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/070420a.jpg" width="353">
UK retail sales rose 0.3% in volume in March, according to ONS data reported today. This followed a 1.6% jump in February, revised from 1.4% reported initially and more than recouping a 1.5% drop in January. At least one forecast survey had called for volume to rise 0.5%, so some interpreted the 0.3% outcome as &quot;below expectations&quot;. But the 0.2% upward revision to February puts sales at the level where forecasters would have seen them. The value of sales rose 0.6% in the month, indicating that prices increased 0.3%. This one month&#39;s increase in prices accounts for the entire price increase over the last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070420b.jpg" width="353">
Among store types, sizable year/year volume gains are evident in clothing and in household goods outlets. During the first quarter of the year, household goods sales were up 7.5% from a year ago and clothing store sales 6.6%. [Notice that in this graph, we have made a 3-month moving average and taken the year-on-year % change, illustrating the &quot;nested function&quot; feature of the new DLXVG3 version we are now &quot;beta-testing&quot; internally.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070420c.jpg" width="353">
A quick calculation of the price deflators for each major store group shows that it&#39;s food store prices where the upturn has occurred. As seen in the third graph, this deflator is up 2.9% from a year ago, extending a trend that began last June. Prices in other sectors remain relatively calm.
These data, from 5,000 UK retailers, measure an average week&#39;s sales during March. In addition to standard seasonal adjustment, the ONS makes a specific adjustment for the date of Easter, which was April 8 this year, earlier than last year and therefore judged to inflate March sales more. Their press release explains that adjusting for this calendar difference reduced the seasonally adjusted March total by 0.3%. These retail sales data, unlike those for the US, do not include motor vehicle dealers or gasoline stations. Internet sales are included in &quot;nonstore retailers&quot; for companies that sell exclusively on the Internet, and in the respective category for Internet operations of conventional stores.

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<th scope="col" class="firstcol">UK Retail Sales, 2000=100*</th>
<th scope="col">Mar 2007</th>
<th scope="col">Feb 2007 </th>
<th scope="col">Jan 2007</th>
<th scope="col">Mar 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<td class="firstcol">Total Volume</td>
<td>134.0</td>
<td>133.6</td>
<td>131.5</td>
<td>127.9</td>
<td>129.4</td>
<td>125.3</td>
<td>122.9</td>
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<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.3</td>
<td>1.6</td>
<td>-1.5</td>
<td>5.4</td>
<td>3.3</td>
<td>2.0</td>
<td>6.0</td>
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<td class="firstcol">Total Value</td>
<td>127.4</td>
<td>126.7</td>
<td>124.6</td>
<td>121.3</td>
<td>122.8</td>
<td>119.4</td>
<td>118.3</td>
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<td class="firstcol">&nbsp; % Change</td>
<td>0.6</td>
<td>1.7</td>
<td>-1.5</td>
<td>5.8</td>
<td>2.8</td>
<td>0.9</td>
<td>4.4</td>
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<td class="firstcol">Implicit Price Deflator**</td>
<td>95.1</td>
<td>94.8</td>
<td>94.8</td>
<td>94.8</td>
<td>94.9</td>
<td>95.3</td>
<td>96.3</td>
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<td class="firstcol">&nbsp; % Change</td>
<td>0.3</td>
<td>0.1</td>
<td>0.0</td>
<td>0.3</td>
<td>-0.4</td>
<td>-1.1</td>
<td>-1.5</td>
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UK retail sales rose 0.3% in volume in March, according to ONS data reported today. This followed a 1.6% jump in February, revised from 1.4% reported initially and more than recouping a 1.5% drop in January. At least one forecast [...]

