Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112c.jpg" width="353">
Higher petroleum prices fueled a 1.1% jump in overall import prices last month which was about double Consensus expectations for a 0.6% gain. 
The increase occurred as petroleum import prices surged 4.8% in December after sharp declines during the prior three months. So far in January the price of WTI crude oil has fallen roughly six dollars (-10%) from the $62.03 per bbl. averaged in December and yesterday&#39;s price was down ten dollars to $51.89.
Less petroleum import prices rose 0.4% in December and the prior month&#39;s increase was revised up to 0.9% from 0.7%. 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112d.jpg" width="353">
Prices for nonoil industrial supplies &amp; materials surged 1.5% (4.5% y/y) after a 4.0% November spike. Prices for nondurable industrial supplies less petroleum rose 2.6% (-5.8% y/y) after an upwardly revised 8.9% November jump. Prices for durable industrial supplies &amp; materials rose 0.7% (14.7% y/y).
Capital goods prices ticked up 0.1% (0.4% y/y) and excluding a 0.1% (-3.6% y/y) decline in computers, capital goods prices rose 0.2% (2.2% y/y) in December. Prices for nonauto consumer goods rose 0.2% (1.2% y/y).
Export prices rose 0.7% as agricultural export prices surged 2.2% (13.2% y/y) but nonagricultural export prices rose 0.5% (3.8% 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">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>1.1%</td>
<td>0.5%</td>
<td>2.5%</td>
<td>4.9%</td>
<td>7.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>4.8%</td>
<td>-1.2%</td>
<td>6.2%</td>
<td>20.7%</td>
<td>37.6%</td>
<td>30.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.4%</td>
<td>0.9%</td>
<td>1.7%</td>
<td>1.7%</td>
<td>2.7%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.7%</td>
<td>0.4%</td>
<td>4.6%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
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Higher petroleum prices fueled a 1.1% jump in overall import prices last month which was about double Consensus expectations for a 0.6% gain. The increase occurred as petroleum import prices surged 4.8% in December after sharp [...]

U.S. Import Prices Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112a.jpg" width="353">
US retail sales in December rose 0.9% though the sales gain during the prior month was lowered to 0.6% from 1.0% reported initially. The latest increase again easily beat Consensus expectations for a 0.6% rise.
Excluding autos, retail sales jumped a larger 1.0% last month, though the November gain was lowered to a still firm 0.7% from 1.1%. Sales by motor vehicle &amp; parts dealers rose 0.3% (3.6% y/y) after a downwardly revised slight decline in November, as new unit vehicle sales did rise 4.4% in December.
Sales at gasoline service stations jumped 3.8% reflecting the 3.7% recovery in gasoline prices to $2.31 per gallon.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112b.jpg" width="353">
Nonauto retail sales less gasoline in November jumped 0.7% (6.2% y/y) though the November gain was revised lower to 0.5% from 0.9% reported initially. During the fourth quarter these sales rose at a 3.7% annual rate, the versus 4.2% during 3Q.
Sales of discretionary items were generally firm last month. Sales at furniture, home furnishings &amp; appliance stores jumped 1.8% (11.1% y/y) after an upwardly revised 2.8% November spike. Sales at electronics &amp; appliance stores surged 3.0% (15.0% y/y) after a 5.8% November surge. Apparel store sales gained 0.6% (5.5% y/y) after two months of decline and general merchandise store sales rose 0.9% (5.4% y/y).
Building material sales fell 1.1% (-0.8% y/y), the eighth decline in the last nine months. Sales of nonstore retailers (internet &amp; catalogue) rose a modest 0.3% (7.9% y/y) but restaurant and bar sales jumped 2.3% (9.3% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>0.9%</td>
<td>0.6%</td>
<td>5.4%</td>
<td>6.3%</td>
<td>7.2%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>1.0%</td>
<td>0.7%</td>
<td>5.8%</td>
<td>7.5%</td>
<td>8.3%</td>
<td>7.2%</td>
</tr>
</tbody>
</table>


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US retail sales in December rose 0.9% though the sales gain during the prior month was lowered to 0.6% from 1.0% reported initially. The latest increase again easily beat Consensus expectations for a 0.6% rise. Excluding autos, retail [...]

