Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115f.jpg" width="353">
The November Empire State Index of General Business Conditions in New York&#39;s manufacturing industries regained all of the prior month&#39;s decline and rose 10.7 points to 22.82, the highest level since August. Consensus expectations had been for less of an increase to 15.0.
Since the series&#39; inception in 2001 there has been a close 80% correlation between the index level and the three month change in factory sector production.
Shipments recovered most of the October decline and the employment index jumped to 7.7 points to the highest level in over a year. The new orders index also added a bit to the October 13 point surge while prices paid rose to a record high. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115e.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The index of expectations for business conditions in six months recovered sharply. The 14 point jump pulled the index level to its highest since August and expectations for future capital spending jumped. A nine point rise brought the index to the highest level since March.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04 </th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
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<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>22.82</td>
<td>12.08</td>
<td>19.78</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
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The November Empire State Index of General Business Conditions in New York's manufacturing industries regained all of the prior month's decline and rose 10.7 points to 22.82, the highest level since August. Consensus expectations had [...]

Empire State Index Back Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115h.jpg" width="353">
Chain store sales gave back last week about half of the prior period&#39;s strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November remained 1.0% above October which rose 0.1% from the prior month
The average US retail price of regular gasoline fell another 8 cents last week to $2.30 per gallon (+16.6 y/y). Yesterday, the spot market price for gasoline was down another 3 cents from the prior week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115d.jpg" width="353">
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC gained 0.3% (-2.9% y/y) during the latest week following an upwardly revised 0.2% gain the prior week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/12/05</th>
<th scope="col">11/05/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
<tbody>
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<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>453.3</td>
<td>456.1</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
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</tbody>
</table>


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Chain store sales gave back last week about half of the prior period's strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November [...]

Chain Store Sales Backpedaled, Gas Prices Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115c.jpg" width="353">
US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because less autos, retail sales surged 0.9%. That increase was three times the Consensus expectation and the 1.4% September increase was upwardly revised.
Sales at gasoline service stations fell 0.8% after a 5.1% pop in September which was driven by a 16.8% rise in the retail price of gasoline. Gas prices reversed about half of that gain in October and have fallen another 14% so far in November.
Less gasoline, nonauto retail sales rose 1.1% (7.8% y/y) following an upwardly revised 0.8% gain in September. The increase was boosted again by strength in building material sales which jumped 2.1% (13.1% Y/Y) for the third consecutive month of strong gain.
Discretionary spending continued strong as evidenced by a 0.6% (8.2% y/y) rise in furniture &amp; electronics store sales which followed an upwardly revised 1.4% September surge. Sales of nonstore retailers (internet &amp; catalogue) jumped 1.2% (12.2% y/y) and general merchandise store sales rose 1.2% (7.1% y/y). Apparel store sales in October made up for the prior month&#39;s dip and ballooned 3.1% (6.5% y/y) even though apparel prices recently have been under pressure (-0.7% y/y thru September). 
Today&#39;s U.S. Senate Testimony of Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20051115/default.htm">here</a>.
Oil Prices and Consumer Spending from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/mehrapetersen.pdf">here</a>.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
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<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.9%</td>
<td>1.4%</td>
<td>9.9%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>3.3%</td>
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US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because [...]

U.S. Retail Sales Dip

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115g.jpg" width="353">
The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices.
The strength last month was led by a 12.3% (50.4% y/y) rise in home heating oil prices and a 12.7% (38.9% y/y) jump in natural gas which more than offset the 3.3% (+40.3% y/y) decline in gasoline.
Price inflation at the so called &quot;core&quot; level nevertheless eased a bit last month as a 0.3% decline in prices less food &amp; energy reversed all of the prior month&#39;s gain. Consensus expectations for a 0.2% increase.
Core finished consumer goods prices fell 0.2% (+2.0% y/y). Durable goods prices dropped 0.9% (+0.2% y/y) led by a 3.0% (-2.1% y/y) decline in passenger car prices as well as weakness in prices for home electronics (-2.0% y/y), carpets (+6.1% y/y) and home appliances (+1.7% y/y). Core consumer nondurable goods prices rose 0.2% (3.5% y/y) for the second consecutive month.
&quot;Spillover&quot; effects from the past strength in oil prices continued to be evident at the earlier stages of processing. Intermediate goods prices jumped 3.0% on top of the 2.5% September surge while core intermediate goods prices repeated their 1.2% spike of the prior month.
Crude energy prices gained 12.4% (69.4% y/y) as natural gas prices soared an unadjusted 20.3% (120.4% y/y). The gain lifted overall crude prices 6.7% though core crude prices reversed some of their September strength with a 1.2% decline. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.7%</td>
<td>1.9%</td>
<td>5.9%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>3.0%</td>
<td>2.5%</td>
<td>10.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2%</td>
<td>1.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>10.2%</td>
<td>31.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.2%</td>
<td>5.3%</td>
<td>0.9%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
</body>
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The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices. The strength last month was led by a 12.3% (50.4% y/y) rise [...]

