Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030915a.jpg" width="353">
Industrial production rose less than expected last month by 0.1%. The Consensus of economists forecast a 0.3% gain. Prior months&#39; figures were revised up slightly.
Output in the manufacturing sector fell 0.2% (-1.5% y/y) although the previously reported 0.2% gain in July was revised up to 0.5%.
Output in selected high-technology industries jumped a whopping 2.3% (12.1% y/y), the strongest one-month gain since September 2000. Strength was across-the-board with output of computers and peripheral equipment up 1.9% (22.2% y/y). Output of semiconductors &amp; related equipment rose 2.7% (19.1% y/y) while communications equipment output rose 1.9% (-4.8% y/y).
Excluding high-tech factory output fell 0.3% (-2.3% y/y) and reversed an upwardly revised 0.3% July gain. Motor vehicle output sagged 2.6% (-3.0% y/y) following a 3.4% July jump. Output of electrical equipment and appliances rose 0.2% (-2.1% Y/Y) and the previously reported 0.7% July drop was revised to a 0.6% gain. Output of furniture fell 0.6% (-2.6% y/y) and output of non-durable goods was unchanged for the second month.
Total capacity utilization was unchanged at 74.6%. Factory sector utilization fell slightly to 72.7%. Growth in capacity remained slow at 1.1% y/y versus 1.5% growth last year and 3.2% growth in 2001. Growth in factory sector capacity has been an even slower 0.8% y/y versus 1.3% growth last year.

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</table>
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM"> Production &amp; Capacity</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Industrial Production</td>
<td>0.1%</td>
<td>0.7%</td>
<td>-1.0%</td>
<td>-0.8%</td>
<td>-3.5%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>74.6%</td>
<td>74.6%</td>
<td>76.1%(8/02)</td>
<td>75.6%</td>
<td>77.3%</td>
<td>82.7%</td>
</tr>
</tbody>
</table>
Empire State Factory Survey Improved in September 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 15, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030915b.jpg" width="353">
The Empire State Index of General Business Conditions for September rose somewhat more than expected. The NY Fed&#39;s Manufacturing Survey indicated that the index rose to 18.35 this month versus Consensus expectations for a reading of 15.0.
The new orders index improved modestly for September and for 3Q was at the highest level since 1Q 2002. Shipments fell in September but for 3Q the index was the highest level in the survey&#39;s brief history. Employment remained weak.
The index of prices paid rose sharply to 15.60, the highest level since April.
The survey includes measures of business expectations six months ahead. This diffusion index fell slightly in September but for 3Q was at the highest level since 2Q 2002. Expectations for capital expenditures firmed.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question, not the components.
For the latest Empire State Manufacturing Survey report, click <a href="http://www.newyorkfed.org/rmaghome/regional/mfg_survey/index.html"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM"> Empire State Manufacturing Survey</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col"> 2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>18.35</td>
<td>9.98</td>
<td>5.59</td>
<td>7.10</td>
<td>-13.02</td>
</tr>
</tbody>
</table>
U.S. Business Inventories Fell as Sales Surged a Second Month 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 15, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030915c.jpg" width="353">
Total business inventories fell an expected 0.1% in July. The decline lowered inventories 0.3% below the March level.
Overall business sales jumped 1.6% m/m (3.8% y/y). The surge followed a 1.3% gain in June. Surging retail sales led the two-month gains but retail spending slowed last month.
Retail inventories rose again as inventories of motor vehicles and parts rose 0.3% (13.9% y/y). Non-auto inventories also rose 0.3% for the second month. Inventories of furniture (5.0% y/y) and building materials (7.0% y/y) continued strong.
The inventory-to-sales ratio fell m/m to 1.37, a record low for the series since it was redefined starting in 1992. 

