Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050525a.jpg" width="353">
New orders for durable goods rebounded 1.9% in April following three consecutive months of decline. Consensus expectations had been for a 1.2% rise. Year to date orders are down 1.1%.
An 8.2% jump in orders for transportation equipment pulled the April total up and reflected a 28.2% (18.5% y/y) rise in nondefense aircraft &amp; parts as well as a 3.4% (-5.0% y/y) gain in motor vehicles &amp; parts. Less transportation durable orders fell 0.2% (+6.8% y/y), marking the third month of roughly sideways movement.
With a 3.8% jump, orders for non-defense capital goods recovered all of the prior month&#39;s decline. A 1.6% gain in orders less aircraft also recovered most of March&#39;s drop but that decline was lessened considerably. Computer &amp; electronic product orders fell 5.8% (+6.8% y/y) following a 4.7% jump in March that was double the gain initially estimated. Machinery orders rose 2.2% and recovered nearly half the prior month&#39;s drop while electrical equipment orders rose 3.4% after two months of sharp decline.
Shipments of durables rose 1.6% (6.4% y/y). Orders outside of transportation increased 1.0% (8.3% y/y) due to a 1.5% (9.3% y/y) increase in machinery shipments and a 1.9% jump (5.2% y/y) in electrical equipment.
Durable inventories ticked just 0.1% (9.2% y/y) higher causing the I/S ratio to drop sharply. Less transportation the I/S ratio has moved sideways in a narrow range since early last year.
Unfilled orders were roughly unchanged (+6.2% y/y). The ratio of backlogs to shipments fell sharply to the low end of the year&#39;s range.

<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">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>1.9%</td>
<td>-1.6%</td>
<td>4.3%</td>
<td>10.8%</td>
<td>2.6%</td>
<td>-1.7%</td>
</tr>
<tr>
<td class="firstcol">Nondefense Capital Goods</td>
<td>3.8%</td>
<td>-3.2%</td>
<td>10.1%</td>
<td>13.7%</td>
<td>5.6%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excluding Aircraft</td>
<td>1.6%</td>
<td>-1.6%</td>
<td>9.3%</td>
<td>11.7%</td>
<td>6.6%</td>
<td>-7.1%</td>
</tr>
</tbody>
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New orders for durable goods rebounded 1.9% in April following three consecutive months of decline. Consensus expectations had been for a 1.2% rise. Year to date orders are down 1.1%. An 8.2% jump in orders for transportation [...]

