Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206a.jpg" width="353">
Last week, initial claims for jobless insurance retraced most of the prior period&#39;s surge. The 15,000 worker decline to 338,000 followed a little revised increase of 24,000.
The four week moving average of initial claims, a measure which smoothes out most of the series&#39; w/w volatility, rose to 340,250 (4.0% y/y). That was the highest level since 2005.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
By state, some of the largest increases in the four week average level of claims were in New Jersey, California, &amp; Indiana, each to or near to the highest level since 2003. Other states with large increases recently were Florida, Ohio and Pennsylvania.
These detailed claims figures by state are in Haver&#39;s Regional Weekly database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206b.jpg" width="353">
Continuing claims for unemployment insurance fell 59,000 after the 104,000 surge during the prior week. That gain was revised down only slightly from the initial report.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment held at 2.0% after the prior week&#39;s increase.
The &#39;Great Moderation&#39; in Output and Employment Volatility: An Update from the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/eclett/2007/el0709.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/01/07 </th>
<th scope="col">11/24/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;338</td>
<td>353</td>
<td>4.6%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,559</td>
<td>4.6%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
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Last week, initial claims for jobless insurance retraced most of the prior period's surge. The 15,000 worker decline to 338,000 followed a little revised increase of 24,000. The four week moving average of initial claims, a measure [...]

