Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629b.jpg" width="353">
U.S. real GDP grew faster during the first quarter than estimated last month. The 5.6% (AR) annual rate of growth was upwardly revised from 5.3% and from the initial estimate of 4.8%. The revised figure matched Consensus expectations and slower GDP growth near 3.0% is widely forecast for 2Q.
Growth in corporate profits was revised up sharply to 11.9% (28.5% y/y) from the initial estimate of a 7.9% gain during 1Q. Growth in the earnings of nonfinancial corporations was doubled to 9.4% (35.2% y/y) as profit margins surged to another record high. Overseas profits&#39; growth also was revised up sharply to 14.4% (23.4% y/y) while strong 16.5% (18.4% y/y) growth in financial corporate profits was little changed.
Much of the upward revision to GDP growth owed to a lessening of the subtraction from a wider foreign trade deficit to -0.2% from -0.6%. Import growth was dropped to 10.7% (6.1% y/y) and the strength in exports was unchanged at 14.7% (8.1% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629a.jpg" width="353">
Strong growth in domestic final demand growth of 5.8% was little changed as personal consumption grew a little changed 5.0% (3.3% y/y). The revised estimate of growth in business fixed investment indicated a slightly stronger 14.2% (8.9% y/y) rate of increase. Residential investment grew 3.3% (6.0% y/y), about as estimated last month.
Inventories subtracted 0.2 percentage points from 1Q GDP growth, about the same as the -0.1 estimated last month but still less than the initial estimate of a 0.5% subtraction.
The estimate of the GDP chain price index was revised down slightly to 3.1%. Less final sales of computers, the chain price index grew 3.3% (3.3% y/y).
Real GDP per capita grew 4.8% (2.7% y/y) last quarter though per capita disposable income grew just 0.7% (0.4% y/y).
Intangible capital and economic growth from the Board of Governors of the Federal Reserve System is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200624/200624abs.html"> here</a>.

<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">1Q &#39;06 (Final)</th>
<th scope="col">1Q &#39;06 (Prelim.)</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>5.6%</td>
<td>5.3%</td>
<td>1.7%</td>
<td>3.7%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>5.9%</td>
<td>5.5%</td>
<td>-0.2%</td>
<td>3.9%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-1.4%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>5.8%</td>
<td>5.7%</td>
<td>1.1%</td>
<td>3.9%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.1%</td>
<td>3.3%</td>
<td>3.5%</td>
<td>3.1%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


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U.S. real GDP grew faster during the first quarter than estimated last month. The 5.6% (AR) annual rate of growth was upwardly revised from 5.3% and from the initial estimate of 4.8%. The revised figure matched Consensus expectations [...]

US GDP & Profits Revised Up for 1Q. Price Gain Easier

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629h.jpg" width="353">
The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.25% at today&#39;s meeting. This seventeenth 25 basis point increase since June of 2004 was the result of a unanimous decision.
The discount rate also was raised 25 basis points to 6.25%.
The action was widely expected by analysts though market disappointment that rates weren&#39;t increased 50 basis points may be evident in yesterday&#39;s rise in gold prices.
The Fed&#39;s rationale for a 25 basis point increase was that &quot;Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year ...&quot; and that &quot;inflation expectations remain contained.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629i.jpg" width="353">
Ever vigilant for building inflationary pressure, the Fed statement succinctly stated that &quot;the Committee judges that some inflation risks remain.&quot;
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060629/default.htm">link</a>.
Market anticipation of recent Fed action is reflected in the decline, since early May, in gold futures prices and the so called &quot;TIPS spread.&quot;
Reading the Minds of Investors: An Empirical Term Structure Model for Policy Analysis from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2004/200464/200464pap.pdf">here</a>.
Reflections on the Yield Curve and Monetary Policy is Chairman Ben S. Bernanke&#39;s March speech and it can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060320/default.htm">here</a>.

