Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212b.jpg" width="353">
Growth in credit market debt owed by the household sector jumped at a 13.3% rate last quarter, the strongest rate in a year. A 15.5% (13.2% y/y) jump in mortgage obligations lifted the figure but consumer credit also surged at an 8.7% rate (4.2% y/y), the strongest this year. These gains powered overall domestic nonfinancial debt growth to its fastest of the year, 9.8% (9.2% y/y)
Growth in the federal government debt also was firm at 6.9% y/y while non-financial corporations&#39; debt grew a faster 7.7% y/y.
Household sector asset values rose 12.8% y/y due to a 14.1% rise in the value of real estate holdings. Financial asset values rose 9.8% due to a 19.0% rise in the value of mutual fund shares but the value of corporate equities held directly rose just 3.0%.
The net worth of the US household sector in 3Q improved 2.6% (10.9% y/y) to a record $51.1 trillion. The gain lifted net worth to a historic 5.6 times income.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a>&nbsp;</th>
<th scope="col">% of Total</th>
<th scope="col">3Q 05&nbsp; (AR)</th>
<th scope="col">2Q 05 &nbsp; (AR)</th>
<th scope="col">Y/Y</th>
<th scope="col">2004 &nbsp;</th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002 &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>8.7%</td>
<td>8.8%</td>
<td>8.7%</td>
<td>8.4%</td>
<td>8.8%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>6.6%</td>
<td>-3.7%</td>
<td>6.9%</td>
<td>9.0%</td>
<td>10.9%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>13.3%</td>
<td>12.0%</td>
<td>10.9%</td>
<td>11.2%</td>
<td>10.2%</td>
<td>9.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>6.5%</td>
<td>8.7%</td>
<td>7.7%</td>
<td>5.2%</td>
<td>3.4%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>6.1%</td>
<td>10.7%</td>
<td>7.5%</td>
<td>7.5%</td>
<td>10.1%</td>
<td>9.2%</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">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$51.1</td>
<td>$49.8</td>
<td></td>
<td>$48.2</td>
<td>$43.9</td>
<td>$39.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets</td>
<td></td>
<td>$20.8</td>
<td>$20.1</td>
<td>14.1%</td>
<td>$18.7</td>
<td>$16.4</td>
<td>$15.0</td>
</tr>
</tbody>
</table>
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Growth in credit market debt owed by the household sector jumped at a 13.3% rate last quarter, the strongest rate in a year. A 15.5% (13.2% y/y) jump in mortgage obligations lifted the figure but consumer credit also surged at an 8.7% [...]

Households' Debt Usage Surged in 3Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212a.jpg" width="353">
The Leading Index of the Major 7 OECD economies posted its fifth consecutive monthly increase in October with a 0.4% increase that doubled the gains of the prior two months. The increase raised the leaders&#39; six month growth rate to 1.7%, the best since August 2004 and gains were broad based amongst countries.
During the last ten years there has been a 66% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.
The leading index for Japan jumped 0.9% after a downwardly revised 0.5% September increase. Share prices and construction rose lifting the six month growth rate to a firm 3.0% and its correlation with real economic growth in Japan has been a meaningful 42% during the last ten years.
Leaders in the European Union (15 countries) rose 0.3%. This fifth consecutive monthly increase raised the six month growth rate to 2.5%. During the last ten years there has been a 60% correlation between the change in the leading index and the q/q change in the GDP volume index for the European Union.
German leaders increased for the six consecutive month and a 0.7% gain was the strongest since July. The six month growth rate improved to 4.4% as new orders rose to the highest since 1992. The correlation between the leaders and the change in the German GDP volume index has been a low 19% during the last ten years.
The French leaders increased 0.5% increase and the gain pulled the six month growth rate further into positive territory at 1.5%. Prospects for the industrial sector rose to the best level in a year. The correlation between the leaders&#39; growth and France&#39;s GDP volume index has been 43% during the last ten years. The Italian leading index were unchanged following two months of increase. Nevertheless, the six month growth rate improved to 0.3% though earlier growth rates were revised down. Its correlation with GDP growth has been a low 0.9% during the last ten years.
The U.S. leaders rose 0.2% following two months of decline and six month growth in the leaders improved to a modest 1.2%. The correlation between the leaders and real GDP growth has been a high 58% during the last ten years.
The UK leaders fell 0.1% for the second straight month. Declines in consumer confidence, new car registrations, share prices and the future tendency of production dropped the six month growth rate to -0.3% and its correlation with real GDP growth has been 29% during the last ten years. The Canadian leaders also fell for the second month and the 0.1% decline dropped six month growth to -0.8%. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/42/33/35826051.pdf"> here</a>.
Cross-Country Productivity Growth from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/iet/20051101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">Composite Leading Index&nbsp;</td>
<td>103.37</td>
<td>102.99</td>
<td>1.0%</td>
<td>102.36</td>
<td>97.84</td>
<td>96.45</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>1.7%</td>
<td>1.1%</td>
<td>&nbsp;</td>
<td>3.6%</td>
<td>2.7%</td>
<td>2.3%</td>
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The Leading Index of the Major 7 OECD economies posted its fifth consecutive monthly increase in October with a 0.4% increase that doubled the gains of the prior two months. The increase raised the leaders' six month growth rate to [...]

