Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621f.jpg" width="353">
With new figures on retail sales for France and Italy we have a better idea of emerging sales in the Euro area for Q2 2007. With one month&#146;s data fully out the overall retail volume trend is advancing, even if it is weaker year-over-year. Euro area retail sales are up at a 3.4% pace annualized in the current quarter-to-date period (April/Q1). That&#146;s a bit slower than the three-month annualized pace of 4.4%, but much faster than the Yr/Yr pace of 1.6% (2.4% for nonfood). France reported consumer spending for manufactured goods for May today and those figures (nominal) showed a drop for the second month in a row. Italy&#146;s sales figures just announced for April (nominal) continue to show a picture of a struggling consumer. Italy&#146;s nominal spending shows a drop in the current month. 
While far from weak, the EMU trends are showing some softness as the second quarter gets underway. Manufacturing stats have also showed some off peak performance recently although the new NTC services indicators (PMIs) showed a rebound in today&#146;s release. It is reasonable to question whether manufacturing and some of the foreign orders data are picking up signs of weakness relating to the strong euro. Are services doing relatively better because that sector is more insulated from trade impacts? Certainly EMU exports to the US have dropped off sharply this year. There may be something to the idea that the strong euro is finally taking some toll and consumers can feel it even though the service sector is not yet showing it. Consumer spending patterns do seem to be a bit more erratic &#150; except, of course, in the UK where the MPC is at odds with itself over whether to hike rates again or not. 
Germany&#146;s retail trends are still a bit hard to untangle due to the VAT hike that disrupted late 2006 and early 2007 spending. The UK is showing a strong trend in spending and so is France, but the French trend may be in jeopardy due to the slide in spending on manufactured goods by consumers. 
The category data for the Euro area is a bit uneven in terms of its timeliness. But we can see that through April the 3-month trends are on an upswing for the total and for the total excluding food. Through March (the shaded area of the table) a slowing in the most recent period is indicated for a broad class of consumer goods, at least in the recent three month period. 
The country-level data are quite strong, at least for the large EMU/EU countries. So far it is hard to build a case for encroaching weakness but some signs that growth may be topping permeate the various reports. It&#146;s a good time to watch these reports very closely and to pay attention to revisions.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 Euro area 13 Retail Sales Volume
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td> Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>3-Month</td>
<td>6-Month</td>
<td>12-Month</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro area 13 Total</td>
<td>0.1%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>4.4%</td>
<td>1.8%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.5%</td>
<td>1.8%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nonfood</td>
<td>0.0%</td>
<td>0.5%</td>
<td>0.8%</td>
<td>5.0%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Textiles</td>
<td>#N/A</td>
<td>0.2%</td>
<td>1.2%</td>
<td>2.4%</td>
<td>7.6%</td>
<td>6.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">HH goods</td>
<td>#N/A</td>
<td>1.1%</td>
<td>0.4%</td>
<td>-5.1%</td>
<td>2.8%</td>
<td>5.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Books news</td>
<td>#N/A</td>
<td>0.9%</td>
<td>0.3%</td>
<td>1.1%</td>
<td>2.4%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Pharmaceutical</td>
<td>#N/A</td>
<td>0.4%</td>
<td>0.5%</td>
<td>1.3%</td>
<td>3.7%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other Nonspecialized</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Mail Order</td>
<td>1.4%</td>
<td>-1.8%</td>
<td>3.0%</td>
<td>-17.5%</td>
<td>2.2%</td>
<td>-0.2%</td>
</tr>
<tr>
<td colspan="7"> Nonfood Country detail: Volume</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.1%</td>
<td>0.0%</td>
<td>3.5%</td>
<td>24.9%</td>
<td>0.8%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.3%</td>
<td>7.4%</td>
<td>6.6%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy (Total Value)</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>-0.5%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK (EU)</td>
<td>-0.1%</td>
<td>0.7%</td>
<td>1.7%</td>
<td>9.8%</td>
<td>6.7%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td colspan="7">Shaded areas calculated on a one-month lag due to lagging data.</td>
</tr>
<tr class="odd">
<td colspan="7">The Euro area 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
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With new figures on retail sales for France and Italy we have a better idea of emerging sales in the Euro area for Q2 2007. With one months data fully out the overall retail volume trend is advancing, even if it is weaker year-over- [...]

