Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070510a.jpg" width="353">
Exports outpace imports in nominal terms and shrink the non-oil trade balance. But BOTH export and import growth rates are moderating. 
The non-oil export and import flows take the distorting effect of oil out of the equation. These nominal flows show that the value of export growth is still outstripping the value of US import growth. But were we to compare the real (inflation adjusted flows) we would find that real export and import growth rates have in fact converged. This tells us that one of the contributions of the weaker dollar has been to strengthen US export prices. As the dollar falls, US export prices automatically get cheaper in foreign currency terms, improving the competitive position of US exporters. But as this happens exporters often take the opportunity to hike dollar prices and augment profit margins. As long as dollar export prices rise by less than the fall in the dollar, US firms are in the enviable position of getting higher dollar prices while charging lower foreign currency prices at the same time. Still export growth is slowing in both real and nominal terms. And import growth is slowing as well.
The table below shows flows based on inflation adjusted data. Overall export growth is - and has been - losing speed despite talk of better growth abroad. Indeed a number of countries&#146; foreign trade statistics issued recently show some similar themes. Germany and France display a certain weakness in consumer goods weakness in the exportation &#150; and importation - of consumer goods. In Europe we also find that consumer spending remains stunted within the various domestic economies. This is something to worry about.
US exports show a drop in the growth rate for capital goods autos &amp; parts and consumer goods. The catch-all &#145;other category&#146; is also slowing. While foods, feeds and beverage flows are not slowing, they are slow. Contrarily, while consumer goods exports are slowing they are NOT slow. 
AS for imports, real imports have been consistent and slow; and they are also marginally decelerating. But foods, feeds and beverage inflows are accelerating as are industrial supplies and materials (the category that contains oil). More optimistically, capital goods imports have accelerated. But for autos and parts, consumer goods and the miscellaneous category of &#145;other&#146; imports are decelerating.
The SURGE in the March trade deficit (-$63.9 from -$57.9) will chip a bit more off of already weak GDP growth &#150; but not as much as some may think&#133; 
That monthly result is a nominal -$72bil worsening in the month at an annual rate&#133; that, in turn, is one third of the quarter so that result worsens the quarter by $24bil more at an annual rate in nominal terms. It could shave another 0.2% to 0.3% off GDP&#146;s already weak growth rate. The subtraction from GDP might have been worse except that much of the import surge is in oil and it is due to PRICE; that blunts the impact of the trade widening on REAL GDP. Both exports and imports show strong growth in the month and that is a PRO-GROWTH sign for the economy. Much of the surge in the trade gap this month is in petroleum and products where imports rose by 17% (m/m) in March. The Non-Oil deficit worsened by only $1.2bil in the month or $0.4bil for the quarter that is less than $5bil annualized, in nominal terms&#133; And that is why the likely subtraction from GDP due to trade does not worsen by much more than a few decimal points.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
US Merchandise Real End-Use Trade Flows
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Category</td>
<td>Current</td>
<td>Previous</td>
<td colspan="3">$SA % SAAR</td>
<td>MEMO:</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">% M/M: Current &amp; Previous</td>
<td colspan="3"></td>
<td>Previous</td>
</tr>
<tr class="odd">
<td class="firstcol">Mar 2007</td>
<td>M:%</td>
<td>M:%</td>
<td>3-MO</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Yr/Yr</td>
</tr>
<tr>
<td class="firstcol">Real Exports</td>
<td>2.2%</td>
<td>-3.8%</td>
<td>-1.4%</td>
<td>0.8%</td>
<td>5.2%</td>
<td>11.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foods, Feeds &amp; Beverages</td>
<td>-6.5%</td>
<td>-3.2%</td>
<td>-18.5%</td>
<td>-19.5%</td>
<td>-5.5%</td>
<td>7.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industrial Materials</td>
<td>3.8%</td>
<td>-4.1%</td>
<td>3.8%</td>
<td>-6.5%</td>
<td>1.1%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>1.2%</td>
<td>-5.9%</td>
<td>-8.8%</td>
<td>-1.6%</td>
<td>4.3%</td>
<td>15.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos &amp; Parts</td>
<td>6.8%</td>
<td>3.1%</td>
<td>11.0%</td>
<td>24.4%</td>
<td>13.5%</td>
<td>9.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>2.4%</td>
<td>-2.8%</td>
<td>13.5%</td>
<td>20.5%</td>
<td>10.7%</td>
<td>10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Other</td>
<td>4.7%</td>
<td>-1.6%</td>
<td>-3.0%</td>
<td>-0.5%</td>
<td>22.5%</td>
<td>12.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Real Imports</td>
<td>3.5%</td>
<td>-2.2%</td>
<td>4.3%</td>
<td>5.4%</td>
<td>4.9%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foods, Feeds &amp; Beverages</td>
<td>5.1%</td>
<td>0.2%</td>
<td>27.4%</td>
<td>13.3%</td>
<td>2.7%</td>
<td>14.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industrial Materials</td>
<td>7.7%</td>
<td>-7.7%</td>
<td>11.7%</td>
<td>2.9%</td>
<td>3.9%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>-0.1%</td>
<td>-1.2%</td>
<td>8.9%</td>
<td>2.2%</td>
<td>4.6%</td>
<td>16.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos &amp; Parts</td>
<td>4.3%</td>
<td>-1.1%</td>
<td>-16.1%</td>
<td>6.5%</td>
<td>3.0%</td>
<td>10.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>1.7%</td>
<td>2.3%</td>
<td>2.2%</td>
<td>9.7%</td>
<td>8.1%</td>
<td>12.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Other</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>-10.2%</td>
<td>3.8%</td>
<td>2.6%</td>
<td>5.9%</td>
</tr>
</tbody>
</table>
</body>
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Exports outpace imports in nominal terms and shrink the non-oil trade balance. But BOTH export and import growth rates are moderating. The non-oil export and import flows take the distorting effect of oil out of the equation. These [...]