OECD Leaders Rose Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212a.jpg" width="353">
The Leading Index of the Major 7 OECD economies posted its fifth consecutive monthly increase in October with a 0.4% increase that doubled the gains of the prior two months. The increase raised the leaders&#39; six month growth rate to 1.7%, the best since August 2004 and gains were broad based amongst countries.
During the last ten years there has been a 66% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.
The leading index for Japan jumped 0.9% after a downwardly revised 0.5% September increase. Share prices and construction rose lifting the six month growth rate to a firm 3.0% and its correlation with real economic growth in Japan has been a meaningful 42% during the last ten years.
Leaders in the European Union (15 countries) rose 0.3%. This fifth consecutive monthly increase raised the six month growth rate to 2.5%. During the last ten years there has been a 60% correlation between the change in the leading index and the q/q change in the GDP volume index for the European Union.
German leaders increased for the six consecutive month and a 0.7% gain was the strongest since July. The six month growth rate improved to 4.4% as new orders rose to the highest since 1992. The correlation between the leaders and the change in the German GDP volume index has been a low 19% during the last ten years.
The French leaders increased 0.5% increase and the gain pulled the six month growth rate further into positive territory at 1.5%. Prospects for the industrial sector rose to the best level in a year. The correlation between the leaders&#39; growth and France&#39;s GDP volume index has been 43% during the last ten years. The Italian leading index were unchanged following two months of increase. Nevertheless, the six month growth rate improved to 0.3% though earlier growth rates were revised down. Its correlation with GDP growth has been a low 0.9% during the last ten years.
The U.S. leaders rose 0.2% following two months of decline and six month growth in the leaders improved to a modest 1.2%. The correlation between the leaders and real GDP growth has been a high 58% during the last ten years.
The UK leaders fell 0.1% for the second straight month. Declines in consumer confidence, new car registrations, share prices and the future tendency of production dropped the six month growth rate to -0.3% and its correlation with real GDP growth has been 29% during the last ten years. The Canadian leaders also fell for the second month and the 0.1% decline dropped six month growth to -0.8%. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/42/33/35826051.pdf"> here</a>.
Cross-Country Productivity Growth from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/iet/20051101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Leading Index&nbsp;</td>
<td>103.37</td>
<td>102.99</td>
<td>1.0%</td>
<td>102.36</td>
<td>97.84</td>
<td>96.45</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>1.7%</td>
<td>1.1%</td>
<td>&nbsp;</td>
<td>3.6%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
Households' Debt Usage Surged in 3Q  
by <a href="/comment/Moeller.html">Tom Moeller</a> December 12, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212b.jpg" width="353">
Growth in credit market debt owed by the household sector jumped at a 13.3% rate last quarter, the strongest rate in a year. A 15.5% (13.2% y/y) jump in mortgage obligations lifted the figure but consumer credit also surged at an 8.7% rate (4.2% y/y), the strongest this year. These gains powered overall domestic nonfinancial debt growth to its fastest of the year, 9.8% (9.2% y/y)
Growth in the federal government debt also was firm at 6.9% y/y while non-financial corporations&#39; debt grew a faster 7.7% y/y.
Household sector asset values rose 12.8% y/y due to a 14.1% rise in the value of real estate holdings. Financial asset values rose 9.8% due to a 19.0% rise in the value of mutual fund shares but the value of corporate equities held directly rose just 3.0%.
The net worth of the US household sector in 3Q improved 2.6% (10.9% y/y) to a record $51.1 trillion. The gain lifted net worth to a historic 5.6 times income.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a>&nbsp;</th>
<th scope="col">% of Total</th>
<th scope="col">3Q 05&nbsp; (AR)</th>
<th scope="col">2Q 05 &nbsp; (AR)</th>
<th scope="col">Y/Y</th>
<th scope="col">2004 &nbsp;</th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002 &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td></td>
<td>8.7%</td>
<td>8.8%</td>
<td>8.7%</td>
<td>8.4%</td>
<td>8.8%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>6.6%</td>
<td>-3.7%</td>
<td>6.9%</td>
<td>9.0%</td>
<td>10.9%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>13.3%</td>
<td>12.0%</td>
<td>10.9%</td>
<td>11.2%</td>
<td>10.2%</td>
<td>9.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>6.5%</td>
<td>8.7%</td>
<td>7.7%</td>
<td>5.2%</td>
<td>3.4%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>6.1%</td>
<td>10.7%</td>
<td>7.5%</td>
<td>7.5%</td>
<td>10.1%</td>
<td>9.2%</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">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$51.1</td>
<td>$49.8</td>
<td></td>
<td>$48.2</td>
<td>$43.9</td>
<td>$39.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets</td>
<td></td>
<td>$20.8</td>
<td>$20.1</td>
<td>14.1%</td>
<td>$18.7</td>
<td>$16.4</td>
<td>$15.0</td>
</tr>
</tbody>
</table>
Japan's Second Preliminary Estimate of 3rdQ GDP Growth Rate Revised Down to 0.2% from 0.4%:  Inventory Liquidation the Cause 
by <a href="/comment/Curley.html">Louise Curley</a> December 12, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213c.jpg" width="353">
The second preliminary estimate of Japan&#39;s third quarter gross domestic product, which was published late last week, reduced the quarter-to-quarter growth rate from 0.4% to 0.2%. The major revision was a change in inventory accumulation. In the first preliminary estimate there was no change in inventories and, therefore no contribution to growth from that source, but the second preliminary estimate showed a substantial decline in inventories resulting in 0.4 percentage points being deducted from the growth rate.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213d.jpg" width="353"> The other changes were a 0.1 percentage point increase in nonresidential construction and a 0.1 percentage point reduction in the import of goods and service import which, of course, is positive in relation to growth. On a seasonally adjusted annual rate basis, Japan&#39;s GDP rose 1.0% in the third quarter, down from 5.0% in the second quarter and 5.7% in the first quarter as shown in the first chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213e.jpg" width="353">
The fact that the lower estimate was due largely to a change in the estimate for inventories suggests that the deceleration in growth may not herald the specter of another false rise in Japanese growth. There are faint positive stirrings in consumer confidence. Although the diffusion index of consumer confidence is still below 50, indicating an excess of pessimists over optimists, the index has risen in both October and November suggesting that consumers may increase their spending in the fourth quarter. The Economic and Social Research Institute in the Cabinet Office now publishes monthly instead of quarterly indicators of consumer confidence, but the monthly data go back only to April, 2004. In the second chart we show the monthly data linked to the now discontinued quarterly series. While the gains in consumer confidence are tentative, there is little doubt that there has been a sharp decline in the yen this year as shown in the third chart. The lower yen has and is likely to continue to encourage exports.

