Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070410b.jpg" width="353">
French industrial output was up especially strong rising by 1.1% and led by a 1.2% increase in the output of consumer goods. EU IP trends have been soft recently. Even Germany where conditions have been rather solid has showed some weakness in consumer goods output; of course Germany may still be fighting its way though some VAT effects early in the year. With this strong gain in February, France at least shows that one large EU country has some solid output growth in consumer goods. This has been led by autos where output is up by a strong 4.7% spurt in February alone. 
For France the chart now shows some building momentum trends in place as the 3-mo growth rate is rising sharply and the six month pace is firming along with the Yr/Yr pace.
In February France demonstrates good growth across sectors. Auto output is especially strong. Consumer goods output is surprisingly robust as that sector had lagged. Capital goods output trends are simply steady and above the pace of 4%. Intermediate goods output has picked up in February.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
French IP Excluding construction
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">SAAR except m/m </td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>3-mo</td>
<td>&nbsp;6-mo </td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">IP total</td>
<td>1.1%</td>
<td>-0.2%</td>
<td>1.0%</td>
<td>7.7%</td>
<td>1.6%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>1.2%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>6.4%</td>
<td>2.9%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>4.8%</td>
<td>4.4%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediary</td>
<td>1.3%</td>
<td>-1.2%</td>
<td>1.4%</td>
<td>6.3%</td>
<td>1.2%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Memo</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">Auto</td>
<td>4.7%</td>
<td>0.4%</td>
<td>1.5%</td>
<td>29.9%</td>
<td>3.9%</td>
<td>4.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

French industrial output was up especially strong rising by 1.1% and led by a 1.2% increase in the output of consumer goods. EU IP trends have been soft recently. Even Germany where conditions have been rather solid has showed some [...]

French Industrial Output Up Sharply in February

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070410a.jpg" width="353">
Japan&#146;s economy watcher&#146;s survey shows the ongoing downshift in Japan&#146;s economy from a local peak reached back in March of 2006. Since then, the economy has showed less strength but in the recent three months or so the economy watcher&#146;s index has showed some lift in its overall position as well as in its outlook. During this period job market conditions have remained positive and have stabilized. This index is one of the reasons that the Bank of Japan (BoJ) may remain confident that the economy is still doing alright despite some uneven reports early this year. 
The indicators in the table below give a somewhat broader picture of the performance of the Japanese economy. The first panel of the chart shows the raw readings on several measures; the second panel re-expresses them as a percentile of the indicator&#146;s own range of values over the past five years. For example the current economy watchers index shows the future component is in the 70th percentile (top 30%) of this five-year range of values. The other economy watcher indicators are near or above the 60th percentile, significantly above even the midpoint of their respective ranges (the 50th percentile mark is the mid-point). But the NTC MFG reading is relatively weaker at a 52.5 raw reading it shows some expansion. As a percentile of its five-year range it is weak, residing in only its 43rd percentile. The Teikoku indexes are relatively stronger. They are based on a more comprehensive weighting of questions put to survey participants. The MFG reading is in the 86th percentile of its range, much stronger than the NTC reading in its range. Also the services and construction readings are in the top 10 percentile of their respective ranges. Retailing is at a weaker but still firm 75th percentile.
The BoJ decision to keep rates on hold seems reasonable. The economy has had some uneven numbers but there has also been some new flirtation with deflation. The BoJ board seems to be trying to make sure that recovery is in gear before moving rates up as deputy governor Muto had previously promised. For the moment BOJ policy seem to be right where it needs to be.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Key Japanese surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Year range*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Economy Watchers</td>
<td>50.8</td>
<td>49.2</td>
<td>47.2</td>
<td>48.9</td>
<td>65.6%</td>
<td>57.4%</td>
<td>53.7%</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>56.3</td>
<td>55.9</td>
<td>56.3</td>
<td>54.5</td>
<td>59.7%</td>
<td>57.9%</td>
<td>64.9%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>51.3</td>
<td>52.1</td>
<td>50.9</td>
<td>48.9</td>
<td>70.6%</td>
<td>75.0%</td>
<td>68.3%</td>
</tr>
<tr>
<td class="firstcol">NTC MFG</td>
<td>52.5</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>43.5%</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion))</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>47.2</td>
<td>46.7</td>
<td>46.7</td>
<td>47.6</td>
<td>86.2%</td>
<td>84.5%</td>
<td>85.2%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>41.1</td>
<td>39.9</td>
<td>39.8</td>
<td>39.4</td>
<td>74.3%</td>
<td>69.9%</td>
<td>69.3%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>44.6</td>
<td>43.8</td>
<td>44.1</td>
<td>44.8</td>
<td>85.8%</td>
<td>82.1%</td>
<td>84.8%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>49.9</td>
<td>49.4</td>
<td>48.9</td>
<td>49.3</td>
<td>92.2%</td>
<td>90.2%</td>
<td>88.5%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>38.7</td>
<td>38.7</td>
<td>38.2</td>
<td>39.0</td>
<td>91.2%</td>
<td>91.0%</td>
<td>88.6%</td>
</tr>
<tr>
<td colspan="8">100 is high; Zero is low</td>
</tr>
</tbody>
</table>
</body>
</html>