European Retail Sales

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621a.jpg" width="353">
Initial unemployment insurance claims moved higher last week by 10,000 to 324,000 after increases of 2,000 and 3,000 during the prior two weeks. 
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The latest weekly figure covers the survey period for June payroll employment and claims rose 28,000 (9.5%) from the May survey period.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621b.jpg" width="353">
The four-week moving average of initial claims rose slightly to 314,500 (1.0% y/y).
Continuing claims for unemployment insurance increased 39,000 following a 46,000 decline during the week prior.
The insured rate of unemployment remained at 1.9%, about where it&#39;s beensince February.
What Do Worker Flows Tell Us About Cyclical Fluctuations in Employment? from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/br/2007/q2/fujita_worker-flows.pdf">here</a>. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">06/16/07</th>
<th scope="col">06/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>324</td>
<td>314</td>
<td>3.8%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,523</td>
<td>3.4%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
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Initial unemployment insurance claims moved higher last week by 10,000 to 324,000 after increases of 2,000 and 3,000 during the prior two weeks. During the last ten years there has been a (negative) 77% correlation between the level [...]

Initial Claims for Unemployment Insurance Higher

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/070620a.jpg" width="353">
Several European countries today reported their PPI data for May. After considerable upward pressure during 2005 and 2006, Germany has experienced some relief that began last autumn. For May, the total PPI was up 0.3%, following just 0.1% in April and the index stands 1.9% above a year ago.
Estonia and Slovenia, by contrast, are presently seeing greater wholesale price pressure than previously. Estonia&#39;s overall index was up 0.5% in May and is ahead of May 2006 by 8.7%. In Slovenia, it&#39;s a little better, with 0.4% in May and 5.1% over the year ago.
Energy, as elsewhere, makes a difference in all three countries. Germany&#39;s energy costs rose dramatically from mid-2004 through summer of 2006, erratically, to be sure, but with a strong trend. Then, inflation in that sector slowed notably in the autumn and continued easing, so that now, the status of energy costs shows them modestly below year-ago levels. Other prices have firmed somewhat since 2004. This may be related to higher energy costs, but probably also to higher prices for other raw materials, especially metals.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070620b.jpg" width="353">
The pattern in Estonia and Slovenia is different. It appears that in those regions, energy prices were restrained initially. In fact, in Estonia, they were cut in early 2005. Now, however, at least some of the higher world cost of energy is making its way into manufacturers&#39; prices. So producer prices overall just began to reflect this in early 2006 and, with the added push of other raw materials, they continue to accelerate now.
In Slovenia, prices in energy-related industries were raised in early 2004, then held back until this year. They jumped 12.5% this February and have crept somewhat higher since then. Some of this movement is apparently generated by utilities, an area where prices are often administered, which would account for the lurches in its path.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070620c.jpg" width="353">
So we see that even if the full impact of higher energy costs is postponed, it eventually must hit, contributing to increases in overall price measures. At the same time, we continue to see only limited evidence that non-energy prices have been impacted. They are probably as susceptible to moves in industrial commodity prices as to those in energy goods and services; this would be a good empirical question for some interested econometrician.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Producer Price Indexes</th>
<th scope="col">May 2007*</th>
<th scope="col">Apr 2007*</th>
<th scope="col">Mar 2007*</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.3</td>
<td>0.1</td>
<td>0.2</td>
<td>1.9</td>
<td>5.5</td>
<td>4.6</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ex Energy</td>
<td>0.2</td>
<td>0.4</td>
<td>0.1</td>
<td>2.7</td>
<td>2.3</td>
<td>2.0</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy (NSA)</td>
<td>0.7</td>
<td>-0.8</td>
<td>0.4</td>
<td>-0.3</td>
<td>16.0</td>
<td>14.0</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Estonia</td>
<td>0.5</td>
<td>1.5</td>
<td>0.6</td>
<td>8.7</td>
<td>4.5</td>
<td>2.1</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>0.6</td>
<td>0.3</td>
<td>0.5</td>
<td>6.9</td>
<td>1.9</td>
<td>-1.5</td>
<td>3.5</td>
</tr>
<tr>
<td class="firstcol">Slovenia</td>
<td>0.4</td>
<td>0.0</td>
<td>0.5</td>
<td>5.1</td>
<td>2.3</td>
<td>2.7</td>
<td>4.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy-related</td>
<td>0.3</td>
<td>0.8</td>
<td>1.2</td>
<td>11.3</td>
<td>2.8</td>
<td>1.5</td>
<td>6.2</td>
</tr>
</tbody>
</table>
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Several European countries today reported their PPI data for May. After considerable upward pressure during 2005 and 2006, Germany has experienced some relief that began last autumn. For May, the total PPI was up 0.3%, following just [...]

