Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116i.jpg" align="right" border="0" height="265" width="353">
The Japanese
economy grew more than expected in the third quarter.&nbsp; The
annual rate of increase was 4.79% continuing the recovery that began in
the second quarter with an annual rate of increase of 2.72%.&nbsp;
The annual rates of change in private consumption and fixed investment
and the annual rate of difference in net exports are show in the first
chart. Japan still has a long way to go to recoup the losses from the
recent deep depression.&nbsp; The annual rate of real GDP in the
third quarter was 531.3 trillion yen, compared the 569.1 trillion yen
reached in the first quarter of 2008.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116j.jpg" align="right" border="0" height="265" width="353">
Although both net exports and
private consumption continued to increase in the third quarter, their
annual rates of increase were lower than those in the second
quarter.&nbsp; Even with a lower rate decline in Gross Fixed
Domestic Investment, from 10.5% in the second quarter to 1.3 % in the
third quarter, the net effect of these factors does not appear to
account for the sharp increase reported for total GDP in the third
quarter.&nbsp; It should be noted that the data are preliminary and
some of the components, notably the change in inventories, is only
updated during the 2nd preliminary release.&nbsp; Given the
volatility and the large positive and negative contributions of
inventory changes to total growth, as shown in the second chart, it is
highly likely that the missing element in Japan's third quarter growth
was due to inventory accumulation.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116k.jpg" align="right" border="0" height="265" width="353">
Deflation continues to
characterize the Japanese economy.&nbsp; The third chart shows GDP
in nominal and real terms since 2000 when real GDP began to exceed
nominal, indicating a declining price
level.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1&nbsp;09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08&nbsp;</th>
<th scope="col">Q2 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Private Consumption (SAAR)</td>
<td>2.8</td>
<td>3.9</td>
<td>-4.3</td>
<td>-2.8</td>
<td>0.0</td>
<td>-3.7</td>
<td>5.66</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Investment (SAAR)</td>
<td>-1.3</td>
<td>-10.5</td>
<td>-26.6</td>
<td>-14.9</td>
<td>-13.1</td>
<td>-5.9</td>
<td>3.9</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Exports (SAAD) Trillion Yen</td>
<td>9.8</td>
<td>244</td>
<td>-32.7</td>
<td>-52.7</td>
<td>-4.6</td>
<td>-10.3</td>
<td>15.7</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>2008</td>
<td>2007</td>
<td>2006</td>
<td>2005</td>
<td>2004&nbsp;</td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
<td>2001&nbsp;</td>
<td>2000&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Real (Trillion 2000Chn Yen)</td>
<td>556.6</td>
<td>560.5</td>
<td>547.7</td>
<td>536.8</td>
<td>526.6</td>
<td>512.5</td>
<td>505.4</td>
<td>504.5</td>
<td>503.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nominal (Trillion Yen)</td>
<td>507.6</td>
<td>515.8</td>
<td>507.4</td>
<td>501.7</td>
<td>515.8</td>
<td>490.3</td>
<td>491.3</td>
<td>497.7</td>
<td>503.0</td>
</tr>
</tbody>
</table>
</body></html>

The Japanese economy grew more than expected in the third quarter. The annual rate of increase was 4.79% continuing the recovery that began in the second quarter with an annual rate of increase of 2.72%. The annual rates of change in [...]

Japanese GDP Growth In Q3 Surprises: Due To Increased Demand Or Inventory Building?

