Tom Moeller

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The Commerce Department reported that inventories in the factory sector remained unchanged (0.6% y/y) during March after a 0.2% February rise. Transportation equipment inventories held steady (6.9% y/y). Furniture inventories increased 0.3% (-4.4% y/y) while electrical equipment inventories dropped 0.4% (-0.5% y/y). Amongst nondurable goods industries, petroleum inventories were 0.5% higher (2.6% y/y) and plastics & rubber inventories rose 0.2% (-4.8% y/y). These changes were accompanied by a 0.5% rise (-1.7% y/y) in apparel. Basic chemical inventories were unchanged (-0.6% y/y) for a second consecutive month while paper product inventories gained 0.2% (-2.6% y/y).

Orders to all manufacturers improved 1.6% (1.7% y/y) in March following a 1.2% February rise. The gain was led by a 2.6% rise (1.2% y/y) in durable goods orders, as commercial aircraft surged 30.6% (-50.9% y/y) in. New orders excluding transportation gained 0.5% (1.6% y/y). Orders for nondurable goods (which equal shipments) rose 0.6% (2.1% y/y). The rise reflected a 1.5% increase (4.9% y/y) in shipments from oil refineries and a 0.7% gain (2.1% y/y) in basic chemicals. Orders for textile products declined 1.4% (-1.7% y/y) and apparel orders fell 0.2% (-1.9% y/y). Orders for food products rose 0.2% (-0.3% y/y). Paper product shipments held steady (-2.0% y/y).

Unfilled orders improved 0.4% in March (9.1% y/y) and, excluding the transportation sector, they eased 0.1% (-0.9% y/y). Backlogs of electrical equipment slipped 0.1% (+0.7% y/y). Unfilled orders in the machinery sector eased 0.3% (-3.9% y/y) and unfilled orders for transportation equipment rose 0.7% (15.5% y/y). Unfilled orders of furniture rose 0.6% (-5.6% y/) and fabricated metals backlogs were off 0.1%, unchanged y/y.

The factory sector figures are available in Haver's **USECON** database.

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- Inventories levels are flat.
- Order improvement led by aircraft.
- Unfilled orders rise.

U.S. Factory Inventories Hold Steady While Orders Rise in March

Kathleen Stephansen, CBE

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Nonfarm business sector productivity increased 0.3% (SAAR) during Q1’24, following upwardly revised gains of 3.5% in Q4’23 and 4.6% in Q3’23. The rises in productivity were originally reported as being 3.4% in Q4 and 4.4% in Q3. Expectations had been for a 0.8% rise in the Action Economics Forecast Survey. On a year-on-year comparison, Q1 productivity rose 2.9%, up from 2.7% in Q4 and 2.4% in Q3. The y/y gain was the quickest since 2020. Real value-added output rose 1.3% (SAAR) (3.2% y/y) in Q1 from a 3.8% (3.3% y/y) gain in Q4.

Hours-worked in the nonfarm business sector rose 1.0% (0.3% y/y) in Q1 from a 0.2% (0.6% y/y) rise in Q4. Nonfarm hourly compensation increased 5.0% (4.7% y/y) in Q1 from a 3.5% gain (5.2% y/y) in Q4. Adjusted for price inflation, real compensation per hour rose 1.1% (1.5% y/y) in Q1, following a 0.8% (1.9% y/y) rise in Q4.

Weaker productivity brought an acceleration in unit labor costs to 4.7% (1.8% y/y) in Q1 after a 0.0% (2.4%) rise in Q4. The Action Economics Forecast Survey called for a 2.3% quarterly rise in unit labor costs.

In the manufacturing sector, real output per hour slowed to a rise of 0.2% (1.2% y/y) last quarter after a gain of 2.4% (0.9% y/y) in Q4. Manufacturing output was unchanged over the quarter (-0.1% y/y) after declining 1.0% (-0.2% y/y) in Q4. Hours-worked declined 0.2% (-1.3% y/y) in Q1 after a drop of 3.3% (-1.1% y/y) in Q4.