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM"> Business Inventories</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>-4.7%</td>
<td>5.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.3%</td>
<td>0.4%</td>
<td>6.3%</td>
<td>7.6%</td>
<td>-2.9%</td>
<td>6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.5%</td>
<td>-1.2%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.0%</td>
<td>-0.0%</td>
<td>1.0%</td>
<td>0.4%</td>
<td>-4.9%</td>
<td>6.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>-6.1%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
U.S. Current Account Deficit About Unchanged in 2Q 
by <a href="/comment/Moeller.html">Tom Moeller</a>     September 15, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030915d.jpg" width="353">
The US current account deficit was as expected at $138.7B last quarter, virtually unchanged from 1Q. The figures are a record for the deficit. Through 2Q the current account deficit ran at a $555B annual rate. 
The deficit in goods trade deteriorated to $551.9B (AR) in 2Q03 versus a $482.9B deficit for all of last year and $427.2B in 2001. Exports of merchandise rose 0.4% following a 5.1% decline last year and a 6.9% drop in 2001. Goods imports rose 0.9% vs. a 1.6% rise last year.
The surplus on services rose just slightly q/q to $58.3B (AR) in 2Q. That was down from surplus of $64.8B last year. The peak services surplus was $91.1B in 1997.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col"> 2Q &#39;03</th>
<th scope="col">1Q &#39;03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Deficit</td>
<td>$138.7B</td>
<td>$138.7B</td>
<td>$122.8B</td>
<td>$480.9B</td>
<td>$393.7B</td>
<td>$411.5B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % of GDP</td>
<td>5.1%</td>
<td>5.2%</td>
<td>4.7%</td>
<td>4.6%</td>
<td>3.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$121.7B</td>
<td>$121.4B</td>
<td>$109.3B</td>
<td>$422.0B</td>
<td>$347.1B</td>
<td>$355.8B</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>1.1%</td>
<td>-4.3%</td>
<td>-9.3%</td>
<td>12.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>0.2%</td>
<td>1.8%</td>
<td>3.8%</td>
<td>1.2%</td>
<td>-7.9%</td>
<td>18.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$16.9B</td>
<td>$17.3B</td>
<td>$13.5B</td>
<td>$58.9B</td>
<td>$46.6B</td>
<td>$55.7B</td>
</tr>
</tbody>
</table>
</body>
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Industrial production rose less than expected last month by 0.1%. The Consensus of economists forecast a 0.3% gain. Prior months' figures were revised up slightly. Output in the manufacturing sector fell 0.2% (-1.5% y/y) although the [...]

U.S. Industrial Production Weak

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/030912d.jpg" width="353">
Industrial production reports from three widely diverse countries highlight recent differences between industrial and emerging market countries. July production increased in both India and Malaysia, with India extending a firm trend that has built since the spring of 2002. Malaysia&#39;s growth has been erratic, but generally resilient.
By contrast, France is experiencing a lag in industrial output as a favorable month-on-month rise in June was not sustained into July. The year-on-year results continue to show marked declines, negating a recovery that looked to be starting last winter. The weakest segments of French industry are consumer appliances and electronics, capital goods and several intermediate products.
The erratic pattern in Malaysia may be attributable to its concentration in a relatively narrow industrial segment. Rubber and plastics products dominate the cycles there, with plastics recently showing rapid growth and very wide swings; i.e., its index level in July was 508.9, compared with the total index of 202.7 (1993=100). In India, however, the dispersion of output is broader among the collection of industries; the recent gains have involved non-cotton textiles, wood and paper products, rubber and plastics, basic metals, and even machinery and transportation equipment. Growth there has been modestly lower overall than in Malaysia, but far more stable; in particular, production growth slowed in India during the 2001 recession, but unlike Malaysia, it did not share in the outright declines evident in many other countries. Further, both of these emerging economies bounced back during 2002, while there has been virtually no lasting recovery in France; industrial production there, at 115.4 in July (1995+100), remains well below its August 2001 peak of 119.9.

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<colgroup><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">Industrial Production in Selected Countries (% Changes)</th>
<th scope="col">July 2003 (M/M)</th>
<th scope="col">June 2003 (M/M)</th>
<th scope="col">&nbsp;Year/Year</th>
Dec/Dec
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">2002</td>
<td>2001</td>
<td>2000</td>
</tr>
</tbody>
</table>
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<colgroup><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">India*</th>
<th scope="col"><center></center></th>
<th scope="col">1.1</th>
<th scope="col">1.7</th>
<th scope="col">5.6</th>
<th scope="col">6.2</th>
<th scope="col">3.0</th>
<th scope="col">3.5</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Malaysia*</td>
<td><center></center></td>
<td>0.3</td>
<td>-3.8</td>
<td>4.6</td>
<td>8.2</td>
<td>-9.5</td>
<td>13.8</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td><center></center></td>
<td>-0.3</td>
<td>1.0</td>
<td>-2.5</td>
<td>0.0</td>
<td>-3.3</td>
<td>-0.3</td>
</tr>
</tbody>
</table>
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Industrial production reports from three widely diverse countries highlight recent differences between industrial and emerging market countries. July production increased in both India and Malaysia, with India extending a firm trend [...]

