Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820h.jpg" width="353">
French industrial orders build on May acceleration. 
As the Euro area growth seemed to sputter in Q2, various indicators weakened as well. And GDP in the Euro area was below expectations in Q2. Certainly the VAT hike in Germany, the Euro area&#39;s largest economy was a factor. But since then there have been few signs that growth has been put back on track. Against this background, strong French orders is a welcome sign. May had showed a strong bump up in orders, but the 5.1% simple monthly gain in June makes the surge in orders much more certain. With concerns about subprime lending risks and losses and other financial strife, it is key to see the economy on stronger footing. This report is the first sign we have that Europe was tipped into this period on very strong growth. It will be interesting to see what numbers will turn out for July as well. We have to wait for August figures to see true post lending crisis impacts begin to emerge. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
French Orders
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">SAAR except m/m</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>5.1%</td>
<td>2.6%</td>
<td>0.6%</td>
<td>38.6%</td>
<td>26.6%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>5.1%</td>
<td>4.8%</td>
<td>1.7%</td>
<td>57.5%</td>
<td>27.7%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
</body>
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French industrial orders build on May acceleration. As the Euro area growth seemed to sputter in Q2, various indicators weakened as well. And GDP in the Euro area was below expectations in Q2. Certainly the VAT hike in Germany, the [...]

French Industrial Orders Pop in June

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820a.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago fell back in July to -0.10 after a brief move into positive territory during the prior month.
The Chicago Fed indicated that the production &amp; income category made a positive contribution to the index. They were offset by negative contributions in the employment, the consumption and housing category. The sales, orders, and inventories category made a neutral contribution in July.
The three-month moving average of the CFNAI also fell back into negative territory where it has been now for eleven months.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_August2007.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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.10</td>
<td>0.06</td>
<td>0.02</td>
<td>0.02</td>
<td>0.28</td>
<td>0.32</td>
</tr>
</tbody>
</table>
</body>
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The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago fell back in July to -0.10 after a brief move into positive territory during the prior month. The Chicago Fed indicated that the production & income category [...]

