Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424e.jpg" width="353">
Unexpectedly, initial unemployment insurance claims fell 33,000 last week to 342,000. The decline followed a little revised 20,000 increase during the prior week and it dropped claims to the lowest level in two months. Consensus expectations had been for claims to total 375,000 last week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424f.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four week moving average of initial claims fell to 369,500 (14.0% y/y), its lowest level in a month.
Continuing claims for unemployment insurance fell 65,000 after an upwardly revised 46,000 increase during the prior week. The figure provides some indication of workers&#39; ability to find employment.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment held steady at 2.2% for the fifth week in the last six.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">04/19/08</th>
<th scope="col">04/12/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;342</td>
<td>375</td>
<td>8.2%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,934</td>
<td>14.8%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
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Unexpectedly, initial unemployment insurance claims fell 33,000 last week to 342,000. The decline followed a little revised 20,000 increase during the prior week and it dropped claims to the lowest level in two months. Consensus [...]

U.S. Initial Claims for Jobless Insurance Lowest Since February

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424c.jpg" width="353">
During March, new orders for durable manufactured goods dipped 0.3% after falling 0.9% in February, a decline which was less than the 1.7% drop reported initially. Consensus expectations had been for a slight 0.1% uptick in March orders and it was the third consecutive m/m decline.
Outsized weakness was registered in the transportation sector where new orders fell 4.6%. Excluding the volatile transportation sector durable goods orders rose 1.5%, double the expected gain. A 2.1% February decline in orders was little revised.
The 4.6% decline in transportation equipment orders was led by a 4.6% (-14.7% y/y) downdraft in orders for motor vehicles &amp; parts. That was partially offset by a 10.7% gain in new orders for aircraft &amp; parts. Orders for nondefense aircraft &amp; parts rose 5.5% (-18.9% y/y), about the same as they did in February.
Orders for nondefense capital goods rose 1.5% after a revised 0.3% dip during February. During the last ten years there has been an 80% correlation between the y/y gain in nondefense capital goods orders and the rise in equipment &amp; software spending in the GDP accounts. The correlation with capital goods shipments is, as one would expect, a larger 92%.
March new orders for nondefense capital goods less aircraft were unchanged, following a little revised 2.0% February decline which was double the 1.0% drop during January.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424d.jpg" width="353">
Orders for machinery rose 6.2% (1.9% y/y) and recovered about half of the February decline.Computers &amp; related products orders rose 1.6% on the heels of February&#39;s 11.3% surge while new orders for communications equipment dipped 0.3%. More extreme weakness in these orders is indicated by the sharp 19.2% decline from their peak level last July. Primary metal orders ticked up 0.2% (6.3% y/y).
Overall shipments of durable goods dipped 0.4% (+0.4% y/y) as shipments from the transportation sector fell 1.9% (-5.3% Y/Y). Less transportation, shipments ticked up 0.2% (2.5% y/y).
Inventories of durable goods backed up by 1.1% (5.1% y/y). The three month gain in durable goods inventories remained about steady with the prior several months at 8.6% (AR). That is, however, sharply elevated from the -0.1% rate of decumulation last August. Less transportation, inventories also rose at an accelerated 4.9% rate during the last three months.
Maintaining Stability in a Changing Financial System: Some Lessons Relearned Again? From the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/1q08Hoenig.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>-0.3%</td>
<td>-0.9%</td>
<td>-2.1%</td>
<td>0.9%</td>
<td>6.3%</td>
<td>9.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>1.5%</td>
<td>-2.1%</td>
<td>2.2%</td>
<td>0.2%</td>
<td>7.6%</td>
<td>8.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>-3.3%</td>
<td>3.5%</td>
<td>10.6%</td>
<td>17.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>0.0%</td>
<td>-2.0%</td>
<td>1.7%</td>
<td>-1.6%</td>
<td>8.5%</td>
<td>11.1%</td>
</tr>
</tbody>
</table>
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During March, new orders for durable manufactured goods dipped 0.3% after falling 0.9% in February, a decline which was less than the 1.7% drop reported initially. Consensus expectations had been for a slight 0.1% uptick in March [...]

U.S. Durable Goods Orders Dipped Unexpectedly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424a.jpg" align="left" border="0" height="265" width="353">
During March, new single family home sales fell 8.5%. The
decline to 526,000 followed a 5.3% drop during February that was
revised deeper from the initial report. A March sales level of 585,000
had been expected. The latest level of sales was the lowest since 1991.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424b.jpg" align="right" border="0" height="265" width="353">
By region, double digit month-to-month declines were logged in
the Northeast (-64.6% y/y), in the Midwest (-50.0% Y/Y) and in the West
(-39.3% y/y). In the South new home sales fell by a lesser 4.6% m/m
(-25.9% y/y).
The median price for a new single family home fell 6.8% to
$227,600 and reduced prices to near their lowest since 2004.