U.S. Trade Gap Widens on Oil and Without Oil

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070509b.jpg" width="353">
On April 30, the Department of Energy released supplementary detail on natural gas and crude oil reserves and production through 2005. Included in this report are data for &quot;Federal Offshore Gulf of Mexico Deepwater Reserves&quot;, which Haver has just added to our OGJANN database. Over the year 2005, proved reserves of dry natural gas -- the standard &quot;consumer grade&quot; gas -- declined from 18.8 trillion cubic feet in the Gulf to just over 17.0 trillion or 9.6%. These reserves have fallen in eight of the 13 years for which there are data, and over the past four years, these declines have averaged 10.5%. &quot;Proved Reserves&quot; are the quantities that geologists and engineers deem usable -- &quot;recoverable&quot;, in industry parlance -- in known reservoirs under existing economic and operating conditions. Obviously, recovering the gas reduces the reserves, while finding a new reservoir increases them. Notably, economic and operating conditions apply, so if prices rise, reserves might go up because the economics of production would be more favorable. Also, if drilling techniques improve, reserves could also increase, since the more efficient or highly skilled process would make it easier to reach substances in difficult locations.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070509c.jpg" width="353">
In that regard, these new series in Haver&#39;s databases also include reserves and production of gas and oil that lie more than 200 meters below the surface. So while total reserves of dry natural gas peaked in 1997 at 27.9 trillion cubic feet, reserves below 200 meters continued to increase until 2001. In 2005, even while both total and deepwater reserves were decreasing, the deepwater portion rose to 47% of the total.
Similar data exist for crude oil and for natural gas liquids in the Gulf of Mexico. Data for crude oil are shown in the table below.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070509d.jpg" width="353">
The Energy Department&#39;s information also includes the associated production data: how much is withdrawn and processed. There are technical differences between these production data and the regular monthly &quot;marketed&quot; concept; for natural gas, so-called flared and vented gas is included in these figures, but not in the &quot;marketed&quot; production.
The simple annual figures illustrate pretty clearly the impact of Hurricanes Katrina and Rita on production. Oil production in the Gulf was off 12.4% in 2005, pretty steep considering that the storms hit in late August and mid-September, two-thirds through the year. But natural gas was hit harder still, plunging almost exactly 25%. Both gas and oil produced in shallower waters were off about 30%, while deepwater natural gas had only a 12.5% decline and oil at those depths barely decreased, just 1.6%. Clearly, the deepwater reserves are crucial to the US petroleum supply in the next several years.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2000</th>
<th scope="col">1992</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Dry Natural Gas Proved Reserves* (Bil.cu.ft.)</td>
<td>17,007</td>
<td>18,812</td>
<td>22,059</td>
<td>26,172</td>
<td>26,649</td>
</tr>
<tr class="odd">
<td class="firstcol">Below 200 meters</td>
<td>8,043</td>
<td>8,379</td>
<td>9,835</td>
<td>8,506</td>
<td>3,225</td>
</tr>
<tr class="odd">
<td class="firstcol">Dry Natural Gas Production (Bil.cu.ft.)</td>
<td>2,906</td>
<td>3,874</td>
<td>4,306</td>
<td>4,773</td>
<td>4,508</td>
</tr>
<tr class="odd">
<td class="firstcol">Below 200 meters</td>
<td>1,069</td>
<td>1,222</td>
<td>1,513</td>
<td>1,165</td>
<td>162</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Oil Proved Reserves* (Mil. Barrels)</td>
<td>4,042</td>
<td>4,144</td>
<td>4,554</td>
<td>3,174</td>
<td>1,835</td>
</tr>
<tr class="odd">
<td class="firstcol">Below 200 meters</td>
<td>3,272</td>
<td>3,280</td>
<td>3,627</td>
<td>2,021</td>
<td>557</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Oil Production (Mil. Barrels)</td>
<td>409</td>
<td>467</td>
<td>485</td>
<td>419</td>
<td>267</td>
</tr>
<tr class="odd">
<td class="firstcol">Below 200 meters</td>
<td>305</td>
<td>310</td>
<td>336</td>
<td>234</td>
<td>46</td>
</tr>
</tbody>
</table>
</body>
</html>

