume of trade was 2.5% above July, 2005 and, on a seasonally adjusted basis, 0.6% above June. 2006. Similar figures for the European Union 25 were 3.3% and 0.3%. In addition to the missing Euro-zone data, data for the Czech Republic, Cyprus, Malta and Hungary are not available**.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905h.jpg" width="353">
The trends of the volume of trade in the two series are shown in the first chart. The increasing gap between the two series, indicates that the growth in the volume of retail trade in the eastern European countries, the Baltic states, and Denmark, Sweden and the U. K. the European, has, on average, been greater than that of the Euro-zone countries as a whole. Growth in retail trade. however, has varied widely in both the Euro-zone and the non-Euro-zone countries in the European Union. As an example of the different growth rates in the Euro-zone, the second chart compares, the volume of retail trade in France and Germany. In July, 2006, the volume of retail trade in Germany was only 2.4% above the volume in 2000, while the volume in France was 18.0% above the 2000 volume. As an example of the different growth rates in the non Euro-zone countries, the third chart compares the volume of trade in Poland and in Estonia. Although Poland&#39;s growth in retail trade is low when compared to that of Estonia, it is within the range of that of France which is one of the faster growth countries in the Euro-zone. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Volume of Retail Trade (2000=100)</th>
<th scope="col">Jul&nbsp; 06</th>
<th scope="col">Jun 06</th>
<th scope="col">Jul 05</th>
<th scope="col">M/M Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dif&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</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">France&nbsp;</td>
<td>118.0</td>
<td>116.2</td>
<td>114.3</td>
<td>1.55</td>
<td>3.24</td>
<td>114.7</td>
<td>113.2</td>
<td>109.7</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>102.4</td>
<td>104.0</td>
<td>101.6</td>
<td>-1.54</td>
<td>0.79</td>
<td>101.6</td>
<td>100.1</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Estonia</td>
<td>218.5</td>
<td>211.9</td>
<td>183.4</td>
<td>3.11</td>
<td>19.14</td>
<td>181.84</td>
<td>158.98</td>
<td>141.34</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>122.2</td>
<td>124.3</td>
<td>112.1</td>
<td>-1.69</td>
<td>9.01</td>
<td>111.59</td>
<td>110.24</td>
<td>105.14</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-zone</td>
<td>108.8</td>
<td>108.1</td>
<td>106.</td>
<td>0.65</td>
<td>2.64</td>
<td>106.58</td>
<td>105.21</td>
<td>103.73</td>
</tr>
<tr>
<td class="firstcol">European Union</td>
<td>115.1</td>
<td>114.5</td>
<td>111.5</td>
<td>0.26</td>
<td>3.23</td>
<td>111.91</td>
<td>109.84</td>
<td>106.83</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060901e.jpg" width="353">
The Reserve Bank of Australia reported today its commodity price index for August. The overall index fell 0.8% from July in Australian dollar terms and rose 0.7% in US dollars. From a year ago, the A$ total is up 20.7%, and 20.8% in US$.
Within the Aussie dollar measure, agricultural, or &quot;rural&quot; commodities, fell 3.4% in August but are 14.5% ahead of August 2005. Generally, those items, which include a variety of farm products such as beef, wheat and cotton, have been falling over the last three years. Non-farm products, however, have had strong prices, with gains of nearly 23% in 2004 and 43% in 2005; the August figure is showing signs of slowing, with a decline from July of 0.1%, helping to bring the year-on-year figure down to 22.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060901f.jpg" width="353">
However, within the non-farm category metals prices have risen even more substantially in most of the last several months. The recent boom in metals prices is worldwide, and Australia has participated. In August, so-called &quot;base metals&quot; were up 2.2%, following 7.1% in July. June&#39;s prices fell, but that came after double-digit leaps in each April and May that totaled 27.8%. This component is up a whopping 76.2% from August 2005. The items in this index are copper, aluminum, nickel, zinc and lead.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060901g.jpg" width="353">
Most central banks don&#39;t calculate their own price indexes. Statistics bureaus tend to do that or, often for commodities, private market sources do it. We were aware that commodities are important to the Australian economy, and in browsing the Reserve Bank&#39;s website, we learned that exports constitute about 20% of that nation&#39;s national income and that &quot;primary commodities&quot; are a sizable portion of exports. So the central bank&#39;s interest in these raw materials prices is substantive regarding their effect on inflation, terms of trade and the health of the real economy. Exchange rate differentials are seen to have a quite noticeable impact on the movement of the price index, particularly with many of these items priced in US$ in world markets.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Australia</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">Aug 2005</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">Commodity Price Index, A$</td>
<td>142.5</td>
<td>143.6</td>
<td>141.0</td>
<td>118.1</td>
<td>113.8</td>
<td>94.4</td>
<td>88.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>-0.8</td>
<td>1.8</td>
<td>-0.7</td>
<td>20.7</td>
<td>20.6</td>
<td>6.3</td>
<td>-9.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Commodity Price Index, US$</td>
<td>207.7</td>
<td>206.2</td>
<td>199.5</td>
<td>171.9</td>
<td>165.6</td>
<td>132.6</td>
<td>110.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.7</td>
<td>3.4</td>
<td>-3.7</td>
<td>20.8</td>
<td>24.8</td>
<td>20.2</td>
<td>7.9</td>
</tr>
<tr class="odd">
<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">Rural Commodities, A$</td>
<td>96.5</td>
<td>99.9</td>
<td>98.4</td>
<td>84.3</td>
<td>87.0</td>
<td>91.4</td>
<td>96.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>-3.4</td>
<td>1.5</td>
<td>0.8</td>
<td>14.5</td>
<td>-4.9</td>
<td>-4.8</td>
<td>-7.5</td>
</tr>
<tr>
<td class="firstcol">Non-Rural Commodities, A$</td>
<td>161.3</td>
<td>161.5</td>
<td>158.5</td>
<td>132.0</td>
<td>124.8</td>
<td>95.6</td>
<td>85.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>-0.1</td>
<td>1.9</td>
<td>-1.1</td>
<td>22.2</td>
<td>30.5</td>
<td>11.4</td>
<td>-10.7</td>
</tr>
<tr>
<td class="firstcol">Of which: Base Metals, A$</td>
<td>219.5</td>
<td>214.8</td>
<td>200.6</td>
<td>124.6</td>
<td>125.3</td>
<td>122.7</td>
<td>93.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>2.2</td>
<td>7.1</td>
<td>-6.9</td>
<td>76.2</td>
<td>11.2</td>
<td>20.1</td>
<td>-4.6</td>
</tr>
</tbody>
</table>
</body>
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The Reserve Bank of Australia reported today its commodity price index for August. The overall index fell 0.8% from July in Australian dollar terms and rose 0.7% in US dollars. From a year ago, the A$ total is up 20.7%, and 20.8% in [...]

