Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108c.jpg" width="353">
The results of the Bank of Canada&#39;s Winter Business Outlook Survey were released today. The survey is conducted by analysts at the bank&#39;s regional offices who interviews senior management of approximately 100 firms. The regional offices tally the percent of respondents who see improvement over the next twelve months, those who see deterioration and those whose see no change.The balance of opinion is the difference between those who see improvement and those who see deterioration.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108d.jpg" width="353">
While there are bright spots in Winter Survey, the overall impression one gets is that of a slowing economy. The balance of opinion on sales improved in the current survey to 6.93% from 2.97% in the Fall Survey, but was 8.91 percentage points below the 2005 Winter Survey. Managements, in general, have tended to be less optimistic about future sales since early 2004, as can be seen in the first chart. They have, however, continued to invest in machinery and equipment and to take on employees, as seen in the second chart. However, although the Winter Survey showed an almost 5 percentage points increase in the percent balance expecting to increase investment spending to 19.80%, this level is significantly lower than the 34.65% and 26.73% shown in the first and second quarters of the year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108e.jpg" width="353">
The balance of opinion on input and output price inflation is the difference between expectations of an acceleration and a deceleration of prices. The Fall Survey showed that managements were beginning to see a deceleration in both input and output prices. The current survey shows that the balance of opinion on input prices is -10.89% and that of output prices, -1.95%. (See the third chart)
Managements are seeing some increase in the difficulty of meeting demand, but there has been a slight decline in the balance of those who expect &quot;significant&quot; difficulty as shown in the table below.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">BANK OF CANADA OUTLOOK SURVEY&nbsp;(% Balance)</th>
<th scope="col">Q4 06</th>
<th scope="col">Q3 06</th>
<th scope="col">Q5 05</th>
<th scope="col">Q/Q Dif</th>
<th scope="col">Y/Y&nbsp;Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sales&nbsp;</td>
<td>6.93</td>
<td>2.97</td>
<td>15.84</td>
<td>3.96</td>
<td>-8.91</td>
<td>4.18</td>
<td>17.43</td>
<td>17.91</td>
</tr>
<tr>
<td class="firstcol">Investment in Machinery and Equipment</td>
<td>19.80</td>
<td>14.95</td>
<td>19.00</td>
<td>4.95</td>
<td>0.80</td>
<td>24.01</td>
<td>19.20</td>
<td>16.95</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment Level&nbsp;</td>
<td>39.60</td>
<td>40.59</td>
<td>49.50</td>
<td>-0.99</td>
<td>-9.90</td>
<td>39.35</td>
<td>42.75</td>
<td>33.42</td>
</tr>
<tr>
<td class="firstcol">Input Price Inflation</td>
<td>-10.89</td>
<td>-5.94</td>
<td>16.83</td>
<td>-4.95</td>
<td>-27.72</td>
<td>-3.22</td>
<td>11.39</td>
<td>-3.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Price Inflation</td>
<td>-1.95</td>
<td>-7.92</td>
<td>2.97</td>
<td>5.94</td>
<td>-4.95</td>
<td>0.49</td>
<td>4.96</td>
<td>-3.19</td>
</tr>
<tr>
<td class="firstcol">Ability to Meet Demand</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Some Difficulty</td>
<td>35.60</td>
<td>31.70</td>
<td>34.70</td>
<td>3.90</td>
<td>0.90</td>
<td>33.43</td>
<td>32.58</td>
<td>34.00</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Significant Difficulty</td>
<td>13.90</td>
<td>14.90</td>
<td>14.90</td>
<td>-1.00</td>
<td>-1.00</td>
<td>13.65</td>
<td>11.20</td>
<td>7.25</td>
</tr>
</tbody>
</table>
</body>
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The results of the Bank of Canada's Winter Business Outlook Survey were released today. The survey is conducted by analysts at the bank's regional offices who interviews senior management of approximately 100 firms. The regional [...]

Bank of Canada Survey: A Subdued Outlook

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108a.jpg" width="353">
Factory inventories increased just 0.2% in November after a downwardly revised 0.3% October increase. These gains were down from the 0.7% average during the prior six months.
Petroleum refineries&#39; inventories did rise 0.7% but that uptick followed sharp 6.3% and 4.3% declines during the prior two months due to lower oil prices. The new development in November was that less petroleum, factory inventories grew just 0.2% (7.0% y/y), down sharply from the 0.7% average of the prior six months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108b.jpg" width="353">
Machinery inventories fell 0.5% (+6.2% y/y) and primary metal inventories eased 0.3% (+18.9% y/y). Inventories of computers &amp; electronic products rose 0.8% (7.2% y/y) while inventories of electrical equipment rose 0.6% (11.0% y/y) and the 3-month change fell to only 1.2% (AR). Furniture inventories rose 1.0% and in a hint that the accumulation was involuntary the 3-month change rose to 10.3%, the highest in a year.
Total factory orders recovered 0.9% after the hard October plunge. Durable goods orders jumped 1.6% which was revised down slightly from the advance report. Factory orders less transportation fell 0.5% (+0.6% y/y), the third consecutive monthly decline. Much of the recently slower growth in this measure reflects petroleum where orders (which equal shipments), but non-transportation orders less oil fell 0.9% (+1.4% y/y) in November for the fourth consecutive monthly decline.
Factory shipments rose 0.1% for the second month but factory shipments less transportation &amp; petroleum slipped 0.2% (+1.4% 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">November</th>
<th scope="col">October</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>0.2%</td>
<td>0.3%</td>
<td>7.1%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.9%</td>
<td>-4.5%</td>
<td>-0.8%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.7%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.7%</td>
<td>1.4%</td>
<td>20.4%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
</body>
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Factory inventories increased just 0.2% in November after a downwardly revised 0.3% October increase. These gains were down from the 0.7% average during the prior six months. Petroleum refineries' inventories did rise 0.7% but that [...]

