Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041119a.jpg" width="353">
The Philadelphia Fed&#146;s November index of general business conditions in the manufacturing sector eased to 20.7 from 28.5. A decline to 23.2 had been the Consensus expectation.
During the last ten years there has been a 71% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Most of the sub indexes declined with the notable exception of the index for the number of employees which rose to 17.4 and recovered most of the prior month&#39;s.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months reversed virtually all of the prior two months&#39; declines with a 24.5 point jump to 52.1. That was still off the highs last year in the 60s.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041119b.jpg" width="353">
The prices paid index fell to 53.9. Expectations for prices rose to the highest level since March. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the PPI for intermediate goods. The correlation with the finished goods PPI has been 41% and with the CPI it&#39;s been 45%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos1104.html">here</a>.
Today&#39;s comments by Fed Chairman Greenspan on the Euro can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/20041119/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
<tbody>
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<td class="firstcol">General Activity Index</td>
<td>20.7</td>
<td>28.5</td>
<td>27.9</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>53.9</td>
<td>57.1</td>
<td>26.2</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
</tr>
</tbody>
</table>
</body>
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The Philadelphia Feds November index of general business conditions in the manufacturing sector eased to 20.7 from 28.5. A decline to 23.2 had been the Consensus expectation. During the last ten years there has been a 71% correlation [...]

Philadelphia Fed Activity Index Eased

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/041118c.jpg" width="353">
Hesitant improvement are evident in labor market conditions reported today by two widely disparate areas, Hong Kong and Sweden. Both have undergone economic &quot;adjustments&quot; over the last couple years, but it now looks that both are starting to turn around.
This is clearer in Hong Kong, where employment growth in the three months ended in October is a notable 2.8% above year-earlier levels. Month-to-month moves, even in this moving average series, are fairly irregular, but the longer trend looks favorable, especially after two years of contraction in 2002 and 2003. The unemployment rate is falling too, reaching 6.7% in the October period, down from a peak of 8.6% in mid-2003 and the lowest since early 2002.
In Sweden, the employment figures are not so buoyant, still on the downside compared with a year ago, but the decline now seems to be occurring more gradually. More hopeful is a reduction in the unemployment rate, which fell below 5% for the first time in 14 months and well off its high of 6.0% in February and much higher levels in prior years.
For both regions, the price of energy remains a wildcard as a potential block to further progress. As in the US, fuel prices for both transportation and heating have climbed sharply. Thus it remains to be seen if these recently better labor force developments will continue or be constrained by ballooning energy budgets. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Labor Force Data</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Hong Kong Employment &nbsp; (3-mo Avg, Mil., SA)</td>
<td>3.30</td>
<td>3.28</td>
<td>3.30</td>
<td>3.21</td>
<td>3.22</td>
<td>3.23</td>
<td>3.25</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Chg</td>
<td>0.5</td>
<td>-0.4</td>
<td>0.1</td>
<td>2.8</td>
<td>-0.4</td>
<td>-0.6</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>6.7</td>
<td>6.8</td>
<td>6.8</td>
<td>8.0</td>
<td>8.0</td>
<td>7.3</td>
<td>5.1</td>
</tr>
<tr>
<td class="firstcol">Underemployment Rate</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden Employment &nbsp; (Mil., NSA)</td>
<td>4.20</td>
<td>4.20</td>
<td>4.27</td>
<td>4.22</td>
<td>4.23</td>
<td>4.24</td>
<td>4.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Chg</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>-0.6</td>
<td>-0.2</td>
<td>0.1</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.9</td>
<td>5.8</td>
<td>5.5</td>
<td>5.1</td>
<td>4.9</td>
<td>4.0</td>
<td>4.0</td>
</tr>
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Hesitant improvement are evident in labor market conditions reported today by two widely disparate areas, Hong Kong and Sweden. Both have undergone economic "adjustments" over the last couple years, but it now looks that both are [...]

