Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318g.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s industrial production (IP) dropped again in January
but the decline was puny in comparison with the recent string of
monthly disasters. This month&#8217;s drop of 0.2% keeps the string of
declines alive but, ironically, gives some room for hope to come alive
that these declines will not go on forever. 
 

The declines in the quarter&#8211;to-date are still quite severe &#8211;
despite the small drop in January. That&#8217;s because the level of
industrial activity at the end of the quarter in Q4-2008 is so low that
the first month of 2009 leaves the early quarter reading at a very low
level compared to the Q4 2008 average level. 
 

All the main sectors industrial sectors have been showing
strong declines. Italy&#8217;s GDP has been dropping and its neighbors in the
Euro Area are experiencing continuing weakness. It is far too early to
treat the smaller IP decline in Italy as the beginning of good news on
the industrial front. The news is welcome but the good news is the
first such news and appears totally out of context and so far without
support elsewhere. Generally this is not the sector where you expect to
see good new appear first. 
 


 
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Italy IP Excluding Construction</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-date</td>
</tr>
<tr>
<td class="firstcol">IP-MFG</td>
<td>-0.2%</td>
<td>-2.7%</td>
<td>-3.2%</td>
<td>-21.9%</td>
<td>-20.7%</td>
<td>-14.6%</td>
<td>-17.2%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-1.7%</td>
<td>-0.9%</td>
<td>0.4%</td>
<td>-8.5%</td>
<td>-8.4%</td>
<td>-8.2%</td>
<td>-12.3%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.5%</td>
<td>-3.5%</td>
<td>-2.9%</td>
<td>-21.3%</td>
<td>-19.5%</td>
<td>-15.0%</td>
<td>-15.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-2.0%</td>
<td>-4.7%</td>
<td>-3.5%</td>
<td>-33.9%</td>
<td>-30.9%</td>
<td>-21.8%</td>
<td>-32.2%</td>
</tr>
</tbody>
</table>
</body></html>

Italy’s industrial production (IP) dropped again in January but the decline was puny in comparison with the recent string of monthly disasters. This month’s drop of 0.2% keeps the string of declines alive but, ironically, gives some [...]

January IP Drops but the Pace of Decline Slows

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318d.jpg" align="right" border="0" height="265" width="353">In an anticipated move the
Federal Open Market Committee today
left the Federal funds rate in a "range from 0 to 1/4
percent."&nbsp; The discount also was left unchanged at
0.50%.&nbsp; The Fed funds rate remained the lowest ever.
Regarding economic liquidity, the Fed focused on the housing
market indicating that "To provide greater support to mortgage lending
and housing markets, the Committee decided today to increase the size
of the Federal Reserve&#8217;s balance sheet further by purchasing up to an
additional $750 billion of agency mortgage-backed securities, bringing
its total purchases of these securities to up to $1.25 trillion this
year, and to increase its purchases of agency debt this year by up to
$100 billion to a total of up to $200 billion."&nbsp; Additional
action to provide liquidity also was taken.
Regarding economic growth, the Fed indicated that "that the
economy continues to contract.&nbsp; Job losses, declining equity
and housing wealth, and tight credit conditions have weighed on
consumer sentiment and spending.&nbsp; Weaker sales prospects and
difficulties in obtaining credit have led businesses to cut back on
inventories and fixed investment."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318e.jpg" align="right" border="0" height="265" width="353">

"... the Committee anticipates that policy actions to
stabilize financial markets and institutions, together with fiscal and
monetary stimulus, will contribute to a gradual resumption of
sustainable economic growth."
Regarding inflation the same statement was offered as at the
last meeting. "... that inflation will remain subdued.&nbsp;
Moreover, the Committee sees some risk that inflation could persist for
a time below rates that best foster economic growth and price stability
in the longer term.
The decision was unanimous amongst FOMC voters.
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm">link</a>.
The Fed's effort to liquefy the economic system has
succeeded.&nbsp; Growth in the money supply measure M2 has been
running at double-digit rates versus five-to-six percent from 2006 and
during all of 2008.&nbsp; Over the last three months growth in MZM
(M2 less time deposits, plus all money market funds) has been 22%
versus 14% during all of last year and 9% during 2007.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318f.jpg" align="right" border="0" height="265" width="353">
Growth
in the monetary base ran at a 32% annual rate from November to March
after the level of the base doubled last autumn.&nbsp; This year,
the bond market has met these liquidity injections with uncertainty but
on balance has been not overly concerned about the eventual
inflationary consequences.
The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.&nbsp;
Credit and Liquidity Programs and the Balance Sheet
from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/monetarypolicy/bst.htm">here.</a>
G-20 Asks IMF to Track, Assess Global Crisis Response
is a recent article published in the IMF Survey Magazine: In
the News and it can be found <a href="http://www.imf.org/external/pubs/ft/survey/so/2009/NEW031409A.htm">here</a>.&nbsp;
<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">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>

