Tom Moeller

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The Federal Housing Finance Agency's (FHFA) index of U.S.
house prices increased 0.8% during February (6.5% y/y) following a 0.2% January
rise, revised from no change. It was the strongest increase since March of last
year. During the last three months, however, the 5.5% annualized rate of increase
remained down versus the 8.0% pace as of September.

The performance of home prices varied greatly around the
country. On the strong side were prices in the East South Central region which
rose 1.8% and 9.9% over the last three months. In New England, prices jumped
1.7% and a strong 9.4% since November. In the Mountain states, home prices
surged 1.3% with three-month growth also a strong 9.1% (AR). Prices in the West
South Central region also gained 1.3% (6.0% y/y) and an improved 5.3% over the
last three months.

Prices increased 1.1% in the Middle Atlantic region and rose
a reduced 2.7% over three months, down from 7.0% growth as of November. A more
modest 0.7% rate of increase was logged in the East North Central region with
prices up 6.6% over three months.

In the West North Central region, a 0.4% gain was registered,
but three-month growth weakened to just 3.1%, half the gain as of January.
Prices in the South Atlantic region eased 0.1%, up 3.6% over three months versus
9.4% growth early last year.

The FHFA house price index is a weighted repeat sales index,
measuring average price changes in repeat sales of the same property. An
associated quarterly index also includes refinancings on the same kinds of
properties. The indexes are based on transactions involving conforming,
conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
Only mortgage transactions on single-family properties are included. The FHFA
data are available in Haver's USECON database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >FHFA U.S. House Price Index, Purchase
 Only (SA %)</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Feb Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >0.8</td>
 <td >0.2</td>
 <td >0.4</td>
 <td >6.5</td>
 <td >6.2</td>
 <td >5.6</td>
 <td >5.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Mountain</td>
 <td >1.3</td>
 <td >0.6</td>
 <td >0.3</td>
 <td >9.6</td>
 <td >8.0</td>
 <td >7.9</td>
 <td >7.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Pacific</td>
 <td >0.5</td>
 <td >0.7</td>
 <td >0.1</td>
 <td >7.7</td>
 <td >8.1</td>
 <td >8.0</td>
 <td >9.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; East South Central</td>
 <td >1.8</td>
 <td >-1.1</td>
 <td >1.7</td>
 <td >6.8</td>
 <td >5.3</td>
 <td >4.8</td>
 <td >3.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; New England</td>
 <td >1.7</td>
 <td >0.4</td>
 <td >0.2</td>
 <td >6.6</td>
 <td >4.0</td>
 <td >3.6</td>
 <td >3.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; South Atlantic</td>
 <td >-0.1</td>
 <td >0.1</td>
 <td >0.8</td>
 <td >6.4</td>
 <td >7.2</td>
 <td >6.5</td>
 <td >5.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West South Central</td>
 <td >1.3</td>
 <td >0.4</td>
 <td >-0.4</td>
 <td >6.0</td>
 <td >6.1</td>
 <td >6.4</td>
 <td >5.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; East North Central</td>
 <td >0.7</td>
 <td >-0.0</td>
 <td >0.9</td>
 <td >5.6</td>
 <td >5.4</td>
 <td >4.6</td>
 <td >4.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West North Central</td>
 <td >0.4</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >5.0</td>
 <td >5.7</td>
 <td >4.3</td>
 <td >4.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Middle Atlantic</td>
 <td >1.1</td>
 <td >0.3</td>
 <td >-0.8</td>
 <td >4.7</td>
 <td >3.5</td>
 <td >2.7</td>
 <td >2.2</td>
 </tr>
 </tbody>
</table>
<table width="100%" class="centered" border="0" cellSpacing="0">
 <tbody>
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 <td>
 
 New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island
 and Connecticut. 
 Middle Atlantic: New York, New Jersey and Pennsylvania. 
 East North Central: Michigan, Wisconsin, Illinois, Indiana and Ohio. 
 West North Central: North Dakota, South Dakota, Minnesota, Nebraska,
 Iowa, Kansas and Missouri. 
 South Atlantic: Delaware, Maryland, D.C., Virginia, West Virginia, North
 Carolina, South Carolina, GA &amp; FL 
 East South Central: Kentucky, Tennessee, Mississippi and Alabama. 
 West South Central: Oklahoma, Arkansas, Texas and Louisiana. 
 Mountain: Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and
 New Mexico. 
 Pacific: Hawaii, Alaska, Washington, Oregon and California.
 </td></tr>
	 </tbody>
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The Federal Housing Finance Agency's (FHFA) index of U.S. house prices increased 0.8% during February (6.5% y/y) following a 0.2% January rise, revised from no change. It was the strongest increase since March of last year. During the [...]

