Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001a.jpg" width="353">
The Composite Index of activity in the manufacturing sector, reported by the Institute of Supply Management (ISM), fell slightly last month to 52.0 from 52.9 during August. A reading above 50 indicates growth in factory sector activity. Consensus expectations had been for a reading of 52.5.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001b.jpg" width="353">
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.
Declines in three of the index&#39;s five components accounted for the lower composite index. New orders fell for the third consecutive month. The 1.9 point drop left the index at its lowest since level since March. The production component fell for the second month in the last three. The drop in the inventories component was the last component moving down. The 3.8 point decline was to the lowest level since January.
Moving up was the employment index. The modest 0.4 point uptick, however, only recouped a piece of earlier declines. During the last twenty years there has been a 67% correlation between the level <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001c.jpg" width="353"> of the ISM employment Index and the three month growth in factory sector employment. Finally, the 1.9 point rise in the supplier delivery index reversed about all of the sharp decline during August.
The index of new export orders moved lower. The sharp 2.5 point decline during August left the index at its lowest level since March. The import index, on the other hand, rose slightly but only reversed a bit of the huge declines earlier this year.
The prices index moved lower again, to its lowest level since January. Just 30% of the respondents reported an ability to raise prices. 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.
Systemic Risk and the International Lender of Last Resort is a speech by Federal Reserve Board Governor Frederic S. Mishkin and it is available <a href="http://www.federalreserve.gov/newsevents/speech/mishkin20070928a.htm"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col">&nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">September &#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">Composite Index</td>
<td>52.0</td>
<td>52.9</td>
<td>52.7</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>53.4</td>
<td>55.3</td>
<td>54.2</td>
<td>55.4</td>
<td>57.4</td>
<td>63.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>59.0</td>
<td>63.0</td>
<td>61.0</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The Composite Index of activity in the manufacturing sector, reported by the Institute of Supply Management (ISM), fell slightly last month to 52.0 from 52.9 during August. A reading above 50 indicates growth in factory sector [...]

