Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070508a.jpg" width="353">
The chart of the main NFIB survey is a telling graphic on the state of the economy. While the index reached its local low in August of 2006 and there is a sort of bounce in train since then (dead-cat bounce?), the index remains &#145;locked&#146; in the throes of a broad downtrend. This month&#146;s slippage brings the index that much closer to breaking down the fragile up trend that is an artifact of the broader, more powerful, downtrend range and it asks legitimate questions about growth and the contribution of small business - the key driver of job growth. 
We can peruse the details of the report for more clues as to what is weak and why. We present in the table below the net balance measures from the various questions in the NFIB surveys. The final column expresses each of these as a point in the range of values the measure had taken on since 1990. A high reading (say 100%) means the measure is at the top of its range of values for the period the lowest read is 0% and it would signify the weakest reading of the period. 
A quick look at column five shows that most values are below 50%, implying that they are below the midpoint of their respective range of values since 1990. 
As for recessions, the NFIB does not seem to be a good gauge of those since it did not trough in the last recession but rather in April of 2003 well into recovery. 
The report has some interesting features about the economy apart from bearing witness on recession. It tells us that firms are raising prices to a greater than normal degree, net positive responses to the question are in the nearly the 70th percentile; this also seems to be reflected in wages in their 63rd percentile - also above average. Still, firms are increasing employment at an above average pace (57Th percentile) and reporting higher sales Q/Q, 57th percentile. 
Firms are downbeat, however, on some key forward-looking aspects: they do not see easing credit conditions. They do not see the economy improving (21 percentile of that range!) and they are below average in seeing real sales rise 6-months out. Consequently firms are not planning capital improvements; those plans are in the bottom 25 percentile of their range. 
By the way, I prefer this percent of range approach to the raw net balance figures because the net balance figures across responses have all different characteristics. The percentile measures let us see the position of response relative to past responses instead of Vs the zero or neutral reading. I find this more useful 
Around the 50th percentile business conditions are not bad. And most NFIB responses are in the 40% to 60% range. But some are not, and those that are not, are weaker. Seeing bottom 25 percentile responses to the question &#145;good time to expand?&#146; and &#147;planning in capital spending over the next 3 to 6 months?&#148; is not a sign of confidence. For now what we have is a still strong labor reading. And NFIB expectations could be wrong. Who is clairvoyant after all? But now these concerns will hold back expansions and only feed the hand to mouth demands. We have seen some improvement in capital spending plans by the firms that report to the durable goods report and maybe this trend will have some positive impact on independent businesses down the road. 
For now this is a decidedly downbeat report on the economy.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
National Federation of Independent Business
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">NFIB</td>
<td colspan="4">&nbsp;</td>
<td>% of range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Apr-06</td>
<td>since 1990*</td>
</tr>
<tr>
<td class="firstcol">INDEX</td>
<td>96.8</td>
<td>97.3</td>
<td>98.2</td>
<td>98.9</td>
<td>33.1%</td>
</tr>
<tr>
<td colspan="6">% saying&#133;&#133;</td>
</tr>
<tr class="odd">
<td colspan="6">Firms Expecting</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Credit conditions to ease</td>
<td>-7.0</td>
<td>-8.0</td>
<td>-8.0</td>
<td>-7.0</td>
<td>46.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Econ to Improve</td>
<td>-8.0</td>
<td>-7.0</td>
<td>-2.0</td>
<td>-1.0</td>
<td>21.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Higher real sales 6 Mo</td>
<td>14.0</td>
<td>14.0</td>
<td>17.0</td>
<td>22.0</td>
<td>42.9%</td>
</tr>
<tr class="odd">
<td colspan="6">Firms Reporting</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Higher Earnings</td>
<td>-19.0</td>
<td>-15.0</td>
<td>-19.0</td>
<td>-21.0</td>
<td>46.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories &#39;too low&#39;</td>
<td>-3.0</td>
<td>-5.0</td>
<td>-2.0</td>
<td>-2.0</td>
<td>36.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Good time 2 Expand</td>
<td>12.0</td>
<td>12.0</td>
<td>18.0</td>
<td>17.0</td>
<td>26.1%</td>
</tr>
<tr class="odd">
<td colspan="6">Firms Planning</td>
</tr>
<tr>
<td class="firstcol">&nbsp; To Increase Employ</td>
<td>13.0</td>
<td>12.0</td>
<td>13.0</td>
<td>17.0</td>
<td>57.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; To Add Inventories</td>
<td>3.0</td>
<td>3.0</td>
<td>3.0</td>
<td>2.0</td>
<td>40.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital expenditures 3-6 mo</td>
<td>29.0</td>
<td>33.0</td>
<td>30.0</td>
<td>30.0</td>
<td>25.0%</td>
</tr>
<tr class="odd">
<td colspan="6">Inflation Issues</td>
</tr>
<tr class="odd">
<td colspan="6">Firms raising</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Average selling prices</td>
<td>18.0</td>
<td>15.0</td>
<td>13.0</td>
<td>12.0</td>
<td>69.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Worker Compensation</td>
<td>26.0</td>
<td>28.0</td>
<td>30.0</td>
<td>26.0</td>
<td>63.6%</td>
</tr>
<tr class="odd">
<td colspan="6">Firms plan to raise</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Average selling price</td>
<td>24.0</td>
<td>22.0</td>
<td>23.0</td>
<td>24.0</td>
<td>59.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Worker Comp</td>
<td>37.0</td>
<td>35.0</td>
<td>39.0</td>
<td>37.0</td>
<td>47.1%</td>
</tr>
<tr class="odd">
<td colspan="6">Other</td>
</tr>
<tr class="odd">
<td colspan="6">Firms reporting</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Higher sales Q/Q</td>
<td>4.0</td>
<td>0.0</td>
<td>-1.0</td>
<td>-3.0</td>
<td>57.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Credit harder to get</td>
<td>5.0</td>
<td>7.0</td>
<td>5.0</td>
<td>5.0</td>
<td>46.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Raising inventories</td>
<td>-2.0</td>
<td>2.0</td>
<td>5.0</td>
<td>1.0</td>
<td>40.9%</td>
</tr>
<tr>
<td colspan="6">*100% is high, 0% is low</td>
</tr>
</tbody>
</table>
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The chart of the main NFIB survey is a telling graphic on the state of the economy. While the index reached its local low in August of 2006 and there is a sort of bounce in train since then (dead-cat bounce?), the index remains [...]