U.S. Retail Sales Firm At Yearend Led By Electronics

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112a.jpg" width="353">
US retail sales in December rose 0.9% though the sales gain during the prior month was lowered to 0.6% from 1.0% reported initially. The latest increase again easily beat Consensus expectations for a 0.6% rise.
Excluding autos, retail sales jumped a larger 1.0% last month, though the November gain was lowered to a still firm 0.7% from 1.1%. Sales by motor vehicle &amp; parts dealers rose 0.3% (3.6% y/y) after a downwardly revised slight decline in November, as new unit vehicle sales did rise 4.4% in December.
Sales at gasoline service stations jumped 3.8% reflecting the 3.7% recovery in gasoline prices to $2.31 per gallon.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112b.jpg" width="353">
Nonauto retail sales less gasoline in November jumped 0.7% (6.2% y/y) though the November gain was revised lower to 0.5% from 0.9% reported initially. During the fourth quarter these sales rose at a 3.7% annual rate, the versus 4.2% during 3Q.
Sales of discretionary items were generally firm last month. Sales at furniture, home furnishings &amp; appliance stores jumped 1.8% (11.1% y/y) after an upwardly revised 2.8% November spike. Sales at electronics &amp; appliance stores surged 3.0% (15.0% y/y) after a 5.8% November surge. Apparel store sales gained 0.6% (5.5% y/y) after two months of decline and general merchandise store sales rose 0.9% (5.4% y/y).
Building material sales fell 1.1% (-0.8% y/y), the eighth decline in the last nine months. Sales of nonstore retailers (internet &amp; catalogue) rose a modest 0.3% (7.9% y/y) but restaurant and bar sales jumped 2.3% (9.3% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>0.9%</td>
<td>0.6%</td>
<td>5.4%</td>
<td>6.3%</td>
<td>7.2%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>1.0%</td>
<td>0.7%</td>
<td>5.8%</td>
<td>7.5%</td>
<td>8.3%</td>
<td>7.2%</td>
</tr>
</tbody>
</table>
U.S. Import Prices Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 12, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112c.jpg" width="353">
Higher petroleum prices fueled a 1.1% jump in overall import prices last month which was about double Consensus expectations for a 0.6% gain. 
The increase occurred as petroleum import prices surged 4.8% in December after sharp declines during the prior three months. So far in January the price of WTI crude oil has fallen roughly six dollars (-10%) from the $62.03 per bbl. averaged in December and yesterday&#39;s price was down ten dollars to $51.89.
Less petroleum import prices rose 0.4% in December and the prior month&#39;s increase was revised up to 0.9% from 0.7%. 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112d.jpg" width="353">
Prices for nonoil industrial supplies &amp; materials surged 1.5% (4.5% y/y) after a 4.0% November spike. Prices for nondurable industrial supplies less petroleum rose 2.6% (-5.8% y/y) after an upwardly revised 8.9% November jump. Prices for durable industrial supplies &amp; materials rose 0.7% (14.7% y/y).
Capital goods prices ticked up 0.1% (0.4% y/y) and excluding a 0.1% (-3.6% y/y) decline in computers, capital goods prices rose 0.2% (2.2% y/y) in December. Prices for nonauto consumer goods rose 0.2% (1.2% y/y).
Export prices rose 0.7% as agricultural export prices surged 2.2% (13.2% y/y) but nonagricultural export prices rose 0.5% (3.8% 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">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>1.1%</td>
<td>0.5%</td>
<td>2.5%</td>
<td>4.9%</td>
<td>7.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>4.8%</td>
<td>-1.2%</td>
<td>6.2%</td>
<td>20.7%</td>
<td>37.6%</td>
<td>30.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.4%</td>
<td>0.9%</td>
<td>1.7%</td>
<td>1.7%</td>
<td>2.7%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.7%</td>
<td>0.4%</td>
<td>4.6%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
U.S. Inventory Accumulation Up A Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 12, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112e.jpg" width="353">
Total business inventories rose 0.4% in November following a downwardly revised 0.2% October gain. Consensus expectations had been for a 0.3% rise and over the last three months the 0.3% average increase was the slowest since September of last year.
During the last ten years there has been a 57% correlation between the y/y change in business inventories and the change in factory sector industrial production. Using quarterly figures, there has been an 84% correlation between the change in real private nonfarm inventories and production.
Business sales rose 0.5% (4.0% y/y), the first increase in three months. Wholesale sales led the gain with a 1.0% (7.95 y/y) pop and retail sales rose 0.6% (4.3% y/y). Factory shipments ticked up 0.1% (0.7% y/y). As a result the inventory to sales ratio was stable at 1.30 for the third month. 
Retail inventories fell for the third straight month but excluding autos they rose 0.3%. General merchandise inventories rose 0.2% (2.9% y/y) and have been accumulating strongly since May. Clothing store inventories surged 1.6% (9.7% y/y), the third month of strong gain. Furniture inventories fell for the second month with a 0.2% decline (+4.3% y/y).

