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/070914j.jpg" width="353">
The US current account deficit shrank a bit in Q2 to $190.8 billion from $197.1 billion in Q1. The figure was very close to consensus expectations for Q2 of $190.5 billion. Q1&#39;s deficit was revised larger by $4.5 billion.
The latest deficit equaled 5.5% of GDP, down from 5.8% in Q1 and 6.2% for all of 2006.
The deficit in merchandise trade deteriorated slightly to $204.2B from Q1&#39;s deficit of $200.9B. Exports grew $9.2B in the quarter, equal to 3.4% (10.6% y/y). Imports increased 2.7% (4.3% y/y), but since imports are far larger, that is a $12.6B increase.
The surplus in services trade improved by $3.2B in the quarter to $26.5B, a new record. The previous high was $25.0B in Q4 1996. All major service sector categories contributed: more foreign tourists, less American use of foreign airlines, an increase in net private services, a gain in net royalties and fees and so on.
The U.S. capital account widened marginally in Q2 to $589 million, although this is noticeably smaller than the year-earlier $1.0 billion. Among the financial accounts, the net inflow of direct investment funds was $2.1B, a sharp turnaround from Q1&#39;s outsized outflow, $69.5B. Other private financial assets saw a net inflow of $79.2B, slightly less than $84.0B in Q1. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070914k.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070914l.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Balance of Payments</a>, &nbsp;Bil.$, SA</th>
<th scope="col">Q2 2007</th>
<th scope="col">Q1 2007</th>
<th scope="col">Q4 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Deficit</td>
<td>-190.8</td>
<td>-197.1</td>
<td>-187.9</td>
<td>-205.6</td>
<td>-811.5</td>
<td>-754.8</td>
<td>-640.2</td>
</tr>
<tr>
<td class="firstcol">Goods &amp; Services</td>
<td>-177.7</td>
<td>-177.6</td>
<td>-176.9</td>
<td>-192.6</td>
<td>-758.5</td>
<td>-714.4</td>
<td>-612.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports % change</td>
<td>3.5%</td>
<td>1.2%</td>
<td>3.2%</td>
<td>11.0%</td>
<td>12.7%</td>
<td>10.9%</td>
<td>13.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports % change</td>
<td>2.4%</td>
<td>0.9%</td>
<td>-1.9%</td>
<td>4.4%</td>
<td>10.4%</td>
<td>12.9%</td>
<td>16.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Income (Bil.$)</td>
<td>+9.4</td>
<td>+7.5</td>
<td>+9.7</td>
<td>+10.7</td>
<td>+36.6</td>
<td>+48.1</td>
<td>+56.4</td>
</tr>
<tr>
<td class="firstcol">Unilateral Transfers </td>
<td>-22.5</td>
<td>27.0</td>
<td>20.7</td>
<td>23.7</td>
<td>89.6</td>
<td>88.5</td>
<td>88.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The US current account deficit shrank a bit in Q2 to $190.8 billion from $197.1 billion in Q1. The figure was very close to consensus expectations for Q2 of $190.5 billion. Q1's deficit was revised larger by $4.5 billion. The latest [...]