U.S. Durable Goods Orders Rebounded

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050525a.jpg" width="353">
New orders for durable goods rebounded 1.9% in April following three consecutive months of decline. Consensus expectations had been for a 1.2% rise. Year to date orders are down 1.1%.
An 8.2% jump in orders for transportation equipment pulled the April total up and reflected a 28.2% (18.5% y/y) rise in nondefense aircraft &amp; parts as well as a 3.4% (-5.0% y/y) gain in motor vehicles &amp; parts. Less transportation durable orders fell 0.2% (+6.8% y/y), marking the third month of roughly sideways movement.
With a 3.8% jump, orders for non-defense capital goods recovered all of the prior month&#39;s decline. A 1.6% gain in orders less aircraft also recovered most of March&#39;s drop but that decline was lessened considerably. Computer &amp; electronic product orders fell 5.8% (+6.8% y/y) following a 4.7% jump in March that was double the gain initially estimated. Machinery orders rose 2.2% and recovered nearly half the prior month&#39;s drop while electrical equipment orders rose 3.4% after two months of sharp decline.
Shipments of durables rose 1.6% (6.4% y/y). Orders outside of transportation increased 1.0% (8.3% y/y) due to a 1.5% (9.3% y/y) increase in machinery shipments and a 1.9% jump (5.2% y/y) in electrical equipment.
Durable inventories ticked just 0.1% (9.2% y/y) higher causing the I/S ratio to drop sharply. Less transportation the I/S ratio has moved sideways in a narrow range since early last year.
Unfilled orders were roughly unchanged (+6.2% y/y). The ratio of backlogs to shipments fell sharply to the low end of the year&#39;s range.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<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">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>1.9%</td>
<td>-1.6%</td>
<td>4.3%</td>
<td>10.8%</td>
<td>2.6%</td>
<td>-1.7%</td>
</tr>
<tr>
<td class="firstcol">Nondefense Capital Goods</td>
<td>3.8%</td>
<td>-3.2%</td>
<td>10.1%</td>
<td>13.7%</td>
<td>5.6%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excluding Aircraft</td>
<td>1.6%</td>
<td>-1.6%</td>
<td>9.3%</td>
<td>11.7%</td>
<td>6.6%</td>
<td>-7.1%</td>
</tr>
</tbody>
</table>
New Home Sales Still on a Record Pace 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 25, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050525b.jpg" width="353">
New single-family home sales in April rose just 0.2% m/m to 1.316M and the prior month&#39;s increase was more than halved. Nevertheless, sales in April set a record and for the year to date are 5.8% ahead of the 2004 average. Consensus estimates had been for sales of 1.325M.
Sales in the Northeast last month spurted by more than one third (28.9% y/y). In the West sales rose moderately (6.4% y/y) but in the Midwest sales fell for the third month this year (+1.0% Y/Y). In the South sales also fell by 5.3% (+20.2% y/y).
The median price of a new single family home recovered most of the prior month&#39;s decline and rose 6.1% to $230,800 (3.8% y/y).
The figures from the Census Department reflect homes sold.
The latest FOMC meeting minutes can be found <a href="http://www.federalreserve.gov/BoardDocs/Press/monetary/2005/20050524/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
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<td class="firstcol">New Single-Family</td>
<td>1,316</td>
<td>1,313</td>
<td>13.3%</td>
<td>1,200</td>
<td>1,091</td>
<td>976</td>
</tr>
</tbody>
</table>
Mortgage Applications Recover 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 25, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050525c.jpg" width="353">
Last week total mortgage applications recovered nearly half of the prior period&#39;s decline with a 4.3% gain that left applications so far in May 7.4% ahead of the April average, according to the Mortgage Bankers Association.
The gain was led by a 6.4% rise in applications to refinance which are 11.3% higher than in April.
Applications to purchase a home rose 2.8% following the prior week&#39;s 10.8% slump, yet in May are 4.7% ahead of April. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage fell to 5.88%, the lowest level since mid February. The effective rate on a 15-year mortgage fell to 5.53%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/20/05</th>
<th scope="col">05/13/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>729.6</td>
<td>699.2</td>
<td>15.4%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>482.3</td>
<td>469.3</td>
<td>7.2%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,167.9</td>
<td>2,036.7</td>
<td>27.9%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Spanish GDP Growth Maintains Firm Pace; Chain-Linking Introduced 
by <a href="/comment/Stone.html">Carol Stone</a> May 25, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050525d.jpg" width="353">
GDP in Spain grew 0.9% in Q1, the same as in Q4, according to the quarterly data released this morning by the National Statistics Institute. Boosts to the quarter&#39;s performance came from government consumption, up 2.6%, and a drop in imports of 1.6%. Household consumption grew 0.6%, slower than in Q4, and capital formation also expanded more slowly. Exports decreased 1.7%, their second successive decline, pulling them down 2.5% compared to a year ago. However, an accompanying decrease in imports stabilized the real net export balance with the Q4 amount.
In today&#39;s report, Spain has switched to chain-linking for calculating quarterly real growth and inflation; the reference year for these calculations is 2000. The data previously used fixed 1995 weights. [Some annual data on the new basis were reported last week.] As seen in the graph and in the table below, growth is consistently higher in the new figures. In 2002 and 2003 this resulted from stronger gains in fixed investment, but through the last year or so, household consumption has been much more vigorous than under the former calculation scheme.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050525e.jpg" width="353">
In the US experience, chain-weighting has a different impact: it tends to reduce total growth and, in particular, that of investment expenditures. It dilutes the effect of heavier buying of equipment, for which prices are falling. But in Spain, the reported volume of investment spending has been raised, perhaps because of the sizable role of construction in the Spanish economy. Construction is a considerably larger share of nominal GDP, 16.7% in Q1, than in the US, 10.2%. Construction prices have increased relative to total GDP, so that item has generally benefited from the chain-weighting process. Its greater weight in turn gives more lift to the total chain-weighted GDP result.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4 2004</th>
<th scope="col">Q3 2004</th>
<th scope="col">Year/ Year</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 - 2000 Prices</td>
<td>0.9</td>
<td>0.9</td>
<td>0.7</td>
<td>3.1</td>
<td>3.1</td>
<td>2.9</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Memo: GDP - 1995 Prices</td>
<td>--</td>
<td>0.8</td>
<td>0.6</td>
<td>&nbsp;</td>
<td>2.7</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Consumption</td>
<td>0.6</td>
<td>1.7</td>
<td>1.4</td>
<td>4.6</td>
<td>4.4</td>
<td>2.5</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Gross Fixed Capital Formation</td>
<td>0.9</td>
<td>3.4</td>
<td>2.2</td>
<td>6.5</td>
<td>4.4</td>
<td>5.3</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>-1.7</td>
<td>-0.8</td>
<td>1.4</td>
<td>-2.5</td>
<td>2.8</td>
<td>3.6</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>-1.6</td>
<td>1.6</td>
<td>3.5</td>
<td>5.5</td>
<td>8.1</td>
<td>6.3</td>
<td>3.8</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050524c.jpg" width="353">
Details of Germany&#39;s first quarter Gross Domestic Product were released today. Total growth in the economy was 1%, the same as the Flash Estimate of two weeks ago. The detailed data show that domestic demand continued to be weak. It declined 0.56% in the first quarter after a similar decline in the fourth quarter of 2004. Consumption declined by 0.18% but gross investment, including inventories and the acquisition less disposal of valuables, declined 2.32%. Fixed investment, alone, was down 1.66% suggesting substantial inventory liquidation.
Exports continued to increase--2.90%--and with a decline--1.36%--in imports, the strength in the foreign sector managed to overcome the weakness in the domestic sector, resulting in the modest 1.0% gain for the whole economy. The quarter-to-quarter percent change in total GDP, along with the quarter-to-quarter change in domestic demand is shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050524d.jpg" width="353">
Among the institutional investors and financial analysts, who participate in the ZEW survey (also released today), the optimists are losing heart. In March of this year the percent balance between those who expected improvement in the economy over the next six months and those who expected a worsening was 36.3% That margin dropped to 20.1% in April and to 13.7% in May. The percent balance between optimists and pessimists is shown in the second chart together with the quarterly change in real GDP.

