Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030703a.jpg" width="353">
The unemployment rate jumped to 6.4% in June, further than Consensus expectations for a rise to 6.2%. It was the highest rate of unemployment since April 1994. Employment did rise 251,000 (+1.0% y/y) but that gain was outpaced by a 611,000 (+1.5% y/y) worker surge in the labor force.
Nonfarm payrolls fell 30,000 in June versus Consensus expectations for no change. The decline in May payrolls was revised deeper to 70,000 from 17,000 reported last month.
The one month diffusion index for nonfarm payrolls was little changed at 43.3, suggesting poor hiring prospects. The three month diffusion index fell to 43.9. By measuring the breadth of hiring increases, these indexes are leading indicators of job growth.
Where Jobs Fell: The number of factory sector jobs fell 56,000 (-0.4% m/m, -4.2% y/y) and are down 2.2% year to date. The one-month diffusion index for the factory sector rose slightly to 32.1. That is versus 19.0 in February and 9.5 in December 2001. Retail hiring fell 12,800 (-0.6% y/y). Professional &amp; business services jobs fell 3,000 (-0.3% y/y).
Where Jobs Rose: Construction jobs rose 16,000 (1.1% y/y) for the fourth consecutive monthly gain. Jobs in the financial industries rose 9,000 (1.9% y/y for the tenth consecutive monthly gain. Leisure &amp; hospitality jobs rose 22,000 (1.2% y/y). The number of government sector jobs nudged up 1,000 (-0.0% y/y) following three months of decline.
The index of aggregate hours worked (employment times hours worked) was unchanged (-1.7% y/y). Hours worked last quarter fell 0.4% from 1Q.
Over the last ten years there has been a 61% correlation between the quarterly change in aggregate hours worked and real GDP. That correlation is down from 87% in the 1980s due to the recent acceleration in productivity growth.
Average hourly earnings rose 0.2% and in 2Q rose only 0.5%, the slimmest quarterly increase since 1Q 2002.
The nonfarm payroll employment figures are based on reports provided to the US Labor Department by businesses, while the figures from which the unemployment rate is derived are based on a survey of US households.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-30,000</td>
<td>-70,000</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>0.0%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-56,000</td>
<td>-44,000</td>
<td>-4.2%</td>
<td>-6.9%</td>
<td>-4.8%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>34.0</td>
<td>33.9</td>
<td>34.0</td>
<td>34.3</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>6.4%</td>
<td>6.1%</td>
<td>5.8%</td>
<td>5.8%</td>
<td>4.8%</td>
<td>4.0%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 3, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030703c.jpg" width="353">
Initial claims for unemployment insurance rose 21,000 (5.1%) last week to 430,000. The level of claims was higher than Consensus expectations for 413,000. Claims in the prior week were revised up.
The four-week moving average of initial claims fell to 425,000 (+8.4% y/y).
Continuing claims for unemployment insurance rose 0.9% w/w although the prior week&#39;s level was revised down.
During the last ten years there has been a 79% (inverse) correlation between the level of initial claims for unemployment insurance and the y/y change in nonfarm payrolls.
The insured rate of unemployment rose to 3.0% from a downwardly revised 2.9% the week prior.

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<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">6/28/03</th>
<th scope="col">6/21/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>430.0</td>
<td>409.0</td>
<td>10.3%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,751</td>
<td>2.4%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 3, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030703b.jpg" width="353">
The Institute for Supply Management reported that its nonmanufacturing sector business activity index surged to 60.6 last month, the highest level since September 2000. The Consensus expectation was for a much smaller rise to 55.0.
The 6.1 point m/m rise was the sharpest since November 2001.
During the last five years, there has been a 65% correlation between the level of the Business Activity Index from the ISM nonmanufacturing survey and quarterly growth in real GDP in the service sector plus structures.
The seasonally adjusted new orders index rose to 57.5, its highest level since October 2000. The employment index rose to 50.3, only the second month above 50 since early 2001.
Business activity for the nonmanufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted prices index rose to 51.4, still the second lowest level since March 2002.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The nonmanufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Business Activity Index</td>
<td>60.6</td>
<td>54.5</td>
<td>57.4</td>
<td>55.1</td>
<td>49.0</td>
<td>59.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>51.4</td>
<td>49.6</td>
<td>52.5</td>
<td>53.9</td>
<td>51.6</td>
<td>63.5</td>
</tr>
</tbody>
</table>


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The unemployment rate jumped to 6.4% in June, further than Consensus expectations for a rise to 6.2%. It was the highest rate of unemployment since April 1994. Employment did rise 251,000 (+1.0% y/y) but that gain was outpaced by a [...]

