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/070118e.jpg" width="353">
December housing starts appeared to gain some forward momentum, with a 4.5% advance. The resulting 1.642M was considerably better than Consensus expectations for renewed decline to 1.563M starts.
For all of 2006 starts of 1.819M was 12.3% below the 2005 total.
However, the December increase was all in multi-family structures. These jumped 42.1% in the month to 412,000, the largest since January. Multi-family building starts have been running just below 350,000 yearly for about the last ten years.
Disappointingly, single-family starts in December turned back down again, losing 4.1% to 1.23M. For the year as a whole, they totaled 1.478M, actually an annual rate not seen since June. This is 14.0% below 2005&#39;s total; as seen in the table below, the month of December was almost 25% below December 2005..<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118f.jpg" width="353">
By region, single-family housing starts in the South lost 5.7% in December (-26.3% y/y); at 642,000, this is 8.6% above October&#39;s low. Single-family starts in the Northeast were off 3.5% (-14.0% y/y). Starts in the Midwest fell 4.7% (-26.4% y/y) and out West, they managed to hold steady at 293,000 for a third consecutive month, down 23.5% December/December.
Building permits gained 5.5% in the month, but here too, the increase was mainly in the volatile multi-family sector. These permits rose 69,000 to 432,000, the best volume since August. Permits to start single-family homes edged up 1.2%, their first increase since January. For the year as a whole, these permits totaled 1.38M, down 18.0% from 2005. Total building permits for the 1.834M, down 15.1% from 2005.
New Federal Reserve Board Governor Frederic Mishkin gave his first speech as a Board Member yesterday in New York. It is titled, appropriately enough, The Role of House Prices in Formulating Monetary Policy and can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070117/default.htm">here</a>. Chairman Bernanke testified this morning before the Senate Budget Committee; his prepared statement, Long-term fiscal challenges facing the United States, can be found <a href="http://www.federalreserve.gov/boarddocs/testimony/2007/20070118/default.htm">here</a>.

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</table>
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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,642</td>
<td>1,572</td>
<td>1,478</td>
<td>-18.0%</td>
<td>1,819</td>
<td>2,073</td>
<td>1,950</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,230</td>
<td>1,282</td>
<td>1,187</td>
<td>-24.7%</td>
<td>1,478</td>
<td>1,719</td>
<td>1,604</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>412</td>
<td>290</td>
<td>291</td>
<td>11.7%</td>
<td>341</td>
<td>354</td>
<td>345</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,596</td>
<td>1,513</td>
<td>1,553</td>
<td>-24.3%</td>
<td>1,834</td>
<td>2,159</td>
<td>2,058</td>
</tr>
</tbody>
</table>
</body>
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December housing starts appeared to gain some forward momentum, with a 4.5% advance. The resulting 1.642M was considerably better than Consensus expectations for renewed decline to 1.563M starts. For all of 2006 starts of 1.819M was [...]

