Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031110b.jpg" width="353">
Although total merchandise exports and imports in Taiwan declined in the month of October, the trend toward increased trade with Asia and declining trade with North America continues. In October, exports to Asia were up 18.9% from a year ago, while exports to North America were up only 1.7%.
Similarly, imports from Asia were 15.1% greater in October of this year compared with October 2002, while imports from North America were 3.3% over the same period.
On the basis of the data for the year to date, Taiwan&#39;s surplus on trade with North America is still averaging about $10 billion a year as the decline in exports has been matched by a decline in imports. However, Taiwan&#39;s trade balance with Asia, which was in deficit to the amount of $1.8 billion in 2000, is currently averaging a surplus of about $12 billion.

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">&nbsp;&nbsp; Billions of US$</th>
<th scope="col">Oct 2003</th>
<th scope="col">Sep 2003</th>
<th scope="col">Oct 2002&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 Trade</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">Exports</td>
<td>12372.6</td>
<td>12893.7</td>
<td>10834.5</td>
<td>-4.04</td>
<td>14.20</td>
<td>130456.5</td>
<td>123426.0</td>
<td>148226.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>9800.7</td>
<td>11131.3</td>
<td>9181.1</td>
<td>-11.95</td>
<td>6.75</td>
<td>112230.1</td>
<td>107738.8</td>
<td>139875.4</td>
</tr>
<tr>
<td class="firstcol">Balance</td>
<td>2571.9</td>
<td>1762.4</td>
<td>1653.4</td>
<td>45.93</td>
<td>55.55</td>
<td>18226.4</td>
<td>15687.2</td>
<td>8350.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade with Asia</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">Exports</td>
<td>7382.7</td>
<td>7697.2</td>
<td>6209.3</td>
<td>-4.09</td>
<td>18.89</td>
<td>74216.8</td>
<td>64921.4</td>
<td>79582.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>6142.0</td>
<td>6424.2</td>
<td>533.6</td>
<td>-4.39</td>
<td>15.10</td>
<td>63887.6</td>
<td>58818.3</td>
<td>78385.3</td>
</tr>
<tr>
<td class="firstcol">Balance</td>
<td>1240.8</td>
<td>1273.1</td>
<td>873.0</td>
<td>-2.54</td>
<td>42.12</td>
<td>10329.2</td>
<td>6103.2</td>
<td>-1802.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade with N. A.</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">Exports</td>
<td>2262.1</td>
<td>2432.8</td>
<td>2225.4</td>
<td>-4.02</td>
<td>1.65</td>
<td>28278.4</td>
<td>29319.1</td>
<td>36669.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>1468.3</td>
<td>1617.8</td>
<td>1352.0</td>
<td>-9.24</td>
<td>8.60</td>
<td>19078.7</td>
<td>19258.0</td>
<td>26310.6</td>
</tr>
<tr>
<td class="firstcol">Balance</td>
<td>793.8</td>
<td>815</td>
<td>873.4</td>
<td>-2.60</td>
<td>-9.11</td>
<td>9199.7</td>
<td>10061.1</td>
<td>10359.3</td>
</tr>
</tbody>
</table>
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Although total merchandise exports and imports in Taiwan declined in the month of October, the trend toward increased trade with Asia and declining trade with North America continues. In October, exports to Asia were up 18.9% from a [...]

Taiwanese Merchandise Trade: Shifting Trade Patterns

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031110a.jpg" width="353">
The Federal Reserve reported that consumer credit outstanding (which excludes mortgages) rose $15.1B (9.7% AR) in September. It was the sharpest one-month rise since this past January. Consensus expectations had been for a $6.0B gain.
During the first nine months of this year, consumer credit usage rose at a 5.4% annual rate.
The surge in non-revolving credit extension (which excludes auto loans) at a 12.5% SAAR in September may have reflected the recent addition of student loans extended by the federal government and Sallie Mae to the Consumer Credit Outstanding figures.Not seasonally adjusted, these loans jumped $4.6B (-6.3% y/y) during September. Loans underwritten by finance companies also were strong, up $5.3B (7.3% y/y). 
Revolving credit rose at a 5.0% annual rate in September following a 2.9% gain in August.
An article from the Federal Reserve Bulletin highlighting recent changes to a measure of US household debt service can be found <a href="http://www.federalreserve.gov/pubs/bulletin/2003/1003lead.pdf"> here</a>.