Tom Moeller

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background-color:#b8b8b8; Empire State Factory Conditions Slip From October High
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116f.jpg" align="right" border="0" height="265" width="353">The
Federal Reserve Bank of New York reported that its November Empire
State Factory Index of General Business Conditions slipped to 23.51
during November. Nevertheless, that level still remained near the
highest level since 2004. The latest reading compares to sharply
negative levels this past winter and suggests positive growth in
factory sector activity. The latest level fell short of Consensus
expectations for a reading of 30.0.
The figure is a diffusion index.
Since the series' inception in 2001, there has been a 75% correlation
between its level and the three-month change in U.S. factory sector
industrial production. Like the Philadelphia Fed Index of General
Business Conditions, the Empire State Business Conditions Index
reflects answers to independent survey questions; it is not a weighted
combination of the components. The series dates back only to 2001.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116g.jpg" align="right" border="0" height="265" width="353">The
new orders component fell to 16.66 from its October high. The shipments
index also fell as did the employment index to a slim 1.32 from its
highest level since 2007. In the history of the NY employment index,
there has been an 87% correlation between the employment index and the
three-month growth in overall U.S. factory sector employment as
reported by the Labor Department. The workweek index also fell m/m but
remained significantly higher than the February low.
The prices paid
index eased to its lowest level since July and remained down sharply
from all of last year. Since inception in 2001, there has been a 77%
correlation between the index of prices paid and the three-month change
in the core intermediate materials PPI.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116h.jpg" align="right" border="0" height="265" width="353">The Empire
State index
of expected business conditions in six months rose during
November rose to its highest level since early-2004. The subseries for
new orders, employment, prices and capital expenditures each rose. The
inventory subseries rose sharply to it highest since early last year.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State. Participants from across the state in
a variety of industries respond to a questionnaire and report the
change in indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The Empire State data is available in Haver's SURVEYS
database.
Today's speech by Fed Chairman
Ben S. Bernanke On the Outlook for the Economy and Policy can
be found here <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20091116a.htm">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/SURVEYS/@S5/@S511/@S511.HTM" style="color: rgb(255, 255, 255);">Empire State
Manufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>23.51</td>
<td>34.57</td>
<td>-24.93</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>16.66</td>
<td>30.82</td>
<td>-22.29</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>1.32</td>
<td>10.39</td>
<td>-28.92</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>10.53</td>
<td>19.48</td>
<td>20.48</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>


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The Federal Reserve Bank of New York reported that its November Empire State Factory Index of General Business Conditions slipped to 23.51 during November. Nevertheless, that level still remained near the highest level since 2004. The [...]

Empire State Factory Conditions Slip From October High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116d.jpg" width="353"><img align="left" quot border="0" height="265&gt;&lt;/td&gt;\r\r\n &lt;/tr&gt;&lt;/table&gt;\r\r\n&lt;table border=" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116e.jpg" width="353"><tbody></tbody>
Perhaps the recent, moderate turnaround in final demand evident in the economy has begun to affect business&#39; inclination to shed inventory. Or maybe there&#39;s nothing left on the lot, in the warehouse or on the shelf to let go. Either way, business inventories slipped just 0.4% during September which was one-third of the monthly decumulation averaged back to October of last year. The decline also fell short of Consensus expectations for a 0.7% drop.
The overall slowdown was caused by a 0.6% increase in retail inventories, the first gain since last July. That increase resulted from a 3.8% (-27.9% y/y) rise in auto inventories which also was the first since July of last year. In contrast, the monthly rate of decline in nonauto inventories continued at 0.6% (-7.5% y/y). Furniture inventories increased 0.1% (-12.5% y/y) but clothing inventories fell a sharp 1.7% (-10.8% y/y). General merchandise inventories fell 0.4% and were off 6.3% y/y while building materials stores slipped just 0.1% (-9.6% y/y). Factory inventories fell a hard 1.0%. Meanwhile, wholesale inventories were off 0.9% and the y/y decline reached a nadir of 15.0%. Excluding oil, wholesale inventories fell 0.9% and the 15.4% rate of decline also was a new low.
Despite a possible interest in slowing the rate of inventory cutbacks, the inventory-to-sales ratio for total business held at the cycle low of 1.32 versus a high of 1.46 in January. The latest was the lowest since last September. In the retail sector the ratio moved higher as a result of the auto inventory rise, but at 1.42 it still was the second lowest of the cycle. For manufacturers and wholesalers, the ratio fell to new cycle lows.
The business sales and inventory data are available in Haver&#39;s USECON database.
The Behavior of Household and Business Investment over the Business Cycle from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/research/economic_quarterly/2009/summer/pdf/hatchondo.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Inventories (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4</td>
<td>-1.6</td>
<td>-1.1</td>
<td>-13.4</td>
<td>0.6</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.6</td>
<td>-2.6</td>
<td>-1.0</td>
<td>-13.9</td>
<td>-3.1</td>
<td>2.5</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Auto</td>
<td>-0.6</td>
<td>-0.7</td>
<td>-0.5</td>
<td>-7.5</td>
<td>-1.8</td>
<td>2.7</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.9</td>
<td>-1.3</td>
<td>-1.6</td>
<td>-15.0</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-0.9</td>
<td>-11.8</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Perhaps the recent, moderate turnaround in final demand evident in the economy has begun to affect business' inclination to shed inventory. Or maybe there's nothing left on the lot, in the warehouse or on the shelf to let go. Either [...]

