Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031013b.jpg" width="353">
Industrial production in Italy rose 0.1% in August, after a revised 1.8% rise in July and a 0.6% rise in June. Although the rise was small, consensus estimate had expected a decline.
A sharp rise in electricity usage as a result of the unusually severe summer heat wave contributed to the increase in the energy sector, which rose 1.1% in August and was 7.4% above a year ago.
Consumer goods production showed a mixed picture with durable goods production up 1.8%in the month but 0.5% below year ago levels while nondurable goods production declined 1.3% in August, but was 1.1% above year ago levels.
Production of intermediate goods declined 0.6% in August and was 0.5% below a year ago indicating little demand coming from inventory building. Finally, the production of investment goods rose 0.8% in August but was unchanged from a year ago.

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</table>
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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial&nbsp; Production&nbsp; (2000=1000)</th>
<th scope="col">AUG 2003</th>
<th scope="col">JULY 2003</th>
<th scope="col">JUN 2003&nbsp;</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col">Y/Y&nbsp; %</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>98.4</td>
<td>98.3</td>
<td>97.7</td>
<td>0.10</td>
<td>0.72</td>
<td>97.8</td>
<td>99.2</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Consumer goods</td>
<td>99.1</td>
<td>99.9</td>
<td>98.0</td>
<td>-0.80</td>
<td>1.12</td>
<td>98.3</td>
<td>100.5</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Durable goods</td>
<td>94.9</td>
<td>93.2</td>
<td>95.4</td>
<td>1.82</td>
<td>-0.52</td>
<td>96.0</td>
<td>99.1</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Nondurable goods</td>
<td>100.5</td>
<td>101.8</td>
<td>99.4</td>
<td>-1.28</td>
<td>1.11</td>
<td>99.0</td>
<td>100.8</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Intermediate goods</td>
<td>94.5</td>
<td>95.1</td>
<td>95.0</td>
<td>-0.63</td>
<td>-0.53</td>
<td>95.5</td>
<td>98.2</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Investment goods</td>
<td>98.1</td>
<td>97.3</td>
<td>98.1</td>
<td>0.82</td>
<td>0.0</td>
<td>97.7</td>
<td>99.0</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy&nbsp;&nbsp;</td>
<td>111.9</td>
<td>110.7</td>
<td>104.6</td>
<td>1.08</td>
<td>7.39</td>
<td>103.8</td>
<td>99.6</td>
<td>100.0</td>
</tr>
</tbody>
</table>
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Industrial production in Italy rose 0.1% in August, after a revised 1.8% rise in July and a 0.6% rise in June. Although the rise was small, consensus estimate had expected a decline. A sharp rise in electricity usage as a result of [...]

Industrial Production in Italy Rises in August for Third Month

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031013a.jpg" width="353">
The OECD Index of Leading Indicators (Big 7) rose in August for the fifth consecutive month. The 0.9% increase was the fourth of that strong magnitude and the fifth in a row.
Despite these gains the leading index remained 1.6% below the long term trend, but they do suggest much improved growth in industrial production.
Gains amongst the member country leading indexes were broad. The leading index for the European Union rose 0.7%, the fourth strong monthly increase.
The leaders in Germany jumped 1.0% for the second month. In Italy, the leaders finally mustered some upward momentum and rose 0.5% following an upwardly revised 0.6% July gain. In Switzerland the leaders have been rising since early last year. In France gains in the leading index have cooled recently, up just 0.1% and 0.2% in the last two months.
Leaders in Japan have been on a tear recently, rising 1.1% in August. That pulled the three-month growth rate to 14.9%, the strongest growth rate since 1987. Share prices continued to surge, up big for four straight months.
In Canada the August leading indicators posted the strongest one-month increase in over a year and rose 1.6%, lifting the three-month growth rate to 12.5%. In the U.K. the leaders managed the fifth respectable monthly increase in August, up 0.5% m/m. That brought the three month growth rate up to 5.8%, about the highest since Spring 2002.
Leading indicators in the United States rose strongly for the fifth straight month.
Visit the OECD&#39;s website at this <a href="http://www.oecd.org/home/">website</a>.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM"> OECD Main Economic Indicators</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">OECD Major Seven - Leading Index (Trend Restored)</td>
<td>122.5</td>
<td>121.4</td>
<td>4.1%</td>
<td>4.0%</td>
<td>-2.3%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; European Union</td>
<td>119.0</td>
<td>118.3</td>
<td>2.2%</td>
<td>3.1%</td>
<td>-1.9%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Japan</td>
<td>105.5</td>
<td>104.3</td>
<td>4.3%</td>
<td>0.7%</td>
<td>-2.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; United States</td>
<td>134.8</td>
<td>133.7</td>
<td>5.7%</td>
<td>5.6%</td>
<td>-2.6%</td>
<td>2.7%</td>
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The OECD Index of Leading Indicators (Big 7) rose in August for the fifth consecutive month. The 0.9% increase was the fourth of that strong magnitude and the fifth in a row. Despite these gains the leading index remained 1.6% below [...]

