Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126a.jpg" width="353">
Orders for durable goods in December rose 1.3% following an upwardly revised 5.4% increase in November. The rise about matched Consensus expectations for a 1.0% gain, however, the details of the report painted a more constructive picture of factory sector activity than was portrayed in the November release.
Aircraft &amp; parts orders which rose 77% and 69% in October &amp; November, respectively, and dominated those two months&#39; reports fell just 2.9% and were triple the year earlier level in December.
Moving in the other direction, new orders for motor vehicles &amp; parts rose 6.6% (-1.3% y/y) following two months of sharp decline.
Less the transportation sector altogether, durable goods orders rose 0.9% following an upwardly revised 0.6% November increase.
Machinery orders rose 6.5% (10.9% y/y) after a 3.1% November increase, initially reported as a decline. Fabricated metals orders rose 1.3% (3.2% y/y) following a 1.6% November decline that was shallower than initially reported and orders for computers &amp; related products rose 1.5% (8.0% y/y) after an upwardly revised 8.1% November increase.
Orders for nondefense capital goods fell 0.6% due to the drop in aircraft but less aircraft, nondefense capital goods orders increased 3.5% after a slight November increase that initially was reported as a 2.0% drop.
On the downside in December were communications equipment orders which fell 3.3% (-7.4% y/y) and electrical equipment orders which fell 2.8% (+14.8% y/y).
Shipments of durable goods jumped 3.5% (6.7% y/y) in December following a 0.6% November increase. Less the transportation sector, shipments rose 2.3% (6.0% y/y) after an upwardly revised 0.5% November increase.
Order backlogs surged another 2.4% (16.3% y/y) due to the high level of aircraft orders. Less transportation backlogs ticked up 0.3% (10.0% y/y) and the ratio of backlogs to shipments outside of transportation fell from the November high.
Durable inventories ticked 0.1% higher (3.5% y/y) after an upwardly revised 0.8% November increase.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>1.3%</td>
<td>5.4%</td>
<td>12.7%</td>
<td>8.5%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>0.9%</td>
<td>0.6%</td>
<td>5.8%</td>
<td>8.5%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-0.6%</td>
<td>22.2%</td>
<td>31.3%</td>
<td>19.7%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>3.5%</td>
<td>0.2%</td>
<td>7.0%</td>
<td>10.6%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
</body>
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Orders for durable goods in December rose 1.3% following an upwardly revised 5.4% increase in November. The rise about matched Consensus expectations for a 1.0% gain, however, the details of the report painted a more constructive [...]

