Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060424a.jpg" width="353">
The domestic spot price for a barrel of West Texas Intermediate crude oil settled at $73.83 on Friday, driven by Mid East supply concerns and strong demand. That easily surpassed last August&#39;s high of $70 reached in the wake of Hurricane Katrina.
Just ahead of the peak summer driving season, retail gasoline prices at $2.78 per gallon additionally have been boosted by supply shortages (especially for high test) by the phase-out of MTBE for ethanol.
Adjusted for the inflation in &quot;core&quot; consumer prices, gasoline prices are at the all time high reached in 1981, although prices remain low compared to other liquids such as Evian water ($21.19/gallon) and Gatorade ($10.17/gallon).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060424b.jpg" width="353">
Growth in demand for gasoline recently wobbled, but the y/y rise of 0.2% in the four week average added to gains which ranged between 1.0% and 2.6% during the prior five years. Growth in the number of miles driven by U.S. motor cars has ranged near 2% this decade, down somewhat from 2.6% during the 1990s and the average fuel consumed per car rose last year to 557 gallons, up 14% from a low during 1991. The figure is, however, down by one quarter since the early 1970s. This data is available in Haver&#39;s USECON database.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060424c.jpg" width="353">
Inflationary concerns fueled Friday&#39;s gold price to $623.50 per ounce, up 20.8% since the end of last year. Since 1980 there has been a 56% correlation between the level of gold prices and the y/y change in consumer prices.
Industrial metal prices also have been strong with the JoC-ECRI Industrial Metals Prices Index up 18.9% this year driven by strength in aluminum prices (up 16.5%), copper scrap (up 16.5%) and zinc (up 65.1%). Additionally, high grade copper prices have risen 34.4% since year end &#39;05. Growth in industrial production is behind the rise and during the last ten years there has been a 49% correlation between the level of industrial metals&#39; prices and the y/y change in OECD Big Seven industrial production.
Gasoline Affordability from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20041101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">04/18/06</th>
<th scope="col">12/27/05</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">Light Sweet Crude Oil, WTI&nbsp; (per bbl.)</td>
<td>$71.36</td>
<td>$58.16</td>
<td>36.4%</td>
<td>$58.16</td>
<td>$41.78</td>
<td>$32.78</td>
</tr>
<tr>
<td class="firstcol">U.S. Retail Gasoline (per gallon)</td>
<td>$2.78</td>
<td>$2.20</td>
<td>24.4%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr class="odd">
<td class="firstcol">Gold: Handy &amp; Harmon (per Troy Oz., EOP)</td>
<td>$614.75</td>
<td>$507.40</td>
<td>28.3%</td>
<td>$507.40</td>
<td>$443.40</td>
<td>$416.25</td>
</tr>
<tr>
<td class="firstcol">High Grade Copper (Comex, /Lb., EOP)</td>
<td>$3.06</td>
<td>$2.28</td>
<td>105.5%</td>
<td>$2.28</td>
<td>$1.54</td>
<td>$1.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Stainless Steel Scrap (/ton, EOP)</td>
<td>$1,574</td>
<td>$1,268</td>
<td>-8.0%</td>
<td>$1,268</td>
<td>$1,558</td>
<td>$1,265</td>
</tr>
</tbody>
</table>
Manufacturers in Belgium and France Report Improving Current Conditions and Prospects:  Wholesale and Retail Trade Merchants in Belgium Less Optimistic 
by <a href="/comment/Curley.html">Louise Curley</a> April 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060424d.jpg" width="353">
The results of the April surveys of business conditions in the Euro Zone are beginning to appear. Most of these surveys are expressed in terms of the percent balance between those who see improvement and those who see deterioration.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060424e.jpg" width="353">
France and Belgium reported today. Both countries showed improved sentiment, particularly when compared with a year ago, as can be seen in the first chart, which compares the year-to-year changes in the percent balance reporting on the general outlook for manufacturing in both countries.
Improvement in sentiment regarding foreign orders has played a significant part in the overall improvement in sentiment in both countries. The upward trends in the percent balances from big to small negatives in the case of Belgium and from big negatives to positives in the case of France are shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060424f.jpg" width="353">
The Belgium survey is much broader than the French. The French survey conducted by INSEE (Institute National de Statisque et Etudes Economique) covers only the manufacturing industry, while the Belgium survey conducted by the National Bank of Belgium covers, in addition to manufacturing, other industry, wholesale and retail trade, the construction, ex public works, and service industries. The most marked differences among business opinion in Belgium are seen between those engaged in business services and those engaged in wholesale and retail trade. Since the end of 2003, there have been more optimists than pessimists in the service industries, while the pessimists have prevailed in the wholesale and retail trade. The third chart shows the percent balances for the service industry and for wholesale and retail trade.
The sharp run up in the price of oil of the past week or so is probably not reflected in the April surveys and could have a dampening effect on future business opinions.

