Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080125a.jpg" align="left" border="0" height="265" width="353">
During December the number of mass layoff events rose another
7.8%, according to BLS data, and that countered a 1.3% November
decline.These specific layoff incidents are called "mass layoffs"
because they involve 50 or more initial claims for unemployment
insurance.
The December gain left the number of mass layoff events, up
20% since December '06, at the highest level since January of 2005. For
all of last year, mass layoff events rose 10.1% from 2006, reversing
all of that year's 11.7% decline.
The December increase was accompanied by a 1.5% m/m gain in
initial claims for unemployment insurance. Versus December of 2006
claims rose 8.2% versus the prior December. For the full year the
number of claims rose 6.7%. That offset about half of the 2006 decline.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080125b.jpg" align="right" border="0" height="265" width="353">
For all of last year the rise in mass layoff events was led by
a 26.3% jump in the construction industry which offset all of 21.7%
decline during 2006. Events in the factory sector rose 8.5% after an
11.5% '06 decline as layoffs in transportation industries rose 15.5%,
22.7% in furniture and 22.3% in primary metals.
Mass layoff events amongst industries in the service sector
were scattered with a 64.5% rise in finance &amp; insurance, a 5.8%
gain retail trade and a 19.3% advance in the professional scientific
&amp; technical businesses. In the government sector mass layoff
events rose but only by 2.5%. That offset just a piece of an 18.5%
decline during 2006. In the arts &amp; entertainment industries
events fell 2.0% which followed a 16.4% decline during the prior year.
These mass layoff data are contained in Haver's flagship
database, USECON. Data are also available by Census
regions, divisions and states, including some industry detail for each.
These are all carried in the REGIONAL database.
How Useful is Okun's Law? which examines
the relationship between GDP growth and unemployment, from
the Federal Reserve Bank of Kansas City, can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/4q07Knotek.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mass
Layoffs, SA</th>
<th scope="col">December</th>
<th scope="col">November </th>
<th scope="col">December
&#8216;06</th>
<th colspan="3" scope="col">Monthly
Averages </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="4"></td>
<td class="firstcol">2007</td>
<td>2006</td>
<td>2005</td>
</tr>
<tr>
<td class="firstcol">Number of Events</td>
<td>1,433</td>
<td>1,329</td>
<td>1,1940</td>
<td>1,269</td>
<td>1,152</td>
<td>1,305</td>
</tr>
<tr>
<td class="firstcol">Initial Claims 
&nbsp; (Number Persons)</td>
<td>127,897</td>
<td>118,414</td>
<td>123,558</td>
<td>129,808</td>
<td>121,609</td>
<td>143,402</td>
</tr>
</tbody>
</table>
</body></html>

During December the number of mass layoff events rose another 7.8%, according to BLS data, and that countered a 1.3% November decline.These specific layoff incidents are called "mass layoffs" because they involve 50 or more initial [...]

