Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031203e.jpg" width="353">
The mood of French consumers continues to be is one of pessimism. In the latest survey, consumer confidence fell to -30, a one point drop from October and 12 points below November of 2002.
Consumers are on balance, more pessimistic about their present and future living standards. Although there was an increase in the balance who have seen an improvement in their present financial situation, the balance seeing an improvement in their future financial situation declined. Consumers have not changed their outlook for unemployment. The balance of those who expect more unemployment over those who expect less is still a high 62.
In the past, consumer confidence has been an important factor in forecasting consumer spending, but it has seemed to have little influence recently. Consumers have continued spending in spite of their pessimism. For example, the trend of household consumption of manufactured goods shown in the attached chart has been generally upward. Such spending increased 1.6% in October and was 4.32% above October, 2002.
It may be that the drop in consumer confidence, intensified by 9/11, has resulted in a more than cyclical downward shift in the general level of overall confidence.

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Confidence of French Households (Balance of Positive over Negative Responses)&nbsp;</th>
<th scope="col">Nov 2003</th>
<th scope="col">Oct 2003</th>
<th scope="col">Nov 2002&nbsp;</th>
<th scope="col">M/M Chg</th>
<th scope="col">Y/Y&nbsp; Chg</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Overall&nbsp;</td>
<td>-30</td>
<td>-29</td>
<td>-18</td>
<td>-1</td>
<td>-12</td>
<td>-16</td>
<td>-7</td>
<td>-1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Improved past living standards</td>
<td>-70</td>
<td>-69</td>
<td>-44</td>
<td>-1</td>
<td>-36</td>
<td>-40</td>
<td>-18</td>
<td>-14</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Improved future living standards</td>
<td>-37</td>
<td>-35</td>
<td>-22</td>
<td>-2</td>
<td>-15</td>
<td>-18</td>
<td>-18</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Increasing unemployment</td>
<td>62</td>
<td>62</td>
<td>56</td>
<td>0</td>
<td>-6</td>
<td>50</td>
<td>26</td>
<td>-16</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Improved past financial situation</td>
<td>16</td>
<td>14</td>
<td>17</td>
<td>+2</td>
<td>-1</td>
<td>20</td>
<td>22</td>
<td>19</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Improved future financial situation</td>
<td>-7</td>
<td>-5</td>
<td>1</td>
<td>-2</td>
<td>-8</td>
<td>2</td>
<td>3</td>
<td>5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; A good time to make purchases</td>
<td>-18</td>
<td>-18</td>
<td>-12</td>
<td>0</td>
<td>-6</td>
<td>-12</td>
<td>5</td>
<td>8</td>
</tr>
<tr>
<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>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Consumption of Manufactured Goods</td>
<td>Oct 2003</td>
<td>Sep 2003</td>
<td>Oct 2002&nbsp;</td>
<td>M/M&nbsp; %</td>
<td>Y/Y&nbsp; %</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Monthly average (Billions 1995 Euros)</td>
<td>17.8</td>
<td>17.5</td>
<td>17.1</td>
<td>1.60</td>
<td>4.32</td>
<td>17.0</td>
<td>16.8</td>
<td>16.2</td>
</tr>
</tbody>
</table>
</body>
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The mood of French consumers continues to be is one of pessimism. In the latest survey, consumer confidence fell to -30, a one point drop from October and 12 points below November of 2002. Consumers are on balance, more pessimistic [...]

Consumer Confidence in France Declines

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031202a.jpg" width="353">
Gold prices topped $400 per ounce yesterday for the first time since early 1996. The rise accompanied other indications of strength in pricing power including the rise in the November ISM price index.
During the last twenty years there has been a 41% correlation between the level of gold prices and the y/y change in the CPI.
Prices of metals generally have been strong as industrial activity has firmed. Stainless steel scrap prices have risen nearly 50% since yearend 2002 and copper prices have risen 37%. Aluminum prices also have risen 13%.
During the last twenty years there has been a 43% correlation between the y/y change in metals prices as measured by the Journal of Commerce/ECRI index and the change in factory sector industrial production.

