Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118b.jpg" width="353">
The total number of mortgage applications rose 2.2% last week, the second up week following four consecutive weeks down. This year, mortgage applications are 2.1% higher than during December.
Higher applications to refinance accounted for all of last week&#39;s rise. A 9.9% w/w gain followed a like increase which opened the new year and lifted the level of refis 11.0% this month above December.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell for the eighth week in the last nine to 6.31% versus an average 6.48% in December. The effective rate on a 15-year mortgage also fell to 5.94%, the second week below 6% since October. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
Purchase applications fell 3.0% following a 9.3% surge the prior week. The decline pulled purchase applications in January 1.1% below the December average.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Are Banks Vulnerable to a Housing Bust from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20060201/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">01/13/06</th>
<th scope="col">01/06/06</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>613.3</td>
<td>600.1</td>
<td>-10.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>443.9</td>
<td>457.4</td>
<td>-0.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,645.2</td>
<td>1,497.5</td>
<td>-19.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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The total number of mortgage applications rose 2.2% last week, the second up week following four consecutive weeks down. This year, mortgage applications are 2.1% higher than during December. Higher applications to refinance accounted [...]

Mortgage Applications Up With More Refinancing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118c.jpg" width="353">
Chain store sales fell 1.4% last week following the modest 0.1% rise which opened the new year according to the International Council of Shopping Centers (ICSC)-UBS survey.
Solid increases throughout December pulled the yearend level up. Therefore, despite recent weakness, sales in January are 1.5% ahead of December.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales rose strongly for the second consecutive week. The 0.6% gain pulled January 1.2% ahead of December which rose 0.8% from November.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/14/06</th>
<th scope="col">01/07/06</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">Total Weekly Chain Store Sales</td>
<td>457.7</td>
<td>464.3</td>
<td>3.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales fell 1.4% last week following the modest 0.1% rise which opened the new year according to the International Council of Shopping Centers (ICSC)-UBS survey. Solid increases throughout December pulled the yearend level [...]

Chain Store Sales Fell Last Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118d.jpg" width="353">
The consumer price index (CPI-U) fell 0.1% last month on the heels of the 0.6% drop during November. Consensus expectations had been for a 0.2% rise. Despite the latest declines, the 2005 average rise in prices of 3.4% was the strongest since 2000 while the December to December rise of 3.4% equaled the 2004 increase.
Energy prices posted a surprising 2.2% decline last month due to widespread m/m declines in fuel oil (+24.0% y/y) and natural gas (+30.1% y/y) prices. Gasoline prices also fell for the third straight month (+16.1% y/y) to an average $2.19 but have wince risen to an average $2.30 in January.
Food prices likewise were under control and rose just 0.2%, the slimmest increase since August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118e.jpg" width="353">
Prices less food &amp; energy again rose 0.2%, the third consecutive such increase and matched Consensus expectations. The year to year gain in core prices core prices accelerated during the last two years from the low of 1.5% during 2003 as core goods prices inflated rather than fell. In December, goods prices less food &amp; energy were unchanged and the 2005 increase of 0.5% was the strongest since 2000.
A 0.3% decline in apparel prices (-1.1% y/y) was accompanied by lower prices for new &amp; used vehicles (+0.4% y/y). These declines were offset by higher furniture &amp; bedding prices (0.6% y/y) and higher appliance prices (3.0% y/y). Medical care commodity prices rose 0.2% (3.7% y/y) while educational books &amp; supplies also rose 0.4% (5.1% y/y).
Core services prices increased 0.3% but the full year gain of 2.8% just equaled 2004. The increase in medical care prices faded late in the year (4.4% y/y) and but school tuition &amp; fees posted a strong 6.2% December to December spike. The increase in shelter prices was steady at (2.5% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases fell for the second consecutive month though the full year gain of 2.8% was the strongest since the series inception. Less food &amp; energy prices also fell m/m but the annual increase of 1.8% was the strongest since 2002.
Productivity and Economic Outlook, today&#39;s speech by Fed Governor Susan Schmidt Bies can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060118/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/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Dec</th>
<th scope="col">Nov</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>-0.1%</td>
<td>-0.6%</td>
<td>3.4%</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>0.2%</td>
<td>0.2%</td>
<td>2.2%</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>0.0%</td>
<td>-0.1%</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>0.3%</td>
<td>0.4%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>-2.2%</td>
<td>-8.0%</td>
<td>17.0%</td>
<td>16.9%</td>
<td>10.9%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.5%</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>-0.3%</td>
<td>-0.5%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.3%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
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The consumer price index (CPI-U) fell 0.1% last month on the heels of the 0.6% drop during November. Consensus expectations had been for a 0.2% rise. Despite the latest declines, the 2005 average rise in prices of 3.4% was the [...]