The number of new homes for sale fell 1.1%
last month (-14.6% y/y). That inventory was down 18.3% from the peak in
mid-2006.
Will Rural Prosperity Prevail in 2008? from
the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/1q08Henderson.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">US
New Homes</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales
(SAAR, 000s)</td>
<td>526</td>
<td>575</td>
<td>-36.6%</td>
<td>773</td>
<td>1,049</td>
<td>1,279</td>
</tr>
<tr>
<td class="firstcol">Median Price
(NSA, $)</td>
<td>227,600</td>
<td>244,200</td>
<td>-13.3%</td>
<td>243,500</td>
<td>243,067</td>
<td>234,208</td>
</tr>
</tbody>
</table>
</body></html>

During March, new single family home sales fell 8.5%. The decline to 526,000 followed a 5.3% drop during February that was revised deeper from the initial report. A March sales level of 585,000 had been expected. The latest level of [...]

U.S. New Home Sales & Prices Drop

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424c.jpg" align="left" border="0" height="265" width="353">
During March, new orders for durable manufactured goods dipped
0.3% after falling 0.9% in February, a decline which was less than the
1.7% drop reported initially. Consensus expectations had been for a
slight 0.1% uptick in March orders and it was the third consecutive m/m
decline.
Outsized weakness was registered in the transportation sector
where new orders fell 4.6%. Excluding the volatile transportation
sector durable goods orders rose 1.5%, double the expected gain. A 2.1%
February decline in orders was little revised.
The 4.6% decline in transportation equipment orders was led by
a 4.6% (-14.7% y/y) downdraft in orders for motor vehicles &amp;
parts. That was partially offset by a 10.7% gain in new orders for
aircraft &amp; parts. Orders for nondefense aircraft &amp;
parts rose 5.5% (-18.9% y/y), about the same as they did in February.
Orders for nondefense capital goods rose 1.5% after a revised
0.3% dip during February. During the last ten years there has been an
80% correlation between the y/y gain in nondefense capital goods orders
and the rise in equipment &amp; software spending in the GDP
accounts. The correlation with capital goods shipments is, as one would
expect, a larger 92%.
March new orders for nondefense capital goods less aircraft
were unchanged, following a little revised 2.0% February decline which
was double the 1.0% drop during January.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424d.jpg" align="right" border="0" height="265" width="353">
Orders for machinery rose 6.2% (1.9% y/y) and recovered about
half of the February decline.Computers &amp; related products
orders rose 1.6% on the heels of February's 11.3% surge while new
orders for communications equipment dipped 0.3%. More extreme weakness
in these orders is indicated by the sharp 19.2% decline from their peak
level last July. Primary metal orders ticked up 0.2% (6.3% y/y).
Overall shipments of durable goods dipped 0.4% (+0.4% y/y) as
shipments from the transportation sector fell 1.9% (-5.3% Y/Y). Less
transportation, shipments ticked up 0.2% (2.5% y/y).
Inventories of durable goods backed up by 1.1% (5.1% y/y). The
three month gain in durable goods inventories remained about steady
with the prior several months at 8.6% (AR). That is, however, sharply
elevated from the -0.1% rate of decumulation last August. Less
transportation, inventories also rose at an accelerated 4.9% rate
during the last three months.
Maintaining Stability in a Changing Financial System:
Some Lessons Relearned Again? From the Federal Reserve Bank
of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/1q08Hoenig.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS
Classification</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>-0.3%</td>
<td>-0.9%</td>
<td>-2.1%</td>
<td>0.9%</td>
<td>6.3%</td>
<td>9.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Excluding Transportation</td>
<td>1.5%</td>
<td>-2.1%</td>
<td>2.2%</td>
<td>0.2%</td>
<td>7.6%</td>
<td>8.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>-3.3%</td>
<td>3.5%</td>
<td>10.6%</td>
<td>17.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>0.0%</td>
<td>-2.0%</td>
<td>1.7%</td>
<td>-1.6%</td>
<td>8.5%</td>
<td>11.1%</td>
</tr>
</tbody>
</table>
U.S. New Home Sales &amp;
Prices Drop 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 24, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424a.jpg" align="left" border="0" height="265" width="353">
During March, new single family home sales fell 8.5%. The
decline to 526,000 followed a 5.3% drop during February that was
revised deeper from the initial report. A March sales level of 585,000
had been expected. The latest level of sales was the lowest since 1991.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424b.jpg" align="right" border="0" height="265" width="353">
By region, double digit month-to-month declines were logged in
the Northeast (-64.6% y/y), in the Midwest (-50.0% Y/Y) and in the West
(-39.3% y/y). In the South new home sales fell by a lesser 4.6% m/m
(-25.9% y/y).
The median price for a new single family home fell 6.8% to
$227,600 and reduced prices to near their lowest since 2004. 
 

