Tom Moeller

In December, small business optimism ticked up a slight 0.2% following sharp declines during most of the year according to the National Federation of Independent Business (NFIB). The latest was near the lowest level since September [...]

Small Business Optimism Remained Low

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107d.jpg" align="left" border="0" height="265" width="353">
The Euro Area&#8217;s past two month&#8217;s headline gains for the PPI
excluding construction were a sizeable +0.8% and +0.7%, respectively.
These are huge increases. On the same period the ex-energy PPI rose by
0.1% and 0.4% a much better pairing - but still not satisfactory for
the ECB. While the ECB&#8217;s inflation ceiling of 2% applies to the HICP
clearly having other indices rising faster than that creates problems
for price stability.

At the moment energy prices are pushing headline prices off
the map. The 3-mo headline inflation gain of the E-zone PPI is 7.7% up
from 4.8% over six months and 4.1% Yr/Yr. All of these figures are
excessive. The core rate flattened out at 2.6% over 3-mo and 6-mo lower
than the 3.2% it is up Yr/Yr. That is some encouragement but the pace
of ex-energy inflation is still excessive.

Still, across countries problems linger. Excl energy inflation
in Germany is decelerating, true. But in Italy and in the UK excl
energy inflation is higher over three months than it was over six
months. It is no wonder that the ECB continues to rattle its saber over
inflation.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> Euro
Area and UK PPI Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Ezone-13</td>
<td>Nov-07</td>
<td>Oct-07</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 excl Construction</td>
<td>0.8%</td>
<td>0.7%</td>
<td style="color: red;">7.7%</td>
<td style="color: red;">4.8%</td>
<td>4.1%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>3.2%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.0%</td>
<td>0.1%</td>
<td style="color: red;">1.0%</td>
<td>0.9%</td>
<td>1.5%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.3%</td>
<td>0.5%</td>
<td style="color: red;">5.2%</td>
<td style="color: red;">5.0%</td>
<td style="color: red;">3.6%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Intermediate &amp; Capital
Goods</td>
<td>0.0%</td>
<td>0.3%</td>
<td>1.3%</td>
<td>1.3%</td>
<td>2.8%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>3.2%</td>
<td>1.8%</td>
<td style="color: red;">26.9%</td>
<td style="color: red;">12.3%</td>
<td style="color: red;">7.8%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.7%</td>
<td>0.5%</td>
<td style="color: red;">6.9%</td>
<td>4.7%</td>
<td style="color: red;">4.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.8%</td>
<td>0.4%</td>
<td style="color: red;">5.8%</td>
<td style="color: red;">3.2%</td>
<td>2.5%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>2.3%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.9%</td>
<td>0.5%</td>
<td style="color: red;">7.8%</td>
<td style="color: red;">5.2%</td>
<td>4.6%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">2.4%</td>
<td>2.2%</td>
<td>3.2%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>2.2%</td>
<td>1.9%</td>
<td style="color: red;">22.6%</td>
<td style="color: red;">13.2%</td>
<td style="color: red;">3.1%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td style="color: red;">3.2%</td>
<td>2.9%</td>
<td>3.2%</td>
<td>3.3%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">E-zone 13 Harmonized PPI excluding
Construction</td>
</tr>
<tr>
<td colspan="7" class="firstcol">The EA 13 countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
</body></html>

The Euro Area’s past two month’s headline gains for the PPI excluding construction were a sizeable +0.8% and +0.7%, respectively. These are huge increases. On the same period the ex-energy PPI rose by 0.1% and 0.4% a much better [...]

