Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070906b.jpg" width="353">
Nonfarm labor productivity was revised to 2.6% in Q2 from 1.8% reported a month ago. The revision was marginally above market forecasts, which called for 2.5%, based on the most recent revision to GDP. 
Compensation per hour last quarter was a bit higher than the original 3.9% increase, and is now estimated at 4.1%.
Despite the upward move in compensation, unit labor costs are revised here to just 1.4%, compared to the originally reported 2.1% and modestly lower even than the 1.6% forecast growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070906c.jpg" width="353"><span style="FONT-SIZE: 10pt; FONT-FAMILY: Verdana; mso-fareast-font-family: &#39;MS Mincho&#39;; mso-fareast-language: JA; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-family: &#39;Times New Roman&#39;">
Factory sector productivity growth was also revised higher, but just slightly to 1.8% from 1.6% in the last report. Compensation in manufacturing is now seen up 3.4% in the quarter compared with 2.8% reported last month. This makes the year/year rate 6.8%, up from 6.2% in the prior report; these are both stronger than anytime since Q4 2003. Year-to-year changes in manufacturing unit labor costs were minimal from mid-2001 until Q1 this year, but in Q2, the compensation and productivity numbers yielded a 3.7% rise. Granted, the quarter-to-quarter growth was greatest in Q4 2006 and Q1 2007, but productivity in factories has been sluggish for three consecutive quarters, suggesting that unit labor costs are still subject to upward pressure presently, not relief. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">Q2 &#39;07 (Rev)</th>
<th scope="col">Q2 &#39;07 (Old)</th>
<th scope="col">Q1 &#39;07</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">Output per Hour</td>
<td>2.6%</td>
<td>1.8%</td>
<td>0.7%</td>
<td>0.9%</td>
<td>1.0%</td>
<td>1.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>4.1%</td>
<td>3.9%</td>
<td>5.9%</td>
<td>5.8%</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.4%</td>
<td>2.1%</td>
<td>5.2%</td>
<td>4.9%</td>
<td>2.9%</td>
<td>2.0%</td>
<td>0.9%</td>
</tr>
</tbody>
</table>


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Nonfarm labor productivity was revised to 2.6% in Q2 from 1.8% reported a month ago. The revision was marginally above market forecasts, which called for 2.5%, based on the most recent revision to GDP. Compensation per hour last [...]

Q2 Productivity Revised Up, But So Was Compensation

Robert Brusca

UK industrial production trends are not uniform. Consumer durable and nondurable goods output has been steadily - and in the recent period - strongly expanding. That makes the UK unlike most EMU countries with its strong consumer [...]

