Robert Brusca

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Trade flows are rebounding on differing dynamics in the euro area. The aggregate results (see Chart) show year-on-year flows sharply higher in October compared to the previous month's rate of growth. Monthly changes show solid gains for both exports and imports in some cases representing a rebound from a September decline. However, over three months both exports and imports log double-digit growth. For exports it's an acceleration but not for imports.

Manufactured goods exports show a double-digit gain over three months that is stronger than their six-month and 12-month rates of growth. For imports, manufactures have a growth rate in single digits that is the same as or below its six-month and 12-month rates of expansion.

Nonmanufacturing exports show an uneven slowing progression with the three-month pace dipping into single-digits. Nonmanufacturing imports demonstrate a steady, strong, double-digit rate of expansion on all horizons.

As a result of these divergent export and import trends, the EMU finds its manufactures trade position only a slight bit weaker month-to-month and still well in line with past levels of surplus. For nonmanufactures the deficit is a slight bit lower in October and is broadly in line with its three-month and six-month average but is larger than its 12-month average and its year-ago average.

The larger deficit for nonmanufactures reflects higher costs for energy and commodities while for manufactured goods the trade position for the EMU has not changed very much at all over the last 12 or last 24 months.

Results for some individual members reside in the lower portion of the table. There we see that all listed members show exports are rising year-on-year. But over three months, Germany, France, Finland, Portugal, and Belgium each show declining exports. Over six months, exports are flat or lower in Germany, the U.K., and Portugal and are decelerating in France, Finland, and Italy (although Italian exports are still quite strong over six months).

On balance, European trade trends do not show any clear sign of impact from trade war or trade concerns. There are some flow declines and some slowing, but individual countries differences are not unusual; there is nothing going on in unison as we might expect from one common negative shock like a trade war. The Baltic dry goods index of international shipment volumes has come off its highs and shown some weakness but has stabilized. The EMU region as a whole shows no tendency for either exports or imports to wither; in fact, exports and imports are on the rebound in October and their year-on-year pace solid for manufactures as well as for nonmanufactures.


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However, the manufacturing sector for EMU is weakening and the overall PMI indexes show weaker growth. When ranked against their performance back to January 2014, the current gauges are weak and reside below their median values in almost all cases for the EMU's largest members. In fact, most are even weaker at or below their respective 20th percentile (giving off readings that reside in the lower one-fifth of what we have been used to since January 2014). Still, as of November, only Italy has raw PMI readings below 50 and that is for manufacturing and the overall PMI. Still, for all of the EMU, the total PMI, at a diffusion value of 52.7, is in the lower 12th percentile of its recent range of values back to 2014 and its manufacturing reading stands in its 20th percentile with services in their 34th percentile. The relatively and substantially lower standing for the composite PMI indicates the unusual nature of the joint weakness in manufacturing and services in the same month. That does not speak of trade war effects either; it speaks of old fashioned weakness.

As the year winds down and as trade tensions percolate and as central banks craft their year-end strategies and look to 'normalize' their future operations, there is a lot in the mix. Europe is beset by more than just trade fears. Brexit has battered at the U.K. while Italy continues to argue about its allowable fiscal deficit. The EU Commission has no compassion for a country that has complied with its laws for a decade while its GDP has failed to grow and whose real GDP is lower on balance over the last decade! No wonder the Italian electorate is up in arms and has voted into office a 'renegade' government to fight the EU. Now the 'yellow vests' pose a threat for France and it will be out of budget compliance too.

Meanwhile, the geopolitical environment has hardly stabilized as Russian aggression in the Sea of Azov looks like a step up in operations not just a one-off event. In the U.S., the President faces nearly unprecedented opposition and legal threats but so far appears unfazed by any of it. In fact, the media seem more concerned about it than the President himself. In Europe, the Germans are shifting to new political leadership and Brexit seems finally to be gnawing at the last vestiges of support for Prime Minister May who has done her best to carry the will of the people's Brexit plans forward. France is hard to handicap. Conditions in China have eroded enough that some wonder if China could slow enough to undermine the leadership position of Xi Jinping.

As I said, there is a lot in the mix and slowing economic conditions are in the center of the storm but do not constitute the whole of the storm by any means. As 2018 draws to a close, its troubles are not and may only be coming to a head.


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Trade flows are rebounding on differing dynamics in the euro area. The aggregate results (see Chart) show year-on-year flows sharply higher in October compared to the previous month's rate of growth. Monthly changes show solid gains [...]

EMU Trade Shows Some Trade Flow Rebound

Tom Moeller

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The Empire State Manufacturing Index of General Business
Conditions declined to 10.9 in December, the lowest level since May 2017.
Nonetheless, for the year as a whole, the index stood at the highest level since
2006. The Action Economics Forecast Survey expected a reading of 20.7 for December.
The Empire State data, reported by the Federal Reserve Bank of New York, reflect
business conditions in New York, northern New Jersey and southern Connecticut.

Haver Analytics calculates a seasonally adjusted index that
is comparable to the ISM series. The calculated figure eased modestly to 57.2 from
57.8. During the last ten years, the index has had a 66% correlation with the
quarter-to-quarter change in real GDP.

Deterioration in the component series was broad-based last
month and led by the orders index, though it rose moderately for the year. The shipments index
eased m/m but surged for the year as a whole. The
unfilled orders, delivery times and inventories exhibited similar performance.

 The employment index surged during December and showed a
record degree of hiring. The series dates back to 2001. During the last ten years,
there has been a 77% correlation between the employment index and the month-to-month
change in factory sector payrolls. A near-record 35% of respondents reported increased
employment, while a lessened 9% showed a decrease. The employee workweek reading was little-changed.

The prices paid index weakened to the lowest level in 12
months, but for the year surged to a 10-year high. Forty-one percent of respondents
indicated increased prices this month, while just one percent reported a decrease. Prices
received weakened to the lowest level since December of last year.

The series measuring expectations for business conditions in
six months slipped somewhat due to backpedaling in most categories.