Compensation per hour in manufacturing slowed to a gain of 3.4% (6.3% y/y) last quarter following a rise of 6.8% (6.7% y/y) in Q4. Real compensation declined 0.4% (3.0% y/y) in Q1, after a rise of 4.0% (3.4% y/y) in Q4. Unit labor costs in manufacturing slowed to a rise of 3.2% (5.0% y/y) in Q1 following a gain of 4.2% (5.8% y/y) the prior quarter.

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 slows in Q1.
- Unit labor costs rise sharply.
- Slowdown in factory productivity and unit labor cost growth.

U.S. Productivity Growth Slows and Unit Labor Cost Growth Accelerates in Q1

Carol Stone, CBE

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Initial claims for unemployment insurance were steady last week, ended April 27, at 208,000 seasonally adjusted; the April 20 week’s number was revised marginally from 207,000.  The latest week was close to the Action Economics Forecast Survey estimate of 210,000. The four-week moving average of initial claims was 210,000 in the April 27 week, down from 213,500 the week before. The latest week’s data extends the tight range of initial claims, which has hovered from 194,000 to 228,000 since September 3, 2023.

The number of continued claims for unemployment insurance, also called “insured unemployment,” was 1.774 million in the April 20 week, unchanged from the prior week; that earlier amount was revised from 1.781 million reported last week. As with initial claims, the number of continuing claims has maintained a tight range for several months, running from 1.728 million to 1.829 million since June 3, 2023.

The insured unemployment rate, that is, the number of unemployment benefits recipients as a percent of covered employment, was again 1.2% in the April 20 week. This rate has been steady at 1.2% since March 11, 2023.

Insured unemployment rates vary widely among individual states. In the April 13 week, the highest rates were in New Jersey (2.50%), California (2.31%), Rhode Island (1.91%), Minnesota and Illinois (both 1.85%), and Massachusetts (1.84%). The lowest rates were in Kansas (0.33%), Florida (0.37%), South Dakota (0.39%), North Carolina and Virginia (both 0.41%) and Alabama (0.42%). Rates in other prominent states include Arizona (0.74%), Texas (1.07%), Pennsylvania and Connecticut (both 1.54%) and New York (1.74%).  These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor, 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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- Initial claims flat at 208,000 in April 27 week.
- Continued claims also unchanged in April 20 week.
- Insured unemployment rate maintains 1.2% level since March 2023.


U.S. Initial Unemployment Insurance Claims Maintain Tight Range

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At today’s meeting of the Federal Open Market Committee, the target range for the Federal funds rate was left unchanged at 5.25% - 5.50%. Each member of the FOMC voted in favor of today’s action. The Fed’s focus continues to be reducing price inflation, as mentioned several times in the meeting summary.

Text accompanying today’s meeting indicated, “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

“The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”

“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

In addition, “Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent objective.”

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- Fed maintains focus on inflation reduction.
- Federal funds rate range remains at 5.25% - 5.50%, where it’s been since early-August 2023.
- Rate stays at highest level since March 2001.

FOMC Holds Funds Rate Steady

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The Autodata Corporation reported that U.S. light vehicle sales rose 2.8% (1.5% y/y) to 16.00 million units (SAAR) in April after falling 1.9% to 15.56 million in March. Sales averaged 15.43 million in Q1.

Sales of light trucks rose 2.9% (3.4% y/y) during April to 12.9 million units (SAAR) after falling 1.3% in March. Purchases of domestically-made light trucks edged 0.5% higher to 9.68 million units (unchanged y/y), after falling 2.5% in March. Sales of imported light trucks strengthened 10.7% (15.0% y/y) to 3.22 million units, the highest level in three years,  after a 3.6% March increase.

Trucks' share of the light vehicle market held steady at a record 80.6% last month compared to 79.1% in April of last year.

Auto sales rose 1.3% (-5.8% y/y) to 3.10 million units (SAAR) in April following a 2.9% March decline. Purchases of domestically-produced cars improved 2.8% (-7.2% y/y) last month to 2.19 million units after falling 3.6% in March. Sales of imported autos weakened 2.2% both m/m and y/y to 0.91 million units after easing 1.1% in March.

