Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116d.jpg" align="left" border="0" height="265" width="353">
The UK economy continues to be a bit enigmatic. Unemployment
is still declining. Economic activity seems to blow and cold. The
financial chaos is threatening to take Northern Rock into the public
domain. The economy is clearly battered but at the same it shows some
resilience and that goes for some of its inflation measures as well&#8230;but
not so those for house prices. The RICS survey on housing prices finds
that the breadth of price declines is increasing. The current reading
on prices, price expectations and sales expectations are all on
lifetime lows for those series, respectively. New sales are weak but
comparatively seem full of life in the bottom 23 percent of their range
(ranges since 1999). Both Price and price expectations are on extreme
down legs of their respective cycles. And even with the new lifetime
lows neither shows any sign of slowing down it pace of descent. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> RICS:
House prices and expectations for prices and sales</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo Avg</td>
<td>6-Mo Avg</td>
<td>12-Mo Avg</td>
<td>Range 
Percentile</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>-49</td>
<td>-41</td>
<td>-24</td>
<td>-38</td>
<td>-20</td>
<td>2</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Price Expectations</td>
<td>-62</td>
<td>-48</td>
<td>-36</td>
<td>-49</td>
<td>-32</td>
<td>-10</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Sales expectations</td>
<td>-19</td>
<td>-8</td>
<td>-6</td>
<td>-11</td>
<td>-9</td>
<td>3</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">New Sales</td>
<td>-21</td>
<td>-35</td>
<td>-32</td>
<td>-29</td>
<td>-26</td>
<td>-13</td>
<td>23.0%</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">Range
percentile takes range back to
1999</td>
</tr>
</tbody>
</table>
</body></html>

The UK economy continues to be a bit enigmatic. Unemployment is still declining. Economic activity seems to blow and cold. The financial chaos is threatening to take Northern Rock into the public domain. The economy is clearly [...]

RICS Survey Takes an Ongoing Dive

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116a.jpg" width="353">
The consumer price index (CPI-U) last month rose 0.3%. The increase was slightly ahead of expectations for a 0.2% rise. It was well below the heightened 0.8% November jump and equal to the gains of the prior two months, Nevertheless, the Dec/Dec gain of 4.1% was the fastest since a 6.3% spike in 1990.
Consumer price inflation less food &amp; energy in December dropped slightly to 0.2% from November&#39;s gain of 0.3%. The rise equaled the increases during the prior five months and matched Consensus expectations. The Dec/Dec increase of 2.4% was down from the 2006 rise of 2.6% but up from the four years prior.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116b.jpg" width="353">
A Comparison of Measures of Core Inflation from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/07v13n3/0712rich.pdf">here</a>.
Tobacco prices provided oomph to December costs with a 0.8% (7.5% y/y) rise, but not enough to much influence the overall price picture. Less tobacco, core consumer prices rose 0.2% 2.4% (y/y)
Energy prices decelerated last month to a 0.9% increase from the 5.9% November rise. The deceleration was not enough, however, to keep the Dec/Dec rise from outpacing all increases since 1990. Gasoline prices rose another firm 1.1% (29.6% y/y) after November&#39;s 9.3% spike and the weekly data already show a 2.4% m/m rise in January. Prices for fuel oil &amp; other fuels rose 2.0% (28.4% y/y) and natural gas &amp; electricity prices increased 0.5% (3.5% y/y).
Food &amp; beverage prices were unchanged m/m but again the y/y story is one of acceleration, in this case sharp acceleration. The 4.8% Dec/Dec gain was the quickest since 1990. Though prices of dairy products slipped 0.4% last month, the Y/Y rise of 13.4% was the fastest since a 22.6% spike during 1973. Prices for fruits &amp; vegetable fell 0.4% (+5.9% y/y) and but prices for meats, poultry &amp; fish fell 0.1% (+5.3% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116c.jpg" width="353">
Core goods prices were unchanged and the 0.1% rise was the weakest since 2004. Apparel prices rose 0.2% last month but fell 0.3% y/y. The pattern was the same for prices of new &amp; used motor vehicles which rose 0.1% during December but fell 0.1% y/y. Prices of household furnishings &amp; operation were unchanged and fell 0.8% y/y.
Core services prices rose 0.3% (3.3% y/y) for the second month. Shelter prices increased 0.3% (3.1% y/y) and the y/y gain was down from 4.1 during 2006. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.3%, reducing the y/y gain to 2.8% y/y. The Y/Y rise was down from 4.3% in 2006. Public transportation prices popped again, last month by 1.2% (7.2% y/y) and medical care services prices rose 0.3% (5.9% y/y). Tuition rose 0.5% (5.4% y/y), though the firm y/y gain was the weakest since 2001. 
The chained CPI, which adjusts for shifts in the mix of consumer purchases fell 0.1% (+3.4% y/y) and the core measure also fell 0.1%. This latter measure is similar to the core PCE price index but its treatment of housing price differs

<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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Dec Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.3%</td>
<td>0.8%</td>
<td>0.3%</td>
<td>4.1%&nbsp;</td>
<td>2.9%</td>
<td>3.2%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%&nbsp;</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>0.1%&nbsp;</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.3%&nbsp;</td>
<td>3.4%</td>
<td>3.4%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>0.9%</td>
<td>5.7%</td>
<td>1.4%</td>
<td>17.5%&nbsp;</td>
<td>5.6%</td>
<td>11.1%</td>
<td>16.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>4.8%&nbsp;</td>
<td>3.9%</td>
<td>2.3%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.4%</td>
<td>2.5%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>2.3%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>


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The consumer price index (CPI-U) last month rose 0.3%. The increase was slightly ahead of expectations for a 0.2% rise. It was well below the heightened 0.8% November jump and equal to the gains of the prior two months, Nevertheless, [...]

