Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050207d.jpg" width="353">
Chile&#39;s monthly seasonally unadjusted economic indicator, IMACEC (Indicator Mensual de Activeda Economica)was 134.2 (1996=100) in December, 7.70% above December, 2003. On a quarterly basis the fourth quarter value of the indicator was 133.1 or 6.83% above the fourth quarter of 2003.
The seasonally unadjusted monthly indicator is an excellent indicator of monthly values of the seasonally unadjusted real gross domestic product. As the first chart and the following table show, the year over year change in real GDP is equal to the year over year change in the monthly indicator, aggregated on a quarterly basis. The two series are perfectly correlated. As a result, we are safe to assume that Chile&#39;s real economy grew 6.83% in the fourth quarter from the fourth quarter of 2003 and will show a 5.89% growth for the year 2004, up from 3.27% in 2003 and 2.21% in 2002.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050207e.jpg" width="353">
The acceleration in Chile&#39;s growth has been due in large part to the rising demand for copper, which has led to increased employment and incomes within the mining industry and through secondary effects stimulated the general economy. The second chart shows the growth in the mining industry and in manufacturing.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Chile</th>
<th scope="col">Dec 05</th>
<th scope="col">Nov&nbsp;04</th>
<th scope="col">Dec 04</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y &nbsp;%</th>
<th scope="col">&nbsp;2004&nbsp; %&nbsp;</th>
<th scope="col">&nbsp;2003 %</th>
<th scope="col">&nbsp; 2002 %&nbsp; &nbsp;</th>
<th scope="col">2001 %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Economic Indicator&nbsp; (NSA 1996=100)</td>
<td>&nbsp;134.2</td>
<td>132.5</td>
<td>124.6</td>
<td>1.30</td>
<td>7.70</td>
<td>5.89</td>
<td>3.27</td>
<td>2.21</td>
<td>3.39</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q4 04</td>
<td>Q3 04</td>
<td>Q2 04</td>
<td>Q1 04</td>
<td>&nbsp;</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Economic Indicator&nbsp;&nbsp; &nbsp;(NSA 1996=100)</td>
<td>&nbsp;133.1</td>
<td>130.9</td>
<td>132.7</td>
<td>130.8</td>
<td>&nbsp;</td>
<td>131.9</td>
<td>124.5</td>
<td>120.6</td>
<td>118.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Y/Y Percent Change</td>
<td>&nbsp;6.83</td>
<td>6.84</td>
<td>5.26</td>
<td>4.65</td>
<td>&nbsp;</td>
<td>5.89</td>
<td>3.27</td>
<td>2.21</td>
<td>3.39</td>
</tr>
<tr>
<td class="firstcol">Real GDP &nbsp;(NSA Billions 1996 Pesos)</td>
<td>&nbsp;</td>
<td>10.231</td>
<td>10.359</td>
<td>10.217</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>38.900</td>
<td>37.670</td>
<td>36.855</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Y/Y Percent Change</td>
<td>&nbsp;</td>
<td>6.84</td>
<td>5.26</td>
<td>4.65</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>3.27&nbsp;</td>
<td>2.21</td>
<td>3.32</td>
</tr>
</tbody>
</table>
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Chile's monthly seasonally unadjusted economic indicator, IMACEC (Indicator Mensual de Activeda Economica)was 134.2 (1996=100) in December, 7.70% above December, 2003. On a quarterly basis the fourth quarter value of the indicator was [...]

Chile's Monthly Economic Indicator Predicts 5.9% Growth in GDP in 2004

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050207a.jpg" width="353">
Commodity prices as measured by the JoC-ECRI (Journal of Commerce-Economic Cycle Research Institute) index have fallen in recent weeks despite the back up in petroleum prices. Recent trends amongst the components turned mixed versus last year when they were mostly positive.
During the last ten years there has been a 46% correlation between the JoC-ECRI commodity price index and the six month change in factory sector industrial production.
Despite up ticks during the last two weeks, metals prices are down 3.8% from the high in November. Steel scrap prices have fallen 19.6% from those highs but copper scrap prices have continued trending higher (27.3% y/y). Aluminum prices have backpedaled following a spike late last year (12.4% y/y).
Lumber prices have recovered some of their decline last fall when prices dropped one quarter to one third, but prices remain well off last year&#39;s highs. Textile prices also have risen moderately following the decline early in 2004 that pulled prices down 12%.
Petroleum prices fell slightly last week following a recovery in January when prices rose 11%.
The KR-CRB (Knight Ridder-Commodity Research Bureau) commodity price index differs from the JoC-ECRI Index. Roughly half of the index reflects agricultural prices. The index has moved lower since last year as a result of lower livestock prices (-4.3% y/y) and lower foodstuff prices (-8.5% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050207b.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050207c.jpg" width="353">

