Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016a.jpg" align="left" border="0" height="265" width="353">
Industrial production is hardly overheating, but the nation's
industrial plant is starting to hum again. Output rose a surprising
0.7% during September after gains of 1.2% and 0.8% during the prior two
months. An uptick of a meager 0.1% had been the Consensus expectation,
based on the decline in factory sector employment last month. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016b.jpg" align="right" border="0" height="265" width="353">
The
productivity of those still working thus soared. The recent output
recovery follows a decline of 14.5% during the 21 months of recession
beginning in January of 2008.
Output of consumer goods rose a firm 1.1% for the third month
of increase following a 10.1% drop during the recession. Production of
autos led the increase with a 7.3% rise, after two months of decline
and a recession loss of 38.5%. Furniture &amp; appliance output
rose a lesser 0.3% which was the second in the last three months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016c.jpg" align="right" border="0" height="265" width="353">
Working the other way, the output of computers, video &amp; audio
equipment showed no sign of recovery, posting a 1.4% (-16.5% y/y)
decline. Outside of the auto and high-tech sectors output ticked 0.3%
higher (-5.3% y/y) during September for the third consecutive monthly
gain. That's against the 12.8% decline during the prior 21 months.
Apparel output rose for third consecutive month of strong gain
and the 2.2% increase cut the y/y decline to 11.4%. The output of
business equipment rose 0.2% (-8.0% y/y) but the output of construction
supplies continued 0.4% (-16.8% y/y) lower after four months of
relative stability. Construction supplies output fell 23.4% during this
recession.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016d.jpg" align="right" border="0" height="265" width="353">
Excess industrial capacity diminished during September for the
third consecutive month. In the factory sector alone, the rise to 67.5%
also was the third consecutive monthly gain but it nevertheless left
the figure near its lowest of the postwar period. Across industries,
utilization remained the smallest since WWII.
The industrial production data are available in Haver's USECON
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>0.7</td>
<td>1.2</td>
<td>-6.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.8</td>
<td>1.2</td>
<td>-7.8</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>1.1</td>
<td>1.5</td>
<td>-1.8</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.2</td>
<td>1.1</td>
<td>-8.0</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.4</td>
<td>0.5</td>
<td>-16.8</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-0.7</td>
<td>1.9</td>
<td>-2.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>70.5</td>
<td>69.9</td>
<td>74.5 (Sept. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
</body></html>

Industrial production is hardly overheating, but the nation's industrial plant is starting to hum again. Output rose a surprising 0.7% during September after gains of 1.2% and 0.8% during the prior two months. An uptick of a meager [...]

U.S. Factory Production Climbs For Third Month While Plant Utilization Reaches Seven-Month High