Mass Layoffs Higher Still

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080125a.jpg" align="left" border="0" height="265" width="353">
During December the number of mass layoff events rose another
7.8%, according to BLS data, and that countered a 1.3% November
decline.These specific layoff incidents are called "mass layoffs"
because they involve 50 or more initial claims for unemployment
insurance.
The December gain left the number of mass layoff events, up
20% since December '06, at the highest level since January of 2005. For
all of last year, mass layoff events rose 10.1% from 2006, reversing
all of that year's 11.7% decline.
The December increase was accompanied by a 1.5% m/m gain in
initial claims for unemployment insurance. Versus December of 2006
claims rose 8.2% versus the prior December. For the full year the
number of claims rose 6.7%. That offset about half of the 2006 decline.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080125b.jpg" align="right" border="0" height="265" width="353">
For all of last year the rise in mass layoff events was led by
a 26.3% jump in the construction industry which offset all of 21.7%
decline during 2006. Events in the factory sector rose 8.5% after an
11.5% '06 decline as layoffs in transportation industries rose 15.5%,
22.7% in furniture and 22.3% in primary metals.
Mass layoff events amongst industries in the service sector
were scattered with a 64.5% rise in finance &amp; insurance, a 5.8%
gain retail trade and a 19.3% advance in the professional scientific
&amp; technical businesses. In the government sector mass layoff
events rose but only by 2.5%. That offset just a piece of an 18.5%
decline during 2006. In the arts &amp; entertainment industries
events fell 2.0% which followed a 16.4% decline during the prior year.
These mass layoff data are contained in Haver's flagship
database, USECON. Data are also available by Census
regions, divisions and states, including some industry detail for each.
These are all carried in the REGIONAL database.
How Useful is Okun's Law? which examines
the relationship between GDP growth and unemployment, from
the Federal Reserve Bank of Kansas City, can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/4q07Knotek.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Mass
Layoffs, SA</th>
<th scope="col">December</th>
<th scope="col">November </th>
<th scope="col">December
&#8216;06</th>
<th colspan="3" scope="col">Monthly
Averages </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="4"></td>
<td class="firstcol">2007</td>
<td>2006</td>
<td>2005</td>
</tr>
<tr>
<td class="firstcol">Number of Events</td>
<td>1,433</td>
<td>1,329</td>
<td>1,1940</td>
<td>1,269</td>
<td>1,152</td>
<td>1,305</td>
</tr>
<tr>
<td class="firstcol">Initial Claims 
&nbsp; (Number Persons)</td>
<td>127,897</td>
<td>118,414</td>
<td>123,558</td>
<td>129,808</td>
<td>121,609</td>
<td>143,402</td>
</tr>
</tbody>
</table>
Excluding Energy, Trends
areTurning in Germany 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 25, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080125c.jpg" align="left" border="0" height="265" width="353">
German import prices surged by 0.5%. But strip out energy and
the rise is reduced to 0.1%; export prices excluding energy are flat,
too. Year-over-year import prices excluding energy are up by 0.1%;
export prices on that basis are up by 1.0%. The CPI ex energy is close
to the ECB 2% ceiling at 2.1% and the PPI ex-energy is up by 2.2%, both
over 12 months. Despite some spiking inflation early in the year and in
mid-2006 even for ex energy prices inflation has settled down in the
Germany ex-energy economy. 
 

