Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060607a.jpg" width="353">
The total number of mortgage applications fell 1.4% last week and lowered the level in early June 4.8% below the May average which fell 2.2% from April.
Purchase applications were stable w/w but because of earlier declines the opening level in June was 3.2% below the May average. It was down 0.8% versus April.
During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance dropped 3.8% on top of the prior week&#39;s 4.8% skid. Refis opened June 7.5% below the May average which fell 4.1% from April.
The effective interest rate on a conventional 30-year mortgage dipped to 6.83% from 6.86% the prior week. Rates began June about even with the May average of 6.86% but were up sharply from the 5.81% low last June. The rate on 15-year financing was stable for the third week at 6.52%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Challenges of Conducting Effective Risk Management in Community Banks, yesterday&#39;s speech by Fed Governor Susan Schmidt Bies, is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060606/default.htm"> 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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/02/06</th>
<th scope="col">05/26/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>534.4</td>
<td>541.9</td>
<td>-29.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>395.6</td>
<td>395.5</td>
<td>-17.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,356.0</td>
<td>1,409.0</td>
<td>-42.6%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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The total number of mortgage applications fell 1.4% last week and lowered the level in early June 4.8% below the May average which fell 2.2% from April. Purchase applications were stable w/w but because of earlier declines the opening [...]