On April 30, the Department of Energy released supplementary detail on natural gas and crude oil reserves and production through 2005. Included in this report are data for "Federal Offshore Gulf of Mexico Deepwater Reserves", which [...]

Gulf of Mexico Deepwater Oil and Gas Data Added to Haver Offerings; Crucial Cushion to Energy Supplies

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070509a.jpg" width="353">
Exports show a slowing trend while imports now show a DECLINING trend. We know that export weakness can&#146;t be for real since export orders have been filled with such life...or have they? 
The chart above plots the course of exports Vs export orders using year/year percentage gains. The YELLOW line plots the year/year percentage change in the &#145;real narrow euro FX rate&#146;. Two things stand out. One is that the exchange rate does track pretty well the general changes in the growth rate of nominal German exports. And that trend is pointing lower. Also export orders track pretty well and note that export orders are pushing higher. What&#146;s the message?
Obviously the message is mixed. But notice how the FX rate tracks the general direction of exports while orders track exports more closely. But also notice how orders have had a much looser relationship to exports in recent months. Indeed, since about April of 2006 export orders have fluctuated widely and have been a very poor guide for what exports themselves ultimately would do. 
I remain skeptical of the predictive power of export orders, given their new unlinking from German export flows. At the same time I am impressed by the general story told by the strong Euro. I think too much emphasis is being placed on orders at a time its relationship to exports has become unstable. We shall soon be able to see if this trust in order strength will bear fruit.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German Trade Trends for Goods
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M%</td>
<td colspan="3">% SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr class="grey2">
<td class="firstcol">Balance*</td>
<td>&#128;&#128; 15.54</td>
<td>&#128;&#128; 14.67</td>
<td>&#128;&#128; 15.34</td>
<td>&#128;&#128; 16.07</td>
<td>&#128;&#128; 14.32</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; All Export</td>
<td>-1.4%</td>
<td>1.8%</td>
<td>4.5%</td>
<td>0.3%</td>
<td>11.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; All Import</td>
<td>-3.0%</td>
<td>4.1%</td>
<td>-2.2%</td>
<td>-1.6%</td>
<td>6.5%</td>
</tr>
<tr class="grey1">
<td colspan="6">*Billions of Euros; monthly or period average</td>
</tr>
</tbody>
</table>
</body>
</html>

Exports show a slowing trend while imports now show a DECLINING trend. We know that export weakness cant be for real since export orders have been filled with such life...or have they? The chart above plots the course of exports Vs [...]