Japans economy watchers survey shows the ongoing downshift in Japans economy from a local peak reached back in March of 2006. Since then, the economy has showed less strength but in the recent three months or so the economy [...]

Bank of Japan Holds Policy Steady on Unanimous Vote…

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070410a.jpg" width="353">
Japan&#146;s economy watcher&#146;s survey shows the ongoing downshift in Japan&#146;s economy from a local peak reached back in March of 2006. Since then, the economy has showed less strength but in the recent three months or so the economy watcher&#146;s index has showed some lift in its overall position as well as in its outlook. During this period job market conditions have remained positive and have stabilized. This index is one of the reasons that the Bank of Japan (BoJ) may remain confident that the economy is still doing alright despite some uneven reports early this year. 
The indicators in the table below give a somewhat broader picture of the performance of the Japanese economy. The first panel of the chart shows the raw readings on several measures; the second panel re-expresses them as a percentile of the indicator&#146;s own range of values over the past five years. For example the current economy watchers index shows the future component is in the 70th percentile (top 30%) of this five-year range of values. The other economy watcher indicators are near or above the 60th percentile, significantly above even the midpoint of their respective ranges (the 50th percentile mark is the mid-point). But the NTC MFG reading is relatively weaker at a 52.5 raw reading it shows some expansion. As a percentile of its five-year range it is weak, residing in only its 43rd percentile. The Teikoku indexes are relatively stronger. They are based on a more comprehensive weighting of questions put to survey participants. The MFG reading is in the 86th percentile of its range, much stronger than the NTC reading in its range. Also the services and construction readings are in the top 10 percentile of their respective ranges. Retailing is at a weaker but still firm 75th percentile.
The BoJ decision to keep rates on hold seems reasonable. The economy has had some uneven numbers but there has also been some new flirtation with deflation. The BoJ board seems to be trying to make sure that recovery is in gear before moving rates up as deputy governor Muto had previously promised. For the moment BOJ policy seem to be right where it needs to be.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Key Japanese surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Year range*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Economy Watchers</td>
<td>50.8</td>
<td>49.2</td>
<td>47.2</td>
<td>48.9</td>
<td>65.6%</td>
<td>57.4%</td>
<td>53.7%</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>56.3</td>
<td>55.9</td>
<td>56.3</td>
<td>54.5</td>
<td>59.7%</td>
<td>57.9%</td>
<td>64.9%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>51.3</td>
<td>52.1</td>
<td>50.9</td>
<td>48.9</td>
<td>70.6%</td>
<td>75.0%</td>
<td>68.3%</td>
</tr>
<tr>
<td class="firstcol">NTC MFG</td>
<td>52.5</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>43.5%</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion))</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>47.2</td>
<td>46.7</td>
<td>46.7</td>
<td>47.6</td>
<td>86.2%</td>
<td>84.5%</td>
<td>85.2%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>41.1</td>
<td>39.9</td>
<td>39.8</td>
<td>39.4</td>
<td>74.3%</td>
<td>69.9%</td>
<td>69.3%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>44.6</td>
<td>43.8</td>
<td>44.1</td>
<td>44.8</td>
<td>85.8%</td>
<td>82.1%</td>
<td>84.8%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>49.9</td>
