Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211i.jpg" align="right" border="0" height="265" width="353">Strength
in
oil prices was the culprit in the 1.7% jump in overall import prices
last month. It exceeded Consensus expectations for a 1.2%
increase.&nbsp;
Petroleum prices climbed 6.2% to their
highest level since October of last year and have more-than-doubled
since the January trough. This month, Brent crude oil prices
have moved lower to roughly $71 per barrel from $77 last month. In
addition, the latest report from the U.S. Bureau of Labor Statistics
indicated that non-oil import prices rose 0.7% after the strong 0.6%
October gain. The lower value of the dollar has now helped lift these
prices at a 6.5% annual rate during the last three months following a
6.5% y/y decline as of August. (During the last ten years, there has
been a negative 81% correlation between the nominal trade-weighted
exchange value of the US dollar vs. major currencies and the y/y change
in non-oil import prices.)
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211j.jpg" align="right" border="0" height="265" width="353">Import
prices break down as
follows: Chemical import prices have been strong during the last three
months, rising at a 26.5% annual rate. Iron &amp; steel prices also
have been strong rising at a 42.6% rate since August. Food prices
increased at a 5.2% rate during the last three months while capital
goods prices posted a modest 1.3% increase (AR) after having been
little-changed from March through August. Prices for nonauto consumer
goods remained weak, down 0.1% last month and up at a 0.4% during the
last three. Durable consumer goods prices rose rose at a 1.4% annual
rate over the last three months, though that is improved from a 6.5%
rate of decline early this year. Furniture prices continued down to the
lowest level since April of last year (-1.5% y/y). Apparel prices have
been flat since July (-0.5% y/y).
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211k.jpg" align="right" border="0" height="265" width="353">Total
export prices rose a firm 0.8% and at a 3.4% annual rate during the
last three months. The gain was led by a 0.7% rise in nonagricultural
export prices which have turned up versus last year after a 6.6% y/y
decline as of July. Agricultural export prices jumped 3.7% (0.6% y/y).

The import
and export price series can be found in Haver's USECON database.
Detailed figures are available in the USINT
database.
<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/@E8/@E807/@E807.HTM">Import/Export
Prices (NSA, %)</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</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">Import - All Commodities</td>
<td>1.7</td>
<td>0.8</td>
<td>0.2</td>
<td>3 .7</td>
<td>11.5</td>
<td>4.2</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>6.2</td>
<td>2.9</td>
<td>-0.6</td>
<td>35.5</td>
<td>37.7</td>
<td>11.6</td>
<td>20.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>0.7</td>
<td>0.6</td>
<td>0.3</td>
<td>-1.6</td>
<td>5.3</td>
<td>2.7</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Export - All Commodities</td>
<td>0.8</td>
<td>0.2</td>
<td>-0.2</td>
<td>0.6</td>
<td>6.0</td>
<td>4.9</td>
<td>3.6</td>
</tr>
</tbody>
</table>

</body></html>

Strength in oil prices was the culprit in the 1.7% jump in overall import prices last month. It exceeded Consensus expectations for a 1.2% increase. Petroleum prices climbed 6.2% to their highest level since October of last year and [...]

U.S. Import Prices Jump As Oil Prices Surge

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211e.jpg" align="right" border="0" height="265" width="353">
Consumer sentiment began this month by retracing the declines
of October and November. The 8.9% m/m rise in sentiment to a reading of
73.4, as measured by the Reuters/University of Michigan Index of
Consumer Sentiment, also was near the highest since January of last
year. The latest figure surpassed Consensus expectations for a level of
69.0. Sentiment was up by one-third from the low of last fall. During
the last ten years there has been a two-thirds correlation between the
level of sentiment and the three-month change real consumer spending.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211f.jpg" align="right" border="0" height="265" width="353">
Sentiment about current economic conditions jumped 15.0% from
November to the highest level since March of last year. Assessments of
current financial conditions were quite strong and rose to the highest
since last September. Buying conditions for large household goods,
including furniture, refrigerators, stoves &amp; televisions, also
moved up by 15.8% to the highest level since January 2008.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211g.jpg" align="right" border="0" height="265" width="353">
The mid-December reading on expected economic conditions also
jumped, but by a lesser 4.8% m/m to the highest level since September.
The outlook for business conditions during the next twelve months
improved sharply and recovered November's decline but the expected
change in personal finances and expected business conditions during the
next five years advanced just modestly. All three of these readings
recently have been flat after sharp improvement early this year.
Expected price inflation during the next year held steady m/m
at 3.1% but it was up from last December's reading of 1.7%.Respondents'
view of government policy, which may eventually influence economic
expectations, fell sharply m/m to the lowest level since March.
Seventeen percent of respondent thought that a good job was being done
by government versus 36% who thought a poor job was being done.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211h.jpg" align="right" border="0" height="265" width="353">
The Reuters/University of Michigan survey data are not
seasonally adjusted. The reading is based on telephone interviews with
about 500 households at month-end. These mid-month results are based on
about 320 interviews. The summary indexes are in Haver's USECON
database with details in the proprietary UMSCA database.

