Robert Brusca

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<th scope="col" class="firstcol">&middot; The table below shows the percent changes in starts and permits on different horizons without compounding. It shows that each measure except for the large projects (5 of more) is above its three-month average in March. This finding tends to reinforce the sense that there is some stability developing in the sector. &nbsp;To be sure, all measures are down over 3 months and 12 months. Two-to-four unit projects alone are flat or up compared to six months. Firmness on the three-month horizon is mostly in the Midwest where there is a 23% bounce (annualized) and in the South where a -12% annual rate trims the -33% annual rate drop over 6 months.&nbsp;</th>
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March 2007
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<tr class="even">
<td class="firstcol">Seas Adj Annual Rate</td>
<td colspan="2">Total</td>
<td colspan="2">One Unit</td>
<td colspan="2">2- 4 Units</td>
<td colspan="2">5 or more</td>
</tr>
<tr class="even">
<td class="firstcol">In 000&#39;s of Units</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
</tr>
<tr class="odd">
<td class="firstcol">This Month:</td>
<td>1,518</td>
<td>1,544</td>
<td>1,218</td>
<td>1,114</td>
<td>38</td>
<td>72</td>
<td>262</td>
<td>358</td>
</tr>
<tr class="odd">
<td class="firstcol">3-month avg</td>
<td>1,474</td>
<td>1,549</td>
<td>1,177</td>
<td>1,112</td>
<td>31</td>
<td>73</td>
<td>267</td>
<td>363</td>
</tr>
<tr class="odd">
<td class="firstcol">1-month % chg</td>
<td>0.8%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>1.4%</td>
<td>22.6%</td>
<td>0.0%</td>
<td>-6.8%</td>
<td>-0.8%</td>
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<tr class="odd">
<td class="firstcol">3-month % chg</td>
<td>-7.0%</td>
<td>-4.3%</td>
<td>-2.2%</td>
<td>-4.6%</td>
<td>-22.4%</td>
<td>-4.0%</td>
<td>-22.7%</td>
<td>-3.2%</td>
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<td class="firstcol">6-month % chg</td>
<td>-11.9%</td>
<td>-5.7%</td>
<td>-12.6%</td>
<td>-8.6%</td>
<td>31.0%</td>
<td>0.0%</td>
<td>-13.2%</td>
<td>3.2%</td>
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<td class="firstcol">yr/yr % chg</td>
<td>-23.0%</td>
<td>-25.9%</td>
<td>-24.6%</td>
<td>-28.4%</td>
<td>5.6%</td>
<td>-13.3%</td>
<td>-18.4%</td>
<td>-19.9%</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417f.jpg" width="353">
We plot the trends by region to show the common patterns. Each region shows a long down slope reflecting the lasting weakness in housing across the nation. But then most regions show some stability - or at least a hint of it. 
There is an outright bounce in the Midwest and somewhat slower erosion in the West. The South is still declining but is also slowing its pace of decline. The Northeast is unclear, having bounced in January, probably on the weather, then having started a new slide since then, but still not quite making a new low. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417g.jpg" width="353"> 
On balance, housing is still having troubles. The rise in starts this month came about only because of a DOWNWARD revision to the previous month. Had February not been revised lower the new level in March would have been a decline from February since the preliminary February reading was higher than the level of starts that now prevails in March. Even so the clearest evidence we have is that the pace of decline is slowing and that for the moment two of the three types of starts and the overall are above their 3-month average. Housing is still faltering but no longer seems to have the downward momentum. It&#146;s sort of like a horror movie seen the second time around -- no longer any surprises and you&#146;ve already seen the worst of it. But unlike the movie the second time around, you still don&#146;t know where this one is going. Not for sure.

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We plot the trends by region to show the common patterns. Each region shows a long down slope reflecting the lasting weakness in housing across the nation. But then most regions show some stability - or at least a hint of it. There is [...]

