Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121e.jpg" align="left" border="0">
The German PPI was flat in December after a 0.9% surge in
November. The ex energy PPI rose by 0.1% after rising by 0.1% in
November and by 0.2% in October. No sign of second round effects here.
While the EBC is worried about building pressures in the
monetary union this evidence of a break in inflation in Germany at the
PPI level is good news. It is not surprising that the PPI, an index
that should be more susceptible to the impact of the strong euro, is
staying in line even with the reverberations of the spiking oil prices
vibrating through it. The
news is good news but it is not decisive. The price indexes that the
ECB cares most about are the broader ones, especially the HICP. But
this news is at least hopeful on the inflation front and good news
there has been lacking lately.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Germany
PPI</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td colspan="4">%-SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-moY-Ago</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.0%</td>
<td>0.9%</td>
<td>0.3%</td>
<td>5.1%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.4%</td>
<td>1.6%</td>
<td>2.2%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body></html>

The German PPI was flat in December after a 0.9% surge in November. The ex energy PPI rose by 0.1% after rising by 0.1% in November and by 0.2% in October. No sign of second round effects here. While the EBC is worried about building [...]

German PPI: Oh, BEHAVE! …and it does

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121d.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121a.jpg" height="265" width="312">

The Building Societies Association (BSA), which covers all 60
Building Societies in the UK, approved mortgages amounting to 3,144
million pounds in December, down 26% from November of last year and 21%
from December 2006. The broader, Council of Mortgage Lenders (CML),
which includes, in addition to the Building Societies, banks and other
institutions engaged in mortgage lending, declined 25% in December from
November and 21% from December 2006.
The first chart shows the absolute value of the approvals made
by the BSA and total lending made by the CML. Over the past five years,
approvals by the BSA have been between 11% and 22% of total mortgage
lending. The second chart shows the year to year changes in the two
series. The variation in the BSA data appears to be somewhat greater
than that in the CML data.
The Rightmove Price index declined by almost 1% in January and
is now 4.6% below the peak reached in October of last year. The
Rightmove Price Index is a measure of the asking price of houses coming
to market through Rightmove's 11,500 estate agency branches. The sample
includes up to 200,000 houses each month, representing about 80% of the
market. It is the largest and most up to date sample of any house price
indicator in the U.K.
Rightmove also publishes the actual prices of various types of
houses: detached, semi detached, terraced and flats. These are shown in
the fourth chart. The prices of the more expensive accommodations--the
detached and semi detached houses--fell, respectively, 3% and almost 1%
in January. At the same time, the prices of the less expensive
accommodations--terraced houses and flats rose, respectively, 1.7% and
1.8%.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121b.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121c.jpg" height="265" width="312">


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;MORTGAGE
AND PRICE DATA&nbsp;</th>
<th scope="col">Dec 07</th>
<th scope="col">Nov 07&nbsp;</th>
<th scope="col">Dec 06&nbsp;</th>
<th scope="col">M/M %Chg&nbsp;</th>
<th scope="col">Y/Y %Chg&nbsp;</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">Approvals by BSA
(Million Pounds)</td>
<td>3144</td>
<td>4238</td>
<td>3962</td>
<td>-25.81</td>
<td>-20.65</td>
<td>51739</td>
<td>56465</td>
<td>45628</td>
</tr>
<tr>
<td class="firstcol">Lending by CML
(Million Pounds)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>22600</td>
<td>29990</td>
<td>28617</td>
<td>-24.64</td>
<td>-21.03</td>
<td>362314</td>
<td>345217</td>
<td>288400</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jan 08</td>
<td>Dec 07&nbsp;</td>
<td>Jan 07&nbsp;</td>
<td>M/M %Chg&nbsp;</td>
<td>Y/Y %Chg&nbsp;</td>
<td>2007</td>
<td>2006</td>
<td>2005</td>
</tr>
<tr class="odd">
<td class="firstcol"> Rightmove House Price
Index (2000=100)&nbsp;&nbsp;</td>
<td>187.5</td>
<td>189.1</td>
<td>181.3</td>
<td>-0.85</td>
<td>3.42</td>
<td>191.2</td>
<td>172.0</td>
<td>159.4</td>
</tr>
<tr style="font-weight: bold;" class="grey3">
<td class="firstcol" colspan="9"> Rightmove
Prices of
Houses (Pounds)</td>
</tr>
<tr class="odd">
<td class="firstcol">Detached&nbsp;</td>
<td>324114</td>
<td>334039</td>
<td>316739</td>
<td>-2.97</td>
<td>2.33</td>
<td>336294</td>
<td>306255</td>
<td>284840</td>
</tr>
<tr>
<td class="firstcol">Semi Detached&nbsp;</td>
<td>203951</td>
<td>205759</td>
<td>195564</td>
<td>-0.88</td>
<td>4.29</td>
<td>205645</td>
<td>189.353</td>
<td>178630</td>
</tr>
<tr class="odd">
<td class="firstcol"> Terraced&nbsp;</td>
<td>183324</td>
<td>180224</td>
<td>175339</td>
<td>1.72</td>
<td>4.55</td>
<td>183681</td>
<td>164884</td>
<td>153475</td>
</tr>
<tr>
<td class="firstcol">
Flats/Apartments&nbsp;</td>
<td>197384</td>
<td>193973</td>
<td>189265</td>
<td>1.76</td>
<td>4.29</td>
<td>196167</td>
<td>171504</td>
<td>156489</td>
</tr>
</tbody>
</table>
</body></html>