NFIB: It’s Weak, No FIB

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070507a.jpg" width="353">
In spite of a consensus view that German new manufacturing orders in real terms were due for a decline in March, they rose 2.4% from February and were 13.81% above March, 2006. Domestic orders rose 2.90% in March and were 11.91% above March, 2006. In the face of a strong euro and a slowdown in the United States, foreign orders were up 2.10% on the month and 15.72% on the year. The strong positive trend in manufacturing new orders is shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070507b.jpg" width="353">
The rise in foreign new orders is due, in large part, to the strong demand for German exports from Asian countries. Data on exports of goods by country are available only through February, but the strong demand from the Asian countries relative to that of the U. S. is clearly shown in the second chart.
The recent data on domestic new orders are encouraging in that they show signs that domestic demand is gaining strength. One of the biggest increases in new orders has been that for machinery and equipment where both domestic and foreign demand have risen sharply as can be seen in the third chart. On April 24, the German government raised its forecast of 1.7% growth in 2007 to 2.3%, or just above the current estimate of 2.2% growth for the U.S.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070507c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;GERMANY NEW ORDERS &nbsp;(2000 Prices)&nbsp; Index 2000=100</th>
<th scope="col">Mar 07</th>
<th scope="col">Feb 07</th>
<th scope="col">Mar&nbsp;06</th>
<th scope="col">M/M %</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">Total</td>
<td>130.20</td>
<td>127.10</td>
<td>114.40</td>
<td>2.44</td>
<td>13.81</td>
<td>118.99</td>
<td>108.66</td>
<td>103.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Domestic</td>
<td>113.7</td>
<td>110.5</td>
<td>101.6</td>
<td>2.90</td>
<td>11.91</td>
<td>105.5</td>
<td>98.2</td>
<td>96.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>150.9</td>
<td>147.8</td>
<td>130.4</td>
<td>2.10</td>
<td>15.72</td>
<td>135.8</td>
<td>121.7</td>
<td>111.9</td>
</tr>
<tr>
<td class="firstcol">Machinery and Equipment</td>
<td>153.0</td>
<td>140.0</td>
<td>113.7</td>
<td>9.29</td>
<td>34.56</td>
<td>121.5</td>
<td>107.9</td>
<td>102.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Domestic</td>
<td>124.5</td>
<td>114.5</td>
<td>93.7</td>
<td>8.73</td>
<td>32.87</td>
<td>103.2</td>
<td>93.0</td>
<td>91.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Foreign</td>
<td>181.0</td>
<td>165.2</td>
<td>133.5</td>
<td>9.56</td>
<td>35.58</td>
<td>139.5</td>
<td>122.6</td>
<td>112.5</td>
</tr>
</tbody>
</table>
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In spite of a consensus view that German new manufacturing orders in real terms were due for a decline in March, they rose 2.4% from February and were 13.81% above March, 2006. Domestic orders rose 2.90% in March and were 11.91% above [...]