U.S. Current Account Deficit Eases in Q2

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914g.jpg" width="353">
Employment in Australia rose 23,400 in August from July and has increased every month for the last ten. The year-on-year growth is just 2%, but the 10-month advance has occurred at a 3.2% annualized pace, similar to the 2005 performance.
This employment growth is strong enough to absorb sizable increases in labor force participation and still set record low unemployment rates. Unemployment stood at 4.9% of the labor force in August after touching 4.8% in July; until last August, it had never been as low as 5.0%. The rise in the participation rate includes an upturn among male workers since August 2004 after a secular decline that extends back almost continuously to the beginning of the data series in 1978. The participation rate for women continues to trend gradually higher.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914h.jpg" width="353">
These broad labor force aggregates for Australia were published a week ago. Today, September 14, the Australian Bureau of Statistics published greater detail, including &quot;quarterly&quot; industry data. These industry data depart from the common use of the term quarterly; they are not averages or totals but figures that are simply collected only once a quarter, in the mid-month. Thus are &quot;third quarter&quot; readings already available before the actual end of the period. And in our table below, we show the whole array of data with their mid-month of quarter values to facilitate comparison.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914i.jpg" width="353">
As in many &quot;industrial&quot; countries, Australia&#39;s manufacturing sector employment is lagging. However, the latest value, 1,054 persons, is ahead of the year-ago level by 13,000, marking the first year-on-year increase in six quarters. The mining sector seems small with only 139,000 employed in August, but it has been a source of growth particularly in metal ores. We mentioned this general characteristic of the Australian economy a couple of weeks ago (September 1) regarding movements in commodity prices there. Construction is growing vigorously, along with several service industries, especially property &amp; business services and health &amp; community services. Not shown in our table is a spurt in government employment, up 35,700 in the latest quarter, but this reflects temporary hiring for the 2006 Australian census. It will be important to check on Australian labor market conditions after the census has been taken and those temporary employees finish their assignments. ABS suggests that they have not inflated employment totals because many have other jobs already. Stay tuned to see how that plays out.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ANZ/@A1/@A106/@A106.HTM">Australia Labor Force*</a></th>
<th scope="col">Q3 2006 (Aug)</th>
<th scope="col">Q2 2006 (May)</th>
<th scope="col">Q3 2005 (Aug)</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Employment (000s)</td>
<td>10,265</td>
<td>10,143</td>
<td>10,067</td>
<td>9,987</td>
<td>9,677</td>
<td>9,481</td>
</tr>
<tr>
<td class="firstcol">Unemployment (000s)</td>
<td>524</td>
<td>523</td>
<td>532</td>
<td>537</td>
<td>567</td>
<td>611</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.9</td>
<td>4.9</td>
<td>5.0</td>
<td>5.1</td>
<td>5.5</td>
<td>6.1</td>
</tr>
<tr>
<td class="firstcol">Participation Rate (%)</td>
<td>65.1</td>
<td>64.5</td>
<td>64.8</td>
<td>64.4</td>
<td>63.6</td>
<td>63.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Select Industries (000s)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>139</td>
<td>133</td>
<td>130</td>
<td>121</td>
<td>103</td>
<td>90</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>1,054</td>
<td>1,060</td>
<td>1,041</td>
<td>1,070</td>
<td>1,089</td>
<td>1,082</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>899</td>
<td>888</td>
<td>870</td>
<td>867</td>
<td>802</td>
<td>755</td>
</tr>
<tr class="odd">
<td class="firstcol">Property &amp; Business Services</td>
<td>1,233</td>
<td>1,196</td>
<td>1,197</td>
<td>1,171</td>
<td>1,108</td>
<td>1,112</td>
</tr>
<tr>
<td class="firstcol">Health &amp; Community Services</td>
<td>1,072</td>
<td>1,089</td>
<td>1,023</td>
<td>1,013</td>
<td>981</td>
<td>932</td>
</tr>
</tbody>
</table>
</body>
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Employment in Australia rose 23,400 in August from July and has increased every month for the last ten. The year-on-year growth is just 2%, but the 10-month advance has occurred at a 3.2% annualized pace, similar to the 2005 [...]

Labor Force and Employment Gains Strong in Australia; Unemployment Hovers Near Record Low

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914l.jpg" width="353">
In July, total business inventories rose 0.6% following an upwardly revised 0.9% June gain. Consensus expectations had been for a 0.5% increase. That combination left the inventory to sales ratio stable m/m at 1.26, up from its low in May of 1.25. 
Retail inventories rose 0.4% led by a 0.5% (15.3% y/y) surge in motor vehicles &amp; parts. Excluding autos, retail inventories rose 0.3% (4.5% y/y). Furniture inventories moved up 4.9% y/y, while building materials inventories grew 8.7%. Clothing store inventories rose 5.5% y/y but inventories of general merchandise grew just 1.2%.
Wholesale inventories increased another 0.8% (8.8% Y/Y) in July led by a 1.2% (25.0% y/y) gain in petroleum inventories. Durables rose 9.2% y/y. 
Factory inventories rose 0.6% (5.7% y/y), the fastest y/y rate of accumulation in a year.