The Empire State figures are diffusion indexes, which are
calculated by subtracting the percent of respondents reporting declines from
those reporting gains. The data are available in Haver's SURVEYS
database. The ISM-adjusted headline index dates back to 2001. The Action
Economics Forecasts can be found in Haver's AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Empire State Manufacturing
 Survey</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Dec'17</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >General Business Conditions (Diffusion
 Index, %, SA)</td>
 <td >10.9</td>
 <td >23.3</td>
 <td >21.1</td>
 <td >19.6</td>
 <td >19.7</td>
 <td >16.1</td>
 <td >-2.6</td>
 </tr>
 <tr>
 <td class="firstcol" >General Business Conditions Index (ISM
 Adjusted, &gt;50=Increasing Activity, SA)</td>
 <td >57.2</td>
 <td >57.8</td>
 <td >56.4</td>
 <td >57.1</td>
 <td >56.4</td>
 <td >54.6</td>
 <td >48.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; New Orders</td>
 <td >14.5</td>
 <td >20.4</td>
 <td >22.5</td>
 <td >19.0</td>
 <td >16.5</td>
 <td >14.6</td>
 <td >-0.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Shipments</td>
 <td >21.0</td>
 <td >28.0</td>
 <td >26.3</td>
 <td >23.5</td>
 <td >20.3</td>
 <td >15.9</td>
 <td >1.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Unfilled Orders</td>
 <td >-5.1</td>
 <td >0.0</td>
 <td >-8.4</td>
 <td >-8.7</td>
 <td >3.5</td>
 <td >1.9</td>
 <td >-8.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Delivery Time</td>
 <td >3.2</td>
 <td >4.4</td>
 <td >5.0</td>
 <td >4.3</td>
 <td >9.1</td>
 <td >6.1</td>
 <td >-4.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Inventories</td>
 <td >7.1</td>
 <td >10.9</td>
 <td >0.8</td>
 <td >1.4</td>
 <td >5.9</td>
 <td >1.5</td>
 <td >-9.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Number of Employees</td>
 <td >26.1</td>
 <td >14.1</td>
 <td >9.0</td>
 <td >22.9</td>
 <td >12.5</td>
 <td >8.3</td>
 <td >-5.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Average Employee Workweek</td>
 <td >8.0</td>
 <td >9.2</td>
 <td >0.2</td>
 <td >9.3</td>
 <td >7.9</td>
 <td >4.9</td>
 <td >-5.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Prices Paid</td>
 <td >39.7</td>
 <td >44.5</td>
 <td >42.0</td>
 <td >29.7</td>
 <td >45.8</td>
 <td >29.0</td>
 <td >15.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Prices Received</td>
 <td >12.8</td>
 <td >13.1</td>
 <td >14.3</td>
 <td >11.6</td>
 <td >19.3</td>
 <td >11.0</td>
 <td >0.7</td>
 </tr>
 <tr>
 <td class="firstcol" >Expectations 6 Months Ahead</td>
 <td >30.6</td>
 <td >33.6</td>
 <td >29.0</td>
 <td >46.3</td>
 <td >35.1</td>
 <td >42.6</td>
 <td >29.0</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The Empire State Manufacturing Index of General Business Conditions declined to 10.9 in December, the lowest level since May 2017. Nonetheless, for the year as a whole, the index stood at the highest level since 2006. The Action [...]

Empire State Manufacturing Sector Improvement Moderates

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Industrial production rose 0.1% (4.1% y/y) during October
following a 0.2% September improvement.........
Capacity utilization eased to 78.4%




Industrial production and capacity data are included in
Haver's USECON database, with additional detail in the IP
database. The expectations figure is in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Industrial Production (SA, %
 Change)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total Output</td>
 <td >0.6</td>
 <td >-0.2</td>
 <td >0.8</td>
 <td >4.1</td>
 <td >1.6</td>
 <td >-2.0</td>
 <td >-1.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Manufacturing</td>
 <td >0.3</td>
 <td >0.3</td>
 <td >0.4</td>
 <td >2.7</td>
 <td >1.2</td>
 <td >-0.8</td>
 <td >-0.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Consumer Goods</td>
 <td >0.2</td>
 <td >0.4</td>
 <td >0.4</td>
 <td >1.8</td>
 <td >0.0</td>
 <td >0.7</td>
 <td >1.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Business Equipment</td>
 <td >0.8</td>
 <td >0.8</td>
 <td >1.6</td>
 <td >4.1</td>
 <td >3.2</td>
 <td >-5.3</td>
 <td >-2.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Construction Supplies</td>
 <td >0.6</td>
 <td >-0.6</td>
 <td >0.4</td>
 <td >2.9</td>
 <td >2.5</td>
 <td >0.9</td>
 <td >0.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Materials</td>
 <td >-0.1</td>
 <td >-0.1</td>
 <td >1.2</td>
 <td >6.1</td>
 <td >2.0</td>
 <td >-3.0</td>
 <td >-1.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Utilities</td>
 <td >-0.5</td>
 <td >-0.1</td>
 <td >1.1</td>
 <td >1.7</td>
 <td >-1.3</td>
 <td >-0.4</td>
 <td >-0.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Mining</td>
 <td >-0.3</td>
 <td >-0.1</td>
 <td >2.4</td>
 <td >13.2</td>
 <td >6.4</td>
 <td >-9.7</td>
 <td >-3.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Capacity Utilization (%)</td>
 <td >78.4</td>
 <td >78.5</td>
 <td >78.5</td>
 <td >76.8</td>
 <td >76.1</td>
 <td >75.4</td>
 <td >77.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Manufacturing</td>
 <td >76.2</td>
 <td >76.1</td>
 <td >75.9</td>
 <td >75.2</td>
 <td >74.8</td>
 <td >74.6</td>
 <td >75.8</td>
 </tr>
 </tbody>
 </table>
 
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Industrial production rose 0.1% (4.1% y/y) during October following a 0.2% September improvement......... Capacity utilization eased to 78.4% Industrial production and capacity data are included in Haver's USECON database, with [...]

