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/050218e.jpg" width="353">
PPI data for Germany have shown a tendency toward stronger prices in recent months, The total PPI surged 0.8% in January, but this was mainly due to an abrupt upturn in energy, which swung from a 0.9% decline in December to a 2.8% jump in January. Excluding energy, the PPI rose 0.3%, slower than the December increase of 0.5%. (This PPI is a comprehensive measure including finished products, semi-processed items and raw materials. The US &quot;headline&quot; figure called PPI, in comparison, covers only final goods.)
The year-on-year performance of the German PPI has been firm, and January continued that trend. The total index was up 3.9%, following a 2.9% yearly increase in December. These were the largest since the middle of 2001. Energy is clearly one component of this gain. Chemicals and plastics, which are petroleum related, have also risen more rapidly.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050218d.jpg" width="353">
A third source of the increase in the German PPI is prices of metals and metal products. The dramatic increase in prices of basic metals is evident in the table and also in the second graph. Metals prices rose rapidly on world commodity markets last year. In the second graph, we show the closing spot price of copper on the London Metals Exchange; it is quoted there in US dollars and we converted that to euros. The correlation tool in Haver&#39;s DLX software indicates a substantial 85% correlation between that commodity price and the German PPI for basic metals. Further, the simple lead-lag feature of the software, implemented with the &lt;CTRL&gt; key and the right or left arrow, shows that the correlation is maximized at a 4-month lead for the commodity price. Thus, we can see in the chart that the pace of price increase in commodity markets has eased most recently, suggesting -- if this history is any guide -- the possibility for slowing during the next several months of the PPI for this very fundamental item in the production process.

<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/GERMANY/GERMANY.HTM">Germany: Producer Price Indexes (% chg)</a></th>
<th scope="col">Jan 2005</th>
<th scope="col">Dec 2004</th>
<th scope="col">Nov 2004</th>
<th scope="col">Year/ Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td>0.8</td>
<td>0.1</td>
<td>-0.4</td>
<td>3.9</td>
<td>2.9</td>
<td>1.8</td>
<td>0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">ex Energy</td>
<td>0.3</td>
<td>0.5</td>
<td>0.1</td>
<td>3.0</td>
<td>2.8</td>
<td>0.2</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>2.8</td>
<td>-0.9</td>
<td>-2.1</td>
<td>7.3</td>
<td>3.3</td>
<td>8.0</td>
<td>0.5</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">Manufacturing</td>
<td>0.3</td>
<td>0.1</td>
<td>-0.4</td>
<td>3.4</td>
<td>3.2</td>
<td>0.2</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Basic Metals</td>
<td>1.7</td>
<td>0.0</td>
<td>0.2</td>
<td>22.6</td>
<td>21.0</td>
<td>2.3</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">Fabricated Metals</td>
<td>1.1</td>
<td>0.1</td>
<td>0.2</td>
<td>5.9</td>
<td>4.8</td>
<td>0.2</td>
<td>0.7</td>
</tr>
</tbody>
</table>
</body>
</html>

PPI data for Germany have shown a tendency toward stronger prices in recent months, The total PPI surged 0.8% in January, but this was mainly due to an abrupt upturn in energy, which swung from a 0.9% decline in December to a 2.8% [...]

German PPI on Firm Uptrend; Could It Slow?

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050218b.jpg" width="353">
The preliminary February index of consumer sentiment from the University of Michigan fell to 94.2 versus Consensus expectations for stability at 95.5. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
The decline was due to a lower reading of consumer expectations which fell 2.7% m/m on top of a 5.7% decline in January. The decline in expectations was to the lowest level since last May and due to reduced expectations for business conditions &amp; real income growth.
The reading of current conditions was stable. Sentiment regarding personal finances vs. a year ago jumped. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment. Buying conditions for large household goods improved on strong gains in 4Q04.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050218c.jpg" width="353">
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></colgroup>
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<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">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>94.2</td>
<td>95.5</td>
<td>-0.2%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.9</td>
<td>110.9</td>
<td>7.0%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>83.4</td>
<td>85.7</td>
<td>-5.8%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
</body>
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The preliminary February index of consumer sentiment from the University of Michigan fell to 94.2 versus Consensus expectations for stability at 95.5. During the last ten years there has been a 74% correlation between the level of [...]

