Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060125d.jpg" width="353">
The total number of mortgage applications rose 7.7% last week for the third consecutive weekly gain. For the month of January mortgage applications are 5.1% higher than during December.
The effective interest rate on a conventional 30-year mortgage dipped to 6.29%, down for the seventh straight week versus an average 6.48% in December and a high November average of 6.52%. The effective rate on a 15-year mortgage increased slightly to 5.95%. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
Higher applications to refinance again led the week&#39;s rise with a 7.8% increase which lifted the level of refis this month 15.8% above December.
Purchase applications recovered all of the prior week&#39;s decline with a 6.7% increase that pulled purchase applications in January 0.6% ahead of the December average.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales
The 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">01/20/06</th>
<th scope="col">01/13/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
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<td class="firstcol">Total Market Index</td>
<td>660.5</td>
<td>613.3</td>
<td>0.4%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>473.7</td>
<td>443.9</td>
<td>7.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,773.9</td>
<td>1,645.2</td>
<td>-8.2%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
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The total number of mortgage applications rose 7.7% last week for the third consecutive weekly gain. For the month of January mortgage applications are 5.1% higher than during December. The effective interest rate on a conventional [...]

Mortgage Applications Up As Interest Rates Remain Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060125a.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index remained stable, but depressed, in January at 57; the lowest level since April 2003.
During the last twenty years the y/y change in the annual composite index has had an 85% correlation with the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.
The January index for current sales of single family homes fell further to 62, down 20% from the January &#39;05 level of 77 though the index for sales in six months remained for the third month at 65versus an average of 75 during all of last year
Traffic of prospective home buyers remained quite depressed at an index level of 40, the lowest level since April 2003.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">&nbsp;Jan &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Composite Housing Market Index</td>
<td>57</td>
<td>57</td>
<td>70</td>
<td>67</td>
<td>68</td>
<td>64</td>
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The National Association of Home Builders' (NAHB) Composite Housing Market Index remained stable, but depressed, in January at 57; the lowest level since April 2003. During the last twenty years the y/y change in the annual composite [...]

NAHB Housing Market Index Stable at Low Level

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060125e.jpg" width="353">
 According to the National Association of Realtors, total existing home sales fell 5.7% m/m to 6.600M (AR) in December from November which was revised down slightly. Consensus expectations for sales last month had been for a lesser decline to 6.90M. 
The decline was third in as many months and lowered sales to a level 10.2% below the June peak. Nevertheless, sales of existing homes set a record last year at 7.049M, up 4.9% year to year.
Sales of single-family homes dropped a sharp 6.8% to 5.73M. This third consecutive monthly decline left sales 10.5% below the June peak. Annual sales last year of 6.157M (4.1%) set a new record. Lower sales of condos &amp; co-ops rose 2.3% (4.8% y/y) in December.
The data cover sales closed in the latest and previous months, and contrast to the new home sales data which count sales at the signing of a contract. 
December single family home sales fell throughout the country. Sales in the West broke 11.1% lower (-11.7% y/y), 19.0% off the June peak but for the year up 3.0%. Sales in the Northeast sales dropped 2.5% (-6.1% y/y), 11.5% below the June peak. In the South, sales fell 7.5% (+1.3% y/y) and in the Midwest, single family sales were down for the fifth month in the last six. The 3.6% (-4.3% y/y) decline was to a level 10.8% below the August peak.
The median price of an existing single-family home dropped for the third month from the peak in August. Despite the 1.8% decline to $209,300 (+10.8% y/y), prices for the full year rose 12.8%. Prices are not seasonally adjusted.
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Total Home Sales</td>
<td>6,600</td>
<td>7,000</td>
<td>-3.1%</td>
<td>7,049</td>
<td>6,723</td>
<td>6,170</td>
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<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>5,720</td>
<td>6,140</td>
<td>-4.2%</td>
<td>6,157</td>
<td>5,913</td>
<td>5,441</td>
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<td class="firstcol">Single Family Median Home Price ($,000) </td>
<td>$209.3 </td>
<td>$213.1 </td>
<td>10.8% </td>
<td>$206.3</td>
<td>$182.8 </td>
<td>$169.1 </td>
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</tbody>
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According to the National Association of Realtors, total existing home sales fell 5.7% m/m to 6.600M (AR) in December from November which was revised down slightly. Consensus expectations for sales last month had been for a lesser [...]

