Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070724b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales ticked 0.2% lower last week and reversed most of the 0.3% rise during the prior week.
The weak showing of sales recently left the average level so far in July up 0.1% versus the June average which fell 0.5% versus May.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070724c.jpg" width="353">
The leading indicator of chain store sales from ICSC-UBS fell 0.5% (+0.5% y/y) after a 0.3% rise during the prior week. Nevertheless, the July average thus far is up 0.8% from June which fell 0.8% from May.
The meager rise in chain store sales this month came as gasoline prices for regular, on average, fell 3.0% to $2.958 per gallon (-1.5% y/y) last week. That followed a 2.3% advance during the prior week.
As a result, the average gas price so far in July is 2.3% lower than in June when prices fell 2.9% from May.
The market price for regular gasoline in N.Y. harbor fell yesterday to $2.0316 (-11.25% y/y), suggesting further declines in the retail price for gas. 
Macroeconomic Implications of Changes in the Term Premium from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/07/07/Rudebusch.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/21 /07</th>
<th scope="col">07/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>481.3</td>
<td>482.1</td>
<td>3.0%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales ticked 0.2% lower last week and reversed most of the 0.3% rise during the prior week. The weak showing of sales recently left the average [...]

Weekly Chain Store Sales Tick Down as Gas Prices Fell

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070724a.jpg" width="353">
Despite the rising Euro EMU orders continue strong, at least through May. The Euro has not risen by that much this year on a trade weighted basis but it is still extremely strong on a weighted basis in terms of its level compared to historic standards. So far adversity has been avoided and the manufacturing sector seem to continue to flourish. 
EMU orders and trend remain strong. Sales growth seems to be a little less robust, however. Main country trends are still quite robust. EU member UK is seeing some weakening as its CBI report also echoed in a release today. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro Area and UK Industrial Orders &amp; Sales Trends
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">SAAR except m/m</td>
<td colspan="3">% m/m</td>
<td>May-07 3-Mo</td>
<td>May-07 6-mo</td>
<td>May-07 12-mo</td>
<td>May-06 12-mo</td>
<td>May-05 12-mo</td>
</tr>
<tr class="grey4">
<td class="firstcol">Euro Area Detail</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Orders</td>
<td>1.7%</td>
<td>-0.6%</td>
<td>2.9%</td>
<td>16.7%</td>
<td>10.4%</td>
<td>8.4%</td>
<td>12.5%</td>
<td>0.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG Sales</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>4.1%</td>
<td>5.9%</td>
<td>5.9%</td>
<td>7.9%</td>
<td>2.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Consumer</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.6%</td>
<td>2.5%</td>
<td>3.7%</td>
<td>7.9%</td>
<td>2.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Capital</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.9%</td>
<td>6.8%</td>
<td>7.5%</td>
<td>4.1%</td>
<td>1.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Intermediate</td>
<td>0.5%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>10.9%</td>
<td>11.0%</td>
<td>4.2%</td>
<td>7.1%</td>
<td>2.4%</td>
</tr>
<tr class="grey1">
<td colspan="9">MFG Orders</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>1.7%</td>
<td>-0.6%</td>
<td>2.9%</td>
<td>16.7%</td>
<td>10.4%</td>
<td>8.4%</td>
<td>12.5%</td>
<td>0.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; E-13 Domestic MFG orders</td>
<td>0.9%</td>
<td>-0.6%</td>
<td>2.4%</td>
<td>10.9%</td>
<td>11.0%</td>
<td>4.2%</td>
<td>11.4%</td>
<td>-5.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; E-13 Foreign MFG orders</td>
<td>3.9%</td>
<td>-1.7%</td>
<td>4.4%</td>
<td>28.8%</td>
<td>12.6%</td>
<td>13.8%</td>
<td>13.7%</td>
<td>4.2%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Countries:</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>3.5%</td>
<td>-1.5%</td>
<td>1.0%</td>
<td>12.2%</td>
<td>16.8%</td>
<td>12.5%</td>
<td>13.5%</td>
<td>1.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>1.1%</td>
<td>2.4%</td>
<td>5.3%</td>
<td>41.2%</td>
<td>19.6%</td>
<td>13.3%</td>
<td>2.7%</td>
<td>-9.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>2.5%</td>
<td>-0.8%</td>
<td>4.9%</td>
<td>29.9%</td>
<td>9.7%</td>
<td>7.0%</td>
<td>13.6%</td>
<td>3.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>-3.5%</td>
<td>-6.4%</td>
<td>5.1%</td>
<td>-18.7%</td>
<td>1.6%</td>
<td>-1.2%</td>
<td>2.0%</td>
<td>0.8%</td>
</tr>
</tbody>
</table>
</body>
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Despite the rising Euro EMU orders continue strong, at least through May. The Euro has not risen by that much this year on a trade weighted basis but it is still extremely strong on a weighted basis in terms of its level compared to [...]

