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/070822b.jpg" width="353">
Japan&#39;s trade surplus either widened a bit in July or narrowed noticeably, depending on how you look at it. The reported balance from the raw data diminished to &yen;671 million from &yen;851 million in July 2006. However, the seasonally adjusted balance inched outward to &yen;823 million from &yen;822 million. This compares with a seasonally adjusted balance of &yen;766 million a year ago. Both exports and imports rose 0.5% in July from June. Exports were up 11.7% from the year-ago amount and imports, a substantial 16.9%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822c.jpg" width="353">
Some observers highlighted the deterioration, noting that it was more than forecasters expected and might foretell more slowing of the Japanese economy. There was already some surprise in Q2 GDP, which saw quarter-to-quarter growth decrease to just a 0.5% annual rate from 3.2% in Q1. However, from this perspective of the ongoing trend in seasonally adjusted data, the recent string of trade figures looks fairly favorable (see first graph).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822d.jpg" width="353">
The feature of this report that caught our attention came when we started to look at petroleum imports. With prices up so sharply, these imports were up 14% from a year ago. But wait! total imports were up 16.9%. Other things must have increased considerably more than oil. Indeed. Iron ore 35%; iron and steel products, 55.7%; nonferrous ore, 59.6%; nonferrous alloys, 27.8%, chemicals, 23.8%; electrical machinery, 17.1%. Commodity prices have struck here, apparently, sticking resource-starved Japan with accelerating import costs; in some cases, such as copper, world markets have already eased, but Japan is still paying higher more, possibly for materials that were ordered some time ago. We show here another example, imports of iron and steel products with the Nikkei domestic commodity price index for steel products.
Will these facts help the Bank of Japan in its rate setting decision, due overnight tonight? They would present a two-handed argument for a rate change: high-cost imports weighing on the economy, but the accompanying prospect of a more notable resumption of inflation. We&#39;d guess -- without any credential as a forecaster of Japanese monetary policy -- that developments in world markets, more than these dual pressures within the Japanese economy itself, would stop the BoJ from raising a rate this week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN, Bil.&yen;</th>
<th scope="col">July 2007*</th>
<th scope="col">June 2007*</th>
<th scope="col">May 2007*</th>
<th scope="col">Year Ago*</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>823</td>
<td>822</td>
<td>796</td>
<td>766</td>
<td>658</td>
<td>726</td>
<td>996</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Not Seas Adj</td>
<td>671</td>
<td>1223</td>
<td>383</td>
<td>851</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>7086</td>
<td>7053</td>
<td>6973</td>
<td>6333</td>
<td>6271</td>
<td>5471</td>
<td>5097</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>1.1</td>
<td>2.9</td>
<td>11.7</td>
<td>14.6</td>
<td>7.3</td>
<td>12.1</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>6264</td>
<td>6231</td>
<td>6177</td>
<td>5567</td>
<td>5612</td>
<td>4746</td>
<td>4101</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>0.9</td>
<td>8.2</td>
<td>16.9</td>
<td>18.3</td>
<td>15.7</td>
<td>10.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Japan's trade surplus either widened a bit in July or narrowed noticeably, depending on how you look at it. The reported balance from the raw data diminished to ¥671 million from ¥851 million in July 2006. However, the seasonally [...]