<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/JAPAN/@J2/@J201/@J201.HTM">Japanese Gross Domestic Product&nbsp;</a> (Billions chained 2000 Yen)</th>
<th scope="col">Q3 05&nbsp; %</th>
<th scope="col">Q2 05 % </th>
<th scope="col">Q1 05 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
<th scope="col">2002&nbsp; %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gross Domestic Product SA Annual Rate</td>
<td>1.00</td>
<td>4.96</td>
<td>5.67</td>
<td>2.26</td>
<td>1.82</td>
<td>0.14</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Q/Q %</td>
<td>0.25</td>
<td>1.22</td>
<td>1.39</td>
<td>2.26</td>
<td>1.82</td>
<td>0.14</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Consumption</td>
<td>0.37</td>
<td>0.32</td>
<td>1.21</td>
<td>1.91</td>
<td>0.57</td>
<td>1.11</td>
</tr>
<tr>
<td class="firstcol">Government Consumption</td>
<td>0.56</td>
<td>0.23</td>
<td>0.93</td>
<td>2.00</td>
<td>2.30</td>
<td>2.38</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Fixed Investment</td>
<td>1.33</td>
<td>1.40</td>
<td>1.81</td>
<td>0.95</td>
<td>0.47</td>
<td>-4.95</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>0.72</td>
<td>3.10</td>
<td>-0.14</td>
<td>13.93</td>
<td>9.00</td>
<td>7.45</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>3.34</td>
<td>2.15</td>
<td>-0.04</td>
<td>8.47</td>
<td>3.95</td>
<td>0.81</td>
</tr>
<tr>
<td class="firstcol">Change in Inventories (Billions chained 2000 Yen)&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Private</td>
<td>-1,915.3</td>
<td>1,539.2&nbsp;</td>
<td>727.3&nbsp;</td>
<td>-1,199.6&nbsp;</td>
<td>1,750.7</td>
<td>-2,055.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Government</td>
<td>&nbsp;32.9</td>
<td>-15.4&nbsp;</td>
<td>-48.4&nbsp;</td>
<td>&nbsp;&nbsp; 60.3&nbsp;</td>
<td>&nbsp; 11.2&nbsp;</td>
<td>&nbsp; 15.1&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

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/1051209a.gif" width="353">
Foreign trade developments are always interesting in the UK, since it is involved in so many different kinds of activities: manufacturing, shipping, insurance and oil, to name a few. In October, the balance on goods and services decreased by &pound;1 billion to &pound;2.9 billion as exports rose and imports fell from September amounts. The balance on fuel returned to a near neutral position after reaching unprecedented deficits in August and September. The balance on services was steady, reestablishing its old trend after a plunge in August due to Hurricane Katrina.
Among exports, manufactured goods maintained a firm trend for a third month, breaking a prior wide seesaw pattern. The value of crude oil exports surpassed &pound;2 billion for the first time, ironically even as oil prices actually fell slightly from September; the volume of crude shipped surged more than 33% after sagging in August and September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209j.jpg" width="353">
On the import side, widespread decreases in manufactured goods contributed to a &pound;681 million decline in total goods imports. Vehicles were down &pound;158 million and other finished goods &pound;256 million, the latter a second successive decrease that basically offset a jump in August. Oil imports also fell, with both a volume decrease and a slight drop in the unit value.
Insurance payments figured heavily in an earlier swing in the trade balance. According to the ONS, Lloyds of London paid out an estimated &pound;1.4 billion in benefits for Hurricane Katrina losses. The last time such a large negative flow (a negative export of services provided by a UK entity, not to be confused with an import of services, which would be provided by a foreign entity) occurred was in September 2001, and that was considerably more, at about &pound;2.3 billion. Both of these were one-time payments, so the broad service export total quickly reversed to its then-current amounts. The overall balance on services had thus been a mere &pound;457 million in August, but rebounded quickly to &pound;1.7 billion in September and was basically unchanged in October.