U.S. FHFA House Price Index Regains Strength

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The Federal Reserve Bank of Dallas indicated in its Texas
Manufacturing Outlook Survey that the General Business Activity Index of 16.8 in
April was fairly steady m/m, though it was down slightly from the earlier three
months. It remained, nevertheless, near the highest level of the economic
expansion. The production reading slipped, and shipments growth declined
sharply. Offsetting these signs of weakness, new orders growth improved and
employment growth held firm.

On the inflation front, the finished goods &quot;prices
received&quot; indicator improved following a sharp m/m decline, while the raw
materials prices index also eased. Readings for both series remained well
improved versus the negative figures of 2015 and 2016. Current growth in current
wages &amp; salaries eased m/m, but remained ahead of last year. 

The General Business Activity Index, Six Months Ahead,
fell sharply to the lowest level in six months. Expected production and new
orders both declined, and shipments eased. Expected employment and hours
stabilized following earlier declines. Future wages &amp; benefits strengthened
to the highest point since early-2014.

Each index is calculated by subtracting the percentage
reporting a decrease from the percentage reporting an increase. When all firms
report that activity has increased, an index will register 100. An index will
register -100 when all firms report a decrease. An index will be zero when the
number of firms reporting an increase or decrease is equal. Items may not add up
to 100% because of rounding. Data for the Texas Manufacturing Outlook can be
found in Haver's SURVEYS database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" 0801 >Texas Manufacturing Outlook Survey
 (SA, % Balance)</th>
 <th 0801 >Apr</th>
 <th 0801 >Mar</th>
 <th 0801 >Feb</th>
 <th 0801 >Apr'16</th>
 <th 0801 >2016</th>
 <th 0801 >2015</th>
 <th 0801 >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" 0801 >Current General Business Activity
 Index</td>
 <td 0801 >16.8</td>
 <td 0801 >16.9</td>
 <td 0801 >24.5</td>
 <td 0801 >-12.9</td>
 <td 0801 >-8.8</td>
 <td 0801 >-12.5</td>
 <td 0801 >8.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >&nbsp;&nbsp; Production</td>
 <td 0801 >15.4</td>
 <td 0801 >18.6</td>
 <td 0801 >16.7</td>
 <td 0801 >6.0</td>
 <td 0801 >2.4</td>
 <td 0801 >-1.0</td>
 <td 0801 >14.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >&nbsp;&nbsp; Growth Rate of Orders</td>
 <td 0801 >5.1</td>
 <td 0801 >3.2</td>
 <td 0801 >2.0</td>
 <td 0801 >0.1</td>
 <td 0801 >-7.3</td>
 <td 0801 >-11.8</td>
 <td 0801 >4.7</td>
 </tr>
 <tr>
 <td class="firstcol" 0801 >&nbsp;&nbsp; Number of Employees</td>
 <td 0801 >8.5</td>
 <td 0801 >8.4</td>
 <td 0801 >9.6</td>
 <td 0801 >-4.2</td>
 <td 0801 >-4.9</td>
 <td 0801 >-0.4</td>
 <td 0801 >11.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >&nbsp;&nbsp; Prices Received for
 Finished Goods</td>
 <td 0801 >12.0</td>
 <td 0801 >7.5</td>
 <td 0801 >19.5</td>
 <td 0801 >-6.2</td>
 <td 0801 >-1.6</td>
 <td 0801 >-8.5</td>
 <td 0801 >8.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >General Business Activity Index
 Expected in Six Months</td>
 <td 0801 >27.1</td>
 <td 0801 >36.3</td>
 <td 0801 >37.0</td>
 <td 0801 >1.5</td>
 <td 0801 >8.9</td>
 <td 0801 >4.1</td>
 <td 0801 >17.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >&nbsp;&nbsp; Production</td>
 <td 0801 >39.6</td>
 <td 0801 >44.8</td>
 <td 0801 >46.4</td>
 <td 0801 >34.4</td>
 <td 0801 >35.8</td>
 <td 0801 >31.1</td>
 <td 0801 >42.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >&nbsp;&nbsp; Growth Rate of New
 Orders</td>
 <td 0801 >30.9</td>
 <td 0801 >38.3</td>
 <td 0801 >39.9</td>
 <td 0801 >22.9</td>
 <td 0801 >24.3</td>
 <td 0801 >20.7</td>
 <td 0801 >31.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 >&nbsp;&nbsp; Wages &amp; Benefits</td>
 <td 0801 >45.6</td>
 <td 0801 >45.0</td>
 <td 0801 >45.0</td>
 <td 0801 >33.9</td>
 <td 0801 >34.8</td>
 <td 0801 >33.2</td>
 <td 0801 >43.1</td>
 </tr>
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The Federal Reserve Bank of Dallas indicated in its Texas Manufacturing Outlook Survey that the General Business Activity Index of 16.8 in April was fairly steady m/m, though it was down slightly from the earlier three months. It [...]