The number of new homes for sale fell 1.1%
last month (-14.6% y/y). That inventory was down 18.3% from the peak in
mid-2006.
Will Rural Prosperity Prevail in 2008? from
the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/1q08Henderson.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">US
New Homes</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales
(SAAR, 000s)</td>
<td>526</td>
<td>575</td>
<td>-36.6%</td>
<td>773</td>
<td>1,049</td>
<td>1,279</td>
</tr>
<tr>
<td class="firstcol">Median Price
(NSA, $)</td>
<td>227,600</td>
<td>244,200</td>
<td>-13.3%</td>
<td>243,500</td>
<td>243,067</td>
<td>234,208</td>
</tr>
</tbody>
</table>
U.S. Help-Wanted Advertising Fell
to a Record Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 24, 2008



<div align="left"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424g.jpg" align="left" border="0" height="265" width="353">

The index of help-wanted advertising reported by the
Conference Board fell sharply last month to 19 from an unrevised 21 in
February. The latest level was a new record low.
During the last ten years there has been a 57% correlation
between the level of help-wanted advertising and the three month change
in non-farm payrolls.
The proportion of labor markets with rising want-ads rose
slightly to a still low 39%. The latest was nevertheless improved from
12% in August which was the lowest monthly reading since October 2001.
</div>

Each region of the country showed a m/m decline in its help
wanted index except the Middle Atlantic and the New England regions.
The Conference Board surveys help-wanted print advertising
volume in 51 major newspapers across the country every month. The
latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.
In 2006, the Conference Board introduced its Help Wanted
Online Data Series and the latest release can be found in this <a href="http://www.conference-board.org/pdf_free/HWOnLine3183_PR.pdf">link</a>.
<div align="left"></div>
<div align="left"></div>


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference
Board</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March 2007</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>19</td>
<td>21</td>
<td>29</td>
<td>26</td>
<td>33</td>
<td>39</td>
</tr>
</tbody>
</table>
U.S. Initial Claims for Jobless
Insurance Lowest Since February 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 24, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424e.jpg" align="left" border="0" height="265" width="353">
Unexpectedly, initial unemployment insurance claims fell
33,000 last week to 342,000. The decline followed a little revised
20,000 increase during the prior week and it dropped claims to the
lowest level in two months. Consensus expectations had been for claims
to total 375,000 last week.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424f.jpg" align="right" border="0" height="265" width="353">
A claims level below 400,000 typically has been associated
with growth in nonfarm payrolls. During the last ten years there has
been a (negative) 76% correlation between the level of initial claims
and the m/m change in nonfarm payroll employment.
The four week moving average of initial claims fell to 369,500
(14.0% y/y), its lowest level in a month.
Continuing claims for unemployment insurance fell 65,000 after
an upwardly revised 46,000 increase during the prior week. The figure
provides some indication of workers' ability to find employment.
The continuing claims numbers lag the initial claims figures
by one week.
The insured rate of unemployment held steady at 2.2% for the
fifth week in the last six.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">04/19/08</th>
<th scope="col">04/12/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;342</td>
<td>375</td>
<td>8.2%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,934</td>
<td>14.8%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
IFO Weakness: A New Trend Lower ora &#8216;Mild&#8217; Offset to a Spurious Jump? 
by <a href="/comment/Brusca.html">Robert
Brusca</a> April 24, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080424h.jpg" align="left" border="0" height="265" width="353">
Germany&#8217;s IFO index has dropped sharply in March to 102.4 from
104.8. Its current conditions index fell to 109.4 from 111.5. The April
expectations index moved lower to 96.8 from 98.4. On a Yr/Yr basis the
percentage declines in the IFO index accelerated for each of these
components (see table below). 
The readings for the IFO and its components are not yet dour,
but they clearly have weakened and are no longer strong. The Business
Climate index stands in the 73rd percentile of
its range, a firm reading. The current situation is a bit better than
that, lodged at its 78th percentile. Expectations, the forward-looking
indicator, are weaker; still standing in the 60th
percentile of their range. That is still above the midpoint but longer
looking very strong and certainly losing momentum. Expectations
readings, while above their range mid point stand at their period
average at a value of 96.8.
The sector indices tell curious stories. Compared to their
respective average values since January of 2001, all are still well
above average. But all are not well-off. Retailing is the most curious
having moved strongly higher earlier this year even as the euro was
gaining in value. But in April it is falling sharply even as it was
retaining some of those gains. The message from this sector is not
clear. It resides in the 78th percentile of its
range. In that respect it is the relative strongest of the sectors in
its range since 2001. Wholesaling is the weakest sector residing in the
65th percentile of its range. MFG Construction
and retailing are in the low seventieth percentiles of their respective
ranges. All of them fell in the month, retailing fell the mostly
sharply shedding 10 points in one month. Wholesaling lost over 6 points
on its diffusion index. Manufacturing lost about four and one-half
points.
It was not a good month for the IFO report that was generally
worse than the Zew index has suggested. The IFO&#8217;s details are yet to be
revealed. A MFG morale report from neighboring France, a fellow EMU
member, (also released today) showed that French morale was off and
that orders had dropped sharply. That result accords with the Belgian
National Bank index released on Wednesday, just one day ago. We are
getting confirming signs with similar causes about spreading weakness
in the Euro Area. Even the UK&#8217;s CBI MFG survey showed a similar pattern
of weakness made more nettlesome by reports that more firms were
passing through price increases.
The reports for the EMU in the coming months are going to be
important. On today&#8217;s weakness the Euro shed a large dollop of its
recent outsized dollar gains. The ECB rhetoric about tightening rates
has done a quick 180-degree turn, suddenly the IMF is pleased with the
state of ECB policy and the ECB itself no longer seems to threaten a
rate-hiking agenda.
What a difference a few bad economic reports can make. Stay
tuned as we try to discern how weak things will get. For its part the
German government has not cut its growth rate further for 2008 but has
lowered the outlook for 2009. In the face of all the complaining that
the euro is too strong, some of this is going have to undergo a
credibility check. If the euro is far, far above parity (and seems to
suggest that is so) then the recent strength in a number of euro
indicators would seem to at risk. More weak readings from the IFO and
its companion reports must lie ahead. All this talk of a resilient and
robust economy in Europe surely must be about to go by the boards. 
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"> IFO
Survey: Germany</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Percent: Yr/Yr</td>
<td colspan="3">INDEX NUMBERS</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>CURRENT</td>
<td>Average</td>
<td>Percentile</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td>-5.7%</td>
<td>-2.7%</td>
<td>-2.7%</td>
<td>-4.2%</td>
<td>-5.3%</td>
<td>102.4</td>
<td>96.0</td>
<td>73.1%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td>-4.2%</td>
<td>-0.7%</td>
<td>-1.1%</td>
<td>-4.3%</td>
<td>-6.2%</td>
<td>108.4</td>
<td>95.2</td>
<td>78.6%</td>
</tr>
<tr>
<td class="firstcol">Biz Expectations</td>
<td>-7.2%</td>
<td>-4.7%</td>
<td>-4.4%</td>
<td>-4.1%</td>
<td>-4.3%</td>
<td>96.8</td>
<td>96.8</td>
<td>60.5%</td>
</tr>
</tbody>
</table>

