Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090617a.jpg" width="353">
The recession continued to weigh on pricing power last month according to the Bureau of Labor Statistics. The May report on consumer prices indicated a less-than-expected rise of 0.1% which followed the unchanged reading for April. The eye-catching news, however, was that the y/y change of -1.3% was the weakest since early-1950.
Though energy prices have ticked up recently, the decline of 26.3% versus last year is responsible for much of the overall weakness in pricing power. Gasoline prices during May reversed their earlier decline and rose 3.1%, yet they still were down 39.4% y/y. Conversely, fuel oil prices continued downward with a 3.1% drop (-38.1% y/y). The latest was the tenth consecutive monthly drop. Finally, prices for natural gas &amp; electricity have fallen in all but one of the last ten months and year-to-year they are down 5.5%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090617b.jpg" width="353">
Lower food &amp; beverage prices also continue to restrain overall pricing pressure. Prices slipped for the fourth straight month during May and the y/y gain of 2.7% was the weakest since January 2007. It&#39;s down from a peak of 6.1% last fall. Recent weakness has been led by lower dairy product prices (-5.6% y/y). Moreover, price gains for meats, poultry &amp; fish (1.4% y/y), cereals &amp; bakery products (3.5% y/y) as well as fruits &amp; vegetables (-0.8% y/y) have eased sharply.
Finally, &quot;core&quot; pricing remains tame. The CPI less food &amp; energy ticked up just 0.1% last month, the weakest increase this year. So far in 2009, core prices have risen at a 2.3% annual rate. That is up from their recent low; but the annual gain of 1.8% is nearly the smallest since 2004.
So far this year gains in core goods prices actually have firmed versus last year. The 0.2% gain in May capped a five-month stint during which prices rose at a 3.9% annual rate versus a 0.1% uptick during all of last year. While tobacco prices slipped 0.3% last month, higher sales taxes have lifted prices by one-quarter from 2008. There also has been modest firming of prices elsewhere. Prices of new &amp; used motor vehicles have risen at a 4.1% rate during the last five months and the y/y change of -1.1% compares to a rate of decline of 3.5% as of yearend 2008. Prices for household furnishings &amp; operations have risen 1.6% y/y following price deflation early last year. Apparel prices are up 0.8% y/y but that owes almost entirely to a price jump this past February.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090617c.jpg" width="353">
Working the other way, gains in core services prices continue to moderate. The 0.1% uptick last month left the y/y change of 2.3% at its weakest since 1983. So far this year, prices have risen at a 1.6% rate. Weakness in the housing market accounts for much of that moderation. Last month shelter prices ticked up just 0.1% and the annual gain of 1.5% was the weakest since 1983. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, ticked up just 0.1% (2.1% y/y). Conversely, the increase in medical care services prices of 3.2% y/y is off the low and so far this year prices have risen at a 4.0% rate. Education costs also have been firm and were up 0.5% last month (5.5% y/y). Conversely, public transportation prices have been falling since last summer -9.0% y/y.
The chained CPI, which adjusts for shifts in consumption patterns, gained 0.3% in May while year-to-year prices fell 1.4%. The increase in chained prices less food and energy eased to 0.2% last month.
The consumer price data is available in Haver&#39;s USECON database while detailed figures can be found in the CPIDATA database.
Health Care Reform and the Federal Budget from the Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/103xx/doc10311/06-16-HealthReformAndFederalBudget.pdf"> here</a>.
Why Did FDR&#39;s Bank Holiday Succeed? from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/epr/forthcoming/0906silb.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/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">May</th>
<th scope="col">April</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>0.1</td>
<td>0.0</td>
<td>-1.3</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>0.1</td>
<td>0.3</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>0.2</td>
<td>0.5</td>
<td>1.2</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>2.1</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>0.2</td>
<td>-2.4</td>
<td>-26.3</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>-0.2</td>
<td>-0.2</td>
<td>2.7</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>0.3</td>
<td>0.3</td>
<td>-1.4 </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>-0.0</td>
<td>0.2</td>
<td>1.4</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
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The recession continued to weigh on pricing power last month according to the Bureau of Labor Statistics. The May report on consumer prices indicated a less-than-expected rise of 0.1% which followed the unchanged reading for April. [...]

