Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020826a.jpg" width="353">
Sales of new single family homes last month were stronger than Consensus expectations for a 975,000 sales rate. June sales were revised lower. July sales were a record.
Sales were mixed across the country&#146;s regions: rising sharply in the Midwest and South but falling in the Northeast and West.
The median price of a new home fell 8.4% to $170,700 (-2.6% y/y). Prices in June were revised up.
The new home sales data reflect current sales versus the existing home sales figure which reflect closings on past sales. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">New Single-Family</td>
<td>1,017</td>
<td>953</td>
<td>15.4%</td>
<td>908</td>
<td>880</td>
<td>879</td>
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</tbody>
</table>
Existing Home Sales Rebound 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 26, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020826b.jpg" width="353">
July sales of existing single family homes were about as expected, recouping much of the prior month&#39;s sharp decline which was lessened. Sales were 7.6% below the record pace set in March.
Sales through July were 5.4% above sales during the first seven months of 2001.
Home sales rose in each of the country&#146;s four regions except the West.
The median price of an existing home fell 0.7% to $162,800 (7.3% y/y).
The figures reflect closings of past sales. 
The average rate on a conventional 30-year mortgage fell to 6.49% last month versus 7.00% averaged during all of last year.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;5,330</td>
<td>&nbsp;5,100</td>
<td>0.6%</td>
<td>5,291</td>
<td>5,159</td>
<td>5,193</td>
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Manpower Survey Hiring Index Stable in 4Q 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 26, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020826c.jpg" width="353">
The Manpower Employment Outlook Survey index of net hiring was stable in 4Q02 at an improved 3Q02 level.
The not seasonally adjusted survey results indicated that 24% of firms plan to add employees in 4Q compared to 27% in 3Q. 9% planned to cut payrolls in 4Q compared to 8% in 3Q.
Over the last 25 years there has been an 81% correlation between the Manpower survey net hiring figure and the change in nonfarm payrolls. That correlation fell to 52% during the most recent ten years.
Manpower surveys nearly 16,000 public &amp; private firms in 477 US markets.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S302/@S302.HTM">Manpower Employment Outlook Survey</a></th>
<th scope="col">4Q02</th>
<th scope="col">3Q02</th>
<th scope="col">4Q01</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">All Industries: Net Higher (SA, %)</td>
<td>14</td>
<td>14</td>
<td>12</td>
<td>11</td>
<td>17</td>
<td>24</td>
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Sales of new single family homes last month were stronger than Consensus expectations for a 975,000 sales rate. June sales were revised lower. July sales were a record. Sales were mixed across the countrys regions: rising sharply in [...]

July New Home Sales a Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020823a.jpg" width="353">
The Federal Reserve Survey of Senior Loan Officers indicated that lending standards to both large and small firms have eased.
In the latest survey, 21.4% of banks tightened lending standards to large firms versus nearly 60% that were tightening standards early last year.
To small firms, 5.5% of banks tightened lending standards versus 45.4% that were tightening in early 2001 and 41.8% as recently as early this year.
Spreads on loans to both large and small firms remained relatively high, but also have fallen versus recent highs.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveys/@S5/@S501/@S501.HTM">FRB Senior Loan Officers Survey</a></th>
<th scope="col">3Q02</th>
<th scope="col">2Q02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Banks Tightening Loans to Large Firms</td>
<td>21.4%</td>
<td>24.0%</td>
<td>40.4%</td>
<td>50.5%</td>
<td>28.3%</td>
<td>8.0%</td>
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The Federal Reserve Survey of Senior Loan Officers indicated that lending standards to both large and small firms have eased. In the latest survey, 21.4% of banks tightened lending standards to large firms versus nearly 60% that were [...]