U.S. CPI Total & Core Tame

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116a.jpg" align="left" border="0" height="265" width="353">
The consumer price index (CPI-U) last
month rose 0.3%. The increase was slightly ahead of expectations for a
0.2% rise. It was well below the heightened 0.8% November jump and
equal to the gains of the prior two months, Nevertheless, the Dec/Dec
gain of 4.1% was the fastest since a 6.3% spike in 1990.
Consumer price inflation less food
&amp; energy in December dropped slightly to 0.2% from November's
gain of 0.3%. The rise equaled the increases during the prior five
months and matched Consensus expectations. The Dec/Dec increase of 2.4%
was down from the 2006 rise of 2.6% but up from the four years prior.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116b.jpg" align="right" border="0" height="265" width="353">
A Comparison of Measures of Core Inflation
from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/07v13n3/0712rich.pdf">here</a>.
Tobacco prices provided oomph to December costs with a 0.8%
(7.5% y/y) rise, but not enough to much influence the overall price
picture. Less tobacco, core consumer prices rose 0.2% 2.4% (y/y)
Energy prices decelerated last month to a
0.9% increase from the 5.9% November rise. The deceleration was not
enough, however, to keep the Dec/Dec rise from outpacing all increases
since 1990. Gasoline prices rose another firm 1.1% (29.6% y/y) after
November's 9.3% spike and the weekly data already show a 2.4% m/m rise
in January. Prices for fuel oil &amp; other fuels rose 2.0% (28.4%
y/y) and natural gas &amp; electricity prices increased 0.5% (3.5%
y/y).
Food &amp; beverage prices were
unchanged m/m but again the y/y story is one of acceleration, in this
case sharp acceleration. The 4.8% Dec/Dec gain was the quickest since
1990. Though prices of dairy products slipped 0.4% last month, the Y/Y
rise of 13.4% was the fastest since a 22.6% spike during 1973. Prices
for fruits &amp; vegetable fell 0.4% (+5.9% y/y) and but prices for
meats, poultry &amp; fish fell 0.1% (+5.3% y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116c.jpg" align="left" border="0" height="265" width="353">
Core goods prices were unchanged and the
0.1% rise was the weakest since 2004. Apparel prices rose 0.2% last
month but fell 0.3% y/y. The pattern was the same for prices of new
&amp; used motor vehicles which rose 0.1% during December but fell
0.1% y/y. Prices of household furnishings &amp; operation were
unchanged and fell 0.8% y/y.
Core services prices rose 0.3% (3.3% y/y)
for the second month. Shelter prices increased 0.3% (3.1% y/y) and the
y/y gain was down from 4.1 during 2006. Owners equivalent rent of
primary residence, a measure not equivalent to other house price
measures, rose 0.3%, reducing the y/y gain to 2.8% y/y. The Y/Y rise
was down from 4.3% in 2006. Public transportation prices popped again,
last month by 1.2% (7.2% y/y) and medical care services prices rose
0.3% (5.9% y/y). Tuition rose 0.5% (5.4% y/y), though the firm y/y gain
was the weakest since 2001. 
The chained CPI, which adjusts for shifts
in the mix of consumer purchases fell 0.1% (+3.4% y/y) and the core
measure also fell 0.1%. This latter measure is similar to the core PCE
price index but its treatment of housing price differs


