Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131g.jpg" width="353">
Economic sentiment in the European Union, and particularly the Euro Zone is improving. The Business Climate Indicator (long-term average = 100) for the individual countries of the European Union, together with the aggregates for the EU (25) and for the Euro Zone (12) were released today by the Directorate General for Economic and Financial Affairs of the European Commission. In addition, the results of surveys of the manufacturing, retail, service and construction industries and of consumer confidence were released.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131h.jpg" width="353">
The Business Climate Indicator for the EU(25) as a whole has generally been better than in the smaller subset, the Euro Zone, as shown in the first chart. The better sentiment in the EU as a whole may be due, in part to the inclusion of the emerging central and eastern countries where recent growth prospects have been stronger than those in the west. But there are faint signs that sentiment in the Euro Zone may be improving faster. The sentiment indicator for the EU was 102.6 in January, an increase of 1.28 % from December, but 0.48% below January of 2005. The indicator for the Euro Zone was 101.8 up, 1.19% from December but, significantly, 1.29% above January 2005. The Index for the Euro Zone is now at its highest level since June 2001.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131i.jpg" width="353">
Among the countries showing an improved business climate were Germany, Italy and Poland. We&#39;ve charted the business climate indicators for a Euro Zone and a Non Euro Zone country--Germany and Poland--in the second chart. Germany&#39;s muted rise contrasts with the dynamic rise that has taken place in Poland over the past three years. Another Euro Zone and Non Euro Zone comparison is shown in chart 3 where the business climate indicators for Spain and the United Kingdom are compared.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131j.jpg" width="353"> After rising sharply in late 2003 the indicator for the UK plunged in early 2005 and has yet to show significant improvement. The course of the business climate indicator for Spain has been less dramatic, but shows a definite waning of business sentiment.
Similar to the comparison between the business climate indicator for the EU and the Euro Zone, the comparison of the consumer confidence indicators shown in the fourth chart suggests some slight improvement in consumer confidence in the Euro Zone relative to the EU as a whole.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Economic Sentiment Indicator &nbsp; (Long term average = 100)</th>
<th scope="col">Jan 06&nbsp;&nbsp;</th>
<th scope="col">Dec 05&nbsp; </th>
<th scope="col">Jan 05&nbsp;</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y&nbsp; %</th>
<th scope="col">2005&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">2004 &nbsp;&nbsp;</th>
<th scope="col">2003&nbsp; &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">European Union (25)</td>
<td>102.6</td>
<td>101.2</td>
<td>103.1</td>
<td>1.28</td>
<td>-0.48</td>
<td>99.8</td>
<td>102.4</td>
<td>94.1</td>
</tr>
<tr>
<td class="firstcol">Euro Zone (12)</td>
<td>101.8</td>
<td>100.6</td>
<td>100.5</td>
<td>1.19</td>
<td>1.29</td>
<td>98.2</td>
<td>99.5</td>
<td>93.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>100.9</td>
<td>98.1</td>
<td>98.0</td>
<td>2.85</td>
<td>2.96</td>
<td>95.2</td>
<td>95.8</td>
<td>90.2</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>150.1</td>
<td>145.8</td>
<td>131.9</td>
<td>2.95</td>
<td>13.80</td>
<td>133.1</td>
<td>113.6</td>
<td>102.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>95.4</td>
<td>101.1</td>
<td>98.4</td>
<td>-5.64</td>
<td>-3.05</td>
<td>98.5</td>
<td>99.0</td>
<td>100.1</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>95.0</td>
<td>95.5</td>
<td>108.0</td>
<td>-0.52</td>
<td>-12.04</td>
<td>101.0</td>
<td>110.2</td>
<td>93.8</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Percent Balance</td>
<td>Jan 06&nbsp;&nbsp;</td>
<td>Dec 05&nbsp; </td>
<td>Jan 05&nbsp;</td>
<td>M/M dif</td>
<td>Y/Y&nbsp; dif</td>
<td>2005&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>2004 &nbsp;&nbsp;</td>
<td>2003&nbsp; &nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence (25)</td>
<td>-9</td>
<td>-9&nbsp;</td>
<td>-10&nbsp;</td>
<td>0&nbsp;</td>
<td>1&nbsp;</td>
<td>-11&nbsp;</td>
<td>-12&nbsp;</td>
<td>-16&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence (12)</td>
<td>&nbsp;-11</td>
<td>-11&nbsp;</td>
<td>&nbsp;-13</td>
<td>0&nbsp;</td>
<td>2&nbsp;</td>
<td>&nbsp;-14</td>
<td>-14</td>
<td>-18&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Economic sentiment in the European Union, and particularly the Euro Zone is improving. The Business Climate Indicator (long-term average = 100) for the individual countries of the European Union, together with the aggregates for the [...]