The Building Societies Association (BSA), which covers all 60 Building Societies in the UK, approved mortgages amounting to 3,144 million pounds in December, down 26% from November of last year and 21% from December 2006. The broader, [...]

More Evidence of Weakness in U.K. Housing Market

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121d.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121a.jpg" height="265" width="312">

The Building Societies Association (BSA), which covers all 60
Building Societies in the UK, approved mortgages amounting to 3,144
million pounds in December, down 26% from November of last year and 21%
from December 2006. The broader, Council of Mortgage Lenders (CML),
which includes, in addition to the Building Societies, banks and other
institutions engaged in mortgage lending, declined 25% in December from
November and 21% from December 2006.
The first chart shows the absolute value of the approvals made
by the BSA and total lending made by the CML. Over the past five years,
approvals by the BSA have been between 11% and 22% of total mortgage
lending. The second chart shows the year to year changes in the two
series. The variation in the BSA data appears to be somewhat greater
than that in the CML data.
The Rightmove Price index declined by almost 1% in January and
is now 4.6% below the peak reached in October of last year. The
Rightmove Price Index is a measure of the asking price of houses coming
to market through Rightmove's 11,500 estate agency branches. The sample
includes up to 200,000 houses each month, representing about 80% of the
market. It is the largest and most up to date sample of any house price
indicator in the U.K.
Rightmove also publishes the actual prices of various types of
houses: detached, semi detached, terraced and flats. These are shown in
the fourth chart. The prices of the more expensive accommodations--the
detached and semi detached houses--fell, respectively, 3% and almost 1%
in January. At the same time, the prices of the less expensive
accommodations--terraced houses and flats rose, respectively, 1.7% and
1.8%.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121b.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121c.jpg" height="265" width="312">