U.S. Industrial Production Gains Weaken

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Total business inventories increased 0.6% (5.1% y/y) during
October following two months of 0.5% gain. Total business sales rose a steady
0.3% (8.0% y/y). The inventory-to-sales ratio increased minimally to 1.35, but
remained below its 1.43 peak early in 2016.

Retail inventories strengthened 0.8% (3.9% y/y) in October,
following a 0.1% uptick. Auto inventories improved 1.1% (8.0% y/y) after a 0.5%
rise. Non-auto retail inventories gained 0.7% (1.7% y/y) after two months of
slight decline. General merchandise inventories increased 0.8% (1.2% y/y) after
a 0.2% decline. In the department store sector, inventories improved 0.4% (-0.8%
y/y), the same as in September. Building materials inventories gained 0.3% (7.0%
y/y) after a 0.1% uptick, while clothing store inventories surged 1.0% (0.1%
y/y) after a 0.1% slip. Inventories of furniture, electronics and appliances
strengthened 2.8% (3.8% y/y) after two months of 0.8% increase. As reported
earlier, wholesale inventories rose 0.8% (5.2% y/y) following a 0.7% increase.
Factory sector inventories gained 0.1% (4.8% y/y) after a 0.6% improvement.

Retail sales increased 1.2% (6.0% y/y) during October
following little change in the prior two months. Non-auto sales rose 1.1% (5.8%
y/y), also following two months of little-change. Wholesale sector sales fell
0.2% (+9.5% y/y) after a 0.1% uptick. Shipments from the factory sector eased
0.1% (+8.3% y/y) following two months of 0.7% gain.

The overall business inventory-to-sales (I/S) ratio rose to
1.35 in October. The retail sector ratio also held steady at 1.44, but remained
down sharply from the levels averaged during the prior two years. The non-auto
I/S ratio also was unchanged at 1.18, its lowest level since early-2012. The
ratio peaked at 1.29 early in 2016. The wholesale sector I/S ratio rose to 1.28,
the highest level since March. The manufacturing sector I/S ratio held steady at
1.34 and remained near the three-year low.

The manufacturing and trade data are in Haver's USECON database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Manufacturing &amp; Trade</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Oct Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Business Inventories (% chg)</td>
 <td >0.6</td>
 <td >0.5</td>
 <td >0.5</td>
 <td >5.1</td>
 <td >3.5</td>
 <td >1.8</td>
 <td >1.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Retail</td>
 <td >0.8</td>
 <td >0.1</td>
 <td >0.6</td>
 <td >3.9</td>
 <td >2.4</td>
 <td >4.1</td>
 <td >4.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Retail excl. Motor Vehicles</td>
 <td >0.7</td>
 <td >-0.1</td>
 <td >-0.1</td>
 <td >1.7</td>
 <td >2.3</td>
 <td >1.9</td>
 <td >3.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Merchant Wholesalers</td>
 <td >0.8</td>
 <td >0.7</td>
 <td >0.9</td>
 <td >6.9</td>
 <td >3.6</td>
 <td >2.2</td>
 <td >1.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Manufacturing</td>
 <td >0.1</td>
 <td >0.6</td>
 <td >0.1</td>
 <td >4.8</td>
 <td >4.5</td>
 <td >-0.7</td>
 <td >-0.8</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="8" >Business Sales (% chg)</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total</td>
 <td >0.3</td>
 <td >0.3</td>
 <td >0.5</td>
 <td >8.0</td>
 <td >5.4</td>
 <td >-0.6</td>
 <td >-3.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Retail</td>
 <td >1.2</td>
 <td >-0.0</td>
 <td >-0.1</td>
 <td >6.0</td>
 <td >4.5</td>
 <td >2.8</td>
 <td >1.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Retail excl. Motor Vehicles</td>
 <td >1.1</td>
 <td >-0.0</td>
 <td >0.1</td>
 <td >5.8</td>
 <td >4.9</td>
 <td >2.0</td>
 <td >0.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Merchant Wholesalers</td>
 <td >-0.2</td>
 <td >0.1</td>
 <td >0.7</td>
 <td >9.5</td>
 <td >7.0</td>
 <td >-1.3</td>
 <td >-4.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Manufacturing</td>
 <td >-0.1</td>
 <td >0.7</td>
 <td >0.7</td>
 <td >8.3</td>
 <td >4.7</td>
 <td >-3.0</td>
 <td >-6.3</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="8" >I/S Ratio</td>
 </tr>
 <tr>
 <td class="firstcol" >Total</td>
 <td >1.35</td>
 <td >1.34</td>
 <td >1.34</td>
 <td >1.36</td>
 <td >1.38</td>
 <td >1.42</td>
 <td >1.39</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Retail</td>
 <td >1.44</td>
 <td >1.44</td>
 <td >1.44</td>
 <td >1.45</td>
 <td >1.47</td>
 <td >1.49</td>
 <td >1.46</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Retail excl. Motor Vehicles</td>
 <td >1.18</td>
 <td >1.18</td>
 <td >1.18</td>
 <td >1.23</td>
 <td >1.24</td>
 <td >1.28</td>
 <td >1.27</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Merchant Wholesalers</td>
 <td >1.28</td>
 <td >1.27</td>
 <td >1.26</td>
 <td >1.28</td>
 <td >1.29</td>
 <td >1.35</td>
 <td >1.33</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Manufacturing</td>
 <td >1.34</td>
 <td >1.34</td>
 <td >1.34</td>
 <td >1.37</td>
 <td >1.37</td>
 <td >1.41</td>
 <td >1.39</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Total business inventories increased 0.6% (5.1% y/y) during October following two months of 0.5% gain. Total business sales rose a steady 0.3% (8.0% y/y). The inventory-to-sales ratio increased minimally to 1.35, but remained below [...]

