Tom Moeller

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Initial claims for unemployment insurance fell to 225,000
(-7.8% y/y) in the week ended December 9 from an unrevised 236,000 in the prior
week. Expectations had been for 237,000 claims in the Action Economics Forecast
Survey. The four-week moving average declined to 234,750. During the last ten
years, there has been a 74% correlation between the level of initial claims and
the m/m change in nonfarm payrolls.

Continuing claims for unemployment insurance fell to 1.886
million (-6.7% y/y) in the week ended December 2 from 1.913 million in the week
prior. The four-week moving average of claimants rose slightly to 1.919 million,
but remained near the lowest level since January 1974.

The insured unemployment rate slipped to the record low of 1.3%.

Insured rates of unemployment varied across the country. For
the week ended November 25, near the low end of the range were South Dakota
(0.44%), Indiana (0.49%), Nebraska (0.53%), Virginia (0.68%), Georgia (0.76%)
and Colorado (0.84%). At the high end were Massachusetts (1.60%), New York
(1.65%), Illinois (1.73%), Pennsylvania (1.94%), California (2.30%) and New
Jersey (2.38%). These state data are not seasonally adjusted.

Data on weekly unemployment insurance are contained in
Haver's WEEKLY database and they are summarized monthly in USECON.
Data for individual states are in REGIONW. The expectations figure is
from the Action Economics Forecast Survey, carried in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >Unemployment Insurance (SA, 000s)</th>
 <th>12/09/17</th>
 <th>12/02/17</th>
 <th>11/25/17</th>
 <th>Y/Y %</th>
 <th>2016</th>
 <th>2015</th>
 <th>2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Initial Claims</td>
 <td >225</td>
 <td >236</td>
 <td >238</td>
 <td >-7.8</td>
 <td >263</td>
 <td >278</td>
 <td >308</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Continuing Claims</td>
 <td >--</td>
 <td >1,886</td>
 <td >1,913</td>
 <td >-6.7</td>
 <td >2,136</td>
 <td >2,267</td>
 <td >2,599</td>
 </tr>
 <tr>
 <td class="firstcol" >Insured Unemployment Rate (%)</td>
 <td >--</td>
 <td >1.3</td>
 <td >1.4</td>
 <td >
 1.5 
 (Nov. 2016)
 </td>
 <td >1.6</td>
 <td >1.7</td>
 <td >2.0</td>
 </tr>
 </tbody>
 </table>
 
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Initial claims for unemployment insurance fell to 225,000 (-7.8% y/y) in the week ended December 9 from an unrevised 236,000 in the prior week. Expectations had been for 237,000 claims in the Action Economics Forecast Survey. The [...]

U.S. Initial Unemployment Insurance Applications Decline

Robert Brusca

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	 EMU and Germany Gain While France Takes Small Step Back; Central Bankers Conclude Their End-of-Year Jubilee and Shine a Light on the Future
 
 
 
 

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Both sectors are rising but manufacturing is clearly on a tear 
The Markit PMIs are strong again as all headline and sector readings in the table are in the top 10% of the group of readings released since January 2012. Headline, goods, services, EMU, German, French, or Japan manufacturing - all cuts at growth assessment- all are in exquisite form. French, German and EMU manufacturing are all on their highest readings since January 2012. The sequential moving averages for the EMU PMI as well for its two sectors are showing steady advancement with stronger readings over sequentially shorter periods. All headline and sectors in the EMU and its two largest members show this same sequential push to higher ground with the exception of the German services sector that does sag with weaker reading over six months than over 12 months but then recovers its momentum as its three-month average rises above even its 12-month average.

Europe does appear to be gaining momentum and solidity to its expansion. A report from the European Automobile Manufacturers' Association showed Thursday that passenger car registrations grew 5.9% year-on-year in November, the same rate as in October. This is a good solid gain and an important aspect of consumption.

China also added some data to the mix today as its retail sales in November gained by 10.2% over November 2016 and China's industrial production rose by 6.1% also over its year-ago value. Both series logged the sorts of gains that had been expected of them.

