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/050415f.jpg" width="353">
Spain&#39;s current account deteriorated significantly during 2004, and in January, which was reported today by the Bank of Spain, the deficit continued to widen from year-earlier amounts (see graph alongside).
Much of this movement occurred in merchandise trade, as might be expected. However, other current accounts also moved adversely, as evidenced in the table below. The surplus on services decreased, and the deficit on income increased considerably. Among services, the surplus on tourism, which rose from the mid-1990s through the middle of 2001, flattened subsequently, and during the last year it diminished as Spaniards traveled elsewhere, while outlays by tourists to Spain just held steady.
Conventional wisdom argues that the function of the financial accounts in the balance of payments is to &quot;finance&quot; the current account. But increasingly, as we have frequently mentioned for the US, the financial accounts evolve autonomously. For example, direct investment into Spain, which ran surpluses in 2002 and 2003, moved decisively into deficit last year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415g.jpg" width="353">
Similarly with &quot;other&quot; investment, representing mainly bank deposit and lending activities, a surplus in the two earlier years shifted to a deficit position for 2004 and this continued in January. This last item in particular might be associated with the financial operations that facilitate trade flows. But it moved against the trade flows instead. Portfolio investment and payments through the Bank of Spain made the difference to &quot;balance&quot; the &quot;balance of payments&quot;. This mix of payment types, however, highlights clearly that financial flows exert their own independent impact on international economic relations, serving a broader function than simply offsetting shipments of goods back and forth across national borders. 

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SPAIN/SPAIN.HTM">SPAIN</a> Balances, Mil. Euros</th>
<th scope="col">Jan 2005</th>
<th scope="col">Dec 2004</th>
<th scope="col">Jan 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>-4155</td>
<td>-5710</td>
<td>-809</td>
<td>-3295</td>
<td>-1736</td>
<td>-1407</td>
</tr>
<tr class="odd">
<td class="firstcol">Merchandise</td>
<td>-4675</td>
<td>-5403</td>
<td>-2989</td>
<td>-4324</td>
<td>-3154</td>
<td>-2884</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>1431</td>
<td>1236</td>
<td>1292</td>
<td>2097</td>
<td>2272</td>
<td>2215</td>
</tr>
<tr class="odd">
<td class="firstcol">Income</td>
<td>-1223</td>
<td>-1715</td>
<td>-640</td>
<td>-1069</td>
<td>-882</td>
<td>-940</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account</td>
<td>4680</td>
<td>3919</td>
<td>1673</td>
<td>3027</td>
<td>1470</td>
<td>1230</td>
</tr>
<tr>
<td class="firstcol">&quot;Private&quot; Financial Flows = Sum of 3 Below</td>
<td>3022</td>
<td>1072</td>
<td>8738</td>
<td>4040</td>
<td>1618</td>
<td>1342</td>
</tr>
<tr class="odd">
<td class="firstcol">Direct Investment</td>
<td>-1170</td>
<td>-1526</td>
<td>-326</td>
<td>-2157</td>
<td>166</td>
<td>389</td>
</tr>
<tr>
<td class="firstcol">Portfolio Investment</td>
<td>7861</td>
<td>8479</td>
<td>7597</td>
<td>6798</td>
<td>-2506</td>
<td>474</td>
</tr>
<tr class="odd">
<td class="firstcol">Other Investment</td>
<td>-3669</td>
<td>-5881</td>
<td>1467</td>
<td>-601</td>
<td>3958</td>
<td>479</td>
</tr>
</tbody>
</table>
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Spain's current account deteriorated significantly during 2004, and in January, which was reported today by the Bank of Spain, the deficit continued to widen from year-earlier amounts (see graph alongside). Much of this movement [...]