<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">United Kingdom: Trade</a> SA, Bil.&pound;</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance: Goods &amp; Services</td>
<td>-2.88</td>
<td>-3.90</td>
<td>-5.49</td>
<td>-3.78</td>
<td>-3.26</td>
<td>-2.58</td>
<td>-2.63</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>27.24</td>
<td>26.82</td>
<td>25.14</td>
<td>24.68</td>
<td>24.26</td>
<td>23.52</td>
<td>22.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>30.12</td>
<td>30.72</td>
<td>30.63</td>
<td>28.46</td>
<td>27.52</td>
<td>26.10</td>
<td>25.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-4.55</td>
<td>-5.60</td>
<td>-5.95</td>
<td>-5.66</td>
<td>-5.04</td>
<td>-3.99</td>
<td>-3.92</td>
</tr>
<tr>
<td class="firstcol">Fuels</td>
<td>-0.08</td>
<td>-0.75</td>
<td>-0.59</td>
<td>-0.00</td>
<td>0.10</td>
<td>0.42</td>
<td>0.53</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>2.27</td>
<td>1.94</td>
<td>1.65</td>
<td>1.60</td>
<td>1.50</td>
<td>1.38</td>
<td>1.33</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>2.35</td>
<td>2.67</td>
<td>2.24</td>
<td>1.59</td>
<td>1.40</td>
<td>0.96</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.67</td>
<td>1.70</td>
<td>0.46</td>
<td>1.87</td>
<td>1.77</td>
<td>1.41</td>
<td>1.30</td>
</tr>
</tbody>
</table>
</body>
</html>

Foreign trade developments are always interesting in the UK, since it is involved in so many different kinds of activities: manufacturing, shipping, insurance and oil, to name a few. In October, the balance on goods and services [...]

UK Trade Balance Decreases in October with Exports Up and Imports Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209c.jpg" width="353">
Recent strength in commodity prices highlight the fear that inflation is about to surge. However the concern is based not just on the gains in metals prices, for example, but on a broader array of potentially inflationary indications.1) Real economic growth amongst OECD countries has doubled to (a still moderate) 2.5% versus 2001 and growth elsewhere in the world is blistering. Chinese economic growth at 14% is up from 4% in 1999 and growth in India has nearly doubled to 8% from a 2001 low of 4.5%. 2) Though US money growth recently has declined, the five year growth rate of 6.3% is triple the growth of ten years ago. Relationships between money and inflation are not what they used to be, but financial liquidity will always be viewed as integral to the equation. The issue is examined by the Federal Reserve Bank of St. Louis in <a href="http://research.stlouisfed.org/publications/review/05/09/Gavin.pdf">Monetary Instrument Matters</a><a href="http://research.stlouisfed.org/publications/review/05/09/Gavin.pdf">.</a> 3) Energy prices remain elevated. Oil prices are more than 20% higher than last year&#39;s average which rose 53% from 2003 and the cold weather that has gripped much of the US has recently pushed prices up further. Most notable has been the spike in natural gas prices which yesterday were over $14/mmbtu, a rough doubling of last year&#39;s level. Crude oil prices also rose over $60/bbl. for West Texas Intermediate for the first time in a month. That rise along with a rebound in the demand for gasoline promises an end to the recent fall in retail gasoline prices. (Gasoline has a 3.9% weight in the Consumer Price Index, electricity has a 2.4% weight and natural gas&#39; weight is 1.3%.). 
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209f.jpg" width="353"> <img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209i.jpg" width="353">4) Gold prices recently surged over $500 per ounce and into territory not plotted since 1981. During the last twenty years there has been a fairly high 52% correlation between the level of gold and the expected rate of inflation during the next year. Most of that correlation, however, seems to reflect current pricing power. Gold&#39;s correlation with next year&#39;s growth in the CPI has been negligible. The late Jude Wanniski&#39;s thoughts on the Gold Standard can be found <a href="http://www.gold-eagle.com/editorials/wanniski111897.html"> here</a> and the Federal Reserve Bank of Cleveland&#39;s 1998 research simply titled Gold Prices can be found <a href="http://www.clevelandfed.org/research/com98/0301.pdf"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209d.jpg" width="353">5) The latest jump in industrial commodity prices for many is the prima fascia indication of a pending inflation pickup, but the gain seems more to reflect better economic growth. In fact industrial commodity prices have had roughly a 50% correlation with the y/y change in factory sector output during the last ten years and only a 15% correlation with the change in core goods prices in the CPI. Though even here, individual performance has been mixed. Metals prices have recovered all of the early-year drop and on average are nearly double the 2001 low, the strength paced by a near four fold rise in copper prices during the last four years. Textile prices, however, are up just 10% over four years. Further obfuscation of the issue is provided by the strong 47% correlation between industrial materials prices and the change in the overall CPI.6) An inflationary threat from rising food prices depends on how much meat is part of the diet since livestock &amp; meat prices have rebounded strongly from the mid-year lows. That misses a near 60% price rise since 2002 which has been paced 40-50% gains in beef prices, 60% higher broiler prices and 50%+ gains in pork prices. Grain price increases have been relatively tame but even coffee prices are double the 2003 level. The latest Food Price Outlook from the USDA Food Institute can be found <a href="http://www.foodinstitute.com/outlook.cfm"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209j.jpg" width="353">