Mortgage Applications Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060607a.jpg" width="353">
The total number of mortgage applications fell 1.4% last week and lowered the level in early June 4.8% below the May average which fell 2.2% from April.
Purchase applications were stable w/w but because of earlier declines the opening level in June was 3.2% below the May average. It was down 0.8% versus April.
During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance dropped 3.8% on top of the prior week&#39;s 4.8% skid. Refis opened June 7.5% below the May average which fell 4.1% from April.
The effective interest rate on a conventional 30-year mortgage dipped to 6.83% from 6.86% the prior week. Rates began June about even with the May average of 6.86% but were up sharply from the 5.81% low last June. The rate on 15-year financing was stable for the third week at 6.52%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Challenges of Conducting Effective Risk Management in Community Banks, yesterday&#39;s speech by Fed Governor Susan Schmidt Bies, is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060606/default.htm"> 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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/02/06</th>
<th scope="col">05/26/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>534.4</td>
<td>541.9</td>
<td>-29.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>395.6</td>
<td>395.5</td>
<td>-17.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,356.0</td>
<td>1,409.0</td>
<td>-42.6%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Inflation Expectations Rise 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 7, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060607b.jpg" width="353">
Inflation expectations were piqued this week by Fed Chairman Bernanke&#39;s <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060605/default.htm"> comments</a> that the three-month and six-month core PCE inflation figures at 3.0% and 2.3% were &quot;unwelcome developments.&quot;
As a result, the yield on the inflation-protected Treasury note rose to 2.44% from 2.40% on Monday but the yield on the nominal security fell to 5.01%. The so called TIPS spread narrowed to 2.57% from 2.62% on Monday.
Bernanke&#39;s comments implied that more inflation pressure existed than had been perceived but that the Fed would combat those pressures more forcefully than previously expected. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060607c.jpg" width="353">
The rise in the TIPS spread this year has followed a rise in 12 month inflation expectations to 4.7% in May from 3.8% in January, as surveyed by the University of Michigan.
Inflation Expectations: How the Market Speaks from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-25.pdf"> here</a>.
How much work the Fed still must do to contain inflation is the $64,000 question. Already it has lifted short term interest rates by 400 basis points to 5.0%. More action might be suggested, however, by a recent pickup in the y/y growth of the monetary base (liquidity) to 4.6%. It had slowed previously to 3.2% from 5.8% late in 2004. In addition, the &quot;real&quot; Fed funds rate fell as the three month growth in &quot;core&quot; PCE prices tripled to 3.0% in May versus last August.
The Shadow Open Market Committee can be visited <a href="http://www.somc.rochester.edu/"> here</a> and its Policy Statement from May, 2005 can be found <a href="http://www.somc.rochester.edu/May05/SOMCstatement505.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/DAILY/@D1/@D111/@D111.HTM">Treasury Inflation Indexed Securities</a></th>
<th scope="col">06/06/06</th>
<th scope="col">06/05/06</th>
<th scope="col">12/31/05</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">10 Yr. Treas. Note at Constant Maturity Due 1/15/16</td>
<td>2.44%</td>
<td>2.40%</td>
<td>2.06%</td>
</tr>
</tbody>
</table>
Austria's Wholesale Prices: Some Evidence of Mounting Inflation Pressure, but Clothing and Capital Goods Are Notable Exceptions 
by <a href="/comment/Stone.html">Carol Stone</a> June 7, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060607d.jpg" width="353">
Inflation is becoming a hot topic once again. For instance, Austria&#39;s wholesale prices for May, which were released today, jumped 3.4% year-on-year, their largest increase since March 2005. Fuel has the main upward thrust, but other items are seeing bigger price advances as well.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060607e.jpg" width="353">
In the table below, we see prices of food, consumer goods and &quot;intermediary&quot; goods rising more rapidly. Some individual items include pharmaceuticals, household appliances, nonferrous metals and iron and steel. This last had been falling steeply for just over a year, but suddenly in May, it has a year-to-year increase; at 0.9%, the rise is not large, but marks a turn from a declining trend. World commodities prices in addition to oil have been booming, and those advances look to be working their way into costs of products in even such a medium-size economy as Austria.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060607f.jpg" width="353">
