Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822f.jpg" width="353">
Confidence among the German investors and analysts who participate in the ZEW survey, deteriorated sharply in August. Those expecting economic conditions to worsen six months from now outnumbered those expecting improvement by 5.6% in contrast to July when the optimists outnumbered the pessimists by 15.1%. The decline in sentiment was not only greater than the consensus had expected, but has brought confidence to a level well below the long term average (35%) as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822g.jpg" width="353">
While becoming more pessimistic about the outlook, these same investors and analysts continue to view current conditions more favorably. In August, those viewing current conditions as &quot;good&quot; outnumbered those viewing current conditions as &quot;bad&quot; by 33.6% versus 23.3% in July. July was the first month since early 2001 in which the appraisal of current conditions was better than that of expectations. In general the investors and analysts tend to be more optimistic about the future than they are about present conditions as can be seen in the second chart.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany: ZEW Survey of Investors and Analysts</a></th>
<th scope="col">Aug 06</th>
<th scope="col">Jul 06</th>
<th scope="col">Aug 05</th>
<th scope="col">M/M Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp;Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Current Conditions (% balance)</td>
<td>33.6</td>
<td>23.3</td>
<td>-61.1</td>
<td>10.3</td>
<td>94.7</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-97.6</td>
</tr>
<tr>
<td class="firstcol">Expectations of Conditions 6 Months Ahead (% balance)</td>
<td>-5.6</td>
<td>15.1</td>
<td>50.0</td>
<td>-20.7</td>
<td>-55.6</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
</tbody>
</table>
</body>
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Confidence among the German investors and analysts who participate in the ZEW survey, deteriorated sharply in August. Those expecting economic conditions to worsen six months from now outnumbered those expecting improvement by 5.6% in [...]

Confidence in the Future among German Investors and Analysts Dips Sharply

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822b.jpg" width="353">
The above quote from a wise bond trader has been voiced for years by skeptics who wonder why anything as important as the price for energy, food, etc. should be taken out of an inflation measure.
The short answer is that some supply shocks will be short lived. The &quot;core&quot; inflation rate is the rate which will be returned to.
The risk is of this analysis is that it misses two important definitions of the future rate of price inflation. 1) Inflation is governed by the growth of money (demand). 2) Inflation results from too much money chasing too few goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822c.jpg" width="353">
Since 1970 there has been a 67% correlation between the annual growth in the money supply (M2) and the growth in the GDP price deflator two years later.
Inflationary expectations will embody all of the forces that are affecting prices. So while it may be valid to exclude some short term price spike, the calculation misses the lingering effect of how those higher prices affect psychology. And there&#39;s always the possibility of some &quot;policy mistake.&quot; During the 1970s, it was argued that the wealth lost (to OPEC) due to the quadrupling of oil prices needed to be replaced. Money growth was ramped up, and we learned how inflation could be &quot;monetized.&quot;<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822d.jpg" width="353">
The inflation in home prices certainly is an area for study. The price measure of a &quot;constant quality&quot; house published by the Office of Federal Housing Enterprise Oversight (OFFEO) indicated that through the first quarter, home prices rose 12.5% y/y. The consumer price index rental equivalence, however, indicated only a 2.6% gain though that did accelerate last quarter to 3.3%.
Click <a href="http://www.haver.com/COMMENT/Owners%20Equivalent%20Rent%20and%20the%20Cost%20of%20Living.pdf">here</a> for a discussion of Owners Equivalent Rent and the Cost of Living by Federal Reserve Bank of New York economist Charles Steindel. <span style="FONT-SIZE: 10pt; FONT-FAMILY: Verdana; mso-fareast-font-family: &#39;Times New Roman&#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-family: &#39;Times New Roman&#39;">This paper was presented at the Annual Meeting of the National Association for Business Economics (<a href="http://www.nabe.com/">www.nabe.com</a>) and later published in the January 2006 issue of the NABE journal Business Economics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822e.jpg" width="353">
Indeed, the &quot;core&quot; rate of Consumer Price Inflation of 2.7% in July was higher than the 2.2% gain in the measure less homeowners equivalent rent. The divergence certainly would have been higher if the price appreciation in the OFFEO measure were fully reflected in the CPI, but ...
The core issue (pardon the pun) is whether home price inflation, however measured, is impacting the prices of other goods and services. Mortgage Equity Withdrawal (MEW) is a measure available in the Mortgage Market section of Haver&#39;s USECON database and it provides an indication of how money balances (demand) are being impacted by home price inflation.
Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences from the Board of Governors of the Federal Reserve System can be found <a href="http://www.federalreserve.gov/pubs/feds/2005/200541/200541abs.html"> here</a>. 
Reflections on Four Decades of Central Banking, today&#39;s speech by Atlanta Fed President Jack Guynn, can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=367F1CC5-5056-9F12-1235F3179BF494D8&amp;method=display">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/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.2%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.3%</td>
<td>3.7%</td>
<td>2.8%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>1.6%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
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The above quote from a wise bond trader has been voiced for years by skeptics who wonder why anything as important as the price for energy, food, etc. should be taken out of an inflation measure. The short answer is that some supply [...]