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.6%</td>
<td>0.9%</td>
<td>7.4%</td>
<td>4.4%</td>
<td>7.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.4%</td>
<td>0.9%</td>
<td>7.8%</td>
<td>2.7%</td>
<td>6.7%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.1%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.8%</td>
<td>0.8%</td>
<td>8.8%</td>
<td>7.1%</td>
<td>9.8%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.6%</td>
<td>0.9%</td>
<td>5.7%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

In July, total business inventories rose 0.6% following an upwardly revised 0.9% June gain. Consensus expectations had been for a 0.5% increase. That combination left the inventory to sales ratio stable m/m at 1.26, up from its low in [...]

U.S. Business Inventory Accumulation Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914k.jpg" width="353">
Total import prices rose 0.8% last month following an upwardly revised 1.0% increase during July. Consensus expectations had been for a 0.3% increase.
Less petroleum, import prices rose a firm 0.5%, the largest increase since May. Prices for nonoil industrial supplies &amp; materials more than recouped a July decline with a 1.8% (11.4% y/y) surge led by higher prices for paper (7.9% y/y), chemicals (3.4% y/y) and metals (38.6% y/y).
During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914j.jpg" width="353">
Capital goods prices rose 0.1% (-0.3% y/y) for the second month and rose 0.1% (1.9% y/y) excluding computers. Prices for nonauto consumer goods were unchanged (0.7% y/y) though prices for home entertainment equipment fell (-4.5% y/y). 
Prices of petroleum imports jumped 2.3% after the 5.1% spike during July. Brent crude oil prices were about unchanged at $73.40 per barrel in August but have since fallen to $62.48.
Export prices rose 0.4% for the second consecutive month led by a 1.0% increase agricultural (3.5% y/y) and a 0.4% (5.3% y/y) rise in nonagricultural commodities.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.8%</td>
<td>1.0%</td>
<td>6.6%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>2.3%</td>
<td>5.1%</td>
<td>24.3%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.5%</td>
<td>0.0%</td>
<td>2.7%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.4%</td>
<td>0.4%</td>
<td>5.2%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
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Total import prices rose 0.8% last month following an upwardly revised 1.0% increase during July. Consensus expectations had been for a 0.3% increase. Less petroleum, import prices rose a firm 0.5%, the largest increase since May. [...]

U.S. Import Prices Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914e.jpg" width="353">
The August U.S. federal government budget deficit of $64.6B was double the July shortfall and deeper than August of last year. The figure compared favorably, however, to Consensus expectations for a $67.0B deficit, elevated due to calendar quirks.
The August shortfall pulled the eleven month fiscal year 2006 deficit to $304.3B, improved versus a deficit of $354.1B for the first eleven months of FY 2005.
The FY&#39;06 budget deficit estimate of $295.8B offered last month by the Office of Management &amp; Budget in its Mid-Session Review looks conservative. During the last several years the Gov&#39;t has run a surplus between $25B and $65B during September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914f.jpg" width="353">
Net revenues grew 11.7% versus the first eleven months of FY&#39;05. Individual income tax receipts (44% of total receipts) grew 12.4% as withheld taxes rose 7.9%, due to growth in employment, and non-withheld taxes surged 20.8%. Corporate income taxes (13% of total receipts) surged 29.0% as corporate profits grew. Estate &amp; gift taxes increased by 14.2% while social insurance &amp; retirement receipts grew 5.7%.
U.S. net outlays grew 7.6% compared with the first eleven months of FY&#39;05. Defense spending (19% of total outlays) grew 6.0%. Medicare expenditures (12% of outlays) advanced 13.7% and social security spending (21% of outlays) rose 4.7%. Higher interest rates boosted the government&#39;s interest expense by 22.2% y/y to $212.9B so far this fiscal year.