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<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">Sept m/m</th>
<th scope="col">Aug m/m</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total</td>
<td>$15.1B</td>
<td>$8.8B</td>
<td>3.9%</td>
<td>4.3%</td>
<td>7.3%</td>
<td>11.5%</td>
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<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$3.0B</td>
<td>$1.7B</td>
<td>1.9%</td>
<td>1.5%</td>
<td>5.1%</td>
<td>11.6%</td>
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<tr class="odd">
<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$12.1B</td>
<td>$7.1B</td>
<td>5.2%</td>
<td>6.0%</td>
<td>8.8%</td>
<td>11.4%</td>
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</tbody>
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The Federal Reserve reported that consumer credit outstanding (which excludes mortgages) rose $15.1B (9.7% AR) in September. It was the sharpest one-month rise since this past January. Consensus expectations had been for a $6.0B gain. [...]

Consumer Credit Usage Jumped

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031107c.jpg" width="353">
Industrial production fell in Germany in September, down 1.2% after a 3.7% decline in August. Forecasters had looked for a GAIN of 1.6%.
Chemicals, machinery and electrical equipment had the largest decreases in the month, while output of metals industries rebounded sharply following a big drop in August.
This performance in such a basic gauge as industrial production is disappointing in a country where industry is as important as in Germany. Other recent data suggested that Europe&#39;s largest economy would soon break out of a slowdown that had cut short the recovery from the 2001 recession. As noted here the other day, business confidence in West Germany has been rising sharply. The widely followed &quot;Ifo&quot; survey has shown notable improvement, and the latest PMI data also indicate that manufacturing companies judge that their activity has been picking up.
Two caveats might help explain this apparent contradiction. First, while the total Ifo climate index has been trending upward, the component of &quot;confidence&quot; in current conditions has been less exuberant. That index is more coincident with current production than the overall Ifo number, which includes expectations. As seen in the accompanying chart, the confidence index has been quite lackluster in recent months. Secondly, while the sentiment and PMI survey data have been on upward paths, they remain at relatively low levels. The Ifo climate index for all sectors was still down at -12.4 in September and &quot;improved&quot; in October to -7.8. The confidence sub-index for all industries remained well down in a range near -25 even through October. Manufacturing confidence, shown in the table below, is somewhat better, but still not even near zero. Further, the PMI for manufacturing was below the 50% breakeven threshold until September, and even the two latest readings in &quot;growth&quot; territory, September&#39;s 50.2 and October&#39;s 51.2, point to only modestly increasing activity. So continued weakness in actual industrial output might not be a complete surprise. The favorable trends in those auxiliary indicators give hope for stronger production to come, but it seems not to be here yet.

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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Germany: Selected Industrial Indicators</th>
<th scope="col">Oct 2003</th>
<th scope="col">Sept 2003</th>
<th scope="col">Aug 2003</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">Industrial Production, Total</td>
<td>N.A.</td>
<td>-1.2%</td>
<td>-3.7%</td>
<td>-3.6%</td>
<td>-1.3%</td>
<td>-0.1%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Industrial Production, excl Construction</td>
<td>N.A.</td>
<td>-1.5%</td>
<td>-3.5%</td>
<td>-3.3%</td>
<td>-1.2%</td>
<td>0.5%</td>
<td>6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ifo Business Climate: West Germany, Manufacturing (diffusion index)</td>
<td>1.6</td>
<td>-5.0</td>
<td>-6.5</td>
<td>-9.4 (Oct &#39;02)</td>
<td>-8.2</td>
<td>-10.1</td>
<td>11.1</td>
</tr>
<tr>
<td class="firstcol">Ifo Business Confidence: West Germany, Manufacturing (diffusion index)</td>
<td>-15.6</td>
<td>-21.2</td>
<td>-18.1</td>
<td>-18.6 (Oct &#39;02)</td>
<td>-20.7</td>
<td>-6.1</td>
<td>13.4</td>
</tr>
<tr class="odd">
<td class="firstcol">PMI, German Manufacturing</td>
<td>51.18</td>
<td>50.22</td>
<td>48.75</td>
<td>48.36 (Oct &#39;02)</td>
<td>48.16</td>
<td>47.46</td>
<td>57.15</td>
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Industrial production fell in Germany in September, down 1.2% after a 3.7% decline in August. Forecasters had looked for a GAIN of 1.6%. Chemicals, machinery and electrical equipment had the largest decreases in the month, while [...]