UK Retail Sales Rise 0.3% in March, Following Upward Revision to February; Food Group Pushes Price Deflator Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419h.jpg" width="353">
Gasoline prices are rising inexorably, surpassing $3.00/gallon in some high-tax areas by last week, and almost certainly due to cross that line imminently for the nation as a whole. In the week ended this past Monday, April 16, Department of Energy data put regular gasoline at $2.876 a gallon, up 7.4 cents on the week, following 9.5 and 9.7 cent increases the week of April 9 and April 2 respectively. The price is up 29.9 cents from four weeks ago. From the same week a year ago, the price is up 9.3 cents, or 3.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419g.jpg" width="353">
On Tuesday, the price of crude oil was $63.11 per barrel, up $1.21 from the week before and $6.37 from four weeks ago. However, the price is down from the extremes of the year-ago period, when the effects of Hurricane Katrina were still impacting availability.
Three weeks ago, when we last looked at these price patterns, we noted that prices were rebounded from a mid-winter lull. Then we cited the new information on the days&#39; supply of gasoline inventories, which was lower at its winter peak than in prior years. Now we see that figure has dropped to 21.0 days, an unprecedentedly short period for the spring, ahead of the summer driving season. In fact, it&#39;s low for anytime, with only the Katrina period and the mid-summer of 2003 showing weaker supplies of gasoline relative to current demand.
This is likely related to calm weather and the reduced number of storms over the winter. According to the National Climate Data Center in figures released yesterday, the national average amount of precipitation in Q1 was the second smallest for that period since 1988. So people could drive more and they used more gasoline over the winter. The distinctive plunge in demand during those months of prior years was simply not repeated this year, as is clear in the second graph.
Meantime, data from the Oil and Gas Journal show that gasoline was above $3.00 in a number of cities by last week: San Francisco, Portland, San Diego and Chicago, most notably.
In this commentary, the data on gas prices, demand and inventories come from Haver&#39;s OILWKLY database. The price of crude oil is in WEEKLY, with another version of the same product also in OILWKLY and national average precipitation is in USECON. Most of the energy data is sourced from the Department of Energy, but gasoline prices in various cities are compiled by the Oil and Gas Journal publication. 

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<th scope="col" class="firstcol">GASOLINE PRICES &amp; DEMAND</th>
<th scope="col">4/16/07</th>
<th scope="col">4/9/07</th>
<th scope="col">3/19/07</th>
<th scope="col">2/19/07</th>
<th scope="col">4/17/06</th>
Annual Averages
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<td class="firstcol">2006</td>
<td>2005</td>
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<td class="firstcol">Retail Price, Regular Gasoline, $/gal</td>
<td>2.876</td>
<td>2.802</td>
<td>2.577</td>
<td>2.296</td>
<td>2.783</td>
<td>2.572</td>
<td>2.270</td>
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<td class="firstcol">Spot Price, West Texas Intermediate, $/bbl</td>
<td>63.11</td>
<td>61.90</td>
<td>56.74</td>
<td>58.08</td>
<td>71.36</td>
<td>66.10</td>
<td>56.47</td>
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<td class="firstcol">Gasoline Demand&nbsp; (000 b/d, 4-wk Avg)*</td>
<td>9,365</td>
<td>9,363</td>
<td>9,178</td>
<td>9,121</td>
<td>9,134</td>
<td>9,259</td>
<td>9,146</td>
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<td class="firstcol">Inventory: Days&#39; Supply*</td>
<td>21.0</td>
<td>21.3</td>
<td>22.9</td>
<td>24.4</td>
<td>22.2</td>
<td>22.4</td>
<td>22.0</td>
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Gasoline prices are rising inexorably, surpassing $3.00/gallon in some high-tax areas by last week, and almost certainly due to cross that line imminently for the nation as a whole. In the week ended this past Monday, April 16, [...]