Total Housing Starts Rise, But Single-Family Units Fall Anew

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118c.jpg" width="353">
The December consumer price index (CPI-U) rose 0.5% after November&#39;s flat reading. In fact, this was the first increase since August. The monthly change was in line with consensus expectations at a 0.5% rise. The 12-month inflation was 2.6%, less than 3.4% in 2005.
Prices less food &amp; energy were up 0.2%; they had been unchanged in November. This too matched consensus expectations, at a 0.2% increase. The December-on-December rate was 2.6%, the same as the total.
Core goods prices were unchanged in December, following three consecutive declines; the year-on-year pace was +0.2%. The December mix included gains in apparel (0.6%), tobacco (1.5%) and personal care products (1.9%). Declines included new &amp; used motor vehicles (-0.3%), medical care commodities (0.2%) and audio/video equipment (0.7%). Computer prices were unchanged. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118d.jpg" width="353">
Core services prices repeated their November 0.2% increase. In fact, carried to a second decimal place, December, at 0.20%, had the smallest increase since last January, 0.17%. Shelter slowed back to a 0.3% rise from 0.4% in November; public transportation continued to fall, but just 0.2% in December after 1.9% in November. Information technology and services were down 1.8%, but this was the smallest decline in recent months, following, for instance, 4.2% in November. Medical services were up just 0.2% and education increased 0.5%. Despite the huge rise in personal care products, personal care services inched up only 0.1%.
Energy prices rebounded sharply, up 4.6% on the month. This put them up 3.1% from December 2005. Gasoline prices surged 8.0% in December, heating oil rose 3.2% and piped gas and electricity were up 1.2%.
Food &amp; beverage prices were unchanged in December. Fruits and vegetables prices dropped 1.5%, their second consecutive sizable decline. Cold weather in the South this month, though, may make such declines short-lived. Nonalcoholic beverages, alcoholic beverages and cooking fats and oils also declined. Dairy product prices steadied with a 0.1% rise after their November fall of 0.6%, and prices for meats, poultry, fish &amp; eggs also rose 0.1%, a bit slower than November&#39;s 0.2%. Cereals were up 0.4%, the same as in November.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, was up just 0.1% in December and the chained &quot;core&quot; fell 0.2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.7%</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.6%</td>
<td>-0.2%</td>
<td>3.1%</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.1%</td>
<td>-0.2%</td>
<td>2.4%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>2.3%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
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The December consumer price index (CPI-U) rose 0.5% after November's flat reading. In fact, this was the first increase since August. The monthly change was in line with consensus expectations at a 0.5% rise. The 12-month inflation [...]

CPI Rises 0.5% with Pick-Up in Energy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118a.jpg" width="353">
Initial unemployment insurance claims continued to fall last week, decreasing 8,000 to 290,000, now the lowest level since last February. Consensus expectations had been for 310,000, which would have meant some reversal of the previous week&#39;s decline.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also fell, reaching to 308,000 (+3.7% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118b.jpg" width="353">
In contrast, continuing claims for unemployment insurance rebounded in the January 6 week, with a rise of 120,000 to 2,530,000, almost exactly reversing the prior two weeks&#39; combined 112,000 drop.
The insured rate of unemployment returned to 1.9% after a dip to a downward revised 1.8% in the December 30 week. At the very beginning of 2006, the rate was 2.0%, but since February it has hovered at 1.9%, with the occasional 1.8%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">01/13/07</th>
<th scope="col">01/06/07</th>
<th scope="col">12/30/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>290</td>
<td>298</td>
<td>325</td>
<td>3.2%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,530</td>
<td>2,410</td>
<td>-0.8%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial unemployment insurance claims continued to fall last week, decreasing 8,000 to 290,000, now the lowest level since last February. Consensus expectations had been for 310,000, which would have meant some reversal of the [...]