<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/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$64.6B</td>
<td>-$33.2B</td>
<td>-$51.3B (8/05)</td>
<td>-$318.3B</td>
<td>-$412.7B</td>
<td>-$377.6B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$153.9B</td>
<td>$159.8B</td>
<td>-1.0%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$218.5B</td>
<td>$213.0B</td>
<td>5.7%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
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The August U.S. federal government budget deficit of $64.6B was double the July shortfall and deeper than August of last year. The figure compared favorably, however, to Consensus expectations for a $67.0B deficit, elevated due to [...]

U.S. Budget Deficit Deteriorated As Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914c.jpg" width="353">
Initial claims for jobless insurance fell 5,000 last week to 308,000, repeating a slightly revised decline during the prior week. Consensus expectations had been for 315,000 claims and filings were at the lowest level in nearly two months.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914d.jpg" width="353">
The four-week moving average of initial claims fell to 314,250 (-8.8% y/y), the lowest level in one month.
Continuing claims for unemployment insurance rose 18,000 following a downwardly revised 4,000 increase during the prior week.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Former Speaker of the House Newt Gingrich Addresses Terrorist Threats from the American Enterprise Institute can be found <a href="http://www.aei.org/publications/pubID.24895,filter.all/pub_detail.asp"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">9/09/06</th>
<th scope="col">9/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>308</td>
<td>313</td>
<td>-26.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,499</td>
<td>-3.4%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance fell 5,000 last week to 308,000, repeating a slightly revised decline during the prior week. Consensus expectations had been for 315,000 claims and filings were at the lowest level in nearly two [...]

Initial Claims for Jobless Insurance Fell Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914b.jpg" width="353">
In August, US retail sales rose a modest 0.2% following an unrevised July gain of 1.4%. Consensus expectations had been or a slight 0.1% decline.
Sales by motor vehicle &amp; parts dealers rose 0.4% (3.7% y/y) after a 4.3% surge in July.Behind the modest m/m gain was a 6.5% decline in unit vehicle sales to 16.06M, the lowest sales rate this year.
Excluding autos, retail sales also rose just 0.2% after a downwardly revised 0.6% July increase. Consensus expectations had been for nonauto retail sales to rise 0.3% last month.
Sales at gasoline stations also fell a hard 1.0% (+11.0% y/y) as gasoline prices fell during August 1.0% m/m to an average $2.95 per gallon. Gasoline prices have since fallen further to $2.62 per gallon last week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914a.jpg" width="353">
Less gasoline, nonauto retail sales rose 0.4% (7.0% y/y) after a downwardly revised 0.5% August increase.
Sales of discretionary items were moderate last month. Furniture, electronics &amp; appliances slipped 0.1% (+5.9% y/y) after July gain of 0.3% that was revised down from 1.2% reported initially. General merchandise stores rose 0.4% (4.9% y/y), better than the little-revised 0.2% July increase but apparel store sales fell 0.3% (+6.6% y/y). Sales of nonstore retailers (internet &amp; catalogue) rose 0.3% (12.5% y/y) after a little revised 2.1% July spike.
Building material sales increased 0.1% (8.2% y/y) after a 0.3% July gain that was revised down from 1.9% in the initial report.
Survey Says Families Are Digging Deeper into Debt from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/c/pages/digging.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>0.2%</td>
<td>1.4%</td>
<td>6.7%</td>
<td>7.2%</td>
<td>6.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.2%</td>
<td>0.6%</td>
<td>7.5%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


</html>

In August, US retail sales rose a modest 0.2% following an unrevised July gain of 1.4%. Consensus expectations had been or a slight 0.1% decline. Sales by motor vehicle & parts dealers rose 0.4% (3.7% y/y) after a 4.3% surge in [...]

