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/060331g.jpg" width="353">
We&#39;ve written about Japan frequently here the last few weeks, and candidly, we make no apology for appearing to be single-minded. Economists, practitioners of &quot;the dismal science&quot;, rarely, it seems, have the opportunity to discuss genuinely pleasing developments. So on a day at the end of the Japanese fiscal year, when we can talk about sizable gains in employment, the largest one-month drop in the unemployment rate ever and continuing modest inflation in Japan, we&#39;re going to do it, even if it&#39;s just been a few days since we commented on rising land prices, another positive sign.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331h.jpg" width="353">
The labor force survey for February shows a 240,000 increase the number of people employed; this follows 270,000 in January, making more than half-a-million new workers since the beginning of calendar 2006. Employment in Japan has actually been ratcheting modestly higher since sometime in 2003, but these recent gains pick up the pace significantly. February&#39;s total, at 63.92 million workers, was up 0.8% from a year ago, nearly twice the relative increase for all of 2005. Moreover, the number of &quot;employees&quot; has increased more; people who work for companies are up 82,000 cumulatively in January and February and the number of people otherwise employed fell by 310,000 in the same two months to just barely over 9 million. When economies are weak, many people who are unable to find jobs elsewhere, start their own business or go to work in the family store. But as the economy strengthens, they can find more jobs at companies; this is happening in Japan and the percentage drop in the number of independent workers from a year ago was the steepest ever in January and February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331i.jpg" width="353">
Another decline that was the biggest ever was that in the unemployment rate, 0.4%, from January to February. This was due, of course, to the increase in employment, but also to only a minimal increase in the total labor force. Even so, the labor force appears to be growing now, albeit modestly and irregularly. The slim 80,000 advance in 2005 was the first yearly increase since 1998. Renewed gains here are also a sign of a better outlook among workers; those unemployed were apparently withdrawing from the labor force, but now they are &quot;available for work&quot;, perhaps with hopes raised that a job might be forthcoming.
Finally, we can&#39;t let the CPI go without brief mention. The increases remain quite small, but they are there nonetheless. The most widely watched line item is the &quot;general index excluding fresh food&quot;. It has shown a year-to-year increase now for four months. Some of the rise is due to higher energy prices, but a new version of a core index excluding energy was also up in February, by 0.2% from a year earlier. Clothing, &quot;miscellaneous&quot; (including personal care), and housing costs are all rising.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">Year Ago</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">Employment (SA, mil)</td>
<td>63.92</td>
<td>63.68</td>
<td>63.41</td>
<td>63.43</td>
<td>63.56</td>
<td>63.29</td>
<td>63.16</td>
</tr>
<tr>
<td class="firstcol">Change (thous)/% Change</td>
<td>+240</td>
<td>+270</td>
<td>-40</td>
<td>0.8</td>
<td>0.4</td>
<td>0.2</td>
<td>-0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (SA, %)</td>
<td>4.1</td>
<td>4.5</td>
<td>4.4</td>
<td>4.6</td>
<td>4.4</td>
<td>4.7</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Monthly Change</td>
<td>-0.4</td>
<td>+0.1</td>
<td>-0.1</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</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">CPI: General(NSA,yr/yr %chg)</td>
<td>0.4</td>
<td>0.5</td>
<td>-0.1</td>
<td>--</td>
<td>-0.3</td>
<td>-0.0</td>
<td>-0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI: General ex Fresh Food (NSA, yr/yr % chg)</td>
<td>0.5</td>
<td>0.5</td>
<td>0.1</td>
<td>--</td>
<td>-0.1</td>
<td>-0.1</td>
<td>-0.3</td>
</tr>
</tbody>
</table>
</body>
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We've written about Japan frequently here the last few weeks, and candidly, we make no apology for appearing to be single-minded. Economists, practitioners of "the dismal science", rarely, it seems, have the opportunity to discuss [...]

