Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824a.jpg" width="353">
New orders for durable goods during July gained an impressive 5.9% and the gain during the prior month was revised up slightly to 1.9%. Consensus expectations had been for a 2.0% rise in orders for last month.
During the last ten years there has been a 67% correlation between the y/y change in durable goods orders and the change in production of durable goods.
The rise in new orders less the transportation category for July, however, was a less impressive 1.3% ... less impressive especially since it followed a 2.5% flop in June.
Changing new orders for motor vehicles &amp; parts caused much of this volatility with a 9.8% rise last month after a 0.7% decline during June. And the aircraft sector got into the act with a 13.0% rise last month which was roughly a third of the 31.4% spike during June. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824b.jpg" width="353">
Orders for nondefense capital goods rose 5.8% during July following the 6.4% June increase which was revised up slightly. (Orders in May fell 6.8%.) Still, excluding aircraft &amp; parts July orders rose a modest 2.2% following two months of decline The y/y change is roughly zero. During the last ten years there has been an 84% 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 also have been volatile. They rose 7.4% (+1.8% y/y) after a little revised 2.8% June decline. Orders for just computers &amp; related products fell 4.0% (-8.4% y/y) for the second month of sharp decline. Primary metals orders rose 7.9% (-0.5% y/y) but that only lifted orders back about to where they were in March. And electrical equipment orders fell for the third consecutive month (+0.2% y/y). Machinery orders were the strongest area with a 5.5% (4.4% y/y) increase following a 3.4% June gain.
Shipments of durable goods rose 3.8% (4.2% y/y) after a 1.1% June slip. Less the transportation sector, shipments made up declines during the prior two months with a 1.9% (1.3% y/y) increase. 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. The July increase less transportation amounted to 1.9% (1.3% y/y).

<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/@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">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>5.9%</td>
<td>1.9%</td>
<td>8.1%</td>
<td>6.3%</td>
<td>9.9%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>1.3%</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>7.6%</td>
<td>8.8%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>5.8%</td>
<td>6.4%</td>
<td>14.2%</td>
<td>10.6%</td>
<td>17.1%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>2.2%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>8.5%</td>
<td>11.1%</td>
<td>3.2%</td>
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New orders for durable goods during July gained an impressive 5.9% and the gain during the prior month was revised up slightly to 1.9%. Consensus expectations had been for a 2.0% rise in orders for last month. During the last ten [...]