<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-December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Dec y/y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>73.4</td>
<td>67.4</td>
<td>70.6</td>
<td>22.1%</td>
<td>66.3</td>
<td>63.8</td>
<td>85.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>79.1</td>
<td>68.8</td>
<td>73.7</td>
<td>13.8</td>
<td>79.1</td>
<td>73.7</td>
<td>101.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>69.7</td>
<td>66.5</td>
<td>68.6</td>
<td>29.1</td>
<td>64.2</td>
<td>57.3</td>
<td>75.6</td>
</tr>
</tbody>
</table>
</body></html>

Consumer sentiment began this month by retracing the declines of October and November. The 8.9% m/m rise in sentiment to a reading of 73.4, as measured by the Reuters/University of Michigan Index of Consumer Sentiment, also was near [...]

Michigan Consumer Sentiment Recoups Earlier Declines

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211a.jpg" align="right" border="0" height="265" width="353">
The consumer
looks to be gaining strength after earlier torpor. Retail sales last
month rose 1.3% after a downwardly revised 1.1% increase during
October. The latest increase was stronger than the 0.7% Consensus
expectation and it moved the y/y change in sales into positive
territory for the first time since August of last year. Moreover,
spending on "core" retail sales has improved. Month-to-month changes in
overall sales in recent months have been quite volatile due to auto
sales promotions and rising gasoline prices. Aside from these
distortions, gains in consumer spending have been steady during the
past several months. The retail sales data are available in Haver's USECON
database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211b.jpg" align="right" border="0" height="265" width="353">
Auto sales recently firmed after earlier weakness. Last
month, motor vehicle sales rose 1.6% after the 7.1% jump during
October. Though the y/y change improved further into positive
territory, sales were still 23% below the 2007 high. Less autos, sales
jumped 1.2% aided by higher gasoline prices. That increase compares to
an expected 0.4% increase. Higher gasoline prices lifted November fuel
expenditures by 6.0% m/m and by more than one-quarter since December.
Nevertheless, without autos &amp; gasoline retail sales still rose
by 0.6% last month, the third firm gain in the last four
months.&nbsp;These gains raised the y/y change to 0.4% from -4.5%
as of July.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211c.jpg" align="right" border="0" height="265" width="353">
Improvement in discretionary "core" spending was evident
in the latest data. Sales at general merchandise stores rose 0.8% (1.8%
y/y) during November and roughly matched the firm gains during the
prior three months. The worst of spending in this area was reached
during July when sales were down 3.6% y/y. Sales of electronics also
increased 2.8% (-3.4% y/y) last month following three months of firm
increase. Elsewhere last month, discretionary retail sales were weak.
Furniture store sales fell 0.7% (-7.9% y/y) and have fallen steadily
since early 2007. In soft goods, apparel store sales fell 0.7% after a
revised 0.2% October downtick that previously was reported as an
increase. Nevertheless, the y/y change improved to 0.9% from the 9.7%
decline at the end of last year.&nbsp; Internet and catalogue
purchases were quite firm last month. The 1.2% (8.1% y/y) increase was
the fifth strong monthly increase in the last six and the y/y gain
contrasted with a 7.6% decline as of April. Restaurant sales rose 0.5%
(-0.2% y/y) after falling slightly during the prior five months.
Finally, building materials sales reversed the prior months decline and
rose 1.5% (-9.3% y/y). Employment Projections:
2008-2018&nbsp; from the Bureau of Labor Statistics can
be found <a href="http://www.bls.gov/news.release/pdf/ecopro.pdf">
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">&nbsp;</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Total
Retail Sales &amp; Food Services</a> (%)</td>
<td>1.3</td>
<td>1.1</td>
<td>-2.0</td>
<td>1.9</td>
<td>-0.8</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>1.2</td>
<td>0.0</td>
<td>0.7</td>
<td>1.3</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Non-Auto Less Gasoline</td>
<td>0.6</td>
<td>0.1</td>
<td>0.6</td>
<td>0.4</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>
</body></html>

The consumer looks to be gaining strength after earlier torpor. Retail sales last month rose 1.3% after a downwardly revised 1.1% increase during October. The latest increase was stronger than the 0.7% Consensus expectation and it [...]