<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/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Dec Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.3%</td>
<td>0.8%</td>
<td>0.3%</td>
<td>4.1%&nbsp;</td>
<td>2.9%</td>
<td>3.2%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%&nbsp;</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.0%</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>0.1%&nbsp;</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; Services
less Energy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.3%&nbsp;</td>
<td>3.4%</td>
<td>3.4%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>0.9%</td>
<td>5.7%</td>
<td>1.4%</td>
<td>17.5%&nbsp;</td>
<td>5.6%</td>
<td>11.1%</td>
<td>16.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>4.8%&nbsp;</td>
<td>3.9%</td>
<td>2.3%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.4%</td>
<td>2.5%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>2.3%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
U.S. Industrial Production
Unchanged in Dec. A Recession Begun? 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 16, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116e.jpg" align="left" border="0" height="265" width="353">
Industrial production was unchanged last month, a bit better
than the expected slight decline. That followed an unrevised 0.3%
November rise. For all of last year, the 1.6% increase in output was
the weakest since 2003.
The latest output level is, however, 0.8% below its July peak
and a move below peak historically has been associated with an economic
recession. Has one begun? Other coincident economic indicators suggest
not. Employment is up. Business sales are up. And income, though weak,
is up.
Factory output also was unchanged after an unrevised 0.3%
November increase. Three month growth in output fell to -1.4% (AR) and
the latest level was 0.8% below its July peak.
Production in the motor vehicle &amp; parts industries
fell 0.4% and output was 5.2% below its July peak. The decline in
output of furniture &amp; related products was strong at -1.3%
(-2.3% y/y) and it was 2.8% below peak. Output of construction supplies
fell for the sixth consecutive month. The 0.9% (-2.2% y/y) drop pulled
output 2.6% below its June peak.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116f.jpg" align="right" border="0" height="265" width="353">
Elsewhere in the consumer goods sector output was firmer.
Production of computers &amp; electronics slipped 0.2% but was up
13.1% y/y. Output of apparel jumped 1.7% but remained down 1.5% y/y)
Output of business equipment rose a solid 0.9% (2.4% y/y).
Output of information &amp; processing equipment rose 0.5% (8.2%
y/y) after a 2.1% November surge. Output of industrial equipment rose
0.4% (-0.8% y/y).
In the materials category output fell 0.3% but it was up 2.3%
for the year. Production of durable consumer parts slipped 0.3% (+2.3
y/y). Production of durable equipment parts fell 0.4% (+3.7% y/y) but
consumer durable parts output (-2.7% y/y) fell for the fourth month in
five.
Capacity utilization fell to 81.4% from a revised 81.4% and
that was below the 2007 average of 81.6% which was down a bit from
81.7% in 2006. Utilization in the factory sector slipped more decidedly
to 79.7% from its 207 average of 80.1% and from its July peak of 81.0%.
Capacity grew 1.8% last year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total</td>
<td>0.0%</td>
<td>0.3%</td>
<td>1.6%</td>
<td>1.9%</td>
<td>4.0%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Manufacturing</td>
<td>0.0%</td>
<td>0.3%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>4.7%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
U.S. NAHB Housing Market Index
Remained Low, Down Hard Out West 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 16, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116g.jpg" align="left" border="0">
For January, the Composite Housing Market Index from the
National Association of Home Builders' (NAHB) remained low versus a
December reading that was revised up slightly.
The index was stable in the Northeast (-47.4 % y/y) but fell
sharply in the West (-60.6% y/y). It rose slightly m/m in the South
(-43.9 y/y and in the Midwest (-29.2% y/y).
During the last twenty years there has been a 76% correlation
between the y/y change in the Composite Index and the change in single
family housing starts. 
 

The sub-index from the NAHB for current sales Nationwide was
stable m/m and remained down 76% from the 2004 high.
The sub-index covering prospective sales in the next
six months ticked up slightly for the second month.
Traffic of prospective home buyers virtually dried up and
remained down three quarters 2005 high.
The NAHB index is a diffusion index based on a survey of
builders. Readings above 50 signal that more builders view conditions
good than poor. 
 

Visit the <a href="http://www.nahb.org">National
Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">January</th>
<th scope="col">December
&nbsp;</th>
<th scope="col">Jan. '07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>19</td>
<td>18</td>
<td>35</td>
<td>27</td>
<td>42</td>
<td>67</td>
</tr>
</tbody>
</table>
RICS Survey Takes an Ongoing Dive by <a href="/comment/Brusca.html">Robert
Brusca</a> January 16, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080116d.jpg" align="left" border="0" height="265" width="353">
The UK economy continues to be a bit enigmatic. Unemployment
is still declining. Economic activity seems to blow and cold. The
financial chaos is threatening to take Northern Rock into the public
domain. The economy is clearly battered but at the same it shows some
resilience and that goes for some of its inflation measures as well&#8230;but
not so those for house prices. The RICS survey on housing prices finds
that the breadth of price declines is increasing. The current reading
on prices, price expectations and sales expectations are all on
lifetime lows for those series, respectively. New sales are weak but
comparatively seem full of life in the bottom 23 percent of their range
(ranges since 1999). Both Price and price expectations are on extreme
down legs of their respective cycles. And even with the new lifetime
lows neither shows any sign of slowing down it pace of descent. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> RICS:
House prices and expectations for prices and sales</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo Avg</td>
<td>6-Mo Avg</td>
<td>12-Mo Avg</td>
<td>Range 
Percentile</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>-49</td>
<td>-41</td>
<td>-24</td>
<td>-38</td>
<td>-20</td>
<td>2</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Price Expectations</td>
<td>-62</td>
<td>-48</td>
<td>-36</td>
<td>-49</td>
<td>-32</td>
<td>-10</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Sales expectations</td>
<td>-19</td>
<td>-8</td>
<td>-6</td>
<td>-11</td>
<td>-9</td>
<td>3</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">New Sales</td>
<td>-21</td>
<td>-35</td>
<td>-32</td>
<td>-29</td>
<td>-26</td>
<td>-13</td>
<td>23.0%</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">Range
percentile takes range back to
1999</td>
</tr>
</tbody>
</table>
</body></html>

