Tom Moeller

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818c.jpg" width="353">
Consumer sentiment in early August dropped sharply to the lowest level since last October, according to the University of Michigan. The 7.1% m/m decline in the sentiment index to 78.7 compared to consensus expectations for stability at 84.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy posted a notable 11.0% m/m drop to the lowest level last October. The decline was led by a sharp decline in expected 12 month business conditions to the lowest level since September and a more moderate drop in expected conditions during the next five years. The expected change in personal finances also fell sharply to the lowest level since May. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818d.jpg" width="353">
The reading of current economic conditions fell moderately for the second straight month. Details indicate that the index of current personal finances dropped to the lowest level since May but perceived buying conditions for large household goods slipped just modestly m/m (-4.3% y/y).
Consumers&#39; opinion about gov&#39;t economic policy slipped a modest 2.4% m/m (-5.9% y/y) after sharp improvement during July. Expected inflation during the next year surged m/m to 4.9%, its highest level in nearly a year. The five to ten year expected rate of inflation also rose to 3.5%, its highest since May.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August (Prelim)</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>78.7</td>
<td>84.7</td>
<td>-11.7%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>100.8</td>
<td>103.5</td>
<td>-6.8%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>64.5</td>
<td>72.5</td>
<td>-16.1%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer sentiment in early August dropped sharply to the lowest level since last October, according to the University of Michigan. The 7.1% m/m decline in the sentiment index to 78.7 compared to consensus expectations for stability [...]

U.S. Consumer Sentiment Sagged

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818a.jpg" width="353">
For August, the Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector improved to 18.5 from an unrevised 6.0 during July. The rebound by far outpaced Consensus expectations for an uptick to 8.0 and was to the highest level since April of last year.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
A higher level of shipments drove much of the improvement as the index rose twelve points to 22.3, its highest since March. The new orders sub-index also recovered most of the prior month&#39;s sharp decline. Moving in the other direction, the employment index reversed most of its July rebound but still indicated positive growth in factory payrolls. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818b.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index fell sharply to the lowest level since April. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months reversed about all of its July improvement and during the third quarter the average monthly level (11.4) is down sharply from 2Q (19.2). Notably, expectations for orders and employment were either stable or improved during 3Q versus the 2Q average.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0806.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>18.5</td>
<td>6.0</td>
<td>15.5</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>45.3</td>
<td>50.3</td>
<td>26.9</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
</body>
</html>

For August, the Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector improved to 18.5 from an unrevised 6.0 during July. The rebound by far outpaced Consensus expectations for an uptick [...]