Still, the ECB is not an Ex-energy or Core inflation targeting
central bank. The ECB speaks in terms of headline inflation and in
Germany that is still hot; in the Euro area it is hotter still. The ECB
is also wary of what has been excessive growth in money and in credit.
But the ex energy price indices are a strong indication that true
inflation is not brewing in the monetary union. Energy prices have been
boosted strongly but those effects have not spread. What the ECB and
the Bundesbank are now worried about is contagion via wage deals that
are being negotiated and where workers seem to be thinking in terms of
headline inflation, which is the rate that most affects them. So wage
restraint is the ECB&#8217;s main reason to keep policy tight, and to keep
warm the rhetoric about needing to cool inflation. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> German
International and Domestic Inflation Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">SA</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Export Prices</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>0.6%</td>
<td>1.3%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Import Prices</td>
<td>0.5%</td>
<td>1.1%</td>
<td>1.0%</td>
<td>10.8%</td>
<td>3.9%</td>
<td>3.8%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">NSA</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Exports excl Petrol</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>1.0%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Imports excl Petrol</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>-1.2%</td>
<td>0.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: SA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">CPI</td>
<td>-0.3%</td>
<td>0.6%</td>
<td>0.3%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">CPI excl energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td>0.0%</td>
<td>0.9%</td>
<td>0.3%</td>
<td>5.1%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">PPI excl energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.4%</td>
<td>1.6%</td>
<td>2.2%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Oil on Import Prices</td>
<td>0.4%</td>
<td>1.5%</td>
<td>0.6%</td>
<td>10.4%</td>
<td>5.1%</td>
<td>3.7%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
French Biz Confidence Hovers Just
Short of Recent Highs 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 25, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080125d.jpg" align="left" border="0" height="265" width="353">
France&#8217;s business climate indicator is steady this month at
109; over 12 months the index is rising at a steady 2.8% annual rate.
Still there is no sign of advance in the index since March of 2007 when
it has hovered between 108 and 111, which is the recent cycle high. At
109 the index is well above its average of 100. Still its components
are showing more signs of softening. Placed in their respective ranges
since 1990 the overall index stands in the top 30% in the seventy
second percentile. The recent trend for industry at a raw reading of -5
is at the 52nd percentile level of range. The likely trend at 47 is in
the 83rd percentile of its range or in the top 20% of it. French
industrialists think the trend is going to improve significantly.
Orders and demand stand in the top 30% of their range while foreign
orders and demand are in the top third of their range. The likely price
trend for sales is a borderline top 25% reading. The recent trend
readings have deteriorated since October. Even so the likely trend
reading has improved. The assessment of demand, both foreign and total,
has eased but sporadically. On balance, for such a strong-seeming
reading on the overall index, French industry has had some concerns
lately. The main prop to the index is apparently expectations that
conditions are about to improve. It&#8217;s hard to tell what that might be
based on, given all the challenges to markets and policy. But it is
there, embedded in the survey responses, nonetheless. 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">INSEE
Industry Survey </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Climate</td>
<td>109</td>
<td>109</td>
<td>110</td>
<td>108</td>
<td>72.0</td>
<td>48</td>
<td>123</td>
<td>73</td>
<td>50</td>
<td>101</td>
</tr>
<tr class="odd">
<td class="firstcol">Production</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Recent Trend</td>
<td>-5</td>
<td>4</td>
<td>3</td>
<td>10</td>
<td>52.0</td>
<td>109</td>
<td>44</td>
<td>-58</td>
<td>102</td>
<td>-5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Likely trend</td>
<td>47</td>
<td>44</td>
<td>43</td>
<td>34</td>
<td>83.3</td>
<td>4</td>
<td>63</td>
<td>-33</td>
<td>96</td>
<td>8</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="11">Orders/Demand</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Orders &amp;
Demand</td>
<td>1</td>
<td>1</td>
<td>4</td>
<td>-1</td>
<td>72.4</td>
<td>41</td>
<td>25</td>
<td>-62</td>
<td>87</td>
<td>-14</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Orders
&amp; Demand</td>
<td>1</td>
<td>6</td>
<td>4</td>
<td>3</td>
<td>66.3</td>
<td>68</td>
<td>31</td>
<td>-58</td>
<td>89</td>
<td>-10</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Likely Sales Prices
Trend</td>
<td>12</td>
<td>12</td>
<td>10</td>
<td>9</td>
<td>74.5</td>
<td>24</td>
<td>24</td>
<td>-23</td>
<td>47</td>
<td>1</td>
</tr>
</tbody>
</table>
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Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124h.jpg" align="left" border="0" height="265" width="353">
Italy shivers while the Euro Area overheats: What good can
come of this? 
 

Not only is PM Prodi having a difficult time, but so is the
Italian consumer. Whatever fate awaits Prodi, the consumer is already
giving a vote of no-confidence to it. This is despite some resilient
data from elsewhere in the Euro Area. The German IFO index actually
rose in January. The ECB is thinking of hiking rates according to some
of the day&#8217;s commentary. If you are an Italian consumer however, you
must wonder if the world has gone mad. The Euro Area may be coming into
one of its really big tests. Inflation has run hotter in some EMU
countries than in others. But because of the single currency there has
been no relief for competitiveness. There is no local currency to
depreciate. Italy is one of those regions. 
 