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016a.jpg" align="left" border="0" height="265" width="353">
Industrial production is hardly overheating, but the nation's
industrial plant is starting to hum again. Output rose a surprising
0.7% during September after gains of 1.2% and 0.8% during the prior two
months. An uptick of a meager 0.1% had been the Consensus expectation,
based on the decline in factory sector employment last month. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016b.jpg" align="right" border="0" height="265" width="353">
The
productivity of those still working thus soared. The recent output
recovery follows a decline of 14.5% during the 21 months of recession
beginning in January of 2008.
Output of consumer goods rose a firm 1.1% for the third month
of increase following a 10.1% drop during the recession. Production of
autos led the increase with a 7.3% rise, after two months of decline
and a recession loss of 38.5%. Furniture &amp; appliance output
rose a lesser 0.3% which was the second in the last three months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016c.jpg" align="right" border="0" height="265" width="353">
Working the other way, the output of computers, video &amp; audio
equipment showed no sign of recovery, posting a 1.4% (-16.5% y/y)
decline. Outside of the auto and high-tech sectors output ticked 0.3%
higher (-5.3% y/y) during September for the third consecutive monthly
gain. That's against the 12.8% decline during the prior 21 months.
Apparel output rose for third consecutive month of strong gain
and the 2.2% increase cut the y/y decline to 11.4%. The output of
business equipment rose 0.2% (-8.0% y/y) but the output of construction
supplies continued 0.4% (-16.8% y/y) lower after four months of
relative stability. Construction supplies output fell 23.4% during this
recession.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016d.jpg" align="right" border="0" height="265" width="353">
Excess industrial capacity diminished during September for the
third consecutive month. In the factory sector alone, the rise to 67.5%
also was the third consecutive monthly gain but it nevertheless left
the figure near its lowest of the postwar period. Across industries,
utilization remained the smallest since WWII.
The industrial production data are available in Haver's USECON
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>0.7</td>
<td>1.2</td>
<td>-6.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.8</td>
<td>1.2</td>
<td>-7.8</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>1.1</td>
<td>1.5</td>
<td>-1.8</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.2</td>
<td>1.1</td>
<td>-8.0</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.4</td>
<td>0.5</td>
<td>-16.8</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-0.7</td>
<td>1.9</td>
<td>-2.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>70.5</td>
<td>69.9</td>
<td>74.5 (Sept. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment Sags
M/M But Remains Improved From Its Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 16, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016f.jpg" align="right" border="0" height="265" width="353"> Consumer
sentiment sagged this month but retraced just half of the rise during
September. The University of Michigan's mid-month October reading of
consumer sentiment fell to 69.4 from a September reading of 73.5.
Despite the decline sentiment remained up by roughly one-quarter from
the low last Fall. Consensus expectations had been for no change this
month versus September. During the last ten years, there has been a 69%
correlation between the level of sentiment and the growth in real
consumer spending during the next five months.

The reading of expected
economic conditions fell the hardest this month with an 8.0% m/m
decline. That mostly erased September's gain. Despite the decline,
however, the index remained up by one-third from the February low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016g.jpg" align="right" border="0" height="265" width="353">
The
latest decline was led by a sharp 18.7% drop in expected business
conditions during the next five years which reversed much of the recent
improvement. Expected conditions during the next year fell just
modestly and the index remained more than double the February low.
Conversely, the expected change in personal finances improved and the
index was up nearly one-quarter from the low during 2008 with the
higher stock market.

The reading of current economic condition fell
just moderately as the reading of personal finances slipped m/m. It has
remained range-bound this year with higher unemployment. The reading of
buying conditions for large household goods held steady m/m but it is
up by one-third from the November low due to low prices.

Expected
price inflation during the next year amounted to 3.1%; up slightly from
September but down from a high of 7% during May of last year. A low of
0.3% inflation was expected by 25% of respondents but 5.0% inflation
was expected by another quarter. Inflation of 3.4% during the next 5-10
years was the mean expectation.&nbsp;

The opinion of
government policy, which may eventually influence economic
expectations, fell slightly from September and remained near
the&nbsp; lowest level since February. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016h.jpg" align="right" border="0" height="265" width="353">
Thirty percent of
respondents thought that a poor job was being done by government. A
reduced 19% thought that a good job was being done. It had hit 30% in
April.

The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.

Optimism
Amid Uncertainty from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/update-us/index.cfm">
here</a>.&nbsp;

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>69.4</td>
<td>73.5</td>
<td>65.7</td>
<td>20.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>72.1</td>
<td>73.4</td>
<td>66.6</td>
<td>23.5</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>67.6</td>
<td>73.5</td>
<td>65.0</td>
<td>18.6</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>

Italy's Trade Gap Widens On Weaker
Exports 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016e.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s exports and imports both dropped on the month with
exports dropping faster. As a result, the trade gap widened. But the
gap has improved from its worst level at end of 2008. True, the deficit
has expanded again from it best level in May of 2009, but both exports
and imports are on the mend. The export drop this month was
particularly large and therefore it is hard to put in context; it will
take several more months to figure out if this is a new trend of sorts,
or an oddity. 
 