"For the CPI excluding everything, inflation is zero."

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<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822a.jpg" width="353">
Last week, chain store sales slipped 0.2% again. The decline was the third consecutive week of lackluster sales, according to the International Council of Shopping Centers (ICSC)-UBS survey, and lowered the latest week&#39;s total 0.4% below the end of July.
Sales in August on average are 0.3% above July due to a strong gain at the end of last month.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS was unchanged (-2.3% y/y) in the latest week after several weeks of decline.
Retail gasoline prices fell for the second consecutive week. The eight cent decline to an average $2.92 (+11.9% y/y) for regular unleaded gas compared to a July average of $2.98. In spot market trading yesterday, regular unleaded gasoline prices dropped sharply $1.78, down 60 cents from the daily high reached late last month.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/19/06</th>
<th scope="col">08/12/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>469.1</td>
<td>470.1</td>
<td>2.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Last week, chain store sales slipped 0.2% again. The decline was the third consecutive week of lackluster sales, according to the International Council of Shopping Centers (ICSC)-UBS survey, and lowered the latest week's total 0.4% [...]

Weekly Chain Store Sales Slip With Gasoline Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822b.jpg" width="353">
The above quote from a wise bond trader has been voiced for years by skeptics who wonder why anything as important as the price for energy, food, etc. should be taken out of an inflation measure.
The short answer is that some supply shocks will be short lived. The &quot;core&quot; inflation rate is the rate which will be returned to.
The risk is of this analysis is that it misses two important definitions of the future rate of price inflation. 1) Inflation is governed by the growth of money (demand). 2) Inflation results from too much money chasing too few goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822c.jpg" width="353">
Since 1970 there has been a 67% correlation between the annual growth in the money supply (M2) and the growth in the GDP price deflator two years later.
Inflationary expectations will embody all of the forces that are affecting prices. So while it may be valid to exclude some short term price spike, the calculation misses the lingering effect of how those higher prices affect psychology. And there&#39;s always the possibility of some &quot;policy mistake.&quot; During the 1970s, it was argued that the wealth lost (to OPEC) due to the quadrupling of oil prices needed to be replaced. Money growth was ramped up, and we learned how inflation could be &quot;monetized.&quot;<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822d.jpg" width="353">
The inflation in home prices certainly is an area for study. The price measure of a &quot;constant quality&quot; house published by the Office of Federal Housing Enterprise Oversight (OFFEO) indicated that through the first quarter, home prices rose 12.5% y/y. The consumer price index rental equivalence, however, indicated only a 2.6% gain though that did accelerate last quarter to 3.3%.
Click <a href="http://www.haver.com/COMMENT/Owners%20Equivalent%20Rent%20and%20the%20Cost%20of%20Living.pdf">here</a> for a discussion of Owners Equivalent Rent and the Cost of Living by Federal Reserve Bank of New York economist Charles Steindel. <span style="FONT-SIZE: 10pt; FONT-FAMILY: Verdana; mso-fareast-font-family: &#39;Times New Roman&#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-family: &#39;Times New Roman&#39;">This paper was presented at the Annual Meeting of the National Association for Business Economics (<a href="http://www.nabe.com/">www.nabe.com</a>) and later published in the January 2006 issue of the NABE journal Business Economics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822e.jpg" width="353">
Indeed, the &quot;core&quot; rate of Consumer Price Inflation of 2.7% in July was higher than the 2.2% gain in the measure less homeowners equivalent rent. The divergence certainly would have been higher if the price appreciation in the OFFEO measure were fully reflected in the CPI, but ...
The core issue (pardon the pun) is whether home price inflation, however measured, is impacting the prices of other goods and services. Mortgage Equity Withdrawal (MEW) is a measure available in the Mortgage Market section of Haver&#39;s USECON database and it provides an indication of how money balances (demand) are being impacted by home price inflation.
Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences from the Board of Governors of the Federal Reserve System can be found <a href="http://www.federalreserve.gov/pubs/feds/2005/200541/200541abs.html"> here</a>. 
Reflections on Four Decades of Central Banking, today&#39;s speech by Atlanta Fed President Jack Guynn, can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=367F1CC5-5056-9F12-1235F3179BF494D8&amp;method=display">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/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.2%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.3%</td>
<td>3.7%</td>
<td>2.8%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>1.6%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Slip With Gasoline Prices 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 22, 2006