Chicago Fed National Activity Index Negative, Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820h.jpg" width="353">
French industrial orders build on May acceleration. 
As the Euro area growth seemed to sputter in Q2, various indicators weakened as well. And GDP in the Euro area was below expectations in Q2. Certainly the VAT hike in Germany, the Euro area&#39;s largest economy was a factor. But since then there have been few signs that growth has been put back on track. Against this background, strong French orders is a welcome sign. May had showed a strong bump up in orders, but the 5.1% simple monthly gain in June makes the surge in orders much more certain. With concerns about subprime lending risks and losses and other financial strife, it is key to see the economy on stronger footing. This report is the first sign we have that Europe was tipped into this period on very strong growth. It will be interesting to see what numbers will turn out for July as well. We have to wait for August figures to see true post lending crisis impacts begin to emerge. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
French Orders
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">SAAR except m/m</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>5.1%</td>
<td>2.6%</td>
<td>0.6%</td>
<td>38.6%</td>
<td>26.6%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>5.1%</td>
<td>4.8%</td>
<td>1.7%</td>
<td>57.5%</td>
<td>27.7%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
 Contrasting Balance of Payments for Greece and Taiwan 
by <a href="/comment/Curley.html">Louise Curley</a> August 20 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820d.jpg" width="353">
Among the Haver updates released today were balance of payments data for Greece and Taiwan. The two countries have very different balances of payments. Greece traditionally runs a deficit on current account while Taiwan runs a surplus. Typically, a deficit (surplus) is offset largely by inflows (outflows) in its capital and financial accounts and changes in foreign exchange reserves. Because of difficulties in the measurement of all the various flows in the balance of payments, an item &quot;errors and omissions&quot; is introduced to balance the account. The first two charts show how Greece&#39;s current account deficit, and Taiwan&#39;s surplus are offset by changes in capital flows, foreign exchange reserves and &quot;errors and omissions&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820e.jpg" width="353">
Greece&#39;s deficit on current account is the result of deficits on trade in goods and its income account that outweigh small surpluses on trade in services and transfer. Taiwan, on the other hand has a large surplus on goods and on its income account that more than offsets small deficits on trade in services and in transfers. The components of the current account for Greece and Taiwan are shown in the third and fourth charts.
When foreign exchange reserves are used to offset a deficit in the current account, they appear with a plus sign in the balance of payments account, however, the store of reserves has been reduced. Thus in the balance of payments a plus sign in the reserves means a decline in reserves and a minus sign indicates an increase. Over the years Taiwan has often opted to increase reserves, rather than invest the surplus on current account in foreign assets. At the end of June, Taiwanese reserves amounted to $266 billion, compared with $355 million for Greece. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820f.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820g.jpg" width="353"> 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Q2 07</th>
<th scope="col">Q1 07&nbsp;</th>
<th scope="col">Q2 06&nbsp;</th>
<th scope="col">Q/Q Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="9">GREECE (Millions Euros)</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>-4688</td>
<td>-9022</td>
<td>-6256</td>
<td>1334</td>
<td>-1432</td>
<td>-23660</td>
<td>-14348</td>
<td>-10453</td>
</tr>
<tr>
<td class="firstcol">Capital &amp; Financial Account* (Includes change in Reserves</td>
<td>8148</td>
<td>8800</td>
<td>6491</td>
<td>652</td>
<td>1657</td>
<td>23404</td>
<td>14655</td>
<td>10220</td>
</tr>
<tr>
<td class="firstcol"> Errors and Omission </td>
<td>-461</td>
<td>222</td>
<td>-235</td>
<td>-682</td>
<td>-226</td>
<td>255</td>
<td>-308</td>
<td>233</td>
</tr>
<tr>
<td class="firstcol">Actual Foreign Exchange Reserves &nbsp;(Mil US$)</td>
<td>355</td>
<td>466</td>
<td>514</td>
<td>-101</td>
<td>-159</td>
<td>389</td>
<td>326</td>
<td>679</td>
</tr>
<tr class="odd">
<td colspan="9">TAIWAN (Millions US$)</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>4976</td>
<td>8780</td>
<td>4511</td>
<td>-3804</td>
<td>465</td>
<td>24658</td>
<td>19019</td>
<td>18478</td>
</tr>
<tr>
<td class="firstcol">Capital &amp; Financial Account</td>
<td>-7187</td>
<td>-10998</td>
<td>-5841</td>
<td>3811</td>
<td>-1346</td>
<td>-19749</td>
<td>2185</td>
<td>7089</td>
</tr>
<tr>
<td class="firstcol"> Change in Foreign Exchange Reserves&nbsp; </td>
<td>1893</td>
<td>-369</td>
<td>-482</td>
<td>2262</td>
<td>2375</td>
<td>-6086</td>
<td>-20056</td>
<td>-26595</td>
</tr>
<tr>
<td class="firstcol"> Errors and Omission </td>
<td>318</td>
<td>2587</td>
<td>1812</td>
<td>-2269</td>
<td>-1494</td>
<td>1177</td>
<td>1852</td>
<td>1028</td>
</tr>
<tr>
<td class="firstcol">Actual Foreign Exchange Reserves &nbsp;(Mil US$)</td>
<td>266055</td>
<td>267490</td>
<td>260350</td>
<td>-1436</td>
<td>5705</td>
<td>266148</td>
<td>253290</td>
<td>241738</td>
</tr>
</tbody>
</table>
Chicago Fed National Activity Index Negative, Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 20, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820a.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago fell back in July to -0.10 after a brief move into positive territory during the prior month.
The Chicago Fed indicated that the production &amp; income category made a positive contribution to the index. They were offset by negative contributions in the employment, the consumption and housing category. The sales, orders, and inventories category made a neutral contribution in July.
The three-month moving average of the CFNAI also fell back into negative territory where it has been now for eleven months.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_August2007.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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.10</td>
<td>0.06</td>
<td>0.02</td>
<td>0.02</td>
<td>0.28</td>
<td>0.32</td>
</tr>
</tbody>
</table>
Tom Moeller 
by <a href="/comment/Moeller.html">U.S. Leading Economic Indicators RoseAugust 20, 2007 By Tom Moeller</a>  


