Tom Moeller

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Total housing starts increased 3.9% (5.9% y/y) to 1.452 million units (SAAR) during July following an 11.7% decline in June to 1.398 million, revised from 1.434 million. Starts have risen 7.0% so far this year despite the sharp increase in mortgage interest rates. Starts, however, remained 19.5% below the most recent peak of 1.803 million in April 2022. The Action Economics Forecast Survey expected 1.443 million starts in July.

Starts of single-family homes rose 6.7% in July (9.5% y/y) to 983,000 from 921,000 in June, revised from 935,000. Starts of multi-family units weakened 1.7% (-0.8% y/y) to 469,000 after strengthening to 477,000 in June, revised from 499,000.

Starts in the West rose 14.0% (13.3% y/y) in July to 383,000 after falling 3.2% in June. Starts in the Midwest increased 9.9% (10.6% y/y) last month to 178,000 after falling 37.7% in June. In the Northeast, starts improved 1.0% (-38.9% y/y) to 102,000 after rising 5.2% in June. Housing starts in the South fell 1.3% (-11.9% y/y) to 789,000 following a 9.2% June decline.

Building permits edged 0.1% higher (-13.0% y/y) to 1.442 million following a 3.7% June decline to 1.441, revised from 1.440 million. Single-family permits rose 0.6% (1.3% y/y) to 930,000 after increasing 2.4% in June. Multi-family permits weakened 1.0% last month (-30.8% y/y) to 512,000 after a 13.0% June drop.

The housing starts and permits figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Single-family starts rise but multi-family declines.
- Increase in starts is uneven across the country.
- Permits rise minimally with single-family gain.

U.S. Housing Starts Rise in July; Building Permits Are Little Changed

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Mortgage applications fell 0.8% (-29.4% y/y) in the week ending August 11 after a 3.1% decline during the prior week, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. It was the fourth consecutive weekly decline. Applications remain near the lowest level since early-1997.

Applications for purchase loans eased 0.3% (-26.6% y/y) in the latest week following a 2.7% decline in the previous week. Applications for loan refinancing fell 1.9% (-34.9% y/y) after falling 4.0% in the prior week. Both were the sixth drop in the last seven weeks.

The effective interest rate on a 30-year fixed-rate loan of 7.36% last week rose from 7.29% in the prior week. Its most recent high of 7.42% occurred in the third week of October 2022. Thirty-year fixed rates are up from a low of 6.46% in the first week of April. The rate on a 15-year fixed-rate mortgage of 6.80% compared to 6.74% in the previous week. The rate on a 30-year Jumbo loan rose to 7.27% from 7.23% in the prior week. The rate on a 5-year ARM loan eased to 6.74% from 6.80% in the August 4 week.

The share of applications for refinancing an existing loan was minimally changed at 28.6% of total applications in the week of August 11. It remained close to the highest share since the last week of March, but down from highs near 75% early in April 2020. The adjustable-rate mortgage (ARM) share of activity of 7.0% in the latest week compared to a low of 5.9% four weeks earlier.

The average size of a mortgage loan fell to $369,900 (+0.7% y/y) last week, down from a high of $395,000 in the first week of May. It remained higher than the average of $347,600 at the end of last year. The average size of a purchase loan edged higher to $417,200, after falling to $416,400 in the prior week. It was 1.5% higher y/y. The average size of a loan to refinance a mortgage fell to $251,900 (-7.3% y/y) from 256,800 in the prior week.

The Mortgage Bankers Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver's **SURVEYS** database.

- Purchase & refinancing applications fall.
- Effective interest rates continue to increase.
- Average loan size slips.

U.S. Mortgage Applications Decline Further; Interest Rates Rise

Robert Brusca

The United Kingdom is facing the same dilemma as other central banks as core inflation remains stubborn and headline inflation has dived sharply. The weakness in headline inflation has to do with its commodity components; we can particularly point to oil. On the other hand, core inflation, which shows some signs of moderating across most highly developed economies, shows a much slower progression, especially in the UK.

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For example, the CPIH headline for the UK is up by 6.4% over 12 months; that pace drops to 5.7% at an annual rate over 6 months and to a skinny 2.3% annual rate over 3 months. If you look at the three-month rate and believe it, then you think the central bank is done! It's gotten inflation where it wants it. However, we know that's not true; we know that headline inflation is volatile; it's mercurial and, even though in the chart below we can see that inflation is declining on all the horizons, the war is not yet won.

