Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111f.jpg" align="left" border="0" height="265" width="353">
Investors in Germany appear to be encouraged by the steps the
central bank and the government have taken in recent weeks to deal with
the economic slowdown. The European Central Bank reduced it key rate by
50 basis points on October 8 and is expected to reduce it by another 50
basis points on November 12 binging it to 3.25%. In addition, the
German government passed a $64 billion stimulus package on November
4.In the latest ZEW survey, the excess of pessimists over optimists
regarding future conditions declined to 53.5% in November from 63.0% in
October. This still a far cry from the historical average of an excess
of optimists of 27.1%.In appraising the current situation, German
investors have become more and more pessimistic--or perhaps more
realistic. From an excess of optimists over pessimists of 17% in July,
there is now an excess of pessimists over optimists of 50.4% viewing
the current situation. The ZEW indicators for current and expected
conditions, together with recession shadings for Germany, are shown in
the first chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111g.jpg" align="right" border="0" height="265" width="353">
In Japan, the merchants who make up the Economy Watchers
Diffusion Index have reported worsening conditions for both for the
present and for the future outlooks in almost every month since mid
2007, when the sub prime problem in the U. S. first surfaced.
Currently, these indexes are at all time lows as can be seen in the
second chart, which plots the history of the diffusion indexes and the
recession shading for Japan. The Bank of Japan recently cut its key
interest rate to 0.3% from 0.5%, but little has been done in the way of
fiscal stimulus.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Nov 08</th>
<th scope="col">Oct&nbsp; 08&nbsp;</th>
<th scope="col">Sep&nbsp; 07&nbsp;</th>
<th scope="col">Aug 08&nbsp; &nbsp;</th>
<th scope="col">Jul&nbsp;
08&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Germany ZEW (% balance)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Situation</td>
<td>-50.4</td>
<td>-35.9</td>
<td>-1.0</td>
<td>-9.2</td>
<td>17.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future
Conditions</td>
<td>-53.5</td>
<td>-63.0</td>
<td>-41.1</td>
<td>-55.5</td>
<td>-63.9</td>
</tr>
<tr>
<td class="firstcol">Japan Economy Watchers
Survey (Dif. Index)&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Conditions</td>
<td>n.a.</td>
<td>22.6</td>
<td>28.0</td>
<td>28.3</td>
<td>29.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future
Conditions</td>
<td>n.a.</td>
<td>25.2</td>
<td>32.1</td>
<td>32.0</td>
<td>30.8</td>
</tr>
</tbody>
</table>
</body></html>

Investors in Germany appear to be encouraged by the steps the central bank and the government have taken in recent weeks to deal with the economic slowdown. The European Central Bank reduced it key rate by 50 basis points on October 8 [...]

German Investors A Bit Less Pessimistic About The Outlook Merchants In Japan More Pessimistic Than Ever

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111e.jpg" width="353">
According to the International Council of Shopping Centers-Goldman Sachs Index, chain store sales dropped 1.0% last week from the last week in October. That wasn&#39;t the first sign of severe weakness in sales. There was one weekly decline last month and sales were down during each week of September, but the decline did lower the starting level of sales this month 0.7% below the October average. During all of October sales fell 1.0% from September following that month&#39;s 1.9% drop.
The level of sales during the latest week remained near the lowest since December of last year.
During the last ten years there has been a 59% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Portending further weakness in consumer spending was a 0.3% dip in the weekly leading indicator of chain store sales from ICSC-Goldman Sachs. The index level was, however, 6.1% below the year ago level at the lowest level since 1996.
The chain store sales figures are available in Haver&#39;s SURVEYW database.

<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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/08/08</th>
<th scope="col">10/31/08</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 Weekly Chain Store Sales</td>
<td>477.2</td>
<td>482.0</td>
<td>0.4%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


</html>

According to the International Council of Shopping Centers-Goldman Sachs Index, chain store sales dropped 1.0% last week from the last week in October. That wasn't the first sign of severe weakness in sales. There was one weekly [...]