Imports' share of the U.S. light vehicle market rose to 25.8% in April from 24.7% in March, up versus a May 2023 low of 22.3%. Imports' share of the passenger car market declined to 29.4% from 30.4% in March. It reached a high of 37.9% in September 2021. Imports' share of the light truck market improved to 25.0%, a five-month high, from 23.2% in March.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

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- Light truck sales improve considerably while passenger car sales edge higher.
- Imports' market share gains ground.

U.S. Light Vehicle Sales Move Up in April

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to 49.2 in April after rising to 50.3 in March, according to the Institute for Supply Management. The April manufacturing PMI, below the 50 expansion-contraction dividing line, indicated that the U.S. manufacturing sector contracted for the 17th time in 18 months. While slightly higher than 47.0 in April 2023 and a low of 46.5 in March 2023, the April reading remained below a peak of 64.0 in March 2021. A reading of 50.0 had been expected in the Action Economics Forecast Survey for April.

The production index declined to 51.3 in April from 54.6 in March, suggesting production expanded for the third time in four months but at a slower pace compared to March; it was below a high of 66.8 in March 2021. A 22.1% (NSA) of respondents reported higher production in April while 15.3% reported lower. The employment index increased to 48.6 in April from 47.4 in March, indicating employment contracted for the seventh successive month but at a slightly less severe pace. The index remained down from a high of 57.7 in March 2021. An increased 16.3% (NSA) of respondents reported higher employment in April while 15.8% reported less hiring.

The new orders index dropped to 49.1 in April after increasing to 51.4 in March, indicating new orders contracted for the second time in three months to the lowest level since December. It was up from a low of 42.8 in January 2023 but below a high of 61.3 in February 2022. A 19.9% (NSA) of respondents reported higher new orders in April while 16.9% reported a decline. The inventories index was at 48.2 in April and March after 45.3 in February, showing inventories contracted for the 15th consecutive month. The index remained down from a high of 56.5 in July 2022. Meanwhile, the supplier deliveries index was at 48.9 in April, compared to 49.9 in March and 50.1 in February, indicating the delivery performance of suppliers to manufacturing organization was slightly faster for the second successive month. An 8.1% (NSA) of respondents reported slower delivery speeds in April while an increased 10.3% reported faster speeds.

Inflation has remained sticky. The prices paid index jumped to 60.9 (NSA) in April after rising to 55.8 in March, indicating raw materials prices rose for the fourth straight month to the highest reading since June 2022. The April index was well above a low of 39.4 in December 2022 but meaningfully below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. An increased 30.8% (NSA) of respondents reported higher prices in April while only 9.1% reported price declines.

In other ISM series not included in the composite index, the new export orders index dropped to 48.7 in April after registering at 51.6 in March and February, indicating new export orders contracted for the first time in three months. It was down from a high of 57.1 in February 2022. The imports index fell to 51.9 in April from 53.0 in March and February, remaining at an expansion level for the fourth consecutive month; it was down from a high of 61.0 in June 2021. The order backlog index decreased to 45.4 (NSA) in April from 46.3 in March and February, indicating falling backlog levels for the 19th straight month. It was up from a low of 37.5 in May 2023 but down from a high of 70.6 in May 2021.

The ISM figures are based on responses from over 400 purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver's **AS1REPNA** database.

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- 49.2 in April vs. 50.3 in March, lower than expected.
- Production expands for the third month in four.
- Employment contracts for the seventh straight month.
- New orders contract to a four-month low after March’s expansion.
- Amid ongoing inflationary pressures, prices index rises to 60.9, the highest since June ’22.

U.S. ISM Manufacturing PMI Contracts in April, w/ Prices Highest Since June ’22

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Job openings decreased 325,000 in March to 8.488 million after rising 65,000 in February, revised from 8,000 reported before, according to the Job Openings and Labor Turnover Survey conducted by the Bureau of Labor Statistics. The March amount is down -11.8% from 9.623 million a year ago, that is, March 2023, and down even more from 12.182 million in March 2022. The job openings rate, that is, the number of job openings as a percent of employment plus job openings on the last business day of the month, was 5.1% this March, down from 5.3% the prior month.

