Tom Moeller

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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>
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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

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420a.jpg" width="353">
Initial claims for jobless insurance reversed about all of the prior week&#39;s rise with a 10,000 worker decline to 303,000. Consensus expectations had been for an unchanged reading at 313,000 claims versus the prior week&#39;s unrevised figure.
The latest figure covers the survey period for April nonfarm payrolls and claims fell 9,000 (-2.9%) from the March period.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420b.jpg" width="353">
The four-week moving average of initial claims slipped to 305,250 (-9.2% y/y).
Continuing claims for unemployment insurance rose 18,000 during the latest week following a revised 11,000 decline the prior week.
The insured rate of unemployment was stable at 1.9% where it&#39;s been for almost two months.
Are We Working Too Hard of Should We Be Working Harder? A Sample Model of Career Concerns from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/winter2006/foerstermartinez.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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></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>303</td>
<td>313</td>
<td>-3.8%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,439</td>
<td>-7.6%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for jobless insurance reversed about all of the prior week's rise with a 10,000 worker decline to 303,000. Consensus expectations had been for an unchanged reading at 313,000 claims versus the prior week's unrevised [...]

Initial Claims for Unemployment Insurance Drop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420a.jpg" width="353">
Initial claims for jobless insurance reversed about all of the prior week&#39;s rise with a 10,000 worker decline to 303,000. Consensus expectations had been for an unchanged reading at 313,000 claims versus the prior week&#39;s unrevised figure.
The latest figure covers the survey period for April nonfarm payrolls and claims fell 9,000 (-2.9%) from the March period.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060420b.jpg" width="353">
The four-week moving average of initial claims slipped to 305,250 (-9.2% y/y).
Continuing claims for unemployment insurance rose 18,000 during the latest week following a revised 11,000 decline the prior week.
The insured rate of unemployment was stable at 1.9% where it&#39;s been for almost two months.
Are We Working Too Hard of Should We Be Working Harder? A Sample Model of Career Concerns from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/winter2006/foerstermartinez.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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></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>303</td>
<td>313</td>
<td>-3.8%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,439</td>
<td>-7.6%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Down For Second Month 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 20, 2006


<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>
Consumer Prices Remain Restrained through March in Europe & Canada 
by <a href="/comment/Stone.html">Carol Stone</a> April 20, 2006


<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>
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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/060419e.jpg" width="353">
The labor market seems to be slowing just a bit in Slovenia, according to the monthly labor force survey reported today by the Statistical Office; after climbing from April 2005 through November, employment has been virtually flat since then through February. Even so, at 816,156, it stands 0.8% above a year ago, matching the growth pace for all of 2004, and close to that for the rest of Europe.
Unemployment continues stubbornly just above 10%, with January and February at 10.2%. This is low historically for the country, but as employment has apparently stopped increasing, unemployment has stopped decreasing. It bottomed out at exactly 10.0% in September.
Workers, meantime, appear to be doing &quot;all right&quot;. Their average wages, which were published yesterday, were SIT179.7 in February (SIT=Slovenian Tolars), after social security and income tax withholding. This marks a 2.7% real advance from February 2005, allowing for the 2.1% CPI inflation over the period. Real earnings in the rest of Europe were up just 0.4% in 2005, measured by wages and salaries for the EU-25 calculated by Eurostat.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419f.jpg" width="353">
The average wage indicator hints at general gains in the Slovenian economy; GDP per capita real growth (in fixed 1995 prices) was 4.1% last year. According to the CIA World Factbook, Slovenia is the first transition economy to change from borrower to donor status at the World Bank, and its currency, presently pegged to the euro, is due to switch to the euro next year. All is not completely well, though, as the population has been almost completely flat since 1999; there was net out-migration during the break-up of Yugoslavia, then a modest recovery from 1999 to 2002, but almost no change since. And as we note here, the economy may be showing signs of plateauing after a nice run during 2005.
Country-source data on Slovenia are found in Haver&#39;s EMERGECW database. Since the country joined the European Union in 2004, data generated by Eurostat are also found in the EUROSTAT database. The CIA&#39;s helpful information on the general characteristics of the country are found <a href="http://www.cia.gov/cia/publications/factbook/geos/si.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/EMERGECW/@E7/@E7.HTM">Slovenia</a></th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Feb 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (SA, Thous.)</td>
<td>816.2</td>
<td>816.6</td>
<td>809.6</td>
<td>813.1</td>
<td>807.5</td>
<td>801.4</td>
</tr>
<tr>
<td class="firstcol">% Change (Mo/Mo &amp; Yr/Yr)</td>
<td>-0.0</td>
<td>0.0</td>
<td>(yr/yr) 0.8</td>
<td>0.7</td>
<td>0.8</td>
<td>-0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (SA, %)</td>
<td>10.2</td>
<td>10.2</td>
<td>10.1</td>
<td>10.1</td>
<td>10.6</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Average Net Wages &nbsp;(Thous. Tolars)</td>
<td>179.7</td>
<td>179.3</td>
<td>171.4</td>
<td>177.1</td>
<td>168.2</td>
<td>159.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Real&quot; % Change*&nbsp; &nbsp; (Mo/Mo &amp; Yr/Yr)</td>
<td>-0.2</td>
<td>2.0</td>
<td>(yr/yr) 2.7</td>
<td>2.7</td>
<td>2.1</td>
<td>1.8</td>
</tr>
</tbody>
</table>
</body>
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The labor market seems to be slowing just a bit in Slovenia, according to the monthly labor force survey reported today by the Statistical Office; after climbing from April 2005 through November, employment has been virtually flat [...]