More Evidence of German Economic Strength: Manufacturing New Orders Surprisingly Strong in March

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/070504d.jpg" width="353">
Australia&#39;s balance of trade in goods and services moved further into deficit in March as exports declined and imports continued increasing. The overall deficit was A$1,622 million, up from A$728 million in February (seasonally adjusted). The year-ago figure was A$1,241 million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070504f.jpg" width="353">
Australia is a mineral-rich economy. It exports substantial amounts of so-called &quot;crude materials&quot; and has extensive two-way trade in &quot;mineral fuels&quot;, running a surplus in that category. (These are SITC commodity groups.) So Australia actually derives some benefit from recent rising oil and commodity prices. See in the table below, where we have added together the exports of these raw materials. They now basically pay for the country&#39;s biggest imports, machinery and transport equipment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070504e.jpg" width="353">
Another distinction the mineral resources bring to Australia&#39;s trade is the existence of a relatively moderate deficit in trade with China. In 2006, this was A$5.1 billion, or just A$425 million per month; the first three months this year have averaged A$324 million. While trade data by country and commodity are not available to us, it would seem that a good share of Australia raw materials would go to China, covering much of what we assume would be imports of consumer goods.
In contrast, the country runs a sizable deficit with the United States. Exports to the US totaled just over A$10 billion last year and averaged A$757 million the first three months this year. Imports, though, were A$24.5 billion in 2006 and averaged just under A$2 billion a month during Q1 this year. Australia also carries a noticeable deficit with Europe. We assume that the US and Europe are sources for a good portion of its machinery imports. In sharp contrast, Australia runs significant surpluses with Japan and Korea, again, we&#39;d guess as a provider for some of their raw material needs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">AUSTRALIA (Mil.A$)</th>
<th scope="col">Mar 2007</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Mar 2006</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Balance on Goods &amp; Services</td>
<td>-1,622</td>
<td>-728</td>
<td>-843</td>
<td>-1,241</td>
<td>-979</td>
<td>-1,399</td>
<td>-1,985</td>
</tr>
<tr>
<td class="firstcol">Credits (Exports)</td>
<td>17,839</td>
<td>18,632</td>
<td>18,066</td>
<td>16,650</td>
<td>17,454</td>
<td>15,078</td>
<td>13,103</td>
</tr>
<tr>
<td class="firstcol">Debits (Imports)</td>
<td>19,461</td>
<td>19,360</td>
<td>18,909</td>
<td>17,891</td>
<td>18,432</td>
<td>16,477</td>
<td>15,087</td>
</tr>
<tr>
<td class="firstcol">Goods Balance: China (NSA)</td>
<td>-158</td>
<td>-312</td>
<td>-502</td>
<td>-431</td>
<td>-425</td>
<td>-436</td>
<td>-576</td>
</tr>
<tr>
<td class="firstcol">USA (NSA)</td>
<td>-1,428</td>
<td>-963</td>
<td>-1,291</td>
<td>-1,241</td>
<td>-1,198</td>
<td>-1,011</td>
<td>-915</td>
</tr>
<tr>
<td class="firstcol">Raw Material Exports* (NSA)</td>
<td>6,250</td>
<td>6,226</td>
<td>6,318</td>
<td>6,136</td>
<td>6,533</td>
<td>5,475</td>
<td>3,908</td>
</tr>
<tr>
<td class="firstcol">Machinery Imports (NSA)</td>
<td>6,448</td>
<td>5,682</td>
<td>6,095</td>
<td>6,277</td>
<td>6,237</td>
<td>5,745</td>
<td>5,353</td>
</tr>
</tbody>
</table>
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Australia's balance of trade in goods and services moved further into deficit in March as exports declined and imports continued increasing. The overall deficit was A$1,622 million, up from A$728 million in February (seasonally [...]

Australia Trade Deficit Increases in March, But Exports of Raw Materials Help Cover Machinery Imports

