Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504a.jpg" width="353">
Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average quarterly growth rates during 2004 (2.7%) and 2005 (2.5%).
Output growth surged to 5.8% (4.1% y/y) from just 1.5% during 4Q. That surge was on the back of only a 2.5% (1.7% y/y) rise in hours worked after a 1.8% increase the prior quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504b.jpg" width="353">
Unit labor cost growth of 2.5% was slower than the 4Q increase but nevertheless represented an acceleration in labor cost pressures from a quarterly average of 1.3% during 2005.
Factory sector productivity grew 4.2% (4.1% y/y), right on the firm 4.3% quarterly pace of last year. Compensation grew just 1.5% (3.0% y/y). Therefore unit labor costs in the factory sector declined for the third of the last four quarters, off 2.6% (-1.1% y/y) during 1Q06.
A Leaner, More Skilled U.S. Manufacturing Workforce from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-2.pdf"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504d.jpg" width="353">
The implicit price deflator for the nonfarm business sector rose 2.8% (3.1% y/y) after a 3.6% jump during 4Q05.The rise lifted the ratio of prices to unit labor costs to near the highest level since 1997. During the last ten years there has been an 81% correlation between this ratio and corporate profit margins.
In Why Did U.S. Market Hours Boom in the 1990s?, the Federal Reserve Bank of Minneapolis examines the impact of longer hours worked on productivity &amp; profits. The paper can be found <a href="http://www.minneapolisfed.org/research/SR/SR369.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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>3.2%</td>
<td>-0.3%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>3.4%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>5.7%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>5.4%</td>
<td>4.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.5%</td>
<td>3.0%</td>
<td>1.4%</td>
<td>2.5%</td>
<td>1.1%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average [...]

