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/051201g.jpg" width="353">
Indonesia&#39;s trade data for October, reported this morning, highlight two unexpected aspects of that oil-producing nation&#39;s economic development. In October, its monthly trade surplus was $2.6 billion, a large figure, but not the highest ever, and more importantly, only modestly above the $2.3 billion average for 2003, a time when oil and gas prices were considerably lower than they are now. Thus, even as oil and gas exports have risen, so have the country&#39;s imports, restraining the widening of the trade surplus. Further, in dollar terms, non-oil exports have risen more than oil-related exports. Total exports were $7.2 billion in October, up 41% from a monthly average of $5.1 billion in 2003. Such large growth in exports emphasizes how remarkable it is that the trade balance has changed so little.
When the first energy crisis hit in the mid-1970s, one concern was over how to &quot;recycle petro-dollars&quot;. What would oil-exporting nations do with the large amounts of dollars they were newly receiving? Clearly, this is now a non-issue. The ability of businesses and consumers, at least in Indonesia, to seek out foreign merchandise to import recycles petro-dollars quite effectively. Imports in October were $4.6 billion, up 15% from the year-ago month and 70% from their 2003 average.
Further, oil and gas are hardly the only items Indonesia exports. Over time, Indonesian industry has diversified, so that non-energy products now constitute by far the bulk of its exports. Recently this share has been just above 75% and sometimes in recent years, it has reached 80%. By contrast in the mid-1980s when the data began to include some detail, non-energy exports were only about 25% of total exports. Lately, a look at industrial production data through 2004 suggests that chemicals and fabricated metals have been sources for this growth. Expansion of the chemical sector makes sense in light of the petroleum products already there. Interestingly, the wood and paper products that one might have traditionally thought of for Indonesia are no longer contributors to growth; their industrial production has been declining outright over the past several years.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P7/@P75/@P75.HTM">Indonesia: Foreign Trade</a> Mil.$, Seas Adj*</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Oct 2004</th>
Monthly Averages
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<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
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<tr>
<td class="firstcol">Trade Balance</td>
<td>2579.6</td>
<td>2407.8</td>
<td>2254.1</td>
<td>1916.5</td>
<td>2375.6</td>
<td>2155.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>7191.4</td>
<td>7226.2</td>
<td>6259.1</td>
<td>5794.8</td>
<td>5088.1</td>
<td>4763.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Oil &amp; Gas</td>
<td>1820.9</td>
<td>1636.4</td>
<td>1401.6</td>
<td>1294.0</td>
<td>1136.9</td>
<td>1009.4</td>
</tr>
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<td class="firstcol">&nbsp; Non-Oil &amp; Gas</td>
<td>5370.5</td>
<td>5589.8</td>
<td>4857.5</td>
<td>4500.8</td>
<td>3951.2</td>
<td>3753.8</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>4611.8</td>
<td>4818.4</td>
<td>4005.0</td>
<td>3878.3</td>
<td>2712.5</td>
<td>2607.4</td>
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Indonesia's trade data for October, reported this morning, highlight two unexpected aspects of that oil-producing nation's economic development. In October, its monthly trade surplus was $2.6 billion, a large figure, but not the [...]

Indonesia Trade Balance Largely Steady through October, Even with Big Gains in Oil and Non-oil Exports

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201d.jpg" width="353">
The value of construction put in place rose 0.7% in October though the September gain was revised lower to 0.2% due to a lessened increase in residential building.
Residential building in October continued at about its earlier pace and rose 0.6%. New single family building rose 0.7% (11.6% y/y) following an upwardly revised 1.7% surge. The value of residential improvements fell 0.6% (-4.5% y/y) and a previously reported moderate September decline was revised to a 2.6% collapse.
Nonresidential building activity slipped moderately for the second consecutive month thanks to lower office construction (+5.9% y/y) which had been strong.
Public construction spending also fell moderately for the second month as construction activity on highways &amp; streets, nearly one third of the value of public construction spending slipped 0.2% (14.0% y/y) after a 2.0% September surge.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol">Total</td>
<td>0.7%</td>
<td>0.2%</td>
<td>7.9%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.3%</td>
<td>0.4%</td>
<td>6.9%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
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<td class="firstcol">&nbsp; Residential</td>
<td>0.6%</td>
<td>0.7%</td>
<td>8.3%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>3.5%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
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<td class="firstcol">Public</td>
<td>1.9%</td>
<td>-0.5%</td>
<td>11.7%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
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The value of construction put in place rose 0.7% in October though the September gain was revised lower to 0.2% due to a lessened increase in residential building. Residential building in October continued at about its earlier pace [...]