One problem is that Germany, too, had reported a sharp and
unexpected drop in exports. So the Italian drop may have something to
it. Even so it could be that the same rogue factor affected both of
them, it could be a coincidence, or it could be a fundamental weakening
in exports. It will take time to tell 
 

Because of the relatively sharp drop this month, -15.9% for
exports Vs -8.8% for imports, the Yr/Yr trends are probably distorted.
But both export and import growth are down sharply across major
category components (see the table, at the bottom). 
 

While all nations are banking on trade to become an engine of
growth, US demand seems to be slow in starting and most industrialized
economies are having a hard time getting into gear, too. It is in this
environment in which it is hard to see why up to this point exports
have responded so well in the cycle. One man&#8217;s export is another&#8217;s
import and ultimately is linked to domestic demand which remains
globally challenged: that is the part that is hard to figure out. Whose
export demands have been strong and will they stay that way? 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy's
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/mo % monthly rate</td>
<td colspan="4">Period Specified saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">Seasonally Adjusted</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Current Account Bal</td>
<td>&#8364;&#8364;(3,237)</td>
<td>&#8364;&#8364;(1,382)</td>
<td>&#8364;&#8364;(2,378)</td>
<td>&#8364;&#8364;(2,332)</td>
<td>&#8364;&#8364;(2,099)</td>
<td>&#8364;&#8364;(3,656)</td>
<td>&#8364;&#8364;(3,927)</td>
</tr>
<tr class="grey2">
<td class="firstcol">Goods
Balance</td>
<td>&#8364;&#8364;(1,086)</td>
<td>&#8364;&#8364;814</td>
<td>&#8364;&#8364;939</td>
<td>&#8364;&#8364;222</td>
<td>&#8364;&#8364;592</td>
<td>&#8364;&#8364;163</td>
<td>&#8364;&#8364;86</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Exports</td>
<td>-15.9%</td>
<td>11.8%</td>
<td>-1.3%</td>
<td>-25.7%</td>
<td>-22.4%</td>
<td>-24.4%</td>
<td>-8.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Imports</td>
<td>-8.8%</td>
<td>12.9%</td>
<td>1.2%</td>
<td>17.9%</td>
<td>-10.9%</td>
<td>-26.0%</td>
<td>-2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services
Balance</td>
<td>&#8364;&#8364; 352</td>
<td>&#8364;&#8364; (399)</td>
<td>&#8364;&#8364; (788)</td>
<td>&#8364;&#8364; (278)</td>
<td>&#8364;&#8364; (585)</td>
<td>&#8364;&#8364; (766)</td>
<td>&#8364;&#8364; (458)</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>10.4%</td>
<td>5.8%</td>
<td>-0.4%</td>
<td>83.3%</td>
<td>41.6%</td>
<td>-0.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>-15.6%</td>
<td>-12.1%</td>
<td>-3.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="7">Not
Seasonally Adjusted</td>
<td>All Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-1.7%</td>
<td colspan="2">-1.7%</td>
<td colspan="2">7.2%</td>
<td>10.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-24.9%</td>
<td colspan="2">-8.2%</td>
<td colspan="2">15.9%</td>
<td>12.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-23.9%</td>
<td colspan="2">-7.9%</td>
<td colspan="2">9.0%</td>
<td>14.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Consumer Gds</td>
<td colspan="2">-14.1%</td>
<td colspan="2">-11.5%</td>
<td colspan="2">8.0%</td>
<td>8.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-44.2%</td>
<td colspan="2">4.3%</td>
<td colspan="2">4.5%</td>
<td>20.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-10.5%</td>
<td colspan="2">-0.5%</td>
<td colspan="2">6.4%</td>
<td>6.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-22.4%</td>
<td colspan="2">-10.5%</td>
<td colspan="2">13.1%</td>
<td>6.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-21.9%</td>
<td colspan="2">-6.2%</td>
<td colspan="2">11.6%</td>
<td>5.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Consumer Gds</td>
<td colspan="2">-8.5%</td>
<td colspan="2">-5.7%</td>
<td colspan="2">8.3%</td>
<td>9.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-42.6%</td>
<td colspan="2">9.7%</td>
<td colspan="2">-0.1%</td>
<td>33.4%</td>
</tr>
<tr class="grey4">
<td colspan="8" class="firstcol">Balances
in Mlns of euros</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Factory Production Climbs ForThird Month While Plant Utilization Reaches Seven-Month High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015l.jpg" width="353">
The Federal Reserve Bank of New York reported that its October Empire State Factory Index of General Business Conditions improved to its highest level since 2004. The latest reading of 34.57 compares to sharply negative levels this past Winter and suggests positive growth in factory sector activity. The latest level was much better than Consensus expectations for a reading of 18.0.
The figure is a diffusion index. Since the series&#39; inception in 2001, there has been a 75% correlation between its level and the three-month change in U.S. factory sector industrial production. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to independent survey questions; it is not a weighted combination of the components. The series dates back only to 2001.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State. Participants from across the state in a variety of industries respond to a questionnaire and report the change in indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The new orders component again paced the latest gain in the overall October index with a rise to the highest level since 2005. The shipments index also improved sharply while the employment index reached its highest level since 2007. In the history of the NY employment index, there has been an 87% correlation between the employment index and the three-month growth in overall U.S. factory sector employment as reported by the Labor Department. The workweek index also improved sharply as did unfilled orders and delivery times.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015m.jpg" width="353">
The price index eased slightly after having risen to its highest level in a year during September. Nevertheless, the index level remained down sharply from all of last year. Since inception in 2001, there has been a 77% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months rose during August to its highest level since early 2007. The subseries for new orders, shipments, employment and capital expenditures each ticked up.
The Empire State data is available in Haver&#39;s SURVEYS database.

