Tom Moeller

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Total business inventories rose 1.5% during February (12.4% y/y) following a 1.3% January rise, revised from 1.1%. A 1.3% gain had been expected in the Informa Global Markets Survey. Business sales rose 1.0% (18.8% y/y) in February following a 4.1% January gain. The inventory-to-sales ratio edged higher to 1.26 after falling to 1.25 in January. These figures remained up slightly versus the record low of 1.24 reached last October

The 2.5% increase (19.9% y/y) in wholesale inventories, reported last month, led the rise in inventories overall. Retail inventories gained 1.2% (7.3% y/y) following a 2.0% January increase. The rise reflected a 0.9% increase (-10.3% y/y) in auto inventories which came after three straight months of strong gains. Furniture, electronics and appliance store inventories gained 4.6% (22.3% y/y) after two months of strong growth. General merchandise store inventories surged 2.0% (22.2% y/y) after rising 5.0% in January. Clothing store inventories rose 1.2% (13.7% y/y), the sixth consecutive month of strong increases. Factory inventories increased 0.6% (9.7% y/y) after rising 0.8% in January.

The rise in business sales was led by a 1.7% increase in wholesale sales as reported last Friday. Retail sales increased 0.5% in February (16.4% y/y) after a 5.8% January increase while nonauto retail sales increased 0.2% (16.0% y/y) after surging 5.5% in January. Manufacturing sales posted a 0.6% gain (13.7% y/y) in February following a 1.4% jump in the prior month.

The overall inventory-to-sales ratio edged higher due to modest increases in the retail and wholesale sectors to 1.13 and 1.21, respectively. The I/S ratio in the factory sector held steady at 1.45

The manufacturing and trade data are in Haver's **USECON** database.

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- Retail inventories continue to build.
- Wholesale inventory gain firms.
- Inventory-to-sales ratio edges higher from near-record low.

U.S. Business Inventories & Sales Advance in February

Carol Stone, CBE

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Import prices rose 2.6% m/m (12.5% y/y) in March, following a 1.6% rise in February, revised from 1.4% reported last month, and a 2.0% advance in January, according to the Bureau of Labor Statistics. The March advance was the largest since March 2011. Export prices surged 4.5% (18.8% y/y) in March after 3.0% in February and 2.8% in January; totals in both February and January were unrevised. The m/m rise in export prices was by far the largest ever in these data, which run back to December 1988 on a monthly basis. All these data are not seasonally adjusted. The Action Economics Forecast survey had expected March increases of 2.3% for import prices and 2.2% for export prices.

Fuel was again the main driver of import prices. That category jumped 14.6% m/m in March (66.7% y/y) after 10.0% in February and 7.3% in January. Natural gas, however, fell 4.2% in March, although the y/y change was 79.7% y/y. Nonfuel import prices rose less than fuel costs, but with a 1.2% increase in March, they were hardly weak. Textile, chemicals and selected building materials all had sizable advances in March.

Export prices rose markedly, as indicated. All major categories had sizable increases in March, with food, feed and beverages up 4.9% just in the month of March alone, which made the y/y increase 20.0%. This followed 2.8% m/m in February and 3.2% in January. Industrial supplies and materials prices advanced 8.6% m/m in March (38.2% y/y), after 5.9% in February and 4.8% in January. The other major export groups rose less strongly, but they still had large increases. Capital goods prices were up 0.5% in March (4.5% y/y) after 0.4% in February and 0.8% in January. Automobiles, parts and engines were up 0.8% in March after 0.8% in February and 0.6% in January; the March amount was “just” 3.2% y/y, although that was the strongest y/y performance since May 1990. Export prices of consumer goods excluding autos and parts rose 0.8% m/m in March (4.9% y/y), following 0.7% in February and 1.1% in January.

The import and export price series are in Haver's **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Fuel prices, up 14.6% in March, again drive import prices.
- Import prices ex fuels increase 1.2%.
- Export prices surge 4.5%, a second monthly record; food and industrial goods both very strong.

U.S. Import Prices Rise Again as Export Prices Have Another Record Monthly Surge

Sandy Batten

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The Mortgage Bankers Association's Loan Applications Index fell 1.3% w/w (-41.1% y/y) in the week ended April 8, their fifth consecutive weekly decline and the eighth in the past nine weeks, to their lowest level since the week ended March 15, 2019. Over the past five weeks, applications have fallen 21.7%. The persistent decline continued to be led by applications for refinancing, which fell 4.9% w/w (-62.0% y/y) in the most recent week after a 9.9% weekly decline in the previous week. Applications for purchase rebounded slightly, rising 1.4% w/w (-6.3% y/y) following a 3.4% w/w decline in the prior week.