German Trade Flows Dive, but Imports Dive Faster

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070509a.jpg" width="353">
Exports show a slowing trend while imports now show a DECLINING trend. We know that export weakness can&#146;t be for real since export orders have been filled with such life...or have they? 
The chart above plots the course of exports Vs export orders using year/year percentage gains. The YELLOW line plots the year/year percentage change in the &#145;real narrow euro FX rate&#146;. Two things stand out. One is that the exchange rate does track pretty well the general changes in the growth rate of nominal German exports. And that trend is pointing lower. Also export orders track pretty well and note that export orders are pushing higher. What&#146;s the message?
Obviously the message is mixed. But notice how the FX rate tracks the general direction of exports while orders track exports more closely. But also notice how orders have had a much looser relationship to exports in recent months. Indeed, since about April of 2006 export orders have fluctuated widely and have been a very poor guide for what exports themselves ultimately would do. 
I remain skeptical of the predictive power of export orders, given their new unlinking from German export flows. At the same time I am impressed by the general story told by the strong Euro. I think too much emphasis is being placed on orders at a time its relationship to exports has become unstable. We shall soon be able to see if this trust in order strength will bear fruit.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German Trade Trends for Goods
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M%</td>
<td colspan="3">% SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr class="grey2">
<td class="firstcol">Balance*</td>
<td>&#128;&#128; 15.54</td>
<td>&#128;&#128; 14.67</td>
<td>&#128;&#128; 15.34</td>
<td>&#128;&#128; 16.07</td>
<td>&#128;&#128; 14.32</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; All Export</td>
<td>-1.4%</td>
<td>1.8%</td>
<td>4.5%</td>
<td>0.3%</td>
<td>11.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; All Import</td>
<td>-3.0%</td>
<td>4.1%</td>
<td>-2.2%</td>
<td>-1.6%</td>
<td>6.5%</td>
</tr>
<tr class="grey1">
<td colspan="6">*Billions of Euros; monthly or period average</td>
</tr>
</tbody>
</table>
Gulf of Mexico Deepwater Oil and Gas Data Added to Haver Offerings; Crucial Cushion to Energy Supplies 
by <a href="/comment/Stone.html">Carol Stone</a> May 9, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070509b.jpg" width="353">
On April 30, the Department of Energy released supplementary detail on natural gas and crude oil reserves and production through 2005. Included in this report are data for &quot;Federal Offshore Gulf of Mexico Deepwater Reserves&quot;, which Haver has just added to our OGJANN database. Over the year 2005, proved reserves of dry natural gas -- the standard &quot;consumer grade&quot; gas -- declined from 18.8 trillion cubic feet in the Gulf to just over 17.0 trillion or 9.6%. These reserves have fallen in eight of the 13 years for which there are data, and over the past four years, these declines have averaged 10.5%. &quot;Proved Reserves&quot; are the quantities that geologists and engineers deem usable -- &quot;recoverable&quot;, in industry parlance -- in known reservoirs under existing economic and operating conditions. Obviously, recovering the gas reduces the reserves, while finding a new reservoir increases them. Notably, economic and operating conditions apply, so if prices rise, reserves might go up because the economics of production would be more favorable. Also, if drilling techniques improve, reserves could also increase, since the more efficient or highly skilled process would make it easier to reach substances in difficult locations.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070509c.jpg" width="353">
In that regard, these new series in Haver&#39;s databases also include reserves and production of gas and oil that lie more than 200 meters below the surface. So while total reserves of dry natural gas peaked in 1997 at 27.9 trillion cubic feet, reserves below 200 meters continued to increase until 2001. In 2005, even while both total and deepwater reserves were decreasing, the deepwater portion rose to 47% of the total.
Similar data exist for crude oil and for natural gas liquids in the Gulf of Mexico. Data for crude oil are shown in the table below.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070509d.jpg" width="353">
The Energy Department&#39;s information also includes the associated production data: how much is withdrawn and processed. There are technical differences between these production data and the regular monthly &quot;marketed&quot; concept; for natural gas, so-called flared and vented gas is included in these figures, but not in the &quot;marketed&quot; production.