Industrial Production Gains in Malaysia, India, but Sags in France

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030912a.jpg" width="353">
Retail sales rose 0.6% in August. That was much less than the Consensus expectation for a 1.2% gain. July sales were revised to show a 1.3% gain versus 1.4% reported initially.
Motor vehicle dealers&#39; sales rose just 0.5% m/m in July. That was much less than the 9.6% gain in unit sales of light vehicles to 19.0 mil. (AR). Sales at gasoline service stations rose 2.7% (8.5% y/y).
Sales excluding motor vehicles and parts dealers were quite firm, up 0.7% and July sales were revised up to a 1.0% gain from 0.8%. Consensus expectations were for a 0.7% rise in August.
Furniture, home furnishing and electronics store sales increased 1.0% (8.7% y/y) following similarly strong (or stronger) gains in four of the prior five months. Sales at general merchandise stores rose 1.1%% (6.1% y/y) and were up at a 7.9% annual rate YTD.Apparel and accessory stores bucked the trend and fell 1.4% (4.0% y/y) following strong gains in four of the prior five months.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM"> Retail Sales &amp; Food Services</a></td>
<td>0.6%</td>
<td>1.3%</td>
<td>5.4%</td>
<td>3.1%</td>
<td>2.9%</td>
<td>6.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.7%</td>
<td>1.0%</td>
<td>6.0%</td>
<td>3.7%</td>
<td>2.9%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
Producer Prices About As Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 12, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030912c.jpg" width="353">
Finished producer prices rose 0.4% in August. That was slightly ahead of expectations for a 0.3% gain but the tame 0.1% increase in prices excluding food &amp; energy was as expected.
Finished energy prices firmed again last month, rising 1.2% (14.2% y/y). That strength was led by a 5.2% (20.8% y/y) gain in gasoline prices. Fuel oil prices also were strong, up 4.9% (21.5% y/y) although residential gas prices, down 2.7% (28.9% y/y), fell for the second consecutive month. These energy product price series are NSA.
Prices for capital equipment moderated from the strength of the prior month and rose only 0.1% (0.9% y/y). Core finished consumer goods prices were tame again, rising 0.1% (0.1% y/y) following a 0.1% July rise.
Intermediate goods prices rose 0.5% but the gain mostly reflected a 2.4% increase in energy prices. The 0.1% rise in core intermediate goods prices followed a like decline the prior month. The core intermediate price index was about unchanged versus March. 
Crude goods prices fell 1.4% as energy prices fell for the second month, down 7.4% (38.2% y/y). core crude goods prices were firm, rising 3.7%. The rise mostly just offset a weak 0.8% gain the month earlier, but together the two months&#39; gain was the strongest since February and likely an indicator of improved activity in the factory sector.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM"> Producer Price Index</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.4%</td>
<td>-1.3%</td>
<td>2.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.5%</td>
<td>0.2%</td>
<td>4.4%</td>
<td>-1.5%</td>
<td>0.4%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-1.4%</td>
<td>-2.9%</td>
<td>20.9%</td>
<td>-10.6%</td>
<td>0.3%</td>
<td>22.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>3.7%</td>
<td>0.8%</td>
<td>8.3%</td>
<td>3.9%</td>
<td>-10.0%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Down Unexpectedly for Second Month 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 12, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030912b.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index fell unexpectedly in mid September. The decline to 88.2 from 89.3 in August was versus Consensus expectations for a reading of 90.0.
During the last five years there has been an 83% correlation between the level of consumer sentiment and the y/y% change in real PCE.
The Index of Consumer Expectations fell for the fourth consecutive month to the lowest level since April.
The read of Current Economic Conditions fell for the second month but remained firm relative to the deterioration in expectations.
The University of Michigan survey is not seasonally adjusted.It is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col">Mid-Sept</th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Sentiment</td>
<td>88.2</td>
<td>89.3</td>
<td>90.0</td>
<td>89.6</td>
<td>89.2</td>
<td>107.6</td>
</tr>
</tbody>
</table>
</body>
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Retail sales rose 0.6% in August. That was much less than the Consensus expectation for a 1.2% gain. July sales were revised to show a 1.3% gain versus 1.4% reported initially. Motor vehicle dealers' sales rose just 0.5% m/m in July. [...]