<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/@J5/@J5.HTM">Business Surveys (Per cent Balance)</a></th>
<th scope="col">Apr 06</th>
<th scope="col">Mar 06</th>
<th scope="col">Apr 05</th>
<th scope="col">M/M dif</th>
<th scope="col">Y/Y dif</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">France</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>2</td>
<td>-2</td>
<td>-13</td>
<td>4</td>
<td>18</td>
<td>-12</td>
<td>5</td>
<td>-29</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Orders</td>
<td>6</td>
<td>4</td>
<td>-20</td>
<td>2</td>
<td>26</td>
<td>-14</td>
<td>-10</td>
<td>-21</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Belgium</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>6.0</td>
<td>0.0</td>
<td>-16.0</td>
<td>6.0</td>
<td>22.0</td>
<td>-9.9</td>
<td>-2.7</td>
<td>-15.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale &amp; Retail Trade</td>
<td>-8.2</td>
<td>0.5</td>
<td>-3.8</td>
<td>-8.7</td>
<td>-4.4</td>
<td>-2.1</td>
<td>7.7</td>
<td>-9.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Construction ex Public Works</td>
<td>7.0</td>
<td>3.9</td>
<td>0.6</td>
<td>3.1</td>
<td>7.6</td>
<td>1.5</td>
<td>5.9</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Services</td>
<td>&nbsp;11.5</td>
<td>8.6&nbsp;</td>
<td>7.0</td>
<td>2.9</td>
<td>4.5&nbsp;</td>
<td>5.6&nbsp;</td>
<td>7.6&nbsp;</td>
<td>&nbsp;-2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign Orders</td>
<td>18</td>
<td>6</td>
<td>-20</td>
<td>12</td>
<td>38</td>
<td>-8</td>
<td>5</td>
<td>-9</td>
</tr>
</tbody>
</table>
</body>
</html>

The domestic spot price for a barrel of West Texas Intermediate crude oil settled at $73.83 on Friday, driven by Mid East supply concerns and strong demand. That easily surpassed last August's high of $70 reached in the wake of [...]

$73.83: Oil & Water

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/060421f.jpg" width="353">
The inflation picture in Asia is harder to interpret than that in Europe because the economies have such different structures and the data collection and definitions are less standardized. Three countries reporting today for March show widely varying patterns of consumer price behavior.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421g.jpg" width="353">
In China, the overall CPI trend shows quite modest gains over the last couple of months, and inflation has definitely slowed from a couple of years ago. Prices of household goods and services are headed higher, which may reflect heating costs, and clothing price changes are distinctly less negative than before. But tobacco and alcohol products, recreation and culture and shelter are slowing down. These outweigh the firming tendencies, so, at just 0.8% year-to-year in March, total CPI inflation in China is the lowest since mid-2003.
In Hong Kong, consumer prices have turned up after a period of outright deflation from 1999 through mid-2004. This too may be energy related as transportation and housing costs are the main movers. Clothing and alcohol and tobacco, though, are exerting downward pressure and durable goods prices are maintaining a steady downward trend at about a 2.5% annual rate. So, while inflation has returned in Hong Kong, it seems to be sustained at a quite moderate pace.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421h.jpg" width="353">
India encompasses at least two completely different economies, the urban sector and the rural. Inflation in both is presently about equal, however, with the CPI for rural laborers running at 5.3%, year-on-year, in March and 4.7% in February; this follows 4.9% in 2005 and is considerably higher than the 3% range that prevailed in prior years. The current pace is similar for &quot;urban non-manual employees&quot;, at 4.8% in February, although off somewhat from the 5.7% rate for 2005. While we might be concerned over the seemingly rapid pace of Indian inflation at present, it compares quite favorably with 7%-10% rates during the 1980s and 1990s.
These data are all found in Haver&#39;s EMERGEPR database, which we maintain directly from country sources. Regional data for China are carried in the premium CHINA database which we market from CEIC, prominent economic consultants in Asia.