Gasoline Prices Head for $300

Robert Brusca

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<th scope="col" class="firstcol">&middot; The table below contains the main elements of the Philadelphia Fed regional manufacturing index. At the far right another column introduces a different index. This index is what the Philadelphia Fed index would be if it used ISM weights. But Philadelphia does not do that. Instead, it has a separate survey on managers where they tell you how they feel. Recently they have been candidates for a new Excedrin&#153; headache number &#147;XXX&#148; commercial.</th>
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Philadelphia Fed Diffusion Index
<th scope="col">FAO-Index</th>
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<td class="firstcol">Date</td>
<td>Current Index</td>
<td>Current New Orders</td>
<td>Current Shipment</td>
<td>Deliveries</td>
<td>Inventory</td>
<td>Backlog</td>
<td>Pr:Pd</td>
<td>Pr:Rcd</td>
<td>Current Employment</td>
<td>Worked Hours</td>
<td>INDEX Weighted</td>
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<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
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<td class="firstcol">Apr-07</td>
<td>0.2</td>
<td>2.8</td>
<td>4.3</td>
<td>-11.9</td>
<td>-3.1</td>
<td>-13.7</td>
<td>24.3</td>
<td>5.2</td>
<td>2.5</td>
<td>5.5</td>
<td>-0.6</td>
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<td class="firstcol">Mar-07</td>
<td>0.2</td>
<td>1.9</td>
<td>6.8</td>
<td>-13.2</td>
<td>-3.7</td>
<td>-20.9</td>
<td>21.8</td>
<td>16.3</td>
<td>2.3</td>
<td>-4.9</td>
<td>-1.2</td>
</tr>
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<td class="firstcol">Feb-07</td>
<td>0.6</td>
<td>-0.5</td>
<td>1.7</td>
<td>-6.3</td>
<td>-1.9</td>
<td>-10.5</td>
<td>15.8</td>
<td>9.4</td>
<td>-0.4</td>
<td>-12.9</td>
<td>-1.7</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>8.3</td>
<td>1.3</td>
<td>23.9</td>
<td>-7.1</td>
<td>0.4</td>
<td>-15.4</td>
<td>11.9</td>
<td>11.6</td>
<td>7.9</td>
<td>1.8</td>
<td>5.3</td>
</tr>
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<td class="firstcol">Dec-06</td>
<td>-2.3</td>
<td>-0.9</td>
<td>14</td>
<td>-4.9</td>
<td>-0.9</td>
<td>-18.6</td>
<td>19</td>
<td>8.9</td>
<td>7.5</td>
<td>-2.3</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">Nov-06</td>
<td>5.4</td>
<td>-1.1</td>
<td>7.8</td>
<td>1.8</td>
<td>5.3</td>
<td>-5.5</td>
<td>25.2</td>
<td>7.4</td>
<td>3</td>
<td>2.3</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">Oct-06</td>
<td>2.3</td>
<td>10.7</td>
<td>6.1</td>
<td>-4.8</td>
<td>10.9</td>
<td>-10.5</td>
<td>32.7</td>
<td>17.2</td>
<td>10.4</td>
<td>-0.4</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">Sep-06</td>
<td>2.3</td>
<td>0.2</td>
<td>-4.4</td>
<td>0</td>
<td>4.7</td>
<td>-3.8</td>
<td>37.8</td>
<td>20</td>
<td>10.3</td>
<td>5.4</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">Aug-06</td>
<td>12.6</td>
<td>12.8</td>
<td>20.3</td>
<td>1.4</td>
<td>6.8</td>
<td>-2</td>
<td>46.6</td>
<td>17.3</td>
<td>8.1</td>
<td>11.7</td>
<td>10.8</td>
</tr>
<tr>
<td class="firstcol">Jul-06</td>
<td>6.5</td>
<td>9.9</td>
<td>10.7</td>
<td>-1.3</td>
<td>0.5</td>
<td>-6.5</td>
<td>49.5</td>
<td>17.6</td>
<td>11.7</td>
<td>-2.4</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">Jun-06</td>
<td>12.1</td>
<td>17.2</td>
<td>18.3</td>
<td>0.2</td>
<td>-3.5</td>
<td>-0.7</td>
<td>49.3</td>
<td>16</td>
<td>8.2</td>
<td>8.2</td>
<td>10.6</td>
</tr>
<tr>
<td class="firstcol">May-06</td>
<td>13.6</td>
<td>3.5</td>
<td>14</td>
<td>9</td>
<td>-5.3</td>
<td>-2.8</td>
<td>53.9</td>
<td>11.3</td>
<td>2.9</td>
<td>9.6</td>
<td>5.1</td>
</tr>
<tr>
<td class="firstcol">Apr-06</td>
<td>11.7</td>
<td>12</td>
<td>17.7</td>
<td>-2.9</td>
<td>-9.7</td>
<td>5.6</td>
<td>30.4</td>
<td>15.1</td>
<td>16.3</td>
<td>7.9</td>
<td>9.8</td>
</tr>
<tr>
<td class="firstcol">Mar-06</td>
<td>12.9</td>
<td>21.1</td>
<td>23.2</td>
<td>2.5</td>
<td>11.6</td>
<td>4</td>
<td>22.5</td>
<td>15.7</td>
<td>7</td>
