Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217c.jpg" width="353">
According to the Mortgage Bankers Association, the total number of mortgage applications increased 5.6% last week and that recovered most of the prior week&#39;s decline. Applications remained firm to take advantage of lower interest rates and the Fed&#39;s announcement that it would buy the debt of government sponsored enterprises (GSE) and mortgage-backed securities (MBS).
The index of applications to refinance a home mortgage surged 10.3% after having slipped 0.9% during the prior period. They have risen by three times due to lower interest rates and the government&#39;s guarantee.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217d.jpg" width="353">
Off 4.0%, applications for a mortgage to purchase a home fell for the second week.
The effective interest rate on a conventional 15-year mortgage dipped again to 5.26% and that left them down a full percentage point from the October average. For a 30-year mortgage rates also fell to 5.41%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10-year Treasury securities. For an adjustable rate 1-Year mortgage the rate slipped to 6.71% after having averaged 6.90% during October and November.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage. Moreover, during the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
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 covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
The figures for weekly mortgage applications are available in Haver&#39;s SURVEYW database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/12/08</th>
<th scope="col">12/05/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>841.4</td>
<td>796.8</td>
<td>28.7%</td>
<td>652.6</td>
<td>584.2</td>
<td>708.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>286.1</td>
<td>298.1</td>
<td>-32.2%</td>
<td>424.9</td>
<td>406.9</td>
<td>470.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>4,156.0</td>
<td>3,767.3</td>
<td>30.8%</td>
<td>1,997.9</td>
<td>1,634.0</td>
<td>2,092.3</td>
</tr>
</tbody>
</table>
</body>
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According to the Mortgage Bankers Association, the total number of mortgage applications increased 5.6% last week and that recovered most of the prior week's decline. Applications remained firm to take advantage of lower interest [...]

U.S. Mortgage Applications Fell Slightly Last Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217a.jpg" width="353">
The US current account deficit narrowed last quarter to $174.1 billion from a slightly revised $180.9 billion during 2Q. The 3Q deficit was shallower than the Consensus expectation for a reading of $179 billion.
As a percentage of GDP the deficit shrank to 4.8%, near the shallowest since 2004. It is reduced from the peak percentage reached late in 2005 of 6.6% of GDP.
The 3Q deficit on goods trade narrowed to $214.7 billion and it has been steady since 2005. Lower oil prices and a weaker U.S. economy held import growth to just 1.4%. Export growth also slowed sharply to 2.7% as foreign economies weakened as well. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217b.jpg" width="353">
The balance on services trade grew to a record $38.2B. The lower dollar helped raise travel exports by 16.7% y/y while imports grew 4.8%. Passenger fare exports grew 29.6% y/y while imports rose 11.1%.
From the capital account, there was a small net inflow of funds of $9.5B versus a net outflow of $17.5B a year ago. The surplus is, however, down sharply from the peak. The deficit on U.S. private direct investment narrowed to it&#39;s least since early last year as U.S. investment grew but foreign investment fell.
The Credit Crunch of 2007-2008: A Discussion of the Background, Market Reactions, and Policy Responses from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/08/09/Mizen.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Balance of Payments</a> SA</th>
<th scope="col">3Q &#39;08</th>
<th scope="col">2Q &#39;08</th>
<th scope="col">Year Ago</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Balance ($ Bil.)</td>
<td>-174.1</td>
<td>-180.9</td>
<td>-175.0</td>
<td>-731.2</td>
<td>-788.1</td>
<td>-729.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Deficit % of GDP</td>
<td>-4.8</td>
<td>-5.1</td>
<td>-5.0</td>
<td>-5.3</td>
<td>-6.0</td>
<td>-5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on Goods ($ Bil.)</td>
<td>-214.7</td>
<td>-216.3</td>
<td>-201.2</td>
<td>-819.4</td>
<td>-838.3</td>
<td>-787.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports&nbsp;</td>
<td>2.7%</td>
<td>6.1%</td>
<td>17.3%</td>
<td>12.3%</td>
<td>14.4%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports&nbsp;</td>
<td>1.4%</td>
<td>4.7%</td>
<td>13.0%</td>
<td>5.7%</td>
<td>10.7%</td>
<td>13.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on Private Services ($ Bil.)</td>
<td>38.2</td>
<td>36.2</td>
<td>33.1</td>
<td>119.1</td>
<td>85.0</td>
<td>75.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>3.1%</td>
<td>3.3%</td>
<td>10.2%</td>
<td>14.6%</td>
<td>11.5%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>2.4%</td>
<td>2.0%</td>
<td>8.4%</td>
<td>8.4%</td>
<td>11.3%</td>
<td>7.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on Income ($ Bil.)</td>
<td>30.8</td>
<td>28.2</td>
<td>23.0</td>
<td>81.8</td>
<td>57.2</td>
<td>67.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unilateral Transfers ($ Bil.)</td>
<td>-28.4</td>
<td>-29.0</td>
<td>-27.8</td>
<td>-112.7</td>
<td>-92.0</td>
<td>-89.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The US current account deficit narrowed last quarter to $174.1 billion from a slightly revised $180.9 billion during 2Q. The 3Q deficit was shallower than the Consensus expectation for a reading of $179 billion. As a percentage of GDP [...]