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Twelve-month, six-month, and three-month rates of inflation all are turning lower in Chart 2. But when it comes to the core rate of inflation which in this case is the CPIH excluding food, alcohol, energy, & tobacco, the inflation rate over 12 months is 6.4%, the same as the headline. But core inflation accelerates to an 8.1% annual rate over 6 months, then only drops back to a 5.6% annual rate over 3 months. The UK core rate over 3 months at a 5.6% annual rate is below its 12-month pace of 6.4% but not by a whole lot and it is not riding a clear trend either.

However, in the chart below, it's clear that this deceleration process is still in gear for the headline. We can tell that because the 3-month inflation rate continues to run consistently below the 6-month inflation rate and the 6-month inflation rate continues to run consistently below the 12-month inflation rate and all of them are decelerating! So, a decline in the inflation rate remains in progress in the UK.

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Nevertheless, when we produce this same horizon for the core inflation rate, we get a very different result (Chart 3). First, none of the inflation rates not the 3-month, nor the 6-month nor the 12-month inflation rates are showing individual trends toward deceleration. Second, the strongest inflation rate is for 6-months, and it resides above the 12-month inflation rate, which is somewhat flat but with a noticeable uptrend. That tells us that the 6-month inflation rate is tugging the 12-month inflation rate higher. Until the last several months, the 3-month inflation rate had been surging; it was pointing to inflation acceleration, but it has since eased its pace over the last several months; it is now below both the 6-month and the 12-month rates, indicating that it is trying to pull the inflation rate lower. However, here the core inflation rate has been so volatile. We know that we can’t be very sure about what it’s really telling us or what it’s going to continue to do. It could reverse itself and show more inflation and acceleration next month as easily as it could continue its downtrend.

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**The data trends faced by the BOE**
While the UK faces the same challenges in inflation and particularly the paradox between the headline and the core inflation rate that it targets, the situation for the UK is worse because the underlying trends are not uniform or heading lower. They are chaotic. The Bank of England may not know or even have ‘a very good idea’ what to expect next. The diffusion calculations in the table show us that inflation accelerates period-to-period for 63.6% of the categories over 12 months (compared to 12-months ago) and over 6 months (compared to over 12 months). But over 3 months (compared to over 6 months), acceleration is present in less than 20% of the categories. Month-to-month inflation shows that in July with a 0.5% increase in the core rate and with the headline rate falling by 0.1% month-over-month. Inflation diffusion is at 54.5%, indicating slightly more inflation acceleration than deceleration in the month-to-month period. However, that comes after a skinny June diffusion value of only 9.1% and compares to a May diffusion value of 45.5%.

**Unique inflation trends at work**
The UK faces a great deal of chaos in terms of its inflation signals. Sorting out where the trends are headed does not appear to be an easy job. In fact, it appears to be a job with a great deal of judgment in it. As we observe Bank of England policy, what we are going to observe - in my opinion - is the Bank of England pursuing a policy that protects against the outcome it wants to avoid the most. A menu of rate increases would tell us that the Bank of England is making sure that inflation does not accelerate further and that it turns lower. A Bank of England on pause for several meetings would tell us that it is not going to aggressively push inflation back down and make sure that it gets inflation deceleration in the short run. That would be a signal that the BOE is trying to achieve inflation progress while maintaining growth as much as possible… and, that it is willing to roll the dice on inflation in the short run. Central bank policy is going to be set to show us what the Bank is protecting against the most rather than what it really thinks is going to happen because it's almost impossible from these data and trends to have any kind of confidence on what's going to happen next with the inflation rate.

Having said that, there's a slight inclination for the unemployment rate in the UK to be heading higher and if the economy slows, quite apart from inflation trends themselves, the Bank of England might be able to reasonably expect that economic slowing will take pressure off prices and it might give the Bank some breathing room on the policy front. But as of now, there's very little that the Bank of England can sink its teeth into. The future is a roll of the dice, so policy must make a choice and take a stand.

United Kingdom

The UK CPI and Its ‘Many Paths’

Andrew Cates

The UK economy is not in great shape. That’s the overriding message from the battery of UK economic data that have been published over the past few days.

Although last week’s data revealed that GDP grew by a stronger-than-expected pace of 0.5% in June, the UK’s post-pandemic recovery has nevertheless remained poor. The level of GDP in Q2 2023, for example, was still some 0.2 percentage points below the level in Q4 2019, just prior to the onset of the pandemic.

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Ordinarily a weak recovery would give way to a bout of stronger economic momentum as excess capacity is re-absorbed. UK forecasters, however, have been marking down their expectations for GDP growth in 2024 according to the latest Blue Chip Survey of economic forecasters. Those downward revisions, moreover, appear relatively acute compared with elsewhere.