</body></html>

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080423f.jpg" align="left" border="0" height="265" width="353">
What is for real and what is whistling past the
graveyard? 
 
Tangled trends 
Euro Area orders are up in February, making it a two-month gain
following a dive in December. Still the 3-month growth rate is negative
for orders at a -3.9% compared to an annual rate gains of 6% over six
months and 6.6% over 12-months. So the sequential growth rates point to
some sliding in growth despite recent two-month pickup. 
 
Orders: the lagging leading statistic&#8230; 
More to the point is the fact that the orders figures for the Euro Area
are for February when many other series at the country level already
are available for March. Survey data are beginning to come available
for April as we saw in the release of the Belgian National Bank&#8217;s April
index that plunged &#8211; ironically, led by weakness in orders. The Belgian
index April result is nothing like the recent numbers we are seeing
through April. Still, the BNB survey, truncated at February, would have
been quite compatible with the figures in the table above. That begs
the question of what the trend really is, doesn&#8217;t it? At the end of the
month we we&#8217;ll get the comprehensive survey results for April that
addresses the sectors of the Euro Area and EU from the European
Commission. Based on the Belgian report we would seem to have a much
darker set of trends that will be placed before us. Germany&#8217;s Zew index
for April is already in hand and it shows a weakening in expectations
to a very low level with some so-far minor weakness in current
conditions. But this is a survey of expectations among financial
experts. The upcoming German IFO report will survey the industrial and
other sector participants directly about how their businesses are
performing. . 
 
The drop off in the Belgian index is still isolated but it is highly
topical and reasonably comprehensive across sectors&#8230; and it is an index
known to have leading indicator properties. 
 
Whistling past the graveyard? 
For my taste the smugness of the European reaction to ongoing growth
there and the ECB&#8217;s stubbornness in ignoring the high euro exchange
rate value in setting policy has been hard to stomach since this
behavior has sent inconsistent signals to the markets. In looking at
the euro historically &#8211;even extending the construction of a &#8216;synthetic
euro&#8217; back to the early years of fluctuating exchange rates- it is
PAINFULLY clear how overvalued that rate has become &#8211; and not just VS
the dollar! All the talk of how robust Germany&#8217;s economy remains in the
face of this strikes me as akin to the Spartans swallowing their teeth
to hide the fact that they have been injured. The index above is broad
and inflation adjusted. It is the real deal showing &#8216;euro&#8217;
competitiveness at its lowest level in 36 years &#8211; or more. The ECB&#8217;s
ignoring this clearly deflationary force in setting policy is similarly
puzzling. The real, broad euro exchange rate stands nearly 20% above
its average for the period. 
 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080423g.jpg" align="right" border="0" height="265" width="353">Single mandate does
not mean closed-minded 
It does not matter if the ECB has a singular focus and mandate on
inflation with no growth mandate at all. To crank rates up and to
threaten to do it some more as temporary &#8216;inflation&#8217; effects wash
through economy when they &#8216;know&#8217; there is a powerful deflation force at
work (i.e. the overly strong euro) is not good monetary policy. The
German government has long known its place in such monetary fights and
has taken to extolling the benefits of a strong euro. I guess the
response there is this: If you can&#8217;t beat &#8216;em, join &#8216;em. Thus the
German economics and finance ministries seem in some way complicit with
this policy of excessive anti-inflation zeal. It may be that ECB-types
feel they have to lean hard against the unwanted advice urging
flexibility from the IMF. The International Monetary Fund said Monday
in its latest Regional Economic Outlook for Europe that the European
Central Bank has some leeway to loosen its monetary stance. Today aft r
the euro has screamed higher, the IMF&#8217;s John Lipsky has called euro
monetary policy appropriate as it is. I don&#8217;t know if that will end
this verbal silliness or not. 
 