OECD Leaders Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031010c.jpg" width="353">
Job growth resumed last month in Canada, according to the latest Labor Force Survey, reported today. After slim decreases in July and August, employment posted a 0.3% increase in September. The unemployment rate held steady at 8.0%, also following two successive months of deterioration, albeit modest.
Health care (+18,000), trade (16,300) and finance (12,600) had the largest job increases, while &quot;other services&quot; fell 18,000, and as in the US, manufacturing continued to lag. Total actual hours worked rebounded 2.2%, a partial offset to August&#39;s decline of 3.1%. Over longer spans, growth of both jobs and hours is slowing. Hours are up 0.8% over a year ago for both September and all of the third quarter; this is the smallest annual increase since early 2002, coming out of the last recession.
The employment slowdown is concentrated in manufacturing and closely related industries, including transportation and warehousing and technical support. In contrast, the accommodation and food service sector is generating stronger jobs gains, along with forestry, construction, recreation, finance and public administration. The emphasis on travel and tourism evident in this latter group is a bit unexpected in the face of slower growth in employment in basic Canadian industries. Perhaps the gains in these more discretionary sectors are due less to domestic travel than to an influx of foreign tourists. At the same time then, recent strengthening of the Canadian dollar could signal a cautionary outlook for those sectors as a sustained source of new jobs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Sep 2003</th>
<th scope="col">Aug 2003</th>
<th scope="col">July 2003</th>
<th scope="col">Year/ Year</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Change in Total Employment (thousands)</td>
<td>+46.3 (+0.3%)</td>
<td>-19.0 (-0.1%)</td>
<td>-13.3 (-0.1%)</td>
<td>224.3 (+1.4%)</td>
<td colspan="3">Dec/Dec % Change</td>
</tr>
<tr>
<td class="firstcol">3.7%</td>
<td>0.1%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>8.0%</td>
<td>8.0%</td>
<td>7.8%</td>
<td>7.7% (Sept. 2002)</td>
<td colspan="3>
 Annual Average</td>
</tr>
<tr>
<td class="firstcol">7.6%</td>
<td>7.2%</td>
<td>6.8%</td>
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</tbody>
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Job growth resumed last month in Canada, according to the latest Labor Force Survey, reported today. After slim decreases in July and August, employment posted a 0.3% increase in September. The unemployment rate held steady at 8.0%, [...]