Slovenia: Labor Market Hesitation Follows Good Growth in 2005

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419a.jpg" width="353">
The total number of mortgage applications fell hard for the second consecutive week and posted a 1.7% drop. So far during April applications are 0.9% below the March average which fell 1.0% from February.
Purchase applications fell 2.5% w/w following the 4.7% drop to open the month but the April average so far is up 1.2% from 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 slipped 0.4% after a 6.6% slide the prior week and in April are 4.1% below the March average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose further to 6.78% while the rate on 15-year financing rose to 6.%. 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>.
States Fight Predatory Lending in Different Ways from the Federal Reserve Bank of St. Louis can be found <a href="http://stlouisfed.org/publications/re/2006/a/pages/predatory_lending.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/14/06</th>
<th scope="col">04/07/06</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>569.6</td>
<td>579.4</td>
<td>-15.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>407.4</td>
<td>417.7</td>
<td>-12.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,526.1</td>
<td>1,532.4</td>
<td>-18.4%</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 fell hard for the second consecutive week and posted a 1.7% drop. So far during April applications are 0.9% below the March average which fell 1.0% from February. Purchase applications fell [...]

Mortgage Applications Down Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419c.jpg" width="353">
During March, the consumer price index (CPI-U) rose 0.4% following a 0.1% February up tick and matched Consensus expectations. The 0.3% rise in prices less food &amp; energy, however, was slightly firmer than expected.
Prices for core goods rose 0.3% (0.2% y/y) after a 0.1% February decline. Apparel prices reversed all of the prior month&#39;s drop with a 1.0% (-1.2% y/y) increase and household furnishings &amp; operation prices ticked up 0.1% (0.5% y/y) after no change during February. Medical care commodity prices rose 0.4% (4.1% y/y) while tobacco prices rose a strong 0.6% (4.5% y/y). New &amp; used motor vehicle prices fell 0.1% (+0.4% y/y).
Another 0.3% increase in core services prices reflected a second 0.4% (2.6% y/y) increase in shelter prices. Medical care services prices increased 0.4% (4.1% y/y) while school tuition &amp; fees posted a firm 0.5% (6.1% y/y) gain. Public transportation prices fell by 0.3% (+5.9% y/y), the third decline in the last four months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419d.jpg" width="353">
Energy prices during March reversed all of the prior month&#39;s decline with a 1.3% jump led by a 3.6% (17.0% y/y) spurt in gasoline prices, which have moved 10.7% higher so far during April. Natural gas &amp; electricity prices fell 1.1% (+17.8% y/y) for the third decline in the last four months and fuel oil prices ticked up 0.4% (17.9% y/y).
Food prices inched up another 0.1%, the gain held back by a 1.7% (+6.4% y/y) decline in fruits &amp; vegetables prices. Meat, fish &amp; poultry prices reversed all of the prior month&#39;s decline with a 0.3% (0.9% y/y) rise.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, jumped 0.5% and less food &amp; energy prices rose a stronger 0.6%.
Minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/FOMC/MINUTES/20060328.htm"> here</a>.
The Interaction of Labor Markets and Inflation: Micro Evidence from the International Wage Flexibility Project from the Federal Reserve Bank of San Francesco is available <a href="http://www.frbsf.org/economics/conferences/0603/ilmi.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</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">Total&nbsp;</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.4%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>1.3%</td>
<td>-1.2%</td>
<td>17.3%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.6%</td>
<td>0.4%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

