Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050621a.jpg" width="353">
Chain store sales inched up another 0.1% last week following gains of 0.6% and 0.4% during the prior two periods according to the International Council of Shopping Centers (ICSC)-UBS survey. So far in June sales are 0.3% below the prior month&#39;s average because of sharp declines through most of May.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC jumped 0.9% w/w (3.0% y/y) for the second consecutive week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
What Difference Would An Inflation Target Make? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/spring2005/hetzel.pdf"> here</a>.

<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">06/18/05</th>
<th scope="col">06/11/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.9</td>
<td>455.5</td>
<td>3.7%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
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</tbody>
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Chain store sales inched up another 0.1% last week following gains of 0.6% and 0.4% during the prior two periods according to the International Council of Shopping Centers (ICSC)-UBS survey. So far in June sales are 0.3% below the [...]

Chain Store Sales Rose For Third Week

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620b.jpg" width="353">
After last week&#39;s release of a strong rise of almost 2% in industrial production in April, Italy released more positive data today. Industrial turnover or sales rose 2.3% in April from March and were 1.5% above April, 2004. Industrial orders rose 1.5% and 2.5% respectively in the comparable periods. The sales and order data are broken down into domestic and foreign. While the rise in domestic industrial sales was stronger than that for foreign sales, orders for foreign sales increased more than those for domestic sales.
While the sales and order data for April are encouraging, the first chart showing sales and orders over the past five years, puts these recent improvements in perspective. They appear to be little more than part of an erratic but only slightly upward trend that began in early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620c.jpg" width="353">
In addition to the sales and orders data, there were also positive data in the employment situation. Employment rose 0.5% in the first quarter of 2005l and was 1.0% above the first quarter of 2004. At the same time unemployment declined 1.0% in the first quarter of 2004 and was 3.3% below the year ago figure. Italy&#39;s harmonized rate of unemployment was 7.9% in the first quarter of 2905. As the attached chart shows, Italy&#39;s unemployment rate has continued to decline while that for the Euro Zone as a whole has been rising--mainly as a result of the increasing unemployment in France and Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy</a> 2000=100</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">Apr 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Turnover (Sales)</td>
<td>106.3</td>
<td>103.9</td>
<td>104.7</td>
<td>2.31</td>
<td>1.53</td>
<td>104.2</td>
<td>101.8</td>
<td>102.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>105.7</td>
<td>102.7</td>
<td>105.1</td>
<td>2.92</td>
<td>0.57</td>
<td>104.2</td>
<td>101.9</td>
<td>102.2&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.1</td>
<td>107.1</td>
<td>103.4</td>
<td>0.93</td>
<td>4.55</td>
<td>104.2</td>
<td>101.3</td>
<td>103.4</td>
</tr>
<tr>
<td class="firstcol">Industrial Orders</td>
<td>100.2</td>
<td>98.7</td>
<td>97.8</td>
<td>1.52</td>
<td>2.45</td>
<td>99.0</td>
<td>95.3</td>
<td>99.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>96.7</td>
<td>96.2</td>
<td>95.9</td>
<td>0.52</td>
<td>0.83</td>
<td>96.9</td>
<td>93.8</td>
<td>97.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.2</td>
<td>104.4</td>
<td>102.0</td>
<td>3.64</td>
<td>6.08</td>
<td>103.7</td>
<td>98.6</td>
<td>102.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q1&nbsp; 05</td>
<td>Q4&nbsp; 04</td>
<td>Q1 04</td>
<td>Q/Q%</td>
<td>Y/Y%</td>
<td>&nbsp;2004&nbsp;&nbsp;</td>
<td>&nbsp;2003</td>
<td>&nbsp;2002</td>
</tr>
<tr>
<td class="firstcol">Employment (thousands)</td>
<td>22,564</td>
<td>22,450</td>
<td>22,334</td>
<td>0.51</td>
<td>1.03</td>
<td>22,400</td>
<td>22,230</td>
<td>21,901</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (thousands)</td>
<td>1,927</td>
<td>1,946</td>
<td>2,074</td>
<td>-0.98</td>
<td>-3.31</td>
<td>1,956</td>
<td>2,040</td>
<td>2,078</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>7.9</td>
<td>8.0</td>
<td>8.2</td>
<td>-0.1pts</td>
<td>-0.3pts</td>
<td>8.0</td>
<td>8.4</td>
<td>8.7</td>
</tr>
</tbody>
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After last week's release of a strong rise of almost 2% in industrial production in April, Italy released more positive data today. Industrial turnover or sales rose 2.3% in April from March and were 1.5% above April, 2004. Industrial [...]