Canada Sees Job Increase in September

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031010b.jpg" width="353">
Finished producer prices rose a surprising 0.3% in September. The gain was versus Consensus expectations for a 0.1% uptick. Core producer prices matched expectations for a 0.1% rise.
A 1.2% (6.7% y/y) jump in food prices accounted for last month&#39;s PPI strength. Both vegetable and meat prices were quite strong and added to gains in earlier months.
Finished energy prices rose just 0.1% (13.1% y/y). The tepid increase was due to a 3.3% (21.7% y/y) rise in gasoline prices and a 1.2% (29.5%) gain in residential gas prices. These gains were offset by lower fuel oil prices, down 7.1% (-1.5% y/y). These energy product price series are NSA.
Core finished consumer goods prices were tame, rising 0.1% (-0.1% y/y) for the third consecutive month. Price declines were widespread. Capital equipment prices fell 0.1% (0.5% Y/Y) due to across the board weakness.
Intermediate goods prices fell 0.1% reflecting a 2.3% (12.7% y/y) decline in energy prices which offset a 2.3% (8.4%) jump in food prices. Core intermediate goods prices rose 0.1%. This measure of prices was unchanged from its March level. 
Crude goods prices jumped 3.4% led by a 7.0% (17.9% y/y) surge in food prices. Crude energy prices were tame, up just 0.6% (32.9% y/y) following two months of decline. Core crude goods prices were strong for the second consecutive month and consistent with the recent strength in industrial commodity price series. 
A report from the Federal Reserve Bank of New York analyzing the effect of exchange rates on import prices can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr149.html"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM"> Producer Price Index</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.5%</td>
<td>-1.3%</td>
<td>2.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>3.8%</td>
<td>-1.5%</td>
<td>0.4%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>3.4%</td>
<td>-1.4%</td>
<td>22.2%</td>
<td>-10.6%</td>
<td>0.3%</td>
<td>22.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>2.3%</td>
<td>3.7%</td>
<td>11.0%</td>
<td>3.8%</td>
<td>-10.0%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
U.S. Trade Deficit Narrowed As Imports Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 10, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031010a.jpg" width="353">
The U.S. foreign trade deficit narrowed unexpectedly to $39.2B in August versus Consensus expectations for a deficit of $41.0B.
In July and August the trade deficit narrowed to an average $39.6B versus $41.2B in 2Q. Nevertheless, for the first eight months of this years the trade deficit averaged a $486.6B annual rate.
Lower imports accounted for the narrower trade deficit in August. Declines were across the board but a 13.1% (-10.3% y/y) drop in the automotive category was notable. Nonpetroleum imports fell 3.4% (+0.3% y/y) and petroleum imports fell 5.3% (+5.3% y/y).
Exports fell 2.7% (4.9% YTD, AR) in August but earlier gains raised the level for 3Q 2.6% above 2Q. Exports of capital goods (9.9% YTD, AR) and nonauto consumer goods (10.3% YTD, AR) have moderated recently from earlier strength.

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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE03/@EE03.HTM"> Foreign Trade</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Trade Deficit</td>
<td>$39.2B</td>
<td>$40.0B</td>
<td>$36.2B(8/02)</td>
<td>$418.0B</td>
<td>$357.8B</td>
<td>$375.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>-2.7%</td>
<td>1.8%</td>
<td>1.4%</td>
<td>-3.3%</td>
<td>-5.8%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>-2.5%</td>
<td>1.2%</td>
<td>3.4%</td>
<td>2.0%</td>
<td>-5.5%</td>
<td>18.5%</td>
</tr>
</tbody>
</table>
</body>
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Finished producer prices rose a surprising 0.3% in September. The gain was versus Consensus expectations for a 0.1% uptick. Core producer prices matched expectations for a 0.1% rise. A 1.2% (6.7% y/y) jump in food prices accounted for [...]

Producer Prices Up Due To Food Price Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031009a.jpg" width="353">
Initial claims for jobless insurance fell 23,000 to 382,000 last week. The gain reversed a 19,000 rise the prior week which was revised slightly upward from the initial report. Consensus expectations had been for claims of 395,000.
The four-week moving average of initial claims fell meaningfully to 393,500 (-5.1% y/y), the lowest level since early February.
Continuing claims for unemployment insurance fell 7,000 to 3,642,000. The claimant the prior week was revised down.
The insured rate of unemployment held steady at 2.9%. The rate has averaged 2.9% since April.