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One reason for this relative pessimism concerns inflation. Today’s UK CPI data revealed that core inflation remained uncomfortably high in July, largely thanks to firming price pressures in the service sector. Again, this stands in vivid contrast to the direction and level of core inflation rates in other major economies.

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That news on the UK inflation front came hot off the heels of yesterday’s data revealing strengthening nominal wage pressures and slowing labour market activity. That combination though also offers strong hints of labour market dysfunction. And that was indeed the message from the news about labour market inactivity. This remained high, for example, in large part because long-term sickness numbers rose to a record high.


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 Overall the latest UK data add to the case for another interest rate hike from the Bank of England in the coming months. It seems equally clear, however, that the UK economy’s problems are not necessarily rooted in an overtly loose monetary policy.

The UK economy: Poor health

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Retail sales jumped 0.7% (3.2% y/y) during July following a 0.3% June gain, revised from 0.2%. May’s increase was revised to 0.7% from 0.5%. The July gain exceeded expectations for a 0.4% increase in the Action Economics Forecast Survey. Sales excluding motor vehicles & parts jumped 1.0% in July (2.2% y/y), the strongest reading since January. The 0.2% June increase was unrevised but May’s gain was revised to 0.4% from 0.3%. A July increase of 0.4% in nonauto sales had been expected.

Sales in the retail group, which excludes autos, building materials, gasoline & restaurants, rose 1.0% last month (5.0% y/y) after increasing 0.5% in June, revised from 0.6%. May’s increase was doubled to 0.6%.

Last month’s overall sales gain was led by a 1.9% surge (10.3% y/y) in nonstore retail sales which followed a downwardly revised 1.5% May increase. Online sales rose 1.2% in both April & May. Sporting goods, hobby shop, book & music store sales strengthened 1.5% in July (1.0% y/y) on the heels of a 0.5% decline. Apparel store sales jumped 1.0% (2.2% y/y) after easing slightly in June. General merchandise store sales grew 0.8% (2.5% y/y) after holding fairly steady in June. Department store sales grew 0.9% (-3.4% y/y) after declining 2.3% in June. Sales of building materials & garden equipment improved 0.7% (-3.3% y/y) after June’s decline of 1.5%.  Gasoline service station sales rose 0.4% (-20.8% y/y) after falling 1.3% in June.

Working lower, furniture & home furnishing store sales declined 1.8% in July (-6.3% y/y) after they rose 1.4% in June. Also showing weakness were electronics & appliance store sales which fell 1.3% (-3.1% y/y) after a 0.7% June increase. Motor vehicle sales eased 0.3% (+7.6% y/y) in July after a 0.7% June gain. That compared to a 0.6% increase in unit vehicle sales reported earlier.

In the nondiscretionary sales categories, food & beverage store sales rose 0.8% in July (2.5% y/y) after falling 0.4% in June. Health & personal care store sales rose 0.7% (8.1% y/y) last month after edging 0.1% higher in June.

Consumer spending at restaurants & drinking places improved 1.4% last month (11.9% y/y) after rising 0.8% in June.

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Sales of core goods are firmest in six months. 
- Online buying surges again.
- Vehicle sales ease after three months of strong gains.

U.S. Retail Sales Advance Strongly in July; Earlier Estimates Raised

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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell 10.7% (+2.0% y/y) during August to 50 after rising 1.8% in July to 56. The index was the lowest since May. A reading of 56 had been expected in the INFORMA Global Markets survey. The seasonally-adjusted index reached a record of 90 in November 2020.

Each of the composite index's three components fell this month. The index of present sales conditions fell 8.1% to 57 this month from 62 July. It was unchanged y/y and at the lowest level in three months. The index of expected sales over the next six months fell 6.8% (+17.0% y/y) to 55 from 59, and it too stood at the lowest level in four months. The index measuring traffic of prospective buyers tumbled 15.0% (+6.3% y/y) to a three-month low of 34, but remained higher than the low of 20 in both November & December 2022.

The regional indexes each fell this month. The index for the Northeast declined 8.3% (+14.6% y/y) following a 15.4% July gain. It was the first decline in four months. The index for the West weakened 14.8% (+9.5% y/y) to the lowest level since April. The index for the South weakened 52% and was unchanged y/y. The index for the Midwest declined	 8.7% and also was unchanged y/y. These regional series begin in December 2004.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low." The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's **SURVEYS** database.

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- Decline reverses two months of increase.
- Buyer traffic plunges.
- Regional declines are broad-based.

