Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050322b.jpg" width="353">
The Producer Price Index for finished goods rose 0.4% last month versus Consensus expectations for a 0.3% rise. The gain equaled the average of the prior twelve months. Excluding food &amp; energy prices rose 0.1%, calmer than the 0.8% spike in January and equaled Consensus expectations.
The PPI for core finished consumer goods rose 0.2% (2.8% y/y) after the prior month&#39;s 0.9% jump. Prices for tobacco products again were strong and rose 0.5% (3.7% y/y) but consumer durable prices fell 0.5% (2.3% y/y) due to lower prices for passenger cars. Capital goods prices fell 0.2% (+2.8% y/y).
Finished energy prices rose 1.4% (11.9% y/y) due to higher gasoline prices (23.7% y/y) and higher fuel oil prices (46.0% y/y). Finished food prices jumped 0.8% (+4.9% y/y).
Intermediate goods prices nearly doubled the prior month&#39;s increase and rose 0.7%. Core intermediate prices again were firm and rose 0.5%, led higher by a 6.1% (10.8% y/y) increase in prices for softwood lumber.
Crude prices fell 1.6%, down for the third straight month as core crude prices dropped 3.0%. Prices for iron &amp; steel scrap flopped 7.1% (-3.5% y/y). During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.7%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.8%</td>
<td>2.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.7%</td>
<td>0.4%</td>
<td>8.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5%</td>
<td>0.8%</td>
<td>8.1%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-1.6%</td>
<td>-2.0%</td>
<td>8.1%</td>
<td>17.6%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-3.0%</td>
<td>-2.5%</td>
<td>5.1%</td>
<td>26.5%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
</body>
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The Producer Price Index for finished goods rose 0.4% last month versus Consensus expectations for a 0.3% rise. The gain equaled the average of the prior twelve months. Excluding food & energy prices rose 0.1%, calmer than the 0.8% [...]

PPI Rose A Moderate 0.4%, Core Pricing Calmer

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323c.jpg" width="353">
The Federal Open Market Committee raised the target rate for federal funds an expected 25 basis points to 2.75%. The discount rate also was raised 25 basis points to 3.75%.
The decision to raise rates the seventh time since last June was unanimous.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.&quot;
With regard to prices the press release indicated &quot;Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident. The rise in energy prices, however, has not notably fed through to core consumer prices.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/BoardDocs/Press/monetary/2005/20050322/default.htm">here</a>.
Paul Samuelson and Monetary Analysis from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050401/cover.pdf">here</a>.

