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/061109h.jpg" width="353">
Easing oil prices also helped ease the trade deficit in the UK. It fell to &pound;4.1 billion in September from &pound;4.5 billion in August. The deficit on goods alone was &pound;6.6 billion, down from &pound;6.9 billion. Total exports of goods and services stood at &pound;29.2 billion, actually down a bit from &pound;29.3 billion in August. Imports fell more, to &pound;33.3 billion from &pound;33.8 billion. Excluding oil the balance was basically unchanged from August to September at -&pound;6.1 billion. Thus, for now, erosion in the trade accounts due to the surging value of oil imports has been stopped.
However, the interesting story to us in this month&#39;s UK trade data is the report for the first time of the amount of VAT-evasion fraud in the data. The VAT rate in the UK is 17.5% on most goods. Some unscrupulous business people want to avoid paying this amount to Her Majesty&#39;s Treasury. Using the trading system and the VAT collection system itself, they not only avoid paying the tax, but also in some cases actually pocket the revenues for themselves. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109i.jpg" width="353">
These practices first came to light about six years ago and their impact on trade data started to get notice in 2003. Last year and now again this month, Her Majesty&#39;s Revenue and Customs (HMRC) have enhanced their enforcement efforts and identified larger quantities of misrouted trade. Initially, the practice was confined to EU trade, where cross-border transactions are largely unsupervised. Now, as HMRC has picked up the fraud more there, the perpetrators have moved to other countries, specifically Dubai and Switzerland, according to the ONS press release. Cell phones and computer components are apparently the most frequent items involved in these practices.
Traders import merchandise and then sell it on, either domestically or abroad. Then they &quot;disappear&quot; without making the required VAT payments. Thus, this scheme is called &quot;Missing Trader Intra-Community [EU] fraud, known as MTIC. The &quot;customers&quot; may sometimes be their own business associates, who sell the goods again in order to pocket the VAT again. Then it is called a &quot;carousel cycle&quot;. For most of the time since 1999, this has been small: at most &pound;1 billion per month and usually &pound;200-300 million. But over the last year, it has grown much more significantly, as seen in the table below. In Q1 and Q2 particularly, it amounted to &pound;9.8 billion and &pound;12.9 billion, respectively, accounting for nearly 16% and just over 19% of reported UK exports. The decline in exports in Q3 is almost totally absorbed by a reduction in the illegal MTIC trade, which was &quot;only&quot; &pound;3.6 billion. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109j.jpg" width="353">
Probably data users who are well acquainted with the UK are aware of this issue, but others need to know. Most recently, it has greatly distorted both exports and imports and complicates interpretation of the data on them. For instance, the sharp drop in trade in Q3 could signal less rigor in the UK economy, but instead, evidently, it signals more rigorous law enforcement. The ONS is so concerned about the mixed signals in this information that its initial brief announcement of the September data consisted in more text about data reliability than about the figures themselves, much as this comment does. Note that we have highlighted the export side in our discussion, but imports are involved just as much.ONS introduced today quarterly data on the MTIC &quot;fraud trade&quot;, along with current price and chained price series of exports and imports net of this phantom activity. Haver&#39;s database managers are preparing to enter these series in the UK database. Clients can watch Data News in the Client Area of Haver.com and in HaverSelect.com for their availability.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">UK</a><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">, Seas Adjusted</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">Year Ago</th>
Monthly Averages
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
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<tr>
<td class="firstcol">Million &pound;Trade Balance: Goods &amp; Services</td>
<td>-4,087</td>
<td>-4,544</td>
<td>-4,699</td>
<td>-4,205</td>
<td>-3,775</td>
<td>-2,915</td>
<td>-2,454</td>
</tr>
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<td class="firstcol">Balance on Goods</td>
<td>-6,560</td>
<td>-6,856</td>
<td>-7,055</td>
<td>-6,033</td>
<td>-5,723</td>
<td>-5,074</td>
<td>-4,051</td>
</tr>
<tr>
<td class="firstcol">Exports of Goods</td>
<td>19,182</td>
<td>19,396</td>
<td>18,846</td>
<td>18,596</td>
<td>17,641</td>
<td>15,906</td>
<td>15,693</td>
</tr>
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<td class="firstcol">Imports of Goods</td>
<td>25,742</td>
<td>26,252</td>
<td>25,901</td>
<td>24,629</td>
<td>23,364</td>
<td>20,981</td>
<td>19,744</td>
</tr>
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<td class="firstcol">Goods Bal ex Oil</td>
<td>-6,101</td>
<td>-6,134</td>
<td>-6,725</td>
<td>-5,315</td>
<td>-5,541</td>
<td>-5,149</td>
<td>-4,332</td>
</tr>
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<td class="firstcol">&nbsp;</td>
<td>Q3 2006</td>
<td>Q2 2006</td>
<td>Q1 2006</td>
<td>Q4 2005</td>
<td colspan="3">Quarterly Averages</td>
</tr>
<tr>
<td class="firstcol">Billion &pound;Reported Exports</td>
<td>57.4</td>
<td>67.1</td>
<td>62.7</td>
<td>56.4</td>
<td>52.9</td>
<td>47.7</td>
<td>47.1</td>
</tr>
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<td class="firstcol">MTIC Fraud</td>
<td>3.6</td>
<td>12.9</td>
<td>9.8</td>
<td>4.4</td>
<td>2.8</td>
<td>0.6</td>
<td>1.1</td>
</tr>
<tr>
<td class="firstcol">Exports Net of Fraud</td>
<td>53.8</td>
<td>54.1</td>
<td>52.9</td>
<td>52.0</td>
<td>50.1</td>
<td>47.0</td>
<td>46.0</td>
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Easing oil prices also helped ease the trade deficit in the UK. It fell to £4.1 billion in September from £4.5 billion in August. The deficit on goods alone was £6.6 billion, down from £6.9 billion. Total exports of goods and services [...]

