Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102e.jpg" width="353">
According to the National Association of Realtors, sales of existing homes ticked 0.4% higher during November. The rise, however, did little to recover declines during the prior eight months which totaled 25.4% Moreover, sales remained nearly one third lower than at the peak in late 2005
Sales of single family homes led November&#39;s rise with a 0.7% gain which was the first m/m gain since February. Sales in the West jumped 10.1% (-25.6% y/y) but that was the only region to post a gain. Sales in the Midwest fell 0.9% m/m (-16.7% y/y). Single family home sales in the Northeast fell 3.0% (-19.0% y/y) and sales in the South fell 1.1% (-18.9% y/y).
The median price of an existing single family home rose 1.9% (-3.7% y/y) and recouped all of the prior month&#39;s decline.
Perspectives on Housing and the Economic Outlook from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/SpeechBio/HoenigPDF/SantaFe11-15-07.pdf"> here</a>.

<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 Home Sales</th>
<th scope="col">November</th>
<th scope="col">y/y %</th>
<th scope="col">October</th>
<th scope="col">November &#39;06</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>5,000</td>
<td>-20.0</td>
<td>4,980</td>
<td>6,250</td>
<td>6,510</td>
<td>7,075</td>
<td>6,727</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>870</td>
<td>-19.4</td>
<td>1,080</td>
<td>1,030</td>
<td>1,088</td>
<td>1,169</td>
<td>1,113</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,180</td>
<td>-16.9</td>
<td>1,180</td>
<td>1,420</td>
<td>1,492</td>
<td>1,588</td>
<td>1,550</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>1,990</td>
<td>-19.4</td>
<td>2,030</td>
<td>2,470</td>
<td>2,578</td>
<td>2,704</td>
<td>2,540</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>960</td>
<td>-25.0</td>
<td>870</td>
<td>1,2800</td>
<td>1,353</td>
<td>1,616</td>
<td>1,575</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,400</td>
<td>-19.9</td>
<td>4,370</td>
<td>5,490</td>
<td>5,677</td>
<td>6,182</td>
<td>5,958</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Price, Total, $</td>
<td>210,200</td>
<td>-3.3</td>
<td>206,9000</td>
<td>217,300</td>
<td>222,000</td>
<td>218,217</td>
<td>193,233</td>
</tr>
</tbody>
</table>
</body>
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According to the National Association of Realtors, sales of existing homes ticked 0.4% higher during November. The rise, however, did little to recover declines during the prior eight months which totaled 25.4% Moreover, sales [...]

Existing Home Sales Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102c.jpg" width="353">
Chain store sales at the end of last year surged. In the final week of 2007 sales dipped just 0.2% after gains of 2.8% and 1.4% during the prior two weeks according to the International Council of Shopping Centers (ICSC)-UBS.
For all of December sales recovered 1.0% following modest declines during the prior four months.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Working the other way, the leading indicator of chain store sales from ICSC-UBS fell for the second week and was down for all of December for the third month in the last four.
Housing, credit and consumer expenditure from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/publicat/sympos/2007/PDF/2007.09.17.Muellbauer.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/29/07</th>
<th scope="col">12/22/07</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>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>487.7</td>
<td>488.8</td>
<td>2.3%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


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Chain store sales at the end of last year surged. In the final week of 2007 sales dipped just 0.2% after gains of 2.8% and 1.4% during the prior two weeks according to the International Council of Shopping Centers (ICSC)-UBS. For all [...]

U.S. Chain Store Sales Surged at Yearend '07

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102a.jpg" width="353">
The Institute of Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity fell in December to 47.7 from 50.8 in November. The decline contrasted with Consensus expectations for a slight m/m uptick to 51.0. Data points above 50 indicate growth in factory sector activity.
Last month&#39;s reading was the lowest since early 2003 and it was the first month below 50 since early last year.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by being constructed using all of the absolute positive changes in activity added to one half of the no change in activity measures.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102b.jpg" width="353">
Sharp declines in the new orders and in the production components accounted for most of the decline in the composite index. The inventories index fell, but just slightly and the vendor deliveries index rose.
The index of new export orders fell out of bed with a six point m/m decline to its lowest level since last January. The index still, however, suggests that exports grew last month. The import index also remained low but nudged higher after great weakness last Fall. The index suggests declines in imports for the last three months.
The employment index recovered just slightly after a huge decline in November. That was its lowest level since 2003. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The prices paid index again nudged higher to its highest level in six months. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>47.7</td>
<td>50.8</td>
<td>51.4</td>
<td>52.2</td>
<td>53.9</td>
<td>55.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>45.7</td>
<td>52.6</td>
<td>51.9</td>
<td>54.4</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>68.0</td>
<td>67.5</td>
<td>47.5</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
</body>
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The Institute of Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity fell in December to 47.7 from 50.8 in November. The decline contrasted with Consensus expectations for a slight m/m uptick to [...]