<td>7</td>
<td>15.0</td>
</tr>
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<td class="firstcol">Feb-06</td>
<td>13.2</td>
<td>12.9</td>
<td>23.5</td>
<td>6.6</td>
<td>9.3</td>
<td>10</td>
<td>32.3</td>
<td>18</td>
<td>10.5</td>
<td>7</td>
<td>13.9</td>
</tr>
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<td class="firstcol">Jan-06</td>
<td>6.4</td>
<td>11.5</td>
<td>19.5</td>
<td>7.8</td>
<td>6.6</td>
<td>0.3</td>
<td>40.2</td>
<td>20.3</td>
<td>11.8</td>
<td>7.4</td>
<td>11.6</td>
</tr>
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<td class="firstcol">Dec-05</td>
<td>12.8</td>
<td>7.3</td>
<td>5</td>
<td>1.5</td>
<td>3.9</td>
<td>0.8</td>
<td>45.8</td>
<td>28.1</td>
<td>7.5</td>
<td>5.5</td>
<td>5.2</td>
</tr>
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<td class="firstcol">Nov-05</td>
<td>10.7</td>
<td>13.2</td>
<td>21.5</td>
<td>5.7</td>
<td>3.8</td>
<td>-8.2</td>
<td>53.9</td>
<td>31.8</td>
<td>18.4</td>
<td>12.4</td>
<td>12.2</td>
</tr>
<tr>
<td class="firstcol">Oct-05</td>
<td>5.1</td>
<td>19.8</td>
<td>19</td>
<td>0</td>
<td>-2</td>
<td>-2.9</td>
<td>25.6</td>
<td>12.7</td>
<td>15.9</td>
<td>-1.2</td>
<td>12.6</td>
</tr>
<tr>
<td class="firstcol">Sep-05</td>
<td>8.8</td>
<td>1.3</td>
<td>16.2</td>
<td>-0.7</td>
<td>-0.9</td>
<td>-8.6</td>
<td>50.5</td>
<td>6.6</td>
<td>3.9</td>
<td>2.6</td>
<td>4.0</td>
</tr>
<tr>
<td class="firstcol">Aug-05</td>
<td>10.6</td>
<td>15</td>
<td>14.3</td>
<td>-0.2</td>
<td>-8</td>
<td>3.9</td>
<td>28.1</td>
<td>3.1</td>
<td>7</td>
<td>1</td>
<td>8.7</td>
</tr>
<tr>
<td class="firstcol">Jul-05</td>
<td>10.1</td>
<td>7.2</td>
<td>12</td>
<td>-1.3</td>
<td>-8.7</td>
<td>-8.1</td>
<td>30.4</td>
<td>13.1</td>
<td>2.4</td>
<td>5</td>
<td>3.7</td>
</tr>
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<td class="firstcol">Jun-05</td>
<td>-1.1</td>
<td>4.8</td>
<td>9.9</td>
<td>-10.8</td>
<td>-0.8</td>
<td>-16</td>
<td>28.3</td>
<td>12.4</td>
<td>8.5</td>
<td>4.3</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">May-05</td>
<td>9.1</td>
<td>16.5</td>
<td>18.8</td>
<td>0</td>
<td>-0.9</td>
<td>-3.6</td>
<td>31</td>
<td>16.5</td>
<td>8.7</td>
<td>-0.7</td>
<td>10.5</td>
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<td class="firstcol">Apr-05</td>
<td>23.2</td>
<td>19.3</td>
<td>28.6</td>
<td>4.1</td>
<td>0</td>
<td>-3.8</td>
<td>49.1</td>
<td>26.6</td>
<td>12.3</td>
<td>15.3</td>
<td>14.8</td>
</tr>
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<td class="firstcol">Mar-05</td>
<td>14.1</td>
<td>15.3</td>
<td>15.5</td>
<td>1.3</td>
<td>-2.4</td>
<td>-3.3</td>
<td>33.9</td>
<td>18.1</td>
<td>12.2</td>
<td>8</td>
<td>9.9</td>
</tr>
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<td class="firstcol">Feb-05</td>
<td>20.1</td>
<td>12.3</td>
<td>22.2</td>
<td>3.5</td>
<td>-5.2</td>
<td>-1.8</td>
<td>45</td>
<td>23.6</td>
<td>11.4</td>
<td>7</td>
<td>10.6</td>
</tr>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419d.jpg" width="353">
What is interesting is that the weighted Philly index and the barometer are related in particular way. The gap between the barometer and weighted index is a directional statement on the economy and functions similar to the Philly future index. On the left we plot the gap (the barometer less the weighted Philly values) vs the barometer itself. 
You can see that gap between what managers say and what the index actually does tracks the direction of the index itself. In other words when managers are more optimistic they offer a barometer reading that is stronger than the component&#146;s weight composite calls for. When conditions are getter weaker, they give a reading that is less buoyant relative to the surveyed components. It turns out that when managers are so pessimistic that the barometer reading is lower than the weighted reading it is a very bad sign for the economy. The good news is that we are not there yet. The bad news is that other Philadelphia measures have already crossed the line and are now worrisome in their degree of weakness.



