Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817b.jpg" width="353">
In July a 1.0% rise in the producer price index for finished goods was double Consensus expectations for a 0.5% increase, though it followed no change in prices one month earlier.
Also double Consensus expectations was the 0.4% gain in prices excluding food &amp; energy prices which followed a slight decline in June.
The surprise stemmed mostly from a 1.5% increase in passenger car prices versus the 1.0% decline tallied by the survey of consumer prices. The gain lifted core finished consumer good prices 0.4% (+2.9% y/y). Consumer durable goods prices increased 0.6% (1.6% y/y) and core consumer nondurable goods prices rose 0.2% (3.8% y/y).
Capital goods prices also rose a strong 0.5% (2.6% y/y) due to a 1.4% (-1.8% y/y) jump in light truck prices as well as a 1.0% (6.1% y/y) surge in civilian aircraft.
Finished energy prices doubled the prior month&#39;s increase and rose 4.4% (15.2% y/y) lifted by a 10.9% (29.6% y/y) surge in gasoline prices, a 3.7% (11.1% y/y) increase in natural gas and a 5.1% (58.6% y/y) spike in home heating oil.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817a.jpg" width="353">
Intermediate goods prices also rose a strong 1.0% due to strength in energy prices, up 5.2%. Core intermediate goods prices, however, declined for the third consecutive month. The 0.1% decline in July was led by lower prices for containers and durable manufacturing materials which fell for the fifth consecutive month.
Crude prices reflected the strength in energy prices, up 12.8%, and rose 6.7%. Core crude prices also were strong following two months of sharp decline. Iron &amp; steel scrap prices rose 2.7% (-34.2% y/y) but they are down 46.8% from the peak last November. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
The Monetary Policy Transmission Mechanism? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20050901/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>1.0%</td>
<td>0.0%</td>
<td>4.6%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.0%</td>
<td>0.1%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>-3.3%</td>
<td>8.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>3.1%</td>
<td>-4.3%</td>
<td>-2.2%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
Mortgage Applications Down With Less Refinancing 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 17, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817c.jpg" width="353">
Total mortgage applications rose last week for the first time following three consecutive weeks of decline according to the Mortgage Bankers Association. The 2.2% w/w increase nevertheless left applications in August 4.7% below July which fell 1.4% from June.
Purchase applications ticked up 0.1% last week and in August are 0.7% above the July average which rose 0.9% versus June. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales. Mortgage applications to refinance recovered 5.0% w/w following several weeks of sharp decline.
The effective interest rate on a conventional 30-year mortgage backpedaled to 6.03% from 6.16% the prior week. The effective rate on a 15-year mortgage also fell to 5.72%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Monetary Policy and Asset Price Bubbles from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-18.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/12/05</th>
<th scope="col">08/05/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>761.3</td>
<td>745.0</td>
<td>10.4%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>499.3</td>
<td>498.8</td>
<td>6.9%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,285.5</td>
<td>2,176.5</td>
<td>15.3%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
UK Employment Basically Flat through May, Jobless Benefit Claims Creeping Higher 
by <a href="/comment/Stone.html">Carol Stone</a> August 17, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817d.jpg" width="353">