U.S. Construction Spending Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201f.jpg" width="353">
US real GDP growth for 3Q was revised upward to 4.3% (AR) and surpassed Consensus expectations for 4.1% growth.
Operating corporate profits are estimated to have declined 3.4% (+16.5% y/y) and that reversed most of a 2Q rise. Financial sector earnings were hit hard by three hurricanes and fell 18.6% (+7.9% y/y). Profits of domestic nonfinancial corporations rose a slight 0.2% (20.2% y/y) after the 11.5% surge during 2Q while margins slipped. 
Domestic demand growth of 4.7% versus the initial report of a 4.1% rise was due to an upward revision to real PCE to 4.3% (3.9% y/y) growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201e.jpg" width="353">
Strength in business fixed investment also was increased to 8.7% (8.4% y/y) and residential investment growth was doubled to 8.4% (7.5% y/y).
Inventory accumulation continued to have a negative effect on GDP growth but was little revised at -0.4%.
The foreign trade deficit subtracted rather than added to GDP growth since imports grew 2.1% (5.1% y/y) rather than declining as initially estimated.
The chain price index rose about as initially estimated.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;05 (Revised)</th>
<th scope="col">3Q &#39;05 (Advance)</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol">GDP</td>
<td>4.3%</td>
<td>3.8%</td>
<td>3.3%</td>
<td>3.7%</td>
<td>4.2%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.4%</td>
<td>-0.6%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.4%</td>
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<td class="firstcol">Final Sales</td>
<td>4.7%</td>
<td>4.4%</td>
<td>5.6%</td>
<td>4.3%</td>
<td>3.9%</td>
<td>2.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.3%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-0.6%</td>
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<td class="firstcol">Domestic Final Demand</td>
<td>4.7%</td>
<td>4.1%</td>
<td>4.2%</td>
<td>4.2%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.0%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>


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US real GDP growth for 3Q was revised upward to 4.3% (AR) and surpassed Consensus expectations for 4.1% growth. Operating corporate profits are estimated to have declined 3.4% (+16.5% y/y) and that reversed most of a 2Q rise. [...]

US 3Q GDP Revised Up, Hurricanes Slam Profits

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201c.jpg" width="353">
The Institute of Supply Management (ISM) reported that the November Composite Index of activity in the manufacturing sector fell one point to 58.1. The decline about matched Consensus expectations and the average of the last three months, at 58.9, was the highest in over a year.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
As during October, three of the index&#39;s five components fell last month. New orders fell another 1.9 points but remained well up from the May low. The moderate decline in production also left the level up from the Spring low and the pace of supplier deliveries quickened to the fastest pace since August .
Job creation in the factory sector improved to the best level since February with a 1.6 point gain. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
Pricing power in the factory sector eased to the lowest level since August with a ten point m/m decline.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol">Composite Index</td>
<td>58.1</td>
<td>59.1</td>
<td>57.6</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>59.8</td>
<td>61.7</td>
<td>60.7</td>
<td>63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
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<td class="firstcol">Prices Paid Index (NSA)</td>
<td>74.0</td>
<td>84.0</td>
<td>74.0</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
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The Institute of Supply Management (ISM) reported that the November Composite Index of activity in the manufacturing sector fell one point to 58.1. The decline about matched Consensus expectations and the average of the last three [...]

ISM Index Fell As Expected and Still Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201a.jpg" width="353">
Initial claims for jobless insurance reversed about half of the prior week&#39;s rise and fell 17,000 to 320,000 during Thanksgiving week. Consensus expectations had been for 323,000 claims.
Hurricane related claims dropped back to 10,000 and brought the total of the three storms during the last thirteen weeks to 592,000.
The four-week moving average of initial claims fell slightly to 322,500 (-3.5% y/y).
Continuing claims for unemployment insurance fell 24,000 following a downwardly revised 26,000 gain the prior week.
The insured rate of unemployment held at 2.2% for the tenth consecutive week. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/26/05</th>
<th scope="col">11/19/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>320</td>
<td>337</td>
<td>-7.5%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,767</td>
<td>1.1%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
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Initial claims for jobless insurance reversed about half of the prior week's rise and fell 17,000 to 320,000 during Thanksgiving week. Consensus expectations had been for 323,000 claims. Hurricane related claims dropped back to 10,000 [...]

