Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060428a.jpg" width="353">
US real growth during 1Q06 rebounded smartly to 4.8% (AR) from a lull the prior quarter at 1.7%, but the two quarter average of growth at 3.2% was somewhat depressed from the 3.9% quarterly average of 2004 &amp; 2005. The 1Q increase about matched Consensus expectations for a 5.0% increase while the widespread forecast is for 3.5% growth this quarter.
Personal consumption expenditures bounced back to a 5.5% (3.4% y/y) rate of growth from the 0.9% 4Q pause. Motor vehicles &amp; parts consumption grew 19.8% (-4.5% y/y) but that only recovered half of the prior period&#39;s slump. Furniture &amp; household equipment spending continued strong with a 23.3% (13.3% y/y) rate of growthand apparel spending also advanced a firm 7.8% (7.1% y/y).
Defense spending recovered all of its 4Q slump with a 10.3% (3.5% y/y) advance and that contributed 0.5% percentage points to 1Q GDP growth.
Growth in business fixed investment nearly doubled the already strong 4Q rate of growth with a 17.9% (12.1% y/y) advance. Much of the acceleration owed to a 10.8% (8.1% y/y) rise in information processing equipment &amp; software which more than doubled the prior quarter&#39;s rate of advance. Industrial equipment, however, again was strong with a 12.2% (6.9% y/y) increase and investment in transportation equipment jumped 45.0% (15.0% y/y). That more than recouped a 4Q decline. Structures spending again was quite firm and registered 22.3% (19.5% y/y) growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060428b.jpg" width="353">
Business Capital Spending, a speech by Federal Reserve Board Governor Donald L. Kohn yesterday to the Forecasters Club of New York, can be found <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2006/20060427/default.htm"> here</a>.
A wider foreign trade deficit subtracted another 0.8 percentage points from GDP growth last quarter as a 12.1% (7.5% y/y) advance in exports was outpaced by 13.0% (6.6% y/y) growth in imports.
Inventories reversed a piece of the prior quarter&#39;s positive contribution to GDP growth with a 0.5% subtraction.
The GDP chain price index remained firm and grew 3.3%. Strength again owed much to the price index for the government sector which advanced 5.0% (5.2% y/y). The PCE chain price index rose a moderate 2.0% (3.0% y/y) and the price index for business equipment &amp; software was unchanged (-0.9% y/y) following several quarters of decline.
The latest Beige Book from The Federal Reserve Board covering economic activity in the twelve Federal Reserve Districts can be found <a href="http://www.federalreserve.gov/FOMC/BeigeBook/2006/20060426/default.htm"> 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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">1Q &#39;06</th>
<th scope="col">4Q &#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>4.8%</td>
<td>1.7%</td>
<td>3.5%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.5%</td>
<td>1.9%</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>5.4%</td>
<td>-0.2%</td>
<td>3.8%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.8%</td>
<td>-1.4%</td>
<td>0.1%</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>5.9%</td>
<td>1.1%</td>
<td>3.9%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.3%</td>
<td>3.5%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Slipped in Late April 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 28, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060428d.jpg" width="353">
Consumer sentiment slipped late this month. The final reading from the University of Michigan&#39;s stood a 87.4 versus a preliminary indication of 89.2 posted two weeks ago. Consensus expectations had been for a reading of 89.0.
Expectations for the economy worsened and for price inflation, moved up. 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 ended up about unchanged index for the month versus a preliminary indication of moderate m/m 1.8% improvement. The index of personal finances rose slightly (5.3% y/y) after a sharp gain during March but the reading of buying conditions for large household goods was unchanged (4.4% y/y). Consumers&#39; assessment of gov&#39;t economic policy fell hard late in the month and was unchanged for the whole period versus March (-4.5% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060428c.jpg" width="353">
The index of consumer expectations fell 3.4% m/m and that was much worse than the preliminary indication of a 1.2% slip. The near term economic outlook took a powder late in the month and fell 10.4% y/y and the long term outlook reversed much of the prior month&#39;s improvement (-8.8% y/y).
The mean expected inflation rate for the next twelve months jumped to 4.4% from an expected 3.8% last month due the rise in gasoline prices.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">April</th>
<th scope="col">March</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>87.4</td>
<td>88.9</td>
<td>-0.3%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>109.2</td>
<td>109.1</td>
