Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040505d.jpg" width="353">
The Business Activity Index for the non-manufacturing sector reported by the Institute for Supply Management rose to another series&#39; high of 68.4 in April. Consensus expectations had been for a roughly unchanged reading of 65.0 versus 65.8 in March.
Since the series&#39; inception in 1997 there has been a 59% correlation between the Business Activity Index and the q/q change in GDP services plus construction.
The employment index strengthened to 54.5 as 21% of firms reported higher employment in April, up from 12% in 2002 and 17% last year. April was the highest employment reading since October 2000 and the ninth month in ten above 50.
Since the series&#39; inception in 1997 there has been a 62% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing and construction industries.
The new orders index improved to 65.6, near the series&#39; high, versus 62.8 in March.
Business activity for the non-manufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted prices index again was strong and rose to 68.6 from 65.7 in March. It was the second highest reading on record.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>68.4</td>
<td>65.8</td>
<td>53.6</td>
<td>58.1</td>
<td>55.1</td>
<td>48.9</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>68.6</td>
<td>65.7</td>
<td>56.2</td>
<td>56.7</td>
<td>53.9</td>
<td>51.5</td>
</tr>
</tbody>
</table>
Mortgage Applications Up As Interest Rates Moved Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 5, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040505a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association rose 4.4% (-37.4% y/y) last week as borrowers acted ahead of potentially more significant increases in interest rates.
Purchase applications jumped 4.1% (+16.0% y/y) following a 6.8% rise the week earlier. Purchase applications for the month of April rose 3.3% versus the March average.
During the last ten years there has been a 56% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance rose 4.7% (-58.6% y/y) following five weeks of sharp decline.
The effective interest rate on a conventional 30-Year mortgage rose further to 6.38% from 6.27% the week prior. The average for April was 6.16% versus 5.65% averaged in March. The effective rate on a 15-year mortgage rose to 5.75% from 5.63% the week prior. The average for April was 5.54% versus 5.00% in March.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/30/04</th>
<th scope="col">04/23/04</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>780.9</td>
<td>748.0</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>482.5</td>
<td>463.5</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,516.0</td>
<td>2,403.0</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>


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The Business Activity Index for the non-manufacturing sector reported by the Institute for Supply Management rose to another series' high of 68.4 in April. Consensus expectations had been for a roughly unchanged reading of 65.0 versus [...]

ISM Non-Manufacturing Index Reached Another New High

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040505b.jpg" width="353">
The monthly household survey conducted by the Instiute National de la Statistique et Etudes Economic (INSEE) showed a slight improvement in French consumer confidence in April, with the overall balance of opinion rising from a minus 22 to a minus 20.
The survey, however, gives little encouragement that consumer spending is about to provide stronger support to the economy. In spite of a sharp drop in those expecting an increase in unemployment and improved outlooks for their personal finances and living standards, consumers indicated that they were less likely to make major purchases in April than they were in March.
In its press release INSEE announced a change in methodology, effective January 2004, to harmonize its measure with other European economic surveys. The release provided only six months of data that used the new methodology. These data are shown in the following table and in the attached chart, they data have been linked to data based on the old methodology.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">INSEE Household Survey &nbsp;(% balance)</th>
<th scope="col">Apr 04</th>
<th scope="col">Mar 04</th>
<th scope="col">Feb 04</th>
<th scope="col">Jan 04</th>
<th scope="col">Dec 03</th>
<th scope="col">Nov 03</th>
<th scope="col">M/M % chg</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Summary Indicator</td>
<td>-20</td>
<td>-22</td>
<td>-23</td>
<td>-22</td>
<td>-25</td>
<td>-24</td>
<td>2</td>
</tr>
<tr>
<td class="firstcol">Personal Financial Situation Outlook</td>
<td>4</td>
<td>1</td>
<td>0</td>
<td>-2</td>
<td>-5</td>
<td>-3</td>
<td>3</td>
</tr>
<tr class="odd">
<td class="firstcol">Living Standard Outlook</td>
<td>-22</td>
<td>-28</td>
<td>-26</td>
<td>-27</td>
<td>-32</td>
<td>-23</td>
<td>6</td>
</tr>
<tr>
<td class="firstcol">Unemployment</td>
<td>39</td>
<td>50</td>
<td>50</td>
<td>38</td>
<td>52</td>
<td>48&nbsp;</td>
<td>-11</td>
</tr>
<tr class="odd">
<td class="firstcol">Likelihood of Major Purchases</td>
<td>-12</td>
<td>-10</td>
<td>-15</td>
<td>-10</td>
<td>-18</td>
<td>-19&nbsp;</td>
<td>-2</td>
</tr>
<tr>
<td class="firstcol">Prices Outlook</td>
<td>-45</td>
<td>-44</td>
<td>-39</td>
<td>-38</td>
<td>-38</td>
<td>&nbsp;&nbsp;-39</td>
<td>-1</td>
</tr>
</tbody>
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The monthly household survey conducted by the Instiute National de la Statistique et Etudes Economic (INSEE) showed a slight improvement in French consumer confidence in April, with the overall balance of opinion rising from a minus [...]

