Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031124b.jpg" width="353">
South Korea is the fourth country in the Pacific Rim to report an increase in Gross Domestic Product in the third quarter. Earlier this month, Indonesia reported a 1.40% gain, Malaysia, a 2.15% gain and Singapore a 4.07% gain.
Although South Korea&#39;s gain was the smallest at 1.14%, it reversed the declining trend of the first two quarters of this year. The South Korean economy has been plagued by political uncertainty, bad weather and consumer credit problems, particularly among the lower income levels.
A substantial increase in exports accompanied by a lesser increase in imports and a modest increase in private consumption spending more than offset declines in gross capital formation and government consumption spending. The rise in private spending was particularly encouraging in view of the troubled credit situation.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;South Korea Gross Domestic Product&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</th>
<th scope="col">Q3 &nbsp;2003</th>
<th scope="col">Q2 &nbsp;2003</th>
<th scope="col">Q1 &nbsp;2003&nbsp;</th>
<th scope="col">2002&nbsp; %</th>
<th scope="col">2001&nbsp; %</th>
<th scope="col">2000&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gross Domestic Product</td>
<td>1.14</td>
<td>-0.68</td>
<td>-0.40</td>
<td>6.27</td>
<td>3.23</td>
<td>9.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Private Consumption</td>
<td>1.23</td>
<td>-1.30</td>
<td>-2.24</td>
<td>6.78</td>
<td>4.74</td>
<td>7.85</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Government Consumption</td>
<td>-1.65</td>
<td>-2.90</td>
<td>4.20</td>
<td>3.00</td>
<td>1.23</td>
<td>0.14</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Gross Capital Formation</td>
<td>-11.02</td>
<td>-2.99</td>
<td>8.00</td>
<td>4.46</td>
<td>-2.85</td>
<td>10.94</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Exports of Goods and Services</td>
<td>10.82</td>
<td>-1.02</td>
<td>0.22</td>
<td>14.78</td>
<td>0.63</td>
<td>20.56</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Imports of Goods and Services</td>
<td>7.30</td>
<td>-4.59</td>
<td>3.21</td>
<td>16.42</td>
<td>-3.10</td>
<td>20.03</td>
</tr>
</tbody>
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South Korea is the fourth country in the Pacific Rim to report an increase in Gross Domestic Product in the third quarter. Earlier this month, Indonesia reported a 1.40% gain, Malaysia, a 2.15% gain and Singapore a 4.07% gain. [...]

South Korea is the Fourth Pacific RIM Country to Report Increased Growth in the Third Quarter

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031124a.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose to a record high level in the latest week.
The latest increase pulled the six-month growth rate of the weekly leading index to 11.1%.
During the last ten years there has been a 62% correlation between the six-month growth in the leading index and the two quarter growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been a 75% correlation between the y/y percent change in the two series over the last 20 years.
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.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months. The sideways movement of the leading index in 2002 may or may not signal something about the economy&#39;s growth rate.

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<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"> 11/14/03</th>
<th scope="col"> 11/07/03</th>
<th scope="col"> Growth Rate</th>
<th scope="col"> 2002</th>
<th scope="col"> 2001</th>
<th scope="col"> 2000</th>
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">Weekly</td>
<td>130.9</td>
<td>129.2</td>
<td>11.1%</td>
<td>1.2%</td>
<td>-5.3%</td>
<td>-0.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
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<td class="firstcol">&nbsp;</td>
<td> Oct</td>
<td> Sept</td>
<td> Growth Rate</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Monthly</td>
<td>128.8</td>
<td>128.5</td>
<td>11.0%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose to a record high level in the latest week. The latest increase pulled the six-month growth rate of the weekly leading index to [...]