U.S. Housing Starts Hit a Plateau

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<th scope="col" class="firstcol">&middot; Industrial production fell by 0.2% in March as utilities output pulled back but manufacturing output advanced by a strong 0.7% led by a gain of 0.9% in durable goods output. March saw a decline in consumer goods output, materials production was flat and there was a rise of 0.8% in business equipment output. &middot; But for the quarter as a whole and on trend, industrial production is a story of firming consumer output offset by plunging demand for equipment on the part of business with materials output vacillating about unchanged. Manufacturing output rose by 1.5% in Q1 given the strong productivity there that was not enough to create job growth in the sector. &middot; Looking at the just completed quarter we find industrial production is higher for most measures. So the National ISM report is correct to be above 50. There is a great deal of regional disparity according to various regional manufacturing surveys. We see that in the variety of conditions across industry groups there is a great deal of variation as well. Consumer durables output in the quarter rose at a 0.1% pace as auto output fell. Consumer nondurable output rose by a robust 6% pace with energy output up at a 12% pace. Business equipment output fell in the quarter but computer and office equipment production rose by 34.3%. Materials output was mixed, up by 0.5% in the quarter but up by 1.9% for durable goods and off by 1.7% for nonenergy nondurable goods. Overall auto production fell by 0.1% in Q1 but truck production expanded at a 52% annual rate. &nbsp; </th>
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Industrial Production
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<td class="firstcol">&nbsp;</td>
<td colspan="3">Monthly Percent Changes</td>
<td colspan="3">At Annual Rates of Change</td>
<td>SAAR</td>
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<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Month-to-month Percent Change</td>
<td>3-Month</td>
<td>6-Month</td>
<td>Year/Year</td>
<td>07-Q1</td>
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<td class="firstcol">Industrial Output</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>%Change</td>
<td>%Change</td>
<td>%Change</td>
<td>Pct Change</td>
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<td class="firstcol">All Prod &amp; Materials</td>
<td>-0.2%</td>
<td>0.8%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>0.5%</td>
<td>2.3%</td>
<td>1.6%</td>
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<td class="firstcol">All Products</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>2.0%</td>
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<td class="firstcol">Final Products</td>
<td>-0.3%</td>
<td>1.2%</td>
<td>-0.5%</td>
<td>1.4%</td>
<td>2.3%</td>
<td>3.4%</td>
<td>3.1%</td>
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<td class="firstcol">Manufacturing only</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
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<td class="firstcol">MFG - NAICS</td>
<td>0.7%</td>
<td>0.1%</td>
<td>-0.6%</td>
<td>0.7%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>1.5%</td>
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<td class="firstcol">&nbsp; MFG - Durables</td>
<td>0.8%</td>
<td>0.2%</td>
<td>-1.1%</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>3.5%</td>
<td>0.4%</td>
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<td class="firstcol">&nbsp; MFG - Nondurables</td>
<td>0.5%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>1.9%</td>