U.S. Factory Sector Inventory Gain Dropped Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108a.jpg" width="353">
Factory inventories increased just 0.2% in November after a downwardly revised 0.3% October increase. These gains were down from the 0.7% average during the prior six months.
Petroleum refineries&#39; inventories did rise 0.7% but that uptick followed sharp 6.3% and 4.3% declines during the prior two months due to lower oil prices. The new development in November was that less petroleum, factory inventories grew just 0.2% (7.0% y/y), down sharply from the 0.7% average of the prior six months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108b.jpg" width="353">
Machinery inventories fell 0.5% (+6.2% y/y) and primary metal inventories eased 0.3% (+18.9% y/y). Inventories of computers &amp; electronic products rose 0.8% (7.2% y/y) while inventories of electrical equipment rose 0.6% (11.0% y/y) and the 3-month change fell to only 1.2% (AR). Furniture inventories rose 1.0% and in a hint that the accumulation was involuntary the 3-month change rose to 10.3%, the highest in a year.
Total factory orders recovered 0.9% after the hard October plunge. Durable goods orders jumped 1.6% which was revised down slightly from the advance report. Factory orders less transportation fell 0.5% (+0.6% y/y), the third consecutive monthly decline. Much of the recently slower growth in this measure reflects petroleum where orders (which equal shipments), but non-transportation orders less oil fell 0.9% (+1.4% y/y) in November for the fourth consecutive monthly decline.
Factory shipments rose 0.1% for the second month but factory shipments less transportation &amp; petroleum slipped 0.2% (+1.4% 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">November</th>
<th scope="col">October</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>0.2%</td>
<td>0.3%</td>
<td>7.1%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.9%</td>
<td>-4.5%</td>
<td>-0.8%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.7%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.7%</td>
<td>1.4%</td>
<td>20.4%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
Bank of Canada Survey:  A Subdued Outlook 
by <a href="/comment/Curley.html">Louise Curley</a> January 8, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108c.jpg" width="353">
The results of the Bank of Canada&#39;s Winter Business Outlook Survey were released today. The survey is conducted by analysts at the bank&#39;s regional offices who interviews senior management of approximately 100 firms. The regional offices tally the percent of respondents who see improvement over the next twelve months, those who see deterioration and those whose see no change.The balance of opinion is the difference between those who see improvement and those who see deterioration.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108d.jpg" width="353">
While there are bright spots in Winter Survey, the overall impression one gets is that of a slowing economy. The balance of opinion on sales improved in the current survey to 6.93% from 2.97% in the Fall Survey, but was 8.91 percentage points below the 2005 Winter Survey. Managements, in general, have tended to be less optimistic about future sales since early 2004, as can be seen in the first chart. They have, however, continued to invest in machinery and equipment and to take on employees, as seen in the second chart. However, although the Winter Survey showed an almost 5 percentage points increase in the percent balance expecting to increase investment spending to 19.80%, this level is significantly lower than the 34.65% and 26.73% shown in the first and second quarters of the year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108e.jpg" width="353">
The balance of opinion on input and output price inflation is the difference between expectations of an acceleration and a deceleration of prices. The Fall Survey showed that managements were beginning to see a deceleration in both input and output prices. The current survey shows that the balance of opinion on input prices is -10.89% and that of output prices, -1.95%. (See the third chart)
Managements are seeing some increase in the difficulty of meeting demand, but there has been a slight decline in the balance of those who expect &quot;significant&quot; difficulty as shown in the table below.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">BANK OF CANADA OUTLOOK SURVEY &nbsp;(% Balance)</th>
<th scope="col">Q4 06</th>
<th scope="col">Q3 06</th>
<th scope="col">Q5 05</th>
<th scope="col">Q/Q Dif</th>
<th scope="col">Y/Y&nbsp;Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sales&nbsp;</td>
<td>6.93</td>
<td>2.97</td>
<td>15.84</td>
<td>3.96</td>
<td>-8.91</td>
<td>4.18</td>
<td>17.43</td>
<td>17.91</td>
</tr>
<tr>
<td class="firstcol">Investment in Machinery and Equipment</td>
<td>19.80</td>
<td>14.95</td>
<td>19.00</td>
<td>4.95</td>
<td>0.80</td>
<td>24.01</td>
<td>19.20</td>
<td>16.95</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment Level&nbsp;</td>
<td>39.60</td>
<td>40.59</td>
<td>49.50</td>
<td>-0.99</td>
<td>-9.90</td>
<td>39.35</td>
<td>42.75</td>
<td>33.42</td>
</tr>
<tr>
<td class="firstcol">Input Price Inflation</td>
<td>-10.89</td>
<td>-5.94</td>
<td>16.83</td>
<td>-4.95</td>
<td>-27.72</td>
<td>-3.22</td>
<td>11.39</td>
<td>-3.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Price Inflation</td>
<td>-1.95</td>
<td>-7.92</td>
<td>2.97</td>
<td>5.94</td>
<td>-4.95</td>
<td>0.49</td>
<td>4.96</td>
<td>-3.19</td>
</tr>
<tr>
<td class="firstcol">Ability to Meet Demand</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Some Difficulty</td>
<td>35.60</td>
<td>31.70</td>
<td>34.70</td>
<td>3.90</td>
<td>0.90</td>
<td>33.43</td>
<td>32.58</td>
<td>34.00</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Significant Difficulty</td>
<td>13.90</td>
<td>14.90</td>
<td>14.90</td>
<td>-1.00</td>
<td>-1.00</td>
<td>13.65</td>
<td>11.20</td>
<td>7.25</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/070105d.jpg" width="353">
We&#39;ve been impressed for some time with the evident strength in the European economy. Today, a summary of unemployment data for the entire region for November illustrates this well. The EU-12 group experienced 7.6% unemployment, down from 7.7% in October and the lowest rate recorded since this compilation began in 1993. The previous low was 7.7% during several months in early 2001, just as the tech boom was ending. In November 2005, the rate was 8.4% and the cycle high was 8.9% in the spring of 2004.
In the broader grouping, the EU-25, the current rate is remarkably similar, 7.7%. It too eased 0.1% in November, and it is down from 8.6% a year earlier. We are struck by how closely the broader region&#39;s unemployment rate has run to the smaller group&#39;s since 1997. The degree of industrialization and development doesn&#39;t automatically mean significantly lower unemployment, it seems.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105e.jpg" width="353">
Notably in this release, Eurostat has added data series covering its newly expanded membership. On January 1, Bulgaria and Romania joined the European Union and Slovenia became a member of the Euro-Zone, adopting the euro currency. So the EU25 becomes EU27 and Euro-zone12 becomes Euro-zone13. The &quot;official&quot; aggregates for European data, i.e., the &quot;headline&quot; series, remain the groups of 12 and 25 for purposes of aggregating data through 2006. These will shift to 13 and 27 when data for 2007 start to be reported. Even so, since Eurostat has begun to publish supplemental series for these new aggregates, Haver is adding a select number as temporary series. These, along with other Eurostat data, will be found in the EUROSTAT and G10 databases.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105f.jpg" width="353">
The new series look much like the old, and a quick glance at the three new member countries tells why. Slovenia, the new euro currency user, has lower-than-average unemployment that has declined sharply in the last year. In the wider group of now-27, Bulgaria and Romania both have rates that are presently close to the total, although that for Bulgaria has historically been considerably higher.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Unemployment Rates (%, Month SA)</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Nov 2005</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">EA-12</td>
<td>7.6</td>
<td>7.7</td>
<td>7.7</td>
<td>8.4</td>
<td>8.6</td>
<td>8.8</td>
<td>8.7</td>
</tr>
<tr>
<td class="firstcol">EU-25</td>
<td>7.7</td>
<td>7.8</td>
<td>7.8</td>
<td>8.6</td>
<td>8.8</td>
<td>9.1</td>
<td>9.0</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">EA-13</td>
<td>7.6</td>
<td>7.6</td>
<td>7.7</td>
<td>8.4</td>
<td>8.6</td>
<td>8.8</td>
<td>8.7</td>
</tr>
<tr class="odd">
<td class="firstcol">EU-27</td>
<td>7.7</td>
<td>7.8</td>
<td>7.8</td>
<td>8.5</td>
<td>8.7</td>
<td>9.1</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovenia</td>
<td>5.6</td>
<td>5.6</td>
<td>5.7</td>
<td>6.9</td>
<td>6.5</td>
<td>6.3</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">Bulgaria</td>
<td>8.0</td>
<td>8.0</td>
<td>9.0</td>
<td>9.7</td>
<td>10.1</td>
<td>12.0</td>
<td>13.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Romania</td>
<td>--</td>
<td>7.9</td>
<td>7.7</td>
<td>6.9</td>
<td>7.2</td>
<td>8.1</td>
<td>7.0</td>
</tr>
</tbody>
</table>
</body>
</html>