The share of applications for refinancing declined for the tenth consecutive week to 37.1% in the week ended April 8, the lowest since August 2018, from 38.8% in the previous week. The adjustable-rate mortgage (ARM) share of activity rose for the fifth consecutive week to 7.4%, the highest since June 2019, from 6.8% in the previous week.

Mortgage interest rates rose markedly in the week of April 8. The effective rate on 30-year fixed-rate loans jumped up 25bps to 5.31%, the highest since November 2018. This rate has risen 236bps from its recent low of 2.95% in December 2021. The effective rate on 15-year fixed-rate loans also rose 25bps in the latest week to 4.50%, its highest since December 2018. The rate on a Jumbo 30-year loan increased 18bps to 4.79% and the rate on the 5-year ARM jumped 32bps to 4.31%.

Applications for fixed-rate loans declined 1.9% w/w (-43.4% y/y) in the week ended April 8, their ninth weekly decline in the past 10 weeks. Applications for adjustable-rate mortgages increased 8.3% w/w (+21.7% y/y) following a 4.1% weekly decline in the previous week.

The average size of a mortgage loan rose 0.7% w/w (+21.5% y/y) to a record-high $392,000 in the week ended April 8. The average size of a loan for purchase edged up 0.1% w/w (+13.5% y/y) to $453,000. The average size of a refinanced loan declined 0.3% w/w (+6.9% y/y) to $288,300.

This survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver's **SURVEYW** database.

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- Lowest level for total applications since March 2019.
- Sharp decline in refinancing applications continued; purchase applications rose.
- Rise in mortgage interest rates accelerated.

U.S. Mortgage Applications Declined for Fifth Consecutive Week

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The Producer Price Index for Final Demand increased a record 1.4% during March following a 0.9% February gain, revised from 0.8%. The 11.2% increase during the last twelve months also was a record for the series which dates back to November 2009. A 1.1% increase had been expected in the Action Economics Forecast Survey. The PPI excluding food and energy matched its record and rose 1.0% (9.2% y/y) after rising 0.4% in February. Expectations had been for a 0.5% gain. The PPI less food, energy and trade services rose 0.9% (7.0% y/y) after increasing 0.2% in February.

A 5.7% surge (36.7% y/y) in energy prices led last month's increase in the PPI following a 7.5% February rise. Gasoline prices rose 4.9% (59.9% y/y) and added to February's 14.6% surge. Home heating oil prices jumped 20.2% and more than doubled y/y after a 13.6% February rise. Natural gas prices eased 0.4% last month (+22.8% y/y) but the cost of electric power jumped 1.9% (8.4% y/y).

Food prices increased 2.4% in March (16.2% y/y) after rising 2.1% in February. Vegetable prices rose 81.5% y/y while egg prices increased 1.9% y/y. Beef & veal prices fell 7.3% (+16.0% y/y) but the cost of dairy products increased 2.7% (19.3% y/y).

Final demand for goods prices less foods & energy increased 1.1% (10.0% y/y). Finished consumer goods prices less good & energy rose 0.7% in March (7.7% y/y) following a 1.0% increase. Durable consumer goods prices surged 1.0% last month (8.9% y/y) after two straight 0.9% increases. Core nondurable consumer goods prices rose 0.5% (7.0% y/y) following a 1.0% February increase. Prices for private capital equipment jumped 0.9% (8.7% y/y) following two straight 1.0% gains.

Services prices increased 0.9% in March (8.7% y/y) for the third month in the last four. Trade services prices surged 1.2% (17.1% y/y) following four straight months of strong increase. Services prices less trade, transportation & warehousing rose 0.3% in March (3.8% y/y) and reversed the prior month's decline.

Construction product prices rose 0.6% (16.7% y/y) after rising 0.5% in February. Construction costs for private capital investment rose 0.6% (18.2% y/y) for the second consecutive month.

Intermediate goods prices jumped 2.1% (21.7% y/y) due to a 6.4% gain (35.5% y/y) in processed fuel costs.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver's **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Energy & food prices again jump.
- Core goods prices accelerate.
- Services prices pick up momentum as well.