</body></html>

In an anticipated move the Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent." The discount also was left unchanged at 0.50%. The Fed funds rate remained the lowest ever. Regarding [...]

FOMC Leaves Rates Unchanged At Historically Low Level; Fed's Balance Sheet Expanded

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318a.jpg" align="right" border="0" height="265" width="353">Last
year's sharp decline in energy prices came to an abrupt end with the
turn of the calendar page to 2009; and the consumer price index
published by the Bureau of Labor Statistics (along with consumers'
wallets) noted the shift. During February, the CPI rose for only the
second time since July. The 0.4% increase followed an unrevised 0.3%
January gain as a 3.3% rise in energy prices roughly doubled their
January increase. The latest increase in the CPI&nbsp; slightly
outpaced Consensus expectations for a 0.3% rise.
The increase in
energy prices reflected higher gasoline prices which jumped by 8.3%
following the 6.0% January rise. Despite these gains, however, prices
are more than one-third lower versus last February. This month gasoline
prices have held the higher February level of $1.92 per gallon of
regular but this week have moved even higher. Offsetting some of that
upward pressure have been lower fuel oil prices. They fell 1.8% last
month (-21.4% y/y) and have fallen in each month since July. Similarly,
prices for natural gas &amp; electricity have fallen in all but one
of the last seven months though they still are 5.7% higher than last
February.
Some of that upward pressure has been relieved by a
moderation in food &amp; beverage price increases. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318b.jpg" align="right" border="0" height="265" width="353">
Prices actually
slipped 0.1% last month after 0.1% upticks during January and&nbsp;
December. Nevertheless, food prices still are a firm 4.7% higher than
last year but that's versus a 6.3% comparison this past fall. Recent
weakness has been led by lower dairy product prices (-1.7% y/y) and
five consecutive months of slight decline in meat and dairy product
prices (+4.2% y/y).
Core prices (CPI less food and energy)
rose for the second month by 0.2%. Those gains were the strongest since
August and moved the year-to-year increase up slightly to
1.8%.
 Core goods prices increased a firm
0.4% and that was enough to lift the three-month change to 1.2% (AR),
its highest since last August. Prices of new &amp; used motor
vehicles rose 0.5% (-2.5% y/y) while apparel prices jumped 1.3% (0.8%
y/y). Prices for household furnishings &amp; operations firmed by
0.2% after the slight January decline and the y/y change remained
healthy at 1.9%. Tobacco prices again were quite strong and rose 0.7%
to leave them up 6.3% y/y. 
 Gains in core services prices moderated
even further and posted a 0.1% uptick. The three-month rate of increase
remained a low at 1.6% (AR) after growing at a 3.9% rate this past
summer. That moderation owes mostly to weakness in the housing market
which caused February shelter prices to fall slightly. That was enough
to pull the three-month change down to 0.7%. Owners equivalent rent of
primary residence, a measure not equivalent to other house price
measures, ticked up 0.1% (2.1% y/y). <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318c.jpg" align="right" border="0" height="265">
The increase in medical care
services prices fell back to 0.3% (3.1% y/y) while education costs rose
a moderate 0.4% (5.5% y/y).&nbsp; Public transportation prices fell
hard like they did during the prior month by 1.9%. They were down for
the sixth consecutive period (-1.8% y/y). The increase in recreation
prices held firm at 0.4% (1.9% y/y). v The chained CPI, which adjusts
for shifts in consumption patterns, rose 0.6%, about as it did during
January. Less food and energy, chained prices firmed even more and
doubled the January increase of 0.2%. 
 The consumer price data is
available in Haver's USECON database while detailed
figures can be found in the CPIDATA database. 
The
Impact of Credit Easing So Far from the Federal Reserve Bank
of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2009/0309/02monpol.cfm">here</a>.&nbsp;
<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/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>0.4</td>
<td>0.3</td>
<td>0.1</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.4</td>
<td>0.1</td>
<td>-0.0</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>0.2</td>
<td>2.5</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>3.3</td>
<td>1.7</td>
<td>-19.1</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.1</td>
<td>0.1</td>
<td>4.7</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.6</td>
<td>0.5</td>
<td>-0.3 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.4</td>
<td>0.2</td>
<td>1.3</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>