1Q U.S. Productivity Improved, Profits' Implication Good

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504a.jpg" width="353">
Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average quarterly growth rates during 2004 (2.7%) and 2005 (2.5%).
Output growth surged to 5.8% (4.1% y/y) from just 1.5% during 4Q. That surge was on the back of only a 2.5% (1.7% y/y) rise in hours worked after a 1.8% increase the prior quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504b.jpg" width="353">
Unit labor cost growth of 2.5% was slower than the 4Q increase but nevertheless represented an acceleration in labor cost pressures from a quarterly average of 1.3% during 2005.
Factory sector productivity grew 4.2% (4.1% y/y), right on the firm 4.3% quarterly pace of last year. Compensation grew just 1.5% (3.0% y/y). Therefore unit labor costs in the factory sector declined for the third of the last four quarters, off 2.6% (-1.1% y/y) during 1Q06.
A Leaner, More Skilled U.S. Manufacturing Workforce from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-2.pdf"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504d.jpg" width="353">
The implicit price deflator for the nonfarm business sector rose 2.8% (3.1% y/y) after a 3.6% jump during 4Q05.The rise lifted the ratio of prices to unit labor costs to near the highest level since 1997. During the last ten years there has been an 81% correlation between this ratio and corporate profit margins.
In Why Did U.S. Market Hours Boom in the 1990s?, the Federal Reserve Bank of Minneapolis examines the impact of longer hours worked on productivity &amp; profits. The paper can be found <a href="http://www.minneapolisfed.org/research/SR/SR369.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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>3.2%</td>
<td>-0.3%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>3.4%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>5.7%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>5.4%</td>
<td>4.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.5%</td>
<td>3.0%</td>
<td>1.4%</td>
<td>2.5%</td>
<td>1.1%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504c.jpg" width="353">
Initial claims for jobless insurance rose 5,000 last week to 322,000 from an upwardly revised level the prior period. Consensus expectations had been for 310,000 claims.
The increase pulled the level of claims filed last month up to 314,000. The 1.6% increase versus March was the third m/m rise since the January low when just 286,000 claims were filed.
The four week moving average of initial claims rose to 314,250 (-4.4% y/y).
Continuing claims for unemployment insurance rose for the third consecutive week. The 21,000 increase followed a downwardly revised 14,000 increase the prior week.
The insured unemployment rate remained at 1.9%, where it&#39;s been since early February.
Assessing the impact of job loss on workers and firms from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflapril2006_225a.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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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">04/29/06</th>
<th scope="col">04/22/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>322</td>
<td>317</td>
<td>-5.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,462</td>
<td>-5.5%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
Retail Trade Stagnates in Europe, But Shows Some Vigor in Slovenia and South Africa 
by <a href="/comment/Stone.html">Carol Stone</a> May 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504e.jpg" width="353">
Retailers in several diverse regions are seeing mixed demand, according to data available today for February and March. In the EuroZone12 (the grouping that includes Greece throughout), sales were down 0.8% in March after a 0.1% decrease in February. The March drop carried the total down 0.2% below the year-ago amount. As seen in the table below, retailing in the major European nations has hardly been robust over recent years, and these latest data indicate that the trend is not improving. Food stores are the leader in the downward movement, but sales volume at nonfood stores is also weakening.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504f.jpg" width="353">
Just on the south side of the Euro-Zone, Slovenia&#39;s retail sector looks fairly mixed. Total sales fell in both January and February, but some of February&#39;s weakness is due to quirks in the arithmetic of combining the food and nonfood segments into a common index. Each of these categories actually increased, food stores by 2.0% and nonfood outlets by 1.3%. Food recovered somewhat from a steep 13.5% fall in January. In general, though, consumers in Slovenia have been increasing their spending in stores, with 2005 showing total growth of 7.6%.
Significantly further south, retail trade in South Africa seems to be going strong. After a hesitation in January, sales in February expanded 3.8%, putting the year-on-year gain at 10.4%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504g.jpg" width="353">
All of these retail sales figures are seasonally adjusted and adjusted for inflation. They also exclude motor vehicles. To give these data some context, we consulted some US information, the retail sales dataset prepared by the BEA, which includes comparable adjustments. These sales were flat in March and eased by 0.2% in February. So they&#39;ve slowed too, then, in the last couple of months, although they remain a hefty 7.6% ahead of a year ago. Thus, while European consumers appear to be dragging, in other select regions, they have been spending at a good clip. Now that gasoline prices have taken off again, it will be interesting to see what the reaction of these other spending patterns will be.
The EuroZone data are contained in Haver&#39;s EUROSTAT database as is that for Slovenia. Other Slovenia data are in EMERGECW, and South Africa in EMERGEMA. The US series is from those compiled by the BEA from the original Census data; these appear in USECON in the menu just beneath the main Census entry and also in USNA in the Underlying Detail tables.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mo/Mo &amp; Yr/Yr % Changes, SA*</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EuroZone12</td>
<td>-0.8</td>
<td>-0.1</td>
<td>0.5</td>
<td>-0.2</td>
<td>1.3</td>
<td>1.5</td>
<td>0.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food</td>
<td>-1.0</td>
<td>-0.1</td>
<td>0.8</td>
<td>-0.9</td>
<td>0.7</td>
<td>1.2</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonfood</td>
<td>-0.5</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.5</td>
<td>1.8</td>
<td>1.7</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Slovenia</td>
<td>--</td>
<td>-1.1</td>
<td>-5.3</td>
<td>4.8</td>
<td>7.6</td>
<td>2.6</td>
<td>3.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food</td>
<td>--</td>
<td>2.0</td>
<td>-13.5</td>
<td>-1.7</td>
<td>7.4</td>
<td>3.3</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonfood</td>
<td>--</td>
<td>1.3</td>
<td>0.4</td>
<td>12.7</td>
<td>7.1</td>
<td>2.6</td>
<td>8.0</td>
</tr>
<tr class="odd">
<td class="firstcol">South Africa</td>
<td>--</td>
<td>3.8</td>
<td>-1.0</td>
<td>10.4</td>
<td>6.7</td>
<td>9.7</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">United States**</td>
<td>0.0</td>
<td>-0.2</td>
<td>2.2</td>
<td>7.6</td>
<td>6.1</td>
<td>6.3</td>
<td>4.5</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/060503g.jpg" width="353">
Today, ADP, the well-known payroll processors for many employers, published an estimate of the upcoming nonfarm payroll data for April, pointing to an increase in private sector employment of 178,000 for the month (1.9% y/y). They have compiled this from their substantial database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator meant to project the BLS&#39;s official number. This 178,000 gain would follow March&#39;s 133,000 rise. 
These data are called the &quot;ADP National Employment Report&quot;. The series will be maintained in Haver&#39;s USECON database; historical data go back to December 2000. Importantly, the figures in this report cover only private sector jobs and exclude employment in the public sector, which grew an average of 13,000 per month over the last year. The monthly change also obviously varies, and indeed ranged from a decline of 34,000 to an increase of 35,000. This would be a significant difference between the ADP number and total nonfarm payrolls. Some analysts indicated that ADP&#39;s April estimate of 178,000 in private sector jobs would correspond to a gain in total payrolls of 200,000.
Unlike other indicators of the US labor market, such as unemployment insurance claims, the ADP measure is directly comparable to the kind of data in the official BLS report. Automatic Data Processing, Inc. is the nation&#39;s leading provider of payroll-related services. Their figure is based on information about 24,000,000 jobholders; this is distilled to cover the numbers actually on payrolls during the BLS survey week, about 14,000,000. The report will be issued at 8:15AM on the Wednesday prior to each employment release. 
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90. The estimator is shown by the firms&#39; analysis to outperform current &quot;consensus&quot; forecasts and models based on claims data. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/ADP_NER_Report_April.pdf">here</a>, and their methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nonfarm Private Payroll Employment (Chg.)</td>
<td>178,000</td>
<td>133,000</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
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Today, ADP, the well-known payroll processors for many employers, published an estimate of the upcoming nonfarm payroll data for April, pointing to an increase in private sector employment of 178,000 for the month (1.9% y/y). They [...]