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<td><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070504c.jpg" width="353">Jobs growth slows in April as the trend also slipped into a slower gear, manufacturing performs much worse than the ISM predicts while construction job growth edges lower and hits neutral for the year. Services job growth is slower, but boosted by government hiring. The unemployment rate makes a minor up-tick to 4.5%. &#145;Wage&#146; growth slows in April. All this is against a background of a more recent weekly jobless claims reading that is just above the 300K mark.&nbsp; What can all this mean? The table below summarizes and provides trends for the most important of the labor market gauges we follow. Jobs trends - be they Total, Private, Construction, Manufacturing or Services show clear withering trends. Still the counter point cannot be set aside: it asks if the trends are really continuing to wither or if they have just transited to a slower pace now that there is less available labor (4.5% unemployment). Maybe the stability at the slower pace is not clear. At current population growth, we need to average about 130K jobs per month and that is about what the economy is doing year-to-date in 2007 (129k). &nbsp; Has it slowed or is it still slowing?&nbsp; With job growth for April in hand it is fair to ask what we can now project for the year ahead. With April we now have 4 months of the year&#146;s 12 in hand or estimated. The graph above has plotted average January-April job growth VS the actual outturn for the year. The chart shows a pretty good tracking. Indeed January-April explains about 88% of the variability in annual average job growth.&nbsp; If we focus on the ability of the first four months to predict the average over the last seven months (a tougher job at prediction), January-April has an R-squared of 0.91 with actual average growth from May-December. So the statistics of it all say that the slow down is for real and will stay in this lower range of about 130k for the rest of the year. Of course there is no guarantee that no shock will damage the economy and send it lower in 2007-H2. But statistics tell us that first four months are good predictors of the last seven. All that means is that through the first four months the balance of the seasonal factors is pretty fair.&nbsp; In the past twelve years April has had an average absolute miss of the second half of the year (last seven months) that averaged 35K. It has missed six times on the upside with an average miss of 28K and six times on the down side with an average miss of (minus) 40K.All this fits in with what we observe. That the economy&#146;s rate of unemployment (despite rising in April) is lower year-over-year as job growth has slowed. This suggests that the recovery is more mature rather than that plunging headlong into recession.Slowed or slowing? A second look: However, we know that January-April can&#146;t &#145;know&#146; what is in store for May-Dec. Our calculation above is simply to show that a slowdown that persists is perfectly consistent with the numbers we have observed so far. Just as obviously, a slowdown that cumulates could also be in the cards.&nbsp;<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070504a.jpg" width="353">The graph on the left looks at a second set of relationships: This set is for the labor department&#146;s (BLS) manufacturing jobs diffusion number and the ISM&#146;s manufacturing jobs diffusion number. Separately we graph on the bottom the value of the gap between these two series, each of which purports to measure the same thing.&nbsp; We look to se if the gap is in anyway predictive. Her we notice that the ISM&#146;s survey just does not have the range of the BLS report. The BLS trend gets weaker sooner and gets much weaker than the ISM report. The same is true on the upside with strength. So the gap is a directional statement on the manufacturing sector. Not only is the BLS manufacturing gap with the ISM&#146;s reading for the labor market getting bigger, but, the BLS reading has a very persistent downward trend. At a reading of 32.1 it is just barely within the UPPER part of the range of values for that statistic for the period when the economy was in recession and manufacturing was so weak.&nbsp; The gap is fully within the range for the set of values from that period. Viewed as a&nbsp;DIAGNOSTIC, this is a very ominous reading. ON THE OTHER HAND - as economists are inclined to say&#133; The manufacturing sector is weak and has been weak. The finding that it is still weak is not much of a surprise. It is the finding that manufacturing job market is weaker than the ISM says that is an interesting &#145;signal&#146;. Can we do the same thing for nonmanufacturing, since that&#146;s where most of the jobs are? There is a nonmanufacturing ISM. But the Labor Dept only gives us manufacturing and total diffusion &#150; not, nonmanufacturing diffusion. But with some trickery we can GIN UP an estimate of its nonmnufacturing number. I do this by applying employment weights to manufacturing Vs nonmanufacturing jobs and extracting the implicit nonmanufacturing estimate from the nonfarm total diffusion number.