We've been impressed for some time with the evident strength in the European economy. Today, a summary of unemployment data for the entire region for November illustrates this well. The EU-12 group experienced 7.6% unemployment, down [...]

European Union Unemployment Eases to New Lows; Supplemental Eurostat Series Include New Members

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105b.jpg" width="353">
During December, nonfarm payrolls grew 167,000 and the prior two month&#39;s gains were upwardly revised. The gain easily outpaced Consensus expectations for a 115,000 rise.
During 2006 payrolls rose an average 153,000 per month versus a monthly average of 165,000 during 2005. The gain during the second half of last year picked up slightly to 161,000 per month.
The unemployment rate held at 4.5% last month. That reflected a solid 303,000 (2.2% y/y) surge in employment and a 326,000 (1.8% y/y) gain in the labor force. For the second month, the number of individuals not in the labor force fell and the y/y change in this measure dropped to zero versus growth in excess of 3% during 2003. That raised the labor force participation rate to 66.4%, the highest level since early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105a.jpg" width="353">
Employment gains as measured by the household survey averaged 262,000 per month last year versus a 219,000 average during 2005.
Jobs in the private sector from the establishment survey rose 150,000 (1.4% y/y) though gains in prior months were revised down slightly. Private service sector jobs rose 161,000 (1.7% y/y) as professional &amp; business services employment rose 50,000 (2.5% y/y) and temporary help services jobs rose 14,600 (-0.6% y/y). Jobs in education &amp; health services rose 43,000 (2.6% y/y) and leisure &amp; hospitality jobs increased 31,000 (2.7% y/y). Financial sector jobs gained just 9,000 (1.9% y/y).
Jobs in the retail sector fell 9,200 last month and for the year were down 57,800 (-0.4%).
Factory sector payrolls fell again. The 12,000 worker decline during December followed a downwardly revised 20,000 drop the prior month and the average monthly decline last year was 6,000. Jobs in motor vehicle &amp; parts industries fell 4,600 (-4.1% y/y) while jobs in furniture fell 2,400 (-4.2% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105c.jpg" width="353">
Construction employment fell 3,000 (+0.5% y/y). Since the August peak construction jobs have fallen 0.8%. That decline has been led by a 5.2% drop in residential specialty trade contractors since this group of workers&#39; peak employment month last February.
Government payrolls increased 17,000 (1.1% y/y).
Average hourly earnings nearly doubled the previous month&#39;s upwardly revised increase with a 0.5% gain. Factory sector earnings rose 0.3% (1.6% y/y).
The workweek held at the high 33.9 hours, the highest level since 2002. As a result, aggregate hours worked in 4Q rose 2.2% (AR), double the 3Q rate of increase. During the last ten years there has been a 54% correlation between the change in hours and real GDP.
The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/FOMC/MINUTES/20061212.htm"> 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/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>167,000</td>
<td>154,000</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.5%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-12,000</td>
<td>-20,000</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.9</td>
<td>33.8 (Dec. &#39;05)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.5%</td>
<td>0.3%</td>
<td>4.2%</td>
<td>3.8%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.5%</td>
<td>4.5%</td>
<td>4.9% (Dec. &#39;05)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
</body>
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During December, nonfarm payrolls grew 167,000 and the prior two month's gains were upwardly revised. The gain easily outpaced Consensus expectations for a 115,000 rise. During 2006 payrolls rose an average 153,000 per month versus a [...]