PPI Headline Inflation Soars While ex Energy Prices Hold at a Too-High Pace

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107b.jpg" width="353">
The value of construction put in place rose slightly in November by 0.1%. That followed a 0.4% October decline which was softer than the 0.8% drop reported initially. The revision was due to a rise in nonresidential building instead of the decline indicated last month. The three month growth in total construction activity remained at a stable at -0.1% (AR), an improvement from the 2.3% rate of decline last Autumn.
In November, residential building continued lower. The 2.4% m/m decline was the largest of the current down cycle and it dropped the three month change to -24.4% (AR). Building of new single family units fell 5.0% m/m (-41.2%, three month, AR) and spending on improvements gained 0.7% (6.7%, three month, AR).
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107c.jpg" width="353">
Nonresidential building continued strong and produced a 1.7% rise after a increase 1.2% during the month prior. Three month growth remained quite firm at 24.4% (AR) due to a 37.2% three month rise in office construction and a 21.7% rise in multi-retail building. Commercial construction got back in the upside act with a 12.1% three month gain and educational facility building rose 34.2%.
A 2.5% November rise in public construction spending raised the three month growth rate to 22.2%. Construction on highways &amp; streets rose 32.1% (AR) on a three month basis. The value of construction on highways &amp; streets is nearly one third of the value of total public construction spending. Construction spending on educational facilities again was strong with a 19.1% three month rise.
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 and Prospective Developments in Monetary Policy Transparency and Communications: A Global Perspective is today&#39;s speech by Fed Vice ChairmanDonald L. Kohn at the National Association for Business Economics Annual Meeting in New Orleans, Louisiana and is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080105a.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">&nbsp;</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>5.6%</td>
<td>10.7%</td>
<td>11.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>-4.8%</td>
<td>4.7%</td>
<td>12.0%</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.4%</td>
<td>-2.3%</td>
<td>-17.8%</td>
<td>0.5%</td>
<td>13.7%</td>
<td>18.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.7%</td>
<td>1.2%</td>
<td>19.5%</td>
<td>15.2%</td>
<td>7.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>2.5%</td>
<td>0.9%</td>
<td>16.2%</td>
<td>9.2%</td>
<td>6.2%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
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The value of construction put in place rose slightly in November by 0.1%. That followed a 0.4% October decline which was softer than the 0.8% drop reported initially. The revision was due to a rise in nonresidential building instead [...]

U.S. Construction Spending Up Slightly in November

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107b.jpg" align="left" border="0" height="265" width="353">
The value of construction put in place rose slightly in
November by 0.1%. That followed a 0.4% October decline which was softer
than the 0.8% drop reported initially. The revision was due to a rise
in nonresidential building instead of the decline indicated last month.
The three month growth in total construction activity remained at a
stable at -0.1% (AR), an improvement from the 2.3% rate of decline last
Autumn.
In November, residential building continued lower. The 2.4%
m/m decline was the largest of the current down cycle and it dropped
the three month change to -24.4% (AR). Building of new single family
units fell 5.0% m/m (-41.2%, three month, AR) and spending on
improvements gained 0.7% (6.7%, three month, AR).
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.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107c.jpg" align="right" border="0" height="265" width="353">
Nonresidential building continued strong and produced a 1.7%
rise after a increase 1.2% during the month prior. Three month growth
remained quite firm at 24.4% (AR) due to a 37.2% three month rise in
office construction and a 21.7% rise in multi-retail building.
Commercial construction got back in the upside act with a 12.1% three
month gain and educational facility building rose 34.2%.
A 2.5% November rise in public construction spending raised
the three month growth rate to 22.2%. Construction on highways
&amp; streets rose 32.1% (AR) on a three month basis. The value of
construction on highways &amp; streets is nearly one third of the
value of total public construction spending. Construction spending on
educational facilities again was strong with a 19.1% three month rise.
These more detailed categories represent the Census Bureau&#8217;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 and Prospective Developments in Monetary
Policy Transparency and Communications: A Global Perspective is
today's speech by Fed Vice ChairmanDonald L. Kohn at the National
Association for Business Economics Annual Meeting in New Orleans,
Louisiana and is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080105a.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">&nbsp;</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>5.6%</td>
<td>10.7%</td>
<td>11.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>-4.8%</td>
<td>4.7%</td>
<td>12.0%</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.4%</td>
<td>-2.3%</td>
<td>-17.8%</td>
<td>0.5%</td>
<td>13.7%</td>
<td>18.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.7%</td>
<td>1.2%</td>
<td>19.5%</td>
<td>15.2%</td>
<td>7.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>2.5%</td>
<td>0.9%</td>
<td>16.2%</td>
<td>9.2%</td>
<td>6.2%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
 PPI Headline Inflation SoarsWhile
ex Energy Prices
Hold at a Too-High Pace 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 7, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107d.jpg" align="left" border="0" height="265" width="353">
The Euro Area&#8217;s past two month&#8217;s headline gains for the PPI
excluding construction were a sizeable +0.8% and +0.7%, respectively.
These are huge increases. On the same period the ex-energy PPI rose by
0.1% and 0.4% a much better pairing - but still not satisfactory for
the ECB. While the ECB&#8217;s inflation ceiling of 2% applies to the HICP
clearly having other indices rising faster than that creates problems
for price stability.

