Robert Brusca

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Spain’s economy is steadily losing ground. Industrial output made a recovery and began to show Yr/Yr increases but it is now backsliding. Real retail sales cut their recession losses and flirted with making Yr/Yr gains when backsliding occurred. 
Spain’s dealing with a collapsed property market in the wake of the financial crisis and global downturn was not bad enough. The problems in Greece shined a too-bright light on Spain’s other weaknesses. Long one of the lax fiscal policy Mediterranean countries Spain came to its time reckoning... and, it happened at the worst possible moment. Spain was forced to deal with its structural budget problems worsening its cyclical collapse. Actually Spain was in the process of climbing out of its cyclical downturn, getting a grip on the rim of recovery, when Greece’s problems led markets to stomp on Spain’s fragile grip on recovery. The German conditions for Spain to receive financial help preclude continued economic expansion. 
Spain is now in a period of fiscal austerity trying to control its budget deficit in a period of severe economic contraction. That is of course worsening the contraction and in turn making the deficit worse. It is not clear what kind of progress markets will require of Spain. But with unemployment over the 20% mark it is clear that Spain’s ability to post fiscal economic miracles will be very limited. 
Against that background, Spain’s industrial output rose by 0.4% in October. Output of consumer goods fell as did output of intermediate goods. Investment goods’ output alone increased. That rise helped to push the overall index higher. Still it is unreasonable given current trends to expect that Spain will be able soon to continue increases in industrial output. Spain continues to be severely challenged by economic times. This month’s rise in IP is aberrant. 
<table border="0" cellspacing="0" width="100%" class="centered">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr class="grey3">
 <th colspan="7" scope="col">Key Spain Output and Consumption Metrics</th>
 </tr>
 </thead>
 <tr class="even">
 <td>&nbsp;</td>
 <td>Oct-10</td>
 <td>Sep-10</td>
 <td>Aug-10</td>
 <td>3-Mo</td>
 <td>6-Mo</td>
 <td>12-Mo</td>
 </tr>
 <tr>
 <td class="firstcol">MFG IP</td>
 <td>0.4%</td>
 <td>-6.3%</td>
 <td>6.0%</td>
 <td>-1.0%</td>
 <td>-5.0%</td>
 <td>-1.8%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Consumer Goods</td>
 <td>-1.3%</td>
 <td>-6.6%</td>
 <td>7.0%</td>
 <td>-5.3%</td>
 <td>-12.0%</td>
 <td>-1.0%</td>
 </tr>
 <tr>
 <td class="firstcol"> Durables</td>
 <td>-2.1%</td>
 <td>-11.8%</td>
 <td>5.3%</td>
 <td>-31.7%</td>
 <td>-16.6%</td>
 <td>-10.8%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol"> Nondurables</td>
 <td>-1.3%</td>
 <td>-4.3%</td>
 <td>5.1%</td>
 <td>-2.9%</td>
 <td>-9.8%</td>
 <td>0.2%</td>
 </tr>
 <tr>
 <td class="firstcol">Intermediate Goods</td>
 <td>-0.3%</td>
 <td>-6.6%</td>
 <td>7.5%</td>
 <td>0.5%</td>
 <td>-8.8%</td>
 <td>-1.5%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Investment Goods</td>
 <td>1.8%</td>
 <td>-2.9%</td>
 <td>-0.5%</td>
 <td>-6.7%</td>
 <td>1.6%</td>
 <td>-5.1%</td>
 </tr>
 <tr class="even">
 <td class="firstcol">Retail Sales</td>
 <td>Oct-10</td>
 <td>Sep-10</td>
 <td>Aug-10</td>
 <td>3-Mo</td>
 <td>6-Mo</td>
 <td>12-Mo</td>
 </tr>
 <tr class="odd">
 <td class="firstcol"> Real</td>
 <td>1.4%</td>
 <td>-2.4%</td>
 <td>1.9%</td>
 <td>3.6%</td>
 <td>2.0%</td>
 <td>-0.5%</td>
 </tr>
 <tr>
 <td class="firstcol"> Nominal</td>
 <td>2.2%</td>
 <td>-2.8%</td>
 <td>2.4%</td>
 <td>6.9%</td>
 <td>2.8%</td>
 <td>2.0%</td>
 </tr>
 <tr class="even">
 <td class="firstcol">Employment</td>
 <td>Oct-10</td>
 <td>Sep-10</td>
 <td>Aug-10</td>
 <td>3MoAgo</td>
 <td>6MoAgo</td>
 <td>12MoAgo</td>
 </tr>
 <tr>
 <td class="firstcol">Unempl Rate</td>
 <td>20.7</td>
 <td>20.7</td>
 <td>20.5</td>
 <td>20.4</td>
 <td>19.8</td>
 <td>19</td>
 </tr>
 