U.S. Producer Prices Post Record Increase in March

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**Retail gasoline prices** declined to $4.09 per gallon in the week ended April 11 (+43.6% y/y) from $4.17 per gallon in the week prior. Prices reached a record $4.32 per gallon in the second week of March. Haver Analytics adjusts the gasoline price series for normal seasonal variation. The seasonally adjusted price fell to $4.16 per gallon from $4.21 in the prior week.

The price of **West Texas Intermediate crude oil** eased to $99.16 per barrel (+67.10% y/y) in the week ended April 8 after falling to $103.84 in the week prior. It compared to a high of $113.33 averaged in the fourth week of March and was the lowest price since the last week of February. Yesterday, the price fell to $94.29 per barrel. The average price of **Brent crude oil** weakened to $103.33 per barrel last week (+67.1% y/y). Prices had fallen to $111.26 in the prior week from the high of $123.60 in the week prior. The price was $97.92 per barrel yesterday.

The price of **natural gas** strengthened to $6.08/mmbtu (148.2% y/y) in the week of April 8 after rising to $5.41 in the previous week. The price has risen from a low of $1.52/mmbtu averaged in the third week of June 2020. Yesterday, the price rose to $6.35/mmbtu.

In the four weeks ended April 1, **gasoline demand** eased 0.3% y/y. Demand had risen 15.2% y/y in late-December, 2021. Growth in demand for **all petroleum products** rose a greatly lessened 5.5% y/y. Growth in **crude oil input to refineries** rose a reduced 9.6 y/y. **Gasoline inventories** rose a weakened 0.9% y/y and **crude oil inventories** declined 14.0% y/y.

The **supply of gasoline** inventories in the week ended April 1 held steady at 27.3 days. The supply of crude oil eased to 26.0 days and remained down from 41.8 days early in March of last year.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price data can be found in Haver's **WEEKLY** and **DAILY** databases. Greater detail on prices, as well as the demand, production and inventory data are in **USENERGY.**

**Unemployment Insurance Withdrawal** from the Federal Reserve Bank of San Francisco is available [here](https://www.frbsf.org/economic-research/publications/economic-letter/).

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- Gasoline costs at six-week low.
- Crude oil prices weaken further.
- Natural gas prices continue to rise.

U.S. Gasoline & Crude Oil Prices Fall Further

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The NFIB Small Business Optimism Index fell to 93.2 in March, its third consecutive monthly decline and lowest reading since April 2020, from 95.7 in February. In March, only two of the index's 10 components increased from February, five declined and three were unchanged. This survey was conducted during the month of March with participants randomly selected from members of the National Federation of Independent Business.

Of most concern to respondents in March was the outlook for the next six months. Respondents expecting better business conditions over the next six months plunged 14 points to a net -49%, the lowest reading in the survey's 48-year history. This marked increase in pessimism concerning the outlook was also reflected in a 12-point decline in expected real sales to a net -18%, the lowest reading since the first pandemic lockdown. Plans to expand the business fell for the third consecutive month, to a net 6% in March, its lowest reading in more than a year, from 8% in February. The net percent of firms planning to make capital expenditures fell to 26% in March from 27% in February, the second consecutive monthly decline.

Inflation overtook labor quality as the major concern of small businesses as 31% of respondents list it as the single most important business problem, up five points from the February survey. Twenty-two percent of respondents listed the quality of labor as their major problem, unchanged from February. Accordingly, inflation pressures remain intense with a record 72% of respondents raising average selling prices in March, up from 68% in February. Moreover, the percentage planning to raise prices rose 4 points to a net 50% in March after having declined slightly in each of the preceding three months.

Employment readings were on balance little changed in March though they continued to point to historically tight labor-market conditions. The net balance of firms planning to increase employment edged up to 20% in March after having fallen seven points to 19% in February. Firms continue to have difficulty finding qualified candidates. A new 47% reported having positions that they were unable to fill, down from 48% in February but still near a record high. And 55% of respondents reported having few or no qualified applicants for job openings, down from 57% in February but also still near a record high.

The continued tightness in labor markets was reflected in higher worker compensation. The percentage of firms raising worker compensation rose four points to a net 49% in March, just one point from the record net 50% set in January. Furthermore, a net 28% of respondents plan to increase worker compensation in the next three months, up from 26% in February.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's **SURVEYS** database.