CPI Fell Again, Unexpectedly; 2005 Strongest Since 2000

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118d.jpg" width="353">
The consumer price index (CPI-U) fell 0.1% last month on the heels of the 0.6% drop during November. Consensus expectations had been for a 0.2% rise. Despite the latest declines, the 2005 average rise in prices of 3.4% was the strongest since 2000 while the December to December rise of 3.4% equaled the 2004 increase.
Energy prices posted a surprising 2.2% decline last month due to widespread m/m declines in fuel oil (+24.0% y/y) and natural gas (+30.1% y/y) prices. Gasoline prices also fell for the third straight month (+16.1% y/y) to an average $2.19 but have wince risen to an average $2.30 in January.
Food prices likewise were under control and rose just 0.2%, the slimmest increase since August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118e.jpg" width="353">
Prices less food &amp; energy again rose 0.2%, the third consecutive such increase and matched Consensus expectations. The year to year gain in core prices core prices accelerated during the last two years from the low of 1.5% during 2003 as core goods prices inflated rather than fell. In December, goods prices less food &amp; energy were unchanged and the 2005 increase of 0.5% was the strongest since 2000.
A 0.3% decline in apparel prices (-1.1% y/y) was accompanied by lower prices for new &amp; used vehicles (+0.4% y/y). These declines were offset by higher furniture &amp; bedding prices (0.6% y/y) and higher appliance prices (3.0% y/y). Medical care commodity prices rose 0.2% (3.7% y/y) while educational books &amp; supplies also rose 0.4% (5.1% y/y).
Core services prices increased 0.3% but the full year gain of 2.8% just equaled 2004. The increase in medical care prices faded late in the year (4.4% y/y) and but school tuition &amp; fees posted a strong 6.2% December to December spike. The increase in shelter prices was steady at (2.5% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases fell for the second consecutive month though the full year gain of 2.8% was the strongest since the series inception. Less food &amp; energy prices also fell m/m but the annual increase of 1.8% was the strongest since 2002.
Productivity and Economic Outlook, today&#39;s speech by Fed Governor Susan Schmidt Bies can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060118/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/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Dec</th>
<th scope="col">Nov</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>-0.1%</td>
<td>-0.6%</td>
<td>3.4%</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>0.2%</td>
<td>0.2%</td>
<td>2.2%</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>0.0%</td>
<td>-0.1%</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>0.3%</td>
<td>0.4%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>-2.2%</td>
<td>-8.0%</td>
<td>17.0%</td>
<td>16.9%</td>
<td>10.9%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.5%</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>-0.3%</td>
<td>-0.5%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.3%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Chain Store Sales Fell Last Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118c.jpg" width="353">
Chain store sales fell 1.4% last week following the modest 0.1% rise which opened the new year according to the International Council of Shopping Centers (ICSC)-UBS survey.
Solid increases throughout December pulled the yearend level up. Therefore, despite recent weakness, sales in January are 1.5% ahead of December.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales rose strongly for the second consecutive week. The 0.6% gain pulled January 1.2% ahead of December which rose 0.8% from November.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/14/06</th>
<th scope="col">01/07/06</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">Total Weekly Chain Store Sales</td>
<td>457.7</td>
<td>464.3</td>
<td>3.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Mortgage Applications Up With More Refinancing 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118b.jpg" width="353">
The total number of mortgage applications rose 2.2% last week, the second up week following four consecutive weeks down. This year, mortgage applications are 2.1% higher than during December.
Higher applications to refinance accounted for all of last week&#39;s rise. A 9.9% w/w gain followed a like increase which opened the new year and lifted the level of refis 11.0% this month above December.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell for the eighth week in the last nine to 6.31% versus an average 6.48% in December. The effective rate on a 15-year mortgage also fell to 5.94%, the second week below 6% since October. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