U.S. Durable Goods Orders Better Due To Transportation

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824g.jpg" width="353">
GDP steady Y/Y up Q/Q on stronger private consumption. 
UK trends are more or less in tact with the release of the Q2 GDP report. Both exports and imports are sharply lower owing to a boost in both flows in Q1 2006. Quarterly trade flows show that exports are lagging a bit more in their recovery compared to imports. Private consumption is still strong, unlike on the continent. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK GDP
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="2">&nbsp;</td>
<td colspan="2">Consumption</td>
<td colspan="2">Capital Formation</td>
<td>3COLSPAN</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Total</td>
<td>Housing</td>
<td>Exports</td>
<td>Imports</td>
<td>Domestic Demand</td>
</tr>
<tr class="grey2">
<td colspan="9">% change Q/Q; X-M is Q/Q change in Blns of euros</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>3.4%</td>
<td>3.0%</td>
<td>3.2%</td>
<td>-4.3%</td>
<td>#N/A</td>
<td>-4.0%</td>
<td>-1.7%</td>
<td>3.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>2.8%</td>
<td>1.9%</td>
<td>2.2%</td>
<td>4.5%</td>
<td>16.0%</td>
<td>-3.3%</td>
<td>-2.6%</td>
<td>2.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-06</td>
<td>3.3%</td>
<td>4.4%</td>
<td>1.8%</td>
<td>13.1%</td>
<td>-11.4%</td>
<td>-1.4%</td>
<td>-3.0%</td>
<td>2.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-06</td>
<td>2.8%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>8.7%</td>
<td>8.4%</td>
<td>-38.5%</td>
<td>-39.8%</td>
<td>0.3%</td>
</tr>
<tr class="grey2">
<td colspan="9">% change Yr/Yr; X-M is Yr/Yr change in Gap in Blns of euros</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>3.0%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>5.3%</td>
<td>#N/A</td>
<td>-13.4%</td>
<td>-13.5%</td>
<td>2.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>3.0%</td>
<td>2.9%</td>
<td>1.1%</td>
<td>8.9%</td>
<td>6.7%</td>
<td>-11.6%</td>
<td>-9.8%</td>
<td>3.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-06</td>
<td>3.1%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>9.8%</td>
<td>5.0%</td>
<td>-1.1%</td>
<td>0.1%</td>
<td>3.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-06</td>
<td>3.0%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>7.8%</td>
<td>12.6%</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">5-Yrs</td>
<td>2.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>4.3%</td>
<td>#N/A</td>
<td>3.1%</td>
<td>3.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
German Export and Import Prices Misbehave as Domestic Trends Turn Lower Too 
by <a href="/comment/Brusca.html">Robert Brusca</a> August 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824f.jpg" width="353">
Longer view shows price pressures dissipating in Germany. 
On the month, German export and import prices were subdued but over three months some pressures are evident. But broader year-over-year trends do seem to have turned a corner. Excluding petroleum export and import prices are moving lower: fast for imports, slower for exports. Domestically, producer prices excluding energy are ever so gradually losing momentum, while consumer prices are slow in showing declines after having stepped up their pace sharply early in 2007. Internationally, excluding petroleum, trends are generally milder than their domestic counterparts.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German International and Domestic Inflation Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M % Change</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">SA</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Export Prices</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.6%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Import Prices</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.5%</td>
<td>6.9%</td>
<td>5.6%</td>
<td>0.4%</td>
<td>6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">NSA</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Exports ex Petrol</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Imports ex Petrol</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-1.5%</td>
<td>0.0%</td>
<td>0.6%</td>
<td>4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: SA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">CPI</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>1.8%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">CPI ex energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">PPI ex energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>3.0%</td>
</tr>
</tbody>
</table>
Borrowing at the Fed:  Some Arithmetic 
by <a href="/comment/Stone.html">Carol Stone</a> August 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824e.jpg" width="353">
A further clarification on the borrowings data reported late yesterday by the Federal Reserve. There&#39;s some confusion over whether any banks borrowed earlier in the week or if it was just the four large banks who announced they were borrowing on Wednesday.
The Fed&#39;s &quot;Factors Affecting Bank Reserves&quot; H.4.1 release includes two measures for these factors, the daily average for the 7-day week ended each Wednesday and the amount outstanding on Wednesday at the close of business. The average amount of &quot;Primary Credit&quot; for the entire week ended August 22 was $1,200 million. The amount outstanding Wednesday night was $2,001 million. The Fed doesn&#39;t publish these figures for each day. We can, though, use the ones we have to address the general question, was there borrowing before Wednesday?
Take the $1,200 million average for the week. Multiply by 7 to obtain the aggregate amount of daily borrowing for the whole week; this is $8,400 million. Subtract the amount outstanding Wednesday night, $2,001 million, leaving $6,399 million. Divide this by the remaining days of the week, 6, and see that there indeed was an average $1,067 million every day before Wednesday. This is a not inconsiderable amount, given that there had been only $11 million of primary credit on average during the week before. We have no idea what days saw the most, who those borrowers might have been or even what Fed district they are in. But there was in fact noticeable borrowing prior to Wednesday and it looks to us that it was large enough that it probably came from a number of institutions.