<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/EMERGEPR/@PQ/@PQ5/@PQ51/@PQ51.HTM">Yr/Yr % Change, NSA</a></th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>0.8</td>
<td>0.9</td>
<td>1.9</td>
<td>1.6</td>
<td>2.4</td>
<td>3.2</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>1.8</td>
<td>1.6</td>
<td>2.6</td>
<td>1.8</td>
<td>0.2</td>
<td>-1.9</td>
<td>-1.6</td>
</tr>
<tr>
<td class="firstcol">India: Rural Laborers</td>
<td>5.3</td>
<td>4.7</td>
<td>4.7</td>
<td>4.9</td>
<td>3.0</td>
<td>3.1</td>
<td>3.2</td>
</tr>
<tr class="odd">
<td class="firstcol">India: Urban Non-Manual Employees </td>
<td>--</td>
<td>4.8</td>
<td>5.0</td>
<td>5.7</td>
<td>3.6</td>
<td>4.0</td>
<td>2.8</td>
</tr>
</tbody>
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The inflation picture in Asia is harder to interpret than that in Europe because the economies have such different structures and the data collection and definitions are less standardized. Three countries reporting today for March [...]

Consumer Prices in Asia

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421e.jpg" width="353">
The number of mass layoff events last month ticked up 0.8% after sharp declines during the prior two months. During all of 1Q, the number of events fell 9.9% from 4Q 2005.
During the last ten years there has been a (negative) 87% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected in December by mass layoffs increased a larger 6.4% during March after a 2.9% February rise. Nevertheless, the 1Q level was down 9.7% from 4Q 2005. Layoffs in the transportation equipment sector (+10.4% y/y) have been significant and quite volatile m/m.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.
Company mass layoffs: The &quot;other&quot; job shock from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/pubs/fedgaz/05-11/layoffs.cfm"> 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/@W5/@W507/@W507.HTM">Mass Layoffs</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">All US Industries (# Events, SA)</td>
<td>1,082</td>
<td>1,073</td>
<td>-10.1%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>118,555</td>
<td>111,468</td>
<td>-11.5%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
</tbody>
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The number of mass layoff events last month ticked up 0.8% after sharp declines during the prior two months. During all of 1Q, the number of events fell 9.9% from 4Q 2005. During the last ten years there has been a (negative) 87% [...]

Mass Layoffs Remained Low in March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421a.jpg" width="353">
The Federal Reserve Bank of Chicago indicated that the National Activity Index (CFNAI) recovered during March to 0.37 from 0.19 in February. The three-month moving average of the CFNAI, however, fell slightly to 0.29 from 0.34.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_April2006.pdf">here</a>.
Yield Curve Inversions and Cyclical Peaks from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060501/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#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">CFNAI</td>
<td>0.37</td>
<td>0.19</td>
<td>-0.21</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
</tr>
</tbody>
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The Federal Reserve Bank of Chicago indicated that the National Activity Index (CFNAI) recovered during March to 0.37 from 0.19 in February. The three-month moving average of the CFNAI, however, fell slightly to 0.29 from 0.34. A zero [...]

Chicago Fed Nat'l Activity Index Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421b.jpg" width="353">
The Philadelphia Fed Index of General Business Conditions in the manufacturing sector during April rose slightly to 13.2 from an unrevised 12.3 last month. The 0.9 point m/m increase fell somewhat short of Consensus expectations for a rise to 14.8.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
Declines in the sub indexes again were broad based as new orders reversed all of the jump during March and shipments reversed the gains of the prior two months. Moving in the other direction, the index covering the number of employees surged to the highest level (21.7) since late 2004. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421c.jpg" width="353">
The prices paid index recovered virtually all of last month&#39;s decline. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months recovered nearly all of last month&#39;s decline and rose to 28.2, near the highs of the last year. Expectations for employment recovered moderately.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0406.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">April</th>
<th scope="col">Mar</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">General Activity Index</td>
<td>13.2</td>
<td>12.3</td>
<td>24.6</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>29.0</td>
<td>17.2</td>
<td>47.6</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
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The Philadelphia Fed Index of General Business Conditions in the manufacturing sector during April rose slightly to 13.2 from an unrevised 12.3 last month. The 0.9 point m/m increase fell somewhat short of Consensus expectations for a [...]