</table>

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Spain’s economy is steadily losing ground. Industrial output made a recovery and began to show Yr/Yr increases but it is now backsliding. Real retail sales cut their recession losses and flirted with making Yr/Yr gains when [...]

Spain’s Recovery Is Short Cut

Tom Moeller

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The pump price for regular gasoline jumped ten cents last week to $2.96
per gallon. Prices have risen roughly fifty cents per gallon since the middle of
last year and have surged from the December-2008 low of $1.61. Yesterday the
spot market price for a gallon of regular gasoline of $2.38 was up from $2.27
averaged last week.&nbsp;
Crude oil prices rose last week to an average $86.36 for a barrel of
light sweet crude oil (WTI). Yesterday, the crude price rose further to $89.38
per barrel.&nbsp;
Lastly, natural gas prices built on earlier seasonal improvement and
rose last week to an average of $4.20 per mmbtu versus an average $3.49 in
October. Yesterday, prices rose further to $4.43 but remained down from an
early-January high of $6.50.
Demand for gasoline fell 0.5% in late-November versus last year after
declines during October. The demand for residual fuel oil fell a greatly&nbsp;
lessened 6.8% but distillate demand rose 8.8% y/y. Inventories of crude
oil and petroleum products rose 0.9% during the last twelve months.
The energy price data are reported by the U.S. Department of Energy and can
be found in Haver's WEEKLY database. The daily figures are in DAILY
and the gasoline demand figures are in OILWKLY.
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<a href="/comment/101207f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/101207f.png"></a>
 
 <colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly
 Prices</a></th>
 <th scope="col" >12/06/10</th>
 <th scope="col" >11/29/10</th>
 <th scope="col" >11/22/10</th>
 <th scope="col" >Y/Y%</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 <th scope="col" >2007</th>
 </tr>
 </thead>
 
 
 <td class="firstcol" >Retail Regular Gasoline ($ per Gallon,
 Regular)</td>
 <td>2.96</td>
 <td>2.86</td>
 
 <td>2.88</td>
 <td>12.3</td>
 <td>2.35</td>
 <td>3.25</td>
 <td>2.80</td>
 
 <tr class="odd">
 <td class="firstcol" >Light Sweet Crude Oil, WTI($ per bbl.)</td>
 <td>86.36</td>
 <td>81.92</td>
 <td>82.20</td>
 <td>12.4</td>
 <td>61.39</td>
 <td>100.16</td>
 <td>72.25</td>
 </tr>
 <tr>
 <td class="firstcol" >Natural Gas ($/mmbtu)</td>
 <td>4.20</td>
 <td>3.99</td>
 <td>3.72</td>
 <td>-6.6</td>
 <td>3.95</td>
 <td>8.88</td>
 <td>6.97</td>
 </tr>
 

&nbsp;



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The pump price for regular gasoline jumped ten cents last week to $2.96 per gallon. Prices have risen roughly fifty cents per gallon since the middle of last year and have surged from the December-2008 low of $1.61. Yesterday the spot [...]

