Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100521a.jpg" style="border: 0px solid ; width: 363px; height: 265px; float: left;" align="left">
The outlook for U.S. consumer spending remains firm. That
should be the conclusion after looking at the Royal Bank of Canada
(RBC) CASH Index. It monitors several aspects of the consumer
environment and rose early this month to 72.7 from 64.6 in April. It
was up by more than two-thirds from last May.
Deterioration this month in the subcategories accompanied the
overall index improvement. Nevertheless, each remained solid versus
last year and portends continued improvement in consumer spending.
Since inception in 2002, the CASH index has an 85% correlation with the
y/y change in real personal consumption expenditures. The jobs index
has a similar correlation with the change in payroll employment.
The RBC U.S. CASH (Consumer Attitudes &amp; Spending by
Households) index is based on data collected from interviews with a
sample of 1,008 U.S. adults conducted over a five-day polling period
during the first week of each month by Ipsos, a market and opinion
research firm.
The RBC Financial Group figures can be found in Haver's SURVEYS
database.The latest report from RBC can be found <a href="http://www.rbc.com/newsroom/2010/0506-us-consumer.html">here</a>.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100521b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100521c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">RBC
Consumer Attitudes &amp; Spending by Households Survey (CASH)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May '09</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nat'l RBC Index</td>
<td>72.7</td>
<td>64.6</td>
<td>58.2</td>
<td>43.0</td>
<td>30.0</td>
<td>36.1</td>
<td>82.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions
Index</td>
<td>63.6</td>
<td>66.5</td>
<td>56.7</td>
<td>45.0</td>
<td>28.2</td>
<td>46.0</td>
<td>99.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations Index</td>
<td>74.2</td>
<td>78.0</td>
<td>57.3</td>
<td>34.0</td>
<td>19.5</td>
<td>-12.4</td>
<td>34.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Jobs Index</td>
<td>74.2</td>
<td>74.9</td>
<td>68.2</td>
<td>54.4</td>
<td>50.9</td>
<td>88.7</td>
<td>122.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Investment Index</td>
<td>73.8</td>
<td>75.3</td>
<td>65.1</td>
<td>49.6</td>
<td>37.2</td>
<td>51.1</td>
<td>91.1</td>
</tr>
</tbody>
</table>
</body></html>

The outlook for U.S. consumer spending remains firm. That should be the conclusion after looking at the Royal Bank of Canada (RBC) CASH Index. It monitors several aspects of the consumer environment and rose early this month to 72.7 [...]

U.S. Consumer Spending Outlook Improves According To RBC

U.S. Consumer Spending OutlookImproves According To RBC

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520h.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
The economic recovery continued this month according to the
Philadelphia Federal Reserve Bank. It indicated that its May index of
regional factory sector activity rose for the fourth consecutive month
to the second highest level since early-2005. At 21.4 the index roughly
matched Consensus expectations and has been positive since the summer.
The latest figure compared to those near -40.0 at the recent
recession's weakest.
During the last ten years there has been a 75% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 73% correlation with q/q growth in real GDP. The latest
survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0510.pdf">here.</a>
Improved shipments powered the June index gain. It was
accompanied by higher new orders. Factory payrolls, however, eased but
still showed net-hiring for the sixth straight month. During the last
ten years, there has been a 90% correlation between the index level and
the three-month change in manufacturing sector payrolls.
The prices paid index slipped from the recent high. During the
last ten years there has been a 66% correlation between the prices paid
index and the three-month growth in the intermediate goods PPI. There
has been an 77% correlation with the change in core intermediate goods
prices.
The separate index of expected business conditions in six
months also fell, to the lowest level since April of last year.
Expected prices paid also fell to the lowest level since last August.
Expected capital expenditures also fell m/m and were well below the
February high.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520i.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520j.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May '09</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Activity Index</td>
<td>21.4</td>
<td>20.2</td>
<td>18.9</td>
<td>-21.7</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>6.1</td>
<td>13.9</td>
<td>9.3</td>
<td>-23.2</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Shipments</td>
<td>15.8</td>
<td>5.6</td>
<td>13.6</td>
<td>-18.7</td>
<td>-8.0</td>
<td>-9.2</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Delivery Times</td>
<td>-1.2</td>
<td>5.4</td>
<td>7.9</td>
<td>-19.1</td>
<td>-15.3</td>
<td>-10.6</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Number of Employees</td>
<td>3.2</td>
<td>7.3</td>
<td>8.4</td>
<td>-29.8</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>-7.9</td>
<td>2.0</td>
<td>-11.0</td>
<td>-27.8</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index</td>
<td>35.5</td>
<td>42.7</td>
<td>38.6</td>
<td>-23.8</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
</body></html>

