Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060522c.jpg" width="353">
The Euro Zone as a whole has typically had a surplus on its trade in goods with non Euro Zone countries. However, in August, October and December of 2005 and in January and February of this year substantial deficits were recorded.The rising price of oil led to increased imports and an increasing euro led to some dampening of export demand. In March, however, a small surplus was recorded as seasonally adjusted imports declined by 1.5% and exports rose 1.2%. The first chart shows monthly exports and imports of goods for the Euro Zone on a seasonally adjusted basis.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060522d.jpg" width="353">
The 25 member European Union as a group has typically runs a deficit of its trade in goods with non EU members as can be seen in the second chart, which shows the gap between imports and exports. The deficit in March was 12.2 billion euros, down from 14.8 billion euros in February but 5.4 billion euros over March 2005. It is not possible to derive the trade balance and exports and imports of the non Euro Zone European Union Members from these series. The Euro Zone data refer to trade with all non Euro Zone countries, including those in the European Union, while the EU25 data refer to trade with non EU countries. However, seasonally adjusted data for the Euro Zone trade balance, imports and exports with major countries and selected groups of countries are available as well as seasonally unadjusted data for the trade balance, imports and exports for each of the EU25 countries.

<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/EUROSTAT/@U7/@U7C/@U7C.HTM">Billions of Euros</a></th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M % </th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Zone Balance on Trade</td>
<td>0.4</td>
<td>-2.8</td>
<td>2.8</td>
<td>3.2*</td>
<td>-2.4*</td>
<td>23.3</td>
<td>72.3</td>
<td>69.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>111.4</td>
<td>110.0</td>
<td>97.7</td>
<td>1.22</td>
<td>13.92</td>
<td>1236.0</td>
<td>1147.4</td>
<td>1060.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>111.0</td>
<td>112.8</td>
<td>94.9</td>
<td>-1.51</td>
<td>17.02</td>
<td>1212.7</td>
<td>1075.0</td>
<td>990.6</td>
</tr>
<tr>
<td class="firstcol">European Union Balance on Trade&nbsp;</td>
<td>-12.2</td>
<td>-14.8</td>
<td>-8.8</td>
<td>-2.6*</td>
<td>-3.4*</td>
<td>-106.1</td>
<td>-620</td>
<td>-58.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>96.5</td>
<td>95.8</td>
<td>84.5</td>
<td>0.73</td>
<td>14.26</td>
<td>1068.1</td>
<td>964.5</td>
<td>883.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>108.6</td>
<td>110.7</td>
<td>91.3</td>
<td>-1.72</td>
<td>19.12</td>
<td>1174.3</td>
<td>1026.6</td>
<td>942.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The Euro Zone as a whole has typically had a surplus on its trade in goods with non Euro Zone countries. However, in August, October and December of 2005 and in January and February of this year substantial deficits were recorded.The [...]