U.S. Retail Sales Revive As Discretionary Spending Improves

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211a.jpg" align="right" border="0" height="265" width="353">The
consumer
looks to be gaining strength after earlier torpor. Retail sales last
month rose 1.3% after a downwardly revised 1.1% increase during
October. The latest increase was stronger than the 0.7% Consensus
expectation and it moved the y/y change in sales into positive
territory for the first time since August of last year. Moreover,
spending on "core" retail sales has improved. Month-to-month changes in
overall sales in recent months have been quite volatile due to auto
sales promotions and rising gasoline prices. Aside from these
distortions, gains in consumer spending have been steady during the
past several months. The retail sales data are available in Haver's USECON
database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211b.jpg" align="right" border="0" height="265" width="353">Auto sales
recently firmed after earlier weakness. Last
month, motor vehicle sales rose 1.6% after the 7.1% jump during
October. Though the y/y change improved further into positive
territory, sales were still 23% below the 2007 high. Less autos, sales
jumped 1.2% aided by higher gasoline prices. That increase compares to
an expected 0.4% increase. Higher gasoline prices lifted November fuel
expenditures by 6.0% m/m and by more than one-quarter since December.
Nevertheless, without autos &amp; gasoline retail sales still rose
by 0.6% last month, the third firm gain in the last four
months.&nbsp;These gains raised the y/y change to 0.4% from -4.5%
as of July.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211c.jpg" align="right" border="0" height="265" width="353">Improvement
in discretionary "core" spending was evident
in the latest data. Sales at general merchandise stores rose 0.8% (1.8%
y/y) during November and roughly matched the firm gains during the
prior three months. The worst of spending in this area was reached
during July when sales were down 3.6% y/y. Sales of electronics also
increased 2.8% (-3.4% y/y) last month following three months of firm
increase. Elsewhere last month, discretionary retail sales were weak.
Furniture store sales fell 0.7% (-7.9% y/y) and have fallen steadily
since early 2007. In soft goods, apparel store sales fell 0.7% after a
revised 0.2% October downtick that previously was reported as an
increase. Nevertheless, the y/y change improved to 0.9% from the 9.7%
decline at the end of last year.&nbsp; 
 Internet and catalogue
purchases were quite firm last month. The 1.2% (8.1% y/y) increase was
the fifth strong monthly increase in the last six and the y/y gain
contrasted with a 7.6% decline as of April. Restaurant sales rose 0.5%
(-0.2% y/y) after falling slightly during the prior five months.
Finally, building materials sales reversed the prior months decline and
rose 1.5% (-9.3% y/y).
 Employment Projections:
2008-2018&nbsp; from the Bureau of Labor Statistics can
be found <a href="http://www.bls.gov/news.release/pdf/ecopro.pdf">
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">&nbsp;</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Total
Retail Sales &amp; Food Services</a> (%)</td>
<td>1.3</td>
<td>1.1</td>
<td>-2.0</td>
<td>1.9</td>
<td>-0.8</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>1.2</td>
<td>0.0</td>
<td>0.7</td>
<td>1.3</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Non-Auto Less Gasoline</td>
<td>0.6</td>
<td>0.1</td>
<td>0.6</td>
<td>0.4</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>

 Michigan Consumer Sentiment
Recoups Earlier Declines 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 11, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211e.jpg" align="right" border="0" height="265" width="353">
Consumer sentiment began this month by retracing the declines
of October and November. The 8.9% m/m rise in sentiment to a reading of
73.4, as measured by the Reuters/University of Michigan Index of
Consumer Sentiment, also was near the highest since January of last
year. The latest figure surpassed Consensus expectations for a level of
69.0. Sentiment was up by one-third from the low of last fall. During
the last ten years there has been a two-thirds correlation between the
level of sentiment and the three-month change real consumer spending.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211f.jpg" align="right" border="0" height="265" width="353">
Sentiment about current economic conditions jumped 15.0% from
November to the highest level since March of last year. Assessments of
current financial conditions were quite strong and rose to the highest
since last September. Buying conditions for large household goods,
including furniture, refrigerators, stoves &amp; televisions, also
moved up by 15.8% to the highest level since January 2008.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211g.jpg" align="right" border="0" height="265" width="353">
The mid-December reading on expected economic conditions also
jumped, but by a lesser 4.8% m/m to the highest level since September.
The outlook for business conditions during the next twelve months
improved sharply and recovered November's decline but the expected
change in personal finances and expected business conditions during the
next five years advanced just modestly. All three of these readings
recently have been flat after sharp improvement early this year.
Expected price inflation during the next year held steady m/m
at 3.1% but it was up from last December's reading of 1.7%.Respondents'
view of government policy, which may eventually influence economic
expectations, fell sharply m/m to the lowest level since March.
Seventeen percent of respondent thought that a good job was being done
by government versus 36% who thought a poor job was being done.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211h.jpg" align="right" border="0" height="265" width="353">
The Reuters/University of Michigan survey data are not
seasonally adjusted. The reading is based on telephone interviews with
about 500 households at month-end. These mid-month results are based on
about 320 interviews. The summary indexes are in Haver's USECON
database with details in the proprietary UMSCA database.