<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">October</th>
<th scope="col">September</th>
<th scope="col">October &#39;08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>34.57</td>
<td>18.88</td>
<td>-24.30</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>30.82</td>
<td>19.84</td>
<td>-19.57</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>10.39</td>
<td>-8.33</td>
<td>-3.66</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>19.48</td>
<td>20.24</td>
<td>31.71</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>


</html>

The Federal Reserve Bank of New York reported that its October Empire State Factory Index of General Business Conditions improved to its highest level since 2004. The latest reading of 34.57 compares to sharply negative levels this [...]

Empire State Factory Conditions Improve To Highest Level Since 2004

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015i.jpg" align="right" border="0">
October
index of factory sector activity from the Philadelphia Federal Reserve
Bank indicated that activity in the region continued to grow this
month. The index slipped as expected to a positive 11.5 from 14.1 in
September and remained near its highest since mid-2007. The latest
level compared to figures near -40.0 this past fall and winter.During
the last ten years there has been a 77% correlation between the level
of the Philadelphia Fed Business Conditions Index and the three-month
growth in factory sector industrial production.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015j.jpg" align="right" border="0">
There has been a 70%
correlation with q/q growth in real GDP. The latest survey from the
Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos1009.pdf">here.</a>·
Amongst the components, new orders improved to 6.2 from 3.3 and the
latest figure was the highest since 2007. Also showing improvement was
the employment index. It rose to a still negative -6.8 but that
compared with a low of -52.0 during March. During the last ten years
there has been a 79% correlation between the index level and the m/m
change in manufacturing sector payrolls. The inventory component
reversed its earlier improvement and suggests that any turn towards
inventory accumulation will be modest. Improved pricing power
accompanied the gains in real activity. The prices paid index rose to
its highest level since last September and compares to negative
readings this past winter and spring. During the last ten years there
has been a 74% correlation between the prices paid index and the
three-month growth in the intermediate goods PPI.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015k.jpg" align="right" border="0">
There has been an 83%
correlation with the change in core intermediate goods prices.
Expected business conditions in six months fell this month. The October
index fell to a still-positive reading of 39.8 but that was down from
the recent high. Most of the index components fell except anticipated
capital expenditures.· The figures from the Philadelphia Federal
Reserve can be found in Haver's SURVEYS
database.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">October '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Activity Index</td>
<td>11.5</td>
<td>14.1</td>
<td>-38.7</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>6.2</td>
<td>3.3</td>
<td>-30.6</td>
<td>-14.7</td>
<td>6.9</td>
<td>9.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Number of Employees</td>
<td>-6.8</td>
<td>-14.3</td>
<td>-19.2</td>
<td>-8.7</td>
<td>6.8</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>21.3</td>
<td>&nbsp;14.9</td>
<td>&nbsp;10.2</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
</body></html>