US GDP & Profits Revised Up for 1Q. Price Gain Easier 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 29, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629b.jpg" width="353">
U.S. real GDP grew faster during the first quarter than estimated last month. The 5.6% (AR) annual rate of growth was upwardly revised from 5.3% and from the initial estimate of 4.8%. The revised figure matched Consensus expectations and slower GDP growth near 3.0% is widely forecast for 2Q.
Growth in corporate profits was revised up sharply to 11.9% (28.5% y/y) from the initial estimate of a 7.9% gain during 1Q. Growth in the earnings of nonfinancial corporations was doubled to 9.4% (35.2% y/y) as profit margins surged to another record high. Overseas profits&#39; growth also was revised up sharply to 14.4% (23.4% y/y) while strong 16.5% (18.4% y/y) growth in financial corporate profits was little changed.
Much of the upward revision to GDP growth owed to a lessening of the subtraction from a wider foreign trade deficit to -0.2% from -0.6%. Import growth was dropped to 10.7% (6.1% y/y) and the strength in exports was unchanged at 14.7% (8.1% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629a.jpg" width="353">
Strong growth in domestic final demand growth of 5.8% was little changed as personal consumption grew a little changed 5.0% (3.3% y/y). The revised estimate of growth in business fixed investment indicated a slightly stronger 14.2% (8.9% y/y) rate of increase. Residential investment grew 3.3% (6.0% y/y), about as estimated last month.
Inventories subtracted 0.2 percentage points from 1Q GDP growth, about the same as the -0.1 estimated last month but still less than the initial estimate of a 0.5% subtraction.
The estimate of the GDP chain price index was revised down slightly to 3.1%. Less final sales of computers, the chain price index grew 3.3% (3.3% y/y).
Real GDP per capita grew 4.8% (2.7% y/y) last quarter though per capita disposable income grew just 0.7% (0.4% y/y).
Intangible capital and economic growth from the Board of Governors of the Federal Reserve System is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200624/200624abs.html"> here</a>.

<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">1Q &#39;06 (Final)</th>
<th scope="col">1Q &#39;06 (Prelim.)</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>5.6%</td>
<td>5.3%</td>
<td>1.7%</td>
<td>3.7%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>5.9%</td>
<td>5.5%</td>
<td>-0.2%</td>
<td>3.9%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-1.4%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>5.8%</td>
<td>5.7%</td>
<td>1.1%</td>
<td>3.9%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.1%</td>
<td>3.3%</td>
<td>3.5%</td>
<td>3.1%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Again Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 29, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629d.jpg" width="353">
Initial unemployment insurance claims ticked up another 4,000 to 313,000 last week. The gain followed a 12,000 increase the prior week which was little changed. Consensus expectations had been for 305,000 claims.
The four-week moving average of initial claims fell to 305,500 (-6.3% y/y), the lowest level since late February.
Continuing claims for unemployment insurance rose 54,000 following a 66,000 decline the previous week which was revised from an 18,000 increase reported initially.
The insured rate of unemployment rose to 1.9% from a downwardly revised 1.8% the previous week.
The Yield Curve and Predicting Recessions from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200607/200607pap.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">06/24/06</th>
<th scope="col">06/17/06</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>313</td>
<td>309</td>
<td>-0.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,409</td>
<td>-7.5%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Lowest Since 1961 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 29, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629c.jpg" width="353">
The Index of Help-Wanted Advertising from the Conference Board fell to 33 in May from 35 the prior month and an average of 39 last year. The decline dropped the figure to its lowest level since July 1961.
During the last ten years there has been a 60% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume dropped to 27% versus an average 48% last year.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.
Help-wanted advertising and job vacancies from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-02.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#39;05</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>33</td>
<td>35</td>
<td>38</td>
</tr>
</tbody>
</table>
Hesitant Improvement in German Labor Markets; Employment Still Flat, but Job Vacancies Are Increasing 
by <a href="/comment/Stone.html">Carol Stone</a> June 29, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629e.jpg" width="353">
We last wrote about German labor markets three months ago. Since then there have been marginal changes. Employment shows signs of slight growth, according to seasonally adjusted labor force data. Unemployment by the ILO definition is basically steady at a level more than a full percentage point below year-ago amounts, although the more popular measure in Germany, &quot;registered&quot; unemployment, has shown less improvement. At the same time, job vacancies have been rising markedly, indicating some hope for later employment gains.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629f.jpg" width="353">
Total employment as measured in the labor force survey was 38.72 million in May, up 43,000 from April and 0.2% from May 2005. While this is a small increase, it still represents growth, a contrast to last year&#39;s experience when total employment contracted slightly from 2004.
Accompanying unemployment has decreased, although as we have explained before, in the face of stagnant employment, the lower unemployment is a result of people withdrawing from the labor force. This is seen in the second graph. A more realistic picture of labor conditions in Germany is perhaps given by the preferred local measure of joblessness, &quot;registered unemployment&quot;. This rate is down from a year ago, but has moved in fits and starts and remains above its average for 2004.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060629g.jpg" width="353">
An optimistic note among the labor market data released today is the number of job vacancies. These are climbing, and at 531,000 for June, they are approaching their all-time high of 557,000 set in December 2000. Further, the gains are widespread among occupational groups in the German economy. Over the last year, total vacancies have increased 128,000; of these, 28,000 are in metal-working and machining jobs, 12,000 in administrative service functions, and 11,000 in construction. Nearly every category showed some year-on-year increase. So labor demand is looking better. We hope that soon translates into more workers.

