Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090520d.jpg" align="left" border="0" height="265" width="353">
Japan is being led lower by its trade dependence as much as
any large developed country. Exports are lower at a 70% annual rate Q/Q
and by 37% Yr/Yr. Imports meanwhile are dropping at a lesser but still
outsized 47% annual rate in Q1 and are off by nearly 15% Yr/Yr. 
 

Japan&#8217;s import to GDP ratio has fallen by 6.2% Yr/Yr less than
in the US where that ratio has fallen by a huge 14%. But exports are a
much larger part of Japan&#8217;s economy, so the drop has hurt it more.
Import-to-GDP ratios have fallen sharply among the large developed
economies in general. 
 

Japan&#8217;s GDP drop at 15.2% Q/Q saar outstrips Germany&#8217;s drop of
14.4% and its Yr/Yr decline of 9.1% exceeds Germany&#8217;s 6.9%. It is no
coincidence that these large set backs -- the largest among G-7
countries by a long shot -- befall two of the most highly efficient
global economies that also are highly dependent on trade. 
 

Trade tends to be a highly income elastic GDP component.
Export and import growth rates are pro-cyclical. In good times trade
dependence will help to pump-up GDP growth, but in bad times &#8211;
recessions - it will drag it down as it is now. In the US, since it is
a trade deficit county, the trade setback actually boosts GDP. What we
are seeing in Japan is the mirror image of that relationship. 
 

In Japan domestic demand is down by less than GDP itself. But
housing and business capital formation are each down at a more rapid
pace than GDP. Japan will need world trade to recover before it can
mend its economy. Its economic structure means that some of its
required fixing it out of its control. 


<table border="0" cellspacing="0" width="100%">
</table>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="11" scope="col"> Japan GDP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Consumption</td>
<td colspan="3">Capital Formation</td>
<td colspan="3">Trade Domestic</td>
<td>Domestic&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Gross Fixed Capital</td>
<td>Plant&amp; Eqpt</td>
<td>Housing</td>
<td>X-M</td>
<td>Exports</td>
<td>Imports</td>
<td>Demand</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">% change Q/Q at annual
rates of change; X-M is Q/Q change in Billions of real yen</td>
</tr>
<tr>
<td class="firstcol">Q1-09</td>
<td>-15.2%</td>
<td>-4.2%</td>
<td>1.3%</td>
<td>-27.5%</td>
<td>-35.5%</td>
<td>-20.0%</td>
<td>-11.2</td>
<td>-70.1%</td>
<td>-47.7%</td>
<td>-9.8%</td>
</tr>
<tr>
<td class="firstcol">Q4-08</td>
<td>-14.4%</td>
<td>-3.1%</td>
<td>6.4%</td>
<td>-14.6%</td>
<td>-24.2%</td>
<td>23.7%</td>
<td>-15.6</td>
<td>-47.1%</td>
<td>13.1%</td>
<td>-2.3%</td>
</tr>
<tr>
<td class="firstcol">Q3-08</td>
<td>-2.5%</td>
<td>0.4%</td>
<td>-0.7%</td>
<td>-9.7%</td>
<td>-16.4%</td>
<td>13.2%</td>
<td>0.0</td>
<td>4.0%</td>
<td>6.3%</td>
<td>-2.3%</td>
</tr>
<tr>
<td class="firstcol">Q2-08</td>
<td>-3.5%</td>
<td>-3.8%</td>
<td>-3.1%</td>
<td>-9.5%</td>
<td>-11.2%</td>
<td>-7.7%</td>
<td>1.9</td>
<td>-3.2%</td>
<td>-15.7%</td>
<td>-5.7%</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">% change Yr/Yr; X-M is
Yr/Yr change in Gap in Billions of real yen</td>
</tr>
<tr>
<td class="firstcol">Q1-09</td>
<td>-9.1%</td>
<td>-2.7%</td>
<td>0.9%</td>
<td>-15.7%</td>
<td>-22.4%</td>
<td>0.8%</td>
<td>-24.9</td>
<td>-36.8%</td>
<td>-14.7%</td>
<td>-5.1%</td>
</tr>
<tr>
<td class="firstcol">Q4-08</td>
<td>-4.5%</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>-7.8%</td>
<td>-12.0%</td>
<td>11.8%</td>
<td>-13.1</td>
<td>-12.5%</td>
<td>2.8%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">Q3-08</td>
<td>-0.2%</td>
<td>0.7%</td>
<td>0.4%</td>
<td>-4.9%</td>
<td>-4.5%</td>
<td>-5.5%</td>
<td>4.0</td>
<td>4.5%</td>
<td>0.1%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">Q2-08</td>
<td>0.6%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>-3.6%</td>
<td>0.5%</td>
<td>-16.5%</td>
<td>6.7</td>
<td>6.3%</td>
<td>-2.1%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">5-Yrs</td>
<td>-0.4%</td>
<td>0.5%</td>
<td>1.2%</td>
<td>-2.8%</td>
<td>-0.7%</td>
<td>-3.5%</td>
<td>na</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>-0.1%</td>
</tr>
</tbody>
</table>
</body></html>