More Good News from Japan: Lower Unemployment, Higher CPI

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331e.jpg" width="353">
Factory inventories dropped 0.4% last month. This first decline since August of last year followed 1.1% accumulation during January, that was twice the 0.5% gain initially estimated.
Motor vehicle &amp; parts inventories dropped 0.4% (-3.3% y/y), the third consecutive monthly decline. Nondefense aircraft inventories also were off 1.5% (+2.2% y/y). Less transportation altogether factory inventories fell 0.2% (+3.4% y/y) after a 1.2% jump during January.
Primary metals inventories jumped 1.2% (2.9% y/y) but machinery inventories fell 0.1% (+5.2% y/y and electrical equipment fell 0.2% (+6.7% y/y). These latter two declines followed huge increases during January.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331f.jpg" width="353">
Total factory orders gained back 0.2% of January&#39;s 3.9% skid. Durable goods orders gained 2.7%, little revised from the advance report. Factory orders less the transportation sector altogether fell 2.0% (+6.2% y/y) and that wholly reversed the gain during January.
Factory shipments fell 1.1% and less transportation shipments fell an even greater 1.3% (7.2% y/y). The total was dragged down by an 11.8% (+19.7% y/y) drop in shipments of petroleum. Factory shipments less transportation and petroleum slipped 0.1% (+6.2% y/y) after a 1.1% surge during January.
Unfilled orders rose 0.9% but the 0.2% January decline was shallower than originally estimated. Less the transportation sector, backlogs rose 0.4% (10.0% y/y) and the 0.6% January increase was upwardly revised.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>3.2%</td>
<td>4.4%</td>
<td>7.7%</td>
<td>-1.1%</td>
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<tr>
<td class="firstcol">New Orders</td>
<td>0.2%</td>
<td>-3.9%</td>
<td>7.2%</td>
<td>8.5%</td>
<td>9.3%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-1.1%</td>
<td>0.1%</td>
<td>7.1%</td>
<td>7.4%</td>
<td>9.5%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.9%</td>
<td>-0.2%</td>
<td>17.0%</td>
<td>16.5%</td>
<td>8.4%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
</body>
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Factory inventories dropped 0.4% last month. This first decline since August of last year followed 1.1% accumulation during January, that was twice the 0.5% gain initially estimated. Motor vehicle & parts inventories dropped 0.4% [...]

U.S. Factory Inventories Flew Off The Shelves

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331d.jpg" width="353">
During late March, consumer sentiment recovered enough to lift the University of Michigan&#39;s Sentiment Index for the month to 88.9 from a preliminary indication of 86.7. Consensus expectations had been for a reading of 87.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The current conditions index for the month improved 3.3% after a 4.3% decline during February. The index of personal finances recovered all of the prior month&#39;s drop with a 5.4% (+0.9% y/y) gain and the reading of buying conditions for large household goods rose 1.9% (1.2% y/y). Consumers&#39; assessment of gov&#39;t economic policy improved late in the month enough to recover a piece of the sharp decline during February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331c.jpg" width="353">
Consumer expectations rose 2.0% from February due to the late month improvement. The near term economic outlook still fell m/m but the long term outlook improved dramatically.
The mean expected inflation rate for the next twelve months rose m/m to 3.8%, still down from the 5.5% expected in October &amp; September.
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.
Variations in consumer sentiment across demographic groups from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2006_part2_toussaint_et_al.pdf"> here</a>.

<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/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">March</th>
<th scope="col">March (p)</th>
<th scope="col">Feb</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">Consumer Sentiment</td>
<td>88.9</td>
<td>86.7</td>
<td>86.7</td>
<td>-4.0%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>109.1</td>
<td>106.2</td>
<td>105.6</td>
<td>1.0%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>76.0</td>
<td>74.2</td>
<td>74.5</td>
<td>-8.2%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
</html>

During late March, consumer sentiment recovered enough to lift the University of Michigan's Sentiment Index for the month to 88.9 from a preliminary indication of 86.7. Consensus expectations had been for a reading of 87.0. During the [...]