Spanish Current Account Deficit Widens in January, Even as Financial Flows Seek Their Own Return

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415d.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in April fell 4.2%. The m/m decline was the largest since last May, was much deeper than Consensus expectations for a more moderate decline and pulled Sentiment to its lowest level in nearly two years.
Sentiment has fallen in each of the last four months and is off 14.5% from the January &#39;04 peak. During the last ten years there has been a 75% (inverse) correlation between the level of consumer sentiment and the unemployment rate.
Consumer expectations fell a hard 4.6%. Down for the fourth straight month the figure is off 21.1% from the January &#39;04 high. The expected change in real family income fell 12.2% to the lowest level since 1991. More unemployment was expected by the highest percentage since late 2003 and price inflation was expected to quicken.
The reading of current economic conditions fell 3.8% for the third consecutive monthly decline and the latest is off 5.1% from the 2004 peak. Fewer thought now was a good time for buying vehicles and fewer thought now was a good time for buying houses.
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.

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<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">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>88.7</td>
<td>92.6</td>
<td>-5.8%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>103.9</td>
<td>108.0</td>
<td>-1.0%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>79.0</td>
<td>82.8</td>
<td>-9.5%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
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The University of Michigan's preliminary reading of consumer sentiment in April fell 4.2%. The m/m decline was the largest since last May, was much deeper than Consensus expectations for a more moderate decline and pulled Sentiment to [...]

U.S. Consumer Sentiment Down As Expectations Waned

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415e.jpg" width="353">
The 1.8% rise in import prices last month greatly exceeded Consensus expectations for a 1.3% increase and the prior month&#39;s gain was revised up.
Petroleum prices jumped 10.6% m/m and pulled prices one third higher than last year, but relief may be in store. So far in April the price of Brent Crude oil has run below the March average of $53.13 per barrel and yesterday touched $49.79.
Import prices outside of petroleum posted a 0.3% rise in March that mostly reflected a 3.4% (9.7% y/y) gain in prices of foods &amp; beverages but prices for industrial supplies &amp; materials less petroleum also posted a strong 1.1% (11.1% y/y) spike.
Prices for nonauto consumer goods fell 0.4% (+1.0% y/y) and capital goods prices slipped another 0.1% (-0.9% y/y). Excluding computers capital goods prices were unchanged (2.3% y/y). Imported computer prices fell 0.5% (-7.2% y/y).
Export prices jumped 0.7% last month as agricultural prices surged 3.7% (-8.1% y/y) and nonagricultural export prices rose 0.4% (4.6% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>1.8%</td>
<td>0.8%</td>
<td>7.1%</td>
<td>5.6%</td>
<td>2.9%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>10.6%</td>
<td>4.6%</td>
<td>36.1%</td>
<td>30.5%</td>
<td>21.0%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>1.1%</td>
<td>-2.4%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.7%</td>
<td>0.0%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>1.6%</td>
<td>-1.0%</td>
</tr>
</tbody>
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The 1.8% rise in import prices last month greatly exceeded Consensus expectations for a 1.3% increase and the prior month's gain was revised up. Petroleum prices jumped 10.6% m/m and pulled prices one third higher than last year, but [...]

Imported Price Inflation Up Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415a.jpg" width="353">
The April Empire State Index of General Business Conditions in New York&#39;s manufacturing industries dropped sharply 3.12 from an upwardly revised March level. The decline was to the lowest level since 2003.
The new orders component went negative for the first time in two years and the shipments index was barely positive. Employment fell as well and the measure indicated little if any job growth. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The prices paid index fell sharply to the lowest level in over a year.
Expectations for business conditions in six months fell sharply. The decline reversed the prior month&#39;s improvement and indicated the most pessimism since 2001. Expectations for future capital spending held up relatively well and slipped m/m to the average level of 2004 which was sharply improved from the year earlier. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415b.jpg" width="353">
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

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<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/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#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">General Business Conditions (diffusion index)</td>
<td>3.12</td>
<td>20.18</td>
<td>32.16</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
</tr>
</tbody>
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The April Empire State Index of General Business Conditions in New York's manufacturing industries dropped sharply 3.12 from an upwardly revised March level. The decline was to the lowest level since 2003. The new orders component [...]