ADP National Employment Report & U.S. Payrolls

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503f.jpg" width="353">
Factory inventories rose 0.7% during March and more than made up for an unrevised 0.4% drop the prior month.
Much of the prior month&#39;s inventory decline had been due to lower computers &amp; electronic products which fully recovered with a 2.9% (4.1% y/y) rise. Machinery inventories also were down in February and then rose in March by 1.0% (6.0% y/y) while a 0.2% decline in electrical equipment inventories (6.1% y/y) also fully reversed.
Continuing with earlier accumulation, inventories of furniture &amp; related products jumped 1.9% (5.5% y/y) while primary metals inventories added 0.2% (0.5% y/y) to the very strong accumulation of January &amp; February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503e.jpg" width="353">
Total factory orders jumped 4.2% due to a 6.5% surge in durable goods orders, revised up from the advance report of a 6.1% surge. That was goosed by orders for nondefense aircraft &amp; parts which rose 71.3% (329.9% y/y). Factory orders less the transportation sector altogether rose 2.2% (6.8% y/y) and reversed all of the prior month&#39;s decline.
Factory shipments rose 0.8% and reversed most of a February drop while less transportation shipments gained back half of the February drop with a 0.8% increase (6.0% y/y). Petroleum shipments rose 7.8% (7.3% y/y). Factory shipments less transportation &amp; petroleum ticked up 0.1% (5.9% y/y).
Unfilled orders ballooned 2.9% due to the strength of aircraft orders. Nevertheless, less the transportation sector altogether backlogs rose 1.5% (11.1% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.7%</td>
<td>-0.4%</td>
<td>3.4%</td>
<td>4.4%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>4.2%</td>
<td>0.4%</td>
<td>11.6%</td>
<td>8.5%</td>
<td>9.3%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.8%</td>
<td>-1.2%</td>
<td>6.1%</td>
<td>7.4%</td>
<td>9.5%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>2.9%</td>
<td>1.1%</td>
<td>21.1%</td>
<td>16.5%</td>
<td>8.4%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
</body>
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Factory inventories rose 0.7% during March and more than made up for an unrevised 0.4% drop the prior month. Much of the prior month's inventory decline had been due to lower computers & electronic products which fully recovered with [...]

U.S. Factory Inventories Accumulate

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503d.jpg" width="353">
In April, the Business Activity Index for the non-manufacturing sector rose a convincing two and one half points to the highest level since August, reported the Institute for Supply Management (ISM). The rise to 63.0 by far outpaced Consensus expectations for a decline to 59.5.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders index jumped five points to 64.6, the highest level since 2004 while the employment index recouped about half of the prior month&#39;s decline with a rise to 56.5 and was up from the 2005 average of 55.9. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power recovered all of the March decline and rose ten points to the highest level since November. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>63.0</td>
<td>60.5</td>
<td>60.4</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>70.5</td>
<td>60.5</td>
<td>64.1</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


</html>

In April, the Business Activity Index for the non-manufacturing sector rose a convincing two and one half points to the highest level since August, reported the Institute for Supply Management (ISM). The rise to 63.0 by far outpaced [...]

ISM Nonmanufacturing Index Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503b.jpg" width="353">
US light vehicle sales rose a slight 0.9% during April to 16.74M units according to the Autodata Corporation. The sales level matched Consensus expectations.
The rough month-to-month stability of the total, however, masked divergent underlying patterns. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503c.jpg" width="353">
Perhaps reflecting the effects of higher fuel costs, sales of domestic trucks fell a sharp 6.6% (-9.3% y/y) and that decline pulled overall light truck sales down 4.8% (-6.1% y/y) last month. Sales of the relatively fuel efficient imported light trucks, in contrast, rose 5.6% (15.0% y/y).
Auto sales during April rose 7.8% (0.8% y/y) led by an 11.3% jump in imported car sales (12.3% y/y) to 2.58M units, the highest level since early 1990. Sales of domestic autos also improved 6.3% (-3.8% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503a.jpg" width="353">
Imports&#39; share of the US light vehicle market surged to another record level, at 23.8%. For the first four months of 2006 imports&#39; share averaged 21.2% versus 20.3% during all of last year.
Inventories of domestically made autos fell 10.2% y/y through February while truck inventories, domestics &amp; imports, through March were off 2.7% y/y.
Production of autos was up 14.5% through March though the GDP estimate of total real motor vehicle output through 1Q was down 2.5% y/y.
The U.S. auto supplier industry in transition from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflmay2006_226.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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.74</td>
<td>16.59</td>
<td>-2.9%</td>
<td>16.92</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.00</td>
<td>7.42</td>
<td>0.8%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.74</td>
<td>9.17</td>
<td>-6.1%</td>
<td>9.27</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
</body>
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US light vehicle sales rose a slight 0.9% during April to 16.74M units according to the Autodata Corporation. The sales level matched Consensus expectations. The rough month-to-month stability of the total, however, masked divergent [...]