Japanese Trade Picture Murky: Rising World Commodity Prices Push Imports Higher

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822a.jpg" width="353">
Euro area domestic orders are fine but are slower than export orders - both are accelerating over 3 months. 
The UK alone (not a Euro area member) shows orders weakening but the CBI survey shows gains in August. We are left with a bit of uncertainty about Europe. But nothing has truly been weak apart from the episodic experience of things like UK orders weakening then rebounding. There are more substantial hints of slowing, but none of weakness. And during the liquidity squeeze the Euro has lost some ground, a factor that is good for Euro area growth prospects. 
While there is some irregularity in the Euro area, Italy and France have showed the most consistent signs of weakness among large economies, although French industrial orders have emerged again as strong after some weakness. The ECB is under pressure to not hike rates and today the French finance minister proves there is at least a side and one-half to every argument, by making a case for a rate cut from the ECB. Yes I said (he said) &#145;cut&#146;. 
Within the Euro area there is this odd result that domestic orders are softer while export orders are strong and accelerating strongly. Exports still undertake a national definition in these data. So export orders from Germany to a French firm would be export orders to France but would still reflect internal EMU orders. This sort of thing makes it a bit hard to sort out what is in train here. For now domestic orders are a bit weaker but are not suspect since they are accelerating, too. Europe&#146;s slowdown may be in progress but it does not seem to be anything more serious than that. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area and UK Industrial Orders &amp; Sales Trends
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">% m/m</td>
<td>Jun-07</td>
<td>Jun-07</td>
<td>Jun-07</td>
<td>Jun-06</td>
<td>Jun-05</td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro area Detail</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Orders</td>
<td>4.4%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>24.5%</td>
<td>17.5%</td>
<td>15.5%</td>
<td>6.3%</td>
<td>5.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG Sales</td>
<td>0.9%</td>
<td>0.7%</td>
<td>0.3%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>7.1%</td>
<td>7.7%</td>
<td>3.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.9%</td>
<td>4.1%</td>
<td>4.8%</td>
<td>7.7%</td>
<td>3.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>8.2%</td>
<td>4.0%</td>
<td>1.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate</td>
<td>0.9%</td>
<td>0.7%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>4.0%</td>
<td>10.6%</td>
<td>6.9%</td>
<td>2.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">MFG Orders</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>4.4%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>24.5%</td>
<td>17.5%</td>
<td>15.5%</td>
<td>6.3%</td>
<td>5.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-13 Domestic MFG orders</td>
<td>1.8%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>4.0%</td>
<td>10.6%</td>
<td>4.2%</td>
<td>0.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-13 Foreign MFG orders</td>
<td>8.7%</td>
<td>3.7%</td>
<td>-2.0%</td>
<td>48.4%</td>
<td>30.7%</td>
<td>23.1%</td>
<td>8.5%</td>
<td>9.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Countries:</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany:</td>
<td>4.7%</td>
<td>3.2%</td>
<td>-1.5%</td>
<td>28.3%</td>
<td>27.2%</td>
<td>17.9%</td>
<td>9.7%</td>
<td>7.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France:</td>
<td>5.1%</td>
<td>2.6%</td>
<td>0.6%</td>
<td>38.6%</td>
<td>26.6%</td>
<td>8.4%</td>
<td>-0.6%</td>
<td>9.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy:</td>
<td>#N/A</td>
<td>2.5%</td>
<td>-0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>10.1%</td>
<td>4.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK:</td>
<td>-1.7%</td>
<td>-2.4%</td>
<td>-6.7%</td>
<td>-35.9%</td>
<td>12.2%</td>
<td>-7.2%</td>
<td>10.2%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
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Euro area domestic orders are fine but are slower than export orders - both are accelerating over 3 months. The UK alone (not a Euro area member) shows orders weakening but the CBI survey shows gains in August. We are left with a bit [...]

Euro Orders are Quite Firm Within the Zone but Extremely Strong for "Exports"