Economic Sentiment and Consumer Confidence in Europe Improve

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131f.jpg" width="353">
At today&#39;s meeting of the Federal Open Market Committee, the target interest rate for Federal funds was raised 25 basis points to 4.50%, the fourteenth increase since June of 2004. The unanimous decision was widely expected by analysts. The discount rate also was raised 25 basis points to 5.50%.
The economy&#39;s slowdown in 4Q05 was noted in the Fed&#39;s statement. &quot;Although recent economic data have been uneven, the expansion in economic activity appears solid.&quot;
This latest action, therefore, had a preemptive sense to it. The FOMC&#39;s press release stated &quot;Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.&quot;
The latest statement&#39;s verbiage regarding the likelihood of future rate action was toned down slightly from &quot;is likely to be needed&quot; in the prior statement to &quot;may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.&quot;
Today&#39;s meeting was Chairman Alan Greenspan&#39;s last since taking over the Chairmanship in 1987.
For the complete text of the Fed&#39;s latest press release please click<a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060131/default.htm">here</a>.
The Fed&#39;s Monetary Policy Rule from William Poole, President of the Federal Reserve Bank of St. Louis, can be found <a href="http://research.stlouisfed.org/publications/review/06/01/Poole.pdf"> here</a>.

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At today's meeting of the Federal Open Market Committee, the target interest rate for Federal funds was raised 25 basis points to 4.50%, the fourteenth increase since June of 2004. The unanimous decision was widely expected by [...]

Fed Funds Rate Increased to 4.50%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131e.jpg" width="353">
The Index of Consumer Confidence, as measured by the Conference Board, rose 2.4% to 106.3 during January. This third consecutive monthly increase exceeded Consensus expectations for a lesser gain to 105.0. The increase was in line with the 2.1% m/m (-2.2% y/y) rise in Consumer Sentiment reported last week by the University of Michigan.
During the last twenty years there has been a 52% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131d.jpg" width="353">
Consumers&#39; assessment of the present situation added 6.4% (14.5% y/y) to a revised 6.6% December increase. Jobs were viewed as plentiful by 26.9% of respondents, a sharp increase from December and the highest since September, 2001. Fewer (20.3%) thought jobs were hard to get, also the lowest since 2001.
The index of consumers&#39; expectations dipped slightly month to month (-8.9% y/y). Fewer expected better business conditions in six months and fewer expected that there would be more jobs.
Inflation in twelve months was expected at a 5.1% rate, down slightly from the 5.2% expected in December and down sharply from the 6.8% expected last September.
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1401/@EF1401.HTM">Conference Board</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>106.3</td>
<td>103.8</td>
<td>1.1%</td>
<td>100.3</td>
<td>96.1</td>
<td>79.8</td>
</tr>
</tbody>
</table>
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The Index of Consumer Confidence, as measured by the Conference Board, rose 2.4% to 106.3 during January. This third consecutive monthly increase exceeded Consensus expectations for a lesser gain to 105.0. The increase was in line [...]

Consumer Confidence Up: Jobs Plentiful, Inflation Stable

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131a.jpg" width="353">
Chain store sales fell a hard 1.1% last week after the modest 0.3% rise during the prior period, according to the International Council of Shopping Centers (ICSC)-UBS survey.
The drop lowered the gain in sales during January to 1.0% versus December.
Last week, gasoline prices at the pump rose two cents to $2.36 per gallon of regular unleaded. The January average rose to $2.32 but yesterday, in spot market trading, gasoline rose to $1.74 and that has been the spot market average during January, up 27 cents from November.
The leading indicator of chain store sales rose 0.5% and pulled the January average 1.3% ahead of December which rose 0.8%.
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.

