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/061124j.jpg" width="353">
Sweden&#39;s trade balance widened in October from a year ago to SKr10.6 billion from SKr10.2 billion. Exports expanded SKr11.4 billion, or 13.0%, while imports gained SKr11.0 billion, a 14.2% increase.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061124k.jpg" width="353">
Statistics Sweden reported these totals for October this morning, and they published the details by type of product through September. The largest Swedish export category is machinery and transport equipment; these were SKr42.6 billion in September, constituting 45.2% of total exports. These products include cars, construction machinery and office equipment, among others. &quot;Other manufactured goods&quot; exports totaled SKr19.1 billion in September and were 20.3% of the total. Both of these large segments have diminished somewhat in importance over the last couple of years, as mineral fuel shipments have expanded. For growth comparisons, we use the average of 2004, the period just prior to the recent explosion in energy prices. A mere SKr4.6 billion in September, Sweden&#39;s refined petroleum product shipments were, nonetheless, almost 47% larger than in 2004, compared with 23% increases over that period for the other manufactured goods and capital goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061124l.jpg" width="353">
On the import side, machinery purchases were SKr31.2 billion in September, up 25% from the 2004 average. Other manufactured goods were SKr13.1 billion, compared with SKr9.3 billion in 2004. Mineral fuel imports increased a great deal more, some 70% on a base of SKr6.0 billion, bringing them to SKr10.2 billion.
Sweden&#39;s strength in manufacturing, particularly of capital goods, has enabled it to weather the energy price surge fairly well. The base for this performance was actually set in the early 1990s when its exports grew rapidly, lifting its trade accounts to a substantial surplus following years of little or no positive balance, a critical position for this very open economy. Exports have been vigorous again since 2003.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">SWEDEN, NSA, Bil.Kr Selected Item</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">Oct 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>+10.6</td>
<td>+11.4</td>
<td>+8.2</td>
<td>+10.2</td>
<td>+11.7</td>
<td>+13.8</td>
<td>+12.2</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>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>99.0</td>
<td>94.3</td>
<td>83.1</td>
<td>87.6</td>
<td>81.0</td>
<td>75.4</td>
<td>68.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mineral Fuels</td>
<td>--</td>
<td>4.6</td>
<td>5.9</td>
<td>5.4</td>
<td>4.4</td>
<td>3.1</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Machinery &amp; Transport Equip</td>
<td>--</td>
<td>42.6</td>
<td>35.0</td>
<td>39.6</td>
<td>36.4</td>
<td>34.6</td>
<td>31.3</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>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>88.4</td>
<td>82.9</td>
<td>74.9</td>
<td>77.4</td>
<td>69.3</td>
<td>61.6</td>
<td>56.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mineral Fuels</td>
<td>--</td>
<td>10.2</td>
<td>10.1</td>
<td>10.6</td>
<td>8.1</td>
<td>6.0</td>
<td>5.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Machinery &amp; Transport Equip</td>
<td>--</td>
<td>31.2</td>
<td>26.3</td>
<td>25.1</td>
<td>27.3</td>
<td>24.9</td>
<td>22.9</td>
</tr>
</tbody>
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Sweden's trade balance widened in October from a year ago to SKr10.6 billion from SKr10.2 billion. Exports expanded SKr11.4 billion, or 13.0%, while imports gained SKr11.0 billion, a 14.2% increase. Statistics Sweden reported these [...]