A couple of exceptions stand out, however. Clothing prices continue deep in negative territory. This appears to be something of an exception as well, compared with other countries. Clothing prices have been declining at retail in most countries, but their producer prices have been increasing. Austria&#39;s products, though, seem to be getting cheaper. Capital goods prices have also been weakening, sustaining a trend in Austria that appears to have ended in most other countries, apart from computers and telecommunications equipment. It will be interesting to see in coming months if the Austrians can keep their finished equipment prices down in the face of the price increases in metals and other components.
Finally, petroleum products are becoming more expensive in Austria, just as everywhere else. At the same time, this force may be muted somewhat by the recent strengthening of the euro. In the third graph, we see that in 2000 the weakening euro was associated with very large increases in fuel prices in Austria. The subsequent strengthening of the currency accompanied relative weakening of energy prices. A rough negative relationship is evident, although the numerical correlation is low (around 18%). So we could then watch for relatively more moderate increases in energy costs, which of course, are priced in dollars in world markets.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ALPMED/@A1/@A14/@A142/@A142.HTM">Austria</a><a href="http://www.haverselect.com/dlx/ALPMED/@A1/@A14/@A142/@A142.HTM">: Wholesale Price Indexes, Yr/Yr % Changes</a></th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Total WPI</td>
<td>3.4</td>
<td>1.9</td>
<td>0.8</td>
<td>1.4</td>
<td>5.2</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>1.5</td>
<td>1.7</td>
<td>0.2</td>
<td>3.9</td>
<td>0.2</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">Intermediary Goods</td>
<td>7.0</td>
<td>3.6</td>
<td>1.9</td>
<td>-0.4</td>
<td>12.6</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>-1.1</td>
<td>-2.6</td>
<td>-1.3</td>
<td>-0.6</td>
<td>0.5</td>
<td>-0.4</td>
</tr>
<tr>
<td class="firstcol">&quot;Other&quot; Food*</td>
<td>1.1</td>
<td>0.8</td>
<td>0.3</td>
<td>0.3</td>
<td>1.1</td>
<td>0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing</td>
<td>-4.3</td>
<td>-6.2</td>
<td>-6.3</td>
<td>-3.4</td>
<td>-7.0</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">Motor Fuel</td>
<td>17.3</td>
<td>12.9</td>
<td>14.6</td>
<td>16.0</td>
<td>11.5</td>
<td>-1.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Machine Tools</td>
<td>0.7</td>
<td>0.1</td>
<td>0.8</td>
<td>1.4</td>
<td>1.4</td>
<td>0.5</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606e.jpg" width="353">
Like the NTC Economics Ltd. surveys of the intentions of purchasing managers in the manufacturing industries, that Carol Stone commented on last week, theMay survey of purchasing managers in the service industries is another sign of more growth to come in the Euro Zone despite rising oil prices and a strong euro.Growth has been stronger in the service industries than in the manufacturing as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606g.jpg" width="353">
For the Euro Zone, as a whole, the index rose to 58.69 in May from 58.33 in April. This is the highest value since November, 2003. (A value over 50 indicates expansion, one under 50, contraction.) PMI&#39;s are not available for all the individual members of the Euro Zone. For the service industries, only data for France, Germany, Ireland, Italy and Spain are available. Although the over-all index for the Euro Zone increased in May, the indexes for Spain and Germany fell. Some of the variations in purchasing managers intentions over the past year can be seen in the second chart. The intentions of purchasing managers in Italy have increased steadily and sharply over the past year while those in Spain have increased at slower rate and have had a more erratic path.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606f.jpg" width="353">
In addition to the purchasing managers intentions, NTC Economics also publishes monthly GDP Indicators for selected countries and areas. These indicators are based on the data collected in the surveys of the intentions of the purchasing managers in the manufacturing, service and construction industries. In the latest surveys, the indicators point to a 2.9% year-over-year growth for the Euro Zone. This indicator has been a fairly good predictor of GDP growth as can be seen in the third chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PMI Survey of Service Industries &gt;50=Growth &lt;50=Contraction</th>
<th scope="col">May 06</th>
<th scope="col">Apr 06</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Zone</td>
<td>58.69</td>
<td>58.33</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>60.58</td>
<td>59.39</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>56.67</td>
<td>57.25</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>66.16</td>
<td>65.58</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>61.82</td>
<td>59.63</td>
</tr>
<tr>
<td class="firstcol">Spain&nbsp;</td>
<td>54.69</td>
<td>56.49</td>
</tr>
</tbody>
</table>
</body>
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Like the NTC Economics Ltd. surveys of the intentions of purchasing managers in the manufacturing industries, that Carol Stone commented on last week, theMay survey of purchasing managers in the service industries is another sign of [...]