<td>4.6%</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>73.4</td>
<td>76.0</td>
<td>-4.7%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Employment Cost Index Eased 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 28, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060428e.jpg" width="353">
The employment cost index for private industry workers rose a moderate 0.6% last quarter after a downwardly revised 0.7% increase to close out 2005. Downward revisions to earlier quarters (mostly in benefit costs) resulted in a picture of sharp deceleration in compensation costs during the last two years. Consensus expectations had been for a 0.9% 1Q increase.
The 2.6% increase in the ECI during the last twelve months was the slowest in ten years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060428f.jpg" width="353">
The 0.4% 1Q increase in benefit costs halved the prior quarter&#39;s growth rate and continued a downtrend that since early 2004 has pulled the y/y growth rate to 2.9% from 7.2%. (Annual growth during 2004 was revised to 6.6% from 10.1% reported earlier.)
Wage and salary growth was up slightly to 0.7% from 0.6% averaged during 2005. Service producing industries saw a 0.8% (2.4% y/y) gain while factory sector wages grew 0.5% (NSA, 2.5% y/y).
The latest release encompassed several revisions. To review the latest changes visit BLS <a href="http://www.bls.gov/news.release/eci.nr0.htm">site</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col">1Q &#39;06</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.6%</td>
<td>0.7%</td>
<td>2.6%</td>
<td>3.0%</td>
<td>3.7%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.7%</td>
<td>0.6%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.4%</td>
<td>0.7%</td>
<td>2.9%</td>
<td>4.0%</td>
<td>6.6%</td>
<td>6.5%</td>
</tr>
</tbody>
</table>
Jobs in Canada Show Pick-Up, Even in Manufacturing 
by <a href="/comment/Stone.html">Carol Stone</a> April 28, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060428g.jpg" width="353">
Besides its monthly labor force survey to measure the number of people employed, Statistics Canada also conducts a survey of establishments, similar to that in the United States. These industry establishment data are part of the compilation of Canada&#39;s monthly GDP series. As with the labor force series, the industry data show good jobs growth in the first two months of 2006, including gains of 15,087 and 34,641 in January and February, respectively.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060428h.jpg" width="353">
At the same time, the establishment data indicate some firming in the manufacturing sector that is not evident in the labor force series. After a long decline, the former began to turn upward in November; the cumulative increase over the four months is only 12,600, but it includes a more marked upturn in the durable goods sector totaling 18,300 since last July. Employment at nondurable goods manufacturers continues in a downward drift. By contrast, the labor force measure shows that the number of people working in manufacturing is still falling, a decrease of 1.2% since October, compared to the 0.7% increase in manufacturing company jobs. These series are not well correlated month-to-month, and can be erratic, so these comparisons could easily be erased by one or two months of reversals in either dataset. Even so, the gain in manufacturing establishment jobs is intriguing, and the labor force series bears monitoring for a sign of new growth there.
Service sector jobs are picking up steam in the establishment data. These had slowed to just a 1.4% increase in 2004, but grew 1.9% last year and through February were already 2.4% ahead of a year ago. The gain in the service industries and the better performance of manufacturing are contributing to growth in Canada&#39;s monthly GDP of 3.3% year-on-year in February, somewhat firmer than last year&#39;s overall increase of 3.0%.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CANSIM/@C6/@C6.HTM">SA, Thousands</a></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">Total NAICS Industries</td>
<td>13,922</td>
<td>13,887</td>
<td>13,647</td>
<td>13,743</td>
<td>13,515</td>
<td>13,337</td>
</tr>
<tr>
<td class="firstcol">Mo/Mo (000) &amp; Yr/Yr % Changes</td>
<td>34.6</td>
<td>15.1</td>
<td>2.0%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>1,950</td>
<td>1,944</td>
<td>1,967</td>
<td>1,952</td>
<td>1,991</td>
<td>2,045</td>
</tr>
<tr>
<td class="firstcol">Mo/Mo (000) &amp; Yr/Yr % Changes</td>
<td>6.1</td>
<td>-4.9</td>
<td>-0.8%</td>
<td>-2.0%</td>
<td>-2.6%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Service Producing</td>
<td>10,709</td>
<td>10,682</td>
<td>10,463</td>
<td>10,550</td>
<td>10,351</td>
<td>10,213</td>
</tr>
<tr>
<td class="firstcol">Mo/Mo (000) &amp; Yr/Yr % Changes</td>
<td>26.9</td>
<td>18.9</td>
<td>2.4%</td>
<td>1.9%</td>
<td>1.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP: Mo/Mo &amp; Yr/Yr % Changes</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>3.2%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>