Euro Zone Has Small Surplus on Trade in Goods in March: EU 25 a Smaller Deficit

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060522b.jpg" width="353">
Gold prices near $700.00 per ounce of late point up the not-so-latent market concerns that inflationary pressure is rising. Since 1980 there has been a 56% correlation between the level of gold prices and the y/y change in consumer prices.
Concerns were further heightened by the report that &quot;core&quot; consumer price inflation in April was 2.3% (y/y). That was no higher than during early 2005 but it was an acceleration from 2.0% last summer. Faster growth in shelter prices is behind some of the acceleration though prices in many other categories of services, such as education &amp; communication, recreation and public transportation have accelerated as well. Tempering the acceleration has been a sharp drop in in medical care services price inflation. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060522a.jpg" width="353">
Despite slower growth in gasoline demand, retail gasoline prices have moved higher to $2.95 per gallon. Spot gasoline prices fell to under $2.00 per gallon in New York, down roughly 10% from the peak early this month, while crude oil prices similarly are off nearly ten percent from their highs.
Industrial metal prices also have been rising. The JoC-ECRI Industrial Metals Prices Index is up 24.5% this year as prices for aluminum (up 32.9%), copper scrap (up 49.7%) and zinc (up 88.0%) all have been strong. High grade copper prices are up 73.5% since year end &#39;05. Growth in industrial production is behind the rise and during the last ten years there has been a 49% correlation between the level of industrial metals&#39; prices and the y/y change in OECD Big Seven industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">05/16/06</th>
<th scope="col">12/27/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; (per bbl.)</td>
<td>$69.54</td>
<td>$58.16</td>
<td>42.0%</td>
<td>$58.16</td>
<td>$41.78</td>
<td>$32.78</td>
</tr>
<tr>
<td class="firstcol">U.S. Retail Gasoline (per gallon)</td>
<td>$2.95</td>
<td>$2.20</td>
<td>36.2%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr class="odd">
<td class="firstcol">Gold: Handy &amp; Harmon (per Troy Oz., EOP)</td>
<td>$692.00</td>
<td>$507.40</td>
<td>64.8%</td>
<td>$507.40</td>
<td>$443.40</td>
<td>$416.25</td>
</tr>
<tr>
<td class="firstcol">High Grade Copper (Comex, /Lb., EOP)</td>
<td>$3.98</td>
<td>$2.28</td>
<td>177.8%</td>
<td>$2.28</td>
<td>$1.54</td>
<td>$1.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Stainless Steel Scrap (/ton, EOP)</td>
<td>$1,574</td>
<td>$1,268</td>
<td>-4.1%</td>
<td>$1,268</td>
<td>$1,558</td>
<td>$1,265</td>
</tr>
</tbody>
</table>
</body>
</html>

Gold prices near $700.00 per ounce of late point up the not-so-latent market concerns that inflationary pressure is rising. Since 1980 there has been a 56% correlation between the level of gold prices and the y/y change in consumer [...]

Inflation Pressure Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060522b.jpg" width="353">
Gold prices near $700.00 per ounce of late point up the not-so-latent market concerns that inflationary pressure is rising. Since 1980 there has been a 56% correlation between the level of gold prices and the y/y change in consumer prices.
Concerns were further heightened by the report that &quot;core&quot; consumer price inflation in April was 2.3% (y/y). That was no higher than during early 2005 but it was an acceleration from 2.0% last summer. Faster growth in shelter prices is behind some of the acceleration though prices in many other categories of services, such as education &amp; communication, recreation and public transportation have accelerated as well. Tempering the acceleration has been a sharp drop in in medical care services price inflation. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060522a.jpg" width="353">
Despite slower growth in gasoline demand, retail gasoline prices have moved higher to $2.95 per gallon. Spot gasoline prices fell to under $2.00 per gallon in New York, down roughly 10% from the peak early this month, while crude oil prices similarly are off nearly ten percent from their highs.
Industrial metal prices also have been rising. The JoC-ECRI Industrial Metals Prices Index is up 24.5% this year as prices for aluminum (up 32.9%), copper scrap (up 49.7%) and zinc (up 88.0%) all have been strong. High grade copper prices are up 73.5% since year end &#39;05. Growth in industrial production is behind the rise and during the last ten years there has been a 49% correlation between the level of industrial metals&#39; prices and the y/y change in OECD Big Seven industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">05/16/06</th>
<th scope="col">12/27/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; (per bbl.)</td>
<td>$69.54</td>
<td>$58.16</td>
<td>42.0%</td>
<td>$58.16</td>
<td>$41.78</td>
<td>$32.78</td>
</tr>
<tr>
<td class="firstcol">U.S. Retail Gasoline (per gallon)</td>
<td>$2.95</td>
<td>$2.20</td>
<td>36.2%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr class="odd">
<td class="firstcol">Gold: Handy &amp; Harmon (per Troy Oz., EOP)</td>
<td>$692.00</td>
<td>$507.40</td>
<td>64.8%</td>
<td>$507.40</td>
<td>$443.40</td>
<td>$416.25</td>
</tr>
<tr>
<td class="firstcol">High Grade Copper (Comex, /Lb., EOP)</td>
<td>$3.98</td>
<td>$2.28</td>
<td>177.8%</td>
<td>$2.28</td>
<td>$1.54</td>
<td>$1.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Stainless Steel Scrap (/ton, EOP)</td>
<td>$1,574</td>
<td>$1,268</td>
<td>-4.1%</td>
<td>$1,268</td>
<td>$1,558</td>
<td>$1,265</td>
</tr>
</tbody>
</table>
 Euro Zone Has Small Surplus on Trade in Goods in March: EU 25 a Smaller Deficit  
by <a href="/comment/Curley.html">Louise Curley</a> May 22 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060522c.jpg" width="353">
The Euro Zone as a whole has typically had a surplus on its trade in goods with non Euro Zone countries. However, in August, October and December of 2005 and in January and February of this year substantial deficits were recorded.The rising price of oil led to increased imports and an increasing euro led to some dampening of export demand. In March, however, a small surplus was recorded as seasonally adjusted imports declined by 1.5% and exports rose 1.2%. The first chart shows monthly exports and imports of goods for the Euro Zone on a seasonally adjusted basis.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060522d.jpg" width="353">
The 25 member European Union as a group has typically runs a deficit of its trade in goods with non EU members as can be seen in the second chart, which shows the gap between imports and exports. The deficit in March was 12.2 billion euros, down from 14.8 billion euros in February but 5.4 billion euros over March 2005. It is not possible to derive the trade balance and exports and imports of the non Euro Zone European Union Members from these series. The Euro Zone data refer to trade with all non Euro Zone countries, including those in the European Union, while the EU25 data refer to trade with non EU countries. However, seasonally adjusted data for the Euro Zone trade balance, imports and exports with major countries and selected groups of countries are available as well as seasonally unadjusted data for the trade balance, imports and exports for each of the EU25 countries.