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419e.jpg" width="353">
The Philadelphia Fed&#146;s future barometer is a good example of what is disturbing. It has very regular cyclical properties, as you can see. Generally it turns negative before recession. Often it is actually rebounding even before the onset of recession or shortly after the onset of recession. In 2007 it is giving off all the recession signals except for having broken the zero line on the graph. However, we can form a second gap index for the future components just as did for current conditions. And that index performs just as the current conditions index performs. When plotted it has cut though the zero line and rebounded as it does in recession periods. 
Next we show how the current gap indicator tracks the future barometer from the Philadelphia Fed. It is not too surprising that managers who respond to the survey are CONSISTENT in calling future conditions better at the same time they are evaluating current conditions to be better than their own assessment of the main business components at the time of survey.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419f.jpg" width="353"> 
The point of all this discussion is to head off some of the criticism of this indicator. There are some economists who do not like it or trust it and think the Philadelphia survey is too small and too unreliable. But what is interesting about it is how the various components of the survey give off compatible signals and how those signals have been so closely correlated in the past with the cycles in the NATIONAL ECONOMY. It is and has been a better NATIONAL indicator than the ISM. 
I have not been a pessimist about the prospects for this economy. But the Philadelphia Fed MFG survey with all its consistent slow-down signals is not giving us any room to be very optimistic. I also run a specific recession diagnostic off this index and it has been forecasting a national recession for several months running. That is not a finding that has found favor. The Philadelphia Fed survey has, using my method, been fighting off a recession signal starting back in March of 2005. It has turned that signal on and off several times since, but it now has six monthly recession signals in a row. Historically the lead time from this index&#146;s signal to the onset of recession is 13 to 18 months. So we are touch longer than that from the first signal, but then signals are still in the offing. 
Alan Greenspan has spoken of recession and called the probability about one-third and then said he thought that the economy would grow. Other economists have noted that a one-third probability of recession is not that high. But now I have this Philadelphia Fed index that is so persistent in emitting this signal that it is all a bit frightening. We also have persistent, but not yet deep weakness in the LEI (Leading economic Index). Jobless claims have recently ratcheted higher. While housing measures seem to have stabilized and job growth still seems at least firm (strong enough to drive the unemployment rate down!) the economy is indeed sending out some very mixed signals. If it were food it be Chinese: sweet and sour. 
We have noted the wide disparity in the various regional indicators. Maybe Philadelphia is going to prove to be not so representative of the nation in 2006 and 2007 as it was in the past. But it is certainly giving off weak signals and there is nothing in the index to reassure us. 
The Philadelphia barometer has been below the level of 9 for six months running. The orders index has not been above 2.8 in that period. Shipments have held up a lot better but they are still below the mid point of their normal range of values and well below their average and median readings. But employees hired and hours-worked are still above average and median norms. Job data are of course, notorious for lagging. 
Even so&#133;. what does not SMELL like recession about this report is&#150; like the LEI- the fact that the rate of change is so slow. The Philadelphia Fed report says that the MFG economy is just sitting there and has been doing so for six months. Is this a regional problem or a national trend? Will manufacturing drag the economy down or will services hold it up? On this score I am still betting on services but recent economic reports have not been kind to this view. The regional disparities give us some reason to distrust the Philadelphia track record as a national bellwether. But we do that at our own risk. Remember, the famous last words are, &#145;this time it will be different.&#146;