Initial Unemployment Insurance Claims Fall Again; Low Since Feb 2006

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118e.jpg" width="353">
December housing starts appeared to gain some forward momentum, with a 4.5% advance. The resulting 1.642M was considerably better than Consensus expectations for renewed decline to 1.563M starts.
For all of 2006 starts of 1.819M was 12.3% below the 2005 total.
However, the December increase was all in multi-family structures. These jumped 42.1% in the month to 412,000, the largest since January. Multi-family building starts have been running just below 350,000 yearly for about the last ten years.
Disappointingly, single-family starts in December turned back down again, losing 4.1% to 1.23M. For the year as a whole, they totaled 1.478M, actually an annual rate not seen since June. This is 14.0% below 2005&#39;s total; as seen in the table below, the month of December was almost 25% below December 2005..<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118f.jpg" width="353">
By region, single-family housing starts in the South lost 5.7% in December (-26.3% y/y); at 642,000, this is 8.6% above October&#39;s low. Single-family starts in the Northeast were off 3.5% (-14.0% y/y). Starts in the Midwest fell 4.7% (-26.4% y/y) and out West, they managed to hold steady at 293,000 for a third consecutive month, down 23.5% December/December.
Building permits gained 5.5% in the month, but here too, the increase was mainly in the volatile multi-family sector. These permits rose 69,000 to 432,000, the best volume since August. Permits to start single-family homes edged up 1.2%, their first increase since January. For the year as a whole, these permits totaled 1.38M, down 18.0% from 2005. Total building permits for the 1.834M, down 15.1% from 2005.
New Federal Reserve Board Governor Frederic Mishkin gave his first speech as a Board Member yesterday in New York. It is titled, appropriately enough, The Role of House Prices in Formulating Monetary Policy and can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070117/default.htm">here</a>. Chairman Bernanke testified this morning before the Senate Budget Committee; his prepared statement, Long-term fiscal challenges facing the United States, can be found <a href="http://www.federalreserve.gov/boarddocs/testimony/2007/20070118/default.htm">here</a>.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,642</td>
<td>1,572</td>
<td>1,478</td>
<td>-18.0%</td>
<td>1,819</td>
<td>2,073</td>
<td>1,950</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,230</td>
<td>1,282</td>
<td>1,187</td>
<td>-24.7%</td>
<td>1,478</td>
<td>1,719</td>
<td>1,604</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>412</td>
<td>290</td>
<td>291</td>
<td>11.7%</td>
<td>341</td>
<td>354</td>
<td>345</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,596</td>
<td>1,513</td>
<td>1,553</td>
<td>-24.3%</td>
<td>1,834</td>
<td>2,159</td>
<td>2,058</td>
</tr>
</tbody>
</table>
CPI Rises 0.5% with Pick-Up in Energy 
by <a href="/comment/Stone.html">Carol Stone</a> January 18, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118c.jpg" width="353">
The December consumer price index (CPI-U) rose 0.5% after November&#39;s flat reading. In fact, this was the first increase since August. The monthly change was in line with consensus expectations at a 0.5% rise. The 12-month inflation was 2.6%, less than 3.4% in 2005.
Prices less food &amp; energy were up 0.2%; they had been unchanged in November. This too matched consensus expectations, at a 0.2% increase. The December-on-December rate was 2.6%, the same as the total.
Core goods prices were unchanged in December, following three consecutive declines; the year-on-year pace was +0.2%. The December mix included gains in apparel (0.6%), tobacco (1.5%) and personal care products (1.9%). Declines included new &amp; used motor vehicles (-0.3%), medical care commodities (0.2%) and audio/video equipment (0.7%). Computer prices were unchanged. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118d.jpg" width="353">
Core services prices repeated their November 0.2% increase. In fact, carried to a second decimal place, December, at 0.20%, had the smallest increase since last January, 0.17%. Shelter slowed back to a 0.3% rise from 0.4% in November; public transportation continued to fall, but just 0.2% in December after 1.9% in November. Information technology and services were down 1.8%, but this was the smallest decline in recent months, following, for instance, 4.2% in November. Medical services were up just 0.2% and education increased 0.5%. Despite the huge rise in personal care products, personal care services inched up only 0.1%.
Energy prices rebounded sharply, up 4.6% on the month. This put them up 3.1% from December 2005. Gasoline prices surged 8.0% in December, heating oil rose 3.2% and piped gas and electricity were up 1.2%.
Food &amp; beverage prices were unchanged in December. Fruits and vegetables prices dropped 1.5%, their second consecutive sizable decline. Cold weather in the South this month, though, may make such declines short-lived. Nonalcoholic beverages, alcoholic beverages and cooking fats and oils also declined. Dairy product prices steadied with a 0.1% rise after their November fall of 0.6%, and prices for meats, poultry, fish &amp; eggs also rose 0.1%, a bit slower than November&#39;s 0.2%. Cereals were up 0.4%, the same as in November.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, was up just 0.1% in December and the chained &quot;core&quot; fell 0.2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.7%</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.6%</td>
<td>-0.2%</td>
<td>3.1%</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.1%</td>
<td>-0.2%</td>
<td>2.4%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>2.3%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Fall Again; Low Since Feb 2006 
by <a href="/comment/Stone.html">Carol Stone</a> January 18, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111a.jpg" width="353">