U.S. Consumer Sentiment Recovered Late in March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331a.jpg" width="353">
Personal income rose 0.3% during February, a gain that fell just short of Consensus expectations for a 0.4% increase though the firm 0.7% January advance was unrevised.
Wage &amp; salary disbursements continued firm with a 0.4% (5.1% y/y) increase. Factory sector wages rose 0.2% (2.9% y/y) after an upwardly revised 0.3% January gain and the rise in service sector wages halved to 0.4% (5.4% y/y) after a 0.8% jump during January.
Wages adjusted for price inflation during the last twelve months rose 2.1%, a deceleration from the 2005 advance. Last year, real wage growth of 3.3% just outpaced the 2.7% gain in worker productivity.
Disposable personal income increased 0.2% (5.1% y/y) after an upwardly revised 0.6% January increase. Adjusted for price inflation disposable income rose 0.2% (2.2% y/y). Real disposable income per capita increased 0.1% (1.3% y/y).
Personal consumption rose 0.1%, a bit more than the Consensus expectation for no change. In real terms, a 2.1% (-4.6% y/y) drop in motor vehicles &amp; parts held back the advance but spending on furniture &amp; household equipment fell just 1.6% (+10.5% y/y) after a 4.4% January boom that was double the gain initially estimated. Spending on clothing &amp; shoes gave back all of the downwardly revised January gain with a 1.1% (+4.1% y/y) decline. Real services spending rose 0.8% (3.0% y/y). Spending on household services &amp; operation recovered 5.3% m/m as temperatures turned more normal.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331b.jpg" width="353">
The PCE chain price index was unchanged as gasoline &amp; oil prices fell 0.9% (21.4% y/y) though in March the wholesale price of gasoline has surged. Prices for clothing &amp; shoes dropped 1.0% (-2.2% y/y) during February and furniture &amp; household equipment prices fell another 0.3% (-4.2% y/y).
Incentives and Prices for Motor Vehicles: What has been happening in recent years? is a Working Paper from the Federal Reserve Board and is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200609/200609pap.pdf"> here</a>.
The personal savings rate was negative for the tenth month in the last eleven.
Temptation and Self-Control: Some Evidence and Applications from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/SR/SR367.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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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>0.3%</td>
<td>0.7%</td>
<td>5.6%</td>
<td>5.5%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.1%</td>
<td>0.8%</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>-0.5%</td>
<td>-0.5%</td>
<td>0.5% (Feb &#39;05)</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.0%</td>
<td>0.5%</td>
<td>2.9%</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>1.8%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>


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Personal income rose 0.3% during February, a gain that fell just short of Consensus expectations for a 0.4% increase though the firm 0.7% January advance was unrevised. Wage & salary disbursements continued firm with a 0.4% (5.1% y/y) [...]