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822b.jpg" width="353">
Japan&#39;s trade surplus either widened a bit in July or narrowed noticeably, depending on how you look at it. The reported balance from the raw data diminished to &yen;671 million from &yen;851 million in July 2006. However, the seasonally adjusted balance inched outward to &yen;823 million from &yen;822 million. This compares with a seasonally adjusted balance of &yen;766 million a year ago. Both exports and imports rose 0.5% in July from June. Exports were up 11.7% from the year-ago amount and imports, a substantial 16.9%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822c.jpg" width="353">
Some observers highlighted the deterioration, noting that it was more than forecasters expected and might foretell more slowing of the Japanese economy. There was already some surprise in Q2 GDP, which saw quarter-to-quarter growth decrease to just a 0.5% annual rate from 3.2% in Q1. However, from this perspective of the ongoing trend in seasonally adjusted data, the recent string of trade figures looks fairly favorable (see first graph).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822d.jpg" width="353">
The feature of this report that caught our attention came when we started to look at petroleum imports. With prices up so sharply, these imports were up 14% from a year ago. But wait! total imports were up 16.9%. Other things must have increased considerably more than oil. Indeed. Iron ore 35%; iron and steel products, 55.7%; nonferrous ore, 59.6%; nonferrous alloys, 27.8%, chemicals, 23.8%; electrical machinery, 17.1%. Commodity prices have struck here, apparently, sticking resource-starved Japan with accelerating import costs; in some cases, such as copper, world markets have already eased, but Japan is still paying higher more, possibly for materials that were ordered some time ago. We show here another example, imports of iron and steel products with the Nikkei domestic commodity price index for steel products.
Will these facts help the Bank of Japan in its rate setting decision, due overnight tonight? They would present a two-handed argument for a rate change: high-cost imports weighing on the economy, but the accompanying prospect of a more notable resumption of inflation. We&#39;d guess -- without any credential as a forecaster of Japanese monetary policy -- that developments in world markets, more than these dual pressures within the Japanese economy itself, would stop the BoJ from raising a rate this week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN, Bil.&yen;</th>
<th scope="col">July 2007*</th>
<th scope="col">June 2007*</th>
<th scope="col">May 2007*</th>
<th scope="col">Year Ago*</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>823</td>
<td>822</td>
<td>796</td>
<td>766</td>
<td>658</td>
<td>726</td>
<td>996</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Not Seas Adj</td>
<td>671</td>
<td>1223</td>
<td>383</td>
<td>851</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>7086</td>
<td>7053</td>
<td>6973</td>
<td>6333</td>
<td>6271</td>
<td>5471</td>
<td>5097</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>1.1</td>
<td>2.9</td>
<td>11.7</td>
<td>14.6</td>
<td>7.3</td>
<td>12.1</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>6264</td>
<td>6231</td>
<td>6177</td>
<td>5567</td>
<td>5612</td>
<td>4746</td>
<td>4101</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>0.9</td>
<td>8.2</td>
<td>16.9</td>
<td>18.3</td>
<td>15.7</td>
<td>10.9</td>
</tr>
</tbody>
</table>
Euro Orders are Quite Firm Within the Zone but Extremely Strong for "Exports" 
by <a href="/comment/Brusca.html">Robert Brusca</a> August 22, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822a.jpg" width="353">
Euro area domestic orders are fine but are slower than export orders - both are accelerating over 3 months. 
The UK alone (not a Euro area member) shows orders weakening but the CBI survey shows gains in August. We are left with a bit of uncertainty about Europe. But nothing has truly been weak apart from the episodic experience of things like UK orders weakening then rebounding. There are more substantial hints of slowing, but none of weakness. And during the liquidity squeeze the Euro has lost some ground, a factor that is good for Euro area growth prospects. 
While there is some irregularity in the Euro area, Italy and France have showed the most consistent signs of weakness among large economies, although French industrial orders have emerged again as strong after some weakness. The ECB is under pressure to not hike rates and today the French finance minister proves there is at least a side and one-half to every argument, by making a case for a rate cut from the ECB. Yes I said (he said) &#145;cut&#146;. 
Within the Euro area there is this odd result that domestic orders are softer while export orders are strong and accelerating strongly. Exports still undertake a national definition in these data. So export orders from Germany to a French firm would be export orders to France but would still reflect internal EMU orders. This sort of thing makes it a bit hard to sort out what is in train here. For now domestic orders are a bit weaker but are not suspect since they are accelerating, too. Europe&#146;s slowdown may be in progress but it does not seem to be anything more serious than that. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area and UK Industrial Orders &amp; Sales Trends