PPI Up Another 0.7%, Core Prices Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115g.jpg" width="353">
The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices.
The strength last month was led by a 12.3% (50.4% y/y) rise in home heating oil prices and a 12.7% (38.9% y/y) jump in natural gas which more than offset the 3.3% (+40.3% y/y) decline in gasoline.
Price inflation at the so called &quot;core&quot; level nevertheless eased a bit last month as a 0.3% decline in prices less food &amp; energy reversed all of the prior month&#39;s gain. Consensus expectations for a 0.2% increase.
Core finished consumer goods prices fell 0.2% (+2.0% y/y). Durable goods prices dropped 0.9% (+0.2% y/y) led by a 3.0% (-2.1% y/y) decline in passenger car prices as well as weakness in prices for home electronics (-2.0% y/y), carpets (+6.1% y/y) and home appliances (+1.7% y/y). Core consumer nondurable goods prices rose 0.2% (3.5% y/y) for the second consecutive month.
&quot;Spillover&quot; effects from the past strength in oil prices continued to be evident at the earlier stages of processing. Intermediate goods prices jumped 3.0% on top of the 2.5% September surge while core intermediate goods prices repeated their 1.2% spike of the prior month.
Crude energy prices gained 12.4% (69.4% y/y) as natural gas prices soared an unadjusted 20.3% (120.4% y/y). The gain lifted overall crude prices 6.7% though core crude prices reversed some of their September strength with a 1.2% decline. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.7%</td>
<td>1.9%</td>
<td>5.9%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>3.0%</td>
<td>2.5%</td>
<td>10.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2%</td>
<td>1.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>10.2%</td>
<td>31.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.2%</td>
<td>5.3%</td>
<td>0.9%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
U.S. Retail Sales Dip 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115c.jpg" width="353">
US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because less autos, retail sales surged 0.9%. That increase was three times the Consensus expectation and the 1.4% September increase was upwardly revised.
Sales at gasoline service stations fell 0.8% after a 5.1% pop in September which was driven by a 16.8% rise in the retail price of gasoline. Gas prices reversed about half of that gain in October and have fallen another 14% so far in November.
Less gasoline, nonauto retail sales rose 1.1% (7.8% y/y) following an upwardly revised 0.8% gain in September. The increase was boosted again by strength in building material sales which jumped 2.1% (13.1% Y/Y) for the third consecutive month of strong gain.
Discretionary spending continued strong as evidenced by a 0.6% (8.2% y/y) rise in furniture &amp; electronics store sales which followed an upwardly revised 1.4% September surge. Sales of nonstore retailers (internet &amp; catalogue) jumped 1.2% (12.2% y/y) and general merchandise store sales rose 1.2% (7.1% y/y). Apparel store sales in October made up for the prior month&#39;s dip and ballooned 3.1% (6.5% y/y) even though apparel prices recently have been under pressure (-0.7% y/y thru September). 
Today&#39;s U.S. Senate Testimony of Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20051115/default.htm">here</a>.
Oil Prices and Consumer Spending from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/mehrapetersen.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.9%</td>
<td>1.4%</td>
<td>9.9%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
Chain Store Sales Backpedaled, Gas Prices Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115h.jpg" width="353">
Chain store sales gave back last week about half of the prior period&#39;s strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November remained 1.0% above October which rose 0.1% from the prior month
The average US retail price of regular gasoline fell another 8 cents last week to $2.30 per gallon (+16.6 y/y). Yesterday, the spot market price for gasoline was down another 3 cents from the prior week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115d.jpg" width="353">
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC gained 0.3% (-2.9% y/y) during the latest week following an upwardly revised 0.2% gain the prior week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/12/05</th>
<th scope="col">11/05/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>453.3</td>
<td>456.1</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Empire State Index Back Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115f.jpg" width="353">
The November Empire State Index of General Business Conditions in New York&#39;s manufacturing industries regained all of the prior month&#39;s decline and rose 10.7 points to 22.82, the highest level since August. Consensus expectations had been for less of an increase to 15.0.
Since the series&#39; inception in 2001 there has been a close 80% correlation between the index level and the three month change in factory sector production.
Shipments recovered most of the October decline and the employment index jumped to 7.7 points to the highest level in over a year. The new orders index also added a bit to the October 13 point surge while prices paid rose to a record high. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115e.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The index of expectations for business conditions in six months recovered sharply. The 14 point jump pulled the index level to its highest since August and expectations for future capital spending jumped. A nine point rise brought the index to the highest level since March.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04 </th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>22.82</td>
<td>12.08</td>
<td>19.78</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
</tr>
</tbody>
</table>
German Economic Growth Increases in the Third Quarter but ZEW Survey Raises Doubts About the Outlook 
by <a href="/comment/Curley.html">Louise Curley</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115a.jpg" width="353">
Preliminary data released today show that Germany&#39;s Real Gross Domestic Product increased 0.6% in the third quarter, compared with revised increases of 0.6% in the first quarter and 0.2% in the second quarter. The unrevised increases for the first and second quarters were 0.8% and 0.0% respectively. For the three quarters of this year, real GDP is only 0.87% above the three corresponding quarters of 2004, suggesting that growth in 2005 is unlikely to exceed 1.0%. Nominal GDP increased 0.38% in the third quarter, less than the real increase, as the deflator declined 0.24%. This was one of the few times, in the past five years, when the deflator declined, as can be seen in the first chart which shows the quarter-to-quarter growth in Real and Nominal GDP. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115b.jpg" width="353">
Information on the composition of GDP will not be available until November 22 when the more detailed release is scheduled to appear. However, the Federal Statistical Office offered some qualitative comments in the current release. A strong increase in exports and a considerable rise in capital formation had positive impacts on the quarter-to-quarter growth. Net exports were almost the only cause of year-to-year growth; domestic activity having made little contribution.
The ZEW Center for Economic Research released the results of its survey of institutional investors and financial analysts regarding the current economic situation and the outlook six months ahead. This was one of those rare times when the respondents were less pessimistic about the current situation than they were last month but less positive about the situation six months ahead as can be seem in the second chart. The decline in optimism about the future is generally attributed to doubts that the agreed upon economic program of the Grand Coalition scheduled to take office on November 22 may do little to encourage growth. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany</a></th>
<th scope="col">Q3 05&nbsp;</th>
<th scope="col">Q2 05</th>
<th scope="col">Q3 04</th>
<th scope="col">Q/Q&nbsp; %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004&nbsp;%&nbsp; </th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP (Bil. Euros)</td>
<td>561.05</td>
<td>558.90</td>
<td>557.16</td>
<td>0.38</td>
<td>1.61</td>
<td>1.88</td>
<td>0.84</td>
<td>1.55</td>
</tr>
<tr>
<td class="firstcol">GDP (Bil 2000 Chained Euros)&nbsp;</td>
<td>535.02</td>
<td>531.73</td>
<td>527.02</td>
<td>0.62</td>
<td>1.36</td>
<td>1.09</td>
<td>-.019</td>
<td>0.09</td>
</tr>
<tr class="odd">
<td class="firstcol">Deflator (2000 =100)</td>
<td>104.84</td>
<td>105.09</td>
<td>104.59</td>
<td>-0.24</td>
<td>0.24</td>
<td>0.79</td>
<td>1.03</td>
<td>1.45</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">ZEW Survey ( Percent Balance)</td>
<td>Nov 05&nbsp;</td>
<td>Oct 05</td>
<td>Nov 04</td>
<td>M/M&nbsp; Dif</td>
<td>Y/Y Dif</td>
<td>2004&nbsp; </td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td>-55.2</td>
<td>-58.0</td>
<td>-57.8</td>
<td>2.8</td>
<td>2.6</td>
<td>-67.7</td>
<td>92.6</td>
<td>83.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Situation 6 Months Ahead</td>
<td>38.7</td>
<td>39.4</td>
<td>13.9&nbsp;</td>
<td>-0.7&nbsp;</td>
<td>24.8&nbsp;</td>
<td>&nbsp; 44.6&nbsp;</td>
<td>&nbsp;38.4</td>
<td>&nbsp;45.3</td>
</tr>
</tbody>
</table>