<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/daily/@D3/@D306/@D306.HTM">Commodity Prices</a></th>
<th scope="col">12/02/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">JoC-ECRI All Industrials</td>
<td>116.52</td>
<td>111.55</td>
<td>2.8%</td>
<td>22.6%</td>
<td>15.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Textiles&nbsp;&nbsp;</td>
<td>67.70</td>
<td>64.35</td>
<td>5.1%</td>
<td>1.1%</td>
<td>9.0%</td>
<td>-2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Metals</td>
<td>127.20</td>
<td>124.55</td>
<td>-0.2%</td>
<td>39.7%</td>
<td>12.5%</td>
<td>-0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Miscellaneous</td>
<td>103.44</td>
<td>103.85</td>
<td>2.7%</td>
<td>10.8%</td>
<td>19.9%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Petroleum Products</td>
<td>267.70</td>
<td>216.50</td>
<td>6.6%</td>
<td>53.1%</td>
<td>22.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">CRB Spot Commodity Foodstuffs</td>
<td>250.22</td>
<td>255.77</td>
<td>-8.6%</td>
<td>2.7%</td>
<td>4.6%</td>
<td>16.8%</td>
</tr>
<tr>
<td class="firstcol">CRB Spot Commodity Livestock &amp; Products</td>
<td>358.00</td>
<td>362.63</td>
<td>-7.8%</td>
<td>-0.7%</td>
<td>14.9%</td>
<td>23.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Gold (Handy &amp; Harmon, /Troy Oz.)</td>
<td>$504.25</td>
<td>$443.40</td>
<td>11.6%</td>
<td>6.5%</td>
<td>20.7%</td>
<td>23.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$2.19</td>
<td>$1.79</td>
<td>12.6%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$52.04</td>
<td>$41.78</td>
<td>33.7%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
</tr>
</tbody>
</table>
</body>
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Recent strength in commodity prices highlight the fear that inflation is about to surge. However the concern is based not just on the gains in metals prices, for example, but on a broader array of potentially inflationary [...]

Higher Commodity Prices: A Better Economy or Pending Inflation?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209h.jpg" width="353">
Consumer sentiment in early December rose more than generally expected, reported the University of Michigan. The 8.7% m/m rise to 88.7 added to a 10.0% rise in November and beat Consensus expectations for an increase to 85.0.
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.
Consumers&#39; expectations again improved sharply and the index rose 11.1% on top of a 10.1% November gain. Expected business conditions during the next year rose sharply for the third straight month though the level remained down 21.3% versus last year. Expectations for personal finances also rose sharply m/m but here again the index level remained lower than last year by 3.1%. The mean expected inflation rate for the next twelve months held steady m/m at 4.2% though that was below the 5.5% expected in October &amp; September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209g.jpg" width="353">
The current conditions index added 6.4% to the 9.9% November gain but remained well depressed versus last year. The reading of personal finances surged 12.6% (+3.6% y/y) and the reading of buying conditions for large household goods added to November&#39;s 12.9% jump ((-3.0% y/y).Weighing on sentiment is consumers&#39; reading of gov&#39;t economic policy (-20.0% 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.
Why Hasn&#39;t the Jump in Oil Prices Led to a Recession? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-31.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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Dec (Prelim.)</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>88.7</td>
<td>81.6</td>
<td>-8.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.6</td>
<td>100.2</td>
<td>-0.1%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>77.3</td>
<td>69.6</td>
<td>-15.0%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
</body>
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Consumer sentiment in early December rose more than generally expected, reported the University of Michigan. The 8.7% m/m rise to 88.7 added to a 10.0% rise in November and beat Consensus expectations for an increase to 85.0. During [...]