ECRI Weekly Leading Indicators at Record High

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/031121b.jpg" width="353">
The entire Venezuelan economy suffered from last winter&#39;s oil industry strike, which lasted from December through February. Its impact on GDP in Q4 2002 and Q1 2003 is readily evident in the chart nearby.
The latest data, issued today by the Central Bank of Venezuela for Q3 shows a quick rebound in overall activity, but a level of GDP still more than 7% less than the pre-strike amount in Q3 2002.
Petroleum activity weakened anew in Q3, but non-petroleum sectors are continuing a recovering phase. A good portion of that amelioration has taken place in social services, however, and while activity in the core of private industry, especially construction, manufacturing, and trade, appears to be picking up, it remains well below pre-strike volumes.
At the same time, better performances in Venezuela&#39;s foreign trade accounts appears to be giving an assist to the overall economy. The balances of trade in both petroleum and non-petroleum products have improved markedly since strike- ridden Q1, and international reserves have increased to $18.4 billion at the end of September, the second highest month on record (the highest was $18.9 billion in November 1997).

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<th scope="col" class="firstcol">Percent Changes</th>
Year/Year
4th Qtr/4th Qtr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">3rd Qtr 2003</td>
<td>2nd Qtr 2003</td>
<td>1st Qtr 2003 &nbsp;</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">GDP (not seasonally adj.)</td>
<td>-7.1</td>
<td>-9.4</td>
<td>-27.7</td>
<td>-16.7</td>
<td>+0.9</td>
<td>+5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Petroleum Activity</td>
<td>-9.1</td>
<td>-2.9</td>
<td>-47.2</td>
<td>-25.5</td>
<td>-5.0</td>
<td>+7.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Non-petroleum Activity</td>
<td>-6.0</td>
<td>-10.1</td>
<td>-18.9</td>
<td>-12.4</td>
<td>+3.1</td>
<td>+4.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Billions of US $</td>
<td>3rd Qtr 2003</td>
<td>2nd Qtr 2003</td>
<td>1st Qtr 2003 &nbsp;</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Current Account Balance</td>
<td>+$2.8</td>
<td>+$3.3</td>
<td>+$0.8</td>
<td>+$7.4</td>
<td>+$2.1</td>
<td>+$12.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Reserves, End of Period</td>
<td>$18.4</td>
<td>$16.9</td>
<td>$13.7</td>
<td>$12.0</td>
<td>$12.3</td>
<td>$15.9</td>
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The entire Venezuelan economy suffered from last winter's oil industry strike, which lasted from December through February. Its impact on GDP in Q4 2002 and Q1 2003 is readily evident in the chart nearby. The latest data, issued today [...]