French Consumer Confidence Up Slightly in April

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040504d.jpg" width="353">
As expected, the Federal Reserve left the target rate for federal funds unchanged at 1.00%. The discount rate also was left unchanged at 2.00%.
The decision was unanimous.
The press release which accompanied the Fed&#39;s action indicated that &quot;output is continuing to expand at a solid rate and hiring appears to have picked up.&quot;
Regarding inflation and future policy action the Fed acknowledged that inflation had &quot;moved somewhat higher&quot; and that future &quot;policy accommodation can be removed at a pace that is likely to be measured.&quot;
<a href="http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040504/default.htm">Here</a> is the complete text of the Fed&#39;s latest press release.
&quot;How Do Data Revisions Affect the Evaluation and Conduct of Monetary Policy?&quot; from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/Publicat/econrev/Pdf/1Q04kozi.pdf">here</a>.

Chain Store Sales Jumped Last Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 4, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040504a.jpg" width="353">
Chain store sales jumped 1.5% higher last week following a 0.5% slip the prior period, according to the International Council of Shopping Centers (ICSC)-UBS survey.
For the full month, sales in April rose 0.4% following a 0.1% dip during March.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/01/04</th>
<th scope="col">04/24/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>444.7</td>
<td>438.3</td>
<td>6.5%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Factory Orders Surged, Inventories Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 4, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040504c.jpg" width="353">
Factory orders surged 4.3% m/m in March, nearly twice the Consensus expectation for a 2.3% rise. The gain was driven by a 5.0% increase in durable goods orders which was revised up from the advance report of a 3.4% rise.
Strength was quite apparent in the capital good sector. The advance report of a 2.1% rise in nondefense capital goods orders was revised and doubled. Excluding aircraft &amp; parts the rise in advance orders was nearly doubled to 4.5% (12.4% y/y). Much of the upward revision stemmed from orders for computers &amp; electronic products which were revised to show a 2.5% (16.3% y/y) gain versus the advance report of a 0.2% uptick.
Non-durable goods orders (which equal shipments) jumped 3.5% (6.2% y/y) and recouped a 1.8% February decline. Higher petroleum shipments led the March gain but shipments of apparel, paper and chemicals also were quite strong.
Factory inventories rose 0.3% in March and the February increase was revised up. The swing to inventory accumulation from decumulation has been scattered across industries, although the furniture and automobile industries still lag.
Factory shipments jumped 3.8%. Excluding the transportation sector shipments rose 4.2% (9.1% y/y).

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM"> Factory Survey</a> (NAICS)</th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.3%</td>
<td>0.6%</td>
<td>-0.2%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>4.3%</td>
<td>1.1%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>-1.9%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>3.8%</td>
<td>-0.1%</td>
<td>9.2%</td>
<td>2.6%</td>
<td>-2.0%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.2%</td>
<td>0.9%</td>
<td>5.0%</td>
<td>4.2%</td>
<td>-6.1%</td>
<td>-5.9%</td>
</tr>
</tbody>
</table>
Challenger Layoffs Ticked Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 4, 2004


<img align="left" border="0" height="286" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040504b.jpg" width="353">
Challenger, Gray &amp; Christmas reported that announced job cuts rose 6.1% to 72,184 in April following m/m declines of 11.9% and 34.3% during the prior two periods.
The three month moving average of job cut announcements fell to 72,489 (-41.2% y/y). During the last ten years there has been an 83% (inverse) correlation between the three month average level of announced job cuts and the y/y percent change payroll employment.
The m/m increase in layoffs was scattered across industries but notable in the automotive, computer &amp; chemical industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>72,184</td>
<td>68,034</td>
<td>-50.7%</td>
<td>1,236,426</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">

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As expected, the Federal Reserve left the target rate for federal funds unchanged at 1.00%. The discount rate also was left unchanged at 2.00%. The decision was unanimous. The press release which accompanied the Fed's action indicated [...]