Another Firm U.S. Payroll Report with Upward Revisions

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105b.jpg" width="353">
During December, nonfarm payrolls grew 167,000 and the prior two month&#39;s gains were upwardly revised. The gain easily outpaced Consensus expectations for a 115,000 rise.
During 2006 payrolls rose an average 153,000 per month versus a monthly average of 165,000 during 2005. The gain during the second half of last year picked up slightly to 161,000 per month.
The unemployment rate held at 4.5% last month. That reflected a solid 303,000 (2.2% y/y) surge in employment and a 326,000 (1.8% y/y) gain in the labor force. For the second month, the number of individuals not in the labor force fell and the y/y change in this measure dropped to zero versus growth in excess of 3% during 2003. That raised the labor force participation rate to 66.4%, the highest level since early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105a.jpg" width="353">
Employment gains as measured by the household survey averaged 262,000 per month last year versus a 219,000 average during 2005.
Jobs in the private sector from the establishment survey rose 150,000 (1.4% y/y) though gains in prior months were revised down slightly. Private service sector jobs rose 161,000 (1.7% y/y) as professional &amp; business services employment rose 50,000 (2.5% y/y) and temporary help services jobs rose 14,600 (-0.6% y/y). Jobs in education &amp; health services rose 43,000 (2.6% y/y) and leisure &amp; hospitality jobs increased 31,000 (2.7% y/y). Financial sector jobs gained just 9,000 (1.9% y/y).
Jobs in the retail sector fell 9,200 last month and for the year were down 57,800 (-0.4%).
Factory sector payrolls fell again. The 12,000 worker decline during December followed a downwardly revised 20,000 drop the prior month and the average monthly decline last year was 6,000. Jobs in motor vehicle &amp; parts industries fell 4,600 (-4.1% y/y) while jobs in furniture fell 2,400 (-4.2% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105c.jpg" width="353">
Construction employment fell 3,000 (+0.5% y/y). Since the August peak construction jobs have fallen 0.8%. That decline has been led by a 5.2% drop in residential specialty trade contractors since this group of workers&#39; peak employment month last February.
Government payrolls increased 17,000 (1.1% y/y).
Average hourly earnings nearly doubled the previous month&#39;s upwardly revised increase with a 0.5% gain. Factory sector earnings rose 0.3% (1.6% y/y).
The workweek held at the high 33.9 hours, the highest level since 2002. As a result, aggregate hours worked in 4Q rose 2.2% (AR), double the 3Q rate of increase. During the last ten years there has been a 54% correlation between the change in hours and real GDP.
The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/FOMC/MINUTES/20061212.htm"> 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/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>167,000</td>
<td>154,000</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.5%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-12,000</td>
<td>-20,000</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.9</td>
<td>33.8 (Dec. &#39;05)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.5%</td>
<td>0.3%</td>
<td>4.2%</td>
<td>3.8%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.5%</td>
<td>4.5%</td>
<td>4.9% (Dec. &#39;05)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
European Union Unemployment Eases to New Lows; Supplemental Eurostat Series Include New Members 
by <a href="/comment/Stone.html">Carol Stone</a> January 5, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105d.jpg" width="353">
We&#39;ve been impressed for some time with the evident strength in the European economy. Today, a summary of unemployment data for the entire region for November illustrates this well. The EU-12 group experienced 7.6% unemployment, down from 7.7% in October and the lowest rate recorded since this compilation began in 1993. The previous low was 7.7% during several months in early 2001, just as the tech boom was ending. In November 2005, the rate was 8.4% and the cycle high was 8.9% in the spring of 2004.
In the broader grouping, the EU-25, the current rate is remarkably similar, 7.7%. It too eased 0.1% in November, and it is down from 8.6% a year earlier. We are struck by how closely the broader region&#39;s unemployment rate has run to the smaller group&#39;s since 1997. The degree of industrialization and development doesn&#39;t automatically mean significantly lower unemployment, it seems.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105e.jpg" width="353">
Notably in this release, Eurostat has added data series covering its newly expanded membership. On January 1, Bulgaria and Romania joined the European Union and Slovenia became a member of the Euro-Zone, adopting the euro currency. So the EU25 becomes EU27 and Euro-zone12 becomes Euro-zone13. The &quot;official&quot; aggregates for European data, i.e., the &quot;headline&quot; series, remain the groups of 12 and 25 for purposes of aggregating data through 2006. These will shift to 13 and 27 when data for 2007 start to be reported. Even so, since Eurostat has begun to publish supplemental series for these new aggregates, Haver is adding a select number as temporary series. These, along with other Eurostat data, will be found in the EUROSTAT and G10 databases.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105f.jpg" width="353">
The new series look much like the old, and a quick glance at the three new member countries tells why. Slovenia, the new euro currency user, has lower-than-average unemployment that has declined sharply in the last year. In the wider group of now-27, Bulgaria and Romania both have rates that are presently close to the total, although that for Bulgaria has historically been considerably higher.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Unemployment Rates (%, Month SA)</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Nov 2005</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">EA-12</td>
<td>7.6</td>
<td>7.7</td>
<td>7.7</td>
<td>8.4</td>
<td>8.6</td>
<td>8.8</td>
<td>8.7</td>
</tr>
<tr>
<td class="firstcol">EU-25</td>
<td>7.7</td>
<td>7.8</td>
<td>7.8</td>
<td>8.6</td>
<td>8.8</td>
<td>9.1</td>
<td>9.0</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">EA-13</td>
<td>7.6</td>
<td>7.6</td>
<td>7.7</td>
<td>8.4</td>
<td>8.6</td>
<td>8.8</td>
<td>8.7</td>
</tr>
<tr class="odd">
<td class="firstcol">EU-27</td>
<td>7.7</td>
<td>7.8</td>
<td>7.8</td>
<td>8.5</td>
<td>8.7</td>
<td>9.1</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovenia</td>
<td>5.6</td>
<td>5.6</td>
<td>5.7</td>
<td>6.9</td>
<td>6.5</td>
<td>6.3</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">Bulgaria</td>
<td>8.0</td>
<td>8.0</td>
<td>9.0</td>
<td>9.7</td>
<td>10.1</td>
<td>12.0</td>
<td>13.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Romania</td>
<td>--</td>
<td>7.9</td>
<td>7.7</td>
<td>6.9</td>
<td>7.2</td>
<td>8.1</td>
<td>7.0</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104g.jpg" width="353">
UK corporations had a record operating surplus in Q3 2006 and earned record rates of return on capital. All private nonfinancial corporations returned 13.4% in gross operating surplus against gross capital stock and 15.2% on a net basis. The gross return compared with 13.2% in Q2 and 13.0% in Q3 2005. Before this latest period, only four other quarters since 1989 had been as high as 13%. The net return comparison is even stronger: Q2 was 14.9% and besides these two latest periods, the high since 1989 was 14.4%. Annual data go back to 1965 and the earlier years were no higher, giving greater weight to the current, precedent-setting performance.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104h.jpg" width="353">
Clearly some of this has to do with high profitability in the oil industry. The second graph shows the recent strength in that sector, referred to as the UK Continental Shelf, with net returns in the mid-40% range. Q2 2006 does, though, appear to have been a peak and current performance is well off the highs of the mid-1980s.
&quot;Non-continental shelf companies&quot; are also doing well. Nonfinancial services are the source of considerable gain, and &quot;other&quot; industries contribute too (these include utilities, construction, agriculture and mining, not published separately). Service companies have returned more than 19% on capital so far in 2006, about 0.75% above the previous record of 18.5% in 1998. Manufacturing, by contrast, is lagging. The operating surplus in those industries reached a peak of just under &pound;35 billion in 1997, when the yield on capital was 15.3%. By 2005, the surplus had decreased to &pound;20.6 billion and has apparently fallen further in the first three quarters of 2006. This is still, however, better than in the late 1970s and early 1980s, which saw surpluses nearly vanish, generating meager returns as low as 1.3% (1981) and less than 5% for 10 years running.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104i.jpg" width="353">
These rate-of-return data all come from Haver&#39;s UK database, sourced from the UK Office for National Statistics. While they are issued with considerable lag -- more than three months after the end of the quarter they describe -- they appear to be quite helpful in assessing aggregate and sector corporate performance. Note also that the operating surplus figures that form the basis of these returns were reported two weeks ago on December 21. The published capital data are only annual, but within some limits, they could be inferred from the returns and the surplus data that are available. The ONS cautions though that these data are subject to more revision than other of their series, a common situation with residual information like profits.