U.S. Gasoline Prices Jump With Crude Costs

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The latest Manpower Inc. Survey suggested that recent improvement in the U.S.
labor market will pick up next quarter. For Q1 2011, the level of the seasonally
adjusted diffusion index rose to 9 following a reading of 5 in Q4. The latest
figure was the highest in two years. Since inception in 1976, there has been a
66% correlation between the level of the index and the q/q change in payroll
employment.&nbsp;
The Manpower Inc Employment Outlook Survey is a quarterly measurement of hiring intentions of more than 15,000 employers in 473 cities. Employers
declare their intentions to increase, decrease, or maintain the size of their present workforce
for the upcoming three-month period. The survey was designed with the assistance of the Survey Research Center of the
University of Michigan. The current seasonal adjustments are by 
Manpower, Inc. Haver calculated the historical seasonally adjusted series.
The overall not seasonally adjusted diffusion index remained steady with Q4
at a low level of 4. The detail of the survey indicates that Q1 hiring plans rema6ins
broadly positive across industries but was strongest in the wholesale &amp;
retail and the professional &amp; business services sectors.&nbsp; The indexes
for construction and durable manufacturing slipped Q/Q but elsewhere there was
improvement.
The Manpower Inc Employment Outlook Survey is a quarterly measurement of
hiring intentions of more than 15,000 employers in 473 cities. Employers declare
their intentions to increase, decrease, or maintain the size of their present
workforce for the upcoming three-month period.
The figures referenced above are available in Haver's USECON database.
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<a href="/comment/101207c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/101207c.png"></a>
 <table class="centered" border="0" cellSpacing="0" width="100%">
 <colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th scope="col" class="firstcol">Manpower Inc. Employment 
 Outlook Survey (%)</th>
 <th scope="col">Q1'11</th>
 <th scope="col">Q4'10</th>
 <th scope="col">Q3'10</th>
 <th scope="col">Q2'10</th>
 <th scope="col">2010</th>
 <th scope="col">2009</th>
 <th scope="col">2008</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol">All Industries (SA)</td>
 <td>9</td>
 <td>5</td>
 <td>6</td>
 <td>5</td>
 <td>6</td>
 <td>1</td>
 <td>13</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">All Industries (NSA)</td>
 <td>4</td>
 <td>4</td>
 <td>10</td>
 <td>8</td>
 <td>6</td>
 <td>1</td>
 <td>13</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Construction</td>
 <td>-9</td>
 <td>-8</td>
 <td>8</td>
 <td>4</td>
 <td>-2</td>
 <td>-6</td>
 <td>4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Manufacturing - Durables</td>
 <td>6</td>
 <td>7</td>
 <td>9</td>
 <td>8</td>
 <td>5</td>
 <td>-6</td>
 <td>13</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Manufacturing - Nondurables</td>
 <td>6</td>
 <td>6</td>
 <td>12</td>
 <td>9</td>
 <td>7</td>
 <td>-2</td>
 <td>11</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Wholesale &amp; Retail Trade</td>
 <td>10</td>
 <td>13</td>
 <td>15</td>
 <td>7</td>
 <td>10</td>
 <td>7</td>
 <td>13</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Transportation &amp; Utilities</td>
 <td>2</td>
 <td>2</td>
 <td>9</td>
 <td>8</td>
 <td>3</td>
 <td>-4</td>
 <td>14</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp; Professional &amp; Business Services</td>
 <td>11</td>
 <td>10</td>
 <td>15</td>
 <td>15</td>
 <td>11</td>
 <td>8</td>
 <td>--</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Education &amp; Health Services</td>
 <td>6</td>
 <td>4</td>
 <td>-2</td>
 <td>3</td>
 <td>2</td>
 <td>1</td>
 <td>--</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp; Financial Activities&nbsp; </td>
 <td>4</td>
 <td>4</td>
 <td>11</td>
 <td>9</td>
 <td>7</td>
 <td>3</td>
 <td>--</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Government</td>
 <td>0</td>
 <td>-6</td>
 <td>-2</td>
 <td>-1</td>
 <td>-3</td>
 <td>-3</td>
 <td>10</td>
 </tr>
 </tbody>
</table>


</body>

</html>

The latest Manpower Inc. Survey suggested that recent improvement in the U.S. labor market will pick up next quarter. For Q1 2011, the level of the seasonally adjusted diffusion index rose to 9 following a reading of 5 in Q4. The [...]