Philadelphia Fed Business Activity Index Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421b.jpg" width="353">
The Philadelphia Fed Index of General Business Conditions in the manufacturing sector during April rose slightly to 13.2 from an unrevised 12.3 last month. The 0.9 point m/m increase fell somewhat short of Consensus expectations for a rise to 14.8.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
Declines in the sub indexes again were broad based as new orders reversed all of the jump during March and shipments reversed the gains of the prior two months. Moving in the other direction, the index covering the number of employees surged to the highest level (21.7) since late 2004. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421c.jpg" width="353">
The prices paid index recovered virtually all of last month&#39;s decline. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months recovered nearly all of last month&#39;s decline and rose to 28.2, near the highs of the last year. Expectations for employment recovered moderately.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0406.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">April</th>
<th scope="col">Mar</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">General Activity Index</td>
<td>13.2</td>
<td>12.3</td>
<td>24.6</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>29.0</td>
<td>17.2</td>
<td>47.6</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity Index Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421a.jpg" width="353">
The Federal Reserve Bank of Chicago indicated that the National Activity Index (CFNAI) recovered during March to 0.37 from 0.19 in February. The three-month moving average of the CFNAI, however, fell slightly to 0.29 from 0.34.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_April2006.pdf">here</a>.
Yield Curve Inversions and Cyclical Peaks from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060501/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#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">CFNAI</td>
<td>0.37</td>
<td>0.19</td>
<td>-0.21</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
</tr>
</tbody>
</table>
Mass Layoffs Remained Low in March 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421e.jpg" width="353">
The number of mass layoff events last month ticked up 0.8% after sharp declines during the prior two months. During all of 1Q, the number of events fell 9.9% from 4Q 2005.
During the last ten years there has been a (negative) 87% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected in December by mass layoffs increased a larger 6.4% during March after a 2.9% February rise. Nevertheless, the 1Q level was down 9.7% from 4Q 2005. Layoffs in the transportation equipment sector (+10.4% y/y) have been significant and quite volatile m/m.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.
Company mass layoffs: The &quot;other&quot; job shock from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/pubs/fedgaz/05-11/layoffs.cfm"> 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/@W5/@W507/@W507.HTM">Mass Layoffs</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">All US Industries (# Events, SA)</td>
<td>1,082</td>
<td>1,073</td>
<td>-10.1%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>118,555</td>
<td>111,468</td>
<td>-11.5%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
</tbody>
</table>
Consumer Prices in Asia 
by <a href="/comment/Stone.html">Carol Stone</a> April 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421f.jpg" width="353">
The inflation picture in Asia is harder to interpret than that in Europe because the economies have such different structures and the data collection and definitions are less standardized. Three countries reporting today for March show widely varying patterns of consumer price behavior.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421g.jpg" width="353">
In China, the overall CPI trend shows quite modest gains over the last couple of months, and inflation has definitely slowed from a couple of years ago. Prices of household goods and services are headed higher, which may reflect heating costs, and clothing price changes are distinctly less negative than before. But tobacco and alcohol products, recreation and culture and shelter are slowing down. These outweigh the firming tendencies, so, at just 0.8% year-to-year in March, total CPI inflation in China is the lowest since mid-2003.
In Hong Kong, consumer prices have turned up after a period of outright deflation from 1999 through mid-2004. This too may be energy related as transportation and housing costs are the main movers. Clothing and alcohol and tobacco, though, are exerting downward pressure and durable goods prices are maintaining a steady downward trend at about a 2.5% annual rate. So, while inflation has returned in Hong Kong, it seems to be sustained at a quite moderate pace.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060421h.jpg" width="353">
India encompasses at least two completely different economies, the urban sector and the rural. Inflation in both is presently about equal, however, with the CPI for rural laborers running at 5.3%, year-on-year, in March and 4.7% in February; this follows 4.9% in 2005 and is considerably higher than the 3% range that prevailed in prior years. The current pace is similar for &quot;urban non-manual employees&quot;, at 4.8% in February, although off somewhat from the 5.7% rate for 2005. While we might be concerned over the seemingly rapid pace of Indian inflation at present, it compares quite favorably with 7%-10% rates during the 1980s and 1990s.
These data are all found in Haver&#39;s EMERGEPR database, which we maintain directly from country sources. Regional data for China are carried in the premium CHINA database which we market from CEIC, prominent economic consultants in Asia.