</body></html>

Last year's sharp decline in energy prices came to an abrupt end with the turn of the calendar page to 2009; and the consumer price index published by the Bureau of Labor Statistics (along with consumers' wallets) noted the shift. [...]

Higher Energy Prices Lift U.S. CPI By Most Since July; Core Pricing Power Firm

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318a.jpg" align="right" border="0" height="265" width="353">Last
year's sharp decline in energy prices came to an abrupt end with the
turn of the calendar page to 2009; and the consumer price index
published by the Bureau of Labor Statistics (along with consumers'
wallets) noted the shift. During February, the CPI rose for only the
second time since July. The 0.4% increase followed an unrevised 0.3%
January gain as a 3.3% rise in energy prices roughly doubled their
January increase. The latest increase in the CPI&nbsp; slightly
outpaced Consensus expectations for a 0.3% rise.
The increase in
energy prices reflected higher gasoline prices which jumped by 8.3%
following the 6.0% January rise. Despite these gains, however, prices
are more than one-third lower versus last February. This month gasoline
prices have held the higher February level of $1.92 per gallon of
regular but this week have moved even higher. Offsetting some of that
upward pressure have been lower fuel oil prices. They fell 1.8% last
month (-21.4% y/y) and have fallen in each month since July. Similarly,
prices for natural gas &amp; electricity have fallen in all but one
of the last seven months though they still are 5.7% higher than last
February.
Some of that upward pressure has been relieved by a
moderation in food &amp; beverage price increases. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318b.jpg" align="right" border="0" height="265" width="353">
Prices actually
slipped 0.1% last month after 0.1% upticks during January and&nbsp;
December. Nevertheless, food prices still are a firm 4.7% higher than
last year but that's versus a 6.3% comparison this past fall. Recent
weakness has been led by lower dairy product prices (-1.7% y/y) and
five consecutive months of slight decline in meat and dairy product
prices (+4.2% y/y).
Core prices (CPI less food and energy)
rose for the second month by 0.2%. Those gains were the strongest since
August and moved the year-to-year increase up slightly to
1.8%.
 Core goods prices increased a firm
0.4% and that was enough to lift the three-month change to 1.2% (AR),
its highest since last August. Prices of new &amp; used motor
vehicles rose 0.5% (-2.5% y/y) while apparel prices jumped 1.3% (0.8%
y/y). Prices for household furnishings &amp; operations firmed by
0.2% after the slight January decline and the y/y change remained
healthy at 1.9%. Tobacco prices again were quite strong and rose 0.7%
to leave them up 6.3% y/y. 
 Gains in core services prices moderated
even further and posted a 0.1% uptick. The three-month rate of increase
remained a low at 1.6% (AR) after growing at a 3.9% rate this past
summer. That moderation owes mostly to weakness in the housing market
which caused February shelter prices to fall slightly. That was enough
to pull the three-month change down to 0.7%. Owners equivalent rent of
primary residence, a measure not equivalent to other house price
measures, ticked up 0.1% (2.1% y/y). <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318c.jpg" align="right" border="0" height="265">
The increase in medical care
services prices fell back to 0.3% (3.1% y/y) while education costs rose
a moderate 0.4% (5.5% y/y).&nbsp; Public transportation prices fell
hard like they did during the prior month by 1.9%. They were down for
the sixth consecutive period (-1.8% y/y). The increase in recreation
prices held firm at 0.4% (1.9% y/y). v The chained CPI, which adjusts
for shifts in consumption patterns, rose 0.6%, about as it did during
January. Less food and energy, chained prices firmed even more and
doubled the January increase of 0.2%. 
 The consumer price data is
available in Haver's USECON database while detailed
figures can be found in the CPIDATA database. 
The
Impact of Credit Easing So Far from the Federal Reserve Bank
of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2009/0309/02monpol.cfm">here</a>.&nbsp;
<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/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>0.4</td>
<td>0.3</td>
<td>0.1</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.4</td>
<td>0.1</td>
<td>-0.0</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>0.2</td>
<td>2.5</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>3.3</td>
<td>1.7</td>
<td>-19.1</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.1</td>
<td>0.1</td>
<td>4.7</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.6</td>
<td>0.5</td>
<td>-0.3 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.4</td>
<td>0.2</td>
<td>1.3</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>

