Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020f.jpg" width="353">
The October Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered just about all of the prior month&#39;s loss. A surge to 17.3 from 2.2 in September compared to Consensus expectations for a lesser gain to 10.0.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub index measuring new orders led the improvement and rose to 18.6 from -0.5 while the shipments index improved moderately to 19.5 from 13.2. The index covering the number of employees surged to 17.0 and landed at the highest level since January. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months recovered more than half of the prior month&#39;s decline and rose to 22.0.
The prices paid index jumped to the highest level since January. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos1005.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>17.3</td>
<td>2.2</td>
<td>27.2</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
</tbody>
</table>
</body>
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The October Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered just about all of the prior month's loss. A surge to 17.3 from 2.2 in September compared to Consensus expectations for a [...]

Philadelphia Fed Activity Index Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020b.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.7% in September following declines of 0.1% during the prior two months. The initial effects of the Gulf hurricanes as well as earlier weakening amongst the leaders&#39; components left the index&#39;s six-month growth at a low 0.9%. Consensus expectations had been for a 0.5% September decline.
The breadth of one month gain amongst the 10 components of the leading index fell to 45%, down from a high of 85% during June. Higher claims for unemployment insurance and lower consumer expectations had the largest negative effects on the leader&#39;s one month change.
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020c.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators fell 0.1% following a downwardly revised 0.1% decline during August. The decline was due mostly to lower industrial output in September although over the prior six months, all of the component series were up.
The lagging indicators rose 0.2% with much of the rise due to a longer average duration of unemployment. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell to its lowest level since late 2003.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">6 Month Chg., AR</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.9%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
</body>
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The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.7% in September following declines of 0.1% during the prior two months. The initial effects of the Gulf hurricanes as well as earlier weakening [...]

Leading Economic Indicators Fell for Third Month

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020a.jpg" width="353">
Initial claims for unemployment insurance dropped 35,000 to 355,000 last week versus a little revised level of 389,000 during the prior period. Consensus expectations had been for 370,000 claims.
The Labor Department indicated that 40,000 initial claims last week were linked to Hurricanes Katrina &amp; Rita.
The latest figure covers the survey period for October nonfarm payrolls and initial claims fell 80,000 (18.4%) from the September period.
The four-week moving average of initial claims fell to 376,000 (+9.3% y/y) from 396,000 during the prior four weeks.
Continuing claims for unemployment insurance rose 35,000 following a deepened 12,000 worker decline during the prior week.
The insured rate of unemployment rose to 2.3% from 2.2% during the prior three weeks. The low in early September was 2.0%.
The latest Beige Book covering US regional economic conditions from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20051019/default.htm"> here</a>.
Remarks by Fed Governor Donald L. Kohn titled The Economic Outlook are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051019/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/15/05</th>
<th scope="col">10/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>355</td>
<td>389</td>
<td>6.0%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Hurricane Related Claims (000, NSA)</td>
<td>40</td>
<td>75</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,370</td>
<td>3.4%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance dropped 35,000 to 355,000 last week versus a little revised level of 389,000 during the prior period. Consensus expectations had been for 370,000 claims. The Labor Department indicated that [...]

