Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070511b.jpg" width="353">
We know this is [literally] yesterday&#39;s news, but the state of the US Government budget for April 2007 deserves comment regardless. The Treasury took in a record $383.6 billion in the month, contributing to a surplus of $177.7 billion, the second largest monthly surplus ever. This result well exceeded the year-ago figure of $118.8 billion and was considerably larger than consensus forecasts of $140 billion. The associated outlay total was $206.0 billion. The largest surplus was in April 2001, $189.8 billion, when the receipts rolled in from the peak of the tech boom.
For the fiscal year to date (since October), the deficit has been $80.8 billion, compared with $184.8 billion in the same period a year ago. Receipts are up 11.2%, while outlays have increased only 3.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070511c.jpg" width="353">
Individual income taxes in April were a monthly record $226.3 billion, up 33.9% from a year ago. This increase consisted in a hefty jump in individual income taxes, with withholdings up 24.4%; this does, however, follow a restrained withholding figure for March. Year-to-date withholdings are up 10.7%. &quot;Other&quot; individual tax payments, those submitted with 2006 tax returns, came in at an eye-popping $197.8 billion, almost 31% ahead of last year. These taxes, which cover non-wage income, were $300.5 billion for the fiscal year to date, up almost 26% from the comparable year-ago period. Corporate income taxes were $46.7 billion in April, up 6.1% from April 2006; the year-to-date gain has been 15.2%, as December and March quarterly payments were both up from year-ago amounts by a substantial margin. Social insurance taxes were $95.9 billion in April, up 9.3% from April 2006 and 6.2% for the year-to-date.
As noted above, outlays were $206.0 billion, up 5.0% from a year ago. The fiscal year total so far is up just 3.2%. Defense outlays were $41.2 billion, up 3.5% from last April, with the cumulative amount for the fiscal year so far up 6.0% from the year earlier. Social security outlays were $48.8 billion in April, up 5.5%. Interest expense continues to climb, rising 21.6% in April from the year ago, and up 5.2% for the year so far. Last month here, we suggested that calendar quirks had advanced spending in several government programs forward to March and that they could slow commensurately in April. This appears to have occurred. Overall, total spending is expanding quite modestly, making it easier to keep the federal budget position under control for fiscal 2007 as a whole, even if tax receipt growth were to slow in the remaining months.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US Government Budget</a>, Bil.$</th>
<th scope="col">Apr 2007</th>
<th scope="col">Mar 2007</th>
<th scope="col">Oct 2006- &nbsp; Apr 2007</th>
<th scope="col">Oct 2005- &nbsp; Apr 2006</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>+177.7</td>
<td>-96.3</td>
<td>-80.8</td>
<td>-184.1</td>
<td>-248.2</td>
<td>-318.7</td>
<td>-411.1</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>383.6</td>
<td>166.5</td>
<td>1504.6</td>
<td>1352.7</td>
<td>2,406.7</td>
<td>2,153.4</td>
<td>1,879.8</td>
</tr>
<tr class="odd">
<td class="firstcol">11.2%</td>
<td>11.2%</td>
<td>11.8%</td>
<td>14.6%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">Net Outlays</td>
<td>206.0</td>
<td>262.8</td>
<td>1585.3</td>
<td>1536.8</td>
<td>2,654.9</td>
<td>2,472.1</td>
<td>2,290.9</td>
</tr>
<tr class="odd">
<td class="firstcol">3.2%</td>
<td>5.8%</td>
<td>7.4%</td>
<td>7.9%</td>
<td>6.2%</td>
</tr>
</tbody>
</table>
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We know this is [literally] yesterday's news, but the state of the US Government budget for April 2007 deserves comment regardless. The Treasury took in a record $383.6 billion in the month, contributing to a surplus of $177.7 [...]

