Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040826a.jpg" width="353">
Initial claims for unemployment insurance rose 10,000 last week to 343,000. Roughly half of the increase was due to the impact of Hurricane Charley on claims in Florida, according to the Labor Department. The prior week&#39;s level was up revised slightly and the Consensus forecast had beenfor 335,000 claims.
Initial claims during the survey period for August nonfarm payrolls fell 8,000 (2.3%) from the July period.
The 4-week moving average of initial claims fell to 336,750 (-15.1% y/y).
Continuing claims for unemployment insurance rose 5,000 following a downwardly revised 4,000 gain the week prior.
The insured rate of unemployment remained at 2.3%, where it has hovered since the end of April.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM"> Unemployment Insurance (000s)</a></th>
<th scope="col"> 08/21/04</th>
<th scope="col"> 08/14/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
<tbody>
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<td class="firstcol">Initial Claims</td>
<td>343</td>
<td>333</td>
<td>-12.7%</td>
<td>399</td>
<td>403</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,897</td>
<td>-19.4%</td>
<td>3,516</td>
<td>3,564</td>
<td>2974</td>
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Initial claims for unemployment insurance rose 10,000 last week to 343,000. Roughly half of the increase was due to the impact of Hurricane Charley on claims in Florida, according to the Labor Department. The prior week's level was up [...]

Hurricane Charley Lifted Initial Jobless Claims

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040826a.jpg" width="353">
Initial claims for unemployment insurance rose 10,000 last week to 343,000. Roughly half of the increase was due to the impact of Hurricane Charley on claims in Florida, according to the Labor Department. The prior week&#39;s level was up revised slightly and the Consensus forecast had beenfor 335,000 claims.
Initial claims during the survey period for August nonfarm payrolls fell 8,000 (2.3%) from the July period.
The 4-week moving average of initial claims fell to 336,750 (-15.1% y/y).
Continuing claims for unemployment insurance rose 5,000 following a downwardly revised 4,000 gain the week prior.
The insured rate of unemployment remained at 2.3%, where it has hovered since the end of April.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM"> Unemployment Insurance (000s)</a></th>
<th scope="col"> 08/21/04</th>
<th scope="col"> 08/14/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
<tbody>
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<td class="firstcol">Initial Claims</td>
<td>343</td>
<td>333</td>
<td>-12.7%</td>
<td>399</td>
<td>403</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,897</td>
<td>-19.4%</td>
<td>3,516</td>
<td>3,564</td>
<td>2974</td>
</tr>
</tbody>
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Help-Wanted Advertising Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 26, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040826b.jpg" width="353">
The National Index of Help-Wanted Advertising published by the Conference Board slipped last month to 37, giving back virtually all of this year&#39;s modest improvement from the 2003 low.
During the last ten years there has been a 91% correlation between the level of help-wanted advertising and the year-to-year change in non-farm payrolls. The stall in help wanted indicates that most, if not all, of the y/y improvement in non-farm payroll growth has been due to fewer job losses, not improved hiring.
The proportion of labor markets with rising want-ad volume rose slightly to 41% from a downwardly revised 29% in June.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col"> July</th>
<th scope="col">June</th>
<th scope="col">July &#39;03</th>
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<td class="firstcol">National Help Wanted Index</td>
<td>37</td>
<td>38</td>
<td>38</td>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040825d.jpg" width="353">
Brazil&#39;s current account showed a US$1.628 billion surplus in July, according to data reported this morning by Banco Central do Brasil. This is down from June&#39;s record $1.959 billion, but still notably larger than any previous month. The balance in May was $1.206 billion, but only a very few scattered months in nearly 25 years of history have had a surplus of $1.0 billion or more.
The trade accounts are the source of the improvement; both exports and imports have been growing in recent months, but obviously exports have had the greater gain. The graph shows clearly a strong, well established uptrend in exports. Brazil&#39;s industrial production data suggest that, contrary to the historical vision of coffee and cocoa as the leading products of Brazil, today, the fastest growing sectors of its industry relate to machinery and capital goods.
While the trade portion of Brazil&#39;s external accounts has improved markedly, other components remain in deficit. The services account is maintaining a modest deficit of about $400 million per month. The income account deficit hovers around $1.7 billion monthly; it has been hurt recently by net outflows of profits, and dividends and the country&#39;s interest bill has been increasing recently after some period of easing.
Brazil&#39;s overall balance of payments contains a deficit now in the financial accounts. This might be dismissed as simply the mirror image of the emergence of the surplus in the current account. The &quot;other investments&quot; category that includes trade credit and short-term loans is indeed in the negative position one would expect as a counter to the current account. But in addition, the volume of direct investment has diminished considerably in the past year and portfolio investment recently shows net outflows.
So the emergence of a trade surplus due to strong exports indicates an underlying improvement for the Brazilian economy, but it appears that investors are still unsure of the country&#39;s markets.
[These data are all contained in Haver&#39;s EMERGELA database. Haver performs the seasonal adjustment on the actual figures reported by the Central Bank.] 

