Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421b.jpg" width="353">
The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago fell to 0.11 in March, the lowest level since last September.A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
The decline lowered the three-month moving average of the CFNAI to 0.17, its lowest since November.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_april2005.pdf">here</a>.
The latest Beige Book covering regional economic activity from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20050420/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.11</td>
<td>0.22</td>
<td>0.67</td>
<td>0.39</td>
<td>-0.11</td>
<td>-0.40</td>
</tr>
</tbody>
</table>
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The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago fell to 0.11 in March, the lowest level since last September.A zero value of the CFNAI indicates that the economy is expanding at its historical trend [...]

Chicago Fed Nat'l Activity Index Suggests a Soft Spot

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421c.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.4% in March, the second decline in three months. Six-month growth in the leaders fell further to -0.5%. Growth in the leaders deeper than -2.5% preceded past US recessions.
The breadth of one month gain amongst the 10 components of the leading index fell to a paltry 20% from a downwardly revised 40% in February. Higher claims for unemployment insurance had the largest negative effect pulling the leading index lower. Higher consumer goods orders and a steeper interest rate yield curve had the only positive influences.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% following a downwardly revised 0.1% gain in February. Six-month growth in the index was 3.1% and during the last ten years there has been an 84% correlation between six month growth in the coincident indicators and two quarter growth in real GDP.
The lagging indicators fell 0.1% due to a longer duration of unemployment and higher C&amp;I loans.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess rose 0.3% (1.3% y/y) following a revised decline the prior month.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Chairman Alan Greenspan&#39;s testimony on Budget process reforms is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20050421/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>3.0%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.1%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
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The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.4% in March, the second decline in three months. Six-month growth in the leaders fell further to -0.5%. Growth in the leaders deeper than -2.5% [...]