U.S. Durable Goods Orders Recover

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126a.jpg" width="353">
Orders for durable goods in December rose 1.3% following an upwardly revised 5.4% increase in November. The rise about matched Consensus expectations for a 1.0% gain, however, the details of the report painted a more constructive picture of factory sector activity than was portrayed in the November release.
Aircraft &amp; parts orders which rose 77% and 69% in October &amp; November, respectively, and dominated those two months&#39; reports fell just 2.9% and were triple the year earlier level in December.
Moving in the other direction, new orders for motor vehicles &amp; parts rose 6.6% (-1.3% y/y) following two months of sharp decline.
Less the transportation sector altogether, durable goods orders rose 0.9% following an upwardly revised 0.6% November increase.
Machinery orders rose 6.5% (10.9% y/y) after a 3.1% November increase, initially reported as a decline. Fabricated metals orders rose 1.3% (3.2% y/y) following a 1.6% November decline that was shallower than initially reported and orders for computers &amp; related products rose 1.5% (8.0% y/y) after an upwardly revised 8.1% November increase.
Orders for nondefense capital goods fell 0.6% due to the drop in aircraft but less aircraft, nondefense capital goods orders increased 3.5% after a slight November increase that initially was reported as a 2.0% drop.
On the downside in December were communications equipment orders which fell 3.3% (-7.4% y/y) and electrical equipment orders which fell 2.8% (+14.8% y/y).
Shipments of durable goods jumped 3.5% (6.7% y/y) in December following a 0.6% November increase. Less the transportation sector, shipments rose 2.3% (6.0% y/y) after an upwardly revised 0.5% November increase.
Order backlogs surged another 2.4% (16.3% y/y) due to the high level of aircraft orders. Less transportation backlogs ticked up 0.3% (10.0% y/y) and the ratio of backlogs to shipments outside of transportation fell from the November high.
Durable inventories ticked 0.1% higher (3.5% y/y) after an upwardly revised 0.8% November increase.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>1.3%</td>
<td>5.4%</td>
<td>12.7%</td>
<td>8.5%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>0.9%</td>
<td>0.6%</td>
<td>5.8%</td>
<td>8.5%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-0.6%</td>
<td>22.2%</td>
<td>31.3%</td>
<td>19.7%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>3.5%</td>
<td>0.2%</td>
<td>7.0%</td>
<td>10.6%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Up A Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126b.jpg" width="353">
Initial claims for unemployment insurance ticked 11,000 higher to 283,000 following a little revised 36,000 decline the prior week. Consensus expectations had been for 305,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims fell further to 288,750 (-14.1% y/y), its lowest level since June 2000.
Continuing unemployment insurance claims increased 53,000 following a deepened 154,000 decline the prior week.
The insured rate of unemployment held at 2.0% for the second 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">01/21/06</th>
<th scope="col">01/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>283</td>
<td>272</td>
<td>-11.8%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,581</td>
<td>-7.0%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
BIS Totals $20.7 Trillion in International Banking Assets on 9/30 
by <a href="/comment/Stone.html">Carol Stone</a> January 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126c.jpg" width="353">
The Bank for International Settlements today reported international banking statistics for Q3 2005, on a provisional basis. These data are contained in Haver&#39;s BIS database, which includes basically all the tables in the BIS Quarterly Review. The objective of this highly detailed data collection effort is to provide indications of the exposure of reporting countries&#39; banking systems to international developments. There are 39 reporting countries whose central banks provide comprehensive data on gross external assets and liabilities of their nation&#39;s banks with immediate borrowers. These reporting countries are mostly developed countries, but banks in emerging economies, such as Brazil, Mexico and Turkey, also report, along with a number of offshore banking centers. Claims and liabilities are classified by country and sector of the counter-party, by currency and by type of instrument, among other features. Of these 39 countries, 30 also report &quot;consolidated&quot; data, which net out inter-bank flows and indicate the amount of &quot;ultimate&quot; risk, including derivatives as well as on-balance-sheet items. In the following discussion, we look simply at the total of gross claims -- or assets -- for Q3 held by banks in various countries and the distribution of the so-called &quot;vis-&agrave;-vis&quot; countries which have incurred them.
At the end of September, external claims of banks in the 39 reporting countries totaled $20.713 trillion. This compares with $20.268 trillion on June 30 and $19,198.3 billion at the end of 2004. The largest claims are assets of banks in the UK, $4.122 trillion. The US is third in this ranking, having $1.965 trillion in foreign assets, while Germany is second at $2.184 trillion. Banks in Japan, France and the Cayman Islands all have more than $1.0 trillion in external assets.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126d.jpg" width="353">
Frequently, in considering banking figures such as these, the public tends to focus on the debts of developing or emerging market countries. But, as measured here, these are smaller than might be expected: BIS reporting banks&#39; assets in these countries came to only $1.338 trillion, 6.5% of the total. In an absolute sense, of course, $1.3 trillion is a large amount, and it probably carries more risk than the substantially bigger assets in more developed countries. The largest claims in this group of countries involve China and South Korea.
By type, loans constitute about three-quarters of these banking system assets. By currency, US dollar assets totaled $8.435 trillion on September 30. The next biggest currency is the euro, with $7.798 trillion. Non-trivial amounts are also denominated in yen, pounds and Swiss francs.
This is a quarterly release, with year-end 2005 likely to be released on April 25. The BIS established these reports as the eurocurrency markets developed in the 1970s. They were enhanced following significant international incidents, especially including the original Mexican debt crisis in 1983 and the Russian default in 1998.