Since all EMU countries are pent up in the same currency area,
what will affect competitiveness within the Zone, as well as between
the Zone and other areas that is nationally different, is the local
inflation rate, as well as any productivity differences. The small
table below shows that since March of 2000 Finland is the most
competitive EMU nation with a national price index that is some 7.2%
below the EMU average for that period. Germany is next at -4.2%. Italy
ranks as seventh worst among the 12 countries ranked here with a price
level that is 1.2 percentage points ABOVE the EMU average. That would
make Italy some 5.4% less competitive than Germany for the period and
8.4% behind Finland. Ranking below Italy is The Netherlands,
Luxembourg, Portugal, Ireland, Spain and Greece. 
 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="4" scope="col">Is the
Italian Consumer an Example of&#8230;Trouble in the Zone? </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol"> HICP</td>
<td> March 2000</td>
<td> High to Low</td>
<td> Gap</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Sep-07</td>
<td>Rank</td>
<td>W/EMU</td>
</tr>
<tr class="grey2">
<td class="firstcol">Austria</td>
<td>16.5%</td>
<td>10</td>
<td style="color: red;"> -2.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Belgium</td>
<td>18.1%</td>
<td>8</td>
<td style="color: red;"> -1.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Finland</td>
<td>11.9%</td>
<td>12</td>
<td style="color: red;"> -7.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">France</td>
<td>17.1%</td>
<td>9</td>
<td style="color: red;"> -2.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Germany</td>
<td>14.9%</td>
<td>11</td>
<td style="color: red;"> -4.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Greece</td>
<td>30.2%</td>
<td>1</td>
<td>11.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Ireland</td>
<td>28.6%</td>
<td>3</td>
<td>9.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Italy</td>
<td>20.3%</td>
<td>7</td>
<td>1.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Luxembourg</td>
<td>25.3%</td>
<td>5</td>
<td>6.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">The Netherlands</td>
<td>21.1%</td>
<td>6</td>
<td>2.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Portugal</td>
<td>27.0%</td>
<td>4</td>
<td>8.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Spain</td>
<td>29.0%</td>
<td>2</td>
<td>9.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol"> EMU Total</td>
<td>19.1%</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
If Italy&#8217;s problems are due to that sort of competitiveness
loss we should also find encroaching weakness in those lower ranked
countries as well. 
 

