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/050120e.jpg" width="353">
UK businesses experienced less widespread gains in domestic (or &quot;home&quot;) sales in Q4 than earlier in 2004, according to the quarterly survey of the British Chambers of Commerce (&quot;BCC&quot;). The UK economy experienced good growth from the middle of 2003 to the middle of 2004, but this survey hints that some slowing may be in process.
Manufacturers&#39; sales conditions stood at +16 in Q4, down from +20 in Q3 and below the year&#39;s average of +19. These data are percent balance figures, the percentage of firms reporting sales gains less the percentage with sales declines. Manufacturers also report weaker employment, down at only +3 in Q4. However, several items in the survey showed more strength, export sales in particular, which picked up to +20 from +12. Profitability expectations also firmed, although these tend to be steadier and more optimistic than other survey items. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120d.jpg" width="353">
The service sector -- almost five times larger than manufacturing in terms of value added -- saw roughly the same pattern of activity. Domestic sales gains edged down from +30 to +29 in the quarter and orders eased from +23 to +21. However, employment in that sector looks better, advancing from +18 to +20. Export sales and orders both firmed, and profit expectations gained 6 percentage points. These last, however, remain lower than earlier in 2004.
This is an interesting survey, including a number of descriptive items: among others, employment expectations as well as current levels of employment and the characteristics of recruitment that follow from those expectations. Further, as noted in the two graphs here, the domestic sales measures in both the manufacturing and service sectors correspond well to year-on-year growth patterns in the national accounts &quot;value added&quot; data, with the highest correlations for a one-quarter lead-time in the BCC series. In manufacturing the correlation ratio is 73% and in services it is 83%. Thus, these survey results would bear consideration by business planners and government policymakers alike. Obviously, the high correlation ratios don&#39;t guarantee a specific outturn in value-added growth, but they do suggest that continued slowing in UK growth must be deemed a reasonable contingency.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Balance</th>
<th scope="col">Q4 2004</th>
<th scope="col">Q3 2004</th>
<th scope="col">Q2 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="7">Manufacturing</td>
</tr>
<tr>
<td class="firstcol">&quot;Home&quot; Sales</td>
<td>16</td>
<td>20</td>
<td>21</td>
<td>19</td>
<td>7</td>
<td>14</td>
</tr>
<tr class="odd">
<td class="firstcol">Export Sales</td>
<td>20</td>
<td>12</td>
<td>15</td>
<td>17</td>
<td>4</td>
<td>6</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>3</td>
<td>19</td>
<td>10</td>
<td>12</td>
<td>-3</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">Profitability Confidence</td>
<td>35</td>
<td>24</td>
<td>35</td>
<td>33</td>
<td>32</td>
<td>33</td>
</tr>
<tr>
<td colspan="7">Services</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Home&quot; Sales</td>
<td>29</td>
<td>30</td>
<td>38</td>
<td>32</td>
<td>21</td>
<td>24</td>
</tr>
<tr>
<td class="firstcol">Export Sales</td>
<td>17</td>
<td>13</td>
<td>11</td>
<td>12</td>
<td>1</td>
<td>5</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>21</td>
<td>18</td>
<td>20</td>
<td>19</td>
<td>9</td>
<td>13</td>
</tr>
<tr>
<td class="firstcol">Profitability Confidence</td>
<td>41</td>
<td>35</td>
<td>47</td>
<td>43</td>
<td>37</td>
<td>41</td>
</tr>
</tbody>
</table>
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UK businesses experienced less widespread gains in domestic (or "home") sales in Q4 than earlier in 2004, according to the quarterly survey of the British Chambers of Commerce ("BCC"). The UK economy experienced good growth from the [...]

UK's BCC Survey for Q4 Points to Slower Growth

Tom Moeller

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<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120c.jpg" width="353">
The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January.
Through December, the price of gasoline relative to the nonenergy Consumer Price Index had fallen 5.6% from the high in October. The relative gasoline price also was down nearly one third from the high averaged during 1981. However, the 58% increase in the &quot;real&quot; price of gasoline during the last three years rivals the increase into early 1981.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120b.jpg" width="353">
The price of oil also firmed with the price of West Texas Intermediate crude last week rising to $48.39 from the lows below $42 last month. This week, crude oil prices have firmed another dollar.
Wholesale natural gas prices have moderated some. At $6.02/mmbtu last week, natural gas prices were down from last year&#39;s weekly highs over $7.00 but remained up from year ago levels.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Hard &quot;Core&quot; Inflation from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050201/cover.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/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">01/17/05</th>
<th scope="col">12/31/04</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">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$1.82</td>
<td>$1.79</td>
<td>14.0%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$48.39</td>
<td>$41.78</td>
<td>35.2%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
</tr>
</tbody>
</table>
</body>
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The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January. Through December, the price of gasoline relative to the nonenergy Consumer Price Index [...]