<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822a.jpg" width="353">
Last week, chain store sales slipped 0.2% again. The decline was the third consecutive week of lackluster sales, according to the International Council of Shopping Centers (ICSC)-UBS survey, and lowered the latest week&#39;s total 0.4% below the end of July.
Sales in August on average are 0.3% above July due to a strong gain at the end of last month.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS was unchanged (-2.3% y/y) in the latest week after several weeks of decline.
Retail gasoline prices fell for the second consecutive week. The eight cent decline to an average $2.92 (+11.9% y/y) for regular unleaded gas compared to a July average of $2.98. In spot market trading yesterday, regular unleaded gasoline prices dropped sharply $1.78, down 60 cents from the daily high reached late last month.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/19/06</th>
<th scope="col">08/12/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>469.1</td>
<td>470.1</td>
<td>2.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Confidence in the Future among German Investors and Analysts Dips Sharply    
by <a href="/comment/Curley.html">Louise Curley</a> August 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822f.jpg" width="353">
Confidence among the German investors and analysts who participate in the ZEW survey, deteriorated sharply in August. Those expecting economic conditions to worsen six months from now outnumbered those expecting improvement by 5.6% in contrast to July when the optimists outnumbered the pessimists by 15.1%. The decline in sentiment was not only greater than the consensus had expected, but has brought confidence to a level well below the long term average (35%) as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822g.jpg" width="353">
While becoming more pessimistic about the outlook, these same investors and analysts continue to view current conditions more favorably. In August, those viewing current conditions as &quot;good&quot; outnumbered those viewing current conditions as &quot;bad&quot; by 33.6% versus 23.3% in July. July was the first month since early 2001 in which the appraisal of current conditions was better than that of expectations. In general the investors and analysts tend to be more optimistic about the future than they are about present conditions as can be seen in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany: ZEW Survey of Investors and Analysts</a></th>
<th scope="col">Aug 06</th>
<th scope="col">Jul 06</th>
<th scope="col">Aug 05</th>
<th scope="col">M/M Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp; Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Current Conditions (% balance)</td>
<td>33.6</td>
<td>23.3</td>
<td>-61.1</td>
<td>10.3</td>
<td>94.7</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-97.6</td>
</tr>
<tr>
<td class="firstcol">Expectations of Conditions 6 Months Ahead (% balance)</td>
<td>-5.6</td>
<td>15.1</td>
<td>50.0</td>
<td>-20.7</td>
<td>-55.6</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
</tbody>
</table>


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"For the CPI excluding everything, inflation is zero."ĀĀ

