Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818f.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector in August from the Philadelphia Fed added to the prior month&#39;s gain and rose to 17.5, the highest level since April. Consensus expectations had been for a lesser improvement to 14.0.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub indexes measuring new orders and shipments led with gains to the highest levels since April. The index covering the number of employees also rose. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818g.jpg" width="353">
The separate index of expected business conditions in six months jumped to its best level this year led by expectations of increased hiring.
The prices paid index slipped and gave back a piece of the moderate improvement in July. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0805.html">here</a>.

<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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>17.5</td>
<td>9.6</td>
<td>29.2</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>25.9</td>
<td>26.5</td>
<td>54.3</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
</body>
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The Index of General Business Conditions in the manufacturing sector in August from the Philadelphia Fed added to the prior month's gain and rose to 17.5, the highest level since April. Consensus expectations had been for a lesser [...]

Philadelphia Fed Index Improved Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818b.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board rose 0.1% during July following a upwardly revised 1.2% jump in June. Six-month growth in the leaders improved to 2.2%, the best since February.
The breadth of one month gain amongst the 10 components of the leading index slipped to 65% from 85% during June. A wider interest rate spread between the yield on 10 Year Treasuries &amp; Fed Funds, higher stock prices and fewer claims for unemployment insurance made the largest positive contributions to the leader&#39;s July increase.
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818c.jpg" width="353">
The coincident indicators rose 0.1% (2.6% y/y) with each of the four components up during the last three months.
The lagging indicators rose 0.3%, the same as during the prior month.
As higher short term interest rates and faster growth in the services CPI have raised the lagging indicators versus earlier declines, the ratio of coincident to lagging indicators has moved sideways this year and is down sharply from the December &#39;04 peak. The ratio measures actual economic performance against economic excess.
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.
The July 2005 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200508/default.htm"> here</a>.

<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">July</th>
<th scope="col">June</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>0.1%</td>
<td>1.2%</td>
<td>2.2%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Composite Index of Leading Economic Indicators reported by the Conference Board rose 0.1% during July following a upwardly revised 1.2% jump in June. Six-month growth in the leaders improved to 2.2%, the best since February. The [...]

Leading Indicators Rose Again in July

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818a.jpg" width="353">
Initial claims for unemployment insurance increased 6,000 to 316,000 last week and reversed a revised 5,000 decline the week earlier. Consensus expectations had been for 310,000 claims.
Despite the increase, initial claims in August are 1.6% below the July average, however, the latest figure covers the survey week for August nonfarm payrolls and is up 3.6% from the July period.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment.
The four week moving average of initial claims rose to 312,750 (-7.2% y/y).
Continuing claims for unemployment insurance rose 28,000 following a deepened 16,000 decline one week earlier.
The insured unemployment rate remained at the four year low of 2.0% for the fifth consecutive week.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">08/13/05</th>
<th scope="col">08/06/05</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">Initial Claims</td>
<td>316</td>
<td>310</td>
<td>-5.1%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,593</td>
<td>-10.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance increased 6,000 to 316,000 last week and reversed a revised 5,000 decline the week earlier. Consensus expectations had been for 310,000 claims. Despite the increase, initial claims in August [...]

Unemployment Insurance Claims Suggest Positive Job Growth

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818f.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector in August from the Philadelphia Fed added to the prior month&#39;s gain and rose to 17.5, the highest level since April. Consensus expectations had been for a lesser improvement to 14.0.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub indexes measuring new orders and shipments led with gains to the highest levels since April. The index covering the number of employees also rose. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818g.jpg" width="353">
The separate index of expected business conditions in six months jumped to its best level this year led by expectations of increased hiring.
The prices paid index slipped and gave back a piece of the moderate improvement in July. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0805.html">here</a>.