U.S. Consumer Sentiment Stronger Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209h.jpg" width="353">
Consumer sentiment in early December rose more than generally expected, reported the University of Michigan. The 8.7% m/m rise to 88.7 added to a 10.0% rise in November and beat Consensus expectations for an increase to 85.0.
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.
Consumers&#39; expectations again improved sharply and the index rose 11.1% on top of a 10.1% November gain. Expected business conditions during the next year rose sharply for the third straight month though the level remained down 21.3% versus last year. Expectations for personal finances also rose sharply m/m but here again the index level remained lower than last year by 3.1%. The mean expected inflation rate for the next twelve months held steady m/m at 4.2% though that was below the 5.5% expected in October &amp; September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209g.jpg" width="353">
The current conditions index added 6.4% to the 9.9% November gain but remained well depressed versus last year. The reading of personal finances surged 12.6% (+3.6% y/y) and the reading of buying conditions for large household goods added to November&#39;s 12.9% jump ((-3.0% y/y).Weighing on sentiment is consumers&#39; reading of gov&#39;t economic policy (-20.0% 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.
Why Hasn&#39;t the Jump in Oil Prices Led to a Recession? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-31.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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Dec (Prelim.)</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>88.7</td>
<td>81.6</td>
<td>-8.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.6</td>
<td>100.2</td>
<td>-0.1%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>77.3</td>
<td>69.6</td>
<td>-15.0%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
UK Trade Balance Decreases in October with Exports Up and Imports Down 
by <a href="/comment/Stone.html">Carol Stone</a> December 9, 2005


<img align="left" border="0" height="291" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209a.gif" width="387">
Foreign trade developments are always interesting in the UK, since it is involved in so many different kinds of activities: manufacturing, shipping, insurance and oil, to name a few. In October, the balance on goods and services decreased by &pound;1 billion to &pound;2.9 billion as exports rose and imports fell from September amounts. The balance on fuel returned to a near neutral position after reaching unprecedented deficits in August and September. The balance on services was steady, reestablishing its old trend after a plunge in August due to Hurricane Katrina.
Among exports, manufactured goods maintained a firm trend for a third month, breaking a prior wide seesaw pattern. The value of crude oil exports surpassed &pound;2 billion for the first time, ironically even as oil prices actually fell slightly from September; the volume of crude shipped surged more than 33% after sagging in August and September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209b.jpg" width="353">
On the import side, widespread decreases in manufactured goods contributed to a &pound;681 million decline in total goods imports. Vehicles were down &pound;158 million and other finished goods &pound;256 million, the latter a second successive decrease that basically offset a jump in August. Oil imports also fell, with both a volume decrease and a slight drop in the unit value.
Insurance payments figured heavily in an earlier swing in the trade balance. According to the ONS, Lloyds of London paid out an estimated &pound;1.4 billion in benefits for Hurricane Katrina losses. The last time such a large negative flow (a negative export of services provided by a UK entity, not to be confused with an import of services, which would be provided by a foreign entity) occurred was in September 2001, and that was considerably more, at about &pound;2.3 billion. Both of these were one-time payments, so the broad service export total quickly reversed to its then-current amounts. The overall balance on services had thus been a mere &pound;457 million in August, but rebounded quickly to &pound;1.7 billion in September and was basically unchanged in October.