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821d.jpg" width="353">
Inflation in Germany has largely been the result of rising energy costs as can be seen in the first chart which shows the total index of inflation and the core index excluding energy. The widening difference between the two series is due to the rising price of oil. So far there has been little evidence that the rise in energy prices has had secondary effects on the economy. In this connection, one series to watch is that of the monthly data on German hourly wages for the whole economy that was announced today.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821e.jpg" width="353">
Although the index declined 0.29% in June to 102.1 from 102.4 in May, it was 0.99% above June of 2005. Since the data are not seasonally adjusted, the year to year comparison is the more meaningful.While it is volatile, the second chart shows that wage growth is beginning to accelerate reversing the downward trend started in 2003. The annual increase in hourly wages was 2.68% in 2002, 2.03% in 2003, 1.17% in 2004 and 0.97% in 2005. For the first six months of this year, hourly wages have averaged an increase of 1.2% over the first six months of last year. With declines in the unemployment rate, union demands are likely to rise. Last week, IG Metall, the German steel and metalworkers&#39; union demanded a 7% pay rise for the steel industry. While such demands are likely to be moderated, it appears that the secondary effects of the rise in oil prices are beginning to be felt.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">Germany</a></th>
<th scope="col">Jun 06</th>
<th scope="col">May&nbsp;&nbsp; 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Price Index (2000=100)</td>
<td>110.3</td>
<td>110.0</td>
<td>108.1</td>
<td>0.29</td>
<td>2.04</td>
<td>108.3</td>
<td>105.5</td>
<td>104.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Core Index, Total ex Energy&nbsp;</td>
<td>107.6</td>
<td>107.4</td>
<td>106.6</td>
<td>0.19</td>
<td>0.94</td>
<td>106.7</td>
<td>105.5</td>
<td>104.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Hourly Wages (NSA, 2000=100)</td>
<td>102.79</td>
<td>105.25</td>
<td>104.86</td>
<td>-1.40</td>
<td>-1.97</td>
<td>105.41</td>
<td>144.40</td>
<td>100.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Annual % Change</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.51</td>
<td>1.81</td>
<td>2.52</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflation in Germany has largely been the result of rising energy costs as can be seen in the first chart which shows the total index of inflation and the core index excluding energy. The widening difference between the two series is [...]

Are German Wage Increases Beginning to Have an Effect on Inflation?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821c.jpg" width="353">
Inflationary concerns were piqued by the up-trend in prices for gold &amp; oil. That trend reversed a bit last week as the price of West Texas Intermediate Crude Oil settled on Friday at $71.15 per barrel, down 7.6% from the near-high of $76.99 reached early the prior week. Gold prices also moved lower to $613.90, off 7.5% from the July high.
Evidence that higher oil prices forced cutbacks in the demand for gasoline as well as some diminution of political tensions could have caused the trend reversal. In fact, the latest monthly figures on real personal consumption expenditures indicate demand for gasoline &amp; oil fell 5.5% from the peak during January of 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821b.jpg" width="353">
These gasoline demand figures through June were roughly consistent with the Department of Energy&#39;s estimates of lower demand, but during July &amp; August consumers seem to have grown accustomed to higher prices. Gasoline demand versus last year returned to the plus column.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821a.jpg" width="353">
The four week average of gasoline demand through mid-August rose 1.3% versus last year as a result of firm demand this Summer. Certainly that growth is well off the 4-8% rates of early 2004, but consumers&#39; resilience clearly is in evidence.
The just released figures from the Federal Highway Administration indicated that through 2004, the miles driven in the U.S. by passenger cars grew a steady 2.0% from the year earlier. These figures are available in Haver&#39;s USECON database under Highway Statistics.
The latest Short-Term Energy and Summer Fuels Outlook from the U.S. Energy Information Administration can be found <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.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/WEEKLY/@W4/@W403/@W40303/@W40303.HTM">US Weekly</a></th>
<th scope="col">08/15/06</th>
<th scope="col">12/31/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI (per BBL.)</td>
<td>$73.06</td>
<td>$58.16</td>
<td>10.5%</td>
<td>$57.59</td>
<td>$41.78</td>
<td>$32.781</td>
</tr>
<tr>
<td class="firstcol">Cash Gold Price, Handy &amp; Harmon</td>
<td>$625.50</td>
<td>$507.40</td>
<td>41.2%</td>
<td>$447.13</td>
<td>$411.72</td>
<td>$367.78</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflationary concerns were piqued by the up-trend in prices for gold & oil. That trend reversed a bit last week as the price of West Texas Intermediate Crude Oil settled on Friday at $71.15 per barrel, down 7.6% from the near-high of [...]