<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">01/28/06</th>
<th scope="col">01/21/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>454.0</td>
<td>459.0</td>
<td>4.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales fell a hard 1.1% last week after the modest 0.3% rise during the prior period, according to the International Council of Shopping Centers (ICSC)-UBS survey. The drop lowered the gain in sales during January to 1.0% [...]

Chain Store Sales Lower, Gasoline Prices Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131b.jpg" width="353">
For private industry workers, the employment cost index rose a steady 0.8% last quarter. The increases during the last two quarters were up from 0.6% gains during 1Q &amp; 2Q but they were off the 1.0% average of the prior two years. Consensus expectations had been for a 0.9% 4Q increase.
The 2.8% increase in the ECI during 2005 was the lowest in ten years.
The increase in benefit costs eased last quarter to 0.9% from the quick 1.3% during 3Q. For the full year, the rise in benefit costs moderated substantially to 4.1% from the peak 7.1% increase during 2004. Benefit costs in manufacturing rose 1.3% (4.9% y/y). The yearly increase compared to a 10.1% rise during 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131c.jpg" width="353">
The cost of health benefits rose 6.4% y/y and for the year was the slowest rate on increase since 1999.
Wage and salary growth continued at 0.6% for the fourth straight quarter. The annual gain of 2.5% about equaled 2004 but was down sharply from the 4.0% increase during 1997. Wages account for roughly 70% of the compensation index.
Gauging the Size of Today&#39;s Price Shocks from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20060101/cover.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/USECON/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col">4Q &#39;05</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.8%</td>
<td>0.8%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>3.9%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.6%</td>
<td>0.6%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.4%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.9%</td>
<td>1.3%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>7.1%</td>
<td>6.6%</td>
</tr>
</tbody>
</table>
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For private industry workers, the employment cost index rose a steady 0.8% last quarter. The increases during the last two quarters were up from 0.6% gains during 1Q & 2Q but they were off the 1.0% average of the prior two years. [...]

Employment Cost Index Steady Last Quarter, Down During '05

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131f.jpg" width="353">
At today&#39;s meeting of the Federal Open Market Committee, the target interest rate for Federal funds was raised 25 basis points to 4.50%, the fourteenth increase since June of 2004. The unanimous decision was widely expected by analysts. The discount rate also was raised 25 basis points to 5.50%.
The economy&#39;s slowdown in 4Q05 was noted in the Fed&#39;s statement. &quot;Although recent economic data have been uneven, the expansion in economic activity appears solid.&quot;
This latest action, therefore, had a preemptive sense to it. The FOMC&#39;s press release stated &quot;Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.&quot;
The latest statement&#39;s verbiage regarding the likelihood of future rate action was toned down slightly from &quot;is likely to be needed&quot; in the prior statement to &quot;may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.&quot;
Today&#39;s meeting was Chairman Alan Greenspan&#39;s last since taking over the Chairmanship in 1988.
For the complete text of the Fed&#39;s latest press release please click<a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060131/default.htm">here</a>.
The Fed&#39;s Monetary Policy Rule from William Poole, President of the Federal Reserve Bank of St. Louis, can be found <a href="http://research.stlouisfed.org/publications/review/06/01/Poole.pdf"> here</a>.