U.S. Durable Goods Orders Better Due To Transportation 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824a.jpg" width="353">
New orders for durable goods during July gained an impressive 5.9% and the gain during the prior month was revised up slightly to 1.9%. Consensus expectations had been for a 2.0% rise in orders for last month.
During the last ten years there has been a 67% correlation between the y/y change in durable goods orders and the change in production of durable goods.
The rise in new orders less the transportation category for July, however, was a less impressive 1.3% ... less impressive especially since it followed a 2.5% flop in June.
Changing new orders for motor vehicles &amp; parts caused much of this volatility with a 9.8% rise last month after a 0.7% decline during June. And the aircraft sector got into the act with a 13.0% rise last month which was roughly a third of the 31.4% spike during June. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824b.jpg" width="353">
Orders for nondefense capital goods rose 5.8% during July following the 6.4% June increase which was revised up slightly. (Orders in May fell 6.8%.) Still, excluding aircraft &amp; parts July orders rose a modest 2.2% following two months of decline The y/y change is roughly zero. During the last ten years there has been an 84% 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 also have been volatile. They rose 7.4% (+1.8% y/y) after a little revised 2.8% June decline. Orders for just computers &amp; related products fell 4.0% (-8.4% y/y) for the second month of sharp decline. Primary metals orders rose 7.9% (-0.5% y/y) but that only lifted orders back about to where they were in March. And electrical equipment orders fell for the third consecutive month (+0.2% y/y). Machinery orders were the strongest area with a 5.5% (4.4% y/y) increase following a 3.4% June gain.
Shipments of durable goods rose 3.8% (4.2% y/y) after a 1.1% June slip. Less the transportation sector, shipments made up declines during the prior two months with a 1.9% (1.3% y/y) increase. 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. The July increase less transportation amounted to 1.9% (1.3% y/y).

<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/@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">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>5.9%</td>
<td>1.9%</td>
<td>8.1%</td>
<td>6.3%</td>
<td>9.9%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>1.3%</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>7.6%</td>
<td>8.8%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>5.8%</td>
<td>6.4%</td>
<td>14.2%</td>
<td>10.6%</td>
<td>17.1%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>2.2%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>8.5%</td>
<td>11.1%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
New Home Sales and Prices Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824d.jpg" width="353">
July new home sales increased 2.8% from June to 870,000 following a 4.0% drop during June which was less than reported initially. 
The sales increase during July owed mostly to a 22.4% (-19.6% y/y) gain in sales in the West. Sales also rose 0.6% (-3.0% y/y) in the South but in the Northeast sales fell 24.3% (11.7 y/y) after a similar drop during June. In the Midwest sales fell 0.9% (-18.2% y/y) after a whopping 21.5% decline during June.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824c.jpg" width="353">
The inventory of unsold homes fell 0.9% (-7.0% y/y) after three months of steady decline.
The median new home price rose 3.9% (+0.6% y/y) after three months of hard decline during which the June decline was deepened to -4.6% m/m.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US New Homes</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales (SAAR, 000s)</td>
<td>870</td>
<td>846</td>
<td>-10.2%</td>
<td>1,049</td>
<td>1,279</td>
<td>1,201</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA, $)</td>
<td>239,500</td>
<td>230,600</td>
<td>0.6%</td>
<td>241,125</td>
<td>234,208</td>
<td>217,817</td>
</tr>
</tbody>
</table>
</body>
</html>

GDP steady Y/Y up Q/Q on stronger private consumption. UK trends are more or less in tact with the release of the Q2 GDP report. Both exports and imports are sharply lower owing to a boost in both flows in Q1 2006. Quarterly trade [...]