U.S. May CPI Ticks Up, But 1.2% Drop Y/Y Is Largest Since April 1950

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090617a.jpg" width="353">
The recession continued to weigh on pricing power last month according to the Bureau of Labor Statistics. The May report on consumer prices indicated a less-than-expected rise of 0.1% which followed the unchanged reading for April. The eye-catching news, however, was that the y/y change of -1.3% was the weakest since early-1950.
Though energy prices have ticked up recently, the decline of 26.3% versus last year is responsible for much of the overall weakness in pricing power. Gasoline prices during May reversed their earlier decline and rose 3.1%, yet they still were down 39.4% y/y. Conversely, fuel oil prices continued downward with a 3.1% drop (-38.1% y/y). The latest was the tenth consecutive monthly drop. Finally, prices for natural gas &amp; electricity have fallen in all but one of the last ten months and year-to-year they are down 5.5%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090617b.jpg" width="353">
Lower food &amp; beverage prices also continue to restrain overall pricing pressure. Prices slipped for the fourth straight month during May and the y/y gain of 2.7% was the weakest since January 2007. It&#39;s down from a peak of 6.1% last fall. Recent weakness has been led by lower dairy product prices (-5.6% y/y). Moreover, price gains for meats, poultry &amp; fish (1.4% y/y), cereals &amp; bakery products (3.5% y/y) as well as fruits &amp; vegetables (-0.8% y/y) have eased sharply.
Finally, &quot;core&quot; pricing remains tame. The CPI less food &amp; energy ticked up just 0.1% last month, the weakest increase this year. So far in 2009, core prices have risen at a 2.3% annual rate. That is up from their recent low; but the annual gain of 1.8% is nearly the smallest since 2004.
So far this year gains in core goods prices actually have firmed versus last year. The 0.2% gain in May capped a five-month stint during which prices rose at a 3.9% annual rate versus a 0.1% uptick during all of last year. While tobacco prices slipped 0.3% last month, higher sales taxes have lifted prices by one-quarter from 2008. There also has been modest firming of prices elsewhere. Prices of new &amp; used motor vehicles have risen at a 4.1% rate during the last five months and the y/y change of -1.1% compares to a rate of decline of 3.5% as of yearend 2008. Prices for household furnishings &amp; operations have risen 1.6% y/y following price deflation early last year. Apparel prices are up 0.8% y/y but that owes almost entirely to a price jump this past February.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090617c.jpg" width="353">
Working the other way, gains in core services prices continue to moderate. The 0.1% uptick last month left the y/y change of 2.3% at its weakest since 1983. So far this year, prices have risen at a 1.6% rate. Weakness in the housing market accounts for much of that moderation. Last month shelter prices ticked up just 0.1% and the annual gain of 1.5% was the weakest since 1983. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, ticked up just 0.1% (2.1% y/y). Conversely, the increase in medical care services prices of 3.2% y/y is off the low and so far this year prices have risen at a 4.0% rate. Education costs also have been firm and were up 0.5% last month (5.5% y/y). Conversely, public transportation prices have been falling since last summer -9.0% y/y.
The chained CPI, which adjusts for shifts in consumption patterns, gained 0.3% in May while year-to-year prices fell 1.4%. The increase in chained prices less food and energy eased to 0.2% last month.
The consumer price data is available in Haver&#39;s USECON database while detailed figures can be found in the CPIDATA database.
Health Care Reform and the Federal Budget from the Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/103xx/doc10311/06-16-HealthReformAndFederalBudget.pdf"> here</a>.
Why Did FDR&#39;s Bank Holiday Succeed? from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/epr/forthcoming/0906silb.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/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">May</th>
<th scope="col">April</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>0.1</td>
<td>0.0</td>
<td>-1.3</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>0.1</td>
<td>0.3</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>0.2</td>
<td>0.5</td>
<td>1.2</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>2.1</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>0.2</td>
<td>-2.4</td>
<td>-26.3</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>-0.2</td>
<td>-0.2</td>
<td>2.7</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>0.3</td>
<td>0.3</td>
<td>-1.4 </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>-0.0</td>
<td>0.2</td>
<td>1.4</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>
U.S. 1Q'09 Current Account Deficit Shrinks To Smallest Since 2001 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 17, 2009