Employment Cost Index Steady Last Quarter, Down During '05 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131b.jpg" width="353">
For private industry workers, the employment cost index rose a steady 0.8% last quarter. The increases during the last two quarters were up from 0.6% gains during 1Q &amp; 2Q but they were off the 1.0% average of the prior two years. Consensus expectations had been for a 0.9% 4Q increase.
The 2.8% increase in the ECI during 2005 was the lowest in ten years.
The increase in benefit costs eased last quarter to 0.9% from the quick 1.3% during 3Q. For the full year, the rise in benefit costs moderated substantially to 4.1% from the peak 7.1% increase during 2004. Benefit costs in manufacturing rose 1.3% (4.9% y/y). The yearly increase compared to a 10.1% rise during 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131c.jpg" width="353">
The cost of health benefits rose 6.4% y/y and for the year was the slowest rate on increase since 1999.
Wage and salary growth continued at 0.6% for the fourth straight quarter. The annual gain of 2.5% about equaled 2004 but was down sharply from the 4.0% increase during 1997. Wages account for roughly 70% of the compensation index.
Gauging the Size of Today&#39;s Price Shocks from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20060101/cover.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/USECON/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col">4Q &#39;05</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.8%</td>
<td>0.8%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>3.9%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.6%</td>
<td>0.6%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.4%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.9%</td>
<td>1.3%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>7.1%</td>
<td>6.6%</td>
</tr>
</tbody>
</table>
Consumer Confidence Up: Jobs Plentiful, Inflation Stable 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131e.jpg" width="353">
The Index of Consumer Confidence, as measured by the Conference Board, rose 2.4% to 106.3 during January. This third consecutive monthly increase exceeded Consensus expectations for a lesser gain to 105.0. The increase was in line with the 2.1% m/m (-2.2% y/y) rise in Consumer Sentiment reported last week by the University of Michigan.
During the last twenty years there has been a 52% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131d.jpg" width="353">
Consumers&#39; assessment of the present situation added 6.4% (14.5% y/y) to a revised 6.6% December increase. Jobs were viewed as plentiful by 26.9% of respondents, a sharp increase from December and the highest since September, 2001. Fewer (20.3%) thought jobs were hard to get, also the lowest since 2001.
The index of consumers&#39; expectations dipped slightly month to month (-8.9% y/y). Fewer expected better business conditions in six months and fewer expected that there would be more jobs.
Inflation in twelve months was expected at a 5.1% rate, down slightly from the 5.2% expected in December and down sharply from the 6.8% expected last September.
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1401/@EF1401.HTM">Conference Board</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>106.3</td>
<td>103.8</td>
<td>1.1%</td>
<td>100.3</td>
<td>96.1</td>
<td>79.8</td>
</tr>
</tbody>
</table>
Chain Store Sales Lower, Gasoline Prices Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131a.jpg" width="353">
Chain store sales fell a hard 1.1% last week after the modest 0.3% rise during the prior period, according to the International Council of Shopping Centers (ICSC)-UBS survey.
The drop lowered the gain in sales during January to 1.0% versus December.
Last week, gasoline prices at the pump rose two cents to $2.36 per gallon of regular unleaded. The January average rose to $2.32 but yesterday, in spot market trading, gasoline rose to $1.74 and that has been the spot market average during January, up 27 cents from November.
The leading indicator of chain store sales rose 0.5% and pulled the January average 1.3% ahead of December which rose 0.8%.
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.

