Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090813c.jpg" align="left" border="0" height="265" width="353">
European growth figures continue to be weak when we log the
indicators month by month but if instead we complete a formal GDP
presentation, Germany and France have exited recession while the EMU
GDP drop is only -0.1% in Q2 of 2009, a drop at an annual rate of
-0.4%. EMU&#8217;s GDP decline in Q2 is less than the drop in the US but
Europe&#8217;s Yr/Yr decline has been worse at -4.7% compared to the US
year-over-year loss of -3.9%. 
 

In the US the Fed is less downbeat - At
its meeting yesterday the Fed implied that the recession in the US was
ending but did not take the step of saying in any clear voice that
recovery was beginning. It issued in a vague voice the statement saying
that activity was leveling off. In Q2 some of Europe, at least, is
doing better than that. 
 

GDP as the standard - The contrast
between what GDP sees and what monthly indicators show is an important
one to keep in mind. GDP accounting has its peculiar elements. Fewer
imports boost GDP even though there is no direct impact on domestic
output (there is less bought from abroad and so fewer payments made to
foreigners- all things equal fewer imports mean higher sales by
domestic agents for the same GDP). And inventories cut at slower pace,
add to GDP growth even though they are still being cut. 
 

Indicators can lag - Jobs tend to trail
activity shifts so the economy will be in recovery before job growth is
even positive. In the case of Europe its purchaser induces and the EU
Economic indicators from the EU Commission are woefully weak and seem
inconsistent with the notion that the recession is ending even if just
in Germany and France. But that is the way recessions sometimes end. 
 

Indicators really do lag in this cycle - 
To put it differently early recovery periods often do not look very
different from end recession periods. That is not surprising because
they are chronological neighbors. What makes recovery so different is
where it is headed compared to the recession period. Even so, the
indicators of economic performance in Europe are uncharacteristically
weak for the recession to be ending. Even those in Germany and in
France are lacking. The GDP rebounds hardly seems like they can be from
the same countries as the ones that have produced the indicators they
have up to mid-year. 
 

What indicators have been telling us- To
begin with we have no detail on GDP in Europe just the few things that
might be said at press conferences where the data are released.
Industrial data in EMU as well as in Germany and France, in particular,
continue to be very weak. The German and French economic sentiment
readings which are a weighted average of the EU Commission&#8217;s underlying
sector indices rank in the bottom 20th percentile of their respective
rage of values. The German and French readings are up about 10% or so
from their weakest readings in the recession on this score. The EU
Commission indices are from underlying diffusion data. All continue to
show deep contractions across are all sectors. Germany and France show
GDP that is rising, nonetheless. Apparently the change in the EMU index
is more important that the level of the index even though it is a
diffusion index that has to turn positive to signal sector growth and
all sectors industrial, retail, services, construction and consumer are
weak. 
 

German&#8217;s IFO - Germany has its own IFO
survey with a diffusion component and for July its services reading
just barely turned positive. 
 

More indicators - The NTC/Markit readings
are ISM type readings where a level above 50 denotes expansion. For EMU
in June the NTC reading stood at 42.4 for MFG and 44.5 for Services.
Both of these indices register declines as they are below 50. For
Germany, an economy that is showing positive GDP growth in Q2, its
NTC/Market diffusion index stood at 40.8 and was ins the bottom 40
percentile of its range of readings. France at 45.9 also signaled a
declining MFG sector but its index was closer to neutral standing in
the 49th percentile of its range, despite its low raw diffusion level.
The service sectors in France and Germany were weak in June as well,
with raw diffusion readings 45 and 47 respectively. Those readings
ranked in the lower third of each country&#8217;s respective historic
experience. 
 

GDP does not seem to have widespread support -
In short the industrial data and service sector data we have do not
confirm the message from GDP in EMU. We could go through a litany of
consumer confidence data as well, as they are weak too. If Europe is
recovering (France and Germany, any way) it must be the government
spending that is boosting the economy coupled with lower imports and
inventories that are being cut by less than before &#8211;all these are what
I would terms passive augmentations of GDP. The active augmentation
from more consumer spending and more business investment has not begun.
Inventories are likely adding to GDP growth but not by actively being
built. 
 

