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/050922d.jpg" width="353">
Japan&#39;s trade surplus shrank markedly in August from a year ago, reaching &yen;116.3 billion from &yen;572.9 billion. Exports grew vigorously, up 9.1%, but imports leaped 21.1%. As might be expected, petroleum accounted for a significant proportion of the import growth. Crude oil, refined product and other related gas products totaled &yen;1,240.0 billion compared with &yen;899.7 billion in August 2004. Press reports highlight this item, which is certainly large and likely to get larger. However, non-petroleum imports were also up considerably, by more than 16% over a year ago. This growth was spread across a number of goods categories.
Frequently, in interpretations of a nation&#39;s economic performance, imports are viewed negatively. The country is incurring additional foreign debt, or in Japan&#39;s case, reducing its domestic surplus in buying from abroad. Of course this is so, but that development has another, more favorable aspect: increasing imports can be a signal of rising demand. In fact, data on Japan&#39;s GDP through Q2 show gains in real terms for household spending, government consumption and private investment in plant and equipment. So demand has been expanding for the general kinds of merchandise being imported. The growth in August seems a strong hint that this continued into Q3.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922e.jpg" width="353">
At the same time, we don&#39;t want to set aside concerns for Japan from surging energy costs. Nearly all of Japan&#39;s energy products are imported, so there is a potential for stress on the Japanese economy as oil and gas prices stay high. In that regard, it is interesting that despite the high dollar price of oil, the unit value of petroleum imports for Japan is less than in the prior energy &quot;crisis&quot; in the early 1980s, as seen in the second graph (although later data will no doubt show the unit value higher than the level in the graph, which is only through June). The difference of course is the exchange rate; the much stronger yen is holding back the yen cost of the petroleum. It&#39;s a small favor in the otherwise tenuous Japanese economic environment, but it can moderate the impact of the burdensome energy expenses. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/JAPAN.HTM">Japan Trade</a> Not seasonally adjusted Bil. &yen;</th>
<th scope="col">Aug 2005</th>
<th scope="col">Jul 2005</th>
<th scope="col">Aug 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>5219.2</td>
<td>5536.9</td>
<td>4785.5</td>
<td>5097.5</td>
<td>4545.7</td>
<td>4342.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>5103.0</td>
<td>4666.6</td>
<td>4212.5</td>
<td>4101.4</td>
<td>3696.8</td>
<td>3518.9</td>
</tr>
<tr>
<td class="firstcol">Balance</td>
<td>116.3</td>
<td>870.3</td>
<td>572.9</td>
<td>996.1</td>
<td>848.9</td>
<td>823.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Petroleum Imports*</td>
<td>1240.0</td>
<td>1059.3</td>
<td>899.7</td>
<td>798.1</td>
<td>717.2</td>
<td>615.7</td>
</tr>
<tr>
<td class="firstcol">China: Balance</td>
<td>-287.1</td>
<td>-183.1</td>
<td>-206.7</td>
<td>-183.7</td>
<td>-174.6</td>
<td>-229.0</td>
</tr>
<tr class="odd">
<td class="firstcol">US: Balance</td>
<td>486.7</td>
<td>649.5</td>
<td>474.4</td>
<td>580.6</td>
<td>548.9</td>
<td>636.3</td>
</tr>
</tbody>
</table>
</body>
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Japan's trade surplus shrank markedly in August from a year ago, reaching ¥116.3 billion from ¥572.9 billion. Exports grew vigorously, up 9.1%, but imports leaped 21.1%. As might be expected, petroleum accounted for a significant [...]

Japan's Trade Surplus Shrinks; Petroleum Is Only Part of the Reason

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922b.jpg" width="353">
The August Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.2% following a revised 0.1% dip in July. These declines and slight downward revisions to prior months&#39; data lowered six-month growth in the leaders to 0.7%, the worst since 2001.
The breadth of one month gain amongst the 10 components of the leading index fell to 50%, down from a high of 85% during June. Lower consumer expectations had the largest negative effect on the leader&#39;s one month change.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922c.jpg" width="353">
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% (2.7% y/y) with each of the four components up during the last six months.
The lagging indicators fell 0.1%, the first m/m decline this year. Increases since the 2004 low have been moderate by postwar standards. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, rose slightly m/m but has moved sideways this year.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world. 