Gasoline Prices Firmer

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120a.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during 2004.
Six-month growth in the leaders stabilized at -1.4%. Six month growth in the leaders deeper than -2.5% preceded past US recessions.
The breadth of one month gain amongst the 10 components of the leading index narrowed to 45% from a widened 70% in November. However, the six month breadth improved to 60%, the best since May. The largest positive contributions were made in December by consumer expectations, stock prices and the money supply.
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.
A longer leading indicator, the ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess rose again to a record high.
The coincident indicators rose 0.3% after an upwardly revised gain in November. The six-month growth rate rose to 0.5%. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
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.
The latest Beige Book covering regional economic activity from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20050119/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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</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>0.3%</td>
<td>-1.4%</td>
<td>2.8%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>-1.0%</td>
<td>-2.2%</td>
<td>-2.8%</td>
</tr>
</tbody>
</table>
</body>
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The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during [...]

Leading Indicators Rose Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120a.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during 2004.
Six-month growth in the leaders stabilized at -1.4%. Six month growth in the leaders deeper than -2.5% preceded past US recessions.
The breadth of one month gain amongst the 10 components of the leading index narrowed to 45% from a widened 70% in November. However, the six month breadth improved to 60%, the best since May. The largest positive contributions were made in December by consumer expectations, stock prices and the money supply.
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.
A longer leading indicator, the ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess rose again to a record high.
The coincident indicators rose 0.3% after an upwardly revised gain in November. The six-month growth rate rose to 0.5%. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
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.
The latest Beige Book covering regional economic activity from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20050119/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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</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>0.3%</td>
<td>-1.4%</td>
<td>2.8%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>-1.0%</td>
<td>-2.2%</td>
<td>-2.8%</td>
</tr>
</tbody>
</table>
Gasoline Prices Firmer 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 20, 2005


<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120c.jpg" width="353">
The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January.
Through December, the price of gasoline relative to the nonenergy Consumer Price Index had fallen 5.6% from the high in October. The relative gasoline price also was down nearly one third from the high averaged during 1981. However, the 58% increase in the &quot;real&quot; price of gasoline during the last three years rivals the increase into early 1981.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120b.jpg" width="353">
The price of oil also firmed with the price of West Texas Intermediate crude last week rising to $48.39 from the lows below $42 last month. This week, crude oil prices have firmed another dollar.
Wholesale natural gas prices have moderated some. At $6.02/mmbtu last week, natural gas prices were down from last year&#39;s weekly highs over $7.00 but remained up from year ago levels.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Hard &quot;Core&quot; Inflation from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050201/cover.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/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">01/17/05</th>
<th scope="col">12/31/04</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">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$1.82</td>
<td>$1.79</td>
<td>14.0%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$48.39</td>
<td>$41.78</td>
<td>35.2%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050119g.jpg" width="353">
Net purchases of securities by foreign investors in US markets surged to $81 billion in November, the largest in five months, and well above October&#39;s $48.3 billion. These increasingly prominent data are from the US Treasury&#39;s monthly Treasury International Capital (&quot;TIC&quot;) tabulation and were released yesterday. They are contained in Haver&#39;s USINT database in the section &quot;US International Investment Tables&quot;, shown by security type and country. They cover purchases and sales of securities with maturities longer than one year.
Foreign investors increased their net buying of every major type of domestic securities in November and reduced their liquidation of foreign bonds sold in US markets. The only sector where their net sales increased was foreign stocks traded in the US. Among countries, investors in several major regions increased their participation in US markets. Japanese net purchases were $19.8 billion, up from $4.8 billion in October. Chinese investors increased their purchases, mainly of Treasuries, to $13.9 billion from $6.4 billion the month before. UK investors bought on net $29.8 billion, heavily in equities.
These securities purchases have over long spans of time been highly correlated -- negatively -- with the current account balance. As seen in the graph, over the past 25 years, this correlation has stood at a substantial 95%! In one sense this is almost tautological: balance of payments accounting means a rising current account deficit must be accompanied by increasing foreign investment. But there are several other types of financial participation not covered by the TIC report: all short-term securities, bank loans, trade credit, direct investment and so on. So there are plenty of other ways to &quot;finance&quot; the current account. At the same time, some observers believe that a rising current account deficit is itself so indicative of fundamental imbalances in a country&#39;s economy, that it should discourage foreign participation in that nation&#39;s capital markets. There is some slight evidence that this might have occurred in 2004 as foreign securities purchases look to have interrupted their seemingly ever-expanding trend. However, as noted in the tight correlation ratio cited above, past performance suggests the current account per se has not bothered them before. Instead, they perhaps are asking the same kinds of questions that domestic investors ask: how will the US economy respond to the surge in energy prices? how is confidence impacted by the war in Iraq? are US consumers carrying too much debt? Before the election, uncertainty was even greater, and these November figures do indicate that once that question was answered, foreign investors resumed more vigorous activity in US financial markets. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$)</th>
<th scope="col">Nov 2004</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Last 12 Months Average </th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>81.0</td>
<td>48.3</td>
<td>61.1</td>
<td>69.0</td>
<td>57.0</td>
<td>47.9</td>
<td>41.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Treasuries</td>
<td>32.0</td>
<td>20.9</td>
<td>16.6</td>
<td>31.3</td>
<td>22.8</td>
<td>10.0</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;)</td>
<td>27.9</td>
<td>21.9</td>
<td>8.4</td>
<td>18.5</td>
<td>13.8</td>
<td>16.3</td>
<td>13.7</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds</td>
<td>25.3</td>
<td>19.1</td>
<td>43.6</td>
<td>23.4</td>
<td>22.4</td>
<td>15.2</td>
<td>18.5</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks</td>
<td>14.5</td>
<td>3.5</td>
<td>-2.9</td>
<td>2.7</td>
<td>3.2</td>
<td>4.2</td>
<td>9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds</td>
<td>-2.6</td>
<td>-4.5</td>
<td>-0.8</td>
<td>0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks</td>
<td>-16.1</td>
<td>-12.6</td>
<td>-3.8</td>
<td>-7.6</td>
<td>-6.9</td>
<td>-0.1</td>
<td>-4.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Net purchases of securities by foreign investors in US markets surged to $81 billion in November, the largest in five months, and well above October's $48.3 billion. These increasingly prominent data are from the US Treasury's monthly [...]