Private sector job openings fell 364,000 this March, following a 9,000 decline in February. The private sector rate was 5.3%, down from February’s 5.5%. The biggest change in private sector job openings was a 182,000 drop in construction; the rate in that industry fell from 5.3% in February to 3.2% in March. Another sizable decline was in finance and insurance, where opening fell 158,000 in March, and the rate dropped to 5.0% from 7.1% in February. Retail trade saw a 64,000 decrease in openings and a fall in the rate from 3.7% to 3.3%.  Industries with positive moves include the information sector, +43,000 openings in March and a rate change from 4.0% to 5.3%. The state and local education sector saw an increase in openings of 68,000 in March, with the associated rate moving to 2.9% from 2.3% the prior month.

Hiring showed widespread declines across industries with total hirings down 281,000 in March, making a rate of 3.5%, down from February’s 3.7%. The rates here are the amount of hiring during the entire month as a percent of total employment. Construction also saw a hiring decline, 59,000, with its rate moving down to 4.1% from 4.9% in February. Transportation, warehousing and utilities saw a 50,000 decrease in March’s hiring, and a decline in the rate to 3.4% from 4.1%. There were just a few increases, notably in private educational services, +10,000 in March and a move in the rate from 2.1% to 2.4%. Another notable increase took place in durable goods manufacturing, 6,000 in March, although this was not large enough to raise the rate in that industry, which stayed flat at 2.2%.

Layoffs actually fell in March by 155,000; the associated rate, that is, layoffs during the whole month as a percent of total employment, was 1.0%, down from 1.1% in February. These decreases in layoffs were spread across numerous industries; interestingly the most sizable decrease was in construction, 63,000, following an increase in that industry’s layoffs in February of 21,000. The March layoff rate in construction was 1.8% in March, down from 2.5% in February. The highest layoff rate among industries was 3.5% in arts, entertainment and recreation, and this was down from 5.0% in February.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

- Job openings rise in just a few industries in March.
- Hiring declined among many industries in March.
- Construction job openings fell in March, but so did construction industry layoffs.

U.S. Job Openings Fell in March, but So Did Layoffs

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 192,000 during April following a 208,000 March increase, revised from 184,000, and a 176,000 February gain, revised from 155,000. The 1.8% y/y gain compares with 1.9% increase last year but remained below 3.1% growth in 2022. A 193,000 rise in April ADP employment had been expected in the Action Economics Forecast Survey.

Small business hiring (less than 50 employees) increased 38,000 (1.4% y/y) last month after rising 7,000 in March. Employment at medium-sized firms (50-499,000 employees) rose 62,000 (2.4% y/y) after a 118,000 March increase. Large business hiring (500+ employees) rose 98,000 (1.6% y/y) during April following a 78,000 March rise.

Goods-producing employment rose 47,000 last month (1.6% y/y) after a 45,000 March rise. The number of construction sector jobs rose 35,000 (4.2% y/y) following a 34,000 March increase. Hiring in the manufacturing sector edged 9,000 higher (-0.4% y/y) last month after a 3,000 March gain. Natural resource & mining hiring rose 3,000 (5.0% y/y) after an 8,000 increase.

Service-producing jobs rose 145,000 (1.9% y/y) in April following a 163,000 March gain. Leisure & hospitality employment rose 56,000 (4.3% y/y) and education jobs gained 26,000 (2.7% y/y). The number of trade, transportation & utilities jobs increased 26,000 (0.9% y/y). Professional & business services employment rose 22,000 (0.6% y/y) but information employment fell 4,000 (-1.2% y/y).

Growth in median annual pay for "job stayers" eased to 5.0% y/y in April from 5.1% in March, remaining well below a September 2022 high of 7.8% y/y. Pay increases in manufacturing averaged 4.6% y/y while leisure & hospitality rose 5.8% y/y. Pay increases for “job changers” strengthened 9.3% y/y last month, up from a 7.3% y/y low in January, but remained below the 16.4% y/y peak in June 2022.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Job increase is nearly the strongest since July 2023.
- Service-sector and construction sector employment are strong.
- Pace of wage growth steadies y/y.

ADP Employment & Pay Growth Remain Firm in April

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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U.S. light vehicle sales dove 6.9% (-4.5% y/y) in October to 15.48 million units (SAAR) after holding steady at 16.62 million units in September. Sales fell broadly. 