<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/UK/@U2/@U224/@U224.HTM">PNFC* Rates of Return</a> &nbsp; (%, ex as noted)</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q3 2005</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">Gross Operating Surplus (Bil.&pound;)</td>
<td>61,773</td>
<td>58,980</td>
<td>56,995</td>
<td>228,030</td>
<td>219,738</td>
<td>202,479</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>4.7</td>
<td>3.5</td>
<td>8.7 (Y/Y)</td>
<td>3.8</td>
<td>8.5</td>
<td>6.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Rate of Return:&nbsp;&nbsp; Gross</td>
<td>13.4</td>
<td>13.2</td>
<td>13.0</td>
<td>12.9</td>
<td>12.9</td>
<td>12.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Net</td>
<td>15.2</td>
<td>14.9</td>
<td>14.4</td>
<td>14.3</td>
<td>14.2</td>
<td>13.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Continental Shelf Companies (Net)</td>
<td>42.9</td>
<td>47.6</td>
<td>37.0</td>
<td>34.1</td>
<td>25.1</td>
<td>24.9</td>
</tr>
<tr>
<td class="firstcol">Non-Continental Shelf Companies (Net)**</td>
<td>13.9</td>
<td>13.4</td>
<td>13.4</td>
<td>13.4</td>
<td>13.5</td>
<td>12.8</td>
</tr>
</tbody>
</table>
</body>
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UK corporations had a record operating surplus in Q3 2006 and earned record rates of return on capital. All private nonfinancial corporations returned 13.4% in gross operating surplus against gross capital stock and 15.2% on a net [...]