Right hand does not seem to know (or care?) what the left is
doing&#8230; 
So the economic growth/inflation outlooks and assessments have flies in
the ointment. Unfortunately it seems that the more topical reports are
the weaker ones. While the title &#8216;industrial orders&#8217; sounds like a
leading sort of barometer, no report is any fresher than the data it
contains. If this one continued fish you would not touch it. The
topical reports lead us to be cautious in the assessment of current
trends. Germany and Europe have for too long been too resistant to the
impact of a euro whose strength has been eating away ravenously at
their competitive positive. The resiliency of the economic data has
belied the urgency in the tone of policy makers who have sought some
help in stemming the euro&#8217;s rise. But, in the end, you can&#8217;t have it
both ways. If the euro is too strong it must do damage. If it does not,
it is not too strong. If policy markers are going to extol the vibrant
nature of their own economies as its fundamentals are being undercut
surely they can expect no urgency to help them with their nonexistent
FX problem! 
 
Call to action: THINK! 
Governmental and central banking policymakers must be on the same page
and willing to look ahead if they are to foster a correct view of their
economy. For the moment we continue to have the sort of fair-weather
analysis from officials that we were spoon fed by commercial bankers
over the previous year. We know what that is worth. It is a good time
to look closely at the data yourself and remember the key
constituencies of the policymakers that go public. I think we may be in
for a rude awakening. But that&#8217;s only one man&#8217;s opinion. And economists
are wrong at least as often as markets are&#8230; Who is &#8216;wrong&#8217; now? 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col"> Euro Area and UK Industrial Orders &amp; Sales Trends</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">% m/m</td>
<td colspan="3">Feb-08</td>
<td>Feb-07</td>
<td>Feb-06</td>
<td>Qtr-2 Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3Mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing Orders</td>
<td>0.6%</td>
<td>2.2%</td>
<td>-3.7%</td>
<td>-3.9%</td>
<td>6.0%</td>
<td>6.6%</td>
<td>7.0%</td>
<td>11.1%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol" colspan="10">MFG Orders</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Orders</td>
<td>0.6%</td>
<td>2.2%</td>
<td>-3.7%</td>
<td>-3.9%</td>
<td>6.0%</td>
<td>6.6%</td>
<td>7.0%</td>
<td>11.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Countries:</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3Mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Qtr-2 Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany:</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>-1.6%</td>
<td>-6.5%</td>
<td>7.7%</td>
<td>5.9%</td>
<td>12.7%</td>
<td>12.3%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France:</td>
<td>1.0%</td>
<td>4.1%</td>
<td>-1.7%</td>
<td>14.2%</td>
<td>5.7%</td>
<td>9.7%</td>
<td>5.9%</td>
<td>4.7%</td>
<td>17.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>2.0%</td>
<td>2.8%</td>
<td>-5.2%</td>
<td>-2.5%</td>
<td>3.9%</td>
<td>9.9%</td>
<td>1.6%</td>
<td>11.4%</td>
<td>5.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK (EU)</td>
<td>-13.2%</td>
<td>23.8%</td>
<td>-6.3%</td>
<td>2.9%</td>
<td>4.6%</td>
<td>13.7%</td>
<td>-7.5%</td>
<td>15.8%</td>
<td>81.3%</td>
</tr>
</tbody>
</table>
</body></html>

What is for real and what is whistling past the graveyard? Tangled trends Euro Area orders are up in February, making it a two-month gain following a dive in December. Still the 3-month growth rate is negative for orders at a -3.9% [...]

Euro Area Orders Stabilize: A Leading or Misleading Statistic?