<td>49.4</td>
<td>48.9</td>
<td>49.3</td>
<td>92.2%</td>
<td>90.2%</td>
<td>88.5%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>38.7</td>
<td>38.7</td>
<td>38.2</td>
<td>39.0</td>
<td>91.2%</td>
<td>91.0%</td>
<td>88.6%</td>
</tr>
<tr>
<td colspan="8">100 is high; Zero is low</td>
</tr>
</tbody>
</table>
French Industrial Output Up Sharply in February 
by <a href="/comment/Brusca.html">Robert Brusca</a> April 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070410b.jpg" width="353">
French industrial output was up especially strong rising by 1.1% and led by a 1.2% increase in the output of consumer goods. EU IP trends have been soft recently. Even Germany where conditions have been rather solid has showed some weakness in consumer goods output; of course Germany may still be fighting its way though some VAT effects early in the year. With this strong gain in February, France at least shows that one large EU country has some solid output growth in consumer goods. This has been led by autos where output is up by a strong 4.7% spurt in February alone. 
For France the chart now shows some building momentum trends in place as the 3-mo growth rate is rising sharply and the six month pace is firming along with the Yr/Yr pace.
In February France demonstrates good growth across sectors. Auto output is especially strong. Consumer goods output is surprisingly robust as that sector had lagged. Capital goods output trends are simply steady and above the pace of 4%. Intermediate goods output has picked up in February.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
French IP Excluding construction
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">SAAR except m/m </td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>3-mo</td>
<td>&nbsp;6-mo </td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">IP total</td>
<td>1.1%</td>
<td>-0.2%</td>
<td>1.0%</td>
<td>7.7%</td>
<td>1.6%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>1.2%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>6.4%</td>
<td>2.9%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>4.8%</td>
<td>4.4%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediary</td>
<td>1.3%</td>
<td>-1.2%</td>
<td>1.4%</td>
<td>6.3%</td>
<td>1.2%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Memo</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">Auto</td>
<td>4.7%</td>
<td>0.4%</td>
<td>1.5%</td>
<td>29.9%</td>
<td>3.9%</td>
<td>4.5%</td>
</tr>
</tbody>
</table>
China's Trade Surplus Tumbles in March, but First Quarter Surplus Is Still A Record 
by <a href="/comment/Curley.html">Louise Curley</a> April 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070410c.jpg" width="353">
China&#39;s merchandise trade balance fell sharply in March to $84.7 billion from $108.0 billion in February. Exports fell by $23.4 billion and imports rose by $0.3 billion. As the data are not seasonally adjusted, the monthly ups and downs in the first quarter of the year are frequently affected by the variations in the dates of the Chinese New Year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070410d.jpg" width="353"> In spite of the decline in the March trade balance, the balance for the whole quarter was a record at $63.7 billion, $7.5 billion above the previous quarter and $30.7 above the first quarter of 2006. The first chart shows China&#39;s merchandise exports, imports and balances of trade in goods over the past five years on a quarterly basis.