Corporate Profitability Strengthens in UK; Return on Capital Reaches Record 15.2% in Q3

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
In December, U.S. sales of light vehicles rose 4.4% from the prior month to 16.75M units, according to the Autodata Corporation. The rise was to the highest level since July.
For the full year of 2006, however, vehicle sales fell 2.4% to 16.55M, the lowest level since 1998.
Improved domestic car sales lifted December vehicle sales with an 11.4% (3.8% y/y) gain but for the year domestic auto sales fell 1.4% versus 2005. Sales of imported autos also were strong last month and posted a 6.1% (8.5% y/y) gain and for the year rose 8.7%.
Imported light truck sales also rose 1.9% (19.0% y/y) last month to 1.51M units and for 2006 rose 14.4%.
Domestic light truck sales slipped for the third consecutive month. The 0.5% decline to 7.14M units (-12.4% y/y) still, however, garnered 84% of the U.S. market for light trucks during 2006.
The Minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/FOMC/MINUTES/20061212.htm"> 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">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.75</td>
<td>16.04</td>
<td>-2.1%</td>
<td>16.55</td>
<td>16.96</td>
<td>16.87</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.09</td>
<td>7.38</td>
<td>5.3%</td>
<td>7.77</td>
<td>7.65</td>
<td>7.49</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.65</td>
<td>8.66</td>
<td>-8.2%</td>
<td>8.78</td>
<td>9.32</td>
<td>9.37</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
The non-manufacturing sector Business Activity Index fell as expected to 57.1 last month and reversed all of November&#39;s 1.8 point increase. The figure from the Institute for Supply Management (ISM) averaged 57.9 last year versus an average of 60.1 during 2005 but did improve slightly during the fourth quarter from 3Q.
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 sub-index fell hard during December to 54.4, the lowest level since August. The employment index, however, improved to 53.3, its highest since September. 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 improved for the second month and rose to 59.1. 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 back to July 1997.
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">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;05</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.1</td>
<td>58.9</td>
<td>61.0</td>
<td>57.9</td>
<td>60.1</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>59.1</td>
<td>55.6</td>
<td>67.2</td>
<td>65.4</td>
<td>67.9</td>
<td>68.8</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
Initial unemployment insurance claims popped 10,000 last week to 329,000 for the third consecutive weekly gain. The increase outpaced Consensus expectations for stability at 318,000.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also rose to 317,500 (2.3% y/y) though that was down from the early December high of 328,750.
Continuing claims for unemployment insurance dropped a sharp 76,000.
The insured rate of unemployment remained at 1.9% for the seventh consecutive week and equaled the average rate since February.

<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">12/30/06</th>
<th scope="col">12/23/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>329</td>
<td>319</td>
<td>11.5%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,446</td>
<td>-8.3%</td>
<td>-</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
Challenger Layoffs Off Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
For December, announced job cuts reported by Challenger, Grey &amp; Christmas fell a sharp 28.8% to 54,643. The three month moving average of layoff announcements also fell to 66,864, its lowest level since August.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs fell sharply m/m in the automotive (+77.0% y/y) and apparel (+1.4% y/y) and services (-57.0% y/y) industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans fell sharply m/m (-84.4% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>54,643</td>
<td>76,773</td>
<td>-49.3%</td>
<td>839,822</td>
<td>1,072,054</td>
<td>1,039,935</td>
</tr>
</tbody>
</table>


</html>

In December, U.S. sales of light vehicles rose 4.4% from the prior month to 16.75M units, according to the Autodata Corporation. The rise was to the highest level since July. For the full year of 2006, however, vehicle sales fell 2.4% [...]

U.S. Vehicle Sales Rose in December

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Nonfarm payrolls increased 177,000 (1.2% y/y) during April after rising 185,000 in March, revised from 228,000, and 102,000 in February, revised from 117,000. Expectations had been for a 130,000 rise in the Action Economics Forecast Survey. The latest figure left the three-month average change at 155,000 in April, down from 232,000 in January.

Average hourly earnings rose 0.2% during April after unrevised increases of 0.3% in March and 0.2% in February. Earnings growth of 3.8% y/y was below the 5.9% high in March 2022.

The unemployment rate, measured in the household survey, held m/m at an expected 4.2% in April, and compared to 4.1% in February and 4.0% in January. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, eased to 7.8% in April from 7.9% in March.

In the **establishment survey**, private-sector employment rose 167,000 (1.2% y/y) after a 170,000 March increase. Factory sector jobs edged 1,000 lower (-0.7% y/y) following a 3,000 gain. Construction sector employment increased 11,000 (1.7% y/y), after rising 7,000 in March.

Private service-producing sector employment increased 156,000 (1.4% y/y) in April after improving 161,000 in March. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 70,000 (3.4% y/y) last month following a 74,000 March increase. Leisure & hospitality employment rose 24,000 (1.3% y/y) after a 38,000 gain. Trade, transportation & utilities rose 32,000 (0.9% y/y) in April following a 25,000 March increase. Professional & business services employment rose 17,000 (-0.1% y/y) following a 3,000 rise while temporary help employment rose 3,600 (-3.9% y/y) following a 2,700 decline. Financial activities employment improved 14,000 (1.2% y/y) after a 6,000 gain. The number of information sector jobs held steady (-0.4% y/y) last month after falling 2,000 in March.

Government sector payrolls rose 10,000 (1.3% y/y) last month after increasing 15,000 in March. The number of local government jobs increased 13,000 (1.4% y/y) following a 17,000 gain. State government employment rose 6,000 (1.8% y/y) following a 2,000 March increase but federal government payrolls fell 9,000 (-0.3% y/y), the third consecutive monthly decline.

Private-sector average hourly earnings rose 0.2% (3.8% y/y) in April after increasing 0.3% in March. Earnings in the goods-producing sector eased 0.1% (+4.0% y/y) following a 0.6% gain. Earnings in construction rose 0.3% (3.6% y/y), after a 0.2% rise but factory sector earnings declined 0.3% (+4.3% y/y) after surging 0.8% in March. In the private services-sector, earnings rose 0.2% (3.7% y/y) in April for the third straight month. Information sector pay increased 1.0% (5.2% y/y) last month after easing 0.1%, and financial activities earnings rose 0.5% (4.3% y/y) for the second straight month. Trade, transportation & utilities sector pay increased 0.4% (3.4% y/y) after 0.6%. Professional & business sector earnings increased 0.1% (4.4% y/y) after 0.2% in March. Leisure & hospitality earnings held steady (+3.8% y/y) following a 0.6% March increase.