Japan is being led lower by its trade dependence as much as any large developed country. Exports are lower at a 70% annual rate Q/Q and by 37% Yr/Yr. Imports meanwhile are dropping at a lesser but still outsized 47% annual rate in Q1 [...]

Japan GDP in Record Drop As Trade Collapses

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090520a.jpg" width="353">
The week-to-week volatility in mortgage applications can cloud the underlying trends. Such was the case with the latest report from the Mortgage Bankers Association. The bottom line of the latest report is that low interest rates continue to spur mortgage refinancings but they have done just little to lift home sales.
Last week, overall mortgage applications recovered roughly one-third of the prior week&#39;s decline with a 2.3% increase and applications remained higher by nearly one-half from the year ago level. Despite these increases applications remained down sharply from their early-April peak.
The strength in applications versus last year is wholly the result of continuing gains in mortgage refinancings. While they have fallen from the January peak, refinancings last week were more than double the year-ago level as interest rates remain down sharply. During last week the index of applications to refinance a home mortgage rose 4.5% and applications this month are still more than double the year-ago level. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090520b.jpg" width="353">
Whatever strength there may be in refinancings is just partially evident in mortgage applications to purchase a home. Purchase applications fell 4.4% from the prior week&#39;s level and they remained down by more than one-quarter from the year ago level. The downtrend, however, seems to be bottoming. So far this year purchase applications have moved erratically sideways with a slight upward tilt. That mirrors the trend in new plus existing home sales.
Falling again last week was the effective interest rate on a conventional 15-year mortgage. It dropped to 4.69% from an average that was well over 6.0% last Fall. For a 30-year mortgage rates also were near their recent low at 4.92%. Interest rates on 15- and 30-year mortgages are closely correlated (&gt;90%) with the rate on 10-year Treasury securities. Moving up slightly was the rate for an adjustable 1-Year mortgage to 6.41% from the low close to 6.0% during January. The rate still was down, however, sharply from the 7.07% peak reached this past Fall.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage. Moreover, during the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090520c.jpg" width="353">
The figures for weekly mortgage applications are available in Haver&#39;s SURVEYW database.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
The Fed&#39;s announcement yesterday concerning the Term Asset-Backed Securities Loan Facility (TALF) can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090519b.htm"> here</a>.
Seeking Stability: What&#146;s Next for Banking Regulation? from the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/eclett/2009/el0903.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/15/09</th>
<th scope="col">05/08/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>915.9</td>
<td>895.6</td>
<td>47.3%</td>
<td>642.9</td>
<td>652.6</td>
<td>584.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>254.0</td>
<td>265.7</td>
<td>-27.9%</td>
<td>345.4</td>
<td>424.9</td>
<td>406.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>4,794.4</td>
<td>4,588.6</td>
<td>116.9%</td>
<td>2,394.1</td>
<td>1,997.9</td>
<td>1,634.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The week-to-week volatility in mortgage applications can cloud the underlying trends. Such was the case with the latest report from the Mortgage Bankers Association. The bottom line of the latest report is that low interest rates [...]