Exports and government are probably the main drivers -
We have seen episodic country reports that have revealed exports have
begun to rise. So the economies that are in recovery may now be firing
on two cylinders exports and the government sector. It&#8217;s not a very
wide base for growth yet. But it is also the support within EMU that is
helping to cut the drop in the formal measure of GDP. Progress is being
made but it does look like the sort of progress that usually marks the
ends of recessions. Too many European, German and French sectors are
just too weak. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">E-Area and main G-10 country GDP Results </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Quarter over quarter-Saar</td>
<td colspan="4">Year/Year</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>Q2-09</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q2-09</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
</tr>
<tr>
<td class="firstcol">&nbsp; EMU-15</td>
<td>-0.4%</td>
<td>-9.7%</td>
<td>-6.9%</td>
<td>-4.7%</td>
<td>-4.9%</td>
<td>-1.7%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Austria</td>
<td>#N/A</td>
<td>-3.3%</td>
<td>-3.9%</td>
<td>#N/A</td>
<td>-3.4%</td>
<td>0.2%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>1.4%</td>
<td>-5.3%</td>
<td>-5.5%</td>
<td>-2.6%</td>
<td>-3.4%</td>
<td>-1.6%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>1.3%</td>
<td>-13.4%</td>
<td>-9.4%</td>
<td>-5.9%</td>
<td>-6.7%</td>
<td>-1.8%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Greece</td>
<td>1.3%</td>
<td>-4.7%</td>
<td>1.2%</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>-1.9%</td>
<td>-10.3%</td>
<td>-8.3%</td>
<td>-6.0%</td>
<td>-6.0%</td>
<td>-3.0%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; The
Netherlands</td>
<td>-3.4%</td>
<td>-10.3%</td>
<td>-4.1%</td>
<td>-4.9%</td>
<td>-4.2%</td>
<td>-0.8%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Portugal</td>
<td>#N/A</td>
<td>-6.2%</td>
<td>-7.1%</td>
<td>#N/A</td>
<td>-3.7%</td>
<td>-2.0%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Spain</td>
<td>#N/A</td>
<td>-7.4%</td>
<td>-3.8%</td>
<td>#N/A</td>
<td>-3.0%</td>
<td>-0.7%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; UK</td>
<td>-3.1%</td>
<td>-9.2%</td>
<td>-7.0%</td>
<td>-5.6%</td>
<td>-4.9%</td>
<td>-1.8%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; US</td>
<td>-1.0%</td>
<td>-6.4%</td>
<td>-5.4%</td>
<td>-3.9%</td>
<td>-3.3%</td>
<td>-1.9%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Japan</td>
<td>#N/A</td>
<td>-14.2%</td>
<td>-13.5%</td>
<td>#N/A</td>
<td>-8.4%</td>
<td>-4.4%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Switzerland</td>
<td>#N/A</td>
<td>-3.2%</td>
<td>-2.2%</td>
<td>#N/A</td>
<td>-1.6%</td>
<td>-0.4%</td>
<td>1.2%</td>
</tr>
</tbody>
</table>
</body></html>

European growth figures continue to be weak when we log the indicators month by month but if instead we complete a formal GDP presentation, Germany and France have exited recession while the EMU GDP drop is only -0.1% in Q2 of 2009, a [...]

EMU GDP Falls But French And German GDP Rise

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090813a.jpg" width="353">
Price discounting apparently wasn&#39;t enough last month to entice consumers to open their wallets and spend. July retail sales slipped 0.1% after an upwardly revised 0.8% June increase that was fueled by higher gasoline prices. The July decline in total sales fell well short of expectations for a 0.6% increase. The retail sales data are available in Haver&#39;s USECON database.
The &quot;Cash-For-Clunkers&quot; auto sales program was successful in lifting sales of motor vehicles by 2.4% (-7.3% y/y) in dollar terms as unit vehicle sales jumped 15.8% m/m. Without the auto sector, retail sales fell 0.6%.
Elsewhere, gas prices reversed just a piece of earlier increases with a 4.0% (NSA) decline to $2.53 per gallon. As a result, sales of gasoline service stations fell 2.1% after a 6.3% jump during June.
Distortion of the underlying retail spending picture is an obvious result of auto &amp; gasoline sales, but the basic trend is not vibrant. Retail sales excluding both autos and gasoline fell 0.4% (-4.6% y/y) last month for the fifth consecutive monthly decline. Including a strong January, these sales have risen at just a 0.2% annual rate since December following last year&#39;s 2.8% 12-month decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090813b.jpg" width="353">
Discretionary spending continued under pressure as the job market remained depressed. Sales at furniture, electronics &amp; appliance stores fell 1.2% (-13.8% y/y) for the fifth consecutive monthly drop. Earlier small monthly gains were revised away. Furniture store sales alone fell 0.9% (-12.9% y/y) while sales of electronics &amp; appliances dropped 1.4% (-14.6% y/y). So far this year, these hard good sales have fallen at a 7.8% annual rate after last year&#39;s 4.4% decline. In the soft goods area, apparel store sales increased a slight 0.6% (-7.6% y/y) while sales at general merchandise stores fell 0.8% for the fifth consecutive monthly decline (-4.7% y/y).
Internet and catalogue purchases inched up after a firm June. July sales of non-store retailers rose 0.1% (-5.2% y/y) following an upwardly revised 1.5% jump during June. So far this year sales have risen at a 3.2% rate after rising 2.8% in 2008. Finally, restaurant sales made up their June decline with a 0.4% increase. So far this year they&#39;ve risen a a 4.0% annual rate.
Building materials sales continued their slump, falling 2.1% last month for the sixth monthly decline this year and they were down at a 9.1% annual rate since December.
Bank Credit Standards from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q2/brq209_bank-credit-standards.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a> (%)</td>
<td>-0.1</td>
<td>0.8</td>
<td>0.5</td>
<td>-8.3</td>
<td>-0.7</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-0.6</td>
<td>0.5</td>
<td>0.2</td>
<td>-8.5</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>-0.4</td>
<td>-0.1</td>
<td>-0.2</td>
<td>-4.6</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Price discounting apparently wasn't enough last month to entice consumers to open their wallets and spend. July retail sales slipped 0.1% after an upwardly revised 0.8% June increase that was fueled by higher gasoline prices. The July [...]