October index of factory sector activity from the Philadelphia Federal Reserve Bank indicated that activity in the region continued to grow this month. The index slipped as expected to a positive 11.5 from 14.1 in September and [...]

Philadelphia Fed Index Slips Yet Still Indicates Positive Growth

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015e.jpg" align="left" border="0" height="265" width="353">
The EMU HICP fell by 0.1% m/m in September. The 12-month pace
for headline inflation was -0.3%. The headline rate has not increased
Yr/Yr since April. Headline inflation is choppy at a low level. Core
inflation has been very steady at a 1.1% pace; it barely ticked up to
1.2% over three months in Sept. 
 
In EMU goods sector inflation has been falling under the influence of
weak oil prices aided by the impact of a rising euro exchange rate.
Services prices have been steady at 1.8% but over the recent three
months service sector inflation stepped down to a 1.3% pace. 
 
The headline inflation trend across selected large EMU nations shows
subdued rates. Spain and France show a hint of inflation acceleration
in their sequential growth rates. Spain&#8217;s 1.9% 3-month pace is the
highest in this group. 
 
Core inflation is both stable and low across the large EMU countries.
Italy alone shows some hint of acceleration with a core inflation pace
of 1.9% over three months up from what has generally been a 1.5% pace
for core inflation there. 
 
On balance inflation, inflation trends inflation dynamics and inflation
fundamentals appear to be very well contained in the zone. We see the
inflation readings and trends above. The dynamics do not show wages or
prices getting out of control across the economy. The fundamentals show
constrained money and credit growth, lots of economic slack, as well as
a rising exchange rate. There is little ground for the ECB to be
inflation wary. The increases in global commodity prices have been well
blunted by euro strength Vs the dollar. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Trends in HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.0%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>1.1%</td>
<td>1.1%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>0.5%</td>
<td>0.4%</td>
<td>-1.7%</td>
<td>-2.9%</td>
<td>-0.2%</td>
<td>-1.8%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>0.8%</td>
<td>1.3%</td>
<td>1.8%</td>
<td>1.8%</td>
<td>2.6%</td>
</tr>
<tr>
<td colspan="8">&nbsp;</td>
</tr>
<tr>
<td colspan="8">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>1.1%</td>
<td>0.7%</td>
<td>-0.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>0.4%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>0.1%</td>
<td>1.9%</td>
<td>1.4%</td>
<td>-1.0%</td>
<td>4.6%</td>
</tr>
<tr>
<td colspan="8">Core excl Food Energy and
Alcohol</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>1.0%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>1.0%</td>
<td>1.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.5%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.7%</td>
<td>0.7%</td>
<td>0.3%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body></html>

The EMU HICP fell by 0.1% m/m in September. The 12-month pace for headline inflation was -0.3%. The headline rate has not increased Yr/Yr since April. Headline inflation is choppy at a low level. Core inflation has been very steady at [...]