<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/GERMANY/@D5/@D5.HTM">Germany: SA, ex as noted</a></th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">LFS Employment (mil)</td>
<td>--</td>
<td>38.72</td>
<td>38.68</td>
<td>38.66</td>
<td>38.67</td>
<td>38.78</td>
<td>38.63</td>
</tr>
<tr>
<td class="firstcol">Change (thous)</td>
<td>--</td>
<td>+43</td>
<td>+18</td>
<td>+5</td>
<td>-12</td>
<td>16</td>
<td>-11</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Chg NSA</td>
<td>--</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>+0.2</td>
<td>-0.4</td>
<td>+0.5</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate &nbsp; (%, ILO Def.)</td>
<td>--</td>
<td>8.0</td>
<td>7.9</td>
<td>9.2</td>
<td>9.2</td>
<td>9.2</td>
<td>8.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Registered Unemployment Rate (%)</td>
<td>10.9</td>
<td>11.0</td>
<td>11.3</td>
<td>11.9</td>
<td>11.6</td>
<td>10.6</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Job Vacancies (thous)</td>
<td>531</td>
<td>506</td>
<td>485</td>
<td>403</td>
<td>394</td>
<td>225</td>
<td>258</td>
</tr>
</tbody>
</table>


</html>

The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.25% at today's meeting. This seventeenth 25 basis point increase since June of 2004 was the result of a unanimous decision. The [...]