<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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>17.5</td>
<td>9.6</td>
<td>29.2</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>25.9</td>
<td>26.5</td>
<td>54.3</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
Leading Indicators Rose Again in July 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 18, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818b.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board rose 0.1% during July following a upwardly revised 1.2% jump in June. Six-month growth in the leaders improved to 2.2%, the best since February.
The breadth of one month gain amongst the 10 components of the leading index slipped to 65% from 85% during June. A wider interest rate spread between the yield on 10 Year Treasuries &amp; Fed Funds, higher stock prices and fewer claims for unemployment insurance made the largest positive contributions to the leader&#39;s July increase.
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818c.jpg" width="353">
The coincident indicators rose 0.1% (2.6% y/y) with each of the four components up during the last three months.
The lagging indicators rose 0.3%, the same as during the prior month.
As higher short term interest rates and faster growth in the services CPI have raised the lagging indicators versus earlier declines, the ratio of coincident to lagging indicators has moved sideways this year and is down sharply from the December &#39;04 peak. The ratio measures actual economic performance against economic excess.
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.
The July 2005 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200508/default.htm"> here</a>.

<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">July</th>
<th scope="col">June</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>0.1%</td>
<td>1.2%</td>
<td>2.2%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
Unemployment Insurance Claims Suggest Positive Job Growth 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 18, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050811b.jpg" width="353">
Initial claims for unemployment insurance increased 6,000 to 316,000 last week and reversed a revised 5,000 decline the week earlier. Consensus expectations had been for 310,000 claims.
Despite the increase, initial claims in August are 1.6% below the July average, however, the latest figure covers the survey week for August nonfarm payrolls and is up 3.6% from the July period.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment.
The four week moving average of initial claims rose to 312,750 (-7.2% y/y).
Continuing claims for unemployment insurance rose 28,000 following a deepened 16,000 decline one week earlier.
The insured unemployment rate remained at the four year low of 2.0% for the fifth consecutive week.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">08/13/05</th>
<th scope="col">08/06/05</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">Initial Claims</td>
<td>316</td>
<td>310</td>
<td>-5.1%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,593</td>
<td>-10.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
"Crack Spread" Widens for Oil Refiners, But Percentage Premium in Gasoline and Oil Values Is Not "High" 
by <a href="/comment/Stone.html">Carol Stone</a> August 18, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818d.jpg" width="353">
The current extraordinary developments in the energy sector are teaching all of us new ideas and concepts. One of these recently called to our attention by a client is the refinery crack spread. Besides the surging price of crude oil, refiners are currently also able to increase the spread they receive from breaking the crude into its products, or &quot;cracking&quot; it. The common measure of this process assumes that a barrel of crude is broken two-thirds into gasoline and one-third into fuel oil -- or 3 barrels of crude make 2 barrels of gasoline and 1 barrel of fuel oil. This spread is thus called the &quot;3-2-1 crack spread&quot;. This is such a common measure that there is futures market for it on the NYMEX, alongside crude and gasoline futures. Haver carries data for this in its OILWKLY database, which is supplied by the &quot;Oil &amp; Gas Journal&quot;.
The table below shows 1-month futures information: the estimated value of the gasoline and fuel oil produced by refiners and the resulting crack spread compared with the nearby future for West Texas Intermediate crude oil. We see that through last week, crude oil prices have risen 43.4% from a year ago while the refiners&#39; crack spread has more than doubled from about $6.85/barrel to $14.06. The spread now adds a premium of 21.7% to the crude price compared with 15.1% a year ago. This is wide relative to the most recent past, but historical data show that this margin has been as high as nearly 49% with several periods sustained around 23-24%. So current values are hardly unprecedented, at least on a relative basis.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818e.jpg" width="353">
The other point clearly evident in both of our charts is the volatility of the crack spread from week to week. Such swings make it easy to see that refiners would want a futures market to hedge the spread, particularly given the substantial fixed costs of a refining plant. As refiners seek to cover these costs, plus labor and supplies, they face not only widely swinging crude oil prices, but also a margin on refining operations that is far from stable. One disclaimer: it is necessary to note also that relationships among these price measures are not exact. Other products come from the refining process -- residual fuel oil, jet fuel and gas oil are three notable ones -- so that the spread measure that includes only gasoline and distillate fuel oil is only a proxy, albeit a handy, easily understood one. Its recent widening indicates that demand for gasoline and fuel oil has been an important force supporting product prices: gasoline users have -- at least up to now -- been willing to pay these prices. With daily increases in gasoline, though, one wonders how long that will continue.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">1-Month Futures, $/Barrel</th>
<th scope="col">Aug 12, 2005</th>
<th scope="col">May 13, 2005</th>
Aug 13, 2004
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">$</td>
<td>Yr/Yr %</td>
</tr>
<tr>
<td class="firstcol">Crude Oil, WTI</td>
<td>64.91</td>
<td>50.35</td>
<td>45.25</td>
<td>43.4%</td>
<td>41.29</td>
<td>30.98</td>
<td>26.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Estimated Product Value</td>
<td>78.974</td>
<td>60.576</td>
<td>52.096</td>
<td>51.6%</td>
<td>48.985</td>
<td>36.755</td>
<td>30.580</td>
</tr>
<tr>
<td class="firstcol">Crack Spread</td>
<td>14.060</td>
<td>10.224</td>
<td>6.848</td>
<td>105.32%</td>
<td>7.690</td>
<td>5.782</td>
<td>4.537</td>
</tr>
<tr class="odd">
<td class="firstcol">Spread as % of Crude Price</td>
<td>21.7%</td>
<td>20.3%</td>
<td>15.1%</td>
<td>+6.6%</td>
<td>19.1%</td>
<td>18.7%</td>
<td>17.6%</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818f.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector in August from the Philadelphia Fed added to the prior month&#39;s gain and rose to 17.5, the highest level since April. Consensus expectations had been for a lesser improvement to 14.0.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub indexes measuring new orders and shipments led with gains to the highest levels since April. The index covering the number of employees also rose. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818g.jpg" width="353">
The separate index of expected business conditions in six months jumped to its best level this year led by expectations of increased hiring.
The prices paid index slipped and gave back a piece of the moderate improvement in July. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0805.html">here</a>.