U.S. Retail Sales Post Surprising, Across-the-Board Declines

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<a href="http://"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812e.jpg" align="left" border="0" height="265" width="353"></a>
In an anticipated and unanimous vote, the Federal Open Market
Committee today left the Federal funds rate in a "range from 0 to 1/4
percent." The discount rate also was left unchanged at 0.5%. The Fed
funds rate remained the lowest ever.
The Fed indicated that "Conditions in financial markets have
improved further in recent weeks. Household spending has continued to
show signs of stabilizing but remains constrained by ongoing job
losses, sluggish income growth, lower housing wealth, and tight credit.
Again, much of the commentary on the economy was similar to
the last two meetings and concluded that "Although economic activity is
likely to remain weak for a time, the Committee continues to anticipate
that policy actions to stabilize financial markets and institutions,
fiscal and monetary stimulus, and market forces will contribute to a
gradual resumption of sustainable economic growth in a context of price
stability."
Regarding inflation the FOMC statement acknowledged the rise
in energy &amp; other commodity prices, but concluded that
substantial economic slack will leave inflation "subdued for some time."
In its effort to promote economic liquidity, the Fed used
similar language as in June, "... to provide support to mortgage
lending and housing markets and to improve overall conditions in
private credit markets, the Federal Reserve will purchase a total of up
to $1.25 trillion of agency mortgage-backed securities and up to $200
billion of agency debt by the end of the year. In addition, the Federal
Reserve will buy up to $300 billion of Treasury securities."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812f.jpg" align="right" border="0" height="265" width="353">
New was the indication that "the Committee has
decided to gradually slow the pace of these transactions and
anticipates that the full amount will be purchased by the end of October."
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090812a.htm">link</a>.
The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.
The Shadow Banking System: Implications for Financial
Regulation from the Federal Reserve Bank of New York can be
found <a href="http://www.newyorkfed.org/research/staff_reports/sr382.pdf">here</a>.
What Do We Know (And Not Know) About Potential
Output? from the Federal Reserve Bank of St. Louis is
available <a href="http://research.stlouisfed.org/publications/review/09/07/Basu.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">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>
</body></html>

In an anticipated and unanimous vote, the Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent." The discount rate also was left unchanged at 0.5%. The Fed funds rate remained the lowest [...]

FOMC Leaves Rates Unchanged; Notes Financial Market Improvement & Retail Spending Stabilization

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812d.jpg" align="left" border="0">
Euro Area industrial output rose in May but is back to its
declining ways in June. The negative rates of growth are still
diminishing to a decline of 4.8% over three months from -15.1% over six
months and from -18% over twelve months. Trend progress continues
despite the months set-back. And, with this monthly drop, the region
steps back behind the line that says it has turned the corner to
growth. It has not. 
 

Nondurable output is actually increasing taking some of the
downward pressure of consumer goods output where durable goods trends
are still horrifically negative. 
 

Country level trends have flattened out or show progress to
positive output In Germany, France, Spain and in the UK. Germany,
France and Spain show positive three-month output growth rates for MFG.
But over six- and twelve-months all the large countries are still
showing output declines. 
 

