Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041214b.jpg" width="353">
The U.S. foreign trade deficit deepened sharply to $55.5B in October, $4.5B deeper than September which was revised slightly shallower. Consensus expectations had been for a deficit of $52.4B. The latest deficit set a new record and was $3.6B deeper than the average in 3Q.
Total exports rose just 0.6% following an upwardly revised 1.3% gain in September. Goods exports inched up 0.3% (13.4% y/y) following a 1.7% September surge. Nonauto consumer goods exports fell 0.1% (+16.1% y/y) on the heels of two sizable monthly gains. Capital goods exports rose 0.3% (10.3% y/y).
Total imports reversed the prior month&#39;s decline and rose 3.4% due to higher petroleum imports, up 16.9% (+66.8% y/y) reflecting an 11.1% m/m rise in crude oil prices to an average $41.79/bbl. Since then crude oil prices have fallen roughly $12/bbl.
Imports of non-petroleum goods jumped 2.5% (12.4% y/y), driven by a 5.4% (10.5% y/y) surge in nonauto consumer goods. Capital goods imports edged 0.3% (16.7% y/y) higher following a 1.6% rise in September.
The US trade deficit with China deepened to another record of $16.8B ($124.1B in 2003). Exports to China rose 3.0% (5.9% y/y) but imports rose 7.3% (19.8% y/y). The US trade deficit with Japan eased to $5.9B ($66.0B in 2003) but the deficit with the Asian NICs deepened to $2.5B ($21.2B in 2003). The US trade deficit with the European Union deepened to $9.3 B ($97.9B in 2003).
&quot;Offshoring in the Service Sector: Economic Impact and Policy Issues&quot; from the Federal Reserve Bank of Kansas City cab be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/Pdf/3Q04garn.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/@EE/@EE03/@EE03.HTM">Foreign Trade</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Trade Deficit</td>
<td>$55.5B</td>
<td>$50.9B</td>
<td>$41.5B (10/03)</td>
<td>$496.5B</td>
<td>$421.7B</td>
<td>$362.7B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>0.6%</td>
<td>1.3%</td>
<td>11.3%</td>
<td>4.6%</td>
<td>-3.1%</td>
<td>-6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>3.4%</td>
<td>-1.1%</td>
<td>18.5%</td>
<td>8.5%</td>
<td>2.1%</td>
<td>-5.5%</td>
</tr>
</tbody>
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The U.S. foreign trade deficit deepened sharply to $55.5B in October, $4.5B deeper than September which was revised slightly shallower. Consensus expectations had been for a deficit of $52.4B. The latest deficit set a new record and [...]