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070820b.jpg" width="353">
The Conference Board reported that the composite index of leading economic indicators rose 0.4% during July following an unrevised 0.3% decline during June.
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 improved to 65%, its best since March.
Lower initial claims for unemployment insurance and improved vendor performance accounted for most the leader&#146;s increase.
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/070820c.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 increased 0.2% after an upwardly revised 0.2% rise during June. The coincident index, made up of payroll employment, personal income, industrial production and business sales, has increased in every month since August 2005. 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 index rose 0.2%. As a result the ratio of coincident to lagging indicators (a measure of economic excess) was unchanged. 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 Cost of Business Cycles for Unskilled Workers from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr214.html"> here</a>.<a href="http://www.newyorkfed.org/research/staff_reports/sr214.html"> </a>
Job-Finding and Separation Rates in the OECD from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr298.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/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">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.4%</td>
<td>-0.3%</td>
<td>0.4%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.5%</td>
<td>3.2%</td>
<td>3.0%</td>
<td>3.5%</td>
<td>0.6%</td>
</tr>
</tbody>
</table>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817d.jpg" width="353">
We speak often about oil demand, in which regions it has grown and where it is more restrained and how can we use oil more efficiently. But price, of course, results from both demand AND supply. So discussion of oil markets is not really complete without some consideration of supply conditions. Even if we believe supply is exogenous to consumers, we still need to understand how much is coming from where.
These details are arrayed nicely in Haver&#39;s OMI database, furnished by our partner source, Energy Intelligence, as part of their publication &quot;Oil Market Intelligence&quot;. This company has representatives in fields around the world to assess the availability of this important resource.
In July total oil available from wellhead production was 83,530 thousand barrels/day, compared with 82,434 in June and 83,266 in July 2006. For this July, there were also refining processing gains of approximately 2,000 barrels/day, so the supply of products was about in line with the separately measured product demand, 85,482 thousand barrels/day. The increase in supply for the month was 1.33%, the largest monthly rise since 1.73% in June 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817e.jpg" width="353">
Among the leading producers, OPEC output was 35.3 million b/d, up from 34.8 mbd in June. It represents 42.2% of total world output. In recent years, OPEC&#39;s largest share was 44.3% in September 2005. For much of the time since 1990, their share hovered around 40%; it began to increase from that range during 2002.
In examining the other regions&#39; performance, it looks that higher prices are eliciting added output. Nearly every other major area of the world is participating, at least to some extent. Many of us tend to think that the &quot;oil is running out&quot;, but there seems still to be some more. The most distinctive example is the new UK field in the North Sea. For all of Europe, this appears to have halted the steep downtrend in output, making it just about steady in July with the year-ago figure, off a mere 1.3%, compared with year-on-year declines last autumn of 10% and more. In the Americas, production is climbing slowly after the plunge and rebound associated with 2005&#39;s hurricanes; it&#39;s even steady in the US, and &quot;other&quot; countries, though small, are growing rapidly.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817f.jpg" width="353">
The main growth is in Asia. The OMI classifies Russia as an Asian producer. Its output is rising at about a 2.2% year-on-year pace and now accounts for about 11.6% of the world total. Other former Soviet republics are growing their output rapidly, albeit from a small base; they have enlarged their market share by 0.75% in just the past two years. In China, production is growing, but demand is growing so much faster. This imbalance is likely one reason for recent price spikes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">World Oil Supply, Mil. Bbl/Day</th>
<th scope="col">July 2007</th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">July 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>83.5</td>
<td>82.4</td>
<td>82.6</td>
<td>83.3</td>
<td>82.9</td>
<td>82.4</td>
<td>81.4</td>
</tr>
<tr>
<td class="firstcol">OPEC</td>
<td>32.3</td>
<td>34.8</td>
<td>34.6</td>
<td>35.7</td>
<td>35.4</td>
<td>35.6</td>
<td>34.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Americas</td>
<td>15.6</td>
<td>15.3</td>
<td>15.6</td>
<td>15.5</td>
<td>15.6</td>
<td>15.4</td>
<td>15.5</td>
</tr>
<tr>
<td class="firstcol">Europe</td>
<td>4.6</td>
<td>4.4</td>
<td>4.6</td>
<td>4.7</td>
<td>4.7</td>
<td>5.2</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Russia</td>
<td>9.7</td>
<td>9.6</td>
<td>9.6</td>
<td>9.5</td>
<td>9.4</td>
<td>9.2</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Other Asia</td>
<td>9.0</td>
<td>8.9</td>
<td>8.9</td>
<td>8.6</td>
<td>8.5</td>
<td>8.2</td>
<td>8.1</td>
</tr>
</tbody>
</table>
</body>
</html>