Central bankers meet 
It was day for central banks to put a cherry on top and finish off their year's work. European stocks are off on the day in the wake of all the actions and bond yields are mostly higher, too. Yesterday stocks has reacted well to the news of the expected 25-basis-point Federal Reserve rate hike and to the report that the Republicans had an agreement on their pending tax deal.

The two main central bank actions today by the European Central Bank and the Bank of England saw bankers marking time. The Swiss National Bank also met and stayed on hold along with central banks of Turkey, the Philippines, Norway and PBOC.

BOE and BOJ: In its last meeting the BOE had hiked rates for the first time in a decade back in November. Despite that, in this meeting, the BOE stood down from a rate hike agenda and kept all aspects of policy on an even keel. The BOE faces one of the most difficult tasks of any of the major monetary center banks at this time as current data show there is and has been an inflation overshoot. But the U.K. is engaged in ongoing Brexit negotiations and the U.K. economy is expected to be weaker in the wake of its Brexit deal. What should the BOE do? Perhaps the only central bank with any sort of similar challenge is the Bank of Japan that is fighting powerful structural forces of demographics and a huge debt load while it is trying to put the risk of deflation down for good and, like every other central bank, hit its inflation target. In the meantime, the U.K. faces data that have continued to be strong with inflation overshooting and unemployment at its lowest mark since the mid-1970s. Retail sales, apparently, are on solid footing and with a good Christmas shopping season in hand. However, also giving the BOE some latitude is the fact that wages continue to lag inflation. Despite what might appears to be full employment, wage pressures are not an issue and the actual labor market condition in the wake of Brexit and what will be substantial jobs losses is also a matter of some uncertainty. Faced with all those issues, risks and choices, the BOE decided to mark time.

ECB: The ECB, too, had announced at its previous meeting in November that it would be reducing its asset purchases beginning in 2018; it has followed that move with a decision to stand pat in December on its past policy path. The ECB Governing Council, headed by ECB President Mario Draghi, left the key interest rates unchanged in its final policy-session for this year. The main refi rate is currently at a record low 0% and the deposit rate at -0.40%. The marginal lending facility rate is 0.25%. The ECB reiterated its statement that it expected key interest rates to remain at their current levels for an extended period of time and for that to run 'well past' the ending of its program of net asset purchases. Most private forecasters are not looking for rate hikes until 2019.

The PBOC...can we call this a rate hike? China's central bank unexpectedly lifted its rates in its open market operation on Thursday after the Federal Reserve tightened its policy rates. Chinese economic data released on Thursday showed that industrial production growth weakened in November (as expected) as measures taken to control pollution took a toll. Meanwhile, retail sales grew as expected at pace near 10%. The People's Bank of China raised its 7-day and 28-day reverse repo rates by 5 basis points to 2.50% and 2.80%, respectively. A similar action was last taken in mid-March. The bank raised the rate on its medium-term lending facility by 5 basis points to 3.25%. I cannot fathom what a 5bp rate hike means or why a central bank would bother with such a miniscule move. Possibly it is meant to signal that more aggressive hikes are possible. There is no doubt that the PBOC lives in its own world and does things its own way.

Central bank forecasts? 
The ECB did raise its growth and inflation forecasts on Thursday. Growth next year is now seen at 2.3% versus an earlier 1.8% forecast. Growth in 2019 is expected to slow to 1.9% and then slow further to a pace of 1.7% in 2020. Inflation is expected at 1.5% in 2017 and to stay below target even slowing to 1.4% in 2018. The 2019 pace is expected to pick up to 1.5% and then to step up again to 1.7% by end-2020 (ECB forecast table <a href="https://www.ecb.europa.eu/pub/pdf/other/ecb.projections201712_eurosystemstaff.en.pdf?bf597ce202630bb04fc089592d02b6f9">here</a>). Today the German research institute, the IFO, also presented an outlook for Germany that sees a significant bump up in growth for the year ahead; the IFO is shifting its forest for German growth up to 2.6% from 2% where it had been previously. Yesterday the Fed had released its SEP (summary of economic projections) which I refer as 'policycasts' instead of forecasts. The SEP process is peculiar. Fed members have to submit their outlooks which contain each member's views of how rates will respond over the period out to 2020. I don't so much call these forests because they somewhat oddly force each member to keep the Fed on its policy track so that by 2020 each forest has to end up with 'low' unemployment and about 2% inflation. It is a bit of backwards way of making a forecast, but it fits the Fed's purposes. Still, the trimmed median of the submitted policycasts of Fed members showed about the same rate profile as in the past, the same inflation tracking, but like the ECB, stronger growth