Purchase applications fell 3.0% following a 9.3% surge the prior week. The decline pulled purchase applications in January 1.1% below the December average.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Are Banks Vulnerable to a Housing Bust from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20060201/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">01/13/06</th>
<th scope="col">01/06/06</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>613.3</td>
<td>600.1</td>
<td>-10.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>443.9</td>
<td>457.4</td>
<td>-0.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,645.2</td>
<td>1,497.5</td>
<td>-19.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK Labor Market Weakens in Late 2005 
by <a href="/comment/Stone.html">Carol Stone</a> January 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118f.jpg" width="353">
Employment has begun to falter in the UK, according to the latest Labor Force Survey, published today by the Office of National Statistics (ONS). In the 3 months centered on October, the number of people employed fell 49,000 from September&#39;s 3-month average and stood only 0.8% above a year ago. As recently as August the year-on-year gain was 1.3%. The employment rate decreased 0.2 percentage points in the October reading to 74.5% from 74.7% in September and 74.8 in the October period of 2004. This rate, the number employed compared to the population of &quot;working age&quot; (16-59 for women and 16-64 for men), peaked at 75.0% last January. Commensurately, the unemployment rate has risen, reaching 5.0% most recently, up from a low of 4.7% recorded in August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060118g.jpg" width="353">
Associated wage and unemployment insurance data also show softening. The average earnings index, watched by many in the UK as a harbinger of inflation pressures, had just a 3.4% yearly growth rate in the three months ended November, slowing from 4.6% as recently as April. The number of claimants for Jobseeker&#39;s Allowance benefits rose in the month of December to 909,100 from 901,900 in November and 825,000 in December 2004.
There are other scattered signs of softening in the UK. Consumer confidence turned negative in October, and industrial production declined irregularly through much of 2005. The CBI industrial trends survey shows marked declines in order books continuously since March. GDP growth slowed to below 2% year-on-year in Q2 and Q3. [Q4 data are due to be reported next Wednesday, January 25.] Exports, by contrast, have been rising as have retail sales. So there is some mixed quality to UK economic activity, but the basic industry appears sluggish and it&#39;s hardly surprising that the labor market is sharing in this.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U7/@U7.HTM">UK Labor Force Survey (SA)</a></th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (Thous)</td>
<td>--</td>
<td>--</td>
<td>28,764</td>
<td>28,813</td>
<td>28,542</td>
<td>28,465</td>
<td>28,183</td>
<td>27,917</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Change (Thous/%)</td>
<td>--</td>
<td>--</td>
<td>-49</td>
<td>-12</td>
<td>0.8</td>
<td>1.0</td>
<td>1.0</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment Rate (%)</td>
<td>--</td>
<td>--</td>
<td>74.5</td>
<td>74.7</td>
<td>74.8</td>
<td>74.8</td>
<td>74.6</td>
<td>74.5</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>--</td>
<td>--</td>
<td>5.0</td>
<td>4.9</td>
<td>4.7</td>
<td>4.8</td>
<td>5.0</td>
<td>5.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Earnings Index (Yr/Yr %) </td>
<td>--</td>
<td>3.4</td>
<td>3.6</td>
<td>4.1</td>
<td>4.3</td>
<td>4.3</td>
<td>3.4</td>
<td>3.5</td>
</tr>
<tr>
<td class="firstcol">Claimant Count (Thous)</td>
<td>909.1</td>
<td>901.9</td>
<td>891.5</td>
<td>878.0</td>
<td>825.0</td>
<td>853.6</td>
<td>933.3</td>
<td>946.7</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124a.jpg" width="353">
Canadian firms remain optimistic regarding the business outlook according to the latest Business Outlook Survey of the Bank of Canada that was released today. The Bank conducts interviews with the senior management of about 100 companies, selected in accordance with the composition of Canada&#39;s gross domestic product. Topics discussed include the companies&#39; views on such factors as the outlooks for the economy and inflation, plans for investments and pressures on production capacity and labor shortages. According to the Bank, &quot;The method of sample selection ensures a good cross-section of opinion. Nevertheless, the statistical reliability of the survey is limited, given the small sample size.&quot;
