Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215a.jpg" width="353">
In November, the consumer price index (CPI-U) remained unchanged following 0.5% declines during the prior two months. Consensus expectations had been for a 0.2% rise.
Prices less food &amp; energy also were unchanged after the weak 0.1% October increase. Core prices were last unchanged in June of 2005 and here too Consensus expectations had been for a 0.2% increase.
Core goods prices fell 0.4%. The decline was the fourth in the last five months and was the largest since October 2003. New &amp; used motor vehicle prices dropped 0.8% (-0.9% y/y), off for the third consecutive month, while apparel prices fell 0.3% (+0.2% y/y) for the second consecutive down month.
Household furnishings &amp; operation prices added to the list where prices fell with a 0.2% decline (+0.9% y/y). Also in the act of decline were medical care commodity prices which fell 0.4% (+2.3% y/y) and tobacco prices which fell 0.3% (+1.6% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215b.jpg" width="353">
With a 0.2% increase, core services prices posted the weakest gain since this past August. Most of the weakness owed to a 1.9% (-0.2% y/y) decline in public transportation costs, the third consecutive monthly decline. Shelter prices rose 0.4% (4.2% y/y) as the rental equivalence measure of owners&#39; primary residences rose 0.3% (4.3% y/y). Rents rose 0.4% (4.1% y/y) for the sixth consecutive month. Education costs rose a strong 0.5% (6.3% y/y) and medical care services prices increased 0.3% (4.0% y/y).
Energy prices fell 0.2% after two months of roughly 7.0% decline. Gasoline prices fell another 1.6% (-4.2% y/y) but have moved higher in December to an average $2.30 per gallon from $2.23 in November. Fuel oil prices last month rose 0.3% (-3.0% y/y) after two 6.1% m/m declines. Natural gas prices rose 4.7% (-19.9% y/y) but electricity prices fell 0.2% (+6.5% y/y) for the second consecutive month.
Food &amp; beverage prices slipped 0.1%. Dairy product prices fell 0.6% (-1.6% y/y) but prices for meats, poultry, fish &amp; eggs were unchanged (1.2% y/y).
The chained CPI, which adjusts for shifts in the mix of consumer purchases, fell 0.2 as did prices less food &amp; energy prices.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>2.0%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.7%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>-0.2%</td>
<td>-7.0%</td>
<td>-3.6%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>1.9%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Industrial Output Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 15, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215c.jpg" width="353">
Total U.S. industrial production ticked 0.2% higher last month but revisions generally had the effect of lowering the gains in output. Consensus expectations had been for a 0.1% November rise.
Revisions to the index of industrial production (IP) and the related measures of capacity &amp; capacity utilization reflect the 2004 and 2005 Annual Surveys of Manufactures and selected editions of the 2004 and 2005 Current Industrial Reports.
Factory sector output rose 0.3% but a 0.6% decline during October was double the initial estimate. During the last three months factory sector output is down 0.3% from its August peak.
With a 1.7% (-1.9% y/y) increase, production of durable consumer goods recovered about all of its revised 1.9% October decline as output of automotive products recovered 3.6% (-3.6% y/y). Output of appliances &amp; furniture, however, fell 0.5% (-4.9% y/y) and was off 6.6% from its peak in September 2005. Production of computers, video &amp; audio equipment remained firm and rose 2.3% (13.0% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215d.jpg" width="353">
Nondurable consumer goods output slipped 0.1% (2.2% y/y) for the second month in the last three. The gain was softened only by a 1.1% (2.3% y/y) increase in foods &amp; tobacco. Clothing output fell 0.6% (+0.5% y/y), chemical production fell 0.6% (+3.2% y/y) and production of paper products fell 1.4% (+2.2% y/y).
Business equipment production jumped 1.2% but October&#39;s increase was lessened to 0.2% from 0.7% reported initially. Output of information processing &amp; equipment rose 1.0% but the 9.9% y/y gain is down from the growth posted earlier this year and those earlier growth rates were revised down. Factory output overall less the hi-tech industries increased 0.1% (2.1% y/y) after two months of sharp decline. Output of transit equipment recovered 2.9% (15.9% y/y) due to a 7.1% (-0.2% y/y) surge in business vehicles.
Overall capacity utilization increased was unchanged from a downwardly revised 81.8% in October. Factory sector utilization, however, increased to 80.2% from a downwardly revised 80.0% in October. Factory sector capacity again rose a firm 0.2% and the 2.7% y/y gain was revised up slightly.
The Chinese Economy: Progress and Challenges is today&#39;s speech by Federal Reserve Board Chairman Ben S. Bernanke and it is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20061215/default.htm"> 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/output.htm">Production &amp; Capacity</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>0.2%</td>
<td>0.0%</td>
<td>3.8%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing (NAICS)</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>3.7%</td>
<td>4.0%</td>
<td>3.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>2.8%</td>
<td>1.4%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Equipment</td>
<td>1.2%</td>
<td>0.2%</td>
<td>9.6%</td>
<td>7.9%</td>
<td>4.3%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.8%</td>