On balance, between the Fed, and the ECB the world is projected to be a pretty tranquil place over the next few years. Of course, the BOE is dealing with the most bumps in the road with inflation that is much higher than in the U.S. or in the euro area and with some real question marks about how growth will evolve. However, the U.S. and EMU are well settled on their low inflation outlook and also on a period in which growth is going to pick up significantly. That environment should help the U.K. and the BOE.

Summing up 
It is interesting that the view on inflation has remained so contained despite this now-synchronized global growth cycle and despite the pick-up in growth that is underway rather broadly in the context of that cycle. But the U.S. has been raising rates (albeit slowly) for about two years now; the BOE has just begun to withdraw at least some stimulus and the ECB plans to start its trimming of securities purchases beginning in 2018. All of this amounts to some degree of leaning against the improved thrust of global growth. At the same time, despite excellent unemployment conditions in the U.S., the U.K., and Germany, as well as, improving trends in the EMU area, wages generally have continued to lag inflation and continue to be less affected by the state of the local labor market and by the local environment for inflation than in the past. The global forces of technology and the force of stepped up trade competition are still at work after all. Despite a very positive tranquil and reassuring set of projections from the Fed and the ECB, for the period ahead what remains to be seen is what really will happen. With central banks even the best laid plans sometimes go awry. For now we can bask in the glow of a warm and friendly outlook. But with so many trends shifting and so many geopolitical relations under stress it's also a good time to remain wary of what the future will bring.


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Both sectors are rising but manufacturing is clearly on a tear The Markit PMIs are strong again as all headline and sector readings in the table are in the top 10% of the group of readings released since January 2012. Headline, goods, [...]

Highest EMU and German PMI Readings Since 2011

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The consumer exhibited noticeable buying power last month.
Total retail sales and spending at restaurants jumped 0.8% (5.8% y/y)
during November following a 0.5% October increase, revised from
0.2%. A 0.3% improvement had been expected in the Action Economics Forecast Survey.
Sales of motor vehicle &amp; parts eased 0.2% (+6.3% y/y) following two months
of strong increase, as unit vehicle sales fell 3.1%. Retail sales excluding
autos jumped 1.0% (5.7% y/y) after a 0.4% rise. A 0.6% gain had been expected.

The rise in retail spending reflected a 2.8% increase (12.2%
y/y) in gasoline service station sales, as pump prices strengthened. Retail
sales excluding both motor vehicles and gasoline rose 0.8% (4.9% y/y) following
a 0.3% October gain. The three-month annualized rate of increase in these sales
surged to 8.5%, double last year's growth rate and the strongest rate of growth
since early-2014.

Strength in sales was broad-based last month. Sales of
nonstore retailers surged 2.5% (10.4% y/y), recovering after a 0.4% October dip.
Building materials &amp; garden equipment store sales gained 1.2% (10.7% y/y)
following a 0.1% slip. Appliances &amp; electronics store purchases strengthened
2.1% (6.4% y/y) after two monthly increases of roughly 1.3%. Furniture &amp;
home furnishing store sales grew 1.2% (8.2% y/y) following a 1.8% rise. Sporting
goods store sales improved 0.9% (2.9% y/y) after two monthly increases of 1.4%
or more. Clothing&nbsp; accessory store sales grew 0.7% (2.8% y/y) for the
second straight month. Lagging behind were general merchandise store sales which
remained unchanged (3.6% y/y) following a 0.1% uptick.

In the non-discretionary sales categories, sales of health
and personal care stores rose 0.4% (3.1% y/y) following a 1.3% jump. Food &amp;
beverage stores realized 0.2% growth (3.2% y/y), the weakest of five monthly increases.