The surplus with the US was $42 billion in the first quarter of this year, $2.6 billion above the previous quarter and $7.8 billion above the first quarter of 2006. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070410f.jpg" width="353">The growing surplus with the U.S. has been causing friction between China and the US over the last several years and has reached the point where the US has recently increased duties on Chinese coated paper and, just yesterday, filed two cases with the WTO (World Trade Organization) to reduce barriers to US goods and to criminalize piracy. The second chart shows the widening gap between China&#39;s exports to the US and its imports from the US.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070410e.jpg" width="353">
In contrast to the US, China has run a deficit with Japan as shown in the third chart. Until 2005, China also ran a deficit in goods with Germany. Since then, however, China has been recording a growing surplus with Germany as shown in the fourth chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P1/@P17/@P17.HTM">CHINA TRADE IN GOODS</a> &nbsp;(Bil US$)</th>
<th scope="col">Mar 07</th>
<th scope="col">Feb 07</th>
<th scope="col">Mar 06</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">Q1 07</th>
<th scope="col">Q4 06&nbsp;</th>
<th scope="col">Q1 06&nbsp;</th>
<th scope="col">Q/Q Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Export Total</td>
<td>84.7</td>
<td>108.0</td>
<td>76.5</td>
<td>-23.4</td>
<td>8.2</td>
<td>282.9</td>
<td>263.6</td>
<td>219.0</td>
<td>19.3</td>
<td>63.9</td>
<td>969.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;To US</td>
<td>16.8</td>
<td>21.4</td>
<td>16.9</td>
<td>-4.6</td>
<td>-0.1</td>
<td>58.2</td>
<td>54.7</td>
<td>47.9</td>
<td>3.5</td>
<td>10.3</td>
<td>203.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;To Germany</td>
<td>3.0</td>
<td>4.3</td>
<td>3.3</td>
<td>-1.3</td>
<td>-0.3</td>
<td>11.1</td>
<td>10.6</td>
<td>9.5</td>
<td>0.5</td>
<td>1.6</td>
<td>40.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;To Japan</td>
<td>7.1</td>
<td>9.3</td>
<td>7.5</td>
<td>-2.1</td>
<td>-0.4</td>
<td>25.1</td>
<td>23.8</td>
<td>22.3</td>
<td>1.3</td>
<td>2.8</td>
<td>91.8</td>
</tr>
<tr class="odd">
<td class="firstcol"> Imports Total </td>
<td>74.2</td>
<td>73.9</td>
<td>63.3</td>
<td>0.3</td>
<td>10.9</td>
<td>219.3</td>
<td>207.4</td>
<td>168.1</td>
<td>11.9</td>
<td>51.2</td>
<td>791.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;From US</td>
<td>6.1</td>
<td>4.9</td>
<td>4.8</td>
<td>1.3</td>
<td>1.6</td>
<td>16.3</td>
<td>15.4</td>
<td>13.8</td>
<td>0.9</td>
<td>2.5</td>
<td>59.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;From Germany</td>
<td>3.4</td>
<td>3.6</td>
<td>2.8</td>
<td>-0.2</td>
<td>0.6</td>
<td>10.2</td>
<td>10.3</td>
<td>8.7</td>
<td>-0.1</td>
<td>1.5</td>
<td>37.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;From Japan</td>
<td>10.9</td>
<td>10.8</td>
<td>9.2</td>
<td>0.1</td>
<td>1.7</td>
<td>32.3</td>
<td>30.4</td>
<td>27.2</td>
<td>1.9</td>
<td>5.1</td>
<td>115.8</td>
</tr>
<tr class="odd">
<td class="firstcol"> Balance Total </td>
<td>10.4</td>
<td>34.1</td>
<td>13.1</td>
<td>-23.6</td>
<td>-2.7</td>
<td>63.7</td>
<td>56.1</td>
<td>32.9</td>
<td>7.5</td>
<td>30.7</td>
<td>177.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;US</td>
<td>10.7</td>
<td>16.5</td>
<td>12.1</td>
<td>-5.8</td>
<td>-1.4</td>
<td>42.0</td>
<td>39.3</td>
<td>34.1</td>
<td>2.6</td>
<td>7.8</td>
<td>144.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Germany</td>
<td>-0.4</td>
<td>0.7</td>
<td>0.5</td>
<td>-1.1</td>
<td>-0.9</td>
<td>0.9</td>
<td>0.3</td>
<td>0.8</td>
<td>0.6</td>
<td>0.1</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Japan</td>
<td>-3.8</td>
<td>-1.5</td>
<td>-1.7</td>
<td>-2.3</td>
<td>-2.1</td>
<td>-7.2</td>
<td>-6.6</td>
<td>-4.9</td>
<td>-0.5</td>
<td>-2.3</td>
<td>-24.0</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070409a.jpg" width="353">
