Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213k.jpg" width="353">
The target interest rate for Federal funds was raised 25 basis points to 4.25% at the latest meeting of the Federal Open Market Committee. The unanimous decision was widely expected by analysts. The discount rate also was raised 25 basis points to 5.25%. This latest increase was the thirteenth since June of 2004.
Today&#39;s press release from the Fed expressed clear concern about pending inflationary pressure. &quot;... possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.&quot;
As a result of this concern, &quot;further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20051213/default.htm"> here</a>.
Monetary Policy and the Term Structure of Interest Rates from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/fall2005/mccallum.pdf"> here</a>.
Model Uncertainty and Policy Evaluation: Some Theory and Empirics from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/economics/conferences/0503/bdw2final.pdf"> here</a>.



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The target interest rate for Federal funds was raised 25 basis points to 4.25% at the latest meeting of the Federal Open Market Committee. The unanimous decision was widely expected by analysts. The discount rate also was raised 25 [...]

Fed Funds Rate Raised to 4.25%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213i.jpg" width="353">
The index of small business optimism from the National Federation of Independent Business (NFIB) fell 2.4% last month and reversed much of October&#39;s improvement.
The decline was due to fewer (11%) firms expecting the economy to improve. Plans for adding to employment fell to 13% from the high 17% of the last three months but the number of firms with job openings increased to the cycle&#39;s high of 24%. The percentage of firms planning to raise capital expenditures surged to 34%, the highest since March.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213j.jpg" width="353">
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percentage of firms planning to raise average selling prices rebounded to 33%, the highest level in over twenty years. The percentage of firms actually raising prices also rose. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The latest press release from the NFIB is available <a href="http://www.nfib.com/object/IO_24996.html">here</a>.

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<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">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>101.2</td>
<td>103.7</td>
<td>-6.0%</td>
<td>104.6</td>
<td>101.3</td>
<td>101.2</td>
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</tbody>
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The index of small business optimism from the National Federation of Independent Business (NFIB) fell 2.4% last month and reversed much of October's improvement. The decline was due to fewer (11%) firms expecting the economy to [...]

Small Business Optimism Down, Pricing Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213m.jpg" width="353">
Total business inventories rose 0.3% in October following an unrevised 0.5% gain the prior month. Despite these increases, the ratio of inventories-to-sales held at the record low of 1.25 as business sales increased 0.8% (7.6% y/y).
Business&#39; hesitancy to build inventory is evident from several aspects of the latest release. While the annual growth in business sales has slowed to 7.6% from 9.7% during all of 2004, the growth in inventories has nearly halved to 4.1% from 7.7% last year. And the following detail underscore that hesitancy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213h.jpg" width="353">
Retail inventories rose just 0.1% and even that small addition was due to a 0.7% rise in motor vehicle inventories which followed large additions during the prior two months. Excluding autos, inventories fell 0.1% and the September increase was revised sharply lower. Clothing inventories managed a 0.3% (5.7% y/y) but general merchandise fell 0.1% (+6.2% y/y). Inventories of furniture fell by 0.3% (+5.8% y/y) for the fourth consecutive down month.
Wholesale inventories rose just 0.2%. During the last ten years there has been a 66% correlation between the y/y change in wholesale inventories and the change in imports of nonpetroleum goods.
Factory sector inventories jumped 0.6% led by a 3.7% surge at petroleum refineries.

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<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">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.1%</td>
<td>7.7%</td>
<td>1.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.1%</td>
<td>0.8%</td>
<td>1.7%</td>
<td>5.7%</td>
<td>3.9%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>5.1%</td>
<td>5.9%</td>
<td>2.0%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.2%</td>
<td>0.6%</td>
<td>6.6%</td>
<td>10.8%</td>
<td>2.0%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.6%</td>
<td>0.1%</td>
<td>4.7%</td>
<td>7.7%</td>
<td>-1.1%</td>
<td>-5.4%</td>
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Total business inventories rose 0.3% in October following an unrevised 0.5% gain the prior month. Despite these increases, the ratio of inventories-to-sales held at the record low of 1.25 as business sales increased 0.8% (7.6% y/y). [...]