&nbsp; After taking the employment-weighted value out for manufacturing, a nonmanufacturing estimate is left. When I do that the chart below can be made.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070504b.jpg" width="353">The second chart shows (of course!) a result that is essentially OPPOSITE to that for manufacturing. While the manufacturing sector is getting weaker in the BLS framework, the implied service sector readings are getting stronger. Indeed the GAP between the ISM nonmanufacturing and the implied BLS take on the sector are in fact narrowing. Here, the ISM is showing weakness that is NOT corroborated by the BLS implied measure. And while the nonmanufacturing ISM has not been around for long, it does show &#150; similar to the manufacturing relationship-- that when the economy is weak (see 2000 and 2001) the BLS numbers weakens faster than the ISM numbers for nonmanufacturing industries. Therefore the series, although it is constructed, seems to give off signals that are reasonably good. In the past, this signal was reasonably descriptive of the times, so why ignore the current signal?We conclude that this report tells us very little new about the economy that we did not already know. We knew that jobs growth had slowed. We knew that manufacturing was weak. We knew that the service sector was holding things up. While no calculation can reassure you that things are not getting worse, there is some body of data that suggests such an &#145;optimistic&#146; view is consistent with the facts. Plus the nonmanufacturing job signal is the more important one of the two conflicting sector signals since manufacturing jobs are such a small proportion in this economy.&nbsp;Moreover&#133;there is always the weather to blame There is always that report on the weather that can be salvation for a view that is not getting its due.&nbsp; Once again in April it was &#145;cloudy with a chance of meatballs&#146; - another odd weather result.&nbsp; The Household report shows that 107K workers were unable to work due to inclement weather.&nbsp; This is above the average for April which is 71K. The range for April is a high of 131K and a low of 36K. In other terms these data say that April&#146;s result was in the top 25% of all Aprils in terms of the magnitude weather disruption. The degree of disruption was 50% greater than it is on average in April. It is not clear if we should add the 36k count to employment since this is a household report survey finding and it does not tell if the affected worker was white collar (and therefore still counted as employed) or blue collar (and perhaps not counted, but perhaps still counted as long as the worker was still on the payroll in the survey week). On balance weather may have skewed the reading, making it lower.IN CONCLUSION It will take at least another month to see if this trend lower extends itself (a disturbing prospect) or if it rights itself and tends to confirm the growth has really only has stabilized at a slower pace. We will also want too look at the steep drop in household employment for the month. I tend to look at the unemployment rate that renders the vagaries within the HH report neutral (The household survey, the source of the unemployment rate calculation). That is to say that the unemployment rate is a very stable result even though it is based on two numbers, &#145;labor force&#146; and &#145;unemployed&#146; that are themselves quite unstable. In the past when there is a huge HH shift for employment or unemployment it is undone usually in the following month. For that reason we are best offsetting the household report aside. It was an early Easter this year. Easter migrates around the calendar and we have seen a lot of distortion because of that in other figures so far this year. It is a good bet that when we get new readings for the month of May we will be blaming the Easter Bunny for volatility rather than worrying about a weak economy.</td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Monthly Employment Report Summary
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="8">Average Monthly Job Changes For Various Intervals and Sectors</td>
</tr>
<tr class="odd">
<td class="firstcol">Job Gains By Period</td>
<td colspan="3">Recent Monthly Job Gains</td>
<td colspan="2">3-Mo AVG Gains</td>
<td>Yr/Yr AVG</td>
<td>Yr/Yr: Last</td>
</tr>
<tr class="odd">
<td class="firstcol">and by Category</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Apr-07</td>
<td>Jan-07</td>
<td>Apr-07</td>
<td>Apr-07</td>
</tr>
<tr>
<td class="firstcol">Total Jobs</td>
<td>88</td>
<td>177</td>
<td>90</td>
<td>118</td>
<td>195</td>
<td>157</td>
<td>213</td>
</tr>
<tr>
<td class="firstcol">Private Jobs</td>
<td>63</td>
<td>157</td>
<td>56</td>
<td>92</td>
<td>181</td>
<td>132</td>
<td>200</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-11</td>
<td>50</td>
<td>-77</td>
<td>-13</td>
<td>4</td>
<td>-2</td>
<td>34</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>-19</td>
<td>-18</td>
<td>-17</td>
<td>-18</td>
<td>-12</td>
<td>-13</td>
<td>-3</td>
</tr>
<tr>
<td class="firstcol">Durables***</td>