U.S. Mortgage Applications Firm As Refinancings Remain High But Purchase Apps Lag

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090520a.jpg" align="left" border="0" height="265" width="353">
The week-to-week volatility in mortgage applications can cloud
the underlying trends. Such was the case with the latest report from
the Mortgage Bankers Association. The bottom line of the latest report
is that low interest rates continue to spur mortgage refinancings but
they have done just little to lift home sales.
Last week, overall mortgage applications recovered roughly
one-third of the prior week's decline with a 2.3% increase and
applications remained higher by nearly one-half from the year ago
level. Despite these increases applications remained down sharply from
their early-April peak.
The strength in applications versus last year is wholly the
result of continuing gains in mortgage refinancings. While they have
fallen from the January peak, refinancings last week were more than
double the year-ago level as interest rates remain down sharply. During
last week the index of applications to refinance a home mortgage rose
4.5% and applications this month are still more than double the
year-ago level. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090520b.jpg" align="right" border="0" height="265" width="353">
Whatever strength there may be in refinancings is just
partially evident in mortgage applications to purchase a home. Purchase
applications fell 4.4% from the prior week's level and they remained
down by more than one-quarter from the year ago level. The downtrend,
however, seems to be bottoming. So far this year purchase applications
have moved erratically sideways with a slight upward tilt. That mirrors
the trend in new plus existing home sales.
Falling again last week was the effective interest rate on a
conventional 15-year mortgage. It dropped to 4.69% from an average that
was well over 6.0% last Fall. For a 30-year mortgage rates also were
near their recent low at 4.92%. Interest rates on 15- and 30-year
mortgages are closely correlated (&gt;90%) with the rate on 10-year
Treasury securities. Moving up slightly was the rate for an adjustable
1-Year mortgage to 6.41% from the low close to 6.0% during January. The
rate still was down, however, sharply from the 7.07% peak reached this
past Fall.
During the last ten years there has been a (negative) 79%
correlation between the level of applications for purchase and the
effective interest rate on a 30-year mortgage. Moreover, during the
last ten years there has been a 61% correlation between the y/y change
in purchase applications and the change in new plus existing single
family home sales.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090520c.jpg" align="left" border="0" height="265" width="353">
The figures for weekly mortgage applications are available in
Haver's SURVEYW database.
The Mortgage Bankers Association surveys between 20 to 35 of
the top lenders in the U.S. housing industry to derive its refinance,
purchase and market indexes. The weekly survey covers roughly 50% of
all U.S. residential mortgage applications processed each week by
mortgage banks, commercial banks and thrifts. Visit the Mortgage
Bankers Association site <a href="http://www.mbaa.org">here</a>.
The Fed's announcement yesterday concerning the Term
Asset-Backed Securities Loan Facility (TALF) can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090519b.htm">
here</a>.
Seeking Stability: What&#8217;s Next for Banking
Regulation? from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/eclett/2009/el0903.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/SURVEYW/@S5/@S5.HTM">MBA
Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/15/09</th>
<th scope="col">05/08/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>915.9</td>
<td>895.6</td>
<td>47.3%</td>
<td>642.9</td>
<td>652.6</td>
<td>584.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>254.0</td>
<td>265.7</td>
<td>-27.9%</td>
<td>345.4</td>
<td>424.9</td>
<td>406.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>4,794.4</td>
<td>4,588.6</td>
<td>116.9%</td>
<td>2,394.1</td>
<td>1,997.9</td>
<td>1,634.0</td>
</tr>
</tbody>
</table>
Japan GDP in Record Drop As Trade
Collapses 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 20, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090520d.jpg" align="left" border="0" height="265" width="353">
Japan is being led lower by its trade dependence as much as
any large developed country. Exports are lower at a 70% annual rate Q/Q
and by 37% Yr/Yr. Imports meanwhile are dropping at a lesser but still
outsized 47% annual rate in Q1 and are off by nearly 15% Yr/Yr. 
 

Japan&#8217;s import to GDP ratio has fallen by 6.2% Yr/Yr less than
in the US where that ratio has fallen by a huge 14%. But exports are a
much larger part of Japan&#8217;s economy, so the drop has hurt it more.
Import-to-GDP ratios have fallen sharply among the large developed
economies in general. 
 

Japan&#8217;s GDP drop at 15.2% Q/Q saar outstrips Germany&#8217;s drop of
14.4% and its Yr/Yr decline of 9.1% exceeds Germany&#8217;s 6.9%. It is no
coincidence that these large set backs -- the largest among G-7
countries by a long shot -- befall two of the most highly efficient
global economies that also are highly dependent on trade. 
 

Trade tends to be a highly income elastic GDP component.
Export and import growth rates are pro-cyclical. In good times trade
dependence will help to pump-up GDP growth, but in bad times &#8211;
recessions - it will drag it down as it is now. In the US, since it is
a trade deficit county, the trade setback actually boosts GDP. What we
are seeing in Japan is the mirror image of that relationship. 
 