<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">01/28/06</th>
<th scope="col">01/21/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>454.0</td>
<td>459.0</td>
<td>4.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Economic Sentiment and Consumer Confidence in Europe Improve 
by <a href="/comment/Curley.html">Louise Curley</a> January 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131g.jpg" width="353">
Economic sentiment in the European Union, and particularly the Euro Zone is improving. The Business Climate Indicator (long-term average = 100) for the individual countries of the European Union, together with the aggregates for the EU (25) and for the Euro Zone (12) were released today by the Directorate General for Economic and Financial Affairs of the European Commission. In addition, the results of surveys of the manufacturing, retail, service and construction industries and of consumer confidence were released.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131h.jpg" width="353">
The Business Climate Indicator for the EU(25) as a whole has generally been better than in the smaller subset, the Euro Zone, as shown in the first chart. The better sentiment in the EU as a whole may be due, in part to the inclusion of the emerging central and eastern countries where recent growth prospects have been stronger than those in the west. But there are faint signs that sentiment in the Euro Zone may be improving faster. The sentiment indicator for the EU was 102.6 in January, an increase of 1.28 % from December, but 0.48% below January of 2005. The indicator for the Euro Zone was 101.8 up, 1.19% from December but, significantly, 1.29% above January 2005. The Index for the Euro Zone is now at its highest level since June 2001.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131i.jpg" width="353">
Among the countries showing an improved business climate were Germany, Italy and Poland. We&#39;ve charted the business climate indicators for a Euro Zone and a Non Euro Zone country--Germany and Poland--in the second chart. Germany&#39;s muted rise contrasts with the dynamic rise that has taken place in Poland over the past three years. Another Euro Zone and Non Euro Zone comparison is shown in chart 3 where the business climate indicators for Spain and the United Kingdom are compared.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060131j.jpg" width="353"> After rising sharply in late 2003 the indicator for the UK plunged in early 2005 and has yet to show significant improvement. The course of the business climate indicator for Spain has been less dramatic, but shows a definite waning of business sentiment.
Similar to the comparison between the business climate indicator for the EU and the Euro Zone, the comparison of the consumer confidence indicators shown in the fourth chart suggests some slight improvement in consumer confidence in the Euro Zone relative to the EU as a whole.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Economic Sentiment Indicator &nbsp; (Long term average = 100)</th>
<th scope="col">Jan 06&nbsp;&nbsp;</th>
<th scope="col">Dec 05&nbsp; </th>
<th scope="col">Jan 05&nbsp;</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y&nbsp; %</th>
<th scope="col">2005&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">2004 &nbsp;&nbsp;</th>
<th scope="col">2003&nbsp; &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">European Union (25)</td>
<td>102.6</td>
<td>101.2</td>
<td>103.1</td>
<td>1.28</td>
<td>-0.48</td>
<td>99.8</td>
<td>102.4</td>
<td>94.1</td>
</tr>
<tr>
<td class="firstcol">Euro Zone (12)</td>
<td>101.8</td>
<td>100.6</td>
<td>100.5</td>
<td>1.19</td>
<td>1.29</td>
<td>98.2</td>
<td>99.5</td>
<td>93.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>100.9</td>
<td>98.1</td>
<td>98.0</td>
<td>2.85</td>
<td>2.96</td>
<td>95.2</td>
<td>95.8</td>
<td>90.2</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>150.1</td>
<td>145.8</td>
<td>131.9</td>
<td>2.95</td>
<td>13.80</td>
<td>133.1</td>
<td>113.6</td>
<td>102.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>95.4</td>
<td>101.1</td>
<td>98.4</td>
<td>-5.64</td>
<td>-3.05</td>
<td>98.5</td>
<td>99.0</td>
<td>100.1</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>95.0</td>
<td>95.5</td>
<td>108.0</td>
<td>-0.52</td>
<td>-12.04</td>
<td>101.0</td>
<td>110.2</td>
<td>93.8</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Percent Balance</td>
<td>Jan 06&nbsp;&nbsp;</td>
<td>Dec 05&nbsp; </td>
<td>Jan 05&nbsp;</td>
<td>M/M dif</td>
<td>Y/Y&nbsp; dif</td>
<td>2005&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>2004 &nbsp;&nbsp;</td>
<td>2003&nbsp; &nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence (25)</td>
<td>-9</td>
<td>-9&nbsp;</td>
<td>-10&nbsp;</td>
<td>0&nbsp;</td>
<td>1&nbsp;</td>
<td>-11&nbsp;</td>
<td>-12&nbsp;</td>
<td>-16&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence (12)</td>
<td>&nbsp;-11</td>
<td>-11&nbsp;</td>
<td>&nbsp;-13</td>
<td>0&nbsp;</td>
<td>2&nbsp;</td>
<td>&nbsp;-14</td>
<td>-14</td>
<td>-18&nbsp;</td>
</tr>
</tbody>
</table>