Initial Claims for Jobless Insurance Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201b.jpg" width="353">
A strong 0.6% gain in wage &amp; salary disbursements raised U.S. personal income by 0.4% in October. The increase in wages offset declines in proprietors&#39; and rental income while the latest rise in total income followed an unrevised 1.7% surge in September, though income in August was revised down slightly. Consensus expectations had been for 0.5% income growth in October.
The effects of Hurricanes Katrina, Rita &amp; Wilma are reflected in the last three months&#39; income figures. A description of these effects can be found <a href="http://www.bea.gov/bea/faq/national/disastersincmeas.htm"> here</a>.
Wages &amp; salary income doubled the previous months&#39; rise and increased 0.6% (5.0% y/y) on the strength of a 1.4% (3.2% y/y) surge in factory sector wages. Service sector wages rose 0.6% (5.5% y/y) after an upwardly revised 0.5% September increase and government wages rose 0.2% (3.4% y/y).
Disposable personal income rose 0.3% (4.2% y/y) following the unrevised 1.9% jump in September. Adjusted for the 0.1% rise in prices, take home pay rose 0.2% (0.9% y/y).
The PCE chain price index rose a modest 0.1% in October, held back by lower gasoline prices which caused nondurable prices to fall 0.4% (+5.1% y/y). Less food &amp; energy the modest 0.1% increase additionally reflected lower light vehicle prices. Services price rose 0.4% (3.2% y/y) for the second month.
Personal consumption expenditures rose an expected, modest 0.2%. Light vehicle sales fell for the third consecutive month and lowered spending on durables by 2.5% (-2.0% y/y). Nondurables outlays rose 0.6% (9.1% y/y) but adjusted for the y/y gain in prices spending on nondurables rose a lesser 3.8% y/y. Services spending rose 0.5% (6.2% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>1.7%</td>
<td>5.3%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.2%</td>
<td>0.5%</td>
<td>6.1%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-0.8%</td>
<td>1.1% (Oct &#39;04)</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1%</td>
<td>0.9%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
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<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
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A strong 0.6% gain in wage & salary disbursements raised U.S. personal income by 0.4% in October. The increase in wages offset declines in proprietors' and rental income while the latest rise in total income followed an unrevised 1.7% [...]

U.S. Personal Income Lifted By Strong Wage Gain

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201b.jpg" width="353">
A strong 0.6% gain in wage &amp; salary disbursements raised U.S. personal income by 0.4% in October. The increase in wages offset declines in proprietors&#39; and rental income while the latest rise in total income followed an unrevised 1.7% surge in September, though income in August was revised down slightly. Consensus expectations had been for 0.5% income growth in October.
The effects of Hurricanes Katrina, Rita &amp; Wilma are reflected in the last three months&#39; income figures. A description of these effects can be found <a href="http://www.bea.gov/bea/faq/national/disastersincmeas.htm"> here</a>.
Wages &amp; salary income doubled the previous months&#39; rise and increased 0.6% (5.0% y/y) on the strength of a 1.4% (3.2% y/y) surge in factory sector wages. Service sector wages rose 0.6% (5.5% y/y) after an upwardly revised 0.5% September increase and government wages rose 0.2% (3.4% y/y).
Disposable personal income rose 0.3% (4.2% y/y) following the unrevised 1.9% jump in September. Adjusted for the 0.1% rise in prices, take home pay rose 0.2% (0.9% y/y).
The PCE chain price index rose a modest 0.1% in October, held back by lower gasoline prices which caused nondurable prices to fall 0.4% (+5.1% y/y). Less food &amp; energy the modest 0.1% increase additionally reflected lower light vehicle prices. Services price rose 0.4% (3.2% y/y) for the second month.
Personal consumption expenditures rose an expected, modest 0.2%. Light vehicle sales fell for the third consecutive month and lowered spending on durables by 2.5% (-2.0% y/y). Nondurables outlays rose 0.6% (9.1% y/y) but adjusted for the y/y gain in prices spending on nondurables rose a lesser 3.8% y/y. Services spending rose 0.5% (6.2% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>1.7%</td>
<td>5.3%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.2%</td>
<td>0.5%</td>
<td>6.1%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-0.8%</td>
<td>1.1% (Oct &#39;04)</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1%</td>
<td>0.9%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
ISM Index Fell As Expected and Still Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201c.jpg" width="353">
The Institute of Supply Management (ISM) reported that the November Composite Index of activity in the manufacturing sector fell one point to 58.1. The decline about matched Consensus expectations and the average of the last three months, at 58.9, was the highest in over a year.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
As during October, three of the index&#39;s five components fell last month. New orders fell another 1.9 points but remained well up from the May low. The moderate decline in production also left the level up from the Spring low and the pace of supplier deliveries quickened to the fastest pace since August .
Job creation in the factory sector improved to the best level since February with a 1.6 point gain. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
Pricing power in the factory sector eased to the lowest level since August with a ten point m/m decline.