Retail Sales Rose Less Than Expected Due to Autos

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030911d.jpg" width="353">
Inflation in Europe remains fairly steady, according to August CPI reports released this morning by four diverse countries. 12-month rates of change for France, Spain and Sweden are all hovering within the ranges that have prevailed the last several years. Inflation in Hungary, while showing little recent movement and still noticeably higher than in the other more established market economies, still appears to be working its way lower. Its convergence with the CPI in, for example, Sweden, is obvious in the nearby graph. This would be expected as a consequence of the larger trade and capital flows that developed with the opening of the Hungarian economy in the early 1990s.
History is brief for the components of Hungary&#39;s CPI, but since 1999, inflation in housing, health care, hospitality services and alcohol has been consistently higher than the total CPI. Clothing, furniture and communications have run lower. The latter comparison looks to be a fairly widespread; among these particular countries, all three segments have restrained inflation in Spain and Sweden, although their performance has varied France. On the up-side, inflation-contributing sectors vary by country. Housing and health care have been higher than overall inflation in Sweden, but not in Spain.
Thus, sources of inflationary pressure have generally differed among the countries, but disinflationary tendencies are more uniform. Since the US has also seen price weakness in clothing, household furniture and communications sectors, one might conclude that certain factors apply fairly broadly: greater productivity and competition are keeping prices down for the key consumer goods categories, while technology has reduced communications costs. Segments where there is less competition and less technological input, such as housing and health care, tend to have more upward bias and less uniformity in their price trends.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">CPI in Selected Countries (% Changes)</th>
<th scope="col">August 2003 (Y/Y)</th>
<th scope="col">July 2003 (Y/Y)</th>
<th scope="col">June 2003 (Y/Y)</th>
Dec/Dec
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">2002</td>
<td>2001</td>
<td>2000</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">France</th>
<th scope="col"><center></center></th>
<th scope="col">2.0</th>
<th scope="col">1.9</th>
<th scope="col">1.9</th>
<th scope="col">2.2</th>
<th scope="col">1.4</th>
<th scope="col">1.7</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Spain</td>
<td><center></center></td>
<td>3.1</td>
<td>3.1</td>
<td>3.2</td>
<td>2.9</td>
<td>3.3</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Sweden</td>
<td><center></center></td>
<td>2.2</td>
<td>2.4</td>
<td>2.0</td>
<td>1.7</td>
<td>3.2</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary</td>
<td><center></center></td>
<td>4.7</td>
<td>4.7</td>
<td>4.3</td>
<td>4.8</td>
<td>6.8</td>
<td>10.1</td>
</tr>
</tbody>
</table>
</body>
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Inflation in Europe remains fairly steady, according to August CPI reports released this morning by four diverse countries. 12-month rates of change for France, Spain and Sweden are all hovering within the ranges that have prevailed [...]

CPIs Converge as Economies Open

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030911b.jpg" width="353">
Initial claims for jobless insurance rose unexpectedly to 422,000 last week. The prior week&#39;s level was revised up slightly. Consensus expectations had been for claims of 400,000.
The four-week moving average of initial claims rose to 407,250 (+0.5% y/y).
Continuing claims for unemployment insurance rose by a sharp 61,000 but the gain reported for the prior week was revised to show a decline of 23,000.
The insured rate of unemployment held steady at 2.9% where it&#39;s been for seven weeks.