U.S. Current Account Deficit in 3Q'08 Narrowed

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217a.jpg" align="left" border="0" height="265" width="353">
The US current account deficit narrowed last quarter to $174.1
billion from a slightly revised $180.9 billion during 2Q. The 3Q
deficit was shallower than the Consensus expectation for a reading of
$179 billion.
As a percentage of GDP the deficit shrank to 4.8%, near the
shallowest since 2004. It is reduced from the peak percentage reached
late in 2005 of 6.6% of GDP.
The 3Q deficit on goods trade narrowed to $214.7 billion and
it has been steady since 2005. Lower oil prices and a weaker U.S.
economy held import growth to just 1.4%. Export growth also slowed
sharply to 2.7% as foreign economies weakened as well. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217b.jpg" align="right" border="0" height="265" width="353">
The balance on services trade grew to a record $38.2B. The
lower dollar helped raise travel exports by 16.7% y/y while imports
grew 4.8%. Passenger fare exports grew 29.6% y/y while imports rose
11.1%.
From the capital account, there was a small net inflow of
funds of $9.5B versus a net outflow of $17.5B a year ago. The surplus
is, however, down sharply from the peak. The deficit on U.S. private
direct investment narrowed to it's least since early last year as U.S.
investment grew but foreign investment fell.
The Credit Crunch of 2007-2008: A Discussion of the
Background, Market Reactions, and Policy Responses from the
Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/08/09/Mizen.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US
Balance of Payments</a> SA</th>
<th scope="col">3Q '08</th>
<th scope="col">2Q '08</th>
<th scope="col">Year Ago</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account
Balance ($ Bil.)</td>
<td>-174.1</td>
<td>-180.9</td>
<td>-175.0</td>
<td>-731.2</td>
<td>-788.1</td>
<td>-729.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Deficit % of GDP</td>
<td>-4.8</td>
<td>-5.1</td>
<td>-5.0</td>
<td>-5.3</td>
<td>-6.0</td>
<td>-5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on
Goods ($ Bil.)</td>
<td>-214.7</td>
<td>-216.3</td>
<td>-201.2</td>
<td>-819.4</td>
<td>-838.3</td>
<td>-787.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Exports&nbsp;</td>
<td>2.7%</td>
<td>6.1%</td>
<td>17.3%</td>
<td>12.3%</td>
<td>14.4%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imports&nbsp;</td>
<td>1.4%</td>
<td>4.7%</td>
<td>13.0%</td>
<td>5.7%</td>
<td>10.7%</td>
<td>13.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on
Private Services ($ Bil.)</td>
<td>38.2</td>
<td>36.2</td>
<td>33.1</td>
<td>119.1</td>
<td>85.0</td>
<td>75.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Exports</td>
<td>3.1%</td>
<td>3.3%</td>
<td>10.2%</td>
<td>14.6%</td>
<td>11.5%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imports</td>
<td>2.4%</td>
<td>2.0%</td>
<td>8.4%</td>
<td>8.4%</td>
<td>11.3%</td>
<td>7.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on
Income ($ Bil.)</td>
<td>30.8</td>
<td>28.2</td>
<td>23.0</td>
<td>81.8</td>
<td>57.2</td>
<td>67.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unilateral
Transfers ($ Bil.)</td>
<td>-28.4</td>
<td>-29.0</td>
<td>-27.8</td>
<td>-112.7</td>
<td>-92.0</td>
<td>-89.8</td>
</tr>
</tbody>
</table>
U.S. Mortgage Applications Fell