Venezuela Struggles to Recover from Early 2003 Oil Strike

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031121a.jpg" width="353">
The foreign exchange value of the US dollar versus major currencies fell yesterday to the lowest level since late 1996 (-15.1% y/y). Roughly 50% of US foreign trade is with the countries in the major currency index.
Against a broader basket of currencies, the US dollar has fallen a lesser 8.3% y/y. Over 40% of US foreign trade is with Mexico, China and other Asian countries. Against these countries the US$ has been relatively stable, or up versus the peso.
The dollar&#39;s value has been notably weak versus the Euro which is up 19.1% y/y. The dollar also has weakened notably versus the yen as signs of Japanese economic improvement have emerged.
Versus the UK pound, the dollar&#39;s decline recently has picked up steam losing 6.7% in just the last three months. UK economic growth has improved and inflation has been stable.
Against the Canadian dollar the US currency has fallen out of bed, down 17.3% y/y.
Exchange rate forecasting is discussed in this Federal Reserve Board International Finance Discussion Paper that could be found <a href="http://www.federalreserve.gov/pubs/ifdp/2003/779/default.htm">here</a>. <table border="1" cellpadding="0" cellspacing="0" width="100%"><tr><td align="left" height="16" valign="top" width="264"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM"> Exchange Rates</a></td><td align="center" height="16" valign="top" width="81">11/20/03</td><td align="center" height="16" valign="top" width="79">12/31/02</td><td align="center" height="16" valign="top" width="50">Y/Y</td><td align="center" height="16" valign="top" width="56">2002</td><td align="center" height="16" valign="top" width="65">2001</td><td align="center" height="16" valign="top" width="66">2000</td></tr><tr><td align="left" height="13" valign="top" width="264">US$ Major Currency Index (3/73=100)</td><td align="center" height="13" valign="center" width="81">85.15</td><td align="center" height="13" valign="center" width="79">97.65</td><td align="center" height="13" valign="center" width="50">-15.1%</td><td align="center" height="13" valign="center" width="56">103.08</td><td align="center" height="13" valign="center" width="65">104.26</td><td align="center" height="13" valign="center" width="66">98.42</td></tr><tr><td align="left" height="16" valign="top" width="264">Japan (Yen/US$)</td><td align="center" height="16" valign="center" width="81">108.99</td><td align="center" height="16" valign="center" width="79">118.75</td><td align="center" height="16" valign="center" width="50">-11.3%</td><td align="center" height="16" valign="center" width="56">125.22</td><td align="center" height="16" valign="center" width="65">121.57</td><td align="center" height="16" valign="center" width="66">107.80</td></tr><tr><td align="left" height="16" valign="top" width="264">European Monetary Union (US$/Euro)</td><td align="center" height="16" valign="center" width="81">1.1895</td><td align="center" height="16" valign="center" width="79">1.0485</td><td align="center" height="16" valign="center" width="50">19.1%</td><td align="center" height="16" valign="center" width="56">0.9454</td><td align="center" height="16" valign="center" width="65">0.8952</td><td align="center" height="16" valign="center" width="66">0.9232</td></tr><tr><td align="left" height="16" valign="top" width="264">United Kingdom (US$/Pound)</td><td align="center" height="16" valign="center" width="81">1.7024</td><td align="center" height="16" valign="center" width="79">1.6095</td><td align="center" height="16" valign="center" width="50">8.1%</td><td align="center" height="16" valign="center" width="56">1.5025</td><td align="center" height="16" valign="center" width="65">1.4396</td><td align="center" height="16" valign="center" width="66">1.5156</td></tr></table>

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM"> Exchange Rates</a></th>
<th scope="col">11/20/03</th>
<th scope="col">12/31/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">US$ Major Currency Index (3/73=100)</td>
<td>85.15</td>
<td>97.65</td>
<td>-15.1%</td>
<td>103.08</td>
<td>104.26</td>
<td>98.42</td>
</tr>
<tr>
<td class="firstcol">Japan (Yen/US$)</td>
<td>108.99</td>
<td>118.75</td>
<td>-11.3%</td>
<td>125.22</td>
<td>121.57</td>
<td>107.80</td>
</tr>
<tr class="odd">
<td class="firstcol">European Monetary Union (US$/Euro)</td>
<td>1.1895</td>
<td>1.0485</td>
<td>19.1%</td>
<td>0.9454</td>
<td>0.8952</td>
<td>0.9232</td>
</tr>
<tr>
<td class="firstcol">United Kingdom (US$/Pound)</td>
<td>1.7024</td>
<td>1.6095</td>
<td>8.1%</td>
<td>1.5025</td>
<td>1.4396</td>
<td>1.5156</td>
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</tbody>
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The foreign exchange value of the US dollar versus major currencies fell yesterday to the lowest level since late 1996 (-15.1% y/y). Roughly 50% of US foreign trade is with the countries in the major currency index. Against a broader [...]