The excess of those who think future sales will be higher over those who think they will be lower rose to 15.84% in the fourth quarter of 2005 from 13.86% in the third quarter and was 7.92 percentage points above the excess in the fourth quarter of 2004. Along with a higher balance of opinion on the sales outlook, there has been and increase in the proportion of respondents who expect to incur difficulties in meeting demand. Those expecting some difficulty declined slightly to 34.70% in the fourth quarter from 35.60% in the third and was 3.30 percentage points below the fourth quarter of 2004. However, those expecting significant difficulty rose to 14.90% in the fourth quarter from 9.90% in the third quarter and from 7.00% in the fourth quarter of 2004. The increases in those expecting some, and those expecting significant, difficulty in meeting demand are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124b.jpg" width="353">
In spite of the increase in those expecting significant difficulty in meeting demand, the balance of opinion regarding for investment in machinery and equipment declined slightly in the fourth quarter and was 2.78 percentage points below the fourth quarter of 2004. The balance of opinion regarding future employment also declined slightly in the fourth quarter from the third, but was almost 12 percentage points above the fourth quarter of 2004.
According to the survey, inflationary expectations have moderated. The number of firms expecting consumer price inflation to exceed 3% over the next two years declined to 18.80% in the fourth quarter from 26.70% in the third quarter but was 6.80 percentage points above the fourth quarter of 2004. The second chart shows the percent of firms expecting inflation to range between 1-3% and those expecting inflation to exceed 3%. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">The Business Outlook Survey of the Bank of Canada</th>
<th scope="col">Q4 05 %</th>
<th scope="col">Q3 05 % </th>
<th scope="col">Q4 04 %</th>
<th scope="col"> Q/Q % pt</th>
<th scope="col">Y/Y % pt</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">Percent Balance </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Future Sales Growth</td>
<td>15.84</td>
<td>13.86</td>
<td>7.92</td>
<td>&nbsp;1.98</td>
<td>7.92</td>
<td>17.43</td>
<td>17.91</td>
<td>21.38</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Plans for Investment</td>
<td>19.00</td>
<td>19.80</td>
<td>21.78</td>
<td>-0.80</td>
<td>-2.78</td>
<td>19.20</td>
<td>16.95</td>
<td>2.99</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Future Employment</td>
<td>49.50</td>
<td>50.50</td>
<td>37.62</td>
<td>-1.00</td>
<td>11.88</td>
<td>42.75</td>
<td>33.42</td>
<td>27.96</td>
</tr>
<tr class="odd">
<td class="firstcol"> Percent of Respondents </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Inflation Expectations</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&lt;1%</td>
<td>0.00</td>
<td>0.00</td>
<td>0.00</td>
<td>0.00</td>
<td>0.00</td>
<td>0.25</td>
<td>0.00</td>
<td>0.50</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 1-2%</td>
<td>13.90</td>
<td>9.90</td>
<td>29.00</td>
<td>4.00</td>
<td>15.10</td>
<td>18.70</td>
<td>32.25</td>
<td>34.25</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; 2-3%</td>
<td>61.40</td>
<td>60.40</td>
<td>56.00</td>
<td>1.00</td>
<td>5.40</td>
<td>62.45</td>
<td>53.00</td>
<td>54.50&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&gt;3%</td>
<td>18.80</td>
<td>26.70</td>
<td>12.00</td>
<td>-7.90</td>
<td>6.80</td>
<td>14.13</td>
<td>10.75</td>
<td>9.50&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Ability to Meet Demand</td>
<td>&nbsp;</td>
<td>&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">&nbsp; Some Difficulty</td>
<td>34.70&nbsp;</td>
<td>35.60&nbsp;</td>
<td>38.00&nbsp;</td>
<td>-0.90&nbsp;</td>
<td>-3.30&nbsp;</td>
<td>32.58&nbsp;</td>
<td>34.00&nbsp;</td>
<td>32.50&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Significant Difficulty</td>
<td>14.90</td>
<td>9.90&nbsp;</td>
<td>7.00&nbsp;</td>
<td>5.00&nbsp;</td>
<td>7.90&nbsp;</td>
<td>11.20&nbsp;</td>
<td>7.25&nbsp;</td>
<td>6.25&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Canadian firms remain optimistic regarding the business outlook according to the latest Business Outlook Survey of the Bank of Canada that was released today. The Bank conducts interviews with the senior management of about 100 [...]