German Industrial Production Sags, Despite Better "Business Climate"

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031107a.jpg">
Nonfarm payrolls have been firmer during the last three months than previously perceived. October payrolls rose 126,000 versus Consensus expectations for a 50,000 rise. September payrolls were revised to +125,000 from +57,000. August payrolls were revised to +35,000 from -41,000.
Job growth during these three months amounts to 0.9% (AR), the strongest three-month growth since January 2001.
The one-month diffusion index (breadth of gain) for private nonfarm payrolls fell slightly to 48.2.
Service producing jobs rose 143,000 (0.2% y/y) and were the source for most of the upward revisions to payrolls. The gains were widespread amongst service industries.
Strong monthly gains were logged in temporary help services (4.0% y/y), education &amp; health (1.9% y/y), professional &amp; business services (0.8% y/y), retail trade (-0.1% y/y) and leisure (0.4% y/y). Government sector jobs rose 10,000 (-0.3% y/y).
Declines in manufacturing sector payrolls continued, down another 24,000 (-4.0% y/y). The one-month diffusion index for factory payrolls was unchanged at a quite low 29.8. Construction jobs rose 6,000 (1.9% y/y).
From the separate household survey, the unemployment rate fell to 6.0% versus expectations for 6.1%. Employment surged 441,000 (0.7% y/y) following a slight September drop. The labor force jumped 248,000 (1.0% y/y).
Average hourly earnings rose a modest 0.1%, a 2.1% rate YTD.
The index of aggregate hours worked rose 0.4% and was up at a 2.0% annual rate from 3Q. Hours worked fell in 3Q versus 2Q.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM"> Employment</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</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">Payroll Employment</td>
<td>126,000</td>
<td>125,000</td>
<td>-0.2%</td>
<td>-1.1%</td>
<td>0.0%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-24,000</td>
<td>-28,000</td>
<td>-4.0%</td>
<td>-6.9%</td>
<td>-4.8%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.7</td>
<td>33.8</td>
<td>33.9</td>
<td>34.0</td>
<td>34.3</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.0%</td>
<td>2.4%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>6.0%</td>
<td>6.1%</td>
<td>5.8%</td>
<td>5.8%</td>
<td>4.8%</td>
<td>4.0%</td>
</tr>
</tbody>
</table>
OECD Leaders Strong 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 7, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031107b.jpg">
The OECD Index of Leading Indicators (Big 7) rose in September for the sixth consecutive month. The 1.1% increase was the strongest monthly increase since February 2002.
The latest increase pulled the leading index up to its trend level.
Gains amongst the member country leading indexes were broad and strong. The leading index for the European Union rose 1.0% (3.5% y/y), the strongest monthly gain since 1975.
In France, the leading index rose 0.6% (2.9% y/y) and tepid gains in recent months were revised up sharply. The leaders in Germany jumped 1.2% (4.9% y/y. In Italy the leaders surged 1.8% (2.7% y/y).
Leaders in Japan, up 1.5%, posted the strongest one month gain since 1987. The three-month growth rate remained strong at 14.3%.
In Canada the September leading index surged for the second month, up 1.5% (5.0% y/y). In the U.K. the leaders managed the sixth respectable monthly increase in September, up 0.4% m/m (0.0% y/y).
Leading indicators in the United States rose strongly for the sixth straight month.
Visit the OECD&#39;s website at this <a href="http://www.oecd.org/home/">website</a>.

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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD Main Economic Indicators</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">OECD Major Seven - Leading Index (Trend Restored)</td>
<td>124.0</td>
<td>122.6</td>
<td>5.7%</td>
<td>4.0%</td>
<td>-2.3%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; European Union</td>
<td>120.8</td>
<td>119.6</td>
<td>3.5%</td>
<td>3.1%</td>
<td>-1.9%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Japan</td>
<td>106.0</td>
<td>104.5</td>
<td>5.0%</td>
<td>0.7%</td>
<td>-2.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; United States</td>
<td>135.9</td>
<td>134.8</td>
<td>7.6%</td>
<td>5.6%</td>
<td>-2.7%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm payrolls have been firmer during the last three months than previously perceived. October payrolls rose 126,000 versus Consensus expectations for a 50,000 rise. September payrolls were revised to +125,000 from +57,000. August [...]