The results of the latest survey of Economy Watchers in Japan are lackluster. After losing confidence in both current conditions and the outlook since early last year, the Economy Watchers have increased their confidence regarding current conditions. The diffusion indexes for current conditions for households and corporations rose in February and March of this year, that for employment fell in February, but rose to its January level in March, as can be seen in the first chart.
The loss in confidence about the future outlook since early 2006 has been less pronounced than that of current conditions, but the diffusion indexes for future conditions in households and corporations have continued to decline in March of this year while that for employment rose, as can be seen in the second chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070409b.jpg" width="353">
The Economy Watchers currently number 2050 individuals who are in a position to observe developments that reflect economic activity in their particular fields of business. A diffusion index is calculated on the basis of the judgment of these individuals. That proportion of the individuals who see things better is assigned a weight of l; that proportion seeing things rather better, a weight of .75; that proportion seeing no change, a weight of .50; that proportion seeing things rather worse, .25; and that portion seeing things worse, a weight of 0. An index above 50% indicates that there are more optimists than pessimists.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070409c.jpg" width="353">The Economy Watchers Index for Households can be thought of as the opinion of the suppliers of household goods whereas a consumer confidence index is based on the opinions of the actual consumer. In the third chart we compare the Economy Watchers Index for Household current conditions and the Consumer Confidence Index of 2 person Households. While the suppliers tend to be more volatile in their opinions, confidence on the part of both consumers and suppliers has shown little enthusiasm over the past few years.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ECONOMY WATCHERS SURVEY &nbsp;(Diffusion Indexes)</th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>50.8</td>
<td>49.2</td>
<td>57.3</td>
<td>1.6</td>
<td>-6.5</td>
<td>51.4</td>
<td>49.0</td>
<td>50.0</td>
</tr>
<tr>
<td class="firstcol">Households</td>
<td>49.3</td>
<td>47.9</td>
<td>56.0</td>
<td>2.0</td>
<td>-6.1</td>
<td>49.8</td>
<td>49.0</td>
<td>47.8</td>
</tr>
<tr>
<td class="firstcol">Corporations</td>
<td>50.9</td>
<td>49.8</td>
<td>57.5</td>
<td>1.1</td>
<td>-6.6</td>
<td>51.8</td>
<td>50.5</td>
<td>51.6</td>
</tr>
<tr>
<td class="firstcol"> Employment </td>
<td>55.9</td>
<td>.56.3</td>
<td>65.5</td>
<td>0.4</td>
<td>-9.2</td>
<td>60.2</td>
<td>57.7</td>
<td>61.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Future Conditions</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>51.3</td>
<td>52.1</td>
<td>56.2</td>
<td>-0.8</td>
<td>-4.9</td>
<td>52.9</td>
<td>51.5</td>
<td>51.4</td>
</tr>
<tr>
<td class="firstcol">Households</td>
<td>51.6</td>
<td>52.3</td>
<td>56.2</td>
<td>-0.7</td>
<td>-4.6</td>
<td>52.5</td>
<td>50.9</td>
<td>50.4</td>
</tr>
<tr>
<td class="firstcol">Corporations</td>
<td>47.9</td>
<td>49.6</td>
<td>54.0</td>
<td>-1.7</td>
<td>-6.1</td>
<td>51.7</td>
<td>50.6</td>
<td>50.6</td>
</tr>
<tr>
<td class="firstcol"> Employment </td>
<td>56.6</td>
<td>55.9</td>
<td>56.6</td>
<td>0.7</td>
<td>-4.7</td>
<td>58.4</td>
<td>56.9</td>
<td>59.8</td>
</tr>
<tr>
<td class="firstcol"> Consumer Confidence (2 Person HH) </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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The results of the latest survey of Economy Watchers in Japan are lackluster. After losing confidence in both current conditions and the outlook since early last year, the Economy Watchers have increased their confidence regarding [...]

