Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050125b.jpg" width="353">
Eurostat announced that Industrial new orders for &quot;manufacturing working on orders&quot; in the Euro Zone increased by 1.8% from October to November. The phrase &quot;manufacturing working on orders&quot; refers to the following broad industries: 1.Textiles and textile products, 2.Chemicals and chemical products, 3.Basic metals and fabricated metal products, 4. Machinery and equipment, 5. Electrical and electronic equipment, and 6. Transport Equipment. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124e.jpg" width="353">
Eurostat also publishes an estimate for the EU25, which rose 0.3% in November. Although month to month changes in the two series differ significantly, the trends of two series differ very little as can be seen in the first chart. 
The EU 25, is of course heavily influenced by the Euro Zone plus Sweden, Denmark and the U. K, so it is not strange that its trend is similar to that of the Euro Zone. However, Eurostat also publishes data for some of the individual countries so that one can see that the trend of new orders in the emerging markets of central and eastern Europe have been much stronger than those of the West. For example, the second chart compares the trend in new orders for France and the Czech Republic. By November the trend level of new orders, based on 2000=100, was 196.49 in the Czech Republic and 115.80 in France. In Latvia, the trend level in November, was 220.85; in Lithuania, 296,68 and in Slovakia, 289.48.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">New Orders Manufacturing working on orders</th>
<th scope="col">Nov 04</th>
<th scope="col">Oct&nbsp;04</th>
<th scope="col">SEP 04</th>
<th scope="col">Nov/Oct %</th>
<th scope="col">Oct/Sep %</th>
<th scope="col">Sep/Aug %&nbsp;</th>
<th scope="col">Aug/Jul %&nbsp;</th>
<th scope="col">Jul/Jun%&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Zone (SA)</td>
<td>108.30</td>
<td>106.40</td>
<td>106.60</td>
<td>1.79</td>
<td>-0.19</td>
<td>1.62</td>
<td>-057</td>
<td>-0.85</td>
</tr>
<tr>
<td class="firstcol">Euro Zone TC</td>
<td>&nbsp;</td>
<td>107.12</td>
<td>106.44</td>
<td>&nbsp;</td>
<td>.060</td>
<td>0.36</td>
<td>-.020</td>
<td>-0.92</td>
</tr>
<tr class="odd">
<td class="firstcol">EU 25 SA</td>
<td>107.5</td>
<td>107.19</td>
<td>106.67</td>
<td>.0.29</td>
<td>0.49</td>
<td>0.81</td>
<td>-0.64</td>
<td>-0.05</td>
</tr>
<tr>
<td class="firstcol">EU 25 TC</td>
<td>&nbsp;</td>
<td>107.38</td>
<td>106.87</td>
<td>&nbsp;</td>
<td>0.36</td>
<td>0.19</td>
<td>-0.22</td>
<td>-0.69</td>
</tr>
</tbody>
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Eurostat announced that Industrial new orders for "manufacturing working on orders" in the Euro Zone increased by 1.8% from October to November. The phrase "manufacturing working on orders" refers to the following broad industries: [...]

New Orders for Manufacturing in Central and Eastern Europe Outpace Those in Western Europe

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124d.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose sharply in the latest week due to lower initial jobless claims and rising mortgage applications. Six month growth in the index held at -0.1% versus lows of -1.5% this past Fall.
Past recessions in the US economy were signaled by negative growth in the ECRI Leading Index in the -5 to -10% range. During the last ten years there has been a 69% correlation between the six-month growth in the ECRI leading index of the US economy and two quarter growth in real GDP.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The ECRI Leading Index&#39;s recent pattern generally mirrors the Conference Board&#39;s Index of Leading Economic Indicators, with a slight lead. Construction of the ECRI Leading Index differs from the Conference Board Index but there has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
The latest from ECRI is available <a href="http://www.businesscycle.com/">here</a>.
&quot;Slower Growth&quot; by John H. Makin is an Economic Outlook publication from the American Enterprise Institute and can be found <a href="http://www.aei.org/docLib/20050121_EOfebg.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM">ECRI Leading Index</a></th>
<th scope="col">01/14/05</th>
<th scope="col">01/07/05</th>
<th scope="col">Growth Rate</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">Weekly</td>
<td>133.3</td>
<td>132.2</td>
<td>-0.1%</td>
<td>6.2%</td>
<td>4.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Dec</td>
<td>Nov</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>133.2</td>
<td>132.5</td>
<td>1.0%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose sharply in the latest week due to lower initial jobless claims and rising mortgage applications. Six month growth in the index [...]