<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/GERMANY/GERMANY.HTM">Percent Change in German GDP and Components&nbsp;</a>&nbsp;</th>
<th scope="col">Q1&nbsp; 05</th>
<th scope="col">Q4&nbsp; 04</th>
<th scope="col">Q3 04</th>
<th scope="col">Q2 04</th>
<th scope="col">Q1 04</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.04</td>
<td>-0.14</td>
<td>-1.04</td>
<td>0.20</td>
<td>0.43</td>
<td>1.04</td>
<td>-0.01</td>
<td>0.20</td>
</tr>
<tr>
<td class="firstcol">Domestic Demand</td>
<td>-0.56</td>
<td>-0.54</td>
<td>1.31</td>
<td>-0.29</td>
<td>-0.61</td>
<td>0.05</td>
<td>0.73</td>
<td>-1.76</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumption</td>
<td>-0.18</td>
<td>0.24</td>
<td>0.41</td>
<td>0.22</td>
<td>-0.64</td>
<td>-0.50</td>
<td>-0.12</td>
<td>0.09</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Total Investment</td>
<td>-2.32</td>
<td>-3.85</td>
<td>5.37</td>
<td>-0.67</td>
<td>-0.47</td>
<td>2.52</td>
<td>3.41</td>
<td>-9.15</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Fixed Investment</td>
<td>-1.66</td>
<td>0.30</td>
<td>0.52</td>
<td>0.07</td>
<td>-3.07</td>
<td>-1.82</td>
<td>-1.66</td>
<td>-5.92</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>2.90</td>
<td>1.14</td>
<td>-1.01</td>
<td>3.27</td>
<td>3.48</td>
<td>7.96</td>
<td>1.68</td>
<td>4.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-1.36</td>
<td>0.15</td>
<td>2.74</td>
<td>2.26</td>
<td>0.81</td>
<td>5.84</td>
<td>4.18</td>
<td>-0.94</td>
</tr>
</tbody>
</table>
</body>
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Details of Germany's first quarter Gross Domestic Product were released today. Total growth in the economy was 1%, the same as the Flash Estimate of two weeks ago. The detailed data show that domestic demand continued to be weak. It [...]