U.S. Non-farm Payrolls Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031106c.jpg" width="353">
Ahead of tomorrow&#39;s big labor market report in the US, Australia and Germany both reported generally favorable moves in unemployment in October. In Australia, in particular, the rate decrease 0.2% to 5.6% from 5.8% in August and September. 5.6% is the second lowest in the nearly 24-year history of the data. It is also the lowest since the end of 1989, when it was also 5.6%; the record low was 5.4% in mid-1981.
This performance accompanied an increase in employment of 69,100 in October and a total rise of 164,500 over the last three months. Labor force participation is up 0.4% in the last three months as well, to 63.8% from 63.4% in July, underscoring that the reduced unemployment is in fact due to more job opportunities, not people&#39;s withdrawal from the labor force. Quite the contrary.
Unemployment in Germany held steady at 10.5%, including a flat 8.4% in Western Germany and a decrease from 18.6% to 18.5% in Eastern Germany. The improvement here is slight, but has been sustained over several months. In Western Germany, the rate has been unchanged since June, while in Eastern Germany, it has fallen 0.4% since that same month. Employment data are reported later in Germany and have just been released for August, when jobs were still decreasing, albeit modestly. (See table below.) Thus, some of the unemployment &quot;improvement&quot; in that country has resulted from a smaller labor force, which is not much sign of economic strength. However, recent gains in business confidence and in the Purchasing Managers surveys suggest that employers are beginning to regard employment prospects more positively or at least less negatively. The employment component of the PMI for the services sector, at 43.8 in October, remains below the expansion-contraction 50% breakpoint, but it is still 3.5 percentage points above its January low. So labor market conditions look to be moving toward recovery in Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Labor Market Indicators</th>
<th scope="col">Oct 2003</th>
<th scope="col">Sept 2003</th>
<th scope="col">Aug 2003</th>
<th scope="col">Year Ago</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">Australia: Unemployment Rate (%)</td>
<td>5.6</td>
<td>5.8</td>
<td>5.8</td>
<td>6.0</td>
<td>6.3</td>
<td>6.7</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Australia: Employment (Change, thous)</td>
<td>69</td>
<td>15</td>
<td>81</td>
<td>21*</td>
<td>23*</td>
<td>7*</td>
<td>15*</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany: Unemployment Rate (%)</td>
<td>10.5</td>
<td>10.5</td>
<td>10.6</td>
<td>10.0</td>
<td>9.8</td>
<td>9.4</td>
<td>9.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Western Germany (%)</td>
<td>8.4</td>
<td>8.4</td>
<td>8.4</td>
<td>7.8</td>
<td>7.7</td>
<td>7.2</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Eastern Germany (%)</td>
<td>18.5</td>
<td>18.6</td>
<td>18.6</td>
<td>17.8</td>
<td>17.7</td>
<td>17.3</td>
<td>17.1</td>
</tr>
<tr>
<td class="firstcol">Germany: Employment (Change, thous)</td>
<td>N.A.</td>
<td>N.A.</td>
<td>-29</td>
<td>-39*</td>
<td>-42*</td>
<td>-6*</td>
<td>45*</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany: PMI Services Employment (50 = Expansion/Contraction)</td>
<td>43.8</td>
<td>43.7</td>
<td>43.2</td>
<td>40.3 &nbsp;(Jan &#39;03 low)</td>
<td>46.5</td>
<td>49.7</td>
<td>53.8</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">

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Ahead of tomorrow's big labor market report in the US, Australia and Germany both reported generally favorable moves in unemployment in October. In Australia, in particular, the rate decrease 0.2% to 5.6% from 5.8% in August and [...]