U.S. Business Inventory Decumulation Slows

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116a.jpg" align="right" border="0" height="265" width="353">
Consumers
seem to be gaining back the inclination to spend. Retail sales last
month rose 1.4% after a 2.3% September decline that was deeper than
reported initially. A 0.9% October gain was the Consensus expectation.
The increase improved the y/y change in sales to -1.7% from declines of
roughly 10% earlier this year. Moreover, spending on "core" retail
sales has improved. Month-to-month changes in overall sales in recent
months have been quite volatile due to auto sales promotions and rising
gasoline prices. Aside from these distortions, gains in consumer
spending have been steady during the last three months and y/y growth
also improved. The retail sales data are available in Haver's USECON
database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116b.jpg" align="right" border="0" height="265" width="353">
Auto sales of late have been influenced by Detroit's sales
programs. Last month, retail sales of motor vehicles jumped 7.4% after
a 14.3% decline during September and a 10.2% August jump. Less autos,
sales rose 0.2% versus a 0.4% expected gain. Higher gasoline prices
also have influenced overall sales growth. Without autos &amp;
gasoline, retail sales rose 0.3% last month, about as they did during
the prior two months.&nbsp;These gains raised the y/y change to
-0.8% from -4.4% as of July.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116c.jpg" align="right" border="0" height="265" width="353">
In soft goods, the 0.4%
increase in apparel store sales was the fourth gain in as many months
and the y/y change of 1.5% was improved from -9.7% during December.
Finally, improvement in sales at furniture, electronics &amp;
appliance store sales has been less impressive. Sales fell 0.7% last
month and the y/y change improved only to -7.3% from -14.3% at its
worst. Furniture store sales alone fell 0.8% (-7.6% y/y) after two
months of increase while sales of electronics &amp; appliances
slipped 0.6% (-7.0% y/y), also after two months of increase.Internet
and catalogue purchases were firmer and rose 1.0% (1.6% y/y). The gain
contrasted with a 7.6% y/y decline as of April. Finally, restaurant
sales jumped 1.2% (1.5% y/y) after little change either m/m or y/y as
of September. Finally, building materials sales continued their slump
and fell 2.4% (-15.0% y/y).



<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail
Sales &amp; Food Services</a> (%)</td>
<td>1.4</td>
<td>-2.3</td>
<td>2.4</td>
<td>-1.7</td>
<td>-0.8</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>0.2</td>
<td>0.4</td>
<td>0.8</td>
<td>-2.6</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Less Gasoline</td>
<td>0.3</td>
<td>0.3</td>
<td>0.4</td>
<td>-0.8</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>
</body></html>

Consumers seem to be gaining back the inclination to spend. Retail sales last month rose 1.4% after a 2.3% September decline that was deeper than reported initially. A 0.9% October gain was the Consensus expectation. The increase [...]

U.S. Retail Sales Rise As Core Sales Improve Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116a.jpg" align="right" border="0" height="265" width="353">Consumers
seem to be gaining back the inclination to spend. Retail sales last
month rose 1.4% after a 2.3% September decline that was deeper than
reported initially. A 0.9% October gain was the Consensus expectation.
The increase improved the y/y change in sales to -1.7% from declines of
roughly 10% earlier this year. Moreover, spending on "core" retail
sales has improved. Month-to-month changes in overall sales in recent
months have been quite volatile due to auto sales promotions and rising
gasoline prices. Aside from these distortions, gains in consumer
spending have been steady during the last three months and y/y growth
also improved. The retail sales data are available in Haver's USECON
database.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116b.jpg" align="right" border="0" height="265" width="353">Auto sales of late have been
influenced by Detroit's sales
programs. Last month, retail sales of motor vehicles jumped 7.4% after
a 14.3% decline during September and a 10.2% August jump. Less autos,
sales rose 0.2% versus a 0.4% expected gain. Higher gasoline prices
also have influenced overall sales growth. Without autos &amp;
gasoline, retail sales rose 0.3% last month, about as they did during
the prior two months.&nbsp;These gains raised the y/y change to
-0.8% from -4.4% as of July.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116c.jpg" align="right" border="0" height="265" width="353">In soft goods, the 0.4%
increase in apparel store sales was the fourth gain in as many months
and the y/y change of 1.5% was improved from -9.7% during December.
Finally, improvement in sales at furniture, electronics &amp;
appliance store sales has been less impressive. Sales fell 0.7% last
month and the y/y change improved only to -7.3% from -14.3% at its
worst. Furniture store sales alone fell 0.8% (-7.6% y/y) after two
months of increase while sales of electronics &amp; appliances
slipped 0.6% (-7.0% y/y), also after two months of increase.