Leading Indicators Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421c.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.4% in March, the second decline in three months. Six-month growth in the leaders fell further to -0.5%. Growth in the leaders deeper than -2.5% preceded past US recessions.
The breadth of one month gain amongst the 10 components of the leading index fell to a paltry 20% from a downwardly revised 40% in February. Higher claims for unemployment insurance had the largest negative effect pulling the leading index lower. Higher consumer goods orders and a steeper interest rate yield curve had the only positive influences.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% following a downwardly revised 0.1% gain in February. Six-month growth in the index was 3.1% and during the last ten years there has been an 84% correlation between six month growth in the coincident indicators and two quarter growth in real GDP.
The lagging indicators fell 0.1% due to a longer duration of unemployment and higher C&amp;I loans.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess rose 0.3% (1.3% y/y) following a revised decline the prior month.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Chairman Alan Greenspan&#39;s testimony on Budget process reforms is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20050421/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>3.0%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.1%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity Index Suggests a Soft Spot 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421b.jpg" width="353">
The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago fell to 0.11 in March, the lowest level since last September.A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
The decline lowered the three-month moving average of the CFNAI to 0.17, its lowest since November.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_april2005.pdf">here</a>.
The latest Beige Book covering regional economic activity from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20050420/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">CFNAI</td>
<td>0.11</td>
<td>0.22</td>
<td>0.67</td>
<td>0.39</td>
<td>-0.11</td>
<td>-0.40</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Passed the Soft Spot 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421d.jpg" width="353">
The Philadelphia Fed&#39;s April Index of General Business Conditions in the manufacturing sector recovered all of the prior month&#39;s decline and rose to 25.3. Consensus expectations had been for a lesser increase to 14.0.
During the last ten years there has been a 69% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 52% correlation with q/q growth in real GDP.
The shipments index more than doubled the prior month&#39;s level and rose to its highest since August. The new orders index also rose sharply to the highest level of the year. The number of employees index recovered most of the prior two months&#39; decline. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months improved moderately to the highest level this year.
The prices paid index also recovered much of the prior two months&#39; decline. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0405.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>25.3</td>
<td>11.4</td>
<td>32.8</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>50.5</td>
<td>29.7</td>
<td>51.3</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Fell Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421a.jpg" width="353">
Initial unemployment insurance claims dropped a sharp 36,000 last week to 296,000. The prior week&#39;s 9,000 decline was little revised and it marked the third drop in as many weeks, to the lowest level since late 2000. Consensus expectations had been for 326,000 claims.
The figure covered the survey period for April nonfarm payrolls and was down 33,000 (10.0%) from the March period. The size of the drop may have been magnified by the early timing of Easter this year.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment. There has been a (negative) 65% correlation with the level of continuing claims.
The four week moving average of initial claims fell to 330,250 (-5.4% y/y).
Continuing claims for unemployment insurance fell 17,000 following a deepened 31,000 decline the prior week.
The insured unemployment rate remained at 2.1%.
How Do Local Labor Markets in the U.S. Adjust to Immigration? from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/brq105el.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">04/16/05</th>
<th scope="col">04/09/05</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">Initial Claims</td>
<td>296</td>
<td>332</td>
<td>-16.9%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,638</td>
<td>-12.3%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
Sharp Slowdown in UK Retail Trade for Early 2005 
by <a href="/comment/Stone.html">Carol Stone</a> April 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421e.jpg" width="353">
Retail sales in the UK are flagging, according to the most recent couple of months&#39; data from the Office of National Statistics. In March, sales values rose 0.2% from February, the same size gain as for February from January. These moves yielded a 3.0% increase from March 2004, compared with a 4.7% increase for all of 2004.