Sweden's Strong Exports Limit Harm from Energy Price Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122j.jpg" width="353">
Is a turkey dinner cheaper this year than last? Maybe so. The BLS&#39;s CPI Detail includes some actual prices for a number of basic commodities and foodstuffs in consumers&#39; budgets. Haver carries these in the CPIDATA database. We don&#39;t have all the ingredients in a turkey dinner, but there&#39;s enough for an idea of the turkey and stuffing along with some potatoes. We&#39;ve used the CPI for October compared with October a year ago.
The turkey is NOT cheaper, but it&#39;s not up very much. The price is $1.149/pound, up a mere 1.2 cents or 1.1%. A 15-pound bird thus costs about 20 cents more. (Since the BLS price is for frozen turkey, we might well have bought it toward the end of October and paid this price.) Potatoes are also up, $0.04 a pound to $0.545; that&#39;s 7.9%, and if we use 5 pounds, the increase also amounts to just 20 cents over last year. Prices of bread and flour are also higher, bread by 5.2% and flour by 3.2%.
But all the other ingredients have lower prices. Eggs are off marginally, about a penny a dozen and milk is down 11 cents a gallon. Butter, used widely in this meal to baste the turkey, help mash the potatoes and as an ingredient in the stuffing, is down more noticeably: 20 cents a pound, a 6.4% decrease. We assume we&#39;ll use a whole pound. Coffee has declined 9% to $3.14, saving us 15 cents on a half-pound. Finally, we have to have some nice wine with this feast and a typical liter bottle is off 56 cents, saving us $1.12 if we consume two bottles.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122k.jpg" width="353">
So the main course of our Thanksgiving dinner costs $43.50, down from $44.60 in 2005. The BLS data also include apples and sugar, so we could have made an apple pie for dessert. Apples have had a hard season and their cost is 21% ahead of a year ago. Ice cream, for the &quot;a la mode&quot;, is up 4%. So if we had too much dessert, we might have eaten up the savings on the main meal. In any event, we probably wouldn&#39;t have done any worse than break even on our Thanksgiving dinner expenses compared with 2005. Does that mean we can spend more for Christmas?
[This little section of the CPI data is used frequently for its gas and utility prices, but the food portion is an extensive collection, particularly of various cuts of beef and a number of fruits. The energy data are also available for select metropolitan areas and both the food and energy products are given for the four major Census regions, although not all foods are published for all four regions.]

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Amount</th>
<th scope="col">Oct 2006 Price</th>
<th scope="col">Value</th>
<th scope="col">Oct 2005 Price</th>
<th scope="col">Value</th>
<th scope="col">Change</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Turkey, Frozen, Whole ($/lb)</td>
<td>15</td>
<td>1.149</td>
<td>17.24</td>
<td>1.137</td>
<td>17.06</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Potatoes, White ($/lb)</td>
<td>5</td>
<td>0.545</td>
<td>2.72</td>
<td>0.505</td>
<td>2.52</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Bread, White, Pan ($/lb)</td>
<td>1</td>
<td>1.097</td>
<td>1.10</td>
<td>1.043</td>
<td>1.04</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Flour, White, All Purpose ($/lb)</td>
<td>1 1/2 C.</td>
<td>0.321</td>
<td>0.12</td>
<td>0.311</td>
<td>0.12</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Eggs, Grade A, Large ($/dozen)</td>
<td>2 eggs</td>
<td>1.257</td>
<td>0.21</td>
<td>1.264</td>
<td>0.21</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">Milk, Fresh, Whole, Fortified ($/gal)</td>
<td>1/2 gal.</td>
<td>3.064</td>
<td>1.53</td>
<td>3.171</td>
<td>1.59</td>
<td>-3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Butter, Salted, Grade AA, Stick ($/lb)</td>
<td>1</td>
<td>2.981</td>
<td>2.98</td>
<td>3.186</td>
<td>3.19</td>
<td>-6.4%</td>
</tr>
<tr>
<td class="firstcol">Coffee, 100%, Ground Roast ($/lb)</td>
<td>1</td>
<td>3.138</td>
<td>1.57</td>
<td>3.447</td>
<td>1.72</td>
<td>-9.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Table Wine ($/liter)</td>
<td>2</td>
<td>8.013</td>
<td>16.03</td>
<td>8.575</td>
<td>17.15</td>
<td>-6.6%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
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Is a turkey dinner cheaper this year than last? Maybe so. The BLS's CPI Detail includes some actual prices for a number of basic commodities and foodstuffs in consumers' budgets. Haver carries these in the CPIDATA database. We don't [...]