In Japan domestic demand is down by less than GDP itself. But
housing and business capital formation are each down at a more rapid
pace than GDP. Japan will need world trade to recover before it can
mend its economy. Its economic structure means that some of its
required fixing it out of its control. 


<table border="0" cellspacing="0" width="100%"></table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> Japan
GDP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Consumption</td>
<td colspan="3">Capital
Formation</td>
<td colspan="3">Trade Domestic</td>
<td>Domestic&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Gross 
Fixed 
Capital</td>
<td>Plant&amp; 
Eqpt</td>
<td>Housing</td>
<td>X-M</td>
<td>Exports</td>
<td>Imports</td>
<td>Demand</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">% change Q/Q at
annual
rates of change; X-M is Q/Q change in Billions of real yen</td>
</tr>
<tr>
<td class="firstcol">Q1-09</td>
<td>-15.2%</td>
<td>-4.2%</td>
<td>1.3%</td>
<td>-27.5%</td>
<td>-35.5%</td>
<td>-20.0%</td>
<td>-11.2</td>
<td>-70.1%</td>
<td>-47.7%</td>
<td>-9.8%</td>
</tr>
<tr>
<td class="firstcol">Q4-08</td>
<td>-14.4%</td>
<td>-3.1%</td>
<td>6.4%</td>
<td>-14.6%</td>
<td>-24.2%</td>
<td>23.7%</td>
<td>-15.6</td>
<td>-47.1%</td>
<td>13.1%</td>
<td>-2.3%</td>
</tr>
<tr>
<td class="firstcol">Q3-08</td>
<td>-2.5%</td>
<td>0.4%</td>
<td>-0.7%</td>
<td>-9.7%</td>
<td>-16.4%</td>
<td>13.2%</td>
<td>0.0</td>
<td>4.0%</td>
<td>6.3%</td>
<td>-2.3%</td>
</tr>
<tr>
<td class="firstcol">Q2-08</td>
<td>-3.5%</td>
<td>-3.8%</td>
<td>-3.1%</td>
<td>-9.5%</td>
<td>-11.2%</td>
<td>-7.7%</td>
<td>1.9</td>
<td>-3.2%</td>
<td>-15.7%</td>
<td>-5.7%</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">% change Yr/Yr; X-M
is
Yr/Yr change in Gap in Billions of real yen</td>
</tr>
<tr>
<td class="firstcol">Q1-09</td>
<td>-9.1%</td>
<td>-2.7%</td>
<td>0.9%</td>
<td>-15.7%</td>
<td>-22.4%</td>
<td>0.8%</td>
<td>-24.9</td>
<td>-36.8%</td>
<td>-14.7%</td>
<td>-5.1%</td>
</tr>
<tr>
<td class="firstcol">Q4-08</td>
<td>-4.5%</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>-7.8%</td>
<td>-12.0%</td>
<td>11.8%</td>
<td>-13.1</td>
<td>-12.5%</td>
<td>2.8%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">Q3-08</td>
<td>-0.2%</td>
<td>0.7%</td>
<td>0.4%</td>
<td>-4.9%</td>
<td>-4.5%</td>
<td>-5.5%</td>
<td>4.0</td>
<td>4.5%</td>
<td>0.1%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">Q2-08</td>
<td>0.6%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>-3.6%</td>
<td>0.5%</td>
<td>-16.5%</td>
<td>6.7</td>
<td>6.3%</td>
<td>-2.1%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">5-Yrs</td>
<td>-0.4%</td>
<td>0.5%</td>
<td>1.2%</td>
<td>-2.8%</td>
<td>-0.7%</td>
<td>-3.5%</td>
<td>na</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>-0.1%</td>
</tr>
</tbody>
</table>
</body></html>

