Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114e.jpg" style="width: 353px; height: 265px;" align="right">
The yearend
weakness in oil prices was modest but enough to hold overall monthly
import prices stable. The zero change in December import prices matched
Consensus expectations. For the year as whole, however, the picture was
more dramatic. Import prices fell 11.5% in 2009 and that reversed the
2008 increase. Excluding petroleum, import prices fell 4.1% last year
and reversed most of the 2008 increase. Petroleum prices slipped 2.0%
last month following their 6.3% November increase. For the year
overall, the decline in prices reversed the climb in 2008. That pattern
masks, however, extreme volatility during the year. By yearend,
petroleum prices had nearly doubled the January trough. This
month, Brent crude oil prices have strengthened further to nearly $80
per barrel from a low just above $71 last month. In addition, the
latest report from the U.S. Bureau of Labor Statistics indicated that
non-oil import prices rose 0.5% after a similar gain during November.
The lower value of the dollar has now helped lift these prices at a
6.8% annual rate during the last three months, reversing a 7.3% y/y
decline as of July. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114f.jpg" style="width: 353px; height: 265px;" align="right">
(During the last ten years, there has been a
negative 81% correlation between the nominal trade-weighted exchange
value of the US dollar vs. major currencies and the y/y change in
non-oil import prices.) Excluding petroleum, last year
prices reversed most of the 2008 increase and the decline breaks down
as follows: Prices for iron &amp; steel mill products fell 28.5%
and reversed all the 2008 increase. Chemical prices fell 12.4% after a
24.0% 2008 increase. Food &amp; beverage prices slipped 2.8% after
a double-digit 2008 gain. Prices for nonauto consumer goods were weak
and slipped 0.3% after a 2.8% increase. That decline reflected a 0.6%
decline in durable consumer goods prices which reversed strong gains in
the prior two years. Home entertainment equipment prices fell 4.1% last
year and extended a decline dating back to 1996. Furniture prices
nudged up 0.6% after a 7.1% 2008 increase. Finally, apparel prices
slipped 0.1% after strong gains in 2007 and 2008.&nbsp; Total
export prices fell 4.6% last year following strong gains dating back to
2003. The decline reflected a 12.8% drop in agricultural export prices
and a 3.7% drop in "non-ag" prices. These declines reversed just some
of the strength through 2008.The import and export price
series can be found in Haver's USECON database.
Detailed figures are available in the USINT
database.Risks
to Sustained Economic Recovery (With Lessons Learned from Winston
Churchill and Teddy Roosevelt) from the Federal
Reserve Bank of Dallas can be found <a href="http://dallasfed.org/news/speeches/fisher/2010/fs100112.cfm">here</a>.&nbsp;



<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/@E8/@E807/@E807.HTM" style="color: white;">Import/Export Prices (NSA, %)</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.0</td>
<td>1.6</td>
<td>0.9</td>
<td>8.6</td>
<td>-11.5</td>
<td>11.5</td>
<td>4.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-2.0</td>
<td>6.3</td>
<td>2.4</td>
<td>78.4</td>
<td>-35.9</td>
<td>37.7</td>
<td>11.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>0.5</td>
<td>0.6</td>
<td>0.5</td>
<td>-0.2</td>
<td>-4.1</td>
<td>5.3</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Export - All Commodities</td>
<td>0.6</td>
<td>0.9</td>
<td>0.0</td>
<td>3.4</td>
<td>-4.6</td>
<td>6.0</td>
<td>4.9</td>
</tr>
</tbody>
</table>
</body></html>

The yearend weakness in oil prices was modest but enough to hold overall monthly import prices stable. The zero change in December import prices matched Consensus expectations. For the year as whole, however, the picture was more [...]