<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/EUROSTAT/@U7/@U7C/@U7C.HTM">Billions of Euros</a></th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M % </th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Zone Balance on Trade</td>
<td>0.4</td>
<td>-2.8</td>
<td>2.8</td>
<td>3.2*</td>
<td>-2.4*</td>
<td>23.3</td>
<td>72.3</td>
<td>69.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>111.4</td>
<td>110.0</td>
<td>97.7</td>
<td>1.22</td>
<td>13.92</td>
<td>1236.0</td>
<td>1147.4</td>
<td>1060.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>111.0</td>
<td>112.8</td>
<td>94.9</td>
<td>-1.51</td>
<td>17.02</td>
<td>1212.7</td>
<td>1075.0</td>
<td>990.6</td>
</tr>
<tr>
<td class="firstcol">European Union Balance on Trade&nbsp;</td>
<td>-12.2</td>
<td>-14.8</td>
<td>-8.8</td>
<td>-2.6*</td>
<td>-3.4*</td>
<td>-106.1</td>
<td>-620</td>
<td>-58.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>96.5</td>
<td>95.8</td>
<td>84.5</td>
<td>0.73</td>
<td>14.26</td>
<td>1068.1</td>
<td>964.5</td>
<td>883.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>108.6</td>
<td>110.7</td>
<td>91.3</td>
<td>-1.72</td>
<td>19.12</td>
<td>1174.3</td>
<td>1026.6</td>
<td>942.5</td>
</tr>
</tbody>
</table>
</body>
</html>