Underling the erratic and slow nature of progress in EMU,
Germany&#8217;s July IFO report show some progress is still being made, but
at a snail&#8217;s pace. The IFO&#8217;s current conditions and expectations
readings edged higher, boosting the German index for business climate
in July. But the IFO&#8217;s overall and sector readings on diffusion tell us
that this progress while small is still not very widespread as
diffusion indices remain negative and made their own small progress in
the month. The biggest sector improvement in the current diffusion
index presentation was in retailing. Manufacturing made the biggest
improvement in the expectations section. But services made the turn
from a negative reading to a positive one in the expectations survey- a
significant development even if on a small two-point move. 
 

Some of the luster from retailing&#8217;s gain in the current sector
survey is lost as the expectations for retailing made a similar but
opposite large move losing ground and blunting the current message of
improvement in the sector. . 
 

Conditions in Germany and in EMU remain in flux. Trends are in
the right direction but some are still slow-moving. We still see
episodic signs of backtracking. It&#8217;s too soon to say it is recovery or
to be sure that we are going there, despite the strong readings from
the OECD leading indicators. Questions remain. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="11" scope="col">E-zone MFG IP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Jun 09</td>
<td>May 09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>-1.0%</td>
<td>-4.8%</td>
<td>-6.9%</td>
<td>-15.1%</td>
<td>-20.0%</td>
<td>-18.0%</td>
<td>-18.3%</td>
<td>-9.5%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>-0.5%</td>
<td>-4.9%</td>
<td>-5.5%</td>
<td>-5.8%</td>
<td>-5.1%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Durables</td>
<td>-4.2%</td>
<td>-1.8%</td>
<td>-0.7%</td>
<td>-23.7%</td>
<td>-11.5%</td>
<td>-23.8%</td>
<td>-21.5%</td>
<td>-24.4%</td>
<td>-19.9%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Nondurables</td>
<td>0.2%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>3.7%</td>
<td>1.9%</td>
<td>-1.7%</td>
<td>-2.9%</td>
<td>-2.8%</td>
<td>-2.6%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-1.5%</td>
<td>-6.2%</td>
<td>-10.3%</td>
<td>-13.9%</td>
<td>-23.6%</td>
<td>-22.4%</td>
<td>-22.9%</td>
<td>-12.2%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>-2.9%</td>
<td>-8.6%</td>
<td>-6.9%</td>
<td>-22.8%</td>
<td>-26.5%</td>
<td>-21.9%</td>
<td>-22.7%</td>
<td>-12.5%</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">Main E-zone Countries and
UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Jun 09</td>
<td>May 09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Only</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q:2 Date</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>5.0%</td>
<td>-3.1%</td>
<td>8.2%</td>
<td>10.6%</td>
<td>-16.3%</td>
<td>-24.5%</td>
<td>-19.8%</td>
<td>-19.5%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">France: IP excl Construction</td>
<td>0.3%</td>
<td>2.8%</td>
<td>-1.4%</td>
<td>7.2%</td>
<td>-1.8%</td>
<td>-10.0%</td>
<td>-13.3%</td>
<td>-12.8%</td>
<td>-13.2%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-1.2%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>-3.4%</td>
<td>-15.9%</td>
<td>-21.4%</td>
<td>-26.3%</td>
<td>-23.9%</td>
<td>-22.7%</td>
<td>-17.8%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>3.9%</td>
<td>-6.9%</td>
<td>5.9%</td>
<td>10.1%</td>
<td>-22.2%</td>
<td>-17.7%</td>
<td>-21.6%</td>
<td>-14.4%</td>
<td>-22.4%</td>
<td>-2.3%</td>
</tr>
<tr>
<td class="firstcol">UK: EU member</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>-6.4%</td>
<td>-11.2%</td>
<td>-11.7%</td>
<td>-12.8%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
</body></html>

Euro Area industrial output rose in May but is back to its declining ways in June. The negative rates of growth are still diminishing to a decline of 4.8% over three months from -15.1% over six months and from -18% over twelve months. [...]