<td>-13</td>
<td>-12</td>
<td>-9</td>
<td>-11</td>
<td>-15</td>
<td>-9</td>
<td>5</td>
</tr>
<tr>
<td class="firstcol">Non-durables</td>
<td>-6</td>
<td>-6</td>
<td>-8</td>
<td>-7</td>
<td>3</td>
<td>-4</td>
<td>-7</td>
</tr>
<tr>
<td class="firstcol">Private Services</td>
<td>91</td>
<td>121</td>
<td>145</td>
<td>119</td>
<td>188</td>
<td>143</td>
<td>164</td>
</tr>
<tr class="even">
<td colspan="8">&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Unemployment rate*</td>
<td>4.5</td>
<td>4.4</td>
<td>4.5</td>
<td>4.5</td>
<td>4.5</td>
<td>4.6</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings**</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.6%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">Hours Worked**</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>1.5%</td>
<td>1.2%</td>
<td>3.1%</td>
</tr>
<tr class="even">
<td colspan="8">&nbsp;</td>
</tr>
<tr>
<td class="firstcol">1-Mo Diffusion: Manufacturing</td>
<td>32.1</td>
<td>40.5</td>
<td>38.7</td>
<td>37.1</td>
<td>44.9</td>
<td>44.6</td>
<td>48</td>
</tr>
<tr>
<td class="firstcol">All Nonagricultural</td>
<td>53.4</td>
<td>58.1</td>
<td>54.7</td>
<td>55.4</td>
<td>55.4</td>
<td>56.1</td>
<td>60</td>
</tr>
<tr class="even">
<td class="firstcol">8COLSPAN</td>
</tr>
<tr>
<td class="firstcol">Private Less Construction</td>
<td>74</td>
<td>107</td>
<td>133</td>
<td>105</td>
<td>178</td>
<td>134</td>
<td>166</td>
</tr>
<tr>
<td class="firstcol">Private Less Health &amp; Education</td>
<td>10</td>
<td>108</td>
<td>20</td>
<td>46</td>
<td>139</td>
<td>91</td>
<td>161</td>
</tr>
</tbody>
</table>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070504d.jpg" width="353">
Australia&#39;s balance of trade in goods and services moved further into deficit in March as exports declined and imports continued increasing. The overall deficit was A$1,622 million, up from A$728 million in February (seasonally adjusted). The year-ago figure was A$1,241 million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070504f.jpg" width="353">
Australia is a mineral-rich economy. It exports substantial amounts of so-called &quot;crude materials&quot; and has extensive two-way trade in &quot;mineral fuels&quot;, running a surplus in that category. (These are SITC commodity groups.) So Australia actually derives some benefit from recent rising oil and commodity prices. See in the table below, where we have added together the exports of these raw materials. They now basically pay for the country&#39;s biggest imports, machinery and transport equipment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070504e.jpg" width="353">
Another distinction the mineral resources bring to Australia&#39;s trade is the existence of a relatively moderate deficit in trade with China. In 2006, this was A$5.1 billion, or just A$425 million per month; the first three months this year have averaged A$324 million. While trade data by country and commodity are not available to us, it would seem that a good share of Australia raw materials would go to China, covering much of what we assume would be imports of consumer goods.
In contrast, the country runs a sizable deficit with the United States. Exports to the US totaled just over A$10 billion last year and averaged A$757 million the first three months this year. Imports, though, were A$24.5 billion in 2006 and averaged just under A$2 billion a month during Q1 this year. Australia also carries a noticeable deficit with Europe. We assume that the US and Europe are sources for a good portion of its machinery imports. In sharp contrast, Australia runs significant surpluses with Japan and Korea, again, we&#39;d guess as a provider for some of their raw material needs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">AUSTRALIA (Mil.A$)</th>
<th scope="col">Mar 2007</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Mar 2006</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Balance on Goods &amp; Services</td>
<td>-1,622</td>
<td>-728</td>
<td>-843</td>
<td>-1,241</td>
<td>-979</td>
<td>-1,399</td>
<td>-1,985</td>
</tr>
<tr>
<td class="firstcol">Credits (Exports)</td>
<td>17,839</td>
<td>18,632</td>
<td>18,066</td>
<td>16,650</td>
<td>17,454</td>
<td>15,078</td>
<td>13,103</td>
</tr>
<tr>
<td class="firstcol">Debits (Imports)</td>
<td>19,461</td>
<td>19,360</td>
<td>18,909</td>
<td>17,891</td>
<td>18,432</td>
<td>16,477</td>
<td>15,087</td>
</tr>
<tr>
<td class="firstcol">Goods Balance: China (NSA)</td>
<td>-158</td>
<td>-312</td>
<td>-502</td>
<td>-431</td>
<td>-425</td>
<td>-436</td>
<td>-576</td>
</tr>
<tr>
<td class="firstcol">USA (NSA)</td>
<td>-1,428</td>
<td>-963</td>
<td>-1,291</td>
<td>-1,241</td>
<td>-1,198</td>
<td>-1,011</td>
<td>-915</td>
</tr>
<tr>
<td class="firstcol">Raw Material Exports* (NSA)</td>
<td>6,250</td>
<td>6,226</td>
<td>6,318</td>
<td>6,136</td>
<td>6,533</td>
<td>5,475</td>
<td>3,908</td>
</tr>
<tr>
<td class="firstcol">Machinery Imports (NSA)</td>
<td>6,448</td>
<td>5,682</td>
<td>6,095</td>
<td>6,277</td>
<td>6,237</td>
<td>5,745</td>
<td>5,353</td>
</tr>
</tbody>
</table>
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U.S. Job Growth: The Conundrum Deepens

