Robert Brusca

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The ZEW financial experts have weakened their assessment of current economic conditions everywhere except for very minor exception in the US. Current conditions placed in their historic queue of values rank highest in the US at a strong 83rd percentile and rank in the 77th percentile in Japan. But they rank in the 64th percentile for EMU and the 46th percentile (below its median) for Germany. The low rankings among the group are in their 23rd percentile for the UK and for Italy.

Expectations show monthly improvements in Germany, the US and in France. But hold the Champaign. These are very minor month-to-month improvements that still leave all the ZEW assessments of expectations below a 20th percentile standing. The German standing is in its 17th percentile, the US standing is in its 10th percentile. The UK has been this weak or weaker 0.4 PERCENT of the time – less than one half of one percent of the time. Clearly the ZEW experts still are very worried and wary of the outlook. And, just as clearly, they are not very optimistic about the UK’s prospect for securing "a good" Brexit deal.

Not surprisingly inflation is in the bottom 25 percentile of its range or lower everywhere except in the UK (58th percentile) where there is probably concern that a bad Brexit deal could unhinge the pound sterling and lead to a jolt of inflation. But ZEW experts also have inflation expectations at a 25 percentile standing in the US where inflation has nonetheless remained tame. Inflation expectations are clustered just below the 20th percentile mark for most countries with the exception of Japan where it has a 10th percentile standing.

Short term interest rate expectations fell sharply everywhere in February with the diffusion reading for the US falling to 23.7 from 58.6 and logging a 42 percentile standing, below its median. This reflects the policy of even-keeling announced by the Fed at its recent policy meeting. The Fed is no longer on a relentless tightening program. Europe and the UK also have a 42 percentile standing for their respective short-term interest rate expectations. Japan has a lower 18 percentile standing. Long term interest rate expectations follow the movement of their short term counterparts rather closely this month.

Stock market expectations are at zero or near zero percentile standings for the UK, Italy and France. For the Euro Area as a whole and German they are at their 15th percentile. For the US and Japan they are at their 23rd percentile. None of those are a vote of confidence in the future.

These are weak economic conditions. In the US some Fed members continue to see more rate hikes ahead but not for a while. But the political situation in the US is still bad. It is hard to see good things happening for the economy in the face of the kind of opposition the President faces to his policies. In Europe the UK seems to face a similar bleak future. Meanwhile, Europe itself is not doing very well. It is a very difficult time for the global economy. There are no ZEW assessments for China, but growth there is slowing and everyone is waiting to see if the US and China can come to a trade compromise without triggering a new round of much more damaging tariffs. The risk/reward on the future seems to have become much more negative despite a few ZEW upgrades. But the expectations in absolute terms as meted out by the ZEW experts remain dire while the current situation has greatly eroded. There are no rose-colored glasses here.


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The ZEW financial experts have weakened their assessment of current economic conditions everywhere except for very minor exception in the US. Current conditions placed in their historic queue of values rank highest in the US at a [...]