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>0.7%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
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The August Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.2% following a revised 0.1% dip in July. These declines and slight downward revisions to prior months' data lowered six-month growth in [...]

Leading Economic Indicators Post Second Decline

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922a.jpg" width="353">
Initial claims for unemployment insurance rose another 8,000 w/w to 432,000 last week following an upwardly revised 97,000 surge the prior week. Consensus expectations had been for 450,000 claims.
The Labor Department indicated that 103,000 jobless claims last week and 91,000 the week prior were related to Hurricane Katrina which struck the Gulf Coast on August 29th. Last week, a 49,665 rise in claims in Louisiana was mostly Hurricane related and a 5,177 rise in Mississippi was all Hurricane related. Unadjusted, initial claims fell slightly w/w in California, New Jersey and in Pennsylvania.
The four-week moving average of initial claims rose to 376,250 (10.4% y/y) from 347,250 during the prior four weeks.
The latest claims figure covers the survey period for September nonfarm payrolls and claims were up 113,000 (35.4%) from the August period.
Continuing claims for unemployment insurance jumped 88,000 during the latest week following a lessened 8,000 rise the week prior.
The insured rate of unemployment rose to 2.1% following nine weeks at 2.0%.
Unemployment and Vacancy Fluctuations in the Matching Model: Inspecting the Mechanism from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/hornsteinkrusellviolante.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">09/17/05</th>
<th scope="col">09/10/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>432</td>
<td>424</td>
<td>23.4%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,666</td>
<td>-7.1%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance rose another 8,000 w/w to 432,000 last week following an upwardly revised 97,000 surge the prior week. Consensus expectations had been for 450,000 claims. The Labor Department indicated that [...]

Unemployment Insurance Claims Again High Due to Hurricane

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922a.jpg" width="353">
Initial claims for unemployment insurance rose another 8,000 w/w to 432,000 last week following an upwardly revised 97,000 surge the prior week. Consensus expectations had been for 450,000 claims.
The Labor Department indicated that 103,000 jobless claims last week and 91,000 the week prior were related to Hurricane Katrina which struck the Gulf Coast on August 29th. Last week, a 49,665 rise in claims in Louisiana was mostly Hurricane related and a 5,177 rise in Mississippi was all Hurricane related. Unadjusted, initial claims fell slightly w/w in California, New Jersey and in Pennsylvania.
The four-week moving average of initial claims rose to 376,250 (10.4% y/y) from 347,250 during the prior four weeks.
The latest claims figure covers the survey period for September nonfarm payrolls and claims were up 113,000 (35.4%) from the August period.
Continuing claims for unemployment insurance jumped 88,000 during the latest week following a lessened 8,000 rise the week prior.
The insured rate of unemployment rose to 2.1% following nine weeks at 2.0%.
Unemployment and Vacancy Fluctuations in the Matching Model: Inspecting the Mechanism from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/hornsteinkrusellviolante.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">09/17/05</th>
<th scope="col">09/10/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>432</td>
<td>424</td>
<td>23.4%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,666</td>
<td>-7.1%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Post Second Decline 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 22, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922b.jpg" width="353">
The August Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.2% following a revised 0.1% dip in July. These declines and slight downward revisions to prior months&#39; data lowered six-month growth in the leaders to 0.7%, the worst since 2001.
The breadth of one month gain amongst the 10 components of the leading index fell to 50%, down from a high of 85% during June. Lower consumer expectations had the largest negative effect on the leader&#39;s one month change.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922c.jpg" width="353">
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% (2.7% y/y) with each of the four components up during the last six months.
The lagging indicators fell 0.1%, the first m/m decline this year. Increases since the 2004 low have been moderate by postwar standards. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, rose slightly m/m but has moved sideways this year.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world. 