Philadelphia Fed Index Highest Since 2005

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818c.jpg" width="353">
Consumer sentiment in early August dropped sharply to the lowest level since last October, according to the University of Michigan. The 7.1% m/m decline in the sentiment index to 78.7 compared to consensus expectations for stability at 84.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy posted a notable 11.0% m/m drop to the lowest level last October. The decline was led by a sharp decline in expected 12 month business conditions to the lowest level since September and a more moderate drop in expected conditions during the next five years. The expected change in personal finances also fell sharply to the lowest level since May. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818d.jpg" width="353">
The reading of current economic conditions fell moderately for the second straight month. Details indicate that the index of current personal finances dropped to the lowest level since May but perceived buying conditions for large household goods slipped just modestly m/m (-4.3% y/y).
Consumers&#39; opinion about gov&#39;t economic policy slipped a modest 2.4% m/m (-5.9% y/y) after sharp improvement during July. Expected inflation during the next year surged m/m to 4.9%, its highest level in nearly a year. The five to ten year expected rate of inflation also rose to 3.5%, its highest since May.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August (Prelim)</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>78.7</td>
<td>84.7</td>
<td>-11.7%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>100.8</td>
<td>103.5</td>
<td>-6.8%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>64.5</td>
<td>72.5</td>
<td>-16.1%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Highest Since 2005 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818a.jpg" width="353">
For August, the Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector improved to 18.5 from an unrevised 6.0 during July. The rebound by far outpaced Consensus expectations for an uptick to 8.0 and was to the highest level since April of last year.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
A higher level of shipments drove much of the improvement as the index rose twelve points to 22.3, its highest since March. The new orders sub-index also recovered most of the prior month&#39;s sharp decline. Moving in the other direction, the employment index reversed most of its July rebound but still indicated positive growth in factory payrolls. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818b.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index fell sharply to the lowest level since April. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months reversed about all of its July improvement and during the third quarter the average monthly level (11.4) is down sharply from 2Q (19.2). Notably, expectations for orders and employment were either stable or improved during 3Q versus the 2Q average.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0806.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>18.5</td>
<td>6.0</td>
<td>15.5</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>45.3</td>
<td>50.3</td>
<td>26.9</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
Brazil's Large Exports Yield Record Current Account Surplus in July 
by <a href="/comment/Stone.html">Carol Stone</a> August 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818e.jpg" width="353">
A surge in merchandise exports pushed Brazil&#39;s current account to a record surplus in July, $3043 million, as reported late August 17 by the Central Bank of Brazil. With seasonal adjustment by Haver Analytics, the balance is $2203 million, as seen in the table below, the second largest monthly amount after $2715 million in November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818f.jpg" width="353">
Brazil sells oil, coffee and copper, among numerous other items. Obviously, two of these items have seen major price increases that have raised the value of Brazil&#39;s exports. They are up more than 23% from a year ago. This good gain, $2.6 billion, has more than offset a larger percentage increase in imports, nearly 32% on the year, or $1.9 billion.
Frequently, economists and other analysts assess a nation&#39;s trade and current account conditions over against the capital and financial accounts. But for Brazil, the more relevant comparison involves the trade balance versus the service and income flows. It is the large trade surplus that &quot;finances&quot; a modest deficit in services and a more significant deficit in income. Brazil has a sizable negative international investment position, -$340 billion at the end of last year, and it sends out considerable amounts of profits, dividends and interest payments. As noted below, the deficit on income exceeds $2.1 billion in most months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818g.jpg" width="353">