Record Tax Collections Bring Large Monthly Budget Surplus for Federal Government

Robert Brusca

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Wolf of a headline but lamb inside... 
Of course the PPI headline is scary. But we know that it is energy with an assist from food. But if you look at the core you will see that not only this month but in general it has been pretty stable. We still think that inflation problems lurk but we do not think energy is the source of worry. 
When headline inflation swung it did tend to transmit some of those changes to the core, as the graph above shows. But the transmission effects were very muted. Headline inflation bottomed at -2.8% in January 2002 while core inflation bottomed at -0.6% in December of that same year. Headline inflation swept higher to peak at 6.8% in Sept 2005 while core inflation peaked at 2.9% and did so in July ahead of the headline. With headline inflation swinging in a range of 9.6 percentage points core inflation swung in a range of 3.5 percentage points. And those statistics refer to the most extreme monthly observations. We are still seeing some &#145;wild&#146; swings in headline inflation but they are not as long-lasting as in 2001. Thus the impact will be blunted. Core inflation is in fact falling over the past six months when the headline has been rising. We are more worried about the transmission to core inflation from labor costs since headline inflation looks much more like it is unstable month to month than it looks to be trending higher. <img align="left" border="0" height="274" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070511e.jpg" width="448"> 
Moreover, this next push up in energy prices will be small compared to the previous one. The table shows that inflation trends of all sorts are still fairly well contained. However since goods inflation has been lower than service sector inflation we need for goods inflation to be well be the 2% mark for it to be compatible with the Fed&#146;s 2% (or 2.4% in CPI terms) &#145;core&#146; maximum in terms of its unofficial comfort zone &#150; I know it sounds like something from a foot doctor.
It is striking how inflation has built over the past three months in energy and foods but how when you remove the food and energy from PPI measures inflation rates calm down immediately. Finished consumer goods inflation, the part of this report that feeds into the CPI fell by 0.1% this month. For the CPI however we have to add in the markups to take producer goods to retail, then add services and add in imports to get to the CPI itself. There is no assurance on this but since service sector wages have been decompressing and import prices for consumer goods and vehicles have been moderate, looking for a moderate CPI core is a reasonable thing to do even in the face of surging energy and rising food prices. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Key Trends In Producer Prices
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-07</td>
<td colspan="4">PPI Trends By Type Of Good</td>
</tr>
<tr class="odd">
<td class="firstcol">PPI</td>
<td>1Mo:M/M</td>
<td>3-Mo:ar</td>
<td>6-Mo:ar</td>
<td>1-Yr</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Total PPI</td>
<td>0.7%</td>
<td>12.8%</td>
<td>10.0%</td>
<td>3.2%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Finished Consumer Goods</td>
<td>0.9%</td>
<td>16.6%</td>
<td>12.2%</td>
<td>3.5%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Consumer Foods</td>
<td>0.4%</td>
<td>15.4%</td>
<td>12.7%</td>
<td>7.8%</td>
<td>-0.9%</td>
</tr>
<tr>
<td class="firstcol">Finished Consumer Goods Excl Foods</td>
<td>1.1%</td>
<td>16.8%</td>
<td>11.9%</td>
<td>2.1%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Nondurables less Food</td>
<td>1.7%</td>
<td>25.2%</td>
<td>15.7%</td>
<td>2.8%</td>
<td>9.9%</td>
</tr>
<tr>
<td class="firstcol">Consumer Nondurable excl Food and Energy</td>
<td>-0.1%</td>
<td>3.8%</td>
<td>3.1%</td>
<td>2.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Durable Goods</td>
<td>-0.2%</td>
<td>-1.2%</td>
<td>3.1%</td>
<td>0.4%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Finished Core Consumer Goods</td>
<td>-0.1%</td>
<td>1.7%</td>
<td>3.2%</td>
<td>1.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.1%</td>
<td>1.4%</td>
<td>3.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Manufacturing Industries</td>
<td>0.2%</td>
<td>2.1%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Nonmanufacturing Industries</td>
<td>0.1%</td>
<td>0.8%</td>
<td>3.3%</td>
<td>1.5%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Core PPI</td>
<td>0.0%</td>
<td>1.5%</td>
<td>3.2%</td>
<td>1.6%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Memo: Finished Energy</td>
<td>3.4%</td>
<td>50.6%</td>
<td>30.2%</td>
<td>3.5%</td>
<td>17.7%</td>
</tr>
</tbody>
</table>
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Wolf of a headline but lamb inside... Of course the PPI headline is scary. But we know that it is energy with an assist from food. But if you look at the core you will see that not only this month but in general it has been pretty [...]