U.S. Initial Unemployment Insurance Claims Highest Since 2005

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206e.jpg" align="left" border="0" height="265" width="353">
The Mortgage Bankers' Association today reported that
foreclosures started on all mortgages rose to a still low 0.78% of
mortgages outstanding. Nevertheless, that was by far the highest
foreclosure rate on record.
Foreclosure rates on both prime and subprime mortgages rose
sharply. Rates for prime FRM rose to 0.22% of loans issued from 0.18%
in 2Q and an average of 0.14% last year. 28 million loans were serviced.
Foreclosures on prime ARMs similarly rose to 1.02% from 0.62%
and from 0.30% last year. 6 million of these loans were serviced.
Foreclosures on subprime mortgage debt, however, rose much
more sharply as employment growth slowed recently and interest rates
rose. In total, foreclosures on subprime mortgages rose to 3.12% of
outstanding loans. That amounted to 6 million loans. The rise was
evenly spread between fixed and variable rate loans.
Foreclosures on subprime fixed rate debt rose to 1.38% of
loans outstanding for a total of 3 million loans serviced.
On variable rate subprime debt, however, foreclosures soared
to a 4.72% rate, up from 3.84% in 2Q and up from 2.0% last year. Three
million loans were serviced.
The Rise and Fall of Subprime Mortgages from
the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2007/el0711.pd">
here</a>.
These data series are available in Haver's MBAMTG
database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206f.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206g.jpg" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Mortgages
in Foreclosure (%) </th>
<th scope="col">3Q '07</th>
<th scope="col">2Q '07</th>
<th scope="col">3Q '06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Mortgages</td>
<td>0.78</td>
<td>0.65</td>
<td>0.46</td>
<td>1.84</td>
<td>1.64</td>
<td>1.73</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
Conventional Prime</td>
<td>0.37</td>
<td>0.27</td>
<td>0.19</td>
<td>0.77</td>
<td>0.72</td>
<td>0.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Fixed Rate</td>
<td>0.22</td>
<td>0.18</td>
<td>0.13</td>
<td>0.14</td>
<td>0.15</td>
<td>0.16</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
ARM</td>
<td>1.02</td>
<td>0.62</td>
<td>0.30</td>
<td>0.30</td>
<td>0.19</td>
<td>0.18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Subprime</td>
<td>3.12</td>
<td>2.72</td>
<td>1.82</td>
<td>7.23</td>
<td>5.66</td>
<td>5.98</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Fixed Rate</td>
<td>1.38</td>
<td>1.35</td>
<td>0.97</td>
<td>1.06</td>
<td>1.08</td>
<td>1.44</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
ARM</td>
<td>4.72</td>
<td>3.84</td>
<td>2.19</td>
<td>2.20</td>
<td>1.52</td>
<td>1.52</td>
</tr>
</tbody>
</table>
US Flow of Funds: Debt Growth Back
Up Due To Financial Sector 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 6, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206c.jpg" align="left" border="0" height="265" width="353">
Credit market debt outstanding owed by all sectors of the
economy grew 11.0% (AR, 9.3% y/y) during the third quarter. The
increase was the strongest since 4Q 2005 and reflected broad based,
strong gains in the financial sector..
Credit market debt owed by the financial sector zoomed at a
16.5% (11.2% y/y) annual rate which was the strongest rate of gain
since early 2001. Gains at commercial banks (41.0% y/y), bank holding
companies (23.2 y/y), savings institutions (-8.8% y/y) and credit
unions (68.9% y/y) were well into double or triple digit rates of
growth.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206d.jpg" align="right" border="0" height="265" width="353">
Stable was consumer credit growth which held at an 8.2% (7.8%
y/y) quarterly rate of growth. Households' obligations on home
mortgages grew 7.3% (8.0% y/y) which was half the growth rates seen a
few years back. Conversely, credit card debt rose sharply (5.3% y/y)
and the quarterly growth rate of 10.3% was the quickest since 2004.
Bank loans also surged.
The net worth of the US household sector last quarter improved
to a record $58.604 trillion as the dollar gain in household sector
assets, which totaled 72.8 trillion, outweighed by four times the
growth of liabilities which total $14.1 trillion.
Total assets of households and nonprofit organizations grew at
a 4.9% rate (7.4 y/y). Households' ownership of real estate assets was
much reduced to a 2.1% growth rate (4.3% y/y), the slowest rate of gain
since 1993. That, however, was offset by a 6.4% (9.5% y/y) gain in
financial assets led by a one-quarter (7.2% y/y) rise in the value of
credit market instruments and a rise in the value of mutual fund share
holdings (21.8% y/y). The value of money market shares rose by one
third as assets were shifted to a safe haven (24.5% 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/FFUNDS/@F2/@F201/@F201.HTM">Flow
of Funds</a> (Y/Y Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">3Q'07</th>
<th scope="col">2Q'07</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt
Outstanding</td>
<td>--</td>
<td>9.3%</td>
<td>8.7%</td>
<td>9.5%</td>
<td>8.8%</td>
<td>9.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Federal Government</td>
<td>12%</td>
<td>4.3%</td>
<td>3.0%</td>
<td>3.9%</td>
<td>7.0%</td>
<td>9.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Households</td>
<td>27%</td>
<td>7.8%</td>
<td>8.2%</td>
<td>10.3%</td>
<td>10.7%</td>
<td>11.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nonfinancial Corporate Business</td>
<td>14%</td>
<td>11.0%</td>
<td>9.8%</td>
<td>8.4%</td>
<td>5.1%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>11.2%</td>
<td>8.9%</td>
<td>10.1%</td>
<td>8.5%</td>
<td>9.2%</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">Net Worth: Households &amp;
Nonprofit Organizations (Trillions)</td>
<td>--</td>
<td>$58.604</td>
<td>$57.979</td>
<td>$56.117</td>
<td>$52.061</td>
<td>$48.164</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets:
Households</td>
<td>--</td>
<td>$27.484</td>
<td>$27.325</td>
<td>$26.671</td>
<td>$25.019</td>
<td>$22.464</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial
Assets: Households</td>
<td>--</td>
<td>$45.277</td>
<td>$44.579</td>
<td>$42.880</td>
<td>$39.203</td>
<td>$36.747</td>
</tr>
</tbody>
</table>
U.S. Initial Unemployment
Insurance Claims Highest Since 2005 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 6, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206a.jpg" align="left" border="0" height="265" width="353">
Last week, initial claims for jobless insurance retraced most
of the prior period's surge. The 15,000 worker decline to 338,000
followed a little revised increase of 24,000.
The four week moving average of initial claims, a
measure which smoothes out most of the series' w/w volatility, rose to
340,250 (4.0% y/y). That was the highest level since 2005.
A claims level below 400,000 typically has been associated
with growth in nonfarm payrolls. During the last six years there has
been a (negative) 78% correlation between the level of initial claims
and the m/m change in nonfarm payroll employment.
By state, some of the largest increases in the four week
average level of claims were in New Jersey, California, &amp;
Indiana, each to or near to the highest level since 2003. Other states
with large increases recently were Florida, Ohio and Pennsylvania. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206b.jpg" align="right" border="0" height="265" width="353">
These detailed claims figures by state are in Haver's Regional
Weekly database.
Continuing claims for unemployment insurance fell 59,000 after
the 104,000 surge during the prior week. That gain was revised down
only slightly from the initial report.
The continuing claims numbers lag the initial claims figures
by one week.
The insured rate of unemployment held at 2.0% after the prior
week's increase.
The 'Great Moderation' in Output and Employment
Volatility: An Update from the Federal Reserve Bank of
Dallas is available <a href="http://dallasfed.org/research/eclett/2007/el0709.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a></th>
<th scope="col">12/01/07 </th>
<th scope="col">11/24/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;338</td>
<td>353</td>
<td>4.6%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,559</td>
<td>4.6%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
German Orders JUMP! by <a href="/comment/Brusca.html">Robert
Brusca
</a> December 6, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071206h.jpg" align="left" border="0" height="265" width="353">
German orders jumped in October rising by 4% after an upward
revised drop of 1.6% in Sept. The gain saw the domestic orders
component rise by 2.7% as foreign orders rose by 5%. Foreign orders are
now rising at a 33% pace over three months and clearly accelerating
while domestic orders post a slightly stronger three month growth rate
of 2.9%. Sales of consumer and intermediate goods remain weak while
capital goods sales surged in October. 