The simple annual figures illustrate pretty clearly the impact of Hurricanes Katrina and Rita on production. Oil production in the Gulf was off 12.4% in 2005, pretty steep considering that the storms hit in late August and mid-September, two-thirds through the year. But natural gas was hit harder still, plunging almost exactly 25%. Both gas and oil produced in shallower waters were off about 30%, while deepwater natural gas had only a 12.5% decline and oil at those depths barely decreased, just 1.6%. Clearly, the deepwater reserves are crucial to the US petroleum supply in the next several years.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2000</th>
<th scope="col">1992</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Dry Natural Gas Proved Reserves* (Bil.cu.ft.)</td>
<td>17,007</td>
<td>18,812</td>
<td>22,059</td>
<td>26,172</td>
<td>26,649</td>
</tr>
<tr class="odd">
<td class="firstcol">Below 200 meters</td>
<td>8,043</td>
<td>8,379</td>
<td>9,835</td>
<td>8,506</td>
<td>3,225</td>
</tr>
<tr class="odd">
<td class="firstcol">Dry Natural Gas Production (Bil.cu.ft.)</td>
<td>2,906</td>
<td>3,874</td>
<td>4,306</td>
<td>4,773</td>
<td>4,508</td>
</tr>
<tr class="odd">
<td class="firstcol">Below 200 meters</td>
<td>1,069</td>
<td>1,222</td>
<td>1,513</td>
<td>1,165</td>
<td>162</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Oil Proved Reserves* (Mil. Barrels)</td>
<td>4,042</td>
<td>4,144</td>
<td>4,554</td>
<td>3,174</td>
<td>1,835</td>
</tr>
<tr class="odd">
<td class="firstcol">Below 200 meters</td>
<td>3,272</td>
<td>3,280</td>
<td>3,627</td>
<td>2,021</td>
<td>557</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Oil Production (Mil. Barrels)</td>
<td>409</td>
<td>467</td>
<td>485</td>
<td>419</td>
<td>267</td>
</tr>
<tr class="odd">
<td class="firstcol">Below 200 meters</td>
<td>305</td>
<td>310</td>
<td>336</td>
<td>234</td>
<td>46</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070508b.jpg" width="353">
March industrial production data for the countries in the various Haver data bases are becoming available. Today industrial production data for Germany (GERMANY), Norway (NORDIC), Hungary (EMERGECW) and Malaysia (EMERGEPR) were released. Industrial production indexes measure the trend of production not the magnitude of production. As a measure of the relative sizes of the various economies, the dollar value of GDP of each country valued at current prices and exchange rates is good indicator. In 2006 the German GDP was equal to $2,900 billion; Norway, $335 billion; Hungary, $112 billion and Malaysia, $149 billion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070508c.jpg" width="353">
All four countries experienced a decline from February, 1.5% for Norway, 0.6% for Hungary, 0.4% for Malaysia, and 0.1% for Germany. The monthly data for the four countries are plotted in the first chart. A clearer picture of the trends in production emerges when we use quarterly data as shown in the second chart.
Production in the two emerging economies--Hungary and Malaysia--has grown much faster since 2002 than in the two developed economies--Norway and Germany. Recent trends, however, show that growth in Malaysia&#39;s industrial production has begun to taper off and has fallen behind that of Hungary. In the first quarter, as production declined in Malaysia, the gap has widened.
A similar divergence in the growth of production has occurred in the developed economies of Germany and Norway. Except for a brief period in 2002, industrial production in Norway has not as yet reached its 2000 average and, in the first quarter of this year, was roughly 6% below the 2000 average. Meanwhile, the trend in industrial production in Germany, which remained relatively flat until early 2005, has turned up and in the first quarter was 14% above the 2000 average.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;INDUSTRIAL PRODUCTION (2000=100)</th>
<th scope="col">Mar&nbsp; 07</th>
<th scope="col">Feb 07</th>
<th scope="col">Mar 06</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Malaysia</td>
<td>130.8</td>
<td>131.3</td>
<td>134.7</td>
<td>-0.38</td>
<td>-2.90</td>
<td>134.0</td>
<td>127.5</td>
<td>122.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary</td>
<td>152.38</td>
<td>153.3</td>
<td>142.20</td>
<td>-0.60</td>
<td>7.16</td>
<td>145.48</td>
<td>131.06</td>
<td>122.07</td>
</tr>
<tr class="odd">
<td class="firstcol">Norway</td>
<td>92.6</td>
<td>94.0</td>
<td>96.3</td>
<td>-1.54</td>
<td>-3.84</td>
<td>94.6</td>
<td>97.0</td>
<td>97.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>114.4</td>
<td>114.5</td>
<td>106.2</td>
<td>-0.07</td>
<td>7.72</td>
<td>109.8</td>
<td>103.7</td>
<td>100.8</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Q1 07</td>
<td>Q4 06</td>
<td>Q1 06</td>
<td>Q/Q %</td>
<td>Y/Y %</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="odd">
<td class="firstcol">Malaysia</td>
<td>131.9</td>
<td>135.0</td>
<td>131.7</td>
<td>-2.27</td>
<td>0.13</td>
<td>134.0</td>
<td>127.5</td>
<td>122.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary</td>
<td>153.13</td>
<td>152.03</td>
<td>139.57</td>
<td>0.72</td>
<td>9.72</td>
<td>145.48</td>
<td>131.06</td>
<td>122.07</td>
</tr>
<tr class="odd">
<td class="firstcol">Norway</td>
<td>93.6</td>
<td>92.9</td>
<td>96.3</td>
<td>0.71</td>
<td>-2.81</td>
<td>94.6</td>
<td>97.0</td>
<td>97.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>114.3</td>
<td>112.4</td>
<td>106.5</td>
<td>1.72</td>
<td>7.32</td>
<td>109.8</td>
<td>103.7</td>
<td>100.8</td>
</tr>
</tbody>
</table>
</body>
</html>