EMU Orders Continue Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070724b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales ticked 0.2% lower last week and reversed most of the 0.3% rise during the prior week.
The weak showing of sales recently left the average level so far in July up 0.1% versus the June average which fell 0.5% versus May.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070724c.jpg" width="353">
The leading indicator of chain store sales from ICSC-UBS fell 0.5% (+0.5% y/y) after a 0.3% rise during the prior week. Nevertheless, the July average thus far is up 0.8% from June which fell 0.8% from May.
The meager rise in chain store sales this month came as gasoline prices for regular, on average, fell 3.0% to $2.958 per gallon (-1.5% y/y) last week. That followed a 2.3% advance during the prior week.
As a result, the average gas price so far in July is 2.3% lower than in June when prices fell 2.9% from May.
The market price for regular gasoline in N.Y. harbor fell yesterday to $2.0316 (-11.25% y/y), suggesting further declines in the retail price for gas. 
Macroeconomic Implications of Changes in the Term Premium from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/07/07/Rudebusch.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/21 /07</th>
<th scope="col">07/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>481.3</td>
<td>482.1</td>
<td>3.0%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
EMU Orders Continue Strong 
by <a href="/comment/Brusca.html">Robert Brusca</a> July 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070724a.jpg" width="353">
Despite the rising Euro EMU orders continue strong, at least through May. The Euro has not risen by that much this year on a trade weighted basis but it is still extremely strong on a weighted basis in terms of its level compared to historic standards. So far adversity has been avoided and the manufacturing sector seem to continue to flourish. 
EMU orders and trend remain strong. Sales growth seems to be a little less robust, however. Main country trends are still quite robust. EU member UK is seeing some weakening as its CBI report also echoed in a release today. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro Area and UK Industrial Orders &amp; Sales Trends
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">SAAR except m/m</td>
<td colspan="3">% m/m</td>
<td>May-07 3-Mo</td>
<td>May-07 6-mo</td>
<td>May-07 12-mo</td>
<td>May-06 12-mo</td>
<td>May-05 12-mo</td>
</tr>
<tr class="grey4">
<td class="firstcol">Euro Area Detail</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Orders</td>
<td>1.7%</td>
<td>-0.6%</td>
<td>2.9%</td>
<td>16.7%</td>
<td>10.4%</td>
<td>8.4%</td>
<td>12.5%</td>
<td>0.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG Sales</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>4.1%</td>
<td>5.9%</td>
<td>5.9%</td>
<td>7.9%</td>
<td>2.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Consumer</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.6%</td>
<td>2.5%</td>
<td>3.7%</td>
<td>7.9%</td>
<td>2.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Capital</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.9%</td>
<td>6.8%</td>
<td>7.5%</td>
<td>4.1%</td>
<td>1.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Intermediate</td>
<td>0.5%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>10.9%</td>
<td>11.0%</td>
<td>4.2%</td>
<td>7.1%</td>
<td>2.4%</td>
</tr>
<tr class="grey1">
<td colspan="9">MFG Orders</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>1.7%</td>
