Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041210b.jpg" width="353">
In November, the PPI for finished goods rose 0.5% and again outpaced the Consensus forecast for a 0.2% gain. Less food &amp; energy, a 0.2% rise in &quot;core&quot; prices was as expected.
Finished energy prices added 1.8% (19.9% y/y) to the 6.8% spike in October. Residential natural gas prices jumped 8.2% (16.5% y/y), offsetting a 6.0% (47.4% y/y) decline in gasoline prices and a 6.3% (63.0% y/y) fall in fuel oil prices.
Finished food prices increased 0.4% (3.1% y/y) on top of the 1.6% October gain. Fish prices posted a notable gain (18.3% y/y) that offset scattered declines in several other categories..
The 0.2% increase in core finished consumer goods prices reflected a 0.3% (1.8% y/y) rise in durable goods prices that followed two months of 0.4% gain. Core consumer nondurable prices rose 0.2% (1.9% y/y) for the second consecutive month. Finished capital goods prices also rose 0.2% (2.1% y/y) after two months of 0.4% gain.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041210a.jpg" width="353">
Intermediate goods prices were strong again and rose 0.8%, powered last month by a 10.9% (23.8%) rise in natural gas prices paid by public utilities. Core intermediate prices also showed some firmness and rose 0.4%.
Crude prices jumped another 8.7%, doubling October&#39;s 4.3% gain. Core crude prices also rose strong 2.5% but the rate of gain halved versus October. Iron &amp; steel scrap prices rose again (+84.0% y/y as did prices for copper scrap (36.8% y/y) and aluminum scrap (+12.9 y/y. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 51% correlation between the six month change in core crude prices and the change in factory sector industrial production.
&quot;The Historical and Recent Behavior of Goods and Services Inflation&quot; from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/04v10n3/0412peac.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.5%</td>
<td>1.7%</td>
<td>5.1%</td>
<td>3.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>1.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.8%</td>
<td>0.9%</td>
<td>9.7%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.3%</td>
<td>8.0%</td>
<td>2.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>8.7%</td>
<td>4.3%</td>
<td>25.9%</td>
<td>25.1%</td>
<td>-10.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>2.5%</td>
<td>5.4%</td>
<td>26.1%</td>
<td>12.4%</td>
<td>3.8%</td>
<td>-10.0%</td>
</tr>
</tbody>
</table>
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In November, the PPI for finished goods rose 0.5% and again outpaced the Consensus forecast for a 0.2% gain. Less food & energy, a 0.2% rise in "core" prices was as expected. Finished energy prices added 1.8% (19.9% y/y) to the 6.8% [...]