UK IP on Extended Fading Growth Trend

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905f.jpg" width="353">
In this time when homes and their values are playing a key role in financial market developments, it&#39;s important to examine the behavior of various house price indexes and to know what they are measuring. Last evening, the Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC) reported its quarterly index, Conventional Mortgage Home Price Index, for Q2, and last week, data were published by the Office of Federal Housing Enterprise Oversight (OFHEO), the National Association of Realtors (NAR) and S&amp;P/Case-Shiller. So a comparison is timely, too, with the freshness of the data. All of the measures shown here cover existing houses.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905g.jpg" width="353">
The easiest price measure to understand is the NAR median price for existing homes. The National Association of Realtors surveys real estate boards around the country each month for their sales reports. The price measure is the median of all those reported within each of the four Census regions of the country. The regions are combined in a national index, with each region weighted according to the number of housing units located there at the time of the 2000 decennial Census. Thus, in any given period, the price measure is not affected by the distribution of current sales. It does not matter whether sales or price changes were concentrated in an expensive region or a more moderately priced one. At the same time, the price is simply the median of the houses whose sales closed that month, regardless of size or other characteristics. So this composite price measure involves quality differences in homes as well as pure price change. Through Q2, it was down 1.6% from a year ago, having flattened after its run-up into mid-2005. [The July figure, not relevant for our present discussion, was down 1.0% from July 2006.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905i.jpg" width="353">
The issue of quality differentials is a significant problem, but not one the Realtors operations are designed to handle. The other indexes covered here do that through the method of &quot;repeat sales&quot;. An existing house that sells in a specific quarter would have been sold at least one other time, so its current price can be compared to its own previous price. To accomplish this comparison, the compilers need access to a database that includes such detailed price records. For the S&amp;P/Case-Shiller Index, they use county registrars&#39; mortgage and deed transfer records. This provides a universe, not just a sample of sales transactions. The huge volume of these data mean, though, that the index cannot practically be computed for every county in the country. So it covers 20 MSAs on a monthly basis with broader coverage for each quarter&#39;s national total. In Q2, this index was down 3.2% from its year-ago value; the latest monthly figures cover June, which was down 3.5% from June 2006. So additional time is required to produce this index, compared with the simple current- period averaging process of the NAR measure. The Case-Shiller index also uses value weights to combine local areas into the national total; thus, the more expensive regions carry more weight, possibly making this more useful to portfolio managers who want to judge the performance of a real estate portfolio.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905h.jpg" width="353">
The S&amp;P/Case-Shiller data begin in 1987. A series compiled and published by the Federal Home Loan Mortgage Corporation includes history back to 1970. Also a repeat-transaction series, it uses mortgage data for loans owned by FHLMC and the Federal National Mortgage Association (FNMA), so it is called the &quot;Conventional Mortgage House Price Index&quot;. In Q2, released just late on September 4, it was UP 3.3% from a year earlier. This is the weakest outcome in since early 1997, although it is not the weakest showing ever. These prices, which have never declined outright on a yearly basis, were up only 1.0% in Q4-1990 and 1.2-1.3% during the protracted 1982/83 recession. The federal government regulator of FHLMC and FNMA is the Office for Federal Housing Enterprise Oversight, OFHEO. This organization produces a similar series that goes back to 1975; it was up 3.2% in Q2, with a comparable historical performance to Freddie Mac&#39;s data. These series are available for states and a broad collections of MSAs. The national aggregate is computed, similar to the NAR series, using as weights the number of housing units in the various regions. Since they are based on loans owned by FNMA and FHLMC, they cover transactions that conform to the limits set on FNMA&#39;s and FHLMC&#39;s business; in particular, the highest priced home whose mortgage they can own is $417,000. Thus, more expensive homes are not included in these series.
The national aggregates of all these home price series are contained in Haver&#39;s USECON database. The state and local measures are in the REGIONAL database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Single Family House Prices</th>
<th scope="col">Q2 2007</th>
<th scope="col">Q1 2007</th>
<th scope="col">Q4 2006</th>
<th scope="col">Year Ago</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">NAR Median</td>
<td>$223,467</td>
<td>$212,633</td>
<td>$219,033</td>
<td>$227,067</td>
<td>$221,883</td>
<td>$217,492</td>
<td>$192,808</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Y/Y % Change</td>
<td>-1.6</td>
<td>-1.6</td>
<td>-2.8</td>
<td>+3.5</td>
<td>+2.0</td>
<td>+12.8</td>
<td>+8.1</td>
</tr>
<tr class="odd">
<td class="firstcol">S&amp;P/Case-Shiller &nbsp;2000Q1 = 100</td>
<td>183.9</td>
<td>185.6</td>
<td>187.4</td>
<td>189.9</td>
<td>188.7</td>
<td>179.0</td>
<td>155.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Y/Y % Change</td>
<td>-3.2</td>
<td>-1.6</td>
<td>+0.2</td>
<td>+7.5</td>
<td>+5.4</td>
<td>+15.3</td>
<td>+13.8</td>
</tr>
<tr class="odd">
<td class="firstcol">OFHEO, 1980Q1 = 100</td>
<td>409.4</td>
<td>409.1</td>
<td>406.8</td>
<td>396.8</td>
<td>399.1</td>
<td>366.3</td>
<td>324.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Y/Y % Change</td>
<td>3.2</td>
<td>4.4</td>
<td>6.1</td>
<td>10.0</td>
<td>9.0</td>
<td>13.0</td>
<td>10.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Conv Mrtg Home Price Index, 1987Q1 = 100</td>
<td>297.4</td>
<td>297.1</td>
<td>295.6</td>
<td>287.9</td>
<td>289.7</td>
<td>265.3</td>
<td>235.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Y/Y % Change</td>
<td>3.3</td>
<td>4.6</td>
<td>6.4</td>
<td>10.2</td>
<td>9.2</td>
<td>12.9</td>
<td>10.6</td>
</tr>
</tbody>
</table>
</body>
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In this time when homes and their values are playing a key role in financial market developments, it's important to examine the behavior of various house price indexes and to know what they are measuring. Last evening, the Federal [...]