PPI: Sheep in wolf’s clothing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070511d.jpg" width="353">
The inventory picture has cleared a bit in recent months. We can now see that we in the grip on an inventory liquidation cycle. But how firmly are we in this &#145;grip?&#146; How much will it squeeze? And for how long? 
This month inventories fell. Since Jan of 2000 inventories have dropped in a month only 26 times; that&#146;s about 30% of the time. But the bulk of those declines came in recession or leading up to it. Fully 13 of them came in the 15-months from January of 2000 when inventories fell 13 times as sales fell m/m in eight of those months. In 2003 things slowed again and from Dec of 2002 sales dropped five times through August as inventories fell in seven distinct months. So inventory drops are not isolated events but rather they are a response to weak sales. AND to say this is to say that firms take a concentrated effort to pare inventories on those occasions since weak or falling sales if not responded to will make inventories grow, not shrink, unless the slowing was fully anticipated. 
Outside of these strings of weakness inventory drops occur only about 10% of the time. Not all sales and inventory declines are bunched together. In March as overall inventories fell by 0.1%, sales were rising at a strong 1.4%. However, sales have seen some weakness lately as they did fall by 0.9% last in January 2007, and in Sept and Oct of 2006 before that. Sales clearly have weakened and Yr/Yr business sales are now running at a 3.7% pace up from a low of 1.6% in January but well below the growth of 7% to 8% that persisted from March 2004 until about August of last year. 
So one question we are looking to address is whether this is one of those improbable 10% drops in inventories or whether it is something else. It looks to be &#145;something else&#146; (unfortunately) but that &#145;something else&#146; does not appear to be very severe. 
The chart above shows the time series growth relationship between inventories and sales growth rates at 3-Mos. Sales growth rates are led by five months. On this basis a very regular pattern emerges between sales and inventories. This framework suggests that sales slowdowns are unanticipated and take about five months for firms to recognize them and take action. We are currently in our weakest sales period since late 2003. If we look at the next five months of sales (plotted ahead here due to the lag), 3-mo growth is set to rise from -7.4% to +6.6% and settle in at +3.3%. That should be enough to restore inventory growth to positive. We can see that what is in progress here is the inventory cycle. While the recent sales downdraft was sharp, the period of negative growth rates was brief and sales are growing again. We have every reason to believe that this inventory correction will be mild and short. 
The table above puts inventory to sales trends in perspective. It shows that MFG is the only sector with lingering I:S problems. That is to say, in MFG, sales growth is still weaker than Inventory growth; indeed sales, over the past three months are still declining. Not surprisingly I:S ratios in MFG are in the top 80% of their three Yr range (far right of table). But retail stocks are lean, residing in the bottom 10% of their three year I:S ratios. Wholesale stocks are mildly low relative to sales in the bottom one-third of their 3-Yr range. 
As a result we see the inventory cycle as having a few months to run yet. Whether it is done depends on sales continuing to grow, however. Sales growth rates have built steadily for retail sector and are back at 7% over 3-Months for retailers. Wholesalers have been steady at 7% to 8% over three months, six months and a year. Manufacturers are the problem. Their sales have slumped and flattened and are still declining. But inventories are still growing raising the prospect of adjustment yet to come to this sector. And, of course most of our monthly economic readings come from this troubled sector not from the more healthy ones. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Inventory sales patterns by sectors 3-Mo Growth
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">2007 Mar</td>
<td colspan="2">2007 Feb</td>
<td colspan="2">2006 Dec</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</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>3.5%</td>
<td>1.3%</td>
<td>3.1%</td>
<td>2.1%</td>
<td>3.7%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">Manufacturers</td>
<td>-2.9%</td>
<td>0.9%</td>
<td>-3.7%</td>
<td>1.0%</td>
<td>-0.6%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Retailers</td>
<td>7.2%</td>
<td>-1.5%</td>
<td>7.3%</td>
<td>2.3%</td>
<td>6.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Wholesalers</td>
<td>7.7%</td>
<td>5.3%</td>
<td>7.2%</td>
<td>3.0%</td>
<td>6.7%</td>
<td>4.9%</td>
</tr>
</tbody>
</table>
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The inventory picture has cleared a bit in recent months. We can now see that we in the grip on an inventory liquidation cycle. But how firmly are we in this grip? How much will it squeeze? And for how long? This month inventories [...]

