Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040824a.jpg" width="353">
Chain store sales recovered just 0.1% last week of a 0.6% decline in sales the week prior according to the International Council of Shopping Centers (ICSC)-UBS.
The lackluster performance left sales so far in August 0.1% above the July average which rose 0.3% versus June.
During the last ten years there has been a 59% correlation between 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 reported by 78 stores of 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"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/21/04</th>
<th scope="col">08/14/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>439.3</td>
<td>438.8</td>
<td>2.9%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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Chain store sales recovered just 0.1% last week of a 0.6% decline in sales the week prior according to the International Council of Shopping Centers (ICSC)-UBS. The lackluster performance left sales so far in August 0.1% above the [...]

U.S. Chain Store Sales Soft

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040824b.jpg" width="353">
Existing single family home sales fell 2.9% in July to 6.72M. The record high in June was revised slightly lower. Consensus expectations had been for a lesser decline to 6.80M.
The figures reflect closings of home sales in earlier months.
Sales fell across the nation except in the South where they rose modestly to a record high.
The median price of an existing home rose a slight 0.2% m/m to $191,300 (+8.7% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/publicaffairsweb.nsf/Pages/JulyEHS04?OpenDocument"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM"> Existing Home Sales (000, AR)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;6,720</td>
<td>&nbsp;6,920</td>
<td>8.6%</td>
<td>6,111</td>
<td>5,583</td>
<td>5,290</td>
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Existing single family home sales fell 2.9% in July to 6.72M. The record high in June was revised slightly lower. Consensus expectations had been for a lesser decline to 6.80M. The figures reflect closings of home sales in earlier [...]

U.S. Existing Home Sales Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040824b.jpg" width="353">
Existing single family home sales fell 2.9% in July to 6.72M. The record high in June was revised slightly lower. Consensus expectations had been for a lesser decline to 6.80M.
The figures reflect closings of home sales in earlier months.
Sales fell across the nation except in the South where they rose modestly to a record high.
The median price of an existing home rose a slight 0.2% m/m to $191,300 (+8.7% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/publicaffairsweb.nsf/Pages/JulyEHS04?OpenDocument"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM"> Existing Home Sales (000, AR)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;6,720</td>
<td>&nbsp;6,920</td>
<td>8.6%</td>
<td>6,111</td>
<td>5,583</td>
<td>5,290</td>
</tr>
</tbody>
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Chain Store Sales Soft 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 24, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040824a.jpg" width="353">
Chain store sales recovered just 0.1% last week of a 0.6% decline in sales the week prior according to the International Council of Shopping Centers (ICSC)-UBS.
The lackluster performance left sales so far in August 0.1% above the July average which rose 0.3% versus June.
During the last ten years there has been a 59% correlation between 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 reported by 78 stores of 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"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/21/04</th>
<th scope="col">08/14/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>439.3</td>
<td>438.8</td>
<td>2.9%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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Existing Home Sales Down