<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/EMERGEPR/@PQ/@PQ5/@PQ51/@PQ51.HTM">Yr/Yr % Change, NSA</a></th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>0.8</td>
<td>0.9</td>
<td>1.9</td>
<td>1.6</td>
<td>2.4</td>
<td>3.2</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>1.8</td>
<td>1.6</td>
<td>2.6</td>
<td>1.8</td>
<td>0.2</td>
<td>-1.9</td>
<td>-1.6</td>
</tr>
<tr>
<td class="firstcol">India: Rural Laborers</td>
<td>5.3</td>
<td>4.7</td>
<td>4.7</td>
<td>4.9</td>
<td>3.0</td>
<td>3.1</td>
<td>3.2</td>
</tr>
<tr class="odd">
<td class="firstcol">India: Urban Non-Manual Employees </td>
<td>--</td>
<td>4.8</td>
<td>5.0</td>
<td>5.7</td>
<td>3.6</td>
<td>4.0</td>
<td>2.8</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420e.jpg" width="353">
In March, consumer price inflation in Europe and North America eased or remained steady. Core inflation is also quiescent.
For the Euro-Zone12, the total CPI was up just 2.2% from a year ago, less than in 2005 and 2004. The core rate, which excludes food, energy, alcohol and tobacco, was a mere 1.3%; this is up very slightly from February and January, but equal to or lower than the last few years.
UK inflation is holding below 2.0% as March&#39;s figure eased 0.2% from February to 1.8%. Its core rate was also 0.2% lower, at 1.2% from 1.4% and for all of last year, 1.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420f.jpg" width="353">
Incredibly, Austria&#39;s CPI has risen only 0.8% over the past year. In that country, health costs, transportation and communications, and education and recreation costs are all running slower; this is a fairly diverse group, indicating that no single factor is responsible for the slow pace.
Canada&#39;s CPI has been running just above a 2% trend for about three years. Its core, defined to exclude just food and energy, is edging a bit higher, but at 1.5% in March, is still quite temperate.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420g.jpg" width="353">
Finally, it is interesting to note that the high-inflation nation here is the US, with a year-on-year rate of 3.4% and the core at 2.1%. Yesterday, Tom Moeller described the month-to-month changes, which showed gains in a couple of categories coming off declines in February. Even so, the 12-month rate actually eased, similar to other countries, and the core rate was steady at 2.1% for a third straight month. Notably, the BLS has started to compile US CPI using the same structure as the Europeans, the so-called &quot;harmonized index of consumer prices&quot; or &quot;HICP&quot;. On this basis, US inflation is higher still, at 3.7% in March, but it is no worse than 2005&#39;s similar number or 2004&#39;s 3.5%.
We continue to monitor these CPIs around the world for evidence that energy costs are pushing up other non-energy prices. So far, while it may &quot;feel&quot; to some of us, as consumers, that &quot;things&quot; are getting more expensive, the data everywhere show remarkable moderation in pricing of non-energy goods and services. 

<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/G10/@GZ/@GZ5/@GZ5.HTM">NSA, Yr/Yr % Changes</a></th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Euro-Zone12</td>
<td>2.2</td>
<td>2.4</td>
<td>2.4</td>
<td>2.3</td>
<td>2.3</td>
<td>2.0</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Core*</td>
<td>1.3</td>
<td>1.2</td>
<td>1.2</td>
<td>1.3</td>
<td>1.9</td>
<td>1.6</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>1.8</td>
<td>2.0</td>
<td>1.9</td>
<td>1.9</td>
<td>1.7</td>
<td>1.3</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Core*</td>
<td>1.2</td>
<td>1.4</td>
<td>1.2</td>
<td>1.3</td>
<td>1.3</td>
<td>0.9</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>0.8</td>
<td>1.2</td>
<td>1.2</td>
<td>1.5</td>
<td>2.9</td>
<td>1.3</td>
<td>1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Canada</td>
<td>2.2</td>
<td>2.2</td>
<td>2.8</td>
<td>2.2</td>
<td>2.1</td>
<td>2.0</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core**</td>
<td>1.5</td>
<td>1.4</td>
<td>1.4</td>
<td>1.3</td>
<td>1.4</td>
<td>1.0</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">US</td>
<td>3.4</td>
<td>3.6</td>
<td>4.0</td>
<td>3.4</td>
<td>3.3</td>
<td>1.9</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core**</td>
<td>2.1</td>
<td>2.1</td>
<td>2.1</td>
<td>2.2</td>
<td>2.2</td>
<td>1.1</td>
<td>1.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; HICP</td>
<td>3.7</td>
<td>4.0</td>
<td>4.5</td>
<td>3.7</td>
<td>3.5</td>
<td>1.8</td>
<td>2.2</td>
</tr>
</tbody>
</table>
</body>
</html>