Initial unemployment insurance claims continued to fall last week, decreasing 8,000 to 290,000, now the lowest level since last February. Consensus expectations had been for 310,000, which would have meant some reversal of the previous week&#39;s decline.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also fell, reaching to 308,000 (+3.7% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111b.jpg" width="353">
In contrast, continuing claims for unemployment insurance rebounded in the January 6 week, with a rise of 120,000 to 2,530,000, almost exactly reversing the prior two weeks&#39; combined 112,000 drop.
The insured rate of unemployment returned to 1.9% after a dip to a downward revised 1.8% in the December 30 week. At the very beginning of 2006, the rate was 2.0%, but since February it has hovered at 1.9%, with the occasional 1.8%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><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">01/13/07</th>
<th scope="col">01/06/07</th>
<th scope="col">12/30/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>290</td>
<td>298</td>
<td>325</td>
<td>3.2%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,530</td>
<td>2,410</td>
<td>-0.8%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117f.jpg" width="353">
The US Treasury&#39;s monthly compilation of capital flows shows sizable foreign investment in US securities in November, amounting to $107.4 billion, purchases net of sales. This is modestly more than October&#39;s $104.2 billion and $107.0 billion in November 2005.
Press reports highlight another net figure, foreign investment in US securities less US residents&#39; purchases of foreign securities. These were $39.1 billion in November, putting &quot;net long term securities transactions&quot; at $68.4 billion, down noticeably from October&#39;s $85.3 billion. Since, as we see, foreign purchases were nearly the same, the big difference in the month was the sharp increase in US investor purchases of foreign instruments, which had been $18.9 billion in October, less than half of the November amount. Even more interesting, the major part of that increase came in equities. US investors bought a significant $21.2 billion, $3.8 billion more than last November, which was the previous record amount. Net purchases of foreign bonds were $17.8 billion, which, while less than the equity purchases, was still the third largest month for that market segment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117g.jpg" width="353">
The foreign investments themselves took new paths. Usually months when Treasury refunding operations occur, as in November, contain outsized amounts of foreign purchases of that debt. This was moderately large, at $27 billion, but well down from the year-ago $51.8 billion.
The big difference this month was in corporate bonds. Foreign investors accumulated $63.9 billion in November. The previous record was $58.7 billion in September. The only other month above $50 billion is June 2005, at $50.5 billion. Investors in the UK seem to be the biggest net buyers, although the &quot;clearinghouse&quot; nature of the London markets means that the ultimate purchasers could be anywhere, not just in Britain.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117e.jpg" width="353">
Speaking of countries, the ones show the biggest numbers this month are not who you think. While China has made sizable purchases all year long, they added only $3.1 billion in November, the smallest amount in 19 months. Japan has also not made outsized purchases lately, and some oil exporters [not much data on this sector is available] have actually been net sellers. The biggest gains recently have come from France and offshore Caribbean centers. UK investors have bought considerable volumes this year, but their purchases of US securities were much larger a year ago.
These variations and where they come from are another cautionary signal to us not to put much store in the notion that capital flows only serve to cover the trade deficit. If that were the case, the investments would match the trade partners and they would not likely be in equities or long-term bonds, but in trade financing vehicles, like loans. Global investors look for rate of return opportunities and those may be related to trade flows positively, negatively or not consistently at all. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases from US Residents, Bil $</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Nov 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Last 12 Months</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">1. Domestic Securities</td>
<td>107.4</td>
<td>104.2</td>
<td>107.0</td>
<td>92.4</td>
<td>84.3</td>
<td>76.4</td>
<td>60.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>27.1</td>
<td>26.3</td>
<td>51.8</td>
<td>15.5</td>
<td>28.2</td>
<td>29.3</td>
<td>22.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>14.7</td>
<td>15.2</td>
<td>11.1</td>
<td>22.2</td>
<td>18.3</td>
<td>18.9</td>
<td>13.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>63.9</td>
<td>39.5</td>
<td>38.3</td>
<td>40.8</td>
<td>31.0</td>
<td>25.8</td>
<td>22.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>1.8</td>
<td>23.2</td>
<td>5.7</td>
<td>12.3</td>
<td>6.8</td>
<td>2.4</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">2. Foreign Securities&nbsp;</td>
<td>-39.1</td>
<td>-18.9</td>
<td>-17.7</td>
<td>-19.3</td>
<td>-14.4</td>
<td>-12.7</td>
<td>-4.7</td>
</tr>
<tr>
<td class="firstcol">3. &quot;Other Acquisition&quot;*</td>
<td>-10.4</td>
<td>-10.4</td>
<td>-11.1</td>
<td>-11.8</td>
<td>-11.7</td>
<td>-3.2</td>
<td>-11.6</td>
</tr>
<tr class="odd">
<td class="firstcol">4. Net Foreign Acquisition (1+2+3)</td>
<td>58.0</td>
<td>74.9</td>
<td>78.1</td>
<td>59.7</td>
<td>58.3</td>
<td>60.4</td>
<td>43.7</td>
</tr>
<tr>
<td class="firstcol">5. Short-Term Liabilities</td>
<td>15.6</td>
<td>0.5</td>
<td>2.5</td>
<td>9.4</td>
<td>-4.0</td>
<td>15.8</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">6. Total TIC Flows**&nbsp; </td>
<td>74.9</td>
<td>60.4</td>
<td>88.5</td>
<td>70.3</td>
<td>55.7</td>
<td>81.6</td>
<td>59.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The US Treasury's monthly compilation of capital flows shows sizable foreign investment in US securities in November, amounting to $107.4 billion, purchases net of sales. This is modestly more than October's $104.2 billion and $107.0 [...]