ZEW Expectations Continue Weak

Tom Moeller

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The Industrial Materials Price Index from the Foundation for
International Business and Economic Research (FIBER) rose 2.8% during the last
four weeks, but were 11.5% below the prior year's level. Individual commodity
price gains were mixed amongst categories.
Metals prices increased 5.8% over the last month led
by a 16.4% m/m rise in steel scrap prices, which eased at the end of last week, and a 6.6% increase in zinc prices.
Copper scrap prices also firmed 4.2% and aluminum prices gained 2.0%. Prices in
the miscellaneous group rose 3.0% m/m led by a 13.1% jump in framing
lumber prices, though they remained one-quarter below the year-ago level. Structural
panel prices fell 2.8% and also held more than 25% below last year. The
cost of natural rubber rose 1.0% last month and 4.6% y/y. A 2.4% m/m gain
(-12.2% y/y) in prices in the crude oil &amp; benzene category was led by
a 3.5% rise (-10.8% y/y) in crude oil prices to $53.65 per barrel, up from the
$45.02 year-end low. Crude rose to $54.56 on Friday, but remained below the $75.05 peak early in October.
Prices for petro-chemical benzene recovered 6.0% during the last month.
Nevertheless, they continued to be one-third below the year-ago level. In the textile group,
prices were little changed m/m and down 3.0% y/y. Cotton prices fell 3.9% m/m (-10.3%
y/y) while burlap prices gained 1.4% m/m (-13.4% y/y).
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Recent improvement in industrial commodity prices followed a
0.8% decline (+2.8% y/y) in factory sector output during January. The consensus forecast from
the National Association for Business Economics (NABE) calls for a 2.7% rise in
industrial output during all of 2019. During the last ten years, there has been
a 66% correlation between the y/y change in industrial commodity prices and the
y/y change in factory sector output.
Commodity price data can be found in Haver's DAILY,
WEEKLY, USECON and CMDTY databases. The NABE forecast is in the SURVEYS
database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <tbody>
 <tr>
 <th class="firstcol" scope="col" >FIBER Industrial Materials Price Index (%)</th>
 <th scope="col" >1-Mth</th>
 <th scope="col" >3-Mth</th>
 <th scope="col" >6-Mth</th>
 <th scope="col" >12-Mth</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </tbody>
 <tbody>
 <tr>
 <td class="firstcol" >All Items</td>
 <td>2.8</td>
 <td>-0.9</td>
 <td>-6.6</td>
 <td>-11.5</td>
 <td>-12.0</td>
 <td>6.7</td>
 <td>19.2</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Textiles</td>
 <td>-0.4</td>
 <td>-1.0</td>
 <td>-3.0</td>
 <td>-3.0</td>
 <td>-2.8</td>
 <td>3.0</td>
 <td>2.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Cotton (cents per pound)</td>
 <td>-3.9</td>
 <td>-9.7</td>
 <td>-16.7</td>
 <td>-10.3</td>
 <td>-9.2</td>
 <td>9.8</td>
 <td>10.2</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Metals</td>
 <td>5.8</td>
 <td>1.8</td>
 <td>1.9</td>
 <td>-11.8</td>
 <td>-12.2</td>
 <td>18.6</td>
 <td>32.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Aluminum ($ per metric ton)</td>
 <td>2.0</td>
 <td>-4.6</td>
 <td>-8.9</td>
 <td>-13.8</td>
 <td>-12.7</td>
 <td>26.0</td>
 <td>13.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Copper Scrap (cents per
 pound)</td>
 <td>4.2</td>
 <td>0.5</td>
 <td>2.6</td>
 <td>-10.9</td>
 <td>-16.1</td>
 <td>29.3</td>
 <td>17.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Steel Scrap ($ per ton)</td>
 <td>16.4</td>
 <td>-0.8</td>
 <td>1.6</td>
 <td>3.1</td>
 <td>2.3</td>
 <td>16.8</td>
 <td>74.5</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Crude Oil &amp; Benzene</td>
 <td>2.4</td>
 <td>-9.3</td>
 <td>-14.9</td>
 <td>-12.2</td>
 <td>-20.0</td>
 <td>8.1</td>
 <td>20.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Crude Oil (WTI, $ per Barrel)</td>
 <td>3.5</td>
 <td>-6.7</td>
 <td>-19.7</td>
 <td>-10.8</td>
 <td>-24.4</td>
 <td>10.9</td>
 <td>44.3</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Miscellaneous</td>
 <td>3.0</td>
 <td>1.0</td>
 <td>-12.1</td>
 <td>-17.4</td>
 <td>-14.8</td>
 <td>-0.5</td>
 <td>21.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Framing Lumber ($ per 1000
 board ft.)</td>
 <td>13.1</td>
 <td>11.4</td>
 <td>-15.9</td>
 <td>-24.8</td>
 <td>-23.1</td>
 <td>20.0</td>
 <td>12.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Natural Rubber (cents per pound)</td>
 <td>1.0</td>
 <td>14.8</td>
 <td>9.5</td>
 <td>4.6</td>
 <td>-4.1</td>
 <td>-29.6</td>
 <td>89.4</td>
 </tr>
 </tbody>
</table>



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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) rose 2.8% during the last four weeks, but were 11.5% below the prior year's level. Individual commodity price gains were [...]