U.S. Trade Deficit a Deeper Than Expected Record in October

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041214b.jpg" width="353">
The U.S. foreign trade deficit deepened sharply to $55.5B in October, $4.5B deeper than September which was revised slightly shallower. Consensus expectations had been for a deficit of $52.4B. The latest deficit set a new record and was $3.6B deeper than the average in 3Q.
Total exports rose just 0.6% following an upwardly revised 1.3% gain in September. Goods exports inched up 0.3% (13.4% y/y) following a 1.7% September surge. Nonauto consumer goods exports fell 0.1% (+16.1% y/y) on the heels of two sizable monthly gains. Capital goods exports rose 0.3% (10.3% y/y).
Total imports reversed the prior month&#39;s decline and rose 3.4% due to higher petroleum imports, up 16.9% (+66.8% y/y) reflecting an 11.1% m/m rise in crude oil prices to an average $41.79/bbl. Since then crude oil prices have fallen roughly $12/bbl.
Imports of non-petroleum goods jumped 2.5% (12.4% y/y), driven by a 5.4% (10.5% y/y) surge in nonauto consumer goods. Capital goods imports edged 0.3% (16.7% y/y) higher following a 1.6% rise in September.
The US trade deficit with China deepened to another record of $16.8B ($124.1B in 2003). Exports to China rose 3.0% (5.9% y/y) but imports rose 7.3% (19.8% y/y). The US trade deficit with Japan eased to $5.9B ($66.0B in 2003) but the deficit with the Asian NICs deepened to $2.5B ($21.2B in 2003). The US trade deficit with the European Union deepened to $9.3 B ($97.9B in 2003).
&quot;Offshoring in the Service Sector: Economic Impact and Policy Issues&quot; from the Federal Reserve Bank of Kansas City cab be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/Pdf/3Q04garn.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE03/@EE03.HTM">Foreign Trade</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Trade Deficit</td>
<td>$55.5B</td>
<td>$50.9B</td>
<td>$41.5B (10/03)</td>
<td>$496.5B</td>
<td>$421.7B</td>
<td>$362.7B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>0.6%</td>
<td>1.3%</td>
<td>11.3%</td>
<td>4.6%</td>
<td>-3.1%</td>
<td>-6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>3.4%</td>
<td>-1.1%</td>
<td>18.5%</td>
<td>8.5%</td>
<td>2.1%</td>
<td>-5.5%</td>
</tr>
</tbody>
</table>
Industrial Production Up But Gains Slow 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 14, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041214c.jpg" width="353">
Industrial production rose 0.3% in November following a downwardly revised 0.6% rise the prior month. Consensus expectations had been for a 0.2% rise.
Production in the factory sector rose 0.3% (4.7% y/y). Slower increases recently pulled the three month gain in factory sector production down to 2.0% (AR) versus this year&#39;s peak of 8.6% in April. And the slowdown has been broad based. Factory sector output excluding motor vehicles &amp; high tech rose 0.3% in November and the three month growth rate fell to 0.8%.
Though November output in the high tech sector rose a firm 1.1%, the three month growth rate fell to 9.0% versus the peak of 38.2% in August 2003. Excluding high tech, factory output rose 0.3% last month and the three month growth rate fell to 1.2% from this year&#39;s peak of 8.2%.
Motor vehicles output fell 0.7% in November but output of appliances, furniture &amp; carpeting rose 1.2% (-0.8% y/y). Clothing output was unchanged m/m and down 2.6% y/y)
Total capacity utilization rose to 77.6% from a downwardly revised October. Capacity grew 1.6% y/y.
&quot;Ringing In the New Year with an Investment Bust?&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20041201/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Industrial Production</td>
<td>0.3%</td>
<td>0.6%</td>
<td>4.2%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>77.6%</td>
<td>77.5%</td>
<td>75.7% (11/03)</td>
<td>74.8%</td>
<td>75.6%</td>
<td>77.4%</td>
</tr>
</tbody>
</table>
The Holiday Spirit Found? Chain Store Sales Recover 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 14, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041214a.jpg" width="353">
Chain store sales recovered 1.2% during the first full week of December following two weeks of sharp decline, according to the International Council of Shopping Centers (ICSC)-UBS.
Despite the rise, sales so far in December are 1.9% below November.
The leading indicator of chain store sales from ICSC slipped another 0.2% in the latest week for the fourth decline in the last five.
During the last ten years there has been a 60% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/11/04</th>
<th scope="col">12/04/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>430.9</td>
<td>425.6</td>
<td>2.4%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Manpower Index of US Hiring Intentions Remained Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 14, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041214e.jpg" width="353">
The Manpower Employment Outlook Survey indicated continued improvement in U.S. hiring intentions in 1Q05. A seasonally adjusted net 21% of 16,000 employers expect to increase hiring activity and that was the highest level in four years.
Not seasonally adjusted, 24% of employers planned to raise employment versus 20% in 1Q04 while 10% planned to decrease the number of jobs versus 13% a year ago.
Since 1980 there has been a 74% correlation between the Manpower index and the y/y change in non-farm payrolls.
The latest press release from Manpower Inc. covering global employment prospects can be viewed <a href="http://man.client.shareholder.com/ReleaseDetail.cfm?ReleaseID=150464"> here</a>..