<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-December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Dec y/y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>73.4</td>
<td>67.4</td>
<td>70.6</td>
<td>22.1%</td>
<td>66.3</td>
<td>63.8</td>
<td>85.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>79.1</td>
<td>68.8</td>
<td>73.7</td>
<td>13.8</td>
<td>79.1</td>
<td>73.7</td>
<td>101.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>69.7</td>
<td>66.5</td>
<td>68.6</td>
<td>29.1</td>
<td>64.2</td>
<td>57.3</td>
<td>75.6</td>
</tr>
</tbody>
</table>
 U.S. Import Prices Jump As Oil
Prices Surge 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 11, 2009

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211i.jpg" align="right" border="0" height="265" width="353">Strength
in
oil prices was the culprit in the 1.7% jump in overall import prices
last month. It exceeded Consensus expectations for a 1.2%
increase.&nbsp;
Petroleum prices climbed 6.2% to their
highest level since October of last year and have more-than-doubled
since the January trough. This month, Brent crude oil prices
have moved lower to roughly $71 per barrel from $77 last month. In
addition, the latest report from the U.S. Bureau of Labor Statistics
indicated that non-oil import prices rose 0.7% after the strong 0.6%
October gain. The lower value of the dollar has now helped lift these
prices at a 6.5% annual rate during the last three months following a
6.5% y/y decline as of August. (During the last ten years, there has
been a negative 81% correlation between the nominal trade-weighted
exchange value of the US dollar vs. major currencies and the y/y change
in non-oil import prices.)
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211j.jpg" align="right" border="0" height="265" width="353">Import
prices break down as
follows: Chemical import prices have been strong during the last three
months, rising at a 26.5% annual rate. Iron &amp; steel prices also
have been strong rising at a 42.6% rate since August. Food prices
increased at a 5.2% rate during the last three months while capital
goods prices posted a modest 1.3% increase (AR) after having been
little-changed from March through August. Prices for nonauto consumer
goods remained weak, down 0.1% last month and up at a 0.4% during the
last three. Durable consumer goods prices rose rose at a 1.4% annual
rate over the last three months, though that is improved from a 6.5%
rate of decline early this year. Furniture prices continued down to the
lowest level since April of last year (-1.5% y/y). Apparel prices have
been flat since July (-0.5% y/y).
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211k.jpg" align="right" border="0" height="265" width="353">Total
export prices rose a firm 0.8% and at a 3.4% annual rate during the
last three months. The gain was led by a 0.7% rise in nonagricultural
export prices which have turned up versus last year after a 6.6% y/y
decline as of July. Agricultural export prices jumped 3.7% (0.6% y/y).

The import
and export price series can be found in Haver's USECON database.
Detailed figures are available in the USINT
database.
<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/@E8/@E807/@E807.HTM">Import/Export
Prices (NSA, %)</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</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">Import - All Commodities</td>
<td>1.7</td>
<td>0.8</td>
<td>0.2</td>
<td>3 .7</td>
<td>11.5</td>
<td>4.2</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>6.2</td>
<td>2.9</td>
<td>-0.6</td>
<td>35.5</td>
<td>37.7</td>
<td>11.6</td>
<td>20.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>0.7</td>
<td>0.6</td>
<td>0.3</td>
<td>-1.6</td>
<td>5.3</td>
<td>2.7</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Export - All Commodities</td>
<td>0.8</td>
<td>0.2</td>
<td>-0.2</td>
<td>0.6</td>
<td>6.0</td>
<td>4.9</td>
<td>3.6</td>
</tr>
</tbody>
</table>

