Carol Stone, CBE

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Initial claims for unemployment insurance declined by 15,000 to 190,000 (-20.8% y/y) during the week ended January 14 from the previous week’s 205,000, which was unrevised.  The Action Economics Forecast Survey had expected a much smaller decrease to 210,000.

The 4-week moving average of initial claims was 206,000, a decrease of 6,500 from the previous week’s average of 212,500, which was also unrevised. It again remained well below an early-August high of 249,500 but also well above an early-April low of 170,500.

In the week ended January 7, continued weeks claimed for unemployment insurance – also known as “insured unemployment” -- increased 17,000 to 1.647 million (-7.3% y/y) from 1,630 million in the prior week, which was revised from 1.634 million. The 4-week moving average was 1.673 million, a decrease of 5,500 from the previous week’s 1.678 million.

The insured unemployment rate in the week ended January 7 was 1.1%, unchanged from the prior week. The insured unemployment rate has held consistently in the range of 1.0% to 1.2% since October. It had been as low as 0.9% between May and July.

In the week ended December 31, the total number of continued weeks claimed in all unemployment insurance programs was 1.894 million, (-11.2% y/y) up from 1.734 million the week prior. This total includes federal employees, newly discharged veterans, extended benefits, and other specialized programs and is not seasonally adjusted. Claims in the Pandemic Unemployment Assistance program and Pandemic Emergency Unemployment Compensation are no longer included in the main Labor Department press release, as both programs have expired.

The insured rates of unemployment in regular programs vary widely across states. The highest insured unemployment rates in the week ending December 31 were in Rhode Island (2.62%), New Jersey (2.58%), Alaska (2.36%), Minnesota (2.32%), and Montana (2.13%). The lowest rates were in Virginia (0.27%), Alabama (0.38%), Kansas and North Carolina (0.40%), and Florida (0.43%).  Other state rates include Massachusetts (2.10%), Pennsylvania (1.79%), and Texas (0.98%).  These state rates are not seasonally adjusted.

Data on weekly unemployment claims going back to 1967 are contained in Haver's **WEEKLY** database, and they are summarized monthly in **USECON**. Data for individual states are in **REGIONW**. The expectations figure is from the Action Economics Forecast Survey, carried in the **AS1REPNA** database.

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-	Claims had been expected to rise slightly.
-	Continued weeks claimed turned back higher in the January 7 week.
-	Insured unemployment rate remained at 1.1% in the week ended January 7.

U.S. Initial Claims for Unemployment Insurance Decrease 15,000 in Latest Week

Tom Moeller

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In a sign that activity in the factory sector came under increasing pressure in the second half of 2022, industrial production declined 0.7% (+1.6% y/y) during December after falling 0.6% in November. Production held steady in October. A 0.1% decline had been expected in the Action Economics Forecast Survey.

By **industry groups**, manufacturing production declined 1.3% in December (-0.5% y/y) after November’s 1.1% drop. Durable goods fell 1.1% (+0.8% y/y) after falling 1.4% in November. Computer & electronic products production fell 1.0% (-2.9% y/y), down for the fourth straight month. Motor vehicle & parts production fell 1.0% (+5.1% y/y) after falling 3.5% in November. Electrical equipment & appliance production weakened 1.5% in December (-0.4% y/y) following a 1.6% drop. Machinery output collapsed 3.4% last month (-2.9% y/y) after a 1.7% decline. Fabricated metal product output fell 1.3% (+1.7% y/y) but primary metals rose 0.8% (-2.8% y/y). 

In the nondurable goods sector, production weakened 1.5% (-1.7% y/y) after falling 0.8% in November. Apparel output weakened 0.4% in December (+10.1% y/y) after rising 1.7% in November, while petroleum & coal product output fell 3.1% (-2.3% y/y) after a 0.6% slip. Chemical output dropped 1.4% (-2.0% y/y) after falling 1.1%. Paper production fell 1.6% (-8.2% y/y), the eighth consecutive monthly decline. Food, beverages & tobacco production declined 1.0% (+0.1% y/y) after slipping 0.1% in November. 

Utilities output rose 3.8% (9.7% y/y) in December after rising 4.5% in November. Mining activity fell 0.9% in December (+5.8% y/y), after dropping 1.2% in the prior month.

By **market groups**, consumer goods output eased 0.1% (+1.7% y/y) in December, following a 0.5% decline. Business equipment production fell 2.0% (+1.5% y/y) while construction supplies production slumped 1.4% (-2.1% y/y).

Amongst **special classifications**, factory output of selected high-tech industries fell 0.2% in December (-0.6% y/y), down for the fifth straight month. Manufacturing production excluding both selected high-tech and motor vehicles & parts fell 1.3% (-0.9% y/y) after a 0.9% decline in November.