FIBER: Industrial Commodity Prices Increase

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Activity in the factory sector weakened significantly last
month. Industrial production declined 0.6% (+3.8% y/y) during January following a
0.1% December uptick, revised from +0.3%. A 0.2% rise had been expected in the
Action Economics Forecast Survey.
Manufacturing production declined 0.9% (+2.8% y/y) and
reversed the December increase. Consumer goods output fell 0.7% (+0.1% y/y),
extending the prior month's 0.9% decline. Auto production cratered 8.0% (-0.5%
y/y) and reversed two months of strong increase. Appliance &amp; furniture
output fell 0.9% (-0.1% y/y) after a 0.6% decline. Working higher, output of
computers, video &amp; audio equipment jumped 1.6% (15.8% y/y) following three
straight months of strong gain. In the nondurable goods sector, apparel
production fell 1.0% (-7.8% y/y), extending a series of large monthly declines.
Chemical product production eased 0.1% (+1.2% y/y) but output of paper products
rose 0.9% (-4.1% y/y). Production of business equipment fell 1.5% (+3.8% y/y),
reversing three straight months of increase. The decline was led by a 5.3% drop
(+3.2% y/y) in transit equipment production. Information processing equipment
fell 1.8% (+3.0% y/y), reversing the December rise.
Production of construction supplies fell 0.4% (+5.3% y/y)
after a 2.0% rise. Materials production declined 0.4% (+6.2 y/y) and reversed
the December increase.
Output of selected high-technology products nudged 0.1%
higher (6.5% y/y) following three consecutive months of increase. Computer &amp;
office equipment production strengthened 1.2% (-3.9 y/y), but communications equipment
production held steady (+17.4% y/y). Semiconductor &amp; related product
production eased 0.1% (+7.4% y/y).

Excluding the motor vehicle sector, factory output
eased 0.2% last month (+3.1% y/y) following a 0.5% rise.

Capacity utilization fell to 78.2% with the lower level of
output. It was the weakest utilization rate in six months. Factory sector
utilization declined to a three-month low of 75.8%. Factory sector capacity
increased 1.4% y/y and sustained the recent increased rate of gain versus its
decline in 2015.
Industrial production and capacity data and US
Population-Weighted Heating and Cooling Days are included in Haver's USECON
database. Additional detail on production and capacity can be found in the IP
database. The expectations figures come from the AS1REPNA database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Industrial Production (SA, %
 Change)</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Jan Y/Y</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
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 <tr>
 <td class="firstcol" >Total Output</td>
 <td >-0.6</td>
 <td >0.1</td>
 <td >0.6</td>
 <td >3.8</td>
 <td >4.0</td>
 <td >1.6</td>
 <td >-2.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Manufacturing</td>
 <td >-0.9</td>
 <td >0.8</td>
 <td >0.3</td>
 <td >2.8</td>
 <td >2.4</td>
 <td >1.2</td>
 <td >-0.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Consumer Goods</td>
 <td >-0.7</td>
 <td >-0.9</td>
 <td >0.3</td>
 <td >0.1</td>
 <td >2.3</td>
 <td >0.0</td>
 <td >0.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Business Equipment</td>
 <td >-1.5</td>
 <td >1.0</td>
 <td >0.3</td>
 <td >3.8</td>
 <td >3.1</td>
 <td >3.2</td>
 <td >-5.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Construction Supplies</td>
 <td >-0.4</td>
 <td >2.0</td>
 <td >0.6</td>
 <td >5.3</td>
 <td >3.3</td>
 <td >2.5</td>
 <td >0.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Materials</td>
 <td >-0.4</td>
 <td >0.3</td>
 <td >1.1</td>
 <td >6.2</td>
 <td >5.9</td>
 <td >2.0</td>
 <td >-3.0</td>
 </tr>
 <tr>
 <td class="firstcol" >Utilities</td>
 <td >0.4</td>
 <td >-6.9</td>
 <td >2.2</td>
 <td >-5.5</td>
 <td >4.1</td>
 <td >-1.3</td>
 <td >-0.4</td>
 </tr>
 <tr>
 <td class="firstcol" >Mining</td>
 <td >0.1</td>
 <td >1.5</td>
 <td >1.1</td>
 <td >15.3</td>
 <td >12.5</td>
 <td >6.4</td>
 <td >-9.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Capacity Utilization (%)</td>
 <td >78.2</td>
 <td >78.8</td>
 <td >78.9</td>
 <td >77.0</td>
 <td >78.0</td>
 <td >76.1</td>
 <td >75.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Manufacturing</td>
 <td >75.8</td>
 <td >76.5</td>
 <td >76.0</td>
 <td >74.7</td>
 <td >75.7</td>
 <td >74.8</td>
 <td >74.6</td>
 </tr>
 </tbody>
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Activity in the factory sector weakened significantly last month. Industrial production declined 0.6% (+3.8% y/y) during January following a 0.1% December uptick, revised from +0.3%. A 0.2% rise had been expected in the Action [...]