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol">Bil.US$</th>
Seasonally Adjusted
Monthly Average
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<tr class="odd">
<td class="firstcol">July 2004</td>
<td>June 2004</td>
<td>May 2004</td>
<td>July 2003</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
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<td class="firstcol">Current Account</td>
<td>1.628</td>
<td>1.959</td>
<td>1.206</td>
<td>0.616</td>
<td>0.342</td>
<td>-0.640</td>
<td>-1.934</td>
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<td class="firstcol">Trade Balance</td>
<td>3.405</td>
<td>3.484</td>
<td>2.736</td>
<td>2.034</td>
<td>2.069</td>
<td>1.097</td>
<td>0.221</td>
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<td class="firstcol">Exports</td>
<td>8.683</td>
<td>9.179</td>
<td>7.385</td>
<td>5.901</td>
<td>6.090</td>
<td>5.030</td>
<td>4.852</td>
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<td class="firstcol">Imports</td>
<td>5.278</td>
<td>5.696</td>
<td>4.649</td>
<td>3.867</td>
<td>4.021</td>
<td>3.933</td>
<td>4.631</td>
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<td class="firstcol">Services</td>
<td>-0.345</td>
<td>-0.429</td>
<td>-0.121</td>
<td>-0.310</td>
<td>-0.425</td>
<td>-0.413</td>
<td>-0.647</td>
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<td class="firstcol">Income</td>
<td>-1.697</td>
<td>-1.419</td>
<td>-1.711</td>
<td>-1.503</td>
<td>-1.546</td>
<td>-1.516</td>
<td>-1.645</td>
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<td class="firstcol">Financial Account</td>
<td>-1.522</td>
<td>-2.521</td>
<td>-2.240</td>
<td>-0.774</td>
<td>0.407</td>
<td>0.696</td>
<td>2.257</td>
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Brazil's current account showed a US$1.628 billion surplus in July, according to data reported this morning by Banco Central do Brasil. This is down from June's record $1.959 billion, but still notably larger than any previous month. [...]

Brazil Maintains Record Range for Current Account Surplus

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040825b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association fell 6.3% last week but during the prior period applications were up 11.9% due to a surge in refinancings.
Purchase applications fell 5.0% last week and so far this month are 2.4% below July.
During the last ten years there has been a 59% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance mortgages slipped 8.0% following the prior week&#39;s surge. Refi&#39;s so far in August are 9.0% ahead of July which rose 17.3% versus June.
The effective interest rate on a conventional 30-Year mortgage was stable at 6.05%, the average for August so far. That is down from 6.24% averaged last month and the high of 6.53% in May. The effective rate on a 15-year mortgage also was about stable at 5.47% versus 5.69% last month.
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>.

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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">08/20/04</th>
<th scope="col">08/13/04</th>
<th scope="col"> Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Total Market Index</td>
<td>646.3</td>
<td>689.4</td>
<td>1.2%</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>443.7</td>
<td>467.1</td>
<td>18.2%</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,824.9</td>
<td>1,982.7</td>
<td>-15.9%</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
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The index of mortgage applications compiled by the Mortgage Bankers Association fell 6.3% last week but during the prior period applications were up 11.9% due to a surge in refinancings. Purchase applications fell 5.0% last week and [...]