U.S. Auto Sales Up, Light Truck Sales Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503b.jpg" width="353">
US light vehicle sales rose a slight 0.9% during April to 16.74M units according to the Autodata Corporation. The sales level matched Consensus expectations.
The rough month-to-month stability of the total, however, masked divergent underlying patterns. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503c.jpg" width="353">
Perhaps reflecting the effects of higher fuel costs, sales of domestic trucks fell a sharp 6.6% (-9.3% y/y) and that decline pulled overall light truck sales down 4.8% (-6.1% y/y) last month. Sales of the relatively fuel efficient imported light trucks, in contrast, rose 5.6% (15.0% y/y).
Auto sales during April rose 7.8% (0.8% y/y) led by an 11.3% jump in imported car sales (12.3% y/y) to 2.58M units, the highest level since early 1990. Sales of domestic autos also improved 6.3% (-3.8% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503a.jpg" width="353">
Imports&#39; share of the US light vehicle market surged to another record level, at 23.8%. For the first four months of 2006 imports&#39; share averaged 21.2% versus 20.3% during all of last year.
Inventories of domestically made autos fell 10.2% y/y through February while truck inventories, domestics &amp; imports, through March were off 2.7% y/y.
Production of autos was up 14.5% through March though the GDP estimate of total real motor vehicle output through 1Q was down 2.5% y/y.
The U.S. auto supplier industry in transition from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflmay2006_226.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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.74</td>
<td>16.59</td>
<td>-2.9%</td>
<td>16.92</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.00</td>
<td>7.42</td>
<td>0.8%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.74</td>
<td>9.17</td>
<td>-6.1%</td>
<td>9.27</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503d.jpg" width="353">
In April, the Business Activity Index for the non-manufacturing sector rose a convincing two and one half points to the highest level since August, reported the Institute for Supply Management (ISM). The rise to 63.0 by far outpaced Consensus expectations for a decline to 59.5.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders index jumped five points to 64.6, the highest level since 2004 while the employment index recouped about half of the prior month&#39;s decline with a rise to 56.5 and was up from the 2005 average of 55.9. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power recovered all of the March decline and rose ten points to the highest level since November. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>63.0</td>
<td>60.5</td>
<td>60.4</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>70.5</td>
<td>60.5</td>
<td>64.1</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>
U.S. Factory Inventories Accumulate 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503f.jpg" width="353">
Factory inventories rose 0.7% during March and more than made up for an unrevised 0.4% drop the prior month.
Much of the prior month&#39;s inventory decline had been due to lower computers &amp; electronic products which fully recovered with a 2.9% (4.1% y/y) rise. Machinery inventories also were down in February and then rose in March by 1.0% (6.0% y/y) while a 0.2% decline in electrical equipment inventories (6.1% y/y) also fully reversed.
Continuing with earlier accumulation, inventories of furniture &amp; related products jumped 1.9% (5.5% y/y) while primary metals inventories added 0.2% (0.5% y/y) to the very strong accumulation of January &amp; February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503e.jpg" width="353">
Total factory orders jumped 4.2% due to a 6.5% surge in durable goods orders, revised up from the advance report of a 6.1% surge. That was goosed by orders for nondefense aircraft &amp; parts which rose 71.3% (329.9% y/y). Factory orders less the transportation sector altogether rose 2.2% (6.8% y/y) and reversed all of the prior month&#39;s decline.
Factory shipments rose 0.8% and reversed most of a February drop while less transportation shipments gained back half of the February drop with a 0.8% increase (6.0% y/y). Petroleum shipments rose 7.8% (7.3% y/y). Factory shipments less transportation &amp; petroleum ticked up 0.1% (5.9% y/y).
Unfilled orders ballooned 2.9% due to the strength of aircraft orders. Nevertheless, less the transportation sector altogether backlogs rose 1.5% (11.1% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.7%</td>
<td>-0.4%</td>
<td>3.4%</td>
<td>4.4%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>4.2%</td>
<td>0.4%</td>
<td>11.6%</td>
<td>8.5%</td>
<td>9.3%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.8%</td>
<td>-1.2%</td>
<td>6.1%</td>
<td>7.4%</td>
<td>9.5%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>2.9%</td>
<td>1.1%</td>
<td>21.1%</td>
<td>16.5%</td>
<td>8.4%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
ADP National Employment Report & U.S. Payrolls 
by <a href="/comment/Moeller.html">Carol Stone and Tom Moeller</a> May 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503g.jpg" width="353">
Today, ADP, the well-known payroll processors for many employers, published an estimate of the upcoming nonfarm payroll data for April, pointing to an increase in private sector employment of 178,000 for the month (1.9% y/y). They have compiled this from their substantial database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator meant to project the BLS&#39;s official number. This 178,000 gain would follow March&#39;s 133,000 rise. 
These data are called the &quot;ADP National Employment Report&quot;. The series will be maintained in Haver&#39;s USECON database; historical data go back to December 2000. Importantly, the figures in this report cover only private sector jobs and exclude employment in the public sector, which grew an average of 13,000 per month over the last year. The monthly change also obviously varies, and indeed ranged from a decline of 34,000 to an increase of 35,000. This would be a significant difference between the ADP number and total nonfarm payrolls. Some analysts indicated that ADP&#39;s April estimate of 178,000 in private sector jobs would correspond to a gain in total payrolls of 200,000.
Unlike other indicators of the US labor market, such as unemployment insurance claims, the ADP measure is directly comparable to the kind of data in the official BLS report. Automatic Data Processing, Inc. is the nation&#39;s leading provider of payroll-related services. Their figure is based on information about 24,000,000 jobholders; this is distilled to cover the numbers actually on payrolls during the BLS survey week, about 14,000,000. The report will be issued at 8:15AM on the Wednesday prior to each employment release. 
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90. The estimator is shown by the firms&#39; analysis to outperform current &quot;consensus&quot; forecasts and models based on claims data. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/ADP_NER_Report_April.pdf">here</a>, and their methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.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/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nonfarm Private Payroll Employment (Chg.)</td>
<td>178,000</td>
<td>133,000</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060502e.jpg" width="353">
The British Bankers&#39; Association released figures on mortgage and consumer credit lending today. Outstanding mortgages were up 0.12% from February and 3.54% above March 2005. Consumer credit outstanding, on the contrary, declined 1.82% from February and was 7.18% below March, 2005.
The year-to-year changes in outstanding mortgage and consumer credit have been declining since mid-2004. The deceleration in mortgages has been modest compared to that in consumer credit as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060502f.jpg" width="353">
The decline in credit card debt is reflected in the decline over the past year or so in retail sales of household goods. The second chart shows the year-to-year change in retail sales of household goods and the net increase in consumer credit outstandings. Both series are seasonally unadjusted.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060502g.jpg" width="353">
Banks have been playing a smaller proportional role in mortgage lending as Other Specialist Lenders (Non-bank UK credit grantors and specialist mortgage lenders) have taken a larger share of the market. Banks&#39; share in the market has gone from 72.0% in 2000 to 59.4% in 2005, while that of Other Specialist Lenders has risen from 7.7% to 22.3%. The share of Building Societies has declined moderately from 20.0% to 17.9%. The share of other lenders has been insignificant. The year-to-year changes in outstanding mortgages at Banks and at Other Specialist lenders are shown in the third chart. While the yearly increases in Other Specialist Lenders have been declining they are still increasing at rates of almost 30% compared to about 5% for Banks.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U1/@U106/@U106.HTM">United Kingdom</a></th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M % </th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">BBA Consumer Credit Outstanding (Bil. GBP)</td>
<td>31.2</td>
<td>31.8</td>
<td>33.6</td>
<td>-1.82</td>
<td>-7.18</td>
<td>33.4</td>
<td>34.0</td>
<td>28.7</td>
</tr>
<tr>
<td class="firstcol">BBA Mortgages Outstanding (Bil.GBP)</td>
<td>513.6</td>
<td>513.0</td>
<td>496.1</td>
<td>0.12</td>
<td>3.54</td>
<td>521.1</td>
<td>496.4</td>
<td>468.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Mortgage Lending by: %</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
<td> 2000 </td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Banks</td>
<td>59.4</td>
<td>61.8</td>
<td>65.9</td>
<td>69.1</td>
<td>41.0</td>
<td>72.0</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Building Societies</td>
<td>&nbsp;17.9</td>
<td>18.2&nbsp;</td>
<td>18.4</td>
<td>18.3&nbsp;</td>
<td>&nbsp;19.2</td>
<td>&nbsp;20.0</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Other Specialist Lenders</td>
<td>22.3</td>
<td>19.6</td>
<td>15.4</td>
<td>12.1</td>
<td>9.7</td>
<td>7.7</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Other Lenders</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
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The British Bankers' Association released figures on mortgage and consumer credit lending today. Outstanding mortgages were up 0.12% from February and 3.54% above March 2005. Consumer credit outstanding, on the contrary, declined [...]