How Much Have Home Values Changed? -- Well, It Depends . . . .

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905e.jpg" width="353">
Service sector trends are still rising in the Euro area and the UK. 
The services industry eased in August in the Euro area, if below the Zone&#146;s 3-month average, but not by much. If these indexes are a litmus test on how much the services sector (that includes the troubled financial sector) has been hurt by the recent market unrest, it is nothing to worry about. Unfortunately it is too soon to tell. Germany, a country that had two banks propped up by authorities saw its service sector strengthen in August. Germany&#146;s sector reading is in the 93rd percentile of its range. France, Spain and Ireland show current readings that are below their 12-month averages. Clearly the Euro area has seen some slowing downs in its service sector. And while there seems to be different trends in play across countries the Euro area itself is still in the growth zone. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
NTC Services Indexes
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-13</td>
<td>58.04</td>
<td>58.34</td>
<td>58.24</td>
<td>57.72</td>
<td>57.46</td>
<td>80.1%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>59.76</td>
<td>58.47</td>
<td>59.04</td>
<td>58.33</td>
<td>57.36</td>
<td>93.1%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>58.40</td>
<td>58.93</td>
<td>58.77</td>
<td>58.68</td>
<td>59.06</td>
<td>57.5%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>56.18</td>
<td>58.46</td>
<td>57.52</td>
<td>56.18</td>
<td>55.69</td>
<td>57.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>53.51</td>
<td>56.33</td>
<td>55.05</td>
<td>55.37</td>
<td>56.74</td>
<td>48.7%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>56.98</td>
<td>56.19</td>
<td>56.70</td>
<td>57.42</td>
<td>59.19</td>
<td>51.2%</td>
</tr>
<tr class="odd">
<td colspan="7">EU only</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>57.55</td>
<td>57.02</td>
<td>57.44</td>
<td>57.39</td>
<td>58.13</td>
<td>78.9%</td>
</tr>
<tr>
<td colspan="5">percentile is over range since May 2000</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
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Service sector trends are still rising in the Euro area and the UK. The services industry eased in August in the Euro area, if below the Zones 3-month average, but not by much. If these indexes are a litmus test on how much the [...]