Internet
and catalogue purchases were firmer and rose 1.0% (1.6% y/y). The gain
contrasted with a 7.6% y/y decline as of April. Finally, restaurant
sales jumped 1.2% (1.5% y/y) after little change either m/m or y/y as
of September. Finally, building materials sales continued their slump
and fell 2.4% (-15.0% y/y).
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail
Sales &amp; Food Services</a> (%)</td>
<td>1.4</td>
<td>-2.3</td>
<td>2.4</td>
<td>-1.7</td>
<td>-0.8</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>0.2</td>
<td>0.4</td>
<td>0.8</td>
<td>-2.6</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Less Gasoline</td>
<td>0.3</td>
<td>0.3</td>
<td>0.4</td>
<td>-0.8</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>

 U.S. Business Inventory
Decumulation Slows 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116d.jpg" align="left" border="0" height="265" width="353"><img quot src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116e.jpg" align="left" border="0" height="265" width="353">
Perhaps the recent, moderate turnaround in final demand
evident in the economy has begun to affect business' inclination to
shed inventory. Or maybe there's nothing left on the lot, in the
warehouse or on the shelf to let go. Either way, business inventories
slipped just 0.4% during September which was one-third of the monthly
decumulation averaged back to October of last year. The decline also
fell short of Consensus expectations for a 0.7% drop.
The overall slowdown was caused by a 0.6% increase in retail
inventories, the first gain since last July. That increase resulted
from a 3.8% (-27.9% y/y) rise in auto inventories which also was the
first since July of last year. In contrast, the monthly rate of decline
in nonauto inventories continued at 0.6% (-7.5% y/y). Furniture
inventories increased 0.1% (-12.5% y/y) but clothing inventories fell a
sharp 1.7% (-10.8% y/y). General merchandise inventories fell 0.4% and
were off 6.3% y/y while building materials stores slipped just 0.1%
(-9.6% y/y). Factory inventories fell a hard 1.0%. Meanwhile, wholesale
inventories were off 0.9% and the y/y decline reached a nadir of 15.0%.
Excluding oil, wholesale inventories fell 0.9% and the 15.4% rate of
decline also was a new low.
Despite a possible interest in slowing the rate of inventory
cutbacks, the inventory-to-sales ratio for total business held at the
cycle low of 1.32 versus a high of 1.46 in January. The latest was the
lowest since last September. In the retail sector the ratio moved
higher as a result of the auto inventory rise, but at 1.42 it still was
the second lowest of the cycle. For manufacturers and wholesalers, the
ratio fell to new cycle lows.
The business sales and inventory data are available in Haver's
USECON database.
The Behavior of Household and Business Investment
over the Business Cycle from the Federal Reserve Bank of
Richmond can be found <a href="http://www.richmondfed.org/publications/research/economic_quarterly/2009/summer/pdf/hatchondo.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Business
Inventories (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4</td>
<td>-1.6</td>
<td>-1.1</td>
<td>-13.4</td>
<td>0.6</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.6</td>
<td>-2.6</td>
<td>-1.0</td>
<td>-13.9</td>
<td>-3.1</td>
<td>2.5</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-0.6</td>
<td>-0.7</td>
<td>-0.5</td>
<td>-7.5</td>
<td>-1.8</td>
<td>2.7</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.9</td>
<td>-1.3</td>
<td>-1.6</td>
<td>-15.0</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-0.9</td>
<td>-11.8</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
 Empire State Factory Conditions
Slip From October High 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 16, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116f.jpg" align="right" border="0" height="265" width="353">The
Federal Reserve Bank of New York reported that its November Empire
State Factory Index of General Business Conditions slipped to 23.51
during November. Nevertheless, that level still remained near the
highest level since 2004. The latest reading compares to sharply
negative levels this past winter and suggests positive growth in
factory sector activity. The latest level fell short of Consensus
expectations for a reading of 30.0.
The figure is a diffusion index.
Since the series' inception in 2001, there has been a 75% correlation
between its level and the three-month change in U.S. factory sector
industrial production. Like the Philadelphia Fed Index of General
Business Conditions, the Empire State Business Conditions Index
reflects answers to independent survey questions; it is not a weighted
combination of the components. The series dates back only to 2001.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116g.jpg" align="right" border="0" height="265" width="353">The
new orders component fell to 16.66 from its October high. The shipments
index also fell as did the employment index to a slim 1.32 from its
highest level since 2007. In the history of the NY employment index,
there has been an 87% correlation between the employment index and the
three-month growth in overall U.S. factory sector employment as
reported by the Labor Department. The workweek index also fell m/m but
remained significantly higher than the February low.
The prices paid
index eased to its lowest level since July and remained down sharply
from all of last year. Since inception in 2001, there has been a 77%
correlation between the index of prices paid and the three-month change
in the core intermediate materials PPI.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116h.jpg" align="right" border="0" height="265" width="353">The Empire
State index
of expected business conditions in six months rose during
November rose to its highest level since early-2004. The subseries for
new orders, employment, prices and capital expenditures each rose. The
inventory subseries rose sharply to it highest since early last year.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State. Participants from across the state in
a variety of industries respond to a questionnaire and report the
change in indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The Empire State data is available in Haver's SURVEYS
database.
Today's speech by Fed Chairman
Ben S. Bernanke On the Outlook for the Economy and Policy can
be found here <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20091116a.htm">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/SURVEYS/@S5/@S511/@S511.HTM" style="color: rgb(255, 255, 255);">Empire State
Manufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>23.51</td>
<td>34.57</td>
<td>-24.93</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>16.66</td>
<td>30.82</td>
<td>-22.29</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>1.32</td>
<td>10.39</td>
<td>-28.92</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>10.53</td>
<td>19.48</td>
<td>20.48</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>