<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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>17.5</td>
<td>9.6</td>
<td>29.2</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>25.9</td>
<td>26.5</td>
<td>54.3</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
Producer Prices Doubled Expectations 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 17, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817b.jpg" width="353">
In July a 1.0% rise in the producer price index for finished goods was double Consensus expectations for a 0.5% increase, though it followed no change in prices one month earlier.
Also double Consensus expectations was the 0.4% gain in prices excluding food &amp; energy prices which followed a slight decline in June.
The surprise stemmed mostly from a 1.5% increase in passenger car prices versus the 1.0% decline tallied by the survey of consumer prices. The gain lifted core finished consumer good prices 0.4% (+2.9% y/y). Consumer durable goods prices increased 0.6% (1.6% y/y) and core consumer nondurable goods prices rose 0.2% (3.8% y/y).
Capital goods prices also rose a strong 0.5% (2.6% y/y) due to a 1.4% (-1.8% y/y) jump in light truck prices as well as a 1.0% (6.1% y/y) surge in civilian aircraft.
Finished energy prices doubled the prior month&#39;s increase and rose 4.4% (15.2% y/y) lifted by a 10.9% (29.6% y/y) surge in gasoline prices, a 3.7% (11.1% y/y) increase in natural gas and a 5.1% (58.6% y/y) spike in home heating oil.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817a.jpg" width="353">
Intermediate goods prices also rose a strong 1.0% due to strength in energy prices, up 5.2%. Core intermediate goods prices, however, declined for the third consecutive month. The 0.1% decline in July was led by lower prices for containers and durable manufacturing materials which fell for the fifth consecutive month.
Crude prices reflected the strength in energy prices, up 12.8%, and rose 6.7%. Core crude prices also were strong following two months of sharp decline. Iron &amp; steel scrap prices rose 2.7% (-34.2% y/y) but they are down 46.8% from the peak last November. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
The Monetary Policy Transmission Mechanism? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20050901/cover.pdf"> here</a>.

<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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">July</th>
<th scope="col">June</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">Finished Goods</td>
<td>1.0%</td>
<td>0.0%</td>
<td>4.6%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.0%</td>
<td>0.1%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>-3.3%</td>
<td>8.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>3.1%</td>
<td>-4.3%</td>
<td>-2.2%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
Mortgage Applications Down With Less Refinancing 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 17, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817c.jpg" width="353">
Total mortgage applications rose last week for the first time following three consecutive weeks of decline according to the Mortgage Bankers Association. The 2.2% w/w increase nevertheless left applications in August 4.7% below July which fell 1.4% from June.
Purchase applications ticked up 0.1% last week and in August are 0.7% above the July average which rose 0.9% versus June. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales. Mortgage applications to refinance recovered 5.0% w/w following several weeks of sharp decline.
The effective interest rate on a conventional 30-year mortgage backpedaled to 6.03% from 6.16% the prior week. The effective rate on a 15-year mortgage also fell to 5.72%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Monetary Policy and Asset Price Bubbles from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-18.pdf">here</a>.