</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114b.jpg" width="353">
Preliminary data on Japan&#39;s Gross Domestic Product was released late last week. Total GDP rose at an annual rate of 1.7% in the third quarter, above the consensus estimate of 1.1%. Although the growth had slowed from 3.25% of the second quarter and the 6.29% of the first quarter, the report was well received by financial analysts and the stock market. The Nikkei 225 Average rose 0.5% or 74 points to 14,155.06 on last Friday, its highest close since May 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114c.jpg" width="353">
On Monday, the stock market gave back more than half of Friday&#39;s gains. While the Monday decline has been attributed to a falling off of demand for Japanese stocks by foreign investors, some of the decline may have been the result of different views on deflation expressed by the Governor of the Bank of Japan and the Prime Minister following the release of the GDP data. Toshihiko Fukui, governor of the Bank of Japan, hinted at a possible change in monetary policy. &quot;A shift in policy, conceptually, would be a cut in current account deposits (the liquidity target) followed by very low short-term interest rates and then an adjustment to rates to a level in line with economic conditions.&quot; Prime Minister Junichiro Koizumi warned the Bank that it was too early to change its easy monetary policy of fighting deflation. In the first chart the gap between real and nominal GDP, a measure of deflation, has yet to show meaningful signs of decline.
The deceleration in growth was due in part to a decline in net exports as imports, fueled by high oil prices, rose faster than exports. However, both private consumption and gross fixed investment also played a part in the deceleration of growth. The second chart shows the seasonally adjusted annual rate of change in private final consumption and in gross fixed investment. The one sector that showed higher growth was inventories as both public and private inventories rose. 

