Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824c.jpg" width="353">
Sales of new single family home sales dropped 4.3% last month to 1.072M though a 0.9% June decline was revised shallower. Consensus expectations had been for July sales of 1.10M.
New home sales during the first seven months of this year fell 13.5% from the first seven months of 2005 and last month were 21.6% below the monthly peak last July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824d.jpg" width="353">
Sales in the Midwest fell the hardest last month, down 21.3% (-35.4% y/y). Sales in the South also fell 8.0% (-12.4% y/y). In the Northeast sales rose a slight 1.8% (-42.9% y/y) and sales out West recovered 11.7% (-23.4% y/y.
The number of new homes for sale rose 1.1% m/m in July and rose 22.4% y/y. The year to year breakdown by region is as follows: Northeast, 32.5%; West, 30.0%; South, 27.9%; Midwest, -1.0%.
The median sales price of a new single family home fell 1.6% to $230,000, down 10.5% from the April peak.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,072</td>
<td>1,120</td>
<td>-21.6%</td>
<td>1,280</td>
<td>1,201</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$230,000</td>
<td>$233,800</td>
<td>0.3%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
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Sales of new single family home sales dropped 4.3% last month to 1.072M though a 0.9% June decline was revised shallower. Consensus expectations had been for July sales of 1.10M. New home sales during the first seven months of this [...]