U.S. Retail Sales Gain Light; Gasoline Prices Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914b.jpg" width="353">
In August, US retail sales rose a modest 0.2% following an unrevised July gain of 1.4%. Consensus expectations had been or a slight 0.1% decline.
Sales by motor vehicle &amp; parts dealers rose 0.4% (3.7% y/y) after a 4.3% surge in July.Behind the modest m/m gain was a 6.5% decline in unit vehicle sales to 16.06M, the lowest sales rate this year.
Excluding autos, retail sales also rose just 0.2% after a downwardly revised 0.6% July increase. Consensus expectations had been for nonauto retail sales to rise 0.3% last month.
Sales at gasoline stations also fell a hard 1.0% (+11.0% y/y) as gasoline prices fell during August 1.0% m/m to an average $2.95 per gallon. Gasoline prices have since fallen further to $2.62 per gallon last week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914a.jpg" width="353">
Less gasoline, nonauto retail sales rose 0.4% (7.0% y/y) after a downwardly revised 0.5% August increase.
Sales of discretionary items were moderate last month. Furniture, electronics &amp; appliances slipped 0.1% (+5.9% y/y) after July gain of 0.3% that was revised down from 1.2% reported initially. General merchandise stores rose 0.4% (4.9% y/y), better than the little-revised 0.2% July increase but apparel store sales fell 0.3% (+6.6% y/y). Sales of nonstore retailers (internet &amp; catalogue) rose 0.3% (12.5% y/y) after a little revised 2.1% July spike.
Building material sales increased 0.1% (8.2% y/y) after a 0.3% July gain that was revised down from 1.9% in the initial report.
Survey Says Families Are Digging Deeper into Debt from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/c/pages/digging.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>0.2%</td>
<td>1.4%</td>
<td>6.7%</td>
<td>7.2%</td>
<td>6.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.2%</td>
<td>0.6%</td>
<td>7.5%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Fell Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914c.jpg" width="353">
Initial claims for jobless insurance fell 5,000 last week to 308,000, repeating a slightly revised decline during the prior week. Consensus expectations had been for 315,000 claims and filings were at the lowest level in nearly two months.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914d.jpg" width="353">
The four-week moving average of initial claims fell to 314,250 (-8.8% y/y), the lowest level in one month.
Continuing claims for unemployment insurance rose 18,000 following a downwardly revised 4,000 increase during the prior week.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Former Speaker of the House Newt Gingrich Addresses Terrorist Threats from the American Enterprise Institute can be found <a href="http://www.aei.org/publications/pubID.24895,filter.all/pub_detail.asp"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">9/09/06</th>
<th scope="col">9/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>308</td>
<td>313</td>
<td>-26.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,499</td>
<td>-3.4%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
U.S. Budget Deficit Deteriorated As Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914e.jpg" width="353">
The August U.S. federal government budget deficit of $64.6B was double the July shortfall and deeper than August of last year. The figure compared favorably, however, to Consensus expectations for a $67.0B deficit, elevated due to calendar quirks.
The August shortfall pulled the eleven month fiscal year 2006 deficit to $304.3B, improved versus a deficit of $354.1B for the first eleven months of FY 2005.
The FY&#39;06 budget deficit estimate of $295.8B offered last month by the Office of Management &amp; Budget in its Mid-Session Review looks conservative. During the last several years the Gov&#39;t has run a surplus between $25B and $65B during September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914f.jpg" width="353">
Net revenues grew 11.7% versus the first eleven months of FY&#39;05. Individual income tax receipts (44% of total receipts) grew 12.4% as withheld taxes rose 7.9%, due to growth in employment, and non-withheld taxes surged 20.8%. Corporate income taxes (13% of total receipts) surged 29.0% as corporate profits grew. Estate &amp; gift taxes increased by 14.2% while social insurance &amp; retirement receipts grew 5.7%.
U.S. net outlays grew 7.6% compared with the first eleven months of FY&#39;05. Defense spending (19% of total outlays) grew 6.0%. Medicare expenditures (12% of outlays) advanced 13.7% and social security spending (21% of outlays) rose 4.7%. Higher interest rates boosted the government&#39;s interest expense by 22.2% y/y to $212.9B so far this fiscal year.