U.S. Chain Store Sales Dropped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111c.jpg" width="353">
The retail price for a gallon of regular gasoline fell by another eighteen cents last week after the twenty six cent drop during the prior week, according to the U.S. Department of Energy survey. The price of $2.22 was the lowest since February 2007. Prices have now fallen $1.89 per gallon, or by nearly one-half, since their peak early this past July. The latest decline was accompanied by a drop in the average price for all grades of gasoline to $2.28 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline fell eight cents from last week&#39;s average to $1.40. In futures trading the November contract closed down further at $1.37 per gallon.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111d.jpg" width="353">
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
The demand for gasoline fell by 3.3% y/y, according to the U.S. Department of Energy. The rate of decline has bottomed out recently but the decline is still the fastest since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also has softened, falling 7.0% y/y.
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil fell further last week to an average $64.31 per barrel, down 56% since the peak in July of $145.66. In futures trading yesterday, the two-month price for crude oil was even lower at $63.27 per barrel.
Last week, prices for natural gas ticked up w/w to $6.74 per mmbtu (-3.3% y/y) as seasonal factors began to lift the price. The average price this month was nearly one-half below the high for natural gas prices in early-July of $13.19/mmbtu.
If Exchange Rates Are Random Walks, Then Almost Everything We Say About Monetary Policy Is Wrong from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/QR/QR3211.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"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">11/10/08</th>
<th scope="col">11/03/08</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">Retail Regular Gasoline ($ per Gallon)</td>
<td>2.22</td>
<td>2.40</td>
<td>-28.5%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>64.31</td>
<td>65.68</td>
<td>-32.5%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
</body>
</html>

The retail price for a gallon of regular gasoline fell by another eighteen cents last week after the twenty six cent drop during the prior week, according to the U.S. Department of Energy survey. The price of $2.22 was the lowest [...]

U.S. Gasoline Prices Lowest Since February 2007. Demand Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111a.jpg" width="353">
According to the National Federation of Independent Business (NFIB), small business optimism collapsed last month. The 5.8% m/m decline to an index level of 87.5 reversed all of the gains during the prior two months and dropped the level of optimism to its lowest level since early 1975.
During the last ten years there has been a 50% correlation between the level of the NFIB index and the two-quarter change in real GDP.
Plans for capital expenditures collapsed with the recent weakness if corporate profits. During the next 3-6 months, plans for spending fell to their lowest level since 1975.
The percent expecting credit conditions to ease fell to its lowest level since 1980 while the percent expecting higher real sales in six months dropped also to its lowest since 1980. Only five percent of firms thought that now was a good time to expend the business, near the lowest since 1982.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111b.jpg" width="353">
The percentage planning to raise employment fell to zero. The percentage of respondents with one or more job openings improved to 14%, the least since 1992. During the last ten years there has been a 71% correlation between the NFIB employment percentage and the y/y change in nonfarm payrolls.
The largest, single most important problems seen by business were poor sales (23%), inflation (11%), insurance cost and availability (11%) and taxes (18%). The latter, however, still was reduced from 27% in early 2007.
The percentage of firms actually raising prices fell to 15%, the lowest level since February. During the last ten years there has been a 69% correlation between the y/y change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices also fell further to 18% which was the least since 2003
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The NFIB figures can be found in Haver&#39;s SURVEYS database.
Toward A Durable Recovery is last week&#39;s speech by Atlanta Fed Bank President Dennis P. Lockhart and it available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=77A47FE2-5056-9F12-12AFBD6ADE42D36E&amp;method=display">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/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">October</th>
<th scope="col">September</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">Small Business Optimism Index (1986=100)</td>
<td>87.5</td>
<td>92.9</td>
<td>-9.0%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the National Federation of Independent Business (NFIB), small business optimism collapsed last month. The 5.8% m/m decline to an index level of 87.5 reversed all of the gains during the prior two months and dropped the [...]