FOMC Leaves Rates Unchanged At
Historically Low Level; Fed's Balance Sheet Expanded 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 18, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318d.jpg" align="right" border="0" height="265" width="353">In an anticipated move the
Federal Open Market Committee today
left the Federal funds rate in a "range from 0 to 1/4
percent."&nbsp; The discount also was left unchanged at
0.50%.&nbsp; The Fed funds rate remained the lowest ever.
Regarding economic liquidity, the Fed focused on the housing
market indicating that "To provide greater support to mortgage lending
and housing markets, the Committee decided today to increase the size
of the Federal Reserve&#8217;s balance sheet further by purchasing up to an
additional $750 billion of agency mortgage-backed securities, bringing
its total purchases of these securities to up to $1.25 trillion this
year, and to increase its purchases of agency debt this year by up to
$100 billion to a total of up to $200 billion."&nbsp; Additional
action to provide liquidity also was taken.
Regarding economic growth, the Fed indicated that "that the
economy continues to contract.&nbsp; Job losses, declining equity
and housing wealth, and tight credit conditions have weighed on
consumer sentiment and spending.&nbsp; Weaker sales prospects and
difficulties in obtaining credit have led businesses to cut back on
inventories and fixed investment."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318e.jpg" align="right" border="0" height="265" width="353">

"... the Committee anticipates that policy actions to
stabilize financial markets and institutions, together with fiscal and
monetary stimulus, will contribute to a gradual resumption of
sustainable economic growth."
Regarding inflation the same statement was offered as at the
last meeting. "... that inflation will remain subdued.&nbsp;
Moreover, the Committee sees some risk that inflation could persist for
a time below rates that best foster economic growth and price stability
in the longer term.
The decision was unanimous amongst FOMC voters.
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm">link</a>.
The Fed's effort to liquefy the economic system has
succeeded.&nbsp; Growth in the money supply measure M2 has been
running at double-digit rates versus five-to-six percent from 2006 and
during all of 2008.&nbsp; Over the last three months growth in MZM
(M2 less time deposits, plus all money market funds) has been 22%
versus 14% during all of last year and 9% during 2007.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318f.jpg" align="right" border="0" height="265" width="353">
Growth
in the monetary base ran at a 32% annual rate from November to March
after the level of the base doubled last autumn.&nbsp; This year,
the bond market has met these liquidity injections with uncertainty but
on balance has been not overly concerned about the eventual
inflationary consequences.
The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.&nbsp;
Credit and Liquidity Programs and the Balance Sheet
from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/monetarypolicy/bst.htm">here.</a>
G-20 Asks IMF to Track, Assess Global Crisis Response
is a recent article published in the IMF Survey Magazine: In
the News and it can be found <a href="http://www.imf.org/external/pubs/ft/survey/so/2009/NEW031409A.htm">here</a>.&nbsp;
<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">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>

January IP Drops but the Pace of
Decline Slows 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 18, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318g.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s industrial production (IP) dropped again in January
but the decline was puny in comparison with the recent string of
monthly disasters. This month&#8217;s drop of 0.2% keeps the string of
declines alive but, ironically, gives some room for hope to come alive
that these declines will not go on forever. 
 

The declines in the quarter&#8211;to-date are still quite severe &#8211;
despite the small drop in January. That&#8217;s because the level of
industrial activity at the end of the quarter in Q4-2008 is so low that
the first month of 2009 leaves the early quarter reading at a very low
level compared to the Q4 2008 average level. 
 