Euro Area Industrial Output Steps Back In June

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812a.jpg" align="left" border="0">
As the U.S. recession continued, the foreign trade deficit
remained near its narrowest level 2001. The deficit of $27.0B was just
slightly deeper than the unrevised May level of $26.0B. Consensus
expectations had been for a deficit of $28.5B. Higher petroleum imports
have been the main source of upward pressure on the trade deficit
recently. Higher crude oil prices raised them by more than one-quarter
during June and by 12.2% so far this year. Offsetting that increase was
the U.S. recession which caused June nonpetroleum imports to fall by
1.0%. That pulled their decline so far this year to 15.7%. Higher
exports were the second factor which limited trade deficit
deterioration during June. The competitive foreign exchange value of
the dollar helped exports to rise by 2.0% after a firm 1.6% gain during
May. Nevertheless, recessions abroad have lowered exports by 5.4% since
December.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812b.jpg" align="right" border="0">
The rise in petroleum imports was driven by higher crude oil
prices. They rose to a June average of $59.17 per barrel versus the
February low of $39.22. The recession and the rise in prices prompted,
however, a decline in the volume of petroleum imports. Despite a June
gain they have fallen roughly ten-percent since December. The recession
has had the additional effect on limiting the size of the trade deficit
by dropping nonoil goods imports. They fell a hefty 1.0% during June
for the ninth sharp monthly decline in a year.
Adjusted for price inflation overall and for higher oil prices
specifically, the trade deficit in goods actually narrowed slightly
during June to $35.9B, the lowest since 1999. It was down from $45.3B
last June. Real non-auto consumer goods imports fell a hard 4.8% m/m
and are down 17.8% y/y, near their lowest level since 2005. Automotive
vehicles &amp; parts imports were down by exactly one-half versus
last year. Non-auto capital goods imports continued to reflect the
weakness in investment and fell 24.4% y/y near their lowest level since
2004.
Though services imports rose 2.3% during June that followed
ten months of decline and they were off by nearly one-third y/y. Travel
imports were down 12.8% y/y as passenger fares dropped by 9.0%.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812c.jpg" align="left" border="0">
Real exports added 0.6% to their 1.9% gain during May.
Nevertheless, recessions abroad caused them to fall by 21.4%
year-to-year to near the lowest level since late-2005. The chained
dollar value of non-auto consumer goods exports slipped m/m and were
down 13.8% y/y. Real capital goods exports jumped 1.5% but were off
20.6% y/y while exports of automobiles &amp; parts were off by
roughly one-half from last year.
Nominal exports of services rose 1.3% (-11.5% y/y) for the
first material increase since last fall. Travel exports fell 18.8% y/y
as fewer foreign citizens came to the U.S. even as passenger fares fell
22.5%.
The U.S. trade deficit in goods with China deepened again,
during June to $18.4B. Imports from China fell 14.1% y/y while U.S.
exports fell a lesser 10.3%. The trade deficit with Japan deepened
sharply to $3.7B but it remained near its shallowest since 1990. The
U.S. recession drove imports from Japan down by 36.5% year-to-year
while U.S. exports to the country fell by 30.4%.

<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/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U.S. Trade Deficit</td>
<td>$27.0B</td>
<td>$26.0B</td>
<td>$60.2B (6/08)</td>
<td>$695.9</td>
<td>$701.4</td>
<td>$760.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Exports - Goods
&amp; Services</td>
<td>2.0%</td>
<td>1.6%</td>
<td>-22.2%</td>
<td>11.2%</td>
<td>13.2%</td>
<td>13.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Imports - Goods
&amp; Services</td>
<td>2.3%</td>
<td>-0.6%</td>
<td>-31.1%</td>
<td>7.6</td>
<td>6.0%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>23.8%</td>
<td>-3.4%</td>
<td>-51.9%</td>
<td>37.0%</td>
<td>9.4%</td>
<td>20.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>-1.0%</td>
<td>0.1%</td>
<td>-29.1%</td>
<td>1.5%</td>
<td>4.8%</td>
<td>9.1%</td>
</tr>
</tbody>
</table>
</body></html>

As the U.S. recession continued, the foreign trade deficit remained near its narrowest level 2001. The deficit of $27.0B was just slightly deeper than the unrevised May level of $26.0B. Consensus expectations had been for a deficit of [...]