For now, whatever the source, Italy&#8217;s consumers are feeling
the pinch. Confidence is in the bottom 20% of its range. The current
overall situation is in the bottom six percent of its range. The
expected overall situation in the next 12 months is the worst in this
period. And so on, see the percentile column in the table above. The
Italian household sees things as being bad, and as getting much worse.
It is no wonder Prodi is having trouble, and it will be a real test of
European unity to see what happens in Italy if the ECB goes ahead with
the rate hikes that the Bundesbank&#8217;s Weber was warning of today. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> Italy
ISAE Consumer Confidence </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="6">Since January 1999</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td> Dec 07</td>
<td> Nov 07</td>
<td> Oct 07</td>
<td> Sep 07</td>
<td>%tile</td>
<td> Rank</td>
<td> Max</td>
<td> Min</td>
<td> Range</td>
<td> Mean</td>
</tr>
<tr>
<td class="firstcol"> Consumer Confidence</td>
<td> 107</td>
<td> 107.6</td>
<td> 107.3</td>
<td> 107.3</td>
<td> 33.3</td>
<td> 63</td>
<td> 127</td>
<td> 97</td>
<td> 30</td>
<td> 111</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="11">
Last 12 months</td>
</tr>
<tr>
<td class="firstcol">OVERALL SITUATION</td>
<td>-69</td>
<td>-71</td>
<td>-67</td>
<td>-63</td>
<td>23.0</td>
<td>69</td>
<td>-22</td>
<td>-83</td>
<td>61</td>
<td>-55</td>
</tr>
<tr>
<td class="firstcol">PRICE TRENDS</td>
<td>-21.5</td>
<td>-24.5</td>
<td>-23.5</td>
<td>-26.5</td>
<td>29.6</td>
<td>61</td>
<td>4</td>
<td>-32</td>
<td>36</td>
<td>-16</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="11">
Next 12months</td>
</tr>
<tr>
<td class="firstcol">OVERALL SITUATION</td>
<td>-35</td>
<td>-35</td>
<td>-33</td>
<td>-30</td>
<td>0.0</td>
<td>99</td>
<td>24</td>
<td>-35</td>
<td>59</td>
<td>-13</td>
</tr>
<tr>
<td class="firstcol">PRICE TRENDS</td>
<td>28</td>
<td>25.5</td>
<td>26</td>
<td>31</td>
<td>50.0</td>
<td>40</td>
<td>49</td>
<td>7</td>
<td>42</td>
<td>23</td>
</tr>
<tr>
<td class="firstcol">UNEMPLOYMENT</td>
<td>4</td>
<td>3</td>
<td>2</td>
<td>-2</td>
<td>87.2</td>
<td>8</td>
<td>9</td>
<td>-30</td>
<td>39</td>
<td>-6</td>
</tr>
<tr>
<td class="firstcol">HOUSEHOLD BUDGET</td>
<td>9</td>
<td>6</td>
<td>6</td>
<td>5</td>
<td>29.4</td>
<td>60</td>
<td>33</td>
<td>-1</td>
<td>34</td>
<td>14</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="11">
HOUSEHOLD FIN
SITUATION</td>
</tr>
<tr>
<td class="firstcol">Last 12 months</td>
<td>-44</td>
<td>-43</td>
<td>-44</td>
<td>-39</td>
<td>7.5</td>
<td>95</td>
<td>-7</td>
<td>-47</td>
<td>40</td>
<td>-29</td>
</tr>
<tr>
<td class="firstcol">Next12 months</td>
<td>-14</td>
<td>-12</td>
<td>-14</td>
<td>-13</td>
<td>0.0</td>
<td>99</td>
<td>14</td>
<td>-14</td>
<td>28</td>
<td>-2</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="11">
HOUSEHOLD SAVINGS</td>
</tr>
<tr>
<td class="firstcol">Current</td>
<td>60</td>
<td>63</td>
<td>58</td>
<td>54</td>
<td>93.0</td>
<td>2</td>
<td>63</td>
<td>20</td>
<td>43</td>
<td>39</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>-37</td>
<td>-39</td>
<td>-42</td>
<td>-33</td>
<td>15.2</td>
<td>97</td>
<td>-9</td>
<td>-42</td>
<td>33</td>
<td>-24</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="11">
MAJOR Purchases</td>
</tr>
<tr>
<td class="firstcol">Current</td>
<td>-47</td>
<td>-48</td>
<td>-45</td>
<td>-42</td>
<td>23.8</td>
<td>60</td>
<td>-15</td>
<td>-57</td>
<td>42</td>
<td>-41</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>-61</td>
<td>-63</td>
<td>-66</td>
<td>-65</td>
<td>38.7</td>
<td>41</td>
<td>-42</td>
<td>-73</td>
<td>31</td>
<td>-62</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3">Total number of months:</td>
<td>100</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

Italy shivers while the Euro Area overheats: What good can come of this? Not only is PM Prodi having a difficult time, but so is the Italian consumer. Whatever fate awaits Prodi, the consumer is already giving a vote of no-confidence [...]

Italy’s Consumer Confidence Falls Well Below Past Recession-Start Levels

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124g.jpg" align="left" border="0" height="265" width="353">
Bounce raises the question of EMU-US de-coupling. 

Apparently Germans agree&#8230; They agree with the ECB that
weakness does not threaten Germany or Europe and they see better times
ahead as the IFO expectations index that looks six months into the
future rose enough to kick the climate index higher. No wonder Axel
Weber, Bundesbank president, was saying that markets do not understand
the ECB and are too driven by short-term horizons. Weber, in comments
today, hinted that the next ECB move could be to tighten, not to ease
as markets had expected just yesterday. 