PPI Rose A Moderate 0.4%, Core Pricing Calmer 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 22, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050322b.jpg" width="353">
The Producer Price Index for finished goods rose 0.4% last month versus Consensus expectations for a 0.3% rise. The gain equaled the average of the prior twelve months. Excluding food &amp; energy prices rose 0.1%, calmer than the 0.8% spike in January and equaled Consensus expectations.
The PPI for core finished consumer goods rose 0.2% (2.8% y/y) after the prior month&#39;s 0.9% jump. Prices for tobacco products again were strong and rose 0.5% (3.7% y/y) but consumer durable prices fell 0.5% (2.3% y/y) due to lower prices for passenger cars. Capital goods prices fell 0.2% (+2.8% y/y).
Finished energy prices rose 1.4% (11.9% y/y) due to higher gasoline prices (23.7% y/y) and higher fuel oil prices (46.0% y/y). Finished food prices jumped 0.8% (+4.9% y/y).
Intermediate goods prices nearly doubled the prior month&#39;s increase and rose 0.7%. Core intermediate prices again were firm and rose 0.5%, led higher by a 6.1% (10.8% y/y) increase in prices for softwood lumber.
Crude prices fell 1.6%, down for the third straight month as core crude prices dropped 3.0%. Prices for iron &amp; steel scrap flopped 7.1% (-3.5% y/y). During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.7%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.8%</td>
<td>2.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.7%</td>
<td>0.4%</td>
<td>8.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5%</td>
<td>0.8%</td>
<td>8.1%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-1.6%</td>
<td>-2.0%</td>
<td>8.1%</td>
<td>17.6%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-3.0%</td>
<td>-2.5%</td>
<td>5.1%</td>
<td>26.5%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
Chain Store Sales Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 22, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050322a.jpg" width="353">
Chain store sales last week added 0.2% to the prior week&#39;s 0.6% advance according to the International Council of Shopping Centers (ICSC)-UBS survey.
Sales so far in March are 1.2% ahead of the February average which rose 1.0% from January.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.
The leading indicator of chain store sales from ICSC rose 0.3% in the latest week (0.2% y/y).
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/19/05</th>
<th scope="col">03/12/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>454.6</td>
<td>453.6</td>
<td>3.4%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Korean GDP up 4.6%: Exports Rise Outweighs Consumer Slump  
by <a href="/comment/Curley.html">Louise Curley</a> March 22, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050322c.jpg" width="353">
The Korean economy showed signs of continued improvement in the fourth quarter of last year as Real Gross Domestic Product (RGDP) rose 0.94% in the fourth quarter, compared with 0.81% in the third quarter. For the year 2004 as a whole, real GDP was up 4.66%, compared with 3.15% in the previous year.
Exports of goods and services in 2004 rose almost 20% in spite of a 15% appreciation of the won. Consumer expenditures remain subdued as consumers have been trying to restore their balance sheets after having gone on a buying spree during an earlier period of relaxed credit controls. At the end of last year, one in 13 persons was estimated to be three or more months behind on debt payments. The attached chart shows the divergent paths in the year to year increases in consumer spending and those in net exports.
Of the 30,768 billion 2000 won increase in RGDP between 2003 and 2004, 22,504 billion 2000 won, or 73% was accounted for by an increase in net exports. Consumption on the other hand, accounted for only 2.2% of the increase and while investment increased by 9,89l billion 2000 won, or 30.7%, more than half that, 18.1%, was due to inventory accumulation. Some of these figures may have been overstated as there was a statistical discrepancy in the total of -2,310.7 billion 2000 won, or -6.1%.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P2/@P2.HTM">Korea: Gross Domestic Product</a> (Billions of 2000 Korean Won)</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">Difference</th>
<th scope="col">% of Dif</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gross domestic product</td>
<td>693,420.0</td>
<td>662,654.9</td>
<td>30,769.1</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Final Consumption</td>
<td>430,768.9</td>
<td>430,077.0</td>
<td>691.9</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Investment</td>
<td>204,024.6</td>
<td>194,579</td>
<td>9,445.6</td>
<td>30.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Fixed</td>
<td>202,927.5</td>
<td>199,048.0</td>
<td>3,879.5</td>
<td>12.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Inventories</td>
<td>1097.1</td>
<td>-4,469.0</td>
<td>5,566.1</td>
<td>18.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Exports</td>
<td>58394.9</td>
<td>35,894.8</td>
<td>22,500.1</td>
<td>73.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Statistical discrepancy</td>
<td>235.9</td>
<td>2,104.3</td>
<td>-1,868.9</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Addendum:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>% Chg</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>359,995.2</td>
<td>300,824.5</td>
<td>59,170.7</td>
<td>19.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>301,600.3</td>
<td>264,929.7</td>
<td>36,670.6</td>
<td>13.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The Federal Open Market Committee raised the target rate for federal funds an expected 25 basis points to 2.75%. The discount rate also was raised 25 basis points to 3.75%. The decision to raise rates the seventh time since last June [...]

Federal Funds Rate Raised to 2.75%

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050321b.jpg" width="353">
The European Union Finance Ministers agreed to loosen the terms of the Growth and Stability Pact that was designed to ensure fiscal discipline among the member countries. The pact has virtually been suspended since November, 2003 when France and Germany failed to be censured for their failure to adhere to the letter of the law. With Italy now added to France and Germany having deficits above 3% of Gross Domestic Product (GDP), the need for a review of the criteria of the Growth and Stability Pact became more pressing.
Under the original terms of the Pact, countries having budget deficits in excess of 3% of GDP in two successive years were subject to sanctions and fines unless they experienced a 2% decline in growth. Now, while the 3% limit is maintained, countries may subtract certain expenditure from the calculation of the deficit. Germany, for example, may deduct the costs of reunification and France has been allowed to deduct certain military and research expenditures. Moreover, countries with excessive deficits may take two years to get back under the limit, a period that is renewable for two more years. To mitigate problems for some of the potential new members, the finance ministers agreed to give a five year reprieve to those countries reforming their pension schemes. It is expected that these changes will be ratified at the Brussels summit on March 22-23. While these changes will benefit the big spenders, they are not likely to do much for Greece. Greece will need fundamental restructuring if it is to remain in the Euro zone.
Data on the deficits and surpluses as a percentage of GDP of the European Union countries are available on an annual basis in Haver&#39;s Eurostat data base. Data for the Euro zone countries are shown in the table below and the data for France and Germany are shown in the attached chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Deficit (-)/Surplus (+) %of GDP</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp; 2002</th>
<th scope="col">&nbsp; 2001</th>
<th scope="col">&nbsp; 2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Austria</td>
<td>-1.3</td>
<td>-1.1</td>
<td>-0.2</td>
<td>0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Belgium</td>
<td>0.1</td>
<td>0.4</td>
<td>0.1</td>
<td>0.6</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Finland</td>
<td>2.1</td>
<td>2.5</td>
<td>4.3</td>
<td>5.2</td>
<td>7.1</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>-3.7</td>
<td>-4.3</td>
<td>-3.2</td>
<td>-1.3</td>
<td>-1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-3.7</td>
<td>-3.1</td>
<td>-3.7</td>
<td>-2.8</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Greece</td>
<td>-6.1</td>
<td>-5.2</td>
<td>-4.1</td>
<td>-3.6</td>
<td>-4.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Ireland</td>
<td>1.3</td>
<td>0.2</td>
<td>-1.4</td>
<td>0.9</td>
<td>4.4</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-3.0</td>
<td>-2.9</td>
<td>-2.6</td>
<td>-3.0</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Luxembourg</td>
<td>-1.1</td>
<td>0.5</td>
<td>2.3</td>
<td>6.2</td>
<td>6.0</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td>-2.5</td>
<td>-3.2</td>
<td>-1.9</td>
<td>-0.1</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Portugal</td>
<td>n.a.</td>
<td>-2.8</td>
<td>-2.7</td>
<td>-4.4</td>
<td>-2.8</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-0.3</td>
<td>0.2</td>
<td>-1.3</td>
<td>-1.5</td>
<td>0.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The European Union Finance Ministers agreed to loosen the terms of the Growth and Stability Pact that was designed to ensure fiscal discipline among the member countries. The pact has virtually been suspended since November, 2003 when [...]