Order detail shows that bulk orders account for the surge in
October. Bulk orders were behind the 8.1% surge in investment goods
orders that saw domestic investment goods orders rise by 6.4% and
foreign orders rise by 9.4%. Basic goods orders fell by 0.4% in October
and consumer goods order volumes fell by 0.8%. Orders from outside the
Euro Area increased by 4.2% while Ex-German Euro Area orders rose by a
sharp 6%. 

For the quarter underway orders are not tremendously strong
with overall orders rising at an annual rate that exceeds 20%. 

On balance German institutes are still cutting their forecasts
for 2008. The chart (above) shows that even with this new surge, orders
are in lower trajectory than they were in their hey-day. It is unclear
what this surge means for the outlook. It may be a fluke of orders
clumping since most other measures continue to show slowing. I do not
think it is a revival. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> German
Orders and Sales By Sector and Origin</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Orders</td>
<td>4.0%</td>
<td>-1.6%</td>
<td>1.9%</td>
<td>17.9%</td>
<td style="color: red;">8.6%</td>
<td>10.3%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign</td>
<td>5.0%</td>
<td>-0.8%</td>
<td>3.2%</td>
<td>33.6%</td>
<td>15.6%</td>
<td>15.5%</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Domestic</td>
<td>2.7%</td>
<td>-2.4%</td>
<td>0.4%</td>
<td>2.9%</td>
<td style="color: red;">1.4%</td>
<td style="color: red;">5.1%</td>
<td>7.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol" colspan="8">Sector
Sales</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG/Mining</td>
<td>1.2%</td>
<td style="color: red;">-0.3%</td>
<td>1.3%</td>
<td>9.2%</td>
<td style="color: red;">4.5%</td>
<td>6.6%</td>
<td>6.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer</td>
<td>0.2%</td>
<td style="color: red;">-0.3%</td>
<td>1.7%</td>
<td>6.8%</td>
<td>3.3%</td>
<td style="color: red;">1.9%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Durables</td>
<td>-1.7%</td>
<td style="color: red;">-4.0%</td>
<td>4.2%</td>
<td style="color: red;">-6.8%</td>
<td style="color: red;">-3.4%</td>
<td style="color: red;">-0.9%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Nondurables</td>
<td>0.6%</td>
<td style="color: red;">0.5%</td>
<td>1.2%</td>
<td>9.5%</td>
<td>4.7%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>3.4%</td>
<td style="color: red;">-0.2%</td>
<td>1.1%</td>
<td>18.2%</td>
<td style="color: red;">8.7%</td>
<td>9.9%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td style="color: red;">-0.7%</td>
<td style="color: red;">-0.2%</td>
<td>1.3%</td>
<td>1.3%</td>
<td style="color: red;">0.7%</td>
<td style="color: red;">5.6%</td>
<td>7.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">All Manufacturing Sales</td>
<td>1.2%</td>
<td style="color: red;">-0.2%</td>
<td>1.3%</td>
<td>9.7%</td>
<td style="color: red;">4.7%</td>
<td>6.4%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
</body></html>

The Mortgage Bankers' Association today reported that foreclosures started on all mortgages rose to a still low 0.78% of mortgages outstanding. Nevertheless, that was by far the highest foreclosure rate on record. Foreclosure rates on [...]

U.S. Mortgage Foreclosures: Conventional Up, Subprime Soared

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205k.jpg" align="left" border="0" height="265" width="353">
The UK services PMI from NTC is falling sharply. It dropped
sharply in October and again in November. Among the three key PMI
sectors, manufacturing, construction and services, the services index
has the weakest reading as it resides in the 32nd percentile of its
range. There are only three episodes since 1998 when the services
reading was weaker than it is now. Each time in the past when the
service sector index fell to where it stands today, it was simply on
its way to a much lower level. Be advised. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> MFG,
Construction and Services PMI CIPS/NTC</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">Monthly readings</td>
<td colspan="3">Change over:</td>
<td>percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3MO</td>
<td>6MO</td>
<td>12MO</td>
<td>of range</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>54.38</td>
<td>52.82</td>
<td>-1.61</td>
<td>-0.38</td>
<td>1.61</td>
<td>65.8</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>54.32</td>
<td>57.41</td>
<td>-10.50</td>
<td>-3.69</td>
<td>-0.46</td>
<td>36.1</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>51.95</td>
<td>53.08</td>
<td>-5.60</td>
<td>-5.23</td>
<td>-7.83</td>
<td>32.9</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">MFG range
since January 1992;
Construction Since April 1997 Services Since July 1996</td>
</tr>
</tbody>
</table>
</body></html>

