Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040303a.jpg" width="353">
Unit sales of light vehicles ticked up a slight 1.5% m/m in February to 16.37M following a 9.1% January slump. Consensus expectations were for sales of 16.5M.
Car sales recovered 5.0% m/m to 7.41M after two months of decline. Sales of light trucks fell 1.2% following a 10.5% drop in January.
Domestic light vehicle sales rose 0.2% m/m to 13.14M (+6.2% y/y). Imported vehicle sales jumped 7.0% m/m to 3.24M (-0.2% y/y).
Imports captured 19.8% of the US market for new vehicles in February versus 19.7% during 2003.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM"> Light Vehicle Sales (SAAR, Mil.Units)</a></th>
<th scope="col"> Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.37</td>
<td>16.13</td>
<td>4.9%</td>
<td>16.69</td>
<td>16.81</td>
<td>17.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.41</td>
<td>7.06</td>
<td>0.4%</td>
<td>7.63</td>
<td>8.07</td>
<td>8.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.96</td>
<td>9.07</td>
<td>8.9%</td>
<td>9.06</td>
<td>8.74</td>
<td>8.78</td>
</tr>
</tbody>
</table>
Mortgage Applications Up for Third Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040303b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association rose 2.8% last week, the third consecutive weekly gain. Applications rose 6.8% during all of last month versus January.
Applications to refinance jumped another 5.1% w/w as interest rates continued down. Refis for the month were up 20.2% from January and 79.6% from the December low.
Purchase applications slipped 0.2% w/w following two weeks of moderate gain. Purchase applications fell 7.4% in February versus January.
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-Year mortgage fell to 5.75% from 5.77% the prior week. The effective rate on a 15-year mortgage fell to 5.10%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">2/27/04</th>
<th scope="col">2/20/04</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>878.7</td>
<td>854.5</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>422.6</td>
<td>423.5</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>3,532.2</td>
<td>3,361.9</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
ISM Non-Manufacturing Index Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040303c.jpg" width="353">
The Business Activity Index for the non-manufacturing sector, reported by the Institute for Supply Management, slipped in February to 60.8 from the record high of 65.7 in January. Consensus expectations had been for a a reading of 64.0.
Since the series&#39; inception in 1997 there has been a 41% correlation between the Business Activity Index and the q/q change in the GDP Service Sector Quantity Index.
New orders fell to 60.3 from the near-record high of 64.9 in January.
The employment index fell for the third month to 52.7. It was the seventh month in eight above 50.
Since the series&#39; inception in 1997 there has been a 62% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing and construction industries.
Business activity for the non-manufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted prices index fell to 57.3 from 59.7 in January.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Non-manufacturing Survey</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">&nbsp;Feb &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>60.8</td>
<td>65.7</td>
<td>54.3</td>
<td>58.1</td>
<td>55.1</td>
<td>48.9</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>57.3</td>
<td>59.7</td>
<td>58.9</td>
<td>56.7</td>
<td>53.9</td>
<td>51.5</td>
</tr>
</tbody>
</table>


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Unit sales of light vehicles ticked up a slight 1.5% m/m in February to 16.37M following a 9.1% January slump. Consensus expectations were for sales of 16.5M. Car sales recovered 5.0% m/m to 7.41M after two months of decline. Sales of [...]

U.S. Light Vehicle Sales Tread Water

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040302c.jpg" width="353">
Total retail sales in Germany rose 2.32% in January from December, the first rise in three months. Sales of staples such as food, beverages and tobacco that have generally been in a rising trend, rose 3.62%. In addition, there were significant increases in sales of some of the more discretionary types of spending. Sales of clothing, footwear and leather rose 3.16% and sales of furniture and related items rose 3.77%. Sales of motor vehicles, however, probably declined in January. While actual data on sales of motor vehicles are not available, the fact that total sales were up 2.32% and sales excluding autos were up 2.36%, suggests that auto sales were lower in January.
The increase in spending in January suggests that the reduction in consumer income taxes of some 15 billion euros that became effective on January 1, 2004 may have outweighed the dampening effect of increased medical costs that also became effective on January 1, 2004. As part of a number of reform measures taken over the past year to increase German competitiveness, consumers have to bear a larger cost of doctor visits, hospital stays and medical equipment, such as wheel chairs.