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What is interesting is that the weighted Philly index and the barometer are related in particular way. The gap between the barometer and weighted index is a directional statement on the economy and functions similar to the Philly [...]

Philadelphia Index Remains Near Zero

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<th scope="col" class="firstcol">&middot; The LEI is weak and faltering. One very reliable signal from the LEI is its year/year growth rate. Since the early 1960s, with one exception, significant year/year declines have foreshadowed the onset of recession. The sole exception was in 1966. Although in January 1996 a minor year/year&nbsp; reading of -0.1% also was recorded. Currently the LEI is off by 0.8% year/year &#150; a worrisome signal.</th>
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</thead>

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<colgroup></colgroup>
<thead>
<tr>
Leading Economic Indicators
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>LEADING</td>
<td>COINCIDENT</td>
<td>LAGGING</td>
</tr>
<tr class="odd">
<td colspan="4">Month-to-month</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Dec-06</td>
<td>0.6%</td>
<td>0.3%</td>
<td>0.7%</td>
</tr>
<tr class="odd">
<td colspan="4">SAAR</td>
</tr>
<tr>
<td class="firstcol">3-Mos</td>
<td>-2.9%</td>
<td>1.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">6-Mos</td>
<td>-0.3%</td>
<td>1.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">12-Mos</td>
<td>-0.8%</td>
<td>1.7%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419a.jpg" width="353">
However, the signal for recession is not only a weakening in the LEI but also in the coincident index of economic indicators (COIN). The COIN is weakening only by a very small amount and at a very moderate pace, in effect blunting the weakening signal from the LEI itself&#133;at least so far. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419b.jpg" width="353"> 
 The blown up chart on the right allows closer inspection of the recent LEI and COIN trends. The ongoing and disturbing weakens in the LEI is clear, although its RATE OF DESCENT is not very pre-recession-like. The faltering in the COIN index after a spurt earlier in the year is also put in its less worrisome context, at least for the moment. 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419c.jpg" width="353">
 Moreover...if we look at short-term (3-month) growth rates of the COIN components, they still seem to be relatively firm. The coincident index does appear to be about to collapse. It seems still solid. 
 On balance what we have is evidence of ongoing weakness in the economy. The slippage of the year/year LEI growth rate, below zero and into negative territory, is very disturbing by itself given the reliability of that growth rate as a recession indicator. Yet the LEI itself is slipping at a very slow &#150; almost slow-motion - speed compared to other pre-recession periods. More to the point, for recession to occur the coincident index must decline and the components of that index are showing no sign of doing that. The coincident index itself has undergone some slowing but the index is a product of its components and even three-month growth rates of its components still look quite solid.Verdict: worry but do not grieve for growth. A downturn still looks less than probable.

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However, the signal for recession is not only a weakening in the LEI but also in the coincident index of economic indicators (COIN). The COIN is weakening only by a very small amount and at a very moderate pace, in effect blunting the [...]