Unemployment Rates Down in Hong Kong & Sweden

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041118a.jpg" width="353">
Last week, initial claims for unemployment insurance fell 3,000 to 334,000 from an upwardly revised 337,000 the prior week. The Consensus expectation had been for 333,000 claims and the federal government&#39;s closure in observance of the Veterans Day holiday during the week had no impact on the data.
The latest figure covers the survey period for November nonfarm payrolls and claims rose 4,000 (1.2%) from the October period.
The four week moving average of initial claims rose slightly to 338,250 (-9.4% y/y).
During the last ten years there has been a (negative) 73% correlation between the level of initial claims and the m/m change in payroll employment.
Continuing claims for unemployment insurance fell 16,000 following a downwardly revised gain of 15,000 the prior week.
The insured rate of unemployment remained at 2.2% for the sixth week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<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">11/13/04</th>
<th scope="col">11/06/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>334</td>
<td>337</td>
<td>-10.0%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,792</td>
<td>-19.3%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
</tbody>
</table>
</body>
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Last week, initial claims for unemployment insurance fell 3,000 to 334,000 from an upwardly revised 337,000 the prior week. The Consensus expectation had been for 333,000 claims and the federal government's closure in observance of [...]

Initial Claims for Unemployment Insurance Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041118b.jpg" width="353">
The October Composite Index of Leading Economic Indicators published by the Conference Board fell by 0.3% for the fourth consecutive month and marked the fifth month of decline. A 0.1% decline had been the Consensus expectation.
Six-month growth in the leaders of -1.4% was the weakest since mid-2002 and does not herald firm economic growth. Negative growth in excess of 2.5% preceded past periods when the US economy entered recession.
Three quarters of the 10 components of the leading index fell over a one month span with a narrower yield curve, lower consumer expectations and slower money supply growth providing the largest negative influences. Over a six month span 65% of the leaders fell.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.3% and the six-month growth rate held at 2.1%, down from the high of 3.3% early this year. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
The lagging indicators rose for the second consecutive month. The ratio of the coincident to the lagging indicators, a measure of how the economy is performing relative to its excesses, rose slightly but has moved sideways since the Spring.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
&quot;Monetary Policy and Inflation Dynamics&quot; from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200462/200462pap.pdf"> here</a>.
&quot;A Neutral Fed Funds Rate?&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20041201/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.9%</td>
<td>-2.2%</td>
<td>-2.8%</td>
<td>-1.4%</td>
</tr>
</tbody>
</table>
</body>
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The October Composite Index of Leading Economic Indicators published by the Conference Board fell by 0.3% for the fourth consecutive month and marked the fifth month of decline. A 0.1% decline had been the Consensus expectation. Six- [...]

Leading Indicators Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041118b.jpg" width="353">
The October Composite Index of Leading Economic Indicators published by the Conference Board fell by 0.3% for the fourth consecutive month and marked the fifth month of decline. A 0.1% decline had been the Consensus expectation.
Six-month growth in the leaders of -1.4% was the weakest since mid-2002 and does not herald firm economic growth. Negative growth in excess of 2.5% preceded past periods when the US economy entered recession.
Three quarters of the 10 components of the leading index fell over a one month span with a narrower yield curve, lower consumer expectations and slower money supply growth providing the largest negative influences. Over a six month span 65% of the leaders fell.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.3% and the six-month growth rate held at 2.1%, down from the high of 3.3% early this year. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
The lagging indicators rose for the second consecutive month. The ratio of the coincident to the lagging indicators, a measure of how the economy is performing relative to its excesses, rose slightly but has moved sideways since the Spring.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
&quot;Monetary Policy and Inflation Dynamics&quot; from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200462/200462pap.pdf"> here</a>.
&quot;A Neutral Fed Funds Rate?&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20041201/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.9%</td>
<td>-2.2%</td>
<td>-2.8%</td>
<td>-1.4%</td>
</tr>
</tbody>
</table>
Initial Claims for Unemployment Insurance Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041118a.jpg" width="353">
Last week, initial claims for unemployment insurance fell 3,000 to 334,000 from an upwardly revised 337,000 the prior week. The Consensus expectation had been for 333,000 claims and the federal government&#39;s closure in observance of the Veterans Day holiday during the week had no impact on the data.
The latest figure covers the survey period for November nonfarm payrolls and claims rose 4,000 (1.2%) from the October period.
The four week moving average of initial claims rose slightly to 338,250 (-9.4% y/y).
During the last ten years there has been a (negative) 73% correlation between the level of initial claims and the m/m change in payroll employment.
Continuing claims for unemployment insurance fell 16,000 following a downwardly revised gain of 15,000 the prior week.
The insured rate of unemployment remained at 2.2% for the sixth week.