US Dollar At Seven Year Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031120e.jpg" width="353">
<span style="font-size:10.0pt;font-family:Verdana;
mso-fareast-font-family:&quot;MS Mincho&quot;;mso-bidi-font-family:&quot;Times New Roman&quot;;
mso-ansi-language:EN-US;mso-fareast-language:JA;mso-bidi-language:AR-SA">October retail sales in the UK picked up further from recent months, establishing a distinct uptrend after a pause last winter. Total retail sales in volume terms rose at a 6.2% annual rate in the three months ended October, stronger than the summer&#39;s 5.2% and much firmer than last winter&#39;s nearly flat 0.3%.
<span style="font-size:10.0pt;font-family:Verdana;
mso-fareast-font-family:&quot;MS Mincho&quot;;mso-bidi-font-family:&quot;Times New Roman&quot;;
mso-ansi-language:EN-US;mso-fareast-language:JA;mso-bidi-language:AR-SA">Both food and non-food stores have gained strength in recent months, with non-food clearly in the lead. Within that sector, the advances have rotated among groups. &quot;Other&quot;, which would encompass books, gifts, jewelry, sporting goods and miscellaneous items have most recently been the strongest, up at a 10.5% annual pace in the latest three months Clothing stores have the largest year-on-year increase, 7.5%. So-called &quot;non-specialized&quot; stores have had less buoyant sales, while those at non-stores, that is mail order and Internet buying, have been falling rather markedly.
<span style="font-size:10.0pt;font-family:Verdana;
mso-fareast-font-family:&quot;MS Mincho&quot;;mso-bidi-font-family:&quot;Times New Roman&quot;;
mso-ansi-language:EN-US;mso-fareast-language:JA;mso-bidi-language:AR-SA">Thus, UK consumers seem to be selective in their buying and have seen the novelty of shopping from home fade somewhat. Even so, demand is growing firmly and has already contributed to the Bank of England&#39;s decision earlier this month to raise its &quot;repo rate&quot; from 3.5% to 3.75%. The Bank&#39;s Monetary Policy Committee indicated that, among other factors in their decision, they had expected household spending to be slower than has developed in these last several months.

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<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
3-Month % Change (Annualized)
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Sales Volume</td>
<td>Oct 2003</td>
<td>July 2003</td>
<td>April 2003</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">&nbsp; All items</td>
<td>6.2</td>
<td>5.2</td>
<td>0.3</td>
<td>7.2</td>
<td>6.3</td>
<td>4.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mainly food</td>
<td>4.7</td>
<td>3.9</td>
<td>1.8</td>
<td>6.1</td>
<td>3.5</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Predominantly&nbsp; Nonfood</td>
<td>8.7</td>
<td>7.2</td>
<td>1.9</td>
<td>7.4</td>
<td>9.2</td>
<td>6.5</td>
</tr>
</tbody>
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</body>
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October retail sales in the UK picked up further from recent months, establishing a distinct uptrend after a pause last winter. Total retail sales in volume terms rose at a 6.2% annual rate in the three months ended October, stronger [...]