U.S. Industrial Production Declines Broadly

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EMU-wide exports ticked lower in December as imports were flat. That combination reduced the trade surplus slightly. Still the surplus in December at €15.6b is now far from its 12-month average of €16.2b but is significantly lower than its 12-month ago surplus of €22.4b (not shown).

Some different and interesting patterns emerge looking at manufacturing and nonmanufacturing trends separately. For trade in manufactures, exports decline over 3-months, 6-months and 12-months. Imports gain over 12-months and six months, then fall sharply over three-months. Judging from imports German domestic demand looks weak. The year-on-year import rise is less than 1% while the annualized 3-month drop is at a pace of -5.5%.

For non-manufactures exports and imports, growth rates are nearly identical over 12-months. But export flows are ramping up while import flows are slowing. Exports of non-manufactures are up at a 41.5% pace over three months annualized compared to 3.5% for non-manufactured imports. The cross trends for non-manufactures are hard to reconcile with the other trends. In particular the growing strength of non-manufactured exports is hard to explain.

The table also shows export trends for a number of EMU and EU members. For the most part exports are moderate to weak. Portugal is the only exception. Apart from Portugal, the strongest year-on-year rise in exports is the 3.7% gain for Finland; remember that these are nominal flows.

International flows are slowing and China is slowing. China’s Consumer inflation gauge went to a pace of 1.7%. In related data today US export and import price were weak with US nonpetroleum imports showing not just weakness but price declines. These declines can’t be signaling much strength in economic conditions abroad generally because prices are so weak.

The US trade negotiating deadline with China is coming up with March 1 as the final day to cut a deal and get in under the wire. But the President, only recently, has been sounding flexible about the date. All of a sudden he has been saying that talks are going well and that the deadline is not fixed. Meanwhile others seem to report that the two sides are still miles apart. It will take time to tell and we may only really know the facts when the deadline draws nearer or has to be extended or alternatively if tariffs are imposed.




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EMU-wide exports ticked lower in December as imports were flat. That combination reduced the trade surplus slightly. Still the surplus in December at €15.6b is now far from its 12-month average of €16.2b but is significantly lower [...]

EMU-16 Trade Flows and Balance

Gerald D. Cohen

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Import prices fell a greater-than-expected 0.5% during January (-1.7% year-on-year) following a 1.0% drop in December. Prices were down 1.7% in November. The Action Economics Forecast Survey expected a flat reading for January. These figures are not seasonally adjusted.

The decline in import prices last month was led by a 0.7% drop (-0.4% y/y) in nonpetroleum import costs which followed a 0.3% rise. Petroleum import prices edged down 0.1% (-14.5 y/y) following double-digit decreases in the prior two months. Among end-use categories, industrial supplies & materials costs excluding petroleum fell 3.3% (-0.9% y/y). Capital goods prices ticked up 0.1% (-0.1% y/y). Motor vehicle & parts prices were down 0.2% (-0.4% y/y). Nonauto consumer goods prices declined 0.3% (+0.3% y/y).