U.S. Business Inventory Accumulation Picks Up

Gerald D. Cohen

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Industrial production jumped a greater-than-expected 0.6% (3.9% year-on-year) during November following a downwardly revised 0.2% decline in October (was +0.1%). The 0.1% gain in September output was revised from 0.2%. The Action Economics Survey forecast 0.3% growth in November. Manufacturing activity was unchanged (1.9% y/y) during November, while the two prior months were revised lower. Utilities output generated 3.3% (4.4% y/y) while mining production fired up 1.7% (13.2% y/y).

The flat reading in manufacturing belied offsets between durable goods (+0.2%; 3.7% y/y) and nondurables (-0.2%; +0.7% y/y). Durable goods production was bolstered by gains in machinery (0.5%; 6.2% y/y), motor vehicles (0.3%; 3.5% y/y), and computer output (0.2%; 5.1% y/y). Meanwhile, aerospace edged down 0.1% (+2.8% y/y). In the nondurable sector the 0.6% (+2.0% y/y) growth in chemical production was more than counterbalanced by declines in food (-0.5%; +1.1% y/y), petroleum and coal (-1.7%;
-2.5% y/y), as well as printing (-1.0%; -1.7% y/y).

By market group, consumer goods output edged up 0.1% (1.5% y/y) in November. Meanwhile, business equipment declined 0.2% (+4.1% y/y) after strong gains in the previous three months. Construction supplies weakened 0.2% (+1.3% y/y), the third consecutive monthly decline. Production of materials jumped 1.2% (+6.1% y/y) as energy materials sizzled 2.3% (11.6% y/y).

In the special aggregate groupings, production of high technology products rebounded 1.6% (7.6% y/y) after two monthly declines. This was the result of strong gains in semiconductor & electronic components (2.1%; 10.1% y/y) and computer & office equipment (2.8%; 4.4 y/y). Factory sector production excluding the motor vehicle and high tech sectors edged down 0.1% (+1.6% y/y).

Capacity utilization increased to 78.5% in November, in line with the expectations from Action Economics Survey. Factory sector use edged down to 75.7%. Mining rebounded to 94.1%, near September’s business cycle high of 94.2%. Growth in capacity in the manufacturing sector continues to accelerate, up a cyclical high 1.3% y/y in November.

Industrial production and capacity data are included in Haver's
USECON database, with additional detail in the IP database. The expectations
figures come from the AS1REPNA database.

<a href="/comment/181214c.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/181214c.png"></a>
 <a href="/comment/181214d.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/181214d.png"></a>

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Industrial Production (SA, %
 Change)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total Output</td>
 <td >0.6</td>
 <td >-0.2</td>
 <td >0.1</td>
 <td >3.9</td>
 <td >1.6</td>
 <td >-2.0</td>
 <td >-1.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Manufacturing</td>
 <td >0.0</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >1.9</td>
 <td >1.2</td>
 <td >-0.8</td>
 <td >-0.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Consumer Goods</td>
 <td >0.1</td>
 <td >0.0</td>
 <td >0.2</td>
 <td >1.5</td>
 <td >0.0</td>
 <td >0.7</td>
 <td >1.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Business Equipment</td>
 <td >-0.2</td>
 <td >0.6</td>
 <td >1.1</td>
 <td >4.1</td>
 <td >3.2</td>
 <td >-5.3</td>
 <td >-2.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Construction Supplies</td>
 <td >-0.2</td>
 <td >-0.3</td>
 <td >-0.6</td>
 <td >1.3</td>
 <td >2.5</td>
 <td >0.9</td>
 <td >0.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Materials</td>
 <td >1.2</td>
 <td >-0.4</td>
 <td >0.0</td>
 <td >6.1</td>
 <td >2.0</td>
 <td >-3.0</td>
 <td >-1.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Utilities</td>
 <td >3.3</td>
 <td >0.2</td>
 <td >-1.2</td>
 <td >4.4</td>
 <td >-1.3</td>
 <td >-0.4</td>
 <td >-0.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Mining</td>
 <td >1.7</td>
 <td >-0.7</td>
 <td >0.6</td>
 <td >13.2</td>
 <td >6.4</td>
 <td >-9.7</td>
 <td >-3.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Capacity Utilization (%)</td>
 <td >78.5</td>
 <td >78.1</td>
 <td >78.4</td>
 <td >77.1</td>
 <td >76.1</td>
 <td >75.4</td>
 <td >77.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Manufacturing</td>
 <td >75.7</td>
 <td >75.8</td>
 <td >76.0</td>
 <td >75.3</td>
 <td >74.8</td>
 <td >74.6</td>
 <td >75.8</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Industrial production jumped a greater-than-expected 0.6% (3.9% year-on-year) during November following a downwardly revised 0.2% decline in October (was +0.1%). The 0.1% gain in September output was revised from 0.2%. The Action [...]

U.S. Industrial Production Rebounds

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Consumers continued to exhibit their inclination to spend as
holiday shopping got underway. Total retail sales rose 0.2% during November
(4.9% y/y) following a 1.1% October jump, revised from 0.8%. The latest increase
matched expectations in the Action Economics Forecast Survey. Excluding motor
vehicles and parts, retail sales gained 0.2% (5.7% y/y) after a 1.0% increase,
revised from 0.7%. A 0.3% improvement had been expected.

 A measure of the underlying pace of retail
spending is nonauto sales growth excluding gasoline and building materials.
These sales surged 0.9% (5.2% y/y) and built on a 0.7% October gain, revised from 0.3%.

Strength in sales was notable for online retailers whose
sales increased 2.3% (12.1% y/y) following two months of strong gain. Purchases at electronics &amp;
appliance stores similarly were firm as they rose 1.4% (5.0% y/y), about as they
did during the prior month. Furniture &amp; home furnishings store sales grew
1.2% (2.9% y/y) after a moderate decline. General
merchandise store sales gained 0.4% (4.2% y/y) after a 0.8% rise.
Sporting goods, hobby shop, book &amp; music store sales also improved 0.4%
(-7.8% y/y) following a 1.1% increase. Motor vehicle &amp; parts dealership
sales gained 0.2% (1.4% y/y) even as unit motor vehicle sales eased 0.2% m/m.