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/060519d.jpg" width="353">
Japan&#39;s GDP surprised on the upside for Q1, in data reported today by the Japanese Cabinet Office. It expanded at a 1.9% annual rate. While this was less than Q4&#39;s 4.3%, it well exceeded forecasters&#39; views that anticipated about 1.2%. The yen gained briefly on the report.
Notably, the driving force in the growth was private domestic demand, led by business investment. This component had fallen in Q4 and rebounded sharply in Q1, at a 5.8% annual rate. That put it 4.6% ahead of a year ago. Household consumption moderated from Q4, increasing at a 1.6% annual pace relative to 2.6% in Q4. Together, private domestic demand grew 3.2% on the quarter (annualized) and was also up 3.2% from a year ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519e.jpg" width="353">
Also of significance, growth of exports slowed from Q4&#39;s large 16.2% to &quot;just&quot; 11.3%. At the same time, imports switched from a modest decline in Q4 to a 12.6% rate of increase. Exports are substantially larger than imports, so these adverse moves did not keep the net export surplus from increasing, although the rise was very modest: only &yen;308 million on a base of &yen;18.1 billion.
Markets were encouraged that the domestic economy appears to be picking up steam. The price deflator is still falling, however, although this may be due in the most recent period by the surge in imported energy costs. The deflator for domestic demand is holding just about even with year-earlier levels. With these price signals still mixed, Bank of Japan officials remain skittish about whether the economy could stand higher borrowing costs; when they issued a statement to this effect later today, FX traders pushed the yen back down once again.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J2/@J2.HTM">Chain GDP % Chg,</a> &nbsp;Annual Rates*</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year/ Year</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.9</td>
<td>4.3</td>
<td>0.6</td>
<td>3.1</td>
<td>2.6</td>
<td>2.3</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>1.6</td>
<td>2.6</td>
<td>1.8</td>
<td>1.2</td>
<td>1.7</td>
<td>0.6</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Government Consumption</td>
<td>0.6</td>
<td>0.4</td>
<td>2.0</td>
<td>0.8</td>
<td>1.7</td>
<td>2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">Private Plant &amp; Equipment</td>
<td>5.8</td>
<td>-0.9</td>
<td>5.2</td>
<td>4.6</td>
<td>7.7</td>
<td>4.9</td>
<td>5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>11.3</td>
<td>16.2</td>
<td>12.9</td>
<td>13.7</td>
<td>7.0</td>
<td>13.9</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>12.6</td>
<td>-2.5</td>
<td>13.3</td>
<td>8.0</td>
<td>6.3</td>
<td>8.5</td>
<td>3.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Domestic Demand</td>
<td>3.2</td>
<td>3.0</td>
<td>-0.0</td>
<td>3.2</td>
<td>3.2</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Japan's GDP surprised on the upside for Q1, in data reported today by the Japanese Cabinet Office. It expanded at a 1.9% annual rate. While this was less than Q4's 4.3%, it well exceeded forecasters' views that anticipated about 1.2%. [...]

Japan's Growth Gains Footing on Rise in Domestic Demand

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519c.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago improved during April on the prior month&#39;s recovery. It rose to 0.38 from 0.35 and a 1Q average of 0.24.
The three-month moving average of the CFNAI rose to 0.25 from 0.24 the prior month.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_May2006.pdf">here</a>.
The Evolving Nature of the Financial System: Financial Crises and the Role of the Central Bank, yesterday&#39;s speech from the newly designated Vice Chairman of the Federal Reserve Board Donald L. Kohn, is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200605182/default.htm"> 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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.38</td>
<td>0.35</td>
<td>0.06</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
</tr>
</tbody>
</table>
</body>
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The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago improved during April on the prior month's recovery. It rose to 0.38 from 0.35 and a 1Q average of 0.24. The three-month moving average of the CFNAI rose to [...]

Chicago Fed Nat'l Activity Index Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519a.jpg" width="353">
The May Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed rose modestly, for the second month, to 14.4 from an unrevised 13.2 last month. The gain surpassed Consensus expectations for a decline to 12.5.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
The index reflected improvement in delivery times and inventories. However, declines in other sub indexes were broad based; new orders, shipments and employment each fell to the lowest levels since last Summer. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519b.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index surged to the highest level since last September. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell and reversed roughly half of the improvement in April. Expectations for employment fell sharply to the lowest level since August 2002..
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0506.html">here</a>.
The rise in the Philly Fed index ran counter to the m/m improvement, reported Monday, in the May Empire State Manufacturing index of general business conditions. The Richmond Fed will report its May Mfg. Survey index next week. The reading will follow two months of sharp improvement, notably in orders, shipments and jobs and the figures will be available in the Haver SURVEYS database.
During the last ten years there has been a 57% correlation between the Richmond survey index level and the change in factory sector industrial production, nationally. The latest Richmond Fed Mfg. Survey is available <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm"> here</a>.
The Richmond Fed also publishes indexes of conditions in the Service Sector and the latest release is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm"> 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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>14.4</td>
<td>13.2</td>
<td>10.3</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>55.3</td>
<td>29.0</td>
<td>32.0</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The May Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed rose modestly, for the second month, to 14.4 from an unrevised 13.2 last month. The gain surpassed Consensus expectations for a decline [...]