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519f.jpg" align="right" border="0" height="265" width="353">While
continuing to be pessimistic about current conditions, German investors
and financial analysts have become surprisingly more optimistic about
the economic outlook over the next six months.&nbsp;&nbsp; The
ZEW indicator of current economic conditions in May declined a further
1.2% and is now at a balance between pessimists and optimists of
-92.8%, close to the lowest on record, -96.1% in March 2003. The
indicator of sentiment for the economic outlook for the next six
months, however, rose sharply in May to 31.1% from 13.6% in April and
is now at a three year high and is above the long term average of
26.2%.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519g.jpg" two indicators are shown in the first chart align="right" border="0" height="265" width="353">
Among the factors that may have accounted for some of the improvement
in the outlook of the participants in the survey, which was conducted
between May 4th and May 18 was the ongoing rise in stock prices that
had begun in early March.&nbsp; By May 18, the Frankfurt Extra Dax
stock price index was up over 30% from the low on March 6. In addition,
there were the releases of March exports and new orders showing the
first month to month increases since early 2008, as shown in the second
chart.&nbsp; The year to year declines in these series of 21.7% and
33.1%, respectively, probably were important factors in the appraisal
of current conditions.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519h.jpg" align="right" border="0" height="265" width="353">
While the participants in the survey, still
expect profits in most industries to decline, they have moderated their
views on the declines and they expect profits in Banking and Insurance
to increase.&nbsp; The third chart shows the profit expectations
for the Banking, Automotive and Information Technology
industries.&nbsp;



<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"> ZEW
Indicators % Bal</th>
<th scope="col">May 09</th>
<th scope="col">Apr &nbsp; 09</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb09&nbsp;</th>
<th scope="col">Jan 09</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Current Macroeconomic Conditions</td>
<td>-92.8</td>
<td>-91.6</td>
<td>-89.1</td>
<td>-86.2</td>
<td>-77.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Macroeconomic
Expectations&nbsp; 6 M0 ahead&nbsp;</td>
<td>31.1</td>
<td>13.0</td>
<td>-3.5</td>
<td>-5.8</td>
<td>-31.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Mar 09</td>
<td>Feb 09&nbsp;</td>
<td>Jan 09</td>
<td>M/M%</td>
<td>Y/Y%</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports (Bil Euros)</td>
<td>66.42</td>
<td>65.97</td>
<td>84.15</td>
<td>0.68</td>
<td>-21.70</td>
</tr>
<tr class="even">
<td class="firstcol">New Orders (2005=100)</td>
<td>80.5</td>
<td>72.9</td>
<td>120.3</td>
<td>3.34</td>
<td>-33.08</td>
</tr>
</tbody>
</table>
</body></html>

While continuing to be pessimistic about current conditions, German investors and financial analysts have become surprisingly more optimistic about the economic outlook over the next six months. The ZEW indicator of current economic [...]

German Investors And Financial Analysts More Optimistic

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519e.jpg" width="353">
According to the International Council of Shopping Centers-Goldman Sachs Index, store sales stuttered last week and reversed all of the gains early in the month. In fact weekly sales fell to their lowest since late-March. For the month so far, chain store sales are down just slightly from April after that month&#39;s 1.4% rise from the March average.
During the last ten years there has been a 64% correlation between the year-to-year growth in chain store sales and the growth in general merchandise sales. These weekly figures are available in Haver&#39;s SURVEYW database.
The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Not only did sales decline, but the leading indicator of sales fell as well and reversed earlier increases. Nevertheless, the y/y change remained less depressed at -2.4% versus the 6.0% rate of decline last Fall.
Comparing patterns of default among prime and subprime mortgages from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_2qtr2009_part2_amromin_paulson.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/16/09</th>
<th scope="col">05/09/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>486.8</td>
<td>492.7</td>
<td>-0.3%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>


</html>

According to the International Council of Shopping Centers-Goldman Sachs Index, store sales stuttered last week and reversed all of the gains early in the month. In fact weekly sales fell to their lowest since late-March. For the [...]