<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/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$64.6B</td>
<td>-$33.2B</td>
<td>-$51.3B (8/05)</td>
<td>-$318.3B</td>
<td>-$412.7B</td>
<td>-$377.6B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$153.9B</td>
<td>$159.8B</td>
<td>-1.0%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$218.5B</td>
<td>$213.0B</td>
<td>5.7%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
U.S. Import Prices Strong 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914k.jpg" width="353">
Total import prices rose 0.8% last month following an upwardly revised 1.0% increase during July. Consensus expectations had been for a 0.3% increase.
Less petroleum, import prices rose a firm 0.5%, the largest increase since May. Prices for nonoil industrial supplies &amp; materials more than recouped a July decline with a 1.8% (11.4% y/y) surge led by higher prices for paper (7.9% y/y), chemicals (3.4% y/y) and metals (38.6% y/y).
During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914j.jpg" width="353">
Capital goods prices rose 0.1% (-0.3% y/y) for the second month and rose 0.1% (1.9% y/y) excluding computers. Prices for nonauto consumer goods were unchanged (0.7% y/y) though prices for home entertainment equipment fell (-4.5% y/y). 
Prices of petroleum imports jumped 2.3% after the 5.1% spike during July. Brent crude oil prices were about unchanged at $73.40 per barrel in August but have since fallen to $62.48.
Export prices rose 0.4% for the second consecutive month led by a 1.0% increase agricultural (3.5% y/y) and a 0.4% (5.3% y/y) rise in nonagricultural commodities.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.8%</td>
<td>1.0%</td>
<td>6.6%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>2.3%</td>
<td>5.1%</td>
<td>24.3%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.5%</td>
<td>0.0%</td>
<td>2.7%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.4%</td>
<td>0.4%</td>
<td>5.2%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
U.S. Business Inventory Accumulation Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914l.jpg" width="353">
In July, total business inventories rose 0.6% following an upwardly revised 0.9% June gain. Consensus expectations had been for a 0.5% increase. That combination left the inventory to sales ratio stable m/m at 1.26, up from its low in May of 1.25. 
Retail inventories rose 0.4% led by a 0.5% (15.3% y/y) surge in motor vehicles &amp; parts. Excluding autos, retail inventories rose 0.3% (4.5% y/y). Furniture inventories moved up 4.9% y/y, while building materials inventories grew 8.7%. Clothing store inventories rose 5.5% y/y but inventories of general merchandise grew just 1.2%.
Wholesale inventories increased another 0.8% (8.8% Y/Y) in July led by a 1.2% (25.0% y/y) gain in petroleum inventories. Durables rose 9.2% y/y. 
Factory inventories rose 0.6% (5.7% y/y), the fastest y/y rate of accumulation in a year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.6%</td>
<td>0.9%</td>
<td>7.4%</td>
<td>4.4%</td>
<td>7.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.4%</td>
<td>0.9%</td>
<td>7.8%</td>
<td>2.7%</td>
<td>6.7%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.1%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.8%</td>
<td>0.8%</td>
<td>8.8%</td>
<td>7.1%</td>
<td>9.8%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.6%</td>
<td>0.9%</td>
<td>5.7%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
</tbody>
</table>
Labor Force and Employment Gains Strong in Australia; Unemployment Hovers Near Record Low 
by <a href="/comment/Stone.html">Carol Stone</a> September 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914g.jpg" width="353">
Employment in Australia rose 23,400 in August from July and has increased every month for the last ten. The year-on-year growth is just 2%, but the 10-month advance has occurred at a 3.2% annualized pace, similar to the 2005 performance.
This employment growth is strong enough to absorb sizable increases in labor force participation and still set record low unemployment rates. Unemployment stood at 4.9% of the labor force in August after touching 4.8% in July; until last August, it had never been as low as 5.0%. The rise in the participation rate includes an upturn among male workers since August 2004 after a secular decline that extends back almost continuously to the beginning of the data series in 1978. The participation rate for women continues to trend gradually higher.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914h.jpg" width="353">
These broad labor force aggregates for Australia were published a week ago. Today, September 14, the Australian Bureau of Statistics published greater detail, including &quot;quarterly&quot; industry data. These industry data depart from the common use of the term quarterly; they are not averages or totals but figures that are simply collected only once a quarter, in the mid-month. Thus are &quot;third quarter&quot; readings already available before the actual end of the period. And in our table below, we show the whole array of data with their mid-month of quarter values to facilitate comparison.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060914i.jpg" width="353">
As in many &quot;industrial&quot; countries, Australia&#39;s manufacturing sector employment is lagging. However, the latest value, 1,054 persons, is ahead of the year-ago level by 13,000, marking the first year-on-year increase in six quarters. The mining sector seems small with only 139,000 employed in August, but it has been a source of growth particularly in metal ores. We mentioned this general characteristic of the Australian economy a couple of weeks ago (September 1) regarding movements in commodity prices there. Construction is growing vigorously, along with several service industries, especially property &amp; business services and health &amp; community services. Not shown in our table is a spurt in government employment, up 35,700 in the latest quarter, but this reflects temporary hiring for the 2006 Australian census. It will be important to check on Australian labor market conditions after the census has been taken and those temporary employees finish their assignments. ABS suggests that they have not inflated employment totals because many have other jobs already. Stay tuned to see how that plays out.

