Louise Curley

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<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100118a.jpg" align="right" border="0" height="265" width="353"></p>
<p>A lot of data from Japan were released today: Industrial
Production, Operating Rates, Retail and Wholesale Trade, Cash Earnings
and Input and Output prices. All the data, except for the input and
output prices which are for December, are for November,</p>
<p>Input prices in the manufacturing industry have risen and
fallen faster than output prices as shown in the first chart.<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100118b.jpg" style="width: 353px; height: 265px;" align="right" height="265" width="353">
The
swings in the price of oil probably account for much of the greater
volatility in input prices than in output prices. While other factors
influence profits, in the manufacturing industry, the performance of
input and output prices has tended to depress profits.</p>
<p>
One of the other factors influencing profits is employment
cost and here the results for manufacturing are positive. Although the
year to year changes in monthly cash wages have recovered from the big
decline of more than 13% in June they were still 4.2% below the year
ago figure in November, as shown in the second chart</p>
<p>Both industrial production and operating rates continue to
improve from the big year over year decline reached in February of this
year, as can be seen in the third chart. Industrial production, which
had declined 37% from February 2008 to February 2009, was 5.5% below
the year ago figure in November. Comparable figures for operating rates
are 44% and 4.1%.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100118c.jpg" style="width: 312px; height: 265px;" height="265" width="312"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100118d.jpg" style="width: 312px; height: 265px;" height="265" width="353">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>JAPAN&nbsp;
(Y/Y% Changes)</b></th>
<th scope="col"><b>Dec 09</b></th>
<th scope="col"><b>Nov 09</b></th>
<th scope="col"><b>Oct 09</b></th>
<th scope="col"><b>Sep 09</b></th>
<th scope="col"><b>Aug 09</b></th>
<th scope="col"><b>July 09</b></th>
<th scope="col"><b>June 09</b></th>
<th scope="col"><b>May 09</b></th>
<th scope="col"><b>Apr 09</b></th>
<th scope="col"><b>Mar 09</b></th>
<th scope="col"><b>Feb 09</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Input Prices (Manufacturing)</td>
<td>-3.50</td>
<td>-8.15</td>
<td>-13.40</td>
<td>-17.30</td>
<td>-19.69</td>
<td>-19.30</td>
<td>-17.33</td>
<td>-15.10</td>
<td>-13.68</td>
<td>-7.93</td>
<td>-8.85</td>
</tr>
<tr>
<td class="firstcol">Output Prices (Manufacturing)</td>
<td>-3.68</td>
<td>-5.72</td>
<td>-8.18</td>
<td>-10.38</td>
<td>-11.30</td>
<td>-11.33</td>
<td>-9.21</td>
<td>-7.82</td>
<td>-6.03</td>
<td>-4.54</td>
<td>-8.81</td>
</tr>
<tr class="odd">
<td class="firstcol">Cash Earnings (Manufacturing)</td>
<td>&nbsp;</td>
<td>-4.17</td>
<td>-2.61</td>
<td>-2.79</td>
<td>-4.37</td>
<td>-8.66</td>
<td>-13.27</td>
<td>-5.34</td>
<td>-5.30</td>
<td>-5.88</td>
<td>-5.42</td>
</tr>
<tr>
<td class="firstcol">Industrial Production
(Manufacturing)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>-5.48</td>
<td>-13.99</td>
<td>-17.28</td>
<td>-18.94</td>
<td>-22.66</td>
<td>-24.63</td>
<td>-27.72</td>
<td>-30.71</td>
<td>-35.02</td>
<td>-36.88</td>
</tr>
<tr class="odd">
<td class="firstcol">Operating Rates&nbsp;
(Manufacturing)</td>
<td>&nbsp;</td>
<td>-4.07</td>
<td>-16.52</td>
<td>-20.04</td>
<td>-20.31</td>
<td>-24.79</td>
<td>-26.93</td>
<td>-32.46</td>
<td>-35.46</td>
<td>-41.15</td>
<td>-44.31</td>
</tr>
<tr>
<td class="firstcol">Wholesale Trade</td>
<td>&nbsp;</td>
<td>-18.75</td>
<td>-24.22</td>
<td>-27.14</td>
<td>-28.04</td>
<td>-29.82</td>
<td>-28.67</td>
<td>-30.35</td>
<td>-27.78</td>
<td>-28.22</td>
<td>-25.74</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Trade</td>
<td>&nbsp;</td>
<td>-1.10</td>
<td>-0.98</td>
<td>-1.35</td>
<td>-1.80</td>
<td>-2.40</td>
<td>-2.91</td>
<td>-2.74</td>
<td>-2.81</td>
<td>-3.80</td>
<td>-5.73</td>
</tr>
</tbody>
</table>
</body></html>