ISM Index Slightly Weaker

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001a.jpg" width="353">
The Composite Index of activity in the manufacturing sector, reported by the Institute of Supply Management (ISM), fell slightly last month to 52.0 from 52.9 during August. A reading above 50 indicates growth in factory sector activity. Consensus expectations had been for a reading of 52.5.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001b.jpg" width="353">
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.
Declines in three of the index&#39;s five components accounted for the lower composite index. New orders fell for the third consecutive month. The 1.9 point drop left the index at its lowest since level since March. The production component fell for the second month in the last three. The drop in the inventories component was the last component moving down. The 3.8 point decline was to the lowest level since January.
Moving up was the employment index. The modest 0.4 point uptick, however, only recouped a piece of earlier declines. During the last twenty years there has been a 67% correlation between the level <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001c.jpg" width="353"> of the ISM employment Index and the three month growth in factory sector employment. Finally, the 1.9 point rise in the supplier delivery index reversed about all of the sharp decline during August.
The index of new export orders moved lower. The sharp 2.5 point decline during August left the index at its lowest level since March. The import index, on the other hand, rose slightly but only reversed a bit of the huge declines earlier this year.
The prices index moved lower again, to its lowest level since January. Just 30% of the respondents reported an ability to raise prices. 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.
Systemic Risk and the International Lender of Last Resort is a speech by Federal Reserve Board Governor Frederic S. Mishkin and it is available <a href="http://www.federalreserve.gov/newsevents/speech/mishkin20070928a.htm"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col">&nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">September &#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">Composite Index</td>
<td>52.0</td>
<td>52.9</td>
<td>52.7</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>53.4</td>
<td>55.3</td>
<td>54.2</td>
<td>55.4</td>
<td>57.4</td>
<td>63.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>59.0</td>
<td>63.0</td>
<td>61.0</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>
UK MFG Drops Off but Remains in a Growth Profile 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 1, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001j.jpg" width="353">
The UK manufacturing sector was weaker than expected in September but output price pressures rose to a record high, according to the latest Chartered Institute of Purchasing and Supply/NTC survey. The headline UK September manufacturing index posted a level of 55.1, down from the now weaker 56.1 level registered in August. The reading still marks small gains on the three-month, six-month and year-over-year horizons for comparison (see table). Output prices rose to 57.8 in September from 56.0 in August, hitting their highest level since records began in 1999. The Bank of England has identified inflation as an upside inflation risk in the economy. This latest CIPS/NTC survey suggests that manufacturers are managing to push through price hikes. Nonetheless input prices eased to 62.3 from 63.8 in August, their lowest level since February. The pressure off input prices suggests that output price pressure should abate in the months ahead, possibly assuaging any concerns the BOE might have about the output price pressures. The decline in the headline activity index reflected a fall in the new orders index to 55.5 in September from 56.8 in August. Orders are now at their lowest level since January. Current output also fell to 58.2 from 60.5 in August. Moreover export orders plunged to 52.9 in September from 56.1 in the previous month. Other EU countries have been showing erratic readings for export strength. This slowing is part of a broader European pattern. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<th colspan="9" scope="col">MFG PMI CIPS/NTC</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Monthly readings</td>
<td colspan="3">Change over:</td>
<td>percentile</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3MO</td>
<td>6MO</td>
<td>12MO</td>
<td>of range</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>55.08</td>
<td>56.15</td>
<td>55.71</td>
<td>0.38</td>
<td>0.68</td>
<td>0.55</td>
<td>69.4</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Range since January 1992</td>
</tr>
</tbody>
</table>
Broad Slowdown in Euro-area MFG 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 1, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001k.jpg" width="353">
The finalized Euro area MFG PMIs from NTC show a picture of a weakening MFG sector. All countries for which up-to-date MFG readings are available show MFG is still expanding in September on a country by country basis in EMU (i.e. readings on the NTC index are still above 50). Yet the red monthly figures show period-to-period declines are now common and have been so for the region as a whole. All the large EMU economies (Germany, France, Italy and Spain) show month-to-month declines in MFG PMI for three straight months with the exception of Italy&#146;s m/m rise in August. If we view these reading as a time series and ask which of the MFG sectors is at reading that is low compared to its own history only France is below the mid-range mark. Its 50.51 reading in September is below the midpoint of the range for France since March of 2000. For EMU as a whole the MFG index is in about the 60th percentile of its range for this period. 
On balance, the EMU region is showing a loss in momentum. The EC Commission is complaining about the ill effects of a euro that is too strong. Manufacturing is fading in the Euro area although the current readings are still relatively firm and show ongoing expansion. But these readings are no longer strong and the momentum clearly points lower.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<th colspan=7 scope="col">NTC MFG Indexes</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr>
<td class="firstcol">Euro-13</td>
<td style="color:red;">53.21</td>
<td style="color:red;">54.34</td>
<td>54.15</td>
<td>54.73</td>
<td>55.42</td>
<td>61.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td style="color:red;">54.87</td>
<td style="color:red;">55.96</td>
<td>55.86</td>
<td>56.33</td>
<td>57.22</td>
<td>73.5%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td style="color:red;">50.51</td>
<td style="color:red;">52.55</td>
<td>52.13</td>
<td>53.06</td>
<td>53.75</td>
<td style="color:red;">37.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td style="color:red;">52.39</td>
<td>53.63</td>
<td>53.12</td>
<td>53.71</td>
<td>54.15</td>
<td>61.1%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td style="color:red;">50.80</td>
<td style="color:red;">52.16</td>
<td>52.06</td>
<td>53.42</td>
<td>54.89</td>
<td>53.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Austria</td>
<td>55.37</td>
<td>54.48</td>
<td>54.55</td>
<td>54.02</td>
<td>55.68</td>
<td>77.6%</td>
</tr>
<tr>
<td class="firstcol">Greece</td>
<td>53.83</td>
<td style="color:red;">53.56</td>
<td>53.78</td>
<td>53.68</td>
<td>52.97</td>
<td>63.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ireland</td>
<td>54.35</td>
<td>54.32</td>
<td>53.92</td>
<td>53.50</td>
<td>53.02</td>
<td>86.3%</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td>56.36</td>
<td style="color:red;">56.19</td>
<td>56.91</td>
<td>57.01</td>
<td>56.77</td>
<td>79.8%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">EU</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td style="color:red;">55.08</td>
<td>56.15</td>
<td>55.65</td>
<td>55.08</td>
<td>54.32</td>
<td>89.0%</td>
</tr>
</tbody>
</table>
A Mixed Picture From the Bank of Japan's TANKAN  
by <a href="/comment/Curley.html">Louise Curley</a> October 1, 2007