These events raise the question of whether markets have
de-coupled or whether either Europe&#8217;s or the US central bankers are
just plain wrong about the outlook. Can Europe be so strong that it may
need to tighten if the US is as weak as all the fiscal and monetary
stimulus in train seem to expect? Or is Germany and the ECB simply
wrong in their outlook? Or is the Fed and Congress wrong and just too
wrapped up in the needs of US short-term presidential election year
politics? 

We can&#8217;t tell here and now, but time will tell. 

The respondents to the IFO survey did see somewhat weaker
current conditions, but not much weaker. At a value of 107.9 the
current index is still in the top quartile of its range. It slipped by
just 0.2 points in January, less than in December. It is still well
above its average value of 95.0. It is lower year/year by 4.2%, less
than the 6.2% drop registered on that basis in December. 

Business expectations improved by 0.8% in Germany. This
propelled the overall climate index up to 103.4 from 103.0 in December.
Expectations are still lower by 4.1% Yr/Yr less than the 4.3% drop
registered in December. But the IFO survey is hardly a report ringing
warning bells in the ears of the ECB. 

The overall EU index for Germany had already slowed its rate
of descent in December. Now the IFO actually has improved. We seem to
have a decoupling in progress if the actions of the ECB and the Fed are
each correct. The question is: are they? 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">IFO Survey: Germany </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td style="color: red;">-4.2%</td>
<td style="color: red;">-5.3%</td>
<td style="color: red;">-2.5%</td>
<td style="color: red;">-1.4%</td>
<td style="color: red;">-1.0%</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td style="color: red;">-4.3%</td>
<td style="color: red;">-6.2%</td>
<td style="color: red;">-3.2%</td>
<td style="color: red;">-2.1%</td>
<td style="color: red;">-1.3%</td>
<td>2.5%</td>
<td>2.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Biz Expectations</td>
<td style="color: red;">-4.1%</td>
<td style="color: red;">-4.3%</td>
<td style="color: red;">-2.0%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">-0.4%</td>
<td style="color: red;">-1.1%</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-1.3%</td>
</tr>
</tbody>
</table>
</body></html>

Bounce raises the question of EMU-US de-coupling. Apparently Germans agree… They agree with the ECB that weakness does not threaten Germany or Europe and they see better times ahead as the IFO expectations index that looks six months [...]

Germany’s IFO Index Bounces on Improved Expectations

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124f.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s exports show a withering trend as Japan&#8217;s imports
continue to rise at a brisk pace. Export and import price indexes,
however, show that export volumes are being maintained better than the
nominal figures tell us as export prices are falling and falling faster
than nominal exports are shrinking. Imports on the other hand are not
as strong as nominal figures show since prices are rising sharply.
While imports are up by 37% in the past three months from August to
November, import prices rose by less at 35.8% for October through
December. As a result Japan&#8217;s nominal trade figures give exactly the
opposite impression of what is going on.

