Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029f.jpg" width="353">
The People&#39;s Bank of China surprised world markets yesterday with a hike in its prime lending rate to 5.58% from 5.31%. The former level had been in place since February 2002. The move concludes an 8-1/2 year span of rate cuts. While a surprise in terms of exact timing, the Bank&#39;s action was not totally unexpected. In the spring it had used moral suasion to talk commercial banks into restraining their own loan growth; several Asian economists were forecasting a rate hike to make the attitude of restraint more concrete. (The Bank also raised its companion &quot;deposit rate&quot; to 2.25% from 1.98%.)
Further, in an additional step, the central bank removed a cap on rates commercial banks may charge their own customers. Previously, they were limited to rates no higher than 1.7 times the central bank lending rate. For the last couple of years this was equivalent to 9.03%. But in the face of the recent policy of qualitative restraint on lending, companies are said to have been resorting to &quot;underground&quot; channels for financing, and according to press sources, have been paying 15% to 20% for loans. Now, a more active and open bank credit market should develop.
Undesirably high inflation is prompting these actions, as well as a desire, bank officials indicated, to encourage behavior in the Chinese banking system that more closely resembles practices in international banking markets. Perhaps this evolutionary and philosophical move toward freer markets is the real surprise in this monetary policy action.
Meantime, inflation has indeed risen. The 12-month change in the consumer price index has been above 5% since June and was 5.2% in September. These last four months have seen the strongest pace since early 1997. Producer prices and corporate goods prices suggest continuing cost pressures, with the PPI up 7.9% for the 12 months ending September, the highest rate in the nearly eight-year history of the data. Corporate goods prices, another wholesale price measure, show strong gains in most types of products, with the total up 9.6%. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">12-Month % Changes, NSA</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">Jul 2004</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Consumer Price Index</td>
<td>5.2</td>
<td>5.3</td>
<td>5.3</td>
<td>3.2</td>
<td>-0.4</td>
<td>-0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Producer Price Index</td>
<td>7.9</td>
<td>6.8</td>
<td>6.4</td>
<td>3.0</td>
<td>0.4</td>
<td>-4.0</td>
</tr>
<tr>
<td class="firstcol">Corporate Goods Price Index</td>
<td>9.6</td>
<td>9.5</td>
<td>9.4</td>
<td>6.3</td>
<td>-0.5</td>
<td>-2.5</td>
</tr>
</tbody>
</table>
</body>
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The People's Bank of China surprised world markets yesterday with a hike in its prime lending rate to 5.58% from 5.31%. The former level had been in place since February 2002. The move concludes an 8-1/2 year span of rate cuts. While [...]

People's Bank of China Raises Lending Rate; Removes Cap on Bank Rates in Major Monetary Policy Shift

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029c.jpg" width="353">
The October Chicago Purchasing Managers Business Barometer jumped 6.6 points from September to 68.5, just nosed out the prior high and was at the highest level since July 1988. Consensus expectations had been for a slight decline to 59.0.
During the last ten years there has been a 73% correlation between the level of the Chicago Business Barometer and the three month change in factory sector industrial output. That correlation has risen to 86% during the last five years.
The new orders index jumped to 79.4, the highest since 1983. The employment index rose slightly to 54.1, a five month high. During the last twenty years there has been an 80% correlation between the level of this employment index and the three month change in factory sector employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029d.jpg" width="353">
The index of prices paid remained firm at 84.1. During the last ten years there has been an 88% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM"> Chicago Purchasing Managers Index, SA</a></th>
<th scope="col"> Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct&nbsp;&#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Barometer</td>
<td>68.5</td>
<td>61.9</td>
<td>55.8</td>
<td>54.7</td>
<td>52.7</td>
<td>41.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>79.4</td>
<td>69.7</td>
<td>61.6</td>
<td>58.0</td>
<td>56.2</td>
<td>42.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>84.1</td>
<td>85.9</td>
<td>59.8</td>
<td>55.8</td>
<td>56.9</td>
<td>50.4</td>
</tr>
</tbody>
</table>
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The October Chicago Purchasing Managers Business Barometer jumped 6.6 points from September to 68.5, just nosed out the prior high and was at the highest level since July 1988. Consensus expectations had been for a slight decline to [...]