<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/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</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</td>
<td>0.4%</td>
<td>0.2%</td>
<td>6.9%</td>
<td>4.4%</td>
<td>7.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>4.0%</td>
<td>2.7%</td>
<td>6.7%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.3%</td>
<td>0.2%</td>
<td>4.6%</td>
<td>4.5%</td>
<td>7.1%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>1.3%</td>
<td>0.4%</td>
<td>10.1%</td>
<td>7.1%</td>
<td>9.8%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.2%</td>
<td>0.3%</td>
<td>7.1%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
</tbody>
</table>
Broad Industrial Production Advance in India 
by <a href="/comment/Stone.html">Carol Stone</a> January 12, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112f.jpg" width="353">
Industrial production in India was strong again in November, extending a long but irregular uptrend in the industrial sector of that rapidly emerging economy. According to the Central Statistical Organization, IP was up 5.5% in the month and 14.4% on the year. The CSO data are not seasonally adjusted. The month-to-month comparison quoted here is taken from seasonal adjustment performed by Haver Analytics. Because the month-to-month movements are very erratic, our discussion below covers yearly growth trends both in the latest month and over a longer period.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112g.jpg" width="353">
Marked acceleration of even heavy industry is evident in the categorical breakdown. Basic metals and alloys surged by 25.4% over November 2005, a third consecutive month of 20%-plus yearly gains. Machinery excluding transport equipment expanded 17.3% in November and the last six months have run 14.9% ahead of the comparable year-ago period. Nonmetallic mineral products have a similar pattern, with November up 17.7% and the last six months up 13.8% on the year-ago period.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070112h.jpg" width="353">
Among &quot;softer&quot; products, rubber, plastics and petroleum expanded 23.2% in November and 13.1% in the six-month period. This follows a particularly weak performance over the prior five years. Cotton textiles, the kind of manufacturing often associated with India, had experienced a long period of little or no growth, but has lately staged a comeback. By November 2006, production here was up 18.3% from November 2005 and the six months are up 13.5% from the same time in 2005.
The service sector in India remains far larger than manufacturing, measured by gross value added. But these gains in industrial production show a significant diversification of the Indian economy. While every nation need not be a major player in world metals markets or motor vehicles, the breadth of recent gains -- especially the return of strength in textiles -- gives a firmer foundation for further development.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">India (NSA, yr/yr % changes)</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</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">General Industrial Production &nbsp; (SA, FY93=100)</td>
<td>250.9</td>
<td>237.9</td>
<td>245.5</td>
<td>216.7</td>
<td>200.8</td>
<td>185.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo % Chg, SA</td>
<td>5.5</td>
<td>-3.1</td>
<td>1.9</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % Chg, NSA</td>
<td>14.4</td>
<td>4.4</td>
<td>11.4</td>
<td>7.9</td>
<td>8.5</td>
<td>6.6</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>15.7</td>
<td>3.8</td>
<td>12.0</td>
<td>9.0</td>
<td>8.9</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Cotton Textiles</td>
<td>18.3</td>
<td>9.7</td>
<td>14.7</td>
<td>9.1</td>
<td>7.4</td>
<td>-5.3</td>
</tr>
<tr>
<td class="firstcol">Rubber, Plastic, Petroleum</td>
<td>23.2</td>
<td>7.7</td>
<td>15.7</td>
<td>3.9</td>
<td>1.2</td>
<td>7.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Basic Metals &amp; Alloys</td>
<td>25.4</td>
<td>20.9</td>
<td>20.0</td>
<td>13.8</td>
<td>4.3</td>
<td>10.9</td>
</tr>
<tr>
<td class="firstcol">Machinery ex Transport</td>
<td>17.3</td>
<td>2.1</td>
<td>14.2</td>
<td>11.5</td>
<td>24.3</td>
<td>8.3</td>
</tr>
</tbody>
</table>