During March, the consumer price index (CPI-U) rose 0.4% following a 0.1% February up tick and matched Consensus expectations. The 0.3% rise in prices less food & energy, however, was slightly firmer than expected. Prices for core [...]

CPI Up An Expected 0.4% During March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419c.jpg" width="353">
During March, the consumer price index (CPI-U) rose 0.4% following a 0.1% February up tick and matched Consensus expectations. The 0.3% rise in prices less food &amp; energy, however, was slightly firmer than expected.
Prices for core goods rose 0.3% (0.2% y/y) after a 0.1% February decline. Apparel prices reversed all of the prior month&#39;s drop with a 1.0% (-1.2% y/y) increase and household furnishings &amp; operation prices ticked up 0.1% (0.5% y/y) after no change during February. Medical care commodity prices rose 0.4% (4.1% y/y) while tobacco prices rose a strong 0.6% (4.5% y/y). New &amp; used motor vehicle prices fell 0.1% (+0.4% y/y).
Another 0.3% increase in core services prices reflected a second 0.4% (2.6% y/y) increase in shelter prices. Medical care services prices increased 0.4% (4.1% y/y) while school tuition &amp; fees posted a firm 0.5% (6.1% y/y) gain. Public transportation prices fell by 0.3% (+5.9% y/y), the third decline in the last four months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419d.jpg" width="353">
Energy prices during March reversed all of the prior month&#39;s decline with a 1.3% jump led by a 3.6% (17.0% y/y) spurt in gasoline prices, which have moved 10.7% higher so far during April. Natural gas &amp; electricity prices fell 1.1% (+17.8% y/y) for the third decline in the last four months and fuel oil prices ticked up 0.4% (17.9% y/y).
Food prices inched up another 0.1%, the gain held back by a 1.7% (+6.4% y/y) decline in fruits &amp; vegetables prices. Meat, fish &amp; poultry prices reversed all of the prior month&#39;s decline with a 0.3% (0.9% y/y) rise.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, jumped 0.5% and less food &amp; energy prices rose a stronger 0.6%.
Minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/FOMC/MINUTES/20060328.htm"> here</a>.
The Interaction of Labor Markets and Inflation: Micro Evidence from the International Wage Flexibility Project from the Federal Reserve Bank of San Francesco is available <a href="http://www.frbsf.org/economics/conferences/0603/ilmi.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</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">Total&nbsp;</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.4%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>1.3%</td>
<td>-1.2%</td>
<td>17.3%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.6%</td>
<td>0.4%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Mortgage Applications Down Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 19, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419a.jpg" width="353">
The total number of mortgage applications fell hard for the second consecutive week and posted a 1.7% drop. So far during April applications are 0.9% below the March average which fell 1.0% from February.
Purchase applications fell 2.5% w/w following the 4.7% drop to open the month but the April average so far is up 1.2% from 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 slipped 0.4% after a 6.6% slide the prior week and in April are 4.1% below the March average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose further to 6.78% while the rate on 15-year financing rose to 6.%. 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>.
States Fight Predatory Lending in Different Ways from the Federal Reserve Bank of St. Louis can be found <a href="http://stlouisfed.org/publications/re/2006/a/pages/predatory_lending.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/14/06</th>
<th scope="col">04/07/06</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>569.6</td>
<td>579.4</td>
<td>-15.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>407.4</td>
<td>417.7</td>
<td>-12.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,526.1</td>
<td>1,532.4</td>
<td>-18.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Slovenia: Labor Market Hesitation Follows Good Growth in 2005 
by <a href="/comment/Stone.html">Carol Stone</a> April 19, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419e.jpg" width="353">
The labor market seems to be slowing just a bit in Slovenia, according to the monthly labor force survey reported today by the Statistical Office; after climbing from April 2005 through November, employment has been virtually flat since then through February. Even so, at 816,156, it stands 0.8% above a year ago, matching the growth pace for all of 2004, and close to that for the rest of Europe.