The economic recovery continued this month according to the Philadelphia Federal Reserve Bank. It indicated that its May index of regional factory sector activity rose for the fourth consecutive month to the second highest level since [...]

Philadelphia Fed Index Increases As Shipments Rise

Robert Brusca

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Orders growth has recovered substantially in Germany and in
France. Despite the recovery in orders, with the rebounding rates of
orders growth, the level of orders is still some 20% to 30% below their
respective cycle highs for France and Italy.
Germany posted some very strong orders. France and Italy, too,
have posted some degree of orders strength in March. While France&#8217;s
jump of 6.5% in one month seems very impressive (better than a 100%
annual rate) orders in France still are rebounding from a 10.9% drop in
January. As a result French orders are still falling on balance over
three-months even with this strong monthly rebound. So are orders in
Italy.
Europe is certainly due for some kick to growth as the euro
has fallen over the past year and plunged sharply over the past few
months. But the persisting weakness in European stocks speaks to a loss
of confidence. In part the Greek stimulus plan is not fully funded and
is awaiting some final votes from Germany to disburse funds. In part it
is the still uncooperative tone in Greece where further strikes are
planned to protest austerity. In part it is due to concern that,
despite all the reluctance to obey the rule of austerity, the fiscal
consolidation will prove to be too great to allow European growth to
press ahead.
It is these two conflicting ideas that are driving markets
into a frenzy, even though they are at odds with each other. Which is
it? Are countries going to avoid austerity and not do the right thing?
Or, are countries going to be so virtuous with fiscal controls that
consolidation will prove to be a load too-heavy and cause growth to be
set back? Or is there a middle ground with a more positive result? We
have seen recent improvements in the US and European economic reports.
Reports with expectations components have shown some of the weakest
recent readings. Barometers of current activity have been strong,
especially in the UK just outside the Euro-Area
I think we are in a region of political economic uncertainty.
Markets are not happy with the stewardship of our political or economic
direction in recent years. The private sector has failed us too. It is
no wonder that markets feel like taking no prisoners. But it&#8217;s also
true that at the end of the day the markets know that stock indices
have come a long way from their recession bottoms, that interest rates
had crept up and are now lower as a result of this sell-off, that
central banks are not eager to tighten but are planning to discharge
their responsibilities, that &#8211; at the end of the day- inflation has
remained under wraps. The blow-off in commodity prices that had run
well ahead of reality is a welcome event (unless you were long, of
course). As we go over the final technical hurdles to get money to
Greece (and to thereby protect exposed German and French banks with
Greek paper on their balance sheets) we can expect things to settle
down and for markets to pay attention of fundamentals again. It&#8217;s not
just pabulum from a policymaker looking to calm markets. It&#8217;s true. The
fundamentals are good. Even with the high debt-to-GDP levels the
problems are tractable.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td style="font-weight: bold;" class="firstcol">Saar
exept m/m</td>
<td style="font-weight: bold;">Mar-10</td>
<td style="font-weight: bold;">Feb-10</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>-2.8%</td>
<td>-8.7%</td>
<td>12.7%</td>
<td>9.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foreign</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>-4.1%</td>
<td>22.0%</td>
<td>21.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Domestic</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>-3.1%</td>
<td>-11.1%</td>
<td>7.7%</td>
<td>3.0%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>1.5%</td>
<td>-2.6%</td>
<td>2.6%</td>
<td>6.2%</td>
<td>8.3%</td>
<td>6.3%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">French Orders</td>
</tr>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Mar-10</td>
<td>Feb-10</td>
<td>Jan-10</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6.5%</td>
<td>-1.0%</td>
<td>-10.9%</td>
<td>-22.4%</td>
<td>2.2%</td>
<td>10.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.9%</td>
<td>1.0%</td>
<td>-8.7%</td>
<td>-19.1%</td>
<td>26.7%</td>
<td>28.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
</body></html>

Orders growth has recovered substantially in Germany and in France. Despite the recovery in orders, with the rebounding rates of orders growth, the level of orders is still some 20% to 30% below their respective cycle highs for France [...]