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>0.7%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
Japan's Trade Surplus Shrinks; Petroleum Is Only Part of the Reason 
by <a href="/comment/Stone.html">Carol Stone</a> September 22, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922d.jpg" width="353">
Japan&#39;s trade surplus shrank markedly in August from a year ago, reaching &yen;116.3 billion from &yen;572.9 billion. Exports grew vigorously, up 9.1%, but imports leaped 21.1%. As might be expected, petroleum accounted for a significant proportion of the import growth. Crude oil, refined product and other related gas products totaled &yen;1,240.0 billion compared with &yen;899.7 billion in August 2004. Press reports highlight this item, which is certainly large and likely to get larger. However, non-petroleum imports were also up considerably, by more than 16% over a year ago. This growth was spread across a number of goods categories.
Frequently, in interpretations of a nation&#39;s economic performance, imports are viewed negatively. The country is incurring additional foreign debt, or in Japan&#39;s case, reducing its domestic surplus in buying from abroad. Of course this is so, but that development has another, more favorable aspect: increasing imports can be a signal of rising demand. In fact, data on Japan&#39;s GDP through Q2 show gains in real terms for household spending, government consumption and private investment in plant and equipment. So demand has been expanding for the general kinds of merchandise being imported. The growth in August seems a strong hint that this continued into Q3.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050922e.jpg" width="353">
At the same time, we don&#39;t want to set aside concerns for Japan from surging energy costs. Nearly all of Japan&#39;s energy products are imported, so there is a potential for stress on the Japanese economy as oil and gas prices stay high. In that regard, it is interesting that despite the high dollar price of oil, the unit value of petroleum imports for Japan is less than in the prior energy &quot;crisis&quot; in the early 1980s, as seen in the second graph (although later data will no doubt show the unit value higher than the level in the graph, which is only through June). The difference of course is the exchange rate; the much stronger yen is holding back the yen cost of the petroleum. It&#39;s a small favor in the otherwise tenuous Japanese economic environment, but it can moderate the impact of the burdensome energy expenses. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/JAPAN.HTM">Japan Trade</a> Not seasonally adjusted Bil. &yen;</th>
<th scope="col">Aug 2005</th>
<th scope="col">Jul 2005</th>
<th scope="col">Aug 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>5219.2</td>
<td>5536.9</td>
<td>4785.5</td>
<td>5097.5</td>
<td>4545.7</td>
<td>4342.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>5103.0</td>
<td>4666.6</td>
<td>4212.5</td>
<td>4101.4</td>
<td>3696.8</td>
<td>3518.9</td>
</tr>
<tr>
<td class="firstcol">Balance</td>
<td>116.3</td>
<td>870.3</td>
<td>572.9</td>
<td>996.1</td>
<td>848.9</td>
<td>823.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Petroleum Imports*</td>
<td>1240.0</td>
<td>1059.3</td>
<td>899.7</td>
<td>798.1</td>
<td>717.2</td>
<td>615.7</td>
</tr>
<tr>
<td class="firstcol">China: Balance</td>
<td>-287.1</td>
<td>-183.1</td>
<td>-206.7</td>
<td>-183.7</td>
<td>-174.6</td>
<td>-229.0</td>
</tr>
<tr class="odd">
<td class="firstcol">US: Balance</td>
<td>486.7</td>
<td>649.5</td>
<td>474.4</td>
<td>580.6</td>
<td>548.9</td>
<td>636.3</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921c.jpg" width="353">
It is widely observed that there are major dislocations in European labor markets. Debate over reforms of present labor regulations in Germany, for instance, has basically paralyzed the government as last Sunday&#39;s elections gave no party or policy anything close to a majority vote.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921d.jpg" width="353">
Thus, it is interesting that data reported today by Eurostat show that hourly labor costs in Europe have been rising rather modestly, and they compare favorably with similar information for the US. In the overall Euro-Zone, this gauge rose a mere 0.5% in Q2 (2.1% annualized) and was just 2.3% above a year ago. In Germany, where there is much distress in the labor market, the hourly labor cost index edged up just 0.1% in the quarter, and as seen in the table below, just 0.8% from a year ago. Somehow, public discussion of these labor developments gives the impression that the associated costs are quite high. But these costs increasing very slowly, and in the second graph, it is seen that they are retreating rapidly as a share of national income.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921e.jpg" width="353">
In the face of high unemployment in Germany, what we seem to have is an excellent example of a Phillips Curve phenomenon: high unemployment combined with low inflation of labor costs. Generally this is seen as a demand-driven condition, but here it is likely exacerbated by the rigidities in the applicable regulations.
In Europe as a whole, demand appears to be a leading force on labor costs. The correlation of GDP growth (in nominal terms) with labor cost increases is 48% in the same quarter, but with a two-quarter lead for GDP, the correlation jumps to 76%. In the last two quarters the pace of GDP has slowed further, suggesting that it is difficult to look for much improvement in labor compensation over the remainder of this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Hourly Labor Cost Index</th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4 2004</th>
Q4/Q4
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Euro-Zone (SA, 2000=100)</td>
<td>116.0</td>
<td>115.4</td>
<td>114.6</td>
<td>111.8</td>
<td>108.8</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Year/Year % Change*</td>
<td>2.3</td>
<td>3.0</td>
<td>2.2</td>
<td>2.6</td>
<td>3.5</td>
<td>3.6</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.8</td>
<td>1.2</td>
<td>0.5</td>
<td>1.5</td>
<td>2.2</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>2.7</td>
<td>3.3</td>
<td>2.9</td>
<td>2.3</td>
<td>3.8</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>4.4</td>
<td>4.4</td>
<td>4.4</td>
<td>4.0</td>
<td>5.3</td>
<td>7.0</td>
</tr>
<tr class="odd">
<td class="firstcol">US</td>
<td>--</td>
<td>3.4</td>
<td>3.8</td>
<td>4.0</td>
<td>3.2</td>
<td>4.2</td>
</tr>
</tbody>
</table>
</body>
</html>