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">% m/m</td>
<td>Jun-07</td>
<td>Jun-07</td>
<td>Jun-07</td>
<td>Jun-06</td>
<td>Jun-05</td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro area Detail</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Orders</td>
<td>4.4%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>24.5%</td>
<td>17.5%</td>
<td>15.5%</td>
<td>6.3%</td>
<td>5.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG Sales</td>
<td>0.9%</td>
<td>0.7%</td>
<td>0.3%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>7.1%</td>
<td>7.7%</td>
<td>3.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.9%</td>
<td>4.1%</td>
<td>4.8%</td>
<td>7.7%</td>
<td>3.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>8.2%</td>
<td>4.0%</td>
<td>1.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate</td>
<td>0.9%</td>
<td>0.7%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>4.0%</td>
<td>10.6%</td>
<td>6.9%</td>
<td>2.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">MFG Orders</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>4.4%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>24.5%</td>
<td>17.5%</td>
<td>15.5%</td>
<td>6.3%</td>
<td>5.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-13 Domestic MFG orders</td>
<td>1.8%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>4.0%</td>
<td>10.6%</td>
<td>4.2%</td>
<td>0.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-13 Foreign MFG orders</td>
<td>8.7%</td>
<td>3.7%</td>
<td>-2.0%</td>
<td>48.4%</td>
<td>30.7%</td>
<td>23.1%</td>
<td>8.5%</td>
<td>9.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Countries:</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany:</td>
<td>4.7%</td>
<td>3.2%</td>
<td>-1.5%</td>
<td>28.3%</td>
<td>27.2%</td>
<td>17.9%</td>
<td>9.7%</td>
<td>7.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France:</td>
<td>5.1%</td>
<td>2.6%</td>
<td>0.6%</td>
<td>38.6%</td>
<td>26.6%</td>
<td>8.4%</td>
<td>-0.6%</td>
<td>9.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy:</td>
<td>#N/A</td>
<td>2.5%</td>
<td>-0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>10.1%</td>
<td>4.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK:</td>
<td>-1.7%</td>
<td>-2.4%</td>
<td>-6.7%</td>
<td>-35.9%</td>
<td>12.2%</td>
<td>-7.2%</td>
<td>10.2%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821c.jpg" width="353">
The ZEW indicator of confidence among German institutional investors and analysts showed that pessimists outweighed optimists by 6.9% in August. In July, optimists outweighed pessimists by 10.9% in July. The decline of 17.3 percentage points was the largest since the decline of 20.7 last August. The participants&#39; appraisal of current conditions fell by 8 percentage points from 88.2 in July to 80.2 in August. Expectations and appraisals of current conditions are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821d.jpg" width="353">
The turmoil in stock markets around the world during the period when the survey took place--July 30 to August 20--no doubt affected the participants&#39; expectations and also their outlook for profits in selected industries.
Profit expectations for the banking and insurance industries were lowered sharply. For the banking industry, pessimists exceeded optimists by 37.3% in August while in July, optimists had exceeded pessimists by 21.9%. Comparable figures for the insurance industry were 13.2% and 23.7%. Monthly changes in profit expectations for the banking and insurance industries along with those for construction and consumer/trade industries--two other industries where profit expectations showed substantial declines in August are show in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821e.jpg" width="353">
There were some improvements in the monthly changes of profit expectations. Most improvements involved a decline in the excess of pessimists, but profit expectations in the telecommunication industry actually showed an excess of optimists of 3.5%. Monthly changes in profit expectations for the telecommunication industry are shown in the third chart along with those for the information technology, utilities and service industries that also showed improvement in that the excess of pessimists over optimists was lower in August than in July. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW MEASURES OF CONFIDENCE (%)</th>
<th scope="col">Aug 07</th>
<th scope="col">Jul 07&nbsp;</th>
<th scope="col">Aug 06&nbsp;</th>
<th scope="col">M/M Dif&nbsp;</th>
<th scope="col">Y/Y Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Expectations</td>
<td>-6.9</td>
<td>10.4</td>
<td>-5.6</td>
<td>-17.3</td>
<td>-1.3</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr>
<td class="firstcol">Current conditions</td>
<td>80.2</td>
<td>88.2</td>
<td>33.6</td>
<td>-8.0</td>
<td>46.6</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.7</td>
</tr>
</tbody>
</table>
</body>
</html>