Canadian Business Expects Further Increases in Sales, but Sees More Difficulty in Meeting Demand

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060117d.jpg" width="353">
Overall industrial output rose last month by 0.6% following an upwardly revised 0.8% increase during November. For the second month, the gain exceeded Consensus expectations which had been for a 0.5% rise. For all of 2005, output rose 3.1%. The gain was down from a 4.1% increase during 2004 but the two years together were the strongest in five years.
Factory sector production increased a scant 0.2% (4.1% y/y) following an upwardly revised 0.5% November increase. Again, the annual increase for all of 2005 in factory production of 3.8% was down versus a 5.0% increase during 2004.
Output of business equipment again was notably strong. A 2.7% (26.1% y/y) increase in high tech output was led by another 1.1% (11.7% y/y) increase in computer output, a 3.5% (30.8% y/y) spike in semiconductors and a 1.8% (25.2% y/y) surge in output of communications gear.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060117c.jpg" width="353">
Excluding the high tech sector, factory output was unchanged (2.4% y/y) following an upwardly revised 0.3% November increase. For all 2005, output less the high tech sector rose 2.6% after a 3.8% rise during 2004.
Motor vehicle &amp; parts output fell for the third straight month. The 2.8% (-2.4% y/y) decline slowed the annual increase in output to 2.8%, the worst for motor vehicles since 2002. Output of appliances, furniture &amp; carpeting also fell for the third month but the 0.4% (+2.2% y/y) decline masked a 0.9% (-1.8% y/y) increase in furniture output.
Total capacity utilization rose to 80.7%, the highest level since late 2001. Capacity grew 1.6% y/y and for the year the 1.3% gain was the strongest since 2002. Factory sector utilization remained unchanged at 79.6% in December though the annual average during 2005 of 78.8% was the highest since 2000.
Excluding the high tech sector, the factory utilization rate slipped slightly in December to 80.1%. The annual average of 79.3% about matched the previous high during 2000. Capacity less the high tech sector grew a paltry 0.1% in December, about the monthly rate of the last year. While improved versus declines during 2003 &amp; 2004, the 0.5% increase for all of last year compared unfavorably to a 4.5% increase during 1998.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</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>0.6%</td>
<td>0.8%</td>
<td>2.9%</td>
<td>3.1%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>0.2%</td>
<td>-0.7%</td>
<td>1.3%</td>
<td>2.0%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Equipment</td>
<td>0.5%</td>
<td>1.3%</td>
<td>10.2%</td>
<td>9.0%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>80.7%</td>
<td>80.3%</td>
<td>79.7% (12/05)</td>
<td>80.0%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
</body>
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Overall industrial output rose last month by 0.6% following an upwardly revised 0.8% increase during November. For the second month, the gain exceeded Consensus expectations which had been for a 0.5% rise. For all of 2005, output rose [...]

Industrial Output Gain Led By High Tech

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060117a.jpg" width="353">
The January Empire State Index of General Business Conditions reversed all of the prior month&#39;s gain and fell 6.16 points to 20.12. Consensus expectations for the factory sector index had been for a lesser decline to 22. The figures reflect annual benchmark revision.
Since the series&#39; inception in 2001 there has been a 76% correlation between the index level and the three month change in factory sector production.
Declines in inventories, delivery times and unfilled orders prompted the fall in the overall index. Otherwise, the component series increased. The shipments index rose to the highest level in over a year while the employment index reversed most of its December drop. The index of new orders was about unchanged and work hours rose to the highest level since October.
Pricing pressure remained about unchanged versus December and the levels remained down sharply from Fall peaks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060117b.jpg" width="353">
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.
The index of expectations for business conditions in six months improved 3.5 points to the highest level since August. Expectations for future capital spending slipped slightly as they did in December but remained at a relatively high level.
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 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">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;05 </th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>20.12</td>
<td>26.28</td>
<td>19.02</td>
<td>15.56</td>
<td>28.79</td>
<td>15.98</td>
</tr>
</tbody>
</table>
</body>
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The January Empire State Index of General Business Conditions reversed all of the prior month's gain and fell 6.16 points to 20.12. Consensus expectations for the factory sector index had been for a lesser decline to 22. The figures [...]

Empire State Index Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060117a.jpg" width="353">
The January Empire State Index of General Business Conditions reversed all of the prior month&#39;s gain and fell 6.16 points to 20.12. Consensus expectations for the factory sector index had been for a lesser decline to 22. The figures reflect annual benchmark revision.
Since the series&#39; inception in 2001 there has been a 76% correlation between the index level and the three month change in factory sector production.
Declines in inventories, delivery times and unfilled orders prompted the fall in the overall index. Otherwise, the component series increased. The shipments index rose to the highest level in over a year while the employment index reversed most of its December drop. The index of new orders was about unchanged and work hours rose to the highest level since October.
Pricing pressure remained about unchanged versus December and the levels remained down sharply from Fall peaks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060117b.jpg" width="353">
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.
The index of expectations for business conditions in six months improved 3.5 points to the highest level since August. Expectations for future capital spending slipped slightly as they did in December but remained at a relatively high level.
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>.