U.S. Small Business Optimism Lowest Since 1975

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111a.jpg" align="left" border="0" height="265" width="353">
According to the National Federation of Independent Business
(NFIB), small business optimism collapsed last month. The 5.8% m/m
decline to an index level of 87.5 reversed all of the gains during the
prior two months and dropped the level of optimism to its lowest level
since early 1975.
During the last ten years there has been a 50% correlation
between the level of the NFIB index and the two-quarter change in real
GDP.
Plans for capital expenditures collapsed with the recent
weakness if corporate profits. During the next 3-6 months, plans for
spending fell to their lowest level since 1975.
The percent expecting credit conditions to ease fell to its
lowest level since 1980 while the percent expecting higher real sales
in six months dropped also to its lowest since 1980. Only five percent
of firms thought that now was a good time to expend the business, near
the lowest since 1982.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111b.jpg" align="right" border="0">
The percentage planning to raise employment fell to zero. The
percentage of respondents with one or more job openings improved to
14%, the least since 1992. During the last ten years there has been a
71% correlation between the NFIB employment percentage and the y/y
change in nonfarm payrolls.
The largest, single most important problems seen by business
were poor sales (23%), inflation (11%), insurance cost and availability
(11%) and taxes (18%). The latter, however, still was reduced from 27%
in early 2007.
The percentage of firms actually raising
prices fell to 15%, the lowest level since February. During the last
ten years there has been a 69% correlation between the y/y change in
the producer price index and the level of the NFIB price index. The
percentage of firms planning to raise prices also
fell further to 18% which was the least since 2003
About 24 million businesses exist in the United States. Small
business creates 80% of all new jobs in America.
The NFIB figures can be found in Haver's SURVEYS
database.
Toward A Durable Recovery is last week's
speech by Atlanta Fed Bank President Dennis P. Lockhart and it
available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=77A47FE2-5056-9F12-12AFBD6ADE42D36E&amp;method=display">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/SURVEYS/@S7/@S7.HTM">Nat'l
Federation of Independent Business</a></th>
<th scope="col">October</th>
<th scope="col">September</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">Small Business Optimism Index
(1986=100)</td>
<td>87.5</td>
<td>92.9</td>
<td>-9.0%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
U.S. Gasoline Prices Lowest Since
February 2007. Demand Fell Further 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111c.jpg" align="left" border="0" height="265" width="353">
The retail price for a gallon of regular gasoline fell
by another eighteen cents last week after the twenty six cent drop
during the prior week, according to the U.S. Department of Energy
survey. The price of $2.22 was the lowest since February 2007. Prices
have now fallen $1.89 per gallon, or by nearly one-half, since their
peak early this past July. The latest decline was accompanied by a drop
in the average price for all grades of gasoline to $2.28 per gallon.
Yesterday, the spot market price for a gallon of regular
gasoline fell eight cents from last week's average to $1.40. In futures
trading the November contract closed down further at $1.37 per gallon.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111d.jpg" align="right" border="0" height="265" width="353">
Weekly gasoline prices can be found in Haver's WEEKLY
database. Daily prices are in the DAILY
database.
The demand for gasoline fell by 3.3% y/y,
according to the U.S. Department of Energy. The rate of decline has
bottomed out recently but the decline is still the fastest since
late-1995 (the latest four weeks versus the same four weeks last year).
The demand for all petroleum products also has softened, falling 7.0%
y/y.
These DOE figures are available in Haver's OILWKLY
database.
The price for a barrel of West Texas Intermediate crude oil
fell further last week to an average $64.31 per barrel, down 56% since
the peak in July of $145.66. In futures trading yesterday, the
two-month price for crude oil was even lower at $63.27 per barrel.
Last week, prices for natural gas ticked up w/w to $6.74 per
mmbtu (-3.3% y/y) as seasonal factors began to lift the price. The
average price this month was nearly one-half below the high for natural
gas prices in early-July of $13.19/mmbtu.
If Exchange Rates Are Random Walks, Then Almost
Everything We Say About Monetary Policy Is Wrong from
the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/QR/QR3211.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"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">11/10/08</th>
<th scope="col">11/03/08</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">Retail Regular Gasoline ($ per
Gallon)</td>
<td>2.22</td>
<td>2.40</td>
<td>-28.5%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>64.31</td>
<td>65.68</td>
<td>-32.5%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Dropped 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111e.jpg" align="left" border="0" height="265" width="353">
According to the International Council of Shopping
Centers-Goldman Sachs Index, chain store sales dropped 1.0% last week
from the last week in October. That wasn't the first sign of severe
weakness in sales. There was one weekly decline last month and sales
were down during each week of September, but the decline did lower the
starting level of sales this month 0.7% below the October average.
During all of October sales fell 1.0% from September following that
month's 1.9% drop.

The level of sales during the latest week remained near
the lowest since December of last year.