<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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/12/05</th>
<th scope="col">08/05/05</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>761.3</td>
<td>745.0</td>
<td>10.4%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>499.3</td>
<td>498.8</td>
<td>6.9%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,285.5</td>
<td>2,176.5</td>
<td>15.3%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
UK Employment Basically Flat through May, Jobless Benefit Claims Creeping Higher 
by <a href="/comment/Stone.html">Carol Stone</a> August 17, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817d.jpg" width="353">
UK labor markets have moved little in the last few months. We last wrote about the Labor Force Survey in April, covering the February information. The unemployment rate then was 4.7% and it has remained at that level or at 4.8% through May. Employment has also held within a tight range: it reached a peak of 28.64 million in January, and has lost 5,000 on net in the succeeding four months; most recently, it gained 25,000 from the April data to May. All of these figures are centered 3-month moving averages, so this specific report released today by the Office of National Statistics (ONS) covers April, May and June, that is, the second quarter.
Press reports and the ONS itself prefer to emphasize these comparisons with three months ago. Over that time span, despite the flat unemployment rate, the number unemployed rose 27,000 and the number of people employed fell 16,000, a weaker-than-desirable performance. Additionally, the number of people claiming jobless benefits, the so-called claimant count, has increased; 866,000 people filed for benefits in July (a figure for the single month, not a multi-period average), a sixth consecutive increase totaling about 52,000. As seen in the second graph, such upturns are not frequent, although those associated with business cycles have generally been more pointed with an abrupt steep rise. So while this current modest rise is not encouraging, neither is it a clear sign of a negative direction for the UK economy. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817e.jpg" width="353">
A Bank of England action earlier this month reflected the same kind of ambivalence. On August 4, the Bank reduced its repo rate from 4.75% to 4.50%; the minutes of that monetary policy meeting, which were published today, reveal that the vote was 5 to 4, with the Bank&#39;s Governor, Mervyn King, in the dissenting minority. This is the first time that the head of the Bank was on the short end of such a policy vote since the BoE became independent of the UK Treasury in 1997. In the United States, this has probably not ever happened, with just one near-miss to our recollection, during the Paul Volcker era in the early 1980s. Mr. King was concerned about inflation more than unemployment, and in fact, the consumer price data for July, issued yesterday, show a similar picture to that in the United States. Total CPI for the UK was up 2.3% year-on-year through July, but the index excluding energy is up &quot;just&quot; 1.9%. [US price numbers, recall, were up 0.5% in the month, but only just over 0.1% excluding food and energy.] The UK core inflation rate itself is increasing. It is not hard to see that the BoE governor and officers might have anticipated such an unpleasant combination as higher inflation and a stalling labor market and so moved very gingerly to alter their policy position.

<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/UK/UK.HTM">UK Labor Force Survey</a> All seasonally adjusted</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</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">Unemployment Rate (%)</td>
<td></td>
<td>&nbsp;</td>
<td>4.7*</td>
<td>4.8*</td>
<td>4.7</td>
<td>5.0</td>
<td>5.2</td>
</tr>
<tr>
<td class="firstcol">Claimant Count (thous)</td>
<td>866</td>
<td>863</td>
<td>856</td>
<td>842</td>
<td>854</td>
<td>933</td>
<td>947</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (mil)</td>
<td></td>
<td>&nbsp;</td>
<td>28.59*</td>
<td>28.57*</td>
<td>28.44</td>
<td>28.18</td>
<td>27.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Change (thous)</td>
<td></td>
<td>&nbsp;</td>
<td>+25K</td>
<td>-11K</td>
<td>+0.9%</td>
<td>+0.9%</td>
<td>+0.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Earnings Index Incl Bonuses: &quot;Headline Rate&quot;(%)**</td>
<td></td>
<td>4.2</td>
<td>4.1</td>
<td>4.6</td>
<td>4.4</td>
<td>3.4</td>
<td>3.5</td>
</tr>
<tr>
<td class="firstcol">Average Earnings Index Ex Bonuses: &quot;Headline Rate&quot; (%)**</td>
<td></td>
<td>4.0</td>
<td>4.0</td>
<td>4.1</td>
<td>4.2</td>
<td>3.6</td>
<td>4.0</td>
</tr>
</tbody>
</table>
</body>
</html>

