Tom Moeller

November housing starts recovered less than half of the previous month's little revised decline with a 6.7% increase. The gain to 1.588M was slightly better than Consensus expectations for a rise to 1.54M starts. The year-to-date [...]

Housing Starts Recover A Bit

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218c.jpg" width="353">
The Euro Zone&#39;s surplus on trade in October declined to 1,710.7 million euros from 2,418.0 million euros in September, but was 2,927.8 million euros above the deficit of 1,217.1 million euros in October, 2005. The traditional surplus on trade that the Euro Zone had enjoyed was turned into a deficit in mid 2005, due in part to increased oil imports and in part to the unrelenting surge in imports from China. The first chart shows the balance of trade for the Euro Zone with the rest of the world.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218d.jpg" width="353">
As the second chart shows the deficit with OPEC appears to have stabilized in recent months, but that with China continues to widen. Imports from China now exceed those from the United States, which had been the largest source of imports after the United Kingdom. The third chart compares imports from China with those from the US. While imports from China are now lower than those from the UK, the recent growth in these imports suggest it will not be too long before they exceed imports from the UK as can be seen in the fourth chart.
The imbalances resulting from China&#39;s growing surplus on its trade account with the Euro Zone is adding to the pressure already being exerted by the US to appreciate the Chinese Yuan. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218f.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">EURO ZONE TRADE IN GOODS (Mil. Euro)</th>
<th scope="col">Oct&nbsp; 06</th>
<th scope="col">Sep 06</th>
<th scope="col">Oct 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Balance of Trade</td>
<td>1,710.7</td>
<td>2,418.0</td>
<td>-1,217.1</td>
<td>-702.3*</td>
<td>2,927.8*</td>
<td>16,835.0</td>
<td>71,537.1</td>
<td>69,723.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>-7,764.8</td>
<td>-7,391.0</td>
<td>-6,512.4</td>
<td>-373.8*</td>
<td>-1,252.4*</td>
<td>-74,705.5</td>
<td>-51,792.9</td>
<td>-39,279.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; OPEC</td>
<td>-4,321.9</td>
<td>-3,265.7</td>
<td>-4,130.3</td>
<td>-1,056.2*</td>
<td>-191.6*</td>
<td>-36,858.0</td>
<td>-13,422.0</td>
<td>-10,731.9</td>
</tr>
<tr>
<td class="firstcol"> Imports </td>
<td>118,727.7</td>
<td>117,964.5</td>
<td>106,537.8</td>
<td>0.65</td>
<td>11.44</td>
<td>1,224,700</td>
<td>1,075,342</td>
<td>990,435</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>10,725.0</td>
<td>10,557.8</td>
<td>10,144.6</td>
<td>1.58</td>
<td>5.72</td>
<td>120,158.3</td>
<td>113,775.4</td>
<td>110,326.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>12,582.8</td>
<td>12,170.7</td>
<td>10,231.3</td>
<td>3.39&nbsp;</td>
<td>22.98</td>
<td>118,120.7</td>
<td>92,060.4</td>
<td>74,515.0</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; UK </td>
<td>n.a.</td>
<td>13,430.2</td>
<td>12,888.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>152,360.0</td>
<td>144,047.1</td>
<td>138,863.4</td>
</tr>
</tbody>
</table>
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The Euro Zone's surplus on trade in October declined to 1,710.7 million euros from 2,418.0 million euros in September, but was 2,927.8 million euros above the deficit of 1,217.1 million euros in October, 2005. The traditional surplus [...]