At the moment energy prices are pushing headline prices off
the map. The 3-mo headline inflation gain of the E-zone PPI is 7.7% up
from 4.8% over six months and 4.1% Yr/Yr. All of these figures are
excessive. The core rate flattened out at 2.6% over 3-mo and 6-mo lower
than the 3.2% it is up Yr/Yr. That is some encouragement but the pace
of ex-energy inflation is still excessive.

Still, across countries problems linger. Excl energy inflation
in Germany is decelerating, true. But in Italy and in the UK excl
energy inflation is higher over three months than it was over six
months. It is no wonder that the ECB continues to rattle its saber over
inflation.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> Euro
Area and UK PPI Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Ezone-13</td>
<td>Nov-07</td>
<td>Oct-07</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 excl Construction</td>
<td>0.8%</td>
<td>0.7%</td>
<td style="color: red;">7.7%</td>
<td style="color: red;">4.8%</td>
<td>4.1%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>3.2%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.0%</td>
<td>0.1%</td>
<td style="color: red;">1.0%</td>
<td>0.9%</td>
<td>1.5%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.3%</td>
<td>0.5%</td>
<td style="color: red;">5.2%</td>
<td style="color: red;">5.0%</td>
<td style="color: red;">3.6%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Intermediate &amp; Capital
Goods</td>
<td>0.0%</td>
<td>0.3%</td>
<td>1.3%</td>
<td>1.3%</td>
<td>2.8%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>3.2%</td>
<td>1.8%</td>
<td style="color: red;">26.9%</td>
<td style="color: red;">12.3%</td>
<td style="color: red;">7.8%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.7%</td>
<td>0.5%</td>
<td style="color: red;">6.9%</td>
<td>4.7%</td>
<td style="color: red;">4.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.8%</td>
<td>0.4%</td>
<td style="color: red;">5.8%</td>
<td style="color: red;">3.2%</td>
<td>2.5%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>2.3%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.9%</td>
<td>0.5%</td>
<td style="color: red;">7.8%</td>
<td style="color: red;">5.2%</td>
<td>4.6%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">2.4%</td>
<td>2.2%</td>
<td>3.2%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>2.2%</td>
<td>1.9%</td>
<td style="color: red;">22.6%</td>
<td style="color: red;">13.2%</td>
<td style="color: red;">3.1%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Total excl Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td style="color: red;">3.2%</td>
<td>2.9%</td>
<td>3.2%</td>
<td>3.3%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">E-zone 13
Harmonized PPI excluding
Construction</td>
</tr>
<tr>
<td colspan="7" class="firstcol">The EA 13
countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
Economic Sentiment
Continues to Falter in Europe 
by <a href="/comment/Curley.html">Louise
Curley</a> January 7, 2087