Oil & Gold Prices Down. A Trend Reversal?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821c.jpg" width="353">
Inflationary concerns were piqued by the up-trend in prices for gold &amp; oil. That trend reversed a bit last week as the price of West Texas Intermediate Crude Oil settled on Friday at $71.15 per barrel, down 7.6% from the near-high of $76.99 reached early the prior week. Gold prices also moved lower to $613.90, off 7.5% from the July high.
Evidence that higher oil prices forced cutbacks in the demand for gasoline as well as some diminution of political tensions could have caused the trend reversal. In fact, the latest monthly figures on real personal consumption expenditures indicate demand for gasoline &amp; oil fell 5.5% from the peak during January of 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821b.jpg" width="353">
These gasoline demand figures through June were roughly consistent with the Department of Energy&#39;s estimates of lower demand, but during July &amp; August consumers seem to have grown accustomed to higher prices. Gasoline demand versus last year returned to the plus column.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821a.jpg" width="353">
The four week average of gasoline demand through mid-August rose 1.3% versus last year as a result of firm demand this Summer. Certainly that growth is well off the 4-8% rates of early 2004, but consumers&#39; resilience clearly is in evidence.
The just released figures from the Federal Highway Administration indicated that through 2004, the miles driven in the U.S. by passenger cars grew a steady 2.0% from the year earlier. These figures are available in Haver&#39;s USECON database under Highway Statistics.
The latest Short-Term Energy and Summer Fuels Outlook from the U.S. Energy Information Administration can be found <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.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/WEEKLY/@W4/@W403/@W40303/@W40303.HTM">US Weekly</a></th>
<th scope="col">08/15/06</th>
<th scope="col">12/31/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI (per BBL.)</td>
<td>$73.06</td>
<td>$58.16</td>
<td>10.5%</td>
<td>$57.59</td>
<td>$41.78</td>
<td>$32.781</td>
</tr>
<tr>
<td class="firstcol">Cash Gold Price, Handy &amp; Harmon</td>
<td>$625.50</td>
<td>$507.40</td>
<td>41.2%</td>
<td>$447.13</td>
<td>$411.72</td>
<td>$367.78</td>
</tr>
</tbody>
</table>
Are German Wage Increases Beginning to Have an Effect on Inflation? 
by <a href="/comment/Curley.html">Louise Curley</a> August 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821d.jpg" width="353">
Inflation in Germany has largely been the result of rising energy costs as can be seen in the first chart which shows the total index of inflation and the core index excluding energy. The widening difference between the two series is due to the rising price of oil. So far there has been little evidence that the rise in energy prices has had secondary effects on the economy. In this connection, one series to watch is that of the monthly data on German hourly wages for the whole economy that was announced today.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821e.jpg" width="353">
Although the index declined 0.29% in June to 102.1 from 102.4 in May, it was 0.99% above June of 2005. Since the data are not seasonally adjusted, the year to year comparison is the more meaningful.While it is volatile, the second chart shows that wage growth is beginning to accelerate reversing the downward trend started in 2003. The annual increase in hourly wages was 2.68% in 2002, 2.03% in 2003, 1.17% in 2004 and 0.97% in 2005. For the first six months of this year, hourly wages have averaged an increase of 1.2% over the first six months of last year. With declines in the unemployment rate, union demands are likely to rise. Last week, IG Metall, the German steel and metalworkers&#39; union demanded a 7% pay rise for the steel industry. While such demands are likely to be moderated, it appears that the secondary effects of the rise in oil prices are beginning to be felt.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">Germany</a></th>
<th scope="col">Jun 06</th>
<th scope="col">May&nbsp;&nbsp; 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Price Index (2000=100)</td>
<td>110.3</td>
<td>110.0</td>
<td>108.1</td>
<td>0.29</td>
<td>2.04</td>