PPI Boosted by Energy & Food, Core As Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041210b.jpg" width="353">
In November, the PPI for finished goods rose 0.5% and again outpaced the Consensus forecast for a 0.2% gain. Less food &amp; energy, a 0.2% rise in &quot;core&quot; prices was as expected.
Finished energy prices added 1.8% (19.9% y/y) to the 6.8% spike in October. Residential natural gas prices jumped 8.2% (16.5% y/y), offsetting a 6.0% (47.4% y/y) decline in gasoline prices and a 6.3% (63.0% y/y) fall in fuel oil prices.
Finished food prices increased 0.4% (3.1% y/y) on top of the 1.6% October gain. Fish prices posted a notable gain (18.3% y/y) that offset scattered declines in several other categories..
The 0.2% increase in core finished consumer goods prices reflected a 0.3% (1.8% y/y) rise in durable goods prices that followed two months of 0.4% gain. Core consumer nondurable prices rose 0.2% (1.9% y/y) for the second consecutive month. Finished capital goods prices also rose 0.2% (2.1% y/y) after two months of 0.4% gain.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041210a.jpg" width="353">
Intermediate goods prices were strong again and rose 0.8%, powered last month by a 10.9% (23.8%) rise in natural gas prices paid by public utilities. Core intermediate prices also showed some firmness and rose 0.4%.
Crude prices jumped another 8.7%, doubling October&#39;s 4.3% gain. Core crude prices also rose strong 2.5% but the rate of gain halved versus October. Iron &amp; steel scrap prices rose again (+84.0% y/y as did prices for copper scrap (36.8% y/y) and aluminum scrap (+12.9 y/y. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 51% correlation between the six month change in core crude prices and the change in factory sector industrial production.
&quot;The Historical and Recent Behavior of Goods and Services Inflation&quot; from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/04v10n3/0412peac.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.5%</td>
<td>1.7%</td>
<td>5.1%</td>
<td>3.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>1.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
</tr>
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<td class="firstcol">Intermediate Goods</td>
<td>0.8%</td>
<td>0.9%</td>
<td>9.7%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.3%</td>
<td>8.0%</td>
<td>2.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>8.7%</td>
<td>4.3%</td>
<td>25.9%</td>
<td>25.1%</td>
<td>-10.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>2.5%</td>
<td>5.4%</td>
<td>26.1%</td>
<td>12.4%</td>
<td>3.8%</td>
<td>-10.0%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Rebounded in December 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 10, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041210c.jpg" width="353">
The University of Michigan&#39;s mid-month reading of consumer sentiment rebounded in December to 95.7, up 3.1% from November. Consensus expectations had expected 93.5.
During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations index added 4.2% m/m to the 1.7% gain in November and the current economic conditions index rose 1.5% for the third consecutive monthly increase.
Consumer sentiment amongst families earning more than $50,000 per year fell slightly m/m but rose 2.0% y/y. Sentiment amongst families earning less than $50,000 per year surged 9.5% m/m (5.3% y/y.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
&quot;Consumer Sentiment and the Media&quot; from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-29.pdf">here</a>.
In advance of next week&#39;s FOMC meeting and also from the Federal Reserve Bank of San Francisco is this reminiscence of events 25 years ago titled &quot;<a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-35.pdf">October 6, 1979</a>&quot; as well as &quot;<a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-28.pdf">Gauging the Market&#39;s Expectations about Monetary Policy</a>.&quot;

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Mid-Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>95.7</td>
<td>92.8</td>
<td>3.3%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.3</td>
<td>104.7</td>
<td>9.6%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>88.8</td>
<td>85.2</td>
<td>-1.1%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041209d.jpg" width="353">
The net worth of the US household sector rose 10.2% last quarter versus 3Q03. The year to year rate of increase is slower than the 14.4% gain in 1Q04.
The rise was driven by a 10.0% y/y rise in total asset values. Tangible asset values rose 13.1% y/y as the value of real estate holdings surged 15.4%. Financial asset values rose a lesser 8.2%, held back by higher interest rates which lowered the value of treasury issues by 19.1%. Money market share values also fell 11.6%. Higher prices in the stock market helped lift the value of mutual fund shares by 18.1% and the value of corporate equities held directly by 7.5%.
Foreign sector holdings of total US assets rose 20.7% y/y raising the foreign sector&#39;s ownership share of total US financial assets to an upwardly revised 12.7% versus 7.0% ten years ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041209c.jpg" width="353">
Growth in total credit market debt outstanding was steady at 7.8%. The federal government and US households continued growing debt at or about a double digit rate and nonfinancial corporations&#39; debt grew just 3.3%.
Total credit market debt owed by the household sector rose 9.8% y/y as home mortgage debt rose 11.5%. Consumer credit rose 4.3%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">3Q04</th>
<th scope="col">2Q04</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>7.8%</td>
<td>7.9%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>9.7%</td>
<td>10.6%</td>
<td>10.9%</td>
<td>7.6%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>9.8%</td>
<td>9.7%</td>
<td>10.3%</td>
<td>9.6%</td>
<td>8.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.6%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>7.8%</td>
<td>8.7%</td>
<td>9.8%</td>
<td>9.0%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total Credit Market Assets</td>
<td></td>
<td>7.8%</td>
<td>7.9%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Household Sector</td>
<td>6%</td>
<td>8.2%</td>
<td>10.8%</td>
<td>14.1%</td>
<td>-7.0%</td>
<td>-4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Rest of World</td>
<td>13%</td>
<td>20.7%</td>
<td>18.5%</td>
<td>15.9%</td>
<td>16.4%</td>
<td>12.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; US Financial Sectors</td>
<td>77%</td>
<td>6.9%</td>
<td>6.8%</td>
<td>7.9%</td>
<td>7.6%</td>
<td>8.1%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$46.7</td>
<td>$46.1</td>
<td>$44.7</td>
<td>$39.7</td>
<td>$41.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets</td>
<td></td>
<td>$21.7</td>
<td>$20.8</td>
<td>$19.9</td>
<td>$18.2</td>
<td>$16.8</td>
</tr>
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The net worth of the US household sector rose 10.2% last quarter versus 3Q03. The year to year rate of increase is slower than the 14.4% gain in 1Q04. The rise was driven by a 10.0% y/y rise in total asset values. Tangible asset [...]