Reflecting lower prices, gasoline service station sales
declined 2.3% (+8.7% y/y) after a 3.2% jump. Also working lower were
clothing &amp; accessory store sales by 0.2% (+4.1% y/y) after two months of
firm increase. Building materials &amp; garden equipment store sales also were
weak. They fell 0.3% (+3.5% y/y) on the heels of a 1.5% strengthening.

Sales of nondiscretionary items were firm last month. Health
&amp; personal care product store sales increased 0.9% (3.6% y/y) after falling
for three straight months. Food &amp; beverage store sales gained 0.4% (3.3% y/y)
after a 0.3% rise.

Eating out was less in vogue during November as restaurant &amp; drinking
establishment sales declined 0.5% after a 0.6% increase, revised up from a
moderate decline. Sales have lost forward momentum, however, as the 6.9% y/y
increase moderated from 10.9% y/y growth just three months earlier.

The retail sales data can be found in Haver's USECON
database. The Action Economics forecast is in the AS1REPNA database.

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 <a href="/comment/181214i.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/181214i.png"></a>

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Retail Spending (% chg)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr class="grey2">
 <td class="firstcol" >Total Retail Sales &amp; Food Services</td>
 <td >0.2</td>
 <td >1.1</td>
 <td >-0.2</td>
 <td >4.9</td>
 <td >4.3</td>
 <td >3.1</td>
 <td >2.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Excluding Autos</td>
 <td >0.2</td>
 <td >1.0</td>
 <td >-0.3</td>
 <td >5.7</td>
 <td >4.3</td>
 <td >2.7</td>
 <td >1.4</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol" >Retail Sales</td>
 <td >0.3</td>
 <td >1.2</td>
 <td >-0.0</td>
 <td >4.6</td>
 <td >4.5</td>
 <td >2.8</td>
 <td >1.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Motor Vehicle &amp; Parts</td>
 <td >0.2</td>
 <td >1.5</td>
 <td >-0.0</td>
 <td >1.4</td>
 <td >4.3</td>
 <td >4.6</td>
 <td >7.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Retail Less Autos</td>
 <td >0.4</td>
 <td >1.1</td>
 <td >-0.0</td>
 <td >5.5</td>
 <td >4.5</td>
 <td >2.2</td>
 <td >0.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Gasoline Stations</td>
 <td >-2.3</td>
 <td >3.2</td>
 <td >-1.3</td>
 <td >8.7</td>
 <td >8.8</td>
 <td >-5.7</td>
 <td >-17.6</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol" >Food Service &amp; Drinking Places
 Sales</td>
 <td >-0.5</td>
 <td >0.6</td>
 <td >-1.6</td>
 <td >6.9</td>
 <td >2.7</td>
 <td >5.6</td>
 <td >8.2</td>
 </tr>
 </tbody>
 </table>
 
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Consumers continued to exhibit their inclination to spend as holiday shopping got underway. Total retail sales rose 0.2% during November (4.9% y/y) following a 1.1% October jump, revised from 0.8%. The latest increase matched [...]

U.S. Retail Sales Start Holiday Season on Solid Ground

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The U.S. Treasury Department reported that the federal
government ran a $204.9 billion budget deficit during November. The deficit compared to a shortfall of
$138.5 billion during November 2017. A $165 billion deficit had been expected in the Action
Economics Forecast Survey. So far this fiscal year, the federal government ran a
$305.4 billion budget deficit compared to a $201.8 billion deficit in the first
two months of last fiscal year.

Net revenues increased 3.4% y/y so far this fiscal year. Individual income taxes
declined 1.9% y/y, compared to a 6.1% rise during all of FY'17. Social insurance receipts rose 3.0% y/y following
last year's 0.8% gain, and excise taxes rose by roughly one-half y/y after last year's
13.3% increase. Corporate income taxes declined 23.0% due to the tax cut.

Government spending increased 18.4% y/y so far this fiscal
year. National defense spending rose 16.8% y/y after a 5.3% gain last
year. Health insurance spending increased 4.0% y/y while Medicare outlays rose
by nearly two-thirds y/y. Growth in income security payments surged 29.7% y/y. Social Security
payments increased a steady 5.1% y/y. Interest payments rose 9.0% y/y with
the larger budget deficit.

Receipt &amp; outlay figures often are quite variable y/y
near the start of a new fiscal year.

Haver's data on Federal Government outlays and receipts are
contained in USECON. Considerable detail is given in the separate GOVFIN
database. The Action Economics Forecast Survey numbers are in the AS1REPNA database.

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 <a href="/comment/181213m.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/181213m.png"></a>