U.S. Chain Store Sales Reverse Earlier Gains

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519c.jpg" width="353">
Regular gasoline prices moved even higher last week. The rise to an average $2.31 per gallon of regular left them up 70 cents (43.5%) from the December low and it was the highest level since early-November. Yesterday, cash market prices traded higher still at $1.77 per gallon versus $1.66 averaged last week and these were the highest prices since last October. The figures are reported by the U.S. Department of Energy and can be found in Haver&#39;s WEEKLY &amp; DAILY databases.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519d.jpg" width="353">
Higher crude oil prices are behind the rise in gasoline costs. Crude prices averaged $58.07 last week for a barrel of West Texas Intermediate, up from the December low of $32.37 per barrel. Yesterday, crude oil prices rose by another $1.00 to $59.03. Prices reached a high of $145.66 last July. The latest increases occurred despite a 3.0% rise in crude oil production during the latest four weeks versus last year. The figures on crude oil production are available in Haver&#39;s OILWKLY database.
Higher gasoline prices &amp; economic weakness continued to lower gasoline demand last week by 2.5% y/y. The change in demand is measured using the latest four weeks versus the same four weeks in 2008. Demand for all petroleum products was down 7.9% y/y led by a 41.4% drop in demand for residual fuel oil and a 16.9% drop in distillate demand. In addition, the price gains have occurred despite an 11.0% rise in inventories of crude oil &amp; petroleum products. These numbers are available in Haver&#39;s OILWKLY database.
Finally, the price of natural gas has shown life. Gains during the last two weeks raised the price to $4.23 per mmbtu (-62.7% y/y), the highest level since early March. However, still near the lowest level since 2002, the latest average price was down by two-thirds from the high reached in early-July of $13.19/mmbtu.
The Effect of the Fed&#39;s Purchase of Long-Term Securities on the Yield Curve from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/es/09/ES0925.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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">05/18/09</th>
<th scope="col">05/11/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon, Regular)</td>
<td>2.31</td>
<td>2.24</td>
<td>-39.1%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>58.07</td>
<td>51.07</td>
<td>-54.5%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
</html>

Regular gasoline prices moved even higher last week. The rise to an average $2.31 per gallon of regular left them up 70 cents (43.5%) from the December low and it was the highest level since early-November. Yesterday, cash market [...]

Gasoline Prices Continue To Move Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519a.jpg" width="353">
Falling to the lowest level on record during April, total U.S. housing starts were off by more than one-half from one year ago. The Commerce Department reported that total housing starts of 458,000 (AR) were down 12.8% from March after that month&#39;s 8.5% decline. Modest revisions to the series extend back to 2007 and the latest figure compares to Consensus expectations for 523,000 starts.
The decline to the record low was led by a 46.1% month-to-month drop in starts of multi-family homes to 90,000. So weak was construction of apartments and condominiums that the decline pulled the level roughly three-quarters below April of last year.
As was the case last month, there is a sign in the latest report that a bottom in the housing market may be forming. Starts of single-family homes increased 2.8% from March after two months of having been unchanged. Regardless, single-family starts remained near the record low for the series which dates back to 1959 and the latest level was down eighty percent since the peak in early-2006. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519b.jpg" width="353">
By region, starts of single-family units in the Northeast reversed all of their March rise with a 13.6% (-34.5% y/y) decline. Starts in the Midwest, however, rose to their highest level since November (-36.6% y/y). In the South, single-family starts continued weak. They fell to another record low (-47.6% y/y) but in the West starts jumped 26.6% (-50.6% y/y).
The latest level of building permits also plumbed a new record low last month with a 3.3% decline from March. Overall, permits were down by one-half from last April. Single-family home permits, a leading indicator of starts, however, ticked up 3.6% from March (-42.3% y/y).
The housing starts figures can be found in Haver&#39;s USECON database.
U.S. Household Deleveraging and Future Consumption Growth from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-16.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts (000s, SAAR)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>458</td>
<td>525</td>
<td>574</td>
<td>-54.2%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>368</td>
<td>358</td>
<td>357</td>
<td>-45.6</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>90</td>
<td>167</td>
<td>217</td>
<td>-72.3</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>494</td>
<td>511</td>
<td>550</td>
<td>-50.2</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>
</body>
</html>

Falling to the lowest level on record during April, total U.S. housing starts were off by more than one-half from one year ago. The Commerce Department reported that total housing starts of 458,000 (AR) were down 12.8% from March [...]