Yr/Yr UK GDP Growth Holds Steady

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/070823h.jpg" width="353">
Financial markets have been in a &quot;liquidity crisis&quot;. Weekly Federal Reserve data reported just this afternoon and also earlier today give several measures of this for the US and highlight what the Federal Reserve and bankers are trying to do about it. Some evidence is shown in the graph of interest rates here. In the paragraph below, we discuss the discount and fed funds rates. Also, of late, there have been divergent moves in key money rates, such as LIBOR, which has risen and Treasury bills, which have plunged. Investors with that scarce commodity &quot;cash&quot; want to keep it safe and have poured substantial sums into the shortest most liquid asset of all, Treasury bills, while users of ordinarily highly liquid money markets have found themselves paying a premium.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823i.jpg" width="353">
As conditions such as this worsened last Friday, the Federal Reserve Board reduced the discount rate by 50 basis points, cutting the spread between it and the federal funds rate. The Fed encouraged banks to borrow at the central bank, trying to tell them there would be no stigma attached to doing so. Today&#39;s weekly report on &quot;factors affecting reserves&quot;, the Fed&#39;s H.4.1 release, shows that this pushed so-called &quot;primary credit&quot; at Federal Reserve Banks to a daily average of $1,200 million, the largest amount since the aftermath of September 11, 2001. The other notable figure in the table below is &quot;secondary credit&quot;. Banks with more serious problems can borrow under more liberal terms if they pay a premium rate higher still than the discount rate. While the amount of these borrowings last week was small, $85 million per day, this borrowing hardly ever occurs at all; the last instance was $21 million in the week of March 14 and before that $152 million October 5, 2005. These borrowings inject funds into the banking system, and while only banks can go to the discount window, these monies are surely helping them funds their own customers.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823j.jpg" width="353">
And why might their customers need funding? Among other needs, many of them have been cut out of the commercial paper market. We spoke here a couple of weeks ago about asset-backed commercial paper, which is used as a short-term source of funds by issuers of MBS and ABS securities while they prepare packages of securities for sale in the bond market or meet other liquidity needs. We mentioned then that this paper had become larger in total than paper issued by traditional corporate and finance company borrowers and indicated that it was likely imparting risk to commercial paper that would be unusual for this market sector. No sooner were the words out of our computer than that market seized up. Just how much is plain in the chart here. It&#39;s amazing. Haver&#39;s quality-assurance programs that pick up out-liers in data, warning database managers that something may be wrong with the figures, found this one. There was no mistake, though. A market that had been growing by $4 billion a week shrank by $125 billion over two weeks.
Some markets, such as stocks, seem to be settling just a bit from the recent turmoil. Certainly the Federal Reserve is trying to get money to places where it is needed and banks, whose basic function of making loans to borrowers had seemed to be diminishing in importance relative to their trading and asset/liability management activities, have found once again their key roles as financial intermediaries.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Million $</th>
<th scope="col">8/22/07</th>
<th scope="col">8/15/07</th>
<th scope="col">8/08/07</th>
<th scope="col">July 2007</th>
<th scope="col">Jan-June 2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Loans to Deposit Institutions</td>
<td>1,541</td>
<td>271</td>
<td>251</td>
<td>258</td>
<td>110</td>
<td>225</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Primary</td>
<td>1,200</td>
<td>11</td>
<td>1</td>
<td>52</td>
<td>52</td>
<td>59</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Secondary</td>
<td>85</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>1</td>
<td>0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Seasonal</td>
<td>256</td>
<td>260</td>
<td>249</td>
<td>206</td>
<td>56</td>
<td>166</td>
</tr>
<tr>
<td colspan="7">Percent</td>
</tr>
<tr class="odd">
<td class="firstcol">Fed Funds Rate</td>
<td>4.91</td>
<td>4.79</td>
<td>5.25</td>
<td>5.26</td>
<td>5.25</td>
<td>4.96</td>
</tr>
<tr class="odd">
<td class="firstcol">Discount Rate</td>
<td>5.82</td>
<td>6.25</td>
<td>6.25</td>
<td>6.25</td>
<td>6.25</td>
<td>5.96</td>
</tr>
<tr>
<td colspan="7">Seas. Adj. Bil. $</td>
</tr>
<tr class="odd">
<td class="firstcol">Commercial Paper--Total </td>
<td>2,042.2</td>
<td>2,132.4</td>
<td>2,223.5</td>
<td>2,191.5</td>
<td>2,045.8</td>
<td>1,798.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Asset-Backed</td>
<td>1,057.4</td>
<td>1,134.5</td>
<td>1,182.9</td>
<td>1,167.7</td>
<td>1,080.1</td>
<td>931.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Weekly Change</td>
<td>-77.1</td>
<td>-48.4</td>
<td>+2.1</td>
<td>+6.7</td>
<td>+4.2</td>
<td>+4.0</td>
</tr>
</tbody>
</table>
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Financial markets have been in a "liquidity crisis". Weekly Federal Reserve data reported just this afternoon and also earlier today give several measures of this for the US and highlight what the Federal Reserve and bankers are [...]