<td>81.8%</td>
<td>80.7% (11/05)</td>
<td>80.2%</td>
<td>78.1%</td>
<td>76.1%</td>
</tr>
</tbody>
</table>
Empire State Index Slipped Less Than Expected, Expectations Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 15, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215e.jpg" width="353">
The Empire State Index of General Business Conditions in manufacturing gave back all of its November rise with a 3.53 point decline to 23.13 in December. The decline was, however, less than Consensus expectations for a decline to 18.0. The figures are reported by the Federal Reserve Bank of New York.
Since the series&#39; inception in 2001 there has been a 75% correlation between the index level and the three month change in U.S. factory sector industrial production.
The employment showed the sharpest decline to it lowest level in three months but new orders and shipments rose. The inventory index fell sharply to the lowest in four months, indicating decumulation.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
Pricing pressure reversed all of its prior month&#39;s improvement and fell to lowest level since August of last year. Since 2001 there has been an 88% correlation between the index of prices paid and the three month change in the core intermediate materials PPI. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215f.jpg" width="353">
The Empire State index of expected business conditions in six months rose for the second month to the highest level since January.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;05 </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>23.13</td>
<td>26.66</td>
<td>26.28</td>
<td>20.18</td>
<td>15.56</td>
<td>28.79</td>
</tr>
</tbody>
</table>
Q4 TANKAN Results Show Best Japanese Industry Performance  in Many Years 
by <a href="/comment/Stone.html">Carol Stone</a> December 15, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215g.jpg" width="353">
The Bank of Japan&#39;s widely watched TANKAN survey showed stronger results across the board in the December report released today in Tokyo.Generally, these surveys are reported just after the beginning of a new quarter, but December is an exception, with the release at mid-month, ahead of the year-end holidays.
Large manufacturers, the &quot;headline&quot; group, saw favorable business conditions at 25% more firms than experienced negative conditions.Three months ago, a balance of 24% expected favorable conditions in December.December&#39;s actual result was the best since Q3 2004 at 26%. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061215h.jpg" width="353">
Other firm-size and industry groups also had stronger results than they had forecast three months ago. Large firms in all industries experienced favorable business at a net of 23%, compared to 20% forecast; medium-size firms at 10% versus 7% expected and at small firms, the numbers with favorable and unfavorable business conditions were equal, the first time this has occurred in the present configuration of the TANKAN survey, which began in early 2004.
Expectations for coming March outcomes indicate some moderation. It is frequently the case that these aggregate forecasts point to less breadth of expansion. This might not be surprising because more firms have done better in the current quarter, so the base is higher from which to expect further improvement. Assuming, that is, that &quot;favorable&quot; can be equated with &quot;growing&quot;.
We take this opportunity, once again, to highlight Haver&#39;s &quot;purist&quot; interpretation of the TANKAN survey. In the 2004 reorganization, the fundamental definition of firm size was changed. It used to be based on the number of employees, but now, as seen in the table below, capital is used. This meant firms shifted from one category to another, particularly capital-intensive firms that have small numbers of employees but much capital; these include the important high-tech sector. So the very character of &quot;large&quot;, &quot;medium&quot; and &quot;small&quot; changed from what those categories meant before. With the passage of time, of course, more history becomes available on the behavior of these new size categories. In the meantime, in the database &quot;G10&quot;, we include a linked series of All Firms in All Industries (which is not affected by the change in &quot;size&quot; definition); the results here for Q4 2006 stand at +8%, the best reading in exactly 15 years, since Q4 1991.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Conditions:&nbsp; &nbsp;% Favorable minus % Unfavorable</th>
Dec 2006
Sept 2006
June 2006
<th scope="col">Mar 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Forecast for Mar</td>
<td>Actual</td>
<td>Forecast for Dec</td>
<td>Actual</td>
<td>Forecast for Sept</td>
<td>Actual</td>
<td>Forecast for Jun</td>
</tr>
<tr>
<td class="firstcol">All Firms</td>
<td>6</td>
<td>8</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>6</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Firms*</td>
<td>20</td>
<td>23</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>20</td>
<td>20</td>
</tr>
<tr>
<td class="firstcol">Manufacturing (&quot;Headline Series&quot;)</td>
<td>22</td>
<td>25</td>
<td>21</td>
<td>24</td>
<td>22</td>
<td>21</td>
<td>22</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonmanufacturing</td>
<td>20</td>
<td>22</td>
<td>21</td>
<td>20</td>
<td>21</td>
<td>20</td>
<td>19</td>
</tr>
<tr>
<td class="firstcol">Medium-Sized Firms**</td>
<td>6</td>
<td>10</td>
<td>7</td>
<td>9</td>
<td>9</td>
<td>8</td>
<td>8</td>
</tr>
<tr class="odd">
<td class="firstcol">Small Firms***</td>
<td>-4</td>
<td>0</td>
<td>-3</td>
<td>-3</td>
<td>-4</td>
<td>-2</td>
<td>-2</td>
</tr>
</tbody>
</table>