ISM Index Below 50

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102d.jpg" width="353">
The value of construction put in lace rose a slight 0.1% during November following a 0.4% downtick during October. These, and other, small monthly changes this year have left the value of construction put in place down just 0.2% year to date.
Gains in nonresidential building activity have cushioned weakness in the residential area. Nonresidential building activity rose 2.1% in November and that pulled the year to date gain to 16.1%. Year to date, building in the lodging area is up a whopping 71.4%. Office construction is up 17.1% and commercial building rose 8.8%.
Residential building in November fell another 2.5% m/m and year to date activity is off 16.5%. Building of new single family units fell 5.0% during November. Year to date the decline totals 26.7%. Again to the upside was spending on improvements. It rose 0.7% in November and increased 3.9% ytd.
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
Public construction spending also has been strong this year and rose 2.5% during November. That pulled to ytd gain to 12.5%. Construction on highways &amp; streets rose 1.9%, 12.8% ytd. The value of construction on highways &amp; streets is nearly one third of the value of total public construction spending. Construction spending on education also has been fir m and up 11.1% this year.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>5.6%</td>
<td>10.7%</td>
<td>11.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>-4.8%</td>
<td>4.7%</td>
<td>12.0%</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.5%</td>
<td>-2.3%</td>
<td>-17.8%</td>
<td>0.5%</td>
<td>13.7%</td>
<td>18.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.7%</td>
<td>1.2%</td>
<td>19.5%</td>
<td>15.2%</td>
<td>7.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>2.5%</td>
<td>0.9%</td>
<td>16.2%</td>
<td>9.2%</td>
<td>6.2%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
ISM Index Below 50 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 2, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102a.jpg" width="353">
The Institute of Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity fell in December to 47.7 from 50.8 in November. The decline contrasted with Consensus expectations for a slight m/m uptick to 51.0. Data points above 50 indicate growth in factory sector activity.
Last month&#39;s reading was the lowest since early 2003 and it was the first month below 50 since early last year.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by being constructed using all of the absolute positive changes in activity added to one half of the no change in activity measures.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102b.jpg" width="353">
Sharp declines in the new orders and in the production components accounted for most of the decline in the composite index. The inventories index fell, but just slightly and the vendor deliveries index rose.
The index of new export orders fell out of bed with a six point m/m decline to its lowest level since last January. The index still, however, suggests that exports grew last month. The import index also remained low but nudged higher after great weakness last Fall. The index suggests declines in imports for the last three months.
The employment index recovered just slightly after a huge decline in November. That was its lowest level since 2003. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The prices paid index again nudged higher to its highest level in six months. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>47.7</td>
<td>50.8</td>
<td>51.4</td>
<td>52.2</td>
<td>53.9</td>
<td>55.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>45.7</td>
<td>52.6</td>
<td>51.9</td>
<td>54.4</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>68.0</td>
<td>67.5</td>
<td>47.5</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
Existing Home Sales Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 2, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102e.jpg" width="353">
According to the National Association of Realtors, sales of existing homes ticked 0.4% higher during November. The rise, however, did little to recover declines during the prior eight months which totaled 25.4% Moreover, sales remained nearly one third lower than at the peak in late 2005
Sales of single family homes led November&#39;s rise with a 0.7% gain which was the first m/m gain since February. Sales in the West jumped 10.1% (-25.6% y/y) but that was the only region to post a gain. Sales in the Midwest fell 0.9% m/m (-16.7% y/y). Single family home sales in the Northeast fell 3.0% (-19.0% y/y) and sales in the South fell 1.1% (-18.9% y/y).
The median price of an existing single family home rose 1.9% (-3.7% y/y) and recouped all of the prior month&#39;s decline.
Perspectives on Housing and the Economic Outlook from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/SpeechBio/HoenigPDF/SantaFe11-15-07.pdf"> here</a>.

<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 Home Sales</th>
<th scope="col">November</th>
<th scope="col">y/y %</th>
<th scope="col">October</th>
<th scope="col">November &#39;06</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>5,000</td>
<td>-20.0</td>
<td>4,980</td>
<td>6,250</td>
<td>6,510</td>
<td>7,075</td>
<td>6,727</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>870</td>
<td>-19.4</td>
<td>1,080</td>
<td>1,030</td>
<td>1,088</td>
<td>1,169</td>
<td>1,113</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,180</td>
<td>-16.9</td>
<td>1,180</td>
<td>1,420</td>
<td>1,492</td>
<td>1,588</td>
<td>1,550</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>1,990</td>
<td>-19.4</td>
<td>2,030</td>
<td>2,470</td>
<td>2,578</td>
<td>2,704</td>
<td>2,540</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>960</td>
<td>-25.0</td>
<td>870</td>
<td>1,2800</td>
<td>1,353</td>
<td>1,616</td>
<td>1,575</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,400</td>
<td>-19.9</td>
<td>4,370</td>
<td>5,490</td>
<td>5,677</td>
<td>6,182</td>
<td>5,958</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Price, Total, $</td>
<td>210,200</td>
<td>-3.3</td>
<td>206,9000</td>
<td>217,300</td>
<td>222,000</td>
<td>218,217</td>
<td>193,233</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Surged at Yearend '07 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 2, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080102c.jpg" width="353">
Chain store sales at the end of last year surged. In the final week of 2007 sales dipped just 0.2% after gains of 2.8% and 1.4% during the prior two weeks according to the International Council of Shopping Centers (ICSC)-UBS.
For all of December sales recovered 1.0% following modest declines during the prior four months.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Working the other way, the leading indicator of chain store sales from ICSC-UBS fell for the second week and was down for all of December for the third month in the last four.
Housing, credit and consumer expenditure from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/publicat/sympos/2007/PDF/2007.09.17.Muellbauer.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/29/07</th>
<th scope="col">12/22/07</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>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>487.7</td>
<td>488.8</td>
<td>2.3%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


</html>

The value of construction put in lace rose a slight 0.1% during November following a 0.4% downtick during October. These, and other, small monthly changes this year have left the value of construction put in place down just 0.2% year [...]

U.S. Construction Spending Rose Slightly

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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.

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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.

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**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.

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**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.

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**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.

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**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.

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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.”

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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

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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.

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


U.S. Consumer Credit Rebounded in March

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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: January 2008

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