 Japanese GDP Growth In Q3
Surprises: Due To Increased Demand Or Inventory Building? 
by <a href="/comment/Curley.html">Louise
Curley</a> November 16, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116i.jpg" align="right" border="0" height="265" width="353">The Japanese
economy grew more than expected in the third quarter.&nbsp; The
annual rate of increase was 4.79% continuing the recovery that began in
the second quarter with an annual rate of increase of 2.72%.&nbsp;
The annual rates of change in private consumption and fixed investment
and the annual rate of difference in net exports are show in the first
chart. Japan still has a long way to go to recoup the losses from the
recent deep depression.&nbsp; The annual rate of real GDP in the
third quarter was 531.3 trillion yen, compared the 569.1 trillion yen
reached in the first quarter of 2008.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116j.jpg" align="right" border="0" height="265" width="353">Although
both net exports and
private consumption continued to increase in the third quarter, their
annual rates of increase were lower than those in the second
quarter.&nbsp; Even with a lower rate decline in Gross Fixed
Domestic Investment, from 10.5% in the second quarter to 1.3 % in the
third quarter, the net effect of these factors does not appear to
account for the sharp increase reported for total GDP in the third
quarter.&nbsp; It should be noted that the data are preliminary and
some of the components, notably the change in inventories, is only
updated during the 2nd preliminary release.&nbsp; Given the
volatility and the large positive and negative contributions of
inventory changes to total growth, as shown in the second chart, it is
highly likely that the missing element in Japan's third quarter growth
was due to inventory accumulation.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116k.jpg" align="right" border="0" height="265" width="353">Deflation
continues to
characterize the Japanese economy.&nbsp; The third chart shows GDP
in nominal and real terms since 2000 when real GDP began to exceed
nominal, indicating a declining price
level.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1&nbsp;09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08&nbsp;</th>
<th scope="col">Q2 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Private Consumption (SAAR)</td>
<td>2.8</td>
<td>3.9</td>
<td>-4.3</td>
<td>-2.8</td>
<td>0.0</td>
<td>-3.7</td>
<td>5.66</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Investment (SAAR)</td>
<td>-1.3</td>
<td>-10.5</td>
<td>-26.6</td>
<td>-14.9</td>
<td>-13.1</td>
<td>-5.9</td>
<td>3.9</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Exports (SAAD) Trillion Yen</td>
<td>9.8</td>
<td>244</td>
<td>-32.7</td>
<td>-52.7</td>
<td>-4.6</td>
<td>-10.3</td>
<td>15.7</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>2008</td>
<td>2007</td>
<td>2006</td>
<td>2005</td>
<td>2004&nbsp;</td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
<td>2001&nbsp;</td>
<td>2000&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Real (Trillion 2000Chn Yen)</td>
<td>556.6</td>
<td>560.5</td>
<td>547.7</td>
<td>536.8</td>
<td>526.6</td>
<td>512.5</td>
<td>505.4</td>
<td>504.5</td>
<td>503.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nominal (Trillion Yen)</td>
<td>507.6</td>
<td>515.8</td>
<td>507.4</td>
<td>501.7</td>
<td>515.8</td>
<td>490.3</td>
<td>491.3</td>
<td>497.7</td>
<td>503.0</td>
</tr>
</tbody>
</table>