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- Optimism fell to lowest level since April 2020.
- Expectations of better business conditions in next six month plummeted to all-time low.
- Inflation overtook labor quality as top concern.

U.S. Small Business Optimism Declines for Third Month

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The U.S. Treasury Department reported a federal budget deficit of $192.7 billion during March 2022 compared to a $659.6 billion deficit in March 2021. Receipts rose 8.7% from February (17.8% y/y) while outlays edged 0.3% higher (-45.2% y/y). The Action Economics Forecast Survey had expected a $132 billion deficit. So far in FY'22, the deficit has totaled $668.3 billion versus $1.706 trillion in the first six months of FY'21.

Overall revenues have increased 24.5% y/y so far in FY'22. Individual income tax receipts increased 36.3% y/y as employment levels continued to rise. Corporate tax payments rose 22.1% with strength in business earnings. Social insurance taxes rose 8.8% y/y and excise taxes rose 26.9% y/y.

Federal government outlays have declined 18.2% year-to-date in FY'22 versus FY'21. Income security payments roughly halved so far this year in the absence of economic stimulus checks. National defense outlays fell 1.2% y/y so far in FY'22. Outlays on health programs rose 20.3% y/y in the first six months of FY'22. Social Security outlays increased 6.0% y/y so far this fiscal year and Medicare outlays rose 0.5% y/y so far this fiscal year. Interest payments surged 24.9% y/y so far in FY'22.

Haver's data on Federal Government receipts & outlays are contained in **USECON**. The expectations figure is in the **AS1REPNA** database.

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- Tax revenues continue to surge.
- Outlays fall gain as spending on income security & defense decline.
- Interest payments jump.

U.S. Federal Government Budget Deficit Narrows in March

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The Consumer Price Index gained 1.2% (8.5% y/y) last month after rising 0.8% in February. It was the largest monthly increase since October 2005. The increase matched expectations in the Action Economics Forecast Survey. Prices excluding food & energy rose 0.3% last month (6.5% y/y), the weakest monthly increase in six months. It compared to a 0.5% expected gain.

Energy prices were strong in March, surging 11.0% (32.0% y/y). Gasoline prices jumped 18.3% (48.0% y/y) to a record high. Fuel oil prices surged 22.3% (70.1% y/y). The cost of electricity strengthened 2.2% (11.1% y/y), while natural gas prices rose 0.6% (21.6% y/y).

Food price inflation remained strong last month and posted a second consecutive 1.0% gain (8.8% y/y). Egg prices rose 1.9% (11.2% y/y) while fruit & vegetable prices jumped 1.5% (8.5% y/y). Cereal & bakery product prices also gained 1.5% (9.4% y/y) while dairy product costs strengthened 1.2% (7.0% y/y). Meat, poultry & fish prices gained 0.9% (13.8% y/y).

Services prices rose 0.6% (4.7% y/y), the quickest increase since September 1990. The cost of public transportation surged 7.1% (14.9% y/y), twice the elevated February increase. Hotel prices strengthened 3.3% (25.1% y/y) while the owners equivalent rent of primary residences gained 0.4% (4.5% y/y). Rents of primary residences rose 0.4% (4.4% y/y). The cost of medical care services rose 0.6% (2.9% y/y). Recreation services prices rose 0.5% (4.8% y/y). Education prices eased 0.1% (+1.6% y/y).

Goods prices excluding food & energy declined 0.4% (+11.7% y/y) in March. Price changes within categories were mixed. Used car & truck prices slid 3.8% (+35.3% y/y). Education & communication product prices fell 0.6% (+1.3% y/y) while recreation product prices eased 0.1% (+4.7% y/y). To the upside, household appliance prices surged 1.5% (8.0% y/y) while furnishings prices rose 1.0% (10.8% y/y). Apparel prices increased 0.6% (6.8% y/y). New vehicle prices edged up 0.2% (12.5% y/y).

The Consumer Price Index data can be found in Haver's **USECON** database with additional detail in **CPIDATA**. The Action Economics survey figure is in the **AS1REPNA** database.

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- Twelve-month gain is strongest since January 1982.
- Energy prices soar and food prices remain strong.
- Services prices strengthen, but core goods prices fall.

U.S. Consumer Price Gain Accelerates in March

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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

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.

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

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

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**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.

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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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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

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

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

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

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

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

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

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

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

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

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

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

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

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High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

Economy in Brief: April 2022

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