Good News for the Service Industries in the Euro Zone from the May PMI Surveys

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606d.jpg" width="353">
The April job openings rate as reported by the Bureau of Labor Statistics in the Job Openings &amp; Labor Turnover Survey (JOLTS) was unchanged at 2.9%, where it has been all year. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of job openings, however, ticked 0.1% higher to 4.095 million. That added to strong monthly gains earlier in the year and pulled the number of openings up 14.1% y/y.
Moving in the other direction the hires rate fell to 3.4%, the lowest level in a year, from 3.6% in March. The hires rate is the number of hires during the month divided by employment. The actual number of hires fell a sharp 7.0% (-0.7% y/y) after a 1.4% March decline.
The job separations rate fell to 3.3% from 3.5% in March and 3.4% in February. Separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment. The level of job separations dropped 5.6% (-4.2% y/y) to 4.419 million.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Job Openings Rate: Total</td>
<td>2.9%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.7%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.4%</td>
<td>3.6%</td>
<td>3.4%</td>
<td>3.6%</td>
<td>3.5%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

The April job openings rate as reported by the Bureau of Labor Statistics in the Job Openings & Labor Turnover Survey (JOLTS) was unchanged at 2.9%, where it has been all year. The job openings rate is the number of job openings on [...]

JOLTS: Job Openings Steady, Hires Rate Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606b.jpg" width="353">
Retail gasoline prices rose two cents last week to $2.89 per gallon (36.7% y/y). The rise left gas prices in early June off just slightly from an average $2.91 during May.
The spot market price for regular unleaded gasoline rose eight cents yesterday and that added to a four cent increase on Friday. As a result, the spot price at $2.09 per gallon in early June is up from $2.04 averaged during May.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606c.jpg" width="353">
The price of West Texas Intermediate crude oil also moved up yesterday to $72.60 per barrel versus $70.94 averaged during May.
Demand for gasoline demand has begun its usual seasonal rebound. During the last four weeks the demand for gasoline is up 5.0% versus a January low. That increase, however, is somewhat less than the 6-9% recoveries during early 2004 and early 2005. As a result, the four week average of gasoline demand versus the year ago level was roughly unchanged (-0.1%).
The latest Short-Term Energy and Summer Fuels Outlook from the U.S. Energy Information Administration can be found <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W403/@W40303/@W40303.HTM">US Weekly</a></th>
<th scope="col">06/05/06</th>
<th scope="col">05/29/06</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">U.S. Retail Gasoline, Regular per Gal.</td>
<td>$2.89</td>
<td>$2.87</td>
<td>36.7%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>
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Retail gasoline prices rose two cents last week to $2.89 per gallon (36.7% y/y). The rise left gas prices in early June off just slightly from an average $2.91 during May. The spot market price for regular unleaded gasoline rose eight [...]