<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/ANZ/@A1/@A106/@A106.HTM">Australia Labor Force*</a></th>
<th scope="col">Q3 2006 (Aug)</th>
<th scope="col">Q2 2006 (May)</th>
<th scope="col">Q3 2005 (Aug)</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Employment (000s)</td>
<td>10,265</td>
<td>10,143</td>
<td>10,067</td>
<td>9,987</td>
<td>9,677</td>
<td>9,481</td>
</tr>
<tr>
<td class="firstcol">Unemployment (000s)</td>
<td>524</td>
<td>523</td>
<td>532</td>
<td>537</td>
<td>567</td>
<td>611</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.9</td>
<td>4.9</td>
<td>5.0</td>
<td>5.1</td>
<td>5.5</td>
<td>6.1</td>
</tr>
<tr>
<td class="firstcol">Participation Rate (%)</td>
<td>65.1</td>
<td>64.5</td>
<td>64.8</td>
<td>64.4</td>
<td>63.6</td>
<td>63.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Select Industries (000s)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>139</td>
<td>133</td>
<td>130</td>
<td>121</td>
<td>103</td>
<td>90</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>1,054</td>
<td>1,060</td>
<td>1,041</td>
<td>1,070</td>
<td>1,089</td>
<td>1,082</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>899</td>
<td>888</td>
<td>870</td>
<td>867</td>
<td>802</td>
<td>755</td>
</tr>
<tr class="odd">
<td class="firstcol">Property &amp; Business Services</td>
<td>1,233</td>
<td>1,196</td>
<td>1,197</td>
<td>1,171</td>
<td>1,108</td>
<td>1,112</td>
</tr>
<tr>
<td class="firstcol">Health &amp; Community Services</td>
<td>1,072</td>
<td>1,089</td>
<td>1,023</td>
<td>1,013</td>
<td>981</td>
<td>932</td>
</tr>
</tbody>
</table>


</html>

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

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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.

250501Z5.jpg

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

250501Z6.jpg

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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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

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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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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

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

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: September 2006

Jump to:

U.S. Current Account Deficit Eases in Q2

Labor Force and Employment Gains Strong in Australia; Unemployment Hovers Near Record Low

U.S. Business Inventory Accumulation Up

U.S. Import Prices Strong

U.S. Budget Deficit Deteriorated As Expected

Initial Claims for Jobless Insurance Fell Unexpectedly

U.S. Retail Sales Gain Light; Gasoline Prices Fell

U.S. Retail Sales Gain Light; Gasoline Prices Fell