Capacity utilization fell to 78.8% in December from 79.4% in November. A 79.6% rate had been expected. Factory utilization fell to 77.5% in December from 78.5% in the prior month. This was the lowest utilization rate since September 2021.

Industrial production and capacity are located in Haver's **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- Factory production falls sharply again.

- Consumer output eases, capital equipment weakens.

- Capacity utilization declines again.


U.S. Industrial Production Declines in December

Winnie Tapasanun

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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo recovered 12.9% m/m (-57.8% y/y) to 35 in January after drops of 6.1% to 31 in December and 13.2% to 33 in November. The January reading was the first monthly increase since December 2021’s 1.2%. A reading of 31 had been expected in the INFORMA Global Markets survey. The January index was well below 83 in January 2022 and 61.1% below the record-high 90 in November 2020. The average HMI level was 59 in 2022, 81 in 2021, and 70 in 2020.

All the three HMI components increased this month. The index of present sales conditions rebounded 11.1% (-55.1% y/y) to 40 in January following 10 consecutive m/m declines. The latest reading was below 89 last January and 58.3% below the record-high 96 in November 2020. The index of expected sales over the next six months rose 5.7% (-54.9% y/y) to 37, the highest level since September, after a 12.9% December rebound to 35 and seven successive m/m drops. The January level was below 82 last January and 58.4% below the peak of 89 in November 2020. The index measuring traffic of prospective buyers gained 15.0% (-66.7% y/y) to 23 in January after holding steady at 20 and falling for eight straight months. The index was below 69 last January and 70.1% below the record-high 77 in November 2020.

All the regional HMIs posted m/m gains this month. The index for the West rebounded 16.0% (-67.4% y/y) to a four-month-high 29 in January vs. a 10.7% drop to 25 in December. The index for the South rose 11.4% (-54.7% y/y) to 39 following a 6.1% December increase and seven consecutive m/m falls. The index for the Midwest recovered 6.7% (-55.6% y/y) to 32 in January after three successive m/m drops. The index for the Northeast was up 6.3% (-52.1% y/y) to 34 this month after unchanged in December and a 31.9% slide in November. These regional series begin in December 2004.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low". The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's **SURVEYS** database. The Informa Global Markets survey is in Haver's **MMSAMER** database.

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- Home builder confidence improves to a three-month high after 12 straight m/m drops.
- All the three HMI components increase m/m with the largest in potential buyers' traffic (+15.0%).
- Regional increase is widespread with the biggest monthly gain in the West (+16.0%).

U.S. Home Builder Index Unexpectedly Rebounds in January

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Consumers continue to retrain spending behavior. Retail sales declined 1.1% (+6.0% y/y) during December following a 1.0% November weakening, revised from -0.6%. A 0.9% decline had been expected in the Action Economics Forecast Survey. Excluding autos, sales also fell 1.1% (+7.0% y/y) after a 0.6% decline in November, revised from -0.2%. A 0.5% weakening had been expected.

Motor vehicle sales declined 1.2% last month (+1.8% y/y) after weakening 2.6% in November. The decline compared to a 5.6% fall in unit vehicle sales which came after 6.1% November drop. Lower prices dragged gasoline station sales down by 4.6% (+5.2% y/y), after falling 1.6% in November. 

Sales amongst other stores were weak. Sales in the retail control group, which excludes autos, building materials, gasoline & restaurants, fell 0.7% (+6.7% y/y) after easing 0.2%% in November. 

Furniture & home furnishing store sales fell 2.5% (+0.3% y/y) after a 2.2% November decline. Electronics & appliance store sales weakened 1.1% (-5.6% y/y) after a 1.2% November drop. Sales of nonstore retailers fell 1.1% (+13.7% y/y) after a 0.1% uptick while apparel sales eased 0.3% (+2.9% y/y) in December following a 0.8% drop. General merchandise sales weakened 0.8% (+3.8% y/y) after two months of slight decline. Sporting goods & hobby shop store sales improved 0.1% (3.9% y/y) after falling 0.3% in November. Building materials store sales rose 0.3% (2.3% y/y) after falling 3.1% in November.

In the nondiscretionary sales categories, food & beverage store sales held steady last month (6.9% y/y) following a 0.4% November increase. Health & personal care store sales declined 0.9% (+2.8% y/y) after a 0.6% rise.

Restaurant & drinking place sales declined 0.9% (+12.1% y/y) after easing 0.1% in November.

The Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Decline is broad-based.

- Discretionary spending weakens.

- Falling gasoline prices accentuate decline.