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<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@SC/@SC.HTM">Manpower Employment Survey</a></th>
<th scope="col">1Q &#39;05</th>
<th scope="col">4Q &#39;04</th>
<th scope="col">1Q &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">All Industries - Net Higher (SA)</td>
<td>21</td>
<td>20</td>
<td>14</td>
<td>19</td>
<td>11</td>
<td>11</td>
</tr>
</tbody>
</table>
Small Business Optimism At 20 Year High 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 14, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041214d.jpg" width="353">
The Small Business Optimism Index for November published by the National Federation of Independent Business (NFIB) surged 3.7% to 107.7 in November, the highest level in twenty years.
During the last ten years there has been a 68% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percentage of firms expecting the economy to improve ballooned to 47%, the highest level since last year and the percent of firms planning to raise employment rose to 19% near last year&#39;s high. During the last ten years there has been a 63% correlation between these hiring plans and the three month growth in nonfarm payrolls.
An elevated 35% of firms expected higher real sales in 6 months. The net of firms expecting higher earnings this quarter was stable at -7 and sustained the recent sharp improvement.
The percentage of firms raising average selling prices fell to 18%, well below the averages for 2Q &amp; 3Q.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>107.7</td>
<td>103.9</td>
<td>2.3%</td>
<td>101.3</td>
<td>101.2</td>
<td>98.4</td>
</tr>
</tbody>
</table>
FOMC Raised Funds Rate to 2.25% 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 14, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041214f.jpg" width="353">
The Federal Open Market Committee raised the target rate for federal funds by 25 basis points to 2.25%, as expected. The discount rate also was raised 25 basis points to 3.25%.
The decision was unanimous.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.&quot;
For the complete text of the Fed&#39;s latest press release please <a href="http://www.federalreserve.gov/BoardDocs/Press/monetary/2004/20041214/default.htm"> click</a>.
&quot;Will the U.S. Productivity Resurgence Continue?&quot; from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci10-13.pdf"> here</a>.

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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041213c.jpg" width="353">
The latest survey of manufacturers in the United Kingdom by the CBI (Confederation of British Industries) shows a drop in the expected volume of output over the next three months. The balance between those firms that expect volume to increase over those that expect it to decrease fell to -6% from a positive 5% in October. This is the lowest balance since June, 2003.
Although pessimists still outweigh optimists with regard to order books, the balance has narrowed. For total order books, the balance fell to -4% in December from -16% in November. The balance on export order books improved from -21% to -15% in December from November in spite of the fact that during the survey period, November 25 to December 8, the pound was rising and reached a peak of $1.9459, not seen since early 1991.
Not only has the balance on the volume of order books improved, but the balance on the outlook for prices on orders over the next three months has also continued to improve. The balance has been in positive territory since March of this year, the first run of positive balances since March of 2001, and suggests that manufacturers are beginning to see some pricing power in the near future. The attached chart shows the recently improved balances on the volume of output and prices.
The fact that the balance of manufacturers expects volume to decline over the next 3 months and, at the same time, sees an improvement in orders, may account for their guarded appraisal of their finished stocks. There was a slight increase of 1 percentage point from November to December in the balance of firms satisfied with the level of their finished stocks but that the balance has deteriorated to 9% in December from 14% in December 2003.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol">Percent Balance of Firms Expecting Improving over Those Expecting Worsening Conditions</th>
<th scope="col">Dec 04</th>
<th scope="col">Nov&nbsp;04</th>
<th scope="col">Dec 03</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">&nbsp;2003&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2002&nbsp;</th>
<th scope="col">&nbsp; 2001&nbsp; &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Vol. of output next 3 mo.</td>
<td>-6</td>
<td>5</td>
<td>5</td>
<td>-11</td>
<td>-11</td>
<td>12</td>
<td>-3</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol">Total order book volume</td>
<td>-4</td>
<td>-16</td>
<td>-19</td>
<td>12</td>
<td>15</td>
<td>-9</td>
<td>-29</td>
<td>-27</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Export order book volume</td>
<td>-15</td>
<td>-21</td>
<td>-21</td>
<td>6</td>
<td>6</td>
<td>-13</td>
<td>-33</td>
<td>-34</td>
</tr>
<tr>
<td class="firstcol">Ave prices on domestic orders next 3 mo.&nbsp;</td>
<td>10</td>
<td>8</td>
<td>-3</td>
<td>2</td>
<td>13</td>
<td>4</td>
<td>-12</td>
<td>-13</td>
</tr>
<tr class="odd">
<td class="firstcol">Stocks of finished goods</td>
<td>9</td>
<td>8</td>
<td>14</td>
<td>1</td>
<td>-5</td>
<td>11</td>
<td>17</td>
<td>16</td>
</tr>
</tbody>
</table>
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The latest survey of manufacturers in the United Kingdom by the CBI (Confederation of British Industries) shows a drop in the expected volume of output over the next three months. The balance between those firms that expect volume to [...]