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090617d.jpg" width="353">
The U.S. current account deficit shrank to its lowest level since 2001 as the recession and lower oil prices limited imports. Despite recessions abroad which lowered U.S. exports, imports fell even more rapidly. The deficit of $101.5 billion was deeper than the Consensus expectation for a reading of $85.0 billion. 
As a percentage of GDP, the shrinkage of the U.S. deficit was dramatic. The 2.9% 1Q figure was the smallest since early-1999. This percentage is sharply reduced from the 6.6% peak reached late in 2005.
Recession in the U.S. worked with the decline in oil prices to drop the 1Q deficit on traded goods to $124.0 billion, its lowest since 2004. Though growth in goods exports was a negative 21.0% y/y, imports fell by a greater 30.1% spurred by the drop in oil prices. 
Fewer U.S. citizens went abroad this year and more came here. As a result, the balance on services trade narrowed as exports fell more then imports. The 1Q surplus of $32.8 billion compared to a peak surplus of $40.0 billion late during 2007. That decline came as exports fell 7.2% y/y against a 6.4% decline in imports.
From the capital account side of the ledger, the U.S. balance on private direct investment remained stable and slightly positive q/q. That compares with deficits during the last three years. U.S. investment abroad rose while foreign investment here fell sharply.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090617e.jpg" width="353"> 
Ties that bind: bilateral trade&#39;s role in synchronizing business cycles from the Federal Reserve Bank of Dallas can be found here.

<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/@EE/@EE01/@EE01.HTM">US Balance of Payments</a> SA</th>
<th scope="col">1Q &#39;09</th>
<th scope="col">4Q &#39;08</th>
<th scope="col">Year Ago</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">Current Account Balance ($ Bil.)</td>
<td>-101.5</td>
<td>-154.9</td>
<td>-179.3</td>
<td>-706.1</td>
<td>-726.6</td>
<td>-803.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Deficit % of GDP</td>
<td>2.9</td>
<td>4.4</td>
<td>5.1</td>
<td>5.0</td>
<td>5.3</td>
<td>6.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on Goods ($ Bil.)</td>
<td>-124.0</td>
<td>-178.8</td>
<td>-218.8</td>
<td>-840.3</td>
<td>-831.0</td>
<td>-847.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports&nbsp;</td>
<td>-14.2%</td>
<td>-14.0%</td>
<td>-21.0%</td>
<td>12.2%</td>
<td>12.1%</td>
<td>13.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports&nbsp;</td>
<td>-20.4%</td>
<td>-16.0%</td>
<td>-30.1%</td>
<td>7.5%</td>
<td>5.7%</td>
<td>10.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on Private Services ($ Bil.)</td>
<td>32.8</td>
<td>34.3</td>
<td>36.2</td>
<td>144.3</td>
<td>129.6</td>
<td>86.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>-5.7</td>
<td>-4.7%</td>
<td>-7.2%</td>
<td>8.9%</td>
<td>15.8%</td>
<td>12.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>-6.2</td>
<td>-5.4%</td>
<td>-6.4%</td>
<td>8.0%</td>
<td>7.5%</td>
<td>11.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on Income ($ Bil.)</td>
<td>19.3</td>
<td>21.1</td>
<td>36.7</td>
<td>118.2</td>
<td>90.8</td>
<td>48.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unilateral Transfers ($ Bil.)</td>
<td>-29.6</td>
<td>-31.5</td>
<td>-33.3</td>
<td>-128.4</td>
<td>-116.0</td>
<td>-91.3</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616j.jpg" width="353">
Speculation that the U.S. economic recovery is taking hold drove regular gasoline prices even higher last week to an average $2.67 per gallon of regular. Gasoline prices now have risen more than $1.00 per gallon, or by more than one-half, from the December low to the highest level since late-October. Yesterday, the cash market price for a gallon of regular gas rose further to $2.02 per gallon versus $1.96 averaged last week. These also were the highest prices since last October. The figures are reported by the U.S. Department of Energy and can be found in Haver&#39;s WEEKLY &amp; DAILY databases.
Evidence that the economic rebound is finally taking hold may be evidenced in the figures for vehicle-miles driven. The year-to-year change in miles driven still is negative, but the y/y change of -0.7% is the least since March and is well improved from the -5% comparisons of this past fall. 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 6.9% y/y in the latest week led by a 19.7% drop in demand for residual fuel oil and a 12.8% drop in distillate demand. These numbers are available in Haver&#39;s OILWKLY database.
Higher crude oil prices are behind the rise in gasoline costs. Crude prices averaged $70.83 last week for a barrel of West Texas Intermediate, up from the December low of $32.37 per barrel. Yesterday, crude oil prices held steady at $70.62 and prices reached a high of $145.66 last July. The latest price increases occurred despite a 3.9% year-to-year rise in crude oil production during the latest four weeks. Further more, they have occurred despite a 13.7% y/y rise in inventories of crude oil &amp; petroleum products. The figures on crude oil production and inventories are available in Haver&#39;s OILWKLY database.
Finally, the gains in the price of natural gas paused again last week and it fell back to $3.56 per mmbtu (-71.8% y/y). The latest price was nearly the lowest since 2002 and is down by two-thirds from the high reached in early-July of $13.19/mmbtu.
Economic and Environmental Impacts of U.S. Corn Ethanol Production and Use from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/red/2009/01/Tiffany.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">06/15/09</th>
<th scope="col">06/08/09</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>2.67</td>
<td>2.62</td>
<td>-34.5%</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>70.83</td>
<td>68.10</td>
<td>-47.4%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
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Speculation that the U.S. economic recovery is taking hold drove regular gasoline prices even higher last week to an average $2.67 per gallon of regular. Gasoline prices now have risen more than $1.00 per gallon, or by more than one- [...]

