Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921d.jpg" width="353">
July retail sales in Canada increased at an annual rate of 5.54%, indicating continued strength in the economy and reinforcing the trend set by earlier reports of strong advances in manufacturing activity.
New and used vehicles and parts rose 10.95% at an annual rate, the result, perhaps of end of the model year sales incentives, and all other sales rose 4.19%. New cars, alone, rose at an annual rate of 18.59%.
Although the current rate of increase in vehicle sales has been strong, the level of sales has been below year ago data. This is particularly true of new car sales, which are probably the most volatile category in this sector. Total sales, excluding new and used vehicles and parts, have not only performed well in recent months, but have been well above year ago levels. The first chart, shows new car sales and the total excluding new and used vehicles and parts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921e.jpg" width="353">
The price index for all retail sales fell in July at an annual rate of 1.1%, interrupting an upward, if somewhat erratic, trend in prices that began in late 2003. As a result of the decline in prices, the volume of retail sales rose at an annual rate of 6.58% in July and was 2.41% above July, 2003. The second chart shows real retail sales and the price index.

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<th scope="col" class="firstcol"></th>
<th scope="col">Jul 04</th>
<th scope="col">Jun 04</th>
<th scope="col">Jul 03</th>
<th scope="col">M/M&nbsp; Ann Rate %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2003 &nbsp;%</th>
<th scope="col">&nbsp;2002 &nbsp;%</th>
<th scope="col">&nbsp; 2001&nbsp; &nbsp;%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Retail Sales (bil. C$)</td>
<td>28.85</td>
<td>28.72.</td>
<td>27.77</td>
<td>5.54</td>
<td>3.84</td>
<td>3.75</td>
<td>6.36</td>
<td>4.38</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total ex new &amp; used vehicles &amp; parts</td>
<td>21.89</td>
<td>21.82</td>
<td>20.60</td>
<td>4.19</td>
<td>6.29</td>
<td>5.15</td>
<td>5.90</td>
<td>4.19</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; New &amp; used vehicles &amp; parts</td>
<td>6.96</td>
<td>6.90</td>
<td>7.17</td>
<td>10.95</td>
<td>-2.93</td>
<td>-0.19</td>
<td>7.70</td>
<td>4.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; New cars</td>
<td>5.78</td>
<td>5.69</td>
<td>5.95</td>
<td>18.59</td>
<td>-2.96</td>
<td>-0.31</td>
<td>8.96</td>
<td>4.10</td>
</tr>
<tr class="odd">
<td class="firstcol">Real Retail Sales (bil. 1997C$)</td>
<td>26.71</td>
<td>26.27</td>
<td>26.09</td>
<td>6.58</td>
<td>2.41</td>
<td>2.77</td>
<td>4.86</td>
<td>3.08</td>
</tr>
<tr>
<td class="firstcol">Price Index (1997=100)</td>
<td>108.0</td>
<td>108.1</td>
<td>106.5</td>
<td>-1.10</td>
<td>1.41</td>
<td>0.97</td>
<td>1.43</td>
<td>1.26</td>
</tr>
</tbody>
</table>
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July retail sales in Canada increased at an annual rate of 5.54%, indicating continued strength in the economy and reinforcing the trend set by earlier reports of strong advances in manufacturing activity. New and used vehicles and [...]

Another Sign of a Good Third Quarter for Canada: Strong Retail Sales Growth in July

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921c.jpg" width="353">
Chain store sales dropped 1.1% last week, according to the International Council of Shopping Centers (ICSC)-UBS, as Hurricane Ivan slammed into the Gulf Coast.
The decline lowered September sales so far 0.4% below the August average which was unchanged from July.
During the last ten years there has been a 60% correlation between 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 reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart. 

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/18/04</th>
<th scope="col">09/11/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>434.7</td>
<td>439.4</td>
<td>3.5%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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Chain store sales dropped 1.1% last week, according to the International Council of Shopping Centers (ICSC)-UBS, as Hurricane Ivan slammed into the Gulf Coast. The decline lowered September sales so far 0.4% below the August average [...]