<td>0.2%</td>
<td>1.9%</td>
<td>3.0%</td>
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<td class="firstcol">Consumer Goods</td>
<td>-0.6%</td>
<td>1.7%</td>
<td>0.0%</td>
<td>4.1%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>4.5%</td>
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<td class="firstcol">Durables</td>
<td>0.6%</td>
<td>1.7%</td>
<td>-2.9%</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>-1.2%</td>
<td>0.1%</td>
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<td class="firstcol">&nbsp; Automotive Production</td>
<td>0.4%</td>
<td>3.7%</td>
<td>-5.4%</td>
<td>-6.0%</td>
<td>1.4%</td>
<td>-3.1%</td>
<td>-0.4%</td>
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<td class="firstcol">&nbsp; Excl Automotive Production</td>
<td>0.7%</td>
<td>0.0%</td>
<td>-0.6%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>0.6%</td>
<td>0.6%</td>
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<td class="firstcol">Nondurables</td>
<td>-1.0%</td>
<td>1.6%</td>
<td>1.0%</td>
<td>6.3%</td>
<td>3.1%</td>
<td>3.2%</td>
<td>6.0%</td>
</tr>
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<td class="firstcol">&nbsp; Nonenergy</td>
<td>0.6%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>4.0%</td>
<td>4.8%</td>
<td>3.9%</td>
<td>4.3%</td>
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<td class="firstcol">&nbsp; Consumption Energy</td>
<td>-6.1%</td>
<td>5.4%</td>
<td>4.5%</td>
<td>13.5%</td>
<td>-2.2%</td>
<td>0.7%</td>
<td>12.1%</td>
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<td class="firstcol">Business Equip.</td>
<td>0.8%</td>
<td>0.3%</td>
<td>-2.2%</td>
<td>-4.5%</td>
<td>3.3%</td>
<td>7.4%</td>
<td>-0.6%</td>
</tr>
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<td class="firstcol">&nbsp; Transportation</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-1.4%</td>
<td>-5.2%</td>
<td>6.0%</td>
<td>7.6%</td>
<td>0.3%</td>
</tr>
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<td class="firstcol">&nbsp; Computer &amp; Office Equipment</td>
<td>3.5%</td>
<td>3.3%</td>
<td>2.4%</td>
<td>38.2%</td>
<td>30.6%</td>
<td>28.3%</td>
<td>34.4%</td>
</tr>
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<td class="firstcol">&nbsp; Excl Technology &amp; Transportation</td>
<td>0.8%</td>
<td>-0.2%</td>
<td>-2.2%</td>
<td>-6.4%</td>
<td>2.3%</td>
<td>6.7%</td>
<td>-2.0%</td>
</tr>
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<td class="firstcol">Materials</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>2.1%</td>
<td>0.5%</td>
</tr>
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<td class="firstcol">Durables</td>
<td>1.0%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>3.5%</td>
<td>-0.2%</td>
<td>3.6%</td>
<td>1.9%</td>
</tr>
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<td class="firstcol">Nondurables excl energy</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-1.2%</td>
<td>-2.3%</td>
<td>-1.7%</td>
<td>0.3%</td>
<td>-1.7%</td>
</tr>
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<td class="firstcol">Energy</td>
<td>-2.2%</td>
<td>2.3%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>0.7%</td>
</tr>
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<img align="left" height="331" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/0704172.gif" v:shapes="_x0000_i1026" width="533">
The chart on the left shows the trends for output by main manufacturing sector. As consumer output has steadied and strengthened, the business sector has been unraveling. This is an unpleasant picture and has been quite unexpected. We still do not know what is holding business back. 