We speak often about oil demand, in which regions it has grown and where it is more restrained and how can we use oil more efficiently. But price, of course, results from both demand AND supply. So discussion of oil markets is not [...]

Where Does the Oil Come From?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817g.jpg" width="353">
Trends in German producer prices are partly favorable.
Excluding energy, manufacturing PPI trends are sideways. The year-over-year rate has showed a slight downtrend while the six-month rate has popped up and the 3-month rate has dropped from its month-ago pop-up. The three-month trend is unclear as despite its drop-off in the month it may still be in an uptrend that dates back to March. Prices of German manufacturing and mfg excluding energy show different forces are acting on them. As energy prices have ebbed overall German PPI inflation is dropping and has slowed to a 1.1% pace year/year. But the year/year pace for the Excl Energy Manufacturing PPI inflation rate is at 2.5% and is barely beginning to edge lower. With the ECB inflation ceiling for its HICP at 2% the PPI is not helping and the trend does not show the promise of much help to come, at least for nonenergy prices. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Germany PPI
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> M/M % Changes</td>
<td colspan="4"> %-SAAR</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td> Jul-07</td>
<td> Jun-07</td>
<td> May-07</td>
<td> 3-mo</td>
<td> 6-mo</td>
<td> 12-mo</td>
<td> 12-moY-Ago</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>3.0%</td>
</tr>
<tr>
<td colspan="7">&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Trends in German producer prices are partly favorable. Excluding energy, manufacturing PPI trends are sideways. The year-over-year rate has showed a slight downtrend while the six-month rate has popped up and the 3-month rate has [...]

German PPI Steadies at Above 2% Pace

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817a.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in August fell 7.9% m/m to 83.3. The decline was the largest m/m drop in over a year and, likewise, pulled the index to its lowest level since last August. Consensus expectations had been for a lesser decline to 87.
A 9.1% decline in consumer expectations led this month&#39;s decline in overall sentiment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817c.jpg" width="353">
Consumers worried that business conditions during the next six months would deteriorate and the index measuring these expectations fell 14.3% (+20.0% y/y). Expectations for business conditions during the next five years also fell (-7.3% m/m, +6.0% y/y). Finally, the index measuring the expected change in consumers&#39; finances fell 5.6% (+5.4% y/y) and reversed most of the prior month&#39;s increase.
Perceptions about current economic conditions also fell. The view of current personal finances fell 13.0% (-8.3% y/y) and consumers&#39; view of current buying conditions for large household goods fell 1.9% (-4.4% y/y).
The assessment of government policy fell a hard 7.0% m/m (-2.4% y/y) to the lowest level in over one year..<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817b.jpg" width="353">
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end.
The U.S. Federal Reserve today took action to <a href="http://http://www.federalreserve.gov/boarddocs/press/monetary/2007/200708172/default.htm">reduce the Discount Rate</a>. An accompanying statement to this action can be found <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070817/default.htm"> here</a>. Today&#39;s actionis meant toencourage the use of the discount window by specific banksthat need more liquidity without reducing the cost of funds toall banks, as an easing of the fed funds rate would do.
William Poole, President, Federal Reserve Bank of St. Louis, spoke today on U.S. Export Opportunities and his comments are available <a href="http://www.stlouisfed.org/news/speeches/2007/08_17_07.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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a>&nbsp;</th>
<th scope="col">August (Prelim.)</th>
<th scope="col">July</th>
<th scope="col">Aug y/y </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>83.3</td>
<td>90.4</td>
<td>1.6%</td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>97.7</td>
<td>104.5</td>
<td>-5.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.1</td>
<td>81.5</td>
<td>9.0%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan's preliminary reading of consumer sentiment in August fell 7.9% m/m to 83.3. The decline was the largest m/m drop in over a year and, likewise, pulled the index to its lowest level since last August. [...]