New Home Sales Down, Inventory Ballooned

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824c.jpg" width="353">
Sales of new single family home sales dropped 4.3% last month to 1.072M though a 0.9% June decline was revised shallower. Consensus expectations had been for July sales of 1.10M.
New home sales during the first seven months of this year fell 13.5% from the first seven months of 2005 and last month were 21.6% below the monthly peak last July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824d.jpg" width="353">
Sales in the Midwest fell the hardest last month, down 21.3% (-35.4% y/y). Sales in the South also fell 8.0% (-12.4% y/y). In the Northeast sales rose a slight 1.8% (-42.9% y/y) and sales out West recovered 11.7% (-23.4% y/y.
The number of new homes for sale rose 1.1% m/m in July and rose 22.4% y/y. The year to year breakdown by region is as follows: Northeast, 32.5%; West, 30.0%; South, 27.9%; Midwest, -1.0%.
The median sales price of a new single family home fell 1.6% to $230,000, down 10.5% from the April peak.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,072</td>
<td>1,120</td>
<td>-21.6%</td>
<td>1,280</td>
<td>1,201</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$230,000</td>
<td>$233,800</td>
<td>0.3%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
U.S. Durable Goods Firm Despite Volatile Aircraft 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824b.jpg" width="353">
New orders for durable goods backpedaled 2.4% last month after an upwardly revised 3.5% surge during June. Consensus expectations had been for a 0.5% dip.
Again, volatile orders for nondefense aircraft &amp; parts provided much of the volatility with a 10.0% (+0.75 y/y) drop following a 7.3% June rise. Orders for defense aircraft offset some of last month&#39;s decline with a 9.0% jump (29.0% y/y).
Orders for motor vehicle &amp; parts also were weak last month and fell 7.0% (-4.5% y/y).
Durable goods orders less the transportation sector altogether added 0.5% to a 2.2% July increase that was double the increase estimated initially.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824a.jpg" width="353">
Orders for nondefense capital goods added 0.2% to the upwardly revised 2.1% June gain. Less aircraft, July orders jumped 1.5% after a 1.4% spike the month earlier which was revised up from 0.4%. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Orders for computers &amp; electronic products surged 4.6% (18.0% y/y after a 6.7% June gain (revised from 3.4%). Computer orders jumped 9.1% (12.2% y/y) though orders for communications equipment fell 10.5% (+8.3% y/y). Machinery orders jumped again, by 1.9% (18.5% y/y), while orders for electrical equipment &amp; appliances slipped 0.7% (+14.8% y/y).
Shipments of durable goods dropped 1.3% (+7.9% y/y) though shipments less the transportation sector rose 0.6% (11.3% y/y). During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs rose 1.4% (20.1% y/y) as unfilled orders for nondefense aircraft &amp; parts rose another 1.4% (50.9% y/y). Unfilled orders less transportation nevertheless jumped 1.8% (16.2% y/y).
Durable inventories jumped 1.0% (5.4% y/y) and less the transportation sector, inventories also rose 0.9% (5.8% y/y). The inventory to sales ratio outside of the transportation sector rose slightly to its highest level since April.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>-2.4%</td>
<td>3.5%</td>
<td>9.7%</td>
<td>9.0%</td>
<td>6.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>0.5%</td>
<td>2.2%</td>
<td>14.6%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>0.2%</td>
<td>2.1%</td>
<td>11.1%</td>
<td>21.4%</td>
<td>5.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>1.5%</td>
<td>1.4%</td>
<td>13.1%</td>
<td>12.3%</td>
<td>2.8%</td>
<td>-2.0%</td>
</tr>
</tbody>
</table>
Initial Claims for Unemployment Insurance Dip 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824e.jpg" width="353">
Initial claims for jobless insurance last week dipped 1,000 to 313,000 after a revised 8,000 decline the prior week. Consensus expectations had been for 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims increased to 315,250 (-0.5% y/y).
Continuing claims for unemployment insurance fell 9,000 following a downwardly revised 28,000 increase during the previous week.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Has The Internet Increased Trade? from the American Enterprise Institute is available <a href="http://www.aei.org/publications/pubID.24818,filter.all/pub_detail.asp"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">8/19/06</th>
<th scope="col">8/12/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>313</td>
<td>314</td>
<td>-0.9%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,492</td>
<td>-3.6%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Poland Employment Gains; Unemployment Down, but Still Very High 
by <a href="/comment/Stone.html">Carol Stone</a> August 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824f.jpg" width="353">
Employment is rising in Europe, as we have noted frequently here recently. Poland, whose Central Statistical Office issued some July data today, is no exception. The enterprise sector saw an increase of 10,000 in July, following 18,000 in June, with an overall 3.3% gain from a year ago. This sector covers about half of Poland&#39;s private employment and about 34% of total employment. A cyclical downturn in 2003 and 2004 reduced the share of &quot;enterprise&quot; employment in the total, but that had stabilized by early this year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824g.jpg" width="353">
Jobs are increasing in every industry segment. Traditional &quot;industry&quot; -- mining, manufacturing and utilities -- has seen 2.6% growth over the past year. &quot;Other&quot;, a group we calculated as the sum of tourism, transportation, and business services, expanded by 3.4% and construction by 4.4%. &quot;Trade and repair&quot;, which includes wholesale and retail trade outlets, repair shops and motor vehicle service stations and repairs, has the largest increase, 4.7%, which amounts to 40,000 more jobs.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060824h.jpg" width="353">
The good employment picture notwithstanding, unemployment remains high in Poland. It was 15.9% (seasonally adjusted by Haver Analytics) in July. This is down from recent recessionary highs that hovered around 20%, but it is far higher than neighboring countries. Of the larger Central and Eastern European nations, only Slovakia (recently 10.6%) and Bulgaria (10%) have unemployment rates higher than 10%. Even Russia reports just 8% for July. So there would appear to be considerable room for expansion in the Polish economy, with about 2.5 million people to put to work, even on top of the most recent job growth. 