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The chart on the left shows the trends for output by main manufacturing sector. As consumer output has steadied and strengthened, the business sector has been unraveling. This is an unpleasant picture and has been quite unexpected. We [...]

U.S. IP is Up But Still is a Mixed Up Sector

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417a.jpg" width="353">
The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back to back monthly increases of 0.23% but, after two such bad reports, this good one can only take the edge off bad trends; it can&#146;t by itself make CPI trends good. For the month, inflation was not widespread; our monthly diffusion counter was at 42.9 for the headline and 42.9 for the core. Both signal that month-to-month inflation fell in more CPI categories than it rose. But both core and headline inflation now show an accelerating three-month pace compared to six months ago.
In the guts of this month&#146;s report we find core goods prices were weak as in the PPI, falling at a 0.9% annual rate in the month. But services prices were moderate too, cutting their pace of increase to a pace of +1.4%. Still over three months core goods prices are rising by 0.4% and core services are at 2.9%. (the service sector is 71% of the core). So while the inflation game is still a tug of war between goods deflation and services inflation, both sectors say inflation pressures eased in the month. Services inflation has seen sequentially lower from 1-year to 6-months and from 6-months to 3-months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417b.jpg" width="353">
While still high, core service sector inflation trends are cooling across horizons. However, look at the graph and realize how much this has to do with just this last month&#146;s result. Inflation had started another minor uptrend. So while the chart looks benign, the result is still quite reversible. 
Core goods prices are showing persisting declines in year/year and six-month rates of change. However, at the three-month horizon goods prices have reversed to show some inflation. So the anti-inflation trend is no longer as uniformly solid as it was.