Borrowings at the Federal Reserve Largest in 6 Years; Big Drops in Commercial Paper Outstanding

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823e.jpg" width="353">
For all the media hype regarding the &quot;subprime&quot; loan issuance problem, the latest data issued by the Federal Reserve Board for 2Q07 indicate only slight increases in delinquent payments on consumer, real estate and commercial &amp; industrial loans at commercial banks.
Even if delinquencies rise further this quarter (which they probably will), the levels are still quite low absolutely and relative to historical comparison, i.e., relative to the late 1980s and the early 1990s.
For all loans and leases, the delinquency rate increased to 1.86% during the second quarter from 1.72% during 1Q07. That level is up versus 1.57% during the prior two years but, still, it is only a third of the delinquency rate during the last two recessions.
The rise in delinquent payments on residential real estate loans indeed is more dramatic to 2.28% from 2.07% in 1Q07. It is equal to where it was during the last recession. Yet these figures are below the high seen in 1991 of 3.32%. Again, these comments await the update for this quarter.
For consumer loans, the delinquency rate rose to 3.02% from 2.98% during 1Q. That&#39;s up from the 2005 low of 2.82%, but down from the highs during the last two recessions. It&#39;s lower even than the 3.75% range that prevailed during the late 1990s expansion.
Delinquencies on C&amp;I loans actually fell q/q to 1.17% from 1.18% during 1Q. Delinquent C&amp;I loans last year averaged 1.27% of the total outstanding.
These data series are available in Haver&#39;s USECON database.
Subprime Mortgages is recent Congressional testimony delivered by Sandra F. Braunstein of the Federal Reserve Board and it is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2007/20070327/default.htm"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823f.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823g.jpg" width="353">

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For all the media hype regarding the "subprime" loan issuance problem, the latest data issued by the Federal Reserve Board for 2Q07 indicate only slight increases in delinquent payments on consumer, real estate and commercial & [...]

U.S. Loan Delinquencies Up Slightly, But Still Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823d.jpg" width="353">
Germany is a much more export oriented economy than is the United States. With the formation of the EMU, Germany was helped by having a large proportion of its trade no longer subject to foreign exchange fluctuations. Goods sold outside Germany are still exports, but if they are sold to EMU members the currency of the transaction does not change.
German private consumption is only 55% of German GDP. Compared to the US where personal consumption is over 70% of GDP.Also German exports are 49% of GDP whereas in the US exports of goods and service are only about 11% of GDP. The German economy has a structure very different from the US. Still at 55% of GDP the German economy needs to get the consumer involved to have its expansion last. Germany&#146;s economy is being carried by its export strength compared to weaker imports and strong business capital formation. But it will need more for the expansion to endure. Germany like many other EMU countries continues to show that order demand outside the country is much stronger than within. Overall orders remain strong for Germany and France. For the time being the expansion still seems to be in place. But it must broaden. The risk cited recently in the Zew survey is that confidence may have been hurt by financial turmoil. This remains something to be on the look-out for in Germany as well as throughout the Euro area.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German GDP
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td> GDP</td>
<td> Private Consumption</td>
<td> Public Consumption</td>
<td> Total Capital Formation</td>
<td> Housing</td>
<td> Exports</td>
<td> Imports</td>
<td> Domestic Demand</td>
</tr>
<tr class="odd">
<td colspan="9"> % change Q/Q; X-M is Q/Q change in billions of chained 2000 euros</td>
</tr>
<tr>
<td class="firstcol">Q2-07</td>
<td>1.0%</td>
<td>2.5%</td>
<td>-0.7%</td>
<td>10.3%</td>
<td>-18.0%</td>
<td>3.6%</td>
<td>-3.5%</td>
<td>-2.2%</td>
</tr>
<tr>
<td class="firstcol">Q1-07</td>
<td>2.2%</td>
<td>-7.0%</td>
<td>6.9%</td>
<td>15.7%</td>
<td>5.8%</td>
<td>-1.2%</td>
<td>8.7%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">Q4-06</td>
<td>4.0%</td>
<td>3.4%</td>
<td>0.0%</td>
<td>10.8%</td>
<td>6.2%</td>
<td>23.0%</td>
<td>5.4%</td>
<td>-3.6%</td>
</tr>
<tr>
<td class="firstcol">Q3-06</td>
<td>3.0%</td>
<td>1.4%</td>
<td>2.1%</td>
<td>-2.4%</td>
<td>8.0%</td>
<td>13.9%</td>
<td>14.9%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td colspan="9"> % change Yr/Yr; X-M is Yr/Yr change in Gap in billions of chained 2000 euros</td>
</tr>
<tr>
<td class="firstcol">Q2-07</td>
<td>2.5%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>8.4%</td>
<td>-0.1%</td>
<td>9.4%</td>
<td>6.2%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">Q1-07</td>
<td>3.6%</td>
<td>-0.5%</td>
<td>2.1%</td>
<td>11.7%</td>
<td>12.7%</td>
<td>10.4%</td>
<td>7.9%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Q4-06</td>
<td>3.9%</td>
<td>2.2%</td>
<td>0.9%</td>
<td>7.1%</td>
<td>6.6%</td>
<td>16.1%</td>
<td>9.7%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">Q3-06</td>
<td>3.2%</td>
<td>0.6%</td>
<td>0.8%</td>
<td>9.4%</td>
<td>7.2%</td>
<td>11.6%</td>
<td>11.0%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">5-Yrs</td>
<td>1.3%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>5.8%</td>
<td>-0.7%</td>
<td>7.8%</td>
<td>6.9%</td>
<td>0.7%</td>
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</tbody>
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Germany is a much more export oriented economy than is the United States. With the formation of the EMU, Germany was helped by having a large proportion of its trade no longer subject to foreign exchange fluctuations. Goods sold [...]