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >United States Government
 Finance</th>
 <th scope="col" ></th>
 <th scope="col" >Nov</th>
 <th scope="col" >FY'18</th>
 <th scope="col" >FY'17</th>
 <th scope="col" >FY'16</th>
 <th scope="col" >FY'15</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Budget Balance (Billions)</td>
 <td >--</td>
 <td >$-204.9</td>
 <td >$-779.0</td>
 <td >$-665.8</td>
 <td >$-585.6</td>
 <td >$-439.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;As a percent of GDP</td>
 <td >--</td>
 <td >--</td>
 <td >3.9%</td>
 <td >3.5%</td>
 <td >3.2%</td>
 <td >2.5%</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" ></td>
 <td >% of Total</td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 </tr>
 <tr>
 <td class="firstcol" >Net Revenues (Fiscal Year YTD 2018, Y/Y
 Change)</td>
 <td >100</td>
 <td >3.4%</td>
 <td >0.4%</td>
 <td >1.5%</td>
 <td >0.6%</td>
 <td >7.6%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Individual Income Taxes</td>
 <td >51</td>
 <td >-1.9</td>
 <td >6.1</td>
 <td >2.7</td>
 <td >0.3</td>
 <td >10.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Corporate Income Taxes</td>
 <td >--</td>
 <td >-23.0</td>
 <td >-31.1</td>
 <td >-0.8</td>
 <td >-12.9</td>
 <td >7.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Social Insurance Taxes</td>
 <td >35</td>
 <td >3.0</td>
 <td >0.8</td>
 <td >4.2</td>
 <td >4.7</td>
 <td >4.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Excise Taxes</td>
 <td >3</td>
 <td >51.3</td>
 <td >13.3</td>
 <td >-11.8</td>
 <td >-3.3</td>
 <td >5.3</td>
 </tr>
 <tr>
 <td class="firstcol" ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 <td ></td>
 </tr>
 <tr>
 <td class="firstcol" >Net Outlays&nbsp; (Fiscal Year 2017 YTD,
 Y/Y % Change)</td>
 <td >100</td>
 <td >18.4</td>
 <td >3.2</td>
 <td >3.3</td>
 <td >4.5</td>
 <td >5.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;National Defense</td>
 <td >16</td>
 <td >16.8</td>
 <td >5.3</td>
 <td >6.1</td>
 <td >0.7</td>
 <td >-2.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Health</td>
 <td >13</td>
 <td >4.0</td>
 <td >3.3</td>
 <td >-1.9</td>
 <td >6.2</td>
 <td >17.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Medicare</td>
 <td >14</td>
 <td >60.1</td>
 <td >-1.4</td>
 <td >0.6</td>
 <td >8.7</td>
 <td >6.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Income Security</td>
 <td >12</td>
 <td >29.7</td>
 <td >-1.6</td>
 <td >-2.1</td>
 <td >1.0</td>
 <td >-0.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Social Security</td>
 <td >24</td>
 <td >5.1</td>
 <td >4.5</td>
 <td >3.1</td>
 <td >3.2</td>
 <td >4.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Veterans Benefits &amp; Services</td>
 <td >4</td>
 <td >84.5</td>
 <td >1.3</td>
 <td >1.2</td>
 <td >9.3</td>
 <td >6.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Education, Training, Employment
 &amp; Social Services</td>
 <td >2</td>
 <td >13.7</td>
 <td >-34.0</td>
 <td >31.6</td>
 <td >-10.2</td>
 <td >34.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Interest</td>
 <td >8</td>
 <td >9.0</td>
 <td >23.6</td>
 <td >9.1</td>
 <td >7.8</td>
 <td >-1.8</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The U.S. Treasury Department reported that the federal government ran a $204.9 billion budget deficit during November. The deficit compared to a shortfall of $138.5 billion during November 2017. A $165 billion deficit had been [...]

U.S. Government Budget Deficit Surges Unexpectedly

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	 Then What? The Role of Trade...
 
 
 
 

<a href="/comment/181213e.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/181213e.png" align="left"></a>
The ECB targets inflation of just under 2%. The ECB claims (without any proof that I am sure of…) that inflation that is below but close to 2% allows the economy to reap maximum benefits. This month the HICP is up at 2% or 1.96% if we split hairs and carry more decimal places. And splitting hairs drops the HICP back down into the ECBs' sweet spot.

Headline inflation had been ‘too high' for four months running. Prior to that, from June 2018 through February 2013, it had been constantly ‘too low' much farther below 2% than ‘just a bit.' The core rate on the other hand has been running at a pace below 2% since January 2009. The core (the HICP excluding energy and unprocessed foods) has no official standing. But with the economy having underperformed and with Mario Draghi as the ECB head, the bank has been emphasizing the core gauge over the headline rate especially since oil prices have been gyrating and have been the main reason that headline inflation has come close to or exceeded its mandated profile in its recent oscillations.

Still, the ECB has its stalwarts. There is a important cadre of board members that views inflation as relative to target on the headline gauge month-to-month with no institutional memory of the past.

Germany continues to overshoot the ECB's global gauge of 2% although the German ex-energy rate is still running below 2%. The German headline pace is accelerating from 12-months to six-months to three-months although the ex-energy profile is not as clear cut at that. Of course, German inflation is simply inflation in Germany and has no official policy standing at the ECB.

Bon voyage ECB 
Needless to say, a split view on policy continues under the surface at the ECB, with inflation hawks looking to a return of policy to normalcy. The ECB did take that step today by agreeing to end its program of QE. The ECB will end this program in December in line with what it had tentatively agreed to previously. The ECB joins the Fed on is voyage to normalcy.


<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/181213.png" width="660" height="290">


It does so in an environment in which headline inflation is back in line and has been consistently well contained over the past five years, in an environment with falling global oil prices and at a time when growth in the euro area has been withering.

The ECB has no growth mandate and only has an inflation mandate. With the special QE program ended, the ECB can look ahead to normalizing its functioning and eventually to raising interest rates back to more normal levels...conditions permitting.

Yesterday European industrial production rose after a sharp drop prompting headlines saying that European growth is back on track. I think that assessment is premature.

The Markit indexes for manufacturing and services for the EMU are still weak and withering. Trade conflicts endure and that is a major element of risk to any outlook.

What activity on the trade front means for growth 
China's recent grab of a former Canadian diplomat and its action to probe a second Canadian for security violations are ample evidence that China is not and may never be Free Trader simply because it cannot be trusted to separate political from economic matters. For China, everything is political. Free trade works best in an environment with capitalism and freedom… while China is a communist country. China seems to treat its corporate executives as though they are important party members first.

China owns companies. It directs bank lending. It has a national policy to steal and transfer technology. It does not recognize trademarks. It grabbed the South China Sea and thumbed its nose at the World Court when it said essentially ‘give it back.' How does one trade ‘freely' with an entity like that that does not respect the rule of law? China also controls its exchange rate, another clear free trade no-no.