U.S. Housing Starts' Fall To Record Low Paced By Lower Multi-family Building

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519a.jpg" align="left" border="0" height="265" width="353">
Falling to the lowest level on record during April, total U.S.
housing starts were off by more than one-half from one year ago. The
Commerce Department reported that total housing starts of
458,000 (AR) were down 12.8% from March after that month's 8.5%
decline. Modest revisions to the series extend back to 2007 and the
latest figure compares to Consensus expectations for 523,000 starts.
The decline to the record low was led by a 46.1%
month-to-month drop in starts of multi-family homes to 90,000. So weak
was construction of apartments and condominiums that the decline pulled
the level roughly three-quarters below April of last year.
As was the case last month, there is a sign in the latest
report that a bottom in the housing market may be forming. Starts of
single-family homes increased 2.8% from March after two months of
having been unchanged. Regardless, single-family starts remained near
the record low for the series which dates back to 1959 and the latest
level was down eighty percent since the peak in early-2006.
During the last ten years, there has been an 84% correlation between
the q/q change in single-family starts and their contribution to
quarterly GDP growth.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519b.jpg" align="right" border="0" height="265" width="353">
By region, starts of single-family units in the Northeast
reversed all of their March rise with a 13.6% (-34.5% y/y) decline.
Starts in the Midwest, however, rose to their highest level since
November (-36.6% y/y). In the South, single-family starts continued
weak. They fell to another record low (-47.6% y/y) but in the West
starts jumped 26.6% (-50.6% y/y).
The latest level of building permits also plumbed a new record
low last month with a 3.3% decline from March. Overall, permits were
down by one-half from last April. Single-family home permits,
a leading indicator of starts, however, ticked up 3.6% from March
(-42.3% y/y).
The housing starts figures can be found in Haver's USECON
database.
U.S. Household Deleveraging and Future
Consumption Growth from the Federal Reserve Bank of San
Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-16.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Housing
Starts (000s, SAAR)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>458</td>
<td>525</td>
<td>574</td>
<td>-54.2%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>368</td>
<td>358</td>
<td>357</td>
<td>-45.6</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>90</td>
<td>167</td>
<td>217</td>
<td>-72.3</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>494</td>
<td>511</td>
<td>550</td>
<td>-50.2</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>
Gasoline Prices Continue To Move
Higher 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519c.jpg" align="left" border="0" height="265" width="353">
Regular gasoline prices moved even higher
last week. The rise to an average $2.31 per gallon of regular left them
up 70 cents (43.5%) from the December low and it was the highest level
since early-November. Yesterday, cash market prices traded higher still
at $1.77 per gallon versus $1.66 averaged last week and these were the
highest prices since last October. The figures are reported by the U.S.
Department of Energy and can be found in Haver's WEEKLY
&amp; DAILY databases.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519d.jpg" align="right" border="0" height="265" width="353">
Higher crude oil prices are behind the rise
in gasoline costs. Crude prices averaged $58.07 last week for a barrel
of West Texas Intermediate, up from the December low of $32.37 per
barrel. Yesterday, crude oil prices rose by another $1.00 to $59.03.
Prices reached a high of $145.66 last July. The latest increases
occurred despite a 3.0% rise in crude oil production during the latest
four weeks versus last year. The figures on crude oil production are
available in Haver's OILWKLY database.
Higher gasoline prices &amp; economic weakness continued
to lower gasoline demand last week by 2.5% y/y. The
change in demand is measured using the latest four weeks versus the
same four weeks in 2008. Demand for all petroleum
products was down 7.9% y/y led by a 41.4% drop in demand for residual
fuel oil and a 16.9% drop in distillate demand. In addition, the price
gains have occurred despite an 11.0% rise in inventories of crude oil
&amp; petroleum products. These numbers are available in Haver's OILWKLY
database.
Finally, the price of natural gas has shown life. Gains during
the last two weeks raised the price to $4.23 per mmbtu (-62.7% y/y),
the highest level since early March. However, still near the lowest
level since 2002, the latest average price was down by two-thirds from
the high reached in early-July of $13.19/mmbtu.
The Effect of the Fed's Purchase of Long-Term
Securities on the Yield Curve from the Federal Reserve Bank
of St. Louis can be found <a href="http://research.stlouisfed.org/publications/es/09/ES0925.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/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">05/18/09</th>
<th scope="col">05/11/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per
Gallon, Regular)</td>
<td>2.31</td>
<td>2.24</td>
<td>-39.1%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>58.07</td>
<td>51.07</td>
<td>-54.5%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Reverse
Earlier Gains 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519e.jpg" align="left" border="0" height="265" width="353">
According to the International Council of Shopping
Centers-Goldman Sachs Index, store sales stuttered last week and
reversed all of the gains early in the month. In fact weekly sales fell
to their lowest since late-March. For the month so far, chain store
sales are down just slightly from April after that month's 1.4% rise
from the March average.
During the last ten years there has been a 64% correlation
between the year-to-year growth in chain store sales and the growth in
general merchandise sales. These weekly figures are
available in Haver's SURVEYW database.
The ICSC-Goldman
Sachs retail chain-store sales index is constructed using the
same-store sales (stores open for one year) reported by 78 stores of
seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney,
Sears and Wal-Mart.