UK labor markets have moved little in the last few months. We last wrote about the Labor Force Survey in April, covering the February information. The unemployment rate then was 4.7% and it has remained at that level or at 4.8% through May. Employment has also held within a tight range: it reached a peak of 28.64 million in January, and has lost 5,000 on net in the succeeding four months; most recently, it gained 25,000 from the April data to May. All of these figures are centered 3-month moving averages, so this specific report released today by the Office of National Statistics (ONS) covers April, May and June, that is, the second quarter.
Press reports and the ONS itself prefer to emphasize these comparisons with three months ago. Over that time span, despite the flat unemployment rate, the number unemployed rose 27,000 and the number of people employed fell 16,000, a weaker-than-desirable performance. Additionally, the number of people claiming jobless benefits, the so-called claimant count, has increased; 866,000 people filed for benefits in July (a figure for the single month, not a multi-period average), a sixth consecutive increase totaling about 52,000. As seen in the second graph, such upturns are not frequent, although those associated with business cycles have generally been more pointed with an abrupt steep rise. So while this current modest rise is not encouraging, neither is it a clear sign of a negative direction for the UK economy. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050817e.jpg" width="353">
A Bank of England action earlier this month reflected the same kind of ambivalence. On August 4, the Bank reduced its repo rate from 4.75% to 4.50%; the minutes of that monetary policy meeting, which were published today, reveal that the vote was 5 to 4, with the Bank&#39;s Governor, Mervyn King, in the dissenting minority. This is the first time that the head of the Bank was on the short end of such a policy vote since the BoE became independent of the UK Treasury in 1997. In the United States, this has probably not ever happened, with just one near-miss to our recollection, during the Paul Volcker era in the early 1980s. Mr. King was concerned about inflation more than unemployment, and in fact, the consumer price data for July, issued yesterday, show a similar picture to that in the United States. Total CPI for the UK was up 2.3% year-on-year through July, but the index excluding energy is up &quot;just&quot; 1.9%. [US price numbers, recall, were up 0.5% in the month, but only just over 0.1% excluding food and energy.] The UK core inflation rate itself is increasing. It is not hard to see that the BoE governor and officers might have anticipated such an unpleasant combination as higher inflation and a stalling labor market and so moved very gingerly to alter their policy position.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/UK.HTM">UK Labor Force Survey</a> All seasonally adjusted</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
<th scope="col">Apr 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td></td>
<td>&nbsp;</td>
<td>4.7*</td>
<td>4.8*</td>
<td>4.7</td>
<td>5.0</td>
<td>5.2</td>
</tr>
<tr>
<td class="firstcol">Claimant Count (thous)</td>
<td>866</td>
<td>863</td>
<td>856</td>
<td>842</td>
<td>854</td>
<td>933</td>
<td>947</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (mil)</td>
<td></td>
<td>&nbsp;</td>
<td>28.59*</td>
<td>28.57*</td>
<td>28.44</td>
<td>28.18</td>
<td>27.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Change (thous)</td>
<td></td>
<td>&nbsp;</td>
<td>+25K</td>
<td>-11K</td>
<td>+0.9%</td>
<td>+0.9%</td>
<td>+0.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Earnings Index Incl Bonuses: &quot;Headline Rate&quot;(%)**</td>
<td></td>
<td>4.2</td>
<td>4.1</td>
<td>4.6</td>
<td>4.4</td>
<td>3.4</td>
<td>3.5</td>
</tr>
<tr>
<td class="firstcol">Average Earnings Index Ex Bonuses: &quot;Headline Rate&quot; (%)**</td>
<td></td>
<td>4.0</td>
<td>4.0</td>
<td>4.1</td>
<td>4.2</td>
<td>3.6</td>
<td>4.0</td>
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In July a 1.0% rise in the producer price index for finished goods was double Consensus expectations for a 0.5% increase, though it followed no change in prices one month earlier. Also double Consensus expectations was the 0.4% gain [...]