UK Trade Deficit Also Eases with Oil Prices; Heightened Law Enforcement Reduces "MTIC Fraud Trade"

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109g.jpg" width="353">
Initial claims for unemployment insurance reversed the prior week&#39;s jump and fell 20,000 last week to 308,000. Consensus expectations had been for a lesser decline to 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims was nearly unchanged at 311,250 (-4.2% y/y).
With a 43,000 increase, continuing claims for unemployment insurance reversed a deepened decline the prior week.
The insured rate of unemployment backed up to 1.9%.
Construction Slowdown from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/archive/2006/20060920.cfm"> here</a>.

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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">11/04/06</th>
<th scope="col">10/28/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Initial Claims</td>
<td>308</td>
<td>328</td>
<td>-2.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
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<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-10.3%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
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Initial claims for unemployment insurance reversed the prior week's jump and fell 20,000 last week to 308,000. Consensus expectations had been for a lesser decline to 315,000 claims. During the last ten years there has been a [...]

Initial Claims for Jobless Insurance Back Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109f.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month&#39;s 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy retraced 1.9% of the prior month&#39;s 8.4% m/m surge due to a lessened expected change in personal finances which retraced all of October&#39;s gain (+5.2% y/y). Expected business conditions next year added slightly (38.6% y/y) to the sharp gains of the prior two months and over the next five years also rose a firm 1.0% (22.5% y/y) to the highest since July 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109e.jpg" width="353">
The reading of current economic conditions slipped 0.7% as the current read of personal finances fell 0.8% (+13.6% y/y) and perceived buying conditions for large household goods fell 0.6% (+1.3% y/y.
Expected inflation during the next year fell to 3.4%, the lowest since early 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also fell m/m to 3.3%.
Consumers&#39; opinion about gov&#39;t economic policy improved 2.3% (7.2% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">November (Prelim.)</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>
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<td class="firstcol">Consumer Sentiment</td>
<td>92.3</td>
<td>93.6</td>
<td>13.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
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<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.5</td>
<td>107.3</td>
<td>6.3%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
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<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.2</td>
<td>84.8</td>
<td>19.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
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The University of Michigan's preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month's 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3. During [...]