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@E9/@E96/@E96.HTM">Poland</a><a href="http://www.haverselect.com/dlx/EMERGECW/@E9/@E96/@E96.HTM">: NSA, Thous</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">July 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment in Enterprise Sector</td>
<td>4928</td>
<td>4918</td>
<td>4901</td>
<td>4772</td>
<td>4770</td>
<td>4681</td>
<td>4718</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industry</td>
<td>2484</td>
<td>2478</td>
<td>2471</td>
<td>2422</td>
<td>2426</td>
<td>2399</td>
<td>2408</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Construction</td>
<td>335</td>
<td>332</td>
<td>328</td>
<td>321</td>
<td>319</td>
<td>316</td>
<td>354</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade</td>
<td>897</td>
<td>899</td>
<td>898</td>
<td>857</td>
<td>859</td>
<td>818</td>
<td>805</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; All Other*</td>
<td>1212</td>
<td>1209</td>
<td>1204</td>
<td>1172</td>
<td>1166</td>
<td>1148</td>
<td>1151</td>
</tr>
<tr>
<td class="firstcol">Reg. Unemployment (SA)</td>
<td>2488</td>
<td>2531</td>
<td>2608</td>
<td>2862</td>
<td>2871</td>
<td>3091</td>
<td>3179</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Rate (SA, %)</td>
<td>15.9</td>
<td>16.2</td>
<td>16.6</td>
<td>18.2</td>
<td>18.2</td>
<td>19.5</td>
<td>19.9</td>
</tr>
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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/060823f.jpg" width="353">
 Japan&#39;s trade balance appears to have stabilized after a surge in petroleum imports cut it back last year. In July, the balance was &yen;800 billion, up from &yen;624 billion a year ago and an average of &yen;726 billion for 2005. Obviously, though, as the three months of data in the table below show, the balance moves around a good bit. But a six-month moving average makes the stabilization clearer, as illustrated in the first graph.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823g.jpg" width="353">
 The role of fuels imports in the erosion of the traditionally sizable Japanese trade surplus is indicated in the second graph. Since late 2004, right at half of the year-on-year yen increase in imports has come from &quot;mineral fuels&quot;. No other single major category has a significant share of the growth. At the same time, both petroleum and total imports have leveled out in the last few months, easing the pressure on the trade balance.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823h.jpg" width="353">
 Exports have also helped the trade balance. Also a bit erratic from month-to-month, foreign sales have picked up, with a 14.2% increase on the last year, nearly double the average growth in 2005. Several sectors have contributed, with good gains in machinery, non-automotive transport equipment and &quot;other&quot; exports. However, the biggest increase has been in motor vehicles, which are up a whopping 26.2% in July from July 2005. Details from the Ministry of Finance show that the number of passenger cars exported was a record last month, 569,000. This is an extraordinary development. The last time figures were nearly as high was in the mid-1980s, as seen in graph 3. At that time, Japanese makers produced a relatively small number of their cars in the US compared to the present and until just the last few months, truck sales have dominated motor vehicle demand, at least in the US. The move back to more fuel-efficient cars is well along, giving an ironic boost to the Japanese trade surplus.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J9/@J909/@J909.HTM">Japan, Bil.&yen;, Seas Adj.*</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">July 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>800</td>
<td>639</td>
<td>854</td>
<td>624</td>
<td>726</td>
<td>996</td>
<td>849</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>6335</td>
<td>6139</td>
<td>6124</td>
<td>5410</td>
<td>5471</td>
<td>5097</td>
<td>4546</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>3.2</td>
<td>0.2</td>
<td>1.3</td>
<td>14.2</td>
<td>7.3</td>
<td>12.1</td>
<td>4.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>5535</td>
<td>5499</td>
<td>5271</td>
<td>4786</td>
<td>4746</td>
<td>4101</td>
<td>3697</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.6</td>
<td>4.3</td>
<td>-6.9</td>
<td>16.8</td>
<td>15.7</td>
<td>10.9</td>
<td>5.1</td>
</tr>
</tbody>
</table>
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Japan's trade balance appears to have stabilized after a surge in petroleum imports cut it back last year. In July, the balance was ¥800 billion, up from ¥624 billion a year ago and an average of ¥726 billion for 2005. Obviously, [...]

Japan Trade Surplus Helped by More Car Exports, Flatter Oil Imports

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823b.jpg" width="353">
The number of mass layoff events in July increased 2.6% after a 2.1% gain during June. Despite the increases, layoff events during the first seven months of 2006 remained down 11.4% from the year earlier period.
During the last ten years there has been a (negative) 85% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected in July by mass layoffs fell 4.0% m/m and were 14.4% lower during the first seven months of 2006 versus last year.
Increased layoffs in manufacturing (-3.6% y/y) and in real estate (-17.4% y/y) dominated the increase in claimants for unemployment last month. Declines elsewhere were widespread.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Mass Layoffs</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">All US Industries (# Events, SA)</td>
<td>1,125</td>
<td>1,097</td>
<td>-9.9%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>114,895</td>
<td>119,662</td>
<td>-12.4%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
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The number of mass layoff events in July increased 2.6% after a 2.1% gain during June. Despite the increases, layoff events during the first seven months of 2006 remained down 11.4% from the year earlier period. During the last ten [...]