Empire State Index Down Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415c.jpg" width="353">
Industrial production matched Consensus expectations and rose 0.3% in March following a downwardly revised 0.2% gain in February. The increase was due to cold weather which lifted utility output by 3.7% (5.0% y/y).
Factory sector output fell 0.1% (+4.2% y/y) for the first decline since September. Excluding a 0.9% (20.0% y/y) rise in high tech sector output, manufacturing production fell 0.2% (+3.1% y/y).
Motor vehicle &amp; parts led output lower and fell 3.6% (+2.1% y/y). Excluding both high tech &amp; motor vehicles factory in March, output ticked up 0.1% (3.2% y/y). Output of furniture was unchanged (-0.7% y/y) but clothing output fell 1.9% (-10.0% y/y). Machinery output rose 0.5% (7.3% y/y) and production of electrical equipment, appliances &amp; components rose 0.4% (4.0% y/y).
Total capacity utilization rose to 79.4% as capacity grew 1.2% y/y. Factory sector utilization fell to 78.0% and capacity rose 1.3% y/y.
Yesterday&#39;s speech by Federal Reserve Board Governor Donald L. Kohn on the Economic Outlook can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/200504142/default.htm"> here</a>.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.9%</td>
<td>4.1%</td>
<td>-0.0%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>0.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Equipment</td>
<td>0.2%</td>
<td>0.2%</td>
<td>8.7%</td>
<td>9.5%</td>
<td>1.2%</td>
<td>-7.9%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>79.4%</td>
<td>79.3%</td>
<td>77.4% (03/04)</td>
<td>78.1%</td>
<td>75.5%</td>
<td>75.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production matched Consensus expectations and rose 0.3% in March following a downwardly revised 0.2% gain in February. The increase was due to cold weather which lifted utility output by 3.7% (5.0% y/y). Factory sector [...]