Michigan Consumer Sentiment Fell Sharply, Fed's Discount Rate Cut

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817g.jpg" width="353">
Trends in German producer prices are partly favorable.
Excluding energy, manufacturing PPI trends are sideways. The year- over-year rate has showed a slight downtrend while the six- month rate has popped up and the 3-month rate has dropped from its month-ago pop-up. The three- month trend is unclear as despite its drop-off in the month it may still be in an uptrend that dates back to March. Prices of German manufacturing and mfg excluding energy show different forces are acting on them. As energy prices have ebbed overall German PPI inflation is dropping and has slowed to a 1.1% pace year/year. But the year/year pace for the Excl Energy Manufacturing PPI inflation rate is at 2.5% and is barely beginning to edge lower. With the ECB inflation ceiling for its HICP at 2% the PPI is not helping and the trend does not show the promise of much help to come, at least for nonenergy prices. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Germany PPI
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> M/M % Changes</td>
<td colspan="4"> %-SAAR</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td> Jul-07</td>
<td> Jun-07</td>
<td> May-07</td>
<td> 3-mo</td>
<td> 6-mo</td>
<td> 12-mo</td>
<td> 12-moY-Ago</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>3.0%</td>
</tr>
<tr>
<td colspan="7">&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
Where Does the Oil Come From? 
by <a href="/comment/Stone.html">Carol Stone</a> August 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817d.jpg" width="353">
We speak often about oil demand, in which regions it has grown and where it is more restrained and how can we use oil more efficiently. But price, of course, results from both demand AND supply. So discussion of oil markets is not really complete without some consideration of supply conditions. Even if we believe supply is exogenous to consumers, we still need to understand how much is coming from where.
These details are arrayed nicely in Haver&#39;s OMI database, furnished by our partner source, Energy Intelligence, as part of their publication &quot;Oil Market Intelligence&quot;. This company has representatives in fields around the world to assess the availability of this important resource.
In July total oil available from wellhead production was 83,530 thousand barrels/day, compared with 82,434 in June and 83,266 in July 2006. For this July, there were also refining processing gains of approximately 2,000 barrels/day, so the supply of products was about in line with the separately measured product demand, 85,482 thousand barrels/day. The increase in supply for the month was 1.33%, the largest monthly rise since 1.73% in June 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817e.jpg" width="353">
Among the leading producers, OPEC output was 35.3 million b/d, up from 34.8 mbd in June. It represents 42.2% of total world output. In recent years, OPEC&#39;s largest share was 44.3% in September 2005. For much of the time since 1990, their share hovered around 40%; it began to increase from that range during 2002.
In examining the other regions&#39; performance, it looks that higher prices are eliciting added output. Nearly every other major area of the world is participating, at least to some extent. Many of us tend to think that the &quot;oil is running out&quot;, but there seems still to be some more. The most distinctive example is the new UK field in the North Sea. For all of Europe, this appears to have halted the steep downtrend in output, making it just about steady in July with the year-ago figure, off a mere 1.3%, compared with year-on-year declines last autumn of 10% and more. In the Americas, production is climbing slowly after the plunge and rebound associated with 2005&#39;s hurricanes; it&#39;s even steady in the US, and &quot;other&quot; countries, though small, are growing rapidly.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817f.jpg" width="353">
The main growth is in Asia. The OMI classifies Russia as an Asian producer. Its output is rising at about a 2.2% year-on-year pace and now accounts for about 11.6% of the world total. Other former Soviet republics are growing their output rapidly, albeit from a small base; they have enlarged their market share by 0.75% in just the past two years. In China, production is growing, but demand is growing so much faster. This imbalance is likely one reason for recent price spikes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">World Oil Supply, Mil. Bbl/Day</th>