A lot of data from Japan were released today: Industrial Production, Operating Rates, Retail and Wholesale Trade, Cash Earnings and Input and Output prices. All the data, except for the input and output prices which are for December, [...]

Japan Data Show Improvement butIndicators Still Below a Year Ago

Tom Moeller

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<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115i.jpg" style="width: 353px; height: 265px;" align="right">
Improvement
in consumer attitudes continues. The Reuters/University of Michigan
Index of Consumer Sentiment for mid-January ticked up to 72.8 from 72.5
last month. Though the latest figure fell short of Consensus
expectations for a reading of 74.0 it was well improved from the low
last fall. During the last ten years there has been a two-thirds
correlation between the level of sentiment and the three-month change
real consumer spending.</p><p>Sentiment about current economic
conditions increased another 3.8% after its 13.4% jump from November.
The latest was the highest level since March of 2008. Assessments of
current financial conditions improved modestly m/m to the highest since
September of last year. Buying conditions for large household goods,
including furniture, refrigerators, stoves &amp; televisions, also
moved up 4.7% to the highest level since January
2008.</p><p> The mid-January reading on expected economic
conditions fell for the third month in the last four. The 2.0% decline
left it down 8.2% from the September high. The outlook for personal
finances during the next twelve months fell hard to the lowest level
since last March but expectations for business conditions during the
year improved and have more-than doubled since last February.
Expectations for business conditions during the next five years were
unchanged m/m though improved from the 2008 low.</p><p>Expected price
inflation during the next year rose m/m to 3.3% and it was up from the
December 2008 reading of 1.7%.&nbsp;Respondents' view of government
policy, which may eventually influence economic expectations, held
steady following the sharp December decline. Just twelve percent of
respondents thought that a good job was being done by government versus
35% who thought a poor job was being done.</p><p> The
Reuters/University of Michigan survey data are not seasonally adjusted.
The reading is based on telephone interviews with about 500 households
at month-end.&nbsp; These mid-month results are based on about 320
interviews. The summary indexes are in Haver's <b>USECON </b>database
with details in the proprietary <b>UMSCA </b>database.</p><p>
<b>Personal Saving and Economic Growth</b> from the
Federal Reserve bank of St. Louis is available here <a href="http://research.stlouisfed.org/publications/es/09/ES0946.pdf">here</a>.&nbsp;</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115j.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115k.jpg" style="width: 312px; height: 265px;">
<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/@EF/@EF14/@EF1402/@EF1402.HTM" style="color: white;"><b>University of Michigan</b></a></th>
<th scope="col"><b>Mid-January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>Jan y/y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>72.8</td>
<td>72.5</td>
<td>67.4</td>
<td><span>19.0%</span></td>
<td>66.3</td>
<td>63.8</td>
<td>85.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>81.0</td>
<td>78.0</td>
<td>68.8</td>
<td>21.8</td>
<td>69.6</td>
<td>73.7</td>
<td>101.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>67.5</td>
<td>68.9</td>
<td>66.5</td>
<td>16.8</td>
<td>64.1</td>
<td>57.3</td>
<td>75.6</td>
</tr>
</tbody>
</table>
</span></body></html>

Improvement in consumer attitudes continues. The Reuters/University of Michigan Index of Consumer Sentiment for mid-January ticked up to 72.8 from 72.5 last month. Though the latest figure fell short of Consensus expectations for a [...]