 Inflation's acceleration is clear,
so is the policy conundrum 
by <a href="/comment/Brusca.html">Robert
Brusca</a> December 11, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091211d.jpg" align="left" border="0" height="265" width="353">
While it would seem to pose a conundrum for the Bank of
England, few are expecting any monetary response to the rising
inflation trends that are developing in the UK. Both core and headline
factory gate prices are showing the same sort of pressure building.
Yr/Yr inflation at the producer level already is at 2.9% for the
headline and at 2% for the core, levels that would be at or above the
ceiling rate were this the CPI (HICP; actually the HICP itself is
running at a 2% pace as of September). PPI price trends took a bit of a
break in November with the headline rate below its pace of the previous
three months; the core showed its smallest rise in four months.
The UK economy is still struggling and getting recovery going
is still job-one. So it is not expected that the BOE will react to the
rising inflation rate. Indeed, it is hoped that the weakness in the
economy will keep these pressures from building and that the current
rise proves to be a rogue wave of inflation that is not followed by any
others and that dissipates harmlessly on the shores of discretion. That
prognosis may prove be correct, but for the moment it seems a bit of
wishful thinking. Still, if I were a BOE governor I doubt I would have
the stomach to attack inflation now under the circumstances. Even so
that does not make it the right thing to do. It is a conundrum of the
first order.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th scope="col" class="firstcol" colspan="8">UK
PPI MFG net output prices</th>
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td colspan="4">%-SAAR</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>NOV-09</td>
<td>OCT-09</td>
<td>SEP-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-moY-Ago</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG</td>
<td>0.3%</td>
<td>0.6%</td>
<td>0.7%</td>
<td>6.5%</td>
<td>5.0%</td>
<td>2.9%</td>
<td>5.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Core</td>
<td>0.1%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>4.8%</td>
<td>2.7%</td>
<td>2.0%</td>
<td>5.1%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Core:
ex food beverages,
tobacco &amp; Petroleum</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Retail Sales Revive AsDiscretionary Spending Improves

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<body>
 


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210h.jpg" align="right" border="0" height="265" width="353">The
financial health of U.S. households continued to improve last quarter,
as indicated by the Federal Reserve's latest flow-of-funds figures.
Household net worth increased $2.7 trillion to $53.4 trillion after a
downwardly revised $2.3 trillion 2Q increase. Financial asset holdings
improved by $2.4 trillion as the stock market moved higher after a $1.9
trillion 2Q rise. Lower interest rates raised the value of Treasury
security holdings&nbsp; by $168 billion and tangible asset values
rose by $294 billion following the $391 billion 2Q rise. These gains
were helped, finally, by an improved value of real estate holdings.
Despite the gains, however, the value of households' real estate
holdings remained 27.9% below the late-2006 peak.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210i.jpg" align="right" border="0" height="265" width="353">Household
financial positions also improved due to the reduction of liabilities,
though that was small when compared to the rise in assets. Total
liabilities fell $12.0 billion. While the decline was the fifth in the
last six quarters, it paled versus recent $30-to-$300 quarterly
reductions. Mortgage debt reduction was the largest, down for the sixth
straight quarter, but consumer credit started to grow again along with
bank loans.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210j.jpg" align="right" border="0" height="265" width="353">
The Federal Government has shared in none of the balance
sheet improvement. The government's debt outstanding rose by nearly
one-third during last quarter versus 3Q '08 to $7.5 trillion as
spending rose and tax revenues sagged. The Federal Government's debt
outstanding rose to 52.9% of GDP. Elsewhere, there's been a strong
aversion to credit market liabilities with y/y declines posted by the
household and the noncorporate business sectors. Deleveraging in the
financial sector also has been impressive. The 5.2% y/y decline in
liabilities dropped the level to its lowest in a year.&nbsp;

End of Year
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol" rowspan="2">Flow
of Funds (Y/Y % Chg.)</th>
<th scope="col">%
of Total
Outstanding</th>
<th scope="col">3Q
'09</th>
<th scope="col">2Q
'09</th>
<th scope="col" colspan="3">End of Year
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td>2008</td>
<td>2007</td>
<td>2006</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt
Outstanding</td>
<td>--</td>
<td>1.1</td>
<td>2.9</td>
<td>5.0</td>
<td>10.4</td>
<td>9.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Federal Government</td>
<td>13.6%</td>
<td>30.1</td>
<td>35.9</td>
<td>24.2</td>
<td>4.9</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Households</td>
<td>25.9%</td>
<td>&nbsp;-1.8</td>
<td>-1.2</td>
<td>0.3</td>
<td>6.7</td>
<td>10.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nonfinancial Corporate Business</td>
<td>13.8%</td>
<td>1.8</td>
<td>2.8</td>
<td>5.1</td>
<td>13.2</td>
<td>8.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nonfarm, Noncorporate Business</td>
<td>6.9%</td>
<td>-5.3</td>
<td>-1.7</td>
<td>5.5</td>
<td>14.2</td>
<td>14.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>31.3%</td>
<td>-5.2</td>
<td>-1.0</td>
<td>5.5</td>
<td>13.4</td>
<td>9.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Trillions of
$</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Net Worth: Households &amp;
Nonprofit Organizations</td>
<td>--</td>
<td>$53.423</td>
<td>$50.757</td>
<td>$51,379</td>
<td>$64.507</td>
<td>$64.520</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets:
Households</td>
<td>--</td>
<td>$23.069</td>
<td>$22.775</td>
<td>$23.891</td>
<td>$28.036</td>
<td>$29.735</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Financial Assets:
Households</td>
<td>--</td>
<td>$44.415</td>
<td>$42.055</td>
<td>$41.706</td>
<td>$50.788</td>
<td>$48.192</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total Liabilities:
Households</td>
<td>--</td>
<td>$14.061</td>
<td>$14.073</td>
<td>$14.218</td>
<td>$14.318</td>
<td>$13.408</td>
</tr>
</tbody>
</table>