Initial Claims for Jobless Insurance Down Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020f.jpg" width="353">
The October Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered just about all of the prior month&#39;s loss. A surge to 17.3 from 2.2 in September compared to Consensus expectations for a lesser gain to 10.0.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub index measuring new orders led the improvement and rose to 18.6 from -0.5 while the shipments index improved moderately to 19.5 from 13.2. The index covering the number of employees surged to 17.0 and landed at the highest level since January. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months recovered more than half of the prior month&#39;s decline and rose to 22.0.
The prices paid index jumped to the highest level since January. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos1005.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>17.3</td>
<td>2.2</td>
<td>27.2</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Fell for Third Month 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020b.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.7% in September following declines of 0.1% during the prior two months. The initial effects of the Gulf hurricanes as well as earlier weakening amongst the leaders&#39; components left the index&#39;s six-month growth at a low 0.9%. Consensus expectations had been for a 0.5% September decline.
The breadth of one month gain amongst the 10 components of the leading index fell to 45%, down from a high of 85% during June. Higher claims for unemployment insurance and lower consumer expectations had the largest negative effects on the leader&#39;s one month change.
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020c.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators fell 0.1% following a downwardly revised 0.1% decline during August. The decline was due mostly to lower industrial output in September although over the prior six months, all of the component series were up.
The lagging indicators rose 0.2% with much of the rise due to a longer average duration of unemployment. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell to its lowest level since late 2003.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">6 Month Chg., AR</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.9%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020a.jpg" width="353">
Initial claims for unemployment insurance dropped 35,000 to 355,000 last week versus a little revised level of 389,000 during the prior period. Consensus expectations had been for 370,000 claims.
The Labor Department indicated that 40,000 initial claims last week were linked to Hurricanes Katrina &amp; Rita.
The latest figure covers the survey period for October nonfarm payrolls and initial claims fell 80,000 (18.4%) from the September period.
The four-week moving average of initial claims fell to 376,000 (+9.3% y/y) from 396,000 during the prior four weeks.
Continuing claims for unemployment insurance rose 35,000 following a deepened 12,000 worker decline during the prior week.
The insured rate of unemployment rose to 2.3% from 2.2% during the prior three weeks. The low in early September was 2.0%.
The latest Beige Book covering US regional economic conditions from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20051019/default.htm"> here</a>.
Remarks by Fed Governor Donald L. Kohn titled The Economic Outlook are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051019/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/15/05</th>
<th scope="col">10/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>355</td>
<td>389</td>
<td>6.0%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Hurricane Related Claims (000, NSA)</td>
<td>40</td>
<td>75</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,370</td>
<td>3.4%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
October Consumer Confidence Rises in Italy, But Nascent Inflation and Unemployment Concerns Raise Questions, Too 
by <a href="/comment/Stone.html">Carol Stone</a> October 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020d.jpg" width="353">
Italian consumer confidence improved noticeably for October, but people also have a more uncertain inflation outlook. The overall confidence index, calculated by ISAE, the Institute for Studies and Economic Analysis, rose 2.4 points from September to 105.3, the highest in a year. Components covering sentiment about the &quot;general&quot; situation and the &quot;future&quot; situation were both up, by 3 and 4 points, respectively, in the month.
At the same time, several details of the survey appear more mixed than the broad indexes might suggest. Household finances are viewed modestly worse: the &quot;household financial situation&quot;, expressed as a favorable/unfavorable balance, is reported at -50 following -48 in September and -44 a year ago. Household budget conditions stand at +5, compared with +8 both a month and a year ago. However, financial expectations are marginally better, at -7 in October from -10 in September but -6 in October 2004. These mixed results imply that consumers are fairly unsure of their finances, but the small size of the moves indicate only hints of nervousness, not decisive moodswings.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020e.jpg" width="353">
Expectations on inflation have changed more, perhaps driven by energy prices. The portion of consumers looking for prices to remain stable has fallen sharply in recent months, as seen in the table below: October&#39;s reading is 41% from 58% in October 2004. Offsets occurred in the groups looking for &quot;large&quot; increases, to 11% from 4%, and &quot;medium&quot; increases, to 21% from 15%. The number &quot;unsure&quot; of what they believe about inflation moved to 8% from 4%.
Consumers&#39; nervousness over their finances and relative uncertainty over inflation are accompanied by a more distinct deterioration in the unemployment outlook. 17% of respondents expect unemployment to rise &quot;sharply&quot; in the coming year, up from just 6% a year ago. Those looking for a &quot;slight&quot; increase ticked down one percentage point to 33% from 34%. Thus, those anticipating that unemployment will go up now constitute exactly half of the survey, from 40% last October. So some parts of this consumer survey may indicate that people are in better moods, but other aspects suggest developing worry and uncertainty over the two major bugaboos in any economy: inflation and unemployment. 

