Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080417c.jpg" width="353">
The Philadelphia Federal Reserve Bank reported that its April Index of General Business Conditions in the manufacturing sector fell to -24.9% and reversed all of the prior month&#39;s modest improvement. The latest level was the lowest since the recession year 2001.
The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub indexes. The business conditions index reflects a separate survey question, not the sub indexes listed below.
During the last ten years there has been a 59% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 42% correlation with q/q growth in real GDP.
Sharp declines in the new orders, employment and in the inventories sub indexes were registered while shipments fell modestly.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080417d.jpg" width="353">
The prices paid index backed off slightly after rising in March to its highest level since January 2005. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months rose sharply and was at the highest level since November; positive for the first month in the last three. Expectations for new orders rose sharply
The latest Business Outlook Survey from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/bos/bos0408.pdf">here</a>.
The Changing Business of Banking: Implications for Financial Stability and Lessons from Recent Market Turmoil is today&#39;s speech by Federal Reserve Vice Chairman Donald L. Cohn and it is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080417a.htm"> here</a>.
The Economic Logic of a Fresh Start, which examines personal bankruptcy filings, from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/br/2008/q1/chatterjee_economic-logic-of-fresh-start.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Philadelphia Fed (%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-24.9</td>
<td>-17.4</td>
<td>-0.8</td>
<td>5.1</td>
<td>8.1</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>51.6</td>
<td>&nbsp;54.4</td>
<td>&nbsp;27.6</td>
<td>26.4</td>
<td>36.6</td>
<td>40.1</td>
</tr>
</tbody>
</table>
</body>
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The Philadelphia Federal Reserve Bank reported that its April Index of General Business Conditions in the manufacturing sector fell to -24.9% and reversed all of the prior month's modest improvement. The latest level was the lowest [...]

Philadelphia Fed Index Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080417a.jpg" width="353">
Initial unemployment insurance claims last week rose 17,000 to 372,000. During the prior week, claims fell 51,000 and that was slightly less of a decline than reported initially. Consensus expectations had been for claims to total 375,000 last week.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The latest claims figure covers the week that April nonfarm payrolls were surveyed by the Labor Department and claims fell 3,000 (-0.8%) from the March survey period.
The four week moving average of initial claims held roughly steady at 376,000 (17.0% y/y), still near its highest level since 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080417b.jpg" width="353">
Continuing claims for unemployment insurance rose another 18,000 and the previous week&#39;s increase was revised up to 18,400. Insured unemployment was at its highest level since mid 2004. The figure provides some indication of workers&#39; ability to find employment.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment held steady at 2.2% for the fourth week in the last five.
Yesterday&#39;s Senate testimony by Fed GovernorFrederic S. Mishkin, Small Business Lending, is available <a href="http://www.federalreserve.gov/newsevents/testimony/mishkin20080416a.htm"> here</a>.
The Federal Reserve&#39;s latest Beige Book covering regional economic conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2008/20080416/fullreport20080416.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">04/12/08</th>
<th scope="col">04/05/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;372</td>
<td>355</td>
<td>11.7%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,984</td>
<td>18.4%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
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Initial unemployment insurance claims last week rose 17,000 to 372,000. During the prior week, claims fell 51,000 and that was slightly less of a decline than reported initially. Consensus expectations had been for claims to total [...]

U.S. Initial Unemployment Insurance Claims Up

The composite index of leading economic indicators, reported by the Conference Board, increased 0.1% in March after an unrevised 0.3% February decline. It was the leaders' first increase in six months. During the last ten years there [...]

U.S. Leading Economic Indicators Up Slightly

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080416c.jpg" align="left" border="0" height="265" width="353">
Euro Area inflation was revised higher in March and now is
expanding at a 3.6% annual rate, not quite as fast as the universe, but
fast enough to create a gnashing of teeth at the ECB. Yesterday,
Juergen Stark of the ECB said that current policy may not be enough to
hold medium term prices stability in line. Among the four largest EMU
economies, core inflation is over the 2% inflation ceiling, ranging
from a 2.4% yr/yr pace in Germany to a 3.5% pace in Spain. France an
Italy are seeing their respective core inflation rates accelerated from
12 months, to 6 months to, 3 months. Now those are not good trends at
all. Germany&#8217;s core inflation acceleration broke off from six months to
three months, as the three month rate has dropped back to 1.9%. In
Spain the three month rate fell back to 3.1% from 4.2% over six months. 
 