Unemployment Picture Improves in Australia, Germany

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<img align="left" border="0" height="258" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031106b.jpg" width="345">
Nonfarm labor productivity growth last quarter surged 8.1%, the fastest rate of growth since 1Q02. Productivity growth in 2Q was revised up slightly. Consensus expectations had been for 3Q growth of 8.0%.
Strong growth in recent quarters pulled the five-year growth in productivity to 3.6%, the fastest since the mid-1960s. Combined with 1.2% growth in the labor force over that period it suggests the economy&#39;s potential rate of growth is near 5.0%.
Unit labor costs plunged 4.6% in 3Q, the sharpest decline since 1Q02. Compensation per hour was moderate at 3.1%, about the growth rate during the last two years.
Output grew 8.8% (4.1% y/y) last quarter and hours of all persons (employment times hours) rose just 0.7% (-0.6% y/y). Since peaking in three years ago, hours worked have fallen 5.3%.
Manufacturing sector productivity growth surged 8.6% (3.8% y/y) in 3Q. That pulled the five year growth rate to 4.2%. Unit labor costs fell 4.0% (+0.7% y/y).
A report from the Brookings Institution by Barry P. Bosworth and Jack E. Triplett on economic growth and productivity can be found <a href="http://www.brookings.edu/views/papers/bosworth/20001020.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;03 </th>
<th scope="col">2Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>8.1%</td>
<td>7.0%</td>
<td>4.7%</td>
<td>5.4%</td>
<td>1.9%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.1%</td>
<td>3.6%</td>
<td>2.7%</td>
<td>2.8%</td>
<td>3.6%</td>
<td>7.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-4.6%</td>
<td>-3.2%</td>
<td>-1.9%</td>
<td>-2.4%</td>
<td>1.7%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Plunge 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 6, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031106a.jpg" width="353">
Initial claims for jobless insurance plunged 43,000 to 348,000 last week, the lowest level since January 2001. The modest decline reported initially for the week prior was revised to unchanged. Consensus expectations had been for claims of 385,000.
The four-week moving average of initial claims fell to 380,000 (-7.5% y/y).
Continuing claims for unemployment insurance fell 22,000 and the 57,000 reported initially for the prior week was about halved.
The insured rate of unemployment was stable at 2.8%.

<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">11/01/2003</th>
<th scope="col">10/25/2003</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>348.0</td>
<td>391.0</td>
<td>-7.2%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,511</td>
<td>-2.2%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
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Nonfarm labor productivity growth last quarter surged 8.1%, the fastest rate of growth since 1Q02. Productivity growth in 2Q was revised up slightly. Consensus expectations had been for 3Q growth of 8.0%. Strong growth in recent [...]

U.S. Productivity Surged in 3Q 2003

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031105d.jpg" width="353">
Activity in Europe&#39;s service businesses improved for a sixth consecutive month in October and achieved its fourth successive outright expansion. This diffusion index for the service industry is based on a survey of purchasing managers by NTC Research in Henley-on-Thames, England, for Reuters Group Plc. The data, which begin in July 1998, are contained in Haver&#39;s PMI database. The October gain carried the index to 56.0, the highest since December 2000. The similar index for manufacturing, released two days ago, was 51.3 in October, up from 50.1 in September and its highest since July 2002. With the manufacturing reading finally crossing back above 50 in September, the sector was able to resume the expansion that had begun after the 2001 recession.
In the services industry, components describing developments in existing business, new business and expectations have all moved ahead markedly, rising one or more percentage points in each recent month. Employment continues to lag, as seen in the table below. In both services and manufacturing, this sub-index remains below 50, indicating that employment is still falling. However, both employment indexes began to improve in the spring and are up nearly 3 percentage points from May levels. This remains a &quot;jobless recovery&quot; in Europe, but at least the pace of job reduction is slowing.
Among the countries with local PMI indexes, France had the biggest rise in October, up 3.2 points, while Germany&#39;s was the smallest, up &quot;just&quot; 1.3 points. However, all are up 6 points or more from their early-2003 lows and all are above the 50% expansion-contraction breakeven point. So there is a vigorous, widespread advance in European service businesses, and these data indicate that it is starting to bring jobs along with it, although they have yet <span style="font-size:10.0pt;font-family:Verdana;
mso-fareast-font-family:&quot;Times New Roman&quot;;mso-bidi-font-family:&quot;Times New Roman&quot;;
mso-ansi-language:EN-US;mso-fareast-language:EN-US;mso-bidi-language:AR-SA">to attain positive territory.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Euro-Zone PMIs&nbsp;&nbsp; (50+ = Expansion)</th>
<th scope="col">Oct 2003</th>
<th scope="col">&nbsp;Sept 2003</th>
<th scope="col">Aug 2003</th>
<th scope="col">Oct 2002</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">PMI Manufacturing</td>
<td>51.3</td>
<td>50.1</td>
<td>49.1</td>
<td>49.2</td>
<td>49.8</td>
<td>47.8</td>
<td>57.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>47.9</td>
<td>47.0</td>
<td>47.1</td>
<td>46.0</td>
<td>47.0</td>
<td>48.9</td>
<td>54.5</td>
</tr>
<tr class="odd">
<td class="firstcol">PMI Services</td>
<td>56.0</td>
<td>53.6</td>
<td>52.0</td>
<td>51.0</td>
<td>51.6</td>
<td>51.6</td>
<td>59.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>48.5</td>
<td>47.7</td>
<td>46.2</td>
<td>47.9</td>
<td>49.4</td>
<td>52.5</td>
<td>57.4</td>
</tr>
</tbody>
</table>
</body>
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Activity in Europe's service businesses improved for a sixth consecutive month in October and achieved its fourth successive outright expansion. This diffusion index for the service industry is based on a survey of purchasing managers [...]