Net Foreign Purchases of Securities in US Market Up Sharply in November

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050119f.jpg" width="353">
Mortgage applications rebounded 16.2% last week following three weeks of decline according to the Mortgage Bankers Association (MBA) Survey.
Refi&#39;s led the gain with a 19.1% rise and so far this year are 2.4% higher than in December.
Purchase applications also rose 14.0% w/w. Nevertheless, the level of purchase applications were 10.6% below the December average which fell 0.3% from November. During the last ten years there has been a 59% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-year mortgage slipped to 5.89% versus an average 6.05% during 2004 and 5.95% in December. The effective rate on a 15-year mortgage also fell to 5.44% last week.
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%">
<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">01/14/05</th>
<th scope="col">01/07/05</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>682.9</td>
<td>587.8</td>
<td>-25.5%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>448.1</td>
<td>393.1</td>
<td>-10.7%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,048.6</td>
<td>1,720.5</td>
<td>-38.4%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
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Mortgage applications rebounded 16.2% last week following three weeks of decline according to the Mortgage Bankers Association (MBA) Survey. Refi's led the gain with a 19.1% rise and so far this year are 2.4% higher than in December. [...]

Mortgage Applications Rebound

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050119e.jpg" width="353">
Chain store sales fell another 0.9% last week ion top of the 0.6% decline the week earlier, according to the International Council of Shopping Centers (ICSC)-UBS survey.
Despite the weekly declines, sales in January are 1.6% ahead of the December average.
During the last ten years there has been a 58% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.
The leading indicator of chain store sales from ICSC dropped for the third consecutive week (-1.4% y/y).
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of 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>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/15/05</th>
<th scope="col">01/08/05</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">Total Weekly Chain Store Sales</td>
<td>443.9</td>
<td>447.9</td>
<td>4.1%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
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Chain store sales fell another 0.9% last week ion top of the 0.6% decline the week earlier, according to the International Council of Shopping Centers (ICSC)-UBS survey. Despite the weekly declines, sales in January are 1.6% ahead of [...]

Chain Store Sales Slipped Further

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With a 48,000 w/w decline to 319,000 last week, initial claims for unemployment insurance reversed all of the gains during the prior two weeks and fell to the lowest level in a month. Consensus expectations had been for 345,000 claims.
The latest figure is for the survey period for January nonfarm payrolls and it was 12,000 (3.6%) below the December period.
The four week moving average of initial claims fell to 341,000 (-4.1% y/y).
During the last ten years there has been a (negative) 82% correlation between the level of initial claims and the y/y change in payroll employment.
Continuing claims for unemployment insurance rose 47,000 and reversed just some of the huge 209,000 drop the week prior.
The insured rate of unemployment was stable at 2.1%.