<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">United Kingdom: Trade</a> SA, Bil.&pound;</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance: Goods &amp; Services</td>
<td>-2.88</td>
<td>-3.90</td>
<td>-5.49</td>
<td>-3.78</td>
<td>-3.26</td>
<td>-2.58</td>
<td>-2.63</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>27.24</td>
<td>26.82</td>
<td>25.14</td>
<td>24.68</td>
<td>24.26</td>
<td>23.52</td>
<td>22.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>30.12</td>
<td>30.72</td>
<td>30.63</td>
<td>28.46</td>
<td>27.52</td>
<td>26.10</td>
<td>25.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-4.55</td>
<td>-5.60</td>
<td>-5.95</td>
<td>-5.66</td>
<td>-5.04</td>
<td>-3.99</td>
<td>-3.92</td>
</tr>
<tr>
<td class="firstcol">Fuels</td>
<td>-0.08</td>
<td>-0.75</td>
<td>-0.59</td>
<td>-0.00</td>
<td>0.10</td>
<td>0.42</td>
<td>0.53</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>2.27</td>
<td>1.94</td>
<td>1.65</td>
<td>1.60</td>
<td>1.50</td>
<td>1.38</td>
<td>1.33</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>2.35</td>
<td>2.67</td>
<td>2.24</td>
<td>1.59</td>
<td>1.40</td>
<td>0.96</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.67</td>
<td>1.70</td>
<td>0.46</td>
<td>1.87</td>
<td>1.77</td>
<td>1.41</td>
<td>1.30</td>
</tr>
</tbody>
</table>
Higher Commodity Prices: A Better Economy or Pending Inflation? 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209c.jpg" width="353">
Recent strength in commodity prices highlight the fear that inflation is about to surge. However the concern is based not just on the gains in metals prices, for example, but on a broader array of potentially inflationary indications.1) Real economic growth amongst OECD countries has doubled to (a still moderate) 2.5% versus 2001 and growth elsewhere in the world is blistering. Chinese economic growth at 14% is up from 4% in 1999 and growth in India has nearly doubled to 8% from a 2001 low of 4.5%. 2) Though US money growth recently has declined, the five year growth rate of 6.3% is triple the growth of ten years ago. Relationships between money and inflation are not what they used to be, but financial liquidity will always be viewed as integral to the equation. The issue is examined by the Federal Reserve Bank of St. Louis in <a href="http://research.stlouisfed.org/publications/review/05/09/Gavin.pdf">Monetary Instrument Matters</a><a href="http://research.stlouisfed.org/publications/review/05/09/Gavin.pdf">.</a> 3) Energy prices remain elevated. Oil prices are more than 20% higher than last year&#39;s average which rose 53% from 2003 and the cold weather that has gripped much of the US has recently pushed prices up further. Most notable has been the spike in natural gas prices which yesterday were over $14/mmbtu, a rough doubling of last year&#39;s level. Crude oil prices also rose over $60/bbl. for West Texas Intermediate for the first time in a month. That rise along with a rebound in the demand for gasoline promises an end to the recent fall in retail gasoline prices. (Gasoline has a 3.9% weight in the Consumer Price Index, electricity has a 2.4% weight and natural gas&#39; weight is 1.3%.). 
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209f.jpg" width="353"> <img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209i.jpg" width="353">4) Gold prices recently surged over $500 per ounce and into territory not plotted since 1981. During the last twenty years there has been a fairly high 52% correlation between the level of gold and the expected rate of inflation during the next year. Most of that correlation, however, seems to reflect current pricing power. Gold&#39;s correlation with next year&#39;s growth in the CPI has been negligible. The late Jude Wanniski&#39;s thoughts on the Gold Standard can be found <a href="http://www.gold-eagle.com/editorials/wanniski111897.html"> here</a> and the Federal Reserve Bank of Cleveland&#39;s 1998 research simply titled Gold Prices can be found <a href="http://www.clevelandfed.org/research/com98/0301.pdf"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209d.jpg" width="353">5) The latest jump in industrial commodity prices for many is the prima fascia indication of a pending inflation pickup, but the gain seems more to reflect better economic growth. In fact industrial commodity prices have had roughly a 50% correlation with the y/y change in factory sector output during the last ten years and only a 15% correlation with the change in core goods prices in the CPI. Though even here, individual performance has been mixed. Metals prices have recovered all of the early-year drop and on average are nearly double the 2001 low, the strength paced by a near four fold rise in copper prices during the last four years. Textile prices, however, are up just 10% over four years. Further obfuscation of the issue is provided by the strong 47% correlation between industrial materials prices and the change in the overall CPI.6) An inflationary threat from rising food prices depends on how much meat is part of the diet since livestock &amp; meat prices have rebounded strongly from the mid-year lows. That misses a near 60% price rise since 2002 which has been paced 40-50% gains in beef prices, 60% higher broiler prices and 50%+ gains in pork prices. Grain price increases have been relatively tame but even coffee prices are double the 2003 level. The latest Food Price Outlook from the USDA Food Institute can be found <a href="http://www.foodinstitute.com/outlook.cfm"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209j.jpg" width="353">