Euro Zone Trade Shows a Surplus, but Rising Imports from China Add to Pressure on China to Speed Up Appreciation [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218a.jpg" width="353">
Last quarter the US current account deficit posted a new record of $225.6B versus a revised 2Q deficit of $217.1B which was slightly shallower than initially reported. The figure matched Consensus expectations for a 3Q deficit of $225B.
The deficit last quarter equaled 6.8% of GDP and so far this year has averaged 6.64% versus 6.35% during all of last year .
The deficit in merchandise trade deteriorated to $218.6B from an unrevised 2Q deficit of $210.6B. Exports grew 3.6% (16.5% y/y) yet that strong gain was again offset by a 3.7% surge in imports (13.5% y/y).
Last quarter, higher oil prices caused the balance in petroleum trade to deteriorate to $75.2B from $71.4B during 2Q. The nonpetroleum trade balance reversed all of its 2Q improvement and fell to $138.7B which was just shy of the record set during last year&#39;s fourth quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218b.jpg" width="353">
The surplus in services trade improved sharply to a surplus of $18.3B from a revised $17.5B during 2Q which was better than initially estimated. Exports of services grew just 0.9% (8.5% y/y) last quarter but services imports grew an even smaller 0.1% (8.6% y/y).
The U.S. capital account improved q/q though the net US foreign direct investment balance deteriorated. U.S. direct investment abroad rose 35% to $$63.1B (37.7% y/y). Foreign direct investment in the US, however, increased $44.1B, less than the $45.8B increase during 2Q.
Would Protectionism Defuse Global Imbalances and Spur Economic Activity? from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr268.pdf"> here</a>.
Should We Worry About the Current Account Deficit? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/winter_2006/pdf/research_spotlight.pdf"> here</a>.
How Dangerous is the U.S. Current Account Deficit? from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/b/pages/account_deficit.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/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Deficit</td>
<td>$225.6</td>
<td>$217.1B</td>
<td>$183.4B (3Q&#39;05)</td>
<td>$791.5B</td>
<td>$665.3B</td>
<td>$527.5B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$204.1</td>
<td>$195.3B</td>
<td>$174.0B (3Q&#39;05)</td>
<td>$705.4B</td>
<td>$583.7B</td>
<td>$458.3B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>2.9%</td>
<td>5.7%</td>
<td>19.0%</td>
<td>14.6%</td>
<td>15.7%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>3.4%</td>
<td>4.3%</td>
<td>18.5%</td>
<td>16.3%</td>
<td>18.7%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$21.5B</td>
<td>$21.9B</td>
<td>$9.5B (3Q&#39;05)</td>
<td>$86.1B</td>
<td>$81.6B</td>
<td>$69.2B</td>
</tr>
</tbody>
</table>
</body>
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Last quarter the US current account deficit posted a new record of $225.6B versus a revised 2Q deficit of $217.1B which was slightly shallower than initially reported. The figure matched Consensus expectations for a 3Q deficit of [...]