U.S. Consumer Sentiment Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109c.jpg" width="353">
In October, total import prices repeated the prior month&#39;s 2.0% decline and doubled Consensus expectations for a 1.0% drop. 
Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of Brent crude oil is up from the $57.70 per bbl. averaged in October.
Less petroleum import prices fell 0.6%, the largest monthly decline since February. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109d.jpg" width="353">
Capital goods prices slipped 0.1% (-0.1% y/y) but excluding computers, capital good prices rose 0.2% (2.0% y/y). Prices for nonauto consumer goods rose 0.1% (1.0% y/y) for the third month while prices for nonoil industrial supplies &amp; materials fell 2.7% (-0.7% y/y) due to lower selected building materials prices (-6.1% y/y).
Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-6.pdf">here</a>.
Export prices fell 0.4% for the second month as nonagricultural commodities prices dropped 0.5% (+2.6% y/y) but agricultural export prices rose 1.1% (5.4% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Import - All Commodities</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-0.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
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<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-8.3%</td>
<td>-9.7%</td>
<td>-2.9%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
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<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
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<td class="firstcol">Export- All Commodities</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
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In October, total import prices repeated the prior month's 2.0% decline and doubled Consensus expectations for a 1.0% drop. Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of [...]

U.S. Import Prices Down: Oil & Other Prices Off

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109a.jpg" width="353">
Lower oil prices in September caused the U.S. foreign trade to reverse the prior month&#39;s run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus expectations for a deficit of $66.0B.
Imports of petroleum products fell 10.5% (+10.4% y/y) as the per barrel price of crude oil fell 5.4% to $62.52 and the quantity of crude imported per day fell 4.8% (+14.0% y/y). The price of oil in October fell another five dollars per barrel. 
Overall September imports of goods &amp; services fell 2.1% m/m and fully reversed the August gain. Imports of nonpetroleum products, however, fell only 0.7% (+9.6% y/y) after a 2.5% August rise. Imports of capital goods fell just 1.5% (10.9% y/y) after two months of gain exceeding 2% and nonauto consumer goods imports rose 1.5% (11.2% y/y), the same as during August. Automotive imports fell 1.9% (+4.1% y/y) while imports of crude materials less fuels fell 8.1% (NSA, +12.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109b.jpg" width="353">
Total exports added 0.5% to the firm 2.4% August gain as capital goods exports jumped another 2.0% (22.1% y/y). Exports of civilian aircraft surged by more than one third (308.2% y/y) but computer exports fell (+6.5% y/y). Exports of telecommunications equipment rose 2.3% (15.5% y/y) while exports of nonauto consumer goods fell 3.2% (+9.0% y/y) after several months of strong gain.
Service exports slipped 0.1% (+6.5% y/y) as travel exports fell 0.9% (+2.5% y/y) and passenger fares dipped 0.5% (-2.3% y/y). Imports of services ticked up 0.2% (7.9% y/y) though passenger fares fell 1.3% (-0.9% y/y).
The U.S. trade deficit in goods with China deepened to another record $23.0B in September ($201.5B in 2005) as exports fell 2.7% (+44.5% y/y) but imports rose 3.3% (18.5% y/y). With the newly industrialized Asian countries, the balance of goods trade narrowed sharply m/m to a deficit of $0.7B (-$15.8B in 2005) as exports rose 3.8% (+22.5% y/y) and imports fell 6.8% (+8.2% y/y).
Twin Deficits, Twenty Years Later from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-7.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">U.S. Trade Deficit</td>
<td>$64.3B</td>
<td>$69.0B</td>
<td>$65.0B (9/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.4%</td>
<td>15.8%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
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<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-2.1%</td>
<td>2.0%</td>
<td>9.4%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
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Lower oil prices in September caused the U.S. foreign trade to reverse the prior month's run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus [...]