Hurricane Ivan Battered U.S. Chain Store Sales

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921a.jpg" width="353">
The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) backpedaled in September to 68 and reversed nearly all of the gain in August.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
The index of current single family home sales reversed more than all of the August gain and the index of expected sales during the next six months fell more moderately.
The index of traffic of prospective buyers fell to 52 but remained at a relatively high level.
Visit the National Association of Home Builders using this <a href="http://www.nahb.org">link</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM"> Nat&#39;l Association of Home Builders</a></th>
<th scope="col"> Sept</th>
<th scope="col"> Aug</th>
<th scope="col"> Sept &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Composite Housing Market Index</td>
<td>68</td>
<td>71</td>
<td>68</td>
<td>64</td>
<td>61</td>
<td>56</td>
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The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) backpedaled in September to 68 and reversed nearly all of the gain in August. The NAHB index is a diffusion index based on a survey of [...]

Housing Market Index Backpedaled

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921b.jpg" width="353">
Housing starts added a slight 0.6% last month to the upwardly revised 9.4% jump in July.At 2.000 mil., starts were at the highest level of 2004 and year to date have averaged 5.1% above 2003. The Consensus forecast had been for 1.94M starts for August.
Single-family starts rose 0.4% on the heels of the 9.2% jump the prior month. Year to date single family starts have averaged 6.5% above last year&#39;s average.
Multi-family starts rose 1.5% in August but for the year have averaged 1.1% below 2003.
Housing starts rose in August throughout the country with the exception of the West. Year to date 2004 changes versus 2003 by region are as follows: Northeast, 8.0%; Midwest, -5.1%; South, 7.7%; West, 7.1%.
Building permits fell 5.5% m/m and reversed most of the 6.2% July gain.
&quot;Can a Summer Hike Cause a Surprise Fall for Mortgage Rates?&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20040901/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</a></th>
<th scope="col"> Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,000</td>
<td>1,988</td>
<td>9.0%</td>
<td>1,853</td>
<td>1,710</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,667</td>
<td>1,660</td>
<td>11.6%</td>
<td>1,505</td>
<td>1,363</td>
<td>1,272</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>333</td>
<td>328</td>
<td>-2.3%</td>
<td>348</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,952</td>
<td>2,066</td>
<td>-0.6%</td>
<td>1,889</td>
<td>1,749</td>
<td>1,637</td>
</tr>
</tbody>
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Housing starts added a slight 0.6% last month to the upwardly revised 9.4% jump in July.At 2.000 mil., starts were at the highest level of 2004 and year to date have averaged 5.1% above 2003. The Consensus forecast had been for 1.94M [...]

August Housing Starts At Year's High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921g.jpg" width="353">
The Federal Open Market Committee raised the target rate for federal funds by 25 basis points to 1.75%, as expected. The discount rate also was raised 25 basis points to 2.75%.
The decision was unanimous.
Today&#39;s press release from the Fed again contained comments suggesting that rates could be raised again. &quot;The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.&quot; These comments are identical to the Fed&#39;s last.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921f.jpg" width="353">
The Fed&#39;s statement noted that the economy &quot;appears to have regained some traction&quot; after moderating in reaction to higher energy prices.
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040921/default.htm">here</a>.
Today&#39;s action by the FOMC seems more to address market inflationary expectations rather than economic growth or inflation directly. As the accompanying chart indicates, price inflation during the last twenty years has not been very responsive to whether the US economy was operating above or below its potential.
The role of money in determining inflation is discussed <a href="http://www.rich.frb.org/pubs/economic_quarterly/pdfs/summer2004/hetzel.pdf"> here</a> by the Federal Reserve Bank of Richmond in a report titled &quot;How Do Central Banks Control Inflation?.&quot;
&quot;1994&quot;, a commentary on past FOMC action from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20040701/cover.pdf"> here.</a>