Unemployment continues stubbornly just above 10%, with January and February at 10.2%. This is low historically for the country, but as employment has apparently stopped increasing, unemployment has stopped decreasing. It bottomed out at exactly 10.0% in September.
Workers, meantime, appear to be doing &quot;all right&quot;. Their average wages, which were published yesterday, were SIT179.7 in February (SIT=Slovenian Tolars), after social security and income tax withholding. This marks a 2.7% real advance from February 2005, allowing for the 2.1% CPI inflation over the period. Real earnings in the rest of Europe were up just 0.4% in 2005, measured by wages and salaries for the EU-25 calculated by Eurostat.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419f.jpg" width="353">
The average wage indicator hints at general gains in the Slovenian economy; GDP per capita real growth (in fixed 1995 prices) was 4.1% last year. According to the CIA World Factbook, Slovenia is the first transition economy to change from borrower to donor status at the World Bank, and its currency, presently pegged to the euro, is due to switch to the euro next year. All is not completely well, though, as the population has been almost completely flat since 1999; there was net out-migration during the break-up of Yugoslavia, then a modest recovery from 1999 to 2002, but almost no change since. And as we note here, the economy may be showing signs of plateauing after a nice run during 2005.
Country-source data on Slovenia are found in Haver&#39;s EMERGECW database. Since the country joined the European Union in 2004, data generated by Eurostat are also found in the EUROSTAT database. The CIA&#39;s helpful information on the general characteristics of the country are found <a href="http://www.cia.gov/cia/publications/factbook/geos/si.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/EMERGECW/@E7/@E7.HTM">Slovenia</a></th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Feb 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (SA, Thous.)</td>
<td>816.2</td>
<td>816.6</td>
<td>809.6</td>
<td>813.1</td>
<td>807.5</td>
<td>801.4</td>
</tr>
<tr>
<td class="firstcol">% Change (Mo/Mo &amp; Yr/Yr)</td>
<td>-0.0</td>
<td>0.0</td>
<td>(yr/yr) 0.8</td>
<td>0.7</td>
<td>0.8</td>
<td>-0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (SA, %)</td>
<td>10.2</td>
<td>10.2</td>
<td>10.1</td>
<td>10.1</td>
<td>10.6</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Average Net Wages &nbsp; (Thous. Tolars)</td>
<td>179.7</td>
<td>179.3</td>
<td>171.4</td>
<td>177.1</td>
<td>168.2</td>
<td>159.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Real&quot; % Change*&nbsp; &nbsp; (Mo/Mo &amp; Yr/Yr)</td>
<td>-0.2</td>
<td>2.0</td>
<td>(yr/yr) 2.7</td>
<td>2.7</td>
<td>2.1</td>
<td>1.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418h.jpg" width="353">
The housing market in England and Wales is showing improvement. The RICS (Royal Institute of Chartered Surveyors) survey of the housing market shows that although the pace has slackened, house prices continue to rise and expectations of price increases are becoming stronger as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418i.jpg" width="353">
The RICS survey, which was released today is an excellent source of information on many aspects of the housing market in England and Wales. It is found in Haver&#39;s UK data base and in INTSRVYS-G10+ Country Surveys.
There are data on the average units sold and the average stock of units held per chartered surveyor and the relation of sales to stocks. The average units sold has improved and in March was 16.4% above the units sold in March 2005. Over the same period the stock of units held has declined by 5.9%. The second chart shows the year over year percentage change in the average units sold and the average stock of units per chartered surveyor. Although we do not have the absolute levels of sales and stocks of housing units, the rising trend of sales and declining trend of stocks suggests an improving supply and demand situation.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418j.jpg" width="353">
The same sort of relative improvement in the housing market can be seen in the year to year difference in the percent balances of new buyer enquiries and the new offerings by sellers. (See the third chart.) The year to year difference in the percent balance of new buyer enquiries has been positive since early 2005, while the year to year difference in the percent balance on new offering by sellers has been negative.