Flows on the financial side are very erratic, but generally direct investment remains positive. So there are consistent flows of foreign equity funds into Brazil, suggesting that companies want increasingly to be represented in that sizable market. Portfolio and &quot;other&quot; investments swing widely from month to month, making it hard to characterize other investors&#39; attitudes toward the country.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGELA/@E2/@E208/@E208.HTM">Brazil</a> Mil. US$, Seas Adj.</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">July 2005</th>
Monthly Averages*
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>2203</td>
<td>578</td>
<td>524</td>
<td>1851</td>
<td>1183</td>
<td>973</td>
<td>348</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade Balance</td>
<td>4945</td>
<td>3714</td>
<td>2908</td>
<td>4454</td>
<td>3729</td>
<td>2803</td>
<td>2066</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>12651</td>
<td>11007</td>
<td>10058</td>
<td>10304</td>
<td>9859</td>
<td>8040</td>
<td>6090</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>7705</td>
<td>7292</td>
<td>7150</td>
<td>5850</td>
<td>6130</td>
<td>5236</td>
<td>4020</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-952</td>
<td>-747</td>
<td>-663</td>
<td>-632</td>
<td>-679</td>
<td>-390</td>
<td>-411</td>
</tr>
<tr class="odd">
<td class="firstcol">Income</td>
<td>-2102</td>
<td>-2764</td>
<td>-2113</td>
<td>-2253</td>
<td>-2164</td>
<td>-1710</td>
<td>-1546</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817d.jpg" width="353">
The German Federal Statistics Office today published the employment data that are inputs to the national accounts. So we can compare changes in GDP to changes in employment, yielding a rough measure of productivity in the German economy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817e.jpg" width="353">
As reported Monday, GDP expanded 0.9% in Q2, an annual rate of 3.6%. Total domestic employment in Germany rose 1.1%, annualized, producing a gain in GDP/employee of 2.5%; this followed 3.0% in Q1. Thus, the first half-year saw this proxy for productivity increase at a 2.77% annual rate, which is the strongest two quarters since early 1998, eight years ago.
Employment is now also available by industry for Q2, and as seen in the table below, it continues to decline in the goods-producing sectors. This has been almost continuous since the combined data for East and West Germany begin in 1991. During that time, &quot;industry&quot; has declined from 30% of employment to right at 20% in Q1 and Q2 this year. To give this some context, in the US, the goods-producing sector (which also includes construction) has declined from 21% of nonfarm payrolls in early 1991 to 16.6% in the first half of 2006. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817f.jpg" width="353">
Among individual German industries, finance and other business services have shown the greatest growth, with Q2 up 2.7% from a year ago, while total employment gained just 0.5%. The second ranking growth has been in government, health and other community services, which are up 0.9% in Q2 over Q2 2005.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">Germany</a> Millions, Seas Adj</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Domestic Employment</td>
<td>38.96</td>
<td>38.85</td>
<td>38.88</td>
<td>38.77</td>
<td>38.82</td>
<td>38.85</td>
<td>38.72</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>7.42</td>
<td>7.43</td>
<td>7.46</td>
<td>7.52</td>
<td>7.51</td>
<td>7.63</td>
<td>7.75</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>2.12</td>
<td>2.13</td>
<td>2.15</td>
<td>2.17</td>
<td>2.16</td>
<td>2.25</td>
<td>2.32</td>
</tr>
<tr>
<td class="firstcol">Trade, Hotels, Transportation, Etc.</td>
<td>9.80</td>
<td>9.75</td>
<td>9.77</td>
<td>9.75</td>
<td>9.76</td>
<td>9.80</td>
<td>9.72</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance, Business Services</td>
<td>6.55</td>
<td>6.49</td>
<td>6.46</td>
<td>6.37</td>
<td>6.40</td>
<td>6.30</td>
<td>6.13</td>
</tr>
<tr>
<td class="firstcol">Gov&#39;t, Community Services</td>
<td>11.85</td>
<td>11.83</td>
<td>11.81</td>
<td>11.74</td>
<td>11.76</td>
<td>11.63</td>
<td>11.54</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Growth (%, SWDAAR)</td>
<td>3.6</td>
<td>2.7</td>
<td>1.1</td>
<td>2.4</td>
<td>1.1</td>
<td>0.8</td>
<td>-0.2</td>
</tr>
<tr>
<td class="firstcol">Employment Growth (%, SWDAAR)</td>
<td>1.1</td>
<td>-0.3</td>
<td>0.6</td>
<td>0.5</td>
<td>-0.1</td>
<td>0.4</td>
<td>-0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP/Employee (%, SWDAAR)</td>
<td>2.5</td>
<td>3.0</td>
<td>0.5</td>
<td>1.9</td>
<td>1.2</td>
<td>0.4</td>
<td>0.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The German Federal Statistics Office today published the employment data that are inputs to the national accounts. So we can compare changes in GDP to changes in employment, yielding a rough measure of productivity in the German [...]