U.S. Trade Deficit Narrowed Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109a.jpg" width="353">
Lower oil prices in September caused the U.S. foreign trade to reverse the prior month&#39;s run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus expectations for a deficit of $66.0B.
Imports of petroleum products fell 10.5% (+10.4% y/y) as the per barrel price of crude oil fell 5.4% to $62.52 and the quantity of crude imported per day fell 4.8% (+14.0% y/y). The price of oil in October fell another five dollars per barrel. 
Overall September imports of goods &amp; services fell 2.1% m/m and fully reversed the August gain. Imports of nonpetroleum products, however, fell only 0.7% (+9.6% y/y) after a 2.5% August rise. Imports of capital goods fell just 1.5% (10.9% y/y) after two months of gain exceeding 2% and nonauto consumer goods imports rose 1.5% (11.2% y/y), the same as during August. Automotive imports fell 1.9% (+4.1% y/y) while imports of crude materials less fuels fell 8.1% (NSA, +12.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109b.jpg" width="353">
Total exports added 0.5% to the firm 2.4% August gain as capital goods exports jumped another 2.0% (22.1% y/y). Exports of civilian aircraft surged by more than one third (308.2% y/y) but computer exports fell (+6.5% y/y). Exports of telecommunications equipment rose 2.3% (15.5% y/y) while exports of nonauto consumer goods fell 3.2% (+9.0% y/y) after several months of strong gain.
Service exports slipped 0.1% (+6.5% y/y) as travel exports fell 0.9% (+2.5% y/y) and passenger fares dipped 0.5% (-2.3% y/y). Imports of services ticked up 0.2% (7.9% y/y) though passenger fares fell 1.3% (-0.9% y/y).
The U.S. trade deficit in goods with China deepened to another record $23.0B in September ($201.5B in 2005) as exports fell 2.7% (+44.5% y/y) but imports rose 3.3% (18.5% y/y). With the newly industrialized Asian countries, the balance of goods trade narrowed sharply m/m to a deficit of $0.7B (-$15.8B in 2005) as exports rose 3.8% (+22.5% y/y) and imports fell 6.8% (+8.2% y/y).
Twin Deficits, Twenty Years Later from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-7.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/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">September</th>
<th scope="col">August</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">U.S. Trade Deficit</td>
<td>$64.3B</td>
<td>$69.0B</td>
<td>$65.0B (9/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.4%</td>
<td>15.8%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-2.1%</td>
<td>2.0%</td>
<td>9.4%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
</tr>
</tbody>
</table>
U.S. Import Prices Down: Oil & Other Prices Off 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109c.jpg" width="353">
In October, total import prices repeated the prior month&#39;s 2.0% decline and doubled Consensus expectations for a 1.0% drop. 
Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of Brent crude oil is up from the $57.70 per bbl. averaged in October.
Less petroleum import prices fell 0.6%, the largest monthly decline since February. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109d.jpg" width="353">
Capital goods prices slipped 0.1% (-0.1% y/y) but excluding computers, capital good prices rose 0.2% (2.0% y/y). Prices for nonauto consumer goods rose 0.1% (1.0% y/y) for the third month while prices for nonoil industrial supplies &amp; materials fell 2.7% (-0.7% y/y) due to lower selected building materials prices (-6.1% y/y).
Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-6.pdf">here</a>.
Export prices fell 0.4% for the second month as nonagricultural commodities prices dropped 0.5% (+2.6% y/y) but agricultural export prices rose 1.1% (5.4% 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/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">October</th>
<th scope="col">September</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">Import - All Commodities</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-0.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-8.3%</td>
<td>-9.7%</td>
<td>-2.9%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109f.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month&#39;s 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy retraced 1.9% of the prior month&#39;s 8.4% m/m surge due to a lessened expected change in personal finances which retraced all of October&#39;s gain (+5.2% y/y). Expected business conditions next year added slightly (38.6% y/y) to the sharp gains of the prior two months and over the next five years also rose a firm 1.0% (22.5% y/y) to the highest since July 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109e.jpg" width="353">
The reading of current economic conditions slipped 0.7% as the current read of personal finances fell 0.8% (+13.6% y/y) and perceived buying conditions for large household goods fell 0.6% (+1.3% y/y.