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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111e.jpg" width="353">
Employment in Australia grew 45,000 in the month of December, about the same as in November and far above the consensus expectation of 15,000 given in one news service forecast survey. This put the year-to-year growth rate at 3.0%.
The number of Australians unemployed rose 2,200 following a 3,800 increase in November. But these small increases still left the total unemployed right at 500,000, among the lowest since the early months of 1990. The resulting unemployment rate remained at 4.6% for a third consecutive month, the lowest in the almost-29-year history of these labor force data.
This labor market performance is impressive as it accompanied a rise in the participation rate from 64.78% to 64.95%, near the all-time high of 65.02% reached in September. [The Bureau of Statistics publishes the participation rate rounded to one decimal place. We calculated the rate from labor force and population series so we could see more precise changes.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111f.jpg" width="353">
Further, in Q4, separate data reported Wednesday show job vacancies at an all-time high of nearly 164,000, up more than 21% from the year-ago period. as seen in our second graph, much of the strength is in Western Australia -- Perth -- perhaps owing to growing trade in Indian Ocean territories. Queensland also shows gains. The two greatest population centers, New South Wales (Sydney) and Victoria (Melbourne) are seeing a steady number of reported job vacancies.
So the Australian labor market is doing well and, with rising vacancies, perhaps can sustain that track.
These data are contained in Haver&#39;s &quot;ANZ&quot; database and in &quot;G10&quot;.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">AUSTRALIA (Months Seas Adj)</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.6</td>
<td>4.6</td>
<td>4.6</td>
<td>5.2</td>
<td>4.9</td>
<td>5.1</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">Employment (000s)</td>
<td>10337</td>
<td>10293</td>
<td>10250</td>
<td>10035</td>
<td>10190</td>
<td>9987</td>
<td>9677</td>
</tr>
<tr class="odd">
<td class="firstcol">Change(000s)/Yr- to-Yr % Change</td>
<td>+45</td>
<td>+43</td>
<td>-32</td>
<td>3.0</td>
<td>2.0</td>
<td>3.2</td>
<td>2.1</td>
</tr>
<tr>
<td class="firstcol">Participation Rate (%)</td>
<td>64.95</td>
<td>64.78</td>
<td>64.61</td>
<td>64.39</td>
<td>64.70</td>
<td>64.44</td>
<td>63.57</td>
</tr>
<tr class="odd">
<td class="firstcol">Job Vacancies (000s)</td>
<td colspan="3">164 (Q4)</td>
<td>135 (Q4)</td>
<td>154</td>
<td>140</td>
<td>124</td>
</tr>
</tbody>
</table>
</body>
</html>

Employment in Australia grew 45,000 in the month of December, about the same as in November and far above the consensus expectation of 15,000 given in one news service forecast survey. This put the year-to-year growth rate at 3.0%. [...]