Economy Watchers in Japan Are More Confident about Current Conditions but Less Confident about the Outlook

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OECD Leading Indicators by Main Regions/Countries
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD Major 7</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>-1.7%</td>
<td>-0.1%</td>
<td>-0.1%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD Japan</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-0.6%</td>
<td>-1.0%</td>
<td>-3.6%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-2.2%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406d.jpg" width="353">
The OECD trend restored leading indicators show a clear deceleration across major areas and countries. Despite this ongoing slowdown Central banks across the region generally are fighting inflation and seem to see it as a still-significant risk. Yet, the slowdown is pervasive. Even so, the OECD is only calling it a moderation and nothing more dramatic. 
The decline in the overall indicator is clear and it is also clear that it has not yet weakened enough for the region to worry about recession.
The chart below shows a number of regions plotted together. And it is also clear that there is NO EVIDENCE that the rest of the OECD area has decoupled from the US at all. Besides that, Japan seems especially weak on this score.
While there has been some commentary that the rest of the world has more independent growth and could weather a US slowdown, the chart above shows NO evidence of a break in the link with the US on the LEI front using the OECD measures. In an earlier report we had showed how manufacturing in the US and in Europe remains tightly linked, at least statistically.
Since trade drives a lot of growth we should be wary of seeing new broken linkages. Even China which many see as a major &#145;independent force&#146; also derives a lot of its growth from trade and since all regions send a large amount of exports to the US we have ample reason to doubt that the rest of the world could weather a slowdown in the US.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406e.jpg" width="353">
Central banks must continue to fight inflation since, should it get away from them, bad things would surely happen. The slowdown in growth across the OECD area makes policymaking by the central banks more difficult but it should not deter them from their true goal.

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The OECD trend restored leading indicators show a clear deceleration across major areas and countries. Despite this ongoing slowdown Central banks across the region generally are fighting inflation and seem to see it as a still- [...]

OECD LEIs Point to Slowdown/Moderation

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/070406a.jpg" width="353">
Nonfarm payrolls grew by 180,000, beating out forecasts around 130,000; the prior two months&#39; gains were revised upward once again, this time by a collective 32,000. See the third paragraph for more on these revisions.
The unemployment rate eased last month to 4.4% from 4.5% in February. This decrease was a &quot;legitimate&quot; one, coming because the number of people employed, according to the household survey, grew (335,000) and the number unemployed went down (141,000). The decline in February&#39;s unemployment rate, by contrast, had occurred from a decrease in labor force participation and accompanied a decline in employment as well as in unemployment. Over the past two months, unemployment has fallen by 293,000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406b.jpg" width="353">
Returning to the establishment data, we noticed repeated remarks in these commentaries about &quot;upward revisions to the prior months&quot;. So we looked more closely. Indeed, there have been eventual upward revisions to the first report continuously since March 2005, as is evident in the second graph. Compared with the initial report, the most current figures have been altered by the subsequent two monthly reports and each year&#39;s re-benchmarking and seasonal factor updating. There&#39;s clearly a developing bias since early 2003 which contrasts with up-and-down spikes in earlier years, even back well before the chart begins. Late reporting companies in recent years are the growing ones, evidently. BLS documentation shows that about two-thirds of the sample report in time for the initial estimate, rising to roughly 85% in the subsequent two months. Note that the figures for the initial report come from Haver&#39;s AS1REPNA database, compiled in conjunction with the forecast survey consensus data from Action Economics.
Regarding the details of the jobs figures, we were right a month ago in our assessment that February&#39;s cold weather had hurt the construction sector. It rebounded by 57,000 after that month&#39;s 61,000 drop. This is an impressive move, since seasonal factor shifts in these two months act to moderate declines in February and increases in March. Other industries contributing to March&#39;s overall advance include retail trade, especially supermarkets and &quot;general merchandise&quot; stores. Accommodation and food services, particularly the latter, also gained, along with a variety of health care sectors. Government employment rose 23,000, nearly all at the state and local level.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406c.jpg" width="353">
Separately, the BLS released new &quot;experimental&quot; series on hours and earnings for all employees, not just so-called production workers. These data are available today (April 6, 2007) for March 2006 through January 2007. As seen in the third graph, these earnings run about $3.50/hour more than the production worker series. There aren&#39;t enough data for seasonal adjustment; this will occur after three full years of data are available. More interesting perhaps is the new series titled &quot;gross monthly earnings&quot;. This includes cash wages plus extra monetary payments such as bonuses, lump-sums and exercised stock options. These data are intended to cover the entire month, not just the traditional &quot;reference week&quot;, and are presently available from March 2006 through December 2006. The payment of &quot;Christmas&quot; or year-end bonuses is readily apparent in the December figure. Industry breakdowns for all of these series have now been added to USECON, under a menu item titled &quot;Experimental&quot; in the Employment and Earnings heading. They will also be available in the LABOR 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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nonfarm Payrolls</td>
<td>180,000</td>
<td>113,000</td>
<td>162,000</td>
<td>1.5%</td>
<td>1.8%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-16,000</td>
<td>-11,000</td>
<td>-1,000</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8 &nbsp; (Mar. &#39;06)</td>
<td>33.9</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.4%</td>
<td>4.5%</td>
<td>4.6%</td>
<td>4.7% (Mar. &#39;06)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm payrolls grew by 180,000, beating out forecasts around 130,000; the prior two months' gains were revised upward once again, this time by a collective 32,000. See the third paragraph for more on these revisions. The [...]