<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/JAPAN/@J2/@J2.HTM">Japan:&nbsp;</a> Gross Domestic Product</th>
<th scope="col">Q3 2005 &nbsp;%</th>
<th scope="col">Q2 2005 %</th>
<th scope="col">Q1 2005 %</th>
<th scope="col">Q4 2004 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP Current Yen</td>
<td>0.69</td>
<td>2.05</td>
<td>3.15</td>
<td>0.89</td>
<td>1.40</td>
<td>-0.05</td>
<td>-1.56</td>
</tr>
<tr>
<td class="firstcol">GDP 2000 Chn Yen</td>
<td>1.70</td>
<td>3.25</td>
<td>6.29</td>
<td>0.72</td>
<td>2.61</td>
<td>1.41</td>
<td>-0.29</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Final Consumption&nbsp;</td>
<td>1.36</td>
<td>2.67</td>
<td>5.04</td>
<td>-1.09</td>
<td>1.47</td>
<td>0.24</td>
<td>0.53</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Gross Domestic Fixed Investment</td>
<td>3.66</td>
<td>6.42</td>
<td>7.10</td>
<td>0.62</td>
<td>1.34</td>
<td>1.05</td>
<td>-5.67</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports of Goods &amp; Services</td>
<td>11.43</td>
<td>13.03</td>
<td>-0.05</td>
<td>6.62</td>
<td>14.47</td>
<td>9.09</td>
<td>4.15</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports of Goods &amp; Services</td>
<td>16.66</td>
<td>9.40</td>
<td>0.30</td>
<td>10.33</td>
<td>8.92</td>
<td>3.82</td>
<td>1.25</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Q3 05 Bil. 2000.Chn Yen</td>
<td>Q2 05 Bil. 2000.Chn Yen</td>
<td>Q1 05 Bil.2000.Chn Yen</td>
<td>Q4 04 Bil. 2000.Chn Yen</td>
<td>2004 Bil. 2000.Chn Yen</td>
<td>2003 Bil. 2000.Chn Yen&nbsp;</td>
<td>2002 Bil. 2000.Chn Yen</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Inventory Change</td>
<td>2261.1</td>
<td>2046.3</td>
<td>2848.9</td>
<td>1128.9</td>
<td>839.6</td>
<td>-108.5</td>
<td>-983.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public Inventory Change</td>
<td>&nbsp;163.5</td>
<td>124.0&nbsp;</td>
<td>141.5&nbsp;</td>
<td>167.6&nbsp;</td>
<td>&nbsp;41.4</td>
<td>2.5&nbsp;</td>
<td>-6.6&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Preliminary data on Japan's Gross Domestic Product was released late last week. Total GDP rose at an annual rate of 1.7% in the third quarter, above the consensus estimate of 1.1%. Although the growth had slowed from 3.25% of the [...]