UK Mortgage Lending Up but Consumer Credit Down

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

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Sandy Batten

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Industrial production (IP) rose a much larger-than-expected 0.7% m/m in April, rebounding from an upwardly revised 0.3% m/m decline in March (previously -0.5% m/m), according to data released by the Federal Reserve Board. The Action Economics Survey looked for a 0.2% monthly gain. The y/y rate also rebounded in April, rising to 1.4% y/y after having fallen to 0.7% in March. IP has clearly trended up since late last year. Since November 2025, it has grown at a 3.6% annual rate. The current level of output is the highest since August 2019 but is still 1.5% below the November 2018 series peak.

Manufacturing output led the April rebound, rising 0.6% m/m (1.3% y/y) following an upwardly revised 0.1% monthly increase in March (previously -0.1% m/m). Mining output fell in April for the second consecutive month, edging down 0.1% m/m (+0.2% y/y) after a 1.6% monthly drop in March (revised down from -1.2% m/m). Utilities production rebounded in April, jumping 1.6% m/m (2.7% y/y) and more than offsetting a 1.4% monthly decline in March (revised up from -2.3% previously). The rebound in utilities output reflected a 1.1% rise in electricity production and a 7.3% monthly jump in natural gas distribution, the first monthly gain in four months.

Within manufacturing, durable goods production jumped 1.2% m/m (3.2% y/y) in April after having been unchanged in March. A 3.7% m/m rebound in motor vehicles and parts production, the largest monthly gain since May 2025, led the April increase. Motor vehicles and parts production had fallen 2.4% m/m in March. Production of computers and electronic products increased 1.5% m/m, the fourth consecutive monthly rise. Aerospace output rose 1.6% m/m in April, the third consecutive monthly gain and the largest since July 2025. By contrast, furniture production fell 1.8% m/m, the third consecutive monthly decline. 

Output of nondurable manufactured goods edged down 0.1% m/m (-0.6% y/y) in April, the first monthly decline in four months. Production of apparel and leather goods slumped 2.2% m/m on top of a 2.0% monthly fall in March. Chemical output fell 0.9% m/m in April, its first monthly decline in four months. Output of plastics and rubber products fell 0.9% m/m, the first monthly fall in four months. By contrast, production of petroleum and coal products rose 1.0% m/m in April, the same monthly increase as in March.