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In November, the consumer price index (CPI-U) remained unchanged following 0.5% declines during the prior two months. Consensus expectations had been for a 0.2% rise. Prices less food & energy also were unchanged after the weak 0.1% [...]

CPI Unchanged

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/061214e.jpg" width="353">
Four Central European countries reported their October current account results during the day yesterday, December 13. Yesterday in this commentary, we noted that the improvement in Japan&#39;s surplus in the month resulted from lower petroleum imports, which were augmented by complementary advances in other current account components. Today, we see that for Poland, Bulgaria, Slovenia and Serbia, developments in those other current account items &#150; services, income and transfers &#150; helped during the summer to mitigate the impact on the current account of larger petroleum imports. But this counterbalance can&#39;t be counted on every month and sometimes such increases in merchandise trade deficits are enlarged.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214f.jpg" width="353">
Poland is a good example: its current account deficit widened to $1.23 billion in October from just $82 million in September and $940 million a year ago. As seen in the graph, in most months, the trade portion is only about half the total current account balance. The deficit on income, particularly rising income payments abroad, make for a more complex current account situation.
In Bulgaria, the current account deficit has been steady the last three months at just over $500 million, even as imports of goods have fallen from their August peak of $2,139 million to $1,896 billion. Goods exports also fell and the net on services, generally a surplus in Bulgaria, declined to virtually zero. The moves are small, but they still indicate the intricacy of international trade and financial flows. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214g.jpg" width="353">
Serbia&#39;s current account position receives considerable support from transfer payments. As seen in the graph, the deficit on goods and services is heavily offset by transfer receipts. As we point out here, though, the flows do not come in lockstep, so in October transfers went down at the same time as the goods and services balance.
Finally in Slovenia, the trade deficit is offset to some degree by a continuing small surplus in services, although income accounts generally show net outflows and transfers are erratic in both directions.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@EQ/@EQ9/@EQ91/@EQ91A/@EQ91A.HTM">Current Account Balances</a><a href="http://www.haverselect.com/dlx/EMERGECW/@EQ/@EQ9/@EQ91/@EQ91A/@EQ91A.HTM">:&nbsp;</a> SA, Mil.$</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">Year-Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005&nbsp; </td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>-1,234</td>
<td>-82</td>
<td>-1,192</td>
<td>-940</td>
<td>-427</td>
<td>-891</td>
<td>-386</td>
</tr>
<tr class="odd">
<td class="firstcol">Bulgaria</td>
<td>-527</td>
<td>-509</td>
<td>-539</td>
<td>-311</td>
<td>-255</td>
<td>-122</td>
<td>-87</td>
</tr>
<tr>
<td class="firstcol">Serbia (NSA)</td>
<td>-330</td>
<td>-132</td>
<td>-334</td>
<td>-344</td>
<td>-174</td>
<td>-244</td>
<td>-161</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovenia</td>
<td>-58</td>
<td>-271</td>
<td>-92</td>
<td>-33</td>
<td>-56</td>
<td>-74</td>
<td>-18</td>
</tr>
</tbody>
</table>