<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/ITALY/@I07/@I07.HTM">Italy ISAE Survey</a></th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Overall Consumer Confidence, Index 1980 = 100, Seasonally Adjusted</td>
<td>105.3</td>
<td>102.9</td>
<td>100.9</td>
<td>101.1</td>
<td>101.4</td>
<td>106.2</td>
<td>115.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; General Situation</td>
<td>83.8</td>
<td>80.8</td>
<td>80.2</td>
<td>94.6</td>
<td>88.6</td>
<td>91.4</td>
<td>105.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Future Situation</td>
<td>101.8</td>
<td>97.8</td>
<td>97.0</td>
<td>104.3</td>
<td>100.8</td>
<td>107.2</td>
<td>113.4</td>
</tr>
<tr>
<td class="firstcol">Prices, Next 12 Mos: % Expecting Large Increase, Not Seasonally Adjusted</td>
<td>11</td>
<td>11</td>
<td>8</td>
<td>4</td>
<td>5</td>
<td>7</td>
<td>16</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Medium Increase</td>
<td>21</td>
<td>19</td>
<td>16</td>
<td>15</td>
<td>14</td>
<td>15</td>
<td>35</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Smaller Increase</td>
<td>17</td>
<td>16</td>
<td>14</td>
<td>17</td>
<td>21</td>
<td>20</td>
<td>13</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Stable</td>
<td>41</td>
<td>45</td>
<td>52</td>
<td>58</td>
<td>54</td>
<td>51</td>
<td>31</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019e.jpg" width="353">
Yesterday&#39;s report by the US Treasury of net purchases of securities by foreign investors indicated the third largest monthly amount ever in August, $91.3 billion. This followed two other sizable amounts, $87.5 billion in July and $81.8 billion in June, making a record large three-month total, $260.6 billion, nearly $20 billion more than the prior record cumulative volume in July 2003.
In one sense, the August data are quirky and may not be sustained. The big total resulted from enormous net purchases of foreign bonds in US markets. Although partly offset by sales of foreign equities, the foreign investor activity in &quot;Yankee&quot; bonds and stocks swung to $3.4 billion in net purchases after 17 consecutive months of net sales.The spurt in foreign bond acquisition to $17 billion is far out of line with prior experience, so it will be interesting to see whether it continues or is quickly reversed.Otherwise, transactions in US securities actually moderated a bit in August. They totaled $87.8 billion, down from $101.2 billion in July. Purchases of federal agencies, so-called &quot;GSEs&quot; (government-sponsored enterprises) dropped back, while corporate bond buying picked up and Treasury purchases continue near their 12-month average of $25.3 billion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019f.jpg" width="353">
Among countries, that swing in foreign securities apparently came from UK investors. It&#39;s important to point out here that these Treasury data represent transactions with the first non-US counterparty, regardless of the nationality of the final owner or seller. Since London is a major global financial center, it could well be investors from elsewhere -- perhaps the Middle East -- who moved out of foreign stocks and into bonds that trade in US markets.China&#39;s participation in US markets decreased to $5.7 billion in net purchases in August, but $13.8 billion in July and $14.7 billion in June made the largest two-month period by far; China&#39;s activity is quite erratic, and the let-up in August is actually fairly moderate compared with a sharp saw-tooth pattern that is frequently in evidence. Japan&#39;s net investments, by contrast, have slowed markedly the last several months after a large increase in 2004 and were only $1.2 billion in August.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$)</th>
<th scope="col">Aug 2005 </th>
<th scope="col">July 2005 </th>
<th scope="col">June 2005 </th>
<th scope="col">Last 12 Months&#39; Average </th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004 </td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total </td>
<td>91.3</td>
<td>87.5</td>
<td>81.8</td>
<td>66.3</td>
<td>63.6</td>
<td>55.3</td>
<td>47.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Treasuries </td>
<td>28.1</td>
<td>28.5</td>
<td>15.8</td>
<td>25.3</td>
<td>29.3</td>
<td>22.0</td>
<td>10.0</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;) </td>
<td>15.6</td>
<td>37.8</td>
<td>20.3</td>
<td>19.8</td>
<td>18.9</td>
<td>13.0</td>
<td>16.3</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds </td>
<td>40.3</td>
<td>24.9</td>
<td>54.4</td>
<td>29.6</td>
<td>25.1</td>
<td>22.1</td>
<td>15.2</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks </td>
<td>3.8</td>
<td>10.0</td>
<td>4.4</td>
<td>5.1</td>
<td>2.4</td>
<td>2.9</td>
<td>4.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds </td>
<td>17.0</td>
<td>-5.1</td>
<td>-1.2</td>
<td>-4.3</td>
<td>-5.6</td>
<td>2.7</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks </td>
<td>-13.5</td>
<td>-8.7</td>
<td>-11.8</td>
<td>-9.4</td>
<td>-7.1</td>
<td>-7.4</td>
<td>-0.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Yesterday's report by the US Treasury of net purchases of securities by foreign investors indicated the third largest monthly amount ever in August, $91.3 billion. This followed two other sizable amounts, $87.5 billion in July and [...]