U.S. Existing Home Sales Fell A Third Month

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/070124f.jpg" width="353">
GDP in the UK gained 0.8% in Q4, the largest quarterly increase in 2-1/2 years, according to preliminary data reported today by the Office for National Statistics. The pick-up from 0.7% in Q3 occurred in the services sector. Contrary to at least one press report, this did not happen in the financial industries. Instead it was in old-line, traditional activities, including wholesale and retail trade, hotels and restaurants, and transportation and communications; these surged from marginal increases in Q3 to 1.4-1.8% in Q4. Finance and business services were hardly slow, at 1.0% growth in Q4, but they had been stronger at 1.3-1.4% earlier in the year.
Manufacturing had three firm quarter running, but came to a dead halt in Q4, with virtually no change at all. Even so, this put Q4/Q4 at 2.3%, the strongest since 1999. The mining sector (which includes oil production) stabilized after two quarters of steep decline, while utility output continued to contract. In fact, electricity, gas and water supply fell 5.2% Q4/Q4 and 3.2% for 2006 as a whole, the weakest performance since the massive coal miners&#39; strike in 1984.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124h.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124g.jpg" width="353">

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<th scope="col" class="firstcol">UK GDP&nbsp;SA, % Changes</th>
<th scope="col">Q4 2006 &quot;Prel&quot;&nbsp;</th>
<th scope="col">Q3 2006&nbsp;</th>
<th scope="col">Q2 2006</th>
<th scope="col">Year/Year</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">GDP</td>
<td>0.8</td>
<td>0.7</td>
<td>0.7</td>
<td>3.0</td>
<td>2.7</td>
<td>2.0</td>
<td>3.2</td>
<td>2.6</td>
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<td class="firstcol">Manufacturing </td>
<td>0.0</td>
<td>0.6</td>
<td>0.9</td>
<td>2.3</td>
<td>1.2</td>
<td>-1.1</td>
<td>2.0</td>
<td>0.2</td>
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<td class="firstcol">Mining inc Oil Extraction</td>
<td>-0.1</td>
<td>-3.8</td>
<td>-3.7</td>
<td>-7.6</td>
<td>-8.0</td>
<td>-8.7</td>
<td>-7.9</td>
<td>-5.1</td>
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<td class="firstcol">Electricity, Gas &amp; Water Supply</td>
<td>-2.3</td>
<td>-0.2</td>
<td>-2.7</td>
<td>-5.2</td>
<td>-3.2</td>
<td>0.3</td>
<td>1.2</td>
<td>1.6</td>
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<tr class="odd">
<td class="firstcol">Services</td>
<td>1.0</td>
<td>0.8</td>
<td>1.0</td>
<td>3.6</td>
<td>3.7</td>
<td>2.9</td>
<td>3.9</td>
<td>3.1</td>
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GDP in the UK gained 0.8% in Q4, the largest quarterly increase in 2-1/2 years, according to preliminary data reported today by the Office for National Statistics. The pick-up from 0.7% in Q3 occurred in the services sector. Contrary [...]

UK GDP Rises 0.8% in Q4: A Brief Summary

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124e.jpg" width="353">
Sweden&#39;s labor market conditions were favorable during 2006, with growth in employment and declining unemployment. The December labor force survey, reported today by Statistics Sweden, shows growth in the labor force of 1.1% year/year and growth in employment of 1.9%. The unemployment rate was 4.6%, the fourth consecutive month below 5% and down markedly from 5.4% in December 2005.
For the year as a whole, employment expanded by 2.0%, the best performance since before dot.com-related recessionary conditions struck Sweden in late 2001. The employment rate was 74.3%, up from 73.7% in December 2005 and the highest December since 2001.
Sweden&#39;s labor force data were harmonized with the rest of the EU beginning in April 2005. Earlier data were not restated. So historical comparisons are a bit tenuous. Even so, the growth in employment is a genuine and positive development for the nation&#39;s economy and its people.

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<th scope="col" class="firstcol">SWEDEN: NSA (000s)</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Dec 2005*</th>
<th scope="col">2006</th>
<th scope="col">2005*</th>
<th scope="col">2004*</th>
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</thead>
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<td class="firstcol">Labor Force</td>
<td>4,556</td>
<td>4,568</td>
<td>4,508</td>
<td>4,586</td>
<td>4,517</td>
<td>4,459</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.1%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>0.2%</td>
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<tr class="odd">
<td class="firstcol">Employment</td>
<td>4,345</td>
<td>4,370</td>
<td>4,264</td>
<td>4,340</td>
<td>4,254</td>
<td>4,213</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>1.0%</td>
<td>-0.4%</td>
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<td class="firstcol">Unemployment Rate (%)</td>
<td>4.6%</td>
<td>4.3%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>5.8%</td>
<td>5.5%</td>
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Sweden's labor market conditions were favorable during 2006, with growth in employment and declining unemployment. The December labor force survey, reported today by Statistics Sweden, shows growth in the labor force of 1.1% year/year [...]