<table border="0" cellspacing="0" width="100%">

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<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">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;05 </th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>20.12</td>
<td>26.28</td>
<td>19.02</td>
<td>15.56</td>
<td>28.79</td>
<td>15.98</td>
</tr>
</tbody>
</table>
Industrial Output Gain Led By High Tech 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060117d.jpg" width="353">
Overall industrial output rose last month by 0.6% following an upwardly revised 0.8% increase during November. For the second month, the gain exceeded Consensus expectations which had been for a 0.5% rise. For all of 2005, output rose 3.1%. The gain was down from a 4.1% increase during 2004 but the two years together were the strongest in five years.
Factory sector production increased a scant 0.2% (4.1% y/y) following an upwardly revised 0.5% November increase. Again, the annual increase for all of 2005 in factory production of 3.8% was down versus a 5.0% increase during 2004.
Output of business equipment again was notably strong. A 2.7% (26.1% y/y) increase in high tech output was led by another 1.1% (11.7% y/y) increase in computer output, a 3.5% (30.8% y/y) spike in semiconductors and a 1.8% (25.2% y/y) surge in output of communications gear.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060117c.jpg" width="353">
Excluding the high tech sector, factory output was unchanged (2.4% y/y) following an upwardly revised 0.3% November increase. For all 2005, output less the high tech sector rose 2.6% after a 3.8% rise during 2004.
Motor vehicle &amp; parts output fell for the third straight month. The 2.8% (-2.4% y/y) decline slowed the annual increase in output to 2.8%, the worst for motor vehicles since 2002. Output of appliances, furniture &amp; carpeting also fell for the third month but the 0.4% (+2.2% y/y) decline masked a 0.9% (-1.8% y/y) increase in furniture output.
Total capacity utilization rose to 80.7%, the highest level since late 2001. Capacity grew 1.6% y/y and for the year the 1.3% gain was the strongest since 2002. Factory sector utilization remained unchanged at 79.6% in December though the annual average during 2005 of 78.8% was the highest since 2000.
Excluding the high tech sector, the factory utilization rate slipped slightly in December to 80.1%. The annual average of 79.3% about matched the previous high during 2000. Capacity less the high tech sector grew a paltry 0.1% in December, about the monthly rate of the last year. While improved versus declines during 2003 &amp; 2004, the 0.5% increase for all of last year compared unfavorably to a 4.5% increase during 1998.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</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>0.6%</td>
<td>0.8%</td>
<td>2.9%</td>
<td>3.1%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>0.2%</td>
<td>-0.7%</td>
<td>1.3%</td>
<td>2.0%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Equipment</td>
<td>0.5%</td>
<td>1.3%</td>
<td>10.2%</td>
<td>9.0%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>80.7%</td>
<td>80.3%</td>
<td>79.7% (12/05)</td>
<td>80.0%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Nonfarm payrolls increased 177,000 (1.2% y/y) during April after rising 185,000 in March, revised from 228,000, and 102,000 in February, revised from 117,000. Expectations had been for a 130,000 rise in the Action Economics Forecast Survey. The latest figure left the three-month average change at 155,000 in April, down from 232,000 in January.

Average hourly earnings rose 0.2% during April after unrevised increases of 0.3% in March and 0.2% in February. Earnings growth of 3.8% y/y was below the 5.9% high in March 2022.

The unemployment rate, measured in the household survey, held m/m at an expected 4.2% in April, and compared to 4.1% in February and 4.0% in January. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, eased to 7.8% in April from 7.9% in March.

In the **establishment survey**, private-sector employment rose 167,000 (1.2% y/y) after a 170,000 March increase. Factory sector jobs edged 1,000 lower (-0.7% y/y) following a 3,000 gain. Construction sector employment increased 11,000 (1.7% y/y), after rising 7,000 in March.

Private service-producing sector employment increased 156,000 (1.4% y/y) in April after improving 161,000 in March. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 70,000 (3.4% y/y) last month following a 74,000 March increase. Leisure & hospitality employment rose 24,000 (1.3% y/y) after a 38,000 gain. Trade, transportation & utilities rose 32,000 (0.9% y/y) in April following a 25,000 March increase. Professional & business services employment rose 17,000 (-0.1% y/y) following a 3,000 rise while temporary help employment rose 3,600 (-3.9% y/y) following a 2,700 decline. Financial activities employment improved 14,000 (1.2% y/y) after a 6,000 gain. The number of information sector jobs held steady (-0.4% y/y) last month after falling 2,000 in March.

Government sector payrolls rose 10,000 (1.3% y/y) last month after increasing 15,000 in March. The number of local government jobs increased 13,000 (1.4% y/y) following a 17,000 gain. State government employment rose 6,000 (1.8% y/y) following a 2,000 March increase but federal government payrolls fell 9,000 (-0.3% y/y), the third consecutive monthly decline.