Nominal imports are rising, while real imports are actually
slowing. On the export side nominal exports are falling, but export
volumes are in fact still expanding. Rising oil prices are creating a
misdirection in terms of import trends. For exports, the rise in the
yen accounts for the drop in export prices. The yen&#8217;s rise tends to
result in a reduction of yen export prices, as though exports are
denominated in foreign currency. Volume still seems to be rising, but
if this is a currency effect it could be a warning that profits for
exports are in for a set back. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Japan
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">in period level of % chg</td>
<td colspan="4">Average in period/or %
change</td>
</tr>
<tr class="odd">
<td class="firstcol">All data yen
basis</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3Mo Prev</td>
<td>6Mo Prev</td>
<td>12Mos Prev</td>
<td>12 mo Ago</td>
</tr>
<tr class="grey1">
<td class="firstcol">Balance on Goods</td>
<td>--</td>
<td>11,959</td>
<td>13,141</td>
<td>11,929</td>
<td>11,196</td>
<td>10,628</td>
<td>7,838</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td colspan="4">% saar</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports Goods %</td>
<td>0.9%</td>
<td>0.6%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>6.9%</td>
<td>9.6%</td>
<td>22.1%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles</td>
<td>2.5%</td>
<td>-3.9%</td>
<td>17.9%</td>
<td>-6.1%</td>
<td>11.3%</td>
<td>16.2%</td>
<td>40.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports Goods %</td>
<td>3.9%</td>
<td>3.6%</td>
<td>2.9%</td>
<td>35.8%</td>
<td>13.7%</td>
<td>11.4%</td>
<td>24.1%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles</td>
<td>-25.2%</td>
<td>-7.5%</td>
<td>9.8%</td>
<td>-84.4%</td>
<td>-53.1%</td>
<td>-27.4%</td>
<td>-23.3%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="4">Prices
in %, SAAR</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>12-Mos</td>
<td>12 mos Ago</td>
</tr>
<tr class="grey1">
<td class="firstcol">Export Prices</td>
<td>0.1%</td>
<td>-1.3%</td>
<td>0.7%</td>
<td>-5.3%</td>
<td>-10.4%</td>
<td>-1.8%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Import Prices</td>
<td>4.9%</td>
<td>0.7%</td>
<td>3.8%</td>
<td>37.2%</td>
<td>10.0%</td>
<td>12.6%</td>
<td>6.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Memo: Yen/$, AVG, Level</td>
<td>112.45</td>
<td>111.07</td>
<td>115.87</td>
<td>113.13</td>
<td>115.43</td>
<td>117.76</td>
<td>116.35</td>
</tr>
<tr>
<td class="firstcol">Memo Yen Percent ('-' is a fall)</td>
<td>-1.2%</td>
<td>4.1%</td>
<td>-0.7%</td>
<td>13.9%</td>
<td>16.0%</td>
<td>4.2%</td>
<td>1.0%</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s exports show a withering trend as Japan’s imports continue to rise at a brisk pace. Export and import price indexes, however, show that export volumes are being maintained better than the nominal figures tell us as export [...]

Japan’s Imports Hold Up As Exports Slow

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124c.jpg" width="353">
According to the National Association of Realtors, sales of existing single family homes slipped 2.0% during December after a very slight 0.7% uptick in November. The decline was to the lowest level since 1998 and since the sales peak in late 2005, sales were down by roughly one third. For the full year sales fell 13.0% on top of a 7.7% decline in 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124d.jpg" width="353">
Sales including condominiums fell 2.2% last month and ended the year down 22.0% from last December, down 12.8% for the full year.
By region, home sales in the Northeast fell 4.6% (-22.4% y/y) and for the full year were off 7.5% after the 6.9% 2006 drop. In the Midwest December sales fell 1.7%, 10.6% for the full year, while sales in the South ended the year with a 1.0% drop. Combined with a 2.0% fall in November overall sales in the South last year fell 13.0%. The worst of it came out West. The 2.1% December decline pulled sales for the year down 19.2% after a 16.2% drop during 2006. For the full year, sales of single family homes in the West was the lowest since 1998.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124e.jpg" width="353">
The median price of an existing single family home fell 0.4% (-6.5% y/y) in December. It was the fifth m/m decline in the last six months. It lowered prices for the full year 2.8% below the 2006 level, the first full year decline in the thirty five year history of the series. Since the peak early last year, home prices were off 9.9% in December.
Perspectives on Housing and the Economic Outlook from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/SpeechBio/HoenigPDF/SantaFe11-15-07.pdf">here</a>.
The latest Budget Outlook from the Congressional Budget Office is available <a href="http://www.cbo.gov/ftpdocs/89xx/doc8917/01-23-2008_BudgetOutlook.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Single Family Home Sales</th>
<th scope="col">December</th>
<th scope="col">y/y %</th>
<th scope="col">November</th>
<th scope="col">December &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>4,890</td>
<td>-22.0</td>
<td>5,000</td>
<td>6,270</td>
<td>5,679</td>
<td>6,510</td>
<td>7,075</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>830</td>
<td>-22.4</td>
<td>870</td>
<td>1,070</td>
<td>1,007</td>
<td>1,088</td>
<td>1,169</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,160</td>
<td>-20.5</td>
<td>1,180</td>
<td>1,160</td>
<td>1,334</td>
<td>1,492</td>
<td>1,588</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>1,970</td>
<td>-20.9</td>
<td>1,990</td>
<td>2,490</td>
<td>2,243</td>
<td>2,578</td>
<td>2,704</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>940</td>
<td>-24.8</td>
<td>960</td>
<td>1,250</td>
<td>1,094</td>
<td>1,353</td>
<td>1,616</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,310</td>
<td>-21.6</td>
<td>4,400</td>
<td>5,500</td>
<td>4,966</td>
<td>5,708</td>
<td>6,182</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Price, Total, $</td>
<td>206,500</td>
<td>-6.5</td>
<td>207,300</td>
<td>220,800</td>
<td>215,642</td>
<td>221,883</td>
<td>217,492</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the National Association of Realtors, sales of existing single family homes slipped 2.0% during December after a very slight 0.7% uptick in November. The decline was to the lowest level since 1998 and since the sales peak [...]