U.S. Retail Sales Tumble in December

Sandy Batten

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The Producer Price Index for Final Demand fell 0.5% m/m in December following a downwardly revised 0.2% m/m gain in November (initially +0.3% m/m). The y/y rate of advance continued to moderate, slowing to 6.2% y/y in December from 7.3% in November and a recent peak of 11.7% last March. The Action Economics Forecast Survey had expected a 0.1% m/m decline.

The PPI less food, energy and trade services edged up 0.1% m/m in December, in line with expectations, after a 0.3% m/m increase in November. The y/y rate also slowed to 4.6% in December from 4.9% in November and a recent peak of 7.1% in March 2022. The PPI excluding just food and energy prices rose 0.1% last month, also in line with expectations, with the y/y rate slowing to 5.5% from 6.2% in November. 

The December decline was concentrated in lower final demand goods prices, which fell 1.6% m/m (+8.0% y/y) following a 0.1% m/m rise in November. Food prices fell 1.2% m/m in December, their first decline in four months, but were still up 14.3% from a year ago. Energy prices tumbled 7.9% m/m, their second consecutive monthly decline (-3.2% m/m in November) and were up just 9.1% from a year ago, their slowest annual rate of advance since February 2021 and well below the June 2022 peak rate of 52.9%. Nearly half of the December decrease in the index for final demand goods prices can be traced to a 13.4% m/m decline in the price of gasoline. 

By contrast, final demand services prices increased 0.1% m/m in December, a slight slowdown from the 0.2% monthly gains in both October and November. The y/y rate slowed to 5.0% in December, its slowest since April 2021, from 5.8% in November. Much of the increase in services prices in December was due to a 0.3% m/m (8.7% y/y) in the prices of final demand trade services, its largest advance in four months. This reflected a 17.6% m/m jump in margins for fuels and lubricants retailing. Conversely, the index for final demand transportation and warehousing services fell 0.2% m/m, while prices for final demand services less trade, transportation, and warehousing were unchanged.

Construction product prices were unchanged (+18.5% y/y) in December following a 0.1% monthly gain in November. Construction product prices for private capital investment edged up 0.1% (+19.9% y/y) and government construction costs were unchanged (+16.1% y/y).

Intermediate goods prices fell 2.8% m/m (+4.7% y/y) in December, their sixth consecutive monthly decline. Processed food prices fell 0.8% m/m and processed energy goods prices plunged 10.9% m/m, their largest monthly decline since April 2020.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- The first monthly decline in four months.

- Decline concentrated in goods prices; services prices ticked up.

- Headline and core annual rates slowed to slowest pace since March 2021.

U.S. Producer Prices Fell in December

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Total business inventories rose 0.4% m/m (15.1% y/y) in November following 0.2% monthly increases in both September and October. A 0.4% gain had been expected by the Informa Global Markets Survey. Business sales fell 0.8% mm/m (+7.4% y/y), their first monthly decline in four months. The annual pace was the slowest since February 2021. With sales falling while inventories rose, the inventory-to-sales ratio rose to 1.35 in November, its highest level since December 2020, up from 1.33 in October and well above the recent low of 1.25 reached in October 2021.

Retail inventories increased 0.1% m/m in November, their first increase in three months, following a 0.4% monthly decline in October. Motor vehicle inventories increased 1.1% m/m in November after a 0.4% rise in October. Excluding autos, the remainder of inventories slumped 0.3% m/m in November, their third consecutive monthly decline with falls relatively widely spread across sectors. Inventories at furniture, home furnishings, and electronics and appliances stores declined 1.7% m/m in November, their fifth consecutive monthly decline. Inventories at general merchandise stores fell 1.0% m/m in November on top of a 2.7% monthly decline in October and a 4.3% monthly fall in September.

Wholesale inventories gained 1.0% m/m in November after 0.6% monthly increases in both September and October. Manufacturing inventories were unchanged in November following a 0.1% m/m increase in October.

Retail sales slumped 1.1% m/m in November and were reported in a separate release this morning to have fallen 1.2% m/m in December, indicating a very weak holiday selling season. Wholesale sales declined 0.6% m/m in November after having been essentially unchanged in October. Factory shipments declined 0.6% m/m in November, their first decline in four months.

The increase in inventories along with the fall in sales drove up the inventory-to-sales ratio to 1.35 in November, its highest since December 2020. The retail I/S rose to 1.24 from 1.22. The wholesale I/S increased to 1.35 in November, its highest since June 2020, from 1.32 in October. The manufacturing I/S edged up to 1.47 in November from 1.46 in October.

The manufacturing and trade data are in Haver’s **USECON** database. The Informa Global Markets forecast is in the **MMSAMER** database.

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-	Inventories continued to increase.
-	Sales posted first decline since July.
-	Inventory-to-sales ratio rose to highest in nearly two years.