<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">9/6/03</th>
<th scope="col">8/30/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>422.0</td>
<td>419.0</td>
<td>1.0%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,672</td>
<td>2.4%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
Import Prices Weak 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 11, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030911a.jpg" width="353">
Prices for imported commodities rose in August by half the Consensus expectation for a 0.4% increase. The 0.2% gain was accompanied by a slight downward revision to non-oil prices in July but that was offset by a slight upward revision to oil prices.
Non-petroleum import prices fell 0.2% last month, the first m/m decline since May. Outside of oil, prices fell broadly. Prices for non-auto consumer goods fell 0.2% (-0.3% y/y). Prices for capital goods fell for the second month by 0.1% (-1.4% y/y). Motor vehicle prices rose a slight 0.1% following a 0.1% decline the month earlier (0.5% y/y).
Petroleum import prices rose 3.9% last month but so far in September the price of Brent Crude Oil is down from the $29.71/bbl averaged in August.
Export prices fell 0.1%, the fourth decline in the last five months. Export prices were mixed amongst the categories.

<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/@E8/@E807/@E807.HTM"> Import/Export Prices (NSA)</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.2%</td>
<td>0.5%</td>
<td>2.1%</td>
<td>-2.5%</td>
<td>-3.5%</td>
<td>6.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>3.9%</td>
<td>4.5%</td>
<td>13.6%</td>
<td>3.0%</td>
<td>-17.2%</td>
<td>66.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>-2.4%</td>
<td>-1.5%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>-1.0%</td>
<td>-0.8%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
U.S. Trade Deficit Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 11, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030911c.jpg" width="353">
The U.S. foreign trade deficit grew to an expected $40.3B in July. The deficit in June was revised slightly deeper to $40.0B.
For the first seven months of this year, the trade deficit ran at a $489.4B annual rate versus the $418.0B deficit for all of last year.
Exports rose strongly for the third consecutive month, up 2.0%, and have risen at an 11.0% annual rate YTD. Exports of capital goods (18.4% YTD, AR) have been quite strong. Exports of non-auto consumer goods fell 1.3% following the 7.1% spike in June (15.6% AR).
Imports rose 1.6% in July reflecting sharply higher imports of food (2.6% m/m) and non-auto consumer goods. The latter rose 2.8% after a 3.7% June drop. The value of crude petroleum imports rose 14.0% as the per barrel price rose 4.7% to $26.70. The daily quantity of crude petroleum imports rose 5.4% (16.8% 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/@EE/@EE03/@EE03.HTM"> Foreign Trade</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Trade Deficit</td>
<td>$40.3B</td>
<td>$40.0B</td>
<td>$34.1B(7/02)</td>
<td>$418.0B</td>
<td>$357.8B</td>
<td>$375.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>2.0%</td>
<td>2.4%</td>
<td>3.9%</td>
<td>-3.3%</td>
<td>-5.8%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>1.6%</td>
<td>0.3%</td>
<td>8.1%</td>
<td>2.0%</td>
<td>-5.5%</td>
<td>18.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance rose unexpectedly to 422,000 last week. The prior week's level was revised up slightly. Consensus expectations had been for claims of 400,000. The four-week moving average of initial claims rose to [...]