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US real growth during 1Q06 rebounded smartly to 4.8% (AR) from a lull the prior quarter at 1.7%, but the two quarter average of growth at 3.2% was somewhat depressed from the 3.9% quarterly average of 2004 & 2005. The 1Q increase [...]

US GDP Growth Back on Track in 1Q

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/060427a.jpg" width="353">
Initial claims for jobless insurance are hovering in a narrow range as they once again reversed their previous week&#39;s move. After falling in the April 15 week from 314,000 to 304,000, they rose to 315,000 in the April 22 week. Consensus expectations had been for a nearly unchanged reading at 305,000.
The prior week included both Christian and Jewish religious holidays, and that may have restrained filings in some areas. So it seems only a modest surprise that claims rebounded a bit last week. The four-week moving average is 308,500, within a few thousand of its level since early March. This is 6.5% below the year-ago amount.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060427b.jpg" width="353">
Continuing claims for unemployment insurance rose 22,000 during the latest week, but the prior week was revised downward by 12,000, so there&#39;s a net increase of just 10,000 from the unrevised level.
The insured rate of unemployment continues at 1.9%, where it&#39;s been for almost two months. Notably, the lowest level ever for this rate was right at the end of the tech boom in the spring of 2000, when it was 1.6%. The current 1.9% reading is the next lowest in the 35-year history of these data.

<table border="0" cellspacing="0" width="100%">
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<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">04/22/06</th>
<th scope="col">04/15/06</th>
<th scope="col">04/08/06</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>315</td>
<td>304</td>
<td>314</td>
<td>-3.1%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,449</td>
<td>2,427</td>
<td>-5.4%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
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Initial claims for jobless insurance are hovering in a narrow range as they once again reversed their previous week's move. After falling in the April 15 week from 314,000 to 304,000, they rose to 315,000 in the April 22 week. [...]

Initial Claims for Unemployment Insurance Maintain Tight Range

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426g.jpg" width="353">
In the UK, the first major economy to report for Q1, growth maintained a 0.6% quarterly rate, the same as in Q4. However, growth was much more evenly balanced among various sectors, so the gain can be viewed more favorably because it is more broadly based.
Production industries, in particular, turned up after four consecutive quarterly declines, and at 0.7% growth, had their best performance since Q3 1999. All three major sectors, mining (including oil and gas extraction), manufacturing and utilities, participated.
Service industries, in contrast, slowed from their pace in the second half of last year, although their 0.6% growth remained in a range that has characterized the last several years. In Q1, the distribution, lodging and catering industries were flat following a sizable increase in Q4. Transportation and communications increased 0.9% after Q4&#39;s 1.5%; this sector has been somewhat less volatile in recent quarters than the saw-tooth pattern it has generally traced over the past 20 years. The business services and finance sector has been smoothing even more. It grew almost exactly 1.0% in Q1, equal to its six-quarter average increase. So while the latest gain isn&#39;t the largest ever, it is far more likely to be sustained than the pointed ups and downs of the years before 2004.
So the UK experienced growth this past quarter that is steadier and broader than before. This combination, like diversity in an investment portfolio, puts that economy in a better position to withstand adverse developments in the months ahead, such as still higher energy prices or other inflationary stresses. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426h.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426i.jpg" width="353">

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U2/@U2.HTM">United Kingdom:</a> (Chained, SA, 2002=100)</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year/ Year</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>0.6</td>
<td>0.6</td>
<td>0.5</td>
<td>2.2</td>
<td>1.8</td>
<td>3.1</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Production Industries</td>
<td>0.7</td>
<td>-0.9</td>
<td>-0.7</td>
<td>-1.0</td>
<td>-1.9</td>
<td>0.6</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Service Industries</td>
<td>0.6</td>
<td>1.0</td>
<td>0.8</td>
<td>3.0</td>
<td>2.8</td>
<td>3.5</td>
<td>2.7</td>
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In the UK, the first major economy to report for Q1, growth maintained a 0.6% quarterly rate, the same as in Q4. However, growth was much more evenly balanced among various sectors, so the gain can be viewed more favorably because it [...]