All the main sectors industrial sectors have been showing
strong declines. Italy&#8217;s GDP has been dropping and its neighbors in the
Euro Area are experiencing continuing weakness. It is far too early to
treat the smaller IP decline in Italy as the beginning of good news on
the industrial front. The news is welcome but the good news is the
first such news and appears totally out of context and so far without
support elsewhere. Generally this is not the sector where you expect to
see good new appear first. 
 


 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy IP
Excluding Construction</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-date</td>
</tr>
<tr>
<td class="firstcol">IP-MFG</td>
<td>-0.2%</td>
<td>-2.7%</td>
<td>-3.2%</td>
<td>-21.9%</td>
<td>-20.7%</td>
<td>-14.6%</td>
<td>-17.2%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-1.7%</td>
<td>-0.9%</td>
<td>0.4%</td>
<td>-8.5%</td>
<td>-8.4%</td>
<td>-8.2%</td>
<td>-12.3%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.5%</td>
<td>-3.5%</td>
<td>-2.9%</td>
<td>-21.3%</td>
<td>-19.5%</td>
<td>-15.0%</td>
<td>-15.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-2.0%</td>
<td>-4.7%</td>
<td>-3.5%</td>
<td>-33.9%</td>
<td>-30.9%</td>
<td>-21.8%</td>
<td>-32.2%</td>
</tr>
</tbody>
</table>
</body></html>

Higher Energy Prices Lift U.S. CPIBy Most Since July; Core Pricing Power Firm

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317h.jpg" align="right" border="0" height="265" width="353">
The German investors and analysts who participated in the ZEW
survey conducted between March 2 and March 16, were slightly less
pessimistic about expectations six months ahead and slightly more
pessimistic about current conditions. The excess of pessimists over
optimists regarding the outlook declined from 5.8% in February to 3.5%
in March, while the excess of pessimists regarding current conditions
increased from 86.2% in February to 89.4% in March. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317i.jpg" align="right" border="0" height="265" width="353">
The percent
balances on current conditions and expectations are shown in the first
chart.
The release of the January data for new orders in
manufacturing and industrial production during the period of the
survey, provided little evidence that current economic conditions were
improving. Industrial production fell 7.5% in the month of January and
new orders were down 8.0%. The year over year declines in new orders
and industrial production, shown in the second chart, are significantly
greater than those of the last recession.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317j.jpg" align="right" border="0" height="265" width="353">

The reduction from 2% to 1.5% in its key interest rate by the
European Central Bank on March 5 may have played a role in the slight
improvement in the participants expectations of the outlook six months
ahead. And the stock market stopped declining. From March 2 to March
16, the Frankfurt Xetra Dax Index rose 9%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMANY</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb 09</th>
<th scope="col">Jan&nbsp; 09&nbsp;</th>
<th scope="col">Dec 08&nbsp;</th>
<th scope="col">Nov 08</th>
<th scope="col">Oct O8</th>
<th scope="col">Sep 08</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">ZEW SURVEY&nbsp;(%
balance)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions </td>
<td>-89.4</td>
<td>-86.2</td>
<td>-77.1</td>
<td>-64.5</td>
<td>-50.4</td>
<td>-35.9</td>
<td>-1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations 6 months
ahead</td>
<td>-3.5</td>
<td>-5.8</td>
<td>-31.0</td>
<td>-45.2</td>
<td>-53.5</td>
<td>-63.0</td>
<td>-41.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Profit Expectations
Telecommunications</td>
<td>-16.1</td>
<td>-20.2</td>
<td>-28.3</td>
<td>-27.7</td>
<td>-29.7</td>
<td>-35.7</td>
<td>-12.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Profit Expectations
Vehicle/Car</td>
<td>-70.2</td>
<td>-75.3</td>
<td>-90.3</td>
<td>-89.3</td>
<td>-94.6</td>
<td>-91.7</td>
<td>-51.7</td>
</tr>
<tr class="even">
<td class="firstcol">Industrial Production
(Y/Y %)&nbsp;</td>
<td>N. A.</td>
<td>N. A.</td>
<td>-19.24</td>
<td>-11.58</td>
<td>-7.25</td>
<td>-3.53</td>
<td>-1.50</td>
</tr>
<tr>
<td class="firstcol">&nbsp;New Orders
Manufacturing&nbsp; (Y/Y %)</td>
<td>N. A.</td>
<td>N. A.</td>
<td>-35.11</td>
<td>-30.5</td>
<td>-26.07</td>
<td>-18.80</td>
<td>-9.80</td>
</tr>
</tbody>
</table>
</body></html>

The German investors and analysts who participated in the ZEW survey conducted between March 2 and March 16, were slightly less pessimistic about expectations six months ahead and slightly more pessimistic about current conditions. [...]