U.S. Home Builders Index Falls Sharply in August

Sandy Batten

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Total business inventories were unchanged in June from May (+2.0% y/y). Upon revision, inventories were also unchanged in May (previously +0.2% m/m). The Informa Global Markets Survey had looked for a 0.2% monthly increase in June. The level of business inventories has been relatively stable since December. For all of Q2, inventories were up 0.1% q/q after having declined 0.2% q/q in Q1.

Total business sales edged down 0.1% (-3.1% y/y) in June, reversing a 0.1% monthly increase in May (revised down from 0.2% previously). For all of Q2, sales fell 1.1% q/q, their fourth consecutive quarterly decline. With very similar changes in both sales and inventories, the total inventory-to-sales (I/S) ratio was unchanged at 1.40 in June, remaining at the highest level since June 2020.

In June, the unchanged reading for total inventories reflected unchanged manufacturing inventories (-0.1% y/y), a 0.5% monthly decline in wholesale inventories (+1.3% y/y) and a 0.7% monthly jump in retail inventories (+5.3% y/y). The jump in retail inventories in June was led by a 1.5% m/m increase in motor vehicle inventories and a 0.8% m/m gain in general merchandise store inventories. By contrast, furniture inventories fell 1.2% m/m, clothing inventories declined 0.5% m/m and building materials inventories dropped 0.2% m/m.

The 0.1% monthly decline in total sales in June reflected a 0.1% m/m increase (-2.6% y/y) in factory shipments and a 0.2% m/m gain in retail sales (+0.5% y/y) that was offset by a 0.7% m/m decline (-6.7% y/y) in wholesale sales. Separately, this morning it was reported that retail sales increased a larger-than-expected 0.7% m/m in July with an upward revision to June (+0.3% m/m).

With sales and inventories little changed in June, the total I/S ratio was unchanged at 1.40, remaining at the highest level since June 2020 and up from 1.33 a year ago. The manufacturing I/S ratio was also unchanged at 1.49 in June. The wholesale I/S ratio edged up to 1.41 in June from 1.40 in May. And the retail I/S ratio was unchanged at 1.30, matching its high since May 2020.

The manufacturing and trade data are in Haver’s **USECON** database. The Informa Global Markets forecast is in the **MMSAMER** database.

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- Retail inventories up 0.7% m/m while wholesale inventories fell 0.5% m/m.
- Total sales slipped with a small increase in retail and a bigger decline in wholesale.
- Total I/S ratio unchanged for third consecutive month but remained highest since June 2020.


U.S. Business Sales Edged Down While Inventories Were Unchanged in June

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Import prices increased a larger-than-expected 0.4% m/m (-4.4% y/y) in July after having declined in five of the previous six months, including a 0.1% m/m fall in June (revised up slightly from -0.2% m/m), according to the Bureau of Labor Statistics. Export prices rose 0.7% m/m (-7.9% y/y), their first monthly increase in five months, after a 0.7% m/m decline in June (revised up from -0.9% m/m). The Action Economics Forecast Survey had expected a 0.2% monthly increase in both import and export prices in July.

The rebound in import prices was due entirely to a 3.6% m/m jump in fuel prices, reflecting increase in prices of petroleum and natural gas. Excluding fuel, other import prices were unchanged in July (-0.9% y/y) versus a 0.3% monthly decline in June. Also, imported food prices rebounded sharply in July, rising 2.5% m/m (+2.7% y/y) for their first monthly increase in five months. Falling food and energy prices have been key factors behind the previous declines in import prices. Changes in import prices across other end-use categories were comparatively modest. Imported capital goods prices edged up 0.1% m/m; auto import prices rose 0.3% m/m while prices of imported consumer goods ex autos fell 0.1% m/m.

The rise in export prices reflected increases in the prices of both agricultural products (+0.9% m/m) and nonagricultural products (+0.6% m/m). Exported food prices increased 1.0% m/m, their first increase in three months. Prices of exported industrial supplies rose 1.4%m/m, their first increase in five months, boosted by a 6.7% monthly gain in exported fuel prices. Prices of capital goods exports edged up 0.1% m/m and prices of auto exports rose 0.2% m/m. By contrast, prices of exported consumer goods ex autos fell 0.2% m/m, their first month decline since November 2022.

The import and export price series can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Import prices rebound led by rise in fuel prices.
- Excluding fuels, import prices were unchanged.
- Export price increases widely spread across agricultural and nonagricultural products.

U.S. Import and Export Prices Rose More than Expected in July

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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**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.

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. Light Vehicle Sales Fall in April

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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

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

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

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

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

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

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

Carol Stone, CBE

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

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

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

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

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

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

Economy in Brief: August 2023

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