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Consumer Prices: 2007 March Report Overview: Moderation is Back in Play&#133;&#133;
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<td class="firstcol">5COLSPAN</td>
<td colspan="2">Year-To-Date</td>
<td>1- Mo</td>
<td>--</td>
</tr>
<tr class="even">
<td class="firstcol">Quick Summary</td>
<td>Yr/Yr</td>
<td>6-Mo AR</td>
<td>3-Mo AR</td>
<td>--</td>
<td>2007</td>
<td>2006</td>
<td>Diffusion</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI</td>
<td>2.8%</td>
<td>2.4%</td>
<td>4.7%</td>
<td>--</td>
<td>4.7%</td>
<td>3.7%</td>
<td>42.9</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Core CPI</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.3%</td>
<td>--</td>
<td>2.3%</td>
<td>2.6%</td>
<td>42.9</td>
<td>--</td>
</tr>
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<td colspan="9">Commodity Category</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Mo Annualized Rate</td>
<td colspan="6">Annualized Inflation Rate For Last</td>
<td>Mo/Mo Not Annualized</td>
</tr>
<tr class="even">
<td class="firstcol">By Expenditure Category</td>
<td>Mar 2007</td>
<td>% Weight</td>
<td>3-Mo</td>
<td>--</td>
<td>6-Mo</td>
<td>--</td>
<td>Year</td>
<td>Mar 2007</td>
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<tr class="odd">
<td class="firstcol">All Items</td>
<td>7.5%</td>
<td>100.00</td>
<td>4.7%</td>
<td>--</td>
<td>2.4%</td>
<td>--</td>
<td>2.8%</td>
<td>0.6%</td>
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<tr>
<td colspan="9">By Economic Group</td>
</tr>
<tr class="odd">
<td class="firstcol">All: Excl Food &amp; Energy</td>
<td>0.7%</td>
<td>77.10</td>
<td>2.3%</td>
<td>--</td>
<td>1.9%</td>
<td>--</td>
<td>2.5%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">(Median Increase)</td>
<td>3.1%</td>
<td>100.00</td>
<td>4.4%</td>
<td>--</td>
<td>2.8%</td>
<td>--</td>
<td>2.7%</td>
<td>0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excl. Energy</td>
<td>1.1%</td>
<td>92.32</td>
<td>2.9%</td>
<td>--</td>
<td>2.2%</td>
<td>--</td>
<td>2.6%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Commodities Excl Food &amp; Energy</td>
<td>-0.9%</td>
<td>22.77</td>
<td>0.4%</td>
<td>(29% of core)</td>
<td>-1.1%</td>
<td>--</td>
<td>-0.3%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services Excl Energy</td>
<td>1.4%</td>
<td>54.33</td>
<td>2.9%</td>
<td>(71% of core)</td>
<td>3.1%</td>
<td>--</td>
<td>3.6%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core CPI less Tobacco</td>
<td>0.7%</td>
<td>--</td>
<td>2.1%</td>
<td>--</td>
<td>1.8%</td>
<td>--</td>
<td>2.4%</td>
<td>0.1%</td>
</tr>
<tr>
<td colspan="9">Food &amp; Energy</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>216.3%</td>
<td>7.68</td>
<td>30.9%</td>
<td>--</td>
<td>1.7%</td>
<td>--</td>
<td>6.9%</td>
<td>10.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>3.4%</td>
<td>15.22</td>
<td>7.3%</td>
<td>--</td>
<td>3.9%</td>
<td>--</td>
<td>3.3%</td>
<td>0.3%</td>
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The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back to back monthly increases of 0.23% but, after two such bad reports, this good one can only take the edge off bad trends; it cant by [...]

U.S. CPI Gives Markets a Breath of Pretty Fresh Air

The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back-to-back monthly increases of 0.3% and 0.2%, but after two such bad reports, this good one can only take the edge off bad trends; it [...]