<th scope="col">July 2007</th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">July 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>83.5</td>
<td>82.4</td>
<td>82.6</td>
<td>83.3</td>
<td>82.9</td>
<td>82.4</td>
<td>81.4</td>
</tr>
<tr>
<td class="firstcol">OPEC</td>
<td>32.3</td>
<td>34.8</td>
<td>34.6</td>
<td>35.7</td>
<td>35.4</td>
<td>35.6</td>
<td>34.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Americas</td>
<td>15.6</td>
<td>15.3</td>
<td>15.6</td>
<td>15.5</td>
<td>15.6</td>
<td>15.4</td>
<td>15.5</td>
</tr>
<tr>
<td class="firstcol">Europe</td>
<td>4.6</td>
<td>4.4</td>
<td>4.6</td>
<td>4.7</td>
<td>4.7</td>
<td>5.2</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Russia</td>
<td>9.7</td>
<td>9.6</td>
<td>9.6</td>
<td>9.5</td>
<td>9.4</td>
<td>9.2</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Other Asia</td>
<td>9.0</td>
<td>8.9</td>
<td>8.9</td>
<td>8.6</td>
<td>8.5</td>
<td>8.2</td>
<td>8.1</td>
</tr>
</tbody>
</table>
 Michigan Consumer Sentiment Fell Sharply, Fed's Discount Rate Cut 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817a.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in August fell 7.9% m/m to 83.3. The decline was the largest m/m drop in over a year and, likewise, pulled the index to its lowest level since last August. Consensus expectations had been for a lesser decline to 87.
A 9.1% decline in consumer expectations led this month&#39;s decline in overall sentiment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817c.jpg" width="353">
Consumers worried that business conditions during the next six months would deteriorate and the index measuring these expectations fell 14.3% (+20.0% y/y). Expectations for business conditions during the next five years also fell (-7.3% m/m, +6.0% y/y). Finally, the index measuring the expected change in consumers&#39; finances fell 5.6% (+5.4% y/y) and reversed most of the prior month&#39;s increase.
Perceptions about current economic conditions also fell. The view of current personal finances fell 13.0% (-8.3% y/y) and consumers&#39; view of current buying conditions for large household goods fell 1.9% (-4.4% y/y).
The assessment of government policy fell a hard 7.0% m/m (-2.4% y/y) to the lowest level in over one year..<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817b.jpg" width="353">
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end.
The U.S. Federal Reserve today took action to <a href="http://http://www.federalreserve.gov/boarddocs/press/monetary/2007/200708172/default.htm">reduce the Discount Rate</a>. An accompanying statement to this action can be found <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070817/default.htm"> here</a>. Today&#39;s actionis meant toencourage the use of the discount window by specific banksthat need more liquidity without reducing the cost of funds toall banks, as an easing of the fed funds rate would do.
William Poole, President, Federal Reserve Bank of St. Louis, spoke today on U.S. Export Opportunities and his comments are available <a href="http://www.stlouisfed.org/news/speeches/2007/08_17_07.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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a>&nbsp;</th>
<th scope="col">August (Prelim.)</th>
<th scope="col">July</th>
<th scope="col">Aug y/y </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>83.3</td>
<td>90.4</td>
<td>1.6%</td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>97.7</td>
<td>104.5</td>
<td>-5.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.1</td>
<td>81.5</td>
<td>9.0%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Trends in German producer prices are partly favorable. Excluding energy, manufacturing PPI trends are sideways. The year- over-year rate has showed a slight downtrend while the six- month rate has popped up and the 3-month rate has [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816k.jpg" width="353">
The US Treasury&#39;s monthly &quot;TIC&quot; data were reported yesterday for June. They indicate that foreign interest in US capital markets remained strong with the same magnitude of net flows into the US as occurred in May, the record period. Foreign investors bought $148.6 billion of US securities compared with $163.7 billion in May and &quot;just&quot; $91.8 billion in June 2006. At the same time, US investors bought $27.8 billion of foreign securities in June, noticeably less than May&#39;s $37.6 billion, but still historically large.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816l.jpg" width="353">