<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/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>58.1</td>
<td>59.1</td>
<td>57.6</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>59.8</td>
<td>61.7</td>
<td>60.7</td>
<td>63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>74.0</td>
<td>84.0</td>
<td>74.0</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201a.jpg" width="353">
Initial claims for jobless insurance reversed about half of the prior week&#39;s rise and fell 17,000 to 320,000 during Thanksgiving week. Consensus expectations had been for 323,000 claims.
Hurricane related claims dropped back to 10,000 and brought the total of the three storms during the last thirteen weeks to 592,000.
The four-week moving average of initial claims fell slightly to 322,500 (-3.5% y/y).
Continuing claims for unemployment insurance fell 24,000 following a downwardly revised 26,000 gain the prior week.
The insured rate of unemployment held at 2.2% for the tenth consecutive week. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/26/05</th>
<th scope="col">11/19/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>320</td>
<td>337</td>
<td>-7.5%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,767</td>
<td>1.1%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
US 3Q GDP Revised Up, Hurricanes Slam Profits 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201f.jpg" width="353">
US real GDP growth for 3Q was revised upward to 4.3% (AR) and surpassed Consensus expectations for 4.1% growth.
Operating corporate profits are estimated to have declined 3.4% (+16.5% y/y) and that reversed most of a 2Q rise. Financial sector earnings were hit hard by three hurricanes and fell 18.6% (+7.9% y/y). Profits of domestic nonfinancial corporations rose a slight 0.2% (20.2% y/y) after the 11.5% surge during 2Q while margins slipped. 
Domestic demand growth of 4.7% versus the initial report of a 4.1% rise was due to an upward revision to real PCE to 4.3% (3.9% y/y) growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201e.jpg" width="353">
Strength in business fixed investment also was increased to 8.7% (8.4% y/y) and residential investment growth was doubled to 8.4% (7.5% y/y).
Inventory accumulation continued to have a negative effect on GDP growth but was little revised at -0.4%.
The foreign trade deficit subtracted rather than added to GDP growth since imports grew 2.1% (5.1% y/y) rather than declining as initially estimated.
The chain price index rose about as initially estimated.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;05 (Revised)</th>
<th scope="col">3Q &#39;05 (Advance)</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>4.3%</td>
<td>3.8%</td>
<td>3.3%</td>
<td>3.7%</td>
<td>4.2%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.4%</td>
<td>-0.6%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>4.7%</td>
<td>4.4%</td>
<td>5.6%</td>
<td>4.3%</td>
<td>3.9%</td>
<td>2.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.3%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.7%</td>
<td>4.1%</td>
<td>4.2%</td>
<td>4.2%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.0%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Up  
by <a href="/comment/Moeller.html">Tom Moeller</a>  December 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201d.jpg" width="353">
The value of construction put in place rose 0.7% in October though the September gain was revised lower to 0.2% due to a lessened increase in residential building.
Residential building in October continued at about its earlier pace and rose 0.6%. New single family building rose 0.7% (11.6% y/y) following an upwardly revised 1.7% surge. The value of residential improvements fell 0.6% (-4.5% y/y) and a previously reported moderate September decline was revised to a 2.6% collapse.
Nonresidential building activity slipped moderately for the second consecutive month thanks to lower office construction (+5.9% y/y) which had been strong.
Public construction spending also fell moderately for the second month as construction activity on highways &amp; streets, nearly one third of the value of public construction spending slipped 0.2% (14.0% y/y) after a 2.0% September surge.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.7%</td>
<td>0.2%</td>
<td>7.9%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.3%</td>
<td>0.4%</td>
<td>6.9%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.6%</td>
<td>0.7%</td>
<td>8.3%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>3.5%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.9%</td>
<td>-0.5%</td>
<td>11.7%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
Indonesia Trade Balance Largely Steady through October, Even with Big Gains in Oil and Non-oil Exports 
by <a href="/comment/Stone.html">Carol Stone</a> December 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051201g.jpg" width="353">
Indonesia&#39;s trade data for October, reported this morning, highlight two unexpected aspects of that oil-producing nation&#39;s economic development. In October, its monthly trade surplus was $2.6 billion, a large figure, but not the highest ever, and more importantly, only modestly above the $2.3 billion average for 2003, a time when oil and gas prices were considerably lower than they are now. Thus, even as oil and gas exports have risen, so have the country&#39;s imports, restraining the widening of the trade surplus. Further, in dollar terms, non-oil exports have risen more than oil-related exports. Total exports were $7.2 billion in October, up 41% from a monthly average of $5.1 billion in 2003. Such large growth in exports emphasizes how remarkable it is that the trade balance has changed so little.
When the first energy crisis hit in the mid-1970s, one concern was over how to &quot;recycle petro-dollars&quot;. What would oil-exporting nations do with the large amounts of dollars they were newly receiving? Clearly, this is now a non-issue. The ability of businesses and consumers, at least in Indonesia, to seek out foreign merchandise to import recycles petro-dollars quite effectively. Imports in October were $4.6 billion, up 15% from the year-ago month and 70% from their 2003 average.
Further, oil and gas are hardly the only items Indonesia exports. Over time, Indonesian industry has diversified, so that non-energy products now constitute by far the bulk of its exports. Recently this share has been just above 75% and sometimes in recent years, it has reached 80%. By contrast in the mid-1980s when the data began to include some detail, non-energy exports were only about 25% of total exports. Lately, a look at industrial production data through 2004 suggests that chemicals and fabricated metals have been sources for this growth. Expansion of the chemical sector makes sense in light of the petroleum products already there. Interestingly, the wood and paper products that one might have traditionally thought of for Indonesia are no longer contributors to growth; their industrial production has been declining outright over the past several years.