U.S. Personal Income Gain Light

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331a.jpg" width="353">
Personal income rose 0.3% during February, a gain that fell just short of Consensus expectations for a 0.4% increase though the firm 0.7% January advance was unrevised.
Wage &amp; salary disbursements continued firm with a 0.4% (5.1% y/y) increase. Factory sector wages rose 0.2% (2.9% y/y) after an upwardly revised 0.3% January gain and the rise in service sector wages halved to 0.4% (5.4% y/y) after a 0.8% jump during January.
Wages adjusted for price inflation during the last twelve months rose 2.1%, a deceleration from the 2005 advance. Last year, real wage growth of 3.3% just outpaced the 2.7% gain in worker productivity.
Disposable personal income increased 0.2% (5.1% y/y) after an upwardly revised 0.6% January increase. Adjusted for price inflation disposable income rose 0.2% (2.2% y/y). Real disposable income per capita increased 0.1% (1.3% y/y).
Personal consumption rose 0.1%, a bit more than the Consensus expectation for no change. In real terms, a 2.1% (-4.6% y/y) drop in motor vehicles &amp; parts held back the advance but spending on furniture &amp; household equipment fell just 1.6% (+10.5% y/y) after a 4.4% January boom that was double the gain initially estimated. Spending on clothing &amp; shoes gave back all of the downwardly revised January gain with a 1.1% (+4.1% y/y) decline. Real services spending rose 0.8% (3.0% y/y). Spending on household services &amp; operation recovered 5.3% m/m as temperatures turned more normal.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331b.jpg" width="353">
The PCE chain price index was unchanged as gasoline &amp; oil prices fell 0.9% (21.4% y/y) though in March the wholesale price of gasoline has surged. Prices for clothing &amp; shoes dropped 1.0% (-2.2% y/y) during February and furniture &amp; household equipment prices fell another 0.3% (-4.2% y/y).
Incentives and Prices for Motor Vehicles: What has been happening in recent years? is a Working Paper from the Federal Reserve Board and is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200609/200609pap.pdf"> here</a>.
The personal savings rate was negative for the tenth month in the last eleven.
Temptation and Self-Control: Some Evidence and Applications from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/SR/SR367.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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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>0.3%</td>
<td>0.7%</td>
<td>5.6%</td>
<td>5.5%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.1%</td>
<td>0.8%</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>-0.5%</td>
<td>-0.5%</td>
<td>0.5% (Feb &#39;05)</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.0%</td>
<td>0.5%</td>
<td>2.9%</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>1.8%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Recovered Late in March 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331d.jpg" width="353">
During late March, consumer sentiment recovered enough to lift the University of Michigan&#39;s Sentiment Index for the month to 88.9 from a preliminary indication of 86.7. Consensus expectations had been for a reading of 87.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The current conditions index for the month improved 3.3% after a 4.3% decline during February. The index of personal finances recovered all of the prior month&#39;s drop with a 5.4% (+0.9% y/y) gain and the reading of buying conditions for large household goods rose 1.9% (1.2% y/y). Consumers&#39; assessment of gov&#39;t economic policy improved late in the month enough to recover a piece of the sharp decline during February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331c.jpg" width="353">
Consumer expectations rose 2.0% from February due to the late month improvement. The near term economic outlook still fell m/m but the long term outlook improved dramatically.
The mean expected inflation rate for the next twelve months rose m/m to 3.8%, still down from the 5.5% expected in October &amp; September.
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.
Variations in consumer sentiment across demographic groups from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2006_part2_toussaint_et_al.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">March</th>
<th scope="col">March (p)</th>
<th scope="col">Feb</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">Consumer Sentiment</td>
<td>88.9</td>
<td>86.7</td>
<td>86.7</td>
<td>-4.0%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>109.1</td>
<td>106.2</td>
<td>105.6</td>
<td>1.0%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>76.0</td>
<td>74.2</td>
<td>74.5</td>
<td>-8.2%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
U.S. Factory Inventories Flew Off The Shelves 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331e.jpg" width="353">
Factory inventories dropped 0.4% last month. This first decline since August of last year followed 1.1% accumulation during January, that was twice the 0.5% gain initially estimated.
Motor vehicle &amp; parts inventories dropped 0.4% (-3.3% y/y), the third consecutive monthly decline. Nondefense aircraft inventories also were off 1.5% (+2.2% y/y). Less transportation altogether factory inventories fell 0.2% (+3.4% y/y) after a 1.2% jump during January.
Primary metals inventories jumped 1.2% (2.9% y/y) but machinery inventories fell 0.1% (+5.2% y/y and electrical equipment fell 0.2% (+6.7% y/y). These latter two declines followed huge increases during January.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331f.jpg" width="353">