Mortgage Applications Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040825c.jpg" width="353">
Sales of new one-family homes fell a sharp 6.4% in July to 1.134M, the lowest level since last December. Sales in June were revised down sharply to 1.211M from the initial report of 1.326M. Consensus estimates had been for sales of 1.300M. 
Sales fell hard in the Northeast by 23.5% (-19.5% y/y) and in the South by 15.9% (-5.9% y/y). In the West sales slipped 1.7% (-4.0% y/y) for the third decline in the last four months. Sales in the Midwest rose a solid 21.5% (17.1% y/y).
The median price of a new single family home fell 2.6% to $207,400 (9.0% y/y), 5.6% below the February peak of $219,600.
During testimony before the Senate Banking Committee, Fed Chairman Greenspan indicated in response to a question about soaring house prices, &quot;This observation raises the possibility that real estate prices, at least in some markets, could be out of alignment with the fundamentals.&quot; The complete Monetary Report to Congress is available <a href="http://www.federalreserve.gov/boarddocs/HH/2004/July/testimony.htm"> here</a>.

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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">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">New Single-Family</td>
<td>1,134</td>
<td>1,211</td>
<td>-1.9%</td>
<td>1,089</td>
<td>976</td>
<td>907</td>
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Sales of new one-family homes fell a sharp 6.4% in July to 1.134M, the lowest level since last December. Sales in June were revised down sharply to 1.211M from the initial report of 1.326M. Consensus estimates had been for sales of [...]

New Home Sales Weaken

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040825a.jpg" width="353">
A 37.2% m/m surge in orders for aircraft raised durable goods orders in July by 1.7% versus Consensus expectations for a 1.0% rise. Less aircraft durable orders fell 0.5% (+8.3% y/y), the third m/m decline in the last four.
The rise in new aircraft orders was powered by a doubling of orders for commercial aircraft that offset a one-third drop in defense aircraft bookings.
Higher aircraft orders raised the nondefense capital goods total by 9.0%, but less aircraft capital goods orders rose just 0.6% (11.0% y/y).
Orders for computers &amp; electronic products fell 3.8% (+2.0% y/y), the third m/m decline in the last four. Computer orders fell 6.7% (-0.6% y/y) though a 5.0% rise in electrical equipment, appliance &amp; component orders recouped half of the prior two months&#39; decline. Machinery orders added 2.1% (18.0% y/y) to a 1.1% rise in June.
During the last ten years there has been a 58% correlation between the y/y change in durable goods orders and the orders component of the Philadelphia Federal Reserve&#39;s Business Outlook Survey. That correlation rose to 72% during the last five years.
Shipments of durable goods rose 0.1% (8.3% y/y) after a 1.1% June gain. Shipments excluding the transportation sector rose 1.7% (+12.6% y/y) after a 1.2% spurt in June.
Durable inventories rose 0.8% (3.4% y/y) for the third straight month.
New research from the Federal Reserve Bank of New York titled &quot;The Relationship between Manufacturing Production and Goods Output&quot; is available <a href="http://www.newyorkfed.org/research/current_issues/ci10-9.html"> here</a>.

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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">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Durable Goods Orders</td>
<td>1.7%</td>
<td>1.1%</td>
<td>11.7%</td>
<td>2.6%</td>
<td>-1.7%</td>
<td>-10.5%</td>
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<tr>
<td class="firstcol">&nbsp; Non-defense Capital Goods</td>
<td>9.0%</td>
<td>1.1%</td>
<td>19.4%</td>
<td>5.6%</td>
<td>-7.2%</td>
<td>-15.5%</td>
</tr>
</tbody>
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A 37.2% m/m surge in orders for aircraft raised durable goods orders in July by 1.7% versus Consensus expectations for a 1.0% rise. Less aircraft durable orders fell 0.5% (+8.3% y/y), the third m/m decline in the last four. The rise [...]

Surge In Aircraft Lifts U.S. Durable Goods Orders

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040825a.jpg" width="353">
A 37.2% m/m surge in orders for aircraft raised durable goods orders in July by 1.7% versus Consensus expectations for a 1.0% rise. Less aircraft durable orders fell 0.5% (+8.3% y/y), the third m/m decline in the last four.
The rise in new aircraft orders was powered by a doubling of orders for commercial aircraft that offset a one-third drop in defense aircraft bookings.
Higher aircraft orders raised the nondefense capital goods total by 9.0%, but less aircraft capital goods orders rose just 0.6% (11.0% y/y).
Orders for computers &amp; electronic products fell 3.8% (+2.0% y/y), the third m/m decline in the last four. Computer orders fell 6.7% (-0.6% y/y) though a 5.0% rise in electrical equipment, appliance &amp; component orders recouped half of the prior two months&#39; decline. Machinery orders added 2.1% (18.0% y/y) to a 1.1% rise in June.
During the last ten years there has been a 58% correlation between the y/y change in durable goods orders and the orders component of the Philadelphia Federal Reserve&#39;s Business Outlook Survey. That correlation rose to 72% during the last five years.
Shipments of durable goods rose 0.1% (8.3% y/y) after a 1.1% June gain. Shipments excluding the transportation sector rose 1.7% (+12.6% y/y) after a 1.2% spurt in June.
Durable inventories rose 0.8% (3.4% y/y) for the third straight month.
New research from the Federal Reserve Bank of New York titled &quot;The Relationship between Manufacturing Production and Goods Output&quot; is available <a href="http://www.newyorkfed.org/research/current_issues/ci10-9.html"> here</a>.