The ZEW indicator of confidence among German institutional investors and analysts showed that pessimists outweighed optimists by 6.9% in August. In July, optimists outweighed pessimists by 10.9% in July. The decline of 17.3 percentage [...]

Market Turmoil Shakes Confidence of German Investors and Analysts

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821f.jpg" width="353">
Exports were up more strongly in June than were imports shrinking the Euro area trade deficit in the month. Exports have a reasonably strong history of growth across its main categories. Import growth also has been firm and broad-based. However, manufacturing exports and imports are the slowest year-over-year. Manufacturing exports are rising at an 8.8% pace compared to imports at 7.6%. But over short time horizons both export and import growth has slowed.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Ezone 13-Trade Trends for Goods
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M%</td>
<td colspan="3">% SAAR</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jun-07</td>
<td>May-07</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr>
<td class="firstcol">Balance*</td>
<td>&#128;&#128; 5,217</td>
<td>&#128;&#128; 3,893</td>
<td>&#128;&#128; 4,211</td>
<td>&#128;&#128; 3,427</td>
<td>&#128;&#128; 1,563</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">All Exports</td>
<td>1.7%</td>
<td>0.6%</td>
<td>8.8%</td>
<td>4.9%</td>
<td>10.1%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>0.5%</td>
<td>14.7%</td>
<td>2.3%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Raw Materials</td>
<td>--</td>
<td>2.3%</td>
<td>30.0%</td>
<td>7.4%</td>
<td>13.6%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>0.8%</td>
<td>4.6%</td>
<td>-0.1%</td>
<td>8.8%</td>
</tr>
<tr>
<td class="firstcol">IMPORTS</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">All Imports</td>
<td>0.7%</td>
<td>0.3%</td>
<td>10.2%</td>
<td>-1.2%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-0.1%</td>
<td>15.8%</td>
<td>7.4%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Raw Materials</td>
<td>--</td>
<td>2.3%</td>
<td>14.7%</td>
<td>5.4%</td>
<td>16.3%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>1.6%</td>
<td>4.1%</td>
<td>4.3%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td colspan="6">*Eur mlns; mo or period average; Gray shaded areas lag one month</td>
</tr>
</tbody>
</table>
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Exports were up more strongly in June than were imports shrinking the Euro area trade deficit in the month. Exports have a reasonably strong history of growth across its main categories. Import growth also has been firm and broad- [...]

Euro Area Export and Import Growth Both Tic Up in June

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821a.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey reported that chain store sales rose 0.2% last week after the 0.9% decline during the prior period. 
The average level of store sales, thus, so far in August is just even with the July level which rose 0.4% from June. 
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in non-auto 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 from the prior week (1.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821b.jpg" width="353"> 
Gasoline prices for regular, on average rose one penny last week to $2.78 per gallon (-4.8% y/y).
The average gas price so far in August is 5.6% lower than in July and prices have fallen 13.5% from their peak during May of $3.22 per gallon.
The market price for regular gasoline in N.Y. harbor increased yesterday to $1.98 (11.1% y/y) and so far in August has averaged roughly 6.8% lower than during July.
For crude oil, the price for West Texas Intermediate fell yesterday to $71.13 per barrel and so far in August has averaged $73.60, 0.2% below July.

<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>&nbsp;</th>
<th scope="col">08/18/07&nbsp;</th>
<th scope="col">08/11/06&nbsp;</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales&nbsp;</td>
<td>482.0</td>
<td>480.8&nbsp;</td>
<td>2.7%&nbsp;</td>
<td>3.3%&nbsp;</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers (ICSC)-UBS survey reported that chain store sales rose 0.2% last week after the 0.9% decline during the prior period. The average level of store sales, thus, so far in August is just even [...]

