Tom Moeller

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&bull; Factory activity weakens as coronavirus surges.
&bull; New orders, production and employment series ease.
&bull; Price index remains strong.

The Institute for Supply Management (ISM) reported that its
Composite Index of Manufacturing Sector Activity fell to 57.5 during November
and reversed roughly half of its October rise to 59.3. A decline to 57.6 had
been expected in the Action Economics Forecast Survey. It was the sixth
consecutive month above the break-even level of 50 following three months below
it. During the last 15 years, there has been a 42% correlation between the
composite index and the quarterly change in real GDP. Before the recession began,
there had been a 67% correlation.

The ISM indicated, &quot;The manufacturing economy continued
its recovery in November. Survey Committee members reported that their companies
and suppliers continue to operate in reconfigured factories, but absenteeism,
short-term shutdowns to sanitize facilities and difficulties in returning and
hiring workers are causing strains that will likely limit future manufacturing
growth potential.&quot;

The new orders index fell to 65.1 after rising in October to
the highest level since January 2004. A lessened 36% (NSA) of survey respondents
reported improved new orders while a higher 14% reported a decline. The
production index weakened to 60.8, its lowest level in five months. A lessened 34%
(NSA) of respondents reported higher production while an increased 14% reported
a decline. The inventories index eased to 51.2, the second consecutive month of
inventory accumulation since June. The supplier deliveries measure rose to 61.7
indicating slower rates of order fulfillment.

Also weakening during November was the employment measure
which fell to 48.4 from 53.2 in October. It was the lowest reading in three
months but still was increased from April's recession low of 27.5. A greatly
lessened 15% (NSA) of respondents reported higher payrolls while a slightly
higher 19% reported a decline.

Pricing power continued firm. The prices paid index was
little changed at 65.4 (NSA) compared to April's low of 35.3. It was the highest
level in roughly two years. A strengthened 37% of respondents reported higher
prices compared to April's low of 10%. Six percent reported price declines, down
from 39% in April.

Other series in the ISM report indicated improvement. The new
export order measure rose to 57.8 from 55.7, remaining the highest level in
roughly two years. The import series slipped to 55.1 but remained above the
break-even level of 50 for the fifth consecutive month. The order backlog
measure rose again and remained greatly improved from the April low.

The ISM figures are based on responses from over 400
manufacturing purchasing executives from 20 industries, which correspond to
their contribution to GDP in 50 states. These data are diffusion indexes where a
reading above 50 indicates expansion. The figures from the Institute for Supply
Management can be found in Haver's USECON database; further detail is
found in the SURVEYS database. The expectations number is available in
Haver's AS1REPNA database.

Coronavirus Aid, Relief, and Economic Security Act
from Fed Chair Jerome H. Powell is available <a href="https://www.federalreserve.gov/newsevents/testimony/powell20201201a.htm">here</a>.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >ISM Mfg (SA)</th>
 <th>Nov</th>
 <th>Oct</th>
 <th>Sep</th>
 <th>Nov'19</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Composite Index</td>
 <td>57.5</td>
 <td>59.3</td>
 <td>55.4</td>
 <td>48.1</td>
 <td>51.2</td>
 <td>58.9</td>
 <td>57.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;New Orders</td>
 <td>65.1</td>
 <td>67.9</td>
 <td>60.2</td>
 <td>46.8</td>
 <td>51.1</td>
 <td>61.6</td>
 <td>62.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Production</td>
 <td>60.8</td>
 <td>63.0</td>
 <td>61.0</td>
 <td>48.0</td>
 <td>51.2</td>
 <td>60.9</td>
 <td>60.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Employment</td>
 <td>48.4</td>
 <td>53.2</td>
 <td>49.6</td>
 <td>46.8</td>
 <td>50.9</td>
 <td>56.9</td>
 <td>56.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Supplier Deliveries</td>
 <td>61.7</td>
 <td>60.5</td>
 <td>59.0</td>
 <td>51.7</td>
 <td>52.9</td>
 <td>62.0</td>
 <td>56.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Inventories</td>
 <td>51.2</td>
 <td>51.9</td>
 <td>47.1</td>
 <td>47.2</td>
 <td>49.8</td>
 <td>52.9</td>
 <td>50.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Prices Paid Index (NSA)</td>
 <td>65.4</td>
 <td>65.5</td>
 <td>62.8</td>
 <td>46.7</td>
 <td>49.1</td>
 <td>71.7</td>
 <td>65.0</td>
 </tr>
 </tbody>
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• Factory activity weakens as coronavirus surges. • New orders, production and employment series ease. • Price index remains strong. The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector [...]