U.S. Import Prices Are Stable As Oil Costs Slip

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114d.jpg" align="left" border="0" height="265" width="353">
German inflation, while beginning to edge up at year-end in
its HICP and CPI formats has registered the lowest annual pace in
20-years. The small two-line panel at the table top shows overall
statistics for the German CPI (as opposed to the harmonized HICP
treatment) where the core measure is available for December (the core
reading is not yet available for the HICP format). In terms of the
Germany&#8217;s CPI while the headline rate rose at year end, the core rate&#8217;s
3-month pace was still declining.
Diffusion measures the breadth of inflation&#8217;s acceleration
regardless of the pace across categories. Calculated on the various
3-mo 6-mo and 12-mo periods, inflation rates of the HICP across
categories reveal that inflation is not accelerating. The diffusion
reading of 45.5% over three months is below the neutral mark of 50%..
That statistic means, roughly, that inflation is only accelerating in
45.5% of the categories over three months (compared to six months) and
that it is decelerating in 54.5% of the categories. Thus even with the
bump up in overall inflation, diffusion tells us that inflation forces
are not widespread. And, of course, inflation is low to boot.
While the Bundesbank and the ECB are headline
inflation-watchers it must be some solace to them that the Core rate
remains so subdued and so steady. In the last cycle the core rate
proved to be a very good signal about inflation and how entrenched it
had become. Headline inflation failed as an inflation siren as it
howled too shrilly in the recession as oil and other commodity prices
soared. But the core rate remained pretty low and stable even as the
headline soared. The Fed, which takes its cue more from the core rate
(it does not target inflation however) had the flexibility to cut rates
when it chose. The ECB, in contrast, needed to cut rates as part of
international deal on the &#8216;expectation&#8217; that inflation would recede. Of
course, it did recede, but central banks do not like to be cutting
rates with inflation over their stated targets.
Nonetheless it is a good end to 2009 on the inflation side.
The bump up in headline inflation at year- end is oil- related and it
appears to have exerted no pull on core prices. These developments
leave us in good stead to take a fresh a look at 2010. So far 2010 is
looking like a year in which growth will be a hotter topic than
inflation.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">German HICP </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">HICP Total</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>0.9%</td>
<td>0.8%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">CPI </td>
</tr>
<tr>
<td class="firstcol">All</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.2%</td>
<td style="color: red;">1.9%</td>
<td>0.7%</td>
<td>0.8%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
CPIxF&amp;E</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>0.4%</td>
<td style="color: red;">1.1%</td>
<td>1.0%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td style="color: red;">0.7%</td>
<td>-2.3%</td>
<td>-2.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Alcohol</td>
<td>-0.3%</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-2.9%</td>
<td>-2.0%</td>
<td>-0.9%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Clothing &amp;
Shoes</td>
<td>2.3%</td>
<td>-1.4%</td>
<td>0.2%</td>
<td>3.9%</td>
<td style="color: red;">3.9%</td>
<td style="color: red;">2.5%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Rent &amp;Util</td>
<td>0.0%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td style="color: red;">0.4%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Health Care</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Transport</td>
<td>-0.3%</td>
<td>2.1%</td>
<td>0.0%</td>
<td style="color: red;">7.5%</td>
<td style="color: red;">5.6%</td>
<td style="color: red;">4.1%</td>
<td>-2.8%</td>
</tr>
<tr>
<td class="firstcol">Communication</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-1.3%</td>
<td style="color: red;">-0.9%</td>
<td>-1.8%</td>
<td>-3.3%</td>
</tr>
<tr>
<td class="firstcol">Rec
&amp;Culture</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>-1.2%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>0.7%</td>
<td>1.5%</td>
<td>0.2%</td>
<td style="color: red;">9.8%</td>
<td style="color: red;">5.9%</td>
<td style="color: red;">-1.1%</td>
<td>-3.8%</td>
</tr>
<tr>
<td class="firstcol">Restaurant
&amp; Hotel</td>
<td>0.7%</td>
<td>-0.4%</td>
<td>0.5%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">2.4%</td>
<td>1.9%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>3.0%</td>
<td style="color: red;">3.0%</td>
<td style="color: red;">2.1%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>45.5%</td>
<td style="color: red;">54.5%</td>
<td>45.5%</td>
<td>&nbsp;--</td>
</tr>
<tr class="grey1">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Current
Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

German inflation, while beginning to edge up at year-end in its HICP and CPI formats has registered the lowest annual pace in 20-years. The small two-line panel at the table top shows overall statistics for the German CPI (as opposed [...]