German Employment Grows in Q2 -- and So Does Productivity

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817b.jpg" width="353">
The composite index of leading economic indicators dipped 0.1% during July and reversed the June uptick. The figure reported by the Conference Board was the fourth m/m decline this year and compared to Consensus expectations for a 0.1% increase.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index slipped to 55% from 60% in June.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817c.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% for the sixth month this year. During the last one &amp; six months all of the coincident series rose and over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators reversed 0.1% of the prior month&#39;s revised 0.5% jump. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, rose slightly for only the second month this year.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
The Taylor Principle and Recent FOMC Policy from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060901/cover.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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.9%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

The composite index of leading economic indicators dipped 0.1% during July and reversed the June uptick. The figure reported by the Conference Board was the fourth m/m decline this year and compared to Consensus expectations for a [...]

Leading Economic Indicators Dipped, Again

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817a.jpg" width="353">
Initial claims for jobless insurance last week reversed all of the upwardly revised increase the prior period and fell 10,000 to 312,000. Consensus expectations had been for 317,000 claims.
During July, claims averaged 314,000.A portion of the decline from that level reflects a fall from levels that spiked higher during the automobile industry&#39;s annual summer shutdown.
The latest figure covers the survey period for August nonfarm payrolls and initial claims rose 7,000 (2.3%) from the July period.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The less volatile four-week moving average of initial claims increased to 311,250 (-1.5% y/y).
Continuing claims for unemployment insurance rose 34,000 following a slightly revised 41,000 increase during the previous week.
The insured rate of unemployment remained unchanged at 1.9% where it has been since February.
An Update on the Status of the Economy and Its Implications for Monetary Policy is yesterday&#39;s speech by Dallas Federal Reserve Bank President Fisher and it is available <a href="http://dallasfed.org/news/speeches/fisher/2006/fs060816.cfm"> here</a>.
Labor Markets and the Macroeconomy: Conference Summary from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-17.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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">8/12/06</th>
<th scope="col">8/05/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>312</td>
<td>322</td>
<td>-2.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,507</td>
<td>-3.5%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance last week reversed all of the upwardly revised increase the prior period and fell 10,000 to 312,000. Consensus expectations had been for 317,000 claims. During July, claims averaged 314,000.A [...]