Slightly Last Week 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217c.jpg" align="left" border="0" height="265" width="353">
According to the Mortgage Bankers Association, the total
number of mortgage applications increased 5.6% last week and that
recovered most of the prior week's decline. Applications remained firm
to take advantage of lower interest rates and the Fed's announcement
that it would buy the debt of government sponsored enterprises (GSE)
and mortgage-backed securities (MBS).
The index of applications to refinance a home mortgage surged
10.3% after having slipped 0.9% during the prior period. They have
risen by three times due to lower interest rates and the government's
guarantee.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217d.jpg" align="right" border="0" height="265" width="353">
Off 4.0%, applications for a mortgage to purchase a home fell
for the second week.
The effective interest rate on a conventional 15-year mortgage
dipped again to 5.26% and that left them down a full percentage point
from the October average. For a 30-year mortgage rates also fell to
5.41%. Interest rates on 15 and 30 year mortgages are closely
correlated (&gt;90%) with the rate on 10-year Treasury securities.
For an adjustable rate 1-Year mortgage the rate slipped to 6.71% after
having averaged 6.90% during October and November.
During the last ten years there has been a (negative) 79%
correlation between the level of applications for purchase and the
effective interest rate on a 30-year mortgage. Moreover, during the
last ten years there has been a 61% correlation between the y/y change
in purchase applications and the change in new plus existing single
family home sales.
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 covers roughly 50% of
all U.S. residential mortgage applications processed each week by
mortgage banks, commercial banks and thrifts. Visit the Mortgage
Bankers Association site <a href="http://www.mbaa.org">here</a>.
The figures for weekly mortgage applications are available in
Haver's SURVEYW database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA
Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/12/08</th>
<th scope="col">12/05/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>841.4</td>
<td>796.8</td>
<td>28.7%</td>
<td>652.6</td>
<td>584.2</td>
<td>708.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>286.1</td>
<td>298.1</td>
<td>-32.2%</td>
<td>424.9</td>
<td>406.9</td>
<td>470.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>4,156.0</td>
<td>3,767.3</td>
<td>30.8%</td>
<td>1,997.9</td>
<td>1,634.0</td>
<td>2,092.3</td>
</tr>
</tbody>
</table>
UK Retail Sales Plummet 
by <a href="/comment/Brusca.html">Robert
Brusca</a> December 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081217e.jpg" align="left" border="0" height="265" width="353">
Our series on UK retail sales goes back to 1986. On that basis
the current retail sales metrics are largely at their lowest for the
entire series across measures except for inventories.
Inventory-to-sales ratios are high, in the top 25% of their range for
the period. At -55 in December the retail survey plunged from an
already weak reading of -46 in November. Orders have plunged to a
reading of-58 from -46 in November. Sales for the &#8216;time of year&#8217; at -50
are much worse in December than they were in November at -42. 
 