Fed Funds Rate Increased to 5.25%

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/060628c.jpg" width="353">
Balance of payments reports for two emerging European economies show a mixed picture for Q1 2006. In Lithuania, the current account has widened markedly over the last year, in rough parallel with gaping trade accounts. By contrast, Bosnia and Herzegovina are seeing a steadier trend in both current account and trade balances, although these not-seasonally adjusted figures are fairly erratic from quarter to quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628d.jpg" width="353">
In Lithuania, imports surged in the spring of last year and continued rising through the summer. Until 2003, the usual seasonal pattern saw them ease in the summer quarter after their spring bounce. We presume the latest move is energy related. Fortunately, exports have been stronger in the last year than has been typical, but still not so vigorous as imports. Also fortunate have been larger surpluses on services and transfer receipts which have helped offset the larger trade deficit. On the financial accounts side of the balance of payments ledger, &quot;other investment&quot;, generally bank loans, has increased and even Lithuania&#39;s capital account has shown a persistent and non-trivial surplus. However, some financing has also come from a decrease in foreign exchange reserves, not likely a comfortable position for the central bank.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628e.jpg" width="353">
In Bosnia, the rise in imports has been much more temperate. Indeed, in Q1, imports were actually very slightly smaller than in Q1 2005. Combined with a firm uptrend in exports, the goods balance has deteriorated only modestly, rather than losing major ground as in some other countries. Financing for the goods deficit has come from a sustained inflow of current transfers (see graph) and from inflows of direct investment and &quot;other&quot; investment. Interestingly, Bosnia &amp; Herzegovina has virtually no portfolio investment. There has been a moderate run-off of foreign exchange reserves.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628f.jpg" width="353">
Both of these countries peg their currencies to the euro. Lithuania is a member of the EU-25, the segment added in 2004 that retain their own local currency, here the litas, which is 3.4528 to the euro. Bosnia has linked its currency, the Convertible Marka, to the euro since the inception of the euro in 1999. Monthly data for it are maintained by the Central Bank of Bosnia &amp; Herzegovina from 2002. All of these data are contained in Haver&#39;s EMERGECW database and some data for Lithuania are also in EUROSTAT.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q1 2005</th>
Quarterly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Lithuania: Mil Litai, SA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>-2035.7</td>
<td>-1308.4</td>
<td>-1013.1</td>
<td>-1234.5</td>
<td>-1202.5</td>
<td>-963.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Trade Balance</td>
<td>-2529.1</td>
<td>-2202.6</td>
<td>-1569.0</td>
<td>-1982.0</td>
<td>-1657.7</td>
<td>-1285.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account Balance</td>
<td>1650.5</td>
<td>907.9</td>
<td>340.1</td>
<td>931.4</td>
<td>878.1</td>
<td>789.6</td>
</tr>
<tr>
<td class="firstcol">Bosnia: Mil. Convertible Marka, NSA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>-221.5</td>
<td>-1154.4</td>
<td>-424.3</td>
<td>-829.0</td>
<td>-702.5</td>
<td>-705.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Trade Balance</td>
<td>-1089.4</td>
<td>-2387.2</td>
<td>-1400.1</td>
<td>-1958.3</td>
<td>-1798.2</td>
<td>-1795.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account Balance</td>
<td>44.8</td>
<td>688.8</td>
<td>234.1</td>
<td>412.8</td>
<td>276.1</td>
<td>371.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Balance of payments reports for two emerging European economies show a mixed picture for Q1 2006. In Lithuania, the current account has widened markedly over the last year, in rough parallel with gaping trade accounts. By contrast, [...]

Wider Current Account Deficit in Lithuania; Slight Improvement in Bosnia & Herzegovina

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628a.jpg" width="353">
The total number of mortgage applications fell a sharp 6.7% last week after a slight decline the prior week. The drop pulled the average number of applications 1.8% in June below the May average and applications were 32.0% below the year ago level.
Applications to refinance cratered 7.5% last week, the fourth w/w drop this month. Refis in June were 3.2% below the May average and 46.4% below the year earlier level.
Purchase applications also fell sharply from the previous week. The 6.2% drop lowered the June average 1.3% below May and 18.5% below the year ago level.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage rose another twelve basis points to 7.08%, the highest level since April 2002. The rate on 15-year financing also surged ten basis points to 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628b.jpg" width="353">
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest 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>.
The Price of Residential Land in Large U.S. Citiesfrom the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200625/200625pap.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/23/06</th>
<th scope="col">06/16/06</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>529.6</td>
<td>567.6</td>
<td>-32.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.0</td>
<td>414.8</td>
<td>-18.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,356.0</td>
<td>1,466.1</td>
<td>-46.4%</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 a sharp 6.7% last week after a slight decline the prior week. The drop pulled the average number of applications 1.8% in June below the May average and applications were 32.0% below the [...]