Gasoline Prices Reach The Highest Level Since Last October

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616h.jpg" align="left" border="0" height="265" width="353">
Optimists regarding the outlook for the next six months among
German financial market professionals outweighed pessimists by 44.8% in
June according to the latest ZEW Survey (The Mannheim based Center for
European Economic Research). This represented an increase of 13.7
percentage points from May and was the largest margin of optimists
since June 2006. It was also well above the long term average of 26.3%.
The financial professionals also saw some slight improvement in current
conditions. The percent balance between pessimists and optimists
declined from 92.9%in May to 89.7% in June. The first chart shows the
ZEW appraisals of current conditions and expectation for the next six
months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616i.jpg" align="right" border="0" height="265" width="353">
A part of the group's more optimistic appraisal of the outlook
can be attributed to their expectations of profit increases in both the
banking and insurance industries, as shown in the second chart.
Expectations of profits in the banking industry have risen from 2.0% in
April to 30.8% in June, and in the insurance industry from 5.1% in May
to 9.7% in June. Except for a 5.4% increase in Utilities' profits and
virtually no change in Information Technology profits, expectations for
all the other industry are still negative, although less so.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>

<th scope="col" class="firstcol"> ZEW SURVEY</th>
<th scope="col">Jun 09</th>
<th scope="col">May&nbsp;&nbsp;
09</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar&nbsp; 09</th>
<th scope="col">Feb 09</th>
<th scope="col">Jan 09&nbsp;</th>
<th scope="col">Jun 06&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Expectation Next 6 Months (%
bal)</td>
<td>44.8</td>
<td>31.1</td>
<td>13.0</td>
<td>-3.5</td>
<td>-5.8</td>
<td>-31.0</td>
<td>37.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions&nbsp;(%
bal)</td>
<td>-89.7</td>
<td>-92.8</td>
<td>-91.6</td>
<td>-89.4</td>
<td>-86.2</td>
<td>-77.1</td>
<td>11.9</td>
</tr>
<tr>
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr>
<td class="firstcol" colspan="8">Profit
Expectations
Next 6 Months&nbsp; (%)</td>
</tr>
<tr class="odd">
<td class="firstcol">Banking</td>
<td>30.8</td>
<td>15.1</td>
<td>2.0</td>
<td>-31.6</td>
<td>-55.7</td>
<td>-65.7</td>
<td>46.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Insurance</td>
<td>9.7</td>
<td>5.1</td>
<td>-15.1</td>
<td>-34.2</td>
<td>-49.0</td>
<td>-56.5</td>
<td>46.3</td>
</tr>
</tbody>
</table>
</body></html>

Optimists regarding the outlook for the next six months among German financial market professionals outweighed pessimists by 44.8% in June according to the latest ZEW Survey (The Mannheim based Center for European Economic Research). [...]