UK Retail Sales Resume Firm Growth

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031120a.jpg" width="353">
Initial claims for jobless insurance fell to 355,000 last week. Down 15,000 w/w and down 73,000 (17.1%) since early September, claims were near the lowest level since early 2001. Consensus expectations had been for claims of 365,000.
The four-week moving average of initial claims fell to 367,250 (-8.0% y/y), the lowest level since February 2001.
Continuing claims for unemployment insurance rose 21,000 in the latest week but the prior week&#39;s gain was revised to 1,000 versus 49,000 reported initially. Continuing claims for unemployment insurance are down 7.5% from the peak in late June.
The insured rate of unemployment ticked up to 2.8% but the prior two weeks were revised down to 2.7%.
&quot;Monetary Policy in Jobless Recoveries&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20031101/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM"> Unemployment Insurance (000s)</a></th>
<th scope="col">11/15</th>
<th scope="col">11/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>355.0</td>
<td>370.0</td>
<td>-7.8%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,497</td>
<td>-2.2%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
Leading Indicators Up More Than Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 20, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031120c.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators rose 0.4% in October following an upwardly revised no change in September. The rise was twice Consensus expectations for a 0.2% gain.
Gains amongst the leaders&#39; component broadened to 60%. Over a six-month span, 85% of the leading series rose.
Fewer claims for jobless insurance, improved vendor performance, higher building permits and higher stock prices each contributed meaningfully to the October gain in the leading index.
The Leading index is based on eight previously reported economic data series and two that are estimated.
The coincident indicators posted a 0.2% gain for the second month. Year to date the coincident indicators are up 0.8% (AR). That YTD increase has been led by a 3.5% gain in real manufacturing &amp; trade sales and a 2.0% gain in industrial production. Employment has fallen
The ratio of coincident-to-lagging indicators was unchanged. The ratio is an indicator of excess relative to actual economic performance.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
&quot;Should the Fed React to the Stock Market?&quot; is a new report from the Federal Reserve Bank of San Francisco and it is available <a href="http://www.frbsf.org/publications/economics/letter/2003/el2003-34.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM"> Business Cycle Indicators</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.4%</td>
<td>0.0%</td>
<td>2.9%</td>
<td>2.1%</td>
<td>-0.9%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>-0.6%</td>
<td>-2.4%</td>
<td>-4.4%</td>
<td>-1.3%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
Chicago Fed National Activity Index Positive 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 20, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031120b.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) in October (0.01) remained positive for the third month in four.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
The three-month moving average of the CFNAI fell slightly to -0.07 from 0.06 the prior period.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
For a complete discussion of the latest Chicago Fed&#39;s National Activity Index click <a href="http://www.chicagofed.org/economicresearchanddata/national/pdffiles/CFNAI_november2003.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM"> Chicago Fed</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;02</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.01</td>
<td>0.16</td>
<td>-0.65</td>
<td>-0.35</td>
<td>-1.17</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 20, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031120d.jpg" width="353">
The Philadelphia Fed&#146;s index of general business conditions in the manufacturing sector fell in November to 25.9 versus 28.0 in October. Consensus expectations were for a reading of 25.0.
The business conditions index remained near its highest level since July 1996.
During the last twenty years there has been a 64% correlation between the level of the Philadelphia Fed Business Conditions Index and quarterly growth in real GDP. The correlation with quarterly growth in factory sector industrial production has been 77%.
Amongst the sub indexes, new orders backpedaled from the October high to 20.8 versus 29.0. Shipments (26.8) also fell but only modestly. The employment index at 3.3 remained positive for the second consecutive month.
The business conditions index reflects a separate survey question, not the sub indexes.
A separate survey of expected business conditions in six months improved to 63.4, recovering most of the prior month&#39;s decline.
The prices paid index rose slightly to 24.9.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found<a href="http://www.phil.frb.org/files/bos/bos1103.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM"> Philadelphia Fed Business Outlook</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;02</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>25.9</td>
<td>28.0</td>
<td>6.5</td>
<td>7.7</td>
<td>-17.2</td>
<td>8.3</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>24.9</td>
<td>22.3</td>
<td>16.6</td>
<td>12.2</td>
<td>-0.9</td>
<td>27.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance fell to 355,000 last week. Down 15,000 w/w and down 73,000 (17.1%) since early September, claims were near the lowest level since early 2001. Consensus expectations had been for claims of 365,000. [...]