Unemployment Rate Surged, Payrolls Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030702c.jpg" width="353">
Unit sales of light vehicles rose 1.9% m/m in June to an annual rate of 16.43 million units. Consensus expectations were for sales of 16.1 mil. units.
The increase in June sales recovered virtually all of the decline in May. It continued the erratic sideways movement of sales in place for the last two and one half years.
Sales of cars rose 4.0% m/m for the first gain since March. Truck sales were about flat month to month.
Since the peak in early 1997, the CPI for new vehicles has fallen 4.7%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil.Units)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total</td>
<td>16.43</td>
<td>16.12</td>
<td>0.5%</td>
<td>16.81</td>
<td>17.26</td>
<td>17.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.56</td>
<td>7.27</td>
<td>-4.9%</td>
<td>8.07</td>
<td>8.48</td>
<td>8.83</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>8.87</td>
<td>8.86</td>
<td>5.5%</td>
<td>8.74</td>
<td>8.78</td>
<td>8.56</td>
</tr>
</tbody>
</table>
Mortgage Applications Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030702b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association rose 5.2% last week and recouped most of the prior week&#39;s decline. For all of June, mortgage applications rose 6.5%.
Applications to refinance rose 4.8% w/w and jumped 8.1% last month to a new monthly record.
Applications for home purchase surged 6.6% w/w and added 1.3% in all of June to the 11.6% gain in May.
During the last ten years there has been a 51% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Interest rates on a conventional 30-Year mortgage moved higher for the second week with the effective rate at 5.52% versus 6.13% averaged in December. The effective rate on a 15-year mortgage also rose to 4.97% versus 5.55% averaged in December.
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 accounts for more than 40% of all applications processed each week by mortgage lenders.
Visit the Mortgage Bankers Association site at <a href="http://www.mbaa.org/">www.mbaa.org.</a>

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<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">6/27/03</th>
<th scope="col">6/20/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>1,635.5</td>
<td>1,554.5</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>438.4</td>
<td>411.2</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>8,599.1</td>
<td>8,204.6</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
Factory Inventories Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030702d.jpg" width="353">
Manufacturing inventories fell 0.1% in May, down for the third consecutive month. The steep drop in the June ISM inventory index suggests further decumulation, although the rate of decline has slowed since 2001.
Inventories fell across the board in May with computers and electronic products down 1.0% (-9.1% y/y). Electrical equipment inventories fell a slight 0.1% (-6.1% y/y) but machinery inventories fell 0.3% (-4.3% y/y). Furniture inventories fell 0.3% m/m but are up 1.5% y/y.
Nondurable goods inventories were unchanged for the second month (+4.3% y/y).
Factory shipments rose 0.4% (-0.7% y/y). Shipments of petroleum and coal rose 9.3% m/m following the 19.4% plunge in April.
Factory orders rose 0.4%. Durable goods orders fell 0.4%, little revised from the advance report.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Inventories</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>0.7%</td>
<td>-1.9%</td>
<td>-8.0%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.4%</td>
<td>-3.0%</td>
<td>-0.1%</td>
<td>-0.8%</td>
<td>-7.2%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.4%</td>
<td>-2.3%</td>
<td>-0.7%</td>
<td>-1.1%</td>
<td>-5.3%</td>
<td>4.4%</td>
</tr>
</tbody>
</table>
</body>
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Unit sales of light vehicles rose 1.9% m/m in June to an annual rate of 16.43 million units. Consensus expectations were for sales of 16.1 mil. units. The increase in June sales recovered virtually all of the decline in May. It [...]

U.S. Light Vehicle Sales Up Slightly

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030701c.jpg" width="353">
According to the Bank of Japan&#39;s quarterly survey of business conditions--the Tankan--sentiment among executives of large manufacturing companies in Japan rose in June to minus 5 from minus 10 in March. This was better than consensus estimates and the best showing since March 2001. These executives expect that sentiment will continue at this level in the next quarter. Rising stock prices in recent months and the lessening of concerns over the impact of SARS on trade as the World Health Organization lifted travel advisories for Singapore, Hong Kong and Beijing in May and June may have been factors in the improvement of sentiment.
Sentiment in the nonmanufacturing sector improved but to a lesser extent than in manufacturing. It rose to minus 13 from minus 14 in March.
Large companies in all industries plan to increase spending on fixed investment in the current fiscal year, ending March 2004, by 4.9% over fiscal 2003. In the March Tankan, executives had estimated a decline of 0.8% in investment spending for the current fiscal year.

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<th scope="col" class="firstcol">Current Business Conditions</th>
<th scope="col">June Q 2003</th>
<th scope="col">March Q 2003</th>
<th scope="col">June Q&nbsp; 2002</th>
<th scope="col">Q/Q</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
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<td class="firstcol">Large Manufacturing Companies</td>
<td>-5</td>
<td>-10</td>
<td>-18</td>
<td>5</td>
<td>13</td>
<td>-20</td>
<td>-23</td>
<td>4</td>
</tr>
<tr>
<td class="firstcol">Large Nonmanufacturing&nbsp; Companies&nbsp;</td>
<td>-13</td>
<td>-14</td>
<td>-16</td>
<td>1</td>
<td>3</td>
<td>-17</td>
<td>-16</td>
<td>-12</td>
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</body>
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According to the Bank of Japan's quarterly survey of business conditions--the Tankan--sentiment among executives of large manufacturing companies in Japan rose in June to minus 5 from minus 10 in March. This was better than consensus [...]