Restaurant sales and drinking place sales improved 0.7% (2.2% y/y)
following a 0.4% rise.

The retail sales data can be found in Haver's USECON
database. The Action Economics forecast is in the AS1REPNA database.

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 <thead>
 <tr>
 <th class="firstcol" scope="col" >Retail Spending (%)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr class="grey2">
 <td class="firstcol" >Total Retail Sales &amp; Food Services</td>
 <td >0.8</td>
 <td >0.5</td>
 <td >2.0</td>
 <td >5.8</td>
 <td >3.2</td>
 <td >2.6</td>
 <td >4.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Excluding Autos</td>
 <td >1.0</td>
 <td >0.4</td>
 <td >1.3</td>
 <td >5.7</td>
 <td >3.0</td>
 <td >1.4</td>
 <td >3.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Non-Auto Less Gasoline</td>
 <td >0.8</td>
 <td >0.3</td>
 <td >0.9</td>
 <td >4.9</td>
 <td >3.9</td>
 <td >4.2</td>
 <td >4.6</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol" >Retail Sales</td>
 <td >0.8</td>
 <td >0.6</td>
 <td >2.3</td>
 <td >6.3</td>
 <td >2.9</td>
 <td >1.9</td>
 <td >4.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Motor Vehicle &amp; Parts</td>
 <td >-0.2</td>
 <td >1.2</td>
 <td >4.8</td>
 <td >6.3</td>
 <td >4.1</td>
 <td >7.3</td>
 <td >6.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Retail Less Autos</td>
 <td >1.1</td>
 <td >0.4</td>
 <td >1.6</td>
 <td >6.3</td>
 <td >2.5</td>
 <td >0.4</td>
 <td >3.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Gasoline Stations</td>
 <td >2.8</td>
 <td >0.3</td>
 <td >6.0</td>
 <td >12.2</td>
 <td >-5.7</td>
 <td >-17.6</td>
 <td >-2.0</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol" >Food Service &amp; Drinking Places
 Sales</td>
 <td >0.7</td>
 <td >0.4</td>
 <td >-0.1</td>
 <td >2.2</td>
 <td >5.9</td>
 <td >8.1</td>
 <td >6.1</td>
 </tr>
 </tbody>
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The consumer exhibited noticeable buying power last month. Total retail sales and spending at restaurants jumped 0.8% (5.8% y/y) during November following a 0.5% October increase, revised from 0.2%. A 0.3% improvement had been [...]

U.S. Retail Buying Strengthens Unexpectedly

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At today's meeting of the Federal Open Market Committee, the
federal funds rate target was raised to a range of 1.25 percent to 1.50 percent
from 1.00 percent to 1.25 percent. It was the third action taken this year,
lifting rates from little more than zero, where they stood from early-2009
through the end of 2015. The financial markets had expected today's action as
indicated in the Action Economics Forecast Survey.

The Fed continued to characterize the stance of monetary
policy as accommodative, basing its action on continuing growth in the labor
market, consumer &amp; business spending, as well as inflation that is running
below their two percent long-term objective.

The Fed's expectation for economic growth next year was
raised to 2.5 percent from 2.1 percent. The economy's long term expected growth
rate was left unchanged at 1.8 percent. Expected PCE price inflation in 2018
remained at 2.1 percent, but the forecasted unemployment rate was lowered to 3.9
percent from 4.1 percent.

The press release for today's FOMC meeting can be
found <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20171213a.htm">here</a>.
Haver's SURVEYS database contains the economic
projections from the FOMC.

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 <thead>
 <tr>
 <th class="firstcol" scope="col" ></th>
 <th scope="col" >Current</th>
 <th scope="col" >Last</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Federal Funds Rate Target</td>
 <td >1.25%-1.50</td>
 <td >1.00%-1.25%</td>
 <td >0.40%</td>
 <td >0.13%</td>
 <td >0.09%</td>
 <td >0.11%</td>
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At today's meeting of the Federal Open Market Committee, the federal funds rate target was raised to a range of 1.25 percent to 1.50 percent from 1.00 percent to 1.25 percent. It was the third action taken this year, lifting rates [...]