</body></html>

The financial health of U.S. households continued to improve last quarter, as indicated by the Federal Reserve's latest flow-of-funds figures. Household net worth increased $2.7 trillion to $53.4 trillion after a downwardly revised [...]

U.S. Flow of Funds Indicates Expansion In Household Net-Worth To Highest In A Year

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<body>
 


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210e.jpg" align="right" border="0" height="265" width="353">A
lower value of the dollar improves the competiveness of U.S. exports.
That undoubtedly was behind at least some of the decline in October's
trade deficit to $32.9B following a September deficit of $35.7, which
was revised lower from the initial estimate. Exports rose sharply,
their sixth month of increase despite economic weakness abroad, while
imports fell with a modest decline in oil prices. The latest figure was
quite a bit lower than Consensus expectations for a deficit of $37.0B.
Reflecting the competitive value of the dollar, nominal
exports rose
2.6% m/m and by 12.4% from the April low. Adjusted for price inflation,
however, the gain is more impressive. Real merchandise exports during
October rose 4.1% (-6.0% y/y), the third such increase in four months.
A&nbsp; higher chained-dollar value of non-auto consumer goods
exports led the increase with a 7.9% (3.5% y/y) surge after the 3.7%
September jump. Real capital goods exports were not far behind and
posted a 3.6% gain (-10.7% y/y) after a 5.2% September rise. Auto
exports also were strong for the fifth straight month (-20.6% y/y).
Exports of services rose for the fifth straight month (-5.6%
y/y).
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210f.jpg" align="right" border="0" height="265" width="353">Overall
imports rose just 0.4%, the gain held back by
lower oil prices. Petroleum imports fell 9.7% m/m (-39.7% y/y) as the
average daily quantity imported fell 12.5% (-19.2% y/y). The dip in the
per barrel cost of crude petroleum to $67.39 helped the overall figure
to decline. Working the other way, U.S. economic recovery was apparent
in real nonoil imports which rose 2.2% during October for the third
increase in four months. These gains lessened the y/y decline to 11.9%
from its worst of 24.6%. Real non-auto capital goods imports jumped
3.5% (-13.0% y/y) after a 2.8% September rise. Real nonauto consumer
goods imports rose 2.6% and by 7.8% since June. These gains are
turnarounds from earlier sharp declines. Real automotive vehicles
&amp; parts imports also jumped 1.9% (-7.4% y/y) in October, the
fifth consecutive month of gain. Finally, services imports rose a
modest 0.2% (-7.3% y/y) as U.S. travels abroad were discouraged by the
lower dollar. Travel imports fell 7.2% y/y and passenger fares fell
27.0%)
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210g.jpg" align="right" border="0" height="265" width="353">By
country, the trade deficit with China fell to
$22.7B from $27.9B last October as exports rose 12.7% y/y and imports
fell 13.3%. With Japan, the trade deficit also narrowed sharply to
$4.4B from 6.1B one year earlier as the 21.0% decline in imports
outpaced the 13.0% decline in exports. With the European Union, the
trade deficit more than halved to $4.9B as imports fell 20.5% y/y which
was twice the decline in exports.The
international trade data can be found in Haver's USECON database.
Detailed figures are available in the USINT
database.
<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/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</a></th>
<th scope="col">October</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">U.S. Trade Deficit</td>
<td>$32.9</td>
<td>$35.7B</td>
<td>$30.3B</td>
<td>$59.4B (10/08)</td>
<td>$695.9</td>
<td>$701.4</td>
<td>$760.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Exports - Goods
&amp; Services</td>
<td>2.6%</td>
<td>2.8%</td>
<td>0.3%</td>
<td>-8.6%</td>
<td>11.2%</td>
<td>13.2%</td>
<td>13.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Imports - Goods
&amp; Services</td>
<td>0.4%</td>
<td>5.6%</td>
<td>-0.5%</td>
<td>-18.8%</td>
<td>7.6</td>
<td>6.0%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-10.4%</td>
<td>20.7%</td>
<td>-5.4%</td>
<td>-41.0%</td>
<td>37.0%</td>
<td>9.4%</td>
<td>20.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>2.9%</td>
<td>4.2%</td>
<td>0.3%</td>
<td>-15.2%</td>
<td>1.5%</td>
<td>4.8%</td>
<td>9.1%</td>
</tr>
</tbody>
</table>


</body></html>

A lower value of the dollar improves the competiveness of U.S. exports. That undoubtedly was behind at least some of the decline in October's trade deficit to $32.9B following a September deficit of $35.7, which was revised lower from [...]