Lending Standards Ease

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020822a.jpg" width="353">
Initial claims for unemployment insurance were slightly higher than expected in the latest week. Claims fell slightly versus the prior week which was revised up.
The latest figure covers the survey period for August nonfarm payrolls. Initial claims were up slightly from the July survey period.
The four-week moving average rose slightly to 388,250 but was down 14.5% from the recent April high.
Continuing claims for unemployment insurance fell slightly from the prior week which was revised down. Continuing claims were down 6.1% versus April. 
The weekly insured rate of unemployment was steady at 2.8%, up slightly from the 2.7% averaged in July.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">8/17/02</th>
<th scope="col">8/10/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Initial Claims</td>
<td>389.0</td>
<td>391.0</td>
<td>-3.0%</td>
<td>405.8</td>
<td>299.8</td>
<td>297.7</td>
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<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,520</td>
<td>12.6%</td>
<td>3,021</td>
<td>2,114</td>
<td>2,186</td>
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</table>
ECRI Leading Indicators Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 22, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020822b.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) fell for the fourth week in five, and is down 2.9% from a high reached in June.
The indicator&#39;s six-month growth rate, perhaps the more important indicator, fell to 1.5% versus 6% in late June.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been an 80% correlation between the annual percent change in the two over the last 20 years.
The components of the index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months. The sideways movement of the leading index in 2002 may or may not signal something about the economy&#39;s growth rate.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM">ECRI</a></th>
<th scope="col">8/9/02</th>
<th scope="col">8/2/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Weekly Leading Index</td>
<td>120.1</td>
<td>121.4</td>
<td>0.8%</td>
<td>-5.0%</td>
<td>0.8%</td>
<td>2.4%</td>
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Initial claims for unemployment insurance were slightly higher than expected in the latest week. Claims fell slightly versus the prior week which was revised up. The latest figure covers the survey period for August nonfarm payrolls. [...]

Initial Jobless Insurance Claims Higher Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020821a.jpg" width="353">
The July US budget deteriorated about as expected. A monthly deficit of $30.0B had been expected versus last year&#39;s July surplus of $2.8B. Deficits are typical for July. Only in 2000 and 2001 were small surpluses recorded. 
Receipts fell sharply m/m after surging in June. Individual tax payments fell 17.8% versus last fiscal YTD. Fiscal YTD corporate tax receipts fell 16.3%. Social Insurance taxes were up 0.8% fiscal YTD, but the growth rate slowed from a norm near 7%. 
Federal expenditures rose m/m and were up 9.4% versus last fiscal YTD. Defense spending continued strong rising 14.3% versus last fiscal YTD. Transportation spending also was strong (19.6%) as was spending on education (13.3%), health (14.8%) and income security (15.8%).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Fiscal YTD</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Budget Balance</td>
<td>$-29.2B</td>
<td>$29.1B</td>
<td>$-147.2B</td>
<td>$127.2B</td>
<td>$236.9B</td>
<td>$124.4B</td>
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<td class="firstcol">&nbsp; Revenues</td>
<td>$134.4B</td>
<td>$182.6B</td>
<td>-10.2%</td>
<td>-1.7%</td>
<td>10.8%</td>
<td>6.1%</td>
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<td class="firstcol">&nbsp; Outlays</td>
<td>$163.6B</td>
<td>$153.6B</td>
<td>9.4%</td>
<td>4.2%</td>
<td>5.0%</td>
<td>3.1%</td>
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The July US budget deteriorated about as expected. A monthly deficit of $30.0B had been expected versus last year's July surplus of $2.8B. Deficits are typical for July. Only in 2000 and 2001 were small surpluses recorded. Receipts [...]