Total factory orders gained back 0.2% of January&#39;s 3.9% skid. Durable goods orders gained 2.7%, little revised from the advance report. Factory orders less the transportation sector altogether fell 2.0% (+6.2% y/y) and that wholly reversed the gain during January.
Factory shipments fell 1.1% and less transportation shipments fell an even greater 1.3% (7.2% y/y). The total was dragged down by an 11.8% (+19.7% y/y) drop in shipments of petroleum. Factory shipments less transportation and petroleum slipped 0.1% (+6.2% y/y) after a 1.1% surge during January.
Unfilled orders rose 0.9% but the 0.2% January decline was shallower than originally estimated. Less the transportation sector, backlogs rose 0.4% (10.0% y/y) and the 0.6% January increase was upwardly revised.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Feb</th>
<th scope="col">Jan</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">Inventories</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>3.2%</td>
<td>4.4%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.2%</td>
<td>-3.9%</td>
<td>7.2%</td>
<td>8.5%</td>
<td>9.3%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-1.1%</td>
<td>0.1%</td>
<td>7.1%</td>
<td>7.4%</td>
<td>9.5%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.9%</td>
<td>-0.2%</td>
<td>17.0%</td>
<td>16.5%</td>
<td>8.4%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
More Good News from Japan: Lower Unemployment, Higher CPI 
by <a href="/comment/Stone.html">Carol Stone</a> March 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331g.jpg" width="353">
We&#39;ve written about Japan frequently here the last few weeks, and candidly, we make no apology for appearing to be single-minded. Economists, practitioners of &quot;the dismal science&quot;, rarely, it seems, have the opportunity to discuss genuinely pleasing developments. So on a day at the end of the Japanese fiscal year, when we can talk about sizable gains in employment, the largest one-month drop in the unemployment rate ever and continuing modest inflation in Japan, we&#39;re going to do it, even if it&#39;s just been a few days since we commented on rising land prices, another positive sign.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331h.jpg" width="353">
The labor force survey for February shows a 240,000 increase the number of people employed; this follows 270,000 in January, making more than half-a-million new workers since the beginning of calendar 2006. Employment in Japan has actually been ratcheting modestly higher since sometime in 2003, but these recent gains pick up the pace significantly. February&#39;s total, at 63.92 million workers, was up 0.8% from a year ago, nearly twice the relative increase for all of 2005. Moreover, the number of &quot;employees&quot; has increased more; people who work for companies are up 82,000 cumulatively in January and February and the number of people otherwise employed fell by 310,000 in the same two months to just barely over 9 million. When economies are weak, many people who are unable to find jobs elsewhere, start their own business or go to work in the family store. But as the economy strengthens, they can find more jobs at companies; this is happening in Japan and the percentage drop in the number of independent workers from a year ago was the steepest ever in January and February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331i.jpg" width="353">
Another decline that was the biggest ever was that in the unemployment rate, 0.4%, from January to February. This was due, of course, to the increase in employment, but also to only a minimal increase in the total labor force. Even so, the labor force appears to be growing now, albeit modestly and irregularly. The slim 80,000 advance in 2005 was the first yearly increase since 1998. Renewed gains here are also a sign of a better outlook among workers; those unemployed were apparently withdrawing from the labor force, but now they are &quot;available for work&quot;, perhaps with hopes raised that a job might be forthcoming.
Finally, we can&#39;t let the CPI go without brief mention. The increases remain quite small, but they are there nonetheless. The most widely watched line item is the &quot;general index excluding fresh food&quot;. It has shown a year-to-year increase now for four months. Some of the rise is due to higher energy prices, but a new version of a core index excluding energy was also up in February, by 0.2% from a year earlier. Clothing, &quot;miscellaneous&quot; (including personal care), and housing costs are all rising.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">Year Ago</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">Employment (SA, mil)</td>
<td>63.92</td>
<td>63.68</td>
<td>63.41</td>
<td>63.43</td>
<td>63.56</td>
<td>63.29</td>
<td>63.16</td>
</tr>
<tr>
<td class="firstcol">Change (thous)/% Change</td>
<td>+240</td>
<td>+270</td>
<td>-40</td>
<td>0.8</td>
<td>0.4</td>
<td>0.2</td>
<td>-0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (SA, %)</td>
<td>4.1</td>
<td>4.5</td>
<td>4.4</td>
<td>4.6</td>
<td>4.4</td>
<td>4.7</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Monthly Change</td>
<td>-0.4</td>
<td>+0.1</td>
<td>-0.1</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</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">CPI: General(NSA,yr/yr % chg)</td>
<td>0.4</td>
<td>0.5</td>
<td>-0.1</td>
<td>--</td>
<td>-0.3</td>
<td>-0.0</td>