<td>-0.6%</td>
<td>2.9%</td>
<td>16.7%</td>
<td>10.4%</td>
<td>8.4%</td>
<td>12.5%</td>
<td>0.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; E-13 Domestic MFG orders</td>
<td>0.9%</td>
<td>-0.6%</td>
<td>2.4%</td>
<td>10.9%</td>
<td>11.0%</td>
<td>4.2%</td>
<td>11.4%</td>
<td>-5.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; E-13 Foreign MFG orders</td>
<td>3.9%</td>
<td>-1.7%</td>
<td>4.4%</td>
<td>28.8%</td>
<td>12.6%</td>
<td>13.8%</td>
<td>13.7%</td>
<td>4.2%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Countries:</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>3.5%</td>
<td>-1.5%</td>
<td>1.0%</td>
<td>12.2%</td>
<td>16.8%</td>
<td>12.5%</td>
<td>13.5%</td>
<td>1.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>1.1%</td>
<td>2.4%</td>
<td>5.3%</td>
<td>41.2%</td>
<td>19.6%</td>
<td>13.3%</td>
<td>2.7%</td>
<td>-9.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>2.5%</td>
<td>-0.8%</td>
<td>4.9%</td>
<td>29.9%</td>
<td>9.7%</td>
<td>7.0%</td>
<td>13.6%</td>
<td>3.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>-3.5%</td>
<td>-6.4%</td>
<td>5.1%</td>
<td>-18.7%</td>
<td>1.6%</td>
<td>-1.2%</td>
<td>2.0%</td>
<td>0.8%</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070723a.jpg" width="353">
The number of mass layoff events rose 8.0% during June. The increase reversed al of the prior month&#146;s 6.2% decline, according to BLS data.These specific layoff incidents are called &quot;mass layoffs&quot; because they involve 50 or more initial claims for unemployment insurance.
The June increase only left the number of mass layoff events in the middle of the data&#146;s very recent range, however, there is an upward creep to the number since early last year. Since January &#146;06 mass layoffs are up 16.9% and since last year&#146;s average June layoffs were up 5.8%. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070723b.jpg" width="353">
The increase brought with a 5.0% increase in initial claims for unemployment insurance versus last year&#146;s average.
Most of the creep is due to layoffs in the construction industry which still are running double the monthly low in 2006. That&#146;s after the huge seasonal spikes early this year and last that never seemed to fully unwind in the spring. [Note that all of the data for individual industries are not seasonally adjusted.]
These mass layoff data are contained in Haver&#39;s flagship database, USECON. Data are also available by Census regions, divisions and states, including some industry detail for each. These are all carried in the REGIONAL database.
The Minutes of the Federal Open Market Committee Meeting held June 27-28, 2006 can be found <a href="http://www.federalreserve.gov/fomc/minutes/20070628.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mass Layoffs, SA</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#145;06</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Number of Events</td>
<td>1,219</td>
<td>1,182</td>
<td>1,130</td>
<td>1,152</td>
<td>1,305</td>
<td>1,323</td>
</tr>
<tr>
<td class="firstcol">Initial Claims &nbsp; (Number Persons)</td>
<td>127,897</td>
<td>118,414</td>
<td>123,558</td>
<td>121,839</td>
<td>143,402</td>
<td>131,943</td>
</tr>
</tbody>
</table>
</body>
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The number of mass layoff events rose 8.0% during June. The increase reversed al of the prior months 6.2% decline, according to BLS data.These specific layoff incidents are called "mass layoffs" because they involve 50 or more [...]