U.S. Hiring Improves Indicates Manpower Inc. Survey

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Spain’s economy is steadily losing ground. Industrial output made a recovery and began to show Yr/Yr increases but it is now backsliding. Real retail sales cut their recession losses and flirted with making Yr/Yr gains when backsliding occurred. 
Spain’s dealing with a collapsed property market in the wake of the financial crisis and global downturn was not bad enough. The problems in Greece shined a too-bright light on Spain’s other weaknesses. Long one of the lax fiscal policy Mediterranean countries Spain came to its time reckoning... and, it happened at the worst possible moment. Spain was forced to deal with its structural budget problems worsening its cyclical collapse. Actually Spain was in the process of climbing out of its cyclical downturn, getting a grip on the rim of recovery, when Greece’s problems led markets to stomp on Spain’s fragile grip on recovery. The German conditions for Spain to receive financial help preclude continued economic expansion. 
Spain is now in a period of fiscal austerity trying to control its budget deficit in a period of severe economic contraction. That is of course worsening the contraction and in turn making the deficit worse. It is not clear what kind of progress markets will require of Spain. But with unemployment over the 20% mark it is clear that Spain’s ability to post fiscal economic miracles will be very limited. 
Against that background, Spain’s industrial output rose by 0.4% in October. Output of consumer goods fell as did output of intermediate goods. Investment goods’ output alone increased. That rise helped to push the overall index higher. Still it is unreasonable given current trends to expect that Spain will be able soon to continue increases in industrial output. Spain continues to be severely challenged by economic times. This month’s rise in IP is aberrant. 


<table border="0" cellspacing="0" width="100%" class="centered">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr class="grey3">
 <th colspan="8" scope="col">Various looks at the UK, EU and EMU Services Sector</th>
 </tr>
 </thead>
 <tr class="even">
 <td>&nbsp;</td>
 <td>Nov-10</td>
 <td>Oct-10</td>
 <td>Sep-10</td>
 <td>3-Mo</td>
 <td>6-Mo</td>
 <td>12-Mo</td>
 <td>%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Euro-Area</td>
 <td>55.42</td>
 <td>53.35</td>
 <td>54.09</td>
 <td>54.29</td>
 <td>55.01</td>
 <td>54.49</td>
 <td>72.6%</td>
 </tr>
 <tr>
 <td class="firstcol">Germany</td>
 <td>59.18</td>
 <td>56.04</td>
 <td>54.85</td>
 <td>56.69</td>
 <td>56.42</td>
 <td>55.01</td>
 <td>90.9%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">France</td>
 <td>54.96</td>
 <td>54.81</td>
 <td>58.17</td>
 <td>55.98</td>
 <td>58.38</td>
 <td>57.85</td>
 <td>58.2%</td>
 </tr>
 <tr>
 <td class="firstcol">Italy</td>
 <td>54.45</td>
 <td>51.00</td>
 <td>51.26</td>
 <td>52.24</td>
 <td>51.54</td>
 <td>52.36</td>
 <td>66.4%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Spain</td>
 <td>48.26</td>
 <td>46.54</td>
 <td>47.86</td>
 <td>47.55</td>
 <td>49.15</td>
 <td>49.19</td>
 <td>61.4%</td>
 </tr>
 <tr>
 <td class="firstcol">Ireland</td>
 <td>50.76</td>
 <td>50.92</td>
 <td>48.78</td>
 <td>50.15</td>
 <td>52.41</td>
 <td>50.75</td>
 <td>51.6%</td>
 </tr>
 <tr class="even">
 <td class="firstcol" colspan="8">EU only</td>
 </tr>
 <tr class="odd" >
 <td class="firstcol">UK (CIPs)</td>
 <td>53.00</td>
 <td>53.19</td>
 <td>52.80</td>
 <td>53.00</td>
 <td>52.96</td>
 <td>54.55</td>
 <td>63.1%</td>
 </tr>
 <tr>
 <td class="firstcol">US NONFMG ISM</td>
 <td>55.00</td>
 <td>54.30</td>
 <td>53.20</td>
 <td>54.17</td>
 <td>53.68</td>
 <td>53.47</td>
 <td>73.9%</td>
 </tr>
 