<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/@P7/@P75/@P75.HTM">Indonesia: Foreign Trade</a> Mil.$, Seas Adj*</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Oct 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>2579.6</td>
<td>2407.8</td>
<td>2254.1</td>
<td>1916.5</td>
<td>2375.6</td>
<td>2155.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>7191.4</td>
<td>7226.2</td>
<td>6259.1</td>
<td>5794.8</td>
<td>5088.1</td>
<td>4763.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Oil &amp; Gas</td>
<td>1820.9</td>
<td>1636.4</td>
<td>1401.6</td>
<td>1294.0</td>
<td>1136.9</td>
<td>1009.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-Oil &amp; Gas</td>
<td>5370.5</td>
<td>5589.8</td>
<td>4857.5</td>
<td>4500.8</td>
<td>3951.2</td>
<td>3753.8</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>4611.8</td>
<td>4818.4</td>
<td>4005.0</td>
<td>3878.3</td>
<td>2712.5</td>
<td>2607.4</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051130c.jpg" width="353">
Eurostat made its first full report of Q3 GDP today. Total growth was 0.6%, the same as estimated a couple of weeks ago in the &quot;flash&quot; report for both Euro-zone12 and the EU25 . This new figures represent the routine addition of more countries, specifically Denmark and Poland. But in this report, Eurostat made important methodological changes as well, most notably shifting to chain weighting to calculate the volume measures of GDP and its components. They also changed the treatment of &quot;FISIM&quot;, the imputed value of &quot;financial services indirectly measured&quot;.
As to the performance, seen in the table below, growth picked up somewhat to 0.6% in Q3 from 0.4% in Q2. Final consumption grew 0.4%, slightly more than the 0.3% in the prior period; both public and private consumption participated. Exports were the other source of advance, surging by 3.4% after 2.2% in Q2. This put yearly expansion of exports at 5.2% from Q3 2004, largely keeping up the strong 5.9% pace set for last year as a whole. Imports gained a little more in the latest quarter. Overall capital formation looks weak, but importantly, the slowdown here is due to much smaller inventory accumulation; fixed investment advanced considerably, 1.6%, after 0.8% in Q2. This is the strongest investment gain since early 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051130d.jpg" width="353">
Regarding the methodology, the change to FISIM involves allocating it to the specific industry sectors where it applies and removing it as an explicit adjustment between gross value added and gross domestic product. The net numerical result appears as an upward revision to nominal GDP, according to Eurostat, of about 1.0% in the Euro-zone and about 0.6% for the EU25.
Chain-linking is by now fairly well-known, and actually had remarkably little impact on total reported Euro-zone growth. History runs back only to 1995; perhaps the effect would have been greater in earlier years. Eurostat&#39;s press release shows changes in total growth of only 0.1%, up or down, in some quarters, but not in all and without trend. It&#39;s important to note that not all Euro-zone countries yet produce chain-weighted accounts. Italy and Belgium are two countries where no chaining is done; France&#39;s quarterly data is also not yet chained. So data for these three countries in particular remain in fixed-weight terms in the relevant Haver databases (ITALY, BENELUX and FRANCE, as well as EUROSTAT and G10).

<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/EUROSTAT/@U2/@U2.HTM">EuroZone12 GDP:</a> Chained 2000 Euros</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">Q3 2004 (yr/yr)</th>
Yearly Totals
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>0.6</td>
<td>0.4</td>
<td>1.6</td>
<td>1.8</td>
<td>0.7</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Consumption</td>
<td>0.4</td>
<td>0.3</td>
<td>1.5</td>
<td>1.3</td>
<td>1.2</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">Gross Capital Formation</td>
<td>0.2</td>
<td>1.2</td>
<td>1.6</td>
<td>3.5</td>
<td>1.7</td>
<td>-2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>3.4</td>
<td>2.2</td>
<td>5.2</td>
<td>5.9</td>
<td>1.3</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">-Imports</td>
<td>2.8</td>
<td>2.6</td>
<td>5.2</td>
<td>6.1</td>
<td>3.1</td>
<td>0.4</td>
</tr>
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</table>
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Eurostat made its first full report of Q3 GDP today. Total growth was 0.6%, the same as estimated a couple of weeks ago in the "flash" report for both Euro-zone12 and the EU25 . This new figures represent the routine addition of more [...]