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;MORTGAGE
AND PRICE DATA&nbsp;</th>
<th scope="col">Dec 07</th>
<th scope="col">Nov 07&nbsp;</th>
<th scope="col">Dec 06&nbsp;</th>
<th scope="col">M/M %Chg&nbsp;</th>
<th scope="col">Y/Y %Chg&nbsp;</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">Approvals by BSA
(Million Pounds)</td>
<td>3144</td>
<td>4238</td>
<td>3962</td>
<td>-25.81</td>
<td>-20.65</td>
<td>51739</td>
<td>56465</td>
<td>45628</td>
</tr>
<tr>
<td class="firstcol">Lending by CML
(Million Pounds)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>22600</td>
<td>29990</td>
<td>28617</td>
<td>-24.64</td>
<td>-21.03</td>
<td>362314</td>
<td>345217</td>
<td>288400</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jan 08</td>
<td>Dec 07&nbsp;</td>
<td>Jan 07&nbsp;</td>
<td>M/M %Chg&nbsp;</td>
<td>Y/Y %Chg&nbsp;</td>
<td>2007</td>
<td>2006</td>
<td>2005</td>
</tr>
<tr class="odd">
<td class="firstcol"> Rightmove House Price
Index (2000=100)&nbsp;&nbsp;</td>
<td>187.5</td>
<td>189.1</td>
<td>181.3</td>
<td>-0.85</td>
<td>3.42</td>
<td>191.2</td>
<td>172.0</td>
<td>159.4</td>
</tr>
<tr style="font-weight: bold;" class="grey3">
<td class="firstcol" colspan="9"> Rightmove
Prices of
Houses (Pounds)</td>
</tr>
<tr class="odd">
<td class="firstcol">Detached&nbsp;</td>
<td>324114</td>
<td>334039</td>
<td>316739</td>
<td>-2.97</td>
<td>2.33</td>
<td>336294</td>
<td>306255</td>
<td>284840</td>
</tr>
<tr>
<td class="firstcol">Semi Detached&nbsp;</td>
<td>203951</td>
<td>205759</td>
<td>195564</td>
<td>-0.88</td>
<td>4.29</td>
<td>205645</td>
<td>189.353</td>
<td>178630</td>
</tr>
<tr class="odd">
<td class="firstcol"> Terraced&nbsp;</td>
<td>183324</td>
<td>180224</td>
<td>175339</td>
<td>1.72</td>
<td>4.55</td>
<td>183681</td>
<td>164884</td>
<td>153475</td>
</tr>
<tr>
<td class="firstcol">
Flats/Apartments&nbsp;</td>
<td>197384</td>
<td>193973</td>
<td>189265</td>
<td>1.76</td>
<td>4.29</td>
<td>196167</td>
<td>171504</td>
<td>156489</td>
</tr>
</tbody>
</table>
German PPI: Oh, BEHAVE! &#8230;and it
does 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 21, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121e.jpg" align="left" border="0">
The German PPI was flat in December after a 0.9% surge in
November. The ex energy PPI rose by 0.1% after rising by 0.1% in
November and by 0.2% in October. No sign of second round effects here.
While the EBC is worried about building pressures in the
monetary union this evidence of a break in inflation in Germany at the
PPI level is good news. It is not surprising that the PPI, an index
that should be more susceptible to the impact of the strong euro, is
staying in line even with the reverberations of the spiking oil prices
vibrating through it. The
news is good news but it is not decisive. The price indexes that the
ECB cares most about are the broader ones, especially the HICP. But
this news is at least hopeful on the inflation front and good news
there has been lacking lately.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Germany
PPI</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td colspan="4">%-SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-moY-Ago</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.0%</td>
<td>0.9%</td>
<td>0.3%</td>
<td>5.1%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.4%</td>
<td>1.6%</td>
<td>2.2%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body></html>

More Evidence of Weakness in U.K.Housing Market

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080121f.jpg">
Japan&#146;s tertiary (services) sector index is a fresh release and it signals a modest rebound in activity in November as the sector index edges up to 100.6 form 100.5. Its growth rate (y/y) rises to 1.1% for a 0.9% in November, but is still slower than it has been much of the year previously. It is also above its three-month average. The mining and MFG sector is growing faster that the service sector over the past year with a growth rate of 1.6% compared to the 1.1% for services. Still, MFG sector growth by this index peaked at 4.5% in Februaru and at 4.4% in August. Since August the MFG slowdown has been pronounced. The slip in MFG growth to 1.6% November is from 3.6% on October.
The chart on the left shows that one signal of a slowdown in Japan is when the MFG and Mining sector index grows slower than the service sector index. There are three examples of that happening since 1997 and two of them were in recessions. So far Japanese officials are still upbeat about the economy. The slowing in the MFG sector and crawling growth rate in services are reminders of how close Japan remains to the edge that separates slow growth from contractions.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Up to date Japan Industry Surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Nov-2007</td>
<td>Oct-2007</td>
<td>Sep-2007</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>110.4</td>
<td>112.2</td>
<td>110.3</td>
<td>111.0</td>
<td>110.2</td>
<td>109.0</td>
<td>112.2</td>
<td>87.7</td>
<td>92.7%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>110.6</td>
<td>110.5</td>
<td>109.2</td>
<td>110.1</td>
<td>110.3</td>
<td>110.0</td>
<td>111.2</td>
<td>91.0</td>
<td>97.0%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
</body>
</html>

Japans tertiary (services) sector index is a fresh release and it signals a modest rebound in activity in November as the sector index edges up to 100.6 form 100.5. Its growth rate (y/y) rises to 1.1% for a 0.9% in November, but is [...]