Expected sales are weak as well. This is not just a
flash-in-the-pan bad December. Expected sales are at a reading of -49
for January compared to a -40 for December. Expected orders are a weak
-48 in January compared to -41 in December, and so on. 
 

The net readings that ultimate have been posted for December
are a sharp deterioration from December&#8217;s expectations. Since December
turned out to be much worse than expectations for it, what of January?
January already has poor expectation set. After September and October
sales were better than what had been expected November and December
have been substantially worse. If this string continues it will be a
dismal January, indeed. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col"> UK
Retail volume data CBI Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reported:</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>Oct-08</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Sales/Yr Ago</td>
<td>&nbsp;</td>
<td>-55</td>
<td>-46</td>
<td>-27</td>
<td>-24</td>
<td>0%</td>
<td>66</td>
<td>-55</td>
<td>121</td>
</tr>
<tr>
<td class="firstcol">Orders/Yr Ago</td>
<td>&nbsp;</td>
<td>-58</td>
<td>-46</td>
<td>-36</td>
<td>-29</td>
<td>0%</td>
<td>48</td>
<td>-58</td>
<td>106</td>
</tr>
<tr>
<td class="firstcol">Sales: Time/Yr</td>
<td>&nbsp;</td>
<td>-50</td>
<td>-42</td>
<td>-35</td>
<td>-31</td>
<td>0%</td>
<td>41</td>
<td>-50</td>
<td>91</td>
</tr>
<tr>
<td class="firstcol">Stocks:Sales</td>
<td>&nbsp;</td>
<td>23</td>
<td>19</td>
<td>17</td>
<td>18</td>
<td>77%</td>
<td>30</td>
<td>0</td>
<td>30</td>
</tr>
<tr class="odd">
<td class="firstcol">Expected:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>Jan-09</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Sales/Yr Ago</td>
<td>-49</td>
<td>-40</td>
<td>-25</td>
<td>-30</td>
<td>-19</td>
<td>0%</td>
<td>67</td>
<td>-49</td>
<td>116</td>
</tr>
<tr>
<td class="firstcol">Orders/Yr Ago</td>
<td>-48</td>
<td>-41</td>
<td>-30</td>
<td>-39</td>
<td>-22</td>
<td>0%</td>
<td>47</td>
<td>-48</td>
<td>95</td>
</tr>
<tr>
<td class="firstcol">Sales: Time/Yr</td>
<td>-51</td>
<td>-38</td>
<td>-31</td>
<td>-44</td>
<td>-27</td>
<td>0%</td>
<td>45</td>
<td>-51</td>
<td>96</td>
</tr>
<tr>
<td class="firstcol">Stocks:Sales</td>
<td>20</td>
<td>17</td>
<td>12</td>
<td>18</td>
<td>15</td>
<td>74%</td>
<td>26</td>
<td>3</td>
<td>23</td>
</tr>
<tr>
<td class="firstcol" colspan="10">Since Sept 1986</td>
</tr>
</tbody>
</table>
</body></html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216h.jpg" width="353">
More countries are reporting declining rates of inflation. Recently published inflation rates in the four largest countries of Europe--Germany, France, Italy and the United Kingdom--continue to trend downward, as can be seen in the first chart. In November, the inflation rate in Germany was 1.43%, down 1.85 percentage points from its peak of 3.28% in June. The rate in France was 1.63%, down 1.98 percentage points from its peak of 3.61% in July. And in Italy, the rate was 2.70%, down 1.38 percentage points from its peak of 4.08% in July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216i.jpg" width="353">
Although the rate in the U.K. in November was still high at 4.07%, it was 1.18 percentage points below its recent peak of 5.25% in September. Moreover, Mervyn King, Governor of the Bank of England, in a letter to the Chancellor of the Exchequer (The governor is required to write an explanation to the Chancellor of the Exchequer whenever the inflation rate exceeds 3%) expressed his view that the rate of inflation in the U. K. could fall below 1% in the next year.
The world wide economic slowdown is responsible for much of the decline in inflation and, in turn, of the much deeper decline in commodity prices. When demand changes significantly, basic commodity prices tend to rise or fall to a much greater degree. The volatility of the changes in the prices of oil, lead and wheat as typical of commodity prices are shown in the second chart. The prices of all three commodities are currently about 50% below prices of a year ago.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INFLATION RATES (%)&nbsp;</th>
<th scope="col">Nov 08</th>
<th scope="col">Oct&nbsp;&nbsp; 08&nbsp;</th>
<th scope="col">Peak&nbsp;</th>
<th scope="col">Date 08&nbsp;</th>
<th scope="col">&nbsp;Chg from Peak</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>2.70</td>
<td>3.46</td>
<td>4.08</td>
<td>July</td>
<td>-1.38</td>
<td>1.83</td>
<td>2.09</td>
<td>1.99</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>4.07</td>
<td>4.16</td>
<td>5.25</td>
<td>Sep</td>
<td>-1.18</td>
<td>2.32</td>
<td>2.33</td>
<td>2.05</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>1.63</td>
<td>2.67</td>
<td>3.61</td>
<td>July</td>
<td>-1.98</td>
<td>1.44</td>
<td>1.68</td>
<td>1.74</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>1.43</td>
<td>2.39</td>
<td>3.28</td>
<td>June</td>
<td>-1.85</td>
<td>2.29</td>
<td>1.57</td>
<td>1.56</td>
</tr>
</tbody>
</table>
</body>
</html>

More countries are reporting declining rates of inflation. Recently published inflation rates in the four largest countries of Europe--Germany, France, Italy and the United Kingdom--continue to trend downward, as can be seen in the [...]