British Manufacturers Expect Lower Volume of Output but Order Books and Expected Prices Improve

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041213b.jpg" width="353">
Total business inventories rose 0.2% in October following a downwardly revised, slight decline in September.
Wholesale inventories jumped 1.1%. During the last ten years there has been a 63% correlation between the y/y change in wholesale inventories and the change in imports of merchandise.
Retail inventories fell another 0.6% as motor vehicle inventories fell sharply for the second consecutive month, down 2.3% (+7.9% y/y). Non-auto retail inventories advanced 0.3% but meaningful gains were limited to building materials (+15.7% y/y) and food (2.7% y/y). Elsewhere, inventories of furniture &amp; home furnishings (+2.5% y/y) fell for the second consecutive month. Apparel inventories rose 0.1% (1.3% y/y) and general merchandise inventories fell 0.1% (+3.2% y/y).
Overall business sales surged 1.2% (+11.0% y/y) driven by the 1.2% spike in factory shipments (10.6% y/y).
The ratio of inventories-to-sales fell back to the historic low of 1.30.

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<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">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>7.1%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>-4.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.6%</td>
<td>-0.5%</td>
<td>5.9%</td>
<td>4.9%</td>
<td>6.0%</td>
<td>-2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.3%</td>
<td>0.1%</td>
<td>4.8%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>1.1%</td>
<td>0.6%</td>
<td>10.6%</td>
<td>2.2%</td>
<td>0.4%</td>
<td>-4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.5%</td>
<td>0.1%</td>
<td>5.9%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</td>
</tr>
</tbody>
</table>
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Total business inventories rose 0.2% in October following a downwardly revised, slight decline in September. Wholesale inventories jumped 1.1%. During the last ten years there has been a 63% correlation between the y/y change in [...]

U.S. Inventories Rose Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041213a.jpg" width="353">
US retail sales rose 0.1% in November versus expectations for a 0.1% decline and October sales were revised higher. In both months, total sales were held back by lower motor vehicle purchases which fell 1.3% in November for the third decline in the last four months.
Sales excluding motor vehicles rose 0.5% following an upwardly revised 1.1% jump in October. Consensus expectations had been for a 0.3% rise. Little of the surprise reflected higher gasoline prices which raised sales at gasoline service stations by 1.0% (24.0% y/y) after a 5.3% spike in October. Nonauto retail sales less gasoline also rose 0.5% (7.0% y/y). Gas prices this month look to be down roughly 5% from last.
Building materials, garden equipment &amp; supply dealers&#39; sales rose 1.1% (12.8% y/y) following an upwardly revised no change in October. Less sales of building materials, nonauto retail sales rose 8.1% during the past year.
Moderate gains were logged in the discretionary spending categories. Sales at general merchandise stores rose 0.4% (6.7% y/y) following an unrevised 0.9% October increase. Sales of furniture/home furnishings &amp; electronics/appliances rose 0.5% (4.6% y/y) after an upwardly revised 0.3% rise the month earlier but clothing &amp; accessory store sales slipped 0.1% (5.0% y/y) following the downwardly revised 2.4% October surge.