</body></html>

U.S. Retail Sales Rise As CoreSales Improve Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113h.jpg" align="right" border="0" height="265" width="353">
The U.S. economy is strengthening, so suggests price pressures
in the foreign trade accounts. Overall import prices rose 0.7%, though
the gain fell short of Consensus expectations for a 1.0% increase. The
rise was led by a 0.9% increase in petroleum prices which reversed a
like decline in September and promises to be followed by another strong
gain this month. The report indicated that non-oil import prices rose
0.7%, which was the strongest monthly increase since June of last year.
Moreover, on a three-month basis, these prices have risen at a 5.7%
annual rate after declining at a 13.6% rate as of last December.
(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.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113i.jpg" align="right" border="0" height="265" width="353">

Import prices break down as follows: Chemical import prices
were quite strong and posted a 2.9% increase but they still were down
16.1% from last year. Iron &amp; steel prices also were strong, up
2.4% m/m, but down by one-third from a year ago. Food prices increased
0.1% and at an 8.0% rate during the last three months. Capital goods
prices similarly posted a modest gain after five months of no change.
Prices for nonauto consumer goods rose 0.3% lifting the three-month
gain to 1.2% versus its weakest reading of -2.6% in January. Durable
consumer goods prices rose 0.4% (-0.9% y/y) but prices of household
goods slipped (-1.9% y/y) and furniture prices fell as well (-1.2%
y/y). Apparel prices were unchanged for the third month (-0.5% y/y).
Petroleum prices reversed their prior month's decline with a 0.9%
increase during October. This month crude oil prices have found further
strength with a rise to $76.94 yesterday from the October average of
$75.82 per barrel.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113j.jpg" align="right" border="0" height="265" width="353">

Total export prices resumed increasing modestly. The 0.3% rise
was led by a 0.3% gain in nonagricultural export prices, down 2.7% y/y.
Agricultural export prices actually fell 1.0% (-10.0% y/y).
The import and export price series can be found in Haver's USECON
database. Detailed figures are available in the USINT
database.

<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">Import/Export
Prices (NSA, %)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.7</td>
<td>0.2</td>
<td>1.6</td>
<td>-5.7</td>
<td>11.5</td>
<td>4.2</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>0.9</td>
<td>-0.9</td>
<td>7.7</td>
<td>-12.2</td>
<td>37.7</td>
<td>11.6</td>
<td>20.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>0.7</td>
<td>0.4</td>
<td>0.3</td>
<td>-3.8</td>
<td>5.3</td>
<td>2.7</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Export - All Commodities</td>
<td>0.3</td>
<td>-0.2</td>
<td>0.6</td>
<td>-3.4</td>
<td>6.0</td>
<td>4.9</td>
<td>3.6</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. economy is strengthening, so suggests price pressures in the foreign trade accounts. Overall import prices rose 0.7%, though the gain fell short of Consensus expectations for a 1.0% increase. The rise was led by a 0.9% [...]