During the last ten years there has been a 59% correlation
between the y/y change in chain store sales and the change in nonauto
retail sales less gasoline.

The ICSC-Goldman
Sachs retail chain-store sales index is constructed using the
same-store sales (stores open for one year) reported by 78 stores of
seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney,
Sears and Wal-Mart.


Portending further weakness in consumer spending was a 0.3%
dip in the weekly leading indicator of chain store sales from
ICSC-Goldman Sachs. The index level was, however, 6.1% below the year
ago level at the lowest level since 1996.
The chain store sales figures are available in Haver's SURVEYW
database.
<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/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">11/08/08</th>
<th scope="col">10/31/08</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 Weekly Chain
Store Sales</td>
<td>477.2</td>
<td>482.0</td>
<td>0.4%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
German Investors A Bit Less
Pessimistic About The Outlook Merchants In Japan More
Pessimistic Than Ever 
by <a href="/comment/Curley.html">
Louise Curley</a> November 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111f.jpg" align="left" border="0" height="265" width="353">
Investors in Germany appear to be encouraged by the steps the
central bank and the government have taken in recent weeks to deal with
the economic slowdown. The European Central Bank reduced it key rate by
50 basis points on October 8 and is expected to reduce it by another 50
basis points on November 12 binging it to 3.25%. In addition, the
German government passed a $64 billion stimulus package on November
4.In the latest ZEW survey, the excess of pessimists over optimists
regarding future conditions declined to 53.5% in November from 63.0% in
October. This still a far cry from the historical average of an excess
of optimists of 27.1%.In appraising the current situation, German
investors have become more and more pessimistic--or perhaps more
realistic. From an excess of optimists over pessimists of 17% in July,
there is now an excess of pessimists over optimists of 50.4% viewing
the current situation. The ZEW indicators for current and expected
conditions, together with recession shadings for Germany, are shown in
the first chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111g.jpg" align="right" border="0" height="265" width="353">
In Japan, the merchants who make up the Economy Watchers
Diffusion Index have reported worsening conditions for both for the
present and for the future outlooks in almost every month since mid
2007, when the sub prime problem in the U. S. first surfaced.
Currently, these indexes are at all time lows as can be seen in the
second chart, which plots the history of the diffusion indexes and the
recession shading for Japan. The Bank of Japan recently cut its key
interest rate to 0.3% from 0.5%, but little has been done in the way of
fiscal stimulus.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Nov 08</th>
<th scope="col">Oct&nbsp; 08&nbsp;</th>
<th scope="col">Sep&nbsp; 07&nbsp;</th>
<th scope="col">Aug 08&nbsp; &nbsp;</th>
<th scope="col">Jul&nbsp;
08&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Germany ZEW (% balance)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Situation</td>
<td>-50.4</td>
<td>-35.9</td>
<td>-1.0</td>
<td>-9.2</td>
<td>17.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future
Conditions</td>
<td>-53.5</td>
<td>-63.0</td>
<td>-41.1</td>
<td>-55.5</td>
<td>-63.9</td>
</tr>
<tr>
<td class="firstcol">Japan Economy Watchers
Survey (Dif. Index)&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Conditions</td>
<td>n.a.</td>
<td>22.6</td>
<td>28.0</td>
<td>28.3</td>
<td>29.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future
Conditions</td>
<td>n.a.</td>
<td>25.2</td>
<td>32.1</td>
<td>32.0</td>
<td>30.8</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081110e.jpg" width="353">
Inflation is beginning to take a back seat in the deliberations of Central Bankers. The financial crisis, rising unemployment and declining production are overshadowing inflation fears at the same time that these fears are lessening. No matter the actual level of inflation, incoming data are showing that inflation rates are declining worldwide.
Today Egypt, Greece, Latvia and the Czech Republic reported their Consumer Price Indexes for October. The inflation rate as measured by the year-to-year increase in the CPI has recently been declining at varying degrees of speed in each country. Egypt, with inflation over 20%, has seen its inflation rate decline in the last two months from 23.8% in August to 20.1% in October. Another high inflation rate country, Latvia, has experienced declines in its inflation rate in the last five months, from 17.7% in June to 13.8% in October. Greece and the Czech Republic with relatively low inflation rates have nevertheless also witnessed declines in their inflation rates. Inflation in Greece has come down to 3.9% in October from 4.8% in June, and to 6.0% from 6.7%, respectively, in the Czech republic. The &quot;core&quot; inflation rate in the Czech Republic has declined to 1.65 % in October from 2.64 % in June. Inflation rates for the four countries are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081110f.jpg" width="353">
Dramatic declines in commodity prices over the past year are responsible for much of the improved inflation outlook worldwide. The second chart shows the prices of wheat, copper and oil over the past year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INFLATION RATES&nbsp;</th>
<th scope="col">Oct 08</th>
<th scope="col">Sep&nbsp;&nbsp; 08&nbsp;</th>
<th scope="col">Aug 08&nbsp;</th>
<th scope="col">Jul&nbsp; 08&nbsp;</th>
<th scope="col">Jun 08&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Czech Republic: Total</td>
<td>6.0</td>
<td>6.6</td>
<td>6.5</td>
<td>6.9</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">Czech Republic: Core</td>
<td>1.65</td>
<td>2.54</td>
<td>2.54</td>
<td>2.64</td>
<td>2.64</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece: Total</td>
<td>3.90</td>
<td>4.58</td>
<td>4.68</td>
<td>4.83</td>
<td>4.89</td>
</tr>
<tr>
<td class="firstcol">Egypt: Total</td>
<td>20.13</td>
<td>21.52</td>
<td>23.79</td>
<td>22.15</td>
<td>20.22</td>
</tr>
<tr class="odd">
<td class="firstcol">Latvia: Total</td>
<td>13.73</td>
<td>14.88</td>
<td>15.72</td>
<td>16.61</td>
<td>17.74</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflation is beginning to take a back seat in the deliberations of Central Bankers. The financial crisis, rising unemployment and declining production are overshadowing inflation fears at the same time that these fears are lessening. [...]