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/050817d.jpg" width="353">
UK labor markets have moved little in the last few months. We last wrote about the Labor Force Survey in April, covering the February information. The unemployment rate then was 4.7% and it has remained at that level or at 4.8% through May. Employment has also held within a tight range: it reached a peak of 28.64 million in January, and has lost 5,000 on net in the succeeding four months; most recently, it gained 25,000 from the April data to May. All of these figures are centered 3-month moving averages, so this specific report released today by the Office of National Statistics (ONS) covers April, May and June, that is, the second quarter.
Press reports and the ONS itself prefer to emphasize these comparisons with three months ago. Over that time span, despite the flat unemployment rate, the number unemployed rose 27,000 and the number of people employed fell 16,000, a weaker-than-desirable performance. Additionally, the number of people claiming jobless benefits, the so-called claimant count, has increased; 866,000 people filed for benefits in July (a figure for the single month, not a multi-period average), a sixth consecutive increase totaling about 52,000. As seen in the second graph, such upturns are not frequent, although those associated with business cycles have generally been more pointed with an abrupt steep rise. So while this current modest rise is not encouraging, neither is it a clear sign of a negative direction for the UK economy. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817e.jpg" width="353">
A Bank of England action earlier this month reflected the same kind of ambivalence. On August 4, the Bank reduced its repo rate from 4.75% to 4.50%; the minutes of that monetary policy meeting, which were published today, reveal that the vote was 5 to 4, with the Bank&#39;s Governor, Mervyn King, in the dissenting minority. This is the first time that the head of the Bank was on the short end of such a policy vote since the BoE became independent of the UK Treasury in 1997. In the United States, this has probably not ever happened, with just one near-miss to our recollection, during the Paul Volcker era in the early 1980s. Mr. King was concerned about inflation more than unemployment, and in fact, the consumer price data for July, issued yesterday, show a similar picture to that in the United States. Total CPI for the UK was up 2.3% year-on-year through July, but the index excluding energy is up &quot;just&quot; 1.9%. [US price numbers, recall, were up 0.5% in the month, but only just over 0.1% excluding food and energy.] The UK core inflation rate itself is increasing. It is not hard to see that the BoE governor and officers might have anticipated such an unpleasant combination as higher inflation and a stalling labor market and so moved very gingerly to alter their policy position.

<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/UK/UK.HTM">UK Labor Force Survey</a> All seasonally adjusted</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</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">Unemployment Rate (%)</td>
<td></td>
<td>&nbsp;</td>
<td>4.7*</td>
<td>4.8*</td>
<td>4.7</td>
<td>5.0</td>
<td>5.2</td>
</tr>
<tr>
<td class="firstcol">Claimant Count (thous)</td>
<td>866</td>
<td>863</td>
<td>856</td>
<td>842</td>
<td>854</td>
<td>933</td>
<td>947</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (mil)</td>
<td></td>
<td>&nbsp;</td>
<td>28.59*</td>
<td>28.57*</td>
<td>28.44</td>
<td>28.18</td>
<td>27.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Change (thous)</td>
<td></td>
<td>&nbsp;</td>
<td>+25K</td>
<td>-11K</td>
<td>+0.9%</td>
<td>+0.9%</td>
<td>+0.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Earnings Index Incl Bonuses: &quot;Headline Rate&quot;(%)**</td>
<td></td>
<td>4.2</td>
<td>4.1</td>
<td>4.6</td>
<td>4.4</td>
<td>3.4</td>
<td>3.5</td>
</tr>
<tr>
<td class="firstcol">Average Earnings Index Ex Bonuses: &quot;Headline Rate&quot; (%)**</td>
<td></td>
<td>4.0</td>
<td>4.0</td>
<td>4.1</td>
<td>4.2</td>
<td>3.6</td>
<td>4.0</td>
</tr>
</tbody>
</table>
</body>
</html>

UK labor markets have moved little in the last few months. We last wrote about the Labor Force Survey in April, covering the February information. The unemployment rate then was 4.7% and it has remained at that level or at 4.8% [...]