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107e.jpg" align="left" border="0" height="265" width="353">
With the price of oil and the euro continuing to climb and
financial markets continuing to be unsettled, it is not surprising that
economic sentiment among Europeans continues to weaken. For the 27
countries in the European Union, the Economic Sentiment Indicator (ESI)
fell 0.4% from 107.5 in November to 107.1 in December and was 4.7%
below December, 2006. For the 13 countries in the Euro Area, the ESI
fell only 0.1% in December to 104.7 from 104.8 in November (actually
less than the consensus estimate) and was 4.6% below December 2006.
Although there are measures of economic sentiment for the EU
27 and the EA13, it is not possible to derive measures for the non EA
as whole. However since sentiment in the EU 27 has generally been
higher than that in the EA13, (as can be seen in the first chart) it
can be inferred that sentiment in, at least, some of the non EA
countries has been higher than those in the EA. The second chart
showing selected countries in the EA--France, Germany and Italy--and
the third chart, selected countries in the non EA--Sweden, United
Kingdom, Poland and Latvia illustrate the point.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107f.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080107g.jpg" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;Economic
Sentiment Indicators&nbsp; (Long Term Average =100)</th>
<th scope="col">Dec 07</th>
<th scope="col">Nov 07&nbsp;</th>
<th scope="col">Dec 06&nbsp;</th>
<th scope="col">M/M %Chg&nbsp;</th>
<th scope="col">Y/Y %Chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU 27</td>
<td>107.1</td>
<td>107.5</td>
<td>112.4</td>
<td>-0.37</td>
<td>-4.72</td>
<td>111.8</td>
<td>108.3</td>
<td>99.4</td>
</tr>
<tr>
<td class="firstcol">EA 13</td>
<td>104.7</td>
<td>104.8</td>
<td>109.8</td>
<td>-0.10</td>
<td>-4.62</td>
<td>109.0</td>
<td>106.9</td>
<td>97.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>105.9</td>
<td>106.2</td>
<td>108.8</td>
<td>-0.28</td>
<td>-2.67</td>
<td>109.2</td>
<td>105.9</td>
<td>95.1</td>
</tr>
<tr>
<td class="firstcol"> France</td>
<td>109.3</td>
<td>110.2</td>
<td>108.6</td>
<td>-0.82</td>
<td>0.64</td>
<td>110.6</td>
<td>106.9</td>
<td>103.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>100.2</td>
<td>97.9</td>
<td>108.9</td>
<td>2.35</td>
<td>-8.79</td>
<td>105.6</td>
<td>108.6</td>
<td>97.9</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>106.6</td>
<td>107.8</td>
<td>110.8</td>
<td>-1.11</td>
<td>-3.79</td>
<td>110.7</td>
<td>107.0</td>
<td>99.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden</td>
<td>114.8</td>
<td>114.6</td>
<td>116.8</td>
<td>0.17</td>
<td>-1.71</td>
<td>119.3</td>
<td>114.2</td>
<td>105.3</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>133.4</td>
<td>134.0</td>
<td>126.2</td>
<td>-0.45</td>
<td>5.71</td>
<td>133.3</td>
<td>116.0</td>
<td>105.0</td>
</tr>
<tr class="odd">
<td class="firstcol"> Latvia</td>
<td>108.1</td>
<td>109.2</td>
<td>118.9</td>
<td>-1.01</td>
<td>-9.08</td>
<td>114.8</td>
<td>114.7</td>
<td>109.7</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090106i.jpg" width="353">
Regular gasoline prices moved seven cents higher last week and nearly recouped the declines of the prior three periods, according to the U.S. Department of Energy survey. Nevertheless, at $1.68 per gallon the price was about even with the December average and down from $2.75 for all of November. Yesterday, the spot market price for a gallon of regular gasoline rose another seven cents to $1.14 per gallon.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
Product demand continues to fall despite lower prices, pulled down by the developing economic recession. The U.S. Department of Energy reported that the demand for gasoline fell by 3.2% y/y, nearly the fastest rate of decline since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also fell 3.7% y/y.
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil also moved higher last week to $42.50 per barrel, the highest level in three weeks and up from the $40.56 averaged last week. Prices reached their high of $145.66 last July. In futures trading yesterday, the one-month price for crude oil was $48.81.
Last week, prices for natural gas recouped the prior week&#39;s decline and rose to $5.66 per mmbtu (-26.2% y/y). The latest average price was 50% below natural gas prices in early-July of $13.19/mmbtu.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">01/05/09</th>
<th scope="col">12/29/08</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>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>1.68</td>
<td>1.61</td>
<td>-45.8%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>42.50</td>
<td>32.37</td>
<td>-56.7%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
</html>

Regular gasoline prices moved seven cents higher last week and nearly recouped the declines of the prior three periods, according to the U.S. Department of Energy survey. Nevertheless, at $1.68 per gallon the price was about even with [...]

U.S. Gasoline Prices Moved Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104h.jpg" width="353">
According to the Institute for Supply Management, the December Business Activity Index for the non-manufacturing sector fell to 53.9 from 54.1. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced Consensus expectations for a lesser fall.
Since the series&#39; inception in 1997 there has been a 44% correlation between the level of the Business Activity Index in the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors. The correlation of the factory sector ISM index with the change in real GDP less just services is a higher 57%, though over the last ten years it only has been 34%.
Both the new orders sub index and the employment sub index rose, though the latter remained ear the 2007 average which was down from 2006 which was down from 2005. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power eased m/m, but only slightly. Since 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.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
The Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the ISM manufacturing sector composite index is a weighted average of five components.
Sticky Prices: Why Firms Hesitate to Adjust the Price of Their Goods from the Federal Reserve Bank of New York an be found <a href="http://www.newyorkfed.org/research/current_issues/ci13-10.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">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>53.9</td>
<td>54.1</td>
<td>56.7</td>
<td>56.0</td>
<td>58.0</td>
<td>60.2</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.7</td>
<td>76.5</td>
<td>59.7</td>
<td>63.9</td>
<td>65.2</td>
<td>68.0</td>
</tr>
</tbody>
</table>


</html>

According to the Institute for Supply Management, the December Business Activity Index for the non-manufacturing sector fell to 53.9 from 54.1. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced [...]