March industrial production data for the countries in the various Haver data bases are becoming available. Today industrial production data for Germany (GERMANY), Norway (NORDIC), Hungary (EMERGECW) and Malaysia (EMERGEPR) were [...]

Industrial Production in Malaysia, Hungary, Norway and Germany

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070508f.jpg" width="353">
JOLTS data for the Quit rate, a very good directions signal for the job market, show that quit rates have been drifting lower. A lower quit rate is a sign of less confidence in a worker&#146;s ability (or perceived ability) to get a job. The table below shows that quit rates in the West and the Midwest are still pretty high in their respective ranges. In the South they are still in the top 30% showing a lingering confidence that people can quit their jobs and find a new one. But in the Northeast quit rates are scraping the bottom, in the lower 16 percentile of their range and are well below average. 
Nationally the quit rate is a bit lower but not very far off peak. Mostly it is steady at what has been a persisting high level for the quit rate since early 2006. But the hire rate has fallen more noticeably (See chart above). And while we know that the economy has matured and labor force growth has slowed the drop in the hire rate seems to be more than what demographics might thrust upon us. It is a disturbing sign. 
Next we look at JOLTS data arrayed by industry. These data do not exist in the data base but have been constructed using weights to create a services sector. The other sectors are based on primary JOLTS data and sector definitions. I always like to create a services sector since goods and services sectors have such different forces putting pressure on them. Of course, construction is also quite different, these days. We don&#146;t want the manufacturing/nonmanufacturing breakdown to bury that, as the ISM currently is doing. And government is, well, government. It is the alpha&#150;omega sector. It&#146;s where you go to get your first job when you are inexperienced and where you go to take a prestige job when you&#146;ve &#145;retired&#146; (Paulson).
These sectors show that Manufacturing and Services still sport firm levels of openings in terms of their percentile readings. Openings are in the top 25% of their respective ranges or better. Yet services and manufacturing have seen slippages recently (see raw readings in the bottom of the table). Quits are still quite strong and the quit rates have not showed much erosion for Manufacturing or Services. Hires are no longer strong in any sector. Oddly, it shows some improvement in Construction. Hires are still best (in the 57th percentile) for services and near the one-third mark or so in other sectors &#150; clearly sub-par outside of services.
Seeing hires gain for construction is odd especially with the weakest quit rate it has seen since 2000. The government sector has a lot of openings VS moderate percentiles for hires and quits.
These data speak of slippage in the labor market. Despite the fact that the two key sectors, Manufacturing and Services, are still emitting firm readings in absolute terms, they are nonetheless slipping. Combined with other reports, such as the NFIB survey, these readings underscore that weakness seems to be spreading. What it does not tell us is if the odd early Easter and disruptive weather is responsible for it or not. But things -&#145;things&#146;- are undeniably looking weaker.
One very interesting things about JOLTS is that we can get a geographical cut at the data and an industry cut as well. It is a very useful report for that reason. It shows US that the Northeast is sagging the most but hires are still weakening across the board with the exception of the West. As such, this report confirms themes we have seen in other reports.
It confirms that:
 That services sector is the strongest sector.
 That the services sector is showing some weakening
 That things are weaker out East and stronger in the West.
While we still struggle for better quantitative assessments and to understand the causes, these general observations hold true.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Quit Rates by Regions