UK Trade Deficit Worsens As Exports Lag Imports

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
For last week, the Bureau of Labor Statistics reported that
initial claims for jobless insurance rose 25,000 to 471,000 following
declines during the prior five weeks. The latest disappointed Consensus
expectations for 440,000 claims. Even the earlier week's level was
revised up modestly. Still, claims remained near this cycle's lowest.
Last week's figure was down from the recession peak of 651,000 reached
in March of 2009. The four-week moving average of initial claims
increased slightly to 453,500.
The latest claims figure covers the survey week for May
nonfarm payrolls. Claims fell 7,500 (-1.6%) from the April survey
period. During the last ten years there has been an 80% correlation
(inverse) between the level of initial claims and the m/m change in
nonfarm payrolls.
A 40,000 decline in continuing claims for unemployment
insurance during the latest week reversed the prior week's increase.
Claims were down by one-third from the June '09 peak. The overall
decline is a function of the improved job market but also reflects the
exhaustion of 26 weeks of unemployment benefits. Continuing claims
provide an indication of workers' ability to find employment. The
four-week average of continuing claims at 4.643M remained near the
cycle low. This series dates back to 1966.
Extended benefits for unemployment insurance rose w/w to
240,260. However, they were down by three-quarters from a peak of
597,688 reached in November.
The insured unemployment rate remained at 3.6% where it has
been since mid-February. The rate reached a high of 4.9% during May of
2009. During the last ten years, there has been a 96% correlation
between the level of the insured unemployment rate and the overall rate
of unemployment published by the Bureau of Labor Statistics.
The highest insured unemployment rates in the week ending May
1 were in Alaska (6.4%), Puerto Rico (6.0), Oregon (5.6), Nevada (5.0),
California (4.9), Pennsylvania (4.6), Wisconsin (4.6), Montana (4.5),
Idaho (4.4), North Carolina (4.4), and Washington (4.4). The lowest
insured unemployment rates were in Virginia (1.7), Texas (2.2), Georgia
(2.8), Maryland (2.9), Wyoming (3.0), Florida (3.1), Ohio (3.1), New
York (3.3) and Maine (3.4). These data are not seasonally adjusted but
the overall insured unemployment rate is.
The unemployment insurance claims data is available in Haver's
WEEKLY database and the state data is in the REGIONW
database.
The impact of low-skilled immigration on the youth
labor market from the Board of Governors can be found here <a href="http://www.federalreserve.gov/pubs/feds/2010/201003/201003abs.html">here.</a>

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520c.jpg" style="width: 312px; height: 265px;">
<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">05/15/10</th>
<th scope="col">05/08/10</th>
<th scope="col">05/01/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>471</td>
<td>446</td>
<td>446</td>
<td>-24.6%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,625</td>
<td>4,665</td>
<td>-28.3</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.6</td>
<td>3.6</td>
<td>4.9 (5/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

For last week, the Bureau of Labor Statistics reported that initial claims for jobless insurance rose 25,000 to 471,000 following declines during the prior five weeks. The latest disappointed Consensus expectations for 440,000 claims. [...]