Inventories slow further… they decline

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070511a.jpg" width="353">
Result: Surprising - good growth in Q2.
Retail sales fell by 0.2% in April the first month of the second quarter&#133; yet sales in Q2 are up nicely so far. How can that be? The reason is that for GDP we look at what happens in quarter on average. And in Q1 sales got stronger as the quarter went on. So, in March, the month of the quarter sales were well above the Q1 average. The small drop in sales in April therefore leaves sales growing in Q2. The growth rate for nominal sales in the quarter so far is 3.7% for overall sales. Taking out vehicle sales raises that to 5.5%. With vehicle and gasoline station sales removed the rise is 2.7%. While the 2.7% figure seems weak with gas station sales out of the total, most of the energy is removed so that comes much closer to being a real sales figure.On balance Q2 is off to a reasonably good start. The early Easter packed sales into March by sucking them out of April. But on balance we are still in good shape in Q2. Trends are moderately lower, but only moderately (see graph).
Clothing sales were weak in the month and are weak over the past three months with a three-month growth rate of -6.1% annualized. General merchandise is weak in that same way. But nondurables excluding gasoline sales are up at a 5.5% pace over three months and remain at a very steady pace (see table below). Durables spending was weak in the quarter on weakness in vehicle sales (-1%) and weakness in building materials (-2.3%) while furniture and electronics sales were up (1%) over three months. Durables sales are dropping, but only at a -0.6% annual rate. Year/year durables sales are flat due to the on-again off-again nature of vehicle sales and ongoing weakness in building materials. The weakness in building materials shows no sign of letting up.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Retail Sales Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Retailing:</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual Rate</td>
</tr>
<tr class="odd">
<td class="firstcol">Totals</td>
<td>Apr 2007 </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>-0.2%</td>
<td>5.3%</td>
<td>5.6%</td>
<td>3.2%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">Retail Excl Motor Vehicles &amp; Parts</td>
<td>0.0%</td>
<td>6.6%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Retail Excl Motor Vehicles &amp; Parts &amp; Gasoline</td>
<td>-0.2%</td>
<td>3.9%</td>
<td>4.3%</td>
<td>4.0%</td>
<td>7.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Retailing:</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual Rate</td>
</tr>
<tr class="odd">
<td class="firstcol">Durables</td>
<td>Apr 2007 </td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago: Y/Y</td>
</tr>
<tr>
<td class="firstcol">Total Durables</td>
<td>-1.0%</td>
<td>-0.6%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Building Materials</td>
<td>-2.3%</td>
<td>-7.7%</td>
<td>-2.9%</td>
<td>-6.0%</td>
<td>14.0%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; Parts</td>
<td>-1.0%</td>
<td>0.8%</td>
<td>0.7%</td>
<td>1.3%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles&nbsp; Dealers</td>
<td>-0.9%</td>
<td>0.8%</td>
<td>1.0%</td>
<td>1.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Furniture, Electronics</td>
<td>1.0%</td>
<td>5.0%</td>
<td>7.6%</td>
<td>4.9%</td>
<td>7.8%</td>
</tr>
<tr class="even">
<td class="firstcol">Retail</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual Rate</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondurables</td>
<td>Apr 2007 </td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago: Y/Y</td>
</tr>
<tr>
<td class="firstcol">Total Nondurables</td>
<td>0.2%</td>
<td>8.5%</td>
<td>8.2%</td>
<td>4.8%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Beverages</td>
<td>0.5%</td>
<td>8.2%</td>
<td>5.1%</td>
<td>6.6%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Health</td>
<td>0.9%</td>
<td>8.7%</td>
<td>5.7%</td>
<td>8.1%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Gasoline</td>
<td>1.7%</td>
<td>29.2%</td>
<td>30.0%</td>
<td>1.5%</td>
<td>16.3%</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>-2.0%</td>
<td>-6.1%</td>
<td>3.2%</td>
<td>4.7%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Sport Goods</td>
<td>-0.8%</td>
<td>9.5%</td>
<td>4.0%</td>
<td>0.1%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">General Merchandise</td>
<td>-1.2%</td>
<td>-1.3%</td>
<td>4.3%</td>
<td>3.1%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Non-Store Retailers</td>
<td>1.8%</td>
<td>22.5%</td>
<td>10.7%</td>
<td>9.3%</td>
<td>10.9%</td>
</tr>
<tr>
<td class="firstcol">Miscellaneous Retail</td>
<td>0.4%</td>
<td>8.7%</td>
<td>5.7%</td>
<td>8.1%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Nondurables Excl Gasoline</td>
<td>-0.1%</td>
<td>5.5%</td>
<td>5.1%</td>
<td>5.4%</td>
<td>6.5%</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>-0.1%</td>
<td>2.0%</td>
<td>3.7%</td>
<td>4.9%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