Initial Claims for Jobless Insurance Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031119f.jpg" width="353">
As in the US CPI data reported yesterday, consumer prices in other countries were restrained last month by lower energy costs. Canada&#39;s All-Items index was flat on the month, seasonally adjusted, and up 1.6% on the year. This latter is the smallest 12-month increase since June 2002. A retreat in the 12-month rise from 2.0% in September was entirely accounted for by energy. Excluding that sector, the 12-month rate was 1.9% in both September and October.
In France, the entire CPI was up 0.3% from September to October and 2.2% from October 2002. During the 12 months, energy prices actually fell 0.4%, so that the 12-month rate excluding energy is 2.4%. However, in October, the main mover in French inflation was tobacco, which surged 6.8%. Without that large increase, the CPI would have risen just 1.8%. In France, this 12-month CPI excluding tobacco has been under 2% since last April. So inflation for non-smokers is quite low.
As noted in our commentary on the US CPI yesterday, energy prices have continued to decline in November, pointing to another month of modest inflation, not only in the US but, as we see here, among other nations as well.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">12-Month Percent Changes</th>
<th scope="col">Oct 2003</th>
<th scope="col">Sep 2003</th>
<th scope="col">Aug 2003&nbsp;</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Canada</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; CPI&nbsp; all items</td>
<td>1.6</td>
<td>2.0</td>
<td>2.0</td>
<td>2.3</td>
<td>2.5</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; CPI excl energy</td>
<td>1.9</td>
<td>1.9</td>
<td>1.7</td>
<td>2.7</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; CPI&nbsp; all items</td>
<td>2.2</td>
<td>2.1</td>
<td>1.9</td>
<td>1.9</td>
<td>1.7</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; CPI excl energy</td>
<td>2.4</td>
<td>2.3</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
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As in the US CPI data reported yesterday, consumer prices in other countries were restrained last month by lower energy costs. Canada's All-Items index was flat on the month, seasonally adjusted, and up 1.6% on the year. This latter [...]

Energy Prices Hold Back Canadian and French CPIs

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031119d.jpg" width="353">
Housing starts surged unexpectedly in October, rising 2.9% m/m to the highest level since January 1986. Consensus forecasts had been for a moderate decline versus September, which was revised up.
Single family starts rose 5.7% m/m to a record high 1.617M. Year-to-date, single family starts are up 7.3% versus all of last year.
Multi-family starts slipped 8.5% m/m and year-to-date are down 2.6% versus last year.
Huge declines in total housing starts in the Northeast and in the Midwest were offset last month by strength elsewhere. The 18.0% decline in starts in the Northeast mostly reflected lower multi-family starts. The same was true for the 8.0% decline in starts in the Midwest. Starts rose in other regions of the country, but the 18.6% m/m gain in single family starts in the West (16.8% y/y) was notable.
Building permits rose 5.2% m/m reflecting a 3.2% increase in single family permits and an 18.7% rise in permits for 5 or more unit structures.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,960</td>
<td>1,905</td>
<td>18.6%</td>
<td>1,711</td>
<td>1,601</td>
<td>1,573</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,617</td>
<td>1,530</td>
<td>18.4%</td>
<td>1,364</td>
<td>1,272</td>
<td>1,232</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>343</td>
<td>375</td>
<td>19.5%</td>
<td>347</td>
<td>330</td>
<td>341</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,973</td>
<td>1,875</td>
<td>8.8%</td>
<td>1,750</td>
<td>1,637</td>
<td>1,598</td>
</tr>
</tbody>
</table>
Housing Market Index Dipped in November 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 19, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031119a.jpg" width="353">
The National Association of Home Builders (NAHB) reported that their Composite Housing Market Index fell in November to 69 (+7.8% y/y). Though the index has been volatile in recent months, it remained near four-year highs.
During the last fifteen years there has been a 79% correlation between the y/y change in the NAHB index and the change in single family housing starts.
The index of current market conditions for home sales fell a slight 1.3% m/m to 77 (8.5% y/y).
The index which measures expected home sales in six months fell 3.7% m/m to 79 (12.9% y/y).
Traffic of prospective buyers slacked off to the lowest level since May.
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.
Visit the National Association of Home Builders using this <a href="http://www.nahb.org">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/SURVEYS/@S4/@S4.HTM"> Nat&#39;l Association of Home Builders</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>69</td>
<td>72</td>
<td>64</td>
<td>61</td>
<td>56</td>
<td>62</td>
</tr>
</tbody>
</table>
Mortgage Applications Jump, Interest Rates Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 19, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031119b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association jumped 5.9% last week (-44.7% y/y) and recouped most of the prior week&#39;s decline. Nevertheless, applications remained near the three month low.
Purchase applications jumped 13.5% (+23.4% y/y) to the highest level since early September. Applications to refinance fell another 1.9% (-66.9% y/y).
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-Year mortgage fell sharply w/w to 5.95%, the lowest level since late September. The effective rate on a 15-year mortgage also fell w/w to 5.30%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">11/14</th>
<th scope="col">11/07</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>663.2</td>
<td>626.0</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>425.9</td>
<td>375.5</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,043.9</td>
<td>2,084.2</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
Small Business Optimism Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 19, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/031119c.jpg" width="353">
The Small Business Optimism Index for October published by the National Federation of Independent Business recouped virtually all of the prior month&#39;s decline. The index rose 2.1% m/m to a near-record reading of 104.0
The increase reflected a rise to 13% in the percent of small business owners planning to increase employment. Nevertheless, The percentage of firms with one or more jobs open fell to 18%. That is near the middle of the range in place since early last year.
The percent of owners planning to raise capital expenditures in the next 3-6 months recovered some of the September decline and rose to 28%.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<table border="0" cellspacing="0" width="100%">