ECRI U.S. Leading Index Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124b.jpg" width="353">
The Job Openings &amp; Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics indicated that the job openings rate fell back in November to 2.4%, the average for 3Q. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The total number of job openings in November fell a sharp 6.3% m/m (+8.5% y/y) and reversed about all of the gains during the prior two months.
The latest hires rate rose sharply to 3.6%, the highest level since early 2001. The hires rate is the number of hires during the month divided by employment.
Job separations rose a hefty 7.9% versus last year but fell slightly m/m to 4.098 million. The separation rate was unchanged at 3.2%. Total separations include quits, layoffs, discharges, and other separations including retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
From the U.S. Department of Labor, a description of the Jolts survey and the latest release is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124a.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Job Openings Rate: Total</td>
<td>2.4%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.6%</td>
<td>3.4%</td>
<td>3.2%</td>
<td>3.1%</td>
<td>3.2%</td>
<td>3.5%</td>
</tr>
</tbody>
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The Job Openings & Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics indicated that the job openings rate fell back in November to 2.4%, the average for 3Q. The job openings rate is the number of job openings on the [...]

JOLTS: Job Openings Down But Hires Up in the US

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124b.jpg" width="353">
The Job Openings &amp; Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics indicated that the job openings rate fell back in November to 2.4%, the average for 3Q. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The total number of job openings in November fell a sharp 6.3% m/m (+8.5% y/y) and reversed about all of the gains during the prior two months.
The latest hires rate rose sharply to 3.6%, the highest level since early 2001. The hires rate is the number of hires during the month divided by employment.
Job separations rose a hefty 7.9% versus last year but fell slightly m/m to 4.098 million. The separation rate was unchanged at 3.2%. Total separations include quits, layoffs, discharges, and other separations including retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
From the U.S. Department of Labor, a description of the Jolts survey and the latest release is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124a.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124c.jpg" width="353">

<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/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Job Openings Rate: Total</td>
<td>2.4%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.6%</td>
<td>3.4%</td>
<td>3.2%</td>
<td>3.1%</td>
<td>3.2%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>
ECRI U.S. Leading Index Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 24, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050124d.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose sharply in the latest week due to lower initial jobless claims and rising mortgage applications. Six month growth in the index held at -0.1% versus lows of -1.5% this past Fall.
Past recessions in the US economy were signaled by negative growth in the ECRI Leading Index in the -5 to -10% range. During the last ten years there has been a 69% correlation between the six-month growth in the ECRI leading index of the US economy and two quarter growth in real GDP.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The ECRI Leading Index&#39;s recent pattern generally mirrors the Conference Board&#39;s Index of Leading Economic Indicators, with a slight lead. Construction of the ECRI Leading Index differs from the Conference Board Index but there has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
The latest from ECRI is available <a href="http://www.businesscycle.com/">here</a>.
&quot;Slower Growth&quot; by John H. Makin is an Economic Outlook publication from the American Enterprise Institute and can be found <a href="http://www.aei.org/docLib/20050121_EOfebg.pdf"> here</a>.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM">ECRI Leading Index</a></th>
<th scope="col">01/14/05</th>
<th scope="col">01/07/05</th>
<th scope="col">Growth Rate</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">Weekly</td>
<td>133.3</td>
<td>132.2</td>
<td>-0.1%</td>
<td>6.2%</td>
<td>4.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Dec</td>
<td>Nov</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>133.2</td>
<td>132.5</td>
<td>1.0%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
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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/050121d.jpg" width="353">
French consumer spending stabilized in December after a bounce in November. The November gain contributed to a surge in the 2004 overall result to 4.4% growth over 2003, making it the strongest yearly performance since 1999.
Durable goods, particularly consumer electronics, led the spending surge. Although these outlays fell in December by 0.3%, they still were 11.1% above December 2003 and expanded for 2004 as a whole by 8.5% over 2003. Furniture was the other durable item contributing to the gain; it rose 3.5% in the year, the largest since 1989 and the second largest in the 20-year history of these data. Among nondurable goods, clothing and other textile outlays were up 10.3% in December from a year ago; their yearly total was only 1.6% higher than in 2003, but this was also a relatively strong performance for this particular item. Other nondurable goods were up 2.2%, better than the two prior years, but not especially vigorous for this spending.
The gain in consumer spending over 2004 isn&#39;t easy to explain. Employment in France declined modestly through the third quarter and labor compensation had a tepid rise. Slower inflation might have helped, as indicated in the graph, which shows year-to-year percent changes in consumption of manufactured goods and the CPI for those items. The correlation is rough, but at -52%, this might suggest that the virtual absence of inflation in manufactured goods has helped support consumer demand for them.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Changes</th>
<th scope="col">Dec 2004</th>
<th scope="col">Nov 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">Household Consumption of Manufactured Goods</td>
<td>0.2</td>
<td>1.5</td>
<td>6.6</td>
<td>4.4</td>
<td>0.7</td>
<td>0.9</td>
</tr>
<tr>
<td class="firstcol">Durable Goods</td>
<td>-0.3</td>
<td>3.4</td>
<td>11.1</td>
<td>8.5</td>
<td>0.6</td>
<td>0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Textiles &amp; Leather</td>
<td>3.5</td>
<td>1.3</td>
<td>10.3</td>
<td>1.6</td>
<td>-0.5</td>
<td>0.0</td>
</tr>
<tr>
<td class="firstcol">Other Mfg Goods</td>
<td>-0.9</td>
<td>0.0</td>
<td>1.2</td>
<td>2.2</td>
<td>1.4</td>
<td>1.7</td>
</tr>
</tbody>
</table>
</body>
</html>

French consumer spending stabilized in December after a bounce in November. The November gain contributed to a surge in the 2004 overall result to 4.4% growth over 2003, making it the strongest yearly performance since 1999. Durable [...]