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<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">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">Durable Goods Orders</td>
<td>1.7%</td>
<td>1.1%</td>
<td>11.7%</td>
<td>2.6%</td>
<td>-1.7%</td>
<td>-10.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Non-defense Capital Goods</td>
<td>9.0%</td>
<td>1.1%</td>
<td>19.4%</td>
<td>5.6%</td>
<td>-7.2%</td>
<td>-15.5%</td>
</tr>
</tbody>
</table>
New Home Sales Weaken 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 25, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040825c.jpg" width="353">
Sales of new one-family homes fell a sharp 6.4% in July to 1.134M, the lowest level since last December. Sales in June were revised down sharply to 1.211M from the initial report of 1.326M. Consensus estimates had been for sales of 1.300M. 
Sales fell hard in the Northeast by 23.5% (-19.5% y/y) and in the South by 15.9% (-5.9% y/y). In the West sales slipped 1.7% (-4.0% y/y) for the third decline in the last four months. Sales in the Midwest rose a solid 21.5% (17.1% y/y).
The median price of a new single family home fell 2.6% to $207,400 (9.0% y/y), 5.6% below the February peak of $219,600.
During testimony before the Senate Banking Committee, Fed Chairman Greenspan indicated in response to a question about soaring house prices, &quot;This observation raises the possibility that real estate prices, at least in some markets, could be out of alignment with the fundamentals.&quot; The complete Monetary Report to Congress is available <a href="http://www.federalreserve.gov/boarddocs/HH/2004/July/testimony.htm"> 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/@E904/@E90401/@E90401.HTM"> Homes Sales (000s, AR)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">New Single-Family</td>
<td>1,134</td>
<td>1,211</td>
<td>-1.9%</td>
<td>1,089</td>
<td>976</td>
<td>907</td>
</tr>
</tbody>
</table>
Mortgage Applications Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 25, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040825b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association fell 6.3% last week but during the prior period applications were up 11.9% due to a surge in refinancings.
Purchase applications fell 5.0% last week and so far this month are 2.4% below July.
During the last ten years there has been a 59% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance mortgages slipped 8.0% following the prior week&#39;s surge. Refi&#39;s so far in August are 9.0% ahead of July which rose 17.3% versus June.
The effective interest rate on a conventional 30-Year mortgage was stable at 6.05%, the average for August so far. That is down from 6.24% averaged last month and the high of 6.53% in May. The effective rate on a 15-year mortgage also was about stable at 5.47% versus 5.69% last month.
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%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/20/04</th>
<th scope="col">08/13/04</th>
<th scope="col"> Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>646.3</td>
<td>689.4</td>
<td>1.2%</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>443.7</td>
<td>467.1</td>
<td>18.2%</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,824.9</td>
<td>1,982.7</td>
<td>-15.9%</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
</body>
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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/040824c.jpg" width="353">
The final report on Germany&#39;s second quarter GDP, confirmed the preliminary estimate of a 0.5% increase from the first to the second quarter. The chief source of growth came from exports, which increased 3.19% from the first to the second quarter and 12.16% from the second quarter of 2003. Imports rose less than exports, and net exports rose 2.65%. Domestic demand remained sluggish. Consumer demand was essentially flat and total business investment declined by about 1% in the second quarter from the first.
Forward looking indicators, like new orders and business sentiment, suggest that activity in the third quarter is likely to continue muted. While the volume of seasonally adjusted new orders showed an increase for the second quarter, the June figure, published today, was down 3.44% from May. The most recent IFO index of expectations of the business climate in the next six months was up slightly in July, but the optimists among the institutional investors and analysts poled in the Zew indicator were fewer in August.