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<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D304/@D304.HTM"> Commodity Prices</a></th>
<th scope="col">12/01/03</th>
<th scope="col">12/31/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gold: Handy &amp; Harman Base Price ($/oz.)</td>
<td>$400.25</td>
<td>$344.80</td>
<td>26.5%</td>
<td>$310.05</td>
<td>$271.06</td>
<td>$278.88</td>
</tr>
<tr>
<td class="firstcol">Stainless Steel Scrap ($/gross ton)</td>
<td>$1,159.00</td>
<td>$782.00</td>
<td>57.0%</td>
<td>$717.10</td>
<td>$650.52</td>
<td>$739.07</td>
</tr>
<tr class="odd">
<td class="firstcol">Copper: High Grade (COMEX, $/Lb.)</td>
<td>$0.96</td>
<td>$0.70</td>
<td>26.3%</td>
<td>$0.72</td>
<td>$0.73</td>
<td>$0.84</td>
</tr>
</tbody>
</table>
Chain Store Sales Begin Holiday Season Soft 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031202c.jpg" width="353">
Chain store sales fell 0.1% during the week that included Thanksgiving, according to the BTM-UBSW survey. Following the 1.2% gain in sales the opening week of November, weekly sales have been lackluster.
Sales during November with just one day left to tally were 0.5% ahead of October. That followed a 0.6% m/m October decline.
During the last five years there has been a 61% correlation between the year-to-year percent change in the BTM-UBSW measure of chain store sales and the change in non-auto retail sales less gasoline.
The BTM-UBSW retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Analysis from the Federal Reserve Bank of Richmond titled &quot;Why Does Consumer Sentiment Predict Household Spending?&quot; is available <a href="http://www.rich.frb.org/pubs/eq/search.cfm/article=187"> here</a>.

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<thead>
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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">11/29/03</th>
<th scope="col">11/22/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>422.8</td>
<td>423.3</td>
<td>5.2%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
Challenger Layoffs Eased 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031202b.jpg" width="353">
Announced job cuts in November reversed much of the prior month&#39;s rise according to Challenger, Gray &amp; Christmas. Job cut announcements fell 42.1% m/m after having more than doubled in October.
The three month moving average of job cut announcements nevertheless rose (-13.8% y/y) due to the October spike.
Job cut announcements eased m/m in the aerospace (-85.4% y/y), automotive (-44.2% y/y), chemical (-86.4% y/y), and financial (-90.9% y/y) industries. Announced layoffs in the electronics industry surged m/m although they were down 21.3% y/y.
Job cut announcements differ from layoffs in that many are achieved through attrition or just never occur.
During the last ten years there has been an 83% (inverse) correlation between the three month average level of announced job cuts and the y/y percent change payroll employment.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM"> Challenger, Gray &amp; Christmas</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>99,452</td>
<td>171,874</td>
<td>-36.9%</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
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</body>
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Gold prices topped $400 per ounce yesterday for the first time since early 1996. The rise accompanied other indications of strength in pricing power including the rise in the November ISM price index. During the last twenty years [...]

Gold Prices Top $400/oz.

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031201c.jpg" width="353">
Manufacturing in the Euro-zone rose for the third month in November according to the diffusion index based on a survey of the purchasing managers of some 3000 companies by Henley-on-Thames, England based NTC Research for Reuters Group, PLC. (A value of the index above 50 indicates expansion, while one below 50 indicates contraction.) In November the overall index rose to 52.19, a rise of 1.72% from October and 5.61% from November, 2002.
November marked the fourth month of expansion for the leading components of the overall index, new orders and output . New orders were especially strong, rising 3.36% in November and output rose 2.33%. Among the lagging indicators, employment, though still in a contractionary phase became less so in November, rising 1.15% and is now 4.78% above the corresponding month of 2002. The declines in delivery times and inventories may be due to the adjustments that normally occur in the months that follow a move from contraction to expansion in new orders and output.