<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">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</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>0.1%</td>
<td>0.8%</td>
<td>7.2%</td>
<td>5.3%</td>
<td>2.5%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.5%</td>
<td>1.1%</td>
<td>8.6%</td>
<td>5.2%</td>
<td>3.2%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
</body>
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US retail sales rose 0.1% in November versus expectations for a 0.1% decline and October sales were revised higher. In both months, total sales were held back by lower motor vehicle purchases which fell 1.3% in November for the third [...]

U.S. Retail Sales Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041213a.jpg" width="353">
US retail sales rose 0.1% in November versus expectations for a 0.1% decline and October sales were revised higher. In both months, total sales were held back by lower motor vehicle purchases which fell 1.3% in November for the third decline in the last four months.
Sales excluding motor vehicles rose 0.5% following an upwardly revised 1.1% jump in October. Consensus expectations had been for a 0.3% rise. Little of the surprise reflected higher gasoline prices which raised sales at gasoline service stations by 1.0% (24.0% y/y) after a 5.3% spike in October. Nonauto retail sales less gasoline also rose 0.5% (7.0% y/y). Gas prices this month look to be down roughly 5% from last.
Building materials, garden equipment &amp; supply dealers&#39; sales rose 1.1% (12.8% y/y) following an upwardly revised no change in October. Less sales of building materials, nonauto retail sales rose 8.1% during the past year.
Moderate gains were logged in the discretionary spending categories. Sales at general merchandise stores rose 0.4% (6.7% y/y) following an unrevised 0.9% October increase. Sales of furniture/home furnishings &amp; electronics/appliances rose 0.5% (4.6% y/y) after an upwardly revised 0.3% rise the month earlier but clothing &amp; accessory store sales slipped 0.1% (5.0% y/y) following the downwardly revised 2.4% October surge.

<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">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</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>0.1%</td>
<td>0.8%</td>
<td>7.2%</td>
<td>5.3%</td>
<td>2.5%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.5%</td>
<td>1.1%</td>
<td>8.6%</td>
<td>5.2%</td>
<td>3.2%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
U.S. Inventories Rose Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 13, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041213b.jpg" width="353">
Total business inventories rose 0.2% in October following a downwardly revised, slight decline in September.
Wholesale inventories jumped 1.1%. During the last ten years there has been a 63% correlation between the y/y change in wholesale inventories and the change in imports of merchandise.
Retail inventories fell another 0.6% as motor vehicle inventories fell sharply for the second consecutive month, down 2.3% (+7.9% y/y). Non-auto retail inventories advanced 0.3% but meaningful gains were limited to building materials (+15.7% y/y) and food (2.7% y/y). Elsewhere, inventories of furniture &amp; home furnishings (+2.5% y/y) fell for the second consecutive month. Apparel inventories rose 0.1% (1.3% y/y) and general merchandise inventories fell 0.1% (+3.2% y/y).
Overall business sales surged 1.2% (+11.0% y/y) driven by the 1.2% spike in factory shipments (10.6% y/y).
The ratio of inventories-to-sales fell back to the historic low of 1.30.