U.S. Business Inventories Rose While Sales Fell in November

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Retail gasoline prices increased yet again in the week ended January 16, rising to $3.31 per gallon (+0.1% y/y) from $3.26 the week before.  This was the third consecutive increase, but the price was still lower than in early December ($3.39) and well below the mid-June peak of $5.01 per gallon. The retail cost of diesel fuel edged down to $4.52 per gallon from $4.55 per gallon (+21.4% y/y) last week. That price had reached a peak of $5.81 per gallon in the third week of June.

West Texas Intermediate crude oil prices rose to an average $77.09 per barrel (-5.5% y/y) in the week ended January 13 from an average of $74.29 the week before, reversing some of that week’s decrease.  The latest week remained well below a high of $120.46 in the second week of June. Nonetheless, yesterday, the price was $80.25 per barrel. The average price of Brent crude oil increased to an average of $80.45 per barrel last week (-5.4% y/y) from $77.20 in the prior week. The price peaked at $127.40 in mid-June. Yesterday, the price was $84.38 per barrel.

The price of natural gas declined to $3.46/mmbtu (-21.7% y/y) in the week ended January 13 after falling to $3.65/mmbtu in the previous week. The latest weeks were down from $6.78/mmbtu in the third week of December. Prices peaked at $9.56/mmbtu in the last week of August, up from a low of $3.56/mmbtu in the last week of December 2021. Yesterday, the price was $3.43/mmbtu.

In the four weeks ended January 6, gasoline demand was down 4.8% y/y after falling 7.0% y/y during the prior four weeks. These declines compare to 15.2% y/y growth at the end of 2021. Demand for all petroleum products was down 4.3% y/y in the latest four weeks, the same as in the prior four week and in contrast to the 14.4% growth at the end of 2021. Crude oil input to refineries fell 3.8% y/y in the latest four weeks.

Gasoline inventories fell 5.8% y/y in the week ended January 6, while crude oil inventories declined 19.4% y/y.

Measured in days’ supply, gasoline inventories in the week ended January 6 rose w/w to 27.4 days but remained below the 30.4 days in late January of last year. The supply of crude oil rose to 29.0 days, the largest since 29.6 days in mid-June 2021. 

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price data can be found in Haver’s **WEEKLY** and **DAILY** databases. Greater detail on prices, as well as the demand, production and inventory data are in **USENERGY**.

- Gasoline prices up, but still down from early December.

- Crude oil prices reverse some of recent decline. 

- Natural gas prices decline slightly in latest week after sharp drop the week before.

U.S. Crude Oil and Gasoline Prices Rise

Kathleen Stephansen, CBE

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Mortgage applications rose 27.9% (-59.8% y/y) in the week ended January 13 from the week ended January 6, when they rose 1.2% (-67.8% y/y).  These data come from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey.  Applications for loans to purchase a house rose 24.7% (-35.0% y/y) in the week ended January 13 following a small decline of 0.5% (-43.8% y/y) in the week ended January 6.  Applications for refinancing a loan jumped 34.2% (-80.8% y/y) in the January 13 week after a rise of 5.1%% (-86.1% y/y) the week prior.

The share of applications for refinancing an existing loan was 31.2% in the week of January 13, up from 30.7% the week prior. The percentage of applications that were ARMs was 6.6% in the January 13 week, down from 7.3% in the week ended January 6. 

The effective rate on a 30-year fixed-rate loan declined by 20 bps to 6.43% in the week ended January 13, its lowest level since September 2022. Similarly, the rate on 15-year fixed-rate mortgages dropped 38 bps to 5.72% in the week of January 13. The rate on 30-year Jumbo loans declined by 8 bps to 6.20% in the January 13 week. The rate on the 5-year ARM declined 6 bps to 5.58%.

The average loan size rose 2.3% w/w to $358,100 in the week ended January 13. The series high of $401,900 was reached in the week ended May 6. The average size of a purchase loan rose 3.2% w/w to $401,300 in the week ended January 13. The average loan size to refinance a mortgage rose 0.4% w/w to $262,700 in the January 13 week.

The Mortgage Bankers Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver's **SURVEYS** database.

-	Total mortgage applications jumped 27.9% in the week of January 13.
-	Applications for loans to both purchase and refinance increased by double-digit percentages.
-	The average effective rates on loans reached their lowest levels since September 2022.

U.S. Mortgage Applications Rebounded in the Latest Week

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

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

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

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

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

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

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

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

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Initial claims for unemployment insurance rose 18,000 in the week ended April 26 to 241,000, seasonally adjusted.  This is higher by 16,000 than the Action Economics Forecast Survey amount of 225,000 and is the largest amount since the week of February 22. The previous week’s actual count was revised up by 1,000 to 223,000, from 222,000 reported initially.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: January 2023

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