German GDP Rebound Still Not Supported by the Consumer

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823c.jpg" width="353">
The BNB index fell to 3.3 in August from 4.2 in July and, along with the German Zew index, it gives us a signal of softening activity in the Euro area. However the decline in the index is not severe and the Belgian metric continues to signal small gains year-over-year. There is no evidence of financial contagion here.
This index does not apply to one of the large Euro countries, but it is an actual survey of industry respondents not just of financial experts, unlike Germany&#146;sZew Index. Also it is available earlier than most major Euro area country surveys. And those are the reasons we are attracted to it. Since Belgium is well-integrated into the EU and is a relatively small economy its activity tends to reflect that of its larger neighbors. Not surprisingly this report is treated as a harbinger of sorts for the upcoming EU and German surveys.
Viewed in that way the Belgian index&#146;s slide is not very severe. The Zew index in Germany fell by more partly because it is executed on a survey of financial experts who might see trouble coming before it hits real data or who might exaggerate the importance of a financial disruption to the real economy. At this point, we do not know if Zew respondents are prescient or lacking in staying power. In truth neither do we really know how widespread disruptions will get or even how widespread they ARE. But the BNB Survey says as of this time the slowdown is minor &#150; at least in Belgium.
This survey like others before it and others for other Euro area member countries, displays weaker domestic than foreign orders. This has become a Euro area theme of sorts. And while the total order assessment is lower than a year ago, foreign orders are assessed stronger. Wholesaling and retailing in Belgium continue to climb even though the joint sector reading is lower on a year/year basis. On balance Belgium does not seem much affected by the financial turmoil. On the other hand it is not clear how much turmoil had been underway at the time respondents filled in their surveys. Contagion is something we will continue to watch for over the next several months at least. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Belgium National Bank Indices
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Mo Change</td>
<td>6-Mo Change</td>
<td>12-Mo Change</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Industry</td>
<td>3.3</td>
<td>4.2</td>
<td>5.5</td>
<td>-0.6</td>
<td>-0.2</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>2.8</td>
<td>4.5</td>
<td>6.5</td>
<td>-1.1</td>
<td>0.8</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Production</td>
<td>4.0</td>
<td>4.0</td>
<td>8.0</td>
<td>-1.0</td>
<td>-2.0</td>
<td>-2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Orders</td>
<td>1.0</td>
<td>-2.0</td>
<td>5.0</td>
<td>-3.0</td>
<td>-7.0</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Orders</td>
<td>9.0</td>
<td>14.0</td>
<td>11.0</td>
<td>6.0</td>
<td>2.0</td>
<td>10.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices</td>
<td>2.0</td>
<td>7.0</td>
<td>13.0</td>
<td>-5.0</td>
<td>-9.0</td>
<td>-9.0</td>
</tr>
<tr>
<td colspan="7">Current Assets</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total Orders</td>
<td>0.0</td>
<td>2.0</td>
<td>3.0</td>
<td>-4.0</td>
<td>0.0</td>
<td>-4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign Orders</td>
<td>2.0</td>
<td>4.0</td>
<td>4.0</td>
<td>1.0</td>
<td>5.0</td>
<td>-1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Inventories</td>
<td>0.0</td>
<td>-3.0</td>
<td>-7.0</td>
<td>1.0</td>
<td>-4.0</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale &amp; Retail Trade</td>
<td>6.5</td>
<td>4.8</td>
<td>4.2</td>
<td>-0.8</td>
<td>0.7</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>2.3</td>
<td>2.1</td>
<td>2.3</td>
<td>2.0</td>
<td>-6.0</td>
<td>-1.7</td>
</tr>
<tr>
<td class="firstcol">Comparisons:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">Changes lag one month</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; EU Index: Industry</td>
<td>#N/A</td>
<td>5.0</td>
<td>6.0</td>
<td>-2.0</td>
<td>-1.0</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Germany Index: Industry</td>
<td>#N/A</td>
<td>8.0</td>
<td>9.0</td>
<td>-1.0</td>
<td>-1.0</td>
<td>3.0</td>
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The BNB index fell to 3.3 in August from 4.2 in July and, along with the German Zew index, it gives us a signal of softening activity in the Euro area. However the decline in the index is not severe and the Belgian metric continues to [...]