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080423e.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s retail sales rose by 0.3% in nominal terms in
February. Nominal growth in retail sales shows some pick up as the
overall three month growth rate has improved. But this is an inflation
effect. When we deflate nominal retail sales buy Italy&#8217;s CPI we find
three month growth is still declining&#8230; albeit at a slower pace than in
come previous periods. Still, the current quarter (2008-Q1), with two
months worth of data in hand, shows real retail sales posting a decline
at a 2.8% annual rate. This compares to an actual Q4 rise in real
retail sales of +3.8%. in 2007 Q4. As you can see from the plotting of
real retail sales, Italy&#8217;s consumers have been challenged for quite
some time. While there is a minor abatement of the ongoing sales
deceleration in place, that seems to be in the context of a broader and
still declining overall trend. So we should take no consolation from
the current nominal retail sales pick up or even from the &#8216;upward hook&#8217;
formation on the growth chart for real retail sales as of February. It
has no fundamental basis. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">Italy Retail Sales Growth </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">mo/mo %</td>
<td colspan="4">At annual rates</td>
<td></td>
</tr>
<tr class="grey3">
<td class="firstcol">Nominal</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr -Ago</td>
<td>Qtr-to-Date</td>
</tr>
<tr class="grey2">
<td class="firstcol">Retail Trade</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.2%</td>
<td>1.3%</td>
<td>1.4%</td>
<td>0.4%</td>
<td>1.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>0.5%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>3.1%</td>
<td>1.9%</td>
<td>2.3%</td>
<td>0.2%</td>
<td>2.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Clothing &amp; Furniture</td>
<td>1.4%</td>
<td>0.7%</td>
<td>0.2%</td>
<td>9.6%</td>
<td>3.9%</td>
<td>1.7%</td>
<td>0.9%</td>
<td>4.9%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Real Retail</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>-1.7%</td>
<td>-2.6%</td>
<td>-1.5%</td>
<td>-1.4%</td>
<td>-2.8%</td>
</tr>
</tbody>
</table>
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Italy’s retail sales rose by 0.3% in nominal terms in February. Nominal growth in retail sales shows some pick up as the overall three month growth rate has improved. But this is an inflation effect. When we deflate nominal retail [...]

Italy’s Retail Sales Growth Remains Stunted

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080423d.jpg" align="left" border="0" height="265" width="353">
BNB index is a harbinger for the Euro-Area: The BNB index has
plunged sharply in April. This early read on Euro Area health in April
has been a GOOD SOLID barometer of what the larger and geographically
linked key EMU economies will report for the month. The chart shows the
tracking of the Belgian industrial index &#8211; usually the first read on
the Euro Area and EU in any given month - with the EU&#8217;s industrial
index and with the EU Commission index for Germany. The Belgian index
has often moved ahead of the EU and German indices. In this episode,
the Belgian index had started to strengthen ahead of any such signs for
Germany and EU before posting this recent drop. So the plunge in
Belgium in April may overstate the extent of the drop yet to be seen in
Germany and in EU. In any event, the smaller Belgian economy often sees
its BNB index move more sharply than the indices for Germany and the EU
but it is generally a good &#8216;hint&#8217; for them and is not to be ignored. 
 
MFG sector is weak 
The BNB index shows us widespread weakness in Belgium. The MFG index
(an up minus down net reading, like all the other components) is at
-7.9, the weakest since it was at -10.5 in August of 2005. The domestic
production reading slipped from +6 to +2 in April but the domestic and
foreign orders indices have both plunged to register deep negative
readings. Foreign orders were last weaker in May of 2005 and domestic
orders were last weaker in June of 2003. 
 
They&#8217;re here &#8211; not the poltergeist but worse&#8230; FX gremlins 
The current assessment, by comparison, is only mildly negative at a -2
reading, and was last weaker in January of 2008 at -5: so that&#8217;s no big
deal- or is it? Foreign orders at a -8 are more serious weakened in the
current assessment, suggesting that foreign-linked weakness is here now
and not just in some vague pipeline of indeterminate length. This is
the sort of thing we have been waiting to see happen in the aftermath
of the ongoing surge in the euro. Maybe the Euro Area is not so
resilient after all. Maybe the German economy is not as &#8216;robust&#8217; as its
deputy Finance minister sees things. Maybe the ECB has lost its cool in
pursuit of an inflation objective that made no SHORT TERM SENSE given
the nature of the international strains in the system. Maybe, maybe,
maybe- a great word that word &#8216;maybe.&#8217; 
 
Weakness across Belgium a geographically central-EU state 
Apart from industry the Belgian wholesale/retail index fell sharply to
-9.5 in April from +0.2 in March. It had briefing resided at -8 in
February of this year and then recovered - but no more. It was last
weaker in May of 2005 at -8.7. The construction index is very weak as
well. It was last weaker in Sept of 2002. The business services index
at 6.3 was last weaker in August of 2005. And so on&#8230; 
 