Treasury TIC Data Show Sizable Foreign Investment in November, but Also Record US Investment Abroad

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117c.jpg" width="353">
Total U.S. industrial production rose 0.4% last month but revisions generally had the effect of lowering the gains in output during the prior two months. Consensus expectations had been for a 0.1% December rise.
Factory sector output rose 0.7% but a November&#39;s 0.3% increase was revised to zero. Even so, the strong December brought manufacturing back to within a hairbreadth of its August high.
With a 1.5% (0.1% y/y) increase, production of durable consumer goods added to a slightly revised 1.6% gain in November, recovering further from its October plunge, which was revised lower still to a 2.3% fall. Both automotive products and home electronics had December increases of around 2%.
Nondurable consumer goods output slipped 0.2% (0.8% y/y) a second consecutive monthly decline. November was revised from a 0.1% decrease to -0.4%. Food and energy goods both fell, the former by 0.3% and the latter, 0.8%. Clothing had a nice rebound of 1.4% to partially offset.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117d.jpg" width="353">
Business equipment production jumped 1.6% but both November and October were reduced, November to 0.9% from 1.2% reported before and October, registered a month ago at +0.2%, was trimmed to 0.1%. Output of all major types of equipment -- transit, information processing and industrial -- showed sizable December gains, but the downward revisions, which were the second in a row, leave us a bit cautious about characterizing the overall trend as a vigorous one.
Total industry capacity utilization increased to 81.8% in December from 81.6% in November. This latter period was, however, revised from an initial 81.8% reported last month. Factory sector utilization increased to 80.2% from downwardly revised 79.8% in November and 79.9% in October, both somewhat lower than reported a month ago. Factory sector capacity again rose 0.2%; November&#39;s 2.8% y/y gain represents a slight upward revision, but December&#39;s yearly increase in capacity eased to 2.7%.

<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/output.htm">Production &amp; Capacity</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing (NAICS)</td>
<td>0.7%</td>
<td>0.0%</td>
<td>3.5%</td>
<td>5.0%</td>
<td>4.0%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>1.3%</td>
<td>2.8%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.6%</td>
<td>0.9%</td>
<td>10.4%</td>
<td>11.7%</td>
<td>7.9%</td>
<td>4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.8%</td>
<td>81.6%</td>
<td>81.3% (12/05)</td>
<td>81.8</td>
<td>80.2%</td>
<td>78.1%</td>
</tr>
</tbody>
</table>
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</html>

Total U.S. industrial production rose 0.4% last month but revisions generally had the effect of lowering the gains in output during the prior two months. Consensus expectations had been for a 0.1% December rise. Factory sector output [...]