Export prices decreased a greater-than expected 0.6% for the second consecutive month (-0.2% y/y). Forecasters' anticipated -0.3%. Agricultural commodities prices dropped 2.1% last month (+0.2% y/y) reversing some of December's 3.8% rise. Nonagricultural export costs declined 0.3% (-0.2% y/y), down for the third consecutive month. Food, feeds & beverage prices fell 2.1% (+0.7% y/y). While the Bureau of Labor Statistics noted that as a result of the government shutdown they did not have data from their usual source for Wheat, Soy and Corn, the Food and Agricultural categories were unaffected. The cost of industrial supplies & materials weakened 1.3% (-2.3% y/y). Capital goods prices rose 0.4% (1.4% y/y), while motor vehicle & parts prices edged up 0.1% (+0.4% y/y). Nonauto consumer goods prices declined 0.4% (-0.1% y/y).
The import and export price series can be found in Haver's USECON database.
Detailed figures are available in the USINT database. The expectations figure from the Action
Economics Forecast Survey is in the AS1REPNA database.

The Federal Reserve Bank of New York recently published an interesting piece, The Perplexing Co-Movement
of the Dollar and Oil Prices, which is available <a href="https://libertystreeteconomics.newyorkfed.org/2019/01/the-perplexing-co-movement-of-the-dollar-and-oil-prices.html">here</a>.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" ><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" >Nov</th>
 <th scope="col" >Jan Y/Y</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Imports - All Commodities</td>
 <td >-0.5</td>
 <td >-1.0</td>
 <td >-1.7</td>
 <td >-1.7</td>
 <td >3.2</td>
 <td >2.9</td>
 <td >-3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Petroleum &amp; Petroleum
 Products</td>
 <td >-0.1</td>
 <td >-10.7</td>
 <td >-15.1</td>
 <td >-14.5</td>
 <td >22.4</td>
 <td >26.6</td>
 <td >-19.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Nonpetroleum</td>
 <td >-0.7</td>
 <td >0.3</td>
 <td >0.0</td>
 <td >-0.4</td>
 <td >1.3</td>
 <td >1.1</td>
 <td >-1.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Exports - All Commodities</td>
 <td >-0.6</td>
 <td >-0.6</td>
 <td >-0.8</td>
 <td >-0.2</td>
 <td >3.4</td>
 <td >2.4</td>
 <td >-3.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Agricultural</td>
 <td >-2.1</td>
 <td >3.8</td>
 <td >1.7</td>
 <td >0.2</td>
 <td >0.6</td>
 <td >1.5</td>
 <td >-5.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Nonagricultural</td>
 <td >-0.3</td>
 <td >-1.1</td>
 <td >-1.0</td>
 <td >-0.2</td>
 <td >3.7</td>
 <td >2.5</td>
 <td >-3.0</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Import prices fell a greater-than-expected 0.5% during January (-1.7% year-on-year) following a 1.0% drop in December. Prices were down 1.7% in November. The Action Economics Forecast Survey expected a flat reading for January. These [...]

Import Prices Continue Their Decline; Both Oil and Nonoil Prices Move Lower

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The Empire State Manufacturing Index of General Business
Conditions rose to 8.8 during February, but remained near the lowest level since
the middle of 2017. The Action Economics Forecast Survey expected a reading of
8.0 for February. The Empire State data, reported by the Federal Reserve Bank of
New York, reflect business conditions in New York, northern New Jersey and
southern Connecticut.

Haver Analytics calculates a seasonally adjusted index that
is comparable to the ISM series. The calculated figure improved to 52.5
following its sharp decline to a two-year low. During the last ten years, the
index has had a 66% correlation with the quarter-to-quarter change in real GDP.

Changes in the component series were mixed m/m. New and
unfilled orders improved as did the delivery times and inventories indexes, but
shipments fell. Each of the figures remained sharply below the 2017 highs.

The employment index continued its recent significant
decline, falling to the lowest level since August of 2017 and off from
last June's high. A fairly steady 17% of respondents reported increased
employment, while a higher 12% showed a decrease. During the last ten years,
there has been a 77% correlation between the employment index and the
month-to-month change in factory sector payrolls. The employee workweek reading
declined to the lowest level since October, down sharply from the high last April.

The prices paid index weakened significantly to the lowest
level since November 2017, down sharply from the high nine months ago. A
lessened 31% of respondents indicated increased prices this month, while a
fairly steady four percent reported a decrease. Moving the other way, the prices
received index improved to the highest level since June of last year.