The UK services PMI from NTC is falling sharply. It dropped sharply in October and again in November. Among the three key PMI sectors, manufacturing, construction and services, the services index has the weakest reading as it resides [...]

UK Service Sector Index Falls Sharply Again and May Be Signaling That More Losses Lie Ahead

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205i.jpg" width="353">
Factory inventories ticked up 0.1% during October following a 0.6% surge in September. The three month in manufacturers&#39; inventories remained stable at 2.3% (AR) but that was much more moderate than in prior years.
Excluding the volatile transportation sector, inventories were unchanged also after a 0.6% September increase. Three month accumulation at a 2.1% also is down from 7.1% for all of last year. The slowdown continued in inventories of computers &amp; electronic products to a three month growth rate of 4.4% versus 10.4% last year and inventories of industrial machinery rose 1.9% following a 22.8% jump last year. Electrical equipment inventories have been falling since mid-year after 25.2% growth in 2006. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205j.jpg" width="353">
Factory shipments surged 1.0% in October but weakness during prior months left three month growth at -2.3% (AR). Much of that weakness has been due to the automotive and aircraft industries. Excluding transportation altogether, October shipments rose 1.1% and the three month growth rate was somewhat reduced at 3.7% versus 5.0% growth last year.
Total factory orders continue to hold little promise for a pickup in factory sector activity. A 0.5% October gain followed a like rise in September but three month growth fell to -10.2% (AR). The 0.4% October decline in durable goods orders in the advance report was little revised.
Unfilled orders rose 1.0%, about the same as in prior months. Excluding, the transportation industries unfilled orders rose 0.8% and the three month growth rate was double digit with a 10.4% rise.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.1%</td>
<td>0.6%</td>
<td>2.2%</td>
<td>6.4%</td>
<td>8.9%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.5%</td>
<td>0.3%</td>
<td>5.0%</td>
<td>5.1%</td>
<td>11.6%</td>
<td>6.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.0%</td>
<td>0.1%</td>
<td>4.7%</td>
<td>4.3%</td>
<td>10.3%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.0%</td>
<td>1.1%</td>
<td>17.9%</td>
<td>20.0%</td>
<td>15.0%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Factory inventories ticked up 0.1% during October following a 0.6% surge in September. The three month in manufacturers' inventories remained stable at 2.3% (AR) but that was much more moderate than in prior years. Excluding the [...]

U.S. Factory Inventory Gain Moderate

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205h.jpg" align="left" border="0" height="265" width="353">
Retails sales trends in EMU/EU countries that seemed like they
might have been acquiring some life have turned lower in October. 
 

As the first month in a new quarter, the October readings
afford us an early look at the speed of sales in the new quarter. We
find that retail sales volumes are dropping at a 3.7% annual rate in Q4
in the EMU-13 area. Spending on food is up in the quarter at a 0.1%
annualized rate; nonfood items have volumes contracting at a pace of
-5.6%. 
 

Sequential growth rates for nonfood and overall retail sales
have been showing clear deceleration. 
 

In Germany sales are weakening fast. In the UK the slowing is
itself in slow-motion, but the deceleration is still clear to see. 
 