Private-sector average hourly earnings rose 0.2% (3.8% y/y) in April after increasing 0.3% in March. Earnings in the goods-producing sector eased 0.1% (+4.0% y/y) following a 0.6% gain. Earnings in construction rose 0.3% (3.6% y/y), after a 0.2% rise but factory sector earnings declined 0.3% (+4.3% y/y) after surging 0.8% in March. In the private services-sector, earnings rose 0.2% (3.7% y/y) in April for the third straight month. Information sector pay increased 1.0% (5.2% y/y) last month after easing 0.1%, and financial activities earnings rose 0.5% (4.3% y/y) for the second straight month. Trade, transportation & utilities sector pay increased 0.4% (3.4% y/y) after 0.6%. Professional & business sector earnings increased 0.1% (4.4% y/y) after 0.2% in March. Leisure & hospitality earnings held steady (+3.8% y/y) following a 0.6% March increase.

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The length of the average workweek held steady at 34.3 hours in April. The workweek in the goods-producing sector eased to 39.8 hours from 40.0 hours. The construction sector average workweek eased to 39.0 hours from 39.3 hours while the factory sector workweek moved lower to 40.0 hours from 40.2. The average workweek in the private service sector held at 33.2 hours. Professional & business service hours fell to 36.3 hours from 36.4 while trade, transportation & utilities hours improved to 34.3 from 34.0 hours. Private education hours rose slightly to 32.8, but leisure & hospitality held steady at 25.5 hours.

In the **household survey**, the unemployment rate held at 4.2% in April as employment rose 436,000 and the size of the labor force increased 518,000. The labor force participation rate edged up to 62.6% last month from 62.5% in March. It remained below the high of 63.3% early in 2020. The rate for teenagers declined to 36.9%. For workers aged 20-24, the rate held steady at 72.1%, up from 71.8% six months earlier. For workers aged 25-54 the rate rose to 83.6%, a five-month high. For individuals 55 and over, the rate improved to 38.4% in April.

The employment/population ratio for all workers in April rose to 60.0%. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Job growth spreads across most sectors.
- Earnings growth trend decelerates.
- Jobless rate holds steady.

U.S. Job Growth Is Firm in April but March Gain Is Lessened

Winnie Tapasanun

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Total factory orders rose a slightly less-than-expected 4.3% m/m in March after rises of 0.5% in February and 1.8% in January, data from the U.S. Census Bureau showed. A 4.5% m/m March increase had been expected in the Action Economics Forecast Survey. The March reading was the third successive monthly rise and the largest since July 2024. The year-on-year rate accelerated to 6.0% in March, the highest since November 2022, from 2.3% in February. Notably, orders for nondefense aircraft & parts soared 139.0% in March following a 7.4% drop in February and a 92.9% surge in January. Factory orders excluding defense rose 4.8% (5.9% y/y), the largest of three straight m/m/ rises, after a 0.4% February increase. Factory orders excluding the transportation sector fell 0.2% (+1.1% y/y), the first m/m fall since August, after rising 0.3% in February, January and December.

Durable goods orders jumped 9.2% (11.9% y/y) in March, the third consecutive m/m gain and the biggest since July 2024, on top of a 0.8% increase in February (matching +9.2% m/m in the advance report on April 24). The March jump reflected m/m orders increases of 27.1% (the largest m/m surge since July 2024; 31.2% y/y) in transportation equipment, 1.1% (4.9% y/y) in primary metals, 0.5% (-0.4% y/y) in furniture & related products, 0.1% (2.5% y/y) in fabricated metal products, and 0.1% (0.9% y/y) in machinery. To the downside, durable goods orders for computers & electronic products (-1.3%; +2.7% y/y) and electrical equipment, appliances & components (-1.0%; +4.2% y/y) declined m/m in March.

Nondurable goods orders, which equal nondurable goods shipments, fell 0.3% (+0.4% y/y) in March, the first m/m fall since September, after a 0.1% uptick in February. The March fall reflected m/m drops of 2.4% (-9.3% y/y) in petroleum & coal products and 0.9% (-1.2% y/y) in apparel. To the upside, the following nondurable goods shipments rose m/m in March: leather & allied products (1.5%; 8.6% y/y), beverage & tobacco products (0.7%; 5.8% y/y), paper products (0.6%; 2.3% y/y), printing (0.3%; 3.8% y/y), textile mills (0.3%; 0.8% y/y), chemical products (0.2%; 5.4% y/y), plastics & rubber products (0.2%; 0.4% y/y), food products (0.1%; 1.8% y/y), and textile products (0.1%; 2.1% y/y).