<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/BIS/BIS.HTM">BIS</a> (All Data in Trillions US $)</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
Year-End
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>20.713</td>
<td>20.268</td>
<td>19.808</td>
<td>19.198</td>
<td>15.999</td>
<td>13.370</td>
</tr>
<tr class="odd">
<td class="firstcol">UK Bank Assets</td>
<td>4.122</td>
<td>4.031</td>
<td>3.974</td>
<td>37.87</td>
<td>3.093</td>
<td>2.514</td>
</tr>
<tr>
<td class="firstcol">German Bank Assets</td>
<td>2.184</td>
<td>2.167</td>
<td>2.191</td>
<td>2.151</td>
<td>1.786</td>
<td>1.384</td>
</tr>
<tr class="odd">
<td class="firstcol">Claims on Developed Countries</td>
<td>16.372</td>
<td>16.038</td>
<td>15.765</td>
<td>15.206</td>
<td>12.714</td>
<td>10.619</td>
</tr>
<tr>
<td class="firstcol">Claims on Developing Countries</td>
<td>1.338</td>
<td>1.266</td>
<td>1.251</td>
<td>1.180</td>
<td>1.007</td>
<td>0.877</td>
</tr>
<tr class="odd">
<td class="firstcol">US Dollar Denominated</td>
<td>8.435</td>
<td>8.197</td>
<td>7.662</td>
<td>7.356</td>
<td>6.362</td>
<td>5.664</td>
</tr>
<tr>
<td class="firstcol">Euro Denominated (US$ value)</td>
<td>7.798</td>
<td>7.663</td>
<td>7.760</td>
<td>7.564</td>
<td>6.026</td>
<td>4.501</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/070125c.jpg" width="353">
Sales of existing homes fell 0.8% to 6.220M last month after two consecutive months of slight gain. Sales remained down 14.4% from the peak during June of 2005 and during all of last year sales fell 8.0% from the 2005 average.
Sales of single family homes fell a sharper 1.3% last month after no change during November. Sales were 14.1% lower than during the peak month of June 2005 and sales fell 7.7% for the full year.
Existing single family home prices in December firmed 2.3% for after four consecutive months of decline. Prices remained down 4.0% from the peak this past July but for all of last year posted a 2.3% gain, the weakest on record.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070125d.jpg" width="353">
By region, single family home sales fell 1.3% (-2.5% y/y) in the Northeast and were off 5.9% for all of 2005. Out West sales dropped 9.9% (-14.8% y/y) in December but cratered 16.7% for the full year. Sales in the Midwest actually rose 3.2% (-5.1% y/y) in December but posted a 6.1% decline for 2006 and in the South sales ticked up 0.4% (-6.6% y/y), off 3.8% for the year.
The inventory of &quot;homes on the market&quot; dropped a sharp 7.9% (+23.3% y/y) in December, the fourth decline in the last five month. At current sales rates, the inventory of homes for sale amounts to 6.8 months, down from the 7.4 month peak in October.
The broad aggregate data on existing home sales are included in Haver&#39;s USECON database; details about prices by region and inventories are available in the REALTOR database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Home Sales (SAAR, 000s)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales</td>
<td>6,220</td>
<td>6,270</td>
<td>-7.9%</td>
<td>6,500</td>
<td>7,064</td>
<td>6,722</td>
</tr>
<tr>
<td class="firstcol">Single-Family Sales</td>
<td>5,440</td>
<td>5,510</td>
<td>-7.2%</td>
<td>5,697</td>
<td>6,170</td>
<td>5,912</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Single-Family Home Price (NSA,000s)</td>
<td>$221.6</td>
<td>$216.7</td>
<td>0.0%</td>
<td>$222.4</td>
<td>$217.5</td>
<td>$192.8</td>
</tr>
</tbody>
</table>
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Sales of existing homes fell 0.8% to 6.220M last month after two consecutive months of slight gain. Sales remained down 14.4% from the peak during June of 2005 and during all of last year sales fell 8.0% from the 2005 average. Sales [...]