Germany' First Quarter GDP Increased 1%: Participants in the ZEW Survey Become More Cautious on the Outlook

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050524b.jpg" width="353">
The National Association of Realtors reported that sales of existing homes jumped to another record high last month, up 4.5% at 7.180M versus Consensus expectations for sales of 6.90M. Sales during March were revised slightly lower.
Improved methodology, better modeling and the addition of condo &amp; co-op sales affected the figures back to 1999. The data reflect closings of home sales in earlier months.<blockquote></blockquote>
Sales of single-family homes also increased to a new record high. The 4.5% m/m gain to 6.280M pulled sales so far this year to 6.055M, up 2.4% versus 2004.
Existing home sales rose m/m across the country&#39;s regions except out West where sales were unchanged m/m (2.5% y/y). Sales in the South jumped 7.0% (8.3% y/y) higher and in the Midwest sales rose 5.8% (3.8% y/y). In the Northeast sales improved 4.3% (7.1% y/y).
The median price of an existing single family home surged further to $203,800 (15.1% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
Can Monetary Policy Influence Long Term Interest Rates? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-09.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Home Sales</td>
<td>7,180</td>
<td>6,870</td>
<td>5.7%</td>
<td>6,723</td>
<td>6,170</td>
<td>5,653</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>6,280</td>
<td>6,010</td>
<td>5.0%</td>
<td>5,913</td>
<td>5,441</td>
<td>4,995</td>
</tr>
</tbody>
</table>


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The National Association of Realtors reported that sales of existing homes jumped to another record high last month, up 4.5% at 7.180M versus Consensus expectations for sales of 6.90M. Sales during March were revised slightly lower. [...]

U.S. Existing Home Sales Rose To Another Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050524a.jpg" width="353">
Chain store sales slipped for the second week according to the International Council of Shopping Centers (ICSC)-UBS survey. A 0.2% decline last week followed the 1.0% drop during the prior period. Sales so far in May remained 0.6% above April when sales rose 0.6% versus March.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC was unchanged w/w (0.1% y/y) and is up 0.4% in May versus April.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/21/05</th>
<th scope="col">05/14/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.9</td>
<td>456.7</td>
<td>3.7%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales slipped for the second week according to the International Council of Shopping Centers (ICSC)-UBS survey. A 0.2% decline last week followed the 1.0% drop during the prior period. Sales so far in May remained 0.6% [...]