Mass Layoffs Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823c.jpg" width="353">
At -0.12 for July, the National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago was negative for the second month in the last three. Moreover, the three-month moving average of the CFNAI fell to 0.07, its lowest level in over a year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_August2006.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823d.jpg" width="353">
The Federal Reserve Bank of Richmond reported that its August Composite Index from the manufacturing survey at 3 was at its lowest level since May. During the last ten years there has been a 38% correlation between the diffusion index level and the one month change in U.S. manufacturing industrial production. The August report can be found <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm">here</a>.
The Richmond Fed&#39;s survey of the service sector, conversely, improved. In August, the percentage of firms reporting increasing revenues returned to positive territory and the percentage of employees was at its highest in a year. The latest report is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.12</td>
<td>0.43</td>
<td>0.10</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
</body>
</html>

At -0.12 for July, the National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago was negative for the second month in the last three. Moreover, the three-month moving average of the CFNAI fell to 0.07, its lowest level [...]

Chicago Fed Nat'l Activity & Richmond Fed Mfg. Indexes Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823a.jpg" width="353">
The total number of mortgage applications ticked up 0.1% last week after firms gains during the prior two weeks. As a result of the earlier increases, the average level of applications in August is up 3.0% from July.
Again, recent gains were led by higher applications to refinance which rose 1.3% for the fifth consecutive weekly increase. Refis in August are 12.6% higher than in July.
Moving in the other direction, purchase applications fell 1.0% last week for the fifth decline in the last six weeks. Purchase apps in August are 2.9% below the July average.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage fell sharply to 6.58% from 6.73% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell ten basis points to 6.32% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
A Trend and Variance Decomposition of the Rent-Price Ratio in Housing Markets from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200629/200629abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/18/06</th>
<th scope="col">08/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>561.5</td>
<td>561.2</td>
<td>-25.7%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>382.2</td>
<td>385.9</td>
<td>-21.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,608.5</td>
<td>1,587.5</td>
<td>-30.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications ticked up 0.1% last week after firms gains during the prior two weeks. As a result of the earlier increases, the average level of applications in August is up 3.0% from July. Again, recent [...]

Mortgage Applications Lackluster, Rates Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823e.jpg" width="353">
 The National Association of Realtors reported that total existing home sales fell 4.1% during July to 6.330M, the fourth consecutive m/m decline. The decline compared to Consensus expectations for a lesser decline to 6.55M.
Sales of single-family homes fell 5.0%, the sixth m/m decline this year. Versus the first seven months of 2005 sales this year are down 5.4%.
The data cover sales closed in the latest and previous months and contrast to the new home sales data which count sales at the signing of a contract.
Sales in the Northeast fell 8.5% m/m (-12.8% y/y) and in the Midwest sales fell 6.7% (-11.3% y/y). In the South sales slipped 2.1% (-6.9% y/y) and in the West (-14.1% y/y) sales dropped 6.3% (-18.4% y/y).
The median price of an existing single-family home ticked up 0.5% m/m and prior year&#39;s figures were revised up. The price figures are not seasonally adjusted.
The inventory of unsold existing homes surged another 3.2% (39.9% y/y). The supply of unsold single family homes rose 2.5% (40.4% y/y) and the supply of condos &amp; coops for sale rose 7.3% m/m (36.9% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
Reflections on monetary policy: Flexibility, transparency and inflation from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflseptember2006_230.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/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">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>&nbsp;6,330</td>
<td>6,600</td>
<td>-11.2%</td>
<td>7,064</td>
<td>6,722</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>5,510</td>
<td>5,800</td>
<td>-11.4%</td>
<td>6,170</td>
<td>5,912</td>
<td>5,443</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price (000) </td>
<td>$231.2 </td>
<td>$230.1 </td>
<td>1.5% </td>
<td>$217.5</td>
<td>$192.8 </td>
<td>$178.3 </td>
</tr>
</tbody>
</table>


</html>

The National Association of Realtors reported that total existing home sales fell 4.1% during July to 6.330M, the fourth consecutive m/m decline. The decline compared to Consensus expectations for a lesser decline to 6.55M. Sales of [...]