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The length of the average workweek held steady at 34.3 hours in April. The workweek in the goods-producing sector eased to 39.8 hours from 40.0 hours. The construction sector average workweek eased to 39.0 hours from 39.3 hours while the factory sector workweek moved lower to 40.0 hours from 40.2. The average workweek in the private service sector held at 33.2 hours. Professional & business service hours fell to 36.3 hours from 36.4 while trade, transportation & utilities hours improved to 34.3 from 34.0 hours. Private education hours rose slightly to 32.8, but leisure & hospitality held steady at 25.5 hours.

In the **household survey**, the unemployment rate held at 4.2% in April as employment rose 436,000 and the size of the labor force increased 518,000. The labor force participation rate edged up to 62.6% last month from 62.5% in March. It remained below the high of 63.3% early in 2020. The rate for teenagers declined to 36.9%. For workers aged 20-24, the rate held steady at 72.1%, up from 71.8% six months earlier. For workers aged 25-54 the rate rose to 83.6%, a five-month high. For individuals 55 and over, the rate improved to 38.4% in April.

The employment/population ratio for all workers in April rose to 60.0%. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Job growth spreads across most sectors.
- Earnings growth trend decelerates.
- Jobless rate holds steady.

U.S. Job Growth Is Firm in April but March Gain Is Lessened

Winnie Tapasanun

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Total factory orders rose a slightly less-than-expected 4.3% m/m in March after rises of 0.5% in February and 1.8% in January, data from the U.S. Census Bureau showed. A 4.5% m/m March increase had been expected in the Action Economics Forecast Survey. The March reading was the third successive monthly rise and the largest since July 2024. The year-on-year rate accelerated to 6.0% in March, the highest since November 2022, from 2.3% in February. Notably, orders for nondefense aircraft & parts soared 139.0% in March following a 7.4% drop in February and a 92.9% surge in January. Factory orders excluding defense rose 4.8% (5.9% y/y), the largest of three straight m/m/ rises, after a 0.4% February increase. Factory orders excluding the transportation sector fell 0.2% (+1.1% y/y), the first m/m fall since August, after rising 0.3% in February, January and December.

Durable goods orders jumped 9.2% (11.9% y/y) in March, the third consecutive m/m gain and the biggest since July 2024, on top of a 0.8% increase in February (matching +9.2% m/m in the advance report on April 24). The March jump reflected m/m orders increases of 27.1% (the largest m/m surge since July 2024; 31.2% y/y) in transportation equipment, 1.1% (4.9% y/y) in primary metals, 0.5% (-0.4% y/y) in furniture & related products, 0.1% (2.5% y/y) in fabricated metal products, and 0.1% (0.9% y/y) in machinery. To the downside, durable goods orders for computers & electronic products (-1.3%; +2.7% y/y) and electrical equipment, appliances & components (-1.0%; +4.2% y/y) declined m/m in March.

Nondurable goods orders, which equal nondurable goods shipments, fell 0.3% (+0.4% y/y) in March, the first m/m fall since September, after a 0.1% uptick in February. The March fall reflected m/m drops of 2.4% (-9.3% y/y) in petroleum & coal products and 0.9% (-1.2% y/y) in apparel. To the upside, the following nondurable goods shipments rose m/m in March: leather & allied products (1.5%; 8.6% y/y), beverage & tobacco products (0.7%; 5.8% y/y), paper products (0.6%; 2.3% y/y), printing (0.3%; 3.8% y/y), textile mills (0.3%; 0.8% y/y), chemical products (0.2%; 5.4% y/y), plastics & rubber products (0.2%; 0.4% y/y), food products (0.1%; 1.8% y/y), and textile products (0.1%; 2.1% y/y).

Total shipments slipped 0.1% (+2.0% y/y) in March, the first m/m easing since October, after a 0.7% increase in February. Excluding transportation, shipments were virtually unchanged m/m (+1.1% y/y) in March following six straight m/m gains. Shipments of durable goods industries inched up 0.1% (3.8% y/y) in March, the smallest of four consecutive m/m increases, after a 1.3% advance in February. This reflected m/m durable goods shipments rises of 1.2% (5.6% y/y) in primary metals, 0.9% (0.1% y/y) in furniture & related products, 0.8% (-0.2% y/y) in nonmetallic mineral products, 0.4% (0.0% y/y) in machinery, 0.3% (1.8% y/y) in fabricated metal products, 0.2% (4.5% y/y) in computers & electronic products, 0.2% (-2.1% y/y) in wood products, and 0.1% (3.0% y/y) in electrical equipment, appliances & components. In contrast, durable goods shipments for transportation equipment (-0.5%; +7.3% y/y) and miscellaneous durable goods (-0.1%; +2.9% y/y) fell m/m in March following three successive m/m increases.

Unfilled orders rose 2.0% (2.3% y/y) in March, up for the eighth month in nine, after a 0.1% uptick in February. Excluding transportation, unfilled orders dipped 0.1% (+0.7% y/y) in March, the first m/m easing since May 2024, after holding steady in February. Backlogs of durable goods rose 2.0% (2.3% y/y) in March, reflecting m/m rises of 3.1% (3.1% y/y) in transportation equipment and 0.2% (2.4% y/y) in electrical equipment, appliances & components.