Vanishing Inflation and the Decline in Commodity Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081119c.jpg" width="353">
Housing starts fell even further last month. The level of 625,000 units (SAAR) was the lowest in the series&#39; history which dates back to 1959. It followed a downwardly revised October figure of 771,000. Consensus expectations had been for November starts of 735,000.
Perhaps more indicative of the bleeding in the housing sector was that the speed of the decline in starts during the last three months accelerated to a 71.3% annual rate. That is nearly double the rates of earlier this year and it is nearly triple the rate of 2007. 
Starts of single-family homes fell a whopping 16.9% m/m to 441,000 from an unrevised October level. The latest level also was a record low and it is down by three-quarters since the peak in early 2006. The latest was the lowest level since the 1981-82 recession. During the last three months, the rate of decline picked up to -73.6%, also twice as fast as earlier in 2008 and triple 2007. Permits to build single-family homes also were quite weak and fell by roughly the same 12.3% (-46.3% y/y) as during October.
During 4Q starts are down 19.4% from the 3Q average and in the last ten years there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.
October multi-family starts fell 26.3% from October and they are down by one-half from last year.
By region, November starts of single-family units in the Northeast fell 42.1% m/m and by 59.8% y/y. In the Midwest, starts fell 12.9% (-41.7% y/y) and in the South single-family starts fell 13.6% (-45.7% y/y). Finally, starts in the West starts fell 15.5% (-43.4% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts (000s, SAAR)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>625</td>
<td>771</td>
<td>824</td>
<td>-47.0%</td>
<td>1,341</td>
<td>1,812</td>
<td>2,073</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>441</td>
<td>531</td>
<td>551</td>
<td>-46.0</td>
<td>1,034</td>
<td>1,474</td>
<td>1,719</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>184</td>
<td>240</td>
<td>273</td>
<td>-49.3</td>
<td>307</td>
<td>338</td>
<td>354</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>616</td>
<td>730</td>
<td>805</td>
<td>-48.1</td>
<td>1,389</td>
<td>1,844</td>
<td>2,160</td>
</tr>
</tbody>
</table>
U.S. CPI Fell By A Record 1.7% 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 16, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081119a.jpg" width="353">
The consumer price index (CPI-U) fell by a record 1.7% during November versus October, according to the Bureau of Labor Statistics. Indeed, the decline was the greatest in the series&#39; history which dates back to 1947. The latest fall nearly doubled the October drop of 1.0% and it compared to Consensus expectations for a 1.3% decline. The latest reading lowered the three-month rate of change to -10.2% (AR).
There has been an about-face in fuels&#39; prices since earlier this year and lower energy prices account for most of the recent decline in the total CPI. After rising sharply through July, they&#39;ve fallen each month by a total of 27.9%. In November alone, energy prices fell 17.0% from October and the drop was led by a record 29.5% fall in gasoline prices (-29.5% y/y) to an average of $2.15 per gallon. Gas prices have moved even lower this month to $1.66. Fuel oil prices fell 13.6% (-3.4% y/y) for the fourth consecutive monthly drop and prices for natural gas &amp; electricity fell 1.0% m/m (+8.1% y/y).
Last month, food &amp; beverage prices continued to buck that downtrend with a 0.2% increase. Perhaps the good news is that the gain was the weakest since February and the running 3-month rate of increase fell to 4.1%, down from a high of 9.1% this past August. Nevertheless, the three-month rate of increase in prices of cereals &amp; bakery products was 7.8% versus a recent high of 19.5% and prices of meats, poultry &amp; fish rose at a 3.5% rate versus the high of 10.9%.
Recent weakness in consumer prices has been reinforced by a decline in core pricing power. The CPI less food &amp; energy was unchanged last month versus Consensus expectations for a 0.1% uptick. The three-month annual rate of increase fell to 1.1% from its July high of 3.5%.
Core goods prices, down 0.2%, fell for the third straight month and the three-month rate of decline amounted to 2.9% which was the weakest since late-2003. The latest decline was led again by lower prices for new &amp; used motor vehicles which were down another 0.9% (-3.1% y/y). Apparel prices ticked up 0.3% (0.0% y/y) after their sharp 1.0% October decline. Prices for household furnishings &amp; operations reflected the weakness in the housing sector and fell 0.2% (+1.8% y/y). Tobacco prices were unchanged for the second month in the last three but they still rose 6.7% y/y.
Core services prices ticked up 0.1%. The three-month growth rate of 2.1% matched the lowest since 2005 which was the least since 2001. Medical care services prices rose just 0.1% (3.1% y/y) but education costs remained firm. They increased 0.4% for the third straight month (5.7% y/y). Shelter prices rose 0.2% (2.1% y/y). As the housing market remained deeply depressed the y/y increase was miniscule. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.3% (2.3% y/y) while rents rose 0.3% (3.6% y/y). Public transportation prices fell for the third consecutive month and the 4.1% year-to-year rate of increase was down from 15.2% this past August. Recreation prices were unchanged (2.0% y/y).