<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">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>7.1%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>-4.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.6%</td>
<td>-0.5%</td>
<td>5.9%</td>
<td>4.9%</td>
<td>6.0%</td>
<td>-2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.3%</td>
<td>0.1%</td>
<td>4.8%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>1.1%</td>
<td>0.6%</td>
<td>10.6%</td>
<td>2.2%</td>
<td>0.4%</td>
<td>-4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.5%</td>
<td>0.1%</td>
<td>5.9%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</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/041210d.jpg" width="353">
GDP in Turkey, published today by the State Institute of Statistics, fell by 6.3% in Q3. This is the steepest quarterly decline since 1994; however, by itself, the drop would seem little cause for alarm. The Turkish economy is very volatile; since the beginning of 2000, quarterly growth has averaged 0.9%, but it has had a standard deviation of 3.5%! In Q3, consumer spending on durable goods fell after two strong quarters and business capital investment fell after a two-and-a-half-year run-up that averaged 8.6% a quarter. So the Q3 drop occurred in volatile items in an already volatile environment.
The erratic behavior of the Turkish economy probably has many causes. One of them is surely the substantial structural inflation. In the table below, we show the GDP price deflator. Its latest figure, 317,129, is an index which was 100 in 1987. This inflation trend has been slowing down, though, and the last two quarters show year-on-year increases less than 10%, the first under double-digits since this data began in 1987.
The weakest industries in Q3 were forestry and wholesale and retail trade. Manufacturing and transportation also saw declines. Turkey has been known for millennia as a trading center, particularly the huge port of Istanbul. This is reflected in the industrial structure of the economy today. Transportation, communications and trade together constituted almost 34% of GDP in Q3; in the Euro-Zone by contrast, activity in these sectors was only 21% of the region&#39;s GDP. So declines in trading activity exert a considerable brake on overall Turkish performance.
Data on Turkey are contained in Haver&#39;s EMERGEMA database.

<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">Q3 2004</th>
<th scope="col">Q2 2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP (Bil.1987 Turkish Lira)</td>
<td>32,875</td>
<td>35,100</td>
<td>31,484</td>
<td>125,788</td>
<td>118,923</td>
<td>110,268</td>
</tr>
<tr>
<td class="firstcol">% Change</td>
<td>-6.3</td>
<td>3.0</td>
<td>4.5 (yr/yr)</td>
<td>5.8</td>
<td>7.8</td>
<td>-7.8</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Deflator (Index, 1987=100)</td>
<td>319,129</td>
<td>300,490</td>
<td>290,988</td>
<td>284,561</td>
<td>232,779</td>
<td>169,299</td>
</tr>
<tr>
<td class="firstcol">% Change</td>
<td>5.5</td>
<td>0.0</td>
<td>9.1(yr/yr)</td>
<td>22.2</td>
<td>37.5</td>
<td>58.5</td>
</tr>
</tbody>
</table>
</body>
</html>

GDP in Turkey, published today by the State Institute of Statistics, fell by 6.3% in Q3. This is the steepest quarterly decline since 1994; however, by itself, the drop would seem little cause for alarm. The Turkish economy is very [...]

Turkish GDP Falls, but Inflation Below 10% for a Second Quarter

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041210c.jpg" width="353">
The University of Michigan&#39;s mid-month reading of consumer sentiment rebounded in December to 95.7, up 3.1% from November. Consensus expectations had expected 93.5.
During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations index added 4.2% m/m to the 1.7% gain in November and the current economic conditions index rose 1.5% for the third consecutive monthly increase.
Consumer sentiment amongst families earning more than $50,000 per year fell slightly m/m but rose 2.0% y/y. Sentiment amongst families earning less than $50,000 per year surged 9.5% m/m (5.3% y/y.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
&quot;Consumer Sentiment and the Media&quot; from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-29.pdf">here</a>.
In advance of next week&#39;s FOMC meeting and also from the Federal Reserve Bank of San Francisco is this reminiscence of events 25 years ago titled &quot;<a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-35.pdf">October 6, 1979</a>&quot; as well as &quot;<a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-28.pdf">Gauging the Market&#39;s Expectations about Monetary Policy</a>.&quot;

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Mid-Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>95.7</td>
<td>92.8</td>
<td>3.3%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.3</td>
<td>104.7</td>
<td>9.6%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>88.8</td>
<td>85.2</td>
<td>-1.1%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan's mid-month reading of consumer sentiment rebounded in December to 95.7, up 3.1% from November. Consensus expectations had expected 93.5. During the last ten years there has been a 75% correlation between [...]

U.S. Consumer Sentiment Rebounded in December

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Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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.

Economy in Brief: December 2004

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U.S. Trade Deficit a Deeper Than Expected Record in October

U.S. Trade Deficit a Deeper Than Expected Record in October

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