<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001d.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001e.jpg">
Results of the third quarter Tankan, the Bank of Japan&#39;s short term survey of business conditions of some 10,000 firms, released today, reveal, on balance, a subdued appraisal of business conditions and the immediate outlook. On the plus side, the excess of optimists over pessimists among large manufacturing corporations (the headline series) was 23%,<img class="small" align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001f.jpg"> the same result as in the June and March Surveys. This was slightly better than these firms had forecast in June and was better than recent consensus estimates. However, there are now fewer large manufacturers who are positive on the outlook for the next quarter. The excess of optimists over pessimists is 19% for the fourth quarter. The actual results of the survey and the forecasts made one quarter earlier are shown in the first chart.
Among the more cautious indications, are a decline in the excess of optimists in the non manufacturing sector from 22% in the last three surveys to 20% in the current survey. This was 2 percentage points below the June forecast. The actual results and forecasts for the non manufacturing sector are shown in the second chart. (To the extent that the correlation is a good measure of goodness of fit, the forecasts in the non manufacturing sector appear to be more reliable than those in the manufacturing sector.)
Unfavorable trends were also apparent <img align="right" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001g.jpg">among the mid sized and small manufacturing firms. So far this year, excesses of optimists over pessimists in these firms have declined steadily. In September, the excess of mid-sized firms was 10%, down from 17% in the fourth quarter of 2006; the comparable figures for small firms were 1% from 10%. These data are shown in the third chart.
The September Tankan revealed some lessening of tightness in the labor market. However, a preponderance of firms are still reporting an excess of insufficient labor supply as can be seen in the fourth chart. In spite of tight labor conditions, nominal wages have been declining on a year over year basis. It was only in August that for the first time this year, nominal wages for all surveyed establishments of five or more employees were higher than those of a year ago, albeit, a mere 0.1%, as can be seen in the fifth chart. 

<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001h.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071001i.jpg">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN TANKAN RESULTS&nbsp;</th>
<th scope="col">Q4 07</th>
<th scope="col">Q3 07&nbsp;</th>
<th scope="col">Q2 07&nbsp;</th>
<th scope="col">Q1 07&nbsp;&nbsp;</th>
<th scope="col">Q4 06</th>
<th scope="col">Q3 06</th>
<th scope="col">Q2 06</th>
<th scope="col">Q1 06</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Large Corporations Manufacturing Headline Series&nbsp; &nbsp; Actual&nbsp;</td>
<td>--</td>
<td>23</td>
<td>23</td>
<td>23</td>
<td>25</td>
<td>24</td>
<td>21</td>
<td>20</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Forecast</td>
<td>19</td>
<td>22</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>22</td>
<td>19</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Corporations Non Manufacturing &nbsp; Actual</td>
<td>--</td>
<td>20</td>
<td>22</td>
<td>22</td>
<td>22</td>
<td>20</td>
<td>20</td>
<td>18</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp;Forecast </td>
<td>19</td>
<td>22</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>22</td>
<td>22</td>
<td>19</td>
</tr>
<tr class="odd">
<td class="firstcol">Medium Sized Manufactures</td>
<td>--</td>
<td>10</td>
<td>13</td>
<td>16</td>
<td>17</td>
<td>14</td>
<td>13</td>
<td>12</td>
</tr>
<tr>
<td class="firstcol">Small Sized Manufactures</td>
<td>--</td>
<td>1</td>
<td>6</td>
<td>8</td>
<td>10</td>
<td>6</td>
<td>7</td>
<td>7</td>
</tr>
</tbody>
</table>
</body>
</html>

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

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

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

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

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

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250509B1.jpg

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

FIBER: Industrial Commodity Price Movement Diverges in Latest Four Weeks

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

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

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

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

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

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

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

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

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

U.S. Wholesale Inventories & Sales Increase in March

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

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

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

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

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

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

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

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

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

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

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

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

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

U.S. Housing Affordability Improves Slightly in March

Carol Stone, CBE

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

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

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

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

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

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

U.S. Initial Unemployment Insurance Claims Ease 13,000 in the May 3 Week

Economy in Brief: October 2007

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ISM Index Slightly Weaker

ISM Index Slightly Weaker