ISM Manufacturing Index Falls in November

Gerald D. Cohen

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&bull; Construction spending increased 1.3% in October with net upward revisions to previous two months.
&bull; Residential jumps 2.9%; continued weakness in nonresidential.
&bull; Public increases for first time since May.
&bull; Total spending now just 0.2% from February peak.

The value of construction put-in-place increased a greater-than-expected 1.3% in October (3.7% year-on-year). The Action Economics Forecast Survey anticipated a 0.8% gain. Spending in August and September were revised to 2.0% and -0.5% respectively from 0.8% and 0.3%. This leaves the level of construction down just 0.2% since its February peak (see upper right hand chart for a comparison to previous cycles).

In the revised third quarter GDP report released last week private construction spending (nonresidential + residential) added 1.70 percentage points from GDP growth. Today's data points to an upward revision to that figure and a healthy start to Q4.

Private construction increased 1.4% in October (3.7% y/y). Residential construction jumped 2.9% (14.5% y/y) driven by strong gains in both single and multifamily dwellings up 5.6% (13.3% y/y) and 1.2% (18.4% y/y) respectively. Home improvement was unchanged (14.6% y/y). Nonresidential private construction decreased 0.7% in October (-8.2% y/y), the fourth consecutive monthly decline. All four of the largest sectors &#8211; power, commercial, office, and manufacturing &#8211; were down.

Public construction rose 1.0% in October (3.7% y/y), the first gain since May. Nonresidential, which makes up 97% of public construction, grew 1.0% (3.2% y/y), with the two largest sectors road and school building increasing after generalized declines since February. These sectors are down 10.4% and 2.9% respectively from February levels. If not offset by federal government support, the drop in state and local government revenues resulting from the COVID-related hole in economic activity will likely lead to continued weakness in public construction.

The construction spending figures, some of which date back to 1946 can be found in Haver's USECON database.
The expectations reading is in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Construction Put in Place
 (SA, %)</th>
 <th>Oct</th>
 <th>Sep</th>
 <th>Aug</th>
 <th>Oct Y/Y</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total</td>
<td >1.3</td>
<td >-0.5</td>
<td >2.0</td>
<td >3.7</td>
<td >2.4</td>
<td >4.2</td>
<td >4.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Private</td>
<td >1.4</td>
<td >-0.4</td>
<td >3.2</td>
<td >3.7</td>
<td >0.8</td>
<td >4.0</td>
<td >6.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
<td >2.9</td>
<td >0.6</td>
<td >6.9</td>
<td >14.5</td>
<td >-2.4</td>
<td >3.4</td>
<td >12.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
<td >-0.7</td>
<td >-1.7</td>
<td >-1.3</td>
<td >-8.2</td>
<td >4.5</td>
<td >4.8</td>
<td >-0.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Public</td>
<td >1.0</td>
<td >-0.7</td>
<td >-1.6</td>
<td >3.7</td>
<td >7.8</td>
<td >4.6</td>
<td >-0.1</td>
 </tr>
 </tbody>
 </table>
 
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• Construction spending increased 1.3% in October with net upward revisions to previous two months. • Residential jumps 2.9%; continued weakness in nonresidential. • Public increases for first time since May. • Total spending now just [...]

Strong U.S. Residential Construction in October

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&bull; Gasoline prices improve.
&bull; Crude oil costs continue to rise.
&bull; Natural gas prices move lower.

The price of regular gasoline improved last week,
rising to $2.12 per gallon (-17.7% y/y) and reversing the prior week's decline
to $2.10. Haver Analytics adjusts the gasoline price series for normal seasonal
variation. The seasonally adjusted price rose five cents to $2.22 per gallon
last week, its highest level since the third week of March.