Service Sector Indexes for Euro area and the UK

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905d.jpg" width="353">
Euro area sales trends point lower. Food as well as nonfood trends are on the decline. These trends are weighted significantly toward the trends for Germany where the recent deterioration is severe. The UK (an EU not EMU member) and France on the other hand still have relatively strong trends in force. 
Detailed data lag by one month but they show weakness in household items, books and other spending. Pharmacy and textile spending has held up. 
We can calculate the growth in the new quarter which is one month old by assessing the July growth rate of sales over the Q2 average and annualizing it appropriately. In Q3 total retail sales volumes in the Euro area are growing at a 1.2% pace; for nonfood items the pace is 2.2%. 
We are past the point of being able to blame Germany&#146;s VAT tax for the weakness. Year/year measures will still be impacted by that effect but three-month trends are free from it and they are weak. Germany has not been able to engage its consumer in the recovery. So far that has not been a problem since having an industry-led recovery is normal for Germany. But now, just when the consumer is expected to show up, the financial turmoil could keep the wary Germany consumer away. Italy already is weakened. France is ripe for a slowdown and, after some real post election euphoria, Europe faces question marks over the future of consumer spending.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area (13) Retail Sales Volume
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Zone-13 Total</td>
<td>0.1%</td>
<td>0.6%</td>
<td>-0.8%</td>
<td>-0.5%</td>
<td>1.6%</td>
<td>0.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Food</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-0.8%</td>
<td>-2.7%</td>
<td>0.2%</td>
<td>-1.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Non-food</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-0.8%</td>
<td>0.8%</td>
<td>2.7%</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Textiles</td>
<td>#N/A</td>
<td>2.8%</td>
<td>-3.5%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>4.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Household Goods</td>
<td>#N/A</td>
<td>1.4%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-2.2%</td>
<td>3.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Books news</td>
<td>#N/A</td>
<td>1.3%</td>
<td>-0.9%</td>
<td>0.8%</td>
<td>1.5%</td>
<td>2.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Pharmaceuticals</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.5%</td>
<td>2.9%</td>
<td>2.3%</td>
<td>3.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Other Non-special Goods</td>
<td>#N/A</td>
<td>1.2%</td>
<td>-0.8%</td>
<td>-1.7%</td>
<td>-1.2%</td>
<td>0.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Mail Order</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>1.3%</td>
<td>7.3%</td>
<td>-5.5%</td>
<td>0.1%</td>
</tr>
<tr class="grey2">
<td colspan="7">Non-Food Country Detail: Volume</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>-0.6%</td>
<td>2.8%</td>
<td>-4.3%</td>
<td>-8.5%</td>
<td>6.9%</td>
<td>0.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>1.1%</td>
<td>0.1%</td>
<td>5.4%</td>
<td>6.1%</td>
<td>6.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy (Total Value)</td>
<td>#N/A</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>-3.0%</td>
<td>-1.8%</td>
<td>-1.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK (EU)</td>
<td>0.9%</td>
<td>0.9%</td>
<td>0.4%</td>
<td>9.1%</td>
<td>10.1%</td>
<td>8.0%</td>
</tr>
<tr class="grey1">
<td colspan="7">Shaded areas calculated on a one-month lag due to lagging data</td>
</tr>
<tr class="grey3">
<td colspan="7">The EA 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
</body>
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Euro area sales trends point lower. Food as well as nonfood trends are on the decline. These trends are weighted significantly toward the trends for Germany where the recent deterioration is severe. The UK (an EU not EMU member) and [...]

EU Retail Trends: At Odds

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905c.jpg" width="353">
The ADP Nat&#39;l Employment Report, reported by the payroll processor, found that private nonfarm payrolls rose just 38,000 last month. The increase was the smallest since 2003.
The U.S. Bureau of Labor Statistics employment figure for August will be published this Friday.
Last month, ADP&#39;s measure of private nonfarm payrolls for July indicated a revised 41,000 increase in jobs that was followed by a 120,000 increase in private nonfarm payrolls. 
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/FINAL_NER_August2007_Report.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">August</th>
<th scope="col">July</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>
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<td class="firstcol">Nonfarm Private Payroll Employment (m/m Chg.)</td>
<td>38,000</td>
<td>41,000</td>
<td>1.1%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.3%</td>
</tr>
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The ADP Nat'l Employment Report, reported by the payroll processor, found that private nonfarm payrolls rose just 38,000 last month. The increase was the smallest since 2003.