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/060823e.jpg" width="353">
 The National Association of Realtors reported that total existing home sales fell 4.1% during July to 6.330M, the fourth consecutive m/m decline. The decline compared to Consensus expectations for a lesser decline to 6.55M.
Sales of single-family homes fell 5.0%, the sixth m/m decline this year. Versus the first seven months of 2005 sales this year are down 5.4%.
The data cover sales closed in the latest and previous months and contrast to the new home sales data which count sales at the signing of a contract.
Sales in the Northeast fell 8.5% m/m (-12.8% y/y) and in the Midwest sales fell 6.7% (-11.3% y/y). In the South sales slipped 2.1% (-6.9% y/y) and in the West (-14.1% y/y) sales dropped 6.3% (-18.4% y/y).
The median price of an existing single-family home ticked up 0.5% m/m and prior year&#39;s figures were revised up. The price figures are not seasonally adjusted.
The inventory of unsold existing homes surged another 3.2% (39.9% y/y). The supply of unsold single family homes rose 2.5% (40.4% y/y) and the supply of condos &amp; coops for sale rose 7.3% m/m (36.9% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
Reflections on monetary policy: Flexibility, transparency and inflation from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflseptember2006_230.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/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">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>&nbsp;6,330</td>
<td>6,600</td>
<td>-11.2%</td>
<td>7,064</td>
<td>6,722</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>5,510</td>
<td>5,800</td>
<td>-11.4%</td>
<td>6,170</td>
<td>5,912</td>
<td>5,443</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price (000) </td>
<td>$231.2 </td>
<td>$230.1 </td>
<td>1.5% </td>
<td>$217.5</td>
<td>$192.8 </td>
<td>$178.3 </td>
</tr>
</tbody>
</table>
Mortgage Applications Lackluster, Rates Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823a.jpg" width="353">
The total number of mortgage applications ticked up 0.1% last week after firms gains during the prior two weeks. As a result of the earlier increases, the average level of applications in August is up 3.0% from July.
Again, recent gains were led by higher applications to refinance which rose 1.3% for the fifth consecutive weekly increase. Refis in August are 12.6% higher than in July.
Moving in the other direction, purchase applications fell 1.0% last week for the fifth decline in the last six weeks. Purchase apps in August are 2.9% below the July average.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage fell sharply to 6.58% from 6.73% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell ten basis points to 6.32% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
A Trend and Variance Decomposition of the Rent-Price Ratio in Housing Markets from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200629/200629abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/18/06</th>
<th scope="col">08/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>561.5</td>
<td>561.2</td>
<td>-25.7%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>382.2</td>
<td>385.9</td>
<td>-21.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,608.5</td>
<td>1,587.5</td>
<td>-30.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity & Richmond Fed Mfg. Indexes Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823c.jpg" width="353">
At -0.12 for July, the National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago was negative for the second month in the last three. Moreover, the three-month moving average of the CFNAI fell to 0.07, its lowest level in over a year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_August2006.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823d.jpg" width="353">
The Federal Reserve Bank of Richmond reported that its August Composite Index from the manufacturing survey at 3 was at its lowest level since May. During the last ten years there has been a 38% correlation between the diffusion index level and the one month change in U.S. manufacturing industrial production. The August report can be found <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm">here</a>.
The Richmond Fed&#39;s survey of the service sector, conversely, improved. In August, the percentage of firms reporting increasing revenues returned to positive territory and the percentage of employees was at its highest in a year. The latest report is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.12</td>
<td>0.43</td>
<td>0.10</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
Mass Layoffs Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823b.jpg" width="353">
The number of mass layoff events in July increased 2.6% after a 2.1% gain during June. Despite the increases, layoff events during the first seven months of 2006 remained down 11.4% from the year earlier period.
During the last ten years there has been a (negative) 85% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected in July by mass layoffs fell 4.0% m/m and were 14.4% lower during the first seven months of 2006 versus last year.
Increased layoffs in manufacturing (-3.6% y/y) and in real estate (-17.4% y/y) dominated the increase in claimants for unemployment last month. Declines elsewhere were widespread.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Mass Layoffs</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">All US Industries (# Events, SA)</td>
<td>1,125</td>
<td>1,097</td>
<td>-9.9%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>114,895</td>
<td>119,662</td>