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115f.jpg" align="left" border="0" height="265" width="353">
Continued strength of the euro and now fears of recession in the
United States are taking their toll on the confidence of German
institutional investors and financial analysts as shown by the ZEW's
(Center for European Research at Mannheim) Indicator of Economic
Sentiment. The indicator measures the percent difference between those
who expect improvement and those who expect a deterioration in the six
months' outlook and current conditions.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115f.jpg" align="right" border="0" height="265" width="353">
The excess of pessimists over optimists regarding the outlook for
the next six months rose 4.4 points to 41.6% in January from 37.2% in
December and is now at the lowest point since the early nineties. The
excess of optimists over pessimists regarding current conditions
declined 6.9 points to 56.6% from 63.5% in December. This suggests
that, although they are losing confidence in the current conditions,
the financial community still believes that current conditions in
Germany are much better than they have been in some time. The ZEW
indicators for the six months' outlook and current conditions are shown
in the first chart. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115f.jpg" align="left" border="0" height="265" width="353">
In addition to its Indicator of Economic Sentiment, the ZEW also
publishes its participants' profit expectations for the next six months
for selected industries. These profit expectations give some
insight into the specific concerns underlying the general pessimism of
the participants. In the latest survey, for example, participants
expected some of the biggest declines in profits in the vehicle
(automotive), machinery and chemicals/pharmaceuticals industries--all
dependent on overseas demand that is threatened by the strong euro and
consumption and trade, dependent on the German consumer, whose
propensity to consume remains lackluster. Profit expectations in these
industries are shown in the second chart.
Participants in the January survey apparently expected some slight
improvement in the profits of the depressed financial and insurance
sectors and in the volatile construction industry. The only industry
where profit expectations increased in the month and were above January
2007 was the service industry. The improvement in profit expectations
in these four industries, shown in the third chart, was not large
enough to offset the deterioration in the profit expectations in the
other industries. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW&nbsp; (CENTER FOR EUROPEAN ECONOMIC RESEARCH)&nbsp;</th>
<th scope="col">Jan 08</th>
<th scope="col">Dec 07&nbsp;</th>
<th scope="col">Jan 07&nbsp;</th>
<th scope="col">M/M % Dif&nbsp;</th>
<th scope="col">Y/Y % Dif&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Indicator of Economic Sentiment (% balance)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>56.6</td>
<td>63.5</td>
<td>70.6</td>
<td>-6.9</td>
<td>-14.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Outlook 6 Months Ahead</td>
<td>-41.6</td>
<td>-37.2</td>
<td>-3.6</td>
<td>-4.4</td>
<td>-38.0</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;Profit Expectation 6 Months Ahead</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>29.3</td>
<td>22.9</td>
<td>7.6</td>
<td>6.4</td>
<td>21.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-17.9</td>
<td>-20.3</td>
<td>32.8</td>
<td>2.4</td>
<td>-50.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Banking&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>-56.8</td>
<td>-61.0</td>
<td>38.7</td>
<td>4.2</td>
<td>-95.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Insurance</td>
<td>-23.2</td>
<td>-30.8</td>
<td>38.1</td>
<td>7.6</td>
<td>-61.3</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp;Vehicles (automotive)</td>
<td>-30.7</td>
<td>-16.0</td>
<td>6.6</td>
<td>-14.7</td>
<td>-37.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Machinery</td>
<td>26.6</td>
<td>33.5</td>
<td>57.7</td>
<td>-6.9</td>
<td>-30.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer/Trade</td>
<td>-9.1</td>
<td>2.9</td>
<td>-2.0</td>
<td>-12.0</td>
<td>-7.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Chemical/Pharmaceutical</td>
<td>17.2</td>
<td>20.8</td>
<td>33.3</td>
<td>-3.6</td>
<td>-16.1</td>
</tr>
</tbody>
</table>
</body></html>

Continued strength of the euro and now fears of recession in the United States are taking their toll on the confidence of German institutional investors and financial analysts as shown by the ZEW's (Center for European Research at [...]

No Surprise: Sentiment Among German Investors and Analysts Falls

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115i.jpg" align="left" border="0" height="265" width="353">
Inflation is above the ECB top allowed mark in seven of nine
early reporters in December, nearly 80% if them. Through November, 92%
of the central 12 members of EMU have inflation running over 2%. That
compares to 80% in October and 50% in September 2007. From September
2006 to September 2007 headline inflation was at or below 2% in most of
these countries. But prior to September 2006 above 2% inflation rates
were more common in Euro Area member countries. 
 

As for Core inflation, in November the core HICP was rising in
9 of 12 key EMU countries (75%). In October the core rate was above 2%
in 66% of these countries and in September 50%. Before that, from
September 2006 through April 2007, that percentage stayed pretty much
at 42% with one tick up in the proportion to 50%. 
 

The Core HICP for EMU did not go up above 2% until recently,
in Sept. 2007. But the headline inflation rate is another story. Since
February 2006, the headline HICP has exceeded 2%; in 19 of those 23
months. The core rate was up in 10 of those 22 months (a December HICP
core is not yet available). 
 

This is why the ECB is nervous. There has been a long run of
the HICP above 2% while the core has only moved up there again,
recently and somewhat sporadically. Core inflation is moving up now
with two of the Big Three EMU economies (Germany and Italy) posting
core rates above 2%. Only France, The Netherlands and Finland have core
inflation persistently holding below the 2% mark. 
 