Prices Down a Little for Home-Cooked Thanksgiving Dinner

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122e.jpg" width="353">
The University of Michigan&#39;s full month November reading of consumer sentiment slipped 1.6% from October to 92.1, about as indicated in the preliminary report.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
The reading of current economic conditions fell 1.2% but the current read of personal finances improved 0.8% (+15.5% y/y) as opposed to the a slight decline reported earlier. Perceived buying conditions for large household goods fell further than initially indicated (-0.6% y/y.
Expectations for the economy were unchanged from the preliminary reading and fell 1.9% after the prior month&#39;s 8.4% m/m surge.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122f.jpg" width="353">
Expected inflation during the next year fell to 3.3%, a bit lower than the earlier read and the lowest since early 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also fell m/m to 3.3%.
Consumers&#39; opinion about gov&#39;t economic policy improved even more than initially indicated, by 5.7% (10.8% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">November</th>
<th scope="col">November (Prelim.)</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.1</td>
<td>92.3</td>
<td>93.6</td>
<td>12.9%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.0</td>
<td>106.5</td>
<td>107.3</td>
<td>5.8%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.2</td>
<td>83.2</td>
<td>84.8</td>
<td>19.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
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The University of Michigan's full month November reading of consumer sentiment slipped 1.6% from October to 92.1, about as indicated in the preliminary report. During the last ten years there has been a 76% correlation between the [...]

U.S. Consumer Sentiment Edged Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122c.jpg" width="353">
The total number of mortgage applications reversed all of the prior period&#39;s gain and fell 2.8% last week, according to the Mortgage Bankers Association. Applications nevertheless remained 6.3% higher this month versus the October average.
Purchase applications fell 2.8% and also reversed the prior week&#39;s gain. On average November purchase applications remained 6.3% ahead of the October level. Purchase applications fell 3.6% last month from September on average.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The average size of an application to purchase a home rose to $225,800, up from $224,500 averaged last year and $206,800 during 2004.
Applications to refinance reversed most of the prior week&#39;s gain with a 4.3% decline but are up 9.7% from the October average which rose 3.5% from September.
The effective interest rate on a conventional 30-year mortgage fell for the second week, slightly to 6.32% and was down from a high last month of 6.57%. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing, however, increased to 6.12%. The peak for 15 year financing was 6.75% during June. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122d.jpg" width="353">
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Council of Economic Advisors Chairman Ed Lazear&#39;s discussion of the updated White House economic forecast is available <a href="http://www.whitehouse.gov/news/releases/2006/11/20061121-2.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">11/10/06</th>
<th scope="col">11/03/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>623.6</td>
<td>647.5</td>
<td>-1.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>401.4</td>
<td>412.9</td>
<td>-15.0%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,935.3</td>
<td>2,022.2</td>
<td>22.2%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
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The total number of mortgage applications reversed all of the prior period's gain and fell 2.8% last week, according to the Mortgage Bankers Association. Applications nevertheless remained 6.3% higher this month versus the October [...]

Mortgage Applications Reversed Gain

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122a.jpg" width="353">
Initial claims for jobless insurance increased 12,000 to 321,000 last week from a slightly revised level during the prior period. Consensus expectations had been for a little changed reading of 310,000 claims.
This latest figure covers the survey period for November nonfarm payrolls and claims rose 21,000 (7.0%) from a depressed level during the October period.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims rose to 317,000 (0.1% y/y), its highest level in nearly three months. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122b.jpg" width="353">
There were no special factors sighted for the latest week&#39;s increase in claims. For the prior week, the report indicated that the largest increases in initial claims were in Mississippi (+547), California (+414), Massachusetts (+258), Idaho (+243), and North Carolina (+55), while the largest decreases were in Kentucky (-5,561), Illinois (-3,829), Pennsylvania (-3,645), Georgia (-2,977), and Florida (-2,291).
Continuing claims for unemployment insurance rose 14,000 after a 3,000 worker decline the prior week that slightly weaker than reported initially.
The insured rate of unemployment remained at 1.9%, the average rate since February.
Who&#39;s Worrying About Inflation? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20061201/cover.pdf">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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/18/06</th>
<th scope="col">11/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>321</td>
<td>309</td>
<td>-0.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,454</td>
<td>-10.2%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
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Initial claims for jobless insurance increased 12,000 to 321,000 last week from a slightly revised level during the prior period. Consensus expectations had been for a little changed reading of 310,000 claims. This latest figure [...]