West Texas Intermediate crude oil prices increased to
an average of $44.72 per barrel (-22.0% y/y) in the week ended November 27 from
$41.59 per barrel in the previous week. This was the highest price since in
eight months, up from $20.62 in late-March. The price was $45.34 yesterday. The
average price of Brent crude oil rose to $47.10 per barrel (-25.5% y/y) in the
same week from $44.30 per barrel in the previous week. It increased to $47.96 yesterday.

The price of natural gas price eased to $2.35/mmbtu (-5.4%
y/y) in the week ended November 27 from $2.39/mmbtu in the previous week. Prices
temporarily spiked to $3.09/mmbtu late in October from roughly half that earlier
in the month. The price rose to $2.89 yesterday.

In the four weeks ended November 20, gasoline demand
declined 9.2% y/y. Total petroleum product demand fell 9.1% y/y. Crude oil input
to refineries was down 14.5% y/y over the past four weeks. Gasoline
inventories increased 1.8% y/y and inventories of all petroleum products
were up 4.9% y/y. The supply of gasoline in inventory of 27.5 days stands
substantially below 48.7 days in late-April.

These data are reported by the U.S. Department of Energy. The
price data can be found in Haver's WEEKLY and DAILY databases.
Greater detail on prices, as well as the demand, production and inventory data,
along with regional breakdowns, are in OILWKLY.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th>11/30/20</th>
 <th>11/23/20</th>
 <th>11/16/20</th>
 <th>Y/Y %</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Retail Gasoline ($ per Gallon, Regular,
 Monday)</td>
 <td>2.12</td>
 <td>2.10</td>
 <td>2.11</td>
 <td>-17.7</td>
 <td>2.57</td>
 <td>2.27</td>
 <td>2.47</td>
 </tr>
 <tr>
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl,
 Previous Week's Average)</td>
 <td>44.72</td>
 <td>41.59</td>
 <td>40.75</td>
 <td>-22.0</td>
 <td>56.91</td>
 <td>64.95</td>
 <td>50.87</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, Previous
 Week's Average)</td>
 <td>2.35</td>
 <td>2.39</td>
 <td>2.75</td>
 <td>-5.4</td>
 <td>2.57</td>
 <td>3.18</td>
 <td>2.99</td>
 </tr>
 </tbody>
 </table>
 
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• Gasoline prices improve. • Crude oil costs continue to rise. • Natural gas prices move lower. The price of regular gasoline improved last week, rising to $2.12 per gallon (-17.7% y/y) and reversing the prior week's decline to $2.10. [...]

U.S. Petroleum Prices Rise; Natural Gas Costs Ease

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

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Andrew Cates

**The global business cycle** 
The recent sharp decline in the Future Output Balance in the global composite PMI survey reflects a sudden deterioration in global business expectations. The sweeping tariffs, introduced in April 2025, have generated heightened uncertainty around trade policy and sparked fears of retaliatory actions from key trading partners. As a result, businesses worldwide are scaling back their expectations for future output, wary of rising costs, disrupted demand flows, and a broader shift toward protectionism that could undermine global economic momentum.

250507Z1.jpg

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

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

250507Z2.jpg

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

250507Z3.jpg

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

250507Z4.jpg

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

250507Z5.jpg

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

250507Z6.jpg

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

Charts of the Week: Relief Rally Meets Recession Risk

250507J1.jpg

250507K1.jpg

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

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

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

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

250507L1.jpg

250507M1.jpg

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

FOMC Targeted Funds Rate Range Is Unchanged; Increased Risks Acknowledged

Kathleen Stephansen, CBE

250507F4.jpg

250507G4.jpg

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

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

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

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

250507H4.jpg

250507I4.jpg

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


U.S. Consumer Credit Rebounded in March

250507A20.jpg

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

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

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

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

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

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

Mortgage Applications Surge as Interest Rates Ease Last Week

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

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

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

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

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

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

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

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

Economy in Brief: December 2020

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ISM Manufacturing Index Falls in November

Strong U.S. Residential Construction in October

U.S. Petroleum Prices Rise; Natural Gas Costs Ease