Producer Prices Doubled Expectations

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816g.jpg" width="353">
Spain reported balance of payment data for May today. Spain&#39;s presentation of balance of payments data differs from that of most other countries. Included in the financial account is the category, &quot;Bank of Spain.&quot; This item includes the change in international reserves, which in most presentations is a separate item, in addition to international transactions of the Bank of Spain. As a result the balance on Spain&#39;s current account is completely offset by the sum of the capital account, the financial account and the residual item, &quot;errors and omissions.&quot; The first chart shows the current account and the financial account balances.
Over the past year and a half, the current account deficit has become increasingly more negative, while the financial account has become more positive. As most developed countries have abandoned capital controls over the international flow of funds, it has become more difficult to decide whether it is the current account or the financial account that calls the tune in the eventual balancing of the accounts. Before the relaxation of capital controls, it was generally agreed that the driving force in a country&#39;s balance of payments was its balance on current account. Now, however, it is agreed that capital flows are an additional factor, or in some cases, the major factor in determining the eventual balance of the accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816h.jpg" width="353">
The elements of the current account, exports and imports goods, services and the balance of wages and income from foreign activities tend to show rather smooth trends. The elements of the financial account, however, exhibit very volatile trends. For example, there was a net outflow of &quot;other investment,&quot; in May of 7,834 million euros after an inflow of 5,657 million euros in April, resulting in an negative change of 13,491 million euros between April and May. Direct and portfolio investment, derivatives and financial flows of the Bank of Spain, however, all contributed to an almost equal positive change. The volatility and the diverse movements of the various capital flows are illustrated in the second chart that shows net portfolio and net &quot;other&quot; investments in Spain&#39;s balance of payments.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SPAIN/SPAIN.HTM">Spain:&nbsp; Balance of Payments</a> (Mil. Euros)</th>
<th scope="col">May 05</th>
<th scope="col">Apr 05</th>
<th scope="col">May 04</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol">Current Account</td>
<td>-5258</td>
<td>-6014</td>
<td>-3314</td>
<td>756</td>
<td>-1944</td>
<td>-44450</td>
<td>-27908</td>
<td>-23812</td>
</tr>
<tr>
<td class="firstcol">Capital Account</td>
<td>990</td>
<td>308</td>
<td>1867</td>
<td>682</td>
<td>-877</td>
<td>8547</td>
<td>8165</td>
<td>7663</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account</td>
<td>4347</td>
<td>6183</td>
<td>1104</td>
<td>-1836</td>
<td>3243</td>
<td>36836</td>
<td>18875</td>
<td>15988</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Direct Investment</td>
<td>247</td>
<td>-902</td>
<td>46</td>
<td>1149</td>
<td>201</td>
<td>-26345</td>
<td>-1418</td>
<td>6904</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Portfolio Investment</td>
<td>7086</td>
<td>3231</td>
<td>-6650</td>
<td>3855</td>
<td>13736</td>
<td>85804</td>
<td>-26592</td>
<td>4727</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Other Investment</td>
<td>-7834</td>
<td>5657</td>
<td>13610</td>
<td>-13491</td>
<td>-21446</td>
<td>-9776</td>
<td>48750</td>
<td>5712</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Derivatives</td>
<td>-123</td>
<td>-1036</td>
<td>308</td>
<td>913</td>
<td>-431</td>
<td>1162</td>
<td>-3434</td>
<td>-4915</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Bank of Spain</td>
<td>4970</td>
<td>-767</td>
<td>-6209</td>
<td>5737</td>
<td>11179</td>
<td>-14010</td>
<td>1576</td>
<td>3561</td>
</tr>
<tr class="odd">
<td class="firstcol">Errors and Omissions</td>
<td>-79</td>
<td>-478</td>
<td>343</td>
<td>399</td>
<td>-422</td>
<td>36836</td>
<td>18875</td>
<td>15988</td>
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Spain reported balance of payment data for May today. Spain's presentation of balance of payments data differs from that of most other countries. Included in the financial account is the category, "Bank of Spain." This item includes [...]

Spain's Balance of Payments in May

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816f.jpg" width="353">
Chain store sales dipped for the second week according to the International Council of Shopping Centers (ICSC)-UBS survey. A 0.2% w/w decline followed a 0.8% fall during the opening week of August. Sales so far this month are 0.2% ahead of the July average which rose 0.8% from June.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC recouped about half of the prior week&#39;s decline with a 0.4% (-0.3% y/y) rise.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/13/05</th>
<th scope="col">08/06/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>458.0</td>
<td>458.9</td>
<td>4.4%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
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Chain store sales dipped for the second week according to the International Council of Shopping Centers (ICSC)-UBS survey. A 0.2% w/w decline followed a 0.8% fall during the opening week of August. Sales so far this month are 0.2% [...]

Chain Store Sales Dipped Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816e.jpg" width="353">
Industrial production increased 0.1% last month following a downwardly revised 0.8% gain in June. Consensus expectations had been for a 0.5% rise. Factory sector output also slowed to half the prior month&#39;s gain and rose 0.2% (3.1% y/y) in July.
Lower motor vehicle production, off 2.3% (+4.4% y/y), was responsible for much of last month&#39;s weakness in output growth. Less motor vehicles, factory output rose 0.3% (2.8% y/y) after a 0.2% June increase.
With a 2.6% (19.0% y/y) spike, output of computers &amp; peripheral equipment posted the largest one month increase since January. Excluding the high tech sector as well as autos, factory output rose 0.2% (1.8% y/y).
Output of industrial &amp; other equipment jumped 1.3% (1.8% y/y) and furniture output rose 0.4% (-1.9% y/y). On the weak side was nondurable goods which fell 0.2% (+1.2% y/y).
Total capacity utilization dipped to 79.7% and capacity grew 1.1% y/y. Factory sector utilization was stable at 78.3%, up from 77.0% last July and capacity rose 1.3% y/y.
 The Relationship Between Capacity Utilization and Inflation from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/br/Q2_05_Dotsey_Stark.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Industrial Production</td>
<td>0.1%</td>
<td>0.8%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>-0.0%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>0.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.2%</td>
<td>0.2%</td>
<td>6.7%</td>
<td>9.5%</td>
<td>1.2%</td>
<td>-7.9%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>79.7%</td>
<td>79.8%</td>
<td>78.3% (7/04)</td>
<td>78.1%</td>
<td>75.5%</td>
<td>75.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production increased 0.1% last month following a downwardly revised 0.8% gain in June. Consensus expectations had been for a 0.5% rise. Factory sector output also slowed to half the prior month's gain and rose 0.2% (3.1% [...]