While there is a debate about how much Europe will slow, and
there is a strong euro in place to help fight inflation, the ECB is
concerned about the structural entrenchment of inflation above 2%.
Above 2% inflation in the core, although the ECB does not exactly say
it that way, has become a problem. Just as inflation has gotten a bit
more worrisome, concerns about growth have escalated as well. This
leaves the ECB in no man&#8217;s land. Its response has been to take a harder
rhetorical line against inflation. We&#8217;ll see if there is anything more
to it than that in the coming months. 
 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Euro Area
&amp; Friends: Headline Inflation Yr/Yr and
trends
</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Year/year</td>
<td colspan="2">Mo/Mo</td>
<td>3-Mo:AR</td>
<td>6Mo:AR</td>
</tr>
<tr class="grey2">
<td class="firstcol">Core HICP</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
</tr>
<tr>
<td class="firstcol">Belgium</td>
<td style="color: red;">3.1%</td>
<td style="color: red;">2.9%</td>
<td style="color: red;">2.2%</td>
<td>0.5%</td>
<td>1.0%</td>
<td style="color: red;">9.1%</td>
<td style="color: red;">5.1%</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>2.0%</td>
<td style="color: red;">2.2%</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>0.6%</td>
<td style="color: red;">2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td style="color: red;">2.8%</td>
<td style="color: red;">2.6%</td>
<td style="color: red;">2.1%</td>
<td>0.4%</td>
<td>0.8%</td>
<td style="color: red;">6.0%</td>
<td style="color: red;">3.9%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td style="color: red;">3.1%</td>
<td style="color: red;">3.3%</td>
<td style="color: red;">2.7%</td>
<td>-0.2%</td>
<td>0.9%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">3.3%</td>
</tr>
<tr>
<td class="firstcol">Greece</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.9%</td>
<td style="color: red;">3.1%</td>
<td>0.1%</td>
<td>1.0%</td>
<td style="color: red;">6.1%</td>
<td style="color: red;">5.6%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td style="color: red;">2.7%</td>
<td style="color: red;">2.5%</td>
<td style="color: red;">2.3%</td>
<td>0.4%</td>
<td>0.3%</td>
<td style="color: red;">5.5%</td>
<td style="color: red;">3.5%</td>
</tr>
<tr>
<td class="firstcol">Luxembourg</td>
<td style="color: red;">4.3%</td>
<td style="color: red;">4.0%</td>
<td style="color: red;">3.6%</td>
<td>0.5%</td>
<td>0.7%</td>
<td style="color: red;">7.6%</td>
<td style="color: red;">4.0%</td>
</tr>
<tr>
<td class="firstcol">The Netherlands</td>
<td>1.6%</td>
<td>1.8%</td>
<td>1.6%</td>
<td>0.1%</td>
<td>0.5%</td>
<td style="color: red;">3.9%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td style="color: red;">4.3%</td>
<td style="color: red;">4.1%</td>
<td style="color: red;">3.7%</td>
<td>0.6%</td>
<td>0.8%</td>
<td style="color: red;">8.3%</td>
<td style="color: red;">5.2%</td>
</tr>
<tr class="odd">
<td colspan="4" class="firstcol">EU:
Other HICP/CPI</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td style="color: red;">&nbsp;</td>
<td style="color: red;">&nbsp;</td>
</tr>
<tr>
<td class="firstcol">UK (HICP)</td>
<td style="color: red;">2.1%</td>
<td style="color: red;">2.1%</td>
<td style="color: red;">2.0%</td>
<td>0.3%</td>
<td>0.4%</td>
<td style="color: red;">4.7%</td>
<td style="color: red;">2.1%</td>
</tr>
</tbody>
</table>
</body></html>

Inflation is above the ECB top allowed mark in seven of nine early reporters in December, nearly 80% if them. Through November, 92% of the central 12 members of EMU have inflation running over 2%. That compares to 80% in October and [...]

HICP is Rising in Many ECB Countries

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115e.jpg" width="353">
Total business inventory accumulation continued to moderate and rose 0.4% during November. The three month change in inventories of 3.9 (AR) is less than half the rate of accumulation in mid-2006. 
Retail inventories fell 0.1% as inventories excluding autos dropped 0.4% (+2.9% y/y). That y/y rate of accumulation is nearly half the rate last year. Furniture inventories fell 0.5% (+5.5% y/y) and the three month change continued too strong at 12.9% (AR). At clothing &amp; accessory stores inventories fell 0.2% and the three month was quite under control at a manageable -1.7%. Inventories at general merchandise stores also were under control and fell 1.8% in November. Three month growth fell to a negative 4.7%.
Wholesale inventories jumped 0.6% as petroleum inventories surged 2.6% lifting the three month change to 31.9% (AR). During the last ten years there has been a 59% correlation between the annual change in wholesale inventories les petroleum and the change in merchandise imports.
Factory inventories jumped 0.8% and three month growth of 6.2% is well up from being little changed early this 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">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.5%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>6.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>-0.4%</td>
<td>0.6%</td>
<td>2.9%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.6%</td>
<td>-0.0%</td>
<td>4.3%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>9.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.8%</td>
<td>0.2%</td>
<td>2.9%</td>
<td>6.4%</td>
<td>8.9%</td>
<td>7.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Total business inventory accumulation continued to moderate and rose 0.4% during November. The three month change in inventories of 3.9 (AR) is less than half the rate of accumulation in mid-2006. Retail inventories fell 0.1% as [...]