Result: Surprising - good growth in Q2. Retail sales fell by 0.2% in April the first month of the second quarter yet sales in Q2 are up nicely so far. How can that be? The reason is that for GDP we look at what happens in quarter on [...]

U.S. Retail Sales: Weak in April but Stronger in March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070510e.jpg" width="353">
CPI data reported today by the three Scandinavian countries illustrate well the reasons for monitoring both total inflation measures and &quot;core&quot; measures to determine the underlying trends. Moreover, the &quot;core&quot; measure applicable to an individual country may vary from those used elsewhere, depending on the structure of each economy.
So in Sweden, we see the total CPI inflation rate at 1.9% over the 12 months through April, extending a generally increasing trend that began in early 2005. But apparently, the Swedes concentrate on another gauge, &quot;UNDINHX&quot;, the so-called &quot;domestic inflation rate&quot;. This index was 2.1% in April, but that&#39;s slower than it has been for the last six months. The grouping excludes home mortgage interest, some indirect taxes and goods that are mainly imported; this last would have the effect of omitting most fuel. Since last fall, interest rates have risen noticeably in Sweden while energy costs have slowed. Clothing prices have slowed and &quot;other&quot; prices have also eased. The rise in interest rates pushed up the total inflation rate, but the weaker inflation in other areas lowered the &quot;domestic inflation rate&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070510f.jpg" width="353">
In Denmark, recent price movements have been fairly muted, and in general inflation is running pretty consistently at 1.7%-1.8%. The overall CPI was up 1.69% in April from April 2006. The favored version of the CPI in that country seems to be the NPI, &quot;net price index&quot;, which nets out the impact of indirect taxes. In Haver&#39;s data offerings in the NORDIC database, values are given only for summary CPI categories, but net price indexes are available for numerous lower level line items. The total net price index was up 1.76% in April, year on year. Several &quot;special groupings&quot; are available; one seen in our chart alongside excludes energy and unprocessed food, a familiar concept of a &quot;core&quot; rate. This index was up 1.77% in April and has had a tendency toward firming. Home maintenance expenses, home furnishings and communications costs have been rising, in particular. Energy, as elsewhere, has been easing recently.