Initial Unemployment Insurance Claims Bounced Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122j.jpg" width="353">
Is a turkey dinner cheaper this year than last? Maybe so. The BLS&#39;s CPI Detail includes some actual prices for a number of basic commodities and foodstuffs in consumers&#39; budgets. Haver carries these in the CPIDATA database. We don&#39;t have all the ingredients in a turkey dinner, but there&#39;s enough for an idea of the turkey and stuffing along with some potatoes. We&#39;ve used the CPI for October compared with October a year ago.
The turkey is NOT cheaper, but it&#39;s not up very much. The price is $1.149/pound, up a mere 1.2 cents or 1.1%. A 15-pound bird thus costs about 20 cents more. (Since the BLS price is for frozen turkey, we might well have bought it toward the end of October and paid this price.) Potatoes are also up, $0.04 a pound to $0.545; that&#39;s 7.9%, and if we use 5 pounds, the increase also amounts to just 20 cents over last year. Prices of bread and flour are also higher, bread by 5.2% and flour by 3.2%.
But all the other ingredients have lower prices. Eggs are off marginally, about a penny a dozen and milk is down 11 cents a gallon. Butter, used widely in this meal to baste the turkey, help mash the potatoes and as an ingredient in the stuffing, is down more noticeably: 20 cents a pound, a 6.4% decrease. We assume we&#39;ll use a whole pound. Coffee has declined 9% to $3.14, saving us 15 cents on a half-pound. Finally, we have to have some nice wine with this feast and a typical liter bottle is off 56 cents, saving us $1.12 if we consume two bottles.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122k.jpg" width="353">
So the main course of our Thanksgiving dinner costs $43.50, down from $44.60 in 2005. The BLS data also include apples and sugar, so we could have made an apple pie for dessert. Apples have had a hard season and their cost is 21% ahead of a year ago. Ice cream, for the &quot;a la mode&quot;, is up 4%. So if we had too much dessert, we might have eaten up the savings on the main meal. In any event, we probably wouldn&#39;t have done any worse than break even on our Thanksgiving dinner expenses compared with 2005. Does that mean we can spend more for Christmas?
[This little section of the CPI data is used frequently for its gas and utility prices, but the food portion is an extensive collection, particularly of various cuts of beef and a number of fruits. The energy data are also available for select metropolitan areas and both the food and energy products are given for the four major Census regions, although not all foods are published for all four regions.]