ADP Report: Private Payroll Growth Smallest Since 2003

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905a.jpg" width="353">
U.S. sales of light vehicles during August improved 6.5% versus a weak performance in July. The increase followed two months of sharp m/m decline and resulted in a small 0.7% increase in sales versus last August, according to the Autodata Corporation.
Overall sales of domestic light vehicles rose 10.1% m/m to an annualized selling rate of 12.57M (1.7% y/y). Sales of domestic light trucks recovered to one of the best selling rates this year with a 12.9% rise to 7.54M (4.5% y/y). Domestic car sales also made up for a weak July with a 6.2% m/m rise to 5.03M units (-2.2% y/y) <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905b.jpg" width="353">
Sales of imported light vehicles were weak and posted a 4.4% decline to 3.7M units (-2.5% y/y). It was the sixth m/m decline this year. Sales of imported cars led the decline with a 5.9% drop (-9.38 y/y) to 2.3 units. Imported light truck sales also fell 1.6% to 1.39M (+11.5% y/y).
Remarks by Richmond Federal Reserve Bank President Jeffrey M. Lacker on the Economic Outlook are available <a href="http://www.richmondfed.org/news_and_speeches/presidents_speeches/index.cfm/id=102/pdf=true"> here</a>. 

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<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">August </th>
<th scope="col">July</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>16.27 </td>
<td>15.54 </td>
<td>.71% </td>
<td>16.55 </td>
<td>16.96 </td>
<td>16.87 </td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos </td>
<td>7.34</td>
<td>7.19</td>
<td>-4.61% </td>
<td>7.77 </td>
<td>7.65 </td>
<td>7.49 </td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks </td>
<td>8.93 </td>
<td>8.09 </td>
<td>5.55% </td>
<td>8.78 </td>
<td>9.32 </td>
<td>9.37 </td>
</tr>
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U.S. sales of light vehicles during August improved 6.5% versus a weak performance in July. The increase followed two months of sharp m/m decline and resulted in a small 0.7% increase in sales versus last August, according to the [...]

U.S. Vehicle Sales Better than Bleak Newspaper Headlines

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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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) rose 0.6% (-3.6% y/y) during the four weeks ended May 9, 2025. The improvement followed sharp declines in April.

Miscellaneous group prices increased 2.4% (5.9% y/y) over the last four weeks. Natural rubber price soared 13.9% (11.7% y/y). The price of tallow (used in the soap industry) rose 10.6% (41.3% y/y) in four weeks but the cost of framing lumber declined 5.6%, but rose 7.3% y/y.

Prices in the Metals group edged 0.2% higher (-7.3% y/y) over the most recent four weeks. Variation in pricing was wide. Copper scrap prices rose 7.4% (-3.3% y/y) while lead costs rose 4.0% in four weeks (-11.1% y/y). The cost of aluminum increased 2.3% in four weeks, off 4.4% y/y. Working lower, the cost of steel scrap declined 8.1% (-11.6% y/) in four weeks while tin prices followed with a 4.9% decline (-2.9% y/y). Zinc prices eased 0.7% in four weeks and declined 10.3% y/y.

Crude Oil & Benzene group prices edged 0.1% higher (-19.4% y/y) in four weeks. The cost of West Texas Intermediate crude oil weakened 4.0% to $58.50 per barrel and was 25.6% lower y/y. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 8.5% (-41.8% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index rose 0.9% (-2.1% y/y) during the last four weeks.

Textile group prices edged 0.9% lower (-0.5% y/y) during the last four weeks. Burlap costs declined 14.3% (+7.4% y/y) but the cost of cotton rose 4.5% (-7.7% y/y) over four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Metals prices are mixed.
- Crude oil prices fall sharply.
- Textile prices ease.

FIBER: Industrial Commodity Price Movement Diverges in Latest Four Weeks

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Wholesale trade inventories increased 0.4% (2.2% y/y) during March after rising 0.5% in February, revised from 0.3% after a 0.8% January rise. The increase compared to expectations for a 0.5% rise in the Informa Global Markets Survey and compared to a 0.6% gain in the advance report issued two weeks ago.