August Housing Starts At Year's High 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921b.jpg" width="353">
Housing starts added a slight 0.6% last month to the upwardly revised 9.4% jump in July.At 2.000 mil., starts were at the highest level of 2004 and year to date have averaged 5.1% above 2003. The Consensus forecast had been for 1.94M starts for August.
Single-family starts rose 0.4% on the heels of the 9.2% jump the prior month. Year to date single family starts have averaged 6.5% above last year&#39;s average.
Multi-family starts rose 1.5% in August but for the year have averaged 1.1% below 2003.
Housing starts rose in August throughout the country with the exception of the West. Year to date 2004 changes versus 2003 by region are as follows: Northeast, 8.0%; Midwest, -5.1%; South, 7.7%; West, 7.1%.
Building permits fell 5.5% m/m and reversed most of the 6.2% July gain.
&quot;Can a Summer Hike Cause a Surprise Fall for Mortgage Rates?&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20040901/cover.pdf"> here</a>.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</a></th>
<th scope="col"> Aug</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,000</td>
<td>1,988</td>
<td>9.0%</td>
<td>1,853</td>
<td>1,710</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,667</td>
<td>1,660</td>
<td>11.6%</td>
<td>1,505</td>
<td>1,363</td>
<td>1,272</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>333</td>
<td>328</td>
<td>-2.3%</td>
<td>348</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,952</td>
<td>2,066</td>
<td>-0.6%</td>
<td>1,889</td>
<td>1,749</td>
<td>1,637</td>
</tr>
</tbody>
</table>
Housing Market Index Backpedaled 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921a.jpg" width="353">
The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) backpedaled in September to 68 and reversed nearly all of the gain in August.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
The index of current single family home sales reversed more than all of the August gain and the index of expected sales during the next six months fell more moderately.
The index of traffic of prospective buyers fell to 52 but remained at a relatively high level.
Visit the National Association of Home Builders using this <a href="http://www.nahb.org">link</a>.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM"> Nat&#39;l Association of Home Builders</a></th>
<th scope="col"> Sept</th>
<th scope="col"> Aug</th>
<th scope="col"> Sept &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>68</td>
<td>71</td>
<td>68</td>
<td>64</td>
<td>61</td>
<td>56</td>
</tr>
</tbody>
</table>
Hurricane Ivan Battered U.S. Chain Store Sales 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040921c.jpg" width="353">
Chain store sales dropped 1.1% last week, according to the International Council of Shopping Centers (ICSC)-UBS, as Hurricane Ivan slammed into the Gulf Coast.
The decline lowered September sales so far 0.4% below the August average which was unchanged from July.
During the last ten years there has been a 60% correlation between 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 reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart. 

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/18/04</th>
<th scope="col">09/11/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>434.7</td>
<td>439.4</td>
<td>3.5%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Federal Open Market Committee raised the target rate for federal funds by 25 basis points to 1.75%, as expected. The discount rate also was raised 25 basis points to 2.75%. The decision was unanimous. Today's press release from [...]

FOMC Raised Funds Rate for Third Time

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040920c.jpg" width="353">
Data on the industrial composition of employment in Hong Kong were released today. Although these data refer only to the second quarter of the year, in contrast to the more up-to-date overall data that Carol Stone commented on last week, they shed light on the movement of employees within the labor market.
The data are from the Quarterly Surveys of Employment and Vacancies and of Construction Sites. Data for the mining, quarrying, electricity and gas sectors are not included.
The general weakness of the labor market in comparison with the pre 1997 era, noted by Carol Stone, is evident in these data. Except for the those employed in the community, social and personal sector, employment in all the other sectors declined in the last three years. However, the rates of decline differed significantly. The greatest weakness has been in the manufacturing and construction sectors. While the data show some improvement in the manufacturing and construction sectors in second quarter of this year, the year over year comparisons are still negative. The remaining sectors--largely service related sectors--have begun to show significant increases.
The attached chart comparing employment in the manufacturing sector with that in the community, social and personal sector, as a representative of the service sector, dramatizes the shift in employment from manufacturing to services.

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Employment (Thousands of Persons)</th>
<th scope="col">Q2 04</th>
<th scope="col">Q1 04</th>
<th scope="col">Q2 03</th>
<th scope="col">Q/Q &nbsp;%</th>
<th scope="col">Y/Y &nbsp;%</th>
<th scope="col">2003&nbsp; %</th>
<th scope="col">&nbsp;2002 &nbsp;%</th>
<th scope="col">&nbsp; 2001&nbsp; &nbsp;%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>169.6</td>
<td>168.9</td>
<td>172.9</td>
<td>0.41</td>
<td>-1.68</td>
<td>-10.31</td>
<td>-8.85</td>
<td>-8.63</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>66.6</td>
<td>66.1</td>
<td>67.3</td>
<td>0.76</td>
<td>-1.04</td>
<td>-10.04</td>
<td>-8.81</td>
<td>0.88</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale, retail, export/import trade, hotels and restaurants</td>
<td>989.2</td>
<td>975.8</td>
<td>958.4</td>
<td>1.37</td>
<td>3.21</td>
<td>-3.02</td>
<td>-2.33</td>
<td>-1.22</td>
</tr>
<tr>
<td class="firstcol">Transport, storage and communication</td>
<td>178.9</td>
<td>176.1</td>
<td>170.9</td>
<td>1.59</td>
<td>4.68</td>
<td>-4.39</td>
<td>-1.79</td>
<td>2.37</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance, Insurance and real estate</td>
<td>&nbsp;434.2</td>
<td>428.6</td>
<td>419.0</td>
<td>1.31</td>
<td>3.63</td>
<td>-1.68</td>
<td>-1.32</td>
<td>1.60</td>
</tr>
<tr>
<td class="firstcol">Community, social and personal services</td>
<td>418.2</td>
<td>412.0</td>
<td>400.6</td>
<td>1.48</td>
<td>4.37</td>
<td>2.89</td>
<td>6.76</td>
<td>5.41</td>
</tr>
</tbody>
</table>
</body>
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Data on the industrial composition of employment in Hong Kong were released today. Although these data refer only to the second quarter of the year, in contrast to the more up-to-date overall data that Carol Stone commented on last [...]