U.S. ISM Non-manufacturing Index Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104f.jpg" width="353">
U.S. sales of light vehicles rose all of 0.4% last month to a 16.27M unit annual selling rate, according to the Autodata Corporation. The uptick followed a 0.9% increase during November. These recent upticks left sales for the year down 2.2% from 2006 when sales fell 2.5% from 2005.
Sales of domestically made light vehicles fell 0.6% last month after a 1.0% November rise. For the full year domestically made vehicle sales fell 4.2%, a decline similar to the 5.9% drop in 2006. Sales of U.S. made cars fell 4.8% last month and were down 4.5% for the year. Sales of domestically made light trucks, however, rose 2.9% in December and made up a small part of the prior three months&#39; decline. For the year sales of domestically made light trucks fell 4.0% on top of an 8.7% 2006 decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104g.jpg" width="353">
Sales of imported light vehicles rose 3.6% last month for the fourth consecutive monthly increase. The rise to 4.14M units was to the new record level. Last month&#39;s increase was due to a 4.7% gain in sales of imported autos. A 1.7% rise in sales of imported light trucks lifted sales 8.2% for the full year.
Import&#39;s share of the U.S. light vehicle market rose to a near record 25.4% during December. The rise in import&#39;s share for all of 2007 to 24.6% was a new record for any year.
Today&#39;s speech by Fed Vice ChairmanDonald L. Kohn At the American Economic Association Session can be found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080104a.htm"> here</a>.
Stock Prices and Business Investment from the Federal eserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q4/leitner_stock-prices-and-investment.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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">December</th>
<th scope="col">&nbsp;November</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.27</td>
<td>16.20</td>
<td>0.4%</td>
<td>16.18</td>
<td>16.55</td>
<td>16.96</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.82</td>
<td>7.97</td>
<td>-1.8%</td>
<td>7.58</td>
<td>7.77</td>
<td>7.65</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>5.21</td>
<td>5.47</td>
<td>-2.4%</td>
<td>5.07</td>
<td>5.31</td>
<td>5.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>2.62</td>
<td>2.50</td>
<td>-0.6%</td>
<td>2.51</td>
<td>2.45</td>
<td>2.25</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>8.44</td>
<td>8.22</td>
<td>-2.4%</td>
<td>8.60</td>
<td>8.78</td>
<td>9.32</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>6.92</td>
<td>6.73</td>
<td>-3.2%</td>
<td>7.12</td>
<td>7.42</td>
<td>8.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.52</td>
<td>1.49</td>
<td>1.8%</td>
<td>1.48</td>
<td>1.37</td>
<td>1.20</td>
</tr>
</tbody>
</table>
</body>
</html>

U.S. sales of light vehicles rose all of 0.4% last month to a 16.27M unit annual selling rate, according to the Autodata Corporation. The uptick followed a 0.9% increase during November. These recent upticks left sales for the year [...]

U.S. Vehicle Sales Tick Up in December, Down in 2007

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104e.jpg" align="left" border="0" height="265" width="353">
While France&#8217;s services sector is holding up pretty well the
consumer is not keeping up that sort of pace. Consumer confidence fell
by one point in December but the index has lost 16 points from its peak
in this cycle and the resulting index now stands at a relatively weak
position with respect to its recent range of values. Confidence is now
in the bottom ten percent of its range over the past eighteen years.
Consumers say it&#8217;s the worst price environment in the past 18 years.
They expect pricing conditions to ease up in the 12-months ahead. 
 

Households assess their living conditions over the past 12
months as in the bottom seven percentile of the past 18 year&#8217;s results.
They see that improving to the bottom 19 percentile in the year ahead. 
 