 <tr class="grey3">
 <td colspan="8">EU Commission Indices for
 EU and EMU</td>
 </tr>
 <tr class="even">
 <td class="firstcol">EU Index</td>
 <td>Nov-10</td>
 <td>Oct-10</td>
 <td>Sep-10</td>
 <td>3Mo</td>
 <td>6Mo</td>
 <td>12Mo</td>
 <td>%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">EU Services</td>
 <td>8</td>
 <td>5</td>
 <td>5</td>
 <td>-10.33</td>
 <td>-12.17</td>
 <td>-14.33</td>
 <td>67.6%</td>
 </tr>
 <tr class="even">
 <td class="firstcol">EMU </td>
 <td>Nov-10</td>
 <td>Oct-10</td>
 <td>Sep-10</td>
 <td>3Mo</td>
 <td>6Mo</td>
 <td>12Mo</td>
 <td>%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Services</td>
 <td>10</td>
 <td>8</td>
 <td>8</td>
 <td>8.67</td>
 <td>7.33</td>
 <td>3.71</td>
 <td>60.3%</td>
 </tr>
 <tr>
 <td class="firstcol">Cons Confidence</td>
 <td>-9</td>
 <td>-11</td>
 <td>-11</td>
 <td>-10.33</td>
 <td>-12.17</td>
 <td>-2.31</td>
 <td>67.6%</td>
 </tr>
 <tr class="grey3">
 <td colspan="8">Consumer Confidence by Country</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Germany</td>
 <td>11</td>
 <td>7</td>
 <td>5</td>
 <td>7.67</td>
 <td>2.67</td>
 <td>-5.33</td>
 <td>100.0%</td>
 </tr>
 <tr>
 <td class="firstcol">France</td>
 <td>-17</td>
 <td>-17</td>
 <td>-18</td>
 <td>-17.33</td>
 <td>-19.00</td>
 <td>-18.75</td>
 <td>50.0%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Italy</td>
 <td>-22</td>
 <td>-22</td>
 <td>-22</td>
 <td>-22.00</td>
 <td>-21.50</td>
 <td>-21.00</td>
 <td>28.6%</td>
 </tr>
 <tr>
 <td class="firstcol">Spain</td>
 <td>-21</td>
 <td>-20</td>
 <td>-19</td>
 <td>-20.00</td>
 <td>-21.83</td>
 <td>-20.67</td>
 <td>50.9%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Ireland</td>
 <td>#N/A</td>
 <td>#N/A</td>
 <td>#N/A</td>
 <td>#N/A</td>
 <td>#N/A</td>
 <td>#N/A</td>
 <td>#N/A</td>
 </tr>
 <tr>
 <td class="firstcol">UK</td>
 <td>-18</td>
 <td>-16</td>
 <td>-17</td>
 <td>-17.00</td>
 <td>-15.33</td>
 <td>-10.83</td>
 <td>44.7%</td>
 </tr>
<tr>
 <td class="firstcol" colspan="8">percentile
 is over range since May 2000</td>
 </tr>

</table>

</body>
</html>

Louise Curley

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The price of copper has more than tripled from its low point of $1.2474 per
 pound on December 24, 2008 to $3.9950 on December 3rd of this year, as
 can be seen in the first chart which shows the price of copper found in
 the Haver data base, INTDAILY.&nbsp; 
 
 Copper consumption has not only been rising fast but it has also been exceeding production since
 2009.&nbsp; As a result, stocks are declining and prices are soaring. The
 Economist Intelligence Unit's (EIU) annual data and forecasts for copper
 consumption, production and stocks illustrate this point and are shown in
 the second chart.&nbsp; The data are found in the EIUDREGS&nbsp; database.
 
 The rise in consumption is due largely to demand from China.&nbsp; By comparing Chinese imports of
 copper ore and concentrates in the EMERGEPR data base with the
 production of refined copper in the EIUDREGS data base it appears
 that China's imports of copper have risen from about 12% of worth
 production in 2000 to almost one third of world production
 currently.&nbsp; However, new products, such as hybrid and electric cars,
 are also responsible for the increased demand for copper.&nbsp; The high
 prices might encourage the use of substitutes and thus limit the extent
 to which the price of copper could rise.&nbsp;&nbsp; In addition, further
 official attempts to cool the Chinese economy with higher interest rates
 would also discourage additional price rises.
 
 Nevertheless, the long
 term supply situation is likely to play the more important role in
 determining the price of copper.&nbsp; Mining companies have been unable
 to keep pace with the demand, partly because it is getting harder to find
 the metal and the quality of what is found has deteriorated.&nbsp;&nbsp;