U.S. Business Inventories' Accumulation Still Slowing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115c.jpg" width="353">
Finished producer prices retreated 0.1% last month after the 3.2% surge during November. The decline compared with an expectation for a 0.2% gain. A 0.2% gain in core producer prices matched expectations.
Energy prices fell 1.9% (+20.4% y/y) after the 14.1% surge in November. Gasoline prices fell 4.8% (+36.8% y/y) following the one-third rise in prices during November. Home heating oil prices were essentially unchanged (30.9% y/y) but that also followed a near one-third November surge. Natural gas prices fell for the third straight month and ticked down 0.1% (-1.3% y/y).
Finished consumer food prices were strong again and rose 1.1% (7.4% y/y) for the third 1.0%+ gain in the last four months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115d.jpg" width="353">
Prices of finished consumer goods (incl. energy) fell 0.1% (+8.4% y/y) after a 4.0% November increase. Capital equipment prices rose 0.1% (1.3% y/y) after the 0.3% November increase. Prices for light trucks fell 0.3% (-0.9% y/y) following the 2.3% November jump.
Intermediate goods prices ticked down 0.2% after the 3.7% November surge as some of the earlier strength in energy prices backpedaled. Excluding food &amp; energy prices were unchanged after the 1.0% November pop.
The gain in the crude materials PPI eased to 1.0% following the 8.7% November surge. Crude energy materials prices fell 0.7% (+17.1% y/y). The core crude materials PPI fell slightly as prices for copper (+1.2% y/y) and aluminum (-5.8% y/y) base scrap fell.
Why Do Gasoline Prices React to Things That Have Not Happened? from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2007/c/pages/gas-prices.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.1%</td>
<td>3.2%&nbsp;</td>
<td>6.8%&nbsp;</td>
<td>3.9%</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>0.4%</td>
<td>&nbsp;2.1%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.2%</td>
<td>3.7%</td>
<td>7.5%</td>
<td>4.1%</td>
<td>6.4%</td>
<td>&nbsp;8.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.0%</td>
<td>1.0%</td>
<td>3.3%</td>
<td>2.8%</td>
<td>6.0%</td>
<td>&nbsp;5.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>1.0%</td>
<td>&nbsp;8.7%&nbsp;</td>
<td>&nbsp;20.3%</td>
<td>12.2%</td>
<td>1.4%</td>
<td>14.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.0%</td>
<td>-0.5%</td>
<td>&nbsp;16.9%</td>
<td>15.8%</td>
<td>20.9%</td>
<td>4.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Finished producer prices retreated 0.1% last month after the 3.2% surge during November. The decline compared with an expectation for a 0.2% gain. A 0.2% gain in core producer prices matched expectations. Energy prices fell 1.9% [...]

U.S. PPI Eased

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115a.jpg" width="353">
U.S. retail sales fell 0.4% last month and missed expectations for no change. November&#39;s gain was revised down slightly to 1.0% and the October figure also was revised down slightly to no change.
Excluding autos sales similarly fell short of expectations for no change and fell 0.4% after slight downward revisions during the prior two months.
Less gasoline &amp; autos, sales fell 0.2% and prior months&#39; results were taken down.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080115b.jpg" width="353">
Sales of discretionary items gave back much of their strong November increases. Apparel store sales fell 2.0% (+1.7% y/y) and the prior month was revised down to a 1.6% increase. Furniture, home furnishings &amp; appliance store sales also fell 0.6% (+1.3% y/y) and gave back roughly half of a 1.5% November rise that was taken down slightly. Sales of electronics &amp; appliances fell 1.9% but the prior month&#39;s spurt was revised up to 3.3%. Sales at general merchandise stores rose 0.3% (3.8% y/y) and November&#39;s gain was unrevised at 0.9%.
Food &amp; beverage store sales which totaled $49.1B rose 0.7% (6.0% y/y). Restaurant &amp; drinking place sales of $38.1B rose 0.2% (2.2% y/y).
During December sales of building materials fell 2.9% (-3.4% y/y). It was the largest decline of four during the last five months.
Sales of nonstore retailers (internet &amp; catalogue) rose 1.0% (12.1% y/y) and the prior month&#39;s surge was revised up to 2.1%.
Motor vehicle &amp; parts purchases fell 0.4% (-0.1% y/y). The decline was in line with the 0.4% gain in unit sales of light vehicles last month.
Housing, Credit and Consumer Expenditure from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/publicat/sympos/2007/PDF/2007.09.17.Muellbauer.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">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.4%</td>
<td>1.0%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>6.2%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>5.2%</td>
<td>4.6%</td>
<td>7.3%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>-0.2%</td>
<td>0.9%</td>
<td>3.5%</td>
<td>4.3</td>
<td>7.2%</td>
<td>6.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

U.S. retail sales fell 0.4% last month and missed expectations for no change. November's gain was revised down slightly to 1.0% and the October figure also was revised down slightly to no change. Excluding autos sales similarly fell [...]