Another Record U.S. Current Account Deficit in 3Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218a.jpg" width="353">
Last quarter the US current account deficit posted a new record of $225.6B versus a revised 2Q deficit of $217.1B which was slightly shallower than initially reported. The figure matched Consensus expectations for a 3Q deficit of $225B.
The deficit last quarter equaled 6.8% of GDP and so far this year has averaged 6.64% versus 6.35% during all of last year .
The deficit in merchandise trade deteriorated to $218.6B from an unrevised 2Q deficit of $210.6B. Exports grew 3.6% (16.5% y/y) yet that strong gain was again offset by a 3.7% surge in imports (13.5% y/y).
Last quarter, higher oil prices caused the balance in petroleum trade to deteriorate to $75.2B from $71.4B during 2Q. The nonpetroleum trade balance reversed all of its 2Q improvement and fell to $138.7B which was just shy of the record set during last year&#39;s fourth quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218b.jpg" width="353">
The surplus in services trade improved sharply to a surplus of $18.3B from a revised $17.5B during 2Q which was better than initially estimated. Exports of services grew just 0.9% (8.5% y/y) last quarter but services imports grew an even smaller 0.1% (8.6% y/y).
The U.S. capital account improved q/q though the net US foreign direct investment balance deteriorated. U.S. direct investment abroad rose 35% to $$63.1B (37.7% y/y). Foreign direct investment in the US, however, increased $44.1B, less than the $45.8B increase during 2Q.
Would Protectionism Defuse Global Imbalances and Spur Economic Activity? from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr268.pdf"> here</a>.
Should We Worry About the Current Account Deficit? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/winter_2006/pdf/research_spotlight.pdf"> here</a>.
How Dangerous is the U.S. Current Account Deficit? from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/b/pages/account_deficit.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Deficit</td>
<td>$225.6</td>
<td>$217.1B</td>
<td>$183.4B (3Q&#39;05)</td>
<td>$791.5B</td>
<td>$665.3B</td>
<td>$527.5B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$204.1</td>
<td>$195.3B</td>
<td>$174.0B (3Q&#39;05)</td>
<td>$705.4B</td>
<td>$583.7B</td>
<td>$458.3B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>2.9%</td>
<td>5.7%</td>
<td>19.0%</td>
<td>14.6%</td>
<td>15.7%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>3.4%</td>
<td>4.3%</td>
<td>18.5%</td>
<td>16.3%</td>
<td>18.7%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$21.5B</td>
<td>$21.9B</td>
<td>$9.5B (3Q&#39;05)</td>
<td>$86.1B</td>
<td>$81.6B</td>
<td>$69.2B</td>
</tr>
</tbody>
</table>
Euro Zone Trade Shows a Surplus, but Rising Imports from China Add to Pressure on China to Speed Up Appreciation of the Yuan  
by <a href="/comment/Curley.html">Louise Curley</a> December 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218c.jpg" width="353">
The Euro Zone&#39;s surplus on trade in October declined to 1,710.7 million euros from 2,418.0 million euros in September, but was 2,927.8 million euros above the deficit of 1,217.1 million euros in October, 2005. The traditional surplus on trade that the Euro Zone had enjoyed was turned into a deficit in mid 2005, due in part to increased oil imports and in part to the unrelenting surge in imports from China. The first chart shows the balance of trade for the Euro Zone with the rest of the world.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218d.jpg" width="353">
As the second chart shows the deficit with OPEC appears to have stabilized in recent months, but that with China continues to widen. Imports from China now exceed those from the United States, which had been the largest source of imports after the United Kingdom. The third chart compares imports from China with those from the US. While imports from China are now lower than those from the UK, the recent growth in these imports suggest it will not be too long before they exceed imports from the UK as can be seen in the fourth chart.
The imbalances resulting from China&#39;s growing surplus on its trade account with the Euro Zone is adding to the pressure already being exerted by the US to appreciate the Chinese Yuan. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218f.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">EURO ZONE TRADE IN GOODS (Mil. Euro)</th>
<th scope="col">Oct&nbsp; 06</th>
<th scope="col">Sep 06</th>
<th scope="col">Oct 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Balance of Trade</td>
<td>1,710.7</td>
<td>2,418.0</td>
<td>-1,217.1</td>
<td>-702.3*</td>
<td>2,927.8*</td>
<td>16,835.0</td>
<td>71,537.1</td>
<td>69,723.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>-7,764.8</td>
<td>-7,391.0</td>
<td>-6,512.4</td>
<td>-373.8*</td>
<td>-1,252.4*</td>
<td>-74,705.5</td>
<td>-51,792.9</td>
<td>-39,279.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; OPEC</td>
<td>-4,321.9</td>
<td>-3,265.7</td>
<td>-4,130.3</td>
<td>-1,056.2*</td>
<td>-191.6*</td>
<td>-36,858.0</td>
<td>-13,422.0</td>
<td>-10,731.9</td>
</tr>
<tr>
<td class="firstcol"> Imports </td>
<td>118,727.7</td>
<td>117,964.5</td>
<td>106,537.8</td>
<td>0.65</td>
<td>11.44</td>
<td>1,224,700</td>
<td>1,075,342</td>
<td>990,435</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>10,725.0</td>
<td>10,557.8</td>
<td>10,144.6</td>
<td>1.58</td>
<td>5.72</td>
<td>120,158.3</td>
<td>113,775.4</td>
<td>110,326.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>12,582.8</td>
<td>12,170.7</td>
<td>10,231.3</td>
<td>3.39&nbsp;</td>
<td>22.98</td>
<td>118,120.7</td>
<td>92,060.4</td>
<td>74,515.0</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; UK </td>
<td>n.a.</td>
<td>13,430.2</td>
<td>12,888.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>152,360.0</td>
<td>144,047.1</td>
<td>138,863.4</td>
</tr>
</tbody>
</table>
</body>
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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/061215g.jpg" width="353">
The Bank of Japan&#39;s widely watched TANKAN survey showed stronger results across the board in the December report released today in Tokyo.Generally, these surveys are reported just after the beginning of a new quarter, but December is an exception, with the release at mid-month, ahead of the year-end holidays.
Large manufacturers, the &quot;headline&quot; group, saw favorable business conditions at 25% more firms than experienced negative conditions.Three months ago, a balance of 24% expected favorable conditions in December.December&#39;s actual result was the best since Q3 2004 at 26%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215h.jpg" width="353">
Other firm-size and industry groups also had stronger results than they had forecast three months ago. Large firms in all industries experienced favorable business at a net of 23%, compared to 20% forecast; medium-size firms at 10% versus 7% expected and at small firms, the numbers with favorable and unfavorable business conditions were equal, the first time this has occurred in the present configuration of the TANKAN survey, which began in early 2004.
Expectations for coming March outcomes indicate some moderation. It is frequently the case that these aggregate forecasts point to less breadth of expansion. This might not be surprising because more firms have done better in the current quarter, so the base is higher from which to expect further improvement. Assuming, that is, that &quot;favorable&quot; can be equated with &quot;growing&quot;.
We take this opportunity, once again, to highlight Haver&#39;s &quot;purist&quot; interpretation of the TANKAN survey. In the 2004 reorganization, the fundamental definition of firm size was changed. It used to be based on the number of employees, but now, as seen in the table below, capital is used. This meant firms shifted from one category to another, particularly capital-intensive firms that have small numbers of employees but much capital; these include the important high-tech sector. So the very character of &quot;large&quot;, &quot;medium&quot; and &quot;small&quot; changed from what those categories meant before. With the passage of time, of course, more history becomes available on the behavior of these new size categories. In the meantime, in the database &quot;G10&quot;, we include a linked series of All Firms in All Industries (which is not affected by the change in &quot;size&quot; definition); the results here for Q4 2006 stand at +8%, the best reading in exactly 15 years, since Q4 1991.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Conditions:&nbsp; &nbsp;% Favorable minus % Unfavorable</th>
Dec 2006
Sept 2006
June 2006
<th scope="col">Mar 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Forecast for &nbsp;Mar</td>
<td>Actual</td>
<td>Forecast for Dec</td>
<td>Actual</td>
<td>Forecast for Sept</td>
<td>Actual</td>
<td>Forecast for Jun</td>
</tr>
<tr>
<td class="firstcol">All Firms</td>
<td>6</td>
<td>8</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>6</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Firms*</td>
<td>20</td>
<td>23</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>20</td>
<td>20</td>
</tr>
<tr>
<td class="firstcol">Manufacturing &nbsp;(&quot;Headline Series&quot;)</td>
<td>22</td>
<td>25</td>
<td>21</td>
<td>24</td>
<td>22</td>
<td>21</td>
<td>22</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonmanufacturing</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>20</td>
<td>21</td>
<td>20</td>
<td>19</td>
</tr>
<tr>
<td class="firstcol">Medium-Sized Firms**</td>
<td>6</td>
<td>10</td>
<td>7</td>
<td>9</td>
<td>9</td>
<td>8</td>
<td>8</td>
</tr>
<tr class="odd">
<td class="firstcol">Small Firms***</td>
<td>-4</td>
<td>0</td>
<td>-3</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-2</td>
</tr>
</tbody>
</table>
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The Bank of Japan's widely watched TANKAN survey showed stronger results across the board in the December report released today in Tokyo.Generally, these surveys are reported just after the beginning of a new quarter, but December is [...]