The risk of a trade war remains high. I would judge the probability of emerging from this episode with anything that even mimics free trade as being extremely low. People who thought we were ‘close enough to free trade before' probably think that baseball with 2 strikes and you're out and a walk on three balls is close enough to being real baseball too. In fact, I have no idea what a trade system would like or how it might imitate free trade given all the issues involved in integrating China as ‘trusted' partner is such a process.

Having said that, I will say also I am not sure what that means for the future. China and other Asian counties have co-opted the international trading system to become the low cost suppliers to the world fulfilling demand in the West and achieving the nirvana of export-led growth. They keep costs down in part by controlling their exchanger rates- something that is forbidden if there is real free trade. Of course, free trade is not really ever about having specialist consumer and producer countries. And when that happens, the sustainability of the trading system built on such a shaky base is called into question. No country can run deficits forever. Still, a system like that might endure for a substantial period of time before it blew itself up, especially if the persistent deficit country were rich enough to start. You can compare such a trading system to a hot air balloon with a slow leak. It will keep you up for a while and you may or may not have enough hot air to get to your destination depending on the size of the hole.

For now globally inflation – what little there is- is being stuffed back in the tube by falling oil prices. The Fed continues to shrink its balance sheet and may slow the procession of rates to their historic norms. The ECB is stopping its QE program. The BOE is still in a wait and see mode over Brexit where the odds increasingly are dicey and looking slanted toward a ‘bad' outcome.

While I am one of the few who is ‘happy' that the U.S. is finally pressuring China and others over unfair trade and trying to right unfair trade deals, there is a lot in the arena of international trade and finance that is broken and in dire need for fixing. Little enough of it is on the agenda. Chief among the broken parts is the exchange rate system. There is no surveillance of exchange rates and all too many countries (AKA governments) guide their rates according to some official policy goal. As long as that happens, Free Trade will remain elusive. That means the gains expected from Free Trade will not flow.

China is just too big and still has too many parts of it that are undeveloped to allow it to continue to develop as it has in the past. The cost of lost of jobs in the U.S. and elsewhere has been too high and already has become economically and politically destabilizing in the West. China must become a better consumer nation and must cut its relentless pursuit of domination through trade. Trade is supposed to be mutually beneficial –not warfare. Even the most cursory glimpse of trade patterns show that it is not and has not been that.

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The ECB targets inflation of just under 2%. The ECB claims (without any proof that I am sure of…) that inflation that is below but close to 2% allows the economy to reap maximum benefits. This month the HICP is up at 2% or 1.96% if we [...]

EMU Inflation Falls Back into Place

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

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

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) rose 0.6% (-3.6% y/y) during the four weeks ended May 9, 2025. The improvement followed sharp declines in April.

Miscellaneous group prices increased 2.4% (5.9% y/y) over the last four weeks. Natural rubber price soared 13.9% (11.7% y/y). The price of tallow (used in the soap industry) rose 10.6% (41.3% y/y) in four weeks but the cost of framing lumber declined 5.6%, but rose 7.3% y/y.

Prices in the Metals group edged 0.2% higher (-7.3% y/y) over the most recent four weeks. Variation in pricing was wide. Copper scrap prices rose 7.4% (-3.3% y/y) while lead costs rose 4.0% in four weeks (-11.1% y/y). The cost of aluminum increased 2.3% in four weeks, off 4.4% y/y. Working lower, the cost of steel scrap declined 8.1% (-11.6% y/) in four weeks while tin prices followed with a 4.9% decline (-2.9% y/y). Zinc prices eased 0.7% in four weeks and declined 10.3% y/y.

Crude Oil & Benzene group prices edged 0.1% higher (-19.4% y/y) in four weeks. The cost of West Texas Intermediate crude oil weakened 4.0% to $58.50 per barrel and was 25.6% lower y/y. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 8.5% (-41.8% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index rose 0.9% (-2.1% y/y) during the last four weeks.

Textile group prices edged 0.9% lower (-0.5% y/y) during the last four weeks. Burlap costs declined 14.3% (+7.4% y/y) but the cost of cotton rose 4.5% (-7.7% y/y) over four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Metals prices are mixed.
- Crude oil prices fall sharply.
- Textile prices ease.

FIBER: Industrial Commodity Price Movement Diverges in Latest Four Weeks

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Wholesale trade inventories increased 0.4% (2.2% y/y) during March after rising 0.5% in February, revised from 0.3% after a 0.8% January rise. The increase compared to expectations for a 0.5% rise in the Informa Global Markets Survey and compared to a 0.6% gain in the advance report issued two weeks ago.

Durable goods inventories rose 0.6% in March (1.5% y/y) after rising 0.5% in February. Machinery inventories, the largest sector, increased 0.6% (1.7% y/y) while inventories of motor vehicles & parts, the second largest grouping, rose 1.2% (0.8% y/y). Furniture inventories strengthened 2.7% (6.8% y/y) while electrical equipment inventories declined 1.0% (-3.1% y/y). Inventories of nondurable goods edged 0.1% higher (3.4% y/y). Drug inventories, which make up one-quarter of nondurable inventories, advanced 1.0% (4.6% y/y). Grocery inventories, the second largest category, rose 0.4% (8.3% y/y). Apparel inventories fell 0.8% (-6.5% y/y) and chemical inventories rose 2.1% both m/m and y/y. Petroleum inventories increased 0.7% (0.3% y/y).

Sales at the wholesale level rose 0.6% (6.1% y/y) in March after rising 2.0% in February and falling 0.9% in January. A 0.9% March rise had been expected in the Action Economics Forecast Survey.

Durable goods sales rose 1.0% (8.5% y/y) in March after strengthening 3.2% in February. Sales of electrical equipment & electronic goods, the largest sector, rose 2.5% (20.9% y/y), after a 2.3% rise. Professional and commercial equipment sales, which includes computers, rose 1.2% (11.9% y/y), while vehicle sales declined 1.0% (1.1% y/y). Sales of machinery improved 0.7% (4.2% y/y). Nondurable product sales rose 0.3% (3.9% y/y) in March after gaining 0.9% in February. Drug store sales, the largest category, increased 2.8% (13.4% y/y), while grocery store sales eased 0.2% (+4.3% y/y). Sales of apparel weakened 0.8% (+3.5% y/y) while paper sales declined 1.7% (0.5% y/y). Petroleum product sales fell 4.6% both m/m and y/y.