Texas Factory Sector Expansion Proceeds

Robert Brusca

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The German IFO diffusion index signaled improved climate in April with an index that rose to 18.5 from 17.5 in March. The business situation improved to a net reading of 30.3 this month from 27.2 in March as current conditions in Germany continued to trend higher. But expectations were lower, dropping to a net reading of 7.2 from March's 8.3.

The rankings of all the indexes are strong all are in the 90th percentile range except two and all the readings in the 90th percentile range rise above a level of 95- extremely uniform and strong readings. The weakest sector reading is for manufacturing and that has for a standing in its 89th percentile- hardly weak! Despite all this strength, expectations are somewhat less ebullient with a still very solid 80th percentile standing.

On the month all the sector indexes improved except manufacturing (expectations also backtracked). The retailing sector has only jumped by more month-to-month 26 times in the last 26 years or so or 8.6% of the time. The construction sector gain this month also was relatively strong as its month-to-month change has been greater only about 15% of the time.

The IFO index shows amazingly strong and balanced readings across German goods and services industries. This performance is atypical for EMU members and it firmly establishes Germany as the best performing economy in the EMU.

The French elections have gone by the critical first round that everyone so feared. While the election result is not established, the expectations for the runoff election are now pretty clear and less daunting that they might have been. But there will be other election hurdles in EMU countries. Germany has its own to go over. But it now appears that election worries are mostly overblown. Europeans like the EMU. They like the access to travel and the freedom of movement. They do not like other aspects of it, but there is very little evidence that any member wants to throw off the yoke of membership. There are a few political movements in member countries that have a separatist desire at their core, but they remain fringe groups and even to the extent that some have significant membership, there is no sense anywhere of a majority opinion to leave the EMU and to try to untangle the ball of string that would require. It will be interesting to see if now that the main fear from the French election has not been realized if better growth can develop in the new environment. Has politics had anything to do with economic underperformance or not? At the ECB, Mr. Draghi has kept his eye glued to inflation. And elections or not, there still is no sign of European inflation stirring outside the oil patch.


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The German IFO diffusion index signaled improved climate in April with an index that rose to 18.5 from 17.5 in March. The business situation improved to a net reading of 30.3 this month from 27.2 in March as current conditions in [...]

IFO Business Climate Improves; Current Situation Expands Solidly While Expectations Take a Step Back

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Sales of existing single-family homes increased 4.4% during
March to 5.710 million units (AR) and reversed a 3.9% February decline to 5.470
million, revised from 5.480 million. The latest level of sales was the highest
since February 2007. Expectations had been for 5.550 million purchases in the
Action Economics Forecast Survey. Sales of existing single-family homes
rebounded 4.3% (6.1% y/y) to 5.0800 million units, also a ten-year high. Sales
of condos &amp; co-ops rose 5.0% both m/m and y/y to 630,000 following a 7.7%
decline. The figures are reported by the National Association of Realtors.