U.S. Weekly Chain Store Sales Ticked Up, As Did Gasoline Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821f.jpg" width="353">
Exports were up more strongly in June than were imports shrinking the Euro area trade deficit in the month. Exports have a reasonably strong history of growth across its main categories. Import growth also has been firm and broad-based. However, manufacturing exports and imports are the slowest year-over-year. Manufacturing exports are rising at an 8.8% pace compared to imports at 7.6%. But over short time horizons both export and import growth has slowed.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Ezone 13-Trade Trends for Goods
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M%</td>
<td colspan="3">% SAAR</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jun-07</td>
<td>May-07</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr>
<td class="firstcol">Balance*</td>
<td>&#128;&#128; 5,217</td>
<td>&#128;&#128; 3,893</td>
<td>&#128;&#128; 4,211</td>
<td>&#128;&#128; 3,427</td>
<td>&#128;&#128; 1,563</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">All Exports</td>
<td>1.7%</td>
<td>0.6%</td>
<td>8.8%</td>
<td>4.9%</td>
<td>10.1%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>0.5%</td>
<td>14.7%</td>
<td>2.3%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Raw Materials</td>
<td>--</td>
<td>2.3%</td>
<td>30.0%</td>
<td>7.4%</td>
<td>13.6%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>0.8%</td>
<td>4.6%</td>
<td>-0.1%</td>
<td>8.8%</td>
</tr>
<tr>
<td class="firstcol">IMPORTS</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">All Imports</td>
<td>0.7%</td>
<td>0.3%</td>
<td>10.2%</td>
<td>-1.2%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-0.1%</td>
<td>15.8%</td>
<td>7.4%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Raw Materials</td>
<td>--</td>
<td>2.3%</td>
<td>14.7%</td>
<td>5.4%</td>
<td>16.3%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>1.6%</td>
<td>4.1%</td>
<td>4.3%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td colspan="6">*Eur mlns; mo or period average; Gray shaded areas lag one month</td>
</tr>
</tbody>
</table>
 Market Turmoil Shakes Confidence of German Investors and Analysts 
by <a href="/comment/Curley.html">Louise Curley</a> August 21, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821c.jpg" width="353">
The ZEW indicator of confidence among German institutional investors and analysts showed that pessimists outweighed optimists by 6.9% in August. In July, optimists outweighed pessimists by 10.9% in July. The decline of 17.3 percentage points was the largest since the decline of 20.7 last August. The participants&#39; appraisal of current conditions fell by 8 percentage points from 88.2 in July to 80.2 in August. Expectations and appraisals of current conditions are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821d.jpg" width="353">
The turmoil in stock markets around the world during the period when the survey took place--July 30 to August 20--no doubt affected the participants&#39; expectations and also their outlook for profits in selected industries.
Profit expectations for the banking and insurance industries were lowered sharply. For the banking industry, pessimists exceeded optimists by 37.3% in August while in July, optimists had exceeded pessimists by 21.9%. Comparable figures for the insurance industry were 13.2% and 23.7%. Monthly changes in profit expectations for the banking and insurance industries along with those for construction and consumer/trade industries--two other industries where profit expectations showed substantial declines in August are show in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821e.jpg" width="353">
There were some improvements in the monthly changes of profit expectations. Most improvements involved a decline in the excess of pessimists, but profit expectations in the telecommunication industry actually showed an excess of optimists of 3.5%. Monthly changes in profit expectations for the telecommunication industry are shown in the third chart along with those for the information technology, utilities and service industries that also showed improvement in that the excess of pessimists over optimists was lower in August than in July. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW MEASURES OF CONFIDENCE (%)</th>
<th scope="col">Aug 07</th>
<th scope="col">Jul 07&nbsp;</th>
<th scope="col">Aug 06&nbsp;</th>
<th scope="col">M/M Dif&nbsp;</th>
<th scope="col">Y/Y Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Expectations</td>
<td>-6.9</td>
<td>10.4</td>
<td>-5.6</td>
<td>-17.3</td>
<td>-1.3</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr>
<td class="firstcol">Current conditions</td>
<td>80.2</td>
<td>88.2</td>
<td>33.6</td>
<td>-8.0</td>
<td>46.6</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.7</td>
</tr>
</tbody>
</table>
U.S. Weekly Chain Store Sales Ticked Up, As Did Gasoline Prices 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 21, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821a.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey reported that chain store sales rose 0.2% last week after the 0.9% decline during the prior period. 
The average level of store sales, thus, so far in August is just even with the July level which rose 0.4% from June. 
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in non-auto 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 from the prior week (1.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821b.jpg" width="353"> 
Gasoline prices for regular, on average rose one penny last week to $2.78 per gallon (-4.8% y/y).
The average gas price so far in August is 5.6% lower than in July and prices have fallen 13.5% from their peak during May of $3.22 per gallon.
The market price for regular gasoline in N.Y. harbor increased yesterday to $1.98 (11.1% y/y) and so far in August has averaged roughly 6.8% lower than during July.
For crude oil, the price for West Texas Intermediate fell yesterday to $71.13 per barrel and so far in August has averaged $73.60, 0.2% below July.