<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">11/13/04</th>
<th scope="col">11/06/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>334</td>
<td>337</td>
<td>-10.0%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,792</td>
<td>-19.3%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041117a.jpg" width="353">
The Consumer Price Index (CPI-U) jumped 0.6% last month, the strongest increase since May. The gain easily beat Consensus forecasts for a 0.4% rise. The 0.2% gain in prices less food and energy just beat the Consensus forecast for a 0.1% rise.
Gasoline prices jumped 8.6% (26.6% y/y) last month but so far in November have not risen further. Fuel oil prices also were strong and surged 8.1% (35.0% y/y). Natural gas prices fell for the second month (+3.1% y/y).
&quot;Core&quot; commodities prices again rose and the 0.4% gain was driven by a 1.0% (0.8% y/y) rise in household furnishings &amp; operation. New motor vehicle prices also increased for the first month in four, up 0.4% (-0.5% y/y) and apparel prices rose 0.2% (-0.7% y/y) .
The increase in services prices less energy eased a bit to 0.2% as the gain in shelter prices fell to just 0.1% (2.8% y/y). Health care services rose 0.4% (5.1% y/y) and tuition &amp; child care costs rose 0.4% (6.8% y/y). Public transportation prices rose 1.4% (-2.3% y/y) after two months of decline.
The chained CPI, which adjusts for shifts in the mix of consumer purchases rose 0.5%. Similar to the PCE price deflator, core chain prices rose 0.4% for the second consecutive month.
&quot;Labor Markets, Energy Prices, and the Outlook for 2005&quot; from Michael H. Moskow, President &amp; CEO of the Federal Reserve Bank of Chicago are available <a href="http://www.chicagofed.org/news_and_conferences/speeches/2004_11_16_wbbm.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.6%</td>
<td>0.2%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>2.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>-2.0%</td>
<td>-1.1%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.2%</td>
<td>-0.4%</td>
<td>15.2%</td>
<td>12.2%</td>
<td>-5.8%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.6%</td>
<td>0.0%</td>
<td>3.5%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&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"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>0.5%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.4%</td>
<td>0.4%</td>
<td>1.7%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>&nbsp;2.0%</td>
</tr>
</tbody>
</table>
Industrial Production Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 17, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041117b.jpg" width="353">
Industrial production rose a firm 0.7% following a downwardly revised 0.1% rise the prior month. Consensus expectations had been for a 0.4% increase in October.
Production in the factory sector jumped 0.8% (6.0% y/y) after the unrevised 0.3% decline the prior month.
Motor vehicles output recovered 2.3% (2.8% y/y) following the prior month&#39;s decline. Furniture output also recovered 0.9% (2.0% y/y) after two down months and textile output rose 0.8% (-2.2% y/y). High tech sector output again was firm with a 0.9% (18.8% y/y) rise.
Factory sector output excluding motor vehicles &amp; high tech rose 0.5% (+5.3% y/y).
Total capacity utilization rose to 77.7% as capacity grew 1.5% y/y.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Industrial Production</td>
<td>0.7%</td>
<td>0.1%</td>
<td>5.2%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>77.7%</td>
<td>77.3%</td>
<td>75.0%(11/03)</td>
<td>74.8%</td>
<td>75.6%</td>
<td>77.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Consumer Price Index (CPI-U) jumped 0.6% last month, the strongest increase since May. The gain easily beat Consensus forecasts for a 0.4% rise. The 0.2% gain in prices less food and energy just beat the Consensus forecast for a [...]