U.S. Trade Deficit Remains Near The Narrowest Since 2001

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812a.jpg" align="left" border="0">
As the U.S. recession continued, the foreign trade deficit
remained near its narrowest level 2001. The deficit of $27.0B was just
slightly deeper than the unrevised May level of $26.0B. Consensus
expectations had been for a deficit of $28.5B. Higher petroleum imports
have been the main source of upward pressure on the trade deficit
recently. Higher crude oil prices raised them by more than one-quarter
during June and by 12.2% so far this year. Offsetting that increase was
the U.S. recession which caused June nonpetroleum imports to fall by
1.0%. That pulled their decline so far this year to 15.7%. Higher
exports were the second factor which limited trade deficit
deterioration during June. The competitive foreign exchange value of
the dollar helped exports to rise by 2.0% after a firm 1.6% gain during
May. Nevertheless, recessions abroad have lowered exports by 5.4% since
December.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812b.jpg" align="right" border="0">
The rise in petroleum imports was driven by higher crude oil
prices. They rose to a June average of $59.17 per barrel versus the
February low of $39.22. The recession and the rise in prices prompted,
however, a decline in the volume of petroleum imports. Despite a June
gain they have fallen roughly ten-percent since December. The recession
has had the additional effect on limiting the size of the trade deficit
by dropping nonoil goods imports. They fell a hefty 1.0% during June
for the ninth sharp monthly decline in a year.
Adjusted for price inflation overall and for higher oil prices
specifically, the trade deficit in goods actually narrowed slightly
during June to $35.9B, the lowest since 1999. It was down from $45.3B
last June. Real non-auto consumer goods imports fell a hard 4.8% m/m
and are down 17.8% y/y, near their lowest level since 2005. Automotive
vehicles &amp; parts imports were down by exactly one-half versus
last year. Non-auto capital goods imports continued to reflect the
weakness in investment and fell 24.4% y/y near their lowest level since
2004.
Though services imports rose 2.3% during June that followed
ten months of decline and they were off by nearly one-third y/y. Travel
imports were down 12.8% y/y as passenger fares dropped by 9.0%.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812c.jpg" align="left" border="0">
Real exports added 0.6% to their 1.9% gain during May.
Nevertheless, recessions abroad caused them to fall by 21.4%
year-to-year to near the lowest level since late-2005. The chained
dollar value of non-auto consumer goods exports slipped m/m and were
down 13.8% y/y. Real capital goods exports jumped 1.5% but were off
20.6% y/y while exports of automobiles &amp; parts were off by
roughly one-half from last year.
Nominal exports of services rose 1.3% (-11.5% y/y) for the
first material increase since last fall. Travel exports fell 18.8% y/y
as fewer foreign citizens came to the U.S. even as passenger fares fell
22.5%.
The U.S. trade deficit in goods with China deepened again,
during June to $18.4B. Imports from China fell 14.1% y/y while U.S.
exports fell a lesser 10.3%. The trade deficit with Japan deepened
sharply to $3.7B but it remained near its shallowest since 1990. The
U.S. recession drove imports from Japan down by 36.5% year-to-year
while U.S. exports to the country fell by 30.4%.

<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/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U.S. Trade Deficit</td>
<td>$27.0B</td>
<td>$26.0B</td>
<td>$60.2B (6/08)</td>
<td>$695.9</td>
<td>$701.4</td>
<td>$760.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Exports - Goods
&amp; Services</td>
<td>2.0%</td>
<td>1.6%</td>
<td>-22.2%</td>
<td>11.2%</td>
<td>13.2%</td>
<td>13.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Imports - Goods
&amp; Services</td>
<td>2.3%</td>
<td>-0.6%</td>
<td>-31.1%</td>
<td>7.6</td>
<td>6.0%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>23.8%</td>
<td>-3.4%</td>
<td>-51.9%</td>
<td>37.0%</td>
<td>9.4%</td>
<td>20.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>-1.0%</td>
<td>0.1%</td>
<td>-29.1%</td>
<td>1.5%</td>
<td>4.8%</td>
<td>9.1%</td>
</tr>
</tbody>
</table>
Euro Area Industrial Output Steps
Back In June 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 12, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812d.jpg" align="left" border="0">
Euro Area industrial output rose in May but is back to its
declining ways in June. The negative rates of growth are still
diminishing to a decline of 4.8% over three months from -15.1% over six
months and from -18% over twelve months. Trend progress continues
despite the months set-back. And, with this monthly drop, the region
steps back behind the line that says it has turned the corner to
growth. It has not. 
 

Nondurable output is actually increasing taking some of the
downward pressure of consumer goods output where durable goods trends
are still horrifically negative. 
 

Country level trends have flattened out or show progress to
positive output In Germany, France, Spain and in the UK. Germany,
France and Spain show positive three-month output growth rates for MFG.
But over six- and twelve-months all the large countries are still
showing output declines. 
 

Underling the erratic and slow nature of progress in EMU,
Germany&#8217;s July IFO report show some progress is still being made, but
at a snail&#8217;s pace. The IFO&#8217;s current conditions and expectations
readings edged higher, boosting the German index for business climate
in July. But the IFO&#8217;s overall and sector readings on diffusion tell us
that this progress while small is still not very widespread as
diffusion indices remain negative and made their own small progress in
the month. The biggest sector improvement in the current diffusion
index presentation was in retailing. Manufacturing made the biggest
improvement in the expectations section. But services made the turn
from a negative reading to a positive one in the expectations survey- a
significant development even if on a small two-point move. 
 

Some of the luster from retailing&#8217;s gain in the current sector
survey is lost as the expectations for retailing made a similar but
opposite large move losing ground and blunting the current message of
improvement in the sector. . 
 