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Since Sep-02</td>
<td>Northeast</td>
<td>South</td>
<td>Midwest</td>
<td>West</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Quit</td>
<td>Quit</td>
<td>Quit</td>
<td>Quit</td>
<td>average</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>1.3</td>
<td>2.3</td>
<td>1.9</td>
<td>2.1</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>1.3</td>
<td>2.3</td>
<td>1.9</td>
<td>2.0</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>1.4</td>
<td>2.2</td>
<td>1.9</td>
<td>2.0</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">Max</td>
<td>1.8</td>
<td>2.5</td>
<td>2.0</td>
<td>2.2</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">Average</td>
<td>1.4</td>
<td>2.1</td>
<td>1.7</td>
<td>1.9</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Min</td>
<td>1.2</td>
<td>1.8</td>
<td>1.4</td>
<td>1.4</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Range</td>
<td>0.6</td>
<td>0.7</td>
<td>0.6</td>
<td>0.8</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">%-Tile</td>
<td>16.7%</td>
<td>71.4%</td>
<td>83.3%</td>
<td>87.5%</td>
<td>77.3%</td>
</tr>
<tr>
<td class="firstcol">% AVG</td>
<td>93.1%</td>
<td>109.4%</td>
<td>112.8%</td>
<td>111.8%</td>
<td>107.3%</td>
</tr>
<tr>
<td class="firstcol">Min date</td>
<td>Feb-04*</td>
<td>Sep-03*</td>
<td>Dec-03*</td>
<td>Dec-03*</td>
<td>--</td>
</tr>
<tr>
<td colspan="6">*Last Occurrence</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
JOLTS Rankings by Main Sectors
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="5">Major Job Sectors</td>
</tr>
<tr class="odd">
<td class="firstcol">Mar-07</td>
<td>Services</td>
<td>MFG</td>
<td>Constructions</td>
<td>Government</td>
</tr>
<tr>
<td class="firstcol">Job Openings</td>
<td>79.6%</td>
<td>76.9%</td>
<td>47.6%</td>
<td>87.5%</td>
</tr>
<tr>
<td class="firstcol">Hires</td>
<td>57.3%</td>
<td>33.3%</td>
<td>30.0%</td>
<td>40.0%</td>
</tr>
<tr>
<td class="firstcol">Separations</td>
<td>64.2%</td>
<td>66.7%</td>
<td>8.0%</td>
<td>25.0%</td>
</tr>
<tr>
<td class="firstcol">Quits</td>
<td>82.3%</td>
<td>100.0%</td>
<td>0.0%</td>
<td>50.0%</td>
</tr>
<tr class="even">
<td colspan="5">Raw readings by Industry</td>
</tr>
<tr class="odd">
<td class="firstcol">OPENINGS</td>
<td>Services</td>
<td>MFG</td>
<td>Constructions</td>
<td>Government</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>2.3</td>
<td>2.2</td>
<td>1.8</td>
<td>2.1</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>2.6</td>
<td>2.3</td>
<td>2.9</td>
<td>2.1</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>2.6</td>
<td>2.3</td>
<td>1.8</td>
<td>2.1</td>
</tr>
<tr>
<td class="firstcol">Dec-06</td>
<td>2.7</td>
<td>2.5</td>
<td>1.4</td>
<td>2.1</td>
</tr>
<tr class="odd">
<td class="firstcol">HIRES</td>
<td>Services</td>
<td>MFG</td>
<td>Constructions</td>
<td>Government</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>4.3</td>
<td>2.3</td>
<td>4.8</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>4.5</td>
<td>2.6</td>
<td>3.9</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>4.5</td>
<td>2.6</td>
<td>3.9</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">Dec-06</td>
<td>4.5</td>
<td>2.7</td>
<td>4.4</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">SEPARATIONS</td>
<td>Services</td>
<td>MFG</td>
<td>Constructions</td>
<td>Government</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>4.1</td>
<td>2.8</td>
<td>4.3</td>
<td>1.2</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>4.0</td>
<td>3.0</td>
<td>4.2</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>4.0</td>
<td>2.8</td>
<td>5.2</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">Dec-06</td>
<td>4.1</td>
<td>2.6</td>
<td>5.0</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">QUITS</td>
<td>Services</td>
<td>MFG</td>
<td>Constructions</td>
<td>Government</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>2.5</td>
<td>1.6</td>
<td>1.5</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>2.6</td>
<td>1.5</td>
<td>1.6</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>2.5</td>
<td>1.6</td>
<td>1.8</td>
<td>0.7</td>
</tr>
<tr>
<td colspan="5">Since 2000</td>
</tr>
</tbody>
</table>
</body>
</html>