December Industrial Output Gained, But Vigor Questionable with Downward Revisions

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117a.jpg" width="353">
The producer price index for finished goods gained another 0.9% last month after the 2.0% surge during November. Led by a 2.5% rise in energy prices and a 1.7% increase in food prices, the gain nearly doubled Consensus expectations for a 0.5% rise.
The 0.2% core PPI rise calmed down after November&#39;s surprise 1.3% surge though that was double Consensus expectations for a 0.1% uptick.
The strength in finished energy goods prices was led by a 7.1% (1.8% y/y) surge in gasoline prices and a 4.0% (6.5% y/y) increase in fuel oil prices. Natural gas prices also increased 0.7% (-11.4% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117b.jpg" width="353">
Finished consumer goods prices less food &amp; energy rose 0.2% (2.0% y/y) after the 1.3% November surge. Passenger car prices fell 0.2% (-0.5% y/y) but furniture prices rose 0.1% (2.1% y/y).
Capital equipment prices increased 0.2% (2.3% y/y) as light truck prices rose 0.7% (2.2% y/y) after the 13.7% November spike. 
Intermediate goods prices increased another 0.5% but prices less food &amp; energy fell again with a 0.1% downtick which reflected another decline (-0.4%, +11.6% y/y) in steel mill product prices. 
The crude materials PPI surged again by 2.9% led by a strength in crude petroleum prices which has since reversed. The core crude materials PPI also was firm led by a 12.4% rebound in iron &amp; steel scrap prices (2.8% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.9%&nbsp;</td>
<td>2.0%</td>
<td>&nbsp; 1.2%&nbsp;</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>1.3%</td>
<td>&nbsp;2.0%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.5%</td>
<td>0.7%</td>
<td>2.8%</td>
<td>6.5%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>4.7%</td>
<td>6.1%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>&nbsp;2.9%&nbsp;</td>
<td>15.7%</td>
<td>&nbsp;-2.4%</td>
<td>1.8%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.0%</td>
<td>0.5%</td>
<td>&nbsp;16.8%</td>
<td>20.9%</td>
<td>4.8%</td>
<td>&nbsp;26.5%</td>
</tr>
</tbody>
</table>
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The producer price index for finished goods gained another 0.9% last month after the 2.0% surge during November. Led by a 2.5% rise in energy prices and a 1.7% increase in food prices, the gain nearly doubled Consensus expectations [...]