Euro-Zone Services and Manufacturing Businesses Share in Expansion

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031105b.jpg" width="353">
The Institute for Supply Management reported that the October Business Activity Index for the non-manufacturing sector gained back most of the prior month&#39;s decline. The increase to 64.7 was versus Consensus expectations for little change at 63.5.
Since the series&#39; inception in 1997 there has been a 58% correlation between the level of the ISM non-manufacturing business activity index and the quarterly change in real GDP for services plus construction.
The employment index was quite strong, rising 3.8 points to 52.9, the highest level since November 2000.
Since the series&#39; inception in 1997 there has been an 68% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing and construction industries.
The seasonally adjusted orders index posted a rise to 64.4 and gained back more than half of the sharp September drop.
Business activity for the non-manufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted prices index fell moderately to 58.7.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</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">Business Activity Index</td>
<td>64.7</td>
<td>63.3</td>
<td>53.9</td>
<td>55.1</td>
<td>49.0</td>
<td>59.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>58.7</td>
<td>60.1</td>
<td>56.5</td>
<td>53.9</td>
<td>51.6</td>
<td>63.5</td>
</tr>
</tbody>
</table>
Mortgage Applications for Purchase Jump 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 5, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031105a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association rose 5.5% (-33.5% y/y) last week on the strength of higher purchase applications.
Purchase applications jumped 11.1% following a 5.7% drop the week prior. Purchase applications for all of October fell 4.7% (+12.1% y/y) versus September.
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance ticked up 0.3% following a 4.9% rise week prior. For all of October applications to refinance fell 5.0% (-58.6% y/y) versus September.
The effective interest rate on a conventional 30-Year mortgage rose slightly w/w to 6.14%. The effective rate on a 15-year mortgage also rose w/w to 5.52%.
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">10/31/03</th>
<th scope="col">10/24/03</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>685.2</td>
<td>649.6</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>404.3</td>
<td>363.9</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,319.4</td>
<td>2,311.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
Factory Orders Recover, Inventories Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 5, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031105c.jpg" width="353">
Manufacturing inventories fell 0.4% in September for the sixth monthly decline this year. The ISM inventory index in October ticked a bit higher vs. September but at 44.5 suggested further decumulation last month. Declines in inventories continued widespread.
New research from the Federal Reserve Bank of Philadelphia titled &quot;The Role of Inventories in the Business Cycle&quot; can be found <a href="http://www.phil.frb.org/files/br/brq303ak.pdf">here</a>.
Factory orders rose about as expected, up 0.5% in September. The ISM orders index surged to 64.3 in October. During the last ten years there has been a 38% correlation between the y/y change in factory orders and the level of the ISM orders index.
Durable goods orders were revised upward to a 1.1% m/m increase versus the 0.8% rise indicated in last week&#39;s advance report.
Non-durable goods orders fell 0.2% m/m (+4.2% y/y) following a 0.6% decline in August. The y/y strength in non-durable goods orders derives mostly from higher prices for petroleum products and for industrial chemicals. (Non-durable goods orders equal shipments in this report on factory sector activity.)
Factory shipments jumped 1.4%. Shipments of transportation equipment were quite strong, up 6.2% (0.8% y/y) and mostly reflected higher shipments of autos &amp; trucks. Excluding transportation, shipments rose 0.5% (3.5% y/y).

<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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM"> Factory Survey</a> (NAICS)</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">Inventories</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.5%</td>
<td>-0.3%</td>
<td>5.4%</td>
<td>-1.9%</td>
<td>-6.7%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.4%</td>
<td>-1.7%</td>
<td>3.1%</td>
<td>-2.0%</td>
<td>-5.4%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.1%</td>
<td>0.8%</td>
<td>-0.7%</td>
<td>-6.1%</td>
<td>-5.9%</td>
<td>8.7%</td>
</tr>
</tbody>
</table>


</html>

The Institute for Supply Management reported that the October Business Activity Index for the non-manufacturing sector gained back most of the prior month's decline. The increase to 64.7 was versus Consensus expectations for little [...]

ISM Nonmanufacturing Index Jumped

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.

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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.

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**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.

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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: November 2003

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