Light truck sales slid 6.9% (-1.4% y/y) in October to 12.90 million units, after rising 0.9% in September. Purchases of domestically-made light trucks fell 7.9% (+1.4% y/y) to 10.10 million units, the lowest level since February, after rising 3.4% in September. Sales of imported light trucks fell 2.8% (-10.3% y/y) to 2.80 million units, following a 7.4% September decline.

Trucks’ 83.3% share of the light vehicle market last month was steady with September and compared to 82.6% in August, and to 80.7% in October of last year. The share has averaged 82.4% so far this year versus 56.5% ten years earlier.

Passenger car sales declined 6.9% (-17.6% y/y) last month to 2.58 million, after falling 4.8% in September. Purchases of domestically-produced cars fell 7.2% (-16.5% y/y) last month to 1.93 million units, after weakening 7.1% in September. Imported auto sales declined 4.5% (-22.0% y/y) to 0.64 million units after holding steady in September.

Imports' 22.2% share of the U.S. light vehicle market rose from 21.4% in September. These compared to a high of 26.3% in November of 2023. Imports' share of the passenger car market edged up to 24.8% last month from 24.2% in September. It reached a high of 38.1% in September 2021. Imports' share of the light truck market increased to 21.7% last month from 20.8% in September.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

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- Light truck sales and auto purchases decline m/m.
- Total sales decline sharply y/y.
- Imports' market share declines.

U.S. Light Vehicle Sales Fall Sharply in October

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Factory sector activity remains under pressure. The ISM U.S. manufacturing PMI declined to 48.7 in October after rising to 49.1 during September from 48.7 in August, according to the Institute for Supply Management. These figures are below the 50 expansion-contraction dividing line. As a result, they continue to indicate that the U.S. manufacturing sector weakened for the eighth consecutive month. The reading remained remain above, however, a low of 46.9 in October of last year. A November index of 49.4 had been expected in the Action Economics Forecast Survey.

The production component declined to 48.2 last month after rising to 51.0 in September. It remained increased from an April low of 44.0. A lessened 27.3% (NSA) of respondents reported higher production while an increased 22.0% reported lower output levels. The inventory reading fell to a 12-month low of 45.8 from 47.7 in September. A lessened 13.2% (NSA) of respondents raised inventories while a higher 21.7% shed them.

Working higher, the new orders index rose to 49.4 during October from 48.9 in September. An increased 20.4% (NSA) of respondents reported new orders improvement while 26.0% reported a decline. The employment index increased to a five-month high of 46.0 last month after rising to 45.3 in September. An increased 13.1% (NSA) of respondents more hiring while 22.3% reported less. The supplier delivery index rose to 54.2 in October from 52.6 in September. Twelve percent (NSA) of respondents reported slower product delivery speeds while 3.2% reported a quickening.

The prices index weakened to 58.0 (NSA) during October from 61.9 in September. It was below a high of 69.8 in April, and well above its low of 39.4 in December 2022. A lessened 27.3% of respondents reported higher prices, a nine month low, while an increased 8.7% reported lower.

In other series, the export orders index rose to a seasonally adjusted 44.5 in October after falling sharply to 43.0 in September. It remained up from 40.1 May low. The imports index edged up to 45.2 last month from 44.7 in September. The index is below a high of 52.6 in February.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Decline reverses all of September increase.					
- Lower production offsets new orders rise.
- Price index falls to nine-month low.

U.S. ISM Manufacturing PMI Eases in October; Price Index Declines Sharply

Tian Yong Woon

This week, we review a wave of key developments across Asia following US President Trump’s tour of the region last week. A central theme concerned countries courting closer ties with the US to avoid harsher actions, while also boosting regional cooperation amid trade barriers and scrutiny of China. This push for closer ties has manifested through new and updated trade agreements—ironically driven by ongoing uncertainty in global trade and supply chains, with US–China relations at the core. A major outcome of Trump’s trip was the new US–China trade agreement, which included the US halving tariffs on Chinese fentanyl-related products to 10%, while China suspended rare earth export controls and resumed soybean purchases vital to the US (chart 1). Perhaps more importantly, the deal signalled a small conciliatory shift and avoided a potentially worse outcome. Beyond the US–China agreement at the APEC Summit in South Korea, the US–South Korea trade deal also gained more clarity. Under the deal, US auto tariffs on South Korea has fallen to 15%, matching the rate applied to Japan and likely providing relief for South Korean automakers (chart 2).