The series measuring expectations for business conditions in
six months rebounded sharply. It recovered its January decline to the lowest
level in nearly three years. Most categories showed improvement.

The Empire State figures are diffusion indexes, which are
calculated by subtracting the percent of respondents reporting declines from
those reporting gains. The data are available in Haver's SURVEYS
database. The ISM-adjusted headline index dates back to 2001. The Action
Economics Forecasts can be found in Haver's AS1REPNA database

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Empire State Manufacturing
 Survey</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Feb'18</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >General Business Conditions (Diffusion
 Index, %, SA)</td>
 <td >8.8</td>
 <td >3.9</td>
 <td >11.5</td>
 <td >16.4</td>
 <td >19.8</td>
 <td >16.1</td>
 <td >-2.6</td>
 </tr>
 <tr>
 <td class="firstcol" >General Business Conditions Index (ISM
 Adjusted, &gt;50=Increasing Activity, SA)</td>
 <td >52.5</td>
 <td >51.9</td>
 <td >56.2</td>
 <td >55.6</td>
 <td >56.4</td>
 <td >54.6</td>
 <td >48.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; New Orders</td>
 <td >7.5</td>
 <td >3.5</td>
 <td >13.4</td>
 <td >14.3</td>
 <td >16.5</td>
 <td >14.5</td>
 <td >-0.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Shipments</td>
 <td >10.4</td>
 <td >17.9</td>
 <td >20.3</td>
 <td >14.2</td>
 <td >20.4</td>
 <td >15.9</td>
 <td >1.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Unfilled Orders</td>
 <td >-0.7</td>
 <td >-7.6</td>
 <td >-5.1</td>
 <td >4.9</td>
 <td >3.5</td>
 <td >1.9</td>
 <td >-8.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Delivery Time</td>
 <td >5.0</td>
 <td >-2.1</td>
 <td >3.2</td>
 <td >11.1</td>
 <td >9.1</td>
 <td >6.1</td>
 <td >-4.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Inventories</td>
 <td >-1.4</td>
 <td >-7.6</td>
 <td >7.1</td>
 <td >4.9</td>
 <td >5.9</td>
 <td >1.5</td>
 <td >-9.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Number of Employees</td>
 <td >4.1</td>
 <td >7.4</td>
 <td >17.5</td>
 <td >11.6</td>
 <td >12.4</td>
 <td >8.1</td>
 <td >-5.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Average Employee Workweek</td>
 <td >2.5</td>
 <td >6.8</td>
 <td >6.7</td>
 <td >5.1</td>
 <td >7.8</td>
 <td >4.6</td>
 <td >-5.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Prices Paid</td>
 <td >17.1</td>
 <td >35.9</td>
 <td >39.7</td>
 <td >48.6</td>
 <td >45.8</td>
 <td >29.0</td>
 <td >15.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Prices Received</td>
 <td >22.9</td>
 <td >13.1</td>
 <td >12.8</td>
 <td >21.5</td>
 <td >19.3</td>
 <td >11.0</td>
 <td >0.7</td>
 </tr>
 <tr>
 <td class="firstcol" >Expectations 6 Months Ahead</td>
 <td >32.3</td>
 <td >17.8</td>
 <td >30.6</td>
 <td >49.4</td>
 <td >35.2</td>
 <td >42.7</td>
 <td >29.0</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The Empire State Manufacturing Index of General Business Conditions rose to 8.8 during February, but remained near the lowest level since the middle of 2017. The Action Economics Forecast Survey expected a reading of 8.0 for February. [...]

Empire State Manufacturing Activity Improves Modestly

<browseitem>
 <period>2019-02-15</period>
 <title>U.S. Industrial Production Slips Unexpectedly</title>
 <link>190215D.html
</browseitem>