U.S. Retail Sales Miss Expectations

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

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

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

In the **establishment survey**, private-sector employment rose 167,000 (1.2% y/y) after a 170,000 March increase. Factory sector jobs edged 1,000 lower (-0.7% y/y) following a 3,000 gain. Construction sector employment increased 11,000 (1.7% y/y), after rising 7,000 in March.

Private service-producing sector employment increased 156,000 (1.4% y/y) in April after improving 161,000 in March. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 70,000 (3.4% y/y) last month following a 74,000 March increase. Leisure & hospitality employment rose 24,000 (1.3% y/y) after a 38,000 gain. Trade, transportation & utilities rose 32,000 (0.9% y/y) in April following a 25,000 March increase. Professional & business services employment rose 17,000 (-0.1% y/y) following a 3,000 rise while temporary help employment rose 3,600 (-3.9% y/y) following a 2,700 decline. Financial activities employment improved 14,000 (1.2% y/y) after a 6,000 gain. The number of information sector jobs held steady (-0.4% y/y) last month after falling 2,000 in March.

Government sector payrolls rose 10,000 (1.3% y/y) last month after increasing 15,000 in March. The number of local government jobs increased 13,000 (1.4% y/y) following a 17,000 gain. State government employment rose 6,000 (1.8% y/y) following a 2,000 March increase but federal government payrolls fell 9,000 (-0.3% y/y), the third consecutive monthly decline.

Private-sector average hourly earnings rose 0.2% (3.8% y/y) in April after increasing 0.3% in March. Earnings in the goods-producing sector eased 0.1% (+4.0% y/y) following a 0.6% gain. Earnings in construction rose 0.3% (3.6% y/y), after a 0.2% rise but factory sector earnings declined 0.3% (+4.3% y/y) after surging 0.8% in March. In the private services-sector, earnings rose 0.2% (3.7% y/y) in April for the third straight month. Information sector pay increased 1.0% (5.2% y/y) last month after easing 0.1%, and financial activities earnings rose 0.5% (4.3% y/y) for the second straight month. Trade, transportation & utilities sector pay increased 0.4% (3.4% y/y) after 0.6%. Professional & business sector earnings increased 0.1% (4.4% y/y) after 0.2% in March. Leisure & hospitality earnings held steady (+3.8% y/y) following a 0.6% March increase.

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The length of the average workweek held steady at 34.3 hours in April. The workweek in the goods-producing sector eased to 39.8 hours from 40.0 hours. The construction sector average workweek eased to 39.0 hours from 39.3 hours while the factory sector workweek moved lower to 40.0 hours from 40.2. The average workweek in the private service sector held at 33.2 hours. Professional & business service hours fell to 36.3 hours from 36.4 while trade, transportation & utilities hours improved to 34.3 from 34.0 hours. Private education hours rose slightly to 32.8, but leisure & hospitality held steady at 25.5 hours.

In the **household survey**, the unemployment rate held at 4.2% in April as employment rose 436,000 and the size of the labor force increased 518,000. The labor force participation rate edged up to 62.6% last month from 62.5% in March. It remained below the high of 63.3% early in 2020. The rate for teenagers declined to 36.9%. For workers aged 20-24, the rate held steady at 72.1%, up from 71.8% six months earlier. For workers aged 25-54 the rate rose to 83.6%, a five-month high. For individuals 55 and over, the rate improved to 38.4% in April.

The employment/population ratio for all workers in April rose to 60.0%. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic.

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

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

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

Winnie Tapasanun

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Total factory orders rose a slightly less-than-expected 4.3% m/m in March after rises of 0.5% in February and 1.8% in January, data from the U.S. Census Bureau showed. A 4.5% m/m March increase had been expected in the Action Economics Forecast Survey. The March reading was the third successive monthly rise and the largest since July 2024. The year-on-year rate accelerated to 6.0% in March, the highest since November 2022, from 2.3% in February. Notably, orders for nondefense aircraft & parts soared 139.0% in March following a 7.4% drop in February and a 92.9% surge in January. Factory orders excluding defense rose 4.8% (5.9% y/y), the largest of three straight m/m/ rises, after a 0.4% February increase. Factory orders excluding the transportation sector fell 0.2% (+1.1% y/y), the first m/m fall since August, after rising 0.3% in February, January and December.

Durable goods orders jumped 9.2% (11.9% y/y) in March, the third consecutive m/m gain and the biggest since July 2024, on top of a 0.8% increase in February (matching +9.2% m/m in the advance report on April 24). The March jump reflected m/m orders increases of 27.1% (the largest m/m surge since July 2024; 31.2% y/y) in transportation equipment, 1.1% (4.9% y/y) in primary metals, 0.5% (-0.4% y/y) in furniture & related products, 0.1% (2.5% y/y) in fabricated metal products, and 0.1% (0.9% y/y) in machinery. To the downside, durable goods orders for computers & electronic products (-1.3%; +2.7% y/y) and electrical equipment, appliances & components (-1.0%; +4.2% y/y) declined m/m in March.