German Posts Lowest Annual Inflation Rate In 20-Years

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114a.jpg" style="width: 353px; height: 265px;" align="right">d less evident at the end of last year's holiday shopping
season. December retail sales slipped 0.3% last month though the
November increase was revised up to 1.8% from 1.3% reported last month.
The latest figure was weaker than Consensus expectation for a 0.5%
rise. Reinforcing the notion of a weak end to 2009 was a 0.3% decline
retail sales less autos after an upwardly revised 1.9% jump in November
sales. Aside from the monthly volatility, however, the trend in retail
spending improved. On a three-month basis, retail sales rose at an
11.3% annual rate through December, by far improved from the 29.7% rate
of decline one year earlier. Less autos, the rate of spending also
recovered to 7.1% from negative 28.9% at its depths.Higher
gasoline prices obviously played a part in the retail sales picture.
Gasoline purchases rose 1.0% last month and they're up by one-third
from last year. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114b.jpg" style="width: 353px; height: 265px;" align="right">
Yet without gasoline there still has been firming in
spending. Less autos &amp; gasoline retail sales fell 0.3% last
month after a 1.0% November jump. On a three-month basis, these sales
rose at a 3.1% rate, up from the worst of -12.2% at the end of 2008.
It's been internet &amp; catalogue purchases that have shown the
bulk of the improvement in retail spending. These sales rose 1.4% in
December (10.3% y/y) after similar increases during the prior three
months. The three-month rate of gain rose to 21.2% from a negative
22.5% at the end of 2008.Motor vehicle sales slipped 0.8%
last month after a 1.2% November increase and a 7.4% October gain.
Reflecting price discounts, these changes lag the increases in unit
vehicle sales. Elsewhere, discretionary "core" spending improved some
but <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114c.jpg" style="width: 353px; height: 265px;" align="right">
it's been less pronounced. Sales at furniture &amp; appliance
stores fell 1.2% during December (-2.2% y/y) after a 1.8% November
increase. The three-month rate of growth improved to -0.9% from -25.9%
at its worst. Sales at furniture stores alone rose 0.3% after a 0.7%
November gain and three-month growth improved to 0.3% from -21.6% at
its worst. Sales of electronics &amp; appliances fell 2.6% (-0.7%
y/y) and reversed all of the November increase. Three-month growth
slipped to -2.0%. In soft goods, apparel store sales slipped 0.6%
(+5.0% y/y) for the third consecutive monthly decline.&nbsp;General
merchandise store sales fell 0.8% (+2.1% y/y) while three-month growth
improved to 1.7% from -11.2% at its worst late in 2008.The retail
sales data are available in Haver's USECON
database.The Federal Reserve's most recent Beige Book
covering regional economic conditions an be found <a href="http://www.federalreserve.gov/fomc/beigebook/2010/20100113/default.htm">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM" style="color: black;">Total Retail Sales &amp; Food
Services</a> (%)</td>
<td>-0.3</td>
<td>1.8</td>
<td>1.3</td>
<td>5.4</td>
<td>-6.0</td>
<td>-0.8</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>-0.2</td>
<td>1.9</td>
<td>-0.0</td>
<td>5.2</td>
<td>-4.7</td>
<td>2.4</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Non-Auto Less Gasoline</td>
<td>-0.3</td>
<td>1.0</td>
<td>0.1</td>
<td>2.3</td>
<td>-1.8</td>
<td>1.6</td>
<td>3.6</td>
</tr>
</tbody>
</table>
</body></html>

d less evident at the end of last year's holiday shopping season. December retail sales slipped 0.3% last month though the November increase was revised up to 1.8% from 1.3% reported last month. The latest figure was weaker than [...]