Michigan Consumer Sentiment Edges Higher

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<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115f.jpg" style="width: 353px; height: 265px;" align="right">For the U.S.
factory sector, 2009 was rough but activity improved as the year went
on. For the year as a whole industrial production fell 9.7% following a
lesser 2008 decline. In June, however, the decline in activity troughed
and since then is up 4.7% helped by an expected 0.6% December increase.
Though the latest gain was all due to a rise in utility output with
arrival of a winter cold snap, factory sector output alone is up 4.6%
from its trough.</p><p> Output of consumer goods rose 0.6% during December.
Production here is up 4.8% from its trough due to a one-third rise in
auto products output and a 4.4% gain in clothing. Computers, video
&amp; audio output lagged with a 2.2% rate of increase during the
last six months while output of appliances, furniture &amp;
carpeting slipped 0.1%. The latter figure, however, shows some
stabilization after an 18.0% full year decline. Business equipment
output rose 0.9% last month (-9.6% y/y) and reversed the November
decline. Moreover, since the June bottom activity has risen
3.2%.</p><p>Capacity utilization rose further to 72.0%, its highest
level since December 2008 but for the year as a whole the utilization
rate dropped to 70.2%. In the factory sector alone utilization held
steady m/m at 68.8% but dropped to 67.0% for the year from 75.0% in
2008. Utilization in the primary metals area has risen sharply to 58.9%
from a 2009 average of 51.0% with the rebound in output. There's also
been rise in utilization in the motor vehicle sector to 52.2% from a
low of 36.8% in June but it was 77.0% in 2005. In rise in utilization
was accompanied by a 0.1% m/m decline in capacity which was part of a
1.0% December-to-December decline.</p><p>The industrial
production data are available in Haver's <b>USECON</b>
database.</p><p><strong>Is the Great Moderation Over? An
Empirical Analysis </strong>from the Federal Reserve Bank of
Kansas City is available&nbsp; <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/pdf/09q4Clark.pdf">here</a>.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115g.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115h.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>Industrial
Production (SA,%)</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Total Output</b></td>
<td>0.6</td>
<td>0.6</td>
<td>0.2</td>
<td>-2.1</td>
<td>-9.7</td>
<td>-2.2</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;Manufacturing</td>
<td>0.0</td>
<td>0.9</td>
<td>-0.2</td>
<td>-1.9</td>
<td>-11.2</td>
<td>-3.2</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Consumer
Goods</td>
<td>0.6</td>
<td>0.0</td>
<td>0.6</td>
<td>0.3</td>
<td>-5.1</td>
<td>-2.6</td>
<td>0.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Business
Equipment</td>
<td>0.9</td>
<td>-0.7</td>
<td>0.6</td>
<td>-9.6</td>
<td>-12.6</td>
<td>-1.1</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Construction
Supplies</td>
<td>-2.0</td>
<td>1.5</td>
<td>-1.6</td>
<td>-10.1</td>
<td>-17.7</td>
<td>-6.3</td>
<td>-2.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Materials</td>
<td>0.8</td>
<td>1.2</td>
<td>0.1</td>
<td>-0.2</td>
<td>-10.8</td>
<td>-1.9</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>6.0</td>
<td>-2.4</td>
<td>2.6</td>
<td>-0.8</td>
<td>-2.6</td>
<td>0.3</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Capacity Utilization
(%)</b></td>
<td>72.0</td>
<td>71.5</td>
<td>71.0</td>
<td>72.7 (Dec. '08)</td>
<td></td>
<td>77.5</td>
<td>80.6</td>
</tr>
</tbody>
</table>
</span></body></html>

For the U.S. factory sector, 2009 was rough but activity improved as the year went on. For the year as a whole industrial production fell 9.7% following a lesser 2008 decline. In June, however, the decline in activity troughed and [...]