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Four Central European countries reported their October current account results during the day yesterday, December 13. Yesterday in this commentary, we noted that the improvement in Japan's surplus in the month resulted from lower [...]

Current Accounts in Central Europe: Services, Income and Transfers Play Significant Role

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214c.jpg" width="353">
Initial unemployment insurance claims fell a sharp 20,000 last week to 304,000 following an unrevised 34,000 drop during the prior week. The decline was to the lowest level since mid-October and by far surpassed Consensus expectations for a slight decline to 320,000 claims.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims eased slightly to 327,750 (+2.6% y/y).
Continuing claims for unemployment insurance fell 33,000 after a downwardly revised 43,000 increase during the prior week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214d.jpg" width="353">
The insured rate of unemployment remained at 1.9% for the sixth consecutive week and equaled the average rate since February.
Beyond the Outsourcing Angst: Making America More Productive from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2006/el0602.html"> here</a>.
How Labor Market Policies Shape Immigrants&#146; Opportunities, also from the Federal Reserve Bank of Dallas, is available <a href="http://dallasfed.org/research/eclett/2006/el0607.html"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/09/06</th>
<th scope="col">12/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>304</td>
<td>324</td>
<td>-5.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,477</td>
<td>-4.5%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>


</html>

Initial unemployment insurance claims fell a sharp 20,000 last week to 304,000 following an unrevised 34,000 drop during the prior week. The decline was to the lowest level since mid-October and by far surpassed Consensus expectations [...]

Initial Claims For Jobless Insurance at Two Month Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214a.jpg" width="353">
Overall import prices increased 0.2% last month following two months of sharp decline and compared to Consensus expectations for no change. 
The increase occurred despite a 1.6% decline in the prices of petroleum imports after October&#39;s 10.1% plunge, which was deeper than initially reported. So far in December the price of Brent crude oil has risen roughly four dollars from the $59.36 per bbl. averaged in November.
Less petroleum import prices reversed the October decline with a 0.7% increase. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.
Prices for nonoil industrial supplies &amp; materials reversed all of the prior month&#39;s decline with a 2.9% (1.7% y/y) increase. Prices for nondurables less petroleum jumped 6.5% (-10.9% y/y) in November following several months of decline this year. Prices for durable industrial supplies &amp; materials (14.7% y/y) were strong early this year but m/m price gains have evaporated. These prices are unchanged since June.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214b.jpg" width="353">
Capital goods prices were unchanged for the fourth straight month (0.2% y/y) and excluding a 0.1% (-3.6% y/y) increase in computers, capital goods prices also were unchanged (2.0% y/y) in November. Prices for nonauto consumer goods additionally were unchanged (1.1% y/y).
Export prices rose 0.4% after two months of decline as nonagricultural commodities prices ticked up 0.1% (3.4% y/y) and agricultural export prices surged 4.4% (10.4% y/y).
The Adjustment of Global External Imbalances: Does Partial Exchange Rate Pass-through to Trade Prices Matter? from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/ifdp/2006/850/ifdp850.pdf"> here</a>.
The Internationalization of the Dollar and Trade Balance Adjustment from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr255.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.2%</td>
<td>-2.3%</td>
<td>1.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-1.6%</td>
<td>-10.1%</td>
<td>1.5%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>1.3%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.4%</td>
<td>-0.3%</td>
<td>3.9%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
</body>
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Overall import prices increased 0.2% last month following two months of sharp decline and compared to Consensus expectations for no change. The increase occurred despite a 1.6% decline in the prices of petroleum imports after [...]