<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></th>
<th scope="col">10/04/03</th>
<th scope="col">9/27/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>382.0</td>
<td>405.0</td>
<td>-6.4%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,642</td>
<td>0.8%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
Import Prices Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 9, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031009b.jpg" width="353">
Prices for imported commodities fell in September by 0.5% (0.8% y/y). The decline was greater than Consensus expectations for a 0.2% dip.
Petroleum import prices fell 5.2% last month. Last week, the price of Brent Crude Oil was up sharply from the $26.77/bbl averaged in September.
Non-petroleum import prices rose 0.3% last month. The gain was entirely due to a 0.6% (2.3% y/y) jump in food, feeds &amp; beverages prices. Elsewhere prices were weak. Prices for capital goods fell 0.3% (-1.3% y/y). Motor vehicle prices also dipped 0.1% (0.2% y/y) and non-auto consumer goods prices were unchanged (-0.2% y/y).
Export prices jumped 0.4% and also reflected strength in food prices which rose 5.5% (5.2% y/y). Export prices elsewhere were tame.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM"> Import/Export Prices (NSA)</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>-0.5%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>-2.5%</td>
<td>-3.5%</td>
<td>6.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-5.2%</td>
<td>2.4%</td>
<td>1.2%</td>
<td>3.0%</td>
<td>-17.2%</td>
<td>66.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>0.9%</td>
<td>-2.4%</td>
<td>-1.5%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.4%</td>
<td>0.0%</td>
<td>1.0%</td>
<td>-1.0%</td>
<td>-0.8%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
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Initial claims for jobless insurance fell 23,000 to 382,000 last week. The gain reversed a 19,000 rise the prior week which was revised slightly upward from the initial report. Consensus expectations had been for claims of 395,000. [...]

Initial Claims For Jobless Insurance Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031008b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association rose 15.6% last week to the highest level since early August. The rise came despite a slight increase in interest rates.
Interest rates on a conventional 30-Year mortgage rose to 6.10%, up 18 basis points w/w. The effective rate on a 15-year mortgage rose to 5.47%. These recent increases in rates run counter to the rate declines reported by Freddie Mac.
Applications to refinance rose 19.9% w/w, also to the highest level since early August. Despite gains during the last two weeks, applications to refinance are down 70% from the weekly high in late May.
Purchase applications rose 10.8% w/w to the highest level since early August. For all of September the level of purchase applications rose 11.0% from a year ago but just 1.2% from August. The level in early October is up another 7.5% versus September.
During the last ten years there has been a 55% correlation between the y/y change in purchase applications and the change in new plus existing 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>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">10/03/03</th>
<th scope="col">9/26/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>817.3</td>
<td>707.2</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>441.1</td>
<td>398.0</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>3,005.5</td>
<td>2,505.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
Consumer Credit Usage Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 8, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031008a.jpg" width="353">
The Federal Reserve reported that consumer credit outstanding (which excludes mortgages) rose $8.2B (5.1% AR) in August. Consensus expectations had been for a $5.5B gain.
The Federal Reserve Board added student loans extended by the federal government and Sallie Mae to the Consumer Credit Outstanding figures (nonrevolving).This addition resulted in an average upward revision of 3% beginning in 1977 and an average upward revision of 0.4% to the growth rate each year. 
During the first eight months of this year, consumer credit usage rose at a 4.8% annual rate. The more comprehensive flow of funds figures published by the Federal Reserve indicated that through 2Q03, credit market debt owed by the household sector surged 11.0% y/y. That gain was led by a 13.8% y/y gain in outstanding liabilities on homes.
Nonrevolving credit (which includes auto loans) rose at a 6.9% annual rate in august following a 5.5% gain in July. Year to date, nonrevolving credit usage is up at a 5.8% annual rate. 
Revolving credit rose at a 2.0% annual rate in August following a 0.8% gain in July. Year to date, revolving credit usage is up at a 3.3% annual rate.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E103/@E10308/@E10308.HTM"> Consumer Credit Outstanding</a></th>
<th scope="col">Aug m/m</th>
<th scope="col">July m/m</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>$8.2B</td>
<td>$6.2B</td>
<td>3.5%</td>
<td>4.3%</td>
<td>7.3%</td>
<td>11.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$1.2B</td>
<td>$-0.2B</td>
<td>1.0%</td>
<td>1.5%</td>
<td>5.1%</td>
<td>11.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$7.0B</td>
<td>$6.4B</td>
<td>5.1%</td>
<td>6.4%</td>
<td>8.8%</td>
<td>11.4%</td>
</tr>
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The index of mortgage applications compiled by the Mortgage Bankers Association rose 15.6% last week to the highest level since early August. The rise came despite a slight increase in interest rates. Interest rates on a conventional [...]