Gasoline Prices Rose Last Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606a.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales stabilized last week and ticked 0.1% higher following two weeks of sharp decline.
As a result of w/w declines during May, sales in the opening week of June were 1.0% below the May average which fell 0.4% from April. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS rose for the first time since early March. A 0.2% increase nevertheless left the series down 2.5% versus one year ago and 4.1% from the recent peak in January.
Comments on the Outlook for the U.S. Economy and Monetary Policy, remarks by Chairman Ben S. Bernanke at the International Monetary Conference in Washington, D.C. can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060605/default.htm"> 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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/03/06</th>
<th scope="col">05/27/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>468.1</td>
<td>467.5</td>
<td>3.4%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales stabilized last week and ticked 0.1% higher following two weeks of sharp decline. As a result of w/w declines during May, sales in the opening [...]

Chain Store Sales Stabilize

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606a.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales stabilized last week and ticked 0.1% higher following two weeks of sharp decline.
As a result of w/w declines during May, sales in the opening week of June were 1.0% below the May average which fell 0.4% from April. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS rose for the first time since early March. A 0.2% increase nevertheless left the series down 2.5% versus one year ago and 4.1% from the recent peak in January.
Comments on the Outlook for the U.S. Economy and Monetary Policy, remarks by Chairman Ben S. Bernanke at the International Monetary Conference in Washington, D.C. can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060605/default.htm"> 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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/03/06</th>
<th scope="col">05/27/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>468.1</td>
<td>467.5</td>
<td>3.4%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Gasoline Prices Rose Last Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606b.jpg" width="353">
Retail gasoline prices rose two cents last week to $2.89 per gallon (36.7% y/y). The rise left gas prices in early June off just slightly from an average $2.91 during May.
The spot market price for regular unleaded gasoline rose eight cents yesterday and that added to a four cent increase on Friday. As a result, the spot price at $2.09 per gallon in early June is up from $2.04 averaged during May.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606c.jpg" width="353">
The price of West Texas Intermediate crude oil also moved up yesterday to $72.60 per barrel versus $70.94 averaged during May.
Demand for gasoline demand has begun its usual seasonal rebound. During the last four weeks the demand for gasoline is up 5.0% versus a January low. That increase, however, is somewhat less than the 6-9% recoveries during early 2004 and early 2005. As a result, the four week average of gasoline demand versus the year ago level was roughly unchanged (-0.1%).
The latest Short-Term Energy and Summer Fuels Outlook from the U.S. Energy Information Administration can be found <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W403/@W40303/@W40303.HTM">US Weekly</a></th>
<th scope="col">06/05/06</th>
<th scope="col">05/29/06</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">U.S. Retail Gasoline, Regular per Gal.</td>
<td>$2.89</td>
<td>$2.87</td>
<td>36.7%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>
JOLTS: Job Openings Steady, Hires Rate Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606d.jpg" width="353">
The April job openings rate as reported by the Bureau of Labor Statistics in the Job Openings &amp; Labor Turnover Survey (JOLTS) was unchanged at 2.9%, where it has been all year. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of job openings, however, ticked 0.1% higher to 4.095 million. That added to strong monthly gains earlier in the year and pulled the number of openings up 14.1% y/y.
Moving in the other direction the hires rate fell to 3.4%, the lowest level in a year, from 3.6% in March. The hires rate is the number of hires during the month divided by employment. The actual number of hires fell a sharp 7.0% (-0.7% y/y) after a 1.4% March decline.
The job separations rate fell to 3.3% from 3.5% in March and 3.4% in February. Separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment. The level of job separations dropped 5.6% (-4.2% y/y) to 4.419 million.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Job Openings Rate: Total</td>
<td>2.9%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.7%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.4%</td>
<td>3.6%</td>
<td>3.4%</td>
<td>3.6%</td>
<td>3.5%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
Good News for the Service Industries in the Euro Zone from the May PMI Surveys 
by <a href="/comment/Curley.html">Louise Curley</a> June 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606e.jpg" width="353">
Like the NTC Economics Ltd. surveys of the intentions of purchasing managers in the manufacturing industries, that Carol Stone commented on last week, theMay survey of purchasing managers in the service industries is another sign of more growth to come in the Euro Zone despite rising oil prices and a strong euro.Growth has been stronger in the service industries than in the manufacturing as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606g.jpg" width="353">
For the Euro Zone, as a whole, the index rose to 58.69 in May from 58.33 in April. This is the highest value since November, 2003. (A value over 50 indicates expansion, one under 50, contraction.) PMI&#39;s are not available for all the individual members of the Euro Zone. For the service industries, only data for France, Germany, Ireland, Italy and Spain are available. Although the over-all index for the Euro Zone increased in May, the indexes for Spain and Germany fell. Some of the variations in purchasing managers intentions over the past year can be seen in the second chart. The intentions of purchasing managers in Italy have increased steadily and sharply over the past year while those in Spain have increased at slower rate and have had a more erratic path.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060606f.jpg" width="353">
In addition to the purchasing managers intentions, NTC Economics also publishes monthly GDP Indicators for selected countries and areas. These indicators are based on the data collected in the surveys of the intentions of the purchasing managers in the manufacturing, service and construction industries. In the latest surveys, the indicators point to a 2.9% year-over-year growth for the Euro Zone. This indicator has been a fairly good predictor of GDP growth as can be seen in the third chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PMI Survey of Service Industries &gt;50=Growth &lt;50=Contraction</th>
<th scope="col">May 06</th>
<th scope="col">Apr 06</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Zone</td>
<td>58.69</td>
<td>58.33</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>60.58</td>
<td>59.39</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>56.67</td>
<td>57.25</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>66.16</td>
<td>65.58</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>61.82</td>
<td>59.63</td>
</tr>
<tr>
<td class="firstcol">Spain&nbsp;</td>
<td>54.69</td>
<td>56.49</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/060605c.jpg" width="353">
Corporate Financial data for nonfinancial corporations was published today and can be found in the Financial Section of Haver&#39;s Japan data base.
Profits before taxes for nonfinancial corporations in Japan rose 12.26% in the first quarter from the fourth quarter of last yearand were 4.05% above the first quarter of 2005. Profits as a percentage of sales reached are at an historically high level. To put the current data in perspective, we show, in the first chart, annual profits before taxes as a percentage of sales for the last fifty years. We use the annual data because of the seasonality in the quarterly data. In 2005, the percentage was 3.6% a figure not seen since the sixties and seventies. In the first quarter of this year, the ratio was 4.2%<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060605d.jpg" width="353">
Reflecting the improved profitability, nonfinancial corporations have stepped up capital spending. The excess of capital spending over depreciation allowances continues to grow as can be seen in the second chart. In the first quarter, capital spending increased 29.07% over the fourth quarter of last year and was 13.93% above the first quarter of 2005.Again, in view of the seasonality of the data, the year to year comparison is the more meaningful.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J1/@J105/@J105.HTM">Japan:</a><a href="http://www.haverselect.com/dlx/JAPAN/@J1/@J105/@J105.HTM">&nbsp; Corporate Financial Statistics</a></th>
<th scope="col">Q1 06</th>
<th scope="col">Q4 05</th>
<th scope="col">Q1 05</th>
<th scope="col">Q/Q % </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">Sales&nbsp;(Trillion Yen)</td>
<td>372.7</td>
<td>257.6</td>
<td>355.1</td>
<td>4.26</td>
<td>5.00</td>
<td>1378.1</td>
<td>1314.9</td>
<td>1257.1</td>
</tr>
<tr>
<td class="firstcol">Profits Before Taxes (Trillion Yen)</td>
<td>15.5</td>
<td>13.8</td>
<td>14.9</td>
<td>12.3</td>
<td>4.05</td>
<td>53.5</td>
<td>47.8</td>
<td>37.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Profits as Percent of Sales (%)</td>
<td>4.2</td>
<td>3.9</td>
<td>4.2</td>
<td>0.3*</td>
<td>0.0*</td>
<td>3.6</td>
<td>3.0</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Capital Expenditures (Trillion Yen)</td>
<td>15.6</td>
<td>12.1</td>
<td>13.7</td>
<td>29.07</td>
<td>13.93</td>
<td>48.8</td>
<td>45.0</td>
<td>41.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Depreciation Allowances (Trillion Yen)</td>
<td>11.5</td>
<td>10.1</td>
<td>11.4</td>
<td>13.98</td>
<td>0.96</td>
<td>40.5</td>
<td>40.1</td>
<td>28.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Corporate Financial data for nonfinancial corporations was published today and can be found in the Financial Section of Haver's Japan data base. Profits before taxes for nonfinancial corporations in Japan rose 12.26% in the first [...]