Big Gain in Australia Employment; Unemployment Remains at All-Time Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111c.jpg" width="353">
The 4Q &#39;06 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell for the third straight quarter, to 54 from 64 in 3Q &#39;06. The figure was the lowest since early 2002.
During the last ten years there has been a 69% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index dropped sharply to 66, the lowest since 2002 but the 4Q export orders index rose and recouped declines in the prior two quarters. During the last ten years there has been a 59% correlation between the export orders index and quarterly growth in real US exports.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111d.jpg" width="353">
The profit margins index fell sharply to 62 versus an average 65 last year, its lowest level since 2Q &#39;05.Capital spending intentions for the coming year, however, improved. During the last ten years there has been a 75% correlation between the capital spending index a q/q growth in business investment.
The survey of 60 senior financial executives representing a broad range of manufacturing industries reflects the views on current &amp; future business conditions. The business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2517">here</a>.
U.S. Economic Outlook - Remarks by Michael H. Moskow, President and Chief Executive Officer, Federal Reserve Bank of Chicago are available <a href="http://www.chicagofed.org/news_room/speeches/2007_01_10_corridor.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">4Q &#39;06</th>
<th scope="col">3Q &#39;06</th>
<th scope="col">4Q &#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">Composite Business Index</td>
<td>54</td>
<td>64</td>
<td>74</td>
<td>66</td>
<td>70</td>
<td>76</td>
</tr>
</tbody>
</table>
</body>
</html>

The 4Q '06 Composite Business Index published by the Manufacturers' Alliance/MAPI fell for the third straight quarter, to 54 from 64 in 3Q '06. The figure was the lowest since early 2002. During the last ten years there has been a 69% [...]

MAPI Business Outlook Survey Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111a.jpg" width="353">
Initial unemployment insurance claims last week reversed all of the increases over the prior three weeks and fell 26,000 to 299,000, the lowest level since July. Consensus expectations had been for a roughly unchanged figure at 325,000.
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 also fell to 314,750 (3.3% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111b.jpg" width="353">
Continuing claims for unemployment insurance also fell 3,000 and the prior week&#39;s sharp decline was deepened to 91,000.
The insured rate of unemployment remained at 1.9% for the seventh consecutive week and equaled the average rate since February.
Will Moderating Growth Reduce Inflation? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-37.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">01/06/07</th>
<th scope="col">12/30/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>299</td>
<td>325</td>
<td>0.3%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,428</td>
<td>-8.0%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial unemployment insurance claims last week reversed all of the increases over the prior three weeks and fell 26,000 to 299,000, the lowest level since July. Consensus expectations had been for a roughly unchanged figure at [...]