EMU HICP Drops in September Core Rate Remains in Subdued Trend

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015f.jpg" align="right" border="0" height="265" width="353">
A recent
downtrend in initial claims for unemployment insurance continued last
week. They fell slightly and remained near their lowest level since
early-January. The Labor Department indicated that claims fell to
514,000 from an upwardly revised 524,000 during the prior week. Both
figures are down sharply from the peak reached in March of 674,000
claims. The latest figure was lower than Consensus expectations for
525,000 claims.The largest decreases in initial claims during the
week ending October 3 were in Florida (-5,178), California (-3,911),
Tennessee (-683), Illinois (-682), and Arkansas (-589) while the
largest increases in claims were in Pennsylvania (+3,618), Washington
(+1,857), Wisconsin (+1,629), Missouri (+1,441), and Texas (+1,291).
Continuing claims for unemployment insurance during the latest week
fell 75,000 to their lowest level since late-March.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015g.jpg" align="right" border="0" height="265" width="353">
The decline
continues to owe partially to the exhaustion of benefits. Continuing
claims provide an indication of workers' ability to find employment.
The four-week average of continuing claims fell modestly to 6,082,750.
This series dates back to 1966.&nbsp;·&nbsp;Extended benefits
for unemployment insurance rose sharply for the fifth consecutive week.
Through the end of last month, extended benefits averaged 471,031. The
insured rate of unemployment slipped to 4.5% and matched its lowest
since early-April. The rate reached a high of 5.2% during late-June.
During the last ten years, there has been a 93% correlation between the
level of the insured unemployment rate and the overall rate of
unemployment published by the Bureau of Labor Statistics.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015h.jpg" align="right" border="0" height="265" width="353">
The lowest rates were in North Dakota (1.0%), South Dakota (1.1),
Virginia (2.1), Wyoming (2.5), Maine (2.5), Texas (2.6), Colorado
(2.9), Minnesota (3.0), Maryland (3.1), Mississippi (3.5), New York
(3.5), Florida (3.8), and Georgia (3.9). The highest insured
unemployment rates in the week ending Sept. 26 were in Puerto Rico (7.1
percent), Oregon (5.3), Nevada (5.2), Pennsylvania (5.0), California
(4.7), Michigan (4.6), North Carolina (4.6), Wisconsin (4.6), Arkansas
(4.5), and South Carolina (4.5).The unemployment insurance claims
data is available in Haver's WEEKLY database and
the state data is in the REGIONW database.
Yesterday's Senate testimony by Fed Governor Daniel K. Tarullo, State
of the banking industry, can be found <a href="http://www.federalreserve.gov/newsevents/testimony/tarullo20091014a.htm">here</a>.&nbsp;



<table border="0" cellspacing="0" width="100%">
<colgroup><col><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>&nbsp;</th>
<th scope="col">10/09/09</th>
<th scope="col">10/02/09</th>
<th scope="col">09/26/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>514</td>
<td>524</td>
<td>554</td>
<td>9.6%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,992</td>
<td>6,067</td>
<td>59.7%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>4.5</td>
<td>4.6</td>
<td>2.8 (10/2008)</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

A recent downtrend in initial claims for unemployment insurance continued last week. They fell slightly and remained near their lowest level since early-January. The Labor Department indicated that claims fell to 514,000 from an [...]

U.S. Initial Unemployment Insurance Claims Fall Slightly; Continuing Claims Off As Well

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015a.jpg" align="left" border="0" height="265" width="353">
Despite recent moderate economic improvement, pricing pressure
remained very much under control last month as indicated by weak gains
in consumer prices. Perhaps the economy's improvement owes much to that
weakened pricing power. Nevertheless, the overall September CPI matched
Consensus expectations and rose 0.2%, half the unrevised August
increase. Helped by lower energy prices, the index versus last year
declined 1.3% which was near the record for a twelve-month period.
Stripping out food &amp; energy prices, the monthly gain of 0.2%
was just slightly more than expectations but the y/y increase of 1.5%
was the weakest since early-2004.
Earlier strength in energy prices took a breather last month
and rose 0.6% after a 4.6% August increase. Nevertheless, energy prices
during the last three months have risen at a strong 21.1% annual rate.
Gasoline prices rose just 0.1% (-29.7% y/y) after a 9.1% jump during
August. Fuel oil prices were a bit stronger ahead of the winter heating
season. They rose 1.1% (-32.2% y/y) after a 3.9% August gain. Finally,
prices for natural gas &amp; electricity rose just 0.1% (-8.3% y/y)
after no change during the prior month.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015b.jpg" align="right" border="0" height="265" width="353">