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<colgroup><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM"> Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col"> Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>104.0</td>
<td>101.9</td>
<td>3.6%</td>
<td>101.2</td>
<td>98.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts surged unexpectedly in October, rising 2.9% m/m to the highest level since January 1986. Consensus forecasts had been for a moderate decline versus September, which was revised up. Single family starts rose 5.7% m/m to [...]

Single Family Housing Starts Set Record

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.

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

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Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

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High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

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The employment cost index (ECI) for civilian workers, arguably the most accurate measure of labor compensation in the United States, rose 0.9% q/q (3.6% y/y) in Q1, the same quarterly increase as in last year’s Q4, according to the Bureau of Labor Statistics. The quarterly gains have fluctuated between 0.8% and 1.0% for the past six quarters. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 3.5% y/y gain.

Wages and salaries for civilian workers rose 0.8% q/q (3.5% y/y) in Q1, down from 1.0% q/q in Q4. This tied the Q3 2024 quarterly rise as the smallest increase since Q2 2021. It was also the smallest y/y increase since Q2 2021. Benefits increased by an outsized 1.2% q/q (3.9% y/y) in Q1 versus 0.8% q/q in Q4. This is the largest quarterly gain since Q2 2022. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing gradually.

Private industry workers’ compensation rose 0.8% q/q (3.4% y/y) in Q1, down from 0.9% q/q (3.6% y/y) in Q4. Wages and salaries for private industry workers increased 0.8% q/q (3.4% y/y) in Q1 versus 0.8% q/q (3.7% y/y) in Q4. The quarterly gain in Q1 tied that in Q3 2024 as the smallest increase since Q4 2020. Benefits for private industry workers jumped 1.2% q/q (3.6% y/y). the largest quarterly gain since Q2 2022. The acceleration in benefits in Q1 was primarily in service-producing industries.

Compensation in private goods-producing industries increased 1.0% q/q (3.2% y/y) in Q1, the largest quarterly gain in five quarters, versus a 0.7% q/q increase in Q4. Compensation in construction jumped 1.3% q/q, its largest quarterly increase since Q2 2022, up from a 0.6% q/q gain in Q4. Manufacturing compensation growth slowed to 0.7% q/q, its slowest quarterly advance since Q4 2020, from 0.8% q/q in Q4. Compensation in private service-producing industries increased 0.8% q/q (3.5% y/y), down slightly from a 0.9% q/q gain in Q4. Compensation in education and health services jumped 1.3% q/q, its largest quarterly gain since Q3 2023. In contrast, compensation in other services edged up 0.1% q/q in Q1, its smallest quarterly advance since before the pandemic.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- Compensation grew 0.9 q/q in Q1, the same pace as in Q4.
- Wage growth slowed to 0.8% q/q while benefits surged 1.2% q/q, their largest quarterly increase since Q2 2022.

Economy in Brief: 2003

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