<td>-12.4%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
</tbody>
</table>
Japan Trade Surplus Helped by More Car Exports, Flatter Oil Imports 
by <a href="/comment/Stone.html">Carol Stone</a> August 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823f.jpg" width="353">
 Japan&#39;s trade balance appears to have stabilized after a surge in petroleum imports cut it back last year. In July, the balance was &yen;800 billion, up from &yen;624 billion a year ago and an average of &yen;726 billion for 2005. Obviously, though, as the three months of data in the table below show, the balance moves around a good bit. But a six-month moving average makes the stabilization clearer, as illustrated in the first graph.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823g.jpg" width="353">
 The role of fuels imports in the erosion of the traditionally sizable Japanese trade surplus is indicated in the second graph. Since late 2004, right at half of the year-on-year yen increase in imports has come from &quot;mineral fuels&quot;. No other single major category has a significant share of the growth. At the same time, both petroleum and total imports have leveled out in the last few months, easing the pressure on the trade balance.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823h.jpg" width="353">
 Exports have also helped the trade balance. Also a bit erratic from month-to-month, foreign sales have picked up, with a 14.2% increase on the last year, nearly double the average growth in 2005. Several sectors have contributed, with good gains in machinery, non-automotive transport equipment and &quot;other&quot; exports. However, the biggest increase has been in motor vehicles, which are up a whopping 26.2% in July from July 2005. Details from the Ministry of Finance show that the number of passenger cars exported was a record last month, 569,000. This is an extraordinary development. The last time figures were nearly as high was in the mid-1980s, as seen in graph 3. At that time, Japanese makers produced a relatively small number of their cars in the US compared to the present and until just the last few months, truck sales have dominated motor vehicle demand, at least in the US. The move back to more fuel-efficient cars is well along, giving an ironic boost to the Japanese trade surplus.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J9/@J909/@J909.HTM">Japan, Bil.&yen;, Seas Adj.*</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">July 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>800</td>
<td>639</td>
<td>854</td>
<td>624</td>
<td>726</td>
<td>996</td>
<td>849</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>6335</td>
<td>6139</td>
<td>6124</td>
<td>5410</td>
<td>5471</td>
<td>5097</td>
<td>4546</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>3.2</td>
<td>0.2</td>
<td>1.3</td>
<td>14.2</td>
<td>7.3</td>
<td>12.1</td>
<td>4.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>5535</td>
<td>5499</td>
<td>5271</td>
<td>4786</td>
<td>4746</td>
<td>4101</td>
<td>3697</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.6</td>
<td>4.3</td>
<td>-6.9</td>
<td>16.8</td>
<td>15.7</td>
<td>10.9</td>
<td>5.1</td>
</tr>
</tbody>
</table>


</html>

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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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.

250501Z2.jpg

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

250501Z3.jpg

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

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

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

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250430Q1.jpg

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

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

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

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250430S1.jpg

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

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

Michael J. Moran

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250430B.jpg

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

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

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

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

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250430D.jpg

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

Personal Income, Consumption, and Prices in March

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

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

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

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

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

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

U.S. Pending Home Sales Surge in March

Sandy Batten

250430F5.jpg

250430G5.jpg

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

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

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

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

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

250430H5.jpg

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

Economy in Brief: August 2006

Jump to:

New Home Sales Down, Inventory Ballooned

New Home Sales Down, Inventory Ballooned

Japan Trade Surplus Helped by More Car Exports, Flatter Oil Imports

Mass Layoffs Up Again

Chicago Fed Nat'l Activity & Richmond Fed Mfg. Indexes Down

Mortgage Applications Lackluster, Rates Down

U.S. Existing Home Sales Down

U.S. Existing Home Sales Down