Households' Net Worth Improved Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041209b.jpg" width="353">
Initial unemployment insurance claims unexpectedly rose another 8,000 to 357,000 on top of the 25,000 increase during Thanksgiving week. A decline to 335,000 had been the Consensus expectation. Not seasonally adjusted, claims surged 147,300 last week.
The four week moving average of initial claims rose to 341,250 (-7.8% y/y).
During the last ten years there has been a (negative) 82% correlation between the level of initial claims and the y/y change in payroll employment.
Continuing claims for unemployment insurance surged 91,000 following a deepened 38,000 decline the prior week.
The insured rate of unemployment ticked back up to 2.2% from a revised 2.1% the prior week.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/04/04</th>
<th scope="col">11/27/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
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<td class="firstcol">Initial Claims</td>
<td>357</td>
<td>349</td>
<td>-5.1%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,796</td>
<td>-16.2%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
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Initial unemployment insurance claims unexpectedly rose another 8,000 to 357,000 on top of the 25,000 increase during Thanksgiving week. A decline to 335,000 had been the Consensus expectation. Not seasonally adjusted, claims surged [...]

Initial Claims for Unemployment Insurance Rose Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041209a.jpg" width="353">
Import prices increased 0.2% last month versus the Consensus expectation for no change, the gain held back by a 2.6% decline in petroleum prices. Yesterday&#39;s price for Brent crude oil of $37.52/bbl. versus the November average of $43.17 heralds another decline this month.
Non-petroleum import prices, however, rose a strong 0.7% in November. Strength reflected a 2.8% (16.0% y/y) increase in prices for industrial materials excluding petroleum, driven by a 27.5% (42.5% y/y) increase in natural gas prices.
But prices for other goods firmed as well. Capital goods prices rose 0.2% (-1.5% y/y) following several months of decline. The decline in computer prices eased to -0.1% (-6.9% y/y) and capital goods prices excluding computers rose 0.3% (+1.3% y/y). That y/y rate of increase has been roughly stable since early 2003. Non-auto consumer goods prices increased 0.1% (+0.4% y/y), the largest monthly increase since February. Motor vehicle &amp; parts prices rose 0.2% (2.1% y/y).
During the last fifteen years there has been a (negative) 47% correlation between the nominal broad foreign exchange value of the U.S. dollar and the y/y change in nonpetroleum import prices.
Export prices rose 0.3% as a 0.4% rise in nonagricultural prices (5.5% y/y) offset a 0.1% decline in agricultural prices (-5.2% y/y).
&quot;Easing Out of the Bank of Japan&#39;s Monetary Easing Policy&quot; from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-33.pdf"> here</a>.
&quot;Considering the Capital Account&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20041101/cover.pdf"> here</a>.