The inventory-to-sales (I/S) ratio at the wholesale level remained at 1.30 in March and has been moving lower for the last two years.

The wholesale I/S ratio for durable goods eased to 1.69 in March and also has been trending lower. The machinery ratio fell to 2.92 while motor vehicles rose to 1.78. The I/S ratio for nondurable goods slipped to 0.93 and remained down from 1.02 early in 2023. The drug industry ratio eased to 0.94. Apparel's I/S ratio held at 2.06, but remained below its 2.28 level one year earlier, and has been declining since early 2023. The petroleum industry I/S ratio rose to 0.33.

The wholesale trade figures are available in Haver's **USECON** database. The expectations figure for inventories is contained in the **MMSAMER** database. Expectations for sales are from the **AS1REPNA** database.

**Assessing Maximum Employment** from Federal Reserve Governor Adriana D. Kugler is available [here](https://www.federalreserve.gov/newsevents/speech/kugler20250509a.htm).

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- Inventories trend higher y/y.
- Sales increase broadly.
- Inventory-to-sales ratio steadies.

U.S. Wholesale Inventories & Sales Increase in March

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Nonfarm labor productivity fell 0.8% (SAAR) during Q1’25 after increasing 1.7% in Q4’24, revised from 1.5%. A 0.6% decline had been expected in the Action Economics Forecast Survey. It was the first productivity decline since Q2’22. The y/y increase during Q1 fell to 1.4% from 2.1% in Q4. It was below a 3.3% high in the first quarter of last year. Productivity fell as real value-added output dropped 0.3% last quarter (+2.2% y/y) after increasing 2.5% in Q4, and hours worked lengthened 0.6% (0.8% y/y) following a 0.8% gain.

Compensation per hour increased 4.8% last quarter following a 3.7% Q4 rise. Despite the strength of these last two increases, y/y growth decelerated to 2.7% from a 6.8% high one year earlier. Nevertheless, the productivity decline raised unit labor costs by 5.7% (1.3% y/y) in Q1 versus expectations for a 5.2% increase. It followed a 2.0% gain during Q4 and was the strongest quarterly increase in a year.

Factory sector productivity surged 4.5% (1.5% y/y) during Q1’25 following three consecutive increases of roughly 0.5%. This strength was accompanied by a 6.2% rise (2.2% y/y) in hourly compensation which came after two consecutive increases of approximately 4.1%. The strength in productivity lowered the rise in unit labor costs to 1.6% from 3.8% in Q4. The y/y gain fell to 0.7% from 2.0% in Q4 and stood below the 6.2% y/y increase in Q1’24.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Productivity declines with lower output.
- Compensation surge exacerbates labor market stress.
- Factory sector productivity surge lessens cost pressure.

U.S. Productivity Declines in Q1’25; Unit Labor Costs Surge

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) rose 0.6% (3.2% y/y) in March to 103.2 after rising 0.9% to 102.6 in February and rising 0.8% in January to 101.7. The level of home affordability has risen 14.8% from its low of 89.9 in October 2023. It remains 42.4% below the high of 179.2 in April 2020.

The rise in affordability in March occurred as the median price of an existing single-family home rose 1.8% (2.9% y/y) to $408,000 which was offset by a decline in mortgage rates to 6.73% from 6.92% in February. The price compared to the record $432,900 in June 2024. The decline in mortgage rates compared to a recent low of 6.26% in September of last year and a 7.70% high during October of 2023. It remained well above a December 2020 low of 2.73%. These changes lowered the principal & interest payment by 0.2% (+1.1% y/y) to $2,113 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a lessened 24.2% of income during March. They remained up from a low of 14.0% of income in April 2020.

The rise in housing costs in March was accompanied by improvement in median family income. It increased 0.4% (4.4% y/y) to a record $104,705 after rising 0.4% in February and 0.7% in January.

Housing affordability improved m/m across the country in March. The index edged 0.1% higher (2.8% y/y) to 134.5 in the Midwest. It remains the most affordable region of the country. In the South, the index 0.9% (5.4% y/y) to 106.6 and the affordability index in the Northeast increased 2.1% (-2.6% y/y) to 95.7. In the West, where homes are the least affordable, the index rose 0.8% (3.3% y/y) to 71.8 in March.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Home prices rise but mortgage rates decline.
- Median income improves.
- Affordability increases across the country.

U.S. Housing Affordability Improves Slightly in March

Carol Stone, CBE

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Initial claims for unemployment insurance were 228,000 seasonally adjusted in the week ended May 3, down from 241,000 in the previous week, which was unrevised. For the latest week, the Action Economics Forecast Survey had expected a smaller decline to 233,000.

In the week ended April 26, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – was 1.879 million, down from 1.908 million in the April 19 week.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, returned to its longstanding rate of 1.2% in the April 26 week; this rate has held that amount since continuously since the week of January 6, 2024, except for the prior week’s 1.3%.

As we do highlight in every week’s discussion, economic conditions vary widely across individual states and territories. In the week ended April 19, the highest unemployment rates were in New Jersey and Rhode Island (both at 2.48%), California (2.26%), Washington (2.14%) and New York (1.85%). The lowest were in Florida (0.36%), South Dakota (0.37%), Alabama (0.41%), Virginia (0.45%) and Nebraska (0.47%). Rates in other notable states include Illinois (1.78%), Pennsylvania (1.53%) and Texas (1.14%). These state data are not seasonally adjusted.

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

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- Continued claims for unemployment insurance decreased 29, 000 in the week ended April 26.
- Insured unemployment rate returns to longstanding 1.2%.
- Across the states, the insured unemployment rate ranges from 0.36% to 2.48%.

Economy in Brief: 2018

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