Euro-zone Growth Picks Up to 0.6% in Q3; Chain-Linking Introduced to Eurostat Aggregates

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

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Andrew Cates

**Positive Growth Surprises, Negative Inflation Surprises—For Now**
The global macro backdrop heading into the latest Middle East shock was, by recent standards, relatively constructive. As the chart shows, growth data had been consistently surprising to the upside, while inflation surprises have been in negative territory—an unusually benign combination suggesting resilient activity alongside easing price pressures. What is striking, however, is that—at least through March and into early April—this pattern has not yet been meaningfully dislodged. For now, the data flow still reflects a world that was stabilising rather than deteriorating. That said, this is almost certainly a lagging signal. Supply-side shocks of this nature—particularly those centred on energy—tend to work with a delay but can be highly disruptive once they feed through. The risk, therefore, is that the current “goldilocks” surprise dynamic proves short-lived as higher energy costs, supply chain frictions and rising uncertainty begin to reshape the incoming data in the weeks ahead.

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**Monetary Policy Expectations Shift as Easing Bets Are Repriced**
How policymakers respond to the evolving situation in the Middle East will be critical in shaping both market dynamics and the broader global outlook. This chart, based on the latest April Blue Chip Financial Forecasts survey, suggests that expectations are already beginning to shift. Forecasters are now less inclined to anticipate policy easing in the period ahead—particularly in the euro area, where expectations for rate cuts have been scaled back. Similarly, some of the easing previously priced for the Federal Reserve and the Bank of England has been pared back over the next 12 months. While this is not yet a full pivot toward tightening, it does point to a more cautious policy backdrop, reflecting the risk that renewed energy-driven inflation pressures could constrain central banks’ ability to support growth.

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**Delay, Don’t Tighten: Central Banks’ Likely Playbook**
If the previous chart highlights a shift in policy expectations, this one gives a clearer sense of the reaction function underpinning it. When asked how central banks would respond if energy-driven inflation proves more persistent, most panellists point not to renewed tightening, but to a more cautious delay in easing. In other words, the hurdle for rate cuts has risen, even if the bar for  hikes remains relatively high. This distinction matters. It suggests that policymakers are likely to treat the shock as a supply-driven inflation impulse—one that complicates the outlook but does not automatically warrant aggressive tightening. At the same time, the responses underscore a second important theme: divergence. A sizeable share of forecasters expect policy paths to vary significantly across regions, reflecting differences in energy exposure, inflation dynamics and domestic growth conditions. Taken together, the message is one of constrained flexibility. Central banks may want to support growth, but persistent energy pressures could keep them on hold for longer than previously anticipated—reinforcing the more cautious policy outlook already evident in market pricing.

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**Markets Signal Fiscal Concern, Not Inflation Panic**
If central banks are likely to proceed cautiously, financial markets are already beginning to draw their own conclusions. This chart shows that the recent adjustment in US Treasury markets has been driven primarily by a rise in real yields rather than a meaningful increase in inflation expectations. In other words, markets are not yet pricing a loss of monetary policy credibility or a sharp unanchoring of inflation expectations. Instead, the move points more toward concerns around the broader policy mix—particularly the fiscal backdrop and the potential for increased borrowing needs in an environment of heightened geopolitical risk. This distinction is important. A rise in inflation expectations would suggest fears of central banks falling behind the curve. What we are seeing instead is a repricing of real rates, consistent with tighter financial conditions and a higher risk premium. For now, at least, markets appear to view the shock less as a classic inflation spiral and more as a development that complicates the growth outlook and places greater strain on policy frameworks—especially on the fiscal side.

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**Electricity Prices Reflect Energy Dependence**
The initial response in electricity markets since the Middle East disruption has followed a familiar pattern. Economies with greater domestic energy capacity—such as Scandinavia and, to a lesser extent, the US—have seen relatively contained electricity prices. By contrast, those more reliant on imported energy—most notably the UK and parts of Europe—continue to face significantly higher costs

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**Generation Capacity Determines Energy Resilience**
These price dynamics are closely linked to underlying differences in electricity generation capacity. As the sixth chart shows, countries with higher per capita electricity production—again including Scandinavia and the US—are structurally better positioned to absorb external shocks. In contrast, economies with more limited domestic generation capacity, such as the UK and Germany, are inherently more exposed to fluctuations in global energy markets. This structural divide is likely to prove increasingly important in the period ahead, influencing not just near-term inflation outcomes but also the relative resilience of growth across economies as energy costs remain volatile.