It is widely observed that there are major dislocations in European labor markets. Debate over reforms of present labor regulations in Germany, for instance, has basically paralyzed the government as last Sunday's elections gave no [...]

Labor Costs Weak in Europe, Following Slow GDP Growth

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921f.jpg" width="353">
In 2Q, the net worth of the US household sector improved 1.9% (9.4% y/y) to a record $49.8 trillion. The gain lifted net worth not to a historical high versus income, but the highest in four years (5.5 times).
Household sector asset values rose 9.7% y/y due to a 13.8% rise in the value of real estate holdings. Financial asset values rose 7.1%, still half the gain in 2003 and held back by higher interest rates which reduced the growth in Treasury security holdings to a negative 2.2% y/y. Money market share values also fell by 4.8%. Higher prices in the stock market helped lift the value of mutual fund shares by 14.0% but the value of corporate equities held directly fell 1.9%.
Growth in total credit market debt outstanding moved slightly higher to 8.5% y/y. Growth in the federal government debt slowed a bit to 7.3% y/y but US household debt growth continued strong at 10.6% y/y while non-financial corporations debt grew a faster 6.9% 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/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a>&nbsp;</th>
<th scope="col">% of Total</th>
<th scope="col">2Q 05&nbsp; (AR) </th>
<th scope="col">1Q 05 &nbsp; (AR)</th>
<th scope="col">2004 &nbsp; </th>
<th scope="col">2003 &nbsp; </th>
<th scope="col">2002 &nbsp; </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>7.9%</td>
<td>7.3%</td>
<td>8.2%</td>
<td>8.9%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>-3.7%</td>
<td>15.9%</td>
<td>9.0%</td>
<td>10.9%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>10.6%</td>
<td>9.7%</td>
<td>11.1%</td>
<td>10.4%</td>
<td>9.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>7.3%</td>
<td>6.4%</td>
<td>4.8%</td>
<td>3.3%</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>9.0%</td>
<td>4.7%</td>
<td>7.3%</td>
<td>10.3%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$49.8</td>
<td>$48.9</td>
<td>$48.3</td>
<td>$44.1</td>
<td>$39.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets</td>
<td></td>
<td>$23.9</td>
<td>$23.2</td>
<td>$22.5</td>
<td>$20.0</td>
<td>$18.4</td>
</tr>
</tbody>
</table>
</body>
</html>