<colgroup><col><col><col><col><col><col><col><col></colgroup>
 

 <tr class="grey3">
 <td>Cooper&nbsp; (Thousand Tons)</td>
 <td >2012F</td>
 <td >2011F</td>
 <td >2010E</td>
 <td >2009&nbsp;</td>
 <td >2008</td>
 <td>2007</td>
 <td >2006</td>
 </tr>
 <tr class="odd" >
 <td class="firstcol">Stocks</td>
 <td >559</td>
 <td >742</td>
 <td >946</td>
 <td >1105</td>
 <td >810</td>
 <td>666</td>
 <td >672</td>
 </tr>
 <tr>
 <td class="firstcol" >Consumption</td>
 <td >20788</td>
 <td >20181</td>
 <td >19460</td>
 <td >18554</td>
 <td >18010</td>
 <td>18021</td>
 <td >17210</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Production</td>
 <td >20606</td>
 <td >19978</td>
 <td >19303</td>
 <td >18432</td>
 <td >18517</td>
 <td>18055</td>
 <td >17434</td>
 </tr>

 



</html>

The price of copper has more than tripled from its low point of $1.2474 per pound on December 24, 2008 to $3.9950 on December 3rd of this year, as can be seen in the first chart which shows the price of copper found in the Haver data [...]

Copper Consumption, Production, Stocks and Prices in Haver Databases

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<a href="/comment/101206b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/101206b.png" align="left"></a>
<a href="/comment/101206c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/101206c.png"></a>
Tentative indications of improvement in U.S. economic
activity began recently to lift interest rates. Short-term rates have risen
slightly as investors' fear near-term action by the Federal Reserve. Amongst the
economic indications are lower initial claims for jobless insurance, higher
vehicle and home sales as well as improved ISM readings on factory and service
sector activity. Last week's report of weakness in nonfarm payrolls is expected
to improve with this month's figures. Investor fears
generally are not shared, however, by economists. Through year-end 2011 the
National Association for Business Economics (NABE) survey has left short-term
rates unchanged from current levels.&nbsp;
 The prospect of the Fed keeping short-term rates low, along
with economic improvement, has lifted long-term rates. Investors fear the
ultimate inflationary consequences and the need for greater Fed tightening,
later. Economists generally share this concern and see the 10-Yr. Treasury rate
at 3.25% in twelve months. In a recent television interview, Fed Chairman Ben S.
Bernanke downplayed these inflationary fears. Mortgage rates
rates also have moved up modestly to date. The rate on 15-year fixed rate
mortgages has inched up to 3.81% from its low one month ago of 3.57%. As might
be expected rates on adjustable rate mortgages have not risen from the 3.25%
low.
Interest rate data are available in Haver's USECON, WEEKLY and
DAILY databases. The NABE figures can be found in the SURVEYS
database.&nbsp;
<a href="/comment/101206d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/101206d.png" align="left"></a>
<a href="/comment/101206e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/101206e.png"></a>
<table class="centered" border="0" cellSpacing="0" width="100%">
 <colgroup><col><col><col><col><col><col><col><col></colgroup> 
 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM" ;>U.S.
 Interest Rates</a></th>
 <th scope="col" >Latest</th>
 <th scope="col" >Nov.</th>
 <th scope="col" >Oct.</th>
 <th scope="col" >Dec. '09</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 <th scope="col" >2007</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Fed Funds</td>
 <td >0.20</td>
 <td >0.19</td>
 <td >0.19</td>
 <td >0.12</td>
 <td >0.16</td>
 <td >1.93</td>
 <td >5.02</td>
 </tr>
 <tr>
 <td class="firstcol" >1 Month Treasury</td>
 <td >0.16</td>
 <td >0.13</td>
 <td >0.14</td>
 <td >0.03</td>
 <td >0.10</td>
 <td >1.29</td>
 <td >4.40</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >1 Year Treasury</td>
 <td >0.29</td>
 <td >0.25</td>
 <td >0.23</td>
 <td >0.37</td>
 <td >0.47</td>
 <td >1.82</td>
 <td >4.52</td>
 </tr>
 <tr>
 <td class="firstcol" >5 Year Treasury</td>
 <td >1.68</td>
 <td >1.35</td>
 <td >1.18</td>
 <td >2.34</td>
 <td >2.19</td>
 <td >2.80</td>
 <td >4.43</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >10 Year Treasury</td>
 <td >3.01</td>
 <td >2.76</td>
 <td >2.54</td>
 <td >3.59</td>
 <td >3.26</td>
 <td >3.67</td>
 <td >4.63</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Corporate Bond&nbsp; Aaa </td>
 <td >4.95</td>
 <td >4.87</td>
 <td >4.68</td>
 <td >5.26</td>
 <td >5.31</td>
 <td >5.64</td>
 <td >5.56</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >15-Year Fixed Rate Mortgage (FHLMC)</td>
 <td >3.81</td>
 <td >3.68</td>
 <td >3.68</td>
 <td >4.35</td>
 <td >4.58</td>
 <td >5.63</td>
 <td >6.03</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >One-Year ARM</td>
 <td >3.25</td>
 <td >3.25</td>
 <td >3.38</td>
 <td >4.30</td>
 <td >4.71</td>
 <td >5.18</td>
 <td >5.56</td>
 </tr>
 </tbody>
</table>