The median price of all previously owned homes increased 3.6%
(6.8% y/y) to $236,400. The rise was to the highest level since August. The
average price of an existing home jumped 3.3% to $278,500 (5.3% y/y).

The number of homes on the market declined 6.6% y/y to 1.830
million. The months' sales supply of homes held steady m/m at 3.8, but remained
near the lowest level since January 2005.

The rebound in home sales last month reflected a 10.1%
increase (4.1% y/y) in the Northeast to 760,000 after a 13.7% decline. Sales in
the Midwest rebounded 9.2% (3.1% y/y) to 1.310 million after three months of
decline. In the South, sales improved 3.4% (8.5% y/y) to 2.420 million, the
highest level since December 2006. Sales in the West eased 1.6% (+5.2% y/y) to
1.220 million following a 3.9% drop.

The data on existing home sales, prices and affordability can
be found in Haver's USECON database. The regional price, affordability
and inventory data are available in the REALTOR database. The
expectations figure is from the Action Economics Forecast Survey, reported in
the AS1REPNA database.

Brief Remarks by Federal Reserve Governor Jerome H. Powell can be found
<a href="https://www.federalreserve.gov/newsevents/speech/powell20170420a.htm">here</a>.

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<table class="centered" width="100%" border="0" cellspacing="0">
	 	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >5,710</td>
 <td >5,470</td>
 <td >5,690</td>
 <td >5.9</td>
 <td >5,452</td>
 <td >5,254</td>
 <td >4,935</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; Northeast</td>
 <td >760</td>
 <td >690</td>
 <td >800</td>
 <td >4.1</td>
 <td >733</td>
 <td >691</td>
 <td >645</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Midwest</td>
 <td >1,310</td>
 <td >1,200</td>
 <td >1,290</td>
 <td >3.1</td>
 <td >1,304</td>
 <td >1,240</td>
 <td >1,136</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; South</td>
 <td >2,420</td>
 <td >2,340</td>
 <td >2,310</td>
 <td >8.5</td>
 <td >2,218</td>
 <td >2,151</td>
 <td >2,051</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; West</td>
 <td >1,220</td>
 <td >1,240</td>
 <td >1,290</td>
 <td >5.2</td>
 <td >1,197</td>
 <td >1,172</td>
 <td >1,103</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >Single-Family</td>
 <td >5,080</td>
 <td >4,870</td>
 <td >5,040</td>
 <td >6.1</td>
 <td >4,838</td>
 <td >4,646</td>
 <td >4,344</td>
 </tr>
 <tr>
 <td class="firstcol" >Median Price Total ($, NSA)</td>
 <td >236,400</td>
 <td >228,200</td>
 <td >227,300</td>
 <td >6.8</td>
 <td >232,067</td>
 <td >219,867</td>
 <td >206,708</td>
 </tr>
 </tbody>
 </table>
 
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Sales of existing single-family homes increased 4.4% during March to 5.710 million units (AR) and reversed a 3.9% February decline to 5.470 million, revised from 5.480 million. The latest level of sales was the highest since February [...]

U.S. Existing Home Sales Strengthen to Ten-Year High

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You have to admit, 
it's getting better, 
it's getting better, 
All the time (it can't get no worse) 
Lennon and McCartney 
Well, of course, things can always get worse. But the euro area is getting better, and my reference to the famous Beatles' lyric is to underscore that while things are getting better they are still hardly tip-top. The 'fresh six-year high' is a pleasant surprise that continues, but it is hardly a high hurdle or certainly a bar you could easily go over like a hurdle but no impediment to a high-jumper or a pole-vaulter. We are not in that sort of world by any stretch. It's a world of some progress and of success compared to our recent past. But this is still slug-it-out slow progress made one step at a time.