U.S. Initial Jobless Insurance Claims Rise Unexpectedly

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
For last week, the Bureau of Labor Statistics reported that
initial claims for jobless insurance rose 25,000 to 471,000 following
declines during the prior five weeks. The latest disappointed Consensus
expectations for 440,000 claims. Even the earlier week's level was
revised up modestly. Still, claims remained near this cycle's lowest.
Last week's figure was down from the recession peak of 651,000 reached
in March of 2009. The four-week moving average of initial claims
increased slightly to 453,500.
The latest claims figure covers the survey week for May
nonfarm payrolls. Claims fell 7,500 (-1.6%) from the April survey
period. During the last ten years there has been an 80% correlation
(inverse) between the level of initial claims and the m/m change in
nonfarm payrolls.
A 40,000 decline in continuing claims for unemployment
insurance during the latest week reversed the prior week's increase.
Claims were down by one-third from the June '09 peak. The overall
decline is a function of the improved job market but also reflects the
exhaustion of 26 weeks of unemployment benefits. Continuing claims
provide an indication of workers' ability to find employment. The
four-week average of continuing claims at 4.643M remained near the
cycle low. This series dates back to 1966.
Extended benefits for unemployment insurance rose w/w to
240,260. However, they were down by three-quarters from a peak of
597,688 reached in November.
The insured unemployment rate remained at 3.6% where it has
been since mid-February. The rate reached a high of 4.9% during May of
2009. During the last ten years, there has been a 96% correlation
between the level of the insured unemployment rate and the overall rate
of unemployment published by the Bureau of Labor Statistics.
The highest insured unemployment rates in the week ending May
1 were in Alaska (6.4%), Puerto Rico (6.0), Oregon (5.6), Nevada (5.0),
California (4.9), Pennsylvania (4.6), Wisconsin (4.6), Montana (4.5),
Idaho (4.4), North Carolina (4.4), and Washington (4.4). The lowest
insured unemployment rates were in Virginia (1.7), Texas (2.2), Georgia
(2.8), Maryland (2.9), Wyoming (3.0), Florida (3.1), Ohio (3.1), New
York (3.3) and Maine (3.4). These data are not seasonally adjusted but
the overall insured unemployment rate is.
The unemployment insurance claims data is available in Haver's
WEEKLY database and the state data is in the REGIONW
database.
The impact of low-skilled immigration on the youth
labor market from the Board of Governors can be found here <a href="http://www.federalreserve.gov/pubs/feds/2010/201003/201003abs.html">here.</a>