U.S. Import Prices Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214a.jpg" width="353">
Overall import prices increased 0.2% last month following two months of sharp decline and compared to Consensus expectations for no change. 
The increase occurred despite a 1.6% decline in the prices of petroleum imports after October&#39;s 10.1% plunge, which was deeper than initially reported. So far in December the price of Brent crude oil has risen roughly four dollars from the $59.36 per bbl. averaged in November.
Less petroleum import prices reversed the October decline with a 0.7% increase. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.
Prices for nonoil industrial supplies &amp; materials reversed all of the prior month&#39;s decline with a 2.9% (1.7% y/y) increase. Prices for nondurables less petroleum jumped 6.5% (-10.9% y/y) in November following several months of decline this year. Prices for durable industrial supplies &amp; materials (14.7% y/y) were strong early this year but m/m price gains have evaporated. These prices are unchanged since June.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214b.jpg" width="353">
Capital goods prices were unchanged for the fourth straight month (0.2% y/y) and excluding a 0.1% (-3.6% y/y) increase in computers, capital goods prices also were unchanged (2.0% y/y) in November. Prices for nonauto consumer goods additionally were unchanged (1.1% y/y).
Export prices rose 0.4% after two months of decline as nonagricultural commodities prices ticked up 0.1% (3.4% y/y) and agricultural export prices surged 4.4% (10.4% y/y).
The Adjustment of Global External Imbalances: Does Partial Exchange Rate Pass-through to Trade Prices Matter? from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/ifdp/2006/850/ifdp850.pdf"> here</a>.
The Internationalization of the Dollar and Trade Balance Adjustment from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr255.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.2%</td>
<td>-2.3%</td>
<td>1.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-1.6%</td>
<td>-10.1%</td>
<td>1.5%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>1.3%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.4%</td>
<td>-0.3%</td>
<td>3.9%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
Initial Claims For Jobless Insurance at Two Month Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214c.jpg" width="353">
Initial unemployment insurance claims fell a sharp 20,000 last week to 304,000 following an unrevised 34,000 drop during the prior week. The decline was to the lowest level since mid-October and by far surpassed Consensus expectations for a slight decline to 320,000 claims.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims eased slightly to 327,750 (+2.6% y/y).
Continuing claims for unemployment insurance fell 33,000 after a downwardly revised 43,000 increase during the prior week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214d.jpg" width="353">
The insured rate of unemployment remained at 1.9% for the sixth consecutive week and equaled the average rate since February.
Beyond the Outsourcing Angst: Making America More Productive from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2006/el0602.html"> here</a>.
How Labor Market Policies Shape Immigrants&#146; Opportunities, also from the Federal Reserve Bank of Dallas, is available <a href="http://dallasfed.org/research/eclett/2006/el0607.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/09/06</th>
<th scope="col">12/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>304</td>
<td>324</td>
<td>-5.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,477</td>
<td>-4.5%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Current Accounts in Central Europe: Services, Income and Transfers Play Significant Role 
by <a href="/comment/Stone.html">Carol Stone</a> December 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214e.jpg" width="353">
Four Central European countries reported their October current account results during the day yesterday, December 13. Yesterday in this commentary, we noted that the improvement in Japan&#39;s surplus in the month resulted from lower petroleum imports, which were augmented by complementary advances in other current account components. Today, we see that for Poland, Bulgaria, Slovenia and Serbia, developments in those other current account items &#150; services, income and transfers &#150; helped during the summer to mitigate the impact on the current account of larger petroleum imports. But this counterbalance can&#39;t be counted on every month and sometimes such increases in merchandise trade deficits are enlarged.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214f.jpg" width="353">
Poland is a good example: its current account deficit widened to $1.23 billion in October from just $82 million in September and $940 million a year ago. As seen in the graph, in most months, the trade portion is only about half the total current account balance. The deficit on income, particularly rising income payments abroad, make for a more complex current account situation.
In Bulgaria, the current account deficit has been steady the last three months at just over $500 million, even as imports of goods have fallen from their August peak of $2,139 million to $1,896 billion. Goods exports also fell and the net on services, generally a surplus in Bulgaria, declined to virtually zero. The moves are small, but they still indicate the intricacy of international trade and financial flows. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061214g.jpg" width="353">