<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">01/15/05</th>
<th scope="col">01/08/05</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>319</td>
<td>367</td>
<td>-10.6%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,694</td>
<td>-15.4%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
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With a 48,000 w/w decline to 319,000 last week, initial claims for unemployment insurance reversed all of the gains during the prior two weeks and fell to the lowest level in a month. Consensus expectations had been for 345,000 [...]

Initial Claims for Unemployment Insurance Down

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

250501Z2.jpg

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

250501Z3.jpg

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

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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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

Winnie Tapasanun

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The value of construction put in place unexpectedly fell 0.5% m/m in March after rises of 0.6% in February (+0.7% initially) and 0.1% in January (-0.5% previously), data from the U.S. Census Bureau showed. The March reading was the first m/m fall following five straight m/m gains. A 0.3% m/m March rise had been expected in the Action Economics Forecast Survey. The year-on-year rate of increase decelerated to 2.8% in March, the lowest since May 2019, after registering at 3.4% in February and January. The latest y/y figure was lower than 8.7% in March 2024; thus, having remained below its recent high of 9.8% in January 2024 and a peak of 18.6% in April 2022.

Private construction slid 0.6% (+2.3% y/y) in March, down for the first time since September, following increases of 0.7% in February (+0.9% initially) and 0.1% in January (-0.7% previously). Residential private construction fell 0.4% (+2.8% y/y) in March, the first m/m fall in six months, after an unrevised 1.3% gain in February. Home improvement building dropped 1.2% (+13.4% y/y), the first m/m decline since December, following a 2.3% February gain; it was 41.1% of the residential private construction. Single-family building edged up 0.1% (-0.8% y/y), the smallest of seven consecutive m/m increases, after a 0.8% February rise; it was 46.6% of the residential private construction. Meanwhile, multi-family building was essentially unchanged m/m (-12.1% y/y) in March following 15 straight m/m decreases; it was 12.3% of the residential private construction.

Nonresidential private construction fell 0.8% (+1.6% y/y) in March after a 0.1% increase in February (+0.4% initially) and a 0.1% easing in January (-0.2% previously). The March fall reflected m/m drops in the following nonresidential private constructions. These included religious (-2.9%; +16.4% y/y), health care (-2.2%; -5.2% y/y), office (-1.8%; +2.7% y/y), educational (-1.7%; -4.2% y/y), lodging (-1.6%; -1.0% y/y), commercial (-1.0%; -5.8% y/y), manufacturing (-0.4%; +3.6% y/y), communication (-0.3%; +2.2% y/y), and utilities (-0.1%; +7.0% y/y). In contrast, private constructions for amusement & recreation (1.5%; 7.0% y/y) and transportation (0.7%; 10.2% y/y) rose m/m in March.

The value of public construction declined 0.2% (+4.7% y/y) in March after holding steady in February (+0.2% initially), reflecting a 0.2% increase (-1.9% y/y) in residential public construction and a 0.2% easing (+4.8% y/y) in nonresidential public construction. The March decline reflected m/m drops in the following nonresidential public constructions. These included utilities (-4.8%; -12.8% y/y), commercial (-1.6%; +40.3% y/y), amusement & recreation (-1.0%; +19.1% y/y), educational (-0.6%; +7.6% y/y), sewage & waste disposal (-0.6%; +10.6% y/y), and health care (-0.4%; +13.0% y/y). Notably, spending on highways & streets, which made up 28.7% of public construction spending, fell 0.5% (-2.4% y/y) in March, the first m/m fall since October, following a 0.9% increase in February. To the upside, the following public constructions rose m/m in March: office (1.6%; 6.0% y/y), transportation (1.4%; 7.3% y/y), public safety (0.7%; 4.1% y/y), conservation & development (0.6%; 4.7% y/y), and water supply (0.6%; 12.2% y/y).

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- March construction spending -0.5% m/m; +2.8% y/y, the lowest y/y rate since May ’19.
- Residential private construction -0.4% m/m, led by a 1.2% drop in home improvement building.
- Nonresidential private construction -0.8% m/m, down for the second month in three.
- Public sector construction -0.2% m/m, reflecting a 0.2% decline in nonresidential public building.

U.S. Construction Spending Unexpectedly Drops in March, the First M/M Fall Since September

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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 to 223,000, from 222,000 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.

Economy in Brief: January 2005

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UK's BCC Survey for Q4 Points to Slower Growth

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