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Amid further tentative signs of de-escalation—most notably President Trump’s decision on April 7th to step back from further escalation—financial markets have stabilised somewhat, but the macroeconomic implications of the Middle East crisis remain highly uncertain. As our charts show, the global economy entered this shock from a position of relative strength, with positive growth surprises and easing inflation pressures still evident in the data (chart 1). However, that benign backdrop now looks vulnerable. Central banks are already reassessing the outlook, with expectations for policy easing being pared back (chart 2) and a growing consensus that any response to persistent energy-driven inflation will likely involve delaying cuts rather than tightening aggressively—albeit with significant regional divergence (chart 3). Financial markets, for their part, are not yet signalling a loss of inflation control, but the rise in real yields suggests increasing concern around the broader policy mix, particularly fiscal pressures (chart 4). Finally, the adjustment to the shock is unlikely to be uniform. Structural differences in domestic energy capacity are already driving wide divergences in electricity prices, leaving more import-dependent economies exposed to higher costs and sharper trade-offs between growth and inflation (charts 5 and 6). Taken together, the message is clear: even if geopolitical tensions ease, the economic aftershocks are likely to be uneven, persistent and increasingly shaped by structural constraints.

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Charts of the Week: From Oil Shock to Policy Dilemma

Michael J. Moran

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This monthly report is always packed with information relating to the household sector. At this time, most observers will probably be most interested in price developments, and the results for February were a bit unsettling. The headline price index rose 0.4%, influenced by a jump of 0.8% in energy prices. This increase was largely anticipated and not especially troubling when viewed in isolation. Energy prices have shown little net change in the past two years, and the latest reading of the index was comfortably within the recent range of observations. However, given developments in the Middle East, energy prices undoubtedly will surge out of that recent range in the months ahead.

Core PCE prices also rose 0.4%, a touch firmer than the expected increase of 0.3%. An increase of 0.4% in core inflation is a quick pace even when viewed in Isolation, but this advance followed a similar increase in January, and the December reading almost rounded to 0.4%. These recent changes pulled the year-over-year increase in core prices to 3.0%, a full percentage point above the Federal Reserve’s target.

Nominal personal income dipped 0.1% in February, which translated to a decline of 0.4% after adjusting for inflation (almost rounding to -0.5%). The softness is striking, but a review of the detail suggests that special factors played a role. Much of the weakness reflected a decline of 1.7% in dividend income, which followed a jump of 1.9% in January. Dividend payments in the prior two years followed the same pattern, leaving one to suspect that seasonal adjustment has gone awry. Government transfer payments also declined, with the miscellaneous category accounting for most of the drop. Medicaid payments also fell, marking the fifth consecutive decline, most likely driven by the tightening of provisions included in the One Big Beautiful Bill Act.

Nominal consumer expenditures rose 0.5%, a seemingly strong result, but the change amounted to only 0.1% in real terms. The small increase followed a flat reading in January and increases of only 0.1% in November and December. Consumers spent actively in the second and third quarters of last year, but they have become cautious recently. The data in hand suggest real outlay growth of approximately 1.0% in the first quarter, slower than the average pace of 3.0% in the middle of last year and 1.9% in 2025-Q4.

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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- The energy component contributed to a high-side reading on the price index for personal consumption expenditures; the core component was firm as well.
- Consumer spending showed signs of slowing.

Personal Income, Consumption, and Prices: Higher Prices Dampen Real Gains

Sandy Batten

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The third estimate of Q4 2025 GDP showed that real GDP growth slowed to 0.5% q/q saar versus 0.7% in the second estimate and 1.4% in the advance estimate. GDP had grown 4.4% in Q3. The more than one-month long shutdown of the federal government continued to have been a notable restraint on GDP growth in Q4, subtracting 1.0%-point from overall growth, the same as in the second estimate.

Revisions were very small across major expenditure categories. Growth of personal consumption expenditures was revised down slightly to 1.9% q/q saar from 2.0% previously. Nonresidential fixed investment increased 2.4%, up slightly from the 2.2% reported in the second estimate. The 0.5% q/q decline previously reported for residential investment was revised to a larger decline of 1.7%, subtracting 0.1%-point from overall growth versus 0.0%-point in the previous estimate. Inventories declined more than previously estimated, reducing their contribution to growth from 0.3%-point in the second estimate to 0.1%-point in today’s estimate.