Nondurable goods orders, which equal nondurable goods shipments, fell 0.3% (+0.4% y/y) in March, the first m/m fall since September, after a 0.1% uptick in February. The March fall reflected m/m drops of 2.4% (-9.3% y/y) in petroleum & coal products and 0.9% (-1.2% y/y) in apparel. To the upside, the following nondurable goods shipments rose m/m in March: leather & allied products (1.5%; 8.6% y/y), beverage & tobacco products (0.7%; 5.8% y/y), paper products (0.6%; 2.3% y/y), printing (0.3%; 3.8% y/y), textile mills (0.3%; 0.8% y/y), chemical products (0.2%; 5.4% y/y), plastics & rubber products (0.2%; 0.4% y/y), food products (0.1%; 1.8% y/y), and textile products (0.1%; 2.1% y/y).

Total shipments slipped 0.1% (+2.0% y/y) in March, the first m/m easing since October, after a 0.7% increase in February. Excluding transportation, shipments were virtually unchanged m/m (+1.1% y/y) in March following six straight m/m gains. Shipments of durable goods industries inched up 0.1% (3.8% y/y) in March, the smallest of four consecutive m/m increases, after a 1.3% advance in February. This reflected m/m durable goods shipments rises of 1.2% (5.6% y/y) in primary metals, 0.9% (0.1% y/y) in furniture & related products, 0.8% (-0.2% y/y) in nonmetallic mineral products, 0.4% (0.0% y/y) in machinery, 0.3% (1.8% y/y) in fabricated metal products, 0.2% (4.5% y/y) in computers & electronic products, 0.2% (-2.1% y/y) in wood products, and 0.1% (3.0% y/y) in electrical equipment, appliances & components. In contrast, durable goods shipments for transportation equipment (-0.5%; +7.3% y/y) and miscellaneous durable goods (-0.1%; +2.9% y/y) fell m/m in March following three successive m/m increases.

Unfilled orders rose 2.0% (2.3% y/y) in March, up for the eighth month in nine, after a 0.1% uptick in February. Excluding transportation, unfilled orders dipped 0.1% (+0.7% y/y) in March, the first m/m easing since May 2024, after holding steady in February. Backlogs of durable goods rose 2.0% (2.3% y/y) in March, reflecting m/m rises of 3.1% (3.1% y/y) in transportation equipment and 0.2% (2.4% y/y) in electrical equipment, appliances & components.

Inventories edged up 0.1% (0.9% y/y) in March, the fifth straight m/m increase, after rising at the same pace in the prior two months. Excluding transportation, inventories were up 0.1% (0.5% y/y) in March, the fifth consecutive m/m rise. Durable goods inventories ticked up 0.1% (1.0% y/y) in March after holding steady in February and January; nondurable goods inventories edged up 0.1% (0.8% y/y), the fifth successive m/m increase.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- March manufacturers’ new orders +4.3% m/m; +6.0% y/y, highest since Nov. ’22.
- Durable goods orders (+9.2%) jump m/m, while nondurable goods orders (-0.3%) and shipments (-0.1%) decline m/m.
- Transportation equipt. orders +27.1% m/m, w/ a 139.0% m/m surge in nondefense aircraft & parts orders.
- Unfilled orders +2.0%, the eighth m/m rise in nine months.
- Inventories +0.1%, the fifth consecutive m/m increase.

U.S. Factory Orders Increase for the Third Straight Month in March

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The global manufacturing data showed broad weakening in April as conditions weakened across more than half of the contributing early reporters in the S&P survey of manufacturing. Of the 18 early reporting countries, more than half of them showed deceleration over six months and 12 months. Over three months, only 8 of 18 showed deterioration and that's about as good as it got in this report. In the current month, month-to-month changes showed more than half of the survey contributors showing weaker results than the month before. In the S&P framework, manufacturing improved month-to-month for the U.S.; however, looking at sequential averages for the U.S., U.K., European monetary union, Canada, and Japan, we see a steady weakening and results over 12 months, over six months versus 12 months, and for three months versus 6 months. The highly developed countries are not doing particularly well.

Asian economies are also showing slight deterioration but doing a little better than the developed countries in general.

Only five of the 18 reporting countries have queue percentile standings in their data back to January 2021 that are above their medians. Readings at or above the 50% mark are at or above the median standing. Canada is showing the weakest manufacturing result on record over this span, in terms of its queue percentile standing which is at 0 in the current month.

I showed the graphic for the Baltic dry goods index in this report rather than statistics on the manufacturing PMI data because the Baltic data, which reflect shipping volume for dry goods - that is excluding things like oil - is weak but it's only in the neighborhood where it's been for some time. There has been a great deal of talk about how tariffs may have impacted trade flows, expected trade flows, shipping, shipping rates, and the like. However, according to the Baltic dry goods index, there isn't much evidence that this is occurring right now and affecting the current data. That may still lie ahead but for now it's not baked in the cake.

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Globally Manufacturing Weakens

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

Economy in Brief: January 2008

Jump to:

RICS Survey Takes an Ongoing Dive

U.S. CPI Total & Core Tame

U.S. CPI Total & Core Tame

No Surprise: Sentiment Among German Investors and Analysts Falls

HICP is Rising in Many ECB Countries

U.S. Business Inventories' Accumulation Still Slowing

U.S. PPI Eased

U.S. Retail Sales Miss Expectations