The mix of US securities purchased by foreign investors shifted considerably from May to June. After May&#39;s outsized amount of corporate bonds, $72.6 billion, they bought only about one-third as much in June, $25.9 billion. Purchases of equities also decreased, from $42.0 billion in May to $28.8 billion. But net buying of federal agency and Treasury securities both established new records: agency debt advanced from $27.5 billion to $39.7 billion and Treasury purchases from $21.6 billion to $54.3 billion.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816m.jpg" width="353">
Last month, we commented here on the increased participation by Chinese investors in US markets. This expanded further in June, with $20.2 billion in net purchases, up from $10.1 billion in May. The London markets reduced their US buying, but at $66.7 billion, it remained large compared with both most previous periods and other investment centers. Speaking of other investment centers, a number of them were active in June: Hong Kong investors bought, on net, a record $13.3 billion; the Cayman Islands, $11.1 billion, about average for them; and Russia $6.6 billion, also a record and following $6.0 billion in May. The one we found interesting was Brazil, whose investors purchased $10.1 billion in June and a total of $20 billion during the second quarter. The June amount was more than accounted for with $12.2 billion in Treasuries. Euro-Zone investors, by contrast, were net sellers of $20 billion in US securities markets in June, consisting of a large portion of foreign stock sales to US investors. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net ForeignPurchases fromUS Residents, Bil $</th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">June 2006</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Last 12 Months</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Headline&quot;: Net Foreign Purchases &nbsp;= 1 + 2</td>
<td>120.9</td>
<td>126.0</td>
<td>83.5</td>
<td>81.4</td>
<td>73.7</td>
<td>69.9</td>
<td>63.6</td>
</tr>
<tr>
<td class="firstcol">Domestic Securities</td>
<td>148.6</td>
<td>163.7</td>
<td>91.8</td>
<td>107.0</td>
<td>94.6</td>
<td>84.3</td>
<td>76.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>54.3</td>
<td>21.6</td>
<td>28.7</td>
<td>22.1</td>
<td>16.3</td>
<td>28.2</td>
<td>29.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>39.7</td>
<td>27.5</td>
<td>23.0</td>
<td>24.5</td>
<td>24.1</td>
<td>18.3</td>
<td>18.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>25.9</td>
<td>72.6</td>
<td>41.7</td>
<td>43.6</td>
<td>41.7</td>
<td>31.0</td>
<td>25.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>28.8</td>
<td>42.0</td>
<td>-1.6</td>
<td>16.9</td>
<td>12.5</td>
<td>6.8</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Foreign Securities&nbsp;</td>
<td>-27.8</td>
<td>-37.6</td>
<td>-8.3</td>
<td>-25.7</td>
<td>-20.9</td>
<td>-14.4</td>
<td>-12.7</td>
</tr>
<tr>
<td class="firstcol">Net Foreign Acquisition</td>
<td>107.0</td>
<td>112.5</td>
<td>67.8</td>
<td>67.9</td>
<td>60.7</td>
<td>58.3</td>
<td>60.4</td>
</tr>
<tr>
<td class="firstcol">Total TIC Flows&nbsp; </td>
<td>58.8</td>
<td>107.3</td>
<td>-2.6</td>
<td>73.6</td>
<td>87.4</td>
<td>55.7</td>
<td>81.6</td>
</tr>
<tr class="odd">
<td colspan="8">Select Countries Net Purchases of US Securities</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>20.2</td>
<td>10.1</td>
<td>12.2</td>
<td>11.0</td>
<td>9.1</td>
<td>7.2</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>66.7</td>
<td>92.7</td>
<td>57.2</td>
<td>47.0</td>
<td>38.7</td>
<td>30.3</td>
<td>21.2</td>
</tr>
</tbody>
</table>
</body>
</html>

The US Treasury's monthly "TIC" data were reported yesterday for June. They indicate that foreign interest in US capital markets remained strong with the same magnitude of net flows into the US as occurred in May, the record period. [...]

TIC Data Show Sizable Foreign Interest in US Securities Even Through June; Hong Kong, Russia & Brazilian Investors [...]

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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

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

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

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

250501Z5.jpg

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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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

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: August 2007

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TIC Data Show Sizable Foreign Interest in US Securities Even Through June; Hong Kong, Russia & Brazilian Investors [...]