Conditions in Germany and in EMU remain in flux. Trends are in
the right direction but some are still slow-moving. We still see
episodic signs of backtracking. It&#8217;s too soon to say it is recovery or
to be sure that we are going there, despite the strong readings from
the OECD leading indicators. Questions remain. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">E-zone
MFG IP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Apr 
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>-1.0%</td>
<td>-4.8%</td>
<td>-6.9%</td>
<td>-15.1%</td>
<td>-20.0%</td>
<td>-18.0%</td>
<td>-18.3%</td>
<td>-9.5%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>-0.5%</td>
<td>-4.9%</td>
<td>-5.5%</td>
<td>-5.8%</td>
<td>-5.1%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Durables</td>
<td>-4.2%</td>
<td>-1.8%</td>
<td>-0.7%</td>
<td>-23.7%</td>
<td>-11.5%</td>
<td>-23.8%</td>
<td>-21.5%</td>
<td>-24.4%</td>
<td>-19.9%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Nondurables</td>
<td>0.2%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>3.7%</td>
<td>1.9%</td>
<td>-1.7%</td>
<td>-2.9%</td>
<td>-2.8%</td>
<td>-2.6%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-1.5%</td>
<td>-6.2%</td>
<td>-10.3%</td>
<td>-13.9%</td>
<td>-23.6%</td>
<td>-22.4%</td>
<td>-22.9%</td>
<td>-12.2%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>-2.9%</td>
<td>-8.6%</td>
<td>-6.9%</td>
<td>-22.8%</td>
<td>-26.5%</td>
<td>-21.9%</td>
<td>-22.7%</td>
<td>-12.5%</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">Main
E-zone Countries and
UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Only</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Apr 
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q:2 
Date</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>5.0%</td>
<td>-3.1%</td>
<td>8.2%</td>
<td>10.6%</td>
<td>-16.3%</td>
<td>-24.5%</td>
<td>-19.8%</td>
<td>-19.5%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">France: IP excl Construction</td>
<td>0.3%</td>
<td>2.8%</td>
<td>-1.4%</td>
<td>7.2%</td>
<td>-1.8%</td>
<td>-10.0%</td>
<td>-13.3%</td>
<td>-12.8%</td>
<td>-13.2%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-1.2%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>-3.4%</td>
<td>-15.9%</td>
<td>-21.4%</td>
<td>-26.3%</td>
<td>-23.9%</td>
<td>-22.7%</td>
<td>-17.8%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>3.9%</td>
<td>-6.9%</td>
<td>5.9%</td>
<td>10.1%</td>
<td>-22.2%</td>
<td>-17.7%</td>
<td>-21.6%</td>
<td>-14.4%</td>
<td>-22.4%</td>
<td>-2.3%</td>
</tr>
<tr>
<td class="firstcol">UK: EU member</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>-6.4%</td>
<td>-11.2%</td>
<td>-11.7%</td>
<td>-12.8%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
FOMC Leaves Rates Unchanged; Notes
Financial Market Improvement &amp; Retail Spending
Stabilization 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 12, 2009


<a href="http://"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812e.jpg" align="left" border="0" height="265" width="353"></a>
In an anticipated and unanimous vote, the Federal Open Market
Committee today left the Federal funds rate in a "range from 0 to 1/4
percent." The discount rate also was left unchanged at 0.5%. The Fed
funds rate remained the lowest ever.
The Fed indicated that "Conditions in financial markets have
improved further in recent weeks. Household spending has continued to
show signs of stabilizing but remains constrained by ongoing job
losses, sluggish income growth, lower housing wealth, and tight credit.
Again, much of the commentary on the economy was similar to
the last two meetings and concluded that "Although economic activity is
likely to remain weak for a time, the Committee continues to anticipate
that policy actions to stabilize financial markets and institutions,
fiscal and monetary stimulus, and market forces will contribute to a
gradual resumption of sustainable economic growth in a context of price
stability."
Regarding inflation the FOMC statement acknowledged the rise
in energy &amp; other commodity prices, but concluded that
substantial economic slack will leave inflation "subdued for some time."
In its effort to promote economic liquidity, the Fed used
similar language as in June, "... to provide support to mortgage
lending and housing markets and to improve overall conditions in
private credit markets, the Federal Reserve will purchase a total of up
to $1.25 trillion of agency mortgage-backed securities and up to $200
billion of agency debt by the end of the year. In addition, the Federal
Reserve will buy up to $300 billion of Treasury securities."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812f.jpg" align="right" border="0" height="265" width="353">
New was the indication that "the Committee has
decided to gradually slow the pace of these transactions and
anticipates that the full amount will be purchased by the end of October."
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090812a.htm">link</a>.
The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.
The Shadow Banking System: Implications for Financial
Regulation from the Federal Reserve Bank of New York can be
found <a href="http://www.newyorkfed.org/research/staff_reports/sr382.pdf">here</a>.
What Do We Know (And Not Know) About Potential
Output? from the Federal Reserve Bank of St. Louis is
available <a href="http://research.stlouisfed.org/publications/review/09/07/Basu.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">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Trade Deficit Remains NearThe Narrowest Since 2001