A Few Encouraging Signs in Italy's Lackluster Economy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620a.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell a sharp 0.5% in May following an upwardly revised no change in April. Six-month growth in the leaders dropped to -2.2%. Growth in the leaders deeper than -2.5% preceded past US recessions.
During the last ten years there has been a 50% correlation between the six-month change in the leading indicators and the change in real GDP.
Amongst the 10 components of the leading index, the breadth of one month gain retraced the prior month&#39;s improvement and fell to just 15%. In May, a flatter interest rate yield curve, lower building permits, and higher claims for unemployment insurance made the largest negative contributions. During the last year the leading indicators have fallen 1.9%, roughly half of which was due to the flatter yield curve and the rest was due to the drop in vendor performance.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose by 0.2% (2.1% y/y) for the third month in the last four.
The lagging indicators rose 0.3% in May though the prior month&#39;s gain was revised down to 0.1%.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess dipped slightly and has been roughly unchanged since last October except for an upward blip in December.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>1.3%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
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The Composite Index of Leading Economic Indicators reported by the Conference Board fell a sharp 0.5% in May following an upwardly revised no change in April. Six-month growth in the leaders dropped to -2.2%. Growth in the leaders [...]

Leading Indicators Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620a.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell a sharp 0.5% in May following an upwardly revised no change in April. Six-month growth in the leaders dropped to -2.2%. Growth in the leaders deeper than -2.5% preceded past US recessions.
During the last ten years there has been a 50% correlation between the six-month change in the leading indicators and the change in real GDP.
Amongst the 10 components of the leading index, the breadth of one month gain retraced the prior month&#39;s improvement and fell to just 15%. In May, a flatter interest rate yield curve, lower building permits, and higher claims for unemployment insurance made the largest negative contributions. During the last year the leading indicators have fallen 1.9%, roughly half of which was due to the flatter yield curve and the rest was due to the drop in vendor performance.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose by 0.2% (2.1% y/y) for the third month in the last four.
The lagging indicators rose 0.3% in May though the prior month&#39;s gain was revised down to 0.1%.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess dipped slightly and has been roughly unchanged since last October except for an upward blip in December.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>1.3%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
A Few Encouraging Signs in Italy's Lackluster  Economy 
by <a href="/comment/Curley.html">Louise Curley</a> June 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620b.jpg" width="353">
After last week&#39;s release of a strong rise of almost 2% in industrial production in April, Italy released more positive data today. Industrial turnover or sales rose 2.3% in April from March and were 1.5% above April, 2004. Industrial orders rose 1.5% and 2.5% respectively in the comparable periods. The sales and order data are broken down into domestic and foreign. While the rise in domestic industrial sales was stronger than that for foreign sales, orders for foreign sales increased more than those for domestic sales.
While the sales and order data for April are encouraging, the first chart showing sales and orders over the past five years, puts these recent improvements in perspective. They appear to be little more than part of an erratic but only slightly upward trend that began in early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050620c.jpg" width="353">
In addition to the sales and orders data, there were also positive data in the employment situation. Employment rose 0.5% in the first quarter of 2005l and was 1.0% above the first quarter of 2004. At the same time unemployment declined 1.0% in the first quarter of 2004 and was 3.3% below the year ago figure. Italy&#39;s harmonized rate of unemployment was 7.9% in the first quarter of 2905. As the attached chart shows, Italy&#39;s unemployment rate has continued to decline while that for the Euro Zone as a whole has been rising--mainly as a result of the increasing unemployment in France and Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy</a> 2000=100</th>
<th scope="col">Apr 05</th>
<th scope="col">Mar 05</th>
<th scope="col">Apr 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp;2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Turnover (Sales)</td>
<td>106.3</td>
<td>103.9</td>
<td>104.7</td>
<td>2.31</td>
<td>1.53</td>
<td>104.2</td>
<td>101.8</td>
<td>102.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>105.7</td>
<td>102.7</td>
<td>105.1</td>
<td>2.92</td>
<td>0.57</td>
<td>104.2</td>
<td>101.9</td>
<td>102.2&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.1</td>
<td>107.1</td>
<td>103.4</td>
<td>0.93</td>
<td>4.55</td>
<td>104.2</td>
<td>101.3</td>
<td>103.4</td>
</tr>
<tr>
<td class="firstcol">Industrial Orders</td>
<td>100.2</td>
<td>98.7</td>
<td>97.8</td>
<td>1.52</td>
<td>2.45</td>