The chained CPI, which adjusts for shifts in consumption patterns, fell 2.0%. Less food and energy, chained prices fell 0.3%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>-1.7</td>
<td>-1.0</td>
<td>1.0</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>-0.1</td>
<td>2.0</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.2</td>
<td>-0.4</td>
<td>-0.2</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.1</td>
<td>0.0</td>
<td>2.9</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>-17.0</td>
<td>-8.6</td>
<td>-13.4</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.2</td>
<td>0.3</td>
<td>5.9</td>
<td>3.9</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>-2.0</td>
<td>-0.8</td>
<td>0.7 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>-0.3</td>
<td>0.1</td>
<td>1.6</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
U.S. Gasoline Prices Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 16, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081209c.jpg" width="353">
Regular gasoline prices continued lower, according to the U.S. Department of Energy survey. The latest price of $1.66 per gallon was down four cents per gallon from the prior week and was down from $4.11 per gallon early this past July. The latest decline was accompanied by a drop in the average price for all grades of gasoline to $1.72 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline was up slightly from last week at $1.01 per gallon.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
Though gasoline prices are down, that has done little to drive up product demand. The U.S. Department of Energy reported that the demand for gasoline fell by 3.9% y/y, nearly the fastest since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also fell 6.1% y/y.
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil fell last week by roughly one dollar from the prior week&#39;s average to $44.71 per barrel, down by two-thirds since the peak in July of $145.66. In futures trading yesterday, the one-month price for crude oil was $44.51.
Last week, prices for natural gas moved even lower to $5.70 per mmbtu (-20.4% y/y). The latest average price was 50% below natural gas prices in early-July of $13.19/mmbtu.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">12/15/08</th>
<th scope="col">12/08/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>1.66</td>
<td>1.70</td>
<td>-44.7%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>44.71</td>
<td>45.50</td>
<td>-51.0%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
FOMC Cut Funds Rate to Near 0% 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 16, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081029f.jpg" width="353">
The Federal Open Market Committee today cut the Federal funds rate more than expected to a &quot;range from 0 to 1/4 percent.&quot; The discount also was cut to 0.50%. The latest Fed funds rate was its lowest ever. While the latest action was a greater cut than generally anticipated by economists, it had been mostly discounted by markets. During December the effective Fed funds rate traded between 0.15% and 0.52%.
Regarding economic growth, the Fed indicated that &quot;Since the Committee&#39;s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.&quot;
Regarding inflation it was indicated that &quot;inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.&quot;
Moreover, the Fed highlighted its concern about the recent turmoil in the credit markets. &quot;The focus of the Committee&#39;s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve&#39;s balance sheet at a high level ... The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.&quot;
The decision was unanimous amongst FOMC voters.
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm">http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm</a>
In addition to lowering the cost of credit in the effort to prompt economic growth, the Fed indeed has worked to promote faster growth in financial liquidity. Growth in the money stock measure M2 rose to 17.6% over the last three months, up from a 5% growth rate earlier this year. Growth in demand deposits alone jumped to 40% y/y. Direct injection of liquidity to the financial system is evident in the monetary base which is up by three-quarters versus last year. Also promoting U.S. economic growth these liquidity injections have started to impact the foreign exchange value of the U.S. dollar which is down 6% from its mid-November peak.
The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong is a new paper by John B. Taylor, Professor of Economics, Stanford University and Senior Fellow, Hoover Institution. It is available here <a href="http://www.stanford.edu/~johntayl/FCPR.pdf">http://www.stanford.edu/~johntayl/FCPR.pdf</a>
Globalization and the Changing Nature of the U.S. Economy&#146;s Influence in the World from the Federal Reserve Bank of Dallas can be found here <a href="http://dallasfed.org/research/eclett/2008/el0811.pdf">http://dallasfed.org/research/eclett/2008/el0811.pdf</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">September</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.50</td>
<td>1.00</td>
<td>2.00</td>
<td>5.05</td>
<td>4.96</td>
<td>3.19</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.75</td>
<td>1.25</td>
<td>2.25</td>
<td>5.86</td>
<td>5.96</td>
<td>4.19</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts fell even further last month. The level of 625,000 units (SAAR) was the lowest in the series' history which dates back to 1959. It followed a downwardly revised October figure of 771,000. Consensus expectations had been [...]