Trump’s visit to Japan was another highlight. Relations with new Prime Minister Takaichi got off to a strong start, and further details emerged on Japan’s previously cited $550 billion investment commitment in the US—substantial even relative to Japan’s existing direct investment there (chart 3). However, specifics on the timing and implementation of the investment remain limited. Meanwhile, at the ASEAN Summit earlier in the week, aside from Trump’s engagements, the bloc officially welcomed its 11th member—Timor-Leste—the first new member in decades—granting it access to the bloc’s mechanisms and potentially supporting a catch-up in economic development (chart 5). Looking ahead, the focus on China and Japan is likely to continue, with China set to release its October trade (chart 6) and CPI data, and Japan scheduled to report employee wages and household spending.

**The APEC summit**
The US and China made a modest but meaningful step forward on trade following the Trump–Xi meeting at the APEC Summit in South Korea. The US lowered tariffs on Chinese fentanyl-related products to 10% from 20% and suspended enforcement of rules targeting subsidiaries of blacklisted firms—previous points of contention for Beijing. In return, China pledged stronger efforts to curb fentanyl flows, paused rare earth export controls for a year, and resumed purchases of US soybeans—significant given its historically large share of US export demand (chart 1). While not a comprehensive reset, these moves eased immediate tensions and helped avert more severe outcomes, including Trump’s previously threatened 100% tariff hike. The tone of the meeting also suggests a more conciliatory shift, though relations remain fragile and the risk of renewed escalation is still material.

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Beyond the headline-grabbing US–China trade deal, the APEC Summit in South Korea also saw the US reach a trade agreement with South Korea. Under the deal, US tariffs on South Korean autos and auto parts have fallen to 15% from 25%, matching the US tariff rate on Japanese autos and providing relief to South Korea’s sizable automotive export sector (chart 2). The agreement also clarified South Korea’s supposed $350 billion investment in the US: $200 billion in cash, capped at $20 billion per year to avoid currency market distortions, with the remaining $150 billion directed toward shipbuilding cooperation. While also not a major breakthrough, the deal represents incremental progress, addressing prior uncertainties and signalling steps toward a more favourable trade framework.

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**US President Trump’s Japan Visit**
Turning to US President Trump’s visit to Japan last week, new Prime Minister Takaichi appears to have gotten off to a strong start, with Trump hailing US–Japan relations as entering a “NEW GOLDEN AGE.” The two countries signed several agreements, including a Technology Prosperity Deal, and deepened cooperation on critical minerals and rare earths. Japan’s previously vague $550 billion investment commitment in the US is now somewhat clearer: up to $332 billion will support critical US infrastructure, $30 billion will target AI, and $15 billion will go toward electronics and supply chains, among other areas. While the headline figure is substantial—even relative to Japan’s already significant direct investment assets in the US (chart 3)—the open-ended nature of the commitment and the lack of a clear timeline leave its actual impact uncertain.

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**The ASEAN summits**
Whilst US President Trump’s attendance at the ASEAN–US Summit in Malaysia dominated headlines, there were also several other notable developments at last week’s ASEAN meetings in Kuala Lumpur. Most prominently, Timor-Leste was officially admitted as ASEAN’s eleventh member, following a two-decade accession process during which the country actively aligned its political and economic frameworks with ASEAN standards. Membership grants Timor-Leste access to the bloc’s broader security and economic mechanisms and could open further avenues for trade, investment, and development cooperation. Nonetheless, the country still has considerable ground to make up relative to its new ASEAN peers, particularly in terms of both GDP and GDP per capita (chart 4).