Norway reports very low inflation. Its overall CPI is up a mere 0.3% in the 12 months through April. And a rundown of the broad categories suggest a pretty mixed bag. Clothing prices, for example, are weak, while furniture and hotels and restaurants are up. If we exclude taxes, inflation is 0.9%, showing that reduced tax impact took 0.6% off April&#39;s inflation rate. Energy prices have been mixed, but have also pulled down on the inflation rate. Household heating and electricity have fallen, while auto-related expenses have increased. Overall, energy took 1.2 percentage points of the CPI. When the tax and energy effects both are netted out, the CPI was up 1.4% in April, still a low rate by world standards.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070510g.jpg" width="353">
We see here that indirect taxes are important in these countries and that efforts to assess genuine &quot;price&quot; inflation, that is, what we would refer to as the &quot;core&quot; rate, require adjustment to remove the taxes. In the US, by contrast, a national VAT or GST is not in use and excise taxes play only a modest role. The main concern in this country is over volatile items where supply factors have a heavy weight, that is, food and energy. The countries discussed here net out mortgage interest costs. The UK also does this. The US eliminated those from the CPI nearly 25 years ago, substituting a &quot;rental equivalence&quot; measure for the direct input of interest charges. Japan, in another example of a varying definition of &quot;core&quot;, now calculates two &quot;core&quot; rates, the original that excludes only fresh foods and a &quot;Western&quot; style that also excludes energy costs. The former remains the more popular. Thus, while it is convenient in some senses to have the European practice of &quot;harmonized&quot; inflation measures, it also continues to make just as much sense for each country to retain its own price index structure that fits the character of its own national economy.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Apr 2007</th>
<th scope="col">Mar 2007</th>
<th scope="col">Feb 2007</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Sweden: Inflation Rate</td>
<td>1.9</td>
<td>1.9</td>
<td>2.0</td>
<td>1.6</td>
<td>0.9</td>
<td>0.3</td>
</tr>
<tr>
<td class="firstcol">Domestic Inflation Rate (UNDINHX*)</td>
<td>2.1</td>
<td>1.9</td>
<td>2.2</td>
<td>2.3</td>
<td>1.2</td>
<td>1.1</td>
</tr>
<tr>
<td class="firstcol">Denmark: All Items</td>
<td>1.7</td>
<td>2.0</td>
<td>1.9</td>
<td>1.8</td>
<td>2.2</td>
<td>1.2</td>
</tr>
<tr>
<td class="firstcol">Net Prices ex Energy &amp; Unprocessed Food</td>
<td>1.8</td>
<td>1.8</td>
<td>1.6</td>
<td>1.3</td>
<td>1.7</td>
<td>1.0</td>
</tr>
<tr>
<td class="firstcol">Norway: CPI</td>
<td>0.3</td>
<td>1.1</td>
<td>0.8</td>
<td>2.2</td>
<td>1.8</td>
<td>1.0</td>
</tr>
<tr>
<td class="firstcol">Adjusted for Tax / Excl Energy </td>
<td>1.4</td>
<td>1.5</td>
<td>1.1</td>
<td>1.0</td>
<td>0.9</td>
<td>1.0</td>
</tr>
</tbody>
</table>
</body>
</html>

CPI data reported today by the three Scandinavian countries illustrate well the reasons for monitoring both total inflation measures and "core" measures to determine the underlying trends. Moreover, the "core" measure applicable to an [...]