U.S. Trade Deficit Falls As Exports Jump

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210d.jpg" align="left" border="0" height="265" width="353">
Machinery orders are a volatile measure almost by design.
Because of the lumpy nature and large scope of some projects it is hard
to get a reliable reading on this series. Looking at core orders is one
way to stabilize the signal. This measure excludes the most volatile
components of the order series. In October core orders fell, but that
was after rising by a sharp 10.5% in December. The sequential growth
rate of orders is on a strong upswing despite this month&#8217;s set back. 
 

The overall orders measure that includes those large and lumpy
projects also is improving strongly. For once the trends of the two
series are in agreement even if the monthly numbers are going in
different directions. 
 

The chart also shows domestic Vs foreign machinery orders.
While both series are showing some rise it is the foreign orders that
are doing most of the improvement. Japan like Germany is benefitting
more from demand outside of its country than from the domestic demand
within. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" class="scope"> Japan
Machinery Orders</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m %</td>
<td colspan="4">Saar %</td>
</tr>
<tr>
<td class="firstcol">SA</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>12-Mos</td>
<td>12-Mo Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>3.2%</td>
<td>6.0%</td>
<td>-1.9%</td>
<td>32.7%</td>
<td>43.3%</td>
<td>-12.3%</td>
<td>-27.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core Orders*</td>
<td> -4.5%</td>
<td> 10.5%</td>
<td> 0.5%</td>
<td> 26.2%</td>
<td> 4.6%</td>
<td> -21.1%</td>
<td> -15.7%</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Demand</td>
<td>15.3%</td>
<td>25.9%</td>
<td>-15.7%</td>
<td>124.5%</td>
<td>245.9%</td>
<td>-4.7%</td>
<td>-44.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic demand</td>
<td>-3.0%</td>
<td>-5.4%</td>
<td>7.1%</td>
<td>-7.1%</td>
<td>-4.6%</td>
<td>-15.3%</td>
<td>-14.1%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">* Excl ships and electric
power</td>
</tr>
</tbody>
</table>
</body></html>

Machinery orders are a volatile measure almost by design. Because of the lumpy nature and large scope of some projects it is hard to get a reliable reading on this series. Looking at core orders is one way to stabilize the signal. [...]

Foreign orders drive recovery

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210a.jpg" align="right" border="0" height="265" width="353">The Labor
Department indicated that recent job market improvement stalled last
week as suggested by a moderate rise in initial claims for unemployment
insurance. The rise to 474,000 from an unrevised 457,000 retraced much
of the prior two weeks' decline. Nevertheless, claims remained near the
15-month low, down from the recession peak of 674,000 claims reached in
March. The four-week moving average of claims fell to 473,750 and the
latest weekly figure was higher than Consensus expectations for an
increase to 460,000 claims.
,p&gt;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210b.jpg" align="right" border="0" height="265" width="353">
Continuing claims for unemployment
insurance during the latest week fell a sharp 303,000 after a
little-revised 24,000 increase during the week prior. Continuing claims
were at the lowest level since late-February. The decline is a function
of the improved job market but also reflects the exhaustion of
unemployment benefits. Continuing claims provide an indication of
workers' ability to find employment. The four-week average of
continuing claims fell to 5,416,500. This series dates back to
1966.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091210c.jpg" align="right" border="0" height="265" width="353">Extended
benefits for unemployment insurance
fell sharply w/w to 407,455 during the third week of November. The
latest was versus 550,343 during all of October.· The insured rate of
unemployment fell t0 3.9%, the lowest level since February. 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.
The highest insured unemployment
rates in the week ending November 21 were in Puerto Rico (6.1%), Oregon
(5.6), Alaska (5.5), Nevada (5.1), Wisconsin (4.9), Pennsylvania (4.8),
Michigan (4.7), California (4.4) and South Carolina (4.3). The lowest
insured unemployment rates were in North Dakota (1.3%), Virginia (1.9),
Texas (2.4), Wyoming (2.8), Maine (2.9), Maryland (3.1), Ohio (3.3),
Mississippi (3.4), New York (3.5), and Florida (3.2). The data are not
seasonally adjusted but the overall insured unemployment rate is.
The
unemployment insurance claims data is available in Haver's WEEKLY
database and the state data is in the REGIONW
database.&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></th>
<th scope="col">12/05/09</th>
<th scope="col">11/28/09</th>
<th scope="col">11/21/09</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>474</td>
<td>457</td>
<td>463</td>
<td>-14.1%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,157</td>
<td>5,460</td>
<td>18.4%</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>3.9</td>
<td>4.1</td>
<td>3.1 (11/2008)</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>


</body></html>

The Labor Department indicated that recent job market improvement stalled last week as suggested by a moderate rise in initial claims for unemployment insurance. The rise to 474,000 from an unrevised 457,000 retraced much of the prior [...]