U.S. Retail Sales Weaken At Yearend But 2009 Improved

U.S. Retail Sales Weaken AtYearend But 2009 Improved

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113f.jpg" align="left" border="0" height="265" width="353">
Europe&#8217;s recovery remains on track in November as industrial
production has risen in all the large EMU states. The UK, an EU member,
only saw a very minor set back to MFG IP with output dropping by 0.1%
in November. Of the largest EMU states, the rise in the Italy was
disappointing at just 0.2%. The UK&#8217;s small drop actually out did
expectations.
Year-over-year the IP drops have been trimmed to the range of
-4% to -10% for this group of countries. Despite the set back to UK IP
in November at -5.4% it demonstrates one of the smaller Yr/Yr drops in
IP and exhibits a strong improvement from its result in October (-7.8%,
Yr/Yr). All large countries show an improvement in their Yr/Yr drop in
November compared to October and for most the difference is large.
The chart above shows how strong the recoveries have been.
Despite all that strength over the last 3- and 6-months, 2009 has been
a very bad year for Europe.
German GDP is just reported to have posted an outsized drop of
5% in 2009 as its exports and investment goods sectors were hard hit.
As it was, government programs produced a boost that kept the steep GDP
decline from being even larger. Public consumption rose by 2.7% from
2008 while private consumption edged ahead by just 0.2%.
The recovery in IP is however a good development. Germany&#8217;s
industrial sector depends on exports which fell by 14.7% in 2009.
Exports have begun to get traction again and IP is on the rise as a
result. 2010 promises to be a much better year, but then 2009 put all
of Europe in a very deep hole and the real question is not 'Will 2010
be better?' but, 'How much better will 2010 be?' That is not yet
resolved and is a point of some contention. So far, good strong growth
is in train and seems to have staying power. Perhaps more optimism is
warranted.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">Main
Euro-Area Countries and UK IP in MFG </th>
</tr>
</thead>
<tbody>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">MFG Only</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>Sep 
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q:4 
Date</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Germany:</td>
<td>0.8%</td>
<td>-1.8%</td>
<td>3.6%</td>
<td>10.6%</td>
<td>16.6%</td>
<td>9.1%</td>
<td>18.6%</td>
<td>-9.1%</td>
<td>-13.7%</td>
<td>8.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">France: 
IPxConstruct'n</td>
<td>1.1%</td>
<td>-0.6%</td>
<td>-1.2%</td>
<td>-2.6%</td>
<td>4.2%</td>
<td>6.1%</td>
<td>8.6%</td>
<td>-3.8%</td>
<td>-8.0%</td>
<td>0.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>1.0%</td>
<td>-5.2%</td>
<td>-15.3%</td>
<td>6.4%</td>
<td>7.0%</td>
<td>5.9%</td>
<td>-10.2%</td>
<td>-13.2%</td>
<td>-2.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Spain</td>
<td>1.2%</td>
<td>-3.0%</td>
<td>0.5%</td>
<td>-5.5%</td>
<td>-20.2%</td>
<td>17.9%</td>
<td>-0.2%</td>
<td>-3.9%</td>
<td>-13.0%</td>
<td>-14.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">UK: EU
member</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>1.6%</td>
<td>6.1%</td>
<td>-1.8%</td>
<td>0.9%</td>
<td>-0.4%</td>
<td>-5.4%</td>
<td>-7.8%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
</body></html>

Europe’s recovery remains on track in November as industrial production has risen in all the large EMU states. The UK, an EU member, only saw a very minor set back to MFG IP with output dropping by 0.1% in November. Of the largest EMU [...]

Industrial Output Is Making Continued Gains In Europe

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113c.jpg" style="width: 353px; height: 265px;" align="right">Earlier
improvement in small business' optimism slipped again last month. The
National Federation of Independent Business (NFIB) reported their
December small business optimism index dipped 0.3% to 88.0. This second
consecutive slight decline followed several months of increase after
reaching a March low of 81.0.&nbsp;During the last ten years, there
has been an 85% correlation between the level of the NFIB index and the
two-quarter change in real GDP.
 Credit conditions remained as tight as
they've been since the "credit crunch" recession of 1980. The
percentage of firms reporting that credit was harder to get was stable
m/m at a net 15 but that was roughly triple the percentage from 1994 to
2007. The percent borrowing at least once last quarter was stable at
33% but that was down from the high of 46% during 2006.
The percentage
of small businesses expecting the economy to improve dipped slightly
m/m to 2 after a sharp November decline. The latest was down from the
May high of 12. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113d.jpg" style="width: 353px; height: 265px;" align="right">
The percentage which thought that now was a good time
to expand the business also slipped to 7 though it remained sharply
improved from this winter.
 Hiring intentions have responded negatively
to recent weakness in overall business sentiment. The percentage of
firms planning to raise employment remained in a net-layoff region,
though it has improved from the March low. For now, the percentage of
firms with one or more job openings improved modestly to 10% during
December. During the last ten years there has been a 74% correlation
between the NFIB employment percentage and the six-month change in
nonfarm payrolls. Also stable in the negative region was the percentage
expecting credit conditions to ease.
On the pricing front deflation
continued. The percentage of firms actually raising
prices at -22% (indicating deflation) slipped from the prior several
months and was near the record low. During the last ten years there has
been a 60% correlation between the six-month change in the producer
price index and the level of the NFIB price index<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113e.jpg" style="width: 353px; height: 265px;" align="right">