European Finance Ministers Agree to Modify Terms of the Stability and Growth Pact

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050321a.jpg" width="353">
The Weekly Leading Index of the US economy from the Economic Cycle Research Institute (ECRI) rose 0.5% in the latest week, continuing the moderate growth of the prior two weeks. The six month growth rate of 3.5% was the strongest in nearly a year.
The latest increase was due to a rise in mortgage applications and lower claims for jobless insurance.
During the last ten years there has been a 69% correlation between six-month growth in the ECRI leading index and two quarter growth in real U.S. GDP.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The ECRI Leading Index&#39;s recent pattern generally mirrors the Conference Board&#39;s Index of Leading Economic Indicators, with a slight lead. Construction of the ECRI Leading Index differs from the Conference Board Index but there has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
The latest from ECRI is available <a href="http://www.businesscycle.com/">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM">ECRI Leading Index</a></th>
<th scope="col">03/11/05</th>
<th scope="col">03/04/05</th>
<th scope="col">Growth Rate</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Weekly</td>
<td>135.9</td>
<td>135.2</td>
<td>3.6%</td>
<td>4.2%</td>
<td>6.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Feb</td>
<td>Jan</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>134.4</td>
<td>132.7</td>
<td>2.1%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
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The Weekly Leading Index of the US economy from the Economic Cycle Research Institute (ECRI) rose 0.5% in the latest week, continuing the moderate growth of the prior two weeks. The six month growth rate of 3.5% was the strongest in [...]

ECRI Leading Index of U.S. Economy Up

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050318c.jpg" width="353">
Italy&#39;s merchandise trade accounts have turned to a deficit position, with the total balance for 2004 in deficit for the first time since 1992. In January, reported today by Italy&#39;s National Institute of Statistics, the deficit was &#128;554 million, seasonally adjusted, nearly the same as December&#39;s &#128;609 million. Exports eased &#128;168 million, while imports were off &#128;223 million. Longer trends in exports and imports indicate that adverse developments on both sides of the trade accounts generated the deficit.
Exports drifted downward from late 2001 until early last spring. This slack was reflected in shipments to customers elsewhere in the EU and also to non-EU areas; see the accompanying graph. By type of product, all three major categories were flat: consumer goods, investment goods and intermediate products. The latter two have rebounded in recent months, while consumer goods exports remain sluggish.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050318d.jpg" width="353">
Imports didn&#39;t expand in that 2001-2003 period, but they did stay steady as exports declined, and they have run up rapidly since last April. The surge in energy prices is an obvious driver of this growth, but notably, consumer, investment and intermediate goods categories have all participated, nearly equally. It will be interesting in coming months to see if the continuing pressure on energy prices will eventually eat into demand for other goods and services, in Italy, but also among Italy&#39;s trading partners.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy: Trade</a></th>
<th scope="col">Jan 2005</th>
<th scope="col">Dec 2004</th>
<th scope="col">Nov 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Trade Balance, Months SA, Mil.Euros</td>
<td>-554</td>
<td>-609</td>
<td>-170</td>
<td>-1513</td>
<td>+2751</td>
<td>+8815</td>
</tr>
<tr>
<td class="firstcol">Exports, NSA, Yr/Yr % Chg </td>
<td>11.0</td>
<td>18.7</td>
<td>15.3</td>
<td>7.7</td>
<td>-2.0</td>
<td>-1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports, NSA, Yr/Yr % Chg</td>
<td>7.4</td>
<td>20.5</td>
<td>19.1</td>
<td>9.4</td>
<td>0.3</td>
<td>-1.1</td>
</tr>
<tr>
<td class="firstcol">Energy, NSA, % of Imports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EU25, Months SA, Mil.Euros</td>
<td>-490</td>
<td>-486</td>
<td>-117</td>
<td>-2799</td>
<td>-197</td>
<td>+1045</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-EU25, Months SA, Mil.Euros</td>
<td>-64</td>
<td>-123</td>
<td>-53</td>
<td>+1288</td>
<td>+2949</td>
<td>+7772</td>
</tr>
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Italy's merchandise trade accounts have turned to a deficit position, with the total balance for 2004 in deficit for the first time since 1992. In January, reported today by Italy's National Institute of Statistics, the deficit was [...]