U.S. Consumer Sentiment Slipped Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050218a.jpg" width="353">
The PPI for finished goods rose an expected 0.3% in January and reversed the revised 0.3% December decline. Excluding food &amp; energy, however, prices rose 0.8% and were quite a bit stronger than Consensus expectations for a 0.2% rise.
Core finished consumer goods prices jumped 0.9% (2.6% y/y) led by a 1.1% (2.6% y/y) jump in nondurable prices. Strength was highlighted by, but not limited to, a 3.1% rise in prices of tobacco products. Consumer durable prices also rose a firm 0.7% (2.8% y/y) and capital goods prices were up 0.6% (2.8% y/y) as gains in several categories offset lower computer prices.
Finished energy prices fell 1.0% (+9.9% y/y) as not seasonally adjusted gains in most prices were more than anticipated by the seasonal adjustment factors. Finished food prices fell 0.2% (+4.2% y/y).
Intermediate goods prices also rose a firm 0.4% as food prices gained 0.9% (0.4% y/y) and core intermediate prices jumped 0.8% reflecting higher fertilizer prices and renewed strength in lumber prices.
Crude prices slumped another 2.0% pulled down by a 2.5% decline in core crude prices as iron &amp; steel scrap prices fell sharply again (+23.3% y/y). During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.3%</td>
<td>-0.3%</td>
<td>4.3%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.8%</td>
<td>0.2%</td>
<td>2.7%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>8.7%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.8%</td>
<td>0.5%</td>
<td>8.5%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-2.0%</td>
<td>-3.0%</td>
<td>10.8%</td>
<td>17.6%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-2.5%</td>
<td>-1.3%</td>
<td>13.1%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
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The PPI for finished goods rose an expected 0.3% in January and reversed the revised 0.3% December decline. Excluding food & energy, however, prices rose 0.8% and were quite a bit stronger than Consensus expectations for a 0.2% rise. [...]

PPI As Expected, But Core Prices Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050218a.jpg" width="353">
The PPI for finished goods rose an expected 0.3% in January and reversed the revised 0.3% December decline. Excluding food &amp; energy, however, prices rose 0.8% and were quite a bit stronger than Consensus expectations for a 0.2% rise.
Core finished consumer goods prices jumped 0.9% (2.6% y/y) led by a 1.1% (2.6% y/y) jump in nondurable prices. Strength was highlighted by, but not limited to, a 3.1% rise in prices of tobacco products. Consumer durable prices also rose a firm 0.7% (2.8% y/y) and capital goods prices were up 0.6% (2.8% y/y) as gains in several categories offset lower computer prices.
Finished energy prices fell 1.0% (+9.9% y/y) as not seasonally adjusted gains in most prices were more than anticipated by the seasonal adjustment factors. Finished food prices fell 0.2% (+4.2% y/y).
Intermediate goods prices also rose a firm 0.4% as food prices gained 0.9% (0.4% y/y) and core intermediate prices jumped 0.8% reflecting higher fertilizer prices and renewed strength in lumber prices.
Crude prices slumped another 2.0% pulled down by a 2.5% decline in core crude prices as iron &amp; steel scrap prices fell sharply again (+23.3% y/y). During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.3%</td>
<td>-0.3%</td>
<td>4.3%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.8%</td>
<td>0.2%</td>
<td>2.7%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>8.7%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.8%</td>
<td>0.5%</td>
<td>8.5%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-2.0%</td>
<td>-3.0%</td>
<td>10.8%</td>
<td>17.6%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-2.5%</td>
<td>-1.3%</td>
<td>13.1%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Slipped Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 18, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050218b.jpg" width="353">
The preliminary February index of consumer sentiment from the University of Michigan fell to 94.2 versus Consensus expectations for stability at 95.5. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
The decline was due to a lower reading of consumer expectations which fell 2.7% m/m on top of a 5.7% decline in January. The decline in expectations was to the lowest level since last May and due to reduced expectations for business conditions &amp; real income growth.
The reading of current conditions was stable. Sentiment regarding personal finances vs. a year ago jumped. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment. Buying conditions for large household goods improved on strong gains in 4Q04.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050218c.jpg" width="353">
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%">
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<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">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>94.2</td>
<td>95.5</td>
<td>-0.2%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.9</td>
<td>110.9</td>
<td>7.0%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>83.4</td>
<td>85.7</td>
<td>-5.8%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050217d.jpg" width="353">
The Mexican economy had its strongest performance since 2000, shown in GDP data reported late yesterday by the National Institute of Statistics, Geography and Information. Real GDP (in basic prices*) grew 1.7% in Q4, putting four-quarter growth at 4.9% and the total for 2004 at 4.4%. This was the largest increase since 6.6% in 2000.
In Q4, manufacturing and trade and tourism led the way. Manufacturing&#39;s actual growth was moderate, 0.5%, but that represented a turnaround from a decline of 0.2% in Q3. Wholesale and retail trade and restaurants and hotels together grew 4.0% in Q4, its strongest quarterly gain since Q1 2000, that is, nearly five years. Transportation and communication output rose 1.5% in the last quarter, somewhat less than Q3&#39;s 2.5%, but the four-quarter pace was a steamy 9.9%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050217e.jpg" width="353">
In recent years, the fortunes of the Mexican economy have been heavily tied to those of the United States. NAFTA is probably a contributor to that, as the correlation of the two countries&#39; GDP trends changed toward becoming much more parallel in the early 1990s when NAFTA was enacted. In the second graph here, the linkage is illustrated by the path of exports in maquiladora industries. Receipts from tourism were also up sharply during the first three quarters of 2004. These relationships with Mexican GDP growth are not exact, but they do suggest that Mexico&#39;s economy has different and less tense reactions to exchange rates and the price of oil than other countries described here in the last few days.
Mexican data are presented in Haver&#39;s EMERGELA database. As seen in the graph, the collection includes trade through the maquiladora mechanism; employment in maquiladoras is also contained in the database.