Mass Layoffs Creep Higher

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070719g.jpg" width="353">
May&#39;s &quot;TIC&quot; data from the US Treasury show a substantial increase in net purchases of US securities by foreign investors to a record $163.5 billion. These purchases amounted to $97.4 billion in April and $107.7 billion in May a year ago. This report, published Tuesday morning, also includes an increase in US purchases of foreign securities to $37.3 billion, the third largest monthly amount ever (the two larger were in December 2006 and March 2007). The effects of other financial capital flows, such as the return of capital on asset-backed securities, and other adjustments produced the total &quot;Net TIC Flows&quot; of $105.9 billion. This is the largest since February 2006, but a number of individual months prior to that have been larger; the absolute record is $227.4 billion in January 2006. These amounts basically reflect portfolio investment flows in and out of US markets. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070719h.jpg" width="353">
This month&#39;s record securities purchases were concentrated in corporate instruments; both bonds and stocks experienced record net foreign buying. Bonds saw $72.6 billion, compared with the previous month&#39;s $33.5 billion and the prior record of $62.4 billion last November. Net buying of US equities was $41.8 billion, an unprecedented amount some 53% larger than April&#39;s $27.4 billion and 51% more than the previous record $27.7 billion in February 2000, just before the end of the tech boom.
Net purchases of Treasury securities, which were for many years the basic building block of foreign portfolios, are still sizable at $21.6 billion in May, but noticeably less than the $28 and $29 billion averages for 2005 and 2004, respectively. Buying of GSEs (&quot;Agencies&quot; in the table below) has remained within its recent high range as FNMA and FHLMC have regained some favor with investors; they bought $27.5 billion worth in May, less than April&#39;s record $36.1 billion, but much more than the $18-$19 billion monthly averages in 2004 and 2005.
The changes in portfolio mix seen here -- fewer Treasuries and more Agencies and Corporates -- are reflected in data for individual countries. China was a net seller of Treasuries in April ($941 million) and May ($3.22 billion) while increasing its holdings of Agencies and Corporates. In the last six months, Chinese investors have purchased a total of $76.4 billion of US securities. The single biggest investor country represented in the TIC data is the UK; this most probably reflects the London markets&#39; role as an international financial center, so the ultimate investors could come from almost anywhere. This group purchased a stunning $92.7 billion of US securities in May and sold a record $30.8 billion in foreign securities to US investors. They actually increased their purchases of Treasuries in May, buying $33.3 billion after liquidating $10.7 billion in April. The largest increase in their holdings came in corporate bonds, with net purchases of $45.2 billion; the previous high was $33.5 billion last November.
Finally, as we see in the table, Japanese investors are much less active in US markets now. In May, they purchased just $2.0 billion in US securities and so far in 2007, they have been net sellers of $3.0 billion worth. Their peak activity came in 2004, when they bought just over $20 billion worth a month, about two-thirds of that in Treasuries. As the Japanese economy has emerged from its stagnation, these investors have been more interested in their home market than in ours. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070719i.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070719j.jpg" width="353"> 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net ForeignPurchases fromUS Residents, Bil $</th>
<th scope="col">May 2007</th>
<th scope="col">Apr 2007</th>
<th scope="col">May 2006</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Last 12 Months</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Headline&quot;:&nbsp; Net Foreign Purchases = 1 + 2</td>
<td>126.1</td>
<td>80.3</td>
<td>81.0</td>
<td>78.2</td>
<td>73.6</td>
<td>69.9</td>
<td>63.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Securities</td>
<td>163.5</td>
<td>97.4</td>
<td>107.7</td>
<td>102.3</td>
<td>94.6</td>
<td>84.3</td>
<td>76.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>21.6</td>
<td>0.3</td>
<td>15.4</td>
<td>20.0</td>
<td>16.3</td>
<td>28.2</td>
<td>29.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>27.5</td>
<td>36.1</td>
<td>36.0</td>
<td>23.1</td>
<td>24.1</td>
<td>18.3</td>
<td>18.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>72.6</td>
<td>33.5</td>
<td>42.3</td>
<td>45.0</td>
<td>41.7</td>
<td>31.0</td>
<td>25.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>41.9</td>
<td>27.4</td>
<td>14.0</td>
<td>14.3</td>
<td>12.5</td>
<td>6.8</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Securities&nbsp;</td>
<td>-37.3</td>
<td>-17.1</td>
<td>-26.7</td>
<td>-24.1</td>
<td>-20.9</td>
<td>-14.4</td>
<td>-12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Foreign Acquisition</td>
<td>112.6</td>
<td>72.6</td>
<td>71.8</td>
<td>64.5</td>
<td>60.7</td>
<td>58.3</td>
<td>60.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total TIC Flows&nbsp; </td>
<td>105.9</td>
<td>97.8</td>
<td>105.1</td>
<td>68.6</td>
<td>87.4</td>
<td>55.7</td>
<td>81.6</td>
</tr>
<tr>
<td colspan="2">Select Countries Net Purchases of US Securities</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">China</td>
<td>10.1</td>
<td>11.4</td>
<td>7.5</td>
<td>10.1</td>
<td>8.8</td>
<td>7.2</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan</td>
<td>2.0</td>
<td>6.3</td>
<td>10.3</td>
<td>3.7</td>
<td>4.9</td>
<td>6.7</td>
<td>20.6</td>
</tr>
<tr class="odd">
<td class="firstcol">United Kingdom</td>
<td>92.8</td>
<td>27.5</td>
<td>42.1</td>
<td>46.0</td>
<td>38.5</td>
<td>30.3</td>
<td>21.2</td>
</tr>
</tbody>
</table>
</body>
</html>

May's "TIC" data from the US Treasury show a substantial increase in net purchases of US securities by foreign investors to a record $163.5 billion. These purchases amounted to $97.4 billion in April and $107.7 billion in May a year [...]