Durable goods inventories rose 0.6% in March (1.5% y/y) after rising 0.5% in February. Machinery inventories, the largest sector, increased 0.6% (1.7% y/y) while inventories of motor vehicles & parts, the second largest grouping, rose 1.2% (0.8% y/y). Furniture inventories strengthened 2.7% (6.8% y/y) while electrical equipment inventories declined 1.0% (-3.1% y/y). Inventories of nondurable goods edged 0.1% higher (3.4% y/y). Drug inventories, which make up one-quarter of nondurable inventories, advanced 1.0% (4.6% y/y). Grocery inventories, the second largest category, rose 0.4% (8.3% y/y). Apparel inventories fell 0.8% (-6.5% y/y) and chemical inventories rose 2.1% both m/m and y/y. Petroleum inventories increased 0.7% (0.3% y/y).

Sales at the wholesale level rose 0.6% (6.1% y/y) in March after rising 2.0% in February and falling 0.9% in January. A 0.9% March rise had been expected in the Action Economics Forecast Survey.

Durable goods sales rose 1.0% (8.5% y/y) in March after strengthening 3.2% in February. Sales of electrical equipment & electronic goods, the largest sector, rose 2.5% (20.9% y/y), after a 2.3% rise. Professional and commercial equipment sales, which includes computers, rose 1.2% (11.9% y/y), while vehicle sales declined 1.0% (1.1% y/y). Sales of machinery improved 0.7% (4.2% y/y). Nondurable product sales rose 0.3% (3.9% y/y) in March after gaining 0.9% in February. Drug store sales, the largest category, increased 2.8% (13.4% y/y), while grocery store sales eased 0.2% (+4.3% y/y). Sales of apparel weakened 0.8% (+3.5% y/y) while paper sales declined 1.7% (0.5% y/y). Petroleum product sales fell 4.6% both m/m and y/y.

The inventory-to-sales (I/S) ratio at the wholesale level remained at 1.30 in March and has been moving lower for the last two years.

The wholesale I/S ratio for durable goods eased to 1.69 in March and also has been trending lower. The machinery ratio fell to 2.92 while motor vehicles rose to 1.78. The I/S ratio for nondurable goods slipped to 0.93 and remained down from 1.02 early in 2023. The drug industry ratio eased to 0.94. Apparel's I/S ratio held at 2.06, but remained below its 2.28 level one year earlier, and has been declining since early 2023. The petroleum industry I/S ratio rose to 0.33.

The wholesale trade figures are available in Haver's **USECON** database. The expectations figure for inventories is contained in the **MMSAMER** database. Expectations for sales are from the **AS1REPNA** database.

**Assessing Maximum Employment** from Federal Reserve Governor Adriana D. Kugler is available [here](https://www.federalreserve.gov/newsevents/speech/kugler20250509a.htm).

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- Inventories trend higher y/y.
- Sales increase broadly.
- Inventory-to-sales ratio steadies.

U.S. Wholesale Inventories & Sales Increase in March

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Nonfarm labor productivity fell 0.8% (SAAR) during Q1’25 after increasing 1.7% in Q4’24, revised from 1.5%. A 0.6% decline had been expected in the Action Economics Forecast Survey. It was the first productivity decline since Q2’22. The y/y increase during Q1 fell to 1.4% from 2.1% in Q4. It was below a 3.3% high in the first quarter of last year. Productivity fell as real value-added output dropped 0.3% last quarter (+2.2% y/y) after increasing 2.5% in Q4, and hours worked lengthened 0.6% (0.8% y/y) following a 0.8% gain.

Compensation per hour increased 4.8% last quarter following a 3.7% Q4 rise. Despite the strength of these last two increases, y/y growth decelerated to 2.7% from a 6.8% high one year earlier. Nevertheless, the productivity decline raised unit labor costs by 5.7% (1.3% y/y) in Q1 versus expectations for a 5.2% increase. It followed a 2.0% gain during Q4 and was the strongest quarterly increase in a year.