U.S. Budget Deficit Deepened

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020820b.jpg" width="353">
The U.S. foreign trade deficit improved slightly in June, about as expected, versus a record May deficit that was deepened slightly. 
Trade deficits in 2Q02 ran at a $444.6B annual rate versus a $373.3B rate in 2Q01.
Exports rose strongly for the third month this year. Capital goods (-6.4% y/y) and nonauto consumer goods (-2.4% y/y) were strong as were exports of food (6.2% y/y).
Imports rose just moderately as industrial supplies and food imports fell. Imports of capital goods (-1.4% y/y) and nonauto consumer goods (10.0% y/y) were strong.
The refiner&#39;s acquisition cost of imported crude oil fell slightly in June to $23.71 from $24.29 in May and from $23.95 in June 2001. Prices rose in July and August.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE03/@EE03.HTM">Foreign Trade</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Trade Deficit</td>
<td>$37.2B</td>
<td>$37.8B</td>
<td>$30.8B(6/01)</td>
<td>$358.3B</td>
<td>$378.7B</td>
<td>$262.2B</td>
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<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>1.7%</td>
<td>0.8%</td>
<td>-2.8%</td>
<td>-6.2%</td>
<td>11.2%</td>
<td>2.6%</td>
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<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.0%</td>
<td>3.5%</td>
<td>-6.0%</td>
<td>18.3%</td>
<td>10.9%</td>
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</table>
Weekly Chain Store Sales Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 20, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020820a.jpg" width="353">
Chain store sales fell for the second consecutive week, continuing a very checkered performance during the last 2-3 months according to the BTM-UBSW survey.
Sales so far in August are down 0.6% versus the average for July which rose only 0.3% from June.
During the last five years there has been a 61% correlation between the year-to-year percent change in monthly chain store sales and the change in GAF retail sales.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">8/17/02</th>
<th scope="col">8/10/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>410.0</td>
<td>413.1</td>
<td>1.8%</td>
<td>2.1%</td>
<td>3.4%</td>
<td>6.7%</td>
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The U.S. foreign trade deficit improved slightly in June, about as expected, versus a record May deficit that was deepened slightly. Trade deficits in 2Q02 ran at a $444.6B annual rate versus a $373.3B rate in 2Q01. Exports rose [...]

U.S. Trade Deficit Improved in June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020819c.jpg" width="353">
The Composite Index of Leading Economic Indicators fell slightly less than expected last month. It was the third decline in the index during the last four months. June figures were revised down and now show a decline versus the previously reported no change. 
The ratio of coincident-to-lagging indicators was unchanged following five successive months of gain. The ratio is an indicator of excess relative to actual economic performance.
The coincident indicators rose for the fifth consecutive month. The lagging indicators rose for the first month since September of last year, due to higher unit labor costs and consumer debt relative to income .
Only 40% of the leaders&#39; component series rose last month versus 50% that rose in June. Lower stock prices and lower consumer expectations had large negative influences on the leading index.
The Leading index is based on eight previously reported economic data series and two that are estimated.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Leading</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>1.7%</td>
<td>-0.6%</td>
<td>1.0%</td>
<td>3.3%</td>
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<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.3%</td>
<td>-1.0%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>3.2%</td>
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<td class="firstcol">Lagging</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>-3.9%</td>
<td>-1.3%</td>
<td>2.8%</td>
<td>1.8%</td>
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</table>
The Chain Weighted CPI    
by <a href="/comment/Moeller.html">Tom Moeller</a> August 19, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020819a.jpg" width="353">
With the release of the July CPI, the Bureau of Labor Statistics began publishing a series called the chained CPI. Unlike the official CPI, the new index reflects changes in consumer spending patterns (weight shifts). It therefore is a better measure of consumers&#39; cost of living.
The chained CPI reflects consumers preference to increase spending on goods and services which are falling in price relative to others. Much of the recent difference between the two CPI measures is due to the falling price of, and increased spending on, computers. 
For a complete discussion of the technical details of the new chained CPI, visit the BLS website: <a href="http://www.bls.gov/cpi/superlink.htm">http://www.bls.gov/cpi/superlink.htm</a>
The new chained CPI is analogous to the PCE deflator published by the Bureau of economic Analysis.
For a discussion of the use of chain weighted data, visit the site below. <a href="http://www.frbsf.org/publications/economics/letter/2002/el2002-22.pdf">http://www.frbsf.org/publications/economics/letter/2002/el2002-22.pdf</a>

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Consumer Price Index</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Official</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.8%</td>
<td>3.4%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Chained (NSA)&nbsp;</td>
<td>0.0%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>n.a.</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Food &amp; Energy (NSA)</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>1.6%</td>
<td>1.9%</td>
<td>1.4%</td>
<td>n.a.</td>
</tr>
</tbody>
</table>
</body>
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The Composite Index of Leading Economic Indicators fell slightly less than expected last month. It was the third decline in the index during the last four months. June figures were revised down and now show a decline versus the [...]