Sweden Employment Gain Best in 5 Years; Unemployment Holds Below 5%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124b.jpg" width="353">
The composite index of leading economic indicators increased 0.3% last month after a downwardly revised no change during November, according to the Conference Board. October&#39;s gain also was revised away to a minus 0.1%. Consensus expectations had been for a 0.2% gain during December.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The lagging indicators rose a firm 0.9% after an upwardly revised 0.6% increase during November. December&#39;s gain was the largest increase since January of last year. It was led by higher C&amp;I loans and a longer duration of unemployment. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, fell sharply to the lowest level since late 2000.
The breadth of one month gain amongst the 10 components of the leading index improved sharply to 70%, its best since March, but over the last six months only 40% of the component series rose.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124a.jpg" width="353">
Lower initial claims for unemployment insurance, higher building permits and higher stock prices made the largest contributions to last month&#39;s gain in the leading index.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.2% for the third straight month. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<td class="firstcol">Leading</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>7.1%</td>
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<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
</tbody>
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The composite index of leading economic indicators increased 0.3% last month after a downwardly revised no change during November, according to the Conference Board. October's gain also was revised away to a minus 0.1%. Consensus [...]

U.S. Leading Economic Indicators Rose, Signs of Excess Surfaced

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124b.jpg" width="353">
The composite index of leading economic indicators increased 0.3% last month after a downwardly revised no change during November, according to the Conference Board. October&#39;s gain also was revised away to a minus 0.1%. Consensus expectations had been for a 0.2% gain during December.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The lagging indicators rose a firm 0.9% after an upwardly revised 0.6% increase during November. December&#39;s gain was the largest increase since January of last year. It was led by higher C&amp;I loans and a longer duration of unemployment. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, fell sharply to the lowest level since late 2000.
The breadth of one month gain amongst the 10 components of the leading index improved sharply to 70%, its best since March, but over the last six months only 40% of the component series rose.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124a.jpg" width="353">
Lower initial claims for unemployment insurance, higher building permits and higher stock prices made the largest contributions to last month&#39;s gain in the leading index.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.2% for the third straight month. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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</thead>
<tbody>
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<td class="firstcol">Leading</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
Mortgage Applications Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124d.jpg" width="353">
The total number of mortgage applications fell a sharp 8.4% last week, after a slight decline the prior week according to the Mortgage Bankers Association.
Purchase applications slumped 8.4% after the prior period&#39;s sharp 7.0% fall. Nevertheless, as a result of a 16.2% surge at the beginning of January, the average level of purchase applications this month is up 3.2% from December which rose 4.7%.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance also fell a sharp 9.6%. Applications to refinance in January are 2.0% above the December average which was unchanged from November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124c.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose w/w to 6.41% to the highest level this year and compared to the December average of 6.28%. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing also rose to 6.19%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
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 covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">01/19/07</th>
<th scope="col">01/12/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>611.3</td>
<td>667.2</td>
<td>-7.4%</td>
<td>584.2</td>
<td>708.6</td>
<td>735.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>402.7</td>
<td>439.7</td>
<td>-15.0%</td>
<td>406.9</td>
<td>470.9</td>
<td>454.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,848.8</td>
<td>2,045.8</td>
<td>4.2%</td>
<td>1,634.0</td>
<td>2,092.3</td>
<td>2,366.8</td>
</tr>
</tbody>
</table>
Sweden Employment Gain Best in 5 Years; Unemployment Holds Below 5% 
by <a href="/comment/Stone.html">Carol Stone</a> January 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124e.jpg" width="353">
Sweden&#39;s labor market conditions were favorable during 2006, with growth in employment and declining unemployment. The December labor force survey, reported today by Statistics Sweden, shows growth in the labor force of 1.1% year/year and growth in employment of 1.9%. The unemployment rate was 4.6%, the fourth consecutive month below 5% and down markedly from 5.4% in December 2005.
For the year as a whole, employment expanded by 2.0%, the best performance since before dot.com-related recessionary conditions struck Sweden in late 2001. The employment rate was 74.3%, up from 73.7% in December 2005 and the highest December since 2001.
Sweden&#39;s labor force data were harmonized with the rest of the EU beginning in April 2005. Earlier data were not restated. So historical comparisons are a bit tenuous. Even so, the growth in employment is a genuine and positive development for the nation&#39;s economy and its people.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">SWEDEN: NSA (000s)</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Dec 2005*</th>
<th scope="col">2006</th>
<th scope="col">2005*</th>
<th scope="col">2004*</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Labor Force</td>
<td>4,556</td>
<td>4,568</td>
<td>4,508</td>
<td>4,586</td>
<td>4,517</td>
<td>4,459</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.1%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>4,345</td>
<td>4,370</td>
<td>4,264</td>
<td>4,340</td>
<td>4,254</td>
<td>4,213</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>1.0%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.6%</td>
<td>4.3%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>5.8%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
UK GDP Rises 0.8% in Q4: A Brief Summary 
by <a href="/comment/Stone.html">Carol Stone</a> January 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124f.jpg" width="353">
GDP in the UK gained 0.8% in Q4, the largest quarterly increase in 2-1/2 years, according to preliminary data reported today by the Office for National Statistics. The pick-up from 0.7% in Q3 occurred in the services sector. Contrary to at least one press report, this did not happen in the financial industries. Instead it was in old-line, traditional activities, including wholesale and retail trade, hotels and restaurants, and transportation and communications; these surged from marginal increases in Q3 to 1.4-1.8% in Q4. Finance and business services were hardly slow, at 1.0% growth in Q4, but they had been stronger at 1.3-1.4% earlier in the year.
Manufacturing had three firm quarter running, but came to a dead halt in Q4, with virtually no change at all. Even so, this put Q4/Q4 at 2.3%, the strongest since 1999. The mining sector (which includes oil production) stabilized after two quarters of steep decline, while utility output continued to contract. In fact, electricity, gas and water supply fell 5.2% Q4/Q4 and 3.2% for 2006 as a whole, the weakest performance since the massive coal miners&#39; strike in 1984. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124g.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK GDP&nbsp;SA, % Changes</th>
<th scope="col">Q4 2006 &quot;Prel&quot;&nbsp;</th>
<th scope="col">Q3 2006&nbsp;</th>
<th scope="col">Q2 2006</th>
<th scope="col">Year/Year</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>0.8</td>
<td>0.7</td>
<td>0.7</td>
<td>3.0</td>
<td>2.7</td>
<td>2.0</td>
<td>3.2</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Manufacturing </td>
<td>0.0</td>
<td>0.6</td>
<td>0.9</td>
<td>2.3</td>
<td>1.2</td>
<td>-1.1</td>
<td>2.0</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining inc Oil Extraction</td>
<td>-0.1</td>
<td>-3.8</td>
<td>-3.7</td>
<td>-7.6</td>
<td>-8.0</td>
<td>-8.7</td>
<td>-7.9</td>
<td>-5.1</td>
</tr>
<tr>
<td class="firstcol">Electricity, Gas &amp; Water Supply</td>
<td>-2.3</td>
<td>-0.2</td>
<td>-2.7</td>
<td>-5.2</td>
<td>-3.2</td>
<td>0.3</td>
<td>1.2</td>
<td>1.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.0</td>
<td>0.8</td>
<td>1.0</td>
<td>3.6</td>
<td>3.7</td>
<td>2.9</td>
<td>3.9</td>
<td>3.1</td>
</tr>
</tbody>
</table>
</body>
</html>