European PPIs: Energy Hits Early in Germany and Relief Is Already Evident; Estonia and Slovenia Postpone Impact, [...]

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070619b.jpg" width="353">
The ZEW indicator that measures the balance of opinion among German institutional investors and analysts on the outlook six months ahead fell to 20.3% in June from 24% in May. The consensus expectation was for a rise to 29%. At the same time the balance of opinion on current conditions rose to a record of 88.7%, as shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070619c.jpg" width="353">
Some of the events that took place and some of the data that were released during the period, June 4th to June 18th, when the participants of the survey were asked for their opinions, may help explain the decline in the optimists over the pessimists.
The European Central Bank raised its official rate to 4% on June 6 and suggested further increases might be in the offing. The yield on the ten year government bond, which had been rising moderately since March, jumped by 8 basis points on June 8th. Although it has since recovered, the Frankfurt Xetra Dax Index declined 2.4% in the one day of June 6. The second chart shows the ten year government bond yield and the stock market index on a daily basis for the last year and a half.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070619d.jpg" width="353">
During the survey period it was revealed that the volume of manufacturing sales had declined 3.07% in April from March and that the volume of new orders for April was 1.17% below March. Moreover, April industrial production was down 2.27% from March. On the cost side, unit labor costs were up sharply, 4.25%, in April from March.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW INDICATOR&nbsp; (% BALANCE)&nbsp;</th>
<th scope="col">Jun &nbsp; 07</th>
<th scope="col">May&nbsp; 07&nbsp;</th>
<th scope="col">Jun &nbsp; 06</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>88.7</td>
<td>88.0</td>
<td>11.9</td>
<td>0.7</td>
<td>76.8</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations 6 months ahead</td>
<td>20.3</td>
<td>24.0</td>
<td>37.8</td>
<td>-3.7</td>
<td>-17.5</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr>
<td class="firstcol">ECONOMIC INDICATORS&nbsp; (2000=100)</td>
<td>Apr&nbsp;&nbsp; 07</td>
<td>Mar&nbsp; 07&nbsp;</td>
<td>Apr&nbsp;&nbsp; 06</td>
<td>M/M %</td>
<td>Y/Y %</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="odd">
<td class="firstcol"> Manufacturing Sales</td>
<td>116.9</td>
<td>120.6</td>
<td>111.6</td>
<td>-3.07</td>
<td>4.75</td>
<td>113.3</td>
<td>106.3</td>
<td>103.0</td>
</tr>
<tr class="odd">
<td class="firstcol"> Manufacturing New Orders </td>
<td>127.0</td>
<td>128.5</td>
<td>117.7</td>
<td>-1.17</td>
<td>7.90</td>
<td>119.0</td>
<td>108.7</td>
<td>103.2</td>
</tr>
<tr class="odd">
<td class="firstcol"> Industrial Production </td>
<td>112.1</td>
<td>114.7</td>
<td>108.1</td>
<td>-2.27</td>
<td>3.70</td>
<td>109.8</td>
<td>103.7</td>
<td>100.8</td>
</tr>
<tr class="odd">
<td class="firstcol"> Unit Labor Cost </td>
<td>93.2</td>
<td>89.4</td>
<td>93.0</td>
<td>4.25</td>
<td>0.22</td>
<td>91.8</td>
<td>95.9</td>
<td>99.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The ZEW indicator that measures the balance of opinion among German institutional investors and analysts on the outlook six months ahead fell to 20.3% in June from 24% in May. The consensus expectation was for a rise to 29%. At the [...]