Weekly Chain Store Sales Slipped Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050517g.jpg" width="353">
Chain store sales slipped for the second week according to the International Council of Shopping Centers (ICSC)-UBS survey. A 0.2% decline last week followed the 1.0% drop during the prior period. Sales so far in May remained 0.6% above April when sales rose 0.6% versus March.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC was unchanged w/w (0.1% y/y) and is up 0.4% in May versus April.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/21/05</th>
<th scope="col">05/14/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.9</td>
<td>456.7</td>
<td>3.7%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
U.S. Existing Home Sales Rose To Another Record 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 24, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050425b.jpg" width="353">
The National Association of Realtors reported that sales of existing homes jumped to another record high last month, up 4.5% at 7.180M versus Consensus expectations for sales of 6.90M. Sales during March were revised slightly lower.
Improved methodology, better modeling and the addition of condo &amp; co-op sales affected the figures back to 1999. The data reflect closings of home sales in earlier months.<blockquote></blockquote>
Sales of single-family homes also increased to a new record high. The 4.5% m/m gain to 6.280M pulled sales so far this year to 6.055M, up 2.4% versus 2004.
Existing home sales rose m/m across the country&#39;s regions except out West where sales were unchanged m/m (2.5% y/y). Sales in the South jumped 7.0% (8.3% y/y) higher and in the Midwest sales rose 5.8% (3.8% y/y). In the Northeast sales improved 4.3% (7.1% y/y).
The median price of an existing single family home surged further to $203,800 (15.1% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
Can Monetary Policy Influence Long Term Interest Rates? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-09.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Home Sales</td>
<td>7,180</td>
<td>6,870</td>
<td>5.7%</td>
<td>6,723</td>
<td>6,170</td>
<td>5,653</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>6,280</td>
<td>6,010</td>
<td>5.0%</td>
<td>5,913</td>
<td>5,441</td>
<td>4,995</td>
</tr>
</tbody>
</table>
 Germany' First Quarter GDP Increased 1%: Participants in the ZEW Survey Become More Cautious on the Outlook 
by <a href="/comment/Curley.html">Louise Curley</a> May 24, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050524c.jpg" width="353">
Details of Germany&#39;s first quarter Gross Domestic Product were released today. Total growth in the economy was 1%, the same as the Flash Estimate of two weeks ago. The detailed data show that domestic demand continued to be weak. It declined 0.56% in the first quarter after a similar decline in the fourth quarter of 2004. Consumption declined by 0.18% but gross investment, including inventories and the acquisition less disposal of valuables, declined 2.32%. Fixed investment, alone, was down 1.66% suggesting substantial inventory liquidation.
Exports continued to increase--2.90%--and with a decline--1.36%--in imports, the strength in the foreign sector managed to overcome the weakness in the domestic sector, resulting in the modest 1.0% gain for the whole economy. The quarter-to-quarter percent change in total GDP, along with the quarter-to-quarter change in domestic demand is shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050524d.jpg" width="353">
Among the institutional investors and financial analysts, who participate in the ZEW survey (also released today), the optimists are losing heart. In March of this year the percent balance between those who expected improvement in the economy over the next six months and those who expected a worsening was 36.3% That margin dropped to 20.1% in April and to 13.7% in May. The percent balance between optimists and pessimists is shown in the second chart together with the quarterly change in real GDP.