Commodity Prices Moderate in Australia After Explosion in Metals Sector

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060901d.jpg" width="353">
Consumer sentiment in late August firmed enough to limit the m/m decline for the full month to 3.2%, according to the University of Michigan. The full month reading of 82.0 compared favorably to Consensus expectations for a decline to 79.0.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy slipped 6.2% m/m. Expected 12 month business conditions and the expected change in personal finances fell sharply to the lowest levels since November.
The reading of current economic conditions rose modestly m/m by 0.3%. The current read of personal finances slipped but perceived buying conditions for large household goods rose.
Consumers&#39; opinion about gov&#39;t economic policy was unchanged m/m (-3.5% y/y) after sharp improvement during July. Expected inflation during the next year surged m/m to 4.6%, its highest level since May. The five to ten year expected rate of inflation also rose to 3.5%, its highest since May.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August (Final)</th>
<th scope="col">August (Prelim)</th>
<th scope="col">July</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">Consumer Sentiment</td>
<td>82.0</td>
<td>78.7</td>
<td>84.7</td>
<td>-8.0%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>103.8</td>
<td>100.8</td>
<td>103.5</td>
<td>-4.1%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>68.0</td>
<td>64.5</td>
<td>72.5</td>
<td>-11.6%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer sentiment in late August firmed enough to limit the m/m decline for the full month to 3.2%, according to the University of Michigan. The full month reading of 82.0 compared favorably to Consensus expectations for a decline to [...]