The very ubiquity of improvement 
The PMI data are still encouraging. The sequential PMI averages from 12-month to six-month to three-month show that, over ever shorter horizons, the PMIs are stronger and stronger for the EMU, Germany and France - without exception. And this is for a period with some disruption including Brexit, ongoing jitters about the French elections and the Italian political situation as well as a very messy geopolitical background which includes a good deal of uncertainty about what have seemed to be shifting U.S. intentions. There have been ongoing internal quarrels as well between the hard money EMU crowd and others over whether the ECB's policy of stimulus has outlived its usefulness or not. And yet, economic conditions continue to improve...inch by inch...step by step.

PMI perspective 
It is important to put these improvements in perspective. PMI gauges are time-sensitive things. They are more like applying percentage change operators to data over time that are NOMINAL data rather than volume data. Not all historic comparisons are going to be valid across such a time series of data. Obviously, in a time of rampant inflation, nominal series will show greater gains than in periods with low inflation and stronger gains may not signal better economic times. However, over any short period with 'roughly similar inflation', the ordinal comparisons/assessments may be valid. Similarly, the PMI gauges are INDICATORS of breadth, not of of strength. And with the economy having been weak for so long, the comparisons in this period are easy comparisons. Improving breadth may not translate into that much more strength. And this is one of the confusions we are working though as indicators (globally) continue to 'indicate' more lift than accounting type data that add things up and produce a true quantitative assessment of events.

The breadth of my breadth is breath-taking 
Still, the recovery in EMU is impressive at least for its relentlessness as well as for the breadth of its breadth! The breadth of the improving rebound in is gear for manufacturing and services as well as for the EMU, Germany and France. There is no shoving all that aside. The diffusion gauges tell us that recovery is spreading. Relatively more data-reporters are seeing conditions improve rather than deteriorate and this is good news.

But we should also be careful in assessing this progress and vary cautious about comparing today's PMI levels with periods of similar past PMI gauges. Caveat Emptor (or Caveat PMI'er).


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You have to admit, it's getting better, it's getting better, All the time (it can't get no worse) Lennon and McCartney Well, of course, things can always get worse. But the euro area is getting better, and my reference to the famous [...]

Fresh Six-Year PMI Highs for Euro Area; Moon Shot, High Orbit Or Decaying Orbit?; Time to Play: 'Guess That Trajectory!'