December Existing Home Sales Fell, 2006 Price Gain Weakest on Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070125c.jpg" width="353">
Sales of existing homes fell 0.8% to 6.220M last month after two consecutive months of slight gain. Sales remained down 14.4% from the peak during June of 2005 and during all of last year sales fell 8.0% from the 2005 average.
Sales of single family homes fell a sharper 1.3% last month after no change during November. Sales were 14.1% lower than during the peak month of June 2005 and sales fell 7.7% for the full year.
Existing single family home prices in December firmed 2.3% for after four consecutive months of decline. Prices remained down 4.0% from the peak this past July but for all of last year posted a 2.3% gain, the weakest on record.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070125d.jpg" width="353">
By region, single family home sales fell 1.3% (-2.5% y/y) in the Northeast and were off 5.9% for all of 2005. Out West sales dropped 9.9% (-14.8% y/y) in December but cratered 16.7% for the full year. Sales in the Midwest actually rose 3.2% (-5.1% y/y) in December but posted a 6.1% decline for 2006 and in the South sales ticked up 0.4% (-6.6% y/y), off 3.8% for the year.
The inventory of &quot;homes on the market&quot; dropped a sharp 7.9% (+23.3% y/y) in December, the fourth decline in the last five month. At current sales rates, the inventory of homes for sale amounts to 6.8 months, down from the 7.4 month peak in October.
The broad aggregate data on existing home sales are included in Haver&#39;s USECON database; details about prices by region and inventories are available in the REALTOR database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Home Sales (SAAR, 000s)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales</td>
<td>6,220</td>
<td>6,270</td>
<td>-7.9%</td>
<td>6,500</td>
<td>7,064</td>
<td>6,722</td>
</tr>
<tr>
<td class="firstcol">Single-Family Sales</td>
<td>5,440</td>
<td>5,510</td>
<td>-7.2%</td>
<td>5,697</td>
<td>6,170</td>
<td>5,912</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Single-Family Home Price (NSA,000s)</td>
<td>$221.6</td>
<td>$216.7</td>
<td>0.0%</td>
<td>$222.4</td>
<td>$217.5</td>
<td>$192.8</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Finally Popped 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 25, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070125e.jpg" width="353">
The Conference Board reported that its Index of Help-Wanted Advertising in December popped upwards to 33, its highest level since June.
During the last ten years there has been a 57% 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 also surged to 77%, the highest level since July of 2005.
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>.