Italian Trade Renews Expansion, but Sustains First Annual Deficit in 12 Years

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050318b.jpg" width="353">
The preliminary March reading of consumer sentiment from the University of Michigan fell to 92.9. The 1.3% m/m fall was similar to the declines logged during the prior two months. Consensus expectations had been for a slight rise to 94.8. During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.
The reading of current conditions fell for the second month. The 1.7% decline was led by a 6.0% drop (-7.3% y/y) in the sentiment of families earning more than $50,000 per year. Sentiment in families earning less than $50,000 per year rose 7.0% (0.8% y/y).
Consumer expectations slipped 0.9% (-5.9% y/y) for the third consecutive monthly decline as the expected change in real income fell 4.7% (-8.0% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Reexamining the Consumption-Wealth Relationship: The Role of Uncertainty from the Federal Reserve Bank of New York is Available <a href="http://www.newyorkfed.org/research/staff_reports/sr202.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.9</td>
<td>94.1</td>
<td>-3.0%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>107.3</td>
<td>109.2</td>
<td>0.5%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>83.6</td>
<td>84.4</td>
<td>-5.9%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
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The preliminary March reading of consumer sentiment from the University of Michigan fell to 92.9. The 1.3% m/m fall was similar to the declines logged during the prior two months. Consensus expectations had been for a slight rise to [...]

U.S. Consumer Sentiment Faded Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050318a.jpg" width="353">
Import prices rose 0.8% last month and about matched Consensus expectations for a 0.7% rise. The prior month&#39;s increase was revised down slightly due to a lessened gain in petroleum prices but the estimated rise in nonpetroleum prices was revised higher.
Petroleum prices jumped 3.9% on top of the 3.4% surge the prior month. So far in March the price of Brent Crude oil has averaged $52.15 per barrel, up 14.2% versus the $45.66 averaged last month.
Other than oil, import prices continued to move moderately higher. Prices for nonauto consumer goods rose 0.2% (1.0% y/y) though prices in most categories were little changed. Capital goods prices also were unchanged m/m (-0.6% y/y) but lower computer prices (-0.4% m/m, -6.8% y/y) accounted for most of the weakness. Excluding computers capital goods prices rose 0.2% (2.5% y/y) and contrasted with price deflation in excess of 2% early in 2002.
Export prices were unchanged last month as a 0.9% decline (-8.2% y/y) in agricultural prices offset a 0.1% (4.7% y/y) gain in nonagricultural export prices.
<a href="http://www.bos.frb.org/economic/neer/neer2002/neer102a.pdf">Exchange Rates and the Prices of Manufacturing Products Imported into the United States</a> is a 2002 article from the Federal Reserve Bank of New England.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.8%</td>
<td>0.7%</td>
<td>6.1%</td>
<td>5.6%</td>
<td>2.9%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>3.9%</td>
<td>3.4%</td>
<td>26.6%</td>
<td>30.4%</td>
<td>21.0%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>1.1%</td>
<td>-2.4%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.0%</td>
<td>0.9%</td>
<td>3.4%</td>
<td>3.9%</td>
<td>1.6%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Import prices rose 0.8% last month and about matched Consensus expectations for a 0.7% rise. The prior month's increase was revised down slightly due to a lessened gain in petroleum prices but the estimated rise in nonpetroleum prices [...]

Imported Price Inflation 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.

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

250501F20.jpg

250501G20.jpg

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.

250501H20.jpg

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

250501J5.jpg

250501K5.jpg

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

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

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

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

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

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

250501L5.jpg

250501M5.jpg

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

250501N.jpg

250501O.jpg

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

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: March 2005

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