Philadelphia Fed Business Activity Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519a.jpg" width="353">
The May Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed rose modestly, for the second month, to 14.4 from an unrevised 13.2 last month. The gain surpassed Consensus expectations for a decline to 12.5.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
The index reflected improvement in delivery times and inventories. However, declines in other sub indexes were broad based; new orders, shipments and employment each fell to the lowest levels since last Summer. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519b.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index surged to the highest level since last September. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell and reversed roughly half of the improvement in April. Expectations for employment fell sharply to the lowest level since August 2002..
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0506.html">here</a>.
The rise in the Philly Fed index ran counter to the m/m improvement, reported Monday, in the May Empire State Manufacturing index of general business conditions. The Richmond Fed will report its May Mfg. Survey index next week. The reading will follow two months of sharp improvement, notably in orders, shipments and jobs and the figures will be available in the Haver SURVEYS database.
During the last ten years there has been a 57% correlation between the Richmond survey index level and the change in factory sector industrial production, nationally. The latest Richmond Fed Mfg. Survey is available <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm"> here</a>.
The Richmond Fed also publishes indexes of conditions in the Service Sector and the latest release is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm"> 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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>14.4</td>
<td>13.2</td>
<td>10.3</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>55.3</td>
<td>29.0</td>
<td>32.0</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity Index Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 19, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519c.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago improved during April on the prior month&#39;s recovery. It rose to 0.38 from 0.35 and a 1Q average of 0.24.
The three-month moving average of the CFNAI rose to 0.25 from 0.24 the prior month.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_May2006.pdf">here</a>.
The Evolving Nature of the Financial System: Financial Crises and the Role of the Central Bank, yesterday&#39;s speech from the newly designated Vice Chairman of the Federal Reserve Board Donald L. Kohn, is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200605182/default.htm"> 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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.38</td>
<td>0.35</td>
<td>0.06</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
</tr>
</tbody>
</table>
Japan's Growth Gains Footing on Rise in Domestic Demand 
by <a href="/comment/Stone.html">Carol Stone</a> May 19, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519d.jpg" width="353">
Japan&#39;s GDP surprised on the upside for Q1, in data reported today by the Japanese Cabinet Office. It expanded at a 1.9% annual rate. While this was less than Q4&#39;s 4.3%, it well exceeded forecasters&#39; views that anticipated about 1.2%. The yen gained briefly on the report.
Notably, the driving force in the growth was private domestic demand, led by business investment. This component had fallen in Q4 and rebounded sharply in Q1, at a 5.8% annual rate. That put it 4.6% ahead of a year ago. Household consumption moderated from Q4, increasing at a 1.6% annual pace relative to 2.6% in Q4. Together, private domestic demand grew 3.2% on the quarter (annualized) and was also up 3.2% from a year ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519e.jpg" width="353">
Also of significance, growth of exports slowed from Q4&#39;s large 16.2% to &quot;just&quot; 11.3%. At the same time, imports switched from a modest decline in Q4 to a 12.6% rate of increase. Exports are substantially larger than imports, so these adverse moves did not keep the net export surplus from increasing, although the rise was very modest: only &yen;308 million on a base of &yen;18.1 billion.
Markets were encouraged that the domestic economy appears to be picking up steam. The price deflator is still falling, however, although this may be due in the most recent period by the surge in imported energy costs. The deflator for domestic demand is holding just about even with year-earlier levels. With these price signals still mixed, Bank of Japan officials remain skittish about whether the economy could stand higher borrowing costs; when they issued a statement to this effect later today, FX traders pushed the yen back down once again.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J2/@J2.HTM">Chain GDP % Chg,</a> &nbsp;Annual Rates*</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year/ Year</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.9</td>
<td>4.3</td>
<td>0.6</td>
<td>3.1</td>
<td>2.6</td>
<td>2.3</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>1.6</td>
<td>2.6</td>
<td>1.8</td>
<td>1.2</td>
<td>1.7</td>
<td>0.6</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Government Consumption</td>
<td>0.6</td>
<td>0.4</td>
<td>2.0</td>
<td>0.8</td>
<td>1.7</td>
<td>2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">Private Plant &amp; Equipment</td>
<td>5.8</td>
<td>-0.9</td>
<td>5.2</td>
<td>4.6</td>