</body>

</html>

Tentative indications of improvement in U.S. economic activity began recently to lift interest rates. Short-term rates have risen slightly as investors' fear near-term action by the Federal Reserve. Amongst the economic indications [...]

U.S. Interest Rates Begin To Nudge Higher

Recent labor market improvement backpedaled last month. Nonfarm payrolls rose just 39,000 after an upwardly revised 172,000 October increase. The rise disappointed Consensus forecasts for a 142,000 gain. Also disappointing was the [...]

U.S. Payroll Increase Is Disappointing While Jobless Rate Increases

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 <div id="rightside">
 </div>
 
 
 Recent labor market improvement backpedaled last month. Nonfarm
 payrolls rose just 39,000 after an upwardly revised 172,000 October
 increase. The rise disappointed Consensus forecasts for a 142,000 gain.
 Also disappointing was the rise in the unemployment rate to 9.8%, its
 highest since April.
 
 
 Accompanying the weak headline figures were discouraging details. The
 breadth of gain in payrolls fell to just 52% of industries, the lowest of
 the current expansion. Average hourly earnings were unchanged m/m and the
 annual gain of 2.1% matched its weakest since 2004.&nbsp;
 
 
 Within the establishment survey, indications of
 weaker hiring were broad-based. The weakest was the slight 65,000 worker
 increase in private service sector hiring. The gain was the smallest since
 June. It reflected broadly weaker increases across industries as well as
 monthly declines in finance (-1.2% y/y) and retail trade (+0.4% y/y).
 Showing the disinterest in hiring full-timers, temporary help jobs rose by
 39,500 (19.2% y/y). Continuing to the downside were factory and
 construction sector payrolls, though the rates of decline have slowed
 significantly from their worst. In the public sector, payrolls fell 11,000
 led by a decline (-1.8% y/y) in local gov't jobs which continue to fall
 with lower tax revenues. Federal gov't employment rose just 2,000 (0.1%
 y/y) as the government continues to face large budget deficits.&nbsp;
 Accompanying the weak payroll figures was the
 rise to 9.8% in the unemployment rate, as calculated in the household
 survey. A 9.6% rate had been expected. The increase reflected a 173,000
 drop (+0.4% y/y) in employment following a 330,000 October decline.
 Moreover, a 103,000 increase (0.2%) in the labor force failed to recoup
 October's drop. The more comprehensive unemployment rate, which includes
 marginally attached workers and those who work part time but would prefer
 a full-time job, remained at 17.0%. Forty-two percent of individuals have
 been unemployed for 27 weeks or longer, down just slightly from the May
 high.
 The household survey also showed that those
 unemployed were jobless for a near-record 33.8 weeks, on average.
 Forty-two percent of individuals had been unemployed for 27 weeks or more.
 That resulted in a 2.2% rise in the number of individuals not in the labor
 force, with those &quot;not looking because of discouragement over job
 prospects&quot; up by nearly one-half y/y.
 