U.S. Business Inventories Rise but Slowly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213f.jpg" width="353">
The Bureau of Labor Statistics reported that the job openings rate, from the Job Openings &amp; Labor Turnover Survey (JOLTS), rose again in October suggesting a further firming of the US job market. The rate rose to 2.9% from an upwardly revised 2.8% in September and from 2.4% one year ago. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings. 
The actual number of job openings rose 156,000 (21.0% y/y) to four million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213g.jpg" width="353">
The job separations rate dropped sharply to 3.1% from an upwardly revised 3.6% in September and for the first time this year fell below the 2004 average of 3.2%. Total separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment.
The hires rate held steady at 3.5% versus an upwardly revised September level. The hires rate is the number of hires during the month divided by employment.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">Job Openings Rate: Total</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.4%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.5%</td>
<td>3.5%</td>
<td>3.4%</td>
<td>3.4%</td>
<td>3.2%</td>
<td>3.2%</td>
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</tbody>
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The Bureau of Labor Statistics reported that the job openings rate, from the Job Openings & Labor Turnover Survey (JOLTS), rose again in October suggesting a further firming of the US job market. The rate rose to 2.9% from an upwardly [...]

JOLTS: U.S. Job Market Firmed Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213a.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales last week gained back 0.9% of the prior period&#39;s 3.1% collapse. Nevertheless, sales so far in December are 2.9% below the November average which rose 1.2% from October.
Lower chain store sales in December were accompanied by retail gasoline prices which crept higher to $2.19 per gallon (18.3% y/y) after two weeks at the cycle&#39;s low of $2.15. In addition, the spot market price for unleaded gasoline yesterday rose to $1.65 per gallon, up more than 20 cents (16%) from the November low. Perhaps looming larger is the spike in natural gas prices. Yesterday&#39;s spot price of $14.8 mmbtu easily doubled last year&#39;s and that gain adds to an increase in retail costs which through October totaled 45.3% y/y).
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213b.jpg" width="353">
The leading indicator of chain store sales from ICSC added 0.2% (-0.3% y/y) to the 1.0% surge the prior week.
The ICSC-UBS 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.

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<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">12/10/05</th>
<th scope="col">12/03/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>444.5</td>
<td>440.6</td>
<td>3.2%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales last week gained back 0.9% of the prior period's 3.1% collapse. Nevertheless, sales so far in December are 2.9% below the November [...]

Chain Store Sales Up: Restrained by Higher Energy Prices?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213c.jpg" width="353">
US retail sales increased 0.3% for the third straight month in November. The increase about matched Consensus expectations for a 0.4% rise and October&#39;s gain was upwardly revised. Less autos, retail sales fell 0.3% versus expectations for no change.
A 16.9% drop in pump prices weighed heavily on last month&#39;s sales tally and it fostered a 5.9% m/m drop in sales at gasoline service stations. Gas prices in December have stabilized w/w around $2.17 per gallon, down a dime from the November average.
Less gasoline, nonauto retail sales rose 0.5% (7.6% y/y) following a little revised 1.0% October gains. For the fourth straight month sales at building material &amp; supply dealers ballooned, last month by 1.9% (14.5% y/y).
Discretionary spending continued firm and added marginally to strong October gains. Apparel store sales added 0.2% (7.3% y/y) to a 2.6% pop and general merchandise store sales rose 0.1% (6.7% y/y) on top of a strong 1.1% October increase.
A little less firm were sales at furniture &amp; electronics stores which rose just 0.1% (6.6% y/y) following a 0.3% drop in October. Sales of nonstore retailers (internet &amp; catalogue) also fell by 0.2% (10.3% y/y) after a 0.8% October increase.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>0.3%</td>
<td>0.3%</td>
<td>6.3%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>8.7%</td>
<td>8.2%</td>
<td>4.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
</body>
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US retail sales increased 0.3% for the third straight month in November. The increase about matched Consensus expectations for a 0.4% rise and October's gain was upwardly revised. Less autos, retail sales fell 0.3% versus expectations [...]