Expected inflation during the next year fell to 3.4%, the lowest since early 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also fell m/m to 3.3%.
Consumers&#39; opinion about gov&#39;t economic policy improved 2.3% (7.2% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">November (Prelim.)</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">Consumer Sentiment</td>
<td>92.3</td>
<td>93.6</td>
<td>13.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.5</td>
<td>107.3</td>
<td>6.3%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.2</td>
<td>84.8</td>
<td>19.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Back Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109g.jpg" width="353">
Initial claims for unemployment insurance reversed the prior week&#39;s jump and fell 20,000 last week to 308,000. Consensus expectations had been for a lesser decline to 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims was nearly unchanged at 311,250 (-4.2% y/y).
With a 43,000 increase, continuing claims for unemployment insurance reversed a deepened decline the prior week.
The insured rate of unemployment backed up to 1.9%.
Construction Slowdown from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/archive/2006/20060920.cfm"> 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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/04/06</th>
<th scope="col">10/28/06</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>308</td>
<td>328</td>
<td>-2.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-10.3%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
UK Trade Deficit Also Eases with Oil Prices; Heightened Law Enforcement Reduces "MTIC Fraud Trade" 
by <a href="/comment/Stone.html">Carol Stone</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109h.jpg" width="353">
Easing oil prices also helped ease the trade deficit in the UK. It fell to &pound;4.1 billion in September from &pound;4.5 billion in August. The deficit on goods alone was &pound;6.6 billion, down from &pound;6.9 billion. Total exports of goods and services stood at &pound;29.2 billion, actually down a bit from &pound;29.3 billion in August. Imports fell more, to &pound;33.3 billion from &pound;33.8 billion. Excluding oil the balance was basically unchanged from August to September at -&pound;6.1 billion. Thus, for now, erosion in the trade accounts due to the surging value of oil imports has been stopped.
However, the interesting story to us in this month&#39;s UK trade data is the report for the first time of the amount of VAT-evasion fraud in the data. The VAT rate in the UK is 17.5% on most goods. Some unscrupulous business people want to avoid paying this amount to Her Majesty&#39;s Treasury. Using the trading system and the VAT collection system itself, they not only avoid paying the tax, but also in some cases actually pocket the revenues for themselves. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109i.jpg" width="353">
These practices first came to light about six years ago and their impact on trade data started to get notice in 2003. Last year and now again this month, Her Majesty&#39;s Revenue and Customs (HMRC) have enhanced their enforcement efforts and identified larger quantities of misrouted trade. Initially, the practice was confined to EU trade, where cross-border transactions are largely unsupervised. Now, as HMRC has picked up the fraud more there, the perpetrators have moved to other countries, specifically Dubai and Switzerland, according to the ONS press release. Cell phones and computer components are apparently the most frequent items involved in these practices.
Traders import merchandise and then sell it on, either domestically or abroad. Then they &quot;disappear&quot; without making the required VAT payments. Thus, this scheme is called &quot;Missing Trader Intra-Community [EU] fraud, known as MTIC. The &quot;customers&quot; may sometimes be their own business associates, who sell the goods again in order to pocket the VAT again. Then it is called a &quot;carousel cycle&quot;. For most of the time since 1999, this has been small: at most &pound;1 billion per month and usually &pound;200-300 million. But over the last year, it has grown much more significantly, as seen in the table below. In Q1 and Q2 particularly, it amounted to &pound;9.8 billion and &pound;12.9 billion, respectively, accounting for nearly 16% and just over 19% of reported UK exports. The decline in exports in Q3 is almost totally absorbed by a reduction in the illegal MTIC trade, which was &quot;only&quot; &pound;3.6 billion. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109j.jpg" width="353">