The swing was wider in the corresponding volume results, that is, adjusted for inflation. Sales fell in March by 0.1% and were 3.7% ahead of a year ago. But 2004 as a whole saw 6.0% growth from 2003, making the recent performance a moderation of 2.3 percentage points. By store category, the weakening occurred in nonfood store sales and non-store sales and repair. (Internet sales by retailers having stores are included in the sales of the relevant store group.) Household goods and &quot;other&quot; nonfood stores experienced the greatest degree of slowing. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421f.jpg" width="353">
It might be argued that weakening retail sales growth would result from weakening employment. However, employment growth in the UK hasn&#39;t changed much in recent months. The 0.8% in the January figure (3-month average, here representing December, January and February) is very much in line with the pace prevailing during most of last year. Thus, the smaller gains in retail trade are resulting from more sluggish spending by individual employees, not fewer employees. See the second graph, which shows a progressive deceleration in sales/employee. We can surmise that this might arise from rising energy costs, which would be absorbing more consumer income. Indeed, detailed National Accounts data through Q4 2004 indicate major increases in the costs of household utilities and vehicle fuels. GDP totals for Q1 will be reported tomorrow, 22 April. But the breakdown of expenditure detail won&#39;t be available until the June release of the national accounts. So for the present, our supposition about the role of energy must remain conditional. Then again, the recent slower pattern of retail trade may only be a reaction to more rapid expansion during 2004.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Changes</th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 2005</th>
<th scope="col">Jan 2005</th>
<th scope="col">Year Ago</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 Value</td>
<td>0.2</td>
<td>0.2</td>
<td>0.8</td>
<td>3.0</td>
<td>4.7</td>
<td>2.0</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">Total Volume</td>
<td>-0.1</td>
<td>0.3</td>
<td>0.6</td>
<td>3.7</td>
<td>6.0</td>
<td>2.9</td>
<td>6.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Mostly Food</td>
<td>0.0</td>
<td>-0.3</td>
<td>1.9</td>
<td>4.5</td>
<td>4.1</td>
<td>3.3</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol">Mostly Non- Food Stores</td>
<td>0.2</td>
<td>0.5</td>
<td>-0.1</td>
<td>3.3</td>
<td>7.2</td>
<td>3.5</td>
<td>8.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-Stores</td>
<td>-3.8</td>
<td>3.5</td>
<td>-0.2</td>
<td>2.5</td>
<td>9.4</td>
<td>-5.0</td>
<td>7.2</td>
</tr>
</tbody>
</table>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050420c.jpg" width="353">
China&#39;s GDP gained 9.5% year-on-year in the first quarter, according to data reported this morning in Beijing. This followed a similar performance in Q4 2004, and compared with at least one analyst survey that showed a consensus forecast slowing to 9.0%.
Of the three broad industry groups reported today, two indeed slowed. Growth in the &quot;primary&quot; sector, mainly agriculture, decreased to 4.6% from 5.5% during all of 2004. Even so, these and the previous three quarters remain notably stronger than any pace in the prior six years of these output data.
The services sectors, &quot;tertiary&quot; industries, also retreated somewhat in Q1, expanding 7.6% versus 8.6% during 2004. Both periods, however, have similar rates to those that have prevailed in previous recent years.
&quot;Secondary&quot; industries include mining, manufacturing and utilities. There growth picked up a bit in Q1, to 11.3% from the 10.9% pace in 2004.
Policymakers have hoped for more distinct slowing in growth, and have tightened credit to try to achieve that. So far, their success has obviously been limited. The result of today&#39;s GDP report is likely to be continued restraint, and several forecasters today pointed toward still more interest rate increases. The People&#39;s Bank of China key 1-year lending rate is presently 5.58%, last raised in October.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">4-Qtr % Changes</th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4 2004</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">Nominal GDP</td>
<td>15.7</td>
<td>15.4</td>
<td>22.3</td>
<td>7.0</td>
<td>5.2</td>
</tr>
<tr>
<td class="firstcol">Real GDP</td>
<td>9.5</td>
<td>9.5</td>
<td>9.9</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Cumulative YTD: Nominal GDP</td>
<td>15.7</td>
<td>17.0</td>
<td>14.0</td>
<td>6.7</td>
<td>7.3</td>
</tr>
<tr>
<td class="firstcol">Real GDP</td>
<td>9.5</td>
<td>9.5</td>
<td>9.3</td>
<td>8.3</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Primary Industries*</td>
<td>4.6</td>
<td>5.5</td>
<td>2.5</td>
<td>2.9</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Secondary**</td>
<td>11.3</td>
<td>10.9</td>
<td>12.7</td>
<td>9.8</td>
<td>8.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary***</td>
<td>7.6</td>
<td>8.5</td>
<td>7.3</td>
<td>8.7</td>
<td>8.4</td>
</tr>
</tbody>
</table>
</body>
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China's GDP gained 9.5% year-on-year in the first quarter, according to data reported this morning in Beijing. This followed a similar performance in Q4 2004, and compared with at least one analyst survey that showed a consensus [...]