French Consumers' 2004 Spending on Manufactured Goods Strongest in 5 Years

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in January fell to 95.8 versus Consensus expectations for little change m/m at 97.5. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations slumped 5.0% m/m and reversed nearly all of a 6.7% jump in December. The decline in expectations was to the lowest level since last May.
The reading of current conditions improved for the fourth consecutive month to the highest level since late 2000. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment.
Sentiment amongst families earning less than $50,000 per year reversed most of the surge in December (+5.3% y/y. Consumer sentiment amongst families earning more than $50,000 per year rose moderately (-8.9% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
This 2003 article from the Federal Reserve Bank of Richmond examines &quot;<a href="http://www.rich.frb.org/pubs/economic_quarterly/pdfs/fall2003/mehra.pdf">Why Does Consumer Sentiment Predict Household Spending?</a>&quot;

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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">Consumer Sentiment</td>
<td>95.8</td>
<td>97.1</td>
<td>-7.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>106.7</td>
<td>0.8%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>86.4</td>
<td>90.0</td>
<td>-13.7%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
</body>
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The University of Michigan's preliminary reading of consumer sentiment in January fell to 95.8 versus Consensus expectations for little change m/m at 97.5. During the last ten years there has been a 74% correlation between the level [...]

Lower Expectations Dropped U.S. Consumer Sentiment in January

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121a.jpg" width="353">
The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading of 25.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Lower readings for new orders and shipments were notable, both falling to the lowest levels in over a year. Conversely, the index for the number of employees improved moderately to the highest level since September.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months also fell sharply to the lowest level since March 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121b.jpg" width="353">
The prices paid index more than reversed the prior month&#39;s decline and rose to the highest level since 1980. During the last ten years there has been a 74% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 47% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0105.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>13.2</td>
<td>25.4</td>
<td>35.5</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>66.1</td>
<td>53.8</td>
<td>36.9</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
</body>
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The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading [...]

Philadelphia Fed Activity Index Fell Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121a.jpg" width="353">
The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading of 25.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Lower readings for new orders and shipments were notable, both falling to the lowest levels in over a year. Conversely, the index for the number of employees improved moderately to the highest level since September.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months also fell sharply to the lowest level since March 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121b.jpg" width="353">
The prices paid index more than reversed the prior month&#39;s decline and rose to the highest level since 1980. During the last ten years there has been a 74% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 47% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0105.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>13.2</td>
<td>25.4</td>
<td>35.5</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>66.1</td>
<td>53.8</td>
<td>36.9</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
Lower Expectations Dropped U.S. Consumer Sentiment in January 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in January fell to 95.8 versus Consensus expectations for little change m/m at 97.5. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations slumped 5.0% m/m and reversed nearly all of a 6.7% jump in December. The decline in expectations was to the lowest level since last May.
The reading of current conditions improved for the fourth consecutive month to the highest level since late 2000. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment.
Sentiment amongst families earning less than $50,000 per year reversed most of the surge in December (+5.3% y/y. Consumer sentiment amongst families earning more than $50,000 per year rose moderately (-8.9% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
This 2003 article from the Federal Reserve Bank of Richmond examines &quot;<a href="http://www.rich.frb.org/pubs/economic_quarterly/pdfs/fall2003/mehra.pdf">Why Does Consumer Sentiment Predict Household Spending?</a>&quot;

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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">Consumer Sentiment</td>
<td>95.8</td>
<td>97.1</td>
<td>-7.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>106.7</td>
<td>0.8%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>86.4</td>
<td>90.0</td>
<td>-13.7%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
</body>
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USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

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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

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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250430G5.jpg

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

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

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

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

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

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

Economy in Brief: January 2005

Jump to:

New Orders for Manufacturing in Central and Eastern Europe Outpace Those in Western Europe

ECRI U.S. Leading Index Higher

JOLTS: Job Openings Down But Hires Up in the US

JOLTS: Job Openings Down But Hires Up in the US

French Consumers' 2004 Spending on Manufactured Goods Strongest in 5 Years

Lower Expectations Dropped U.S. Consumer Sentiment in January

Philadelphia Fed Activity Index Fell Sharply

Philadelphia Fed Activity Index Fell Sharply