Initial Unemployment Insurance Claims Lowest Since July

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111c.jpg" width="353">
The 4Q &#39;06 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell for the third straight quarter, to 54 from 64 in 3Q &#39;06. The figure was the lowest since early 2002.
During the last ten years there has been a 69% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index dropped sharply to 66, the lowest since 2002 but the 4Q export orders index rose and recouped declines in the prior two quarters. During the last ten years there has been a 59% correlation between the export orders index and quarterly growth in real US exports.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111d.jpg" width="353">
The profit margins index fell sharply to 62 versus an average 65 last year, its lowest level since 2Q &#39;05.Capital spending intentions for the coming year, however, improved. During the last ten years there has been a 75% correlation between the capital spending index a q/q growth in business investment.
The survey of 60 senior financial executives representing a broad range of manufacturing industries reflects the views on current &amp; future business conditions. The business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2517">here</a>.
U.S. Economic Outlook - Remarks by Michael H. Moskow, President and Chief Executive Officer, Federal Reserve Bank of Chicago are available <a href="http://www.chicagofed.org/news_room/speeches/2007_01_10_corridor.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">4Q &#39;06</th>
<th scope="col">3Q &#39;06</th>
<th scope="col">4Q &#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">Composite Business Index</td>
<td>54</td>
<td>64</td>
<td>74</td>
<td>66</td>
<td>70</td>
<td>76</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Lowest Since July 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 11, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111a.jpg" width="353">
Initial unemployment insurance claims last week reversed all of the increases over the prior three weeks and fell 26,000 to 299,000, the lowest level since July. Consensus expectations had been for a roughly unchanged figure at 325,000.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111b.jpg" width="353">
The four-week moving average of initial claims also fell to 314,750 (3.3% y/y).
Continuing claims for unemployment insurance also fell 3,000 and the prior week&#39;s sharp decline was deepened to 91,000.
The insured rate of unemployment remained at 1.9% for the seventh consecutive week and equaled the average rate since February.
Will Moderating Growth Reduce Inflation? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-37.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">01/06/07</th>
<th scope="col">12/30/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>299</td>
<td>325</td>
<td>0.3%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,428</td>
<td>-8.0%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
Big Gain in Australia Employment; Unemployment Remains at All-Time Low 
by <a href="/comment/Stone.html">Carol Stone</a> January 11, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111e.jpg" width="353">
Employment in Australia grew 45,000 in the month of December, about the same as in November and far above the consensus expectation of 15,000 given in one news service forecast survey. This put the year-to-year growth rate at 3.0%.
The number of Australians unemployed rose 2,200 following a 3,800 increase in November. But these small increases still left the total unemployed right at 500,000, among the lowest since the early months of 1990. The resulting unemployment rate remained at 4.6% for a third consecutive month, the lowest in the almost-29-year history of these labor force data.
This labor market performance is impressive as it accompanied a rise in the participation rate from 64.78% to 64.95%, near the all-time high of 65.02% reached in September. [The Bureau of Statistics publishes the participation rate rounded to one decimal place. We calculated the rate from labor force and population series so we could see more precise changes.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111f.jpg" width="353">
Further, in Q4, separate data reported Wednesday show job vacancies at an all-time high of nearly 164,000, up more than 21% from the year-ago period. as seen in our second graph, much of the strength is in Western Australia -- Perth -- perhaps owing to growing trade in Indian Ocean territories. Queensland also shows gains. The two greatest population centers, New South Wales (Sydney) and Victoria (Melbourne) are seeing a steady number of reported job vacancies.
So the Australian labor market is doing well and, with rising vacancies, perhaps can sustain that track.
These data are contained in Haver&#39;s &quot;ANZ&quot; database and in &quot;G10&quot;.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">AUSTRALIA (Months Seas Adj)</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.6</td>
<td>4.6</td>
<td>4.6</td>
<td>5.2</td>
<td>4.9</td>
<td>5.1</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">Employment (000s)</td>
<td>10337</td>
<td>10293</td>
<td>10250</td>
<td>10035</td>
<td>10190</td>
<td>9987</td>
<td>9677</td>
</tr>
<tr class="odd">
<td class="firstcol">Change(000s)/Yr- to-Yr % Change</td>
<td>+45</td>
<td>+43</td>
<td>-32</td>
<td>3.0</td>
<td>2.0</td>
<td>3.2</td>
<td>2.1</td>
</tr>
<tr>
<td class="firstcol">Participation Rate (%)</td>
<td>64.95</td>
<td>64.78</td>
<td>64.61</td>
<td>64.39</td>
<td>64.70</td>
<td>64.44</td>
<td>63.57</td>
</tr>
<tr class="odd">
<td class="firstcol">Job Vacancies (000s)</td>
<td colspan="3">164 (Q4)</td>
<td>135 (Q4)</td>
<td>154</td>
<td>140</td>
<td>124</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070110e.jpg" width="353">
The US Census Bureau publishes a voluminous amount of foreign trade data. So along with the national summary reported on by Tom Moeller, we will highlight for you one specific set of associated data, exports by state.