The
percentage of firms planning to raise prices
slipped again to a net 3 though that remained up from the March low of
zero. Finally, the percentage planning to raise worker compensation
fell to 1.
The largest, single most important problems seen by
business were poor sales (34%), taxes (20%, near its highest level
since 2007), government requirements (13%), insurance cost &amp;
availability (7%), competition from large businesses (6%) and inflation
(2%).
About 24 million small businesses exist in the United
States. Small business creates 80% of all new jobs in America and the
NFIB figures can be found in Haver's SURVEYS
database.&nbsp;
<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/SURVEYS/@S7/@S7.HTM">Nat'l
Federation of Independent Business</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Small Business Optimism Index
(SA, 1986=100)</td>
<td>88.0</td>
<td>88.3</td>
<td>89.1</td>
<td>3.3%</td>
<td>86.7</td>
<td>89.8</td>
<td>96.7</td>
</tr>
<tr>
<td class="firstcol">Percent of Firms Expecting
Economy To Improve</td>
<td>2</td>
<td>3</td>
<td>11</td>
<td>-13</td>
<td>-0</td>
<td>-10</td>
<td>-4</td>
</tr>
<tr class="odd">
<td class="firstcol">Percent of Firms With One or
More Job Openings</td>
<td>10</td>
<td>8</td>
<td>8</td>
<td>14</td>
<td>9</td>
<td>18</td>
<td>24</td>
</tr>
<tr>
<td class="firstcol">Percent of Firms Reporting That
Credit Was Harder To Get</td>
<td>15</td>
<td>15</td>
<td>14</td>
<td>12</td>
<td>14</td>
<td>9</td>
<td>6</td>
</tr>
<tr class="odd">
<td class="firstcol">Percent of Firms Raising Avg.
Selling Pric1es (Net)</td>
<td>-22</td>
<td>-17</td>
<td>-17</td>
<td>-6</td>
<td>-20</td>
<td>17</td>
<td>15</td>
</tr>
</tbody>
</table>

</body></html>

Earlier improvement in small business' optimism slipped again last month. The National Federation of Independent Business (NFIB) reported their December small business optimism index dipped 0.3% to 88.0. This second consecutive slight [...]

U.S. Small Business Optimism Slips Again As Credit Remains Tight

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113a.jpg" style="width: 353px; height: 265px;" align="right">The
Bureau
of Labor Statistics continued to indicate little improvement in hiring,
but layoffs have diminished. In its Job Openings &amp; Labor
Turnover Survey (JOLTS) job availability during November fell 6.1% from
October and is off 27.1% year-to-year. The series dates back to
December 2000.&nbsp;As a result of the decline the job
openings rate fell to 1.8% and remained off sharply from the
3.1% rate before the current recession began. The job
openings rate is the number of job openings on the last business day of
the month as a percent of total employment plus job openings.
The service sector weakened last month. The number of retail
job
openings fell 15.8% (-49.3% y/y) and the number of professional
&amp; business service jobs fell 9.2% (-13.7% y/y). Leisure
&amp; hospitality jobs also were off, by 7.8% (-21.2% y/y), but
educational &amp; health service jobs rose 4.2% (-21.7% y/y). Even
the number of government sector job openings fell 9.8% (-10.3% y/y).
Countering weakness in service sector hiring was the factory sector
where job openings rose for the fourth consecutive month but they remained off 28.6% y/y. 
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113b.jpg" style="width: 353px; height: 265px;" align="right">
Construction
sector job openings were firm for the third of the last four months and
posted an 11.6% (+1.3% y/y) increase.
 The hires rate
picked up slightly m/m to 3.2% and was improved from the series' low of
3.0% last spring.&nbsp;The hires rate is the number of
hires during the month divided by employment.&nbsp;The
actual number of hires also rose 3.2% m/m but was down 1.2%
year-to-year. Professional &amp; business service sector hires rose
14.1% (7.2% y/y) while leisure &amp; hospitality hires rose 8.4%
(4.0% y/y). Factory sector hiring slipped 0.8% and was off a diminished
5.4% y/y while construction sector hiring also dipped m/m (-10.0%
y/y).
 The job separations rate increased
modestly
from the series' low to 3.3% with the actual number of separations off
10.8% year-to-year. Separations include quits, layoffs,
discharges, and other separations as well as retirements. The
layoff rate alone held steady at 1.6% for the third consecutive month.
That was down sharply from the rate's high of 1.9% last winter.
 The
JOLTS survey dates only to December 2000 but has followed the movement
in nonfarm payrolls, though the actual correlation between the two
series is low.
 A description of the Jolts survey and the latest
release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/pdf/jolts.pdf">here</a>
and the figures are available in Haver's USECON
database.&nbsp;&nbsp;
<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/@EB/@EB14/@EB14.HTM" style="color: white;">JOLTS (Job Openings &amp; Labor
&nbsp;Turnover Survey)</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Nov. '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="8" class="firstcol">Job Openings, Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>1.8</td>
<td>1.9</td>
<td>1.9</td>
<td>2.4</td>
<td>2.3</td>
<td>3.1</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>2,415</td>
<td>2,571</td>
<td>2,586</td>
<td>3,311</td>
<td>3,224</td>
<td>4,382</td>
<td>4,606</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Hires, Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>3.2</td>
<td>3.1</td>
<td>3.1</td>
<td>3.1</td>
<td>41.1</td>
<td>46.1</td>
<td>47.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,176</td>
<td>4,045</td>
<td>4,061</td>
<td>4,226</td>
<td>56,486</td>
<td>63,666</td>
<td>64,879</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Layoffs &amp;
Discharges, Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>1.6</td>
<td>1.6</td>
<td>1.6</td>
<td>1.7</td>
<td>1.5</td>
<td>1.4</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>2,054</td>
<td>2,128</td>
<td>2,128</td>
<td>2,253</td>
<td>24,362</td>
<td>22,613</td>
<td>21,546</td>
</tr>
</tbody>
</table>