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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U4/@U409/@U409.HTM">England and Wales: RICS Survey</a></th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M % </th>
<th scope="col">Y/Y %</th>
<th scope="col">2004</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Units</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Average Stock per Surveyor</td>
<td>72.2</td>
<td>71.7</td>
<td>76.7</td>
<td>0.70</td>
<td>-5.87</td>
<td>75.8</td>
<td>64.1</td>
<td>70.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Sales per Surveyor</td>
<td>25.5</td>
<td>24.9</td>
<td>21.9</td>
<td>2.41</td>
<td>16.44</td>
<td>22.5</td>
<td>28.5</td>
<td>30.7</td>
</tr>
<tr>
<td class="firstcol">Percent Balance</td>
<td>Mar 06</td>
<td>Feb 06</td>
<td>Mar 05</td>
<td>M/M dif </td>
<td>Y/Y dif</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr class="odd">
<td class="firstcol">Actual House Prices&nbsp;</td>
<td>11</td>
<td>10</td>
<td>-7</td>
<td>1</td>
<td>18</td>
<td>6</td>
<td>-12</td>
<td>-5</td>
</tr>
<tr>
<td class="firstcol">Expected House Prices</td>
<td>27</td>
<td>24&nbsp;</td>
<td>-28&nbsp;</td>
<td>3&nbsp;</td>
<td>55&nbsp;</td>
<td>-8&nbsp;</td>
<td>4&nbsp;</td>
<td>3&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Expected Sales next 3 months</td>
<td>28</td>
<td>24</td>
<td>24</td>
<td>4</td>
<td>4</td>
<td>28</td>
<td>19</td>
<td>18</td>
</tr>
<tr>
<td class="firstcol">Newly Agreed Sales</td>
<td>17</td>
<td>12</td>
<td>-7</td>
<td>5</td>
<td>24</td>
<td>2</td>
<td>-9</td>
<td>-2</td>
</tr>
<tr class="odd">
<td class="firstcol">New Buyer Enquiries</td>
<td>11</td>
<td>10</td>
<td>-7</td>
<td>1</td>
<td>18</td>
<td>6</td>
<td>-12</td>
<td>-5</td>
</tr>
<tr>
<td class="firstcol">New Stock</td>
<td>13</td>
<td>8</td>
<td>18</td>
<td>5</td>
<td>-5</td>
<td>11</td>
<td>10</td>
<td>8</td>
</tr>
</tbody>
</table>
</body>
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The housing market in England and Wales is showing improvement. The RICS (Royal Institute of Chartered Surveyors) survey of the housing market shows that although the pace has slackened, house prices continue to rise and expectations [...]

English and Welsh Housing Market Shows Improvement

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.

250501Z2.jpg

**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.

250501Z3.jpg

**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.

250501Z5.jpg

**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.

250501Z6.jpg

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.

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tariff Truce, Tenuous Trust

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The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

250501L5.jpg

250501M5.jpg

- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

U.S. ISM Manufacturing Index Indicates Contraction in April

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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

250430F20.jpg

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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.

Economy in Brief

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Leading Economic Indicators Down For Second Month

Initial Claims for Unemployment Insurance Drop

Initial Claims for Unemployment Insurance Drop

Slovenia: Labor Market Hesitation Follows Good Growth in 2005

Mortgage Applications Down Further

CPI Up An Expected 0.4% During March

CPI Up An Expected 0.4% During March

English and Welsh Housing Market Shows Improvement