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.2%</td>
<td>1.6%</td>
<td>9.5%</td>
<td>2.9%</td>
<td>-2.5%</td>
<td>-3.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-2.6%</td>
<td>11.6%</td>
<td>60.4%</td>
<td>21.0%</td>
<td>3.0%</td>
<td>-17.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>3.4%</td>
<td>1.1%</td>
<td>-2.4%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.3%</td>
<td>0.7%</td>
<td>4.3%</td>
<td>1.6%</td>
<td>-1.0%</td>
<td>-0.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

Import prices increased 0.2% last month versus the Consensus expectation for no change, the gain held back by a 2.6% decline in petroleum prices. Yesterday's price for Brent crude oil of $37.52/bbl. versus the November average of [...]

Import Prices Firmer Than Expected in November

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041209d.jpg" width="353">
The net worth of the US household sector rose 10.2% last quarter versus 3Q03. The year to year rate of increase is slower than the 14.4% gain in 1Q04.
The rise was driven by a 10.0% y/y rise in total asset values. Tangible asset values rose 13.1% y/y as the value of real estate holdings surged 15.4%. Financial asset values rose a lesser 8.2%, held back by higher interest rates which lowered the value of treasury issues by 19.1%. Money market share values also fell 11.6%. Higher prices in the stock market helped lift the value of mutual fund shares by 18.1% and the value of corporate equities held directly by 7.5%.
Foreign sector holdings of total US assets rose 20.7% y/y raising the foreign sector&#39;s ownership share of total US financial assets to an upwardly revised 12.7% versus 7.0% ten years ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041209c.jpg" width="353">
Growth in total credit market debt outstanding was steady at 7.8%. The federal government and US households continued growing debt at or about a double digit rate and nonfinancial corporations&#39; debt grew just 3.3%.
Total credit market debt owed by the household sector rose 9.8% y/y as home mortgage debt rose 11.5%. Consumer credit rose 4.3%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">3Q04</th>
<th scope="col">2Q04</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>7.8%</td>
<td>7.9%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>9.7%</td>
<td>10.6%</td>
<td>10.9%</td>
<td>7.6%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>9.8%</td>
<td>9.7%</td>
<td>10.3%</td>
<td>9.6%</td>
<td>8.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.6%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>7.8%</td>
<td>8.7%</td>
<td>9.8%</td>
<td>9.0%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total Credit Market Assets</td>
<td></td>
<td>7.8%</td>
<td>7.9%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Household Sector</td>
<td>6%</td>
<td>8.2%</td>
<td>10.8%</td>
<td>14.1%</td>
<td>-7.0%</td>
<td>-4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Rest of World</td>
<td>13%</td>
<td>20.7%</td>
<td>18.5%</td>
<td>15.9%</td>
<td>16.4%</td>
<td>12.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; US Financial Sectors</td>
<td>77%</td>
<td>6.9%</td>
<td>6.8%</td>
<td>7.9%</td>
<td>7.6%</td>
<td>8.1%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$46.7</td>
<td>$46.1</td>
<td>$44.7</td>
<td>$39.7</td>
<td>$41.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets</td>
<td></td>
<td>$21.7</td>
<td>$20.8</td>
<td>$19.9</td>
<td>$18.2</td>
<td>$16.8</td>
</tr>
</tbody>
</table>
Import Prices Firmer Than Expected in November 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 9, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041209a.jpg" width="353">
Import prices increased 0.2% last month versus the Consensus expectation for no change, the gain held back by a 2.6% decline in petroleum prices. Yesterday&#39;s price for Brent crude oil of $37.52/bbl. versus the November average of $43.17 heralds another decline this month.
Non-petroleum import prices, however, rose a strong 0.7% in November. Strength reflected a 2.8% (16.0% y/y) increase in prices for industrial materials excluding petroleum, driven by a 27.5% (42.5% y/y) increase in natural gas prices.
But prices for other goods firmed as well. Capital goods prices rose 0.2% (-1.5% y/y) following several months of decline. The decline in computer prices eased to -0.1% (-6.9% y/y) and capital goods prices excluding computers rose 0.3% (+1.3% y/y). That y/y rate of increase has been roughly stable since early 2003. Non-auto consumer goods prices increased 0.1% (+0.4% y/y), the largest monthly increase since February. Motor vehicle &amp; parts prices rose 0.2% (2.1% y/y).
During the last fifteen years there has been a (negative) 47% correlation between the nominal broad foreign exchange value of the U.S. dollar and the y/y change in nonpetroleum import prices.
Export prices rose 0.3% as a 0.4% rise in nonagricultural prices (5.5% y/y) offset a 0.1% decline in agricultural prices (-5.2% y/y).
&quot;Easing Out of the Bank of Japan&#39;s Monetary Easing Policy&quot; from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-33.pdf"> here</a>.
&quot;Considering the Capital Account&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20041101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.2%</td>
<td>1.6%</td>
<td>9.5%</td>
<td>2.9%</td>
<td>-2.5%</td>
<td>-3.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-2.6%</td>
<td>11.6%</td>
<td>60.4%</td>
<td>21.0%</td>
<td>3.0%</td>
<td>-17.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>3.4%</td>
<td>1.1%</td>
<td>-2.4%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.3%</td>
<td>0.7%</td>
<td>4.3%</td>
<td>1.6%</td>
<td>-1.0%</td>