U.S. Import Prices Rise, Both Oil & Nonoil

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113d.jpg" align="left" border="0" height="265" width="353">
European GDP turned higher in Q3 but the results were
generally less than expected. Among the early &#8216;flash&#8217; GDP reporters
France posted a small rise but it was the second rise in a row for
France. Greece with always volatile results posted the strongest rise
followed by Austria. Italy and The Netherlands have the largest Yr/Yr
declines in this group; the EMU Yr/Yr drop is of 4.1%. Greece is lower
Yr/Yr by just 1.6% Austria but just 2.2%. Germany the largest e-Area
economy is off by 4.8% Yr/Yr even though it has two quarters in a row
of solid growth under its belt. 
 

Flash reports do not provide any GDP detail but the various
authorities do offer some account of their results. Both Germany and
France cited the role of exports in pushing growth ahead. In Germany
investment demand was also described as a key factor. 
 

Paragon of strength or parasite of growth? 
-- An unfolding theme in the Area is that exports, external demand, is
driving the European recovery. In France domestic demand was flat in
the quarter despite a ton of ongoing stimulus that has left France
unable to get its fiscal budget gap in line as soon as the EU
Commission wants it to. Hungary, in its GDP release today, complained
that exports were weak and that was sapping GDP strength. The largest
industrial economies would seem to be good candidates to spur world
growth with their own domestic demand instead of relying on the demand
increases elsewhere. Chancellor Merkel has defended Germanys &#8216;right&#8217; to
be a leading exporters, Japan always seeks a surplus to &#8216;defend&#8217;
against the country&#8217;s lack of oil and dependence on oil and other
natural resource imports. China&#8217;s trade surplus grew larger last month.
How can &#8216;everyone&#8217; have export led growth? How can the US (whose
current account deficit surged in November) get its deficit in line if
major competitor countries insist on running trade surpluses, spurring
exports and maintaining weak domestic demand at home? This is something
the G-20 has been completely unable to sort out. 
 

These sorts of structural imbalances helped to lead to the
last financial crisis. Such flows underpinned the 1973-78 oil boom-bust
cycle. Factors that put persistent surpluses sand deficits in play are
dangerous and the G-20 has not plan to sort it out. At the weaker
dollar works to mitigate the US imbalance problem even if it is playing
with fire. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> European Growth for Selected Flash GDP Results</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Q/Q Saar</td>
<td colspan="3">Yr/Yr</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td> Q3-09</td>
<td> Q2-09</td>
<td> Q1-09</td>
<td>Q3-09</td>
<td>Q2-09</td>
<td>Q1-09</td>
</tr>
<tr class="even">
<td class="firstcol">Austria</td>
<td>14.0%</td>
<td>-3.7%</td>
<td>-13.8%</td>
<td>-2.2%</td>
<td>-5.4%</td>
<td>-4.8%</td>
</tr>
<tr class="even">
<td class="firstcol">France</td>
<td>1.1%</td>
<td>1.1%</td>
<td>-5.5%</td>
<td>-2.4%</td>
<td>-2.9%</td>
<td>-3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.9%</td>
<td>1.8%</td>
<td>-13.4%</td>
<td>-4.8%</td>
<td>-5.8%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>17.6%</td>
<td>32.7%</td>
<td>-29.8%</td>
<td>-1.6%</td>
<td>-1.2%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>2.4%</td>
<td>-1.9%</td>
<td>-10.5%</td>
<td>-4.6%</td>
<td>-5.9%</td>
<td>-6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>1.7%</td>
<td>-4.0%</td>
<td>-9.4%</td>
<td>-4.0%</td>
<td>-5.1%</td>
<td>-4.2%</td>
</tr>
<tr>
<td class="firstcol"> EMU</td>
<td> 1.5%</td>
<td> -0.7%</td>
<td> -9.6%</td>
<td> -4.1%</td>
<td> -4.8%</td>
<td> -4.9%</td>
</tr>
</tbody>
</table>
</body></html>

European GDP turned higher in Q3 but the results were generally less than expected. Among the early ‘flash’ GDP reporters France posted a small rise but it was the second rise in a row for France. Greece with always volatile results [...]