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There were slight downward revisions to the declines previously reported for both exports and imports, leaving net exports essentially unrevised. As already noted, a 16.6% q/q saar plunge in federal government spending (revised down slightly from -16.7%) accounted for most of the weakness in Q4. This included a 24.3% q/q collapse in nondefense spending, the second largest quarterly decline in nearly forty years. By contrast, state and local government spending increased 1.5%, revised up from 1.2% in the previous estimate.

Private domestic demand growth (final sales to private domestic purchasers, a favored gauge of demand by the Federal Reserve) was revised slower to 1.8% q/q saar in Q4 from 1.9% in the second estimate and 2.4% in the advance report. However, even the revised pace of growth is respectable and close to the economy’s potential growth rate.

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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- Q4 GDP growth revised to 0.5% q/q saar from 0.7% in the first revision and 1.4% in the advance report.
- The shutdown of the federal government still played a critical role in the slowdown, subtracting 1.0%-point from Q4 growth.
- Domestic demand slowed further with final sales to private domestic purchasers revised down to 1.8% from 1.9% in the first revision and 2.4% in the advance report.

U.S. Q4 2025 Real GDP Growth Revised Slower

Robert Brusca

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Germany’s industrial production slipped in February, driven lower by dropping output of consumer goods. Sequential growth rates over 12 months, six months, and three months show a confusing array of patterns, except for intermediate goods, where annualized growth rates for output sequentially weaken and show declines on each horizon. All German sector growth rates for the quarter-to-date are showing declines, and the growth rankings by sector are below 50% across the broad, indicating below median performance across German sectors.  It’s a very unimpressive report.

Real manufacturing orders rose modestly in February against the backdrop of a very sharp drop in January. Real manufacturing sales have been erratic.

German output and industrial gauges, ranked on annual sales growth against historic norms, have been very weak. Only real orders post a standing above 50%, which represents the median.
 
France, Spain, Portugal, Sweden, and Norway provide some perspective on European growth. The northern European non-EMU member countries are much stronger than the EMU reporters, two of which have standings below their median levels (rankings below 50).

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Germany

German IP Is Weak in February

Kathleen Stephansen, CBE

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Mortgage applications declined 0.8% w/w (-5.6% y/y) in the week ending April 3. The weekly decline eased relative to the prior three weeks, when mortgage applications dropped by 10.4% w/w (+14.2% y/y) in the week ending March 27, and by 10.5% and 10.9% in the March 20 and 13 weeks, respectively, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house rose 1.1% w/w (-6.7% y/y) in the April 3 week, after declining 2.6% w/w (+0.8% y/y) in the week ending March 27.  Applications for loan refinancing dropped by a smaller 2.8% w/w (-4.3% y/y) in the latest week, following weekly declines of 17.3% (+33.2% y/y) in the March 27 week, 14.6% in the March 20 week, and of 18.5% in the week ending March 13.

The effective interest rate on a 30-year fixed-rate loan declined 8bps to 6.68% in the week ending April 3 from 6.76% in the week ending March 27 and after having risen by 52bps since the February 27 week. The rate on 15-year fixed-rate mortgages rose 1bp to 6.09% in the latest week from 6.08% in the prior week. The 30-year Jumbo rate declined 6bps to 6.65% in the week ending April 3 from 6.71% in the March 27 week. The rate on a 5-year ARM eased 3bps to 5.85% in the latest week from 5.88% in the week ending March 27.

The share of applications for refinancing an existing loan declined to 44.3% of total applications in the week of April 3, from 45.3% in the March 27 week. The adjustable-rate mortgage (ARM) share of activity rose to 8.6% in the week ending April 3 from 8.0% in the week ending March 27.

The average size of a mortgage loan edged up 0.2% w/w (-9.1% y/y) to $390,100 in the week ending April 3, after declining 1.3% w/w (-1.9% y/y) to $389,200 in the week ending March 27. The average size of a purchase loan edged down 0.3% w/w (-0.9% y/y) to $448,100 in the latest week, following a decline of 0.8% w/w (+0.4% y/y) to $449,400 in the March 27 week. The average size of a loan to refinance a mortgage edged up 0.1% w/w (-20.7% y/y) to $317,000 in the week ending April 3 after declining 5.5% w/w (+0.3% y/y) to $316,600 in the March 27 week. From the week ending February 27 to the week ending March 27, the average size of a loan to refinance a mortgage had declined 21.8%.

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

- Signs of stabilization in mortgage applications emerged in the latest week.
- Applications for loans to purchase posted a small increase, while applications for loan refinancing posted a small decline in the latest week.
- Interest rate on 30-year fixed-rate loans eased 8bps to 6.68%. 
- Average loan size edged up.

Economy in Brief

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