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416d.jpg" width="353">
The results of the Quarterly Survey undertaken by the Regional offices of the Bank of Canada were released today. The Survey is based on the opinions of senior management of 100 firms across Canada. The Bank cautions that while the method of selection ensures a good cross section of opinion, the statistical reliability of the survey is limited, given its small size. Given that caveat some of the results are listed below.
The difference between those senior managers who believe sales will improve and those who believe they will decline increased in the latest survey to 14.00% in the latest Survey, from 6.93% in the Winter Survey and 2.97% in the Spring Survey of 2006. Nevertheless, the conviction that sales will continue to improve appears to be lessening as trend in the balance of opinion on future sales has been down since the end of 2003. In spite of declining trend in the balance of opinion on the future of sales, there is a rising trend in balance of those managers expecting employment to increase and those expecting it to decline. In the latest Survey, there were 45% more managers who expected employment to increase than those who expected employment to decline. The contrast between the trends in Sales and Employment outlooks are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416e.jpg" width="353">
The increased balance of those managers experiencing significant difficulty in meeting demand is consistent with the rising trend in balance of those expecting to increase expenditures on plant and equipment, as shown in the second chart.
The percentage of the managers who expect inflation to be within the 1-3% range that the Bank of Canada considers its control range increased to 88% from 86.1% in the last survey and 78.2% in the Spring Survey of 2006. The third chart shows the percentage of respondents who expected inflation to be under 1% or above 3% and those who expected it to be between 1 and 3%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">BUSINESS OUTLOOK SURVEY, BY THE REGIONAL OFFICES OF THE BANK OF CANADA&nbsp; (Percent Balances)</th>
<th scope="col">Mar 07</th>
<th scope="col">Feb 07</th>
<th scope="col">Mar 06</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Future Sales Outlook</td>
<td>14.00</td>
<td>6.93</td>
<td>2.97</td>
<td>7.07</td>
<td>11.03</td>
<td>7.18</td>
<td>17.43</td>
<td>17.91</td>
</tr>
<tr>
<td class="firstcol">Future Employment Level</td>
<td>45.00</td>
<td>39.60</td>
<td>42.57</td>
<td>5.40</td>
<td>2.73</td>
<td>39.35</td>
<td>42.75</td>
<td>33.42</td>
</tr>
<tr class="odd">
<td class="firstcol">Investment in Plant and Equipment</td>
<td>29.00</td>
<td>19.80</td>
<td>34.65</td>
<td>9.20</td>
<td>-5.65</td>
<td>24.01</td>
<td>19.20</td>
<td>16.95</td>
</tr>
<tr>
<td class="firstcol">Significant Difficulty in Meeting Demand (%)</td>
<td>18.00</td>
<td>13.90</td>
<td>11.90</td>
<td>4.10</td>
<td>6.10</td>
<td>13.65</td>
<td>11.20</td>
<td>7.25</td>
</tr>
<tr class="odd">
<td class="firstcol"> Inflation Expectations (%)* </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Under 1% or Over 3%</td>
<td>11.0</td>
<td>11.9</td>
<td>19.8</td>
<td>-0.9</td>
<td>-8.8</td>
<td>18.32</td>
<td>14.37</td>
<td>10.75</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Between 1% and 3%.</td>
<td>88.0</td>
<td>86.1</td>
<td>78.2</td>
<td>1.1</td>
<td>9.8</td>
<td>79.72</td>
<td>81.15</td>
<td>85.25</td>
</tr>
</tbody>
</table>
</body>
</html>

The results of the Quarterly Survey undertaken by the Regional offices of the Bank of Canada were released today. The Survey is based on the opinions of senior management of 100 firms across Canada. The Bank cautions that while the [...]

Senior Canadian Managers Positive on Outlook for Production and Inflation

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416f.jpg" width="353">
The EU-13 headline HICP rose sharply and so did the core measure in March. Goods prices had all of the momentum, as services prices were dead flat in the month.
As for broad trends, the HICP and the HICP Core for the EU-13 shows pressure in both measures. The year-over-year growth rate for the core had dropped to a low of 1.2% in early 2006. But since then the Core has been in the grip of a steady upward trend for the year-over-year rate. It now stands at 1.9%, a bit higher that it was in 2003 and 2004 before the drop in the core set in. And there is still the question about upward momentum.
However the sequential growth rates are in better shape, in the sense that their signal is not as clearly bad as the year-over-year pattern for the core (see the table). They show an acceleration in goods prices from 1-year to 6-months to 3-months, but Service sector inflation does not have a real definable trend. It is growing at a 1.8% pace over three months, however. Despite the break in services inflation for the month of March the trend has not broken lower in terms of sequential growth rates. 
Sequential trends for Core rates across Main EMU countries show mixed patterns. For all the main EMU countries 3-month inflation pressure has been alleviated in the recent period compared to earlier in the year. In the case of Spain inflation has been steadily decelerating from the year/year pace of one year ago (2.8%) to -1.8% over the recent three months. Italy also shows deceleration within the current year.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends in HICP
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% Mo/Mo</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EU-13</td>
<td>0.7%</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.7%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>0.7%</td>
<td>2.1%</td>
<td>1.9%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>1.1%</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>1.8%</td>
<td>1.6%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>1.8%</td>
<td>2.4%</td>
<td>2.4%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&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 class="odd">
<td class="firstcol">HICP</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">Germany</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>2.0%</td>
<td>2.8%</td>
<td>2.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>1.2%</td>
<td>0.1%</td>
<td>-1.1%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>2.1%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.5%</td>
<td>-0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.8%</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>0.5%</td>
<td>2.1%</td>
<td>2.5%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core excl Food Energy and Alcohol</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">Germany</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>2.2%</td>
<td>1.6%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>1.3%</td>
<td>1.7%</td>
<td>1.5%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>1.5%</td>
<td>0.1%</td>
<td>-1.6%</td>
<td>0.0%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-1.0%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.7%</td>
<td>0.1%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