Chicago Purchasing Agents' Index Highest Since 1988

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029b.jpg" width="353">
The reading of consumer sentiment for the full month of October from the University of Michigan did fall 2.7% m/m to 91.7, but that reflected a sharp improvement from the mid-month read of a 7.1% plunge to 87.5. Consensus expectations for a reading of 88.0.
The continuing decline in claims for unemployment insurance may have bolstered confidence following earlier concerns over the War in Iraq, the rising price of gasoline and several hurricanes which hit Florida.
During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.
The reading of current economic conditions improved 0.3% m/m versus the mid-month read of a 4.0% slump. Consumer expectations shaved the mid-month decline in half and fell 4.8% m/m.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col"> Oct</th>
<th scope="col"> Sept</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>91.7</td>
<td>94.2</td>
<td>2.3%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>104.0</td>
<td>103.7</td>
<td>4.1%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>83.8</td>
<td>88.0</td>
<td>1.0%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
</tr>
</tbody>
</table>
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The reading of consumer sentiment for the full month of October from the University of Michigan did fall 2.7% m/m to 91.7, but that reflected a sharp improvement from the mid-month read of a 7.1% plunge to 87.5. Consensus expectations [...]

U.S. Consumer Sentiment Recovered After Early October Slump

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029e.jpg" width="353">
The employment cost index for private industry workers rose 0.9% last quarter, in line with Consensus expectations for a 1.0% gain.
Wages and salaries, which account for roughly 70% of the compensation index, accelerated from 2Q and rose 0.9%.
Benefit cost inflation in 3Q decelerated to 1.0% as the y/y cost of health benefits eased to 7.3%, the slowest since late 1999.

<table border="0" cellspacing="0" width="100%">
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<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"> 3Q&#39;04</th>
<th scope="col">2Q&#39;04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.9%</td>
<td>1.0%</td>
<td>3.7%</td>
<td>4.0%</td>
<td>3.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.9%</td>
<td>0.6%</td>
<td>2.6%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.0%</td>
<td>1.7%</td>
<td>6.8%</td>
<td>6.4%</td>
<td>4.7%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
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The employment cost index for private industry workers rose 0.9% last quarter, in line with Consensus expectations for a 1.0% gain. Wages and salaries, which account for roughly 70% of the compensation index, accelerated from 2Q and [...]