Raven-mad? 
Those lows in 2005 mark the time when the Euro Area was beginning to
recover from its period of extended weakness. What we see is the new
lows in the various components of the April 2008 Belgian survey go back
to OR BEYOND that point, inviting comparisons with a time when things
were bad and terms like euro-sclerosis were in vogue. The &#8216;New Europe&#8217;
where &#8216;robust&#8217; and &#8216;solid&#8217; and &#8216;inflation-fighting&#8217; have been key words
and phrases may now be past their vintage years. The euro consumer
never did kick in as force to support growth. Investment-led growth can
only take you so far especially when the rest of the world is slowing
and external demand for investment goods begins to dry up&#8230;and your
currency is setting record highs while your central bank with inflation
marginally over the target starts threatening to HIKE RATES! For a time
Euro Area growth seemed to be able to out-run the speeding bullet that
was the streaking strong euro. But as Edgar Alan Poe once
wrote&#8230;nevermore. The basis for the belief was flawed from the start,
even raven-mad. Exchange rates do matter. Maybe (oh, that word again&#8230;)
now the ECB can let its policy pay some heed to that. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Belgium
National Bank Indices </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-Mo Change</td>
<td>6-Mo Change</td>
<td>12-Mo Change</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Industry</td>
<td style="color: red;">-7.9</td>
<td style="color: red;">1.2</td>
<td style="color: red;">0.2</td>
<td style="color: red;">-7.1</td>
<td style="color: red;">-7.8</td>
<td style="color: red;">-11.7</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color: red;">-7.4</td>
<td>1.1</td>
<td>0.5</td>
<td style="color: red;">-6.6</td>
<td style="color: red;">-5.6</td>
<td style="color: red;">-9.7</td>
</tr>
<tr>
<td class="firstcol">Production</td>
<td>2.0</td>
<td>6.0</td>
<td>3.0</td>
<td>2.0</td>
<td>3.0</td>
<td>1.0</td>
</tr>
<tr>
<td class="firstcol">Domestic Orders</td>
<td style="color: red;">-22.0</td>
<td>1.0</td>
<td>0.0</td>
<td style="color: red;">-19.0</td>
<td style="color: red;">-19.0</td>
<td style="color: red;">-28.0</td>
</tr>
<tr>
<td class="firstcol">Foreign Orders</td>
<td style="color: red;">-14.0</td>
<td>1.0</td>
<td>6.0</td>
<td style="color: red;">-18.0</td>
<td style="color: red;">-17.0</td>
<td style="color: red;">-18.0</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>8.0</td>
<td>7.0</td>
<td>15.0</td>
<td>5.0</td>
<td>5.0</td>
<td>1.0</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td class="firstcol" colspan="7">Current
assess</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td style="color: red;">-2.0</td>
<td style="color: red;">-1.0</td>
<td>3.0</td>
<td>3.0</td>
<td>4.0</td>
<td style="color: red;">-5.0</td>
</tr>
<tr>
<td class="firstcol">Foreign Orders</td>
<td style="color: red;">-8.0</td>
<td>4.0</td>
<td>0.0</td>
<td style="color: red;">-6.0</td>
<td style="color: red;">-3.0</td>
<td style="color: red;">-11.0</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>5.0</td>
<td>3.0</td>
<td>4.0</td>
<td>1.0</td>
<td>3.0</td>
<td>0.0</td>
</tr>

<tr>
<td class="firstcol">Wholesale &amp; Retail</td>
<td style="color: red;">-9.5</td>
<td>0.2</td>
<td style="color: red;">-8.0</td>
<td style="color: red;">-6.8</td>
<td style="color: red;">-16.2</td>
<td style="color: red;">-19.8</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td style="color: red;">-8.7</td>
<td>2.9</td>
<td>7.0</td>
<td style="color: red;">-10.1</td>
<td style="color: red;">-9.7</td>
<td style="color: red;">-12.7</td>
</tr>
<tr>
<td class="firstcol">Business Services</td>
<td>6.3</td>
<td>6.4</td>
<td>7.5</td>
<td style="color: red;">-0.8</td>
<td style="color: red;">-6.5</td>
<td style="color: red;">-7.2</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="2">Comparisons:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Changes lag one month</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EU Index: Industry</td>
<td>#N/A</td>
<td>0.0</td>
<td>0.0</td>
<td style="color: red;">-2.0</td>
<td style="color: red;">-3.0</td>
<td style="color: red;">-6.0</td>
</tr>
<tr>
<td class="firstcol">Germany Index: Industry</td>
<td>#N/A</td>
<td>2.0</td>
<td>2.0</td>
<td style="color: red;">-2.0</td>
<td style="color: red;">-1.0</td>
<td style="color: red;">-7.0</td>
</tr>
<tr>
<td class="firstcol" colspan="2">Compare: BNB
Index</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>3.1</td>
<td style="color: red;">-0.2</td>
<td style="color: red;">-0.2</td>
</tr>
</tbody>
</table>
</body></html>

BNB index is a harbinger for the Euro-Area: The BNB index has plunged sharply in April. This early read on Euro Area health in April has been a GOOD SOLID barometer of what the larger and geographically linked key EMU economies will [...]