</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060130d.jpg" width="353">
Industrial production in Japan rose for the fifth successive month in December giving further credence to Carol Stone&#39;s comment of last week: &quot;So perhaps there is in fact room for encouragement about the state of the Japanese economy.&quot; The headline index of manufacturing and mining at 105.0 (2000=100) rose 1.4% in December and exceeded the previous peaks reached in 1997 and early 2001 as shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060130e.jpg" width="353">
One of the fastest growing areas of Japanese manufacturing has been the Electronic Parts and Devices, followed closely by Transport Equipment (ex ships and rolling stock). These industries have shown strong growth trends throughout Japan&#39;s period of overall sluggish growth as shown in the second chart. In December, the Electronic Parts and Devices index was 32.8% above the 2000 average and 21.5% above December 2004. The Transport Equipment (ex ships and rolling stock) index was 26% above the 2000 average and 15.5% above December,2004<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060130f.jpg" width="353">
The rise of the Electronic and Transport Industries illustrates the changing structure of the Japanese economy. While these industries have grown, there has been a steady decline in the once traditional Japanese industries such as Textiles and Ceramics, Clay &amp; Stone Products as shown in the third chart.

<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: Industrial Production (2000=100)</th>
<th scope="col">Dec 05</th>
<th scope="col">Nov 05&nbsp; </th>
<th scope="col">Dec 04&nbsp;</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y&nbsp; %&nbsp;</th>
<th scope="col">2005&nbsp;&nbsp;&nbsp; </th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Manufacturing and Mining</td>
<td>105.0</td>
<td>103.6</td>
<td>100.0</td>
<td>1.35</td>
<td>5.00</td>
<td>101.8</td>
<td>100.0</td>
<td>95.1</td>
</tr>
<tr>
<td class="firstcol">Electronic parts and devices</td>
<td>132.8</td>
<td>128.9</td>
<td>109.3</td>
<td>3.03</td>
<td>21.50</td>
<td>117.6</td>
<td>116.8</td>
<td>103.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport eqpt (ex ships and rolling stock)</td>
<td>126.0</td>
<td>121.5</td>
<td>109.1</td>
<td>3.70</td>
<td>15.49</td>
<td>119.0</td>
<td>113.2</td>
<td>108.6</td>
</tr>
<tr>
<td class="firstcol">Ceramics, clay and stone products</td>
<td>78.5</td>
<td>81.0</td>
<td>82.5</td>
<td>-3.09</td>
<td>-4.85</td>
<td>82.2</td>
<td>83.6</td>
<td>86.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Textiles</td>
<td>64.1</td>
<td>64.5</td>
<td>68.8</td>
<td>-0.62</td>
<td>-6.83</td>
<td>66.2</td>
<td>70.6</td>
<td>74.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production in Japan rose for the fifth successive month in December giving further credence to Carol Stone's comment of last week: "So perhaps there is in fact room for encouragement about the state of the Japanese [...]

Industrial Production in Japan Rises for Fifth Successive Month

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060130b.jpg" width="353">
Personal income rose an expected 0.4% last month following an upwardly revised like increase in November. For the full year personal income rose 5.4% which together with the 5.9% increase in 2004 was the strongest two year rise since 2001. The twelve month comparison of 2.1% suffered due to Microsoft&#39;s payment last year of a $32B stock dividend.
Wage &amp; salary disbursements rose the same 0.3% (3.7% y/y) as during November and the full year gain of 6.0% was the strongest since 2000. Factory sector wages reversed the prior month&#39;s decline and rose 0.1% (2.4% y/y) while service sector wages rose a moderate 0.3% (3.7% y/y) following an upwardly revised 0.4% November increase.
Disposable personal income rose 0.4% (0.9% y/y) for the second month. Adjusted for the negligible change in prices during December, take home pay jumped 0.4%, half the November increase which was boosted by a decline in prices and the year to year comparison was negative due to the dividend payout.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060130c.jpg" width="353">
Personal taxes rose 0.4% (11.8% y/y) in December and for the full year rose 15.0% following a 4.9% gain during 2004.
Personal consumption expenditures rose a firm 0.9% versus expectations for a 0.7% gain. Spending on motor vehicles &amp; parts jumped 11.4% (-5.6% y/y) and spending on furniture &amp; household equipment added 0.3% (6.4% y/y) to a 1.6% November spike. Spending on clothing &amp; shoes dipped slightly (+5.8% y/y) following two months of huge increase while services spending rose 0.5% (6.3% y/y) after a 0.8% November jump.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060130a.jpg" width="353">
The PCE chain price index fell for the second consecutive month due to the third consecutive decline in gasoline &amp; oil prices (+16.1% y/y). Less food &amp; energy, prices rose 0.1% following an upwardly revised 0.2% November increase. Durables prices continued the most recent decline which began in May as furniture &amp; household appliance prices fell (-4.0% y/y). Clothing &amp; shoes prices also fell by 0.3% (-1.1% y/y) and services prices rose a modest 0.1% (3.3% y/y).
The personal savings rate was negative for the eighth month in the last nine. In comparison, the personal savings rate from the Federal Reserve&#39;s Flow of Funds accounts, through 3Q05, was similarly depressed but still a positive 0.9%. The Flow of Funds measure amortizes durable goods purchases over an expected lifetime instead of treating them as an expense.
The Income Implications of Rising U.S. International Liabilities from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/newsevents/news/research/2006/rp060111.html"> 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/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>0.4%</td>
<td>2.1%</td>
<td>5.4%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.9%</td>
<td>0.5%</td>
<td>6.2%</td>
<td>6.5%</td>
<td>6.5%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>4.4% (Dec &#39;04)</td>
<td>-0.5%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>-0.0%</td>
<td>-0.4%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>