Industrial Production Gain All Utilities

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415c.jpg" width="353">
Industrial production matched Consensus expectations and rose 0.3% in March following a downwardly revised 0.2% gain in February. The increase was due to cold weather which lifted utility output by 3.7% (5.0% y/y).
Factory sector output fell 0.1% (+4.2% y/y) for the first decline since September. Excluding a 0.9% (20.0% y/y) rise in high tech sector output, manufacturing production fell 0.2% (+3.1% y/y).
Motor vehicle &amp; parts led output lower and fell 3.6% (+2.1% y/y). Excluding both high tech &amp; motor vehicles factory in March, output ticked up 0.1% (3.2% y/y). Output of furniture was unchanged (-0.7% y/y) but clothing output fell 1.9% (-10.0% y/y). Machinery output rose 0.5% (7.3% y/y) and production of electrical equipment, appliances &amp; components rose 0.4% (4.0% y/y).
Total capacity utilization rose to 79.4% as capacity grew 1.2% y/y. Factory sector utilization fell to 78.0% and capacity rose 1.3% y/y.
Yesterday&#39;s speech by Federal Reserve Board Governor Donald L. Kohn on the Economic Outlook can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/200504142/default.htm"> here</a>.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.9%</td>
<td>4.1%</td>
<td>-0.0%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>0.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Equipment</td>
<td>0.2%</td>
<td>0.2%</td>
<td>8.7%</td>
<td>9.5%</td>
<td>1.2%</td>
<td>-7.9%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>79.4%</td>
<td>79.3%</td>
<td>77.4% (03/04)</td>
<td>78.1%</td>
<td>75.5%</td>
<td>75.3%</td>
</tr>
</tbody>
</table>
Empire State Index Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415a.jpg" width="353">
The April Empire State Index of General Business Conditions in New York&#39;s manufacturing industries dropped sharply 3.12 from an upwardly revised March level. The decline was to the lowest level since 2003.
The new orders component went negative for the first time in two years and the shipments index was barely positive. Employment fell as well and the measure indicated little if any job growth. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The prices paid index fell sharply to the lowest level in over a year.
Expectations for business conditions in six months fell sharply. The decline reversed the prior month&#39;s improvement and indicated the most pessimism since 2001. Expectations for future capital spending held up relatively well and slipped m/m to the average level of 2004 which was sharply improved from the year earlier. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415b.jpg" width="353">
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#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">General Business Conditions (diffusion index)</td>
<td>3.12</td>
<td>20.18</td>
<td>32.16</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
</tr>
</tbody>
</table>
Imported Price Inflation Up Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415e.jpg" width="353">
The 1.8% rise in import prices last month greatly exceeded Consensus expectations for a 1.3% increase and the prior month&#39;s gain was revised up.
Petroleum prices jumped 10.6% m/m and pulled prices one third higher than last year, but relief may be in store. So far in April the price of Brent Crude oil has run below the March average of $53.13 per barrel and yesterday touched $49.79.
Import prices outside of petroleum posted a 0.3% rise in March that mostly reflected a 3.4% (9.7% y/y) gain in prices of foods &amp; beverages but prices for industrial supplies &amp; materials less petroleum also posted a strong 1.1% (11.1% y/y) spike.
Prices for non-auto consumer goods fell 0.4% (+1.0% y/y) and capital goods prices slipped another 0.1% (-0.9% y/y). Excluding computers capital goods prices were unchanged (2.3% y/y). Imported computer prices fell 0.5% (-7.2% y/y).
Export prices jumped 0.7% last month as agricultural prices surged 3.7% (-8.1% y/y) and nonagricultural export prices rose 0.4% (4.6% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>1.8%</td>
<td>0.8%</td>
<td>7.1%</td>
<td>5.6%</td>
<td>2.9%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>10.6%</td>
<td>4.6%</td>
<td>36.1%</td>
<td>30.5%</td>
<td>21.0%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>1.1%</td>
<td>-2.4%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.7%</td>
<td>0.0%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>1.6%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Down As Expectations Waned 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415d.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in April fell 4.2%. The m/m decline was the largest since last May, was much deeper than Consensus expectations for a more moderate decline and pulled Sentiment to its lowest level in nearly two years.
Sentiment has fallen in each of the last four months and is off 14.5% from the January &#39;04 peak. During the last ten years there has been a 75% (inverse) correlation between the level of consumer sentiment and the unemployment rate.
Consumer expectations fell a hard 4.6%. Down for the fourth straight month the figure is off 21.1% from the January &#39;04 high. The expected change in real family income fell 12.2% to the lowest level since 1991. More unemployment was expected by the highest percentage since late 2003 and price inflation was expected to quicken.
The reading of current economic conditions fell 3.8% for the third consecutive monthly decline and the latest is off 5.1% from the 2004 peak. Fewer thought now was a good time for buying vehicles and fewer thought now was a good time for buying houses.
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.