<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/EMERGELA/@E6/@E602/@E602.HTM">Mexico GDP</a> (1993 New Pesos, % Change)</th>
<th scope="col">Q4 2004</th>
<th scope="col">Q3 2004</th>
<th scope="col">Year/Year</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP*</td>
<td>1.7</td>
<td>0.9</td>
<td>4.9</td>
<td>4.4</td>
<td>1.4</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>0.5</td>
<td>-0.2</td>
<td>3.6</td>
<td>3.8</td>
<td>-1.3</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade &amp; Tourism</td>
<td>4.0</td>
<td>2.1</td>
<td>7.0</td>
<td>4.9</td>
<td>1.6</td>
<td>0.0</td>
</tr>
<tr>
<td class="firstcol">Transportation &amp; Communication</td>
<td>1.5</td>
<td>2.5</td>
<td>9.9</td>
<td>9.7</td>
<td>5.0</td>
<td>1.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The Mexican economy had its strongest performance since 2000, shown in GDP data reported late yesterday by the National Institute of Statistics, Geography and Information. Real GDP (in basic prices*) grew 1.7% in Q4, putting four- [...]

Mexican GDP for 2004 Shows Biggest Gain since 2000

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The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector improved in February to 23.9 from an unrevised 13.2 the prior month. Consensus expectations had been for a reading of 17.5.
During the last ten years there has been a 69% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 52% correlation with q/q growth in real GDP.
Shipments recovered sharply but orders improved just modestly as the number of employees fell. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months also improved but just moderately.
The prices paid index fell to the lowest level in a year. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0205.html">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050217g.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050217h.jpg" width="353">

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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>23.9</td>
<td>13.2</td>
<td>30.1</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>43.5</td>
<td>66.1</td>
<td>43.0</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
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The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector improved in February to 23.9 from an unrevised 13.2 the prior month. Consensus expectations had been for a reading of 17.5. During [...]

Philadelphia Fed Activity Index Improved

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Initial claims for unemployment insurance inched down another 2,000 to 302,000 last week, the lowest level since late 2000. The prior week&#39;s figure was revised up slightly and Consensus expectations had been for 315,000 claims.
The latest figure covers the February survey period for nonfarm payrolls and initial claims were 16,000 (5.0%) lower than the prior month.
The four week moving average of initial claims fell to 311,750 (-13.5% y/y).
Continuing claims for unemployment insurance fell 14,000 following a downwardly revised gain of 40,000 the prior week.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment. There has been a (negative) 66% correlation with the level of continuing claims.
The insured rate of unemployment fell to 2.1%, the lowest since 2001.