German Financial Community Turns Less Optimistic

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070615i.jpg" width="353">
Private net securities purchases by foreigners continues to be an important part of financing the US current account deficit. 
Exports have built stronger growth than imports and driven the deficit lower over the past four quarters. Services exports also are growing faster than imports. The memo item in the table shows that in addition to solid private net securities purchases in Q1 official purchases of Government securities ran strong in 2007-Q1. While the dollar is drifting and weak vs. the euro it has moved up to a 4 &frac12; year high vs yen supported by inflows such as these. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
US Current Account
</tr>
</thead>
<tbody>
<tr class="grey6">
<td class="firstcol">Balances:</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>4Qtr-Avg</td>
<td>Prev4Qtr</td>
</tr>
<tr class="grey5">
<td class="firstcol">Current Account</td>
<td>-192.6</td>
<td>-187.9</td>
<td>-217.3</td>
<td>-200.9</td>
<td>-193.3</td>
</tr>
<tr class="grey5">
<td class="firstcol">Trade</td>
<td>-200.9</td>
<td>-200.3</td>
<td>-218.9</td>
<td>-207.8</td>
<td>-202.6</td>
</tr>
<tr class="grey5">
<td class="firstcol">Services</td>
<td>34.4</td>
<td>33.1</td>
<td>25.4</td>
<td>30.6</td>
<td>29.8</td>
</tr>
<tr class="grey4">
<td class="firstcol">Growth Rates</td>
<td colspan="3">Quarterly Saar</td>
<td colspan="2">4-Qtr % for Yr Ended:</td>
</tr>
<tr class="grey3">
<td class="firstcol">Merchandise</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>Q1-07</td>
<td>Q1-06</td>
</tr>
<tr class="grey5">
<td class="firstcol">Exports</td>
<td>5.6%</td>
<td>9.9%</td>
<td>13.0%</td>
<td>10.8%</td>
<td>13.8%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Imports</td>
<td>3.6%</td>
<td>-9.9%</td>
<td>14.0%</td>
<td>4.3%</td>
<td>13.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services</td>
<td>Q1-07</td>
<td>Q4-06</td>
<td>Q3-06</td>
<td>Q1-07</td>
<td>Q1-06</td>
</tr>
<tr class="grey5">
<td class="firstcol">Exports</td>
<td>6.1%</td>
<td>22.8%</td>
<td>5.8%</td>
<td>10.9%</td>
<td>7.8%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Imports</td>
<td>4.7%</td>
<td>8.3%</td>
<td>2.7%</td>
<td>6.0%</td>
<td>9.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Memo: ($-Blns)</td>
<td>Q4-03</td>
<td>Q3-03</td>
<td>Q2-03</td>
<td>4Qtr-Avg</td>
<td>Prev4Qtr</td>
</tr>
<tr class="grey5">
<td class="firstcol">Offical Gov&#39;t Securities Purchases</td>
<td>106.3</td>
<td>94.8</td>
<td>108.0</td>
<td>93.7</td>
<td>71.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Private net securities purchases by foreigners continues to be an important part of financing the US current account deficit. Exports have built stronger growth than imports and driven the deficit lower over the past four quarters. [...]