Q4 TANKAN Results Show Best Japanese Industry Performance in Many Years

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215e.jpg" width="353">
The Empire State Index of General Business Conditions in manufacturing gave back all of its November rise with a 3.53 point decline to 23.13 in December. The decline was, however, less than Consensus expectations for a decline to 18.0. The figures are reported by the Federal Reserve Bank of New York.
Since the series&#39; inception in 2001 there has been a 75% correlation between the index level and the three month change in U.S. factory sector industrial production.
The employment showed the sharpest decline to it lowest level in three months but new orders and shipments rose. The inventory index fell sharply to the lowest in four months, indicating decumulation.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
Pricing pressure reversed all of its prior month&#39;s improvement and fell to lowest level since August of last year. Since 2001 there has been an 88% correlation between the index of prices paid and the three month change in the core intermediate materials PPI. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215f.jpg" width="353">
The Empire State index of expected business conditions in six months rose for the second month to the highest level since January.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;05 </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>23.13</td>
<td>26.66</td>
<td>26.28</td>
<td>20.18</td>
<td>15.56</td>
<td>28.79</td>
</tr>
</tbody>
</table>
</body>
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The Empire State Index of General Business Conditions in manufacturing gave back all of its November rise with a 3.53 point decline to 23.13 in December. The decline was, however, less than Consensus expectations for a decline to [...]