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The Federal Reserve reported that industrial production eased
0.1% (+3.5% y/y) during May following a 0.9% April rise, revised from 0.7%. A
0.2% increase had been expected in the Action Economics Forecast Survey. Factory
sector production declined 0.7% (+1.7% y/y) and reversed April's 0.6% gain,
revised from 0.5%. Utility output strengthened 1.1% (4.0% y/y) after a 3.2%
increase. Mining production improved 1.8% (12.5% y/y) following a 1.0%
improvement.
The surprising decline in production partially reflected a
1.0% fall (+1.5% y/y) in consumer goods output which reversed the prior month's
increase. Durable consumer goods production declined 3.0% (0.0% y/y) after a
0.8% fall. Automotive product output declined 5.5% (-1.5% y/y) following a 1.9%
shortfall. Computer, video &amp; related production improved 0.8% (4.7% y/y)
after a 0.1% uptick. Appliance, furniture &amp; carpeting production fell 1.2%
(-1.5% y/y) and countered the prior month's 1.7% rise. Nondurable consumer goods
production fell 0.4% (+1.9% y/y) following a 1.5% gain. Energy product output
weakened 1.6% (-0.2% y/y) after a 3.7% increase. Apparel production declined
1.9% (0.0% y/y) after a 2.4% gain. Paper product output weakened 1.1% (-2.2%
y/y) after a 0.8% increase. Food &amp; tobacco production fell 0.3% (3.1% y/y)
following a 1.1% improvement. Working the other way, chemical product production
rose 0.5% (2.8% y/y) after a 0.4% gain.
Production of business equipment declined 1.1% last month
(+1.0% y/y) and reversed April's 1.1% rise. Transit equipment production fell
3.5% (-2.9% y/y) following a 0.3% dip. Production of information processing
equipment slipped 0.1% (+4.8% y/y) following four straight months of strong
increase. Industrial equipment &amp; other equipment production fell 0.4% (+1.4%
y/y) after a 1.8% rise.&nbsp;&nbsp;&nbsp; 
Construction supplies output notched 0.1% higher (3.6% y/y)
after a 0.5% increase.
Production of materials improved 0.5% (5.5% y/y) after a 0.9%
increase. Energy product materials output increased 2.0% (11.0% y/y) after two
months of roughly 1.2% gain. Durable goods materials output fell 0.8% (+2.7%
y/y) following a 0.5% rise and nondurable goods materials held steady (0.9% y/y)
following a 0.9% gain.
In the special aggregate groupings, production of selected
high-technology industries rose 0.2% (6.3% y/y) following a 1.8% jump. Nonenergy
production excluding high-tech retreated 0.6% (+1.7% y/y) and reversed a 0.6%
rise. Factory sector production excluding both high-tech and autos eased 0.2%
(+1.9% y/y) after a 0.8% strengthening.
Capacity utilization eased to 77.9% from its three-year high
of 78.1%. Factory sector capacity utilization declined to 75.3%, the lowest
level since January. Manufacturing sector capacity increased 1.0% y/y.
Industrial production and capacity data are included in
Haver's USECON database, with additional detail in the IP database. The
expectations figure is in the AS1REPNA database.


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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Industrial Production (SA, %
 Change)</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >May Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total Output</td>
 <td >-0.1</td>
 <td >0.9</td>
 <td >0.5</td>
 <td >3.5</td>
 <td >1.6</td>
 <td >-2.0</td>
 <td >-1.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Manufacturing</td>
 <td >-0.7</td>
 <td >0.6</td>
 <td >-0.1</td>
 <td >1.7</td>
 <td >1.2</td>
 <td >-0.8</td>
 <td >0.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Consumer Goods</td>
 <td >-1.0</td>
 <td >1.0</td>
 <td >0.4</td>
 <td >1.5</td>
 <td >0.0</td>
 <td >0.7</td>
 <td >1.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Business Equipment</td>
 <td >-1.1</td>
 <td >1.1</td>
 <td >0.1</td>
 <td >1.0</td>
 <td >3.2</td>
 <td >-5.3</td>
 <td >-2.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Construction Supplies</td>
 <td >0.1</td>
 <td >0.5</td>
 <td >-1.0</td>
 <td >3.6</td>
 <td >2.5</td>
 <td >0.9</td>
 <td >0.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Materials</td>
 <td >0.5</td>
 <td >0.9</td>
 <td >0.8</td>
 <td >5.5</td>
 <td >2.0</td>
 <td >-3.0</td>
 <td >-1.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Utilities</td>
 <td >1.1</td>
 <td >3.2</td>
 <td >4.1</td>
 <td >4.0</td>
 <td >-1.3</td>
 <td >-0.4</td>
 <td >-0.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Mining</td>
 <td >1.8</td>
 <td >1.0</td>
 <td >1.4</td>
 <td >12.5</td>
 <td >6.4</td>
 <td >-9.7</td>
 <td >-3.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Capacity Utilization (%)</td>
 <td >77.9</td>
 <td >78.1</td>
 <td >77.5</td>
 <td >76.2</td>
 <td >78.1</td>
 <td >75.4</td>
 <td >77.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Manufacturing</td>
 <td >75.3</td>
 <td >75.9</td>
 <td >75.5</td>
 <td >74.8</td>
 <td >74.8</td>
 <td >74.6</td>
 <td >75.8</td>
 </tr>
 </tbody>
</table>