Japan MFG and Service Sectors still growing…but slower

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118g.jpg" align="left" border="0" height="265" width="353">
The hit to UK retail sales was severe enough to reverberate in
the exchange markets where sterling suffered a set back in trading
after the retail figures were made public. The chart tells the story
without the benefits of numbers. The pattern clearly shows a loss in
headline momentum and a loss in momentum on all major horizons. Real
excl auto sales echos that pattern. 
 

In numbers retail sales drop by 0.4% (ex autos) in real terms
in December, and that drop is never a good sign. For the full quarter,
however, real retail sales ex autos continue to grow at a pace of 1.9%.
But the slip in the three month growth rate is a negative indicator for
momentum and the period ahead. Food sales were up in December with
nonfood spending weak. UK indicators have been touch and go in recent
months, This one pushes the BOE closer to being truly concerned about
growth and may be enough to get a rate cut from it. But since inflation
data are not cooperative and the EMU region is slowing but holding
policy pat, it is not yet clear if the UK will follow the US lead to
lower rates or to be stoic and stay with continental Europe. The UK
economy seems to be on the cusp. 
 
 


<table border="0" cellspacing="0" width="100%">
</table>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">UK Real and Nominal Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Year Ago</td>
</tr>
<tr>
<td class="firstcol">Total Retail</td>
<td>-0.6%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>-0.9%</td>
<td>0.5%</td>
<td>1.7%</td>
<td>4.8%</td>
</tr>
<tr>
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>0.4%</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.2%</td>
<td>5.4%</td>
<td>3.2%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>-6.2%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>8.1%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Retail excl auto</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>4.9%</td>
</tr>
</tbody>
</table>
</body></html>

The hit to UK retail sales was severe enough to reverberate in the exchange markets where sterling suffered a set back in trading after the retail figures were made public. The chart tells the story without the benefits of numbers. [...]

UK Retail Sales Take a Hit

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118c.jpg" align="left" border="0" height="265" width="353">
French new industrial orders are lower in two of the past
three months. Still, year over year orders retain solid upward
momentum. The sequential growth rates, however tell a different story,
one of a loss in momentum within the past year. That loss is stronger
on the domestic front since we see that foreign orders have stepped
down in growth from their Yr/Yr to six month pace but then recovered in
the recent three months, when total orders slowed, presumable weighed
down by weak domestic orders. Still with that in train Q4 growth in
orders is still positive. Total orders are up at a 1.2% pace in the
fourth quarter with two months of data in, while foreign orders are up
by a much stronger 6.5%.

A survey of small French firms finds that they are reasonably
comfortable for now but are concerned about the outlook. France is one
of the large EMU economies and is going through a shifting in gears
that will impact the EMU growth rate itself.

While today German government officials said there is no need
for an EMU-wide stimulus program, the main growth signals from Europe
have indicated a slowing. Germans retain confidence that growth will
continue despite the challenges and risks. Although there is no way to
tell yet how severe the slowing will be in Germany, France, Italy and
in the EU&#8217;s UK all major EU nations are showing signs of some
unevenness in growth.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> French Orders</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-0.2%</td>
<td>2.4%</td>
<td>-2.5%</td>
<td>-1.3%</td>
<td>2.7%</td>
<td>8.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign</td>
<td>1.7%</td>
<td>2.2%</td>
<td>-2.9%</td>
<td>3.7%</td>
<td>2.7%</td>
<td>6.6%</td>
</tr>
</tbody>
</table>
</body></html>

French new industrial orders are lower in two of the past three months. Still, year over year orders retain solid upward momentum. The sequential growth rates, however tell a different story, one of a loss in momentum within the past [...]