Probably data users who are well acquainted with the UK are aware of this issue, but others need to know. Most recently, it has greatly distorted both exports and imports and complicates interpretation of the data on them. For instance, the sharp drop in trade in Q3 could signal less rigor in the UK economy, but instead, evidently, it signals more rigorous law enforcement. The ONS is so concerned about the mixed signals in this information that its initial brief announcement of the September data consisted in more text about data reliability than about the figures themselves, much as this comment does. Note that we have highlighted the export side in our discussion, but imports are involved just as much.ONS introduced today quarterly data on the MTIC &quot;fraud trade&quot;, along with current price and chained price series of exports and imports net of this phantom activity. Haver&#39;s database managers are preparing to enter these series in the UK database. Clients can watch Data News in the Client Area of Haver.com and in HaverSelect.com for their availability.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">UK</a><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">, Seas Adjusted</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">Year Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Million &pound;Trade Balance: Goods &amp; Services</td>
<td>-4,087</td>
<td>-4,544</td>
<td>-4,699</td>
<td>-4,205</td>
<td>-3,775</td>
<td>-2,915</td>
<td>-2,454</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>-6,560</td>
<td>-6,856</td>
<td>-7,055</td>
<td>-6,033</td>
<td>-5,723</td>
<td>-5,074</td>
<td>-4,051</td>
</tr>
<tr>
<td class="firstcol">Exports of Goods</td>
<td>19,182</td>
<td>19,396</td>
<td>18,846</td>
<td>18,596</td>
<td>17,641</td>
<td>15,906</td>
<td>15,693</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports of Goods</td>
<td>25,742</td>
<td>26,252</td>
<td>25,901</td>
<td>24,629</td>
<td>23,364</td>
<td>20,981</td>
<td>19,744</td>
</tr>
<tr>
<td class="firstcol">Goods Bal ex Oil</td>
<td>-6,101</td>
<td>-6,134</td>
<td>-6,725</td>
<td>-5,315</td>
<td>-5,541</td>
<td>-5,149</td>
<td>-4,332</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q3 2006</td>
<td>Q2 2006</td>
<td>Q1 2006</td>
<td>Q4 2005</td>
<td colspan="3">Quarterly Averages</td>
</tr>
<tr>
<td class="firstcol">Billion &pound;Reported Exports</td>
<td>57.4</td>
<td>67.1</td>
<td>62.7</td>
<td>56.4</td>
<td>52.9</td>
<td>47.7</td>
<td>47.1</td>
</tr>
<tr class="odd">
<td class="firstcol">MTIC Fraud</td>
<td>3.6</td>
<td>12.9</td>
<td>9.8</td>
<td>4.4</td>
<td>2.8</td>
<td>0.6</td>
<td>1.1</td>
</tr>
<tr>
<td class="firstcol">Exports Net of Fraud</td>
<td>53.8</td>
<td>54.1</td>
<td>52.9</td>
<td>52.0</td>
<td>50.1</td>
<td>47.0</td>
<td>46.0</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061108b.jpg" width="353">
The total number of mortgage applications recovered 8.8% last week and more than made up the several sharp w/w declines during October, according to the Mortgage Bankers Association. The level of total applications started November 5.9% above the October average which fell 0.6% from September.
Applications to refinance jumped 11.0% to the highest level since late September. They began this month 6.7% above the October average which rose 3.5% from September.
Purchase applications in addition rose strongly, by 7.1%. The gain also was to the highest level since late September and pulled the opening level this month 5.4% ahead of the October average level. Purchase applications fell 3.6% last month from September on average.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061108a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage was unchanged w/w at 6.46%. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing ticked up to 6.20%. The peak for 15 year financing was 6.75% during June. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/papers/2006/wp06-08bk.pdf"> here</a>.
Alternative Mortgages: Managed Risk or Gamble? from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/alternative.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">11/03/06</th>
<th scope="col">10/27/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>620.9</td>
<td>570.8</td>
<td>-6.1%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>402.2</td>
<td>375.6</td>
<td>-13.6%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,897.9</td>
<td>1,709.2</td>
<td>5.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
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The total number of mortgage applications recovered 8.8% last week and more than made up the several sharp w/w declines during October, according to the Mortgage Bankers Association. The level of total applications started November [...]

Mortgage Applications Recovery Big

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: November 2006

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