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">German Retail Sales (2000 =100)</th>
<th scope="col">Jan 04</th>
<th scope="col">Dec 03</th>
<th scope="col">Jan 03</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col">Y/Y&nbsp; %</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total (2000 Prices)</td>
<td>98.9</td>
<td>97.4</td>
<td>99.9</td>
<td>1.54</td>
<td>-1.00</td>
<td>99.9</td>
<td>100.1</td>
<td>101.5</td>
</tr>
<tr>
<td class="firstcol">Total (Current Prices</td>
<td>101.3</td>
<td>99.0</td>
<td>101.5</td>
<td>2.32</td>
<td>-0.20</td>
<td>101.5</td>
<td>101.4</td>
<td>102.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food</td>
<td>111.5</td>
<td>107.6</td>
<td>108.2</td>
<td>3.62</td>
<td>3.05</td>
<td>109.5</td>
<td>107.5</td>
<td>104.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Clothing</td>
<td>88.1</td>
<td>85.4</td>
<td>93.0</td>
<td>3.16</td>
<td>-5.27</td>
<td>90.3</td>
<td>95.0</td>
<td>99.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Furniture</td>
<td>88.0</td>
<td>84.8</td>
<td>88.3</td>
<td>3.77</td>
<td>-0.34</td>
<td>87.9</td>
<td>88.9</td>
<td>96.6R</td>
</tr>
<tr>
<td class="firstcol">Total Sales (Excl Autos)</td>
<td>99.7</td>
<td>97.4</td>
<td>100.2</td>
<td>2.36</td>
<td>-0.50</td>
<td>99.8</td>
<td>100.4</td>
<td>101.9</td>
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</tbody>
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Total retail sales in Germany rose 2.32% in January from December, the first rise in three months. Sales of staples such as food, beverages and tobacco that have generally been in a rising trend, rose 3.62%. In addition, there were [...]

Retail Sales in Germany Rise in January, the First Rise in Three Months

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040302b.jpg" width="353">
Announced job cuts fell 34.3% m/m in February to the lowest level since last September, according to Challenger, Gray &amp; Christmas.
The three month moving average of job cut announcements fell to 95,942 (-20.8% y/y). During the last ten years there has been an 83% (inverse) correlation between the three month average level of announced job cuts and the y/y percent change payroll employment.
The decline in layoffs was widespread across industries. However, large m/m increases in job cut announcements were tallied in the automotive (-35.6% y/y), electronics (-67.4% y/y), health care (+628.4% y/y) and insurance (+171.1% y/y) industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM"> Challenger, Gray &amp; Christmas</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>77,250</td>
<td>117,556</td>
<td>-44.1%</td>
<td>1,236,426</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
</table>
Chain Store Sales Nudge Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 2, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040302a.jpg" width="353">
Chain store sales rose fractionally last week. That pulled sales for the near-completed month of February 2.0% above January, according to the ICSC-UBS survey.
During the last ten years there has been a 58% correlation between the year-to-year percent change in the ICSC-UBS measure of chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart. 

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">02/28/04</th>
<th scope="col">02/21/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>438.1</td>
<td>437.9</td>
<td>7.9%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

Announced job cuts fell 34.3% m/m in February to the lowest level since last September, according to Challenger, Gray & Christmas. The three month moving average of job cut announcements fell to 95,942 (-20.8% y/y). During the last [...]