Japanese Gross Domestic Product Slows, but Exceeds Consensus Estimates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114a.jpg" width="353">
The U.S. federal government budget deficit continued lower during the opening month of FY06. The deficit of $47.2B fell 17.6% versus last October, about the same rate of decline as during FY05.
As a percentage of GDP the deficit fell to 2.6% last fiscal year versus 3.6% in FY04. The latest projection from the Congressional Budget Office is for a further decline to 2.4% in FY06.
Net receipt continued firm 9.2% y/y rate last month, powered by 16.0% growth in individual income tax receipts (44% of total receipts). That growth made up for an October shortfall in corporate income taxes (10% of total receipts) which left them 20.5% last October.
Total receipts accounted for 17.5% of GDP last fiscal year, up from 16.3% the prior year but down from 18.4% during the 1990s.
The improved job market continued to lift employment taxes (36% of total receipts) 6.4% y/y, a slowdown versus 8.8% growth during all of FY 2005 which was the strongest increase since 1988. 
U.S. net outlays grew 1.3% y/y last month despite a 28.0% gain in defense (19% of total outlays). Medicare spending (12% of total outlays) fell 11.4% y/y but spending on social security (21% of total outlays) rose 5.7%. Spending on health programs (10% of the total) rose 3.5% while spending on education &amp; training (4% of the total) fell 5.0% y/y after double digit gains during three of the last four fiscal years. Interest expense (8% of the total) grew 13.0% with higher interest rates after a 14.9% gain last fiscal year.
The latest projections from the US Congressional Budget Office are available <a href="http://www.cbo.gov/showdoc.cfm?index=1944&amp;sequence=0"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-47.2B</td>
<td>$35.7B</td>
<td>$-57.3B (10/04)</td>
<td>$-318.6B</td>
<td>$-412.1B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$149.5B</td>
<td>$151.6B</td>
<td>9.2%</td>
<td>14.6%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$196.7B</td>
<td>$216.0B</td>
<td>1.3%</td>
<td>7.9%</td>
<td>6.1%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. federal government budget deficit continued lower during the opening month of FY06. The deficit of $47.2B fell 17.6% versus last October, about the same rate of decline as during FY05. As a percentage of GDP the deficit fell [...]

October U.S. Budget Deficit Down Y/Y

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114a.jpg" width="353">
The U.S. federal government budget deficit continued lower during the opening month of FY06. The deficit of $47.2B fell 17.6% versus last October, about the same rate of decline as during FY05.
As a percentage of GDP the deficit fell to 2.6% last fiscal year versus 3.6% in FY04. The latest projection from the Congressional Budget Office is for a further decline to 2.4% in FY06.
Net receipt continued firm 9.2% y/y rate last month, powered by 16.0% growth in individual income tax receipts (44% of total receipts). That growth made up for an October shortfall in corporate income taxes (10% of total receipts) which left them 20.5% last October.
Total receipts accounted for 17.5% of GDP last fiscal year, up from 16.3% the prior year but down from 18.4% during the 1990s.
The improved job market continued to lift employment taxes (36% of total receipts) 6.4% y/y, a slowdown versus 8.8% growth during all of FY 2005 which was the strongest increase since 1988. 
U.S. net outlays grew 1.3% y/y last month despite a 28.0% gain in defense (19% of total outlays). Medicare spending (12% of total outlays) fell 11.4% y/y but spending on social security (21% of total outlays) rose 5.7%. Spending on health programs (10% of the total) rose 3.5% while spending on education &amp; training (4% of the total) fell 5.0% y/y after double digit gains during three of the last four fiscal years. Interest expense (8% of the total) grew 13.0% with higher interest rates after a 14.9% gain last fiscal year.
The latest projections from the US Congressional Budget Office are available <a href="http://www.cbo.gov/showdoc.cfm?index=1944&amp;sequence=0"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-47.2B</td>
<td>$35.7B</td>
<td>$-57.3B (10/04)</td>
<td>$-318.6B</td>
<td>$-412.1B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$149.5B</td>
<td>$151.6B</td>
<td>9.2%</td>
<td>14.6%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$196.7B</td>
<td>$216.0B</td>
<td>1.3%</td>
<td>7.9%</td>
<td>6.1%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
Japanese Gross Domestic Product Slows, but Exceeds Consensus Estimates 
by <a href="/comment/Curley.html">Louise Curley</a> November 14, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114b.jpg" width="353">
Preliminary data on Japan&#39;s Gross Domestic Product was released late last week. Total GDP rose at an annual rate of 1.7% in the third quarter, above the consensus estimate of 1.1%. Although the growth had slowed from 3.25% of the second quarter and the 6.29% of the first quarter, the report was well received by financial analysts and the stock market. The Nikkei 225 Average rose 0.5% or 74 points to 14,155.06 on last Friday, its highest close since May 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114c.jpg" width="353">
On Monday, the stock market gave back more than half of Friday&#39;s gains. While the Monday decline has been attributed to a falling off of demand for Japanese stocks by foreign investors, some of the decline may have been the result of different views on deflation expressed by the Governor of the Bank of Japan and the Prime Minister following the release of the GDP data. Toshihiko Fukui, governor of the Bank of Japan, hinted at a possible change in monetary policy. &quot;A shift in policy, conceptually, would be a cut in current account deposits (the liquidity target) followed by very low short-term interest rates and then an adjustment to rates to a level in line with economic conditions.&quot; Prime Minister Junichiro Koizumi warned the Bank that it was too early to change its easy monetary policy of fighting deflation. In the first chart the gap between real and nominal GDP, a measure of deflation, has yet to show meaningful signs of decline.
The deceleration in growth was due in part to a decline in net exports as imports, fueled by high oil prices, rose faster than exports. However, both private consumption and gross fixed investment also played a part in the deceleration of growth. The second chart shows the seasonally adjusted annual rate of change in private final consumption and in gross fixed investment. The one sector that showed higher growth was inventories as both public and private inventories rose. 