Mortgage Applications Fell Hard, Rates Above 7%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628a.jpg" width="353">
The total number of mortgage applications fell a sharp 6.7% last week after a slight decline the prior week. The drop pulled the average number of applications 1.8% in June below the May average and applications were 32.0% below the year ago level.
Applications to refinance cratered 7.5% last week, the fourth w/w drop this month. Refis in June were 3.2% below the May average and 46.4% below the year earlier level.
Purchase applications also fell sharply from the previous week. The 6.2% drop lowered the June average 1.3% below May and 18.5% below the year ago level.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage rose another twelve basis points to 7.08%, the highest level since April 2002. The rate on 15-year financing also surged ten basis points to 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628b.jpg" width="353">
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest 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>.
The Price of Residential Land in Large U.S. Citiesfrom the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200625/200625pap.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/23/06</th>
<th scope="col">06/16/06</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>529.6</td>
<td>567.6</td>
<td>-32.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.0</td>
<td>414.8</td>
<td>-18.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,356.0</td>
<td>1,466.1</td>
<td>-46.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Wider Current Account Deficit in Lithuania; Slight Improvement in Bosnia & Herzegovina 
by <a href="/comment/Stone.html">Carol Stone</a> June 28, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628c.jpg" width="353">
Balance of payments reports for two emerging European economies show a mixed picture for Q1 2006. In Lithuania, the current account has widened markedly over the last year, in rough parallel with gaping trade accounts. By contrast, Bosnia and Herzegovina are seeing a steadier trend in both current account and trade balances, although these not-seasonally adjusted figures are fairly erratic from quarter to quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628d.jpg" width="353">
In Lithuania, imports surged in the spring of last year and continued rising through the summer. Until 2003, the usual seasonal pattern saw them ease in the summer quarter after their spring bounce. We presume the latest move is energy related. Fortunately, exports have been stronger in the last year than has been typical, but still not so vigorous as imports. Also fortunate have been larger surpluses on services and transfer receipts which have helped offset the larger trade deficit. On the financial accounts side of the balance of payments ledger, &quot;other investment&quot;, generally bank loans, has increased and even Lithuania&#39;s capital account has shown a persistent and non-trivial surplus. However, some financing has also come from a decrease in foreign exchange reserves, not likely a comfortable position for the central bank.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628e.jpg" width="353">
In Bosnia, the rise in imports has been much more temperate. Indeed, in Q1, imports were actually very slightly smaller than in Q1 2005. Combined with a firm uptrend in exports, the goods balance has deteriorated only modestly, rather than losing major ground as in some other countries. Financing for the goods deficit has come from a sustained inflow of current transfers (see graph) and from inflows of direct investment and &quot;other&quot; investment. Interestingly, Bosnia &amp; Herzegovina has virtually no portfolio investment. There has been a moderate run-off of foreign exchange reserves.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060628f.jpg" width="353">
Both of these countries peg their currencies to the euro. Lithuania is a member of the EU-25, the segment added in 2004 that retain their own local currency, here the litas, which is 3.4528 to the euro. Bosnia has linked its currency, the Convertible Marka, to the euro since the inception of the euro in 1999. Monthly data for it are maintained by the Central Bank of Bosnia &amp; Herzegovina from 2002. All of these data are contained in Haver&#39;s EMERGECW database and some data for Lithuania are also in EUROSTAT.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q1 2005</th>
Quarterly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Lithuania: Mil Litai, SA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>-2035.7</td>
<td>-1308.4</td>
<td>-1013.1</td>
<td>-1234.5</td>
<td>-1202.5</td>
<td>-963.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Trade Balance</td>
<td>-2529.1</td>
<td>-2202.6</td>
<td>-1569.0</td>
<td>-1982.0</td>
<td>-1657.7</td>
<td>-1285.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account Balance</td>