In 2Q, the net worth of the US household sector improved 1.9% (9.4% y/y) to a record $49.8 trillion. The gain lifted net worth not to a historical high versus income, but the highest in four years (5.5 times). Household sector asset [...]

Households' Net Worth Improved Further in 2Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921b.jpg" width="353">
The total number of mortgage applications last week recouped all of the prior period&#39;s decline with a 1.5% increase, according to the Mortgage Bankers Association. Combined with a sharp gain earlier in the month, the rise lifted applications so far in September 2.9% above August.
Mortgage applications to refinance surged 7.0% w/w. The gain raised the September average 2.8% above August which fell 10.6% from July.
Purchase applications fell 2.6%, the first decline in three weeks. The average level in September so far is 3.1% above August. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose to 6.05% after three weeks slightly below 6.0%. The effective rate on a 15-year mortgage also fell to 5.69%, the highest level in a month. The interest rate on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
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>.
Housing Markets and Demographics from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-21.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/16/05</th>
<th scope="col">09/09/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>772.2</td>
<td>760.6</td>
<td>11.8%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>500.3</td>
<td>513.4</td>
<td>9.6%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,353.7</td>
<td>2,198.7</td>
<td>14.7%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications last week recouped all of the prior period's decline with a 1.5% increase, according to the Mortgage Bankers Association. Combined with a sharp gain earlier in the month, the rise lifted [...]

Mortgage Applications Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921b.jpg" width="353">
The total number of mortgage applications last week recouped all of the prior period&#39;s decline with a 1.5% increase, according to the Mortgage Bankers Association. Combined with a sharp gain earlier in the month, the rise lifted applications so far in September 2.9% above August.
Mortgage applications to refinance surged 7.0% w/w. The gain raised the September average 2.8% above August which fell 10.6% from July.
Purchase applications fell 2.6%, the first decline in three weeks. The average level in September so far is 3.1% above August. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose to 6.05% after three weeks slightly below 6.0%. The effective rate on a 15-year mortgage also fell to 5.69%, the highest level in a month. The interest rate on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
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>.
Housing Markets and Demographics from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-21.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/16/05</th>
<th scope="col">09/09/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>772.2</td>
<td>760.6</td>
<td>11.8%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>500.3</td>
<td>513.4</td>
<td>9.6%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,353.7</td>
<td>2,198.7</td>
<td>14.7%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Households' Net Worth Improved Further in 2Q  
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921f.jpg" width="353">
In 2Q, the net worth of the US household sector improved 1.9% (9.4% y/y) to a record $49.8 trillion. The gain lifted net worth not to a historical high versus income, but the highest in four years (5.5 times).
Household sector asset values rose 9.7% y/y due to a 13.8% rise in the value of real estate holdings. Financial asset values rose 7.1%, still half the gain in 2003 and held back by higher interest rates which reduced the growth in Treasury security holdings to a negative 2.2% y/y. Money market share values also fell by 4.8%. Higher prices in the stock market helped lift the value of mutual fund shares by 14.0% but the value of corporate equities held directly fell 1.9%.
Growth in total credit market debt outstanding moved slightly higher to 8.5% y/y. Growth in the federal government debt slowed a bit to 7.3% y/y but US household debt growth continued strong at 10.6% y/y while non-financial corporations debt grew a faster 6.9% 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/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a>&nbsp;</th>
<th scope="col">% of Total</th>
<th scope="col">2Q 05&nbsp; (AR) </th>
<th scope="col">1Q 05 &nbsp; (AR)</th>
<th scope="col">2004 &nbsp; </th>
<th scope="col">2003 &nbsp; </th>
<th scope="col">2002 &nbsp; </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>7.9%</td>
<td>7.3%</td>
<td>8.2%</td>
<td>8.9%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>-3.7%</td>
<td>15.9%</td>
<td>9.0%</td>
<td>10.9%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>10.6%</td>
<td>9.7%</td>
<td>11.1%</td>
<td>10.4%</td>
<td>9.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>7.3%</td>
<td>6.4%</td>
<td>4.8%</td>
<td>3.3%</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>9.0%</td>
<td>4.7%</td>
<td>7.3%</td>
<td>10.3%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$49.8</td>
<td>$48.9</td>
<td>$48.3</td>
<td>$44.1</td>
<td>$39.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets</td>
<td></td>
<td>$23.9</td>
<td>$23.2</td>
<td>$22.5</td>
<td>$20.0</td>
<td>$18.4</td>
</tr>
</tbody>
</table>
Labor Costs Weak in Europe, Following Slow GDP Growth 
by <a href="/comment/Stone.html">Carol Stone</a> September 21, 2005