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070503c.jpg" width="353">
A recently popular book on writing and grammar is titled &quot;Eats, Shoots and Leaves&quot;. The title is ambiguous because the intent of the original writer of the phrase was to describes the diet of a particular animal: it &quot;eats shoots and leaves&quot;. But the addition of the comma alters the meaning dramatically.
A somewhat parallel situation derives from our title above, &quot;Driving Productivity Increases&quot;. Punctuation has no role here, but the meaning is just as ambiguous. On a day when productivity data are reported for Q1, a reader of this website might well expect this discussion to concern factors that generated the rise in Q1 productivity. But Mr. Brusca has done that elsewhere here. Our subject is, instead, driving. Today, the Federal Highway Administration reported miles driven in March for the total US and the 50 states. After a simple description of these mileage figures, we will discuss &quot;driving productivity&quot;, that is, the amount of output (GDP) per mile driven. It, like labor productivity, is rising. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070503d.jpg" width="353">
As seen in the first graph, total miles driven have flattened out. The 255.8 billion miles in March 2007 are a mere 0.3% above March 2006, and the 12-month moving average has declined outright by 0.2%. So people in the nation as a whole have restrained their driving.
The pattern around the nation varies widely, however. We looked at the top four states for miles driven, California, Texas, Florida and New York. The individual state data only began in 2003, so there&#39;s no much history to go on. Miles driven continue to increase in California, but more slowly than at this time last year. The March 2007 figure is 1.4% above the year-earlier and averaged across 12 months to smooth the seasonality, it is up 0.6%. The 12 months through March 2006, in turn, had been up 1.8% on the year before. In New York, a similar pattern of slowing growth had been in place. But February and March each had a marked decline from year-ago amounts, 2.8% and 3.0%. And the 12-month moving average now shows a non-trivial decline as well, 0.7%, for the period ending in March. People are driving less in New York State. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070503e.jpg" width="353">
They are also driving less in Texas, somewhat unexpectedly. In Florida, miles driven are still increasing, but at a slower rate than before the run-up in gasoline prices. In both of these states, the March figure is a new monthly record, though. For the brief history we have, March seems to be a peak driving month during the year, although Texas has seen larger figures in the summer months of some years.
So what about &quot;driving productivity&quot;. We compared GDP to mileage driven, calculating GDP per mile. As energy gets more expensive and people may be driving less, would that necessarily translate into weaker GDP. Is the US such a vehicle-dependent economy that it would suffer visibly by having to drive less? Encouragingly, over the last couple of years, this has not been the case. While some slowing may well result from this circumstance, it appears that more economical use of vehicles can offset at least some of the reduced driving volume. &quot;Driving productivity increases&quot; seems to be a statement of fact, not a misuse of words.
Total miles driven are contained in Haver&#39;s main USECON database. The state data are in REGIONAL. The graphs illustrate the new multiple series features of the upcoming version of DLXVG3 along with the manipulation of &quot;Styles &amp; Colors&quot; to alter the colors of series from the &quot;default&quot; arrangement.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Miles Traveled (Billions)</th>
<th scope="col">Mar 2007</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">US</td>
<td>255.8</td>
<td>215.0</td>
<td>229.1</td>
<td>255.0</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">12-mo Moving Average</td>
<td>248.1</td>
<td>248.0</td>
<td>248.4</td>
<td>248.6</td>
<td>248.5</td>
<td>247.4</td>
<td>244.8</td>
<td>228.9</td>
</tr>
<tr class="odd">
<td class="firstcol">California</td>
<td>27.7</td>
<td>23.5</td>
<td>22.4</td>
<td>27.4</td>
<td>28.0</td>
<td>27.7</td>
<td>27.3</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Texas</td>
<td>21.3</td>
<td>17.9</td>
<td>18.4</td>
<td>21.0</td>
<td>19.6</td>
<td>19.5</td>
<td>19.0</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Florida</td>
<td>18.9</td>
<td>15.9</td>
<td>17.5</td>
<td>18.7</td>
<td>16.7</td>
<td>16.6</td>
<td>15.8</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">New York</td>
<td>11.8</td>
<td>9.7</td>
<td>10.8</td>
<td>12.1</td>
<td>11.5</td>
<td>11.5</td>
<td>11.4</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: GDP/Mile</td>
<td>--</td>
<td>3.85(Q1)</td>
<td>--</td>
<td>3.74(Q1)</td>
<td>3.83</td>
<td>3.72</td>
<td>3.64</td>
<td>3.57</td>
</tr>
</tbody>
</table>
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A recently popular book on writing and grammar is titled "Eats, Shoots and Leaves". The title is ambiguous because the intent of the original writer of the phrase was to describes the diet of a particular animal: it "eats shoots and [...]