<td>7.7</td>
<td>4.9</td>
<td>5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>11.3</td>
<td>16.2</td>
<td>12.9</td>
<td>13.7</td>
<td>7.0</td>
<td>13.9</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>12.6</td>
<td>-2.5</td>
<td>13.3</td>
<td>8.0</td>
<td>6.3</td>
<td>8.5</td>
<td>3.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Domestic Demand</td>
<td>3.2</td>
<td>3.0</td>
<td>-0.0</td>
<td>3.2</td>
<td>3.2</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518d.jpg" width="353">
Yesterday, the report of US CPI for April set off a firestorm in financial markets as participants were hit with a bad case of inflation-itis. Today&#39;s Canadian CPI contained some of the same ingredients, but unlike the US&#39;s, Canada&#39;s &quot;core&quot; rate was actually weaker than expected. The total index was up just under 0.5% for the month, with the yearly rate ahead 2.4%, somewhat more than March&#39;s 2.2%. Dramatically, however, its &quot;core&quot; index was unchanged for the month and actually slowed on the year from 1.7% in March to 1.6%.
Canada&#39;s &quot;core&quot; inflation is defined by the Bank of Canada and is used directly as a monetary policy target. It excludes eight of the most volatile items, such as fresh fruits and vegetables, gasoline and mortgage interest rates. See the footnote beneath the table for the complete list.
Within the total index, energy prices played a major role in the monthly gain: all energy was up 6.9% (not seasonally adjusted), and separate data on actual retail gasoline prices show an increase of 13.7% to C$1.0675/liter, only the fourth month ever that the price has exceeded C$1.00/liter (the other three instances were just last year: August, September and October).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518e.jpg" width="353">
In discussing the surprising softness of the core measure, some press reports indicated a role for the Canadian dollar. It has strengthened noticeably against the US dollar, not just recently, but basically since the middle of 2002. It also moved up versus the euro from the middle of 2004 through the end of last year. So indeed, the strong currency could be helping Canadian inflation. We look at two components where imports have a significant influence, clothing and recreation. Clothing prices have been falling consistently and in April were 3% below a year earlier. By contrast in the US, the apparel category has declined much less over the last two years. Recreation is another Canadian sector with a trade component, as its residents travel south to Florida and other such destinations and residents of other areas come to Canada. The related prices in Canada are falling slowly, but their pattern changed distinctly soon after the the Canadian dollar turned upward. The chart shows &quot;traveler accommodation&quot; together with the US$ exchange rate; the two series have a remarkable 60% correlation since 1995.
All of Haver&#39;s Canadian monthly data are in CANSIM, an extensive collection of Statistics Canada&#39;s copyrighted series. Exchange rates can be found in USECON, DAILY, INTDAILY and the weekly counterparts of the latter two, as well as in CANSIM.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Canada CPI, % Changes*</th>
<th scope="col">Apr 2006</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Year/ Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">All Items</td>
<td>0.46</td>
<td>0.31</td>
<td>-0.23</td>
<td>2.44</td>
<td>2.15</td>
<td>2.12</td>
<td>1.99</td>
</tr>
<tr class="odd">
<td class="firstcol">All Items less 8 Volatiles**</td>
<td>0.00</td>
<td>0.23</td>
<td>0.16</td>
<td>1.58</td>
<td>1.59</td>
<td>1.70</td>
<td>2.15</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>-0.50</td>
<td>-0.70</td>
<td>-0.69</td>
<td>-3.02</td>
<td>-0.93</td>
<td>-3.10</td>
<td>0.20</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation, etc.</td>
<td>0.00</td>
<td>0.00</td>
<td>-0.16</td>
<td>-0.16</td>
<td>-0.24</td>
<td>0.32</td>
<td>0.40</td>
</tr>
<tr>
<td class="firstcol">Memo: Can$/US$ Month Avg</td>
<td>1.1438</td>
<td>1.1574</td>
<td>1.1489</td>
<td>1.2397 (2/2005)</td>
<td colspan="3">December</td>
</tr>
<tr class="odd">
<td class="firstcol">1.1610</td>
<td>1.2191</td>
<td>1.3128</td>
</tr>
</tbody>
</table>
</body>
</html>

Yesterday, the report of US CPI for April set off a firestorm in financial markets as participants were hit with a bad case of inflation-itis. Today's Canadian CPI contained some of the same ingredients, but unlike the US's, Canada's [...]

Canada CPI: Up with Energy, But Restrained by Strong Currency

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.

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

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

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

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

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

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

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

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

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Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

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Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

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High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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

Economy in Brief: May 2006

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Euro Zone Has Small Surplus on Trade in Goods in March: EU 25 a Smaller Deficit

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