Belgian National Bank Index Declines in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823a.jpg" width="353">
Initial claims for unemployment insurance fell slightly last week, back to the level initially reported for the prior period. Claims for the week ending 8/18 fell to 322,000 from 324,000 during the week ended 8/11. Consensus expectations were for 320,000 claims in the latest week.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. 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 latest figure is for the survey period for nonfarm payrolls due for release on September 7th. Claims rose 6.3% from the July period. A 7.1% decline in July claims was associated with the below average 92,000 increase in payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823b.jpg" width="353">
The four-week moving average of initial claims rose to 317,750 (0.3% y/y), its highest level since early July.
Continuing claims for unemployment insurance rose 16,000 after a downwardly revised 6,000 increase during the prior week. The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment remained at 1.9%.
The Minimum Wage and the Labor Market from the Federal Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/Commentary/2007/0501.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">08/18/07 </th>
<th scope="col">08/11/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;322</td>
<td>324</td>
<td>1.6%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,572</td>
<td>3.9%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
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Initial claims for unemployment insurance fell slightly last week, back to the level initially reported for the prior period. Claims for the week ending 8/18 fell to 322,000 from 324,000 during the week ended 8/11. Consensus [...]

U.S. Initial Unemployment Insurance Claims Fell Slightly

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

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

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

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

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

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

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

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

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

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

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

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

Michael J. Moran

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

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

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

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

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

Personal Income, Consumption, and Prices in March

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

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

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

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

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

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

U.S. Pending Home Sales Surge in March

Sandy Batten

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

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

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

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

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

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

Economy in Brief: August 2007

Jump to:

U.S. Durable Goods Orders Better Due To Transportation

Yr/Yr UK GDP Growth Holds Steady

Borrowings at the Federal Reserve Largest in 6 Years; Big Drops in Commercial Paper Outstanding

U.S. Loan Delinquencies Up Slightly, But Still Low

German GDP Rebound Still Not Supported by the Consumer

Belgian National Bank Index Declines in August

U.S. Initial Unemployment Insurance Claims Fell Slightly

Borrowings at the Federal Reserve Largest in 6 Years; Big Drops in Commercial Paper Outstanding