Inflation in Scandinavia Experiences Mild Swings; Taxes, Mortgage Rates Highlight Definition of "Core" Rates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070510h.jpg" width="353">
While there has been a lot talk above a de-linking of Europe from the US, a rather careful look at the LEIs plotted on the left shows that at least in terms of these signals the US usually calls the tune and the rest of the OECD marches behind. There is NO EVIDENCE of the rest of the world pulling the US up. Instead, it is the US pulling itself up by its own bootstraps while the rest of the world is still under downward pressure in the lexicon of the OECD indicators. The Euro area is slowing. Japan remains quite weak. Meanwhile, the US is showing new life in the OECD framework. 
This chart is DEBUNKING the idea of DE-LINKING.
The table below shows that OECD trends point to continuing weakness for Europe and Japan as well as for the whole of the Euro area. Meanwhile the US is signaling rebound and that has helped the OECD area to show some technical improvement. 
The top portion of the table labeled &#145;progressive growth rates&#146; shows slightly more weakness that the bottom that looks at spaced 6-month trends. This discrepancy tells us that the weakness is still more new than it is entrenched. And fortunately the US is pulling out ahead of the pack. 
I am much more comfortable with the notion that the US is recovering and that will carry Europe than with the notion that Europe will grow and support the US. I don&#146;t believe in the tooth fairy or in de-linking.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
OECD Trend-Restored Leading Indicators
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="5">Growth Progression-SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3Mos</td>
<td>6Mos</td>
<td>12mos</td>
<td>Yr-Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.2%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD Big 7</td>
<td>0.3%</td>
<td>0.8%</td>
<td>0.3%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td>0.6%</td>
<td>1.2%</td>
<td>1.7%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td>-5.0%</td>
<td>-3.0%</td>
<td>-2.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td>2.2%</td>
<td>2.1%</td>
<td>0.7%</td>
<td>3.4%</td>
</tr>
<tr>
<td colspan="5">Six-Month Readings at 6-Month Intervals:</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6Mo Ago</td>
<td>12Mo Ago</td>
<td>18MO Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td>1.8%</td>
<td>0.7%</td>
<td>4.9%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD Big 7</td>
<td>0.8%</td>
<td>-0.2%</td>
<td>4.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td>1.2%</td>
<td>2.2%</td>
<td>4.9%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td>-3.0%</td>
<td>-2.7%</td>
<td>1.4%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td>2.1%</td>
<td>-0.7%</td>
<td>5.6%</td>
<td>1.1%</td>
</tr>
<tr class="odd">
<td colspan="5">Slowdowns indicated by bold red</td>
</tr>
</tbody>
</table>
</body>
</html>

While there has been a lot talk above a de-linking of Europe from the US, a rather careful look at the LEIs plotted on the left shows that at least in terms of these signals the US usually calls the tune and the rest of the OECD [...]