<td>99.0</td>
<td>95.3</td>
<td>99.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>96.7</td>
<td>96.2</td>
<td>95.9</td>
<td>0.52</td>
<td>0.83</td>
<td>96.9</td>
<td>93.8</td>
<td>97.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>108.2</td>
<td>104.4</td>
<td>102.0</td>
<td>3.64</td>
<td>6.08</td>
<td>103.7</td>
<td>98.6</td>
<td>102.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q1&nbsp; 05</td>
<td>Q4&nbsp; 04</td>
<td>Q1 04</td>
<td>Q/Q%</td>
<td>Y/Y%</td>
<td>&nbsp;2004&nbsp;&nbsp;</td>
<td>&nbsp;2003</td>
<td>&nbsp;2002</td>
</tr>
<tr>
<td class="firstcol">Employment (thousands)</td>
<td>22,564</td>
<td>22,450</td>
<td>22,334</td>
<td>0.51</td>
<td>1.03</td>
<td>22,400</td>
<td>22,230</td>
<td>21,901</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (thousands)</td>
<td>1,927</td>
<td>1,946</td>
<td>2,074</td>
<td>-0.98</td>
<td>-3.31</td>
<td>1,956</td>
<td>2,040</td>
<td>2,078</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>7.9</td>
<td>8.0</td>
<td>8.2</td>
<td>-0.1pts</td>
<td>-0.3pts</td>
<td>8.0</td>
<td>8.4</td>
<td>8.7</td>
</tr>
</tbody>
</table>
</body>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617d.jpg" width="353">
Orders received by Japan&#39;s machinery industry rebounded sharply in April, according to data reported yesterday and today by the Japanese Cabinet Office. Total orders, seasonally adjusted, were up 14.8% in the month, after three successive declines. These order flows are very erratic, as seen in the chart, and we have plotted a 6-month moving average to show the trend. This measure increased 2.2% from March. April orders were 8.3% ahead of April 2004.
A broad division of these orders into domestic and foreign sources indicates that Japanese industry is still led by external demand. Foreign orders were up 31.3% in April and 18.3% over a year ago. These have a loose negative correlation with the value of the yen, as might be expected (see second graph). And while the yen has strengthened against the dollar (and therefore against the Chinese yuan), it has remained weak relative to the euro, at least until very recently. Taking account other currencies as well, a weighted &quot;effective&quot; exchange rate published by the Bank of Japan has been basically flat for the last three years, and therefore largely a neutral force on total foreign demand for Japanese products.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617e.jpg" width="353">
Domestic orders are creeping upward. Machinery orders from private non-manufacturing industries are also basically flat. However, manufacturing industry orders for machines are rising. This sector was up 14.4% in April alone, reaching &yen;511 billion, the largest single month since May 1997. These orders are volatile, too, and such a jump and level are likely unsustainable in the near term. Even so, this sign of firmer domestic demand in Japan is encouraging.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/JAPAN.HTM">Japan</a>(Billion &yen;)</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Year Ago (Yr/Yr)</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total Orders*</td>
<td>2,421.6</td>
<td>2,109.5</td>
<td>2,243.7</td>
<td>2,202.7</td>
<td>2,113.1</td>
<td>1,836.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>14.8</td>
<td>-2.4</td>
<td>8.3</td>
<td>4.2</td>
<td>15.0</td>
<td>-10.9</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>1,380.4</td>
<td>1,320.5</td>
<td>1,347.0</td>
<td>1,323.5</td>
<td>1,295.6</td>
<td>1,217.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>4.5</td>
<td>-4.7</td>
<td>2.6</td>
<td>2.2</td>
<td>6.4</td>
<td>-14.8</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>915.0</td>
<td>696.9</td>
<td>781.4</td>
<td>770.4</td>
<td>708.4</td>
<td>521.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>31.3</td>
<td>2.9</td>
<td>18.1</td>
<td>8.8</td>
<td>35.9</td>
<td>-0.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Orders received by Japan's machinery industry rebounded sharply in April, according to data reported yesterday and today by the Japanese Cabinet Office. Total orders, seasonally adjusted, were up 14.8% in the month, after three [...]

April Machinery Orders Jump in Japan; Foreign Sector and Domestic Manufacturing Lead

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050617c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in June improved a sharp 9.1% versus May to 94.8. Sentiment rose to the highest level since January. Consensus expectations had been for a level of 88.7.
During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE, although the correlation has fallen in recent years.
Consumer expectations surged a sharp 12.6% following five months of decline.
The reading of current economic conditions also rose 5.2% to the highest level since January.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>94.8</td>
<td>86.9</td>
<td>-0.8%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>104.9</td>
<td>3.5%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>84.8</td>
<td>75.3</td>
<td>-4.2%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
</body>
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The University of Michigan's preliminary reading of consumer sentiment in June improved a sharp 9.1% versus May to 94.8. Sentiment rose to the highest level since January. Consensus expectations had been for a level of 88.7. During [...]

U.S. Consumer Sentiment Improved

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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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: June 2005

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