U.S. Weekly Initial Claims For Unemployment Insurance Retrace Prior Declines

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

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

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

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

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

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

Andrew Cates

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

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

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

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

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

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.

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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.

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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- Light truck sales pull back, while auto sales tumble.
- Both domestic and imported sales decline.
- Imports' market share slips further.

U.S. Light Vehicle Sales Fall in April

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The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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The value of construction put in place unexpectedly fell 0.5% m/m in March after rises of 0.6% in February (+0.7% initially) and 0.1% in January (-0.5% previously), data from the U.S. Census Bureau showed. The March reading was the first m/m fall following five straight m/m gains. A 0.3% m/m March rise had been expected in the Action Economics Forecast Survey. The year-on-year rate of increase decelerated to 2.8% in March, the lowest since May 2019, after registering at 3.4% in February and January. The latest y/y figure was lower than 8.7% in March 2024; thus, having remained below its recent high of 9.8% in January 2024 and a peak of 18.6% in April 2022.

Private construction slid 0.6% (+2.3% y/y) in March, down for the first time since September, following increases of 0.7% in February (+0.9% initially) and 0.1% in January (-0.7% previously). Residential private construction fell 0.4% (+2.8% y/y) in March, the first m/m fall in six months, after an unrevised 1.3% gain in February. Home improvement building dropped 1.2% (+13.4% y/y), the first m/m decline since December, following a 2.3% February gain; it was 41.1% of the residential private construction. Single-family building edged up 0.1% (-0.8% y/y), the smallest of seven consecutive m/m increases, after a 0.8% February rise; it was 46.6% of the residential private construction. Meanwhile, multi-family building was essentially unchanged m/m (-12.1% y/y) in March following 15 straight m/m decreases; it was 12.3% of the residential private construction.

Nonresidential private construction fell 0.8% (+1.6% y/y) in March after a 0.1% increase in February (+0.4% initially) and a 0.1% easing in January (-0.2% previously). The March fall reflected m/m drops in the following nonresidential private constructions. These included religious (-2.9%; +16.4% y/y), health care (-2.2%; -5.2% y/y), office (-1.8%; +2.7% y/y), educational (-1.7%; -4.2% y/y), lodging (-1.6%; -1.0% y/y), commercial (-1.0%; -5.8% y/y), manufacturing (-0.4%; +3.6% y/y), communication (-0.3%; +2.2% y/y), and utilities (-0.1%; +7.0% y/y). In contrast, private constructions for amusement & recreation (1.5%; 7.0% y/y) and transportation (0.7%; 10.2% y/y) rose m/m in March.

The value of public construction declined 0.2% (+4.7% y/y) in March after holding steady in February (+0.2% initially), reflecting a 0.2% increase (-1.9% y/y) in residential public construction and a 0.2% easing (+4.8% y/y) in nonresidential public construction. The March decline reflected m/m drops in the following nonresidential public constructions. These included utilities (-4.8%; -12.8% y/y), commercial (-1.6%; +40.3% y/y), amusement & recreation (-1.0%; +19.1% y/y), educational (-0.6%; +7.6% y/y), sewage & waste disposal (-0.6%; +10.6% y/y), and health care (-0.4%; +13.0% y/y). Notably, spending on highways & streets, which made up 28.7% of public construction spending, fell 0.5% (-2.4% y/y) in March, the first m/m fall since October, following a 0.9% increase in February. To the upside, the following public constructions rose m/m in March: office (1.6%; 6.0% y/y), transportation (1.4%; 7.3% y/y), public safety (0.7%; 4.1% y/y), conservation & development (0.6%; 4.7% y/y), and water supply (0.6%; 12.2% y/y).

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- March construction spending -0.5% m/m; +2.8% y/y, the lowest y/y rate since May ’19.
- Residential private construction -0.4% m/m, led by a 1.2% drop in home improvement building.
- Nonresidential private construction -0.8% m/m, down for the second month in three.
- Public sector construction -0.2% m/m, reflecting a 0.2% decline in nonresidential public building.

Economy in Brief: December 2009

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