Leading Indicators Fall

Louise Curley

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020813a.jpg">
Retail sales increased 1.2% in July according to the Advance Monthly Sales for Retail and Food Services, after a revised increase of 1.4% in June.
Sales of motor vehicle and parts dealers rose 4.2% in each month as a result of zero-financing and other incentives offered by the automakers.
Excluding sales of motor vehicles and parts dealers, retail sales rose only 0.2% in July, compared with 0.5% in June.
Sales increased 2.7% at gasoline stations, due in part to price increases, 1.1% at health and personal care stores, 1.0% at food services and drinking places, 0.5% at nonstore retailer, 0.4% at sporting goods, hobby, book and music stores and 0.3% at food and beverage stores.
Sales declined 1.4% at furniture and home furnishing stores, 1.3% at clothing and clothing accessories stores, 1.3% at miscellaneous store retailers, 1.2% at building material and garden equipment and supplies dealers and 1.0% at electronics and appliance stores.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>1.2%</td>
<td>1.4%</td>
<td>4.8%</td>
<td>3.8%</td>
<td>6.7%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.2%</td>
<td>0.5%</td>
<td>3.9%</td>
<td>3.4%</td>
<td>7.3%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">

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Retail sales increased 1.2% in July according to the Advance Monthly Sales for Retail and Food Services, after a revised increase of 1.4% in June. Sales of motor vehicle and parts dealers rose 4.2% in each month as a result of zero- [...]

July Retail Sales Rose; June Revised Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020809a.jpg" width="353">
Nonfarm labor productivity grew more than expected last quarter. Consensus estimates were for a 0.8% rate of growth.
Revisions to productivity left 1Q02 growth unchanged at 8.6% but 2001 growth was lowered to 1.1% from 1.8%. Growth in 2000 was lowered to 2.9% from 3.3%.
Output in the nonfarm business sector rose 0.5% (AR) following a 6.2% gain in 1Q02. Hours worked fell 0.7%, the eighth decline in the last nine quarters.
Unit Labor costs rose 2.4% following three consecutive quarters of decline. Compensation growth held steady at its 1Q02 rate, but that&#39;s up sharply from the quarterly rates of growth last year.
Manufacturing sector productivity grew at a 4.9% rate following a 9.7% surge in 1Q02. Unit labor costs fell at a 1.8% rate, the fourth consecutive quarterly decline.
Inflation pressure rose. The price deflator for the nonfarm business sector rose 1.4% following two consecutive quarters of decline.
The price-to-unit labor cost ratio, a key measure of corporate profitability, fell slightly following four quarters of gain.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;02</th>
<th scope="col">1Q &#39;02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.1%</td>
<td>8.6%</td>
<td>4.7%</td>
<td>1.1%</td>
<td>2.9%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.6%</td>
<td>3.6%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>7.0%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.4%</td>
<td>-4.6%</td>
<td>-2.2%</td>
<td>1.6%</td>
<td>3.9%</td>
<td>2.0%</td>
</tr>
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Nonfarm labor productivity grew more than expected last quarter. Consensus estimates were for a 0.8% rate of growth. Revisions to productivity left 1Q02 growth unchanged at 8.6% but 2001 growth was lowered to 1.1% from 1.8%. Growth in [...]

Nonfarm Productivity Firm

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

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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

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- 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

250506J8.jpg

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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**.

250506L8.jpg

250506M8.jpg

- 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: 2002

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