Initial Claims for Unemployment Insurance Reverse Increase

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817a.jpg" width="353">
Initial claims for jobless insurance last week reversed all of the upwardly revised increase the prior period and fell 10,000 to 312,000. Consensus expectations had been for 317,000 claims.
During July, claims averaged 314,000.A portion of the decline from that level reflects a fall from levels that spiked higher during the automobile industry&#39;s annual summer shutdown.
The latest figure covers the survey period for August nonfarm payrolls and initial claims rose 7,000 (2.3%) from the July period.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The less volatile four-week moving average of initial claims increased to 311,250 (-1.5% y/y).
Continuing claims for unemployment insurance rose 34,000 following a slightly revised 41,000 increase during the previous week.
The insured rate of unemployment remained unchanged at 1.9% where it has been since February.
An Update on the Status of the Economy and Its Implications for Monetary Policy is yesterday&#39;s speech by Dallas Federal Reserve Bank President Fisher and it is available <a href="http://dallasfed.org/news/speeches/fisher/2006/fs060816.cfm"> here</a>.
Labor Markets and the Macroeconomy: Conference Summary from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-17.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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">8/12/06</th>
<th scope="col">8/05/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>312</td>
<td>322</td>
<td>-2.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,507</td>
<td>-3.5%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Dipped, Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817b.jpg" width="353">
The composite index of leading economic indicators dipped 0.1% during July and reversed the June uptick. The figure reported by the Conference Board was the fourth m/m decline this year and compared to Consensus expectations for a 0.1% increase.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index slipped to 55% from 60% in June.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817c.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% for the sixth month this year. During the last one &amp; six months all of the coincident series rose and over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators reversed 0.1% of the prior month&#39;s revised 0.5% jump. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, rose slightly for only the second month this year.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
The Taylor Principle and Recent FOMC Policy from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060901/cover.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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.9%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
German Employment Grows in Q2 -- and So Does Productivity 
by <a href="/comment/Stone.html">Carol Stone</a> August 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817d.jpg" width="353">
The German Federal Statistics Office today published the employment data that are inputs to the national accounts. So we can compare changes in GDP to changes in employment, yielding a rough measure of productivity in the German economy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817e.jpg" width="353">
As reported Monday, GDP expanded 0.9% in Q2, an annual rate of 3.6%. Total domestic employment in Germany rose 1.1%, annualized, producing a gain in GDP/employee of 2.5%; this followed 3.0% in Q1. Thus, the first half-year saw this proxy for productivity increase at a 2.77% annual rate, which is the strongest two quarters since early 1998, eight years ago.
Employment is now also available by industry for Q2, and as seen in the table below, it continues to decline in the goods-producing sectors. This has been almost continuous since the combined data for East and West Germany begin in 1991. During that time, &quot;industry&quot; has declined from 30% of employment to right at 20% in Q1 and Q2 this year. To give this some context, in the US, the goods-producing sector (which also includes construction) has declined from 21% of nonfarm payrolls in early 1991 to 16.6% in the first half of 2006. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060817f.jpg" width="353">
Among individual German industries, finance and other business services have shown the greatest growth, with Q2 up 2.7% from a year ago, while total employment gained just 0.5%. The second ranking growth has been in government, health and other community services, which are up 0.9% in Q2 over Q2 2005.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">Germany</a> Millions, Seas Adj</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Domestic Employment</td>
<td>38.96</td>
<td>38.85</td>
<td>38.88</td>
<td>38.77</td>
<td>38.82</td>
<td>38.85</td>
<td>38.72</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>7.42</td>
<td>7.43</td>
<td>7.46</td>
<td>7.52</td>
<td>7.51</td>
<td>7.63</td>
<td>7.75</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>2.12</td>
<td>2.13</td>
<td>2.15</td>
<td>2.17</td>
<td>2.16</td>
<td>2.25</td>
<td>2.32</td>
</tr>
<tr>
<td class="firstcol">Trade, Hotels, Transportation, Etc.</td>
<td>9.80</td>
<td>9.75</td>
<td>9.77</td>
<td>9.75</td>
<td>9.76</td>
<td>9.80</td>
<td>9.72</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance, Business Services</td>
<td>6.55</td>
<td>6.49</td>
<td>6.46</td>
<td>6.37</td>
<td>6.40</td>
<td>6.30</td>
<td>6.13</td>
</tr>
<tr>
<td class="firstcol">Gov&#39;t, Community Services</td>
<td>11.85</td>
<td>11.83</td>
<td>11.81</td>
<td>11.74</td>
<td>11.76</td>
<td>11.63</td>
<td>11.54</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Growth (%, SWDAAR)</td>
<td>3.6</td>
<td>2.7</td>
<td>1.1</td>
<td>2.4</td>
<td>1.1</td>
<td>0.8</td>
<td>-0.2</td>
</tr>
<tr>
<td class="firstcol">Employment Growth (%, SWDAAR)</td>
<td>1.1</td>
<td>-0.3</td>
<td>0.6</td>
<td>0.5</td>
<td>-0.1</td>
<td>0.4</td>
<td>-0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP/Employee (%, SWDAAR)</td>
<td>2.5</td>
<td>3.0</td>
<td>0.5</td>
<td>1.9</td>
<td>1.2</td>
<td>0.4</td>
<td>0.8</td>
</tr>
</tbody>
</table>
</body>
</html>