U.S. Retail: Less Spent on Gasoline, More on Other Stuff

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212x.jpg" width="353">
The second preliminary estimate of Japan&#39;s third quarter gross domestic product, which was published late last week, reduced the quarter-to-quarter growth rate from 0.4% to 0.2%. The major revision was a change in inventory accumulation. In the first preliminary estimate there was no change in inventories and, therefore no contribution to growth from that source, but the second preliminary estimate showed a substantial decline in inventories resulting in 0.4 percentage points being deducted from the growth rate.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212y.jpg" width="353"> The other changes were a 0.1 percentage point increase in nonresidential construction and a 0.1 percentage point reduction in the import of goods and service import which, of course, is positive in relation to growth. On a seasonally adjusted annual rate basis, Japan&#39;s GDP rose 1.0% in the third quarter, down from 5.0% in the second quarter and 5.7% in the first quarter as shown in the first chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212z.jpg" width="353">
The fact that the lower estimate was due largely to a change in the estimate for inventories suggests that the deceleration in growth may not herald the specter of another false rise in Japanese growth. There are faint positive stirrings in consumer confidence. Although the diffusion index of consumer confidence is still below 50, indicating an excess of pessimists over optimists, the index has risen in both October and November suggesting that consumers may increase their spending in the fourth quarter. The Economic and Social Research Institute in the Cabinet Office now publishes monthly instead of quarterly indicators of consumer confidence, but the monthly data go back only to April, 2004. In the second chart we show the monthly data linked to the now discontinued quarterly series. While the gains in consumer confidence are tentative, there is little doubt that there has been a sharp decline in the yen this year as shown in the third chart. The lower yen has and is likely to continue to encourage exports.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J2/@J201/@J201.HTM">Japanese Gross Domestic Product&nbsp;</a> (Billions chained 2000 Yen)</th>
<th scope="col">Q3 05&nbsp; %</th>
<th scope="col">Q2 05 % </th>
<th scope="col">Q1 05 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
<th scope="col">2002&nbsp; %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gross Domestic Product SA Annual Rate</td>
<td>1.00</td>
<td>4.96</td>
<td>5.67</td>
<td>2.26</td>
<td>1.82</td>
<td>0.14</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Q/Q %</td>
<td>0.25</td>
<td>1.22</td>
<td>1.39</td>
<td>2.26</td>
<td>1.82</td>
<td>0.14</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Consumption</td>
<td>0.37</td>
<td>0.32</td>
<td>1.21</td>
<td>1.91</td>
<td>0.57</td>
<td>1.11</td>
</tr>
<tr>
<td class="firstcol">Government Consumption</td>
<td>0.56</td>
<td>0.23</td>
<td>0.93</td>
<td>2.00</td>
<td>2.30</td>
<td>2.38</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Fixed Investment</td>
<td>1.33</td>
<td>1.40</td>
<td>1.81</td>
<td>0.95</td>
<td>0.47</td>
<td>-4.95</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>0.72</td>
<td>3.10</td>
<td>-0.14</td>
<td>13.93</td>
<td>9.00</td>
<td>7.45</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>3.34</td>
<td>2.15</td>
<td>-0.04</td>
<td>8.47</td>
<td>3.95</td>
<td>0.81</td>
</tr>
<tr>
<td class="firstcol">Change in Inventories (Billions chained 2000 Yen)&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Private</td>
<td>-1,915.3</td>
<td>1,539.2&nbsp;</td>
<td>727.3&nbsp;</td>
<td>-1,199.6&nbsp;</td>
<td>1,750.7</td>
<td>-2,055.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Government</td>
<td>&nbsp;32.9</td>
<td>-15.4&nbsp;</td>
<td>-48.4&nbsp;</td>
<td>&nbsp;&nbsp; 60.3&nbsp;</td>
<td>&nbsp; 11.2&nbsp;</td>
<td>&nbsp; 15.1&nbsp;</td>
</tr>
</tbody>
</table>
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The second preliminary estimate of Japan's third quarter gross domestic product, which was published late last week, reduced the quarter-to-quarter growth rate from 0.4% to 0.2%. The major revision was a change in inventory [...]

Japan's Second Preliminary Estimate of 3rdQ GDP Growth Rate Revised Down to 0.2% from 0.4%: Inventory Liquidation [...]

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

Robert Brusca

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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: December 2005

Jump to:

Fed Funds Rate Raised to 4.25%

Small Business Optimism Down, Pricing Firm

U.S. Business Inventories Rise but Slowly

JOLTS: U.S. Job Market Firmed Further

Chain Store Sales Up: Restrained by Higher Energy Prices?

U.S. Retail: Less Spent on Gasoline, More on Other Stuff

Fed Funds Rate Raised to 4.25%

Japan's Second Preliminary Estimate of 3rdQ GDP Growth Rate Revised Down to 0.2% from 0.4%: Inventory Liquidation [...]