U.S. Housing Downdraft Intensifies

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216j.jpg" width="353">
The Federal Open Market Committee today cut the Federal funds rate more than expected to a &quot;range from 0 to 1/4 percent.&quot; The discount also was cut to 0.50%. The latest Fed funds rate was its lowest ever. While the latest action was a greater cut than generally anticipated by economists, it had been mostly discounted by markets. During December the effective Fed funds rate traded between 0.15% and 0.52%.
Regarding economic growth, the Fed indicated that &quot;Since the Committee&#39;s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216l.jpg" width="353">
Regarding inflation it was indicated that &quot;inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.&quot;
Moreover, the Fed highlighted its concern about the recent turmoil in the credit markets. &quot;The focus of the Committee&#39;s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve&#39;s balance sheet at a high level ... The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.&quot;
The decision was unanimous amongst FOMC voters.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216k.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm">link</a>.
In addition to lowering the cost of credit in the effort to prompt economic growth, the Fed indeed has worked to promote faster growth in financial liquidity. Growth in the money stock measure M2 rose to 17.6% over the last three months, up from a 5% growth rate earlier this year. Growth in demand deposits alone jumped to 40% y/y. Direct injection of liquidity to the financial system is evident in the monetary base which is up by three-quarters versus last year. Also promoting U.S. economic growth these liquidity injections have started to impact the foreign exchange value of the U.S. dollar which is down 6% from its mid-November peak.
The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong is a new paper by John B. Taylor, Professor of Economics, Stanford University and Senior Fellow, Hoover Institution. It is available <a href="http://www.stanford.edu/~johntayl/FCPR.pdf"> here</a>.
Globalization and the Changing Nature of the U.S. Economy&#146;s Influence in the World from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2008/el0811.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">September</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>1.00</td>
<td>2.00</td>
<td>5.05</td>
<td>4.96</td>
<td>3.19</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>1.25</td>
<td>2.25</td>
<td>5.86</td>
<td>5.96</td>
<td>4.19</td>
</tr>
</tbody>
</table>
</body>
</html>

The Federal Open Market Committee today cut the Federal funds rate more than expected to a "range from 0 to 1/4 percent." The discount also was cut to 0.50%. The latest Fed funds rate was its lowest ever. While the latest action was a [...]

FOMC Cut Funds Rate to Near 0%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216g.jpg" width="353">
Regular gasoline prices continued lower, according to the U.S. Department of Energy survey. The latest price of $1.66 per gallon was down four cents per gallon from the prior week and was down from $4.11 per gallon early this past July. The latest decline was accompanied by a drop in the average price for all grades of gasoline to $1.72 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline was up slightly from last week at $1.01 per gallon.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
Though gasoline prices are down, that has done little to drive up product demand. The U.S. Department of Energy reported that the demand for gasoline fell by 3.9% y/y, nearly the fastest since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also fell 6.1% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216f.jpg" width="353">
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil fell last week by roughly one dollar from the prior week&#39;s average to $44.71 per barrel, down by two-thirds since the peak in July of $145.66. In futures trading yesterday, the one-month price for crude oil was $44.51.
Last week, prices for natural gas moved even lower to $5.70 per mmbtu (-20.4% y/y). The latest average price was 50% below natural gas prices in early-July of $13.19/mmbtu.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">12/15/08</th>
<th scope="col">12/08/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>1.66</td>
<td>1.70</td>
<td>-44.7%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>44.71</td>
<td>45.50</td>
<td>-51.0%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
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Regular gasoline prices continued lower, according to the U.S. Department of Energy survey. The latest price of $1.66 per gallon was down four cents per gallon from the prior week and was down from $4.11 per gallon early this past [...]