Chinese GDP Growth Remains Strong in Q1

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050420a.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications fell 1.6% last week and pulled the average level so far in April 3.5% below March which fell 4.8% from February.
Purchase applications fell 1.6% for the second decline in three weeks. The average in April still is 1.0% ahead of March which rose 6.1% from February. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance fell 1.6% and the April average is off 9.4% from March.
The effective interest rate on a conventional 30-year mortgage fell to 6.08% from 6.22% the prior week. The effective rate on a 15-year mortgage also fell to 5.70%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/15/05</th>
<th scope="col">04/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>672.6</td>
<td>683.6</td>
<td>-9.7%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>466.7</td>
<td>474.5</td>
<td>7.5%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,870.0</td>
<td>1,899.6</td>
<td>-26.7%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The Mortgage Bankers Association reported that mortgage applications fell 1.6% last week and pulled the average level so far in April 3.5% below March which fell 4.8% from February. Purchase applications fell 1.6% for the second [...]

Mortgage Applications Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050420b.jpg" width="353">
Consumer Prices (CPI-U) rose 0.6% in March versus Consensus expectations for a 0.5% rise.Prices less food &amp; energy rose 0.4%, double expectations for a 0.2% increase.
Energy prices doubled the prior month&#39;s increase with a 4.0% gain fueled by a 7.9% (16.8% y/y) jump in gasoline prices. In April gasoline prices have moved higher to an average $2.25 per gallon versus $2.08 in March although in the latest week prices backed off the high of $2.28. Fuel oil prices rose 4.6% (28.2% y/y) but natural gas &amp; electricity prices fell 0.3% (+6.4% y/y).
Services price inflation firmed further last month. Less energy, the 0.5% gain in March was the strongest since November 2001. Shelter prices doubled the prior month&#39;s increase with a 0.6% (3.0% y/y) rise and medical care services prices again popped 0.6% (5.0% y/y). Public transportation prices surged 1.3% (0.2% y/y) following three months of flat-to-down movement and school tuition firmed further with a 0.6% (6.4% y/y) rise.
Core goods price inflation again was tame owing to a 0.4% (+0.9%) decline in new vehicle prices, a 0.7% decline (NSA, -15.2% y/y) in computer prices, no change in furniture prices (0.3% y/y) and no change in medical care commodities (2.2% y/y). Apparel prices, however, firmed and rose 0.8% (0.0% y/y).
Food prices rose 0.2%s. Fruit &amp; vegetable prices declined for the fourth straight month (+1.6% y/y) and meat, poultry &amp; fish prices rose 0.2% (2.7% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases jumped 0.7%. Core chain prices rose 0.5%.
Has the Bond Market Forgotten Oil? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050501/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</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">Total&nbsp;</td>
<td>0.6%</td>
<td>0.4%</td>
<td>3.2%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.4%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.6%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.0%</td>
<td>2.0%</td>
<td>12.3%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>0.7%</td>
<td>0.5%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.5%</td>
<td>0.6%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
</body>
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Consumer Prices (CPI-U) rose 0.6% in March versus Consensus expectations for a 0.5% rise.Prices less food & energy rose 0.4%, double expectations for a 0.2% increase. Energy prices doubled the prior month's increase with a 4.0% gain [...]