Inventories edged up 0.1% (0.9% y/y) in March, the fifth straight m/m increase, after rising at the same pace in the prior two months. Excluding transportation, inventories were up 0.1% (0.5% y/y) in March, the fifth consecutive m/m rise. Durable goods inventories ticked up 0.1% (1.0% y/y) in March after holding steady in February and January; nondurable goods inventories edged up 0.1% (0.8% y/y), the fifth successive m/m increase.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- March manufacturers’ new orders +4.3% m/m; +6.0% y/y, highest since Nov. ’22.
- Durable goods orders (+9.2%) jump m/m, while nondurable goods orders (-0.3%) and shipments (-0.1%) decline m/m.
- Transportation equipt. orders +27.1% m/m, w/ a 139.0% m/m surge in nondefense aircraft & parts orders.
- Unfilled orders +2.0%, the eighth m/m rise in nine months.
- Inventories +0.1%, the fifth consecutive m/m increase.

U.S. Factory Orders Increase for the Third Straight Month in March

Robert Brusca

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The global manufacturing data showed broad weakening in April as conditions weakened across more than half of the contributing early reporters in the S&P survey of manufacturing. Of the 18 early reporting countries, more than half of them showed deceleration over six months and 12 months. Over three months, only 8 of 18 showed deterioration and that's about as good as it got in this report. In the current month, month-to-month changes showed more than half of the survey contributors showing weaker results than the month before. In the S&P framework, manufacturing improved month-to-month for the U.S.; however, looking at sequential averages for the U.S., U.K., European monetary union, Canada, and Japan, we see a steady weakening and results over 12 months, over six months versus 12 months, and for three months versus 6 months. The highly developed countries are not doing particularly well.

Asian economies are also showing slight deterioration but doing a little better than the developed countries in general.

Only five of the 18 reporting countries have queue percentile standings in their data back to January 2021 that are above their medians. Readings at or above the 50% mark are at or above the median standing. Canada is showing the weakest manufacturing result on record over this span, in terms of its queue percentile standing which is at 0 in the current month.

I showed the graphic for the Baltic dry goods index in this report rather than statistics on the manufacturing PMI data because the Baltic data, which reflect shipping volume for dry goods - that is excluding things like oil - is weak but it's only in the neighborhood where it's been for some time. There has been a great deal of talk about how tariffs may have impacted trade flows, expected trade flows, shipping, shipping rates, and the like. However, according to the Baltic dry goods index, there isn't much evidence that this is occurring right now and affecting the current data. That may still lie ahead but for now it's not baked in the cake.

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Globally Manufacturing Weakens

Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

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**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

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**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

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**The US economy’s structural outperformance and the dollar**
A second dynamic, captured in the next chart, reveals a tight correlation between the US real effective exchange rate and the potential GDP growth differential between the US and euro area over the past 50-60 years. This raises the question: has dollar strength (until recently) merely been a reflection of US growth leadership—or are capital inflows themselves helping to sustain this growth outperformance? In effect, the tail may be wagging the dog. Global investors have long allocated capital to the US, attracted by its macroeconomic resilience, technological leadership, and deep, liquid financial markets. The danger now is that the US trade war may disrupt this equilibrium. A sharp or sustained reduction in capital inflows could undermine growth, weaken the dollar, and trigger broader financial instability. Moreover, reversing this dynamic is not straightforward—barring a credible structural resurgence in European (or Asian) growth, the global investment landscape remains tilted toward the US.

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**US competitiveness versus Europe, China and Japan** 
The next chart below examines relative unit labour costs across major economies since 2011. The US and China have seen a broadly similar trajectory, with steady increases in relative cost structures, while the euro area has remained flat and Japan has seen dramatic improvement. This suggests that, from a cost competitiveness standpoint, the US is not uniquely disadvantaged vis-à-vis China. However, as we discuss further below, this parallel erosion of cost competitiveness is occurring at much higher nominal wage levels in the US, which blunts its ability to regain export share through tariff-related shifts alone. The trade war strategy—absent a corresponding improvement in productivity or structural reforms—risks imposing costs without delivering material competitiveness gains.

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**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

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Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.

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Charts of the Week: Tariff Truce, Tenuous Trust

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U.S. light vehicle sales dropped 2.9% (+6.5% y/y) to 17.31 million units (SAAR) in April after surging 10.8% to 17.82 million units in March. The retreat in April vehicle sales accompanied a 1.7% y/y rise in real disposable income through March, which compared to 2.0% growth last year.

Sales declines were broad-based last month. Light truck sales fell 1.3% (+9.9% y/y) during April to 14.34 million units (SAAR), after rising 12.4% in March. Purchases of domestically-made light trucks declined 1.2% (+11.9% y/y) to 11.02 million units, after jumping 12.5% in March. Sales of imported light trucks fell 1.8% (+4.4% y/y) to 3.32 million units, following an 11.6% March surge.

Trucks’ record 82.8% share of the light vehicle market last month compared to 81.5% in March and 80.3% in April of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales also declined last month, down 9.5% (-7.5%) to 2.97 million units (SAAR) following a 3.5% March rise. The decline reversed all of the increase over the prior two months. Purchases of domestically-produced cars fell 9.8% (-4.3% y/y) last month to 2.22 million units, after rising 3.8% in March. Sales of imported autos declined 9.6% (-15.7% y/y) to 0.75 million units, following a 2.5% March increase.

Imports' 23.5% share of the U.S. light vehicle market was little changed from 23.6% in March and compared to a May 2023 low of 22.9% and a high of 26.3% in November of 2023. Imports' share of the passenger car market held steady at 25.3% last month and compared to 27.7% in April of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market eased to 23.2% last month after falling to 23.3% in March.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the I**NDUSTRY** database.

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- Light truck sales pull back, while auto sales tumble.
- Both domestic and imported sales decline.
- Imports' market share slips further.

Economy in Brief: January 2007

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