U.S. Gasoline Prices Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216d.jpg" width="353">
The consumer price index (CPI-U) fell by a record 1.7% during November versus October, according to the Bureau of Labor Statistics. Indeed, the decline was the greatest in the series&#39; history which dates back to 1947. The latest fall nearly doubled the October drop of 1.0% and it compared to Consensus expectations for a 1.3% decline. The latest reading lowered the three-month rate of change to -10.2% (AR).
There has been an about-face in fuels&#39; prices since earlier this year and lower energy prices account for most of the recent decline in the total CPI. After rising sharply through July, they&#39;ve fallen each month by a total of 27.9%. In November alone, energy prices fell 17.0% from October and the drop was led by a record 29.5% fall in gasoline prices (-29.5% y/y) to an average of $2.15 per gallon. Gas prices have moved even lower this month to $1.66. Fuel oil prices fell 13.6% (-3.4% y/y) for the fourth consecutive monthly drop and prices for natural gas &amp; electricity fell 1.0% m/m (+8.1% y/y).
Last month, food &amp; beverage prices continued to buck that downtrend with a 0.2% increase. Perhaps the good news is that the gain was the weakest since February and the running 3-month rate of increase fell to 4.1%, down from a high of 9.1% this past August. Nevertheless, the three-month rate of increase in prices of cereals &amp; bakery products was 7.8% versus a recent high of 19.5% and prices of meats, poultry &amp; fish rose at a 3.5% rate versus the high of 10.9%.
Recent weakness in consumer prices has been reinforced by a decline in core pricing power. The CPI less food &amp; energy was unchanged last month versus Consensus expectations for a 0.1% uptick. The three-month annual rate of increase fell to 1.1% from its July high of 3.5%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081216e.jpg" width="353">
Core goods prices, down 0.2%, fell for the third straight month and the three-month rate of decline amounted to 2.9% which was the weakest since late-2003. The latest decline was led again by lower prices for new &amp; used motor vehicles which were down another 0.9% (-3.1% y/y). Apparel prices ticked up 0.3% (0.0% y/y) after their sharp 1.0% October decline. Prices for household furnishings &amp; operations reflected the weakness in the housing sector and fell 0.2% (+1.8% y/y). Tobacco prices were unchanged for the second month in the last three but they still rose 6.7% y/y.
Core services prices ticked up 0.1%. The three-month growth rate of 2.1% matched the lowest since 2005 which was the least since 2001. Medical care services prices rose just 0.1% (3.1% y/y) but education costs remained firm. They increased 0.4% for the third straight month (5.7% y/y). Shelter prices rose 0.2% (2.1% y/y). As the housing market remained deeply depressed the y/y increase was miniscule. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.3% (2.3% y/y) while rents rose 0.3% (3.6% y/y). Public transportation prices fell for the third consecutive month and the 4.1% year-to-year rate of increase was down from 15.2% this past August. Recreation prices were unchanged (2.0% y/y).
The chained CPI, which adjusts for shifts in consumption patterns, fell 2.0%. Less food and energy, chained prices fell 0.3%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>-1.7</td>
<td>-1.0</td>
<td>1.0</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>-0.1</td>
<td>2.0</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.2</td>
<td>-0.4</td>
<td>-0.2</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.1</td>
<td>0.0</td>
<td>2.9</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>-17.0</td>
<td>-8.6</td>
<td>-13.4</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.2</td>
<td>0.3</td>
<td>5.9</td>
<td>3.9</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>-2.0</td>
<td>-0.8</td>
<td>0.7 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>-0.3</td>
<td>0.1</td>
<td>1.6</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The consumer price index (CPI-U) fell by a record 1.7% during November versus October, according to the Bureau of Labor Statistics. Indeed, the decline was the greatest in the series' history which dates back to 1947. The latest fall [...]

U.S. CPI Fell By A Record 1.7%

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

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

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

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

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

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

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

250430P1.jpg

250430Q1.jpg

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**.

250430R1.jpg

250430S1.jpg

- 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

250430A.jpg

250430B.jpg

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**.

250430C.jpg

250430D.jpg

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

Personal Income, Consumption, and Prices in March

250430F20.jpg

250430G20.jpg

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

250430F5.jpg

250430G5.jpg

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: 2008

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U.S. Mortgage Applications Fell Slightly Last Week

U.S. Current Account Deficit in 3Q'08 Narrowed

U.S. Current Account Deficit in 3Q'08 Narrowed

Vanishing Inflation and the Decline in Commodity Prices

U.S. Housing Downdraft Intensifies

FOMC Cut Funds Rate to Near 0%

U.S. Gasoline Prices Down Again

U.S. CPI Fell By A Record 1.7%