FOMC Increases Rates as Economy Firms

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The Consumer Price Index increased 0.4% (2.2% y/y) during
November following a 0.1% October rise. The gain matched expectations in the
Action Economics Forecast Survey. Prices excluding food &amp; energy rose 0.1%
(1.7% y/y). A 0.2% gain had been expected.

Lending support to pricing power last month was a 3.9% jump
(9.4% y/y) in energy costs, powered by a 7.3% surge (16.5% y/y) in the price of
gasoline. Fuel oil prices also were strong and posted a 5.2% jump (15.4% y/y).
Natural gas costs increased 0.6% (3.6% y/y), following declines in four of
the prior five months. Electricity prices improved a strengthened 0.5%
(2.5% y/y) for a second straight month.

Pricing power in the goods sector eased 0.1% and the y/y
increase remained depressed at -0.9%. Apparel prices declined 1.9% (-1.6% y/y),
the third consecutive monthly fall. Household appliance costs were off 1.2%
(-1.9% y/y), the fifth decline in six months. Recreation goods prices eased 0.5%
(-3.1% y/y), the largest decline in seven months. Also weakening were household
furniture &amp; supply prices by 0.2% (-1.9% y/y), which have been falling for
years. To the upside were prices for medical care goods which strengthened 0.6%,
although the 1.8% y/y increase was well below the increases of the last two
years. Prices for used motor vehicles jumped 1.0% (-2.1% y/y) following a 0.7%
rise, while the 0.3% gain (-1.1% y/y) in new vehicle prices was only the second
monthly increase this year.

Service sector prices increased 0.2% (2.5% y/y), half the
rise three months ago. Shelter prices rose 0.2% (3.2% y/y) while the owner's
equivalent rent of primary residence gained 0.2%. Here, the 3.1% y/y rise was
below last year's peak of 3.6%. Tuition, school fees &amp; childcare costs rose
a steady 0.3% (2.4% y/y). Recreation services prices rose 0.2%, and the y/y gain
strengthened to 3.5% from 1.5% in 2014. Offsetting these increases was a 1.8%
decline (-0.8% y/y) in public transportation costs after a 0.6% rise. Medical
care service prices slipped 0.1%, and the 1.6% y/y rise was below last year's
3.9% rise. It also approximated the weakest y/y gain since 1950.

Food prices held steady (1.4% y/y) for a second straight
month. Egg pries declined 1.9% (+3.2% y/y) following a 6.7% jump. Nonalcoholic
beverage prices were off 0.6% and were unchanged y/y. Fruit &amp; vegetable
prices fell 0.5% (+1.1% y/y), the third decline in four months. Meat, poultry
&amp; fish prices eased 0.2% (+1.4% y/y). Cereal &amp; bakery product prices
declined 0.2% (-0.8% y/y). Increasing were dairy product prices which rose 0.3%
(0.0% y/y), reversing October's decline.

The consumer price data can be found in Haver's USECON
database with additional detail in CPIDATA. The Action Economics survey
figure is in the AS1REPNA database.

Where Is Everybody? The Shrinking Labor Force
Participation Rate from the Federal Reserve Bank of Philadelphia is
available <a href="https://www.philadelphiafed.org/-/media/research-and-data/publications/economic-insights/2017/q4/eiq4_where-is-everybody.pdf?la=en">here</a>.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Consumer Price Index, All
 Urban Consumers (% chg)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >0.4</td>
 <td >0.1</td>
 <td >0.5</td>
 <td >2.2</td>
 <td >1.3</td>
 <td >0.1</td>
 <td >1.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total less Food &amp; Energy,</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >1.7</td>
 <td >2.2</td>
 <td >1.8</td>
 <td >1.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Goods less Food &amp; Energy</td>
 <td >-0.1</td>
 <td >0.1</td>
 <td >-0.2</td>
 <td >-0.9</td>
 <td >-0.5</td>
 <td >-0.5</td>
 <td >-0.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Services less Energy</td>
 <td >0.2</td>
 <td >0.3</td>
 <td >0.2</td>
 <td >2.5</td>
 <td >3.1</td>
 <td >2.6</td>
 <td >2.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Food</td>
 <td >0.0</td>
 <td >0.0</td>
 <td >0.1</td>
 <td >1.4</td>
 <td >0.3</td>
 <td >1.9</td>
 <td >2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Energy</td>
 <td >3.9</td>
 <td >-1.0</td>
 <td >6.1</td>
 <td >9.4</td>
 <td >-6.6</td>
 <td >-16.7</td>
 <td >-0.3</td>
 </tr>
 </tbody>
 </table>
 