<td>-0.8%</td>
</tr>
</tbody>
</table>
Initial Claims for Unemployment Insurance Rose Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 9, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041209b.jpg" width="353">
Initial unemployment insurance claims unexpectedly rose another 8,000 to 357,000 on top of the 25,000 increase during Thanksgiving week. A decline to 335,000 had been the Consensus expectation. Not seasonally adjusted, claims surged 147,300 last week.
The four week moving average of initial claims rose to 341,250 (-7.8% y/y).
During the last ten years there has been a (negative) 82% correlation between the level of initial claims and the y/y change in payroll employment.
Continuing claims for unemployment insurance surged 91,000 following a deepened 38,000 decline the prior week.
The insured rate of unemployment ticked back up to 2.2% from a revised 2.1% the prior week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/04/04</th>
<th scope="col">11/27/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>357</td>
<td>349</td>
<td>-5.1%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,796</td>
<td>-16.2%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
</tbody>
</table>
</body>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041208c.jpg" width="353">
Revised data for Japan&#39;s Q3 GDP were reported today by the Cabinet Office. This is the usual &quot;second preliminary&quot; report, but it also included the previously announced shift to chain-linking and the rebasing from 1995 to 2000. Now, technically as in other countries that use chain-weighting, there is no &quot;base year&quot;. 2000 is known as the &quot;reference year&quot; and only means that is the period when price indexes are set equal to 100, and therefore nominal and &quot;real&quot; chain-weighted items are equal.
Real GDP rose 0.06% in Q3, minimally less than the original Q3 compilation showing an 0.08% increase. An interim calculation using chain-weighting, which was published on November 18, showed a decrease of 0.03%. Today&#39;s press reports highlight the comparison with the original data, and so conclude that growth is slower. However, in the new data released today, more current input data actually lifted the quarter&#39;s overall performance by a tiny amount from the Interim figure. Longer-run comparisons show that the technical shift in weighting procedures yielded slower growth, but this was to be expected. It isn&#39;t that the economy is actually weaker than thought before, but that there is now a more accurate numerical representation.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041208d.jpg" width="353">
For Q3, more distinguishable shifts occurred in individual GDP components. As seen in the table below, consumer spending is now seen as weaker than before; effects of chain-weighting eroded some of the growth and the routine quarterly revision cut further into it. In contrast, plant and equipment investment was stronger. As we noted in our commentary on the shift to chain-linking in mid-November, the chaining procedure did subtract some investment growth in recent periods. However, new input data brought significant gains to the latest two quarters while diminishing the prior two periods. Thus, although growth over the last year has been the same as in the Interim data, the shift in the quarterly distribution leaves more forward momentum. With other varied economic indicators looking less healthy, this uptrend in Japanese business investment gives some encouragement that business conditions there are not uniformly deteriorating.
As in November, these data were again updated in &quot;real time&quot; by our Asian shift staff. Clients in the Far East and in Europe then had access to the information early in their own workdays. Updates for many series in China, Korea and Hong Kong, among others, are coming now in what for New Yorkers is the evening or middle of the night.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Changes</th>
<th scope="col">3 Qtr 2004</th>
<th scope="col">2 Qtr 2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP: Chain Weighted, 2000 Yen</td>
<td>0.1</td>
<td>-0.1</td>
<td>2.6</td>
<td>1.3</td>
<td>-0.3</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Chain Weighted, 1995 Yen</td>
<td>-0.0</td>
<td>0.0</td>
<td>2.7</td>
<td>1.3</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Weighted, 1995 Prices</td>
<td>0.1</td>
<td>0.3</td>
<td>3.8</td>
<td>2.5</td>
<td>-0.2</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Consumption: Chain Weighted, 2000 Yen</td>
<td>0.2</td>
<td>0.3</td>
<td>2.1</td>
<td>0.2</td>
<td>0.5</td>
<td>1.0</td>
</tr>
<tr>
<td class="firstcol"> Chain Weighted, 1995 Yen</td>
<td>0.6</td>
<td>0.6</td>
<td>3.0</td>
<td>0.2</td>
<td>0.7</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Weighted, 1995 Prices</td>
<td>0.9</td>
<td>0.8</td>
<td>4.0</td>
<td>0.8</td>
<td>1.0</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Investment, Plant &amp; Equipment: Chain Weighted, 2000 Yen</td>
<td>1.1</td>
<td>4.3</td>
<td>7.4</td>
<td>6.2</td>
<td>-6.7</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol"> Chain Weighted, 1995 Yen</td>
<td>-0.8</td>
<td>0.2</td>
<td>7.4</td>
<td>6.8</td>
<td>-6.3</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Weighted, 1995 Prices</td>
<td>-0.2</td>
<td>0.6</td>
<td>9.2</td>
<td>9.6</td>
<td>-6.9</td>
<td>1.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Revised data for Japan's Q3 GDP were reported today by the Cabinet Office. This is the usual "second preliminary" report, but it also included the previously announced shift to chain-linking and the rebasing from 1995 to 2000. Now, [...]