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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">02/12/05</th>
<th scope="col">02/05/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<tr>
<td class="firstcol">Initial Claims</td>
<td>302</td>
<td>304</td>
<td>-13.7%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,717</td>
<td>-15.9%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
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Initial claims for unemployment insurance inched down another 2,000 to 302,000 last week, the lowest level since late 2000. The prior week's figure was revised up slightly and Consensus expectations had been for 315,000 claims. The [...]

Initial Jobless Insurance Claims Held the Low Ground

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Import prices rose 0.9% last month due to a surprising 4.6% spurt in petroleum prices. Consensus expectations had been for a 0.6% rise. Nonpetroleum prices, however, rose an easier 0.2% following a downwardly revised gain of 0.4% in December.
During the last ten years there has been a negative 55% correlation between the foreign exchange value of the dollar against major currencies and the y/y change in nonpetroleum import prices. There has been a negative 39% correlation between the broad trade weighted dollar index and prices.
Import pricing strength in January was pronounced for consumer goods less autos, up 0.4% (0.8% y/y). Capital goods prices rose a moderate 0.2% (-0.8% y/y) but that gain was held back by a 1.0% (-6.9% y/y) decline in computer prices. Excluding computers capital goods prices rose 0.8% (2.3% y/y), lifted by a 1.7% rise in prices for civilian aircraft. Motor vehicle and parts prices fell 0.1% (+1.6% y/y) and food &amp; beverage prices fell 0.2% (+6.9% y/y).
Petroleum prices jumped 4.6%. The price of Brent crude oil rose to $43.55 in January and is up roughly another dollar this month.
Export prices rose 0.7% due to a 0.7% surge (5.1% y/y) in nonagricultural export prices.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.9%</td>
<td>-1.4%</td>
<td>6.0%</td>
<td>5.6%</td>
<td>2.9%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>4.6%</td>
<td>-11.5%</td>
<td>26.9%</td>
<td>30.4%</td>
<td>21.0%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>1.1%</td>
<td>-2.4%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.7%</td>
<td>0.2%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>1.6%</td>
<td>-1.0%</td>
</tr>
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Import prices rose 0.9% last month due to a surprising 4.6% spurt in petroleum prices. Consensus expectations had been for a 0.6% rise. Nonpetroleum prices, however, rose an easier 0.2% following a downwardly revised gain of 0.4% in [...]

Import Prices Higher With Petroleum, Non Oil Prices Easier

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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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.

250501Z3.jpg

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

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

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

U.S. ISM Manufacturing Index Indicates Contraction in April

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Initial claims for unemployment insurance rose 18,000 in the week ended April 26 to 241,000, seasonally adjusted.  This is higher by 16,000 than the Action Economics Forecast Survey amount of 225,000 and is the largest amount since the week of February 22. The previous week’s actual count was revised up by 1,000, from 223,000 reported initially.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended April 19 was 1.916 million, up 83,000 from the prior week’s 1.833 million; that earlier amount was revised down by 8,000.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, was 1.3% in the April 19 week, following 1.2% continuously since the week of January 6, 2024.

Economic conditions vary widely across states and territories.  In the week ended April 12, the highest unemployment rates were in New Jersey (2.39%), California (2.24%), Washington (2.19%), Rhode Island (2.17%) and Massachusetts (1.93%).  The lowest rates were in Florida (0.35%), South Dakota (0.40%), Alabama (0.41%), Virginia (0.45%) and Tennessee (0.48%).  Rates in other notable states include the Illinois (1.85%), New York (1.71%), Pennsylvania (1.54%) and Texas (1.09%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in U**SECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Actual initial claims amount is 16,000 more than forecast.
- Total beneficiaries rose by 83,000.
- Insured unemployment rate ticked up to 1.3% after 15 months at 1.2%.

U.S. Initial Jobless Claims Rise Notably in April 28 Week

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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.

Economy in Brief: February 2005

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German PPI on Firm Uptrend; Could It Slow?

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