First Quarter, 2006 Corporate Profitability in Japan At Peak Levels: Fuels Increase in Capital Spending

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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Andrew Cates

**The global business cycle** 
The recent sharp decline in the Future Output Balance in the global composite PMI survey reflects a sudden deterioration in global business expectations. The sweeping tariffs, introduced in April 2025, have generated heightened uncertainty around trade policy and sparked fears of retaliatory actions from key trading partners. As a result, businesses worldwide are scaling back their expectations for future output, wary of rising costs, disrupted demand flows, and a broader shift toward protectionism that could undermine global economic momentum.

250507Z1.jpg

Note: The extreme declines in the Future Output Balance that were recorded in the early months of 2020 (at the height of the COVID pandemic) have been removed from this chart.

**Global supply chain pressures**
Still, despite the marked deterioration in global business expectations, this second chart below provides a reassuring counterpoint: as of now, there is little evidence that global supply chain pressures have materially intensified. Both the New York Fed’s Global Supply Chain Pressure Index and the Baltic Exchange Dry Index remain relatively subdued, especially compared to the pandemic-era spikes of 2020–2022. While there has been heightened concern following the April 2025 US tariff announcements, these trade policy shifts have yet to translate into measurable physical disruption in logistics or freight rates. The stability of these indices suggests that although sentiment has taken a hit, global shipping networks and supply flows are, for now, absorbing the shock. However, this calm may prove fragile if the policy environment hardens further or retaliatory trade actions begin to compound the strain.

250507Z2.jpg

**Expectations for central banks’ policy rates** 
Adding to the picture of mounting economic caution, the latest Blue Chip Financial Forecasts survey reveals that expectations for policy easing over the next 12 months have become even more pronounced than in previous months. While earlier surveys had already pointed to a further extension of the global rate-cutting cycle, the latest results suggest forecasters now anticipate a deeper and more aggressive round of monetary easing—most notably from the US Federal Reserve, which is now expected to deliver nearly a full percentage point in rate cuts over the next 12 months. The sharp deterioration in business sentiment is reshaping the macro narrative: central banks are no longer simply guiding inflation lower, but are instead preparing to confront the risk of a deeper, demand-driven slowdown.

250507Z3.jpg

**Energy prices and inflation** 
Adding further context to the growing expectations for policy easing, oil prices have dropped sharply in recent weeks—driven by mounting concerns over global growth, as reflected in weakening business sentiment and softer demand indicators. The chart below provides a longer-run perspective on why this matters: energy prices have historically played a central role in shaping the global inflation trajectory. The strong positive correlation (r = 0.83) between median world energy price inflation and median core consumer price inflation underscores the powerful pass-through effects energy costs can have on broader price dynamics. While core inflation tends to be stickier, this historical relationship makes clear that sustained declines in energy prices often foreshadow broader disinflationary trends.

250507Z4.jpg

**Intangibles versus tangibles** 
Shifting focus from short-term cyclical risks to longer-term structural dynamics, the next chart below underscores a fundamental transformation in the composition of US investment: the economy has increasingly been built on intangibles. Over the past several decades, investment in intangible assets—such as software, intellectual property, R&D, and brand equity—has steadily climbed and, since the mid-2010s, has overtaken investment in both structures and equipment as a share of GDP. This shift reflects the rise of a knowledge-based, innovation-driven economy, but it also introduces new forms of vulnerability. Unlike physical capital, intangible assets rely heavily on trust, reputation, legal protections, and global openness. In this context, escalating trade frictions and a more confrontational US economic stance—as signalled by the recent tariff wave—risk eroding the goodwill and institutional credibility that underpin much of the value created by intangibles. If geopolitical uncertainty undermines the perceived reliability of US intellectual property protections or weakens global collaboration, it could pose a deeper structural challenge to future growth than any immediate cyclical downturn.

250507Z5.jpg

**Investment in Artificial Intelligence**
The centrality of intangibles to the US growth model is nowhere more evident than in the explosion of private investment in artificial intelligence. As this chart illustrates, global AI investment has surged over the past decade—reaching new highs in 2024—and the United States has consistently accounted for the lion’s share of that spending. This reflects not only America’s previous leadership in frontier technologies but also its dependence on intangible capital, from algorithms and data infrastructure to human expertise and institutional trust. However, this dominance also underscores the strategic stakes of current policy choices. In an environment of rising trade tensions and potential fragmentation, the foundations of US leadership in AI—cross-border collaboration, data openness, and global market access—could be at risk.