</html>

Personal income rose an expected 0.4% last month following an upwardly revised like increase in November. For the full year personal income rose 5.4% which together with the 5.9% increase in 2004 was the strongest two year rise since [...]

U.S. Personal Income & Spending Firm

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

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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250430O1.jpg

Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

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Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

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High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

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The employment cost index (ECI) for civilian workers, arguably the most accurate measure of labor compensation in the United States, rose 0.9% q/q (3.6% y/y) in Q1, the same quarterly increase as in last year’s Q4, according to the Bureau of Labor Statistics. The quarterly gains have fluctuated between 0.8% and 1.0% for the past six quarters. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 3.5% y/y gain.

Wages and salaries for civilian workers rose 0.8% q/q (3.5% y/y) in Q1, down from 1.0% q/q in Q4. This tied the Q3 2024 quarterly rise as the smallest increase since Q2 2021. It was also the smallest y/y increase since Q2 2021. Benefits increased by an outsized 1.2% q/q (3.9% y/y) in Q1 versus 0.8% q/q in Q4. This is the largest quarterly gain since Q2 2022. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing gradually.

Private industry workers’ compensation rose 0.8% q/q (3.4% y/y) in Q1, down from 0.9% q/q (3.6% y/y) in Q4. Wages and salaries for private industry workers increased 0.8% q/q (3.4% y/y) in Q1 versus 0.8% q/q (3.7% y/y) in Q4. The quarterly gain in Q1 tied that in Q3 2024 as the smallest increase since Q4 2020. Benefits for private industry workers jumped 1.2% q/q (3.6% y/y). the largest quarterly gain since Q2 2022. The acceleration in benefits in Q1 was primarily in service-producing industries.

Compensation in private goods-producing industries increased 1.0% q/q (3.2% y/y) in Q1, the largest quarterly gain in five quarters, versus a 0.7% q/q increase in Q4. Compensation in construction jumped 1.3% q/q, its largest quarterly increase since Q2 2022, up from a 0.6% q/q gain in Q4. Manufacturing compensation growth slowed to 0.7% q/q, its slowest quarterly advance since Q4 2020, from 0.8% q/q in Q4. Compensation in private service-producing industries increased 0.8% q/q (3.5% y/y), down slightly from a 0.9% q/q gain in Q4. Compensation in education and health services jumped 1.3% q/q, its largest quarterly gain since Q3 2023. In contrast, compensation in other services edged up 0.1% q/q in Q1, its smallest quarterly advance since before the pandemic.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- Compensation grew 0.9 q/q in Q1, the same pace as in Q4.
- Wage growth slowed to 0.8% q/q while benefits surged 1.2% q/q, their largest quarterly increase since Q2 2022.

Employment Cost Growth Steady in Q1 2025

Kathleen Stephansen, CBE

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 62,000 (1.4% y/y) during April after increasing 147,000 (1.4% y/y) during March, revised from 155,000. A 124,000 April rise in ADP employment had been expected in the Action Economics Forecast Survey.