Consumer Prices Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041117f.jpg" width="353">
Net purchases of securities by foreign investors in US markets picked up slightly in September, reaching $63.4 billion, after a dip to $59.9 billion in August. Foreign investor participation in US capital markets is thus running modestly ahead of its record pace in 2003. These data appear in the US Treasury&#39;s month Treasury International Capital (&quot;TIC&quot;) data and were released yesterday for September. They are contained in Haver&#39;s USINT database in the section &quot;US International Investment Tables&quot;, shown by security type and country. They cover purchases and sales of securities with maturities longer than one year. Thus, several forms of financing such as short-term paper, trade credit and bank loans, are not included.
Press reports this morning express concern that these foreign investments are not keeping up with the ever widening current account deficit. However, the graph shown here suggests that through the second quarter -- the latest available US current account data -- these capital flows are in fact keeping up. And they have a substantial 88% correlation with the current account over the past 15 years. Through August, however, the US trade deficit appears to be widening for the quarter even as these securities purchases have diminished somewhat from the second quarter. It thus remains to be seen whether the close correlation in these patterns will be maintained; the recent fall in the dollar may suggest a reduced attraction of US markets for foreign investors. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041117g.jpg" width="353">
The September data show sharply reduced net purchases of federal agency securities, but increased buying of Treasuries. Further, net buying of corporate bonds picked up sharply. Press reports also express concern that Japanese participation turned negative in September. Indeed, Japanese investors were net sellers of $3.5 billion worth of US securities. However, investors in the UK, Bermuda and Hong Kong, among others, more than made up for the Japanese pullback.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$)</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">Jul 2004</th>
<th scope="col">Last 12 Months Average </th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>63.4</td>
<td>59.9</td>
<td>63.0</td>
<td>69.5</td>
<td>58.2</td>
<td>47.9</td>
<td>41.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Treasuries</td>
<td>19.2</td>
<td>14.6</td>
<td>22.4</td>
<td>31.8</td>
<td>23.2</td>
<td>10.0</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;)</td>
<td>1.0</td>
<td>21.1</td>
<td>19.1</td>
<td>16.9</td>
<td>13.4</td>
<td>16.3</td>
<td>13.7</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds</td>
<td>44.6</td>
<td>26.5</td>
<td>27.9</td>
<td>24.8</td>
<td>22.5</td>
<td>15.2</td>
<td>18.5</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks</td>
<td>-3.8</td>
<td>-2.1</td>
<td>9.8</td>
<td>1.6</td>
<td>3.1</td>
<td>4.2</td>
<td>9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds</td>
<td>0.3</td>
<td>-1.7</td>
<td>-7.3</td>
<td>-0.3</td>
<td>1.9</td>
<td>2.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks</td>
<td>2.1</td>
<td>1.3</td>
<td>-8.9</td>
<td>-5.2</td>
<td>-5.9</td>
<td>-0.1</td>
<td>-4.2</td>
</tr>
</tbody>
</table>


</html>

Net purchases of securities by foreign investors in US markets picked up slightly in September, reaching $63.4 billion, after a dip to $59.9 billion in August. Foreign investor participation in US capital markets is thus running [...]

Net Foreign Purchases of Securities in US Market Increase in September; Japanese Pullback Offset by UK, Others

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

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

Charts of the Week: Tariff Truce, Tenuous Trust

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

250430A.jpg

250430B.jpg

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

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

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

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

250430C.jpg

250430D.jpg

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

Personal Income, Consumption, and Prices in March

250430F20.jpg

250430G20.jpg

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

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

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

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

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

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

U.S. Pending Home Sales Surge in March

Sandy Batten

250430F5.jpg

250430G5.jpg

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

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

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

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

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

250430H5.jpg

250430I5.jpg

- 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 2004

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Philadelphia Fed Activity Index Eased

Philadelphia Fed Activity Index Eased

Unemployment Rates Down in Hong Kong & Sweden

Initial Claims for Unemployment Insurance Fell

Leading Indicators Down Again

Leading Indicators Down Again

Consumer Prices Strong

Net Foreign Purchases of Securities in US Market Increase in September; Japanese Pullback Offset by UK, Others