CPI Boosted by Energy & Services

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050420b.jpg" width="353">
Consumer Prices (CPI-U) rose 0.6% in March versus Consensus expectations for a 0.5% rise.Prices less food &amp; energy rose 0.4%, double expectations for a 0.2% increase.
Energy prices doubled the prior month&#39;s increase with a 4.0% gain fueled by a 7.9% (16.8% y/y) jump in gasoline prices. In April gasoline prices have moved higher to an average $2.25 per gallon versus $2.08 in March although in the latest week prices backed off the high of $2.28. Fuel oil prices rose 4.6% (28.2% y/y) but natural gas &amp; electricity prices fell 0.3% (+6.4% y/y).
Services price inflation firmed further last month. Less energy, the 0.5% gain in March was the strongest since November 2001. Shelter prices doubled the prior month&#39;s increase with a 0.6% (3.0% y/y) rise and medical care services prices again popped 0.6% (5.0% y/y). Public transportation prices surged 1.3% (0.2% y/y) following three months of flat-to-down movement and school tuition firmed further with a 0.6% (6.4% y/y) rise.
Core goods price inflation again was tame owing to a 0.4% (+0.9%) decline in new vehicle prices, a 0.7% decline (NSA, -15.2% y/y) in computer prices, no change in furniture prices (0.3% y/y) and no change in medical care commodities (2.2% y/y). Apparel prices, however, firmed and rose 0.8% (0.0% y/y).
Food prices rose 0.2%s. Fruit &amp; vegetable prices declined for the fourth straight month (+1.6% y/y) and meat, poultry &amp; fish prices rose 0.2% (2.7% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases jumped 0.7%. Core chain prices rose 0.5%.
Has the Bond Market Forgotten Oil? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050501/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</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">Total&nbsp;</td>
<td>0.6%</td>
<td>0.4%</td>
<td>3.2%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.4%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.6%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.0%</td>
<td>2.0%</td>
<td>12.3%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>0.7%</td>
<td>0.5%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.5%</td>
<td>0.6%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
Mortgage Applications Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323b.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications fell 1.6% last week and pulled the average level so far in April 3.5% below March which fell 4.8% from February.
Purchase applications fell 1.6% for the second decline in three weeks. The average in April still is 1.0% ahead of March which rose 6.1% from February. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance fell 1.6% and the April average is off 9.4% from March.
The effective interest rate on a conventional 30-year mortgage fell to 6.08% from 6.22% the prior week. The effective rate on a 15-year mortgage also fell to 5.70%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/15/05</th>
<th scope="col">04/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>672.6</td>
<td>683.6</td>
<td>-9.7%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>466.7</td>
<td>474.5</td>
<td>7.5%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,870.0</td>
<td>1,899.6</td>
<td>-26.7%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Chinese GDP Growth Remains Strong in Q1 
by <a href="/comment/Stone.html">Carol Stone</a> April 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050420c.jpg" width="353">
China&#39;s GDP gained 9.5% year-on-year in the first quarter, according to data reported this morning in Beijing. This followed a similar performance in Q4 2004, and compared with at least one analyst survey that showed a consensus forecast slowing to 9.0%.
Of the three broad industry groups reported today, two indeed slowed. Growth in the &quot;primary&quot; sector, mainly agriculture, decreased to 4.6% from 5.5% during all of 2004. Even so, these and the previous three quarters remain notably stronger than any pace in the prior six years of these output data.
The services sectors, &quot;tertiary&quot; industries, also retreated somewhat in Q1, expanding 7.6% versus 8.6% during 2004. Both periods, however, have similar rates to those that have prevailed in previous recent years.
&quot;Secondary&quot; industries include mining, manufacturing and utilities. There growth picked up a bit in Q1, to 11.3% from the 10.9% pace in 2004.
Policymakers have hoped for more distinct slowing in growth, and have tightened credit to try to achieve that. So far, their success has obviously been limited. The result of today&#39;s GDP report is likely to be continued restraint, and several forecasters today pointed toward still more interest rate increases. The People&#39;s Bank of China key 1-year lending rate is presently 5.58%, last raised in October.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">4-Qtr % Changes</th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4 2004</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">Nominal GDP</td>
<td>15.7</td>
<td>15.4</td>
<td>22.3</td>
<td>7.0</td>
<td>5.2</td>
</tr>
<tr>
<td class="firstcol">Real GDP</td>
<td>9.5</td>
<td>9.5</td>
<td>9.9</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Cumulative YTD: Nominal GDP</td>
<td>15.7</td>
<td>17.0</td>
<td>14.0</td>