The US Current Account Deficit Rises Slightly in 2007

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070613g.jpg" width="353">
Q1 GDP in Brazil grew 3.1% from Q4 (seasonally adjusted) and 4.3% from the year earlier. This represents a modest slowing from recent performance, as the 3.1% follows 12 quarters that averaged 4.4%. Still, the Brazilian economy looks to be on a strong trend overall.
<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070613h.jpg" width="353"> Fixed investment and exports were the main drivers of growth in Q1. Investment expanded at an 8.9% rate up from 7.5% in Q4. Exports swung from a decrease of 4.7% in Q4 to an increase of the same size in Q1. Exports are moderating from a period of rapid, but erratic, expansion that ran from late 2002 through Q3 2006. Possibly a strengthening currency is starting to be felt in export markets, or simply, after such strong growth, some consolidation is occurring. The strong currency argument has some force however in the trend of imports, which surged ahead at a 17.5% annual rate in Q1 and were almost 20% higher than the year-ago quarter.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070613i.jpg" width="353">
Consumer spending was up &quot;only&quot; 3.7% in Q1, but had risen considerably more in prior quarters, putting it up 6.0% over the past year.
We&#39;ll admit some surprise at the strength in Brazil (although analysts who follow it closely had projected slightly faster Q1 growth, according to one press report) but several conditions are favorable. Inflation, although above its lows, has diminished significantly from spurts in 2002-3 and 2004-5. The currency, in turn, has strengthened, as seen in the last graph here, where it fell just below 2 reais per US dollar in May, the most favorable exchange rate since early 2001, to say nothing of the mid-1990s periods of revaluation. So the Brazilian economy is settling and stabilizing. Haver and NTC Economics recently added a PMI index for manufacturing and a number of clients were anxious to get a look at it, even though there are only 15 months of history -- the May value was just above 54%, suggesting moderately widespread growth of manufacturing activity. But the point is that there is widening interest in the Brazilian economy, a diverse place with mineral resources and 187 million people (all told; a labor force count says there are just over 40 million people in the major urban areas, comparable to Argentina&#39;s 35.3 million). 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">BRAZIL</th>
<th scope="col">Q1 2007*</th>
<th scope="col">Q4 2006*</th>
<th scope="col">Year Ago*</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP (1995=100)</td>
<td>134.81</td>
<td>133.80</td>
<td>129.38</td>
<td>132.12</td>
<td>126.47</td>
<td>122.86</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>3.1</td>
<td>4.3</td>
<td>4.3</td>
<td>3.7</td>
<td>2.9</td>
<td>5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Consumption</td>
<td>3.7</td>
<td>6.8</td>
<td>6.0</td>
<td>4.3</td>
<td>4.7</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">Gross Fixed Investment</td>
<td>8.9</td>
<td>7.5</td>
<td>7.2</td>
<td>8.7</td>
<td>3.6</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>4.7</td>
<td>-4.7</td>
<td>5.9</td>
<td>4.6</td>
<td>10.1</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>17.5</td>
<td>16.1</td>
<td>19.9</td>
<td>18.1</td>
<td>9.3</td>
<td>14.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Q1 GDP in Brazil grew 3.1% from Q4 (seasonally adjusted) and 4.3% from the year earlier. This represents a modest slowing from recent performance, as the 3.1% follows 12 quarters that averaged 4.4%. Still, the Brazilian economy looks [...]

Brazil's Q1 GDP Growth Eases, but Remains Surprisingly Buoyant; Fixed Investment Leads

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Trade and fiscal policy uncertainty has exploded with the new administration

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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.

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

250501H20.jpg

250501I20.jpg

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

U.S. Light Vehicle Sales Fall in April

250501J5.jpg

250501K5.jpg

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.

250501L5.jpg

250501M5.jpg

- 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

250501N.jpg

250501O.jpg

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**.

250501P.jpg

250501Q.jpg

- 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

250501A8.jpg

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

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

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

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

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

250501C8.jpg

250501D8.jpg

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

Economy in Brief: June 2007

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European Retail Sales

Initial Claims for Unemployment Insurance Higher

Initial Claims for Unemployment Insurance Higher

European PPIs: Energy Hits Early in Germany and Relief Is Already Evident; Estonia and Slovenia Postpone Impact, [...]

European PPIs: Energy Hits Early in Germany and Relief Is Already Evident; Estonia and Slovenia Postpone Impact, [...]

German Financial Community Turns Less Optimistic

The US Current Account Deficit Rises Slightly in 2007

Brazil's Q1 GDP Growth Eases, but Remains Surprisingly Buoyant; Fixed Investment Leads