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The accession of Timor-Leste into ASEAN aside, last week’s summits also brought a number of economic developments for the bloc. More concretely, ASEAN and China signed an upgrade to their free trade agreement last week, bringing the deal to so-called version 3.0. The upgraded deal (ACFTA 3.0) introduces commitments in new areas such as Digital Economy, Green Economy, and Supply Chain Connectivity, among other themes. And notably, just as the US and ASEAN have found common ground to collaborate in fields such as those relating to rare earths, given how the US has seen vulnerabilities arising from this space given China’s dominance in the field, China has taken the year’s US-China frictions to foster closer ties with its neighbours in the region, including the collectively sizable ASEAN bloc. Just by the trade dimension alone, China-ASEAN-11 trade has growth significantly this year (chart 2), although the economies’ total trade with the US also rose, and at a more significant pace, despite tariff measures.

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Looking ahead, investors will focus on a series of China-related releases this week, notably the Caixin PMI readings, as well as October trade and CPI inflation data. These indicators will help gauge the economy’s performance under ongoing US tariffs and assess domestic demand and supply conditions, all in the broader context of recent US–China interactions during Trump’s Asia tour. In Japan, attention will turn to updated data on employee wages and household spending, which—together with developments in the external environment—will shape expectations for the Bank of Japan’s future policy stance. Elsewhere in the region, investors will watch interest rate decisions from Australia and Malaysia, where rates are expected to remain unchanged, as well as GDP readings from Indonesia and the Philippines.

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Asia

Economic Letter from Asia: Come Together

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) improved 0.3% during the four weeks ended October 31, 2025 after holding steady in the prior four week period. The index increased 0.8% y/y.

**Metals** group prices increased 4.3% (6.1% y/y) in the last four weeks as the cost of aluminum rose 7.0% (9.5% y/y). Copper scrap prices improved 6.5% (16.4% y/y) while zinc prices strengthened 6.8% in four weeks (3.0% y/y). Steel scrap prices rose 2.3% (-6.6% y/y) and tin prices increased 2.2% (16.1% y/y). Lead prices improved 1.1% (unchanged y/y) in four weeks.

Prices in the **Textile** group increased 1.2% during the last four weeks, and rose 2.4% y/y. The cost of burlap strengthened 14.5% in the last four weeks while surging 37.6% over the last year. Offsetting this rise, cotton prices fell 1.2% and declined 5.8% y/y.

**Miscellaneous** group prices weakened 3.0% in the last four weeks, unchanged y/y, as framing lumber prices fell 6.5% (+4.1% y/y). The cost of tallow, used for frying & baking, declined 13.1% (+11.2% y/y) in four weeks. Offsetting this weakness, natural rubber prices held steady (-10.1% y/y).

Prices in the **crude oil & benzene** group declined 1.7% (-9.3% y/y) in the last four weeks. The cost of West Texas Intermediate crude oil fell 3.1% in four weeks to $60.80 per barrel and declined 11.7% y/y. The price was increased from a low of $58.47 in the third week of the month. The price of the petro-chemical benzene fell 2.9% (-23.3% y/y) in four weeks.

**Excluding crude oil**, the industrial commodity price index rose 0.5% (1.6% y/y) over the last four weeks, the same as during the prior 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 and textile prices strengthen.
- Framing lumber costs backpedal.
- Crude oil prices weaken.

FIBER: Industrial Commodity Price Index Edges Higher in Latest Four Weeks

Andrew Cates

**US monetary policy**
This first chart shows that Chair Powell’s cautious tone in the aftermath of this week’s FOMC meeting led markets to scale back expectations for further near-term easing. Fed funds futures for late 2025 through mid-2026 rose slightly, signalling that investors now expect a shallower and slower easing cycle than before. While the rate cut itself confirmed the Fed’s gradual pivot toward easier policy, markets interpreted Powell’s remarks as suggesting that a December move is not guaranteed and that the central bank remains wary of declaring victory on inflation too soon.

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**The global business cycle**
The latest flash PMI surveys for October highlight a still-divergent global picture, with services-led resilience offsetting persistent manufacturing weakness. Activity remains strongest in India and the United States, both comfortably in expansion territory, while Germany has shown one of the clearest signs of improvement within the euro area after a long period of contraction. The broader euro area and UK readings point to modest but positive momentum, suggesting that growth is stabilising rather than accelerating. In contrast, France remains mired below the 50 threshold, signalling continued contraction, and Japan and Australia are treading water with only marginal gains.