Part of the sluggishness in domestic demand in Germany may be the result of uncertainty engendered by the sweeping labor and welfare reforms posed by Agenda 2010 and the Hartz IV Laws, which were introduced in 2002, and the Rurup Commission appointed earlier this year to devise a plan to save the pension system threatened with collapse by the aging of the population.
In September, 2002, the Bundestag passed laws reducing monthly premium payments for the national health care system and reduced to 12 months the maximum duration a person can receive unemployment benefits after losing a job and made it easier for companies to hire and fire employees. The most contentious reforms--the Hartz IV Law--calling for the merger of unemployment and welfare benefits and provisions of the Rurup Commission to raise the age of retirement from 65 to 67 years of age and reduce pension levels from 48% to 40.1% of a recipient&#39;s former income have yet to be passed. Popular discontent over the reforms is rising, particularly in East Germany where unemployment rates and the numbers of long term unemployed remain high. August 23rd marked the fifth Monday of large scale demonstrations in East Germany against the reforms.
While the long term implications of the reforms are positive for the growth of the German economy, the implementation of the reforms in the short term are likely to be disruptive.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Germany</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gross Domestic Product (Bil. euros)</td>
<td>Q2 04</td>
<td>&nbsp; Q1 04</td>
<td>&nbsp; Q2 03</td>
<td>Q/Q %</td>
<td>&nbsp;Y/Y %</td>
<td>2003 %</td>
<td>&nbsp; 2002 %</td>
<td>&nbsp; 2001 %</td>
</tr>
<tr>
<td class="firstcol">Total GDP</td>
<td>502.96</td>
<td>500.58</td>
<td>495.58</td>
<td>0.48</td>
<td>1.49</td>
<td>-0.14</td>
<td>0.12</td>
<td>0.99</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Consumption</td>
<td>379.43</td>
<td>378.51</td>
<td>381.68</td>
<td>0.14</td>
<td>-0.59</td>
<td>0.00</td>
<td>--0.05</td>
<td>1.60</td>
</tr>
<tr>
<td class="firstcol">Total Investment</td>
<td>92.03</td>
<td>92.80</td>
<td>92.91</td>
<td>-0.85</td>
<td>-0.95</td>
<td>2.49</td>
<td>-8.93</td>
<td>-8.39</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Exports</td>
<td>31.50</td>
<td>28.85</td>
<td>20.99</td>
<td>2.65</td>
<td>10.51</td>
<td>-11.84</td>
<td>38.71</td>
<td>31.90</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>202.60</td>
<td>196.34</td>
<td>180.64</td>
<td>3.19</td>
<td>12.16</td>
<td>1.75</td>
<td>4.10</td>
<td>6.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>171.10</td>
<td>167.45</td>
<td>159.65</td>
<td>2.16</td>
<td>7.17</td>
<td>&nbsp;3.94</td>
<td>-1.57</td>
<td>1.35</td>
</tr>
<tr>
<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 class="odd">
<td class="firstcol">Unemployment Rates</td>
<td>Jul 04</td>
<td>Jun 04</td>
<td>Jul 03</td>
<td>M/M&nbsp;&nbsp;</td>
<td>Y/Y&nbsp;</td>
<td>2003&nbsp;%</td>
<td>2002 %</td>
<td>&nbsp;2001 %</td>
</tr>
<tr>
<td class="firstcol">&nbsp;West Germany</td>
<td>8.5</td>
<td>8.4</td>
<td>8.4</td>
<td>1.0</td>
<td>1.0</td>
<td>8.4</td>
<td>7.7</td>
<td>7.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;East Germany</td>
<td>18.5</td>
<td>18.5</td>
<td>18.6</td>
<td>0.0</td>
<td>-1.0</td>
<td>18.5</td>
<td>17.7</td>
<td>17.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The final report on Germany's second quarter GDP, confirmed the preliminary estimate of a 0.5% increase from the first to the second quarter. The chief source of growth came from exports, which increased 3.19% from the first to the [...]

Are Welfare and Labor Reforms Affecting Domestic Demand in Germany?

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

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

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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.

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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.

250430P1.jpg

250430Q1.jpg

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**.

250430R1.jpg

250430S1.jpg

- 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

250430A.jpg

250430B.jpg

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**.

250430C.jpg

250430D.jpg

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

Personal Income, Consumption, and Prices in March

250430F20.jpg

250430G20.jpg

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: August 2004

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