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.

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tariff Truce, Tenuous Trust

250501J5.jpg

250501K5.jpg

The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

250501L5.jpg

250501M5.jpg

- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

U.S. ISM Manufacturing Index Indicates Contraction in April

250501A8.jpg

250501B8.jpg

Initial claims for unemployment insurance rose 18,000 in the week ended April 26 to 241,000, seasonally adjusted.  This is higher by 16,000 than the Action Economics Forecast Survey amount of 225,000 and is the largest amount since the week of February 22. The previous week’s actual count was revised up by 1,000, from 223,000 reported initially.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended April 19 was 1.916 million, up 83,000 from the prior week’s 1.833 million; that earlier amount was revised down by 8,000.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, was 1.3% in the April 19 week, following 1.2% continuously since the week of January 6, 2024.

Economic conditions vary widely across states and territories.  In the week ended April 12, the highest unemployment rates were in New Jersey (2.39%), California (2.24%), Washington (2.19%), Rhode Island (2.17%) and Massachusetts (1.93%).  The lowest rates were in Florida (0.35%), South Dakota (0.40%), Alabama (0.41%), Virginia (0.45%) and Tennessee (0.48%).  Rates in other notable states include the Illinois (1.85%), New York (1.71%), Pennsylvania (1.54%) and Texas (1.09%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in U**SECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

250501C8.jpg

250501D8.jpg

- Actual initial claims amount is 16,000 more than forecast.
- Total beneficiaries rose by 83,000.
- Insured unemployment rate ticked up to 1.3% after 15 months at 1.2%.

U.S. Initial Jobless Claims Rise Notably in April 28 Week

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

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

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

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

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

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

Economy in Brief: January 2006

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