Food &amp; beverage prices also were weak last month and
ticked 0.1% lower, reversing a similar August uptick. That left prices
roughly unchanged versus September '08. It was the lowest nine-month
change since 1967 and down from the peak 6.1% rate of increase last
fall. Recent weakness has been led by lower dairy prices (-9.5% y/y)
and lower fruit &amp; vegetable (-6.5% y/y) prices. Prices for
meats, poultry, fish &amp; eggs also fell by 3.9% y/y while cereals
&amp; bakery product prices ticked up just 0.1%.
Gains in the CPI less food &amp; energy also remained
moderate. However, the 0.2% September increase was slightly firmer than
expected. In addition, price gains accelerated to a 2.0% annual rate
since December of last year. That's only slightly below the 2.3% rates
of increase during the last two years.
The acceleration in core price inflation this year owes to core
goods prices. Their 0.3% increase last month lifted the
annualized rate so far in 2009 to 2.9% from no change during the prior
two years. Higher tobacco prices account for much of that acceleration
as they have risen at a 38.9% rate since December. However, there has
been modest firming of prices elsewhere. Prices for new &amp; used
motor vehicles have firmed this year despite an aggressive marketing
campaign. They rose 0.5% last month and at a 3.3% rate since December.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015c.jpg" align="right" border="0" height="265" width="353">
That compares with price deflation during the last two years. Apparel
prices ticked up 0.1% last month and are up at a 3.1% rate this year.
That follows price declines which extend back to 1994. Continuing weak
were prices for household furnishings &amp; operation. They slipped
last month for the fifth month in the last six and are down at a 0.5%
rate so far this year.
The U.S. recession continued to sap the strength from core
services prices. They ticked up just 0.1% last month and have
risen at just a 1.6% annual rate so far this year; half that in 2008
and nearly the weakest since 1983. Weakness in the housing market
accounts for much of that moderation. Last month, shelter prices
slipped and they've risen at a just a 0.6% annual rate so far in 2009.
Owners equivalent rent of primary residences, a measure not equivalent
to other house price measures, slipped during September and have risen
at a 1.2% rate so far this year versus a 2.5% 2008 increase. Elsewhere,
public transportation prices posted their third consecutive month of
strength and rose 2.1%.Also firming last month were medical care
services prices with a 0.4% increase and a 3.6% YTD gain. In addition,
education costs have been firm and they're up at a 5.0% annual rate
this year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015d.jpg" align="right" border="0" height="265" width="353">

The chained CPI, which adjusts for shifts in consumption
patterns, rose 0.1% during September while year-to-year prices fell
1.4%. Conversely, chained prices less food and energy firmed last month
by 0.2%, the first material gain in five months and the YTD increase
rose to 2.2%.
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA
database.
The minutes of the latest FOMC meeting can
be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20090923.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/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>0.2</td>
<td>0.4</td>
<td>-1.3</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>1.5</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.3</td>
<td>-0.3</td>
<td>1.6</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>0.2</td>
<td>1.5</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>0.6</td>
<td>4.6</td>
<td>-21.9</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.1</td>
<td>0.1</td>
<td>-0.0</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&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>&nbsp;</td>
<td>0.1</td>
<td>0.2</td>
<td>-1.4 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.2</td>
<td>0.1</td>
<td>1.1</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>
</body></html>

Despite recent moderate economic improvement, pricing pressure remained very much under control last month as indicated by weak gains in consumer prices. Perhaps the economy's improvement owes much to that weakened pricing power. [...]

CPI Total & Core Increase Just Modestly Despite Economic Improvement

CPI Total & Core IncreaseJust Modestly Despite Economic Improvement

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.

250501Z1.jpg

**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.

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

250501H20.jpg

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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: October 2009

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