<td>1650.5</td>
<td>907.9</td>
<td>340.1</td>
<td>931.4</td>
<td>878.1</td>
<td>789.6</td>
</tr>
<tr>
<td class="firstcol">Bosnia: Mil. Convertible Marka, NSA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>-221.5</td>
<td>-1154.4</td>
<td>-424.3</td>
<td>-829.0</td>
<td>-702.5</td>
<td>-705.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Trade Balance</td>
<td>-1089.4</td>
<td>-2387.2</td>
<td>-1400.1</td>
<td>-1958.3</td>
<td>-1798.2</td>
<td>-1795.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account Balance</td>
<td>44.8</td>
<td>688.8</td>
<td>234.1</td>
<td>412.8</td>
<td>276.1</td>
<td>371.5</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060627e.jpg" width="353">
Germany, Italy and the Netherlands reported increased business confidence today. We noted yesterday that confidence in Belgium had also increased. France is the only Euro Zone country that, so far, has seen a decline in business confidence.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060627f.jpg" width="353">
The German IFO measure of business confidence rose 1.0% from 105.7 to 106.8 (2000=100) in June, the highest level since February, 1991. In terms of the diffusion index the excess of optimists over pessimists rose 2.3 percentage points from 10.4% in May to 12.7% in June. In the Netherlands, where business confidence is measured by the excess of optimists over pessimists, the percent balance rose 3.1 percentage points from 3.3% to 6.4%. The first chart compares the percent balances indicators for Germany and the Netherlands. Business confidence in Italy, which has been lower than that in Germany, rose by almost 2% in June from May to reach 98.9 (2000=100), the highest level since December, 2000. The second chart compares the indexes of business confidence in Germany and Italy.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060627g.jpg" width="353">
Italy and the Netherlands also reported on consumer confidence. The Italian consumer lost some confidence as the indicator of consumer confidence fell 0.7% from 107.1 (2000=100) in May to 106.8 in June. The Dutch consumer, on the contrary, became more optimistic in June as the optimists exceeded the pessimist by 5% in contrast to May when the pessimists exceeded the optimists by 4%. The third chart compares consumer confidence in Italy and in the Netherlands.
The rise in business confidence in these countries has occurred in spite of strength in the euro, continued high oil prices and the likelihood of a rise in the European Central Bank&#39;s main lending interest rate. It may be that the biggest threat to confidence is the possibility of greater than expected increases in ECB&#39;s lending rate. The rate is currently 2.75%, having risen by from the low 2% in three increments of 25 basis points in December of last year and in March and June of this year. In the past week six council members of the ECB have hinted that the bank may accelerate interest rate increases to combat inflationary pressures. And just today, in its Annual Report the Bank of International Settlements (BIS) called on central bankers to raise interest rates to combat these same global inflationary pressures. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Confidence Measures</th>
<th scope="col">Jun&nbsp; 06</th>
<th scope="col">May 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M %</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">Germany&nbsp;Business Confidence</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Index (2000=100)</td>
<td>106.8</td>
<td>105.7</td>
<td>93.3</td>
<td>1.04</td>
<td>14.47</td>
<td>95.5</td>
<td>95.5</td>
<td>91.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Balance</td>
<td>12.7</td>
<td>10.4</td>
<td>-14.1</td>
<td>2.3*</td>
<td>24.5*</td>
<td>-9.7</td>
<td>-9.9</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Italy Business&nbsp;&nbsp;&nbsp; Confidence (2000=100)</td>
<td>98.9</td>
<td>92.0</td>
<td>84.8</td>
<td>1.96</td>
<td>16.62</td>
<td>87.5</td>
<td>89.5</td>
<td>87.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy Consumer Confidence (2000=100)</td>
<td>106.8</td>
<td>107.6</td>
<td>102.9</td>
<td>-0.74</td>
<td>3.79</td>
<td>104.2</td>
<td>101.4</td>
<td>106.1</td>
</tr>
<tr>
<td class="firstcol">Netherlands Business Confidence (% Balance&nbsp;</td>
<td>6.4</td>
<td>3.3</td>
<td>-1.7</td>
<td>3.1*</td>
<td>8.1*</td>
<td>0.6</td>
<td>-0.1</td>
<td>-5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands Consumer Confidence (% Balance)&nbsp;</td>
<td>5</td>
<td>-4</td>
<td>-26</td>
<td>9*</td>
<td>31*</td>
<td>-22</td>
<td>-25</td>
<td>-35</td>
</tr>
</tbody>
</table>
</body>
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Germany, Italy and the Netherlands reported increased business confidence today. We noted yesterday that confidence in Belgium had also increased. France is the only Euro Zone country that, so far, has seen a decline in business [...]