Households place unemployment prospects in the bottom 38th
percentile for the 12 months ahead. Their spending plans are in the
bottom third of their range, a similar reading Households assess their
current financial situation as middling: in the 52nd percentile of its
range. But over the past 12months they place it in the bottom fifth of
its range and over the next 12 months they expect a bottom quarter of
the range result. Consumer responses are certainly more downbeat than
the performance of the French services sector would let us infer.
France is clearly one to watch to see which way its various and
disparate readings eventually coalesce or if they do. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> INSEE
Household Monthly Survey</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="4">&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Dec 
07</td>
<td>Nov 
07</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr class="grey2">
<td class="firstcol">Household Confidence</td>
<td>-29</td>
<td>-28</td>
<td>-23</td>
<td>-21</td>
<td>9.3</td>
<td>196</td>
<td>10</td>
<td>-33</td>
<td>43</td>
<td>-17</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Living
Standards</td>
</tr>
<tr class="grey2">
<td class="firstcol">past 12 Mos</td>
<td>-61</td>
<td>-59</td>
<td>-54</td>
<td>-51</td>
<td>7.1</td>
<td>207</td>
<td>18</td>
<td>-67</td>
<td>85</td>
<td>-37</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-31</td>
<td>-36</td>
<td>-25</td>
<td>-26</td>
<td>19.3</td>
<td>165</td>
<td>15</td>
<td>-42</td>
<td>57</td>
<td>-18</td>
</tr>
<tr class="grey2">
<td class="firstcol">Unemployment: Next 12</td>
<td>5</td>
<td>11</td>
<td>11</td>
<td>10</td>
<td>38.2</td>
<td>172</td>
<td>73</td>
<td>-37</td>
<td>110</td>
<td>30</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Price
Developments</td>
</tr>
<tr class="grey2">
<td class="firstcol">Past 12Mo</td>
<td>39</td>
<td>30</td>
<td>17</td>
<td>12</td>
<td>100.0</td>
<td>1</td>
<td>39</td>
<td>-57</td>
<td>96</td>
<td>-19</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-23</td>
<td>-8</td>
<td>-19</td>
<td>-16</td>
<td>40.7</td>
<td>33</td>
<td>31</td>
<td>-60</td>
<td>91</td>
<td>-34</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Savings</td>
</tr>
<tr class="grey2">
<td class="firstcol">Favorable to save</td>
<td>30</td>
<td>27</td>
<td>31</td>
<td>36</td>
<td>72.2</td>
<td>32</td>
<td>40</td>
<td>4</td>
<td>36</td>
<td>23</td>
</tr>
<tr class="grey2">
<td class="firstcol">Ability to save Next 12</td>
<td>-12</td>
<td>-13</td>
<td>-7</td>
<td>-6</td>
<td>37.9</td>
<td>147</td>
<td>6</td>
<td>-23</td>
<td>29</td>
<td>-8</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Spending</td>
</tr>
<tr class="grey2">
<td class="firstcol">Favorable for major purchase</td>
<td>-23</td>
<td>-18</td>
<td>-11</td>
<td>-10</td>
<td>32.8</td>
<td>173</td>
<td>16</td>
<td>-42</td>
<td>58</td>
<td>-12</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Financial
Situation</td>

</tr>
<tr class="grey2">
<td class="firstcol">Current</td>
<td>14</td>
<td>15</td>
<td>16</td>
<td>16</td>
<td>52.4</td>
<td>66</td>
<td>24</td>
<td>3</td>
<td>21</td>
<td>12</td>
</tr>
<tr class="grey2">
<td class="firstcol">Past 12 Mos</td>
<td>-23</td>
<td>-19</td>
<td>-17</td>
<td>-15</td>
<td>18.2</td>
<td>190</td>
<td>-5</td>
<td>-27</td>
<td>22</td>
<td>-16</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-9</td>
<td>-8</td>
<td>-6</td>
<td>-5</td>
<td>25.9</td>
<td>206</td>
<td>11</td>
<td>-16</td>
<td>27</td>
<td>0</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Number of observations in the period</td>
<td>215</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

While France’s services sector is holding up pretty well the consumer is not keeping up that sort of pace. Consumer confidence fell by one point in December but the index has lost 16 points from its peak in this cycle and the [...]

French Consumer Confidence Continues to Slide

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: January 2008

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