Not only did sales decline, but the leading indicator of sales
fell as well and reversed earlier increases. Nevertheless, the y/y
change remained less depressed at -2.4% versus the 6.0% rate of decline
last Fall.
Comparing patterns of default among prime and
subprime mortgages from the Federal Reserve Bank of Chicago
is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_2qtr2009_part2_amromin_paulson.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/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">05/16/09</th>
<th scope="col">05/09/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>486.8</td>
<td>492.7</td>
<td>-0.3%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
German Investors And FinancialAnalysts More Optimistic 
by <a href="/comment/Curley.html">Louise
Curley</a> May 19, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519f.jpg" align="right" border="0" height="265" width="353">While
continuing to be pessimistic about current conditions, German investors
and financial analysts have become surprisingly more optimistic about
the economic outlook over the next six months.&nbsp;&nbsp; The
ZEW indicator of current economic conditions in May declined a further
1.2% and is now at a balance between pessimists and optimists of
-92.8%, close to the lowest on record, -96.1% in March 2003. The
indicator of sentiment for the economic outlook for the next six
months, however, rose sharply in May to 31.1% from 13.6% in April and
is now at a three year high and is above the long term average of
26.2%.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519g.jpg" two indicators are shown in the first chart align="right" border="0" height="265" width="353">
Among the factors that may have accounted for some of the
improvement
in the outlook of the participants in the survey, which was conducted
between May 4th and May 18 was the ongoing rise in stock prices that
had begun in early March.&nbsp; By May 18, the Frankfurt Extra Dax
stock price index was up over 30% from the low on March 6. In addition,
there were the releases of March exports and new orders showing the
first month to month increases since early 2008, as shown in the second
chart.&nbsp; The year to year declines in these series of 21.7% and
33.1%, respectively, probably were important factors in the appraisal
of current conditions.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090519h.jpg" align="right" border="0" height="265" width="353">While the
participants in the survey, still
expect profits in most industries to decline, they have moderated their
views on the declines and they expect profits in Banking and Insurance
to increase.&nbsp; The third chart shows the profit expectations
for the Banking, Automotive and Information Technology
industries.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"> ZEW
Indicators % Bal</th>
<th scope="col">May 09</th>
<th scope="col">Apr &nbsp; 09</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb09&nbsp;</th>
<th scope="col">Jan 09</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Current Macroeconomic Conditions</td>
<td>-92.8</td>
<td>-91.6</td>
<td>-89.1</td>
<td>-86.2</td>
<td>-77.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Macroeconomic
Expectations&nbsp; 6 M0 ahead&nbsp;</td>
<td>31.1</td>
<td>13.0</td>
<td>-3.5</td>
<td>-5.8</td>
<td>-31.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Mar 09</td>
<td>Feb 09&nbsp;</td>
<td>Jan 09</td>
<td>M/M%</td>
<td>Y/Y%</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports (Bil Euros)</td>
<td>66.42</td>
<td>65.97</td>
<td>84.15</td>
<td>0.68</td>
<td>-21.70</td>
</tr>
<tr class="even">
<td class="firstcol">New Orders (2005=100)</td>
<td>80.5</td>
<td>72.9</td>
<td>120.3</td>
<td>3.34</td>
<td>-33.08</td>
</tr>
</tbody>
</table>


</body></html>

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

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

250430N1.jpg

250430O1.jpg

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.

250430H5.jpg

250430I5.jpg

- 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: May 2009

Jump to:

Japan GDP in Record Drop As Trade Collapses

U.S. Mortgage Applications Firm As Refinancings Remain High But Purchase Apps Lag

U.S. Mortgage Applications Firm As Refinancings Remain High But Purchase Apps Lag

German Investors And Financial Analysts More Optimistic

U.S. Chain Store Sales Reverse Earlier Gains

Gasoline Prices Continue To Move Higher

U.S. Housing Starts' Fall To Record Low Paced By Lower Multi-family Building

U.S. Housing Starts' Fall To Record Low Paced By Lower Multi-family Building