The EU-13 headline HICP rose sharply and so did the core measure in March. Goods prices had all of the momentum, as services prices were dead flat in the month. As for broad trends, the HICP and the HICP Core for the EU-13 shows [...]

Euro Area Inflation Shows a Prickly Side in March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416b.jpg" width="353">
For business overall, the Inventory/Sales ratio (I/S ratio) has roughly stabilized above its recent low and slightly off peak. This has been achieved by reductions in the pace of sales and in the pace of inventory accumulation. The recent fall off has been about the same for inventories and sales but has not been the same for all sectors, and that&#146;s where we find some lingering problems. There is some complication in discussing the I/S ratio since the ratio has been in a long secular decline. But with the low hit in January 2006 that trend seems to have been set aside. As a result we need to pick a recent horizon to assess I/S ratios. I choose a time frame of three years for that purpose. 
Table 1 below shows the inventory/sales ratios across the major business groups, manufacturing, retailing and wholesaling. We also look at max and min statistics over the past three years in this table. To the right in that table you will find a column labeled &#147;%-Tile&#148;. That column puts each sector&#146;s I/S ratio in the percentile of the range it has occupied over the past three years. There we find retailer inventories are low by this standard, as they reside in the bottom 20th percentile of their range. Wholesalers are perhaps about right with the ratio in the middle of its range. Manufacturing is in trouble for even as sales have softened and inventory growth has been reduced, the ratio of inventories to sales is still the highest it has been over the past three years in that sector. That is to say that manufactures have not yet adjusted output to the weaker pace of sales. And of course, we have no indications that the pace of sales is picking up either. 
Table 2 below shows the paired growth rates across sectors and through time. These trends underlie the shifts in I/S ratios. You can view the S to I growth rate relationship in each period directly or peruse the time series of growth rates for say sales as its changes from a year ago to the current yr/yr pace to six months to three months. Two out of three is not bad, but not good enough&#133; 
Of the three business sectors, two seem to be turning the corner and the other seems mired in a business quicksand of sorts. For overall business, sales rates have declined but they have not declined monotonically across the time groupings in the table, having rebounded in the recent three months. 
Manufacturing: For manufactures the current three-month sales growth rate is still negative and the associated inventory growth rate is still positive, thus I/S problems are clearly still being exacerbated there. That&#146;s bad news. 
Retail: In retailing the recent 3-month sales bounce is strong in that there is barely any degradation when compared to the Yr/Yr pace. And the Yr/Yr pace for inventories is only slightly stronger for 3-month than over the past year. Moreover since sales are growing faster &#150; much faster - than inventories, that sector seems OK. 
Wholesaling: For wholesaling, the recent three-month sales growth rate is up strongly as well but it is noticeably weaker than its Yr/Yr rate of growth. But this sector is also quite healthy since sales are growing at about twice the pace of inventories, showing us that inventory adjustment seems to have been made smoothly. 
Indeed if growth gaps like those between I and S persist inventory building will be in order for both wholesalers and retailers. Manufacturing is another sad story. 
For now the inventory report paints a promising picture in wholesaling and retailing but continues to paint a bleak one in manufacturing where PMI surveys and orders data also show that other troubles lurk.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Table 1. Inventory-to-Sales Ratios In Perspective
Over three Years
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007 February</td>
<td>Current</td>
<td>3-Mo Ago</td>
<td>6-Mo Ago</td>
<td>Year Ago</td>
<td>2 Years Ago</td>
<td>3 Years Ago</td>
<td>%-tile</td>
<td>Max</td>
<td>Min</td>
</tr>
<tr>
<td class="firstcol">Total Business</td>
<td>1.29</td>
<td>1.29</td>
<td>1.26</td>
<td>1.25</td>
<td>1.30</td>
<td>1.31</td>
<td>71.4%</td>
<td>1.31</td>
<td>1.24</td>
</tr>
<tr>
<td class="firstcol">Manufacturers</td>
<td>1.25</td>
<td>1.23</td>
<td>1.17</td>
<td>1.16</td>
<td>1.21</td>
<td>1.22</td>
<td>100.0%</td>
<td>1.25</td>
<td>1.15</td>
</tr>
<tr>
<td class="firstcol">Retailers</td>
<td>1.48</td>
<td>1.50</td>
<td>1.50</td>
<td>1.48</td>
<td>1.55</td>
<td>1.55</td>
<td>20.0%</td>
<td>1.6</td>
<td>1.45</td>
</tr>
<tr>
<td class="firstcol">Wholesalers</td>
<td>1.15</td>
<td>1.16</td>
<td>1.13</td>
<td>1.14</td>
<td>1.17</td>
<td>1.17</td>
<td>50.0%</td>
<td>1.18</td>
<td>1.12</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Table 2. Inventory and Sales Paired Growth Rates by Major Divisions
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007 February</td>
<td colspan="2">3-Mo Growth</td>
<td colspan="2">6-Mo Growth</td>
<td colspan="2">12-Mo Growth</td>
<td colspan="2">Year Ago Growth</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
</tr>
<tr>
<td class="firstcol">Total Business</td>
<td>3.3%</td>
<td>2.3%</td>
<td>-2.3%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>5.9%</td>
<td>7.9%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Manufacturers</td>
<td>-3.5%</td>
<td>1.0%</td>
<td>-9.4%</td>
<td>2.8%</td>
<td>-1.0%</td>
<td>6.4%</td>
<td>6.6%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Retailers</td>
<td>7.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>0.0%</td>
<td>3.4%</td>
<td>3.5%</td>
<td>7.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Wholesalers</td>
<td>8.0%</td>
<td>3.4%</td>
<td>1.6%</td>
<td>5.7%</td>
<td>7.1%</td>
<td>8.3%</td>
<td>10.2%</td>
<td>6.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