</body></html>

The Bureau of Labor Statistics continued to indicate little improvement in hiring, but layoffs have diminished. In its Job Openings & Labor Turnover Survey (JOLTS) job availability during November fell 6.1% from October and is off [...]

JOLTS: U.S. Job Openings Remain At Series' Low

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113a.jpg" style="width: 353px; height: 265px;" align="right">The
Bureau
of Labor Statistics continued to indicate little improvement in hiring,
but layoffs have diminished. In its Job Openings &amp; Labor
Turnover Survey (JOLTS) job availability during November fell 6.1% from
October and is off 27.1% year-to-year. The series dates back to
December 2000.&nbsp;As a result of the decline the job
openings rate fell to 1.8% and remained off sharply from the
3.1% rate before the current recession began. The job
openings rate is the number of job openings on the last business day of
the month as a percent of total employment plus job openings.
The service sector weakened last month. The number of retail
job
openings fell 15.8% (-49.3% y/y) and the number of professional
&amp; business service jobs fell 9.2% (-13.7% y/y). Leisure
&amp; hospitality jobs also were off, by 7.8% (-21.2% y/y), but
educational &amp; health service jobs rose 4.2% (-21.7% y/y). Even
the number of government sector job openings fell 9.8% (-10.3% y/y).
Countering weakness in service sector hiring was the factory sector
where job openings rose for the fourth consecutive month but they remained off 28.6% y/y. 
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113b.jpg" style="width: 353px; height: 265px;" align="right">Construction
sector job openings were firm for the third of the last four months and
posted an 11.6% (+1.3% y/y) increase.
 The hires rate
picked up slightly m/m to 3.2% and was improved from the series' low of
3.0% last spring.&nbsp;The hires rate is the number of
hires during the month divided by employment.&nbsp;The
actual number of hires also rose 3.2% m/m but was down 1.2%
year-to-year. Professional &amp; business service sector hires rose
14.1% (7.2% y/y) while leisure &amp; hospitality hires rose 8.4%
(4.0% y/y). Factory sector hiring slipped 0.8% and was off a diminished
5.4% y/y while construction sector hiring also dipped m/m (-10.0%
y/y).
 The job separations rate increased
modestly
from the series' low to 3.3% with the actual number of separations off
10.8% year-to-year. Separations include quits, layoffs,
discharges, and other separations as well as retirements. The
layoff rate alone held steady at 1.6% for the third consecutive month.
That was down sharply from the rate's high of 1.9% last winter.
 The
JOLTS survey dates only to December 2000 but has followed the movement
in nonfarm payrolls, though the actual correlation between the two
series is low.
 A description of the Jolts survey and the latest
release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/pdf/jolts.pdf">here</a>
and the figures are available in Haver's USECON
database.&nbsp;&nbsp;
<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/@EB/@EB14/@EB14.HTM" style="color: white;">JOLTS (Job Openings &amp; Labor
&nbsp;Turnover Survey)</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Nov. '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="8" class="firstcol">Job
Openings, Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>1.8</td>
<td>1.9</td>
<td>1.9</td>
<td>2.4</td>
<td>2.3</td>
<td>3.1</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>2,415</td>
<td>2,571</td>
<td>2,586</td>
<td>3,311</td>
<td>3,224</td>
<td>4,382</td>
<td>4,606</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Hires,
Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>3.2</td>
<td>3.1</td>
<td>3.1</td>
<td>3.1</td>
<td>41.1</td>
<td>46.1</td>
<td>47.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,176</td>
<td>4,045</td>
<td>4,061</td>
<td>4,226</td>
<td>56,486</td>
<td>63,666</td>
<td>64,879</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Layoffs
&amp;
Discharges, Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>1.6</td>
<td>1.6</td>
<td>1.6</td>
<td>1.7</td>
<td>1.5</td>
<td>1.4</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>2,054</td>
<td>2,128</td>
<td>2,128</td>
<td>2,253</td>
<td>24,362</td>
<td>22,613</td>
<td>21,546</td>
</tr>
</tbody>
</table>