3Q'04 Employment Cost Index Up 0.9%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029a.jpg" width="353">
US real GDP grew 3.7% (AR) last quarter versus the Consensus expectation for growth of 4.5%. Nevertheless, 3Q growth was a slight acceleration from 3.3% in 2Q.
The shortfall in GDP growth relative to expectations reflected meager contributions from residential investment (0.2 percentage points versus 0.9 points in 2Q) and from government spending (0.3 percentage points versus 0.4 points in 2Q).
Weakness in these categories limited growth in domestic final demand to 4.6% versus 3.5% in 2Q. Personal consumption growth sped up to 4.4% versus 1.6% in 2Q with spending on motor vehicles up 27.2% after a slight 2Q decline. Spending on apparel also recovered after a 2Q decline and furniture spending continued to boom at a 10.3% rate (9.7% y/y).
Business investment growth also continued strong at an 11.7% rate (9.8% y/y) with spending on equipment &amp; software up 14.9% (12.2% y/y). Spending on information processing equipment &amp; software rose only 4.4% (12.7% y/y), however, spending on industrial equipment rose 30.1% and transportation rose 27.0%.
Slower accumulation of inventories subtracted 0.5 percentage points from GDP growth, the first negative contribution since 2Q03 though it was dominated by a huge drawdown of motor vehicle inventories. (Real motor vehicle output rose 10.0% (1.1% y/y) last quarter, the net of the boom in vehicle sales and the drawdown of inventories.)
Foreign trade again subtracted from GDP growth as a 5.1% (9.2% y/y) rise in exports was outpaced by a 7.7% (11.9% y/y) gain in imports.
Expanded detail indicated that GDP less motor vehicles rose 3.5% (4.0% y/y) and that GDP less computers rose 3.7% (3.9% y/y).
Price inflation was quite tame at 1.3%, about as expected. Lower prices for consumer durables and for business investment in equipment &amp; software as well as a light 1.6% increase in prices paid by the federal government held back the increase.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM"> Chained 2000$, % AR</a></th>
<th scope="col"> 3Q &#39;04 (Advance)</th>
<th scope="col"> 2Q &#39;04</th>
<th scope="col"> Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.7%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>3.0%</td>
<td>1.9%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.5%</td>
<td>0.8%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>-0.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>4.2%</td>
<td>2.5%</td>
<td>3.4%</td>
<td>3.1%</td>
<td>1.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-0.6%</td>
<td>-1.1%</td>
<td>-0.7%</td>
<td>-0.3%</td>
<td>-0.7%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.6%</td>
<td>3.5%</td>
<td>4.1%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>1.3%</td>
<td>3.2%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

US real GDP grew 3.7% (AR) last quarter versus the Consensus expectation for growth of 4.5%. Nevertheless, 3Q growth was a slight acceleration from 3.3% in 2Q. The shortfall in GDP growth relative to expectations reflected meager [...]

3Q US GDP Light at 3.7%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029a.jpg" width="353">
US real GDP grew 3.7% (AR) last quarter versus the Consensus expectation for growth of 4.5%. Nevertheless, 3Q growth was a slight acceleration from 3.3% in 2Q.
The shortfall in GDP growth relative to expectations reflected meager contributions from residential investment (0.2 percentage points versus 0.9 points in 2Q) and from government spending (0.3 percentage points versus 0.4 points in 2Q).
Weakness in these categories limited growth in domestic final demand to 4.6% versus 3.5% in 2Q. Personal consumption growth sped up to 4.4% versus 1.6% in 2Q with spending on motor vehicles up 27.2% after a slight 2Q decline. Spending on apparel also recovered after a 2Q decline and furniture spending continued to boom at a 10.3% rate (9.7% y/y).
Business investment growth also continued strong at an 11.7% rate (9.8% y/y) with spending on equipment &amp; software up 14.9% (12.2% y/y). Spending on information processing equipment &amp; software rose only 4.4% (12.7% y/y), however, spending on industrial equipment rose 30.1% and transportation rose 27.0%.
Slower accumulation of inventories subtracted 0.5 percentage points from GDP growth, the first negative contribution since 2Q03 though it was dominated by a huge drawdown of motor vehicle inventories. (Real motor vehicle output rose 10.0% (1.1% y/y) last quarter, the net of the boom in vehicle sales and the drawdown of inventories.)
Foreign trade again subtracted from GDP growth as a 5.1% (9.2% y/y) rise in exports was outpaced by a 7.7% (11.9% y/y) gain in imports.
Expanded detail indicated that GDP less motor vehicles rose 3.5% (4.0% y/y) and that GDP less computers rose 3.7% (3.9% y/y).
Price inflation was quite tame at 1.3%, about as expected. Lower prices for consumer durables and for business investment in equipment &amp; software as well as a light 1.6% increase in prices paid by the federal government held back the increase.