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040823b.jpg" width="353">
Signs are increasing that the deflation is finally coming to an end in Hong Kong. Consumer prices in July were 0.88% above the year ago figure. This was the first increase since October of 1998. Prices in Hong Kong have fallen ever since the 1997-98 Asian financial crisis which led to a severe recession and collapse of the property market. Deflation was aggravated last year by the SARS (Severe Acute Respiratory Syndrome) outbreak. A low point of 91.0 (October 1999-September 2000 = 100) in the Consumer Price Index was reached in August, 2003.
Price decreases began to decelerate earlier this year as the employment picture improved. The unemployment rate for the three months ending in July was steady at 6.9%, unchanged from the three months rate ending in June. but was 1.7 percentage points below the figure a year ago. Moreover, the three month average of employment ending in July was 0.79% above that ending in June and 2.64% above the year ago figure. Retail sales were down almost one percent in the second quarter of this year from the first quarter but were up almost 19% over the second quarter of last year..
The decline in the unemployment rate and the rise in employment has led to some improvement in demand on the part of domestic consumers, but the big increase in demand has come from the increase in tourism. Tourist arrivals increased 2.88% in the second quarter from the first and 208.44% from the SARS affected first quarter of 2003. Tourist arrivals in the first half of this year were over 10 million, compared with the city&#39;s population of 6.8 million.
While some of the increase in July prices may have been due to cost pressures with the rise in oil prices, the evidence suggests that rising demand is beginning to put pressure on prices and an end to deflation is in sight.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jul 04</th>
<th scope="col">Jun 04</th>
<th scope="col">Jul 03</th>
<th scope="col">M/M&nbsp;%</th>
<th scope="col">Y/Y%&nbsp;</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
<th scope="col">&nbsp;2001%</th>
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<td class="firstcol">CPI (NSA, Oct99-Sep00=100)</td>
<td>91.9</td>
<td>91.8</td>
<td>91.1</td>
<td>0.11</td>
<td>0.88</td>
<td>-2.58</td>
<td>-3.04</td>
<td>-1.60</td>
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<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">Employment (NSA thous,3-month moving average ending)</td>
<td>3282.5</td>
<td>3256.9</td>
<td>3198.1</td>
<td>0.79</td>
<td>2.64</td>
<td>-0.34</td>
<td>-0.64</td>
<td>1.40</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (NSA, %, 3-month moving average ending)</td>
<td>6.9</td>
<td>6.9</td>
<td>8.6</td>
<td>0.0</td>
<td>-1.7</td>
<td>8.0</td>
<td>7.3</td>
<td>5.1</td>
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<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<tr>
<td class="firstcol">&nbsp;</td>
<td>Q2 04</td>
<td>&nbsp; Q1 03</td>
<td>&nbsp; Q2 03</td>
<td>Q/Q %</td>
<td>&nbsp;Y/Y %</td>
<td>2003 %</td>
<td>&nbsp;2002%</td>
<td>&nbsp; 2001%</td>
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<td class="firstcol">Retail Sales (NSA, Oct99-Sep00=100)</td>
<td>102.4</td>
<td>103.2</td>
<td>86.1</td>
<td>-0.78</td>
<td>18.89</td>
<td>-2.26</td>
<td>-4.08</td>
<td>-1.23</td>
</tr>
<tr>
<td class="firstcol">Tourist Arrivals (NSA Thous.)</td>
<td>5077.4</td>
<td>4935.2</td>
<td>1646.2</td>
<td>2.88</td>
<td>208.44</td>
<td>&nbsp;-6.21</td>
<td>20.70</td>
<td>5.10</td>
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Signs are increasing that the deflation is finally coming to an end in Hong Kong. Consumer prices in July were 0.88% above the year ago figure. This was the first increase since October of 1998. Prices in Hong Kong have fallen ever [...]

Deflation in Hong Kong Coming to an End?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040823a.jpg" width="353">
Though the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) ticked 0.2% higher in the latest week, its growth rate slowed to 0.0% versus double digit rates of growth into this past Spring.
The weekly rise was due to higher mortgage applications and lower jobless claims which offset a lower money supply, but the trend in mortgage apps and money growth has been soft.
During the last ten years there has been a 69% correlation between the six-month growth in the ECRI leading index of the US economy and two quarter growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. There has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM"> ECRI Leading Index</a></th>
<th scope="col"> 08/13/04</th>
<th scope="col"> 08/06/04</th>
<th scope="col"> Growth Rate</th>
<th scope="col"> 2003</th>
<th scope="col"> 2002</th>
<th scope="col"> 2001</th>
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<td class="firstcol">Weekly</td>
<td>131.7</td>
<td>131.4</td>
<td>3.6%</td>
<td>6.5%</td>
<td>1.1%</td>
<td>-5.3%</td>
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<tr>
<td class="firstcol">&nbsp;</td>
<td> July</td>
<td> June</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<tr class="odd">
<td class="firstcol">Monthly</td>
<td>131.7</td>
<td>132.0</td>
<td>1.1%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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Though the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) ticked 0.2% higher in the latest week, its growth rate slowed to 0.0% versus double digit rates of growth into this past [...]