U.S. Small Business Optimism Slips
Again As Credit Remains Tight 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 13, 2010



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113c.jpg" style="width: 353px; height: 265px;" align="right">Earlier
improvement in small business' optimism slipped again last month. The
National Federation of Independent Business (NFIB) reported their
December small business optimism index dipped 0.3% to 88.0. This second
consecutive slight decline followed several months of increase after
reaching a March low of 81.0.&nbsp;During the last ten years, there
has been an 85% correlation between the level of the NFIB index and the
two-quarter change in real GDP.
 Credit conditions remained as tight as
they've been since the "credit crunch" recession of 1980. The
percentage of firms reporting that credit was harder to get was stable
m/m at a net 15 but that was roughly triple the percentage from 1994 to
2007. The percent borrowing at least once last quarter was stable at
33% but that was down from the high of 46% during 2006.
The percentage
of small businesses expecting the economy to improve dipped slightly
m/m to 2 after a sharp November decline. The latest was down from the
May high of 12. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113d.jpg" style="width: 353px; height: 265px;" align="right">
The percentage which thought that now was a good time
to expand the business also slipped to 7 though it remained sharply
improved from this winter.
 Hiring intentions have responded negatively
to recent weakness in overall business sentiment. The percentage of
firms planning to raise employment remained in a net-layoff region,
though it has improved from the March low. For now, the percentage of
firms with one or more job openings improved modestly to 10% during
December. During the last ten years there has been a 74% correlation
between the NFIB employment percentage and the six-month change in
nonfarm payrolls. Also stable in the negative region was the percentage
expecting credit conditions to ease.
On the pricing front deflation
continued. The percentage of firms actually raising
prices at -22% (indicating deflation) slipped from the prior several
months and was near the record low. During the last ten years there has
been a 60% correlation between the six-month change in the producer
price index and the level of the NFIB price index<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113e.jpg" style="width: 353px; height: 265px;" align="right">

The
percentage of firms planning to raise prices
slipped again to a net 3 though that remained up from the March low of
zero. Finally, the percentage planning to raise worker compensation
fell to 1.
The largest, single most important problems seen by
business were poor sales (34%), taxes (20%, near its highest level
since 2007), government requirements (13%), insurance cost &amp;
availability (7%), competition from large businesses (6%) and inflation
(2%).
About 24 million small businesses exist in the United
States. Small business creates 80% of all new jobs in America and the
NFIB figures can be found in Haver's SURVEYS
database.&nbsp;
<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/SURVEYS/@S7/@S7.HTM">Nat'l
Federation of Independent Business</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Small Business Optimism Index
(SA, 1986=100)</td>
<td>88.0</td>
<td>88.3</td>
<td>89.1</td>
<td>3.3%</td>
<td>86.7</td>
<td>89.8</td>
<td>96.7</td>
</tr>
<tr>
<td class="firstcol">Percent of Firms Expecting
Economy To Improve</td>
<td>2</td>
<td>3</td>
<td>11</td>
<td>-13</td>
<td>-0</td>
<td>-10</td>
<td>-4</td>
</tr>
<tr class="odd">
<td class="firstcol">Percent of Firms With One or
More Job Openings</td>
<td>10</td>
<td>8</td>
<td>8</td>
<td>14</td>
<td>9</td>
<td>18</td>
<td>24</td>
</tr>
<tr>
<td class="firstcol">Percent of Firms Reporting That
Credit Was Harder To Get</td>
<td>15</td>
<td>15</td>
<td>14</td>
<td>12</td>
<td>14</td>
<td>9</td>
<td>6</td>
</tr>
<tr class="odd">
<td class="firstcol">Percent of Firms Raising Avg.
Selling Pric1es (Net)</td>
<td>-22</td>
<td>-17</td>
<td>-17</td>
<td>-6</td>
<td>-20</td>
<td>17</td>
<td>15</td>
</tr>
</tbody>
</table>