These shipments are counted from their &quot;origin of movement&quot;, that is where the transportation begins, rather than where the merchandise leaves the country. Census publishes total figures monthly for each state, and it publishes quarterly information on product and destination country, an extraordinarily detail dataset. The total data are contained in Haver&#39;s REGIONAL database, a wide-ranging collection of various economic data for states. The breakdown of state export data by product is a set of databases each covering a Census division of states. In EXPRQ6, for example, you can find the shipping weight of non-electrical machinery sent by ship or air from Tennessee to Aruba.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070110f.jpg" width="353">
The state export totals appear in a supplemental table in the Census Bureau&#39;s main FT900 International Trade press release. In our table below, we show the US Total and a selection of states. We picked the three largest exporters, Texas, California and Washington, and also a few others from various regions: Missouri in the midwest, Georgia in the southeast and Massachusetts in New England. All these data are not seasonally adjusted and are reported in current dollars on the so-called &quot;Census&quot; basis.
Total US exports in November were up 15.7% from a year ago. A number of states are showing more rapid expansion than that, particularly Texas, which is the largest exporter in dollar terms. It shipped $13.35 billion of merchandise to customers abroad in November, 20.9% more than November 2005. We can also compare these exports for a full year to gross state product (Haver database GSP); in 2005 they made 13% of Texas state product. California runs second in dollar value of exports, with $10.8 billion in November shipments; this was up 5.5% from the year-ago period. California exports were 7.2% of its GSP in 2005. Interestingly, Washington State is third; we haven&#39;t looked, but we&#39;d guess that aircraft and computer software make a large portion of the goods, which amounted to $5.4 billion in November, up a whopping 47.6% from the year before; exports constitute 14.2% of Washington&#39;s gross product. [New York State&#39;s total exports are marginally larger, but include more reexports, so they would represent less value added.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070110g.jpg" width="353">
Among the other states shown here, Missouri is seeing notable expansion of its export business. While November&#39;s shipments look small at just $1.3 billion, they are up 51% from a year ago and were more than double the 2003 amount.
We&#39;d also surmise -- without much investigation, to be sure -- that sizable overall export growth is related to the recently weak dollar. It&#39;s also important to note that outsourcing and other aspects of globalization do not work only to the detriment of the US economy. One reason for the publication of these data is a desire by officials in various states to show how their state can be competitive in world markets and thereby create jobs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US Exports by State (NSA, Mil.$)</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</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 US</td>
<td>91240</td>
<td>92476</td>
<td>88428</td>
<td>75365</td>
<td>68046</td>
<td>60312</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>15.7</td>
<td>16.3</td>
<td>19.0</td>
<td>10.8</td>
<td>12.8</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Texas</td>
<td>13350</td>
<td>13959</td>
<td>12576</td>
<td>10730</td>
<td>9762</td>
<td>8237</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>20.9</td>
<td>24.8</td>
<td>21.7</td>
<td>9.9</td>
<td>18.5</td>
<td>3.6</td>
</tr>
<tr class="odd">
<td class="firstcol">California</td>
<td>10761</td>
<td>11216</td>
<td>10862</td>
<td>9735</td>
<td>9155</td>
<td>7833</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>5.5</td>
<td>7.6</td>
<td>13.4</td>
<td>6.3</td>
<td>16.9</td>
<td>1.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Washington</td>
<td>5410</td>
<td>4651</td>
<td>4546</td>
<td>3162</td>
<td>2814</td>
<td>2848</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>47.6</td>
<td>37.7</td>
<td>149.3</td>
<td>12.4</td>
<td>-1.2</td>
<td>-1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Missouri</td>
<td>1303</td>
<td>1143</td>
<td>1135</td>
<td>872</td>
<td>748</td>
<td>603</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>50.8</td>
<td>7.5</td>
<td>27.4</td>
<td>34.1</td>
<td>11.9</td>
<td>41.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Massachusetts</td>
<td>2034</td>
<td>2175</td>
<td>2042</td>
<td>1837</td>
<td>1818</td>
<td>1555</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>7.9</td>
<td>15.3</td>
<td>7.3</td>
<td>1.1</td>
<td>16.9</td>
<td>11.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Georgia</td>
<td>1629</td>
<td>1801</td>
<td>1656</td>
<td>1715</td>
<td>1633</td>
<td>1357</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>5.4</td>
<td>8.3</td>
<td>-3.2</td>
<td>5.0</td>
<td>20.3</td>
<td>13.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The US Census Bureau publishes a voluminous amount of foreign trade data. So along with the national summary reported on by Tom Moeller, we will highlight for you one specific set of associated data, exports by state. These shipments [...]

Export Growth Spread Around the Country: Texas Leads but Other States Participate

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.

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.

- 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

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.

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.

Economy in Brief: January 2007

Jump to:

U.S. Import Prices Jumped

U.S. Retail Sales Firm At Yearend Led By Electronics

U.S. Retail Sales Firm At Yearend Led By Electronics

Big Gain in Australia Employment; Unemployment Remains at All-Time Low

MAPI Business Outlook Survey Fell Again

Initial Unemployment Insurance Claims Lowest Since July

MAPI Business Outlook Survey Fell Again

Export Growth Spread Around the Country: Texas Leads but Other States Participate