Treasury TIC Data: Record Purchases of US Securities; Country Mix Highlights Rising China, Diminishing Japan

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070718h.jpg" width="353">
In a marked shift, UK employment surged 63,000 in the 3 months centered on April, a second successive gain, as the March period saw 31,000 more employed. From three months ago (the style of comparison that the UK&#39;s Office for National Statistics [ONS] generally emphasizes) the latest figure was 93,000 higher. Notable as well, full-time employment gained 117,000 from 3 months back, while part-time work decreased 25,000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070718i.jpg" width="353">
Unemployment, measured by the ILO definition, is down 34,000 from 3 months ago, a 2% decline. The unemployment rate consequently dipped to 5.4% from the 5.5% that has prevailed most of the last year. The more widely followed unemployment gauge in the UK, the &quot;claimant count rate&quot;, is showing further declines: a single monthly figure, it stood at 2.7% in May and June, the lowest since September 2005 and down from a recent peak of 3.0% last October. The number of claimants in June was 864,100, down almost 10% from their peak of 956,700 last September.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070718j.jpg" width="353">
We last considered these data two months ago, and we noted then that job vacancies had risen, suggesting that the employment environment might do better, as it in fact has. At that time, vacancies were up 20,000 from 3 months previous, reaching 647,400 in April. This figure has been revised down slightly to 644,100, and in May and June vacancies increased another 6,000 to 650,100. The recent gains, albeit small, were in transportation and communications, and finance and business services.
So we are enthusiastic about the employment increase in the UK, believing it is a sign of economic health. Press reports, however, highlight the push some economists and journalists think it portends for inflation and interest rates. This may eventually occur, although accompanying wage data indicate that cost pressures remain moderate. The key average earnings index had a 3.5% &quot;headline rate&quot; for the 3 months ended May, down from 3.6% excluding bonuses in February and 4.6% including bonuses. It may be, then, that causation is running the other way: perhaps because wages remain moderate, businesses have increased their hiring. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK Labor Force Survey &amp; Related Labor Data</th>
<th scope="col">Jun 2007</th>
<th scope="col">May 2007</th>
<th scope="col">Apr 2007</th>
<th scope="col">Mar 2007</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment* &nbsp; (3Mo Avg, SA, Thous)</td>
<td>--</td>
<td>--</td>
<td>29075</td>
<td>29012</td>
<td>28,895</td>
<td>28,960</td>
<td>28,730</td>
<td>28,465</td>
</tr>
<tr>
<td class="firstcol">Chg from 1 &amp; 3 Months Ago</td>
<td>--</td>
<td>--</td>
<td>63/93</td>
<td>31/-10</td>
<td>+15&nbsp;(MoAvg)0.6% y/y</td>
<td>0.8%</td>
<td>0.9%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate* &nbsp;(3Mo Avg, SA, %)</td>
<td>--</td>
<td>--</td>
<td>5.4%</td>
<td>5.5%</td>
<td>5.4%</td>
<td>5.4%</td>
<td>4.8%</td>
<td>4.8%</td>
</tr>
<tr>
<td class="firstcol">Claimant Count &nbsp; (Monthly, Thous)</td>
<td>864.1</td>
<td>877.9</td>
<td>889.7</td>
<td>905.7</td>
<td>947.1</td>
<td>944.7</td>
<td>861.7</td>
<td>853.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Claimant Count Rate (SA, %)</td>
<td>2.8</td>
<td>2.9</td>
<td>2.9</td>
<td>2.9</td>
<td>3.0</td>
<td>3.0</td>
<td>2.7</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Vacancies (Monthly, Thous)</td>
<td>650.1</td>
<td>631.8</td>
<td>644.1</td>
<td>643.7</td>
<td>593.7</td>
<td>594.6</td>
<td>617.0</td>
<td>629.0</td>
</tr>
</tbody>
</table>
</body>
</html>

In a marked shift, UK employment surged 63,000 in the 3 months centered on April, a second successive gain, as the March period saw 31,000 more employed. From three months ago (the style of comparison that the UK's Office for National [...]