Within EMU as a whole core inflation is still accelerating,
with the 3-month pace up to 3.4%. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Trends in HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EMU-13</td>
<td>0.5%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>4.1%</td>
<td>4.8%</td>
<td>3.6%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.4%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>3.4%</td>
<td>3.3%</td>
<td>2.7%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>1.4%</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>4.5%</td>
<td>6.1%</td>
<td>4.1%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.4%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>2.8%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP</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">Germany</td>
<td>0.4%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>3.3%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>3.5%</td>
<td>4.8%</td>
<td>3.5%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.6%</td>
<td>0.1%</td>
<td>5.0%</td>
<td>5.2%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.1%</td>
<td>6.2%</td>
<td>4.6%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">Core excl Food, Energy
and Alcohol</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.4%</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>1.9%</td>
<td>2.5%</td>
<td>2.4%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.4%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>3.2%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.7%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>4.3%</td>
<td>4.1%</td>
<td>2.9%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>4.2%</td>
<td>3.5%</td>
<td>2.5%</td>
</tr>
</tbody>
</table>
</body></html>

Euro Area inflation was revised higher in March and now is expanding at a 3.6% annual rate, not quite as fast as the universe, but fast enough to create a gnashing of teeth at the ECB. Yesterday, Juergen Stark of the ECB said that [...]

Already High, Euro Area Inflation is Revised Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080416g.jpg" width="353">
Industrial production last month rose 0.3% after a 0.7% February decline which was deeper than reported initially. Also revised down was production growth last year and during 2006. A 0.1% decline in March output had been the Consensus expectation.
Factory output ticked up 0.1% in March after falling by a downwardly revised 0.5% in February. The three month change in output, however, fell to a negative 1.4% (AR). Production in the high tech sector has been strong and rose 1.3% (13.1% y/y), as it did in February. Outside the high tech sector, factory output fell 0.1% and a February decline was revised deeper to -0.7%. Three month output growth in manufacturing output less high tech fell to -2.8% (AR) but appliance production rose 5.0% last month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080416h.jpg" width="353">
Production of computers &amp; electronics surged again last month by 2.6% and three month growth totaled 20.3% (AR).
Weakness elsewhere in the durable goods area continued intense. Output of furniture &amp; appliances is down at a 10.5% rate during the last three months while production of automotive products has fallen at a 29.0% rate. Auto output is down partially due to the workers&#39; strike at the American Axel Company. Machinery production is off at a 1.2% rate and metals output turned negative. In the nondurables sector apparel product output has fallen at a 10.8% rate over the last three months.
Output of business equipment increased 0.6% after no change in February. Output of industrial equipment less high tech recovered 0.7% after a 0.2% February slip. The three month growth rate improved to 3.9%.
Capacity utilization rose slightly to 80.5% during March but utilization in the factory sector slipped to 78.5%, its lowest also since late 2005. Annual growth in capacity is growing 1.8% y/y and at 2.1% in the factory sector. Less high tech, capacity growth is a lower 0.9% y/y.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (SA)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.3</td>
<td>-0.7</td>
<td>1.5</td>
<td>1.7</td>
<td>2.2</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.1</td>
<td>-0.5</td>
<td>1.2</td>
<td>1.7</td>
<td>2.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Utilities</td>
<td>1.9</td>
<td>-3.6</td>
<td>2.3</td>
<td>3.3</td>
<td>-0.6</td>
<td>2.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production last month rose 0.3% after a 0.7% February decline which was deeper than reported initially. Also revised down was production growth last year and during 2006. A 0.1% decline in March output had been the [...]

U.S. Industrial Output Up 0.3% Last Month

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080416f.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) reported that its April Composite Housing Market Index remained stable with the prior two months and at about the same level where it&#39;s been since September. Nevertheless, these levels are more than two-thirds lower than the highs of 2004.
During the last twenty years there has been a 76% correlation between the y/y change in the Composite Index and the change in single family housing starts.
The index for single family detached homes also remained near the cycle&#39;s low which was down about three quarters from the 2004 high. Builders saw a modest improvement in single family home sales during the next six months.
The Home Builders&#39; index remained low and stable throughout the countries&#39; regions.
Traffic of prospective home buyers was stable for the second month at a level which was up somewhat from the recent low.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a></th>
<th scope="col">April</th>
<th scope="col">March &nbsp;</th>
<th scope="col">April &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>20</td>
<td>20</td>
<td>33</td>
<td>27</td>
<td>42</td>
<td>67</td>
</tr>
</tbody>
</table>
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The National Association of Home Builders' (NAHB) reported that its April Composite Housing Market Index remained stable with the prior two months and at about the same level where it's been since September. Nevertheless, these levels [...]