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811j.jpg" align="right" border="0" height="265" width="353">The Baltic States, Latvia,
Lithuania and Estonia have begun to
repair their current accounts deficits which had reached as high as
18-28% of GDP . The first chart shows the current accounts as a percent
of GDP for the three countries.
Today Latvia and Lithuania released balance of payments data
for June. Both countries show a continuation of the current account
surplus that started in February of this year, as shown in the second
chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811k.jpg" align="right" border="0" height="265" width="353">
In Latvia, it has been the surplus on income that has accounted
for much of the current account surplus. However, there has also been a
declining deficit on goods and services and finally a surplus in June.
The balance on current transfers has been small and has had little
effect on the overall current balance. The third chart shows the trends
in the income and goods and services balances for Latvia.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811l.jpg" align="right" border="0" height="265" width="353">

In Lithuania, the trends are less clear. The income balance
only turned positive in June and the balance on goods and services
remains in deficit. However, in contrast to Latvia, current transfers
have been the major factor accounting for the surplus on current
account, as can be seen in the fourth chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811m.jpg" align="right" border="0" height="265" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jun 09</th>
<th scope="col">May&nbsp; 09</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar09&nbsp;</th>
<th scope="col">Feb 09</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol" colspan="6">Latvia
(Thousand Lats)</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>237.73</td>
<td>139.18</td>
<td>73.97</td>
<td>27.04</td>
<td>8.89</td>
</tr>
<tr>
<td class="firstcol">Goods and Service Balance</td>
<td>23698</td>
<td>-2584</td>
<td>-23448</td>
<td>-58220</td>
<td>-33661</td>
</tr>
<tr class="odd">
<td class="firstcol">Income Balance</td>
<td>201894</td>
<td>63640</td>
<td>53676</td>
<td>58454</td>
<td>42749</td>
</tr>
<tr class="even">
<td class="firstcol">Lithuania (Mil Litai)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>424.86</td>
<td>47.06</td>
<td>10.79</td>
<td>62.05</td>
<td>124.66</td>
</tr>
<tr>
<td class="firstcol">Goods and Service Balance</td>
<td>-32.41</td>
<td>-210.29</td>
<td>-192.79</td>
<td>-228.63</td>
<td>-19.09</td>
</tr>
<tr class="odd">
<td class="firstcol">Income Balance</td>
<td>150.83</td>
<td>-158.45</td>
<td>-138.59</td>
<td>-146.09</td>
<td>-163.31</td>
</tr>
<tr>
<td class="firstcol">Current Transfers306.07</td>
<td>306.07</td>
<td>415.80</td>
<td>337.17</td>
<td>436.77</td>
<td>307.06</td>
</tr>
</tbody>
</table>
</body></html>

The Baltic States, Latvia, Lithuania and Estonia have begun to repair their current accounts deficits which had reached as high as 18-28% of GDP . The first chart shows the current accounts as a percent of GDP for the three countries. [...]

Latvia And Lithuania Report Improvement In Their Current Accounts

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

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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.

250501H20.jpg

250501I20.jpg

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

U.S. Light Vehicle Sales Fall in April

250501J5.jpg

250501K5.jpg

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

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

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

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

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

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

250501L5.jpg

250501M5.jpg

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

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

250501N.jpg

250501O.jpg

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

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

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

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

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

250501P.jpg

250501Q.jpg

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

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

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.

250501C8.jpg

250501D8.jpg

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

Economy in Brief: August 2009

Jump to:

EMU GDP Falls But French And German GDP Rise

U.S. Retail Sales Post Surprising, Across-the-Board Declines

U.S. Retail Sales Post Surprising, Across-the-Board Declines

FOMC Leaves Rates Unchanged; Notes Financial Market Improvement & Retail Spending Stabilization

Euro Area Industrial Output Steps Back In June

U.S. Trade Deficit Remains Near The Narrowest Since 2001

U.S. Trade Deficit Remains NearThe Narrowest Since 2001

Latvia And Lithuania Report Improvement In Their Current Accounts