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The Philadelphia Federal Reserve reported that its General
Factory Sector Business Conditions Index fell to 22.0 during April from an
unrevised 32.8 in March. The latest monthly reading compared to expectations for
25.0 in the Action Economics Forecast Survey.
The ISM-Adjusted General Business Conditions Index
constructed by Haver Analytics eased to 59.5 this month following last month's
surge to 60.2. This figure is comparable to the ISM Composite Index. During
the last ten years, there has been a 71% correlation between the adjusted
Philadelphia Fed Index and real GDP growth.
The overall business conditions index was led lower by sharp
declines in the new orders, shipments and order backlog series. Offsetting these
declines was a rise in the delivery time index, which showed the slowest
delivery speeds since July 2004. Inventories also accumulated at the quickest
pace since August 1981.
The employment series strengthened to the highest level since
May 2011. During the last ten years, there has been an 81% correlation between
the jobs index and the m/m change in manufacturing sector payrolls. The average
workweek reading neared a 2004 high.
Prices paid backed away from its recent pe. Thirty-six
percent of respondents (NSA) reported paying higher prices, while three percent
paid less. The prices received index softened.
The future business activity index backpedaled to the lowest
level since November. Each of the sub-series eased with the exception of
unfilled orders. 
The survey panel consists of 150 manufacturing companies in
Federal Reserve District III (consisting of southeastern PA, southern NJ and
Delaware). The diffusion indexes represent the percentage of respondents
indicating an increase minus the percentage indicating a decrease in activity.
The ISM-adjusted figure, calculated by Haver Analytics, is the average of five
diffusion indexes: New orders, production, employment, supplier deliveries and
inventories with equal weights (20% each). Each diffusion index is the sum of
the percent responding &quot;higher&quot; and one-half of the percent responding
&quot;same.&quot;
The figures from the Philadelphia Federal Reserve can be
found in Haver's SURVEYS database. The Action Economics figure is
available in AS1REPNA.
Why Renegotiating NAFTA Could Disrupt Supply Chains
from the Federal Reserve Bank of New York is available here <a href="http://libertystreeteconomics.newyorkfed.org/2017/04/why-renegotiating-nafta-could-disrupt-supply-chains.html">http://libertystreeteconomics.newyorkfed.org/2017/04/why-renegotiating-nafta-could-disrupt-supply-chains.html</a>
<table width="1769" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" width="1144">Philadelphia Fed - Manufacturing
 Business Outlook Survey (%, SA)</th>
 <th scope="col" width="88">Apr</th>
 <th scope="col" width="88">Mar</th>
 <th scope="col" width="89">Feb</th>
 <th scope="col" width="89">Apr'16</th>
 <th scope="col" width="89">2016</th>
 <th scope="col" width="89">2015</th>
 <th scope="col" width="89">2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="1144">General Factory Sector Business
 Conditions</td>
 <td align="center" width="88">22.0</td>
 <td align="center" width="88">32.8</td>
 <td align="center" width="89">43.3</td>
 <td align="center" width="89">-1.2</td>
 <td align="center" width="89">4.8</td>
 <td align="center" width="89">3.6</td>
 <td align="center" width="89">18.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="1144">ISM-Adjusted Business Conditions</td>
 <td align="center" width="88">59.5</td>
 <td align="center" width="88">60.2</td>
 <td align="center" width="89">55.6</td>
 <td align="center" width="89">44.0</td>
 <td align="center" width="89">48.2</td>
 <td align="center" width="89">49.4</td>
 <td align="center" width="89">53.7</td>
 </tr>
 <tr>
 <td class="firstcol" width="1144">&nbsp;&nbsp;New Orders</td>
 <td align="center" width="88">27.4</td>
 <td align="center" width="88">38.6</td>
 <td align="center" width="89">38.0</td>
 <td align="center" width="89">-0.4</td>
 <td align="center" width="89">4.9</td>
 <td align="center" width="89">3.0</td>
 <td align="center" width="89">14.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1144">&nbsp;&nbsp;Shipments</td>
 <td align="center" width="88">23.4</td>
 <td align="center" width="88">32.9</td>
 <td align="center" width="89">28.6</td>
 <td align="center" width="89">-7.9</td>
 <td align="center" width="89">6.9</td>
 <td align="center" width="89">3.1</td>
 <td align="center" width="89">16.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="1144">&nbsp;&nbsp;Unfilled Orders</td>
 <td align="center" width="88">6.6</td>
 <td align="center" width="88">14.4</td>
 <td align="center" width="89">10.7</td>
 <td align="center" width="89">-7.4</td>
 <td align="center" width="89">-5.5</td>
 <td align="center" width="89">-5.1</td>
 <td align="center" width="89">3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1144">&nbsp;&nbsp;Delivery Time</td>
 <td align="center" width="88">13.2</td>
 <td align="center" width="88">4.5</td>
 <td align="center" width="89">4.1</td>
 <td align="center" width="89">-8.1</td>
 <td align="center" width="89">-4.6</td>
 <td align="center" width="89">-4.1</td>
 <td align="center" width="89">0.6</td>
 </tr>
 <tr>
 <td class="firstcol" width="1144">&nbsp;&nbsp;Inventories</td>
 <td align="center" width="88">17.8</td>
 <td align="center" width="88">11.8</td>
 <td align="center" width="89">-4.7</td>
 <td align="center" width="89">-18.5</td>
 <td align="center" width="89">-9.7</td>
 <td align="center" width="89">-1.5</td>
 <td align="center" width="89">1.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1144">&nbsp;&nbsp;Number of Employees</td>
 <td align="center" width="88">19.9</td>
 <td align="center" width="88">17.5</td>
 <td align="center" width="89">11.1</td>
 <td align="center" width="89">-16.6</td>
 <td align="center" width="89">-5.7</td>
 <td align="center" width="89">3.9</td>
 <td align="center" width="89">10.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="1144">&nbsp;&nbsp;Prices Paid</td>
 <td align="center" width="88">33.7</td>
 <td align="center" width="88">40.7</td>
 <td align="center" width="89">29.9</td>
 <td align="center" width="89">13.7</td>
 <td align="center" width="89">13.5</td>
 <td align="center" width="89">1.5</td>
 <td align="center" width="89">21.6</td>
 </tr>
 </tbody>
</table>


</body>

</html>

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index fell to 22.0 during April from an unrevised 32.8 in March. The latest monthly reading compared to expectations for 25.0 in the Action [...]