UK GDP: Broader, Steadier Growth in Q1

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426e.jpg" width="353">
The total number of mortgage applications dropped 3.7% last week, down hard for the third consecutive period. In April applications are 2.4% below the March average which fell 1.0% from February.
Purchase applications fell another 4.4% w/w and that pulled the April average 0.7% below March which rose 0.2% versus February.
During the last ten 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 2.4% and in April are 4.9% below the March average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426f.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage eased slightly to 6.75% from 6.78% the prior week while the rate on 15-year financing slipped to 6.45%. 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>.

<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">04/21/06</th>
<th scope="col">04/14/06</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>548.6</td>
<td>569.6</td>
<td>-23.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.4</td>
<td>407.4</td>
<td>-19.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,489.4</td>
<td>1,526.1</td>
<td>-27.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications dropped 3.7% last week, down hard for the third consecutive period. In April applications are 2.4% below the March average which fell 1.0% from February. Purchase applications fell another [...]

Mortgage Applications Plummet

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426c.jpg" width="353">
Last month new home sales showed surprising resilience with a 13.8% jump to 1.21 million (SAAR), the highest level this year. The jump contrasted to Consensus expectations for a more moderate increase to 1.115M and a 10.9% drop during February was little revised.
Despite last month&#39;s increase in sales, the latest level was 11.5% below last July&#39;s peak and sales during the first quarter were 9.4% below the 2005 average.
On the up trend has been the number of homes up for sale. That figure rose 2.8% last month and it&#39;s up by nearly one quarter during the last twelve months. Most pronounced is the 60.6% y/y gain in homes for sale in the Northeast.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426d.jpg" width="353">
Gains in March sales throughout the nation were robust but most pronounced was a 35.7% (-13.1% y/y) jump out West which recovered about all of the prior month&#39;s plunge. Sales in the Midwest also were strong and rose 10.9% (-8.9% y/y) while sales in the Northeast rose 4.7% (-15.2% y/y). The 6.9% gain in sales down South (-2.3% y/y) recovered nearly all of the declines during the prior two months.
Prices were under pressure as suggested by a 6.5% (-2.2% y/y decline in the median sales price. The average sales price fell 7.1% (-3.6% y/y) suggesting either more price discounting of large homes or greater sales declines of large homes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">Mar</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>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,213</td>
<td>1,066</td>
<td>-7.2%</td>
<td>1,279</td>
<td>1,200</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$224,200</td>
<td>$239,900</td>
<td>-2.2%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
</body>
</html>

Last month new home sales showed surprising resilience with a 13.8% jump to 1.21 million (SAAR), the highest level this year. The jump contrasted to Consensus expectations for a more moderate increase to 1.115M and a 10.9% drop during [...]

New Home Sales Surged Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426a.jpg" width="353">
New orders for durable goods jumped 6.1% last month and the 3.4% February increase was upwardly revised. The jump pulled the y/y increase in orders to 17.7%, its strongest in six years, and the m/m gain by far outpaced Consensus expectations for a 1.8% rise. Moreover, the details of the report were constructive for factory sector activity.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
Higher orders for nondefense aircraft &amp; parts led last month&#39;s strength with a 71.1% (329.3% y/y) spike that followed the 59.9% February spurt. And new orders for motor vehicles &amp; parts reversed the prior month&#39;s decline with a 2.8% (4.2% y/y) rise.
Less the transportation sector altogether, durable goods orders rose 2.8% which more than made up for a little revised 1.1% decline during February.
Orders for computers &amp; electronic products were notably strong last month and posted a 7.5% (7.4% y/y) gain while machinery orders recouped about all of the prior month&#39;s decline with a 7.5% (16.3% y/y) increase. Also strong were orders for fabricated metals which increased 1.3% (7.1% y/y) and orders for primary metals rose 1.1% (8.5% y/y). Electrical equipment orders were the laggard last month and fell 1.8% (+13.2% y/y) after a 4.1% February drop.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426b.jpg" width="353">
Orders for nondefense capital goods jumped 12.1% with higher Boeing orders but orders less aircraft still increased 3.0% after a 0.8% February decline that was shallower than initially reported.
During the last ten years there has been an 87% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Shipments of durable goods increased 0.3% (7.6% y/y) following a 0.4% February rise and less the transportation sector shipments were unchanged (8.1% y/y) following a 0.4% February increase. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs surged 2.8% (20.9% y/y), a jump dominated by the strength in unfilled orders for aircraft &amp; parts which rose 6.6% (70.6% y/y). Less transportation backlogs also were strong and rose 1.3% (10.8% y/y) lifting the ratio of backlogs to shipments outside of transportation to the highest level since November.
Durable inventories rose 0.7% (3.0% y/y) after a 0.4% February decline. Less transportation inventories rose an identical 0.7% (3.4% y/y) while the inventory to sales ratio outside of the transportation sector rose to the highest level since November.