PPI Still Quite Firm in December

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117a.jpg" width="353">
The producer price index for finished goods gained another 0.9% last month after the 2.0% surge during November. Led by a 2.5% rise in energy prices and a 1.7% increase in food prices, the gain nearly doubled Consensus expectations for a 0.5% rise.
The 0.2% core PPI rise calmed down after November&#39;s surprise 1.3% surge though that was double Consensus expectations for a 0.1% uptick.
The strength in finished energy goods prices was led by a 7.1% (1.8% y/y) surge in gasoline prices and a 4.0% (6.5% y/y) increase in fuel oil prices. Natural gas prices also increased 0.7% (-11.4% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117b.jpg" width="353">
Finished consumer goods prices less food &amp; energy rose 0.2% (2.0% y/y) after the 1.3% November surge. Passenger car prices fell 0.2% (-0.5% y/y) but furniture prices rose 0.1% (2.1% y/y).
Capital equipment prices increased 0.2% (2.3% y/y) as light truck prices rose 0.7% (2.2% y/y) after the 13.7% November spike. 
Intermediate goods prices increased another 0.5% but prices less food &amp; energy fell again with a 0.1% downtick which reflected another decline (-0.4%, +11.6% y/y) in steel mill product prices. 
The crude materials PPI surged again by 2.9% led by a strength in crude petroleum prices which has since reversed. The core crude materials PPI also was firm led by a 12.4% rebound in iron &amp; steel scrap prices (2.8% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.9%&nbsp;</td>
<td>2.0%</td>
<td>&nbsp; 1.2%&nbsp;</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>1.3%</td>
<td>&nbsp;2.0%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.5%</td>
<td>0.7%</td>
<td>2.8%</td>
<td>6.5%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>4.7%</td>
<td>6.1%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>&nbsp;2.9%&nbsp;</td>
<td>15.7%</td>
<td>&nbsp;-2.4%</td>
<td>1.8%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.0%</td>
<td>0.5%</td>
<td>&nbsp;16.8%</td>
<td>20.9%</td>
<td>4.8%</td>
<td>&nbsp;26.5%</td>
</tr>
</tbody>
</table>
December Industrial Output Gained, But Vigor Questionable with Downward Revisions 
by <a href="/comment/Moeller.html">Tom Moeller & Carol Stone</a> January 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117c.jpg" width="353">
Total U.S. industrial production rose 0.4% last month but revisions generally had the effect of lowering the gains in output during the prior two months. Consensus expectations had been for a 0.1% December rise.
Factory sector output rose 0.7% but a November&#39;s 0.3% increase was revised to zero. Even so, the strong December brought manufacturing back to within a hairbreadth of its August high.
With a 1.5% (0.1% y/y) increase, production of durable consumer goods added to a slightly revised 1.6% gain in November, recovering further from its October plunge, which was revised lower still to a 2.3% fall. Both automotive products and home electronics had December increases of around 2%.
Nondurable consumer goods output slipped 0.2% (0.8% y/y) a second consecutive monthly decline. November was revised from a 0.1% decrease to -0.4%. Food and energy goods both fell, the former by 0.3% and the latter, 0.8%. Clothing had a nice rebound of 1.4% to partially offset.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117d.jpg" width="353">
Business equipment production jumped 1.6% but both November and October were reduced, November to 0.9% from 1.2% reported before and October, registered a month ago at +0.2%, was trimmed to 0.1%. Output of all major types of equipment -- transit, information processing and industrial -- showed sizable December gains, but the downward revisions, which were the second in a row, leave us a bit cautious about characterizing the overall trend as a vigorous one.
Total industry capacity utilization increased to 81.8% in December from 81.6% in November. This latter period was, however, revised from an initial 81.8% reported last month. Factory sector utilization increased to 80.2% from downwardly revised 79.8% in November and 79.9% in October, both somewhat lower than reported a month ago. Factory sector capacity again rose 0.2%; November&#39;s 2.8% y/y gain represents a slight upward revision, but December&#39;s yearly increase in capacity eased to 2.7%.