U.S. Leading Indicator Weak

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070418a.jpg" width="353">
The US Treasury&#39;s monthly investment data, called &quot;Treasury International Capital&quot; data or &quot;TIC&quot;, are increasingly watched for trends in foreign investors&#39; interest in US capital markets. Data for February were released this Monday past. Net purchases of securities by foreign investors appear to have fallen to $58.1 billion from $98.8 billion in January and $93.4 billion in February 2006. The reduction in February consists of smaller net purchases of federal agency (GSE) debt and US equities than in January, modestly offset by slight increases in Treasuries and corporate bonds. US investors also bought slightly more in foreign securities in February. So in the securities markets, less foreign capital came into the US and a bit more US capital went out.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070418c.jpg" width="353">
These data contain two important lessons that caution us against making too much of one month&#39;s figures. First, they obviously move around a lot. Foreign purchases of domestic securities were $116.8 billion in January and dropped to &quot;only&quot; $77.9 billion in February. This included the largest ever monthly swing in net purchases of federal agencies, -$33.2 billion, while net purchases of corporate bonds were the fifth largest they had ever been. And even though purchases of equities diminished, they remain quite large by historical comparison. The monthly data on security purchases run back to 1977.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070418b.jpg" width="353">
At the same time, these figures do just cover security purchase and sale transactions. But there are other financial flows, of course. Since last November 16 (see our commentary for that date), the Treasury has highlighted more information on these in a new &quot;TIC Monthly Report on Cross-Border Financial Flows&quot;. This table includes &quot;other securities acquisition&quot;, which tends to run negative as periodic principal payments are made on pass-through securities; stock swaps are also in this category and can run both ways as multinational corporations alter ownership structures. Also included in the Treasury&#39;s summary table are non-security transactions: short-term custody holdings and changes in banks&#39; dollar-denominated liabilities. Both of these can be highly variable, and indeed, the latter item, Line 6 in the table below, swung from a net outflow of $22.4 billion in January to an inflow of $30.4 billion in February.
Thus, overall, the influx of capital to the US did not decrease in February, but it increased, to $94.5 billion from $79.6 billion in January and $77.5 billion a year ago. We have argued before and would repeat, that in these monthly capital flow data, the items that &quot;balance&quot; the &quot;balance of payments&quot; are in fact the transitory ones, the cash moving around the world financial system as trade flows are paid for and companies shift deposits to countries where they have upcoming expenditures. Security purchases represent entirely different kinds of business decisions and may not necessarily be tied to the trade or current account deficits. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases fromUS Residents, Bil $</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Feb 2006</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Last 12 Months</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">&quot;Headline&quot;: Net Foreign Purchases&nbsp;= 1 + 2</td>
<td>58.1</td>
<td>98.8</td>
<td>93.4</td>
<td>73.6</td>
<td>74.3</td>
<td>69.9</td>
<td>63.6</td>
</tr>
<tr>
<td class="firstcol">1. Domestic Securities</td>
<td>77.9</td>
<td>116.8</td>
<td>105.0</td>
<td>95.1</td>
<td>94.8</td>
<td>84.3</td>
<td>76.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>17.0</td>
<td>15.2</td>
<td>19.4</td>
<td>17.4</td>
<td>16.5</td>
<td>28.2</td>
<td>29.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>2.0</td>
<td>35.8</td>
<td>30.1</td>
<td>22.3</td>
<td>24.1</td>
<td>18.3</td>
<td>18.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>45.4</td>
<td>43.0</td>
<td>37.7</td>
<td>43.4</td>
<td>41.7</td>
<td>31.0</td>
<td>25.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>13.5</td>
<td>22.8</td>
<td>17.8</td>
<td>12.0</td>
<td>12.5</td>
<td>6.8</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">2. Foreign Securities&nbsp;</td>
<td>-19.8</td>
<td>-17.9</td>
<td>-11.5</td>
<td>-21.5</td>
<td>-20.6</td>
<td>-14.4</td>
<td>-12.7</td>
</tr>
<tr>
<td class="firstcol">3. &quot;Other Acquisition&quot;*</td>
<td>-15.0</td>
<td>-15.1</td>
<td>-9.0</td>
<td>-13.3</td>
<td>-12.8</td>
<td>-11.7</td>
<td>-3.2</td>
</tr>
<tr>
<td class="firstcol">4. Net Foreign Acquisition (1+2+3)</td>
<td>43.2</td>
<td>83.7</td>
<td>84.4</td>
<td>60.3</td>
<td>61.5</td>
<td>58.3</td>
<td>60.4</td>
</tr>
<tr>
<td class="firstcol">5. Short-Term Liabilities</td>
<td>20.8</td>
<td>17.9</td>
<td>-10.6</td>
<td>14.1</td>
<td>11.2</td>
<td>-4.0</td>
<td>15.8</td>
</tr>
<tr>
<td class="firstcol">6. Change in Bank Liabilities</td>
<td>30.4</td>
<td>-22.0</td>
<td>3.7</td>
<td>10.8</td>
<td>13.9</td>
<td>1.4</td>
<td>5.3</td>
</tr>
<tr class="odd">
<td class="firstcol">7. Total TIC Flows**&nbsp; </td>
<td>94.5</td>
<td>79.6</td>
<td>77.5</td>
<td>85.2</td>
<td>86.6</td>
<td>55.7</td>
<td>81.6</td>
</tr>
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The US Treasury's monthly investment data, called "Treasury International Capital" data or "TIC", are increasingly watched for trends in foreign investors' interest in US capital markets. Data for February were released this Monday [...]