<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>&nbsp;</th>
<th scope="col">08/18/07&nbsp;</th>
<th scope="col">08/11/06&nbsp;</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales&nbsp;</td>
<td>482.0</td>
<td>480.8&nbsp;</td>
<td>2.7%&nbsp;</td>
<td>3.3%&nbsp;</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820d.jpg" width="353">
Among the Haver updates released today were balance of payments data for Greece and Taiwan. The two countries have very different balances of payments. Greece traditionally runs a deficit on current account while Taiwan runs a surplus. Typically, a deficit (surplus) is offset largely by inflows (outflows) in its capital and financial accounts and changes in foreign exchange reserves. Because of difficulties in the measurement of all the various flows in the balance of payments, an item &quot;errors and omissions&quot; is introduced to balance the account. The first two charts show how Greece&#39;s current account deficit, and Taiwan&#39;s surplus are offset by changes in capital flows, foreign exchange reserves and &quot;errors and omissions&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820e.jpg" width="353">
Greece&#39;s deficit on current account is the result of deficits on trade in goods and its income account that outweigh small surpluses on trade in services and transfer. Taiwan, on the other hand has a large surplus on goods and on its income account that more than offsets small deficits on trade in services and in transfers. The components of the current account for Greece and Taiwan are shown in the third and fourth charts.
When foreign exchange reserves are used to offset a deficit in the current account, they appear with a plus sign in the balance of payments account, however, the store of reserves has been reduced. Thus in the balance of payments a plus sign in the reserves means a decline in reserves and a minus sign indicates an increase. Over the years Taiwan has often opted to increase reserves, rather than invest the surplus on current account in foreign assets. At the end of June, Taiwanese reserves amounted to $266 billion, compared with $355 million for Greece. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820f.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820g.jpg" width="353"> 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Q2 07</th>
<th scope="col">Q1 07&nbsp;</th>
<th scope="col">Q2 06&nbsp;</th>
<th scope="col">Q/Q Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="9">GREECE (Millions Euros)</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>-4688</td>
<td>-9022</td>
<td>-6256</td>
<td>1334</td>
<td>-1432</td>
<td>-23660</td>
<td>-14348</td>
<td>-10453</td>
</tr>
<tr>
<td class="firstcol">Capital &amp; Financial Account* (Includes change in Reserves</td>
<td>8148</td>
<td>8800</td>
<td>6491</td>
<td>652</td>
<td>1657</td>
<td>23404</td>
<td>14655</td>
<td>10220</td>
</tr>
<tr>
<td class="firstcol"> Errors and Omission </td>
<td>-461</td>
<td>222</td>
<td>-235</td>
<td>-682</td>
<td>-226</td>
<td>255</td>
<td>-308</td>
<td>233</td>
</tr>
<tr>
<td class="firstcol">Actual Foreign Exchange Reserves &nbsp;(Mil US$)</td>
<td>355</td>
<td>466</td>
<td>514</td>
<td>-101</td>
<td>-159</td>
<td>389</td>
<td>326</td>
<td>679</td>
</tr>
<tr class="odd">
<td colspan="9">TAIWAN (Millions US$)</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>4976</td>
<td>8780</td>
<td>4511</td>
<td>-3804</td>
<td>465</td>
<td>24658</td>
<td>19019</td>
<td>18478</td>
</tr>
<tr>
<td class="firstcol">Capital &amp; Financial Account</td>
<td>-7187</td>
<td>-10998</td>
<td>-5841</td>
<td>3811</td>
<td>-1346</td>
<td>-19749</td>
<td>2185</td>
<td>7089</td>
</tr>
<tr>
<td class="firstcol"> Change in Foreign Exchange Reserves&nbsp; </td>
<td>1893</td>
<td>-369</td>
<td>-482</td>
<td>2262</td>
<td>2375</td>
<td>-6086</td>
<td>-20056</td>
<td>-26595</td>
</tr>
<tr>
<td class="firstcol"> Errors and Omission </td>
<td>318</td>
<td>2587</td>
<td>1812</td>
<td>-2269</td>
<td>-1494</td>
<td>1177</td>
<td>1852</td>
<td>1028</td>
</tr>
<tr>
<td class="firstcol">Actual Foreign Exchange Reserves &nbsp;(Mil US$)</td>
<td>266055</td>
<td>267490</td>
<td>260350</td>
<td>-1436</td>
<td>5705</td>
<td>266148</td>
<td>253290</td>
<td>241738</td>
</tr>
</tbody>
</table>
</body>
</html>

Among the Haver updates released today were balance of payments data for Greece and Taiwan. The two countries have very different balances of payments. Greece traditionally runs a deficit on current account while Taiwan runs a [...]

Contrasting Balance of Payments for Greece and Taiwan

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.

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

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

Charts of the Week: Tariff Truce, Tenuous Trust

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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.

250430P1.jpg

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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 2007

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Japanese Trade Picture Murky: Rising World Commodity Prices Push Imports Higher

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Japanese Trade Picture Murky: Rising World Commodity Prices Push Imports Higher

Market Turmoil Shakes Confidence of German Investors and Analysts

Euro Area Export and Import Growth Both Tic Up in June

U.S. Weekly Chain Store Sales Ticked Up, As Did Gasoline Prices

Euro Area Export and Import Growth Both Tic Up in June

Contrasting Balance of Payments for Greece and Taiwan