<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">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>88.7</td>
<td>92.6</td>
<td>-5.8%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>103.9</td>
<td>108.0</td>
<td>-1.0%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>79.0</td>
<td>82.8</td>
<td>-9.5%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
Spanish Current Account Deficit Widens in January, Even as Financial Flows Seek Their Own Return 
by <a href="/comment/Stone.html">Carol Stone </a> April 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415f.jpg" width="353">
Spain&#39;s current account deteriorated significantly during 2004, and in January, which was reported today by the Bank of Spain, the deficit continued to widen from year-earlier amounts (see graph alongside).
Much of this movement occurred in merchandise trade, as might be expected. However, other current accounts also moved adversely, as evidenced in the table below. The surplus on services decreased, and the deficit on income increased considerably. Among services, the surplus on tourism, which rose from the mid-1990s through the middle of 2001, flattened subsequently, and during the last year it diminished as Spaniards traveled elsewhere, while outlays by tourists to Spain just held steady.
Conventional wisdom argues that the function of the financial accounts in the balance of payments is to &quot;finance&quot; the current account. But increasingly, as we have frequently mentioned for the US, the financial accounts evolve autonomously. For example, direct investment into Spain, which ran surpluses in 2002 and 2003, moved decisively into deficit last year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050415g.jpg" width="353">
Similarly with &quot;other&quot; investment, representing mainly bank deposit and lending activities, a surplus in the two earlier years shifted to a deficit position for 2004 and this continued in January. This last item in particular might be associated with the financial operations that facilitate trade flows. But it moved against the trade flows instead. Portfolio investment and payments through the Bank of Spain made the difference to &quot;balance&quot; the &quot;balance of payments&quot;. This mix of payment types, however, highlights clearly that financial flows exert their own independent impact on international economic relations, serving a broader function than simply offsetting shipments of goods back and forth across national borders. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SPAIN/SPAIN.HTM">SPAIN</a> Balances, Mil. Euros</th>
<th scope="col">Jan 2005</th>
<th scope="col">Dec 2004</th>
<th scope="col">Jan 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>-4155</td>
<td>-5710</td>
<td>-809</td>
<td>-3295</td>
<td>-1736</td>
<td>-1407</td>
</tr>
<tr class="odd">
<td class="firstcol">Merchandise</td>
<td>-4675</td>
<td>-5403</td>
<td>-2989</td>
<td>-4324</td>
<td>-3154</td>
<td>-2884</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>1431</td>
<td>1236</td>
<td>1292</td>
<td>2097</td>
<td>2272</td>
<td>2215</td>
</tr>
<tr class="odd">
<td class="firstcol">Income</td>
<td>-1223</td>
<td>-1715</td>
<td>-640</td>
<td>-1069</td>
<td>-882</td>
<td>-940</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account</td>
<td>4680</td>
<td>3919</td>
<td>1673</td>
<td>3027</td>
<td>1470</td>
<td>1230</td>
</tr>
<tr>
<td class="firstcol">&quot;Private&quot; Financial Flows = Sum of 3 Below</td>
<td>3022</td>
<td>1072</td>
<td>8738</td>
<td>4040</td>
<td>1618</td>
<td>1342</td>
</tr>
<tr class="odd">
<td class="firstcol">Direct Investment</td>
<td>-1170</td>
<td>-1526</td>
<td>-326</td>
<td>-2157</td>
<td>166</td>
<td>389</td>
</tr>
<tr>
<td class="firstcol">Portfolio Investment</td>
<td>7861</td>
<td>8479</td>
<td>7597</td>
<td>6798</td>
<td>-2506</td>
<td>474</td>
</tr>
<tr class="odd">
<td class="firstcol">Other Investment</td>
<td>-3669</td>
<td>-5881</td>
<td>1467</td>
<td>-601</td>
<td>3958</td>
<td>479</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050414d.jpg" width="353">
A couple of weeks ago, we noted here that higher energy prices had failed to ignite new inflation in Italy. The same is true for some other countries, whose CPI data were reported today for March. In Poland, the seasonally adjusted CPI was absolutely flat for a second month, and the year/year increase eased to 3.4% from 3.6% in February. In Finland, the year/year pace did go up in March to 1.0%, from 0.2% in both January and February, but this remains a relatively low number. Finnish inflation has averaged 1.3% over the last five years.
In Sweden, there is almost no inflation at all, nor any sign of a pickup. The March figure was a mere 0.1% above March 2004, with the prior two months averaging a little over 0.3%, about the same as in 2004 overall.
Thus, as in the situation in Italy, which we discussed before, other prices remain weak, offsetting the pressure from energy. Clothing prices and technology-driven communications costs are low in most countries. Even fuel components themselves have slowed from their strongest pace, as seen in the second graph.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050414e.jpg" width="353">
We speak of the restrained inflation as beneficial for these economies, but that remains, of course, a relative statement. As prices are held back in the face of rising fuel costs, someone&#39;s profits or incomes are being squeezed, so the outlook is still clouded by high-priced energy.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Yr/Yr % Changes Not Seasonally Adjusted&nbsp;</th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 2005</th>
<th scope="col">Jan 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>3.4</td>
<td>3.6</td>
<td>3.6</td>
<td>4.4</td>
<td>1.7</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden</td>
<td>0.1</td>
<td>0.7</td>
<td>0.0</td>
<td>0.3</td>
<td>1.3</td>
<td>2.1</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>1.0</td>
<td>0.2</td>
<td>0.2</td>
<td>0.4</td>
<td>0.6</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>1.9</td>
<td>1.9</td>
<td>1.9</td>
<td>2.0</td>
<td>2.5</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">US</td>
<td>--</td>
<td>3.0</td>
<td>3.0</td>
<td>3.3</td>
<td>1.9</td>
<td>2.4</td>
</tr>
</tbody>
</table>
</body>
</html>