Payrolls Gain 180,000, Unemployment Eases to 4.4%; New Data on All-Employee Earnings

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406a.jpg" width="353">
Nonfarm payrolls grew by 180,000, beating out forecasts around 130,000; the prior two months&#39; gains were revised upward once again, this time by a collective 32,000. See the third paragraph for more on these revisions.
The unemployment rate eased last month to 4.4% from 4.5% in February. This decrease was a &quot;legitimate&quot; one, coming because the number of people employed, according to the household survey, grew (335,000) and the number unemployed went down (141,000). The decline in February&#39;s unemployment rate, by contrast, had occurred from a decrease in labor force participation and accompanied a decline in employment as well as in unemployment. Over the past two months, unemployment has fallen by 293,000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406b.jpg" width="353">
Returning to the establishment data, we noticed repeated remarks in these commentaries about &quot;upward revisions to the prior months&quot;. So we looked more closely. Indeed, there have been eventual upward revisions to the first report continuously since March 2005, as is evident in the second graph. Compared with the initial report, the most current figures have been altered by the subsequent two monthly reports and each year&#39;s re-benchmarking and seasonal factor updating. There&#39;s clearly a developing bias since early 2003 which contrasts with up-and-down spikes in earlier years, even back well before the chart begins. Late reporting companies in recent years are the growing ones, evidently. BLS documentation shows that about two-thirds of the sample report in time for the initial estimate, rising to roughly 85% in the subsequent two months. Note that the figures for the initial report come from Haver&#39;s AS1REPNA database, compiled in conjunction with the forecast survey consensus data from Action Economics.
Regarding the details of the jobs figures, we were right a month ago in our assessment that February&#39;s cold weather had hurt the construction sector. It rebounded by 57,000 after that month&#39;s 61,000 drop. This is an impressive move, since seasonal factor shifts in these two months act to moderate declines in February and increases in March. Other industries contributing to March&#39;s overall advance include retail trade, especially supermarkets and &quot;general merchandise&quot; stores. Accommodation and food services, particularly the latter, also gained, along with a variety of health care sectors. Government employment rose 23,000, nearly all at the state and local level.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406c.jpg" width="353">
Separately, the BLS released new &quot;experimental&quot; series on hours and earnings for all employees, not just so-called production workers. These data are available today (April 6, 2007) for March 2006 through January 2007. As seen in the third graph, these earnings run about $3.50/hour more than the production worker series. There aren&#39;t enough data for seasonal adjustment; this will occur after three full years of data are available. More interesting perhaps is the new series titled &quot;gross monthly earnings&quot;. This includes cash wages plus extra monetary payments such as bonuses, lump-sums and exercised stock options. These data are intended to cover the entire month, not just the traditional &quot;reference week&quot;, and are presently available from March 2006 through December 2006. The payment of &quot;Christmas&quot; or year-end bonuses is readily apparent in the December figure. Industry breakdowns for all of these series have now been added to USECON, under a menu item titled &quot;Experimental&quot; in the Employment and Earnings heading. They will also be available in the LABOR 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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nonfarm Payrolls</td>
<td>180,000</td>
<td>113,000</td>
<td>162,000</td>
<td>1.5%</td>
<td>1.8%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-16,000</td>
<td>-11,000</td>
<td>-1,000</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8 &nbsp; (Mar. &#39;06)</td>
<td>33.9</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.4%</td>
<td>4.5%</td>
<td>4.6%</td>
<td>4.7% (Mar. &#39;06)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
OECD Leading Indicators by Main Regions/Countries
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD Major 7</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>-1.7%</td>
<td>-0.1%</td>
<td>-0.1%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD Japan</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-0.6%</td>
<td>-1.0%</td>
<td>-3.6%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-2.2%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
OECD LEIs Point to Slowdown/Moderation 
by <a href="/comment/Brusca.html">Robert Brusca</a> April 6, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406d.jpg" width="353">
The OECD trend restored leading indicators show a clear deceleration across major areas and countries. Despite this ongoing slowdown Central banks across the region generally are fighting inflation and seem to see it as a still-significant risk. Yet, the slowdown is pervasive. Even so, the OECD is only calling it a moderation and nothing more dramatic. 
The decline in the overall indicator is clear and it is also clear that it has not yet weakened enough for the region to worry about recession.
The chart below shows a number of regions plotted together. And it is also clear that there is NO EVIDENCE that the rest of the OECD area has decoupled from the US at all. Besides that, Japan seems especially weak on this score.
While there has been some commentary that the rest of the world has more independent growth and could weather a US slowdown, the chart above shows NO evidence of a break in the link with the US on the LEI front using the OECD measures. In an earlier report we had showed how manufacturing in the US and in Europe remains tightly linked, at least statistically.
Since trade drives a lot of growth we should be wary of seeing new broken linkages. Even China which many see as a major &#145;independent force&#146; also derives a lot of its growth from trade and since all regions send a large amount of exports to the US we have ample reason to doubt that the rest of the world could weather a slowdown in the US.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070406e.jpg" width="353">
Central banks must continue to fight inflation since, should it get away from them, bad things would surely happen. The slowdown in growth across the OECD area makes policymaking by the central banks more difficult but it should not deter them from their true goal.