U.S. Consumer Sentiment Firmed in Late August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060901c.jpg" width="353">
At 54.5, the August composite index of manufacturing sector activity from the Institute for Supply Management was about stable with the July figure of 54.7. Consensus expectations had been for a reading of 54.9.
During the last ten years there has been a 67% correlation between the ISM index and three month growth in factory sector industrial production.
A decline in the new orders index to 54.2 was offset by a rise in employment which at 54.0 was at the highest level since April.
During the last twenty years there has been a 66% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The production index slipped to 56.6 from 57.6 in July while the vendor deliveries (55.0) and the inventory (50.2) indexes were about stable.
The price index dropped to 73.0, its lowest level since April. During the last twenty years there has been a 91% correlation between the price index and the three month change in the PPI for intermediate goods less food &amp; energy.

<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">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>54.5</td>
<td>54.7</td>
<td>53.5</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>73.0</td>
<td>78.5</td>
<td>62.5</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
</body>
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At 54.5, the August composite index of manufacturing sector activity from the Institute for Supply Management was about stable with the July figure of 54.7. Consensus expectations had been for a reading of 54.9. During the last ten [...]

ISM Index About Stable, Prices Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060901b.jpg" width="353">
In August, nonfarm payrolls rose 128,000 and about matched Consensus expectations for a 125,000 gain. For the prior month, the increase was upwardly revised up slightly to 121,000.
Year to date payrolls have risen an average 141,000 per month versus an average gain of 165,000 last year and an average 175,000 during 2004.
From the household survey the unemployment rate fell back to 4.7%, as expected, from 4.8%. Employment grew 250,000 (1.5% y/y) after the prior month&#39;s 34,000 worker decline. The labor force rose 164,000 (1.3% y/y) and the labor force participation rate remained up at 66.2% for the third straight month.
The breadth of one month gain in private payrolls rose slightly to 55.9% in August, though that remained below the April high of 64.4%. In the factory sector the one month breadth of gain fell to a less-than break even 44.6%.
Factory sector payrolls fell 11,000 for fifth the m/m decline this year. Jobs in the motor vehicle &amp; parts industries fell 6,900 (-2.3% y/y) while furniture &amp; related industry jobs also fell by 4,200 (-2.8% y/y). A 3,000 (-0.9% y/y) worker decline in nondurable goods payrolls was broad based but led by a 2,100 (-3.9% y/y) drop in apparel employment and a 3,000 worker (-1.4% y/y) drop in plastics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060901a.jpg" width="353">
Private service-producing jobs rose 101,000 (1.4% y/y) though retail trade sector jobs continued weak fell another 13,500 (-0.7% y/y). Financial sector jobs offset some of that decline with a 10,000 (2.2% y/y) gain and professional &amp; business services employment rose 26,000 (2.7% y/y). Temporary help services jobs rose 3,400 (2.8% y/y) while jobs in education &amp; health services grew 60,000 (2.2% y/y).Government sector jobs grew 17,000 (0.6% y/y).
Construction employment rose 17,000 (2.9% y/y) though the number of jobs in nonresidential construction slipped 1,600 (4.1% y/y).
Average hourly earnings rose just 0.1% after two months of 0.4% &amp; 0.5% increase, and fell short of expectations for a 0.3% rise. The increase in factory sector earnings also rose just 0.1% (1.0% y/y).
The workweek slipped and lowered the index of aggregate weekly hours worked in private industries by 0.2% after a modest 0.1% July gain. During 3Q the average level of the index is up 0.8% (AR) after a 2.6% gain during 2Q. During the last ten years there has been an 81% correlation between the y/y change in aggregate hours worked and real GDP growth.

<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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">August</th>
<th scope="col">July</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">Payroll Employment</td>
<td>128,000</td>
<td>121,000</td>
<td>1.3%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-11,000</td>
<td>-23,000</td>
<td>0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.9</td>
<td>33.7 (August &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.7%</td>
<td>4.8%</td>
<td>4.9% (August &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

In August, nonfarm payrolls rose 128,000 and about matched Consensus expectations for a 125,000 gain. For the prior month, the increase was upwardly revised up slightly to 121,000. Year to date payrolls have risen an average 141,000 [...]

U.S. Payrolls On Target

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

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.

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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: September 2006

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