In March, consumer price inflation in Europe and North America eased or remained steady. Core inflation is also quiescent. For the Euro-Zone12, the total CPI was up just 2.2% from a year ago, less than in 2005 and 2004. The core rate, [...]

Consumer Prices Remain Restrained through March in Europe & Canada

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420c.jpg" width="353">
The Conference Board reported that during March, the Composite Index of Leading Economic Indicators fell 0.1% following a 0.5% February decline that was deeper than initially reported. The decline compared to Consensus expectations for no change.
Six month growth in the leaders slipped to 2.9%, about the middle of the range during the last several months. During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.
The breadth of one month gain amongst the 10 components of the leading index improved to 60% in March from a downwardly revised 40% during February.
Lower building permits and higher initial claims for unemployment insurance made the largest negative contributions to last month&#39;s decline in the leaders last month.
For the third consecutive month, the spread between yields on the 10 year Treasury Note and Fed funds made a minimal 0.01 percentage point positive contribution to the leaders. The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420d.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% following a like gain in February that was downwardly revised. All of the four component series rose last month and during the last six months. During the last ten years there has been a 64% correlation between the change in the coincident indicators and real GDP growth.
The lagging indicators increased 0.3% following an unrevised 0.1% February up tick. Last month, two thirds of the series&#39; components rose while the ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, slipped in March.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
The latest World Economic Outlook from the International Monetary Fund can be found <a href="http://www.imf.org/external/pubs/ft/weo/2006/01/index.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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">6 Month Chg., AR</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">Leading</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>2.9%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>4.4%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.5%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Conference Board reported that during March, the Composite Index of Leading Economic Indicators fell 0.1% following a 0.5% February decline that was deeper than initially reported. The decline compared to Consensus expectations [...]

Leading Economic Indicators Down For Second Month

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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Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

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**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

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**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

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**The US economy’s structural outperformance and the dollar**
A second dynamic, captured in the next chart, reveals a tight correlation between the US real effective exchange rate and the potential GDP growth differential between the US and euro area over the past 50-60 years. This raises the question: has dollar strength (until recently) merely been a reflection of US growth leadership—or are capital inflows themselves helping to sustain this growth outperformance? In effect, the tail may be wagging the dog. Global investors have long allocated capital to the US, attracted by its macroeconomic resilience, technological leadership, and deep, liquid financial markets. The danger now is that the US trade war may disrupt this equilibrium. A sharp or sustained reduction in capital inflows could undermine growth, weaken the dollar, and trigger broader financial instability. Moreover, reversing this dynamic is not straightforward—barring a credible structural resurgence in European (or Asian) growth, the global investment landscape remains tilted toward the US.

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**US competitiveness versus Europe, China and Japan** 
The next chart below examines relative unit labour costs across major economies since 2011. The US and China have seen a broadly similar trajectory, with steady increases in relative cost structures, while the euro area has remained flat and Japan has seen dramatic improvement. This suggests that, from a cost competitiveness standpoint, the US is not uniquely disadvantaged vis-à-vis China. However, as we discuss further below, this parallel erosion of cost competitiveness is occurring at much higher nominal wage levels in the US, which blunts its ability to regain export share through tariff-related shifts alone. The trade war strategy—absent a corresponding improvement in productivity or structural reforms—risks imposing costs without delivering material competitiveness gains.

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**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

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Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.

Charts of the Week: Tariff Truce, Tenuous Trust

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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.

Economy in Brief

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Philadelphia Fed Business Activity Index Up Slightly

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