Business Confidence in Europe Still Strong in Spite of Euro Strength, High Oil Prices and Rising Interest Rates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060627a.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales fell 0.4% last week after having been unchanged the prior period.
Sales in June are 0.2% below the May average which fell 0.4% from April. During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.3% (-2.0% y/y) during the latest period after three consecutive weeks of increase.
Parsing Recent Inflation Data from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/eyi/usecon/archived/0606inflation.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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">06/24/06</th>
<th scope="col">06/17/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>471.6</td>
<td>473.6</td>
<td>4.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales fell 0.4% last week after having been unchanged the prior period. Sales in June are 0.2% below the May average which fell 0.4% from April. During [...]

Chain Store Sales Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060627c.jpg" width="353">
Consumer confidence as reported by the Conference Board improved 1.0% in June to 105.7. The rise recovered a piece of the 4.6% May decline that was revised slightly shallower. It contrasted to Consensus expectations for a further decline to 103.5 and compared to a 4.2% rise in the University of Michigan&#39;s June Index of Consumer Sentiment.
During the last twenty years there has been a 52% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.
Consumers&#39; assessment of the present situation fell for a second month and posted a 1.0% decline (+9.9% y/y). The percentage of respondents who viewed business conditions as good (26.8%) fell for a second month and the percentage that viewed jobs as hard to get (19.9%) reversed the prior month&#39;s rise.
The index of consumers&#39; expectations rose a modest 2.9% (-9.1% y/y) and recovered just part of the May decline. Expectations for business conditions in six months improved slightly as did expectations that the number of jobs would rise. Expectations for the inflation rate in twelve months slipped to 5.1% from 5.6% expected in May.
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1401/@EF1401.HTM">Conference Board</a></th>
<th scope="col">June</th>
<th scope="col">May</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">Consumer Confidence</td>
<td>105.7</td>
<td>104.7</td>
<td>-0.5%</td>
<td>100.3</td>
<td>96.1</td>
<td>79.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer confidence as reported by the Conference Board improved 1.0% in June to 105.7. The rise recovered a piece of the 4.6% May decline that was revised slightly shallower. It contrasted to Consensus expectations for a further [...]

Consumer Confidence Improved A Bit

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

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Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

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High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

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The employment cost index (ECI) for civilian workers, arguably the most accurate measure of labor compensation in the United States, rose 0.9% q/q (3.6% y/y) in Q1, the same quarterly increase as in last year’s Q4, according to the Bureau of Labor Statistics. The quarterly gains have fluctuated between 0.8% and 1.0% for the past six quarters. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 3.5% y/y gain.

Wages and salaries for civilian workers rose 0.8% q/q (3.5% y/y) in Q1, down from 1.0% q/q in Q4. This tied the Q3 2024 quarterly rise as the smallest increase since Q2 2021. It was also the smallest y/y increase since Q2 2021. Benefits increased by an outsized 1.2% q/q (3.9% y/y) in Q1 versus 0.8% q/q in Q4. This is the largest quarterly gain since Q2 2022. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing gradually.

Private industry workers’ compensation rose 0.8% q/q (3.4% y/y) in Q1, down from 0.9% q/q (3.6% y/y) in Q4. Wages and salaries for private industry workers increased 0.8% q/q (3.4% y/y) in Q1 versus 0.8% q/q (3.7% y/y) in Q4. The quarterly gain in Q1 tied that in Q3 2024 as the smallest increase since Q4 2020. Benefits for private industry workers jumped 1.2% q/q (3.6% y/y). the largest quarterly gain since Q2 2022. The acceleration in benefits in Q1 was primarily in service-producing industries.

Compensation in private goods-producing industries increased 1.0% q/q (3.2% y/y) in Q1, the largest quarterly gain in five quarters, versus a 0.7% q/q increase in Q4. Compensation in construction jumped 1.3% q/q, its largest quarterly increase since Q2 2022, up from a 0.6% q/q gain in Q4. Manufacturing compensation growth slowed to 0.7% q/q, its slowest quarterly advance since Q4 2020, from 0.8% q/q in Q4. Compensation in private service-producing industries increased 0.8% q/q (3.5% y/y), down slightly from a 0.9% q/q gain in Q4. Compensation in education and health services jumped 1.3% q/q, its largest quarterly gain since Q3 2023. In contrast, compensation in other services edged up 0.1% q/q in Q1, its smallest quarterly advance since before the pandemic.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- Compensation grew 0.9 q/q in Q1, the same pace as in Q4.
- Wage growth slowed to 0.8% q/q while benefits surged 1.2% q/q, their largest quarterly increase since Q2 2022.

Employment Cost Growth Steady in Q1 2025

Kathleen Stephansen, CBE

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 62,000 (1.4% y/y) during April after increasing 147,000 (1.4% y/y) during March, revised from 155,000. A 124,000 April rise in ADP employment had been expected in the Action Economics Forecast Survey.