By market group, output of consumer goods rebounded in April, increasing 0.9% m/m (-0.2% y/y) following a 0.8% m/m decline in March. Production of business equipment surged 1.5% m/m (+6.0% y/y) in April, the largest monthly gain since March 2025. Output of construction supplies was unchanged in April from March (+1.2% y/y) following a 0.9% m/m gain in March. Materials production rebounded in April, rising 0.5% m/m (1.2% y/y) after a 0.4% m/m decline in March.

In special classifications, output of selected high-tech industries increased 1.0% m/m (+9.2% y/y) in April following a 0.5% monthly gain in March. The rebound in motor vehicles and parts production reflected a 5.3% monthly surge in vehicle output, the largest monthly gain since May 2025. Manufacturing output excluding selected high-tech industries rose 0.6% m/m in April, the largest increase since February 2025, following a 0.1% m/m increase in March. Manufacturing output excluding both selected high-tech industries and motor vehicles and parts advanced 0.3% m/m in April, the same monthly gain as in March.

Capacity utilization rose to 76.1% in April from 75.7% in March. The April reading was the highest since last August but was still 3.3%-points below its long-term (1972-2025) average. Manufacturing capacity utilization increased to 75.8% in April from 75.4% in March, 2.4%-points below its long-term average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.



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- Total industrial output increased a much larger-than-expected 0.7% m/m in April with a small upward revision to March.
- Manufacturing output increased 0.6% m/m, led by a 5.3% m/m rebound in vehicle production.
- Mining output edged down 0.1% m/m, while utilities production rose1.9% m/m.
- The headline rate of capacity utilization rose to 76.1% in April, its highest reading since last August but still well below its long-term average.


U.S. Industrial Production Jumped in April

Andrew Cates

**A Tug of War Between AI Hope and Geopolitical Shock**
The latest Blue Chip Economic Indicators survey highlights a growing divergence between economies benefiting from AI-driven optimism and those more exposed to the inflationary consequences of renewed geopolitical instability. Taiwan stands out as the clearest AI beneficiary, with growth forecasts revised sharply higher while inflation expectations have risen only modestly, reflecting surging semiconductor demand and continued investment in global technology supply chains. China also remains relatively resilient, supported by ongoing AI-related capital spending and stronger technology sectors. By contrast, the euro area and UK have seen much larger upward revisions to inflation forecasts alongside weaker or declining growth expectations, underscoring their greater vulnerability to the recent Middle East shock and higher energy costs. Korea sits somewhere in between: benefiting from the AI hardware cycle but still exposed to trade and energy headwinds. Overall, the chart illustrates the increasingly important push-and-pull shaping the global outlook: AI optimism and productivity hopes on one side, and geopolitical fragmentation, energy insecurity and supply-side inflation pressures on the other.

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**Forecasters See Contained Pass-Through**
Against this backdrop, our latest Blue Chip special question sought to gauge whether economists believe the recent rise in energy prices will remain largely contained — or whether it risks spilling more meaningfully into underlying global inflation dynamics. The results suggest forecasters have become somewhat less concerned about a broad and persistent inflationary impulse since April. A larger share of respondents in the May survey now expect only a “limited and temporary” pass-through into core inflation, while the proportion anticipating “moderate and persistent” effects has declined noticeably. Very few panelists expect significant second-round effects, implying that most still believe inflation expectations and wage-setting behaviour remain relatively well anchored. In part, this reflects confidence in central bank credibility and the view that softer global demand conditions will constrain firms’ pricing power. Yet the persistence of a sizeable minority still expecting moderate pass-through underscores the uncomfortable tension facing policymakers. 

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**Energy Reawakens as a US Inflation Driver**
While survey respondents generally expect only limited pass-through from higher energy prices into broader inflation, the latest US CPI data provide a reminder that the process may already be underway at the margin. April’s CPI report showed core inflation coming in slightly firmer than expected, suggesting underlying price pressures remain more persistent than many policymakers had hoped. The decomposition of CPI inflation highlights that services continue to dominate overall inflation dynamics, reflecting still-elevated wage and labour-intensive price pressures across the economy. However, the more notable recent development has been the renewed contribution from energy prices, which had previously acted as a disinflationary force through much of 2025. Food inflation has also remained comparatively steady, while non-energy goods prices continue to exert only modest upward pressure despite ongoing tariff and supply-chain concerns. Taken together, the data reinforce the idea that the US economy is not facing a classic demand collapse, but rather a more uncomfortable supply-side environment in which geopolitical energy shocks risk colliding with still-resilient domestic demand, AI-related investment spending and sticky service-sector inflation.

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**AI: The Powerful Counterweight to Geopolitical Headwinds**
If rising energy prices and geopolitical instability represent one major force shaping the current macroeconomic outlook, the extraordinary surge in AI-related investment represents the other. The latest data from Our World in Data show global private investment in AI accelerating sharply again in 2025, reaching close to $300 billion — more than double the level seen just two years earlier. The United States continues to dominate the global AI landscape, accounting for the overwhelming majority of private investment spending, while China and Europe remain considerably smaller contributors despite continued growth. The scale and speed of the 2025 increase is particularly striking given the broader backdrop of elevated policy uncertainty, trade fragmentation and concerns about slowing global productivity growth. In effect, the global economy is now being pulled in two competing directions: on one side, geopolitical tensions, supply-chain fragilities and more recent energy shocks are weighing on confidence and raising supply-side costs; on the other, AI enthusiasm is driving an enormous wave of capital expenditure, infrastructure build-out and technology-related demand. This helps explain why growth expectations — particularly in the US and parts of Asia — have remained comparatively resilient despite an increasingly uncertain global environment.