Belgian National Bank Index Signals Euro-Trouble Ahead

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080423a.jpg" width="353">
U.S. exports through February rose 22% from a year earlier. The double digit growth rate reflects broad based export gains to virtually all of America&#39;s trading partners. No doubt, the weaker foreign exchange value of the dollar is behind much of this growth. But the larger force driving those gains is more likely to have been the foreign countries&#39; own economic growth. In areas where the dollar&#39;s value is down, U.S. exports are up. Where the dollar is unchanged, U.S. exports are up. Where it is up, exports also have grown.
Strongest have been the gains in U.S. exports to Europe which account for 27% of total U.S. exports. Thirty percent y/y growth through this February followed several years of double digit gain. Here is where the decline in the dollar&#39;s value seems to be paying off. Moreover, 2.6% growth in Europe&#39;s real GDP last year and 3.1% growth in 2006 is well elevated from 1-2% growth during five years and this too raised U.S. exports. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080423b.jpg" width="353">
Exports to Mexico, another major U.S. trading partner, recently surged after a temporary growth slowdown last year. The recent pickup in growth reflects the acceleration in the country&#39;s rate of economic growth.
Recent firmness in exports to Mexico occurred along with still strong export growth to Canada. Here again, the dollar&#39;s decline against the Canadian currency has helped U.S. exports but Canada&#39;s solid growth in real GDP of 2.9% follows ten years of growth at about that rate. Cross border, two-way trade between the U.S. and its North American trading partners clearly plays a role in the export growth rates.
Exports to the Pacific Rim also have been strong, fueled by the dollar&#39;s lower value against the Yen and by the double digit GDP growth in China. Together, these two countries account for 10% of U.S. exports. Here again, two-way trade does play a role in boosting the U.S. export figures. In addition, the decline in the dollar&#39;s value against the Yen has supported U.S. export growth even as Japan&#39;s domestic growth was sagging. With China, U.S. export growth has boomed due to the country&#39;s double digit GDP growth as well as the decision during 2005 to let the value of the Yuan appreciate.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080423c.jpg" width="353">
With the &quot;lesser&quot; trading partners of the U.S. the story is one of a boom, fueled by strong GDP growth and, in the case of exports to OPEC, higher oil prices.
By type of product, 7.7% growth in exports of capital goods last year followed the strong 14.2% gain during 2006. Double digit growth in exports of transportation equipment resulted as airplane exports surged, but exports of electrical &amp; nonelectrical machinery also were quite firm. In the consumer area, exports excluding autos have been growing double digit since 2004 led by double growth in exports of furniture, though apparel exports have been falling. Exports of computers recently have fallen after weak growth during 2007. Exports of food and beverages have been exceptionally strong. The 40.9% y/y growth rate through February is double the growth during all of last year which was double the strong growth during 2005 and 2006.
The figures referenced above can be found in Haver&#39;s USECON database as well as in the OECDMEI database.
Globalization and Inflation Dynamics: The Impact of Increased Competition from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr324.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">% of Total U.S. Exports</th>
<th scope="col">U.S. Export Growth (Feb. Y/Y %)</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">Area&#39;s Real GDP Growth (4Q Y/Y %)</th>
<th scope="col">2-Year Change in U.S. Dollar&#39;s Value</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total Goods</td>
<td>100</td>
<td>25</td>
<td>12.2</td>
<td>14.4</td>
<td>--</td>
<td>-17.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Canada</td>
<td>20</td>
<td>16</td>
<td>7.9</td>
<td>8.8</td>
<td>2.9</td>
<td>-13.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mexico</td>
<td>12</td>
<td>22</td>
<td>1.8</td>
<td>11.4</td>
<td>3.8</td>
<td>-0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Europe</td>
<td>27</td>
<td>30</td>
<td>16.7</td>
<td>16.2</td>
<td>2.6</td>
<td>-29.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Pacific Rim</td>
<td>23</td>
<td>21</td>
<td>9.5</td>
<td>15.3</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Japan</td>
<td>5</td>
<td>18</td>
<td>5.1</td>
<td>7.5</td>
<td>1.7</td>
<td>-14</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; China</td>
<td>5</td>
<td>25</td>
<td>18.2</td>
<td>31.6</td>
<td>17.8</td>
<td>-12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South/Central America</td>
<td>10</td>
<td>39</td>
<td>20.9</td>
<td>22.9</td>
<td>4.3</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; OPEC</td>
<td>4</td>
<td>59</td>
<td>23.1</td>
<td>25.8</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Africa</td>
<td>2</td>
<td>25</td>
<td>24.4</td>
<td>22.4</td>
<td>4.8</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

U.S. exports through February rose 22% from a year earlier. The double digit growth rate reflects broad based export gains to virtually all of America's trading partners. No doubt, the weaker foreign exchange value of the dollar is [...]

The U.S. Export Boom: Where Do They Go?

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

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

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

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US and global equity prices have recently diverged

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

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

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

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Andrew Cates

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

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.

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

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.

250430P1.jpg

250430Q1.jpg

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**.

250430R1.jpg

250430S1.jpg

- 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

250430A.jpg

250430B.jpg

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**.

250430C.jpg

250430D.jpg

- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

250430F20.jpg

250430G20.jpg

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

250430F5.jpg

250430G5.jpg

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 2008

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