Despite Higher Rates Mortgage Applications Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031007c.jpg" width="353">
Total manufacturing orders in Germany increased 0.5% in August. The composition of orders reflects an improved outlook for exports as export orders rose 2.3% and a continued subdued outlook for the domestic economy as domestic orders declined 1.1%.
Increased global demand has apparently offset the dampening effects of the rising Euro on the demand for German exports since exports have continued to show strength.
While orders for domestic goods are not encouraging, there was an increase in German retail sales in August that may be a sign that consumer, if not industry, demand may at last be improving.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Aug 03</th>
<th scope="col"> July 03</th>
<th scope="col"> Aug 02</th>
<th scope="col"> July 02</th>
<th scope="col"> M/M %</th>
<th scope="col"> Y/Y %</th>
<th scope="col"> 2002</th>
<th scope="col"> 2001</th>
<th scope="col"> 2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">New orders (2000=100)</td>
<td>97.8</td>
<td>97.3</td>
<td>98.9</td>
<td>97.8</td>
<td>0.51</td>
<td>-1.11</td>
<td>98.2</td>
<td>98.3</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>92.5</td>
<td>93.6</td>
<td>94.8</td>
<td>94.6</td>
<td>-1.10</td>
<td>-2.43</td>
<td>94.6</td>
<td>97.6</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>104.4</td>
<td>102.0</td>
<td>103.9</td>
<td>101.9</td>
<td>2.35</td>
<td>0.48</td>
<td>102.8</td>
<td>99.1</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">Retail Sales (2000=100)</td>
<td>102.4</td>
<td>100.8</td>
<td>102.0</td>
<td>101.8</td>
<td>1.59</td>
<td>0.31</td>
<td>101.3</td>
<td>102.1</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Export of goods (Bil.Euros)</td>
<td>n.a.</td>
<td>55.06</td>
<td>53.63#</td>
<td>52.26</td>
<td>2.67</td>
<td>5.36</td>
<td>54.28*</td>
<td>53.43*</td>
<td>49.72*</td>
</tr>
</tbody>
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Total manufacturing orders in Germany increased 0.5% in August. The composition of orders reflects an improved outlook for exports as export orders rose 2.3% and a continued subdued outlook for the domestic economy as domestic orders [...]

German Manufacturing Orders Increase

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031007a.jpg" width="353">
Chain store sales surged 1.3% last week and recovered much of the 2.5% decline during the prior three weeks, according to the BTM-UBSW survey.
Despite the late-month recovery, sales for the full month of September fell 0.7% versus August. The level of sales in early October was slightly below the September average.
Weakness in September also was indicated by the Redbook Survey of general merchandise store sales which fell 1.3% (+3.2% y/y) versus August.
During the last five years there has been a 61% correlation between the year-to-year percent change in the BTM-UBSW measure of chain store sales and the change in non-auto retail sales less gasoline. Using the Redbook tally there has been a 72% correlation with the change in non-auto retail sales less gasoline.
The BTM-UBSW retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.The Redbook Survey samples same-store sales at general merchandise retailers representing about 9,000 stores. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">10/04/03</th>
<th scope="col">9/27/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>424.0</td>
<td>418.7</td>
<td>4.8%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
  Small Business Optimism Faded 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 7, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031007b.jpg" width="353">
The Small Business Optimism Index published by the National Federation of Independent Business fell last month to the lowest level since March.
The decline reflected a drop to 10% in the percent of small business owners planning to increase employment. That figure still is up versus readings in the 1-8% range earlier this year. Nineteen percent of firms had one or more jobs open. That is near the middle of the range in place since early last year.
The percent of owners planning to raise capital expenditures in the next 3-6 months fell sharply to 26%.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

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</table>
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<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM"> Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>101.9</td>
<td>104.6</td>
<td>0.9%</td>
<td>101.2</td>
<td>98.4</td>
</tr>
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Chain store sales surged 1.3% last week and recovered much of the 2.5% decline during the prior three weeks, according to the BTM-UBSW survey. Despite the late-month recovery, sales for the full month of September fell 0.7% versus [...]

September Chain Store Sales Down Despite Last Week's Surge

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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.

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: October 2003

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