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**Industrial Winners and Losers in a Fragmenting Global Economy**
The divergence in industrial performance across advanced economies has become increasingly striking. Taiwan has emerged as one of the clearest beneficiaries of the global AI boom, with industrial production surging as semiconductor demand, data-centre investment and advanced electronics exports continue to accelerate. Denmark has also significantly outperformed, though for very different reasons, with the extraordinary global success of its pharmaceutical sector — particularly weight-loss and diabetes drugs — driving a powerful expansion in manufacturing output. By contrast, the UK and Germany have experienced a far weaker industrial recovery. In both cases, elevated energy costs and greater dependence on imported energy have weighed heavily on industrial competitiveness since the post-pandemic energy shock. Germany’s large manufacturing sector has been particularly exposed to higher natural gas prices and weaker external demand, while the UK has continued to struggle with a combination of high energy costs, weak productivity growth and subdued business investment. The chart highlights an increasingly important feature of the global economy: countries exposed to powerful structural growth themes such as AI or pharmaceuticals are pulling away from those still burdened by energy dependence and deteriorating industrial competitiveness.

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**China’s Pulse Is Picking Up Again**
China’s economic backdrop has shown clearer signs of improvement in recent months, with both the Citigroup Economic Surprise Index and the Yicai High Frequency Economic Activity Index moving higher. The rebound suggests that incoming data have begun consistently outperforming expectations after a prolonged period of disappointment. Part of the recent improvement likely reflects the cumulative effects of policy easing, including targeted fiscal support, infrastructure spending and further efforts to stabilise the property sector. Export demand has also remained more resilient than many expected, helped in part by the continued strength of global technology and AI-related supply chains. At the same time, improving domestic mobility and energy usage indicators point to firmer underlying activity momentum. The Yicai index itself is designed to provide a near real-time pulse of the Chinese economy using a basket of high-frequency indicators including subway usage, air pollution, coal consumption, freight activity, unemployment and bankruptcy trends. While China still faces significant structural headwinds — including weak household confidence, property-sector fragilities and deflationary pressures — the recent pickup suggests that growth momentum may be stabilising at a time when several other major economies are becoming more vulnerable to geopolitical and energy-related shocks.

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The global economy is still caught between two powerful and competing forces. On one side, the AI investment boom continues to support growth, industrial activity and equity markets, particularly in the US and parts of Asia. On the other, renewed Middle East tensions and higher energy prices are adding to inflation risks and broader policy uncertainty. The latest Blue Chip survey reflects this divide clearly: growth expectations have generally held up best in economies tied to AI-related investment and technology supply chains, while inflation forecasts have risen more sharply in more energy-exposed economies such as the UK and euro area (chart 1). Forecasters still largely expect only limited pass-through from higher energy prices into core inflation, although recent US CPI data suggest underlying price pressures remain somewhat sticky (charts 2 and 3). At the same time, the extraordinary continued surge in global AI investment — now approaching $300 billion annually — highlights the sheer scale of capital being deployed into semiconductors, data centres and digital infrastructure, particularly in the United States (chart 4). The divergence in industrial production trends also reinforces the growing gap between economies benefiting from structural growth drivers — such as Taiwan’s semiconductor sector and Denmark’s pharmaceutical industry — and those struggling with higher energy costs and weaker competitiveness, notably Germany and the UK (chart 5). Meanwhile, improving Chinese activity indicators suggest policy support and stronger technology demand may finally be helping to stabilise growth (chart 6). Overall, the world economy remains resilient, but increasingly uneven, with AI-related investment continuing to offset — though not eliminate — the drag from geopolitical fragmentation and rising energy insecurity.

Charts of the Week: The Tug of War

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Total retail sales rose a solid 0.5% m/m (4.9% y/y) in April on top of a slightly downwardly revised 1.6% monthly jump in March (previously 1.7%), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 05% m/m gain. Excluding autos, other sales increased 0.7% m/m (6.3% y/y) in April following an unrevised 1.9% monthly jump in March. Expectations were for a 0.6% monthly increase. The strong performance in March and the additional solid gain in April put the April level up 7.8% at an annual rate from the Q1 average, providing a very solid start for Q2.

As expected, the continued rise in retail gasoline prices boosted gasoline sales further in April. Gasoline sales increased 2.8% m/m in April following a 13.7% m/m surge in March and accounted for more than 40% of the April increase in total sales. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.3% m/m in April versus a 0.7% monthly gain in March. Sales excluding both autos and gasoline increased 0.5% m/m in April following a 0.7% m/m rise in March.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in March, rising 0.5% m/m in April following an upwardly revised 0.8% m/m increase in March (previously (0.7% m/m). The solid performances of the control group sales in March and April provide a strong start to Q2. April control-group sales are 5.4% at an annual rate above the Q1 average, in line with the 5.7% annualized increase in Q1. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales across major sectors were varied in April. Consumers clearly spent more on necessities, owing largely to higher prices. Food sales increased 0.8% m/m in April on top of a 1.0% m/m rise in March. And as already noted, gasoline sales posted another outsized monthly increase. By contrast, department store sales slumped 3.2% m/m, clothing sales fell 1.5% m/m, auto sales declined 0.4% m/m and furniture sales fell 2.0% m/m. More encouragingly, sales of nonstore retailers rose 1.1% m/m, their fourth consecutive solid monthly gain. And sales at restaurants increased 0.6% m/m in April, their third consecutive monthly rise. Analysts frequently use restaurant sales as a barometer of consumer attitudes, believing that consumers would not eat out regularly if they were under serious financial stress.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.