Foreign Buying of Securities in US Markets 3rd Largest in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019d.jpg" width="353">
According to the Mortgage Bankers Association, the total number of mortgage applications rose 6.1% last week and reversed most of the declines during the prior three periods although applications so far in October remained 4.2% below the September average.
Purchase applications jumped 7.3% w/w and pulled this month&#39;s level 1.5% below September&#39;s which rose 1.0% from August. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance reversed nearly all of the prior week&#39;s decline with a 4.5% rise.
The effective interest rate on a conventional 30-year mortgage rose further to 6.35% and is up from 6.03% averaged in September. The low for 30 year financing was 5.71% in late June. The effective rate on a 15-year mortgage rose to 5.95% and increased from the low of 5.33%. The interest rate on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">10/14/05</th>
<th scope="col">10/07/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>737.5</td>
<td>694.8</td>
<td>3.9%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>503.9</td>
<td>469.5</td>
<td>9.2%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,095.7</td>
<td>2,004.9</td>
<td>-2.8%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
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According to the Mortgage Bankers Association, the total number of mortgage applications rose 6.1% last week and reversed most of the declines during the prior three periods although applications so far in October remained 4.2% below [...]

Mortgage Applications Rose Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019a.jpg" width="353">
Following three consecutive months of decline, the National Association of Home Builders&#39; (NAHB) Composite Housing Market Index gained back in October all of the September drop with a 3.1% increase. Nevertheless the index remained 6.9% below the June peak.
During the last twenty years, year to year changes in the annual composite index had an 85% correlation with the change in single family housing starts.
The m/m increase reflected strong gain throughout the country except in the Northeast.
The October index for sales of single family homes in six months gained back one third of the prior month&#39;s 9.1% drop (-8.9% y/y) while the index for current sales reversed all of a modest September fall (-3.9% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>65</td>
<td>69</td>
<td>68</td>
<td>64</td>
<td>61</td>
</tr>
</tbody>
</table>
</body>
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Following three consecutive months of decline, the National Association of Home Builders' (NAHB) Composite Housing Market Index gained back in October all of the September drop with a 3.1% increase. Nevertheless the index remained [...]

NAHB Housing Market Index Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019c.jpg" width="353">
Housing starts remained firm last month and rose 3.4% m/m to 2.108M units.The prior month&#39;s figure was revised slightly higher and the September gain far outpaced Consensus expectations for a decline to 1.97M starts.
The Census Bureau indicated that the impact of Hurricane Katrina on the figures was minimal.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019b.jpg" width="353">
Single-family starts rose 2.6% due to 6.2% gains in both the South (14.0% y/y) and in the Midwest (7.3% y/y). In the Northeast, single family starts rose 0.7% (17.2% y/y) and in the West single family starts fell 5.3% (+11.7% y/y).
Multi family starts rose 7.8% m/m after an upwardly revised 1.5% August gain.
Federal Reserve Board Vice-Chairman Roger W. Ferguson&#39;s speech on the Economic Outlook for the United States can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051018/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,108</td>
<td>2,038</td>
<td>10.3%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,710</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,747</td>
<td>1,703</td>
<td>12.3%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>361</td>
<td>335</td>
<td>1.1%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,189</td>
<td>2,138</td>
<td>7.4%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts remained firm last month and rose 3.4% m/m to 2.108M units.The prior month's figure was revised slightly higher and the September gain far outpaced Consensus expectations for a decline to 1.97M starts. The Census Bureau [...]

Housing Starts Firm

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

250501J5.jpg

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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.

250501L5.jpg

250501M5.jpg

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

250501N.jpg

250501O.jpg

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

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

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

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

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

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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: October 2005

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Philadelphia Fed Activity Index Recovered

Leading Economic Indicators Fell for Third Month

Initial Claims for Jobless Insurance Down Sharply

Philadelphia Fed Activity Index Recovered

Foreign Buying of Securities in US Markets 3rd Largest in August

Mortgage Applications Rose Sharply

NAHB Housing Market Index Improved

Housing Starts Firm