Total shipments slipped 0.1% (+2.0% y/y) in March, the first m/m easing since October, after a 0.7% increase in February. Excluding transportation, shipments were virtually unchanged m/m (+1.1% y/y) in March following six straight m/m gains. Shipments of durable goods industries inched up 0.1% (3.8% y/y) in March, the smallest of four consecutive m/m increases, after a 1.3% advance in February. This reflected m/m durable goods shipments rises of 1.2% (5.6% y/y) in primary metals, 0.9% (0.1% y/y) in furniture & related products, 0.8% (-0.2% y/y) in nonmetallic mineral products, 0.4% (0.0% y/y) in machinery, 0.3% (1.8% y/y) in fabricated metal products, 0.2% (4.5% y/y) in computers & electronic products, 0.2% (-2.1% y/y) in wood products, and 0.1% (3.0% y/y) in electrical equipment, appliances & components. In contrast, durable goods shipments for transportation equipment (-0.5%; +7.3% y/y) and miscellaneous durable goods (-0.1%; +2.9% y/y) fell m/m in March following three successive m/m increases.

Unfilled orders rose 2.0% (2.3% y/y) in March, up for the eighth month in nine, after a 0.1% uptick in February. Excluding transportation, unfilled orders dipped 0.1% (+0.7% y/y) in March, the first m/m easing since May 2024, after holding steady in February. Backlogs of durable goods rose 2.0% (2.3% y/y) in March, reflecting m/m rises of 3.1% (3.1% y/y) in transportation equipment and 0.2% (2.4% y/y) in electrical equipment, appliances & components.

Inventories edged up 0.1% (0.9% y/y) in March, the fifth straight m/m increase, after rising at the same pace in the prior two months. Excluding transportation, inventories were up 0.1% (0.5% y/y) in March, the fifth consecutive m/m rise. Durable goods inventories ticked up 0.1% (1.0% y/y) in March after holding steady in February and January; nondurable goods inventories edged up 0.1% (0.8% y/y), the fifth successive m/m increase.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- March manufacturers’ new orders +4.3% m/m; +6.0% y/y, highest since Nov. ’22.
- Durable goods orders (+9.2%) jump m/m, while nondurable goods orders (-0.3%) and shipments (-0.1%) decline m/m.
- Transportation equipt. orders +27.1% m/m, w/ a 139.0% m/m surge in nondefense aircraft & parts orders.
- Unfilled orders +2.0%, the eighth m/m rise in nine months.
- Inventories +0.1%, the fifth consecutive m/m increase.

U.S. Factory Orders Increase for the Third Straight Month in March

Robert Brusca

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The global manufacturing data showed broad weakening in April as conditions weakened across more than half of the contributing early reporters in the S&P survey of manufacturing. Of the 18 early reporting countries, more than half of them showed deceleration over six months and 12 months. Over three months, only 8 of 18 showed deterioration and that's about as good as it got in this report. In the current month, month-to-month changes showed more than half of the survey contributors showing weaker results than the month before. In the S&P framework, manufacturing improved month-to-month for the U.S.; however, looking at sequential averages for the U.S., U.K., European monetary union, Canada, and Japan, we see a steady weakening and results over 12 months, over six months versus 12 months, and for three months versus 6 months. The highly developed countries are not doing particularly well.

Asian economies are also showing slight deterioration but doing a little better than the developed countries in general.

Only five of the 18 reporting countries have queue percentile standings in their data back to January 2021 that are above their medians. Readings at or above the 50% mark are at or above the median standing. Canada is showing the weakest manufacturing result on record over this span, in terms of its queue percentile standing which is at 0 in the current month.

I showed the graphic for the Baltic dry goods index in this report rather than statistics on the manufacturing PMI data because the Baltic data, which reflect shipping volume for dry goods - that is excluding things like oil - is weak but it's only in the neighborhood where it's been for some time. There has been a great deal of talk about how tariffs may have impacted trade flows, expected trade flows, shipping, shipping rates, and the like. However, according to the Baltic dry goods index, there isn't much evidence that this is occurring right now and affecting the current data. That may still lie ahead but for now it's not baked in the cake.

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Globally Manufacturing Weakens

Andrew Cates

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

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

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

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

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

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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.

Economy in Brief: January 2006

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