<td>-0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI: General ex Fresh Food (NSA, yr/yr % chg)</td>
<td>0.5</td>
<td>0.5</td>
<td>0.1</td>
<td>--</td>
<td>-0.1</td>
<td>-0.1</td>
<td>-0.3</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330d.jpg" width="353">
Labor policies are at the fore currently in France and Germany. France, as it tries to modify its basic &quot;lifetime employment&quot; work arrangements, faces massive riots by people at the other end of the economic spectrum -- who basically benefit from this policy -- from the young people who rioted last autumn because, due to this policy, they can&#39;t get a foot in the employment door. The government&#39;s proposal for a probationary employment period for young workers may sound good to these latter people, but it is not at all popular with current workers.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330e.jpg" width="353">
So today, the French statistics agency, INSEE, published the March household confidence survey. Does it show a reaction to these developments? Mildly so, and very specifically. The overall sentiment measure fell 2 points to -26 in March from -24 last month. These are both better than the November survey, in the midst of the labor disturbances; that figure was -33, down 3 points from October and the worst reading of the year, which averaged -28. So the current readings look &quot;good&quot; by comparison.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330f.jpg" width="353">
Two components showed some impact that may be related to these current disputes. Expectations about living standards fell 5 points this month to -38. In November, as well, this measure fell noticeably, to -43 from -37 in October. Expectations about unemployment also worsened each time: the new reading is +41 (meaning that 41% more people believe unemployment will increase than believe it will decrease), up sharply from February&#39;s +12. In November, by contrast, expectations about unemployment did not change from October&#39;s +20 value. Apparently, people see some fall-out from the government&#39;s current &quot;probation&quot; proposal, while they saw no implications from the November demonstrations.
In Germany, the February labor force survey (LFS) was reported today, along with &quot;registered&quot; unemployment for March. In the LFS, employment remained stagnant, increasing a mere 5,000 from January&#39;s level; since mid-2003, the number of people employed has hovered in a narrow range around 38.6 million. Despite the flatness in the number of workers, unemployment rates have generally drifted lower. The rate according to the ILO definition, which is similar to that used in the United States, was 8.6% in February, down from 8.7% in January and from several months a year ago that were at or near 9.5%. The ILO definition is standard to all the Euro-Zone countries. The more widely watched local German measure, &quot;registered&quot; unemployment is also below year-ago levels, although it ticked up to 11.4% in the March report; its recent low was 11.2% in December. Government and private commentators attributed the March increase to cold weather, which has limited seasonal hiring for outdoor work. They anticipate a rapid rise in hiring as temperatures rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330g.jpg" width="353">
The combination of stagnant employment conditions and downtrends in unemployment rates is clarified through developments in the labor force as a whole. As seen in the accompanying graph, it is declining, and is down by about 1 million workers since late 2004. This allows reported unemployment to go down, even if employment is not going up.
Germany too wants to liberalize its labor laws, and its leaders are sensitive to the violent situation in France. While German business confidence rose sharply this month, as documented here earlier in the week by Louise Curley, its political leaders are waffling in the face of the dilemma the strong reaction causes them. Each of the accompanying economic reports thus takes on greater weight in view of the high political stakes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Year Ago</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">France: Overall Household Confidence (%)</td>
<td>-26</td>
<td>-24</td>
<td>-27</td>
<td>-25</td>
<td>-28</td>
<td>-22</td>
<td>-27</td>
</tr>
<tr>
<td class="firstcol">Living Standard, Next 12 Mos. (%)</td>
<td>-38</td>
<td>-33</td>
<td>-37</td>
<td>-34</td>
<td>-37</td>
<td>-27</td>
<td>-38</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment, Next 12 Mos. (%)</td>
<td>+41</td>
<td>+12</td>
<td>+15</td>
<td>+57</td>
<td>+39</td>
<td>+49</td>
<td>+68</td>
</tr>
<tr>
<td class="firstcol">Germany LFS</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (Mil.)</td>
<td>&nbsp;</td>
<td>38.604</td>
<td>38.599</td>
<td>38.719</td>
<td>38.668</td>
<td>38.779</td>
<td>38.631</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (ILO) (%)</td>
<td>&nbsp;</td>
<td>8.6</td>
<td>8.7</td>
<td>9.5</td>
<td>9.1</td>
<td>9.2</td>
<td>8.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Registered&quot; Unemployment (%)</td>
<td>11.4</td>
<td>11.3</td>
<td>11.3</td>
<td>12.1</td>
<td>11.7</td>
<td>10.5</td>
<td>10.5</td>
</tr>
</tbody>
</table>
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Labor policies are at the fore currently in France and Germany. France, as it tries to modify its basic "lifetime employment" work arrangements, faces massive riots by people at the other end of the economic spectrum -- who basically [...]