 The figures referenced above are available in Haver's USECON
 database. Additional detail can be found in the LABOR and in the EMPL
 databases.
 How Do Sudden Large Losses In Wealth Affect Labor Force
 Participation? from the Federal Reserve Bank of Chicago can be found
 here <a href="http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2011/cfljanuary2011_282.pdf">http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2011/cfljanuary2011_282.pdf</a>
 <table class="centered" width="888" border="0" cellspacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="290">Employment: 000s</th>
 <th scope="col" width="84">Nov.</th>
 <th scope="col" width="85">Oct.</th>
 <th scope="col" width="85">Sept.</th>
 <th scope="col" width="85">Y/Y</th>
 <th scope="col" width="85">2009</th>
 <th scope="col" width="85">2008</th>
 <th scope="col" width="85">2007</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="290">Payroll Employment</td>
 <td align="center" width="84">39</td>
 <td align="center" width="85">172</td>
 <td align="center" width="85">-24</td>
 <td align="center" width="85">0.6%</td>
 <td align="center" width="85">-4.3%</td>
 <td align="center" width="85">-0.6%</td>
 <td align="center" width="85">1.1%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="290">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Previous</td>
 <td align="center" width="84"></td>
 <td align="center" width="85">151</td>
 <td align="center" width="85">-41</td>
 <td align="center" width="85">--</td>
 <td align="center" width="85">--</td>
 <td align="center" width="85">--</td>
 <td align="center" width="85">--</td>
 </tr>
 <tr>
 <td class="firstcol" width="290">&nbsp;&nbsp;Manufacturing</td>
 <td align="center" width="84">-13</td>
 <td align="center" width="85">-11</td>
 <td align="center" width="85">-6</td>
 <td align="center" width="85">0.8%</td>
 <td align="center" width="85">-11.3%</td>
 <td align="center" width="85">-3.4%</td>
 <td align="center" width="85">-2.0%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="290">&nbsp;&nbsp;Construction</td>
 <td align="center" width="84">-5</td>
 <td align="center" width="85">3</td>
 <td align="center" width="85">-11</td>
 <td align="center" width="85">-2.0%</td>
 <td align="center" width="85">-15.7%</td>
 <td align="center" width="85">-6.1%</td>
 <td align="center" width="85">-0.8%</td>
 </tr>
 <tr>
 <td class="firstcol" width="290">&nbsp;&nbsp;Private Service
 Producing</td>
 <td align="center" width="84">65</td>
 <td align="center" width="85">157</td>
 <td align="center" width="85">122</td>
 <td align="center" width="85">1.1%</td>
 <td align="center" width="85">-3.4%</td>
 <td align="center" width="85">-0.2%</td>
 <td align="center" width="85">1.7%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="290">&nbsp;&nbsp;Government</td>
 <td align="center" width="84">-11</td>
 <td align="center" width="85">12</td>
 <td align="center" width="85">-136</td>
 <td align="center" width="85">-1.1%</td>
 <td align="center" width="85">0.2%</td>
 <td align="center" width="85">1.3%</td>
 <td align="center" width="85">1.1%</td>
 </tr>
 <tr>
 <td class="firstcol" width="290">Average Weekly Hours</td>
 <td align="center" width="84">34.3</td>
 <td align="center" width="85">34.3</td>
 <td align="center" width="85">34.2</td>
 <td align="center" width="85">33.9 
 (Nov.'09)</td>
 <td align="center" width="85">33.1</td>
 <td align="center" width="85">33.6</td>
 <td align="center" width="85">33.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="290">Average Hourly Earnings</td>
 <td align="center" width="84">0.0%</td>
 <td align="center" width="85">0.4%</td>
 <td align="center" width="85">0.1%</td>
 <td align="center" width="85">2.1%</td>
 <td align="center" width="85">3.0%</td>
 <td align="center" width="85">3.8%</td>
 <td align="center" width="85">4.0%</td>
 </tr>
 <tr>
 <td class="firstcol" width="290">Unemployment Rate (%)</td>
 <td align="center" width="84">9.8</td>
 <td align="center" width="85">9.6</td>
 <td align="center" width="85">9.6</td>
 <td align="center" width="85">10.0 (Nov.'09)</td>
 <td align="center" width="85">9.3</td>
 <td align="center" width="85">5.8</td>
 <td align="center" width="85">4.6</td>
 </tr>
 </tbody>
 </table>
 
 
 

&nbsp;




</html>

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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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.

250502C5.jpg

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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.

250502X5.jpg

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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

250502F32.jpg

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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: December 2010

Jump to:

Spain’s Recovery Is Short Cut

U.S. Gasoline Prices Jump With Crude Costs

U.S. Hiring Improves Indicates Manpower Inc. Survey

Spain’s Recovery Is Short Cut

Copper Consumption, Production, Stocks and Prices in Haver Databases

U.S. Interest Rates Begin To Nudge Higher

U.S. Payroll Increase Is Disappointing While Jobless Rate Increases

U.S. Payroll Increase Is Disappointing While Jobless Rate Increases