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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Euro-zone PMI Indexes of&nbsp;&nbsp; Manufacturing</th>
<th scope="col">Q3 2003</th>
<th scope="col">Q2 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Overall</td>
<td>52.19</td>
<td>51.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Output</td>
<td>54.36</td>
<td>53.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>54.99</td>
<td>53.20</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>48.47</td>
<td>47.92</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Delivery times</td>
<td>48.01</td>
<td>48.25</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>46.07</td>
<td>47.75</td>
</tr>
</tbody>
</table>
</body>
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Manufacturing in the Euro-zone rose for the third month in November according to the diffusion index based on a survey of the purchasing managers of some 3000 companies by Henley-on-Thames, England based NTC Research for Reuters [...]

Manufacturing in the Euro-zone Rises for Third Month in a Row in November

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031201a.jpg" width="353">
The Purchasing Managers&#146; Composite Index (PMI) released by the Institute of Supply Management jumped to the highest level since December 1983. Rising to 62.8 in November, the reading confirmed that recovery in the factory sector is underway. Consensus expectations were for a reading of 57.5.
During the last twenty years there has been an 83% correlation between the level of the PMI index and the three month growth in factory sector industrial production. There has been a 63% correlation between the level of the PMI Composite Index and quarterly growth in real GDP.
The new orders index rose to 73.7. Up 9.4 points versus October, it also was at the highest level since December 1983. The production index rose to 68.3, up eleven points in just the last two months.
The employment index (51.0) pierced the breakeven level for the first month since September 2000. There has been a 72% correlation during the last ten years between the ISM employment index and the one-month change in factory sector payrolls.
The inventory index rose to 50.0. Up nearly 10 points since the Spring, it was the first reading suggesting an end to inventory decumulation since 2000.
The prices paid index rose last month to 64.0. There has been a 28% correlation between the prices paid index and the y/y change in the finished goods PPI over the last ten years. The correlation with the intermediate materials PPI has been a higher 62%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;02</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>62.8</td>
<td>53.7</td>
<td>50.5</td>
<td>52.4</td>
<td>44.0</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>73.7</td>
<td>64.3</td>
<td>52.4</td>
<td>56.7</td>
<td>46.2</td>
<td>52.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>64.0</td>
<td>58.5</td>
<td>53.0</td>
<td>57.6</td>
<td>42.9</td>
<td>64.8</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Jumped Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 1, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031201b.jpg" width="353">
The value of total construction put in place added another 0.9% (7.0% y/y) in October to the strong gains of the prior four months. A 0.5% rise had been expected by the Consensus.
Private residential building activity surged 2.2% and pulled the year-to-date level up 9.7%. Single family home building rose 2.6% in October and was up 13.7% YTD.
Nonresidential building activity fell 2.1% as commercial construction fell 2.5% (-3.1% y/y) and education spending fell 3.4% (1.8% y/y). Office construction rose 0.6% (-12.2% y/y) and managed the third gain in as many months
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</a></th>
<th scope="col"> Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.9%</td>
<td>1.3%</td>
<td>7.0%</td>
<td>1.1%</td>
<td>2.7%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.8%</td>
<td>1.5%</td>
<td>7.1%</td>
<td>-0.2%</td>
<td>1.4%</td>
<td>8.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>2.2%</td>
<td>1.5%</td>
<td>12.6%</td>
<td>8.6%</td>
<td>3.3%</td>
<td>7.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-2.1%</td>
<td>1.6%</td>
<td>-3.6%</td>
<td>-13.0%</td>
<td>-1.3%</td>
<td>8.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.2%</td>
<td>0.8%</td>
<td>6.6%</td>
<td>5.3%</td>
<td>7.4%</td>
<td>9.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Purchasing Managers Composite Index (PMI) released by the Institute of Supply Management jumped to the highest level since December 1983. Rising to 62.8 in November, the reading confirmed that recovery in the factory sector is [...]

ISM Factory Index a Barnburner

USD/EUR exchange rate uncoupling from interest rate differential

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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.

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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: December 2003

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