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520c.jpg" style="width: 312px; height: 265px;">
<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a></th>
<th scope="col">05/15/10</th>
<th scope="col">05/08/10</th>
<th scope="col">05/01/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>471</td>
<td>446</td>
<td>446</td>
<td>-24.6%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,625</td>
<td>4,665</td>
<td>-28.3</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.6</td>
<td>3.6</td>
<td>4.9 (5/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
UK Trade Deficit Worsens As
Exports Lag Imports 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 20, 2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Orders growth has recovered substantially in Germany and in
France. Despite the recovery in orders, with the rebounding rates of
orders growth, the level of orders is still some 20% to 30% below their
respective cycle highs for France and Italy.
Germany posted some very strong orders. France and Italy, too,
have posted some degree of orders strength in March. While France&#8217;s
jump of 6.5% in one month seems very impressive (better than a 100%
annual rate) orders in France still are rebounding from a 10.9% drop in
January. As a result French orders are still falling on balance over
three-months even with this strong monthly rebound. So are orders in
Italy.
Europe is certainly due for some kick to growth as the euro
has fallen over the past year and plunged sharply over the past few
months. But the persisting weakness in European stocks speaks to a loss
of confidence. In part the Greek stimulus plan is not fully funded and
is awaiting some final votes from Germany to disburse funds. In part it
is the still uncooperative tone in Greece where further strikes are
planned to protest austerity. In part it is due to concern that,
despite all the reluctance to obey the rule of austerity, the fiscal
consolidation will prove to be too great to allow European growth to
press ahead.
It is these two conflicting ideas that are driving markets
into a frenzy, even though they are at odds with each other. Which is
it? Are countries going to avoid austerity and not do the right thing?
Or, are countries going to be so virtuous with fiscal controls that
consolidation will prove to be a load too-heavy and cause growth to be
set back? Or is there a middle ground with a more positive result? We
have seen recent improvements in the US and European economic reports.
Reports with expectations components have shown some of the weakest
recent readings. Barometers of current activity have been strong,
especially in the UK just outside the Euro-Area
I think we are in a region of political economic uncertainty.
Markets are not happy with the stewardship of our political or economic
direction in recent years. The private sector has failed us too. It is
no wonder that markets feel like taking no prisoners. But it&#8217;s also
true that at the end of the day the markets know that stock indices
have come a long way from their recession bottoms, that interest rates
had crept up and are now lower as a result of this sell-off, that
central banks are not eager to tighten but are planning to discharge
their responsibilities, that &#8211; at the end of the day- inflation has
remained under wraps. The blow-off in commodity prices that had run
well ahead of reality is a welcome event (unless you were long, of
course). As we go over the final technical hurdles to get money to
Greece (and to thereby protect exposed German and French banks with
Greek paper on their balance sheets) we can expect things to settle
down and for markets to pay attention of fundamentals again. It&#8217;s not
just pabulum from a policymaker looking to calm markets. It&#8217;s true. The
fundamentals are good. Even with the high debt-to-GDP levels the
problems are tractable.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td style="font-weight: bold;" class="firstcol">Saar
exept m/m</td>
<td style="font-weight: bold;">Mar-10</td>
<td style="font-weight: bold;">Feb-10</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>-2.8%</td>
<td>-8.7%</td>
<td>12.7%</td>
<td>9.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foreign</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>-4.1%</td>
<td>22.0%</td>
<td>21.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Domestic</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>-3.1%</td>
<td>-11.1%</td>
<td>7.7%</td>
<td>3.0%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>1.5%</td>
<td>-2.6%</td>
<td>2.6%</td>
<td>6.2%</td>
<td>8.3%</td>
<td>6.3%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">French Orders</td>
</tr>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Mar-10</td>
<td>Feb-10</td>
<td>Jan-10</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6.5%</td>
<td>-1.0%</td>
<td>-10.9%</td>
<td>-22.4%</td>
<td>2.2%</td>
<td>10.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.9%</td>
<td>1.0%</td>
<td>-8.7%</td>
<td>-19.1%</td>
<td>26.7%</td>
<td>28.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
U.S. Leading Economic Indicators
Slip 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 20,2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Following twelve consecutive monthly increases, the Conference
Board's Index of Leading Economic Indicators declined during April. The
index slipped 0.1% after a downwardly revised 1.3% March gain. The
three-month rate of increase also slipped to 6.5% (AR), its weakest in
roughly one year. The leading index is based on actual reports for
eight economic data series. The Conference Board initially estimates
two series, consumer and capital goods orders.
The breadth of increase amongst the component leading series
fell to its lowest since March of last year. Prominent in last month's
index decline were lower building permits, quicker vendor performance,
lower money supply growth and higher initial claims for unemployment
insurance. Just four of the ten components rose. These included higher
capital goods orders, a steeper interest rate yield curve, higher stock
prices and a longer workweek.
The index of coincident indicators rose 0.3%, the strongest
monthly gain since November. The three-month change of 2.0% was near
its high of late last year. Increases in all four of the component
series including industrial production, real personal income, business
sales and payroll employment contributed to last month's increase.
The lagging index rose slightly for the third month since
January 2009. Higher C&amp;I loans accounted for most of the
increase. The ratio of coincident-to-lagging indicators (another
leading indicator) rose slightly to the highest level since July, 2008.
The Conference Board figures are available in Haver's BCI
database. Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world. The latest
U.S. Leading Indicators release can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/acrawl.pdf">here</a>.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520f.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520g.jpg" style="width: 312px; height: 265px;">
<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/BCI/BCI.HTM" style="color: black;">Business Cycle Indicators</a>
(%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Dec. 6-Month % (AR)</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.1</td>
<td>1.3</td>
<td>0.4</td>
<td>10.6</td>
<td>0.5</td>
<td>-2.7</td>
<td>-0.2</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3</td>
<td>0.1</td>
<td>0.1</td>
<td>1.4</td>
<td>-5.1</td>
<td>-1.2</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1</td>
<td>0.1</td>
<td>0.2</td>
<td>-2.9</td>
<td>-1.6</td>
<td>3.2</td>
<td>3.0</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Increases
As Shipments Rise 
by <a href="/comment/Moeller.html">Tom
Moeller</a>May 20, 2010 