Initial Claims for Jobless Insurance Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030910c.jpg" width="353">
The Japanese economy continues some improvement. The Cabinet Office&#146;s Economic and Social Research Institute today (10 September) published a marked upward revision to second quarter GDP from the initial a 0.6% quarterly rate to 1.0%. The gain came from stronger investment in plant and equipment. These outlays were revised from 1.3% quarterly growth, already a respectable expansion, to a substantial 4.7%. Consumption spending was raised modestly from 0.3% in the first report to 0.4%. Net exports also contributed to GDP growth, although not more than originally reported, as a slight downward revision to export growth offset the boost to domestic production from reduced imports. Government consumption and investment both fell.
The second quarter marked the sixth consecutive quarter of growth for total GDP and with this revision, made it the strongest since the fourth quarter of 2000, just before the 2001 recession. The gains in investment are more recent, only turning up in the middle of last year. Separate data on manufacturing industries suggest that electronic components are a driving force and even the semiconductor industry&#146;s &quot;book-to-bill&quot; ratio has risen well above 1.0 for the past two months (1.57 and 1.40 in June and July, respectively), indicating that activity in that sector might continue to expand.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GDP &amp; Selected Components:&nbsp; % Changes</th>
<th scope="col">&nbsp;2nd Qtr 2003 &nbsp;(Q/Q) </th>
<th scope="col">1st Qtr 2003 (Q/Q)</th>
<th scope="col">Year/ Year </th>
 4th Qtr/4th Qtr 
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> 2002 </td>
<td> 2001 </td>
<td> 2000 </td>
</tr>
<tr>
<td class="firstcol">Total GDP</td>
<td>1.0</td>
<td>0.6</td>
<td>3.0</td>
<td>2.5</td>
<td>-1.6</td>
<td>3.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Consumption</td>
<td>0.4</td>
<td>0.4</td>
<td>1.4</td>
<td>1.4</td>
<td>2.2</td>
<td>0.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Private Nonresidential&nbsp; Investment</td>
<td>4.7</td>
<td>2.5</td>
<td>14.0</td>
<td>4.2</td>
<td>-12.0</td>
<td>16.9&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>0.8</td>
<td>0.6</td>
<td>5.9</td>
<td>17.7</td>
<td>-11.0</td>
<td>10.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>-1.6</td>
<td>0.6</td>
<td>3.1</td>
<td>8.8</td>
<td>-7.4</td>
<td>10.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The Japanese economy continues some improvement. The Cabinet Offices Economic and Social Research Institute today (10 September) published a marked upward revision to second quarter GDP from the initial a 0.6% quarterly rate to 1.0%. [...]

Japan GDP Revised Higher with Stronger Business Investment

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030910a.jpg" width="353">
The OECD Index of Leading Indicators (Big 7) rose in July for the fourth consecutive month, but it was the magnitude of the increase that impressed. The 1.1% July gain followed like increases in the previous three months.
The three month growth in the leading index is comparable to strength early last year which preceded an acceleration in industrial production growth to above 5% (AR).
Gains amongst the member country leading indexes continued to broaden out. The leading index for the Euro-zone 12 rose 0.3% and the three month growth rate rose to 4.9% (AR), it&#39;s highest since last Spring.
The leaders in Germany surged 1.2%, bringing the three month growth rate up to 9.3%. In France the leaders rose for the fourth consecutive month with three month growth at 6.5%. In Italy, however, the leaders continued to suggest recession, down 1.4% in July for the third decline in the last four months. Real GDP in Italy fell at a 1.5% rate in 1Q03 and was unchanged last quarter. Industrial production has been falling since a peak in late 2000.
In the U.K. the leaders rose strongly for the fourth consecutive month and that brought the three month growth to 6.9% (AR). Last year, growth of this order in the UK leaders preceded an acceleration in real GDP growth from about 1% to nearly 4%. In Canada the July leading indicators were similarly strong rising 1.0%, the fourth consecutive gain that pulled the three month growth rate up to 12.1%; good news following a 0.3% decline in 2Q03 real GDP.
Leaders in Japan jumped 2.0% in July for the third strong gain in as many months. Share prices rose and the yield curve steepened, but higher overtime hours &amp; an increase in job vacancies added tangible umph to the leader&#39;s improvement.
Leading indicators in the United States surged further, up 1.2% in July for the fourth consecutive robust monthly gain.
Visit the OECD&#39;s website at <a href="http://www.oecd.org/home/">website</a>. There is coverage of Chief Economist Cotis&#39; presentation titled &quot;What is the economic outlook for OECD countries? An interim assessment.&quot;