<td>6.7</td>
<td>7.3</td>
</tr>
<tr>
<td class="firstcol">Real GDP</td>
<td>9.5</td>
<td>9.5</td>
<td>9.3</td>
<td>8.3</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Primary Industries*</td>
<td>4.6</td>
<td>5.5</td>
<td>2.5</td>
<td>2.9</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Secondary**</td>
<td>11.3</td>
<td>10.9</td>
<td>12.7</td>
<td>9.8</td>
<td>8.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary***</td>
<td>7.6</td>
<td>8.5</td>
<td>7.3</td>
<td>8.7</td>
<td>8.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050419d.jpg" width="353">
After becoming slightly more optimistic regarding the German economic outlook six months ahead in each of the first three months of this year, the institutional investors and analysts who respond to the ZEW survey became decidedly more pessimistic in April. The excess of optimists over pessimists dropped to 20.1% in April from 36.3% in March and from 59.1% a year ago.
The same but more pessimistic trend is apparent in the respondents&#39; view of current conditions in Germany. In April, the percentage of respondents who considered current conditions bad was 73% greater than those who considered them good. The -73% figure compares with -66% in March and -72.5% in April of last year. In general, pessimistic appraisals of current conditions tend to outweigh the optimistic appraisals, while optimistic appraisals of expectations of future conditions tend to outweigh the pessimistic appraisals, as can be seen in the attached chart. (&quot;Hope springs eternal in the human breast./ Man never is, but always to be, blest.&quot;) <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050419e.jpg" width="353">
The ZEW survey also covers opinions on current conditions and expectations in the Euro zone as a whole. Since Germany represents such a large part of the Euro zone, it is not surprising that appraisals of current conditions and expectations in the Euro Zone tend to be similar to those of Germany. Expectations of economic conditions in Germany and in the Euro Zone are shown in the second chart.
With their pessimistic outlook for the economy, the institutional investors and analysts see little to cheer about in the profit outlook. There are only three industries, banking, telecommunications and information technology, in which the optimists outweigh the pessimists by more than 50%. The profit expectations for selected industries are shown in the table below.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">GERMANY %</a></th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">Mar 04</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp; 2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>20.1</td>
<td>36.3</td>
<td>49.7</td>
<td>-16.2</td>
<td>-29.6</td>
<td>49.6</td>
<td>38.4</td>
<td>45.3</td>
</tr>
<tr>
<td class="firstcol">Current conditions</td>
<td>-73.0</td>
<td>-66.0</td>
<td>-42.5</td>
<td>-7.0</td>
<td>-0.5</td>
<td>-67.7</td>
<td>-92.6</td>
<td>-83.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Profit expectations</td>
<td>&nbsp;</td>
<td>&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">&nbsp; Banking</td>
<td>52.4</td>
<td>55.5</td>
<td>67.2</td>
<td>-3.1</td>
<td>-14.8</td>
<td>59.6</td>
<td>30.5</td>
<td>-8.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Telecommunications</td>
<td>51.1</td>
<td>56.5</td>
<td>69.2</td>
<td>-5.4</td>
<td>-18.1</td>
<td>62.5</td>
<td>49.7</td>
<td>9.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Information technology</td>
<td>52.5</td>
<td>59.4</td>
<td>71.9</td>
<td>-6.9</td>
<td>-19.4</td>
<td>63.0</td>
<td>45.2</td>
<td>17.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer/trade</td>
<td>-26.9</td>
<td>-22.6</td>
<td>-13.7</td>
<td>-4.3</td>
<td>-13.2</td>
<td>-18.2</td>
<td>-33.7</td>
<td>-28.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Machinery</td>
<td>37.3</td>
<td>45.6</td>
<td>52.4</td>
<td>-8.3</td>
<td>-15.1</td>
<td>53.4</td>
<td>7.0</td>
<td>5.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;Vehicle/automotive&nbsp;</td>
<td>-19.0</td>
<td>-2.9</td>
<td>5.9</td>
<td>-16.1</td>
<td>-24.9</td>
<td>-0.1</td>
<td>-8.2</td>
<td>-6.0</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">EURO ZONE %</a></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>24.6</td>
<td>37.3</td>
<td>59.1</td>
<td>-12.7</td>
<td>-34.5</td>
<td>52.1</td>
<td>48.9</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">Current conditions</td>
<td>-32.8</td>
<td>-24.8</td>
<td>-55.4</td>
<td>-5.0</td>
<td>21.6</td>
<td>-41.4</td>
<td>-78.5</td>
<td>67.5</td>
</tr>
</tbody>
</table>
</body>
</html>

After becoming slightly more optimistic regarding the German economic outlook six months ahead in each of the first three months of this year, the institutional investors and analysts who respond to the ZEW survey became decidedly [...]

More Gloom from Germany

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

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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.

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**.

250501P.jpg

250501Q.jpg

- 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

250501A8.jpg

250501B8.jpg

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

250501D8.jpg

- 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: April 2005

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