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
}
.grey5{
	background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816i.jpg" width="353">
Three Mediterranean regions reported Q2 GDP today. In Greece, total GDP eased 0.3% from Q1, Israel saw growth of 1.5% and the Palestinian Territories&#39; GDP fell 1.7%.
The Greek data featured a decline in domestic demand in Q2 after it rose sharply in Q1. The Q2 figures included a reduction in consumption and what might be termed a &quot;correction&quot; in fixed investment. This latter had been up strongly for three quarters running, so the latest period&#39;s decrease still left year-on-year growth of 14.0%, a nice recovery after a contraction in 2005. Consumption is somewhat steadier, maintaining four-quarter growth rates between 3% and 4%. Q2 total GDP was supported by an improvement in net exports. Country-source data for Greece are included in Haver&#39;s ALPMED database, with summary statistics in G10 and EUROSTAT. While the first two are updated by Haver soon after the data are released, the figures in EUROSTAT are available to us only after their staff have released them through their own channels and that database generally includes them some time later.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816j.jpg" width="353">
Israel&#39;s total GDP growth has been fairly steady at about a 6% annual pace for the last year, reflecting moderate gains in consumption and investment and strong exports. Obviously, these are Q2 data and do not cover any of the Israel/Hezbollah conflict, which began July 12. While economic impact is hardly a high priority in analyzing this war right now, the even-tempered performance of Israel&#39;s economy going into it will provide for interesting comparisons when Q3 data are produced.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060816k.jpg" width="353">
The Palestinian Territories have a tiny economy, with GDP for 2005 totaling only $4.46 billion in fixed 1997 prices. The first two quarters of this year were weak, with a steep drop of 7.2% in Q1 followed by 1.7% in Q2. Recent data are available only for industrial sectors (not for expenditure categories), and these sectors are experiencing varied patterns. The latest declines came in industry and construction, while transportation is erratic but maintaining a modest growth trend. As with many of the world&#39;s organized economic areas, the service sector is expanding with some vigor, and Q2 was up 16.5% from a year ago. One hopes that has been maintained this quarter despite the tumult around them.
Data on Israel and the Palestinian Territories are contained in Haver&#39;s EMERGEMA database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GDP: % Changes</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Yr/Yr</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/ALPMED/@A2/@A22/@A22.HTM">Greece*</a></td>
<td>-0.3</td>
<td>2.8</td>
<td>-0.2</td>
<td>4.1</td>
<td>3.7</td>
<td>4.7</td>
<td>4.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption</td>
<td>-1.1</td>
<td>1.5</td>
<td>0.5</td>
<td>3.5</td>
<td>3.6</td>
<td>4.4</td>
<td>3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Fixed Investment</td>
<td>-4.7</td>
<td>7.4</td>
<td>4.5</td>
<td>14.0</td>
<td>-1.2</td>
<td>5.7</td>
<td>13.7</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEMA/@M7/@M702/@M702.HTM">Israel*</a></td>
<td>1.5</td>
<td>1.4</td>
<td>1.4</td>
<td>6.2</td>
<td>5.2**</td>
<td>4.8**</td>
<td>1.5**</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumption</td>
<td>1.2</td>
<td>1.8</td>
<td>0.0</td>
<td>2.7</td>
<td>3.1**</td>
<td>2.8**</td>
<td>-0.3**</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Fixed Investment</td>
<td>-2.4</td>
<td>2.2</td>
<td>2.2</td>
<td>3.1</td>
<td>2.9**</td>
<td>0.3**</td>
<td>-5.5**</td>
</tr>
<tr class="odd">
<td class="firstcol">Palestinian Territories*</td>
<td>-1.7</td>
<td>-7.2</td>
<td>2.3</td>
<td>1.7</td>
<td>4.9</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

Three Mediterranean regions reported Q2 GDP today. In Greece, total GDP eased 0.3% from Q1, Israel saw growth of 1.5% and the Palestinian Territories' GDP fell 1.7%. The Greek data featured a decline in domestic demand in Q2 after it [...]

Q2 GDP Eases in Greece & Falls in the Palestinian Territories But Gains in Israel

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

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

Optimized for precision analytics, our data is seamlessly integrated with Microsoft Office and all leading statistical packages through our DLX® software and platform independent HaverView™ website. We further offer direct database feeds, client server or cloud-based delivery, and RESTful API.


Privacy Policy

Disclaimer

Contact us

A premier time series data platform for the global strategy, research, and quant communities. 

New York

London

Singapore

Tokyo

Economy in Brief

Viewpoints

Contact Us

Our Data

Our Products

What We Do

Our Authors

About Us

Data News

Resources

Release Calendars

Training Center

Webinars

Newsletters

Download Software

For Clients

Live Updates

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

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 2006

Jump to:

U.S. Consumer Sentiment Sagged

Philadelphia Fed Index Highest Since 2005

U.S. Consumer Sentiment Sagged

German Employment Grows in Q2 -- and So Does Productivity

Leading Economic Indicators Dipped, Again

Initial Claims for Unemployment Insurance Reverse Increase

Initial Claims for Unemployment Insurance Reverse Increase

Q2 GDP Eases in Greece & Falls in the Palestinian Territories But Gains in Israel