Growth in median annual pay for "job stayers" eased to 4.5% y/y during April, from 4.6% y/y in March and from 4.7% y/y in the prior two months. Manufacturing sector pay grew 4.6% y/y during April, down from 4.8% y/y in March. Construction sector pay was unchanged at 4.7% y/y. Natural resource & mining sector pay grew 4.4% y/y. Financial sector pay rose 5.1% y/y, while education & health services pay rose 4.7% y/y. Leisure & hospitality pay also increased 4.7% y/y. Professional & business service sector pay increased 4.3% y/y as did trade, transportation & utilities pay. Information pay rose 4.1% y/y. Median annual pay for “job changers” rose 6.9% y/y after 6.7% y/y in March.

Small business hiring (less than 50 employees) rose 11,000 (0.6% y/y) after rising 18,000 (0.6% y/y) in March, revised down from 52,000. Employment at medium-sized firms (50-499,000 employees) rose 40,000 (1.1% y/y) after rising 43,000 (1.1% y/y). Large business hiring (500+ employees) rose 12,000 (3.4% y/y) in April, after rising 61,000 (3.6% y/y) in March, revised from 59,000.

Goods-producing employment rose 26,000 (1.3% y/y) in April, after rising 16,000 (1.3% y/y) during March, revised from 24,000. Manufacturing jobs rose 4,000 (-0.2% y/y) after rising 17,000 (-0.3% y/y) in March. The number of construction sector jobs rose 16,000 (3.4% y/y) in April, following a 2,000 (3.6% y/y) March increase, revised from 6,000. Natural resources & mining jobs rose 6,000 (2.8% y/y) in April after falling 3,000 (+1.9% y/y) in March.

The number of service-producing jobs rose 34,000 (1.4% y/y) during April, following a rise of 131,000 (1.4% y/y) in March. Professional & business services employment fell 2,000 (0.6% y/y) after rising 46,000 (0.7% y/y) in the prior month, revised from 57,000. Employment in the financial industry rose 20,000 (2.1% y/y) in April, after rising 38,000 (2.0% y/y) in March. Leisure and hospitality employment increased 27,000 (3.0% y/y), following a 23,000 (2.9% y/y) March increase, revised from 17,000. The number of education & health care jobs fell 23,000 (1.6% y/y) in April, following a 15,000 (1.8% y/y) rise in March, revised from 12,000. Information sector employment fell 8,000 (-0.1% y/y) after a rise of 3,000 (0.2% y/y) in March. The number of jobs in trade, transportation & utilities rose 21,000 (0.4% y/y) in April, after falling 4,000 (+0.4% y/y) in March, revised from a 6,000 fall. Employment in “other” services rose fell 1,000 (+3.2% y/y) following a 10,000 (3.4% y/y) rise in March, revised from 11,000.

By region, employment in the Northeast increased 10,000 (1.9% y/y) in April, following an increase of 95,000 (2.0% y/y) in March, revised from 89,000. Employment in the Midwest rose 42,000 (1.5% y/y) after a gain of 84,000 (1.4% y/y) in March, revised from 81,000. In the South, employment rose 3,000 (1.3% y/y) during April, after rising 10,000 (1.4% y/y) in March, revised from 27,000. In the West, employment rose 9,000 (0.6% y/y) after declining 43,000 (+0.6% y/y), revised from a 41,000 decline in March.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Employment increase is modest in both services & factory sectors.
- Wage growth for “job stayers” moderates.
- Small and medium-sized business employment slows.

Economy in Brief: June 2006

Jump to:

US GDP & Profits Revised Up for 1Q. Price Gain Easier

Fed Funds Rate Increased to 5.25%

Wider Current Account Deficit in Lithuania; Slight Improvement in Bosnia & Herzegovina

Mortgage Applications Fell Hard, Rates Above 7%

Mortgage Applications Fell Hard, Rates Above 7%

Business Confidence in Europe Still Strong in Spite of Euro Strength, High Oil Prices and Rising Interest Rates

Chain Store Sales Fell

Consumer Confidence Improved A Bit