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The Consumer Price Index increased 0.4% (2.2% y/y) during November following a 0.1% October rise. The gain matched expectations in the Action Economics Forecast Survey. Prices excluding food & energy rose 0.1% (1.7% y/y). A 0.2% gain [...]

U.S. CPI Strengthens With Higher Energy Prices; Core Pricing Moderates

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The September decline in EMU industrial production was a stumble not a lasting problem. In October, IP is back in the plus column and since the September drop came on the heels of a strong 1.5% August rise, EMU IP continues to trend strongly higher.

Headline IP shows improving growth rates, but manufacturing IP also shows sequentially accelerating IP gains. Manufacturing IP expansion is at 4.3% over 12 months with the pace rising to 4.8% over six months and elevating further to 5.2% over three months. Of course, such progressions are inevitably cut short... for now, growth is still accelerating and that sort of acceleration hints at an improved trend pace.

However, by sector there are divergences. This expansion is not being led by the consumer where growth rates are losing steam sequentially. The output of intermediate goods also is losing momentum sequentially as well. But capital goods output jumps from a 3.1% gain over 12 months to a pace of 5.5% or more over six months and three months and that is providing a lot of the push to production over the shorter horizon. Despite this effect, capital goods output is strong over three months because of a jump in August; output in that sector has fallen month-to-month in each of the subsequent months of September and October.

The trends within manufacturing give some pause to what otherwise might be exuberance. Clearly, IP is experiencing cross-currents of sorts. We have also seen some interruption recently in German shipments of capital goods despite what have been strong orders there.

Looking across the ranks of early IP reporters in the EMU among its original members plus Malta, we see output declines in October for six of these eleven early reporters. In September, there were declines across eight of eleven reporters. In August, when output in EMU rose briskly, output only fell in two of these eleven reporters, in France and Luxembourg.

Over longer horizons, however, industrial production expansion across the EU seems quite widespread. Over three months, IP is lower in only four countries: Germany, Malta, Greece and Portugal. Over six months, only two countries have output declines: Malta and Greece. Over 12 months, output is only falling in one country in the table, Malta. Apart from Malta, the smallest year-on-year performance is Greece's 0.3% gain, but after that the next smallest gain is 2.3% in Finland and followed by 2.4% in Germany and by more robust rates elsewhere, of course. Apart from several members, the year-on-year growth rates of IP in the EMU are quite solid and impressive. The trend still points higher for IP.


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The September decline in EMU industrial production was a stumble not a lasting problem. In October, IP is back in the plus column and since the September drop came on the heels of a strong 1.5% August rise, EMU IP continues to trend [...]

EMU IP Gains in October after Drop

Carol Stone, CBE

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Small business optimism in the U.S. rose 3.7 points in November to 107.5 (1986=100), the second highest reading of this index in the 44-year history of the survey conducted by the National Federation of Independent Business; the only reading higher was 108.0 in July 1983. The November number is up 9.2% from a year ago. There were gains in several of the index components and other survey questions, and a couple of those had quite sizable movements.

Perhaps most notable, 48% of firms expect the economy to improve, up 16 points from October's reading and 36 points from November 2016. Higher sales volume is expected by 34% of firms, compared with 21% in October and just 11% a year ago. Twenty-four percent plan to increase employment, up 6 points from October and 9 points from a year ago. There was a four-point improvement in the share of firms believing that now is a good time to expand, reaching 27% and up from just 11% in November 2016.