<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/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Mar</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">Durable Goods Orders</td>
<td>6.1%</td>
<td>3.4%</td>
<td>17.7%</td>
<td>8.6%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>2.8%</td>
<td>-1.1%</td>
<td>9.6%</td>
<td>8.6%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>12.1%</td>
<td>4.0%</td>
<td>31.5%</td>
<td>20.0%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>3.0%</td>
<td>-0.8%</td>
<td>11.8%</td>
<td>10.7%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

New orders for durable goods jumped 6.1% last month and the 3.4% February increase was upwardly revised. The jump pulled the y/y increase in orders to 17.7%, its strongest in six years, and the m/m gain by far outpaced Consensus [...]

U.S. Durable Goods Orders' Rise = Factory Sector Resilience

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426a.jpg" width="353">
New orders for durable goods jumped 6.1% last month and the 3.4% February increase was upwardly revised. The jump pulled the y/y increase in orders to 17.7%, its strongest in six years, and the m/m gain by far outpaced Consensus expectations for a 1.8% rise. Moreover, the details of the report were constructive for factory sector activity.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
Higher orders for nondefense aircraft &amp; parts led last month&#39;s strength with a 71.1% (329.3% y/y) spike that followed the 59.9% February spurt. And new orders for motor vehicles &amp; parts reversed the prior month&#39;s decline with a 2.8% (4.2% y/y) rise.
Less the transportation sector altogether, durable goods orders rose 2.8% which more than made up for a little revised 1.1% decline during February.
Orders for computers &amp; electronic products were notably strong last month and posted a 7.5% (7.4% y/y) gain while machinery orders recouped about all of the prior month&#39;s decline with a 7.5% (16.3% y/y) increase. Also strong were orders for fabricated metals which increased 1.3% (7.1% y/y) and orders for primary metals rose 1.1% (8.5% y/y). Electrical equipment orders were the laggard last month and fell 1.8% (+13.2% y/y) after a 4.1% February drop.
Orders for nondefense capital goods jumped 12.1% with higher Boeing orders but orders less aircraft still increased 3.0% after a 0.8% February decline that was shallower than initially reported.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426b.jpg" width="353">
During the last ten years there has been an 87% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Shipments of durable goods increased 0.3% (7.6% y/y) following a 0.4% February rise and less the transportation sector shipments were unchanged (8.1% y/y) following a 0.4% February increase. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs surged 2.8% (20.9% y/y), a jump dominated by the strength in unfilled orders for aircraft &amp; parts which rose 6.6% (70.6% y/y). Less transportation backlogs also were strong and rose 1.3% (10.8% y/y) lifting the ratio of backlogs to shipments outside of transportation to the highest level since November.
Durable inventories rose 0.7% (3.0% y/y) after a 0.4% February decline. Less transportation inventories rose an identical 0.7% (3.4% y/y) while the inventory to sales ratio outside of the transportation sector rose to the highest level since November.