Factory sector productivity surged 4.5% (1.5% y/y) during Q1’25 following three consecutive increases of roughly 0.5%. This strength was accompanied by a 6.2% rise (2.2% y/y) in hourly compensation which came after two consecutive increases of approximately 4.1%. The strength in productivity lowered the rise in unit labor costs to 1.6% from 3.8% in Q4. The y/y gain fell to 0.7% from 2.0% in Q4 and stood below the 6.2% y/y increase in Q1’24.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Productivity declines with lower output.
- Compensation surge exacerbates labor market stress.
- Factory sector productivity surge lessens cost pressure.

U.S. Productivity Declines in Q1’25; Unit Labor Costs Surge

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) rose 0.6% (3.2% y/y) in March to 103.2 after rising 0.9% to 102.6 in February and rising 0.8% in January to 101.7. The level of home affordability has risen 14.8% from its low of 89.9 in October 2023. It remains 42.4% below the high of 179.2 in April 2020.

The rise in affordability in March occurred as the median price of an existing single-family home rose 1.8% (2.9% y/y) to $408,000 which was offset by a decline in mortgage rates to 6.73% from 6.92% in February. The price compared to the record $432,900 in June 2024. The decline in mortgage rates compared to a recent low of 6.26% in September of last year and a 7.70% high during October of 2023. It remained well above a December 2020 low of 2.73%. These changes lowered the principal & interest payment by 0.2% (+1.1% y/y) to $2,113 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a lessened 24.2% of income during March. They remained up from a low of 14.0% of income in April 2020.

The rise in housing costs in March was accompanied by improvement in median family income. It increased 0.4% (4.4% y/y) to a record $104,705 after rising 0.4% in February and 0.7% in January.

Housing affordability improved m/m across the country in March. The index edged 0.1% higher (2.8% y/y) to 134.5 in the Midwest. It remains the most affordable region of the country. In the South, the index 0.9% (5.4% y/y) to 106.6 and the affordability index in the Northeast increased 2.1% (-2.6% y/y) to 95.7. In the West, where homes are the least affordable, the index rose 0.8% (3.3% y/y) to 71.8 in March.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Home prices rise but mortgage rates decline.
- Median income improves.
- Affordability increases across the country.

U.S. Housing Affordability Improves Slightly in March

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Initial claims for unemployment insurance were 228,000 seasonally adjusted in the week ended May 3, down from 241,000 in the previous week, which was unrevised. For the latest week, the Action Economics Forecast Survey had expected a smaller decline to 233,000.

In the week ended April 26, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – was 1.879 million, down from 1.908 million in the April 19 week.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, returned to its longstanding rate of 1.2% in the April 26 week; this rate has held that amount since continuously since the week of January 6, 2024, except for the prior week’s 1.3%.

As we do highlight in every week’s discussion, economic conditions vary widely across individual states and territories. In the week ended April 19, the highest unemployment rates were in New Jersey and Rhode Island (both at 2.48%), California (2.26%), Washington (2.14%) and New York (1.85%). The lowest were in Florida (0.36%), South Dakota (0.37%), Alabama (0.41%), Virginia (0.45%) and Nebraska (0.47%). Rates in other notable states include Illinois (1.78%), Pennsylvania (1.53%) and Texas (1.14%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Continued claims for unemployment insurance decreased 29, 000 in the week ended April 26.
- Insured unemployment rate returns to longstanding 1.2%.
- Across the states, the insured unemployment rate ranges from 0.36% to 2.48%.

Economy in Brief: September 2007

Jump to:

Q2 Productivity Revised Up, But So Was Compensation

UK IP on Extended Fading Growth Trend

How Much Have Home Values Changed? -- Well, It Depends . . . .

Service Sector Indexes for Euro area and the UK

EU Retail Trends: At Odds

ADP Report: Private Payroll Growth Smallest Since 2003

U.S. Vehicle Sales Better than Bleak Newspaper Headlines

How Much Have Home Values Changed? -- Well, It Depends . . . .