Japanese Tankan Shows Good Improvement in Sentiment of Large Manufacturing Companies

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030701a.jpg" width="353">
Chain store sales gave back last week virtually all of the prior week&#39;s gain according to the BTM-UBSW survey. The 0.5% w/w decline followed a 0.6% gain the week prior and continued the erratic sales performance of the last two months.
Sales in June rose 0.1% versus May. May sales rose 2.0% from April due only to a 2.1% increase in the first week of that month.
During the last five years there has been a 61% correlation between the year-to-year percent change in chain store sales and the change in nonauto retail sales less gasoline.
The BTM leading indicator of chain store sales fell 0.1% in the third week of June, the second decline in three weeks.
The BTM-UBSW retail chain-store sales index is constructed from the sales results reported by seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">6/28/03</th>
<th scope="col">6/21/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>417.3</td>
<td>419.4</td>
<td>1.1%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
ISM Factory Index Rose Less Than Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 1, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030701b.jpg" width="353">
The ISM Composite Index of manufacturing sector activity rose to 49.8 last month from 49.4 in May. The gain was less than Consensus expectations for a rise to 51.0 and left the index below 50 for the fourth consecutive month.
During the last ten years there has been a 52% correlation between the level of the ISM index and the month to month change in factory sector industrial production.
New orders (52.2), production (52.9) and employment (46.2) each improved but the moderate gains were offset by lower inventories and vendor performance.
The index of export orders improved to 54.4, the highest level since February.
A separate index of inflation pressure recovered a bit of the sharp declines of the prior two months. Up five points, the index had fallen 18.5 points during April and May. This index is not seasonally adjusted.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<tbody>
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<td class="firstcol">Composite Index</td>
<td>49.8</td>
<td>49.4</td>
<td>55.2</td>
<td>52.4</td>
<td>44.0</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>56.5</td>
<td>51.5</td>
<td>66.5</td>
<td>57.6</td>
<td>42.9</td>
<td>64.8</td>
</tr>
</tbody>
</table>
Challenger Layoffs Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 1, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030701d.jpg" width="353">
According to Challenger, Gray &amp; Christmas, announced job cuts fell sharply for the second consecutive month in June. Layoff announcements fell 13.0% last month. That added to a 53.1% decline in May and dropped planned layoffs to the lowest level since November 2000.
The three month moving average of job cut announcements fell to its lowest level since last September.
Job cut announcements differ from layoffs in that many are achieved through attrition or just never occur.
During the last ten years there has been a 72% correlation between the y/y change in announced job cuts and the y/y percent change in initial claims for jobless insurance. Like claims, job cut announcements indicate little about new hiring activity.
Announcements of job cuts fell broadly although there were significant increases in several industries including apparel, automotive, chemical, food, media, pharmaceutical and retail.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>59,715</td>
<td>68,623</td>
<td>-37.0%</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
</table>
Construction Spending Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 1, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030702a.jpg" width="353">
The value of construction put in place fell 0.5% (+0.7% y/y) in May versus Consensus expectations for a 0.3% gain.
The figures reflect benchmark revisions. In addition, the Census Department will cease publication of values real terms with the release of June data next month. Census also will cease publication of the data according to the old classification system and will report only using a new system based on end use.
Residential building expenditures fell for the fourth consecutive month (+6.4% y/y).
Office construction fell 3.7% (-16.4% y/y, down sharply for the third month in four. Manufacturing construction fell 2.1% (-25.9% y/y) and highways &amp; streets dropped 1.9% (-5.3% y/y) for the fourth consecutive sharp decline.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>1.1%</td>
<td>2.7%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Residential</td>
<td>-0.3%</td>
<td>-0.5%</td>
<td>5.6%</td>
<td>8.8%</td>
<td>3.7%</td>
<td>6.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales gave back last week virtually all of the prior week's gain according to the BTM-UBSW survey. The 0.5% w/w decline followed a 0.6% gain the week prior and continued the erratic sales performance of the last two [...]

Chain Store Sales Slump

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.

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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.

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.

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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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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**.

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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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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**.

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250430D.jpg

- 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

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

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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: July 2003

Jump to:

Unemployment Rate Surged, Payrolls Down Again

U.S. Light Vehicle Sales Up Slightly

Japanese Tankan Shows Good Improvement in Sentiment of Large Manufacturing Companies

Chain Store Sales Slump