<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/GERMANY/GERMANY.HTM">Percent Change in German GDP and Components&nbsp;</a>&nbsp;</th>
<th scope="col">Q1&nbsp; 05</th>
<th scope="col">Q4&nbsp; 04</th>
<th scope="col">Q3 04</th>
<th scope="col">Q2&nbsp; 04</th>
<th scope="col">Q1 04</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.04</td>
<td>-0.14</td>
<td>-1.04</td>
<td>0.20</td>
<td>0.43</td>
<td>1.04</td>
<td>-0.01</td>
<td>0.20</td>
</tr>
<tr>
<td class="firstcol">Domestic Demand</td>
<td>-0.56</td>
<td>-0.54</td>
<td>1.31</td>
<td>-0.29</td>
<td>-0.61</td>
<td>0.05</td>
<td>0.73</td>
<td>-1.76</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumption</td>
<td>-0.18</td>
<td>0.24</td>
<td>0.41</td>
<td>0.22</td>
<td>-0.64</td>
<td>-0.50</td>
<td>-0.12</td>
<td>0.09</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Total Investment</td>
<td>-2.32</td>
<td>-3.85</td>
<td>5.37</td>
<td>-0.67</td>
<td>-0.47</td>
<td>2.52</td>
<td>3.41</td>
<td>-9.15</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Fixed Investment</td>
<td>-1.66</td>
<td>0.30</td>
<td>0.52</td>
<td>0.07</td>
<td>-3.07</td>
<td>-1.82</td>
<td>-1.66</td>
<td>-5.92</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>2.90</td>
<td>1.14</td>
<td>-1.01</td>
<td>3.27</td>
<td>3.48</td>
<td>7.96</td>
<td>1.68</td>
<td>4.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-1.36</td>
<td>0.15</td>
<td>2.74</td>
<td>2.26</td>
<td>0.81</td>
<td>5.84</td>
<td>4.18</td>
<td>-0.94</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/050523c.jpg" width="353">
South Korea and Taiwan have recently reported first quarter Gross Domestic Product numbers.
GDP in South Koreas increased 0.35% in the first quarter or at an annual rate of 1.41%. This was well below the annual growth rates of the past three years, of 4.7%, 3.2% and 7.0 respectively for 2004, 2003 and 2002. Much of the slow growth was due to a massive liquidation of inventories in contrast to inventory accumulation in much of 2004. In addition, fixed investment was down by 110.4 billion won. On the plus side were consumption which increased by 961.7 billion won and net exports of goods and services which increased by 4,845.5 billion won. The year to year changes in Fixed Investment and in Consumption for South Korea are shown in the first chart.
The quarter to quarter increase in GDP in Taiwan was 0.87% or 3.53% at an annual rate which was better than that of South Korea, but below Taiwan&#39;s growth of 5.71% in 2004. As in the case of South Korea, a major negative was a big inventory liquidation. In contrast to South Korea, fixed investment in Taiwan was a major positive. Increases in consumption and the net export of goods and services helped to offset the impact of the inventory liquidation. The course of the year to year changes consumption and fixed investment expenditures in Taiwan are shown in the second chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050523d.jpg" width="353">

<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/emerging.htm">Emerging Markets&nbsp;</a></th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4&nbsp;&nbsp;2004</th>
<th scope="col">Q3 2004</th>
<th scope="col">Q2 2004</th>
<th scope="col">Q1 2004</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP (Period to Period)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Taiwan</td>
<td>0.87</td>
<td>-0.48</td>
<td>2.31</td>
<td>-0.09</td>
<td>1.07</td>
<td>5.71</td>
<td>3.33</td>
<td>3.94</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South Korea</td>
<td>0.35</td>
<td>0.94</td>
<td>0.81</td>
<td>0.60</td>
<td>0.65</td>
<td>4.66</td>
<td>3.15</td>
<td>6.95</td>
</tr>
<tr>
<td class="firstcol">GDP (Year over Year)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Taiwan</td>
<td>2.61</td>
<td>2.91</td>
<td>5.55</td>
<td>7.92</td>
<td>6.74</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South Korea</td>
<td>2.72</td>
<td>3.03</td>
<td>4.91</td>
<td>5.28</td>
<td>5.17</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Change Q4 04 to Q1 05</td>
<td>Taiwan (Mil 2001 NT$)</td>
<td>South Korea (Bil 2000 Won)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumption</td>
<td>10776</td>
<td>961.7</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Fixed Investment</td>
<td>9095</td>
<td>-110.4</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>-40659</td>
<td>-4742.6</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Net Export of Gds &amp; Serv.</td>
<td>44343</td>
<td>4845.5</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Stat. Discrepancy</td>
<td>&nbsp;</td>
<td>-339.6</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>23555</td>
<td>614.6</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

South Korea and Taiwan have recently reported first quarter Gross Domestic Product numbers. GDP in South Koreas increased 0.35% in the first quarter or at an annual rate of 1.41%. This was well below the annual growth rates of the [...]