A couple of weeks ago, we noted here that higher energy prices had failed to ignite new inflation in Italy. The same is true for some other countries, whose CPI data were reported today for March. In Poland, the seasonally adjusted [...]

Consumer Prices in Sweden, Finland and Poland Still Restrained in the Face of Rising Energy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050414a.jpg" width="353">
Total business inventories rose another 0.5% in February but figures back to 2002 were revised somewhat lower. Nevertheless, the y/y rate of inventory accumulation continued strong at 8.2% yet still lagged the improvement in sales growth. In February the ratio of inventories-to-sales rose slightly from the record low but remained below the year ago level.
Retail inventories rose 0.3% in February for the second month. Excluding autos, retail inventories moderated to the weakest gain in four months. Inventories of furniture &amp; electronics (+7.1% y/y) fell for the second month and general merchandise inventories rose just 0.1% (5.9% y/y). Apparel inventories accumulated strongly (4.0% y/y) for the second month.
Factory sector inventories grew 0.5% following the 1.5% jump in January. Regardless, the 8.6% gain versus last year was the strongest since 1989.
Wholesale inventory accumulation moderated to a 0.6% gain but the double digit rise versus last year was the strongest since 1995. During the last ten years there has been a 64% correlation between the y/y change in wholesale inventories and the change in imports of merchandise.
Overall business sales fell 0.4% (+9.6% y/y) due to lower wholesale sales and a 0.9% decline in factory shipments.

<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">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.9%</td>
<td>8.2%</td>
<td>7.7%</td>
<td>1.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.3%</td>
<td>0.3%</td>
<td>5.6%</td>
<td>5.7%</td>
<td>3.9%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.4%</td>
<td>0.7%</td>
<td>6.9%</td>
<td>5.9%</td>
<td>2.0%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.6%</td>
<td>1.0%</td>
<td>11.1%</td>
<td>10.8%</td>
<td>2.0%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.5%</td>
<td>1.5%</td>
<td>8.6%</td>
<td>7.5%</td>
<td>-1.3%</td>
<td>-1.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

Total business inventories rose another 0.5% in February but figures back to 2002 were revised somewhat lower. Nevertheless, the y/y rate of inventory accumulation continued strong at 8.2% yet still lagged the improvement in sales [...]

U.S. Business Inventories Still Building

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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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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Globally Manufacturing Weakens

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

Economy in Brief: April 2005

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Spanish Current Account Deficit Widens in January, Even as Financial Flows Seek Their Own Return

U.S. Consumer Sentiment Down As Expectations Waned

Imported Price Inflation Up Sharply

Empire State Index Down Sharply

Industrial Production Gain All Utilities

Industrial Production Gain All Utilities

Consumer Prices in Sweden, Finland and Poland Still Restrained in the Face of Rising Energy

U.S. Business Inventories Still Building