<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">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;05</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>33</td>
<td>29</td>
<td>38</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 25, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070125a.jpg" width="353">
Initial unemployment insurance claims jumped 36,000 to 325,000 last week and reversed all of the declines over the prior two weeks. Consensus expectations had been for a lesser increase to 310,000.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims increased modestly to 309,250 (7.1% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070125b.jpg" width="353">
Continuing claims for unemployment insurance fell 39,000 and reversed part of the prior week&#39;s 113,000 surge.
The insured rate of unemployment remained at 1.9%, about where it&#39;s been since February.
The Budget &amp; Economic Outlook: Fiscal Years 2007 to 2016 from the Congressional Budget Office can be found<a href="http://www.cbo.gov/ftpdocs/70xx/doc7027/01-26-BudgetOutlook.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">01/20/07</th>
<th scope="col">01/13/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>325</td>
<td>289</td>
<td>15.7%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,484</td>
<td>-3.2%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
China GDP Grows 10.7% in 2006, But Manufacturing Gains Appear To Moderate Late in the Year 
by <a href="/comment/Stone.html">Carol Stone</a> January 25, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070125g.jpg" width="353">
China&#39;s economy continued to expand rapidly in Q4, according to GDP data reported today (Jan 25). The Q4 GDP was 10.4% above that for Q4 2005, making the whole year 10.7% above 2005. This was the strongest yearly performance since 1995.
China, of course, has become the world&#39;s manufacturing center, and it is that industrial sector that drove the further acceleration in the annual outcome. This is called secondary industry by the Chinese national accounts compilers; the product of that segment expanded by 12.5% in the year, about the same as 12.7% in 2003, and otherwise the largest growth since 1995. The secondary industries are manufacturing, mining, utilities and construction. Primary industries, which include agriculture, forestry and fishing, expanded 5.0%, and tertiary industries, basically the service sector, grew 10.3%, about in line with the last seven or eight years&#39; gains. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070125h.jpg" width="353">
While these data are &quot;provisional&quot; according to China&#39;s National Bureau of Statistics, they do contain a hint of slowing in the key secondary industry sector. Its gross product had been up as much as 13.2% in Q2, year-to-date over the comparable year-ago period. So there has apparently been moderate easing through the second half of the year to the cumulative total of 12.5%. This is also apparent in monthly data on industrial production. Year-on-year growth rates in the autumn months had decreased to 14-3/4% from 18% in the spring. This of course still shows dramatic strength -- which indeed may elicit interest rate increases from the Central Bank -- but the less ebullient performance does suggest that there may be some capacity limits on Chinese activity. We could guess they are at least partially energy-related.

<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/EMERGEPR/@P1/@P12/@P12.HTM">CHINA</a></th>
<th scope="col">Q4 2006</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP: Yr/Yr % Change</td>
<td>10.4</td>
<td>10.6</td>
<td>11.5</td>
<td>9.9</td>
<td>10.7</td>
<td>9.9</td>
<td>9.5</td>
</tr>
<tr>
<td class="firstcol">Year-to-Date % Change</td>
<td>10.7</td>
<td>10.7</td>
<td>10.9</td>
<td>10.4</td>
<td>10.7</td>
<td>10.4</td>
<td>10.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Primary Industries</td>
<td>5.0</td>
<td>4.9</td>
<td>5.1</td>
<td>5.2</td>
<td>5.0</td>
<td>5.2</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Secondary Industries</td>
<td>12.5</td>
<td>13.0</td>
<td>13.2</td>
<td>11.7</td>
<td>12.5</td>
<td>11.7</td>
<td>11.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary Industries</td>
<td>10.3</td>
<td>9.5</td>
<td>9.4</td>
<td>10.5</td>
<td>10.3</td>
<td>10.5</td>
<td>10.0</td>
</tr>
<tr>
<td class="firstcol">Nominal GDP: Bil.Yuan</td>
<td>5,659.6</td>
<td>5,129.3</td>
<td>5,024.1</td>
<td>4,820.0</td>
<td>20,834.0</td>
<td>18,232.1</td>
<td>15,987.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Bil.US$</td>
<td>719.9</td>
<td>644.0</td>
<td>627.2</td>
<td>596.3</td>
<td>2,614.7</td>
<td>2,226.1</td>
<td>1,931.6</td>
</tr>
</tbody>
</table>
</body>
</html>