Employment in Hong Kong Continues to Shift from Manufacturing and Construction to Services

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040920a.jpg" width="353">
Since May, the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) has declined in all but a handful of weeks. Its smoothed six-month growth rate has now fallen into negative territory for the first time since early 2003.
The growth rate&#39;s initial move into negative territory in 2002 foreshadowed a slowdown in quarterly real GDP growth to 0.7% by yearend from 3.4% early in the year.
Recent declines in the leading index reflects broad weakness amongst the components. The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
During the last ten years there has been a 69% correlation between the six-month growth in the ECRI leading index of the US economy and two quarter growth in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040920b.jpg" width="353">
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. There has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</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/@W8/@W801/@W801.HTM">ECRI Leading Index</a></th>
<th scope="col">09/10/04</th>
<th scope="col">09/03/04</th>
<th scope="col">Growth Rate</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Weekly</td>
<td>131.7</td>
<td>132.5</td>
<td>-0.2%</td>
<td>6.5%</td>
<td>1.1%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Aug</td>
<td>July</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>130.8</td>
<td>131.0</td>
<td>-0.2%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
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Since May, the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) has declined in all but a handful of weeks. Its smoothed six-month growth rate has now fallen into negative territory for [...]

ECRI U.S. Leading Index Down

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/040917d.jpg" width="353">
Inflation remains well contained in Canada, according to the Statistics Canada report on the August CPI released today. Indeed, there has been little movement in the consumer price index since May. The overall index fell 0.2% in August, seasonally adjusted and the ex-food-&amp;-energy &quot;core&quot; index was off 0.1%. Thus, for the month of August, there was outright de-flation; broad categories contributing to the price decline included transportation, health and personal care and recreation, education and reading.
The Bank of Canada uses an inflation target as its main guideline for monetary policy. The target is a 1%-3% range for the CPI, with 2%, the midpoint of the range, kept in sight over the one-and-a-half to two year period that it takes monetary policy to be effective. This operational horizon is long, so the Bank wants to avoid shifting policy due to some transitory movement in one or a few volatile price items. It has therefore devised an alternative measure of &quot;core&quot; inflation that excludes the eight most volatile items as well as indirect taxes (e.g., VAT and other excises. See footnote below for the list of exclusions). Most recently, in 2002, as the Bank&#39;s core inflation rate showed signs of persisting above 2% (year-on-year), the Bank raised its target money market rate several times. Core inflation peaked at 3.3% in January of 2003 and began to retreat; as it approached 2% in the summer of 2003, the Bank responded by cutting interest rates. These past few months, the total CPI has hovered between 2-1/4% and 2-1/2%. In the context of stronger-than-expected economic growth in Canada, the Bank raised its rate target on September 8 to 2.25%. However, the latest CPI data reported here show overall inflation at 1.9% and the special Bank of Canada core inflation at just 1.5%. If these price gauges persist at the levels, the Bank might have to reconsider its policy stance.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Canada CPI: % Changes </th>
<th scope="col">Aug 2004</th>
<th scope="col">July 2004</th>
<th scope="col">June 2004</th>
<th scope="col">Year/ Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">All Items</td>
<td>-0.2</td>
<td>0.0</td>
<td>0.1</td>
<td>1.9</td>
<td>2.0</td>
<td>3.9</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Ex Food &amp; Energy</td>
<td>-0.1</td>
<td>0.0</td>
<td>0.1</td>
<td>1.2</td>
<td>1.6</td>
<td>3.9</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">Ex 8 Items &amp; Indirect Taxes*</td>
<td>-0.2</td>
<td>0.2</td>
<td>0.2</td>
<td>1.5</td>
<td>2.2</td>
<td>2.7</td>
<td>1.6</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflation remains well contained in Canada, according to the Statistics Canada report on the August CPI released today. Indeed, there has been little movement in the consumer price index since May. The overall index fell 0.2% in [...]