U.S. NAHB Housing Market Index Remained Low But Stable

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080416d.jpg" width="353">
During March, housing starts were weaker than expected, falling 11.9% m/m to 947,000 units. A decline to 1.010M had been generally expected. The latest level was the lowest since early 1991.
Accentuating the total&#39;s m/m decline was a 24.6% drop in starts of multi-family units which more than reversed February&#39;s 11.7% rise. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080416e.jpg" width="353">
Single family starts last month fell by about the same 5.7% as they did in February. That month&#39;s decline was revised slightly shallower. Single family starts in March also were at their lowest level since early 1991 and they have fallen 63.0% since their early 2006 peak. For 1Q08, starts fell 12.6% from 4Q07.
By region, in the Midwest single family starts fell to a record low and were down 25.0% y/y. Single family starts in the Northeast were roughly unchanged m/m but were down 30.4% y/y. In the South, single family starts also were about unchanged (-40.9% y/y) and in the West single family starts fell 11.8%. (-48.3% y/y). That decline reversed much of the surge in February and they remained down 70% from the August 2005 peak.
Building permits fell 5.8% m/m and single-family permits fell 6.2% (-46.4% y/y).
Understanding the Securitization of Subprime Mortgage Credit from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr318.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>947</td>
<td>1,075</td>
<td>-36.5%</td>
<td>1,344</td>
<td>1,812</td>
<td>2,073</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family</td>
<td>680</td>
<td>721</td>
<td>-43.6%</td>
<td>1,039</td>
<td>1,474</td>
<td>1,719</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-Family</td>
<td>267</td>
<td>354</td>
<td>-6.6%</td>
<td>304</td>
<td>338</td>
<td>354</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>927</td>
<td>984</td>
<td>-40.9%</td>
<td>1,371</td>
<td>1,842</td>
<td>2,159</td>
</tr>
</tbody>
</table>
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During March, housing starts were weaker than expected, falling 11.9% m/m to 947,000 units. A decline to 1.010M had been generally expected. The latest level was the lowest since early 1991. Accentuating the total's m/m decline was a [...]

U.S. Housing Starts Weaker Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080416a.jpg" width="353">
During March, the consumer price index (CPI-U) rose an expected 0.3% after having been unchanged in February. Less food &amp; energy, consumer prices rose 0.2% and that also was as expected. A Comparison of Measures of Core Inflation from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/07v13n3/0712rich.pdf">here</a>.
Energy prices were quite firm last month and they rose 1.9% overall, the strongest increase since last November. Fuel oil prices led the strength with a 7.9% (40.2% y/y) rise while natural gas &amp; electricity prices also were strong. They rose 1.9% (4.1% y/y). Gasoline prices increased 1.3% (26.0% y/y) and in April already have increased another 3.6%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080416b.jpg" width="353">
Inflation of food &amp; beverage prices remained moderate at 0.2% due to continued softness in prices for meats poultry &amp; fish which were unchanged m/m (3.7% y/y). That followed a slight decline in February. Conversely, prices for cereal &amp; bakery products remained strong and rose 1.3% (8.1% y/y). Earlier strength in dairy products took a breather m/m and they fell 0.8% (+11.0% y/y).
Core goods prices posted the second consecutive 0.1% m/m decline. Apparel prices fell 1.3% (-1.3% y/y) but prices for household furnishings &amp; operations rose 0.5% (-0.2% y/y). March prices for new &amp; used motor vehicles fell 0.1% (-0.0% y/y).
Core services prices increased 0.2% as shelter prices, which constitute 33% of the total CPI, rose just 0.1% (2.9% y/y) after having been unchanged in February. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.2% (2.6% y/y). Medical care services prices ticked up 0.1% (4.8% y/y) for the second straight month. Tuition costs rose 0.4% and the annual rate of gain has been fairly stable at 5.5% y/y. Another source of price strength, however, has been for public transportation where prices surged 2.5% (7.5% y/y).
Stable Prices, Stable Economy: Keeping Inflation in Check Must be No. 1 Goal of Monetary Policymakers from the Federal Reserve bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2008/a/pdf/inflation.pdf">here</a>.

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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">March Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.3</td>
<td>0.0</td>
<td>0.4</td>
<td>4.0&nbsp;</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2</td>
<td>0.0</td>
<td>0.3</td>
<td>2.4</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.0&nbsp;</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.4</td>
<td>3.3</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>1.9</td>
<td>-0.5</td>
<td>0.7</td>
<td>17.0</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.2</td>
<td>0.4</td>
<td>0.7</td>
<td>4.4</td>
<td>4.0</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.8</td>
<td>0.3</td>
<td>0.5</td>
<td>3.6 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.5</td>
<td>0.3</td>
<td>0.3</td>
<td>2.1</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
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During March, the consumer price index (CPI-U) rose an expected 0.3% after having been unchanged in February. Less food & energy, consumer prices rose 0.2% and that also was as expected. A Comparison of Measures of Core Inflation from [...]

U.S. CPI Total Rose An Expected 0.3%

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.

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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.

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.

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

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. Light Vehicle Sales Fall in April

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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

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

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

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

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

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

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

Carol Stone, CBE

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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.

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- 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 2008

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