Other survey items moved more moderately. Selling price increases remain modestly positive, with 10% of firms raising them in November, up from 8% in October and 5% a year ago. This is, though, the largest share raising prices since July 2014. More firms plan to raise prices, 23%, up from October's 22% and the largest since 24% in December 2016. Twenty-seven percent raised worker compensation in recent months, the same amount as in October and up from 21% a year ago; the number planning to raise compensation decreased, however, to 17% from 21% the previous month, although it was a bit firmer than the 15% a year ago. Labor supply seemed less constrained in November, with 44% of firms reporting few or no qualified applicants for openings, down from 52% in October and in the year-ago month. Credit remained available, with just 4% of firms reporting more constrained credit conditions, the same as the month before and the year-ago month.

This survey inquires about problems facing small business. Government issues are the most widespread: taxes are the biggest problem for 22% of firms, up from 21% in October and 19% in November 2016, while government requirements burdened 16% of firms in November, up from 14% in October and down from 18% a year ago. Labor quality is a major issue for 18% of firms, down from 20% in October and up from 16% a year ago; labor costs, though, are a major concern for just 7% of companies, up slightly from 6% the month before and the year before. Poor sales bother just 11% of firms, a bit more than October's 10%, but less than 12% a year ago; these compare to 32% during the slow periods of 2009 and 31% in 2010. Competition from large firms is the biggest problem for 8% of small firms, up from 7% a month ago and a year ago. As might be inferred from the current environment, inflation is mentioned by just 3% of firms, up from 2% in October and the same as the 3% a year ago. Similarly, just a small number report that financial conditions and interest rates are problematic, 2% in November and in the month-ago and year-ago periods. Insurance costs and availability are mentioned by 10% of firms in the November tally, down from 11% in October and the same as the year-ago 10%.


Roughly 24 million small businesses exist in the U.S. and
they create 80% of all new jobs. The typical NFIB member employs 10 people and
reports gross sales of about $500,000 a year. The NFIB figures can be found in
Haver's SURVEYS database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >National Federation of
 Independent Business (SA, Net % of Firms)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov'16</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Small Business Optimism Index (1986=100)</td>
 <td >107.5</td>
 <td >103.8</td>
 <td >103.0</td>
 <td >98.4</td>
 <td >95.3</td>
 <td >96.1</td>
 <td >95.6</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms Expecting Economy To Improve</td>
 <td >48</td>
 <td >32</td>
 <td >31</td>
 <td >12</td>
 <td >-5</td>
 <td >-5</td>
 <td >-5</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms Expecting Higher Real Sales</td>
 <td >34</td>
 <td >21</td>
 <td >15</td>
 <td >11</td>
 <td >5</td>
 <td >8</td>
 <td >11</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Reporting Now is a Good Time To
 Expand the Business</td>
 <td >27</td>
 <td >23</td>
 <td >17</td>
 <td >11</td>
 <td >10</td>
 <td >12</td>
 <td >10</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Planning to Increase Employment</td>
 <td >24</td>
 <td >18</td>
 <td >19</td>
 <td >15</td>
 <td >11</td>
 <td >12</td>
 <td >10</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms With Few or No Qualified
 Applicants For Job Openings (%)</td>
 <td >44</td>
 <td >52</td>
 <td >49</td>
 <td >52</td>
 <td >46</td>
 <td >46</td>
 <td >43</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Reporting That Credit Was Harder
 To Get</td>
 <td >4</td>
 <td >4</td>
 <td >6</td>
 <td >4</td>
 <td >5</td>
 <td >4</td>
 <td >6</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms Raising Average Selling Prices</td>
 <td >10</td>
 <td >8</td>
 <td >6</td>
 <td >5</td>
 <td >0</td>
 <td >2</td>
 <td >8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Raising Worker Compensation</td>
 <td >27</td>
 <td >27</td>
 <td >25</td>
 <td >21</td>
 <td >24</td>
 <td >23</td>
 <td >21</td>
 </tr>
 </tbody>
 </table>
 
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Small business optimism in the U.S. rose 3.7 points in November to 107.5 (1986=100), the second highest reading of this index in the 44-year history of the survey conducted by the National Federation of Independent Business; the only [...]