JOLTS data for the Quit rate, a very good directions signal for the job market, show that quit rates have been drifting lower. A lower quit rate is a sign of less confidence in a workers ability (or perceived ability) to get a job. [...]

JOLTS Data Show Some Softening in Labor Market Conditions

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070508d.jpg">
Inventories are tricky to analyze. We plot durables excluding autos and nondurables excluding oil to get at the trends outside these two sectors. When we do we find inventory and sales growth are coming into better balance. 
Durables inventory growth still exceeds sales growth; inventory and sales growth trends have come together for nondurables. 
The two charts show the evolution of the trends on relatively smooth year-over-year percent changes but the table below shows more time horizons. 
Here we see that sales growth has surpassed inventory growth for durables and nondurables over three months and six months when oil and autos are excluded, respectively. Indeed, most categories show that sales growth has overtaken inventory growth and I:S ratios are receding. Still, at the far right we show where I:S ratios stand relative to their range of values since 1998; we see that most sectors have ratios that are still high in their range. So although sales are starting to grow faster than inventories, inventories are still plentiful relative to the pace of sales according to historic standards (last nine years).<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070508e.jpg"> 
This is an encouraging sign that inventory liquidation is not called for. Firms do not even need to slow the pace of inventory accumulation since sales growth exceeds inventory growth. But sales are not yet that much stronger than inventories across the board for wholesalers. Petroleum, autos and computers are still building stocks faster than they are growing sales in the recent three months. And, since stocks generally are still high relative to sales this report is no clarion call for inventory rebuilding. That is still a ways off. 
This report is more notable for its lack of bad news than for the presence of good news.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Inventories: Wholesaling
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">All growth rates annualized</td>
<td colspan="6">Inventory-&amp;-Sales Trends: Wholesalers</td>
<td>I:S ratio Percent of</td>
</tr>
<tr class="odd">
<td class="firstcol">2007 Mar</td>
<td colspan="2">3-mos</td>
<td colspan="2">6-mos</td>
<td colspan="2">12-mos</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>1998-date</td>
</tr>
<tr>
<td class="firstcol">All Wholesaling</td>
<td>7.7%</td>
<td>5.3%</td>
<td>7.7%</td>
<td>4.6%</td>
<td>8.4%</td>
<td>8.1%</td>
<td>7.0%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>3.3%</td>
<td>3.3%</td>
<td>5.1%</td>
<td>2.4%</td>
<td>6.6%</td>
<td>7.6%</td>
<td>18.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Durables less autos</td>
<td>7.9%</td>
<td>3.8%</td>
<td>4.2%</td>
<td>3.5%</td>
<td>6.6%</td>
<td>9.0%</td>
<td>25.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>-16.3%</td>
<td>0.6%</td>
<td>9.8%</td>
<td>-3.3%</td>
<td>6.8%</td>
<td>0.7%</td>
<td>7.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Computers</td>
<td>2.3%</td>
<td>4.8%</td>
<td>10.8%</td>
<td>1.7%</td>
<td>10.9%</td>
<td>6.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Machinery</td>
<td>16.6%</td>
<td>5.6%</td>
<td>6.1%</td>
<td>5.2%</td>
<td>8.1%</td>
<td>9.1%</td>
<td>28.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Other Durables</td>
<td>6.4%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>5.5%</td>
<td>9.2%</td>
<td>28.7%</td>
</tr>
<tr class="odd">
<td colspan="8">&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Nondurables</td>
<td>12.1%</td>
<td>9.0%</td>
<td>10.2%</td>
<td>8.6%</td>
<td>10.1%</td>
<td>9.0%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nondurables less Petrol</td>
<td>17.5%</td>
<td>9.7%</td>
<td>10.6%</td>
<td>10.5%</td>
<td>10.7%</td>
<td>10.2%</td>
<td>6.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-5.9%</td>
<td>1.8%</td>
<td>8.6%</td>
<td>-9.4%</td>
<td>8.0%</td>
<td>-2.8%</td>
<td>44.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Groceries</td>
<td>28.9%</td>
<td>27.2%</td>
<td>18.3%</td>
<td>18.0%</td>
<td>14.8%</td>
<td>16.9%</td>
<td>57.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Other Nondurables</td>
<td>13.0%</td>
<td>5.7%</td>
<td>7.6%</td>
<td>8.7%</td>
<td>9.0%</td>
<td>8.7%</td>
<td>7.8%</td>
</tr>
<tr>
<td colspan="8">Percentage of range Low Percent reflect high standing (ie top 1% or bottom 99th percentile)</td>
</tr>
</tbody>
</table>
</body>
</html>

Inventories are tricky to analyze. We plot durables excluding autos and nondurables excluding oil to get at the trends outside these two sectors. When we do we find inventory and sales growth are coming into better balance. Durables [...]

U.S. Wholesale Inventories & Sales: No Bad News

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

Tom Moeller

250501F20.jpg

250501G20.jpg

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

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

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

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

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

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

250501H20.jpg

250501I20.jpg

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

U.S. Light Vehicle Sales Fall in April

250501J5.jpg

250501K5.jpg

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

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

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

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

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

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

250501L5.jpg

250501M5.jpg

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

250501N.jpg

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**.

250501P.jpg

250501Q.jpg

- 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

250501A8.jpg

250501B8.jpg

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.

250501C8.jpg

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: May 2007

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U.S. Trade Gap Widens on Oil and Without Oil

U.S. Trade Gap Widens on Oil and Without Oil

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German Trade Flows Dive, but Imports Dive Faster

German Trade Flows Dive, but Imports Dive Faster

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U.S. Wholesale Inventories & Sales: No Bad News