ZEW Survey: German Finance Types More Pessimistic On Current Conditions, Less Pessimistic On Expectations

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317f.jpg" width="353">
Regular gasoline prices dipped last week to $1.91 per gallon. That&#39;s at the bottom end of the $1.89 to $1.96 range in place since early February. Nevertheless the latest was up 30 cents from the December low. Yesterday, the spot market price for regular gasoline rose from Friday to $1.27 per gallon, up from $1.20 averaged last week. These prices compare to those that were slightly below $1.00 at the end of last year. The figures are reported by the U.S. Department of Energy.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
Gasoline demand has recovered due to the earlier declines in prices. The latest y/y change of -0.8% moderated from the 4.8% rate of decline seen last October. (Gasoline prices at the time were just off their peak.) The change in demand is measured using the latest four weeks versus the same four weeks in 2008. Demand for all petroleum products was down 2.1% y/y after the -8.0% comparison last October. These numbers are available in Haver&#39;s OILWKLY database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317g.jpg" width="353">
The rise in gasoline prices reflects the modest firming of crude oil prices. For a barrel of West Texas Intermediate crude oil, prices rose last week to $45.68, up 41% from the December low of $32.37 per barrel. Prices reached a high of $145.66 last July. In futures trading yesterday, the one-month price for crude oil rose even further to $47.35 per barrel.
The price of natural gas continued to slide last week with a sharp decline to $3.88 per mmbtu (-60.2% y/y), the lowest level since 2002. The latest average price was down more than two-thirds from the high reached in early-July of $13.19/mmbtu.
Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">03/16/09</th>
<th scope="col">03/09/09</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>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon, Regular)</td>
<td>1.91</td>
<td>1.94</td>
<td>-41.8%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>45.68</td>
<td>43.26</td>
<td>-58.3%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
</html>

Regular gasoline prices dipped last week to $1.91 per gallon. That's at the bottom end of the $1.89 to $1.96 range in place since early February. Nevertheless the latest was up 30 cents from the December low. Yesterday, the spot [...]

U.S. Gasoline Prices Dip While Crude Oil Prices Rise

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317d.jpg" width="353">
The severe downturn in housing starts took a breather last month as starts of multi-family homes nearly doubled. The Commerce Department indicated that total housing starts for February rose 22.2% from January to 583,000 (AR). January starts were revised up slightly and the latest figure compares to Consensus expectations for 450,000 starts.
Starts of multi-family homes rose 82.3%. That followed four consecutive months of sharp decline and returned starts to the highest level since October.
More indicative of the condition of the housing market is starts of single-family homes. Though they rose 1.0% last month to 357,000 (AR), starts remained near the record low for the series which dates back to 1959. The latest level is down eighty percent since the peak in early 2006. Permits to build single-family homes, a leading indicator of starts, rose and reversed their January decrease. However, they remained off by more than one-third over just the last three months. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317e.jpg" width="353">
By region, starts of single-family units in the Northeast reversed their January collapse and rose by 54.2%. Nevertheless, that gain left them still off by nearly one half from the year ago level. Starts in the Midwest rose a lesser 12.8% (-51.8 % y/y) after their sharp 21.7% January falloff. In the South, starts also reversed the January decline and rose a modest 2.5% (-45.7% y/y). In the West, starts ran counter to the m/m trend in the rest of the country and fell by nearly one quarter (-62.7% y/y). That followed a slight January increase.
The housing starts figures can be found in Haver&#39;s USECON database.
Quick Exits of Subprime Mortgages from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/03/Demyanyk.pdf"> here</a>.
Facts and Myths about the Financial Crisis of 2008 from Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/WP/WP666.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">Housing Starts (000s, SAAR)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</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>583</td>
<td>477</td>
<td>558</td>
<td>-47.3%</td>
<td>903</td>
<td>1,341</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>357</td>
<td>353</td>
<td>394</td>
<td>-50.6</td>
<td>617</td>
<td>1,034</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>226</td>
<td>124</td>
<td>164</td>
<td>-41.3</td>
<td>286</td>
<td>307</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>547</td>
<td>531</td>
<td>547</td>
<td>-44.2</td>
<td>880</td>
<td>1,389</td>
<td>1,844</td>
</tr>
</tbody>
</table>
</body>
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The severe downturn in housing starts took a breather last month as starts of multi-family homes nearly doubled. The Commerce Department indicated that total housing starts for February rose 22.2% from January to 583,000 (AR). January [...]