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**Consumer confidence in the US and Europe** 
Consumer confidence trends have diverged across major economies in 2025. In the UK, sentiment has improved gradually, supported by easing inflation and lower interest rates. In the euro area, confidence has stabilised after a prolonged downturn, though households remain wary. By contrast, US confidence has slipped further, probably reflecting a softening labour market, slowing wage growth, and heightened concern about job security. Overall, global consumer sentiment remains fragile and uneven, suggesting that household spending could stay subdued even if price pressures recede and monetary policy becomes more accommodative.

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**Credit conditions in the euro area** 
The latest data on Euro Area M3 growth underline that monetary conditions remain mildly restrictive, even after the ECB’s recent rate reductions. Money growth has decelerated sharply over the past year, with only a limited contribution from private-sector credit and little net support from lending to government. The ECB’s Q4 Bank Lending Survey, released this week, suggests that while financing conditions are beginning to ease, credit dynamics remain weak. Banks reported a further net tightening of credit standards for firms, reflecting continued risk aversion, even as loan demand from businesses and households picked up modestly thanks to lower interest rates and improving sentiment.

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**The UK manufacturing sector**
Turning to the UK, the latest CBI Industrial Trends Survey offers little sign of improvement in manufacturing conditions. The balance of firms reporting excess stocks of finished goods has fallen further into negative territory, consistent with efforts to run down inventories amid weak demand and high uncertainty. And on that score, the share of firms citing uncertainty about demand over the next year as a constraint on capital expenditure has shifted up, highlighting persistent caution in investment planning. Together, these indicators point to a sector still struggling to regain momentum after a protracted slowdown—one where firms are prioritising cost control and liquidity preservation over expansion, despite an easing in headline inflation and gradual monetary policy support.

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**Traded goods price inflation**
The Drewry Container Index, which tracks global shipping costs for a standard 40-foot container, has fallen back in recent months from the elevated levels seen in 2024, reflecting softer global trade volumes and a partial unwinding of last year’s supply-chain pressures. Even so, concerns have re-emerged that new US tariff measures and associated logistical bottlenecks could push freight rates and producer price inflation (PPI) higher in the coming months. The final chart below illustrates how closely traded goods price inflation, represented by Haver’s aggregation of PPI inflation for advanced economies, has tended to move with swings in container shipping costs. While traded goods inflation remains subdued for now, any renewed disruptions to global shipping routes or tariff-driven frictions could quickly feed through to higher input costs—especially in manufacturing sectors reliant on long and complex supply chains.

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Global equity markets are once again flirting with record highs, buoyed by renewed optimism that the global economy can achieve a soft landing—and by persistent enthusiasm over the potential productivity gains from AI-related investment. The Federal Reserve’s decision to cut rates by 25bps this week—its second this autumn—initially reinforced expectations that global monetary policy is shifting toward a more accommodative stance. However, Chair Powell’s reminder that a further cut in December was “not inevitable” tempered that optimism and was met with some disappointment in financial markets (chart 1). Even so, the broader tone remains constructive, though it contrasts with a still-fragile macro environment. Renewed conflict in Gaza, the ongoing US government shutdown, and intensifying trade tensions have kept risk sentiment uneven and underscored the fragility of the recovery. The latest flash PMIs (chart 2) show modest global expansion led by services, while manufacturing continues to struggle. Consumer confidence (chart 3) tells a similar story: sentiment has weakened in the US as the labour market softens, stabilised in the euro area, and improved slightly in the UK. In the euro area, sluggish money and credit growth (chart 4) and the ECB’s latest bank-lending survey confirm that financial conditions remain mildly restrictive despite recent rate cuts. The UK CBI Industrial Trends Survey (chart 5) points to manufacturers reducing inventories and deferring investment plans amid demand uncertainty. Externally, the Drewry Container Index (chart 6) has fallen back from 2024’s elevated levels, signalling easing supply-chain pressures and subdued traded-goods inflation—though tariff realignments remain a potential source of friction.

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