U.S. Small Business Optimism Highest Since 1983

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The chart is a reasonably good overview of what ZEW economic experts think. For a time, U.S. economic expectations outstripped everyone else - but no more. Over the last few months, in fact, there has been a very slow upgrading in the current economic assessment across the board and some improvements made to the outlook as the U.S. has sunk into the pack.

Economic situation 
The economic situation finds very high assessment for all the countries in the table except for the United Kingdom. The U.K. assessment in December has it only in its 49th percentile, just below its historic median with some very slow improvements to that assessment afoot. Taken as a whole, the euro area is in its 90th percentile as well as Germany, Japan and the United States. France and Italy have standings in their respective 80th percentiles. The euro area has had better assessments from the ZEW experts less than 8% of the time, historically. With one exception, these are all strong assessments. The euro area is also still in an uptrend unlike Germany that simply seems to get steady readings. The U.S. current assessment has been creeping up as has Japan's assessment and the assessment for France. Italy has been making improvement as well over the last three months and with a bit more vigor.

Macroeconomic expectations 
Expectations are a different story with all assessments below or near their historic medians (median occurs for each at its 50th percentile mark). France is an exception that posts a 74th percentile standing. Germany's assessment has been steady over the past three months. The U.S. assessment has crept higher. Japan's assessment also is mostly moving sideways. Expectations for Italy are slowly improving. France is more or less at a steady and at quite a firm expectation level. France's momentum for expectations seems to have abated even as its current condition improves.


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For inflation and interest rate expectations, only the U.S. has expectations at or near their 90th percentile. Germany and the euro area have inflation expectations in their 80th percentile decile. The U.K., France and Italy have expectations strewn across the 70th percentile decile. Japan, where it is trying to get inflation in gear, is the only country with its gauge below its median, but at the 49.3 percentile, Japan is now close to a median inflation expectations reading. However, in Japan there is no upward momentum to the inflation assessment. Everywhere else, except the U.K., inflation expectations are on a rising trend.

Short-term rates 
Short-term interest rate expectations are not much of a surprise with the EMU at a 54th percentile standing and the U.S. at an 89th percentile standing. The euro area is in the process of dismantling its stimulus programs while the U.S. has been engaged in rate hiking since end-2015. The U.K. is given the same rough interest expectations as in the U.S. with a nearly 83rd percentile standing. Only Japan has short-term interest rate expectations below its historic median at a 41.9 percentile standing.

Long-term rates 
Long-term rate expectations are more uniform because here EMU-area rates already are firmer but not rising. U.S. expectations are very high with a 95.4 percentile standing, but they are actually beginning to ease now. There is a slight easing of expectations in Japan and also in the U.K. Japan has an already low reading for long-term rate expectations stemming from accommodative policies buttressed by a yield curve target. The U.K. has much higher long-term expectations with a 79th percentile standing.

Summing up 
On balance, the ZEW experts are playing conservative with their outlooks. But assessments of current conditions are improving steadily if slowly across the board. Compared to the economic situation seen over the last 12 months on average, most are substantially higher in December. The exception to this generalization is the U.K. which is weaker in December than it has been over 12 months on average. Expectations are much more varied on this same comparison to the 12-month average. Expectations for the U.K. inflation are higher in December than they have been over the last 12 months and for Japan too; at least that is good news for Japan. Inflation expectations like growth are creeping up. But the ZEW experts just can't seem to pull the trigger for optimism on expectations, too. Only France and Italy have much stronger expectations for growth in December, compared to their 12-month averages. The ZEW experts are part of the group that is driving this view of improving growth and rising inflation.


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The chart is a reasonably good overview of what ZEW economic experts think. For a time, U.S. economic expectations outstripped everyone else - but no more. Over the last few months, in fact, there has been a very slow upgrading in the [...]

ZEW Experts See Gradual Improvements and Rising Inflation Risks

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

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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 2017

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