Empire State Index Slipped Less Than Expected, Expectations Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215c.jpg" width="353">
Total U.S. industrial production ticked 0.2% higher last month but revisions generally had the effect of lowering the gains in output. Consensus expectations had been for a 0.1% November rise.
Revisions to the index of industrial production (IP) and the related measures of capacity &amp; capacity utilization reflect the 2004 and 2005 Annual Surveys of Manufactures and selected editions of the 2004 and 2005 Current Industrial Reports.
Factory sector output rose 0.3% but a 0.6% decline during October was double the initial estimate. During the last three months factory sector output is down 0.3% from its August peak.
With a 1.7% (-1.9% y/y) increase, production of durable consumer goods recovered about all of its revised 1.9% October decline as output of automotive products recovered 3.6% (-3.6% y/y). Output of appliances &amp; furniture, however, fell 0.5% (-4.9% y/y) and was off 6.6% from its peak in September 2005. Production of computers, video &amp; audio equipment remained firm and rose 2.3% (13.0% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215d.jpg" width="353">
Nondurable consumer goods output slipped 0.1% (2.2% y/y) for the second month in the last three. The gain was softened only by a 1.1% (2.3% y/y) increase in foods &amp; tobacco. Clothing output fell 0.6% (+0.5% y/y), chemical production fell 0.6% (+3.2% y/y) and production of paper products fell 1.4% (+2.2% y/y).
Business equipment production jumped 1.2% but October&#39;s increase was lessened to 0.2% from 0.7% reported initially. Output of information processing &amp; equipment rose 1.0% but the 9.9% y/y gain is down from the growth posted earlier this year and those earlier growth rates were revised down. Factory output overall less the hi-tech industries increased 0.1% (2.1% y/y) after two months of sharp decline. Output of transit equipment recovered 2.9% (15.9% y/y) due to a 7.1% (-0.2% y/y) surge in business vehicles.
Overall capacity utilization increased was unchanged from a downwardly revised 81.8% in October. Factory sector utilization, however, increased to 80.2% from a downwardly revised 80.0% in October. Factory sector capacity again rose a firm 0.2% and the 2.7% y/y gain was revised up slightly.
The Chinese Economy: Progress and Challenges is today&#39;s speech by Federal Reserve Board Chairman Ben S. Bernanke and it is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20061215/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/output.htm">Production &amp; Capacity</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>0.2%</td>
<td>0.0%</td>
<td>3.8%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing (NAICS)</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>3.7%</td>
<td>4.0%</td>
<td>3.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>2.8%</td>
<td>1.4%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.2%</td>
<td>0.2%</td>
<td>9.6%</td>
<td>7.9%</td>
<td>4.3%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.8%</td>
<td>81.8%</td>
<td>80.7% (11/05)</td>
<td>80.2%</td>
<td>78.1%</td>
<td>76.1%</td>
</tr>
</tbody>
</table>


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Total U.S. industrial production ticked 0.2% higher last month but revisions generally had the effect of lowering the gains in output. Consensus expectations had been for a 0.1% November rise. Revisions to the index of industrial [...]

Industrial Output Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215a.jpg" width="353">
In November, the consumer price index (CPI-U) remained unchanged following 0.5% declines during the prior two months. Consensus expectations had been for a 0.2% rise.
Prices less food &amp; energy also were unchanged after the weak 0.1% October increase. Core prices were last unchanged in June of 2005 and here too Consensus expectations had been for a 0.2% increase.
Core goods prices fell 0.4%. The decline was the fourth in the last five months and was the largest since October 2003. New &amp; used motor vehicle prices dropped 0.8% (-0.9% y/y), off for the third consecutive month, while apparel prices fell 0.3% (+0.2% y/y) for the second consecutive down month.
Household furnishings &amp; operation prices added to the list where prices fell with a 0.2% decline (+0.9% y/y). Also in the act of decline were medical care commodity prices which fell 0.4% (+2.3% y/y) and tobacco prices which fell 0.3% (+1.6% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215b.jpg" width="353">
With a 0.2% increase, core services prices posted the weakest gain since this past August. Most of the weakness owed to a 1.9% (-0.2% y/y) decline in public transportation costs, the third consecutive monthly decline. Shelter prices rose 0.4% (4.2% y/y) as the rental equivalence measure of owners&#39; primary residences rose 0.3% (4.3% y/y). Rents rose 0.4% (4.1% y/y) for the sixth consecutive month. Education costs rose a strong 0.5% (6.3% y/y) and medical care services prices increased 0.3% (4.0% y/y).
Energy prices fell 0.2% after two months of roughly 7.0% decline. Gasoline prices fell another 1.6% (-4.2% y/y) but have moved higher in December to an average $2.30 per gallon from $2.23 in November. Fuel oil prices last month rose 0.3% (-3.0% y/y) after two 6.1% m/m declines. Natural gas prices rose 4.7% (-19.9% y/y) but electricity prices fell 0.2% (+6.5% y/y) for the second consecutive month.
Food &amp; beverage prices slipped 0.1%. Dairy product prices fell 0.6% (-1.6% y/y) but prices for meats, poultry, fish &amp; eggs were unchanged (1.2% y/y).
The chained CPI, which adjusts for shifts in the mix of consumer purchases, fell 0.2 as did prices less food &amp; energy prices.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>2.0%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.7%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>-0.2%</td>
<td>-7.0%</td>
<td>-3.6%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>1.9%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

In November, the consumer price index (CPI-U) remained unchanged following 0.5% declines during the prior two months. Consensus expectations had been for a 0.2% rise. Prices less food & energy also were unchanged after the weak 0.1% [...]

CPI Unchanged

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

250501K5.jpg

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

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

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

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

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

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

250501L5.jpg

250501M5.jpg

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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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: December 2006

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