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Amount</th>
<th scope="col">Oct 2006 Price</th>
<th scope="col">Value</th>
<th scope="col">Oct 2005 Price</th>
<th scope="col">Value</th>
<th scope="col">Change</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Turkey, Frozen, Whole ($/lb)</td>
<td>15</td>
<td>1.149</td>
<td>17.24</td>
<td>1.137</td>
<td>17.06</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Potatoes, White ($/lb)</td>
<td>5</td>
<td>0.545</td>
<td>2.72</td>
<td>0.505</td>
<td>2.52</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Bread, White, Pan ($/lb)</td>
<td>1</td>
<td>1.097</td>
<td>1.10</td>
<td>1.043</td>
<td>1.04</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Flour, White, All Purpose ($/lb)</td>
<td>1 1/2 C.</td>
<td>0.321</td>
<td>0.12</td>
<td>0.311</td>
<td>0.12</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Eggs, Grade A, Large ($/dozen)</td>
<td>2 eggs</td>
<td>1.257</td>
<td>0.21</td>
<td>1.264</td>
<td>0.21</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">Milk, Fresh, Whole, Fortified ($/gal)</td>
<td>1/2 gal.</td>
<td>3.064</td>
<td>1.53</td>
<td>3.171</td>
<td>1.59</td>
<td>-3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Butter, Salted, Grade AA, Stick ($/lb)</td>
<td>1</td>
<td>2.981</td>
<td>2.98</td>
<td>3.186</td>
<td>3.19</td>
<td>-6.4%</td>
</tr>
<tr>
<td class="firstcol">Coffee, 100%, Ground Roast ($/lb)</td>
<td>1</td>
<td>3.138</td>
<td>1.57</td>
<td>3.447</td>
<td>1.72</td>
<td>-9.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Table Wine ($/liter)</td>
<td>2</td>
<td>8.013</td>
<td>16.03</td>
<td>8.575</td>
<td>17.15</td>
<td>-6.6%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Edged Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122e.jpg" width="353">
The University of Michigan&#39;s full month November reading of consumer sentiment slipped 1.6% from October to 92.1, about as indicated in the preliminary report.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
The reading of current economic conditions fell 1.2% but the current read of personal finances improved 0.8% (+15.5% y/y) as opposed to the a slight decline reported earlier. Perceived buying conditions for large household goods fell further than initially indicated (-0.6% y/y.
Expectations for the economy were unchanged from the preliminary reading and fell 1.9% after the prior month&#39;s 8.4% m/m surge.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122f.jpg" width="353">
Expected inflation during the next year fell to 3.3%, a bit lower than the earlier read and the lowest since early 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also fell m/m to 3.3%.
Consumers&#39; opinion about gov&#39;t economic policy improved even more than initially indicated, by 5.7% (10.8% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">November</th>
<th scope="col">November (Prelim.)</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.1</td>
<td>92.3</td>
<td>93.6</td>
<td>12.9%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.0</td>
<td>106.5</td>
<td>107.3</td>
<td>5.8%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.2</td>
<td>83.2</td>
<td>84.8</td>
<td>19.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Bounced Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122a.jpg" width="353">
Initial claims for jobless insurance increased 12,000 to 321,000 last week from a slightly revised level during the prior period. Consensus expectations had been for a little changed reading of 310,000 claims.
This latest figure covers the survey period for November nonfarm payrolls and claims rose 21,000 (7.0%) from a depressed level during the October period.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims rose to 317,000 (0.1% y/y), its highest level in nearly three months. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122b.jpg" width="353">
There were no special factors sighted for the latest week&#39;s increase in claims. For the prior week, the report indicated that the largest increases in initial claims were in Mississippi (+547), California (+414), Massachusetts (+258), Idaho (+243), and North Carolina (+55), while the largest decreases were in Kentucky (-5,561), Illinois (-3,829), Pennsylvania (-3,645), Georgia (-2,977), and Florida (-2,291).
Continuing claims for unemployment insurance rose 14,000 after a 3,000 worker decline the prior week that slightly weaker than reported initially.
The insured rate of unemployment remained at 1.9%, the average rate since February.
Who&#39;s Worrying About Inflation? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20061201/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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/18/06</th>
<th scope="col">11/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>321</td>
<td>309</td>
<td>-0.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,454</td>
<td>-10.2%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Mortgage Applications Reversed Gain 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122c.jpg" width="353">
The total number of mortgage applications reversed all of the prior period&#39;s gain and fell 2.8% last week, according to the Mortgage Bankers Association. Applications nevertheless remained 6.3% higher this month versus the October average.
Purchase applications fell 2.8% and also reversed the prior week&#39;s gain. On average November purchase applications remained 6.3% ahead of the October level. Purchase applications fell 3.6% last month from September on average.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The average size of an application to purchase a home rose to $225,800, up from $224,500 averaged last year and $206,800 during 2004.
Applications to refinance reversed most of the prior week&#39;s gain with a 4.3% decline but are up 9.7% from the October average which rose 3.5% from September.
The effective interest rate on a conventional 30-year mortgage fell for the second week, slightly to 6.32% and was down from a high last month of 6.57%. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing, however, increased to 6.12%. The peak for 15 year financing was 6.75% during June. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061122d.jpg" width="353">
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Council of Economic Advisors Chairman Ed Lazear&#39;s discussion of the updated White House economic forecast is available <a href="http://www.whitehouse.gov/news/releases/2006/11/20061121-2.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">11/10/06</th>
<th scope="col">11/03/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>623.6</td>
<td>647.5</td>
<td>-1.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>401.4</td>
<td>412.9</td>
<td>-15.0%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,935.3</td>
<td>2,022.2</td>
<td>22.2%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121j.jpg" width="353">
As a small country with a population of only 4.2 million, migration in and out of New Zealand tends to amplify economic trends that would not be noticed in a larger country. The peripatetic New Zealanders frequently go to and from Australia and the UK staying a year or more. In recent years there has been an influx of students from Asia who also tend to stay for a period of years completing their education and then returning home. New Zealand tracks these movements and publishes monthly data on net permanent and long term migration. (Total net migration and net migration by country can be found in the Haver data base, ANZ.)<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121k.jpg" width="353">
Net permanent and long-term migration is derived by subtracting permanent and long-term departures from permanent and long-term arrivals. Permanent and long- term arrivals include overseas migrants intending to stay for a period of twelve months or more or permanently, plus New Zealand residents returning after an absence of 12 months or more. Permanent and long-term departures include New Zealand residents intending to stay abroad for 12 months or more or permanently plus overseas visitors departing after a stay of 12 months or more.
As the first chart shows, year to year differences in net migration are largely responsible for the unusual ups and downs in the total population. The large influx of immigrants in 2001 and 2002 had a notable effect on the housing market as can be seen in the second chart that shows the year to year changes in housing prices and net migration. The decline in net migration has, in part, been a factor in the deceleration of GDP growth that has taken place since the end of 2004 as can be seen in the third chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121l.jpg" width="353">
Net migration varies from quarter to quarter but the downward trend started in late 2002 seems to have abated. In the third quarter of this year, net migration was 4,965, the highest quarterly figure since the first quarter of 2004. To the extent that migration matters, economic developments in New Zealand may be looking up.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">NEW ZEALAND&nbsp;</th>
<th scope="col">Oct 06</th>
<th scope="col">Q3 06&nbsp;</th>
<th scope="col">Q2 06&nbsp;</th>
<th scope="col">Q 1 06&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</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">Net Migration (persons)</td>
<td>2352</td>
<td>4965</td>
<td>-1201</td>
<td>4772</td>
<td>6971</td>
<td>15108</td>
<td>34906</td>
<td>38198</td>
<td>9726</td>
</tr>
<tr>
<td class="firstcol">Population (000)</td>
<td></td>
<td>4152</td>
<td>4140</td>
<td>4134</td>
<td>4105</td>
<td>4065</td>
<td>4018</td>
<td>3950</td>
<td>3891</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;</td>
<td></td>
<td>Q3 06&nbsp;</td>
<td>Q2 06&nbsp;</td>
<td>Q 1 06&nbsp;</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Real GDP (SAAR)</td>
<td></td>
<td></td>
<td>1.69</td>
<td>2.59</td>
<td>2.12</td>
<td>4.16</td>
<td>3.64</td>
<td>4.23</td>
<td>2.51</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; House Prices (% Chg)</td>
<td></td>
<td></td>
<td>3.69</td>
<td>10.31</td>
<td>14.51</td>
<td>17.97</td>
<td>19.41</td>
<td>9.51</td>
<td>1.83</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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As a small country with a population of only 4.2 million, migration in and out of New Zealand tends to amplify economic trends that would not be noticed in a larger country. The peripatetic New Zealanders frequently go to and from [...]