Optimism Increases Among German Investors and Analysts

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616f.jpg" width="353">
The Federal Reserve reported that the earlier letup in the factory sector recession was short-lived. Output, which includes mining and utilities, declined a greater-than-expected 1.1% last month following a 0.7% April drop that was larger than reported initially. During the last three months, output is off at a 13.7% rate, and off 13.5% in the last twelve, the sharpest drop y/y since 1946.
Output of consumer goods overall fell 0.9% (-7.2% y/y) and the declines were broad-based. Production of autos fell another 5.3%, though the year-to-year decline eased to -29.0%. Furniture, appliance &amp; carpeting output continued to reflect the weakness in the housing market and posted a 1.1% drop (-20.8% y/y) while apparel output slipped 0.3% (-10.6% y/y). In the capital goods sector, there&#39;s been no letup in output&#39;s rate of decline. Production of business equipment fell 1.4% last month and the three-month rate of change stands at -21.5% (AR), nearly the worst of this downturn. Finally, the downturn in the housing market continued to exact its toll on the output off construction supplies. It fell 1.0% and at a 19.2 rate during the last three months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616g.jpg" width="353">
The high-tech sector continued to suffer. Industrial production here fell 1.9% last month but at a reduced 5.5% rate during the last three. Less high tech, overall industrial production fell 0.8% last month and the annual rate of change eased to -13.6%.
Excess capacity grew even further last month. Capacity utilization fell to 68.3%, a record low for the series which dates to 1966. Utilization in the factory sector dropped even harder to 65.0% from a peak near 80% back in 2007. The latest, again, was the lowest since WWII.
The industrial production data are available in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (SA, %)</th>
<th scope="col">May</th>
<th scope="col">April</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 Output </td>
<td>-1.1</td>
<td>-0.7</td>
<td>-13.5</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>-1.0</td>
<td>-0.6</td>
<td>-15.3</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>-0.9</td>
<td>-0.2</td>
<td>-7.2</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>-1.4</td>
<td>-1.9</td>
<td>-16.5</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Construction Supplies</td>
<td>-1.0</td>
<td>-1.6</td>
<td>-21.5</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-1.4</td>
<td>0.7</td>
<td>-3.4</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>68.3</td>
<td>69.0</td>
<td>78.9 (May &#39;08)</td>
<td>77.6</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The Federal Reserve reported that the earlier letup in the factory sector recession was short-lived. Output, which includes mining and utilities, declined a greater-than-expected 1.1% last month following a 0.7% April drop that was [...]

U.S. Factory Production Decline Resumes, Matching 1946 Yr/Yr Drop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616d.jpg" width="353">
Though housing starts posted a gain last month, the rise was modest and it suggests that the U.S. housing sector remains under pressure. Total housing starts recovered from their April decline with a 17.2% m/m rise to 532,000 (AR) units. The May figure was firmer than Consensus expectations for 485,000 starts. However, despite the surprise starts remained down by nearly one-half from one year ago. The best that can be noted is that a further decline has not occurred and starts have been flat during 2009.
Starts of single-family homes posted their third consecutive monthly increase. Regardless, single-family starts remained near the record low for the series which dates back to 1959 and the latest level was down three-quarters since the peak in early-2006. 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.
Starts of multi-family homes rose by nearly two-thirds m/m to 131,000. Nevertheless, the increase failed to make up an April decline and starts of apartments, condominiums &amp; town houses remained down by nearly half from May of last year and starts were off two-thirds from the 2006 peak.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616e.jpg" width="353">
By region, starts of single-family units last month showed broad-based gains. Single-family starts in the Midwest rose 9.4% to their highest level since November (-38.1% y/y). In the South, single-family starts made up the decline of the previous two months with a 10.6% increase off the record low (-42.4% y/y). In the West starts rose for the third straight month (-36.2% y/y). Countering these monthly increases was another decline in the Northeast which was the second in a row (-47.8% y/y).
The latest level of building permits remained near the record low last month. The 4.0% increase did not make up for declines during the prior two months and, overall, permits were down by roughly one-half from last May. Single-family home permits, a leading indicator of starts, however, ticked up 3.6% from March (-42.3% y/y).
The housing starts figures can be found in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts (000s, SAAR)</th>
<th scope="col">May</th>
<th scope="col">April</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>532</td>
<td>454</td>
<td>-45.2%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>401</td>
<td>373</td>
<td>-40.9</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>131</td>
<td>81</td>
<td>-55.1</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>518</td>
<td>498</td>
<td>-47.0</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>
</body>
</html>

Though housing starts posted a gain last month, the rise was modest and it suggests that the U.S. housing sector remains under pressure. Total housing starts recovered from their April decline with a 17.2% m/m rise to 532,000 (AR) [...]