Declines in Commodity Prices Leading to Lower Inflation Rates Worldwide

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081110d.jpg" align="left" border="0" height="265" width="353">
The OECD trend-adjusted cyclical leading indicators showed a
clear pattern of growth deteriorating in the OECD region. The downturn
is of increasing severity. Even Japan after a brief flirtation with
improving is getting weaker again. Over 3, 6 and 12 months it is Europe
that is now declining the most rapidly.
The OECD prefers to look at these indicators over six months.
On that basis the weakness is just as present. As we prepare for the
G-20 meeting the OECD area is shrinking rapidly.
Over six months the pace of decline for the OECD is at a rate
of 6.5%. Six months ago the six month pace for that index was -2%. One
year ago the pace was just -0.8%. And 18n months ago that pace was an
increase of 2.5%. All that
amounts to a pretty fast drop off. That is the sort of thing that is
typical, not of a slowdown, but of a recession.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="5" scope="col"> OECD Trend-Restored Leading Indicators</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="5" class="firstcol">Growth Progression-SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3Mos</td>
<td>6Mos</td>
<td>12mos</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>-9.8%</td>
<td>-6.5%</td>
<td>-4.3%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">OECD 7</td>
<td>-11.1%</td>
<td>-6.7%</td>
<td>-5.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>-12.1%</td>
<td>-9.2%</td>
<td>-5.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>-6.8%</td>
<td>-2.3%</td>
<td>0.0%</td>
<td>-4.0%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>-10.6%</td>
<td>-5.6%</td>
<td>-5.3%</td>
<td>1.3%</td>
</tr>
<tr class="even">
<td colspan="5" class="firstcol">Six month readings at 6-Mo
Intervals</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6Mo Ago</td>
<td>12Mo Ago</td>
<td>18MO Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>-6.5%</td>
<td>-2.0%</td>
<td>-0.8%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">OECD 7</td>
<td>-6.7%</td>
<td>-3.2%</td>
<td>-1.2%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>-9.2%</td>
<td>-2.3%</td>
<td>-1.0%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>-2.3%</td>
<td>2.2%</td>
<td>-7.8%</td>
<td>-0.1%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>-5.6%</td>
<td>-5.0%</td>
<td>0.8%</td>
<td>1.9%</td>
</tr>
<tr>
<td colspan="5" class="firstcol">Slowdowns indicated by BOLD RED.</td>
</tr>
</tbody>
</table>
</body></html>

The OECD trend-adjusted cyclical leading indicators showed a clear pattern of growth deteriorating in the OECD region. The downturn is of increasing severity. Even Japan after a brief flirtation with improving is getting weaker again. [...]