Migration and the New Zealand Economy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121a.jpg" width="353">
 Regular unleaded gasoline prices at the pump rose a penny last week to an average $2.24 per gallon. It was the third increase in the last four weeks since the low of $2.21. Average gas prices this month nevertheless remained down three cents from the October average of $2.25 per gallon.
This week, the spot market (NY harbor) price for a gallon of regular gasoline has risen to an average $1.60 from $1.57 last week. Fuel oil prices similarly have shown little decline ahead of the heating season. Yesterday&#39;s spot price of $1.62 per gallon compared to $1.65 during October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121b.jpg" width="353">
Crude oil prices, however, have moved lower. WTI crude yesterday traded for $56.46 (-1.3% y/y) per barrel versus an average $58.88 during October and $63.86 in September.
The heating season also has given some lift to natural gas prices. At $7.35 per mmbtu (-28.5% y/y) yesterday, the Henry Hub price was up from an average of $5.77 in October and $4.90 during September. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121c.jpg" width="353">
The Department of Energy reported that gasoline demand during the latest four weeks rose 2.6% from the year earlier period. That increase, however, continued to understate the demand for gasoline according to estimated figures from the Oil &amp; Gas Journal which showed a 7.1% rise. These figures are available in the Haver OILWKLY database.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Financial Markets and the Federal Reserve are remarks by Fed Governor Kevin M. Warsh at the New York Stock Exchange and they are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20061121/default.htm">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/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">11/20/06</th>
<th scope="col">11/13/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.24</td>
<td>$2.23</td>
<td>1.7%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>


</html>

Regular unleaded gasoline prices at the pump rose a penny last week to an average $2.24 per gallon. It was the third increase in the last four weeks since the low of $2.21. Average gas prices this month nevertheless remained down [...]

Gasoline Prices Up A Bit

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

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Headline US PCE inflation elevated by sticky services prices

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

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

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

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Andrew Cates

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

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

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

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

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

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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 2006

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