<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/OECDMEI/OECDMEI.HTM"> OECD Main Economic Indicators</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">OECD Major Seven - Leading Index (Trend Restored)</td>
<td>121.7</td>
<td>120.3</td>
<td>3.0%</td>
<td>4.0%</td>
<td>-2.2%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; European Union</td>
<td>118.0</td>
<td>117.6</td>
<td>1.1%</td>
<td>3.1%</td>
<td>-1.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Japan</td>
<td>104.9</td>
<td>102.8</td>
<td>3.6%</td>
<td>0.7%</td>
<td>-2.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; United States</td>
<td>134.1</td>
<td>132.4</td>
<td>4.3%</td>
<td>5.6%</td>
<td>-2.6%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
Mortgage Applications Jumped as Interest Rates Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 10, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030910b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association jumped 22.8% last week as interest rates fell. The rise was the first in five weeks.
Interest rates on a conventional 30-Year mortgage fell 23 basis points with the effective rate at 6.27%. That was versus a low for 30-Year financing of 5.31% in the second week of June. The effective rate on a 15-year mortgage fell 25 basis points to 5.64%.
Applications to refinance surged 45.5% w/w, pulling the level of refinancing to it&#39;s highest in four weeks.
Purchase applications, up 3.2% w/w, rose for the second consecutive week. The level of purchase applications began September slightly ahead of the August average which was down 6.3% from July, the series&#39; peak.
During the last ten years there has been a 56% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
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> .

<table border="0" cellspacing="0" width="100%">

</table>
<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/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">9/05/03</th>
<th scope="col">8/29/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>771.8</td>
<td>628.7</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>408.8</td>
<td>396.1</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,883.6</td>
<td>1,981.5</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The OECD Index of Leading Indicators (Big 7) rose in July for the fourth consecutive month, but it was the magnitude of the increase that impressed. The 1.1% July gain followed like increases in the previous three months. The three [...]

OECD Leaders Build Upward Momentum

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030909a.jpg" width="353">
The Federal Reserve reported that consumer credit outstanding (which excludes mortgages) rose $6.0B (4.1% AR) in July. Consensus expectations had been for a $5.0B gain. June&#39;s increase was revised up slightly due to raised usage of nonrevolving credit. 
During the first seven months of this year, consumer credit usage rose at a 4.8% annual rate. The more comprehensive flow of funds figures published by the Federal Reserve indicated that through 2Q03, credit market debt owed by the household sector soared 11.0% y/y. That gain was led by a 13.8% y/y gain in outstanding liabilities on homes.
Nonrevolving credit (which includes auto loans) rose at a 6.6% annual rate in July following a 1.6% gain in June. Year to date, nonrevolving credit usage is up at a 5.7% annual rate. 
Revolving credit rose at a slight 0.5% annual rate in July following a 2.1% decline in June. Year to date, revolving credit usage is up at a 3.6% annual rate.
The August Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200308/default.htm">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/@E1/@E103/@E10308/@E10308.HTM"> Consumer Credit Outstanding</a></th>
<th scope="col">July m/m</th>
<th scope="col">June m/m</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>$6.0B</td>
<td>$0.1B</td>
<td>3.3%</td>
<td>3.6%</td>
<td>6.9%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$0.3B</td>
<td>$-1.3B</td>
<td>1.7%</td>
<td>1.5%</td>
<td>5.1%</td>
<td>11.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$5.7B</td>
<td>$1.4B</td>
<td>4.5%</td>
<td>5.0%</td>
<td>8.2%</td>
<td>9.1%</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 9, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030909b.jpg" width="353">
Chain store sales rose 0.5% during the week that contained the Labor Day holiday according to the BTM-UBSW survey. It was the largest w/w rise since the first week of August and followed four periods of roughly flat sales.
Sales began September 0.5% ahead of the August average which rose 0.9% from July.
During the last five years there has been a 62% correlation between the year-to-year percent change in chain store sales and the change in nonauto retail sales less gasoline.
The BTM-UBSW retail chain-store sales index is constructed from the sales results reported by seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<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/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">9/6/03</th>
<th scope="col">8/30/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>429.4</td>
<td>427.3</td>
<td>4.4%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Federal Reserve reported that consumer credit outstanding (which excludes mortgages) rose $6.0B (4.1% AR) in July. Consensus expectations had been for a $5.0B gain. June's increase was revised up slightly due to raised usage of [...]

Consumer Credit Usage Up Moderately

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.

250501Z1.jpg

**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.

250501Z4.jpg

**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.

250430P1.jpg

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**.

250430R1.jpg

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

250430A.jpg

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**.

250430C.jpg

250430D.jpg

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

Personal Income, Consumption, and Prices in March

250430F20.jpg

250430G20.jpg

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

250430I5.jpg

- 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: September 2003

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