OECD Slowdown is Broad-Based and More Severe

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081110c.jpg" align="left" border="0" height="265" width="353">
EMU IP is sinking fast. Add Italy and France to the list of
large EMU countries with industrial output dropping like a stone. The
Q3 growth rates for IP in France and in Italy each are negative,
Italy&#8217;s drop is at a huge -8.4% pace while France&#8217;s drop is a still
weak at -2.7%. In Italy
consumer goods, capital goods and intermediate goods output each is
falling. Transportation is twice as weak in Italy as it is in France
for the quarter. In France intermediate goods output is even a bit
weaker than it is in Italy in Q3 but the drop in output of capital
goods is quite a bit less severe and consumer goods output in France
continued to rise strongly in Q3. French consumer goods output, in
fact, has risen in each month of the third quarter as well.
On balance, as the accompanying chart shows, IP is falling
rapidly in Germany, Italy and France. The drop in France shows some
signs of leveling off in its pace of decline over the past few months
while Italy and Germany are still plunging at what seem to be
accelerating rates of decline. Italy &#8217;s pattern of decline is a bit
more complicated than that for Germany and France. But Germany has the
most severe weakness. While it has so far the smallest Yr/Yr drop, its
output has decelerated more sharply since German output was growing so
much more strongly until early 2008 when the pace of increase suddenly
and sharply moved lower and into a state of decline.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">French IP
Excluding Construction </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-date</td>
</tr>
<tr class="odd">
<td class="firstcol">IP total</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>1.6%</td>
<td>-4.2%</td>
<td>-1.9%</td>
<td>-2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>8.2%</td>
<td>2.8%</td>
<td>-0.4%</td>
<td>6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital</td>
<td>0.7%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>4.2%</td>
<td>0.5%</td>
<td>1.7%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate</td>
<td>-1.5%</td>
<td>-0.8%</td>
<td>1.3%</td>
<td>-4.1%</td>
<td>-7.2%</td>
<td>-4.4%</td>
<td>-5.0%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Auto</td>
<td>-3.1%</td>
<td>-1.2%</td>
<td>4.2%</td>
<td>-1.3%</td>
<td>-14.8%</td>
<td>-8.3%</td>
<td>-9.3%</td>
</tr>
<tr class="even">
<td colspan="8" class="firstcol">Italy IP Excluding
Construction</td>
</tr>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-date</td>
</tr>
<tr class="odd">
<td class="firstcol">IP-MFG</td>
<td>-2.3%</td>
<td>0.4%</td>
<td>-1.3%</td>
<td>-12.1%</td>
<td>-8.0%</td>
<td>-5.7%</td>
<td>-8.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>-3.3%</td>
<td>0.8%</td>
<td>-2.3%</td>
<td>-18.0%</td>
<td>-6.5%</td>
<td>-5.4%</td>
<td>-10.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital</td>
<td>-2.5%</td>
<td>-0.9%</td>
<td>-0.5%</td>
<td>-14.9%</td>
<td>-11.1%</td>
<td>-8.2%</td>
<td>-13.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate</td>
<td>-2.6%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-7.2%</td>
<td>-5.9%</td>
<td>-5.4%</td>
<td>-3.5%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Transportation</td>
<td>-5.7%</td>
<td>1.9%</td>
<td>-3.9%</td>
<td>-27.2%</td>
<td>-21.1%</td>
<td>-13.1%</td>
<td>-22.4%</td>
</tr>
</tbody>
</table>
</body></html>

EMU IP is sinking fast. Add Italy and France to the list of large EMU countries with industrial output dropping like a stone. The Q3 growth rates for IP in France and in Italy each are negative, Italy’s drop is at a huge -8.4% pace [...]

IP Dropping Fast in Key EMU Countries

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: November 2008

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German Investors A Bit Less Pessimistic About The Outlook Merchants In Japan More Pessimistic Than Ever

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U.S. Gasoline Prices Lowest Since February 2007. Demand Fell Further

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U.S. Small Business Optimism Lowest Since 1975

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OECD Slowdown is Broad-Based and More Severe

IP Dropping Fast in Key EMU Countries