The table below shows that momentum in retail sales volumes
has been fading. Europe is slipping regardless of the optimism there. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Euro area 13 Retail Sales Volume </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">Euro area 13 Total</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>-2.2%</td>
<td>-0.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.8%</td>
<td>-1.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Nonfood</td>
<td>-1.1%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-3.9%</td>
<td>-0.4%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>N/A</td>
<td>1.9%</td>
<td>-0.3%</td>
<td>10.9%</td>
<td>7.2%</td>
<td>8.2%</td>
</tr>
<tr>
<td class="firstcol">HH Goods</td>
<td>N/A</td>
<td>-1.2%</td>
<td>0.5%</td>
<td>-0.8%</td>
<td>-0.3%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Books newspapers &amp;
others</td>
<td>N/A</td>
<td>-0.3%</td>
<td>-0.4%</td>
<td>-0.8%</td>
<td>0.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Pharmaceuticals</td>
<td>N/A</td>
<td>0.6%</td>
<td>0.2%</td>
<td>4.7%</td>
<td>4.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Other nonspecial store sales</td>
<td>N/A</td>
<td>0.7%</td>
<td>-0.6%</td>
<td>-0.3%</td>
<td>-0.8%</td>
<td>-0.1%</td>
</tr>
<tr>
<td class="firstcol">Mail Order</td>
<td>N/A</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-2.3%</td>
<td>3.7%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Nonfood
Volume</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-3.8%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>-11.8%</td>
<td>-8.3%</td>
<td>-4.0%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>N/A</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>2.9%</td>
<td>4.5%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Italy (Total Value)</td>
<td>N/A</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>-2.6%</td>
<td>-2.9%</td>
<td>-2.2%</td>
</tr>
<tr>
<td class="firstcol">UK (EU)</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.7%</td>
<td>4.9%</td>
<td>6.5%</td>
<td>6.7%</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">Shaded areas
calculated on a
one-month lag due to lagging data.</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">The EA 13
countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
</body></html>

Retails sales trends in EMU/EU countries that seemed like they might have been acquiring some life have turned lower in October. As the first month in a new quarter, the October readings afford us an early look at the speed of sales [...]

EMU/EU Retail Sales Enthusiasm is Cut Short…

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205g.jpg" width="353">
Challenger, Grey &amp; Christmas reported that job cut announcements in November picked up slightly to 73,140 from 63,114 during October. The number of job cut announcements has moved roughly sideways this year at a level reduced from prior years.
Job cut announcements rose sharply m/m in the auto industry (-5.8% y/y) and energy (637.2% y/y) but showed little up or down movement in most others.
During the last ten years there has been a 79% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans were roughly stable with the prior three months.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>73,140</td>
<td>63,114</td>
<td>-4.7%</td>
<td>839,822</td>
<td>1,072,054</td>
<td>1,039,935</td>
</tr>
</tbody>
</table>
</body>
</html>

Challenger, Grey & Christmas reported that job cut announcements in November picked up slightly to 73,140 from 63,114 during October. The number of job cut announcements has moved roughly sideways this year at a level reduced from [...]

Challenger Layoffs Picked Up Modestly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205f.jpg" width="353">
The ADP National Employment Report, reported by the payroll processor, indicated that private nonfarm payroll growth improved further to 189,000 during November after a revised 119,000 rise in October.
The U.S. Bureau of Labor Statistics employment figure for November will be published this Friday.
Last month, ADP&#39;s measure of private nonfarm payrolls for October indicated the upwardly revised 119,000 increase in jobs that was followed by a 73,000 gain in private nonfarm payrolls.
The sub-index for large payrolls made for a piece of the declines during the prior five months with a 30,000 increase
The sub-index for small payrolls outpaced a firm October rise with a 77,000 increase.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/FINAL_NER_Report_November2007.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nonfarm Private Payroll Employment (m/m Chg.)</td>
<td>189,000</td>
<td>119,000</td>
<td>1.0%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>


</html>

The ADP National Employment Report, reported by the payroll processor, indicated that private nonfarm payroll growth improved further to 189,000 during November after a revised 119,000 rise in October.

ADP Report: Private Payroll Growth Improved Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205d.jpg" width="353">
According to the Institute for Supply Management, the November Business Activity Index for the non-manufacturing sector slipped to 54.1 from 55.8. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced Consensus expectations for a lesser fall.
Since the series&#39; inception in 1997 there has been a 44% correlation between the level of the Business Activity Index in the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors. The correlation of the factory sector ISM index with the change in real GDP less just services is a higher 57%, though over the last ten years it only has been 34%.
The new orders sub index of the Business Activity fell sharply to 51.1 from 55.7. The latest was the lowest reading since early 2003.
The employment sub index similarly fell to 50.8, just barely suggesting rising employment. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071205e.jpg" width="353">
Pricing power surged m/m to its highest level since 2005. Since inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
The Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the ISM manufacturing sector composite index is a weighted average of five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November &#39;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>54.1</td>
<td>55.8</td>
<td>57.4</td>
<td>58.0</td>
<td>60.2</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>76.5</td>
<td>63.5</td>
<td>52.6</td>
<td>65.2</td>
<td>68.0</td>
<td>68.8</td>
</tr>
</tbody>
</table>


</html>

According to the Institute for Supply Management, the November Business Activity Index for the non-manufacturing sector slipped to 54.1 from 55.8. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced [...]

U.S. ISM Non-manufacturing Index Slipped, Prices Soared

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

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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 2007

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