Revisions Bring Modestly Lower Japanese GDP Growth; Data Now Chain-Linked, Rebased to 2000

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041208a.jpg" width="353">
According to the Mortgage Bankers Association (MBA) Survey, mortgage applications rose 3.4% last week following declines during November that, by the end of the month, had pulled the total market index down 11.6%.
Purchase applications rose 6.6% following several weeks of decline that lowered the month-end level 7.3% versus October. During the last ten years there has been a 59% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance added 1.1% to November declines that totaled 17.0%.
The effective interest rate on a conventional 30-year mortgage fell to 5.94% and averaged 5.97% last month versus 5.92% in October. The effective rate on a 15-year mortgage also fell to 5.40% versus 5.42% averaged in November.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
&quot;Perfecting Housing Finance&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20041101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/03/04</th>
<th scope="col">11/26/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>696.2</td>
<td>673.3</td>
<td>15.7%</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>490.9</td>
<td>460.3</td>
<td>22.8%</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,890.6</td>
<td>1,912.3</td>
<td>6.5%</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the Mortgage Bankers Association (MBA) Survey, mortgage applications rose 3.4% last week following declines during November that, by the end of the month, had pulled the total market index down 11.6%. Purchase [...]

Mortgage Applications Bounce Up

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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

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.

U.S. Light Vehicle Sales Fall in April

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The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

Economy in Brief: 2004

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