<table border="0" cellspacing="0" width="100%">

</table>
</body>
</html>

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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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

<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

Tom Moeller

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

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

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

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

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

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

250501H20.jpg

250501I20.jpg

- 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

250501J5.jpg

250501K5.jpg

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.

250501L5.jpg

250501M5.jpg

- 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

250501N.jpg

250501O.jpg

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**.

250501P.jpg

250501Q.jpg

- 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.

U.S. Construction Spending Unexpectedly Drops in March, the First M/M Fall Since September

250501A8.jpg

250501B8.jpg

Initial claims for unemployment insurance rose 18,000 in the week ended April 26 to 241,000, seasonally adjusted.  This is higher by 16,000 than the Action Economics Forecast Survey amount of 225,000 and is the largest amount since the week of February 22. The previous week’s actual count was revised up by 1,000 to 223,000, from 222,000 reported initially.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended April 19 was 1.916 million, up 83,000 from the prior week’s 1.833 million; that earlier amount was revised down by 8,000.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, was 1.3% in the April 19 week, following 1.2% continuously since the week of January 6, 2024.

Economic conditions vary widely across states and territories.  In the week ended April 12, the highest unemployment rates were in New Jersey (2.39%), California (2.24%), Washington (2.19%), Rhode Island (2.17%) and Massachusetts (1.93%).  The lowest rates were in Florida (0.35%), South Dakota (0.40%), Alabama (0.41%), Virginia (0.45%) and Tennessee (0.48%).  Rates in other notable states include the Illinois (1.85%), New York (1.71%), Pennsylvania (1.54%) and Texas (1.09%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in U**SECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

250501C8.jpg

250501D8.jpg

- Actual initial claims amount is 16,000 more than forecast.
- Total beneficiaries rose by 83,000.
- Insured unemployment rate ticked up to 1.3% after 15 months at 1.2%.

Economy in Brief: April 2007

Jump to:

French Industrial Output Up Sharply in February

Bank of Japan Holds Policy Steady on Unanimous Vote…

Bank of Japan Holds Policy Steady on Unanimous Vote…

Economy Watchers in Japan Are More Confident about Current Conditions but Less Confident about the Outlook

Economy Watchers in Japan Are More Confident about Current Conditions but Less Confident about the Outlook

OECD LEIs Point to Slowdown/Moderation

Payrolls Gain 180,000, Unemployment Eases to 4.4%; New Data on All-Employee Earnings

Payrolls Gain 180,000, Unemployment Eases to 4.4%; New Data on All-Employee Earnings