Industrial Production Increase Light

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816b.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell sharply in August to 67 from an unrevised 70 In July.
During the last twenty years, annual changes in the composite index had an 85% correlation with the change in single family housing starts.
The August index for current sales of single family homes fell for the second consecutive month (-5.3%% y/y) but the index of expected sales in six months was stable (-1.3% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816d.jpg" width="353">
Traffic of prospective home buyers fell from July&#39;s record high.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>70</td>
<td>70</td>
<td>68</td>
<td>64</td>
<td>61</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Home Builders' (NAHB) Composite Housing Market Index fell sharply in August to 67 from an unrevised 70 In July. During the last twenty years, annual changes in the composite index had an 85% correlation [...]

NAHB Housing Market Index Down Sharply in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816c.jpg" width="353">
Housing starts remained firm last month at 2.042M units versus an upwardly revised 2.045M units in June.Consensus expectations had been for a slight decline to 2.025M starts.
Single-family starts nudged up 0.5% after a 1.2% decline in June. Single family starts in the Midwest rose 5.0% (0.6% y/y) and in the West rose 4.1% (-7.4% y/y). Single family starts in the Northeast starts fell 7.6% (+12.6% y/y) and in the South starts fell 1.5% (+9.0% y/y).
Multi family starts gave back half of the prior month&#39;s rise and fell 3.2%.
Building permits increased for the second consecutive month and rose 1.6%.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,042</td>
<td>2,045</td>
<td>2.8%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,711</td>
<td>1,703</td>
<td>3.0%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>331</td>
<td>342</td>
<td>1.8%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,167</td>
<td>2,132</td>
<td>2.5%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
</table>
</body>
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Housing starts remained firm last month at 2.042M units versus an upwardly revised 2.045M units in June.Consensus expectations had been for a slight decline to 2.025M starts. Single-family starts nudged up 0.5% after a 1.2% decline in [...]

Housing Starts Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816a.jpg" width="353">
Consumer prices (CPI-U) rose 0.5% last month following no change in June and a 0.1% decline in May. Consensus expectations had been for a 0.4% July increase.
Energy prices jumped 3.8% led by a 6.1% (19.5% y/y) increase in gasoline prices to an average $2.29 per gallon. In August gasoline prices have risen further to $2.55 per gallon. Fuel oil prices also posted a strong 6.2% (34.3% y/y increase while natural gas prices gained 1.1% (7.1% y/y) and have strengthened further this month..
Less food &amp; energy prices rose 0.1% for the third consecutive month. Consensus expectations had been for a 0.2% increase.
Core goods prices, down 0.3%, fell for the third month in the last four led by a 1.0% (+0.3% y/y) decline in new vehicle prices. Appliance prices fell 0.5% (+2.0% y/y) and apparel prices tumbled 0.9% (-1.9% y/y), down hard for the third month in the last four.
Core services prices rose 0.3% as medical care services prices doubled the gain in June with a 0.4% (4.8% y/y) increase. Public transportation prices jumped 1.0% (5.5% y/y) and school tuition costs gained 0.6% (6.6% y/y). Shelter prices rose 0.3% (2.5% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases rose 0.4% but less food &amp; energy chain prices were unchanged.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.0%</td>
<td>3.1%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>3.8%</td>
<td>-0.5%</td>
<td>14.2%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</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"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer prices (CPI-U) rose 0.5% last month following no change in June and a 0.1% decline in May. Consensus expectations had been for a 0.4% July increase. Energy prices jumped 3.8% led by a 6.1% (19.5% y/y) increase in gasoline [...]