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/060125h.jpg" width="353">
The &quot;preliminary&quot; estimate of GDP in the UK shows an improvement in growth for Q4, to 0.6%, from 0.4% in Q3. This result might surprise observers in light of several reports, the latest only yesterday, of deteriorating business sentiment in that economy. The answer appears to be a mixed one. Output at the so-called &quot;production&quot; industries, that is, manufacturing, mining and utilities, shrank in the quarter by 0.6%. The overall gain in GDP came from a notable pickup in the service sector to 0.9%, its strongest performance since the spring of 2004. Further, even among the production industries, the erratic mining industry whipped around from a steep -7.7% in Q3 to +1.3% in Q4. Several service industries also showed growth spurts of over 1% after more moderated gains in previous quarters. So the improvement in the total GDP figure in Q4 may be more transitory than a sign of a firming trend.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U2/@U2.HTM">UK GDP&nbsp;</a>SA, % Changes</th>
<th scope="col">Q4 2005 &quot;Prel&quot;&nbsp;</th>
<th scope="col">Q3 2005&nbsp;</th>
<th scope="col">Q2 2005</th>
<th scope="col">Year/Year</th>
<th scope="col">2005</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>0.6</td>
<td>0.4</td>
<td>0.5</td>
<td>1.7</td>
<td>1.8</td>
<td>3.2</td>
<td>2.5</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">Manufacturing </td>
<td>-0.8</td>
<td>0.3</td>
<td>-0.2</td>
<td>-1.6</td>
<td>-0.6</td>
<td>1.9</td>
<td>0.1</td>
<td>-3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining incl Oil Extraction</td>
<td>1.3</td>
<td>-7.7</td>
<td>0.2</td>
<td>-7.1</td>
<td>-8.4</td>
<td>-8.1</td>
<td>-5.1</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Electricity, Gas &amp; Water Supply</td>
<td>-0.2</td>
<td>-1.0</td>
<td>1.0</td>
<td>-1.8</td>
<td>-1.6</td>
<td>2.1</td>
<td>1.2</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>0.9</td>
<td>0.7</td>
<td>0.6</td>
<td>2.9</td>
<td>2.6</td>
<td>3.6</td>
<td>2.7</td>
<td>2.7</td>
</tr>
</tbody>
</table>
</body>
</html>

The "preliminary" estimate of GDP in the UK shows an improvement in growth for Q4, to 0.6%, from 0.4% in Q3. This result might surprise observers in light of several reports, the latest only yesterday, of deteriorating business [...]

UK GDP Rises 0.6% in Q4: A Brief Summary

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060125f.jpg" width="353">
While business in the UK appears to be flagging, as reported here yesterday by Louise Curley, on the Continent, affairs look more favorable. Ifo, an independent research institute in Germany, relates today that its Business Climate Index for January moved up to +3.0 from -1.7 in December. This was only the 21st positive monthly reading in just over 15 years of survey data. The two components, the Business Situation and Business Expectations also improved, with Expectations at +10.8 from +2.6 last month. The Situation measure, a gauge of current conditions, remained negative, but less so, at -4.5 from -6.0 in December. Among types of businesses, manufacturers, construction companies and retailers participated in the advance. Wholesalers&#39; sentiments eroded a bit, from -0.8 to -2.1, but these were still the best two readings in this sector since May 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060125g.jpg" width="353">
In a similar survey covering manufacturers and other industrial firms in France, sentiments changed little in the month, but their modest move pushed their diffusion index to +1, the first positive reading since November 2004. Conducted by INSEE, the French Government statistical office, this monthly business survey, measuring the outlook for the trend in industrial production, is much more variable than the Ifo data in Germany. So less significance can be taken from this latest swing in the French figures. Even so, French managers are considerably more sanguine about manufacturing prospects than they were through much of 2005. Foreign orders look to be a major ingredient.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Indexes, 2000=100, SA</th>
<th scope="col">Jan 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</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">Germany: Ifo Business Climate</td>
<td>102.0</td>
<td>99.6</td>
<td>97.8</td>
<td>96.2</td>
<td>95.6</td>
<td>95.7</td>
<td>91.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Diffusion %</td>
<td>+3.0</td>
<td>-1.7</td>
<td>-5.3</td>
<td>-8.6</td>
<td>-9.7</td>
<td>-9.6</td>
<td>-17.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Situation</td>
<td>100.4</td>
<td>99.6</td>
<td>97.8</td>
<td>95.1</td>
<td>95.4</td>
<td>94.0</td>
<td>88.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Diffusion %</td>
<td>-4.5</td>
<td>-6.0</td>
<td>-9.5</td>
<td>-14.7</td>
<td>-14.2</td>
<td>-17.0</td>
<td>-27.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Expectations</td>
<td>103.6</td>
<td>99.6</td>
<td>97.8</td>
<td>97.2</td>
<td>95.8</td>
<td>97.4</td>
<td>95.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Diffusion %</td>
<td>+10.8</td>
<td>+2.6</td>
<td>-1.1</td>
<td>-2.2</td>
<td>-5.1</td>
<td>-1.8</td>
<td>-6.5</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">France: INSEE Business Survey*</td>
<td>1</td>
<td>-2</td>
<td>0</td>
<td>-5</td>
<td>-12</td>
<td>+5</td>
<td>-29</td>
</tr>
</tbody>
</table>
</body>
</html>