Canadian Consumer Prices Fall in August

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.

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

250501H20.jpg

250501I20.jpg

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

U.S. Light Vehicle Sales Fall in April

250501J5.jpg

250501K5.jpg

The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

250501L5.jpg

250501M5.jpg

- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

250501N.jpg

250501O.jpg

The value of construction put in place unexpectedly fell 0.5% m/m in March after rises of 0.6% in February (+0.7% initially) and 0.1% in January (-0.5% previously), data from the U.S. Census Bureau showed. The March reading was the first m/m fall following five straight m/m gains. A 0.3% m/m March rise had been expected in the Action Economics Forecast Survey. The year-on-year rate of increase decelerated to 2.8% in March, the lowest since May 2019, after registering at 3.4% in February and January. The latest y/y figure was lower than 8.7% in March 2024; thus, having remained below its recent high of 9.8% in January 2024 and a peak of 18.6% in April 2022.

Private construction slid 0.6% (+2.3% y/y) in March, down for the first time since September, following increases of 0.7% in February (+0.9% initially) and 0.1% in January (-0.7% previously). Residential private construction fell 0.4% (+2.8% y/y) in March, the first m/m fall in six months, after an unrevised 1.3% gain in February. Home improvement building dropped 1.2% (+13.4% y/y), the first m/m decline since December, following a 2.3% February gain; it was 41.1% of the residential private construction. Single-family building edged up 0.1% (-0.8% y/y), the smallest of seven consecutive m/m increases, after a 0.8% February rise; it was 46.6% of the residential private construction. Meanwhile, multi-family building was essentially unchanged m/m (-12.1% y/y) in March following 15 straight m/m decreases; it was 12.3% of the residential private construction.

Nonresidential private construction fell 0.8% (+1.6% y/y) in March after a 0.1% increase in February (+0.4% initially) and a 0.1% easing in January (-0.2% previously). The March fall reflected m/m drops in the following nonresidential private constructions. These included religious (-2.9%; +16.4% y/y), health care (-2.2%; -5.2% y/y), office (-1.8%; +2.7% y/y), educational (-1.7%; -4.2% y/y), lodging (-1.6%; -1.0% y/y), commercial (-1.0%; -5.8% y/y), manufacturing (-0.4%; +3.6% y/y), communication (-0.3%; +2.2% y/y), and utilities (-0.1%; +7.0% y/y). In contrast, private constructions for amusement & recreation (1.5%; 7.0% y/y) and transportation (0.7%; 10.2% y/y) rose m/m in March.

The value of public construction declined 0.2% (+4.7% y/y) in March after holding steady in February (+0.2% initially), reflecting a 0.2% increase (-1.9% y/y) in residential public construction and a 0.2% easing (+4.8% y/y) in nonresidential public construction. The March decline reflected m/m drops in the following nonresidential public constructions. These included utilities (-4.8%; -12.8% y/y), commercial (-1.6%; +40.3% y/y), amusement & recreation (-1.0%; +19.1% y/y), educational (-0.6%; +7.6% y/y), sewage & waste disposal (-0.6%; +10.6% y/y), and health care (-0.4%; +13.0% y/y). Notably, spending on highways & streets, which made up 28.7% of public construction spending, fell 0.5% (-2.4% y/y) in March, the first m/m fall since October, following a 0.9% increase in February. To the upside, the following public constructions rose m/m in March: office (1.6%; 6.0% y/y), transportation (1.4%; 7.3% y/y), public safety (0.7%; 4.1% y/y), conservation & development (0.6%; 4.7% y/y), and water supply (0.6%; 12.2% y/y).

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

250501P.jpg

250501Q.jpg

- March construction spending -0.5% m/m; +2.8% y/y, the lowest y/y rate since May ’19.
- Residential private construction -0.4% m/m, led by a 1.2% drop in home improvement building.
- Nonresidential private construction -0.8% m/m, down for the second month in three.
- Public sector construction -0.2% m/m, reflecting a 0.2% decline in nonresidential public building.

U.S. Construction Spending Unexpectedly Drops in March, the First M/M Fall Since September

250501A8.jpg

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

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

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

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

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

250501C8.jpg

250501D8.jpg

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

Economy in Brief: September 2004

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