For business overall, the Inventory/Sales ratio (I/S ratio) has roughly stabilized above its recent low and slightly off peak. This has been achieved by reductions in the pace of sales and in the pace of inventory accumulation. The [...]

U.S. Inventory Growth Stays Low as Sales Pick Up -- But Not Everywhere

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416a.jpg" width="353">
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, showed an increase of 0.7 percent from the previous month. It is also up 3.8 percent from March 2006. Total sales for the January through March 2007 period were up 3.2 percent from the same period a year ago. The January 2007 to February 2007 percent change was revised from 0.1 percent to 0.5 percent. As result, spending in the first quarter is looking more solid. 
Bolstered by Easter shopping, retail trade sales alone were up 0.6 percent from February 2007 and were 3.6 percent above last year. Clothing and clothing accessories stores were up 8.0 percent from March 2006 and sales of general merchandise stores were up by a solid 5.8 percent from last year. 
The table below tells the story&#133;. Service station sales we up strongly based on the sharp rise in gasoline prices in the month (+3.1% and +13.9% SAARr over three months). The strength in the spring clothing sales are apparent in clothing and general merchandise selling strength in March. Of the main retail categories, only nonstore shopping (catalogue, mail order and internet) was negative. 
Good weather may have helped to boost building materials spending but spending on furniture and electronics, another category that is solely linked to home sales (that have been weak), continued to stagger in the month. 
In quarterly terms, retail sales are up at a nominal pace of 5.7%. Excluding motor vehicles and gasoline sales, the quarterly rise drops to a pace of 4.6%, but that is quite a respectable gain with oil taken out of the equation. Still, the core CPI is rising at a 3% pace over the first two months of the year. There is some considerable inflation gnawing away at these gains reducing the impact in real terms. But for total consumer spending we have to factor in services spending that has been pretty firm. Consumer spending probably made a real gain in Q1 of between 2% and 2.5% and could be closer to the top of that range. 
Meanwhile some hopeful trends are in place. Building materials trend is showing some gains and overall sales trends have stabilized. The two weakest broad retail categories are medical care expenditures where the three month growth rate is down to 1.9% and nonstore retailers where the three month sales change is negative. Also, eating and drinking places expenditures is a discretionary type of spending where sales have contracted by 2.8% over the most recent three months. 
We are left with a good monthly report and stabilized trends. However, the report remains a patchwork of mixed trends with sectors still in a state of flux. In the April report we will see how much the shift in Easter affected sales (despite seasonal adjustments that try to account for this shift). 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Retail Sales Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual Rate</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Aggregates</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Retail &amp; Food Service</td>
<td>0.7%</td>
<td>4.7%</td>
<td>5.4%</td>
<td>3.8%</td>
<td>7.6%</td>
</tr>
<tr>
<td class="firstcol">Retail excl Motor Vehicles &amp; Parts</td>
<td>0.8%</td>
<td>5.5%</td>
<td>5.6%</td>
<td>3.9%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol">Retail excl Motor Vehicles &amp; Parts &amp; Gas</td>
<td>0.4%</td>
<td>3.7%</td>
<td>4.5%</td>
<td>3.8%</td>
<td>9.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Durables</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Totals</td>
<td>0.5%</td>
<td>2.2%</td>
<td>3.7%</td>
<td>1.2%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">Building Materials</td>
<td>1.4%</td>
<td>6.3%</td>
<td>3.0%</td>
<td>-4.4%</td>
<td>17.8%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; Parts</td>
<td>0.4%</td>
<td>1.8%</td>
<td>4.6%</td>
<td>3.2%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles Dealers</td>
<td>0.3%</td>
<td>1.6%</td>
<td>5.0%</td>
<td>3.4%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Furniture, electronics</td>
<td>-0.6%</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>2.4%</td>
<td>8.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Non durables</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Totals</td>
<td>0.8%</td>
<td>6.0%</td>
<td>6.2%</td>
<td>5.2%</td>
<td>8.1%</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Beverages</td>
<td>0.2%</td>
<td>4.7%</td>
<td>7.5%</td>
<td>5.7%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Health</td>
<td>0.1%</td>
<td>1.9%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Gasoline</td>
<td>3.1%</td>
<td>19.9%</td>
<td>14.1%</td>
<td>5.2%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>2.4%</td>
<td>13.9%</td>
<td>5.0%</td>
<td>8.0%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">Sport Goods</td>
<td>1.1%</td>
<td>8.9%</td>
<td>-0.6%</td>
<td>-1.0%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">General Merchandise</td>
<td>1.1%</td>
<td>6.2%</td>
<td>5.6%</td>
<td>5.8%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Nonstore Retailers</td>
<td>-3.3%</td>
<td>7.9%</td>
<td>4.3%</td>
<td>4.4%</td>
<td>15.2%</td>
</tr>
<tr>
<td class="firstcol">Miscellaneous Retail</td>
<td>0.6%</td>
<td>1.9%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Non Durables excl Gas</td>
<td>0.4%</td>
<td>3.9%</td>
<td>5.0%</td>
<td>5.2%</td>
<td>7.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Food Service &amp; Drinking</td>
<td>1.2%</td>
<td>-2.8%</td>
<td>4.8%</td>
<td>5.3%</td>
<td>9.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, showed an increase of [...]

U.S. Retail Sales Show Unexpected True Strength for March and in Q1

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US policy gyrations boosting policy uncertainty worldwide

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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

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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.

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

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

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

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Andrew Cates

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

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

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

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

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

Tom Moeller

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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

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

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

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

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

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

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

Carol Stone, CBE

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

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

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

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

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

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

U.S. Initial Jobless Claims Rise Notably in April 28 Week

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Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

250430P1.jpg

250430Q1.jpg

Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

Economy in Brief: April 2007

Jump to:

U.S. Housing Starts Hit a Plateau

U.S. IP is Up But Still is a Mixed Up Sector

U.S. CPI Gives Markets a Breath of Pretty Fresh Air

U.S. CPI Gives Markets a Breath of Pretty Fresh Air

Senior Canadian Managers Positive on Outlook for Production and Inflation

Euro Area Inflation Shows a Prickly Side in March

U.S. Inventory Growth Stays Low as Sales Pick Up -- But Not Everywhere

U.S. Retail Sales Show Unexpected True Strength for March and in Q1