</body>

</html>

The Federal Reserve reported that industrial production eased 0.1% (+3.5% y/y) during May following a 0.9% April rise, revised from 0.7%. A 0.2% increase had been expected in the Action Economics Forecast Survey. Factory sector [...]

U.S. Industrial Production Slips Unexpectedly

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The headline Final Demand Producer Price Index using new
methodology fell 0.2% during December..........


The PPI data are contained in Haver's USECON database
with further detail in PPI and PPIR. The expectations figures are
available in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Producer Price Index (SA, %)</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Jan Y/Y</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Final Demand</td>
 <td >-0.1</td>
 <td >-0.1</td>
 <td >0.1</td>
 <td >2.0</td>
 <td >2.9</td>
 <td >2.3</td>
 <td >0.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Excluding Food &amp; Energy</td>
 <td >0.3</td>
 <td >0.0</td>
 <td >0.3</td>
 <td >2.6</td>
 <td >2.6</td>
 <td >1.9</td>
 <td >1.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Excluding Food, Energy
 &amp; Trade Services</td>
 <td >0.2</td>
 <td >0.0</td>
 <td >0.3</td>
 <td >2.5</td>
 <td >2.8</td>
 <td >2.1</td>
 <td >1.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Goods</td>
 <td >-0.8</td>
 <td >-0.3</td>
 <td >-0.5</td>
 <td >0.5</td>
 <td >3.4</td>
 <td >3.3</td>
 <td >-1.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Foods</td>
 <td >-1.7</td>
 <td >2.6</td>
 <td >1.3</td>
 <td >1.4</td>
 <td >0.2</td>
 <td >1.2</td>
 <td >-2.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Energy</td>
 <td >-3.8</td>
 <td >-4.3</td>
 <td >-5.1</td>
 <td >-7.5</td>
 <td >10.2</td>
 <td >10.4</td>
 <td >-8.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp;Goods Excluding
 Food &amp; Energy</td>
 <td >0.3</td>
 <td >0.1</td>
 <td >0.3</td>
 <td >2.4</td>
 <td >2.5</td>
 <td >2.2</td>
 <td >0.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Services</td>
 <td >0.3</td>
 <td >0.0</td>
 <td >0.3</td>
 <td >2.8</td>
 <td >2.6</td>
 <td >1.8</td>
 <td >1.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Trade
 Services</td>
 <td >0.8</td>
 <td >-0.1</td>
 <td >0.4</td>
 <td >3.2</td>
 <td >1.8</td>
 <td >1.4</td>
 <td >1.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Construction</td>
 <td >0.6</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >4.9</td>
 <td >4.0</td>
 <td >2.2</td>
 <td >1.1</td>
 </tr>
 <tr>
 <td class="firstcol" >Intermediate Demand - Processed Goods</td>
 <td >-1.4</td>
 <td >-0.9</td>
 <td >-0.6</td>
 <td >0.9</td>
 <td >5.3</td>
 <td >4.7</td>
 <td >-3.1</td>
 </tr>
	 </tbody>
	 </table>
	 
</body></html>

The headline Final Demand Producer Price Index using new methodology fell 0.2% during December.......... The PPI data are contained in Haver's USECON database with further detail in PPI and PPIR. The expectations figures are available [...]

U.S. Producer Prices Decline; Core PPI Rises

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.

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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: February 2019

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