Industrial Output In December Is Lifted By Utilities

Robert Brusca

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115e.jpg" align="left" border="0" height="265" width="353"></p>
<p>Exports in the Euro-Area faltered and fell in November,
dropping for the second month in a row. Even so over three months
export growth is at a strong 16.8% pace and is steadily accelerating.
Imports are at a three month annual rate of 8.5% and also are
accelerating. Despite the relatively better export performance since
exports have dropped for two months running there is concern about
export prospects. With the drop in exports this month as imports
advanced the e-Zone trade surplus naturally receded.</p>
<p>Globally export volume trends are still tuning higher and the
pace appears to be accelerating. In the e-Zone Germany&#8217;s Yr/Yr export
volume performance improved marked between October and November,
improving from a Yr/Yr growth rate of -14% to -3%. The UK (an EU
country) and Japan also made substantial improvements in that period.
US trade made its surge earlier, from August to September.</p>
<p>But for the Zone as a whole exports are not so clearly on
better footing even though they are improving on trend. It could be
that the Zone countries are simply improving at different speeds and
that prevents the overall assessment from improving as rapidly as in
the individual large G-10 countries where exports appear to be doing
much better.</p>
<p>The trends continue to favor positive appraisals of e-Zone
trade but the last two months&#8217; exports have raised some concerns.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="6" scope="col">Euro-Area
TradeTrends For Goods </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="3">% Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr>
<td class="firstcol">Balance*</td>
<td>&#8364;&nbsp; 3,926 </td>
<td>&nbsp;&#8364;&nbsp;&nbsp; 4,726 </td>
<td>&nbsp;&#8364;&nbsp;&nbsp; 4,142 </td>
<td>&nbsp;&#8364;&nbsp;&nbsp; 3,610 </td>
<td>&nbsp;&#8364;&nbsp;&nbsp; 1,098 </td>
</tr>
<tr class="odd">
<td colspan="6">Exports</td>
</tr>
<tr>
<td class="firstcol">All Exp</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>16.8%</td>
<td>10.8%</td>
<td>-9.3%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-1.8%</td>
<td>-1.9%</td>
<td>-5.9%</td>
<td>-13.4%</td>
</tr>
<tr>
<td class="firstcol">Raw materials</td>
<td>--</td>
<td>4.0%</td>
<td>29.7%</td>
<td>17.2%</td>
<td>-6.3%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>1.7%</td>
<td>24.2%</td>
<td>6.5%</td>
<td>-16.3%</td>
</tr>
<tr class="odd">
<td colspan="6">IMPORTS</td>
</tr>
<tr>
<td class="firstcol">All IMP</td>
<td>0.3%</td>
<td>-1.0%</td>
<td>8.5%</td>
<td>5.7%</td>
<td>-16.1%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-5.3%</td>
<td>-16.4%</td>
<td>-14.2%</td>
<td>-11.8%</td>
</tr>
<tr>
<td class="firstcol">Raw materials</td>
<td>--</td>
<td>1.5%</td>
<td>82.1%</td>
<td>12.9%</td>
<td>-32.9%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>-1.6%</td>
<td>-3.0%</td>
<td>-4.6%</td>
<td>-18.2%</td>
</tr>
<tr class="odd">
<td colspan="6" class="firstcol">*Eur mlns;
mo or period
average; Gray shaded areas lag one month</td>
</tr>
</tbody>
</table>
</body></html>

Exports in the Euro-Area faltered and fell in November, dropping for the second month in a row. Even so over three months export growth is at a strong 16.8% pace and is steadily accelerating. Imports are at a three month annual rate [...]