ECRI U.S. Leading Indicators Soft

ECRI Leading Indicators Soft

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/040820a.jpg" width="353">
A piece of what is now &quot;ancient&quot; history: on December 10, 1998, the price of a barrel of West Texas Intermediate Crude oil was $10.73. Yesterday, it was $48.70. A page 1 story in today&#39;s Wall Street Journal highlights the role of demand in helping to push up this price. And indeed, demand has risen. World oil demand was 82.2 billion barrels in the first quarter of this year, up by 2.3% over a year earlier, compared to a 10-year average of 1.6% growth.
The Journal cites the US market as the &quot;price-setter&quot; because it&#39;s the biggest market. With 20.77 billion barrels of consumption in Q1, it has the largest share of any country. However, that share, 25.2%, is down from about 27% in mid-1999. China&#39;s growth largely accounts for the offset. Its share in 1999 was about 5.7%, and has risen steadily to 7.6% in Q1 this year. Its demand, 6.25 billion barrels in that quarter, was up more than 19% from the year earlier period and a four-quarter moving average, 5.78 billion barrels, surpassed that of Japan, 5.50 billion, for the first time. All these Department of Energy data appear in the Haver database, &quot;OGJ&quot;, compiled for us by the Oil and Gas Journal. Prices are maintained daily, weekly and for longer periods in USECON, WEEKLY, and DAILY.
This isn&#39;t to diminish the importance of heavy energy consumption in the US. Annual data in Haver&#39;s USECON database show that as of 2002 there were 194.3 million licensed drivers in the US, but 225.9 million &quot;personal&quot; vehicles, that is, cars, light trucks and motorcycles. Light trucks, of course, have gained significantly as the vehicle of choice in recent years. In the early 1980s, there were fewer than 1/4 as many lights trucks on the road as there were passenger cars; in 2002, they were more than 60% as numerous as cars. Since the spring of 2001, sales of new light trucks have exceeded those of cars, so the share of these trucks in the total stock of vehicles has surely expanded even more. Trucks tend to use more gasoline than cars, so the rising volume of truck traffic would point to more gasoline consumption.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040820b.jpg" width="353">
At the same time, even as energy consumption rises in the US, energy efficiency continues to increase. As evident in the second graph, the amount of GDP per unit of energy consumption (in this case, quadrillion BTUs) continues to increase. In the latest four quarters available, through Q1 this year, the gain was 3.4%, following even stronger yearly gains in the prior three quarters, averaging 4.6%. The graph further shows that energy efficiency has increased even when the price of oil has trended lower. So while the US economy is indeed a big user of energy, it is becoming more resourceful, helping to restrain the impact of energy prices on the economy. Carol Stone

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A piece of what is now "ancient" history: on December 10, 1998, the price of a barrel of West Texas Intermediate Crude oil was $10.73. Yesterday, it was $48.70. A page 1 story in today's Wall Street Journal highlights the role of [...]

Energy Prices Rise as World Demand Increases, But US Energy Efficiency Alleviates Some Impact

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040819c.jpg">
The Philadelphia Fed&#146;s index of general business conditions in the manufacturing sector moderated in the August survey, falling to 28.5 from 36.1 in July. The 8.2-point decrease was weaker than Consensus expectations for a marginal decline to 34.5.
Every one of the sub-indexes had a lower reading in August than in July, particularly new and unfilled orders; delivery times had a net negative index of -6.8.
The business conditions index reflects a separate survey question, not a weighted combination of the sub-indexes. Moreover, the August value at 28.5 is &quot;weak&quot; only relative to some prior months this year. The performance so far this year, which averages 30.5 in the first eight months, is among the highest recorded in the survey&#39;s 36-year history. In the accompanying graph, a horizontal line at that average shows how few occasions the survey has been able to sustain higher readings for more than a few months.
Further, the separate index of business conditions expected in six months turned upward sharply from 36.3 in July to 52.7 for this month.
The prices paid index rebounded after July&#39;s moderation. No details are collected on the source of price changes, but we&#39;d guess that energy costs are a major culprit. 54.7% of respondents reported increases in prices paid and only 1% experienced decreases. More companies than that had seen prices rise in earlier months this year, but this is the smallest number garnering price decreases in nearly four years.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally. The data are carried in Haver&#39;s &quot;SURVEYS&quot; database, along with an extensive collection of similar surveys by other Federal Reserve Banks.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0704.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Aug &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">General Activity Index</td>
<td>28.5</td>
<td>36.1</td>
<td>28.9</td>
<td>21.9</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
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<td class="firstcol">Prices Paid Index</td>
<td>53.7</td>
<td>46.3</td>
<td>51.9</td>
<td>14.4</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
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The Philadelphia Feds index of general business conditions in the manufacturing sector moderated in the August survey, falling to 28.5 from 36.1 in July. The 8.2-point decrease was weaker than Consensus expectations for a marginal [...]

Philadelphia Fed Index Moderates, But Still Strong Historically

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Michael J. Moran

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

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

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

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

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

Economy in Brief: August 2004

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