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921c.jpg">
It is widely observed that there are major dislocations in European labor markets. Debate over reforms of present labor regulations in Germany, for instance, has basically paralyzed the government as last Sunday&#39;s elections gave no party or policy anything close to a majority vote.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921d.jpg">
Thus, it is interesting that data reported today by Eurostat show that hourly labor costs in Europe have been rising rather modestly, and they compare favorably with similar information for the US. In the overall Euro-Zone, this gauge rose a mere 0.5% in Q2 (2.1% annualized) and was just 2.3% above a year ago. In Germany, where there is much distress in the labor market, the hourly labor cost index edged up just 0.1% in the quarter, and as seen in the table below, just 0.8% from a year ago. Somehow, public discussion of these labor developments gives the impression that the associated costs are quite high. But these costs increasing very slowly, and in the second graph, it is seen that they are retreating rapidly as a share of national income.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050921e.jpg" width="353">
In the face of high unemployment in Germany, what we seem to have is an excellent example of a Phillips Curve phenomenon: high unemployment combined with low inflation of labor costs. Generally this is seen as a demand-driven condition, but here it is likely exacerbated by the rigidities in the applicable regulations.
In Europe as a whole, demand appears to be a leading force on labor costs. The correlation of GDP growth (in nominal terms) with labor cost increases is 48% in the same quarter, but with a two-quarter lead for GDP, the correlation jumps to 76%. In the last two quarters the pace of GDP has slowed further, suggesting that it is difficult to look for much improvement in labor compensation over the remainder of this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Hourly Labor Cost Index</th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4 2004</th>
Q4/Q4
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Euro-Zone (SA, 2000=100)</td>
<td>116.0</td>
<td>115.4</td>
<td>114.6</td>
<td>111.8</td>
<td>108.8</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Year/Year % Change*</td>
<td>2.3</td>
<td>3.0</td>
<td>2.2</td>
<td>2.6</td>
<td>3.5</td>
<td>3.6</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.8</td>
<td>1.2</td>
<td>0.5</td>
<td>1.5</td>
<td>2.2</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>2.7</td>
<td>3.3</td>
<td>2.9</td>
<td>2.3</td>
<td>3.8</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>4.4</td>
<td>4.4</td>
<td>4.4</td>
<td>4.0</td>
<td>5.3</td>
<td>7.0</td>
</tr>
<tr class="odd">
<td class="firstcol">US</td>
<td>--</td>
<td>3.4</td>
<td>3.8</td>
<td>4.0</td>
<td>3.2</td>
<td>4.2</td>
</tr>
</tbody>
</table>
</body>
</html>

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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.

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

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Michael J. Moran

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

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

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

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

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

Economy in Brief: September 2005

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Japan's Trade Surplus Shrinks; Petroleum Is Only Part of the Reason

Leading Economic Indicators Post Second Decline

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