<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/output.htm">Production &amp; Capacity</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing (NAICS)</td>
<td>0.7%</td>
<td>0.0%</td>
<td>3.5%</td>
<td>5.0%</td>
<td>4.0%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>1.3%</td>
<td>2.8%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.6%</td>
<td>0.9%</td>
<td>10.4%</td>
<td>11.7%</td>
<td>7.9%</td>
<td>4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.8%</td>
<td>81.6%</td>
<td>81.3% (12/05)</td>
<td>81.8</td>
<td>80.2%</td>
<td>78.1%</td>
</tr>
</tbody>
</table>
Treasury TIC Data Show Sizable Foreign Investment in November, but Also Record US Investment Abroad 
by <a href="/comment/Stone.html">Carol Stone</a> January 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117f.jpg" width="353">
The US Treasury&#39;s monthly compilation of capital flows shows sizable foreign investment in US securities in November, amounting to $107.4 billion, purchases net of sales. This is modestly more than October&#39;s $104.2 billion and $107.0 billion in November 2005.
Press reports highlight another net figure, foreign investment in US securities less US residents&#39; purchases of foreign securities. These were $39.1 billion in November, putting &quot;net long term securities transactions&quot; at $68.4 billion, down noticeably from October&#39;s $85.3 billion. Since, as we see, foreign purchases were nearly the same, the big difference in the month was the sharp increase in US investor purchases of foreign instruments, which had been $18.9 billion in October, less than half of the November amount. Even more interesting, the major part of that increase came in equities. US investors bought a significant $21.2 billion, $3.8 billion more than last November, which was the previous record amount. Net purchases of foreign bonds were $17.8 billion, which, while less than the equity purchases, was still the third largest month for that market segment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117g.jpg" width="353">
The foreign investments themselves took new paths. Usually months when Treasury refunding operations occur, as in November, contain outsized amounts of foreign purchases of that debt. This was moderately large, at $27 billion, but well down from the year-ago $51.8 billion.
The big difference this month was in corporate bonds. Foreign investors accumulated $63.9 billion in November. The previous record was $58.7 billion in September. The only other month above $50 billion is June 2005, at $50.5 billion. Investors in the UK seem to be the biggest net buyers, although the &quot;clearinghouse&quot; nature of the London markets means that the ultimate purchasers could be anywhere, not just in Britain.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117e.jpg" width="353">
Speaking of countries, the ones show the biggest numbers this month are not who you think. While China has made sizable purchases all year long, they added only $3.1 billion in November, the smallest amount in 19 months. Japan has also not made outsized purchases lately, and some oil exporters [not much data on this sector is available] have actually been net sellers. The biggest gains recently have come from France and offshore Caribbean centers. UK investors have bought considerable volumes this year, but their purchases of US securities were much larger a year ago.
These variations and where they come from are another cautionary signal to us not to put much store in the notion that capital flows only serve to cover the trade deficit. If that were the case, the investments would match the trade partners and they would not likely be in equities or long-term bonds, but in trade financing vehicles, like loans. Global investors look for rate of return opportunities and those may be related to trade flows positively, negatively or not consistently at all. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases from US Residents, Bil $</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Nov 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Last 12 Months</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">1. Domestic Securities</td>
<td>107.4</td>
<td>104.2</td>
<td>107.0</td>
<td>92.4</td>
<td>84.3</td>
<td>76.4</td>
<td>60.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>27.1</td>
<td>26.3</td>
<td>51.8</td>
<td>15.5</td>
<td>28.2</td>
<td>29.3</td>
<td>22.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>14.7</td>
<td>15.2</td>
<td>11.1</td>
<td>22.2</td>
<td>18.3</td>
<td>18.9</td>
<td>13.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>63.9</td>
<td>39.5</td>
<td>38.3</td>
<td>40.8</td>
<td>31.0</td>
<td>25.8</td>
<td>22.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>1.8</td>
<td>23.2</td>
<td>5.7</td>
<td>12.3</td>
<td>6.8</td>
<td>2.4</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">2. Foreign Securities&nbsp;</td>
<td>-39.1</td>
<td>-18.9</td>
<td>-17.7</td>
<td>-19.3</td>
<td>-14.4</td>
<td>-12.7</td>
<td>-4.7</td>
</tr>
<tr>
<td class="firstcol">3. &quot;Other Acquisition&quot;*</td>
<td>-10.4</td>
<td>-10.4</td>
<td>-11.1</td>
<td>-11.8</td>
<td>-11.7</td>
<td>-3.2</td>
<td>-11.6</td>
</tr>
<tr class="odd">
<td class="firstcol">4. Net Foreign Acquisition (1+2+3)</td>
<td>58.0</td>
<td>74.9</td>
<td>78.1</td>
<td>59.7</td>
<td>58.3</td>
<td>60.4</td>
<td>43.7</td>
</tr>
<tr>
<td class="firstcol">5. Short-Term Liabilities</td>
<td>15.6</td>
<td>0.5</td>
<td>2.5</td>
<td>9.4</td>
<td>-4.0</td>
<td>15.8</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">6. Total TIC Flows**&nbsp; </td>
<td>74.9</td>
<td>60.4</td>
<td>88.5</td>
<td>70.3</td>
<td>55.7</td>
<td>81.6</td>
<td>59.8</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.

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.

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tariff Truce, Tenuous Trust

250501J5.jpg

250501K5.jpg

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.

250501L5.jpg

250501M5.jpg

- 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

250501N.jpg

250501O.jpg

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**.

250501P.jpg

250501Q.jpg

- 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

250501A8.jpg

250501B8.jpg

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.

250501C8.jpg

250501D8.jpg

- 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

250430N1.jpg

250430O1.jpg

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 2007

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Total Housing Starts Rise, But Single-Family Units Fall Anew

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Total Housing Starts Rise, But Single-Family Units Fall Anew

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PPI Still Quite Firm in December

PPI Still Quite Firm in December