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520h.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
The economic recovery continued this month according to the
Philadelphia Federal Reserve Bank. It indicated that its May index of
regional factory sector activity rose for the fourth consecutive month
to the second highest level since early-2005. At 21.4 the index roughly
matched Consensus expectations and has been positive since the summer.
The latest figure compared to those near -40.0 at the recent
recession's weakest.
During the last ten years there has been a 75% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 73% correlation with q/q growth in real GDP. The latest
survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0510.pdf">here.</a>
Improved shipments powered the June index gain. It was
accompanied by higher new orders. Factory payrolls, however, eased but
still showed net-hiring for the sixth straight month. During the last
ten years, there has been a 90% correlation between the index level and
the three-month change in manufacturing sector payrolls.
The prices paid index slipped from the recent high. During the
last ten years there has been a 66% correlation between the prices paid
index and the three-month growth in the intermediate goods PPI. There
has been an 77% correlation with the change in core intermediate goods
prices.
The separate index of expected business conditions in six
months also fell, to the lowest level since April of last year.
Expected prices paid also fell to the lowest level since last August.
Expected capital expenditures also fell m/m and were well below the
February high.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520i.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520j.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May '09</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Activity Index</td>
<td>21.4</td>
<td>20.2</td>
<td>18.9</td>
<td>-21.7</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>6.1</td>
<td>13.9</td>
<td>9.3</td>
<td>-23.2</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Shipments</td>
<td>15.8</td>
<td>5.6</td>
<td>13.6</td>
<td>-18.7</td>
<td>-8.0</td>
<td>-9.2</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Delivery Times</td>
<td>-1.2</td>
<td>5.4</td>
<td>7.9</td>
<td>-19.1</td>
<td>-15.3</td>
<td>-10.6</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Number of Employees</td>
<td>3.2</td>
<td>7.3</td>
<td>8.4</td>
<td>-29.8</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>-7.9</td>
<td>2.0</td>
<td>-11.0</td>
<td>-27.8</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index</td>
<td>35.5</td>
<td>42.7</td>
<td>38.6</td>
<td>-23.8</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Initial Jobless InsuranceClaims Rise Unexpectedly

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<img align="left" alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;">
Moderate economic improvement since the middle of last year has done nothing to improve retail pricing power. The Consumer Price Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick in March. The latest figure fell short of Consensus expectations for a 0.1% gain. Moreover, continuing weak was the 0.5% (AR) CPI increase so far this year.
A 1.4% drop in energy prices was behind much of last month&#39;s total decline, the third consecutive monthly slip. A 4.4% drop (-2.9% y/y) in natural gas prices led the decline followed by a 2.4% drop in gasoline prices (+38.3% y/y). Higher fuel oil prices (28.0% y/y) offset much of these declines along with an uptick in electricity costs (0.6% y/y).
Core consumer prices also were weak. They were unchanged for the second consecutive month. A 0.1% increase had been expected and prices have gained just 0.1% since October. Core goods prices led the weakness with a 0.3% decline, the third consecutive monthly shortfall. Lower apparel prices fell by a sharp 0.7% (-0.9% y/y) while prices of home furnishings &amp; operation declined by 0.5% (-2.8% y/y). New &amp; used motor vehicles prices rounded off the weakness and slipped 0.2% (+4.9% y/y). Tobacco prices nudged up 0.1% (6.1% y/y).
Core services prices strengthened marginally and rose 0.2% (0.9% y/y). That improvement was led by a quickened 1.7% increase (8.4% y/y) in the cost of public transportation. The 0.3% increase in recreation prices also was a bit improved (-0.4% y/y). Elsewhere, weakness in the housing market left shelter prices unchanged and down 0.6% y/y. Owners equivalent rent of primary residences, a measure not equivalent to other house price measures, slipped again m/m (-0.2% y/y). The slight y/y decline in this measure was the weakest reading since the series&#39; start in 1983. Elsewhere in services, education costs rose 0.5% (5.0% y/y) and medical care services prices again rose 0.3% (3.7% y/y).
Food &amp; beverage prices again firmed a bit by 0.2% and the y/y gain of 0.5% was improved from late-last year&#39;s low of -0.5%. Dairy prices firmed by 0.1% y/y versus the 10.4% decline last summer. Also showing less deflation were prices for meats, poultry, fish &amp; eggs (-0.2% y/y) but cereal &amp; bakery product prices continued weak (-0.9% y/y). Fruit &amp; vegetable prices slipped m/m but the 1.8% y/y increase is improved from a 6.5% decline as of last summer. Finally, the cost of eating out rose just 1.1% y/y, a record low increase, while alcoholic beverage prices also rose just 1.2% y/y, the least since 1995.
The chained CPI, which adjusts for shifts in consumption patterns, eased last month and rose 2.3% year-to-year. Chained prices less food &amp; energy gained just 0.6% y/y.
The consumer price data is available in Haver&#39;s USECON database while detailed figures can be found in the CPIDATA database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519c.jpg" style="width: 312px; height: 265px;">
<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/USECON/@E8/@E801/@E80101/@E80101.HTM" style="color: white;">Consumer Price Index</a> (%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">April y/y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.0</td>
<td>2.2</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.0</td>
<td>0.1</td>
<td>1.0</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.3</td>
<td>-0.1</td>
<td>-0.1</td>
<td>1.2</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-1.4</td>
<td>-0.0</td>
<td>-0.5</td>
<td>18.0</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.2</td>
<td>0.2</td>
<td>0.0</td>
<td>0.5</td>
<td>1.9</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr class="grey1">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2</td>
<td>0.4</td>
<td>-0.0</td>
<td>2.3</td>
<td>-0.1</td>
<td>3.7</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>0.6</td>
<td>1.5</td>
<td>2.0</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Moderate economic improvement since the middle of last year has done nothing to improve retail pricing power. The Consumer Price Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick in March. The latest figure fell [...]