Treasury TIC Data Show Reduced Security Purchases, but More Inflows of Other Capital

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417c.jpg" width="353">
German investors surprised the economic community with a spurt of optimism. The balance of those looking for better conditions six months ahead over those looking for worsening conditions rose to 16.5% in April from 5.8% in March. In spite of the rise, however, the balance is well below that of 62.7% in April, 2006 and also well below the long term average of 33.1%.
Investors continue to be impressed with current conditions. The balance of those seeing improvement in current conditions over those seeing deterioration rose to 76.9%, an all time high, from 69.2% in March and from 2.9% in April, 2006. The first chart shows the balances for current conditions and for the outlook since December 1981, when the series began.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417d.jpg" width="353">
Contributing, no doubt, to the increased optimism regarding current conditions among German investors has been the continued improvement in the economy in the first months of this year. The imposition of a 3 point increase in the Value Added Tax that went into effect on January 1, 2007 has apparently had a less deleterious effect on the economy than had been feared. Retail sales declined 3.9% in January, but rose 1.26% in February. The unemployment rate of registered workers declined to 9.2% in March from 9.8% in December. Industrial production was up 7.57% in February over the corresponding month of 2006 and, on the same basis, in January, 7.24%, compared with an increase of 5.88% for all of 2006 over 2005. Unemployment rates and the year over year increases in industrial production are shown in second chart shows.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417e.jpg" width="353">
As noted above, the expectations balance is well below the long term average of 33.1%. Perhaps one of the factors that may account for the subdued expectations is the strength in the Euro and what it may mean for exports. It was export demand increasing 2.10 points that offset the 1.2 point decline in domestic demand in the final quarter of the year. The third chart shows the contributions to growth of exports and domestic demand over the last five years. Perhaps one of the questions troubling investors is whether the decline in unemployment is such that it will lead to an increase in consumer demand that could offset a decline in exports. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">&nbsp;GERMANY ZEW INDICATOR</a></th>
<th scope="col">Apr 07</th>
<th scope="col">Mar 07</th>
<th scope="col">Apr 06</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Expectations (% Balance)</td>
<td>16.5</td>
<td>5.8</td>
<td>62.7</td>
<td>10.7</td>
<td>-46.2</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr>
<td class="firstcol">Current Conditions (% Balance)</td>
<td>76.9</td>
<td>69.2</td>
<td>2.9</td>
<td>7.7</td>
<td>74.0</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.7</td>
</tr>
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German investors surprised the economic community with a spurt of optimism. The balance of those looking for better conditions six months ahead over those looking for worsening conditions rose to 16.5% in April from 5.8% in March. In [...]

German Investors' Optimism Surprises but the Optimism Is Subdued

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

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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

Tom Moeller

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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: April 2007

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