CPI Lifted By Strong Energy Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816a.jpg" width="353">
Consumer prices (CPI-U) rose 0.5% last month following no change in June and a 0.1% decline in May. Consensus expectations had been for a 0.4% July increase.
Energy prices jumped 3.8% led by a 6.1% (19.5% y/y) increase in gasoline prices to an average $2.29 per gallon. In August gasoline prices have risen further to $2.55 per gallon. Fuel oil prices also posted a strong 6.2% (34.3% y/y increase while natural gas prices gained 1.1% (7.1% y/y) and have strengthened further this month..
Less food &amp; energy prices rose 0.1% for the third consecutive month. Consensus expectations had been for a 0.2% increase.
Core goods prices, down 0.3%, fell for the third month in the last four led by a 1.0% (+0.3% y/y) decline in new vehicle prices. Appliance prices fell 0.5% (+2.0% y/y) and apparel prices tumbled 0.9% (-1.9% y/y), down hard for the third month in the last four.
Core services prices rose 0.3% as medical care services prices doubled the gain in June with a 0.4% (4.8% y/y) increase. Public transportation prices jumped 1.0% (5.5% y/y) and school tuition costs gained 0.6% (6.6% y/y). Shelter prices rose 0.3% (2.5% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases rose 0.4% but less food &amp; energy chain prices were unchanged.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.0%</td>
<td>3.1%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>3.8%</td>
<td>-0.5%</td>
<td>14.2%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</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"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.4%</td>
<td>-0.1%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
Housing Starts Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816c.jpg" width="353">
Housing starts remained firm last month at 2.042M units versus an upwardly revised 2.045M units in June.Consensus expectations had been for a slight decline to 2.025M starts.
Single-family starts nudged up 0.5% after a 1.2% decline in June. Single family starts in the Midwest rose 5.0% (0.6% y/y) and in the West rose 4.1% (-7.4% y/y). Single family starts in the Northeast starts fell 7.6% (+12.6% y/y) and in the South starts fell 1.5% (+9.0% y/y).
Multi family starts gave back half of the prior month&#39;s rise and fell 3.2%.
Building permits increased for the second consecutive month and rose 1.6%.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,042</td>
<td>2,045</td>
<td>2.8%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,711</td>
<td>1,703</td>
<td>3.0%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>331</td>
<td>342</td>
<td>1.8%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,167</td>
<td>2,132</td>
<td>2.5%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index Down Sharply in August 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816b.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell sharply in August to 67 from an unrevised 70 In July.
During the last twenty years, annual changes in the composite index had an 85% correlation with the change in single family housing starts.
The August index for current sales of single family homes fell for the second consecutive month (-5.3%% y/y) but the index of expected sales in six months was stable (-1.3% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816d.jpg" width="353">
Traffic of prospective home buyers fell from July&#39;s record high.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>70</td>
<td>70</td>
<td>68</td>
<td>64</td>
<td>61</td>
</tr>
</tbody>
</table>
Industrial Production Increase Light 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816e.jpg" width="353">
Industrial production increased 0.1% last month following a downwardly revised 0.8% gain in June. Consensus expectations had been for a 0.5% rise. Factory sector output also slowed to half the prior month&#39;s gain and rose 0.2% (3.1% y/y) in July.
Lower motor vehicle production, off 2.3% (+4.4% y/y), was responsible for much of last month&#39;s weakness in output growth. Less motor vehicles, factory output rose 0.3% (2.8% y/y) after a 0.2% June increase.
With a 2.6% (19.0% y/y) spike, output of computers &amp; peripheral equipment posted the largest one month increase since January. Excluding the high tech sector as well as autos, factory output rose 0.2% (1.8% y/y).
Output of industrial &amp; other equipment jumped 1.3% (1.8% y/y) and furniture output rose 0.4% (-1.9% y/y). On the weak side was nondurable goods which fell 0.2% (+1.2% y/y).
Total capacity utilization dipped to 79.7% and capacity grew 1.1% y/y. Factory sector utilization was stable at 78.3%, up from 77.0% last July and capacity rose 1.3% y/y.
 The Relationship Between Capacity Utilization and Inflation from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/br/Q2_05_Dotsey_Stark.pdf">here</a>.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>0.1%</td>
<td>0.8%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>-0.0%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>0.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.2%</td>
<td>0.2%</td>
<td>6.7%</td>
<td>9.5%</td>
<td>1.2%</td>
<td>-7.9%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>79.7%</td>
<td>79.8%</td>
<td>78.3% (7/04)</td>
<td>78.1%</td>
<td>75.5%</td>
<td>75.3%</td>
</tr>
</tbody>
</table>
Chain Store Sales Dipped Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816f.jpg" width="353">