OECD Leading Indicators

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070510b.jpg" width="353">
Import prices jump by 1.3% as petroleum prices head higher by 6.5% in the month. Ex-petroleum import price rise by a cool 0.2%. 
Import prices are rising much more rapidly since March of 2006. Consumer goods import prices are up by 1.8% Yr/Yr compared falling year over year one year ago- that&#146;s an acceleration of 2 percentage points and that could become worrisome. The chart shows that the impact on consumer goods import prices is still on its upward trend. While that is a considerable net change for import price inflation, it is still a moderate rate of inflation overall for import prices, 1.8%. Still that pace has not &#145;infected&#146; core consumer goods prices whose rate of change continues to plod along in a downtrend with Yr/yr gains near ZERO in March. Vehicle import prices also have picked up since March of last year as well; but they are only rising at 1% Yr/Yr with less than a 1% acceleration Yr/Yr. Domestic prices for consumer goods from the PPI report show that core prices are up by 1.6% Yr/Yr more than consumer prices but a step or two behind import prices. While the weaker dollar may be transmitting some clear inflation impulses, they are at the same time very mild and finding some resistance in getting into final consumer prices at all. On balance this is still good inflation news since the dollar has been week and the economy has fought&#150;off the inflation transmission which itself has been only mildly present in import prices. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070510c.jpg" width="353">
For capital goods prices the trends are curiously different. Inflation is being LED by domestic capital goods prices. While the pattern for export prices mimics that for US inflation in capital goods, export price inflation is below that for to domestically produced capital goods. Capital goods import prices are lower still but have begun to track more closely the US domestic and export measures. Capital goods inflation is generally trending although it is just above 2% domestically and half that for exports and near zero for imported capital goods. There is a hint of inflation abating for capital goods but the tailing trend is still quite recent.
The table of export and import prices trends lies below. It show that ex-petroleum price trends are not gathering momentum in general with the 3-mo inflation rate for them at 1.1% compared to 2.3% for six months and 2.9% for 12-Months. The trend for non-petroleum import prices is actually waning as petroleum import prices accelerate. Conversely non-agricultural export prices are clearly accelerating, but most of this reflects the inclusion of petroleum in industrial and supplies prices. That category is the only strongly accelerating one for non-Ag export prices. 
On balance while there is some evidence of pressure on import prices, that pressure is muted and consumer goods are showing NO tendency to embrace any of the inflation from faster-rising import prices for consumer goods. Indeed, apart from oil, import prices that have accelerated over 12 months now are showing signs of deceleration.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Export and Import Prices
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/MO</td>
<td colspan="3">SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">IMPORTS</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
</tr>
<tr>
<td class="firstcol">ALL Imports</td>
<td>1.3%</td>
<td>1.5%</td>
<td>0.4%</td>
<td>13.3%</td>
<td>7.2%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Excl Petrol</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>1.9%</td>
<td>3.7%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Petrol</td>
<td>6.5%</td>
<td>8.1%</td>
<td>1.7%</td>
<td>87.7%</td>
<td>25.1%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">Foods Feeds and Beverages</td>
<td>1.4%</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>6.2%</td>
<td>8.9%</td>
<td>8.8%</td>
</tr>
<tr>
<td class="firstcol">Industrial Supplies</td>
<td>3.7%</td>
<td>4.5%</td>
<td>1.0%</td>
<td>43.6%</td>
<td>19.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>-3.9%</td>
<td>-1.5%</td>
<td>-0.4%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; Parts</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>0.4%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Consumer goods excl autos</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>1.6%</td>
<td>1.9%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/MO</td>
<td colspan="3">SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">EXPORTS</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
</tr>
<tr>
<td class="firstcol">ALL Exports</td>
<td>0.3%</td>
<td>0.6%</td>
<td>0.8%</td>
<td>7.3%</td>
<td>6.6%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Agricultural</td>
<td>-1.3%</td>
<td>2.0%</td>
<td>2.8%</td>
<td>15.0%</td>
<td>24.0%</td>
<td>19.0%</td>
</tr>
<tr>
<td class="firstcol">Non Agricultural</td>
<td>0.4%</td>
<td>0.5%</td>
<td>0.6%</td>
<td>6.6%</td>
<td>5.3%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Foods Feeds and Beverages</td>
<td>-0.8%</td>
<td>2.3%</td>
<td>3.2%</td>
<td>20.1%</td>
<td>24.9%</td>
<td>20.2%</td>
</tr>
<tr>
<td class="firstcol">Industrial Supplies</td>
<td>1.3%</td>
<td>1.7%</td>
<td>2.0%</td>
<td>22.2%</td>
<td>15.4%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.8%</td>
<td>0.4%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; Parts</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Consumer goods excl autos</td>
<td>0.5%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>1.9%</td>
<td>2.7%</td>
<td>2.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Import prices jump by 1.3% as petroleum prices head higher by 6.5% in the month. Ex-petroleum import price rise by a cool 0.2%. Import prices are rising much more rapidly since March of 2006. Consumer goods import prices are up by [...]

U.S. Import Prices Up 1.3% M/M

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.

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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

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

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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.

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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.

Economy in Brief: May 2007

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