While business in the UK appears to be flagging, as reported here yesterday Louise Curley Curley, on the Continent, affairs look more favorable. Ifo, an independent research institute in Germany, relates today that its Business Climate [...]

German Ifo Business Climate Index Turns Positive in January; Prospects in France Modestly Favorable

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060125c.jpg" width="353">
Mass layoffs jumped 8.5% in December following a like rise during November. The latest was the highest level since January of 2005. For the year, the number of mass layoffs fell by 1.4%.
During the last ten years there has been a (negative) 87% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected in December by mass layoffs jumped 23.8% m/m. During the latest two months layoffs in the construction industry have soared. Elsewhere by industry, the number of factory sector layoff announcements rose 10.1% (49.9% y/y) in December due to a tripling in transportation and in retail the number of affected persons doubled m/m (34.2% y/y).
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Mass Layoffs</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">All US Industries (# Events, SA)</td>
<td>1,308</td>
<td>1,205</td>
<td>10.1%</td>
<td>15,662</td>
<td>15,877</td>
<td>19,155</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>149,565</td>
<td>120,783</td>
<td>24.0%</td>
<td>1,714,433</td>
<td>1,589,446</td>
<td>1,936,463</td>
</tr>
</tbody>
</table>
</body>
</html>

Mass layoffs jumped 8.5% in December following a like rise during November. The latest was the highest level since January of 2005. For the year, the number of mass layoffs fell by 1.4%. During the last ten years there has been a [...]

Mass Layoffs Jumped in December

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060125b.jpg" width="353">
The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago fell sharply in December to 0.08 from 0.59 in November but the three-month moving average of the CFNAI rose to 0.55, the highest level since April 2004.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
Recent movements in the index have been exaggerated due to the damaging economic effects of last year&#39;s hurricanes.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_January2006.pdf">here</a>.
Ill Winds Can&#39;t Blow U.S. Economy Off Course from the Federal Reserve Bank of Atlanta can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=7C786700-5056-9F06-99C2D0ABAFEBBC55&amp;method=display"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.08</td>
<td>0.59</td>
<td>0.72</td>
<td>0.16</td>
<td>0.38</td>
<td>-0.11</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago fell sharply in December to 0.08 from 0.59 in November but the three-month moving average of the CFNAI rose to 0.55, the highest level since April [...]

Chicago Fed Nat'l Activity Index Down

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

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

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

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

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

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

Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

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

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

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

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

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

Michael J. Moran

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

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

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

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

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

Personal Income, Consumption, and Prices in March

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

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

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

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

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

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

U.S. Pending Home Sales Surge in March

Sandy Batten

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

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

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

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

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

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

Economy in Brief: January 2006

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U.S. Durable Goods Orders Recover

U.S. Durable Goods Orders Recover

December Existing Home Sales Fell, 2006 Price Gain Weakest on Record

December Existing Home Sales Fell, 2006 Price Gain Weakest on Record

UK GDP Rises 0.6% in Q4: A Brief Summary

German Ifo Business Climate Index Turns Positive in January; Prospects in France Modestly Favorable

Mass Layoffs Jumped in December

Chicago Fed Nat'l Activity Index Down