French Consumers Look for Higher Unemployment; German Jobs and Unemployment Little Changed in Latest Labor Data

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330c.jpg" width="353">
Last week, initial claims for unemployment insurance fell 10,000 to 302,000 from an upwardly revised level the prior period. The figure matched Consensus expectations.
Revisions raised the recent claims figures by roughly 10,000.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims fell to 310,750 (-7.7% y/y).
Continuing unemployment insurance claims reversed most of the prior week&#39;s sharp drop, which was revised deeper, and rose 38,000 to 2.472M.
The insured rate of unemployment was stable at 1.9% for the sixth week.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">03/25/06</th>
<th scope="col">03/18/06</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">Initial Claims</td>
<td>302</td>
<td>312</td>
<td>-14.2%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,483</td>
<td>-4.4%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
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</body>
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Last week, initial claims for unemployment insurance fell 10,000 to 302,000 from an upwardly revised level the prior period. The figure matched Consensus expectations. Revisions raised the recent claims figures by roughly 10,000. [...]

Initial Jobless Insurance Claims Drop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330a.jpg" width="353">
US real growth last quarter was revised up slightly, as expected, to 1.7% (AR) from the preliminary estimate of 1.6% and from 1.1% growth estimated two months ago. This quarter, growth is widely expected to bounce back with several forecasts calling for a 5% advance.
Reported today for the first time, the estimate of 4Q corporate profitability surged. A 14.4% (21.3% y/y) jump was the strongest for any quarter since 4Q 1992 and was driven by a 37.6% (12.3% y/y) surge in financial sector earnings. They recovered after the losses suffered due to payments in the wake of three hurricanes during 3Q. Domestic nonfinancial profits snapped back 12.1% (26.8% y/y) from the 1.1% loss during 3Q while profit margins surged. Foreign sector profitability fell 6.5% (+16.8% y/y).
After tax profits (w/CCA and IVA) increased 13.8% (14.6% y/y) as taxes rose 15.8% (42.4% y/y). After tax profits without adjustment grew 11.7% (38.7% y/y) while the inventory valuation and capital consumption adjustments roughly offset one another. Corporate net cash flow grew a strong 4.1% (18.5% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330b.jpg" width="353">
Domestic demand was reduced during 4Q as personal consumption of motor vehicles &amp; parts slumped 2.9% (-10.6% y/y). Lower auto consumption reduced real GDP growth by 1.9 percentage points but the GDP subtraction from lower auto output was limited to 0.6 percentage points as inventories built up. Overall, real PCE grew just 0.9% at an annual rate (2.9% y/y) during 4Q05, the slowest quarterly rate of growth in over ten years.
Defense spending is now estimated to have fallen 2.3% (+1.7% y/y) and that decline subtracted 0.4% percentage points from 4Q GDP growth.
The drag on GDP growth from a wider foreign trade deficit ballooned to 1.4 percentage points as imports grew 12.1% (AR, 5.3% y/y) while exports rose 5.0% (6.4% y/y).
Countering the drag from foreign trade, inventories contributed 1.9 percentage points to GDP growth after more than a year of little or no positive contribution.
The chain price index grew 3.5%, an upward revision from the early estimate of a 3.0% rise. The upside surprise during 4Q was that the price index for private fixed investment grew 5.4% (AR, 3.7% y/y), inflated by an 8.3% (5.2% y/y) jump in residential and a 3.8% (2.8% y/y) rise in nonresidential fixed investment.

<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">4Q &#39;05 (Final)</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">GDP</td>
<td>1.7%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>1.9%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.2%</td>
<td>4.6%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>1.1%</td>
<td>4.5%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.5%</td>
<td>3.3%</td>
<td>3.1%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


</html>

US real growth last quarter was revised up slightly, as expected, to 1.7% (AR) from the preliminary estimate of 1.6% and from 1.1% growth estimated two months ago. This quarter, growth is widely expected to bounce back with several [...]

US 4Q GDP Little Revised at 1.7%, Profits Surged

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: March 2006

Jump to:

More Good News from Japan: Lower Unemployment, Higher CPI

U.S. Factory Inventories Flew Off The Shelves

U.S. Consumer Sentiment Recovered Late in March

U.S. Personal Income Gain Light

U.S. Personal Income Gain Light

French Consumers Look for Higher Unemployment; German Jobs and Unemployment Little Changed in Latest Labor Data

Initial Jobless Insurance Claims Drop

US 4Q GDP Little Revised at 1.7%, Profits Surged