French New Orders Soften but Still Grow

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118d.jpg" width="353">
The Conference Board reported that the December composite index of leading economic indicators fell 0.2% after an unrevised 0.4% decline during November. A 0.1% decline had been expected.
For all of last year the leaders fell 0.2% and their six month growth rate, which is calculated as the latest month&#39;s reading divided by the average of the prior twelve months, stood at -1.6%. That was equal to the lowest level since 2001.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators index and the lagged change in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118f.jpg" width="353">
The breadth of one month gain amongst the 10 components of the leading index rose slightly to a still low 40.0%. Over a six month period, the breadth of gain amongst the leaders components was 30%, equal to its lowest level since 2002.
Last month unemployment insurance claims, stock prices, and consumer expectations made the largest contributions to the decline in the overall leading index.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118e.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.1% after a downwardly revised 0.1% November uptick. Over the last ten years there has been an 86% correlation between the y/y change in the coincident indicators and real GDP growth. Three of the four coincident series components rose very slightly and the gains were offset by a decline in real income.
The lagging index rose 0.4% and continued its steady rise. Last month the gain was due to a longer duration of unemployment. The ratio of coincident to lagging indicators (a measure of economic excess) fell during nine months last year to the lowest level since 1991. 
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Signal or Noise? Implications of the Term Premium for Recession Forecasting from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/forthcoming/0801rose.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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">December</th>
<th scope="col">November</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">Leading</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>-1.4%</td>
<td>-0.2%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.0%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>


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The Conference Board reported that the December composite index of leading economic indicators fell 0.2% after an unrevised 0.4% decline during November. A 0.1% decline had been expected. For all of last year the leaders fell 0.2% and [...]

U.S. Leading Economic Indicators Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118a.jpg" width="353">
For early January, the University of Michigan&#39;s consumer sentiment index recovered 6.6% m/m to 80.5, the highest level since October.The increase was only the second in eight months and it beat expectations for a continued decline to a level of 74.8.
The current conditions index rose 7.8%, following declines in six of the prior seven months, to the highest level since August. Current buying conditions for large household goods rose 12.4% (-7.2% y/y) on the strength of a 2.3% jump in perceptions that now is a good time to buy. The view of current personal finances rose a lesser 2.0% (-18.7% y/y) following two months of decline.
Expected business conditions during the next year rose 5.3% (-21.1% y/y). A 7.4% improvement in expectations for business conditions during the next five years lifted the total. The latest reading is equal to the 4Q average. Expectations for personal finances rose all of 2.7% (-9.4% y/y), reversed the December decline but was only the second gain in the last nine months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080118b.jpg" width="353">
Expectations for inflation during the next twelve months slipped to 4.1%. For the next five to ten years expectations similarly slipped to a 3.4% rise in prices, equal to the expected gain during all of last year.
Opinions about government policy rose 8.1% m/m (-16.7% y/y) and made up most of December&#39;s decline.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
A Primer on the Mortgage Market and Mortgage Finance from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/08/01/McDonald.pdf"> here</a>.
Evolving Inflation Dynamics from the New Keynesian Philips Curve from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/fall2007/hornstein.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Jan (Prelim)</th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Jan&nbsp; y/y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>80.5</td>
<td>75.5</td>
<td>76.1</td>
<td>-16.9% </td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>98.1</td>
<td>91.0</td>
<td>91.5</td>
<td>-11.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>69.1</td>
<td>65.6</td>
<td>66.2</td>
<td>-21.1%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
</body>
</html>

For early January, the University of Michigan's consumer sentiment index recovered 6.6% m/m to 80.5, the highest level since October.The increase was only the second in eight months and it beat expectations for a continued decline to [...]

Michigan Consumer Sentiment Highest in Four Months

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.

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

Charts of the Week: Tariff Truce, Tenuous Trust

250501F20.jpg

250501G20.jpg

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

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

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

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

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

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

250501H20.jpg

250501I20.jpg

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

U.S. Light Vehicle Sales Fall in April

250501J5.jpg

250501K5.jpg

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

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

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

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

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

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

250501L5.jpg

250501M5.jpg

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

250501N.jpg

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

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

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

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

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

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

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

Carol Stone, CBE

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

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

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

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

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

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

Economy in Brief: January 2008

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