UK Employment Basically Flat through May, Jobless Benefit Claims Creeping Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817c.jpg" width="353">
Total mortgage applications rose last week for the first time following three consecutive weeks of decline according to the Mortgage Bankers Association. The 2.2% w/w increase nevertheless left applications in August 4.7% below July which fell 1.4% from June.
Purchase applications ticked up 0.1% last week and in August are 0.7% above the July average which rose 0.9% versus June. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales. Mortgage applications to refinance recovered 5.0% w/w following several weeks of sharp decline.
The effective interest rate on a conventional 30-year mortgage backpedaled to 6.03% from 6.16% the prior week. The effective rate on a 15-year mortgage also fell to 5.72%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Monetary Policy and Asset Price Bubbles from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-18.pdf">here</a>.

<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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/12/05</th>
<th scope="col">08/05/05</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>761.3</td>
<td>745.0</td>
<td>10.4%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>499.3</td>
<td>498.8</td>
<td>6.9%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,285.5</td>
<td>2,176.5</td>
<td>15.3%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
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Total mortgage applications rose last week for the first time following three consecutive weeks of decline according to the Mortgage Bankers Association. The 2.2% w/w increase nevertheless left applications in August 4.7% below July [...]

Mortgage Applications Down With Less Refinancing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817b.jpg" width="353">
In July a 1.0% rise in the producer price index for finished goods was double Consensus expectations for a 0.5% increase, though it followed no change in prices one month earlier.
Also double Consensus expectations was the 0.4% gain in prices excluding food &amp; energy prices which followed a slight decline in June.
The surprise stemmed mostly from a 1.5% increase in passenger car prices versus the 1.0% decline tallied by the survey of consumer prices. The gain lifted core finished consumer good prices 0.4% (+2.9% y/y). Consumer durable goods prices increased 0.6% (1.6% y/y) and core consumer nondurable goods prices rose 0.2% (3.8% y/y).
Capital goods prices also rose a strong 0.5% (2.6% y/y) due to a 1.4% (-1.8% y/y) jump in light truck prices as well as a 1.0% (6.1% y/y) surge in civilian aircraft.
Finished energy prices doubled the prior month&#39;s increase and rose 4.4% (15.2% y/y) lifted by a 10.9% (29.6% y/y) surge in gasoline prices, a 3.7% (11.1% y/y) increase in natural gas and a 5.1% (58.6% y/y) spike in home heating oil.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817a.jpg" width="353">
Intermediate goods prices also rose a strong 1.0% due to strength in energy prices, up 5.2%. Core intermediate goods prices, however, declined for the third consecutive month. The 0.1% decline in July was led by lower prices for containers and durable manufacturing materials which fell for the fifth consecutive month.
Crude prices reflected the strength in energy prices, up 12.8%, and rose 6.7%. Core crude prices also were strong following two months of sharp decline. Iron &amp; steel scrap prices rose 2.7% (-34.2% y/y) but they are down 46.8% from the peak last November. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
The Monetary Policy Transmission Mechanism? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20050901/cover.pdf"> here</a>.

<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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">July</th>
<th scope="col">June</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">Finished Goods</td>
<td>1.0%</td>
<td>0.0%</td>
<td>4.6%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.0%</td>
<td>0.1%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>-3.3%</td>
<td>8.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>3.1%</td>
<td>-4.3%</td>
<td>-2.2%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

In July a 1.0% rise in the producer price index for finished goods was double Consensus expectations for a 0.5% increase, though it followed no change in prices one month earlier. Also double Consensus expectations was the 0.4% gain [...]

Producer Prices Doubled Expectations

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: August 2005

Jump to:

Philadelphia Fed Index Improved Further

Leading Indicators Rose Again in July

Unemployment Insurance Claims Suggest Positive Job Growth

Philadelphia Fed Index Improved Further

Philadelphia Fed Index Improved Further

UK Employment Basically Flat through May, Jobless Benefit Claims Creeping Higher

Mortgage Applications Down With Less Refinancing

Producer Prices Doubled Expectations