FOMC Left Rates Unchanged, Language Altered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040503c.jpg" width="353">
Purchasing managers in the Euro-12 reported continued growth in manufacturing in April. (Diffusion indexes that range from 0% to 100% based on surveys are complied for Reuters Group Plc by NTC Research Ltd. A percentage over 50% indicates expansion while on below 50% indicates a contraction.)
The overall Euro zone index, which began to rise in the last half of 2003, rose 1.3% from March to 54.0% in April, the highest level seen since December, 2000 and above the consensus of 53.3% reported by the Financial Times. Among the individual countries for which data are available, Germany and the Netherlands showed the greatest month-to-month increases of 2.4% and 2.9%, respectively. More modest increases were reported for Spain and Greece, while a decline of 1.4% was reported for Austria.
Much of the strength in manufacturing is due to foreign demand as shown in the attached chart. (Since data on export orders for the Euro zone are not available, we have used export orders for Germany as a proxy for the total Euro Zone.) Export orders in the individual countries have been rising sharply, reflecting growth in demand from the U. S. and Asia, particularly China. The decline in the euro since its high on February 18, has also contributed to the rise in export orders.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Purchasing Managers &nbsp;Survey (%)</th>
<th scope="col">Apr 04</th>
<th scope="col">Mar 04</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro zone</td>
<td>53.95</td>
<td>53.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>53.53</td>
<td>53.24</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Germany</td>
<td>55.34</td>
<td>54.07</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>52.48</td>
<td>52.15</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Netherlands</td>
<td>53.35</td>
<td>51.85</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Spain</td>
<td>53.59</td>
<td>52.92</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Greece</td>
<td>54.48</td>
<td>53.83</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Austria</td>
<td>53.92</td>
<td>54.70</td>
</tr>
</tbody>
</table>
</body>
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Purchasing managers in the Euro-12 reported continued growth in manufacturing in April. (Diffusion indexes that range from 0% to 100% based on surveys are complied for Reuters Group Plc by NTC Research Ltd. A percentage over 50% [...]

Rise in Manufacturing in the Euro Zone Beats Consensus as Export Orders Climb

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040503b.jpg" width="353">
The Purchasing Managers&#146; Composite Index (PMI) for April released by the Institute of Supply Management was little changed at 62.4 versus 62.5 in March. Consensus expectations were for 62.5.
During the last twenty years there has been a 71% correlation between the level of the Composite Index and the three month growth in factory sector industrial production. There has been a 56% correlation between the level of the Composite Index and quarterly growth in real GDP.
Patterns amongst the component series were mixed. Production jumped to 67.0 vs. 65.5 in March and from 48.8 a year ago while employment rose to 57.8, the highest level since December of 1987. These gains were offset by a lower orders index (65.0 vs. 65.7), a slightly quicker pace of vendor deliveries (67.1 vs. 67.9) and a lower inventory index which fell to the lowest level since October (44.8 vs.48.3).
The prices paid index strengthened further to 88.0, the highest level since July 1979.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>62.4</td>
<td>62.5</td>
<td>46.2</td>
<td>53.3</td>
<td>52.4</td>
<td>43.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>65.0</td>
<td>65.7</td>
<td>45.9</td>
<td>58.1</td>
<td>56.6</td>
<td>46.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>88.0</td>
<td>86.0</td>
<td>63.5</td>
<td>59.6</td>
<td>57.6</td>
<td>42.9</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Jumped on Public Sector Surge 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040503a.jpg" width="353">
The total value of construction put in place jumped 1.5% in March following an upwardly revised 0.4% gain in February. A 0.5% rise had been the Consensus expectation.
A 5.2% jump in public construction led the March gain as spending on highways &amp; streets (nearly one third of the value of public constructions spending) surged 9.8% (13.7% y/y).Transportation spending also surged 8.5% (6.0% y/y) and spending on power ballooned 15.6% (63.8% y/y).
Private residential building activity rose 0.7% following a modest decline in February as multi-family home building jumped 2.7% (8.2% y/y) and prior months&#39; figures were revised up. New single family building rose 1.1% (19.9% y/y).
Nonresidential building fell 0.2% (-2.9% y/y) following a 1.4% gain in February.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</a></th>
<th scope="col"> Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.5%</td>
<td>0.4%</td>
<td>7.9%</td>
<td>4.0%</td>
<td>1.1%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.4%</td>
<td>0.4%</td>
<td>8.0%</td>
<td>4.6%</td>
<td>-0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.7%</td>
<td>-0.0%</td>
<td>13.4%</td>
<td>10.1%</td>
<td>8.6%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.2%</td>
<td>1.4%</td>
<td>-2.9%</td>
<td>-5.5%</td>
<td>-13.0%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>5.2%</td>
<td>0.4%</td>
<td>7.4%</td>
<td>2.1%</td>
<td>5.3%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Purchasing Managers Composite Index (PMI) for April released by the Institute of Supply Management was little changed at 62.4 versus 62.5 in March. Consensus expectations were for 62.5. During the last twenty years there has been [...]

ISM Factory Index About Unchanged

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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

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

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

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

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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250501I20.jpg

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

U.S. Light Vehicle Sales Fall in April

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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

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

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

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

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

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

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

Carol Stone, CBE

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

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

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

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

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

250501C8.jpg

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

Economy in Brief: May 2004

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ISM Non-Manufacturing Index Reached Another New High

French Consumer Confidence Up Slightly in April

FOMC Left Rates Unchanged, Language Altered

Rise in Manufacturing in the Euro Zone Beats Consensus as Export Orders Climb

ISM Factory Index About Unchanged