250507Z6.jpg

Financial market sentiment has rebounded in recent weeks, buoyed by signs of de-escalation in the US-led trade war and growing confidence that central banks—particularly the Federal Reserve—will step in with more rate cuts to cushion any fallout. Yet beneath the surface, a more sobering picture of the global economy persists. For example, latest PMI surveys reveal that global business expectations have slumped to their lowest levels since the pandemic, reflecting widespread unease about the growth outlook (chart 1). While supply chain pressures have so far remained contained, suggesting no repeat of the logistical chaos seen during the pandemic (chart 2), the latest Blue Chip Financial Forecasts survey reveals that forecasters are now pencilling in deeper and more widespread monetary easing than previously anticipated—an acknowledgment that demand is faltering (chart 3). Falling oil prices further reinforce this view: they are both a symptom of weakening global demand and a potential source of disinflation, reducing the urgency for central banks to maintain tight policy (chart 4). At the structural level, the US economy's increasing reliance on intangible assets—ranging from intellectual property to reputation—has made it more vulnerable to geopolitical frictions and the erosion of global trust (chart 5). This risk is compounded by America's dominant role in AI investment, a sector symbolic of both its economic strengths and its exposure to international perceptions (chart 6). The longer-term challenge, then, is not just navigating the current downturn, but ensuring that the institutional goodwill and cross-border openness that support the modern US economy are not sacrificed in a more fragmented and uncertain global order.

Charts of the Week: Relief Rally Meets Recession Risk

250507J1.jpg

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At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was left unchanged at 4.25% to 4.50%. This followed reductions at three consecutive meetings in the fall of 2024. Rates remain below the high of 5.25% to 5.50% in place in mid-September. Today’s target range matched expectations in the Action Economics Forecast Survey.

The statement following the meeting indicated that, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”

“The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

The Fed continued, “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.”

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- FOMC holds funds rate target at late-December level.
- Risk assessments include higher unemployment & inflation.

FOMC Targeted Funds Rate Range Is Unchanged; Increased Risks Acknowledged

Kathleen Stephansen, CBE

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Consumer credit outstanding rose $10.2 billion (1.9% y/y) during March after declining by $0.6 billion (+1.7% y/y) during February, revised from a decline of $0.8 billion (+1.7% y/y. A $10.0 billion rise had been expected in the Action Economics Forecast Survey. As a percentage of disposable personal income, consumer credit was 22.4% in March, compared to 22.9% one year earlier.

Nonrevolving credit outstanding rose $8.3 billion (1.5% y/y) in March after easing $0.3 billion (1.3% y/y) in February. Nonrevolving credit held by depository institutions declined 7.8% y/y in March after declining 9.0% y/y in February. Finance company debt holdings rose 0.8% y/y, while credit union holdings eased 1.9% y/y in March. Nonrevolving debt held by the federal government rose 3.4% y/y.

In March, revolving credit outstanding, which includes credit cards, rose $1.9 billion (2.9% y/y) following a decline of $0.3 billion (2.9% y/y) in February. Revolving credit outstanding held by depository institutions fell 1.5% y/y. Revolving credit held by finance companies dropped 12.2% y/y, while that held by credit unions rose 3.7% y/y.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPNA** database.

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- Consumer credit rises close to expectations.
- Nonrevolving and revolving credit rise.


U.S. Consumer Credit Rebounded in March

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Mortgage applications increased 11.0% (26.0% y/y) in the week ended May 2, after declining 4.2% in the week ended April 25, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications to purchase a home rose 11.1% (12.9% y/y) in the week ended May 2 after declining 4.4% in the previous week. Loan applications to refinance a home loan also increased 11.1% (51.0% y/y) in the latest week after falling 3.7% in the prior week.

The effective interest rate on a 30-year fixed rate loan of 7.03% in the week ended May 2 compared to 7.08% in the prior week. The effective rate on a 15-year fixed rate loan of 6.34% in the week ended May 2 followed 6.36% in the prior week. The rate on a 30-year jumbo loan declined to 6.99% in the latest week from 7.06% in the prior week, while the rate on a 5-year ARM eased	to 6.08% in the week ended May 2 from 6.12% in the prior week.

The share of applications to refinance an existing mortgage slipped to 37.1% in the week ended May 2 from 37.3% in the prior week. The share of loans with an adjustable rate rose to 8.3% in the latest week from 7.4% one week earlier.