Serbia&#39;s current account position receives considerable support from transfer payments. As seen in the graph, the deficit on goods and services is heavily offset by transfer receipts. As we point out here, though, the flows do not come in lockstep, so in October transfers went down at the same time as the goods and services balance.
Finally in Slovenia, the trade deficit is offset to some degree by a continuing small surplus in services, although income accounts generally show net outflows and transfers are erratic in both directions.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@EQ/@EQ9/@EQ91/@EQ91A/@EQ91A.HTM">Current Account Balances</a><a href="http://www.haverselect.com/dlx/EMERGECW/@EQ/@EQ9/@EQ91/@EQ91A/@EQ91A.HTM">:&nbsp;</a> SA, Mil.$</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">Year-Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005&nbsp; </td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>-1,234</td>
<td>-82</td>
<td>-1,192</td>
<td>-940</td>
<td>-427</td>
<td>-891</td>
<td>-386</td>
</tr>
<tr class="odd">
<td class="firstcol">Bulgaria</td>
<td>-527</td>
<td>-509</td>
<td>-539</td>
<td>-311</td>
<td>-255</td>
<td>-122</td>
<td>-87</td>
</tr>
<tr>
<td class="firstcol">Serbia (NSA)</td>
<td>-330</td>
<td>-132</td>
<td>-334</td>
<td>-344</td>
<td>-174</td>
<td>-244</td>
<td>-161</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovenia</td>
<td>-58</td>
<td>-271</td>
<td>-92</td>
<td>-33</td>
<td>-56</td>
<td>-74</td>
<td>-18</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061213l.jpg" width="353">
Japan&#39;s current account surplus rose &yen;611.4 billion in October, according to data reported December 13 by the Ministry of Finance, reaching a record &yen;2,020.1 billion (seasonally adjusted).The previous record was &yen;2,015.1 billion in December 2005.
The month-to-month increase in the surplus included favorable moves in every segment of the current account.The goods balance increased to &yen;852.7 billion from &yen;437.2 billion, more than reversing September&#39;s shrinkage.Exports rose &yen;113.0 billion or 1.9% and imports fell &yen;302.5 billion or 5.4%.The merchandise trade data reported earlier indicate that just under half of the fall in imports was in &quot;mineral fuels&quot;, including petroleum and natural gas products.Among exports, the strongest items appear to be motor vehicles and metals, as suggested by year/year gains in not-seasonally-adjusted data.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061213k.jpg" width="353">
There is a deficit in services, but it shrank markedly in October, to &yen;122.8 billion from &yen;208.5 billion in September.It is erratic on a monthly basis, but the October reading compares favorably with an average for all of last year of &yen;219.4 billion and with &yen;308.3 billion in 2004.
The balance on income flows grew as well in October, as gains in assets held abroad are bringing in increased portfolio income. The monthly change in October portfolio income was small, just to &yen;1,071.0 billion from &yen;1,038.4 billion in September, but these are both up from &yen;852.4 billion in October a year ago and &yen;737.6 billion for all of 2005.Total income includes interest on bank loans, profits from direct investments, and wage income; the October total was &yen;1,374.9 billion.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061213j.jpg" width="353">
All together in Japan&#39;s current account performance for October, the balance of trade in goods showed the largest improvement, but the largest net surplus is in income.As world capital markets become more and more integrated and direct investment becomes more diversified around the world, swings in both goods and income balances are likely to be wider and more frequent.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J9/@J9.HTM">JAPAN</a><a href="http://www.haverselect.com/dlx/JAPAN/@J9/@J9.HTM">: SA, Bil.&yen;</a></th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">Year-Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Current Account Balance</td>
<td>2020.1</td>
<td>1408.7</td>
<td>1605.0</td>
<td>1739.6</td>
<td>1537.7</td>
<td>1557.4</td>
<td>1316.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods Exports</td>
<td>6134.1</td>
<td>6021.1</td>
<td>6170.0</td>
<td>5510.8</td>
<td>5212.5</td>
<td>4841.6</td>
<td>4303.3</td>
</tr>
<tr>
<td class="firstcol">Goods Imports</td>
<td>-122.8</td>
<td>-208.5</td>
<td>-169.8</td>
<td>-54.1</td>
<td>-219.4</td>
<td>-308.3</td>
<td>-300.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Services</td>
<td>1374.9</td>
<td>1266.0</td>
<td>105.73</td>
<td>1099.3</td>
<td>966.2</td>
<td>776.9</td>
<td>692.4</td>
</tr>
<tr>
<td class="firstcol">Balance on Income</td>
<td>1374.9</td>
<td>1266.0</td>
<td>1057.3</td>
<td>1099.3</td>
<td>966.2</td>
<td>776.9</td>
<td>692.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;Portfolio Income</td>
<td>1071.0</td>
<td>1038.4</td>
<td>838.2</td>
<td>852.4</td>
<td>737.6</td>
<td>622.8</td>
<td>569.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Japan's current account surplus rose ¥611.4 billion in October, according to data reported December 13 by the Ministry of Finance, reaching a record ¥2,020.1 billion (seasonally adjusted).The previous record was ¥2,015.1 billion in [...]