Growth in median annual pay for "job stayers" eased to 4.5% y/y during April, from 4.6% y/y in March and from 4.7% y/y in the prior two months. Manufacturing sector pay grew 4.6% y/y during April, down from 4.8% y/y in March. Construction sector pay was unchanged at 4.7% y/y. Natural resource & mining sector pay grew 4.4% y/y. Financial sector pay rose 5.1% y/y, while education & health services pay rose 4.7% y/y. Leisure & hospitality pay also increased 4.7% y/y. Professional & business service sector pay increased 4.3% y/y as did trade, transportation & utilities pay. Information pay rose 4.1% y/y. Median annual pay for “job changers” rose 6.9% y/y after 6.7% y/y in March.

Small business hiring (less than 50 employees) rose 11,000 (0.6% y/y) after rising 18,000 (0.6% y/y) in March, revised down from 52,000. Employment at medium-sized firms (50-499,000 employees) rose 40,000 (1.1% y/y) after rising 43,000 (1.1% y/y). Large business hiring (500+ employees) rose 12,000 (3.4% y/y) in April, after rising 61,000 (3.6% y/y) in March, revised from 59,000.

Goods-producing employment rose 26,000 (1.3% y/y) in April, after rising 16,000 (1.3% y/y) during March, revised from 24,000. Manufacturing jobs rose 4,000 (-0.2% y/y) after rising 17,000 (-0.3% y/y) in March. The number of construction sector jobs rose 16,000 (3.4% y/y) in April, following a 2,000 (3.6% y/y) March increase, revised from 6,000. Natural resources & mining jobs rose 6,000 (2.8% y/y) in April after falling 3,000 (+1.9% y/y) in March.

The number of service-producing jobs rose 34,000 (1.4% y/y) during April, following a rise of 131,000 (1.4% y/y) in March. Professional & business services employment fell 2,000 (0.6% y/y) after rising 46,000 (0.7% y/y) in the prior month, revised from 57,000. Employment in the financial industry rose 20,000 (2.1% y/y) in April, after rising 38,000 (2.0% y/y) in March. Leisure and hospitality employment increased 27,000 (3.0% y/y), following a 23,000 (2.9% y/y) March increase, revised from 17,000. The number of education & health care jobs fell 23,000 (1.6% y/y) in April, following a 15,000 (1.8% y/y) rise in March, revised from 12,000. Information sector employment fell 8,000 (-0.1% y/y) after a rise of 3,000 (0.2% y/y) in March. The number of jobs in trade, transportation & utilities rose 21,000 (0.4% y/y) in April, after falling 4,000 (+0.4% y/y) in March, revised from a 6,000 fall. Employment in “other” services rose fell 1,000 (+3.2% y/y) following a 10,000 (3.4% y/y) rise in March, revised from 11,000.

By region, employment in the Northeast increased 10,000 (1.9% y/y) in April, following an increase of 95,000 (2.0% y/y) in March, revised from 89,000. Employment in the Midwest rose 42,000 (1.5% y/y) after a gain of 84,000 (1.4% y/y) in March, revised from 81,000. In the South, employment rose 3,000 (1.3% y/y) during April, after rising 10,000 (1.4% y/y) in March, revised from 27,000. In the West, employment rose 9,000 (0.6% y/y) after declining 43,000 (+0.6% y/y), revised from a 41,000 decline in March.

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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- Employment increase is modest in both services & factory sectors.
- Wage growth for “job stayers” moderates.
- Small and medium-sized business employment slows.

Economy in Brief: January 2006

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Economic Sentiment and Consumer Confidence in Europe Improve

Fed Funds Rate Increased to 4.50%

Consumer Confidence Up: Jobs Plentiful, Inflation Stable

Chain Store Sales Lower, Gasoline Prices Up

Employment Cost Index Steady Last Quarter, Down During '05

Fed Funds Rate Increased to 4.50%

Industrial Production in Japan Rises for Fifth Successive Month

U.S. Personal Income & Spending Firm