EMU Trade Surplus Shrinks

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115a.jpg" align="right" border="0" height="265" width="353"></p>
<p>Some said earlier that it wouldn't happen, but last year it
did. For all of 2009, <b>consumer prices</b> declined
slightly. The 0.3% drop, the first since 1955, was pulled lower by a
decline in energy prices. Since the energy price decline, which mostly
happened at the end of 2008, prices picked up. December-to-December the
CPI rose 2.7% which was the fastest 12-month increase since October
2008. For December alone, the 0.1% CPI rise fell slightly short of
expectations but followed stronger gains during the prior four months
which were boosted by the rebound in energy prices.</p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115b.jpg" style="width: 353px; height: 265px;" align="right">
It was the weak economy, however, that lessened core pricing
power measured either way. For the full year prices less food &amp;
energy rose 1.7% which was the weakest increase since 2003.
December-to-December prices rose a similar 1.8% and that too was the
weakest 12-month gain since 2003. In the latest few months prices
remained weak, up an expected 0.1% in December after no change during
November.</p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115c.jpg" style="width: 353px; height: 265px;" align="right">
<b>Energy prices</b> posted just a 0.2% increase
last month but the 19.0% 12-month gain reversed most of the 2008
decline. Gasoline prices rose 0.2%, after a strong 6.4% November rise.
They rose by more than half over twelve months and more-than reversed
the 2008 decline. Fuel oil prices also rose a firm 1.7% (2.5% y/y)
following the 7.3% November gain. This 12-month gain reversed just a
piece of the 13.5% decline during 2008. Finally, prices for natural gas
&amp; electricity slipped 0.1% last month and over twelve months
declined 5.2%.</p>
<p><b>Food &amp; beverage prices</b> remained
weak, up just 0.2% in December. Moreover, the 12-month decline of 0.5%
remained near the weakest since 1960. Recent weakness has been led by
lower dairy prices (-7.6% y/y) and lower fruit &amp; vegetable
(-3.0% y/y) costs. Prices for meats, poultry, fish &amp; eggs also
fell 3.8% y/y while cereals &amp; bakery product prices slipped
0.8%. Finally, nonalcoholic beverage prices slipped 0.9% but alcoholic
beverage costs rose 1.9% following 4.5% and 3.8% twelve-month gains in
the prior two years.</p>
<p><b>Core goods prices</b> have been comparatively
firm, rising 0.2% last month and 3.0% since December 2008. The increase
followed little change during the prior several years. Higher tobacco
prices continued to account for much of the recent strength with
roughly a one-third increase y/y. New &amp; used motor vehicles
also firmed considerably. The 0.3% increase last month pulled them up
5.5% since December 2008. That compares with price deflation during the
prior two years. Apparel prices also firmed. The 0.4% December increase
pulled them up 1.9% since December 2008 following price declines which
extend back to 1994. Continuing weak were prices for household
furnishings &amp; operation which were unchanged in December. The
1.1% decline since the end of 2008 reversed a 2.0% increase in 2008.</p>
<p><b>Co</b><b>re services prices</b>
continued weak. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115d.jpg" style="width: 353px; height: 265px;" align="right">
The 0.1% December uptick left them up just 1.3% for the
twelve months which was the weakest increase ever. Weakness in the
housing market continues to accounts for much of that moderation. Last
month, shelter prices were unchanged and rose just 0.3% for the year
after a 2.5% 2008 increase. Owners equivalent rent of primary
residences, a measure not equivalent to other house price measures,
slipped for the fifth month in the last six and rose just 0.7% in 2009
after a 2.1% increase during 2008. Elsewhere in services, public
transportation prices were strong again and posted a 1.4% December
increase which lifted them 3.2% y/y.Medical care services prices
increased 0.2% in December lifting them 3.4% since December 2008.
Finally, education costs remained strong with a 0.4% December increase
that lifted them 4.7% for the whole year after gains in excess of 5%
back to 2000. Recreation prices have really shown the recession's
effect and declined 0.4% in December for the fourth consecutive month
and by 0.4% y/y.</p>
<p>The chained CPI, which adjusts for shifts in consumption
patterns, slipped -0.2% last month and rose 2.8% year-to-year.
Conversely, chained prices less food and energy fell 0.2% for the
second month and the 1.3% full-year increase was the weakest since 2003.</p>
<p>The consumer price data is available in Haver's <b>USECON</b>
database while detailed figures can be found in the <b>CPIDATA</b>
database.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM" ="">Consumer Price Index</a> </b>
(%)</th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>Dec. y/y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.1</td>
<td>0.4</td>
<td>0.3</td>
<td>2.7</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.1</td>
<td>0.0</td>
<td>0.2</td>
<td>1.8</td>
<td>1.7</td>
<td>2.3</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.2</td>
<td>0.2</td>
<td>0.4</td>
<td>3.0</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>-0.0</td>
<td>0.1</td>
<td>1.3</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>0.2</td>
<td>4.1</td>
<td>1.5</td>
<td>19.0</td>
<td>-18.0</td>
<td>13.5</td>
<td>5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.4</td>
<td>1.9</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol"><b><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</b></td>
<td>-0.2</td>
<td>0.0</td>
<td>0.1</td>
<td>2.8</td>
<td>-0.5</td>
<td>3.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>-0.2</td>
<td>-0.2</td>
<td>0.3</td>
<td>1.5</td>
<td>1.3</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