Surprising Rebound In U.S. Housing Starts Owes To Multi-Family

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317a.jpg" align="right" border="0" height="265" width="353">
U.S.
producer prices for finished goods increased a modest 0.1% last month.
The slim gain offset last month's upside surprise of 0.8%, which was
unrevised. Moreover, it contrasted with Consensus expectations for a
0.4% gain.Much of the reason for the latest moderation was a slimmer
0.2% rise in prices less food &amp; energy which followed the
strong 0.4% January increase. A 0.1% has been expected. Prices of core
finished consumer goods rose 0.4% last month (4.1% y/y). Durable
consumer goods prices increased 0.2% (3.0% y/y) while core nondurable
goods prices increased another firm 0.5% (5.1% y/y). Finally, the gain
in monthly capital equipment prices eased to 0.1% after a 0.5% January
jump but the 3.7% increase y/y remained the strongest since 1991.· A
1.3% increase (-19.3% y/y) in finished energy prices moderated from the
3.7% rise during January. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317b.jpg" align="right" border="0" height="265" width="353">
The rise in gasoline prices moderated to 8.7%
from a 15% spike in January (42.4% y/y) and home heating oil prices
reversed all of their January increase with a 7.2% decline (-46.4%
y/y). Natural gas prices fell 3.61% (-2.4% y/y). Prices for finished
foods continued weak and they posted a 1.6% decline (+0.9% y/y), the
third consecutive down month. The drop was led by lower meat (-3.8%
y/y) and dairy product costs (-15.3% y/y).Prices for intermediate
goods continued downward and continued to hold promise for weaker
finished goods prices. Intermediate goods prices fell 0.9% during
February and are down 5.6% year-to-year, the weakest since 1949.
Excluding food &amp; energy, prices also were quite weak dropping
0.6%, the fifth consecutive monthly decline. The 0.1% y/y decline was
the weakest comparison since 2002. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317c.jpg" align="right" border="0" height="265" width="353">
The crude materials PPI
fell with the economy's loss of momentum. The 4.5% decline in the total
was led by an 8.5% drop (-48.3% y/y) in energy prices. Crude food
prices continued lower by 3.9% (-19.5% y/y) after the brief 1.0% rise
during January. Less food &amp; energy, January crude prices rose
by 1.5% on the strength of higher metals prices.The Producer Price
Index data is available in Haver's USECON database.
More detailed data is in the PPI and in the PPIR
databases. Foreign Direct Investment, Productivity, and
Country Growth: An Overview from the Federal Reserve Bank of
St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/03/Contessi.pdf">
here</a>.&nbsp;
<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">February</th>
<th scope="col">January</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">Finished Goods</td>
<td>0.1</td>
<td>0.8</td>
<td>-1.6</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.9</td>
<td>-0.7</td>
<td>-5.6</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.6</td>
<td>-1.1</td>
<td>-0.1</td>
<td>7.6</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-4.5</td>
<td>-2.9</td>
<td>-34.7</td>
<td>21.2</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.5</td>
<td>0.1</td>
<td>&nbsp;-29.4</td>
<td>15.0</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>
</body></html>

U.S. producer prices for finished goods increased a modest 0.1% last month. The slim gain offset last month's upside surprise of 0.8%, which was unrevised. Moreover, it contrasted with Consensus expectations for a 0.4% gain.Much of [...]

U.S. Finished Goods PPI Rises Modestly; "Downstream" Pricing Remains Weak

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. Light Vehicle Sales Fall in April

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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

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

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

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

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

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

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

Carol Stone, CBE

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

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

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

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

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

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

Economy in Brief: March 2009

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