The average size of a mortgage loan rose 4.2% (3.8% y/y) to $400,200 in the week ended May 2, after slipping 0.7% to $384,100 in the prior week. The average size of a loan to purchase a home increased 1.0% (0.2% y/y) to $444,300 in the latest week from $440,100 in the week prior. The average size of a loan to refinance an outstanding mortgage increased 12.3% (27.6% y/y) last week to $325,400 from $289,800 one week earlier.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase & refinancing loan applications jump.
- Effective interest rates remain range-bound.
- Average loan size increases.

Mortgage Applications Surge as Interest Rates Ease Last Week

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The U.S. trade deficit in goods and services (BOP basis) in March grew to $140.5 billion after narrowing slightly to $123.2 billion in February, revised from $122.7 billion, after widening to $130.7 billion in January according to the U.S. Census Bureau. A $136.7 billion deficit was expected by the Action Economics Forecast Survey. Exports rose 0.2% (6.7% y/y) in March after increasing 2.8% in February. This was accompanied by a 4.4% rise (27.1% y/y) rise in imports which came after m/m stability in February. In Q1’25, the deficit grew to an average $131.4 billion, after rising to an average $83.3 billion in Q4’24.

The trade deficit in goods (BOP basis) widened to a record $163.2 billion in March from $147.9	 billion in February, revised from $147.0 billion. Goods exports (customs value) rose 1.4% (7.0% y/y) in March, after increasing 3.6% in February. The latest increase reflected an 8.2% (8.4% y/y) surge in auto exports which came after a 12.7% strengthening. A 3.5% (4.0% y/y) gain occurred in industrial supplies & materials exports which followed a 5.1% rise. Foods, feeds & beverage exports rose 6.6% (1.4% y/y) after declining in four of the prior five month. Working lower, capital goods exports fell 2.5% (+13.9% y/y) in March after a 4.	8% increase and nonauto consumer goods exports were off 1.1% (+3.4% y/y) in March after a 2.4% gain.

Imports of goods increased 5.5% (31.4% y/y) in March after a 0.2% February easing. Imports of nonauto consumer goods imports surged 27.9% (56.0% y/y) following a 3.1% February gain. Auto imports rose 6.6% (8.7% y/y) after a 1.2% rise. Capital goods imports rose 4.2% (22.5% y/y) following a 1.1% rise. Foods, feeds & beverage imports eased 0.4% (+11.1% y/y) following a 2.0% weakening. Industrial supplies & materials imports declined 12.4% (+39.5% y/y) after weakening 4.6% in February. Petroleum imports by end-use fell 4.1% (-10.2% y/y) after a 2.9% decline. Nonpetroleum imports increased 6.0% (34.8% y/y) after holding steady in February.

The inflation-adjusted goods trade deficit (customs value) deepened to $150.9 billion in March from $136.9 billion in February. Real exports rose 1.6% (5.3% y/y) after a 3.0% February increase, while real imports rose 5.8% (29.8% y/y) in March following a 0.5% February slip.

The services trade surplus narrowed to $23.0 billion in March after decreasing to $23.8 billion in February. It reached a peak of $25.7 billion in November of last year. Service exports fell 0.9% (+5.7% y/y) after a 0.8% decline in February. Construction services exports rose 1.0% (37.7% y/y) after increasing 2.6% in February. Travel services exports fell 7.1% (-3.7% y/y) and financial exports increased 0.9% (7.3% y/y). Transport exports rose 3.1% (2.4% y/y). Service imports eased 0.1% (+10.8% y/y) in March following a 0.8% gain. Maintenance & repair services declined 1.5% (+32.1% y/y) while imported transport services increased 1.2% (1.7% y/y). Imported travel services fell 2.2% (5.3% y/y) while charges for use of intellectual property rose 1.0% (13.6 y/y).

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $24.8 billion in March from $26.6 billion in February. Exports to China declined 8.2% (-10.5% y/y) while imports weakened 7.2% (-2.7% y/y). The deficit with the European Union deepened to a record $48.3 billion in March from $30.9 billion in February. Exports rose 10.9% (14.5% y/y) while imports soared 34.0% (65.4% y/y). The deficit with Japan deepened to $5.8 billion from $5.2 billion in February. Exports rose 1.8% (8.8% y/y) and imports rose 6.4% (9.9% y/y).

The international trade data, including relevant data on oil prices, can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Goods deficit grows as imports surge ahead of tariff imposition.
- Exports edge higher, led by autos.
- Petroleum product imports fall as crude oil prices decline.

Economy in Brief

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