<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/@E701/@E701.HTM"> Chained 2000$, % AR</a></th>
<th scope="col"> 3Q &#39;04 (Advance)</th>
<th scope="col"> 2Q &#39;04</th>
<th scope="col"> Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.7%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>3.0%</td>
<td>1.9%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.5%</td>
<td>0.8%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>-0.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>4.2%</td>
<td>2.5%</td>
<td>3.4%</td>
<td>3.1%</td>
<td>1.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-0.6%</td>
<td>-1.1%</td>
<td>-0.7%</td>
<td>-0.3%</td>
<td>-0.7%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.6%</td>
<td>3.5%</td>
<td>4.1%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>1.3%</td>
<td>3.2%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>
3Q'04 Employment Cost Index Up 0.9% 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 29, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029e.jpg" width="353">
The employment cost index for private industry workers rose 0.9% last quarter, in line with Consensus expectations for a 1.0% gain.
Wages and salaries, which account for roughly 70% of the compensation index, accelerated from 2Q and rose 0.9%.
Benefit cost inflation in 3Q decelerated to 1.0% as the y/y cost of health benefits eased to 7.3%, the slowest since late 1999.

<table border="0" cellspacing="0" width="100%">
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<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"> 3Q&#39;04</th>
<th scope="col">2Q&#39;04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.9%</td>
<td>1.0%</td>
<td>3.7%</td>
<td>4.0%</td>
<td>3.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.9%</td>
<td>0.6%</td>
<td>2.6%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.0%</td>
<td>1.7%</td>
<td>6.8%</td>
<td>6.4%</td>
<td>4.7%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Recovered After Early October Slump 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 29, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029b.jpg" width="353">
The reading of consumer sentiment for the full month of October from the University of Michigan did fall 2.7% m/m to 91.7, but that reflected a sharp improvement from the mid-month read of a 7.1% plunge to 87.5. Consensus expectations for a reading of 88.0.
The continuing decline in claims for unemployment insurance may have bolstered confidence following earlier concerns over the War in Iraq, the rising price of gasoline and several hurricanes which hit Florida.
During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.
The reading of current economic conditions improved 0.3% m/m versus the mid-month read of a 4.0% slump. Consumer expectations shaved the mid-month decline in half and fell 4.8% m/m.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col"> Oct</th>
<th scope="col"> Sept</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>91.7</td>
<td>94.2</td>
<td>2.3%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>104.0</td>
<td>103.7</td>
<td>4.1%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>83.8</td>
<td>88.0</td>
<td>1.0%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Highest Since 1988 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 29, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029c.jpg" width="353">
The October Chicago Purchasing Managers Business Barometer jumped 6.6 points from September to 68.5, just nosed out the prior high and was at the highest level since July 1988. Consensus expectations had been for a slight decline to 59.0.
During the last ten years there has been a 73% correlation between the level of the Chicago Business Barometer and the three month change in factory sector industrial output. That correlation has risen to 86% during the last five years.
The new orders index jumped to 79.4, the highest since 1983. The employment index rose slightly to 54.1, a five month high. During the last twenty years there has been an 80% correlation between the level of this employment index and the three month change in factory sector employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041029d.jpg" width="353">
The index of prices paid remained firm at 84.1. During the last ten years there has been an 88% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