European GDP Turns Higher-But Disappoints

Carol Stone, CBE

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113e.jpg" align="right" border="0" height="265" width="353">Consumer
sentiment declined again in early November, falling from October's 70.6
to 66.0, measured by the Reuters/University of Michigan Index of
Consumer Sentiment.&nbsp; Forecasters had looked for only a
marginal decrease to 70.0. The reading on expectations for
mid-November was down 4.9 points to 63.7 from October's 68.6. The
primary weakness came in survey participants' outlook for business
conditions over the next year.&nbsp; That had leaped to 88 in
September and then fell back in October to 81 and now to 67.&nbsp;
This move seems to show that the nice rise in September was a temporary
blip, reversed last month and again now.&nbsp; Indeed, November's
expectations for "times" to be "good" fell by 7 points and those for
"times" to be "bad" increased by 7 points from October's
amounts.&nbsp; Expected personal finances were also less
optimistic, decreasing by 6 points in this survey round after a 2-point
uptick last month.&nbsp; The latest move was related to a rise in
the number of people who expect their income to fall during the coming
year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113f.jpg" align="right" border="0" height="265" width="353">The
reading of current economic conditions also fell; it went
down 4.1 points from October to mid-November.&nbsp; People's
assessments of their current financial condition and business
conditions in general both moved adversely.&nbsp; In particular,
more respondents indicated that current "bad times" make this a "bad
time" to buy large consumer items.&nbsp; At 21, this reading was up
3 points in the month and returned to its level back at the beginning
of this year.&nbsp; The record high for this negative indicator is
24, reached in August 2008. Prior to this cycle, the record was 17 in
October 1992.
Expected price inflation during the next year
amounted to 3.3% in this mid-November survey, according to the mean of
participants' estimates, edging up from October's 3.2%.&nbsp; In
contrast, the median of those estimates ticked down from 2.9% to 2.8%,
suggesting that people see little overall change in price pressures
this month.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113g.jpg" align="right" border="0" height="265" width="353">Respondents'
views on government
policy, which may eventually influence economic expectations, showed
mixed developments in this current survey.&nbsp; The number
expressing a favorable opinion rose from 86% in October to 88%,
reflected in a like increase in the number believing government is
doing "a good job" in November.&nbsp; At the same time, the
open-ended query about news reports people have heard gave a negative
spin to their impressions of government; the number hearing favorable
news about government fell from 6% last month to 3% and the number
hearing unfavorable news increased from 7% to 11%.&nbsp; While this
latter "news" reading has hardly ever been positive on a net basis, the
current -8 is well above averages between -3.5 and -4.&nbsp; So
people are clearly uneasy about the news they're getting on government
even though they're feeling marginally better about how government is
working in the economy.
 The Reuters/University of Michigan survey data
are not seasonally adjusted. The reading is based on telephone
interviews with about 500 households at month-end.&nbsp; These
mid-month results are based on about 320 interviews. The summary
indexes are in Haver's USECON database with
details in the proprietary UMSCA database.p
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-November
</th>
<th scope="col">October </th>
<th scope="col">September</th>
<th scope="col">Oct y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>66.0</td>
<td>70.6</td>
<td>73.5</td>
<td>18.2%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>69.6</td>
<td>73.7</td>
<td>73.4</td>
<td>21.0</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>63.7</td>
<td>68.6</td>
<td>73.5</td>
<td>20.4</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>

</body></html>

Consumer sentiment declined again in early November, falling from October's 70.6 to 66.0, measured by the Reuters/University of Michigan Index of Consumer Sentiment. Forecasters had looked for only a marginal decrease to 70.0. The [...]

Michigan Consumer Sentiment Sags Once Again

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

250501Z1.jpg

**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

250501H20.jpg

250501I20.jpg

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

U.S. Light Vehicle Sales Fall in April

250501J5.jpg

250501K5.jpg

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

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

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

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

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

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

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250501M5.jpg

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

250501N.jpg

250501O.jpg

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

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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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250501D8.jpg

- 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 2009

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