Driving Productivity Increases

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070503b.jpg" width="353">The Nonmanufacturing ISM rose smartly to 56 from 52.4. Its employment gauge rose to 51.9 from 50.8. Prices continue to be under upward pressures. 
The details of the ISM report shows that the main measures of the survey are just below their period averages. The nonmanufacturing sector is dominated by services but also contains construction and mining. Apparently construction did pick up in the month. But despite the jump in activity, overall orders and backlogs were more restrained. Both showed growth or neutrality but each was below its customary reading (see relative calculations relative to the mean in the far right of the table). The readings that score lowest as a percentage of their range of values (percentiles) are supplier deliveries, inventory sentiment and import orders. Low supplier deliveries tell us there is still plenty of slack. The inventory reading tells us that inventories are more under control than they usually are and that could be a good sign for future ordering especially since growth in this sector has been strong. A weaker import reading could be a bad sign about activity or a sign that the weaker dollar has taken some toll on imports 
During the period nonmanufacturing jobs averaged gains of 134K per month. The current ISM jobs barometer is just above the average for this period. Jobs: the outlook 
Of course the &#145;wild card&#146; in the nonmanufacturing jobs forecast is what happens with construction jobs. Construction spending in the month rose. And the ISM survey sees some increased construction activity. But those still might not be the right barometer for jobs. For consumer services, spending slowed in March, but again that may not be the right barometer for April, plus consumer service spending is strong apart from the unusual weak March result, having had a very brisk Q1 2007. 
The service portion of the nonmanufacturing report has probably remained pretty firm. Construction is still a big question mark for any forecast. AND recent construction job growth has been volatile month to month. Still jobless claims have remained low and dipped further after the sample period for nonfarm employment passed. Claims do not act like a rash of construction job cuts have hit the street - or any others for that matter. That claims figure suggests that the job market is still probably pretty strong. 
Overall the ISM nonmanufacturing index has been slowing despite the rebound this month. Still the ADP forecast seems far too weak at 64K overall. The ISM manufacturing survey showed a strong rise in the month for its jobs index. That should auger well for manufacturing job gains. April tends to be a strong month for job gains overall. The ISM nonmanufacturing reading was firm. We think a number like +120K or higher is sensible for private nonfarm jobs and government could boost things even beyond that. This month we part ways with the ADP Survey.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
ISM Nonmanufacturing Statistics from Jan. 1998 to Date
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ISM-NMFG</td>
<td>Current</td>
<td>Last Mo</td>
<td>Std Dev</td>
<td>Average</td>
<td>SD%Avg</td>
<td>MAX</td>
<td>MIN</td>
<td>Range</td>
<td>Percentile</td>
<td>% of AVG</td>
</tr>
<tr>
<td class="firstcol">PM Activity</td>
<td>56.0</td>
<td>52.4</td>
<td>4.7</td>
<td>57.5</td>
<td>8.2</td>
<td>67.9</td>
<td>40.5</td>
<td>27.4</td>
<td>56.6</td>
<td>97</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>55.5</td>
<td>53.8</td>
<td>4.7</td>
<td>57.2</td>
<td>8.2</td>
<td>66.9</td>
<td>41.3</td>
<td>25.6</td>
<td>55.5</td>
<td>97</td>
</tr>
<tr>
<td class="firstcol">Backlogs</td>
<td>50.0</td>
<td>52.5</td>
<td>3.7</td>
<td>51.0</td>
<td>7.2</td>
<td>57.0</td>
<td>40.5</td>
<td>16.5</td>
<td>57.6</td>
<td>98</td>
</tr>
<tr>
<td class="firstcol">Supplier Deliveries</td>
<td>51.0</td>
<td>50.0</td>
<td>2.1</td>
<td>53.6</td>
<td>4.0</td>
<td>60.5</td>
<td>48.0</td>
<td>12.5</td>
<td>24.0</td>
<td>95</td>
</tr>
<tr>
<td class="firstcol">Inventory Sentiment*</td>
<td>60.5</td>
<td>63.0</td>
<td>2.7</td>
<td>63.0</td>
<td>4.3</td>
<td>69.0</td>
<td>55.0</td>
<td>14.0</td>
<td>39.3</td>
<td>96</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>52.0</td>
<td>52.0</td>
<td>3.2</td>
<td>50.5</td>
<td>6.3</td>
<td>59.0</td>
<td>43.5</td>
<td>15.5</td>
<td>54.8</td>
<td>103</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>63.5</td>
<td>63.3</td>
<td>8.2</td>
<td>59.9</td>
<td>13.7</td>
<td>80.5</td>
<td>41.3</td>
<td>39.2</td>
<td>56.6</td>
<td>106</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>51.9</td>
<td>50.8</td>
<td>3.7</td>
<td>51.7</td>
<td>7.1</td>
<td>59.9</td>
<td>43.9</td>
<td>16.0</td>
<td>50.0</td>
<td>100</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>55.5</td>
<td>48.5</td>
<td>4.5</td>
<td>54.8</td>
<td>8.3</td>
<td>64.0</td>
<td>44.5</td>
<td>19.5</td>
<td>56.4</td>
<td>101</td>
</tr>
<tr>
<td class="firstcol">Import Orders</td>
<td>52.5</td>
<td>50.0</td>
<td>4.1</td>
<td>54.7</td>
<td>7.4</td>
<td>63.5</td>
<td>45.5</td>
<td>18.0</td>
<td>38.9</td>
<td>96</td>
</tr>
</tbody>
</table>
</body>
</html>

The Nonmanufacturing ISM rose smartly to 56 from 52.4. Its employment gauge rose to 51.9 from 50.8. Prices continue to be under upward pressures. The details of the ISM report shows that the main measures of the survey are just below [...]

Nonmanufacturing ISM Shows Some Life

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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Tom Moeller

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

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

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

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

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

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

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

U.S. Light Vehicle Sales Fall in April

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

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

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

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

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

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

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

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

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

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

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

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

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

Economy in Brief: May 2007

Jump to:

NFIB: It’s Weak, No FIB

NFIB: It’s Weak, No FIB

More Evidence of German Economic Strength: Manufacturing New Orders Surprisingly Strong in March

More Evidence of German Economic Strength: Manufacturing New Orders Surprisingly Strong in March

Australia Trade Deficit Increases in March, But Exports of Raw Materials Help Cover Machinery Imports

U.S. Job Growth: The Conundrum Deepens

Driving Productivity Increases

Nonmanufacturing ISM Shows Some Life