Some said earlier that it wouldn't happen, but last year it did. For all of 2009, consumer prices declined slightly. The 0.3% drop, the first since 1955, was pulled lower by a decline in energy prices. Since the energy price decline, [...]

CPI's 2009 Decline Is First Since 1955

CPI's 2009 Decline Is First Since1955

Carol Stone, CBE

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<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114j.jpg" style="width: 353px; height: 265px;" align="right">
Business
inventories grew again in November, expanding for a second month by
0.4%.&nbsp;These two gains followed 13 consecutive monthly
declines.&nbsp; As in October, the November increase occurred at
wholesalers and manufacturers; retailers apart from motor vehicle
dealers continued to reduce their stocks of merchandise.&nbsp;
Business sales also grew in November and the resulting inventory/sales
ratio fell to 1.28 from 1.30 in October.</p><p> The manufacturing and
wholesale inventories gains were, as in October, largest for petroleum
and also food and farm products.&nbsp; We presume these are mostly
price-driven.&nbsp; In both sectors, there were also some buildup
in stocks of computer equipment and scattered increases in various
metals industries.</p><p>Total retail inventories resumed
downward movement in November after being flat in October.&nbsp;
Cuts were widespread in the nonautomotive segments, especially
including furniture, building materials, clothing and general
merchandise.&nbsp; Auto dealer inventories edged up, but just 0.1%,
after a 0.6% rise in October, and food stores saw marginal increases
both months.</p><p>Retailers' inventory/sales ratio fell to 1.37 from 1.40
in October and 1.60 a year earlier.&nbsp; Wholesalers' sales surged
3.3% in November, pushing their I/S ratio down to 1.14 from 1.17 the
month before.&nbsp; And manufacturers' shipments were up 1.0% in
November, so that their I/S ratio decreased to 1.32 from 1.34 in
October.&nbsp; As indicated in the graph, these stock adjustments
bring the relationship of stocks to sales back to the general range
that was prevailing in the months before the economy's mid-2008
collapse.&nbsp; With such tight inventory control techniques now in
wide use, it's hard to know whether the low inventory positions are so
undesirably "low" compared to sales by now that stronger production
schedules are guaranteed, but at least the necessary corrections do
seem to have been accomplished.</p><p> The business sales and inventory data
are available in Haver's <b>USECON</b> database.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114k.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114l.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>Business
Inventories (%)</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>September</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
<th scope="col"><b>2006</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.4</td>
<td>0.4</td>
<td>-0.5</td>
<td>-11.1</td>
<td>0.6</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.2</td>
<td>0.0</td>
<td>0.5</td>
<td>-12.0</td>
<td>-3.1</td>
<td>2.5</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-0.4</td>
<td>-0.2</td>
<td>-0.7</td>
<td>-6.6</td>
<td>-1.8</td>
<td>2.7</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>1.5</td>
<td>0.6</td>
<td>-0.8</td>
<td>-11.0</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.2</td>
<td>0.6</td>
<td>-1.3</td>
<td>-10.3</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
</span></body></html>

Business inventories grew again in November, expanding for a second month by 0.4%. These two gains followed 13 consecutive monthly declines. As in October, the November increase occurred at wholesalers and manufacturers; retailers [...]