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

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

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

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Andrew Cates

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

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

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

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

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

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

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

Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

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

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

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

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

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

Michael J. Moran

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

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

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

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

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

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

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The employment cost index (ECI) for civilian workers, arguably the most accurate measure of labor compensation in the United States, rose 0.9% q/q (3.6% y/y) in Q1, the same quarterly increase as in last year’s Q4, according to the Bureau of Labor Statistics. The quarterly gains have fluctuated between 0.8% and 1.0% for the past six quarters. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 3.5% y/y gain.

Wages and salaries for civilian workers rose 0.8% q/q (3.5% y/y) in Q1, down from 1.0% q/q in Q4. This tied the Q3 2024 quarterly rise as the smallest increase since Q2 2021. It was also the smallest y/y increase since Q2 2021. Benefits increased by an outsized 1.2% q/q (3.9% y/y) in Q1 versus 0.8% q/q in Q4. This is the largest quarterly gain since Q2 2022. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing gradually.

Private industry workers’ compensation rose 0.8% q/q (3.4% y/y) in Q1, down from 0.9% q/q (3.6% y/y) in Q4. Wages and salaries for private industry workers increased 0.8% q/q (3.4% y/y) in Q1 versus 0.8% q/q (3.7% y/y) in Q4. The quarterly gain in Q1 tied that in Q3 2024 as the smallest increase since Q4 2020. Benefits for private industry workers jumped 1.2% q/q (3.6% y/y). the largest quarterly gain since Q2 2022. The acceleration in benefits in Q1 was primarily in service-producing industries.

Compensation in private goods-producing industries increased 1.0% q/q (3.2% y/y) in Q1, the largest quarterly gain in five quarters, versus a 0.7% q/q increase in Q4. Compensation in construction jumped 1.3% q/q, its largest quarterly increase since Q2 2022, up from a 0.6% q/q gain in Q4. Manufacturing compensation growth slowed to 0.7% q/q, its slowest quarterly advance since Q4 2020, from 0.8% q/q in Q4. Compensation in private service-producing industries increased 0.8% q/q (3.5% y/y), down slightly from a 0.9% q/q gain in Q4. Compensation in education and health services jumped 1.3% q/q, its largest quarterly gain since Q3 2023. In contrast, compensation in other services edged up 0.1% q/q in Q1, its smallest quarterly advance since before the pandemic.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- Compensation grew 0.9 q/q in Q1, the same pace as in Q4.
- Wage growth slowed to 0.8% q/q while benefits surged 1.2% q/q, their largest quarterly increase since Q2 2022.

Economy in Brief: May 2010

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