Chain store sales dipped for the second week according to the International Council of Shopping Centers (ICSC)-UBS survey. A 0.2% w/w decline followed a 0.8% fall during the opening week of August. Sales so far this month are 0.2% ahead of the July average which rose 0.8% from June.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC recouped about half of the prior week&#39;s decline with a 0.4% (-0.3% y/y) rise.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/13/05</th>
<th scope="col">08/06/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>458.0</td>
<td>458.9</td>
<td>4.4%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Spain's Balance of Payments in May 
by <a href="/comment/Curley.html">Louise Curley</a> August 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816g.jpg" width="353">
Spain reported balance of payment data for May today. Spain&#39;s presentation of balance of payments data differs from that of most other countries. Included in the financial account is the category, &quot;Bank of Spain.&quot; This item includes the change in international reserves, which in most presentations is a separate item, in addition to international transactions of the Bank of Spain. As a result the balance on Spain&#39;s current account is completely offset by the sum of the capital account, the financial account and the residual item, &quot;errors and omissions.&quot; The first chart shows the current account and the financial account balances.
Over the past year and a half, the current account deficit has become increasingly more negative, while the financial account has become more positive. As most developed countries have abandoned capital controls over the international flow of funds, it has become more difficult to decide whether it is the current account or the financial account that calls the tune in the eventual balancing of the accounts. Before the relaxation of capital controls, it was generally agreed that the driving force in a country&#39;s balance of payments was its balance on current account. Now, however, it is agreed that capital flows are an additional factor, or in some cases, the major factor in determining the eventual balance of the accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050816h.jpg" width="353">
The elements of the current account, exports and imports goods, services and the balance of wages and income from foreign activities tend to show rather smooth trends. The elements of the financial account, however, exhibit very volatile trends. For example, there was a net outflow of &quot;other investment,&quot; in May of 7,834 million euros after an inflow of 5,657 million euros in April, resulting in an negative change of 13,491 million euros between April and May. Direct and portfolio investment, derivatives and financial flows of the Bank of Spain, however, all contributed to an almost equal positive change. The volatility and the diverse movements of the various capital flows are illustrated in the second chart that shows net portfolio and net &quot;other&quot; investments in Spain&#39;s balance of payments.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SPAIN/SPAIN.HTM">Spain:&nbsp; Balance of Payments</a> (Mil. Euros)</th>
<th scope="col">May 05</th>
<th scope="col">Apr 05</th>
<th scope="col">May 04</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>-5258</td>
<td>-6014</td>
<td>-3314</td>
<td>756</td>
<td>-1944</td>
<td>-44450</td>
<td>-27908</td>
<td>-23812</td>
</tr>
<tr>
<td class="firstcol">Capital Account</td>
<td>990</td>
<td>308</td>
<td>1867</td>
<td>682</td>
<td>-877</td>
<td>8547</td>
<td>8165</td>
<td>7663</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account</td>
<td>4347</td>
<td>6183</td>
<td>1104</td>
<td>-1836</td>
<td>3243</td>
<td>36836</td>
<td>18875</td>
<td>15988</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Direct Investment</td>
<td>247</td>
<td>-902</td>
<td>46</td>
<td>1149</td>
<td>201</td>
<td>-26345</td>
<td>-1418</td>
<td>6904</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Portfolio Investment</td>
<td>7086</td>
<td>3231</td>
<td>-6650</td>
<td>3855</td>
<td>13736</td>
<td>85804</td>
<td>-26592</td>
<td>4727</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Other Investment</td>
<td>-7834</td>
<td>5657</td>
<td>13610</td>
<td>-13491</td>
<td>-21446</td>
<td>-9776</td>
<td>48750</td>
<td>5712</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Derivatives</td>
<td>-123</td>
<td>-1036</td>
<td>308</td>
<td>913</td>
<td>-431</td>
<td>1162</td>
<td>-3434</td>
<td>-4915</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Bank of Spain</td>
<td>4970</td>
<td>-767</td>
<td>-6209</td>
<td>5737</td>
<td>11179</td>
<td>-14010</td>
<td>1576</td>
<td>3561</td>
</tr>
<tr class="odd">
<td class="firstcol">Errors and Omissions</td>
<td>-79</td>
<td>-478</td>
<td>343</td>
<td>399</td>
<td>-422</td>
<td>36836</td>
<td>18875</td>
<td>15988</td>
</tr>
</tbody>
</table>
</body>
</html>

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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.

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tariff Truce, Tenuous Trust

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

Carol Stone, CBE

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: August 2005

Jump to:

Producer Prices Doubled Expectations

Spain's Balance of Payments in May

Chain Store Sales Dipped Again

Industrial Production Increase Light

NAHB Housing Market Index Down Sharply in August

Housing Starts Firm

CPI Lifted By Strong Energy Prices

CPI Lifted By Strong Energy Prices