<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/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Mar</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">Durable Goods Orders</td>
<td>6.1%</td>
<td>3.4%</td>
<td>17.7%</td>
<td>8.6%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>2.8%</td>
<td>-1.1%</td>
<td>9.6%</td>
<td>8.6%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>12.1%</td>
<td>4.0%</td>
<td>31.5%</td>
<td>20.0%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>3.0%</td>
<td>-0.8%</td>
<td>11.8%</td>
<td>10.7%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
New Home Sales Surged Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426c.jpg" width="353">
Last month new home sales showed surprising resilience with a 13.8% jump to 1.21 million (SAAR), the highest level this year. The jump contrasted to Consensus expectations for a more moderate increase to 1.115M and a 10.9% drop during February was little revised.
Despite last month&#39;s increase in sales, the latest level was 11.5% below last July&#39;s peak and sales during the first quarter were 9.4% below the 2005 average.
On the up trend has been the number of homes up for sale. That figure rose 2.8% last month and it&#39;s up by nearly one quarter during the last twelve months. Most pronounced is the 60.6% y/y gain in homes for sale in the Northeast.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426d.jpg" width="353">
Gains in March sales throughout the nation were robust but most pronounced was a 35.7% (-13.1% y/y) jump out West which recovered about all of the prior month&#39;s plunge. Sales in the Midwest also were strong and rose 10.9% (-8.9% y/y) while sales in the Northeast rose 4.7% (-15.2% y/y). The 6.9% gain in sales down South (-2.3% y/y) recovered nearly all of the declines during the prior two months.
Prices were under pressure as suggested by a 6.5% (-2.2% y/y decline in the median sales price. The average sales price fell 7.1% (-3.6% y/y) suggesting either more price discounting of large homes or greater sales declines of large homes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">Mar</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>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,213</td>
<td>1,066</td>
<td>-7.2%</td>
<td>1,279</td>
<td>1,200</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$224,200</td>
<td>$239,900</td>
<td>-2.2%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
Mortgage Applications Plummet 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426e.jpg" width="353">
The total number of mortgage applications dropped 3.7% last week, down hard for the third consecutive period. In April applications are 2.4% below the March average which fell 1.0% from February.
Purchase applications fell another 4.4% w/w and that pulled the April average 0.7% below March which rose 0.2% versus February.
During the last ten 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 2.4% and in April are 4.9% below the March average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426f.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage eased slightly to 6.75% from 6.78% the prior week while the rate on 15-year financing slipped to 6.45%. 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>.

<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">04/21/06</th>
<th scope="col">04/14/06</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>548.6</td>
<td>569.6</td>
<td>-23.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.4</td>
<td>407.4</td>
<td>-19.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,489.4</td>
<td>1,526.1</td>
<td>-27.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK GDP: Broader, Steadier Growth in Q1 
by <a href="/comment/Stone.html">Carol Stone</a> April 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426g.jpg" width="353">
In the UK, the first major economy to report for Q1, growth maintained a 0.6% quarterly rate, the same as in Q4. However, growth was much more evenly balanced among various sectors, so the gain can be viewed more favorably because it is more broadly based.
Production industries, in particular, turned up after four consecutive quarterly declines, and at 0.7% growth, had their best performance since Q3 1999. All three major sectors, mining (including oil and gas extraction), manufacturing and utilities, participated.
Service industries, in contrast, slowed from their pace in the second half of last year, although their 0.6% growth remained in a range that has characterized the last several years. In Q1, the distribution, lodging and catering industries were flat following a sizable increase in Q4. Transportation and communications increased 0.9% after Q4&#39;s 1.5%; this sector has been somewhat less volatile in recent quarters than the saw-tooth pattern it has generally traced over the past 20 years. The business services and finance sector has been smoothing even more. It grew almost exactly 1.0% in Q1, equal to its six-quarter average increase. So while the latest gain isn&#39;t the largest ever, it is far more likely to be sustained than the pointed ups and downs of the years before 2004.
So the UK experienced growth this past quarter that is steadier and broader than before. This combination, like diversity in an investment portfolio, puts that economy in a better position to withstand adverse developments in the months ahead, such as still higher energy prices or other inflationary stresses. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426h.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426i.jpg" width="353">

<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/UK/@U2/@U2.HTM">United Kingdom:</a> (Chained, SA, 2002=100)</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year/ Year</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>0.6</td>
<td>0.6</td>
<td>0.5</td>
<td>2.2</td>
<td>1.8</td>
<td>3.1</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Production Industries</td>
<td>0.7</td>
<td>-0.9</td>
<td>-0.7</td>
<td>-1.0</td>
<td>-1.9</td>
<td>0.6</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Service Industries</td>
<td>0.6</td>
<td>1.0</td>
<td>0.8</td>
<td>3.0</td>
<td>2.8</td>
<td>3.5</td>
<td>2.7</td>
</tr>
</tbody>
</table>
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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

Jump to:

US GDP Growth Back on Track in 1Q

Initial Claims for Unemployment Insurance Maintain Tight Range

Initial Claims for Unemployment Insurance Maintain Tight Range

UK GDP: Broader, Steadier Growth in Q1

Mortgage Applications Plummet

New Home Sales Surged Unexpectedly

U.S. Durable Goods Orders' Rise = Factory Sector Resilience

U.S. Durable Goods Orders' Rise = Factory Sector Resilience