<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/daily/@D3/@D306/@D306.HTM">Commodity Prices</a></th>
<th scope="col">12/02/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">JoC-ECRI All Industrials</td>
<td>116.52</td>
<td>111.55</td>
<td>2.8%</td>
<td>22.6%</td>
<td>15.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Textiles&nbsp;&nbsp;</td>
<td>67.70</td>
<td>64.35</td>
<td>5.1%</td>
<td>1.1%</td>
<td>9.0%</td>
<td>-2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Metals</td>
<td>127.20</td>
<td>124.55</td>
<td>-0.2%</td>
<td>39.7%</td>
<td>12.5%</td>
<td>-0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Miscellaneous</td>
<td>103.44</td>
<td>103.85</td>
<td>2.7%</td>
<td>10.8%</td>
<td>19.9%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Petroleum Products</td>
<td>267.70</td>
<td>216.50</td>
<td>6.6%</td>
<td>53.1%</td>
<td>22.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">CRB Spot Commodity Foodstuffs</td>
<td>250.22</td>
<td>255.77</td>
<td>-8.6%</td>
<td>2.7%</td>
<td>4.6%</td>
<td>16.8%</td>
</tr>
<tr>
<td class="firstcol">CRB Spot Commodity Livestock &amp; Products</td>
<td>358.00</td>
<td>362.63</td>
<td>-7.8%</td>
<td>-0.7%</td>
<td>14.9%</td>
<td>23.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Gold (Handy &amp; Harmon, /Troy Oz.)</td>
<td>$504.25</td>
<td>$443.40</td>
<td>11.6%</td>
<td>6.5%</td>
<td>20.7%</td>
<td>23.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$2.19</td>
<td>$1.79</td>
<td>12.6%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$52.04</td>
<td>$41.78</td>
<td>33.7%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051208b.jpg" width="353">
The dramatic impact of Hurricane Katrina on local Gulf Coast economies is starting to be quantified by various government statistics. These numbers do not, of course, begin to describe the devastation in the region, but they give it some relative context. The unemployment rate in Louisiana doubled in September and October, for instance, even as the national rate was fairly steady. Employment in Louisiana plunged 13.3% between August and October, and in Mississippi, by 6.5%. Unemployment for that state rose from 6.9% of the labor force in August to about 10% in September and October. [The state figures for October were published November 22; some metropolitan area data came out last week and smaller local areas, just yesterday, which occasions our commentary today.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051208c.jpg" width="353">
Notably, there are no data for the New Orleans metropolitan area for these two months. BLS&#39;s release of November 30 explains that the quality of the data was &quot;severely compromised by the hurricane&quot;. People in the area simply had other priorities than responding to the Current Population Survey in those months. BLS obviously determined that this effect did not carry over to the state as a whole. Further, for the Gulfport/Biloxi/Pascagoula area, reporting was not harmed enough to undermine the figures that were obtained in the interviewing. They are still seen as a fair representation of actual employment conditions in the area.
The differential impact of the storm, and Rita that followed, are shown in the divergence between Louisiana and Mississippi of labor market behavior in October. Employment continued to decline in Louisiana, falling another 44,500, while it stabilized in Mississippi. The unemployment rates in Mississippi and in the Gulfport/Biloxi area fell markedly in October, though these remain outsized. Further in Louisiana, the labor force itself continued to shrink; after a decline of 115,600 in September, it went down another 52,900 in October. People were still leaving the state. The impact of Rita is shown by the behavior of the labor force in Lake Charles; it went up slightly in September as it became a place of refuge from New Orleans. But the later storm resulted in a noticeable decrease in October as people fled from there as well.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051208d.jpg" width="353">
Some of these went to Texas. Data for Texas as a whole seem to show little change, but the impact is somewhat evident in the Houston Consolidated area. As seen below, the unemployment rate went up to 5.9% in September; the labor force gained 24,300 but employment went up only 6,600. In October, the labor force stabilized and jobs began to catch up, so unemployment fell back. We should issue a disclaimer here; it is perhaps asking too much of the CPS survey methods to capture this effect so quickly, although BLS says they altered population controls among states to try to account for the massive interstate migration.
Clearly this was an unprecedented period in many ways, not the least of which is data collection. It is important to be able to gauge these massive changes. Further, the labor force data received different treatment than the payroll data did. BLS&#39;s &quot;CES&quot; survey was carefully calibrated to generate numbers for New Orleans establishment employment; the number of payroll jobs there fell 217,300 in September, about 35%, and rose 10,600 in October. By comparison, the average monthly change in the five years to August was zero.
These labor force data are contained in Haver&#39;s EMPLR database, and payroll employment is in the LABORR database, both part of Haver&#39;s extensive regional data offerings. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMPLOYMENT.HTM">Household Employment (Thous) &amp; Unemployment Rates:</a> Selected Areas</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sep 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Louisiana (Seas Adj): Employment </td>
<td>1733.1</td>
<td>1777.6</td>
<td>1999.1</td>
<td>1949.8</td>
<td>1940.3</td>
<td>1914.6</td>
<td>1903.0</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>11.3</td>
<td>11.4</td>
<td>5.8</td>
<td>5.8</td>
<td>5.7</td>
<td>6.3</td>
<td>5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orleans/ Metairie/Kenner&nbsp; (SA) Employment</td>
<td>--</td>
<td>--</td>
<td>602.9</td>
<td>586.7</td>
<td>585.2</td>
<td>580.0</td>
<td>579.4</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>--</td>
<td>--</td>
<td>5.5</td>
<td>4.4</td>
<td>4.6</td>
<td>5.3</td>
<td>5.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Mississippi &nbsp; (SA) Employment</td>
<td>1173.5</td>
<td>1173.0</td>
<td>1255.0</td>
<td>1247.4</td>
<td>1248.1</td>
<td>1237.2</td>
<td>1219.1</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>9.6</td>
<td>10.3</td>
<td>6.9</td>
<td>6.9</td>
<td>6.2</td>
<td>6.4</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Gulfport/Biloxi/- Pascagoula CSA (NSA) Employment</td>
<td>138.0</td>
<td>135.7</td>
<td>180.9</td>
<td>177.0</td>
<td>179.2</td>
<td>177.8</td>
<td>174.6</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>20.8</td>
<td>25.2</td>
<td>6.1</td>
<td>6.5</td>
<td>5.5</td>
<td>5.7</td>
<td>6.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Houston/Baytown/- Huntsville CSA (NSA) Employment</td>
<td>2543.2</td>
<td>2533.3</td>
<td>2526.7</td>
<td>2469.1</td>
<td>2451.8</td>
<td>2417.6</td>
<td>2395.6</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>5.5</td>
<td>5.9</td>
<td>5.3</td>
<td>6.0</td>
<td>6.3</td>
<td>6.8</td>
<td>6.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The dramatic impact of Hurricane Katrina on local Gulf Coast economies is starting to be quantified by various government statistics. These numbers do not, of course, begin to describe the devastation in the region, but they give it [...]

Labor Force Data and Hurricanes

USD/EUR exchange rate uncoupling from interest rate differential

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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

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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

250502F32.jpg

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

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

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

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

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

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

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

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

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

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: December 2005

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