South Korea and Taiwan Report Slow Growth in the First Quarter of 2005

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050523a.jpg" width="353">
The old adage of real estate about location has never been more true than during the last several years. During the last three years the Nat&#39;l Association of Realtors reports the median sales price of an existing single family home rose at an 8.3% rate.
In the West and in the Northeast home price appreciation hit double digits and in certain local markets has been astronomical. During the last five years, the 10.2% appreciation in home prices in the Western region of the U.S. is not even half the 21.6% rate of gain in Sacramento, CA. A 13.6% rate of increase in the Northeast was paced by a 14.0% rate of gain in Monmouth &amp; Ocean Counties, NJ.
The rate of gain in these markets has been at least double that in the Midwest and in the South. A 6.1% rate of increase throughout the Midwest was restrained by just a 2.0% rate of increase in Detroit, MI and a 2.2% gain in Cleveland, OH. In the South, a 7.3% rate increase owes much to a 7.7% rise in Charleston, SC because Atlanta, GA lagged with only a 4.9% rate of home price appreciation over the last five years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050523b.jpg" width="353">
The levels of home prices certainly differ greatly by region with the median price for all of the US at $195,000 in March. In the West, homes were the priciest with the median at $289,000 and Sacramento homes cost $352,900. The Northeast lagged not far behind at $242,000 with homes in Monmouth &amp; Ocean Counties fetching a higher median of $358,500.
Economic growth explains some of these differing patterns. Through 2002, real gross state product in California averaged 5.3% for five years while in New Jersey growth averaged 4.4%. Actually, Michigan lagged not far behind with a 4.1% average and neither did Georgia with 4.9%. But growth in Ohio of 2.9% was off the national pace of 3.0% and Mississippi at 2.7% lagged as well.
The latest report from the Office of Federal Housing Enterprise Oversight (OFHEO) is available <a href="http://www.ofheo.gov/media/pdf/4q04hpi.pdf"> here</a>.
Fed Chairman Greenspan&#39;s speech to the Economic Club of New York on Friday is available <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2005/200505202/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E90406/@E90406.HTM">Nat&#39;l Assn. of Realtors - Median Home Sales Price</a></th>
<th scope="col">Last 12 Months</th>
<th scope="col">Last Five Years</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">United States</td>
<td>11.4%</td>
<td>8.1%</td>
<td>9.2%</td>
<td>8.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West</td>
<td>18.9</td>
<td>10.2</td>
<td>13.3</td>
<td>9.1</td>
<td>11.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>14.7</td>
<td>13.6</td>
<td>16.5</td>
<td>16.2</td>
<td>13.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Midwest</td>
<td>11.2</td>
<td>6.1</td>
<td>6.0</td>
<td>5.0</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>7.0</td>
<td>7.3</td>
<td>7.9</td>
<td>7.0</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">OFHEO Repeat Home Sales Price Index</td>
<td>11.2</td>
<td>8.4</td>
<td>10.8</td>
<td>7.0</td>
<td>7.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The old adage of real estate about location has never been more true than during the last several years. During the last three years the Nat'l Association of Realtors reports the median sales price of an existing single family home [...]

Home Price Inflation: Location, Location, Location

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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

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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: May 2005

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U.S. Durable Goods Orders Rebounded

U.S. Durable Goods Orders Rebounded

Germany' First Quarter GDP Increased 1%: Participants in the ZEW Survey Become More Cautious on the Outlook

U.S. Existing Home Sales Rose To Another Record

Weekly Chain Store Sales Slipped Again

Weekly Chain Store Sales Slipped Again

South Korea and Taiwan Report Slow Growth in the First Quarter of 2005

Home Price Inflation: Location, Location, Location