Employment Rises Sharply in UK, Unemployment Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070718g.jpg" width="353">
Italy&#146;s trade balance trend is slipping, too. 
Imports outpaced exports in May. Exports fell faster than imports of the past three months. Over six and 12-months goods exports have grown faster than goods imports. For services imports are consistently far faster-growing. 
The composition of trade flows shows that exports of transportation equipment (Y/Y) have slowed sharply in May. Capital goods exports have slowed sharply as well. Consumer goods exports also have slowed. On the import side, food and consumer goods imports slowed in May. Capital goods imports are holding up. Imports of other goods have slowed. 
There is little in these trends to raise any concerns. At the same time there is some evidence of slowing. Europe currently has a truly strong exchange rate from the euro to the pound sterling. This sort of currency strength can be expected to take some toll on growth. Italy&#146;s export flows include goods that are exported both within as well call as outside of the EMU community. So we do not get a clear reading from these data on the impact of the FX rate. But slowing export flows would result if the euro rose too high; at some point even Italian exports kept within the community would suffer as an export slowdown for EMU as a whole would also slow domestically generated growth too. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Italy&#39;s Trade Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account Bal</td>
<td>&#128;&#128; (3,560)</td>
<td>&#128;&#128; (2,774)</td>
<td>&#128;&#128; (3,299)</td>
<td>&#128;&#128; (3,211)</td>
<td>&#128;&#128; (2,950)</td>
<td>&#128;&#128; (3,197)</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods Balance</td>
<td>&#128;&#128; (139)</td>
<td>&#128;&#128; 589</td>
<td>&#128;&#128; 215</td>
<td>&#128;&#128; 222</td>
<td>&#128;&#128; 336</td>
<td>&#128;&#128; (316)</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>5.9%</td>
<td>0.5%</td>
<td>-9.8%</td>
<td>-15.4%</td>
<td>5.7%</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>8.6%</td>
<td>-0.9%</td>
<td>-9.8%</td>
<td>-11.0%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services Balance</td>
<td>&#128;&#128; (429)</td>
<td>&#128;&#128; (1,107)</td>
<td>&#128;&#128; (222)</td>
<td>&#128;&#128; (586)</td>
<td>&#128;&#128; (426)</td>
<td>&#128;&#128; (405)</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>-0.4%</td>
<td>3.3%</td>
<td>-4.9%</td>
<td>-8.1%</td>
<td>15.3%</td>
<td>10.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-8.7%</td>
<td>15.9%</td>
<td>1.2%</td>
<td>31.5%</td>
<td>20.3%</td>
<td>11.4%</td>
</tr>
<tr>
<td class="firstcol">Not Seasonally Adjusted</td>
<td colspan="6">All Yr/Yr</td>
</tr>
<tr class="even">
<td class="firstcol">Exports</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Food &amp; Beverages</td>
<td>1.4%</td>
<td>5.8%</td>
<td>6.6%</td>
<td>3.3%</td>
<td>10.8%</td>
<td>5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>4.3%</td>
<td>18.6%</td>
<td>15.8%</td>
<td>17.3%</td>
<td>15.4%</td>
<td>13.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>-1.7%</td>
<td>22.6%</td>
<td>25.8%</td>
<td>27.0%</td>
<td>3.9%</td>
<td>14.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>3.5%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>6.5%</td>
<td>7.6%</td>
<td>12.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other Goods</td>
<td>21.2%</td>
<td>13.0%</td>
<td>4.7%</td>
<td>11.3%</td>
<td>34.5%</td>
<td>19.9%</td>
</tr>
<tr class="even">
<td class="firstcol">Imports</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Food &amp; Beverages</td>
<td>-1.0%</td>
<td>8.7%</td>
<td>2.9%</td>
<td>5.2%</td>
<td>10.2%</td>
<td>7.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>6.3%</td>
<td>14.4%</td>
<td>6.1%</td>
<td>5.3%</td>
<td>13.8%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>8.4%</td>
<td>12.3%</td>
<td>6.5%</td>
<td>4.5%</td>
<td>13.2%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>-0.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>7.6%</td>
<td>6.7%</td>
<td>6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other Goods</td>
<td>1.1%</td>
<td>11.3%</td>
<td>5.2%</td>
<td>11.1%</td>
<td>11.1%</td>
<td>27.2%</td>
</tr>
<tr class="odd">
<td colspan="7">Balances in Mil of Euros</td>
</tr>
</tbody>
</table>
</body>
</html>

Italys trade balance trend is slipping, too. Imports outpaced exports in May. Exports fell faster than imports of the past three months. Over six and 12-months goods exports have grown faster than goods imports. For services imports [...]

Italy’s Exports and Imports Slow, but Exports Still Exceed

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.

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

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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.

Economy in Brief: July 2007

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