Existing Home Sales Lowest Since 1998, Prices Off 10% Since Peak

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124a.jpg" width="353">
Initial claims for jobless insurance remained unexpectedly low last week. A 1,000 w/w decline followed sharp declines during the prior three weeks which now have totaled 15.7% since the high one month ago. The latest level was the lowest since September.
Initially, this drop in claims was doubted as genuine due to the difficulties of seasonal adjustment during the Holiday season. Those difficulties suggested that claims would bounce up last week. Indeed, a rise to 320,000 had been the Consensus expectation. No special factors were sighted by the Labor Department as having influenced last week&#39;s figure.
The four week moving average of initial claims, a measure which smoothes out most of the series&#39; w/w volatility, fell sharply to 314,750 (+0.7% y/y). It was the lowest level since mid-October and may suggest that recent labor market weakening was not as great as earlier perceived. But in a wishy-washy spirit, the perception should not be wholly dismissed based on the new figures. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124b.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance dropped 75,000. It reversed a 59,000 increase during the prior week which was revised down slightly. The figure provides some indication of workers&#39; ability to find employment but here again difficulties of seasonal adjustment this time of year are great.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment fell back to 2.0% from 2.1% during the prior week.
Monetary Policy Implementation Frameworks: A Comparative Analysis from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr313.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">01/19/08</th>
<th scope="col">01/12/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;301</td>
<td>322</td>
<td>4.9%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,751</td>
<td>11.3%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance remained unexpectedly low last week. A 1,000 w/w decline followed sharp declines during the prior three weeks which now have totaled 15.7% since the high one month ago. The latest level was the [...]

Low U.S. Initial Claims for Jobless Insurance: Doubts About Hiring Slowdown

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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

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

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

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

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

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

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

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

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

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

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

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

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

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

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

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

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

Economy in Brief: January 2008

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Mass Layoffs Higher Still

Mass Layoffs Higher Still

Italy’s Consumer Confidence Falls Well Below Past Recession-Start Levels

Germany’s IFO Index Bounces on Improved Expectations

Japan’s Imports Hold Up As Exports Slow

Existing Home Sales Lowest Since 1998, Prices Off 10% Since Peak

Low U.S. Initial Claims for Jobless Insurance: Doubts About Hiring Slowdown

Existing Home Sales Lowest Since 1998, Prices Off 10% Since Peak