<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/@EF05/@EF05.HTM"> Chicago Purchasing Managers Index, SA</a></th>
<th scope="col"> Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct&nbsp;&#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Barometer</td>
<td>68.5</td>
<td>61.9</td>
<td>55.8</td>
<td>54.7</td>
<td>52.7</td>
<td>41.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>79.4</td>
<td>69.7</td>
<td>61.6</td>
<td>58.0</td>
<td>56.2</td>
<td>42.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>84.1</td>
<td>85.9</td>
<td>59.8</td>
<td>55.8</td>
<td>56.9</td>
<td>50.4</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041028d.jpg" width="353">
Unlike other major European countries discussed here in the last few days, industry leaders in France are increasingly optimistic. The overall Business Climate Index, a composite of their assessment of trends in production and orders, reached 108 in October, its highest since March 2001. Similarly, expectations for the trend in production going forward had a positive/negative balance of +16 for October, the most favorable reading since February 2001.
Several market segments are participating in the apparent business improvement. Markets for consumer goods have gained the most in the most recent months, as the percent balance indicator has jumped from -2 in July to +17 in October. However, this sector tends to be volatile, so such a pattern may not be sustained. Intermediate materials have moved less dramatically in the short-run, but generally experience smoother, longer-lasting swings. Currently, that segment&#39;s balance indicator stands at +16, unchanged in the month, but in a generally favorable position since the middle of last year. Mechanical business equipment actually eased a bit in October to +23 from September&#39;s +26, but it had improved more and stayed higher in previous months.
We find this good performance a bit perplexing. The two major macroeconomic forces today, the euro exchange rate and oil prices are international in scope, affecting every major economy. Possibly French industry is experiencing the evolution of a favorable push due to the flattening of the euro that began in March. One of the industries showing a pick-up is mineral products, suggesting that France may be able to benefit more than its neighbors from rising petroleum prices. These suggestions are just conjecture, however, and it remains to be seen how long this attractive business sentiment will be sustained. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Seasonally Adjusted, % Balance (except as noted)</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">Oct&nbsp; 2003</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Climate Index</td>
<td>108</td>
<td>106</td>
<td>105</td>
<td>96</td>
<td>95</td>
<td>97</td>
<td>102</td>
</tr>
<tr>
<td class="firstcol">Likely Production Trend</td>
<td>16</td>
<td>14</td>
<td>11</td>
<td>5</td>
<td>1</td>
<td>5</td>
<td>5</td>
</tr>
<tr class="odd">
<td class="firstcol">Selected Type of Goods:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>17</td>
<td>6</td>
<td>2</td>
<td>-6</td>
<td>1</td>
<td>5</td>
<td>13</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Intermediate Goods</td>
<td>16</td>
<td>16</td>
<td>11</td>
<td>7</td>
<td>-4</td>
<td>2</td>
<td>-5</td>
</tr>
<tr>
<td class="firstcol">Mechanical Investment Goods</td>
<td>23</td>
<td>26</td>
<td>21</td>
<td>3</td>
<td>-1</td>
<td>-4</td>
<td>-1</td>
</tr>
<tr class="odd">
<td class="firstcol">Electronic Investment Goods</td>
<td>5</td>
<td>2</td>
<td>10</td>
<td>0</td>
<td>5</td>
<td>-9</td>
<td>4</td>
</tr>
</tbody>
</table>
</body>
</html>

Unlike other major European countries discussed here in the last few days, industry leaders in France are increasingly optimistic. The overall Business Climate Index, a composite of their assessment of trends in production and orders, [...]

French Industry Noticeably More Optimistic, Unlike Neighbors

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041028a.jpg" width="353">
Sales of new single-family homes rose 3.5% in September to 1.206M, the highest level since May. Consensus estimates had been for sales of 1.150M. 
Sales rose in each of the country&#39;s regions except the West where a 0.8% (+9.1% y/y) decline followed a 10.1% August jump. In the South sales rose 2.7% (4.3% y/y) and in the Northeast sales rose 6.0% (-19.3% y/y). Sales in the Midwest jumped 12.3% (22.7% y/y).
The median price of a new single family home fell 8.4% m/m to $197,700 (3.0% y/y).

<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/@E9/@E904/@E90401/@E90401.HTM"> Homes Sales (000s, AR)</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">New Single-Family</td>
<td>1,206</td>
<td>1,165</td>
<td>7.0%</td>
<td>1,089</td>
<td>976</td>
<td>907</td>
</tr>
</tbody>
</table>
</body>
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Sales of new single-family homes rose 3.5% in September to 1.206M, the highest level since May. Consensus estimates had been for sales of 1.150M. Sales rose in each of the country's regions except the West where a 0.8% (+9.1% y/y) [...]

New Home Sales Higher Again

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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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: October 2004

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