U.S. Housing Starts Recover Modestly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616a.jpg" align="right" border="0" height="265" width="353">Economic
recession along with lower energy prices combined last month to lower
U.S. producer price inflation to its lowest since 1949. The fact that
the May PPI for finished goods rose 0.2% after a +0.3% in April was not
the big news. These paltry gains followed a sharp 1.2% March downdraft
which helped pull to the year-to-year change to a negative 4.7% last
month, its weakest since 1949. The May rise compared with Consensus
expectations for a 0.6% increase. Weakness in the overall PPI reflected
a continued absence of core pricing power. The PPI less food &amp;
energy fell 0.1% during May and prices have been flat during the last
three months.The weakness was led by a 0.1% decline in
prices of core finished consumer goods which pulled the y/y gain down
to 3.5%, its weakest gain in a year. And more deceleration is in store
given that the three-month change in prices amounted to just 0.3% (AR).
Durable consumer goods prices were unchanged last month (2.6% y/y) and
the three-month change dropped to 1.1%. Prices of core nondurable goods
fell just slightly and that was enough to lower the three month change
to 1.3%. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616b.jpg" align="right" border="0" height="265" width="353">
Finally, capital equipment prices fell for the third straight
month. The 0.1% slip was enough to pull the three-month change to a
negative 1.5% following the roughly 5% rates of increase last fall.
Last month's weakness in overall producer prices came despite a 2.9%
increase in energy prices which nevertheless left costs down by 26.8%
y/y. Finished gasoline prices rose 13.9%&nbsp; but that still left
them nearly one-half lower than last May. Conversely, natural gas
prices dropped hard for the tenth straight month. The 4.7% m/m decline
pulled prices down by one-quarter versus last May. Finished food prices
also were weak as they reversed all of their earlier gain with a 1.6%
decline (-2.0% y/y). Indeed, versus last year the decline in food
prices compares to a 9.1% rate of increase as recently as this past
fall.Continuing weak were prices for intermediate goods and that
should foreshadow further weakness in finished goods prices.
Intermediate goods prices made up just part of the April decline with a
0.3% increase. That left prices down a record 12.3% y/y. Excluding food
&amp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616c.jpg" align="right" border="0" height="265" width="353">
energy prices were down for the eighth straight month. The
5.6% y/y decline was by far a record. The crude materials
PPI rose for a second month led by higher energy prices, up 5.3%.
Despite this increase, however, crude energy prices remained down by
more than one-half from the year ago level. Finished food prices rose
0.4% but that gain still left them down by 18.8% from last year. Core
pricing power at the crude level bucked the trend toward weakness last
month and prices rose 6.7%. That was, however, only the second increase
since July and therefore prices remained down by more than one-third
versus last year due to significantly lower metals and natural gas
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. Containing the
Crisis and Promoting Economic Recovery is yesterday's speech
by Fed Governor Elizabeth A. Duke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/duke20090616a.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"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer
Price Index</a> (%)</th>
<th scope="col">May</th>
<th scope="col">April</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>0.2</td>
<td>0.3</td>
<td>-4.7</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1</td>
<td>0.1</td>
<td>3.0</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.3</td>
<td>-0.5</td>
<td>-12.3</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.2</td>
<td>-0.9</td>
<td>-5.6</td>
<td>7.4</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>3.6</td>
<td>3.0</td>
<td>-41.3</td>
<td>21.4</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>6.7</td>
<td>-0.6</td>
<td>&nbsp;-36.7</td>
<td>14.8</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>
</body></html>

Economic recession along with lower energy prices combined last month to lower U.S. producer price inflation to its lowest since 1949. The fact that the May PPI for finished goods rose 0.2% after a +0.3% in April was not the big news. [...]

U.S. PPI Decline Yr-to-Yr Matches '49 Record; Core Pricing Power Evaporates

U.S. PPI Decline Yr-to-Yr Matches'49 Record; Core Pricing Power Evaporates

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.

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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) in April after surging 10.8% to 17.82 million units in March. The retreat in April vehicle sales accompanied a 1.7% y/y rise in real disposable income through March, which compared to 2.0% growth last year.

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

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

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

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

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

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- 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: June 2009

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U.S. May CPI Ticks Up, But 1.2% Drop Y/Y Is Largest Since April 1950

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