U.S. Business Inventories Show a Second Monthly Gain

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<br>

<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114g.jpg" style="width: 353px; height: 265px;" align="right">The
job
market again deteriorated just slightly last week. The Labor Department
reported that initial claims for jobless insurance rose 11,000 to
444,000 following a 1,000 increase during the prior week. Nevertheless,
claims remained near the lowest level since late in August, 2008 and
were down from the recession peak of 674,000 hit last March. Consensus
expectations has been for an unchanged 433,000. Despite the weekly
gains, the four-week moving average of initial claims also fell to a
new cycle-low of 440,750.</p>
<p>Continuing claims for unemployment insurance
during the latest week again fell sharply. The 211,000 drop was the
largest since late-November and part of a one-third decline since
late-June. Continuing claims were at the lowest level since mid-January
of last year. The overall decline is a function of the improved job
market but also reflects the exhaustion of 26 weeks of unemployment
benefits. Continuing claims provide an indication of workers' ability
to find employment. The four-week average of continuing claims fell to
4,855,00. This series dates back to 1966.&nbsp;·&nbsp;Extended
benefits for unemployment insurance ticked up slightly to 302,272
during the fourth week of December but remained down by one-half from
the peak reached during November of 597,688.</p>
<p> The insured rate of
unemployment also fell to a new low of 3.5%. The rate reached a high of
5.2% during late-June. During the last ten years, there has been a 93%
correlation between the level of the insured unemployment rate and the
overall rate of unemployment published by the Bureau of Labor
Statistics.</p>
<p>The highest insured unemployment rates in the
week ending December 26 were in Alaska (7.4 percent), Oregon (6.6),
Idaho (6.2), Wisconsin (6.2), Michigan (5.9), Montana (5.7), Nevada
(5.7), North Carolina (5.6), Pennsylvania (5.5), and Washington (5.4).
The lowest insured unemployment rates were in Virginia (2.1%), North
Dakota (2.5), Texas (2.6), Maryland (3.0), Florida (3.4), Wyoming
(3.4),&nbsp; Ohio (3.7), Maine (3.7), New York (4.0) and
Mississippi (4.2). These data are not seasonally adjusted but the
overall insured unemployment rate is.</p>
<p>The unemployment insurance
claims data is available in Haver's <b>WEEKLY</b> database
and the state data is in the <b>REGIONW</b> database.</p><p> <strong>Labor
Market Globalization in the Recession and Beyond </strong>from
the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/eclett/2009/el0910.pdf">here</a>.<span>&nbsp;&nbsp;</span></p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114h.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114i.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Unemployment Insurance (000s)</a></b></th>
<th scope="col"><b>1/8/10</b></th>
<th scope="col"><b>1/1/10</b></th>
<th scope="col"><b>12/25/09</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>444</td>
<td>433</td>
<td>432</td>
<td>-17.0%</td>
<td>573</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,596</td>
<td>4,807</td>
<td>2.4%</td>
<td>5,835</td>
<td>3,345</td>
<td>2,552</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.5</td>
<td>3.6</td>
<td>3.5 (1/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</span>
</body></html>

The job market again deteriorated just slightly last week. The Labor Department reported that initial claims for jobless insurance rose 11,000 to 444,000 following a 1,000 increase during the prior week. Nevertheless, claims remained [...]

U.S. Initial Jobless Insurance Claims Higher Again

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

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

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

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

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

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

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

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

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

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

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

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

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

Michael J. Moran

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

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

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

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

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

Personal Income, Consumption, and Prices in March

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

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

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

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

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

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

Economy in Brief: January 2010

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