Philadelphia Fed Factory Conditions Soften

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 <a href="/comment/170421a.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170421a.png"></a>
	 <a href="/comment/170421b.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170421b.png"></a>

The Philadelphia Federal Reserve reported that its General
Factory Sector Business Conditions Index fell to 22.0 during April from an
unrevised 32.8 in March. The latest monthly reading compared to expectations for
25.0 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index
constructed by Haver Analytics eased to 59.5 this month following last month's
surge to 60.2. This figure is comparable to the ISM Composite Index. During
the last ten years, there has been a 71% correlation between the adjusted
Philadelphia Fed Index and real GDP growth.

The overall business conditions index was led lower by sharp
declines in the new orders, shipments and order backlog series. Offsetting these
declines was a rise in the delivery time index, which showed the slowest
delivery speeds since July 2004. Inventories also accumulated at the quickest
pace since August 1981.

The employment series strengthened to the highest level since
May 2011. During the last ten years, there has been an 81% correlation between
the jobs index and the m/m change in manufacturing sector payrolls. The average
workweek reading neared a 2004 high.

Prices paid backed away from its recent high. Thirty-six
percent of respondents (NSA) reported paying higher prices, while three percent
paid less. The prices received index softened.

The future business activity index backpedaled to the lowest
level since November. Each of the sub-series eased with the exception of
unfilled orders.

The survey panel consists of 150 manufacturing companies in
Federal Reserve District III (consisting of southeastern PA, southern NJ and
Delaware). The diffusion indexes represent the percentage of respondents
indicating an increase minus the percentage indicating a decrease in activity.
The ISM-adjusted figure, calculated by Haver Analytics, is the average of five
diffusion indexes: New orders, production, employment, supplier deliveries and
inventories with equal weights (20% each). Each diffusion index is the sum of
the percent responding &quot;higher&quot; and one-half of the percent responding
&quot;same.&quot;

The figures from the Philadelphia Federal Reserve can be
found in Haver's SURVEYS database. The Action Economics figure is
available in AS1REPNA.

Why Renegotiating NAFTA Could Disrupt Supply Chains
from the Federal Reserve Bank of New York is available <a href="http://libertystreeteconomics.newyorkfed.org/2017/04/why-renegotiating-nafta-could-disrupt-supply-chains.html">here</a>.

<a href="/comment/170421c.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170421c.png"></a>
 <a href="/comment/170421d.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170421d.png"></a>

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >Philadelphia Fed - Manufacturing
 Business Outlook Survey (%, SA)</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Apr'16</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >General Factory Sector Business
 Conditions</td>
 <td >22.0</td>
 <td >32.8</td>
 <td >43.3</td>
 <td >-1.2</td>
 <td >4.8</td>
 <td >3.6</td>
 <td >18.3</td>
 </tr>
 <tr>
 <td class="firstcol" >ISM-Adjusted Business Conditions</td>
 <td >59.5</td>
 <td >60.2</td>
 <td >55.6</td>
 <td >44.0</td>
 <td >48.2</td>
 <td >49.4</td>
 <td >53.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;New Orders</td>
 <td >27.4</td>
 <td >38.6</td>
 <td >38.0</td>
 <td >-0.4</td>
 <td >4.9</td>
 <td >3.0</td>
 <td >14.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Shipments</td>
 <td >23.4</td>
 <td >32.9</td>
 <td >28.6</td>
 <td >-7.9</td>
 <td >6.9</td>
 <td >3.1</td>
 <td >16.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Unfilled Orders</td>
 <td >6.6</td>
 <td >14.4</td>
 <td >10.7</td>
 <td >-7.4</td>
 <td >-5.5</td>
 <td >-5.1</td>
 <td >3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Delivery Time</td>
 <td >13.2</td>
 <td >4.5</td>
 <td >4.1</td>
 <td >-8.1</td>
 <td >-4.6</td>
 <td >-4.1</td>
 <td >0.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Inventories</td>
 <td >17.8</td>
 <td >11.8</td>
 <td >-4.7</td>
 <td >-18.5</td>
 <td >-9.7</td>
 <td >-1.5</td>
 <td >1.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Number of Employees</td>
 <td >19.9</td>
 <td >17.5</td>
 <td >11.1</td>
 <td >-16.6</td>
 <td >-5.7</td>
 <td >3.9</td>
 <td >10.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Prices Paid</td>
 <td >33.7</td>
 <td >40.7</td>
 <td >29.9</td>
 <td >13.7</td>
 <td >13.5</td>
 <td >1.5</td>
 <td >21.6</td>
 </tr>
	 </tbody>
	 </table>
	 