<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/JAPAN/@J2/@J2.HTM">Japan:&nbsp;</a> Gross Domestic Product</th>
<th scope="col">Q3 2005 &nbsp;%</th>
<th scope="col">Q2 2005 %</th>
<th scope="col">Q1 2005 %</th>
<th scope="col">Q4 2004 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP Current Yen</td>
<td>0.69</td>
<td>2.05</td>
<td>3.15</td>
<td>0.89</td>
<td>1.40</td>
<td>-0.05</td>
<td>-1.56</td>
</tr>
<tr>
<td class="firstcol">GDP 2000 Chn Yen</td>
<td>1.70</td>
<td>3.25</td>
<td>6.29</td>
<td>0.72</td>
<td>2.61</td>
<td>1.41</td>
<td>-0.29</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Final Consumption&nbsp;</td>
<td>1.36</td>
<td>2.67</td>
<td>5.04</td>
<td>-1.09</td>
<td>1.47</td>
<td>0.24</td>
<td>0.53</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Gross Domestic Fixed Investment</td>
<td>3.66</td>
<td>6.42</td>
<td>7.10</td>
<td>0.62</td>
<td>1.34</td>
<td>1.05</td>
<td>-5.67</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports of Goods &amp; Services</td>
<td>11.43</td>
<td>13.03</td>
<td>-0.05</td>
<td>6.62</td>
<td>14.47</td>
<td>9.09</td>
<td>4.15</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports of Goods &amp; Services</td>
<td>16.66</td>
<td>9.40</td>
<td>0.30</td>
<td>10.33</td>
<td>8.92</td>
<td>3.82</td>
<td>1.25</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Q3 05 Bil. 2000.Chn Yen</td>
<td>Q2 05 Bil. 2000.Chn Yen</td>
<td>Q1 05 Bil.2000.Chn Yen</td>
<td>Q4 04 Bil. 2000.Chn Yen</td>
<td>2004 Bil. 2000.Chn Yen</td>
<td>2003 Bil. 2000.Chn Yen&nbsp;</td>
<td>2002 Bil. 2000.Chn Yen</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Inventory Change</td>
<td>2261.1</td>
<td>2046.3</td>
<td>2848.9</td>
<td>1128.9</td>
<td>839.6</td>
<td>-108.5</td>
<td>-983.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public Inventory Change</td>
<td>&nbsp;163.5</td>
<td>124.0&nbsp;</td>
<td>141.5&nbsp;</td>
<td>167.6&nbsp;</td>
<td>&nbsp;41.4</td>
<td>2.5&nbsp;</td>
<td>-6.6&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

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.

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.

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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.

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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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.

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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

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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: November 2005

Jump to:

Empire State Index Back Up

Chain Store Sales Backpedaled, Gas Prices Down

U.S. Retail Sales Dip

PPI Up Another 0.7%, Core Prices Fell

PPI Up Another 0.7%, Core Prices Fell

Japanese Gross Domestic Product Slows, but Exceeds Consensus Estimates

October U.S. Budget Deficit Down Y/Y

October U.S. Budget Deficit Down Y/Y