Japan Current Account Hits Record ¥2.02 Trillion in October; Trade, Services & Income All Contribute

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061213g.jpg" width="353">
The Bureau of Labor Statistics reported in the Job Openings &amp; Labor Turnover Survey (JOLTS) that the October job openings rate was stable with the prior month at an elevated 3.0%. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of job openings increased 1.3% m/m to 4.207 million (8.8% y/y) and three month growth surged.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061213h.jpg" width="353">
The hires rate improved m/m to 3.6%, the same as averaged during 2Q &amp; 3Q. The hires rate is the number of hires during the month divided by employment. 
The actual number of hires increased 1.9% (1.5% y/y) to 4.893 million but it was the first increase in the last three months.
The job separations rate was stable for the third month in October at 3.2%. Separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment. The level of job separations increased a very slight 0.1% (0.6% y/y) for only the first increase in the last five months.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">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/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Oct &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Job Openings Rate: Total</td>
<td>3.0%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.7%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.6%</td>
<td>3.5%</td>
<td>3.6%</td>
<td>3.6%</td>
<td>3.5%</td>
<td>3.2%</td>
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The Bureau of Labor Statistics reported in the Job Openings & Labor Turnover Survey (JOLTS) that the October job openings rate was stable with the prior month at an elevated 3.0%. The job openings rate is the number of job openings on [...]

JOLTS: Job Openings & Hires Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061213f.jpg" width="353">
The total number of mortgage applications rose 11.4% last week after an 8.1% rise during the prior period, according to the Mortgage Bankers Association.
Purchase applications continued firm and posted an 8.7% jump after the 4.9% rise during the prior week. The increases lifted purchase applications in December 9.7% above the November average which rose 6.4% from the October level.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance logged another double digit increase and jumped 15.8% on the heels of the prior week&#39;s 13.7% spike.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061213e.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage increased slightly w/w to 6.22% but the average of 6.19% so far in December is down versus 6.36% during November. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing also increased to 6.00% and averaged 6.13% last month. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/08/06</th>
<th scope="col">12/01/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>721.2</td>
<td>647.6</td>
<td>16.5%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>463.8</td>
<td>426.6</td>
<td>-3.0%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,304.4</td>
<td>1,989.7</td>
<td>59.8%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
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The total number of mortgage applications rose 11.4% last week after an 8.1% rise during the prior period, according to the Mortgage Bankers Association. Purchase applications continued firm and posted an 8.7% jump after the 4.9% rise [...]

Mortgage Applications Rose Further

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.

250501Z3.jpg

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

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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.

250501Z6.jpg

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

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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

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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: 2006

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CPI Unchanged

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Initial Claims For Jobless Insurance at Two Month Low

U.S. Import Prices Up

U.S. Import Prices Up

Japan Current Account Hits Record ¥2.02 Trillion in October; Trade, Services & Income All Contribute

JOLTS: Job Openings & Hires Firm

Mortgage Applications Rose Further