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- Total sales increase 0.5% m/m in April after a 1.6% monthly jump in March.
- Gasoline sales rose 2.8% m/m in April on top of a 13.7% surge in March.
- Auto sales fell 0.4% m/m after a 0.6% m/m rise in March.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in April versus a 0.7% m/m rise in March.
- Sales of the retail control group that is used to construct PCE rose 0.5% m/m in April and are 5.4% annualized above the Q1 average, providing a good start to Q2.


U.S. Retail Sales Slowed in April But Remained Solid

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 12,000 to 211,000 in the week ending May 9, from 199,000 in the week ending May 2, revised from 200,000. The four-week average rose 750 to 203,750 in the week ending May 9, from 203,000 the May 2 week, revised from 203,250. The Action Economics/Haver Analytics Survey looked for 205,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 24,000 to 1.782 million in the week ending May 2, from 1.758 million in the week ending April 25, revised from 1.766 million. The four-week moving average declined to 1.781 million in the latest week from 1.788 million in the April 25 week. The four-week moving average reached the lowest level since May 2024. The insured unemployment rate rose back to 1.2% in the week of May 2 from the one-week dip to 1.1% in the April 25 week. It had been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 25, the highest unemployment rates were in Rhode Island (2.29%), New Jersey and Massachusetts (both 2.20%), and Washington (2.15%). The lowest rates were in Florida and Louisiana (both 0.31%), South Dakota (0.32%), Alabama and Arkansas (both 0.36%), North Carolina (0.38%), Tennessee (0.47%) and Iowa, Kansas and Virginia (all 0.48%). Rates in other notable states include California (1.99%), New York (1.66%), Illinois (1.56%), Pennsylvania (1.28%), and Texas (1.03%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.


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- New claims rose by 12,000 to 211,000.
- Continuing claims rose by 24,000 to 1.782 million.
- The insured unemployment rate was back up to 1.2% in the week of May 2, from the one-week dip to 1.1% the prior week.

U.S. Initial Unemployment Claims rose in the Week of May 9

Robert Brusca

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UK GDP grew by 2.5% in 2026-Q1. GDP growth quarterly was last this strong in 2024-Q2 and last stronger in 2024-Q1. This is the strongest quarterly growth in about two years. Private consumption surged in 2026-Q1, rising at a 2.4% annual rate. Capital formation and housing each backed off in the last two quarters. This is the opposite form the US where investment is strongly pushing growth ahead.

On the international side of the ledger, UK exports rose at a 0.4% annualized rate in the quarter while imports rose by a strong 2.6% annual rate, still, viewed on its own, domestic demand rose at a 3.2% annual rate.

Domestic demand growth has picked up to over 1% at 1.5% on a year-over-year basis. That is a good development. However, it is still a weak showing. Over the last 26 years domestic demand’s Year-on-year gain ranks at its 30th-percentiel; it has been weaker than this only about 30% of the time. But over the last nearly four-years the 1.5% gain is just below its median. This gives some indication of how weak growth has been in the post-Covid period. The UK was still in a post Brexit environment, when it had to deal with Covid, the invasion of Ukraine, and now the Middle East. At the same time, it has had a considerable amount of its own political turmoil and still does. 

The chart above shows the snake crawl of GDP that continues to depict growth in the EMU area. That is a continuing weak environment- one of the UK’s important export markets. Europe’s fixation on social welfare spending and the need to tax to pay for it has robbed the economy of its dynamism. Still, both the UK and the Euro-Area continue to have lingering inflation issues. And both show current inflation in an upswing. 

**Central bankers' inflation and growth** 
Central banks are playing a waiting game, the best that they can. Major money center country central banks have been consistently overshooting their inflation targets since Covid. And despite excess inflation banks have been reluctant to hike rates and have instead pursued a strategy of persisting slow rate reduction. It has been a curious period in which central banks have kept their inflation target goals but simply have been content to miss their targets in the short run and promise to thit them in the long run. This is clearly a policy of only temporary usefulness because it is bound to blow up, the longer inflation fails to be controlled at its targeted pace. For now, UK interest rates remain higher than in Europe, closer to the level in the US and with a monetary policy committee that seems determined to stop the overshoot as oil prices flare. We’ll see if the BOE MPC members are really ready to pull the trigger on higher rates as UK GDP growth looks firmer. 



Economy in Brief: 2006

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1Q U.S. Productivity Improved, Profits' Implication Good

1Q U.S. Productivity Improved, Profits' Implication Good

ADP National Employment Report & U.S. Payrolls

U.S. Factory Inventories Accumulate

ISM Nonmanufacturing Index Up Again

U.S. Auto Sales Up, Light Truck Sales Down

U.S. Auto Sales Up, Light Truck Sales Down

UK Mortgage Lending Up but Consumer Credit Down