Challenger Layoffs Plunge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040301a.jpg" width="353">
Personal income rose just 0.2% (+4.1% y/y) in January versus Consensus expectations for a 0.4% gain. The increase was held back by declines in proprietors&#39; income and rental income which had been quite strong. 
Personal disposable income jumped 0.8% (5.2% y/y), goosed by 4.9% drop in tax payments which are down 5.1% y/y. 
Wages &amp; salaries rose a strong 0.5% (+3.0% y/y) and the decline in December was lessened to -0.1%. The January gain was spread evenly across industries. 
Proprietors&#39; income fell 0.6% (+8.0% y/y) and rental income dropped 1.9% (+17.9% y/y). 
Consumer spending rose a moderate 0.4%, the gain held back by a 3.3% decline in durable goods spending. Unit sales of light vehicles fell 9.0% m/m to 16.09M. Spending on nondurables jumped 1.5% (6.7% y/y) as higher gasoline prices, up 6.3% m/m, lifted the price deflator for nondurables by 0.7%. Services spending rose 0.7% (4.7% y/y). 
The PCE price deflator rose 0.3%. Less food and energy prices rose 0.1% in January (0.8% y/y). 
The savings rate ticked up to 1.8%. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM"> Disposition of Personal Income</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.2%</td>
<td>0.3%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.4%</td>
<td>0.5%</td>
<td>5.3%</td>
<td>5.0%</td>
<td>4.8%</td>
<td>4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>1.8%</td>
<td>1.4%</td>
<td>1.7%</td>
<td>2.0%</td>
<td>2.3%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>0.3%</td>
<td>0.2%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>1.4%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
ISM Factory Index Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040301b.jpg" width="353">
The Purchasing Managers&#146; Composite Index (PMI) released by the Institute of Supply Management fell to 61.4 in February from 63.6 in January. Consensus expectations were for a lesser decline to 62.0.
During the last twenty years there has been a 71% correlation between the level of the Composite Index and the three month growth in factory sector industrial production. There has been a 58% correlation between the level of the Composite Index and quarterly growth in real GDP.
The new orders index dropped to 66.4 from 71.1. The series&#39; high was in December at 73.1. The production index fell to 63.9 from 71.1.
The employment index rose sharply to 56.3, the highest level since December 1987. There has been a 65% correlation during the last twenty years between the ISM employment index and the one-month change in factory sector payrolls.
The inventory index improved to 49.4. The Jan-Feb average of 49.2 is versus 44.5 during all of last year and a low of 39.6 during 2001.
The prices paid index jumped further to 81.5, the highest level since January 1995.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>61.4</td>
<td>63.6</td>
<td>49.4</td>
<td>53.3</td>
<td>52.4</td>
<td>43.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>66.4</td>
<td>71.1</td>
<td>51.9</td>
<td>58.1</td>
<td>56.6</td>
<td>46.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>81.5</td>
<td>75.5</td>
<td>65.5</td>
<td>59.6</td>
<td>57.6</td>
<td>42.9</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040301c.jpg" width="353">
The value of total construction put in place fell 0.3% in January (+5.4% y/y). December activity was revised up due to a raised figure for nonresidential building. A 0.2% gain was expected for January.
Private residential building activity was unchanged following six months of strong gain (11.4% y/y). Single family home building fell a slight 0.2% (16.1% y/y).
Nonresidential building fell 1.7% following an upwardly revised December. Office building slumped 5.2% (-5.0% y/y) and commercial construction dropped 2.6% (-1.9% y/y). Education spending fell for the fifth month in the last seven (+1.0% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</a></th>
<th scope="col"> Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.3%</td>
<td>0.6%</td>
<td>5.4%</td>
<td>4.0%</td>
<td>1.1%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.5%</td>
<td>0.9%</td>
<td>7.2%</td>
<td>4.6%</td>
<td>-0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.0%</td>
<td>0.9%</td>
<td>11.4%</td>
<td>10.1%</td>
<td>8.6%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.7%</td>
<td>1.1%</td>
<td>-1.5%</td>
<td>-5.5%</td>
<td>-13.0%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>5.3%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

Personal income rose just 0.2% (+4.1% y/y) in January versus Consensus expectations for a 0.4% gain. The increase was held back by declines in proprietors' income and rental income which had been quite strong. Personal disposable [...]

U.S. Personal Income Up

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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

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

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

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

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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U.S. light vehicle sales dropped 2.9% (+6.5% y/y) to 17.31 million units (SAAR) in April after surging 10.8% to 17.82 million units in March. The retreat in April vehicle sales accompanied a 1.7% y/y rise in real disposable income through March, which compared to 2.0% growth last year.

Sales declines were broad-based last month. Light truck sales fell 1.3% (+9.9% y/y) during April to 14.34 million units (SAAR), after rising 12.4% in March. Purchases of domestically-made light trucks declined 1.2% (+11.9% y/y) to 11.02 million units, after jumping 12.5% in March. Sales of imported light trucks fell 1.8% (+4.4% y/y) to 3.32 million units, following an 11.6% March surge.

Trucks’ record 82.8% share of the light vehicle market last month compared to 81.5% in March and 80.3% in April of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales also declined last month, down 9.5% (-7.5%) to 2.97 million units (SAAR) following a 3.5% March rise. The decline reversed all of the increase over the prior two months. Purchases of domestically-produced cars fell 9.8% (-4.3% y/y) last month to 2.22 million units, after rising 3.8% in March. Sales of imported autos declined 9.6% (-15.7% y/y) to 0.75 million units, following a 2.5% March increase.

Imports' 23.5% share of the U.S. light vehicle market was little changed from 23.6% in March and compared to a May 2023 low of 22.9% and a high of 26.3% in November of 2023. Imports' share of the passenger car market held steady at 25.3% last month and compared to 27.7% in April of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market eased to 23.2% last month after falling to 23.3% in March.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the I**NDUSTRY** database.

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250501I20.jpg

- Light truck sales pull back, while auto sales tumble.
- Both domestic and imported sales decline.
- Imports' market share slips further.

U.S. Light Vehicle Sales Fall in April

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

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

Carol Stone, CBE

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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.

250501C8.jpg

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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%.

Economy in Brief: March 2004

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U.S. Light Vehicle Sales Tread Water

Retail Sales in Germany Rise in January, the First Rise in Three Months

Challenger Layoffs Plunge

U.S. Personal Income Up