Industrial Output Is Making
Continued Gains In Europe 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 13, 2010


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100113f.jpg" align="left" border="0" height="265" width="353">
Europe&#8217;s recovery remains on track in November as industrial
production has risen in all the large EMU states. The UK, an EU member,
only saw a very minor set back to MFG IP with output dropping by 0.1%
in November. Of the largest EMU states, the rise in the Italy was
disappointing at just 0.2%. The UK&#8217;s small drop actually out did
expectations.
Year-over-year the IP drops have been trimmed to the range of
-4% to -10% for this group of countries. Despite the set back to UK IP
in November at -5.4% it demonstrates one of the smaller Yr/Yr drops in
IP and exhibits a strong improvement from its result in October (-7.8%,
Yr/Yr). All large countries show an improvement in their Yr/Yr drop in
November compared to October and for most the difference is large.
The chart above shows how strong the recoveries have been.
Despite all that strength over the last 3- and 6-months, 2009 has been
a very bad year for Europe.
German GDP is just reported to have posted an outsized drop of
5% in 2009 as its exports and investment goods sectors were hard hit.
As it was, government programs produced a boost that kept the steep GDP
decline from being even larger. Public consumption rose by 2.7% from
2008 while private consumption edged ahead by just 0.2%.
The recovery in IP is however a good development. Germany&#8217;s
industrial sector depends on exports which fell by 14.7% in 2009.
Exports have begun to get traction again and IP is on the rise as a
result. 2010 promises to be a much better year, but then 2009 put all
of Europe in a very deep hole and the real question is not 'Will 2010
be better?' but, 'How much better will 2010 be?' That is not yet
resolved and is a point of some contention. So far, good strong growth
is in train and seems to have staying power. Perhaps more optimism is
warranted.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">Main
Euro-Area Countries and UK IP in MFG </th>
</tr>
</thead>
<tbody>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">MFG Only</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>Sep 
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q:4 
Date</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Germany:</td>
<td>0.8%</td>
<td>-1.8%</td>
<td>3.6%</td>
<td>10.6%</td>
<td>16.6%</td>
<td>9.1%</td>
<td>18.6%</td>
<td>-9.1%</td>
<td>-13.7%</td>
<td>8.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">France: 
IPxConstruct'n</td>
<td>1.1%</td>
<td>-0.6%</td>
<td>-1.2%</td>
<td>-2.6%</td>
<td>4.2%</td>
<td>6.1%</td>
<td>8.6%</td>
<td>-3.8%</td>
<td>-8.0%</td>
<td>0.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>1.0%</td>
<td>-5.2%</td>
<td>-15.3%</td>
<td>6.4%</td>
<td>7.0%</td>
<td>5.9%</td>
<td>-10.2%</td>
<td>-13.2%</td>
<td>-2.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Spain</td>
<td>1.2%</td>
<td>-3.0%</td>
<td>0.5%</td>
<td>-5.5%</td>
<td>-20.2%</td>
<td>17.9%</td>
<td>-0.2%</td>
<td>-3.9%</td>
<td>-13.0%</td>
<td>-14.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">UK: EU
member</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>1.6%</td>
<td>6.1%</td>
<td>-1.8%</td>
<td>0.9%</td>
<td>-0.4%</td>
<td>-5.4%</td>
<td>-7.8%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
</body></html>

JOLTS: U.S. Job Openings Remain AtSeries' Low

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.

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**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.

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**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

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

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

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.

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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U.S. light vehicle sales dropped 2.9% (+6.5% y/y) to 17.31 million units (SAAR), 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.

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- 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

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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.

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- 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

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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 2010

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