</body></html>

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
</head>
<body>
	 
 
 
 

<a href="/comment/170420f.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170420f.png"></a>
 <a href="/comment/170420g.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170420g.png"></a>

The Conference Board's Composite Index of Leading Economic
Indicators increased 0.4% (3.5% y/y) during March following a 0.5% February
rise, initially reported as 0.6%. A 0.2% rise had been expected in the Action
Economics Forecast Survey. The latest rise left three-month growth at 6.2% (AR)
after 3.6% growth during Q4'16.

Most of the component series contributed to the index rise. A
steeper interest rate yield curve and a higher ISM new orders index had the
largest positive effects. These were followed by improved consumer expectations
for business/economic conditions, higher stock prices, more building permits and
the leading credit index. A shorter workweek and more initial claims for
unemployment insurance contributed negatively to the index.

The Index of Coincident Economic Indicators increased 0.2%
during March (2.0% y/y) following a 0.2% February rise, which was revised
slightly lower. January's reading also was revised down to no change. The latest
gain left the three-month growth rate at 1.4% (AR) after a 2.5% Q4 rise. Each of
the index component series contributed positively to last month's rise,
including payroll employment, real personal income less transfers, manufacturing
&amp; trade sales and industrial production.

The Index of Lagging Economic Indicators remained unchanged
(2.3% y/y) following two months of 0.2% increase. Three-month growth fell to
1.6%, its weakest increase since August. A rise in the prime rate charged by
banks and an increase in the business sector inventory-to-sales ratio where
offset by slower growth in the services CPI and a shorter duration of unemployment.

The ratio of coincident-to-lagging indicators also is a
leading indicator of economic activity. It measures excesses in the economy
relative to its ongoing performance. This ratio increased slightly after two
months at its record low.

The Conference Board figures are available in Haver's BCI
database; the components are available there, and most are also in USECON.
The expectations are in the AS1REPNA database. Visit the Conference
Board's <a href="http://www.conference-board.org/">site</a> for coverage of
leading indicator series from around the world.

<a href="/comment/170420h.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170420h.png"></a>
 <a href="/comment/170420i.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/170420i.png"></a>

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Business Cycle Indicators (%)</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Mar Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Leading</td>
 <td >0.4</td>
 <td >0.5</td>
 <td >0.6</td>
 <td >3.5</td>
 <td >1.2</td>
 <td >4.4</td>
 <td >5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Coincident</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >0.0</td>
 <td >2.0</td>
 <td >1.6</td>
 <td >2.3</td>
 <td >2.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Lagging</td>
 <td >0.0</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >2.3</td>
 <td >3.4</td>
 <td >3.7</td>
 <td >3.6</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The Conference Board's Composite Index of Leading Economic Indicators increased 0.4% (3.5% y/y) during March following a 0.5% February rise, initially reported as 0.6%. A 0.2% rise had been expected in the Action Economics Forecast [...]

U.S. Leading Economic Indicators Suggest Continued Expansion

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.

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

Charts of the Week: Tariff Truce, Tenuous Trust

250430N1.jpg

250430O1.jpg

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: April 2017

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