<td>108.3</td>
<td>105.5</td>
<td>104.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Core Index, Total ex Energy&nbsp;</td>
<td>107.6</td>
<td>107.4</td>
<td>106.6</td>
<td>0.19</td>
<td>0.94</td>
<td>106.7</td>
<td>105.5</td>
<td>104.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Hourly Wages (NSA, 2000=100)</td>
<td>102.79</td>
<td>105.25</td>
<td>104.86</td>
<td>-1.40</td>
<td>-1.97</td>
<td>105.41</td>
<td>144.40</td>
<td>100.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Annual % Change</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.51</td>
<td>1.81</td>
<td>2.52</td>
</tr>
</tbody>
</table>
</body>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818e.jpg" width="353">
A surge in merchandise exports pushed Brazil&#39;s current account to a record surplus in July, $3043 million, as reported late August 17 by the Central Bank of Brazil. With seasonal adjustment by Haver Analytics, the balance is $2203 million, as seen in the table below, the second largest monthly amount after $2715 million in November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818f.jpg" width="353">
Brazil sells oil, coffee and copper, among numerous other items. Obviously, two of these items have seen major price increases that have raised the value of Brazil&#39;s exports. They are up more than 23% from a year ago. This good gain, $2.6 billion, has more than offset a larger percentage increase in imports, nearly 32% on the year, or $1.9 billion.
Frequently, economists and other analysts assess a nation&#39;s trade and current account conditions over against the capital and financial accounts. But for Brazil, the more relevant comparison involves the trade balance versus the service and income flows. It is the large trade surplus that &quot;finances&quot; a modest deficit in services and a more significant deficit in income. Brazil has a sizable negative international investment position, -$340 billion at the end of last year, and it sends out considerable amounts of profits, dividends and interest payments. As noted below, the deficit on income exceeds $2.1 billion in most months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818g.jpg" width="353">
Flows on the financial side are very erratic, but generally direct investment remains positive. So there are consistent flows of foreign equity funds into Brazil, suggesting that companies want increasingly to be represented in that sizable market. Portfolio and &quot;other&quot; investments swing widely from month to month, making it hard to characterize other investors&#39; attitudes toward the country.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGELA/@E2/@E208/@E208.HTM">Brazil</a> Mil. US$, Seas Adj.</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">July 2005</th>
Monthly Averages*
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>2203</td>
<td>578</td>
<td>524</td>
<td>1851</td>
<td>1183</td>
<td>973</td>
<td>348</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade Balance</td>
<td>4945</td>
<td>3714</td>
<td>2908</td>
<td>4454</td>
<td>3729</td>
<td>2803</td>
<td>2066</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>12651</td>
<td>11007</td>
<td>10058</td>
<td>10304</td>
<td>9859</td>
<td>8040</td>
<td>6090</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>7705</td>
<td>7292</td>
<td>7150</td>
<td>5850</td>
<td>6130</td>
<td>5236</td>
<td>4020</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-952</td>
<td>-747</td>
<td>-663</td>
<td>-632</td>
<td>-679</td>
<td>-390</td>
<td>-411</td>
</tr>
<tr class="odd">
<td class="firstcol">Income</td>
<td>-2102</td>
<td>-2764</td>
<td>-2113</td>
<td>-2253</td>
<td>-2164</td>
<td>-1710</td>
<td>-1546</td>
</tr>
</tbody>
</table>
</body>
</html>

A surge in merchandise exports pushed Brazil's current account to a record surplus in July, $3043 million, as reported late August 17 by the Central Bank of Brazil. With seasonal adjustment by Haver Analytics, the balance is $2203 [...]

Brazil's Large Exports Yield Record Current Account Surplus in July

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.

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.

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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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 2006

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