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<th scope="col" class="firstcol"><a href="http://www.haver.com/COMMENT/www.haverselect.com/dlx/USECON/@E8/@E803/@E80304/@E80304.HTM">JoC-ECRI Industrial Price Index</a></th>
<th scope="col">02/04/05</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">All Items</td>
<td>110.90</td>
<td>111.60</td>
<td>1.7%</td>
<td>112.78</td>
<td>91.97</td>
<td>79.53</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Textiles</td>
<td>64.90</td>
<td>64.40</td>
<td>-5.4%</td>
<td>65.83</td>
<td>65.09</td>
<td>59.73</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Metals</td>
<td>122.70</td>
<td>124.60</td>
<td>12.5%</td>
<td>118.15</td>
<td>84.57</td>
<td>75.14</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Miscellaneous</td>
<td>99.30</td>
<td>103.90</td>
<td>-15.8%</td>
<td>114.03</td>
<td>102.89</td>
<td>85.81</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Petroleum</td>
<td>239.20</td>
<td>216.50</td>
<td>45.3%</td>
<td>207.13</td>
<td>135.26</td>
<td>110.06</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
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<td class="firstcol">KR-CRB Spot Commodity Price Index</td>
<td>02/01/05</td>
<td>12/28/04</td>
<td>Y/Y</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">All Commodities</td>
<td>289.14</td>
<td>293.42</td>
<td>-0.9%</td>
<td>293.42</td>
<td>282.59</td>
<td>244.31</td>
</tr>
</tbody>
</table>
</body>
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Commodity prices as measured by the JoC-ECRI (Journal of Commerce-Economic Cycle Research Institute) index have fallen in recent weeks despite the back up in petroleum prices. Recent trends amongst the components turned mixed versus [...]

Commodity Price Trends Mixed

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/050204e.jpg" width="353">
Japan&#39;s leading indicators declined in December, falling 1.1% to 101.8 (1000=100) and ending the year 0.6% below the year&#39;s average. Six of the 10 available components dragged down the month&#39;s results, among them new home construction, consumer confidence and the yield curve. Four indicators had positive contributions, including low inventories of finished goods, new job offers, stock prices and small businesses&#39; sales forecast. Of these, only job offers has been up in previous recent months; others turned up from negative readings in November. Several of the negative components, though, do have longer strings of negative moves, including the yield curve, for four months and home construction for three.
Thus, the picture in these leading indicators is mixed, and this is the fourth straight month in which fewer than half of the items have been positive. Nonetheless, it seems premature to alter one&#39;s view of the Japanese outlook. Such a hesitation in the leaders has occurred before, most recently in 1995, without endangering the general pattern of business growth.
The current uptrend in the coincident indicators started at the beginning of 2002. This, interestingly, coincides with the upturn in the yen against the dollar. Conventional wisdom suggests that the strengthening yen should hurt the economy, but this hasn&#39;t had such an impact yet. Notably, in fact, the correlation of the leading indicators with the foreign exchange value of the yen is positive, albeit somewhat erratic over differing spans. Perhaps then, the higher yen is a reflection of the improved condition of the Japanese economy. Recent gains in the stock market and employment indicators, also including the coincident indicator &quot;effective job offer rate&quot;, may help maintain upward momentum in that important economy.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Dec &nbsp;2004</th>
<th scope="col">Nov 2004</th>
<th scope="col">Oct &nbsp;2004</th>
<th scope="col">Dec 2003</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">Leading Indicator Index, 2000=100</td>
<td>101.8</td>
<td>102.9</td>
<td>101.0</td>
<td>100.0</td>
<td>102.4</td>
<td>96.6</td>
<td>93.3</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Chg</td>
<td>1.8</td>
<td>4.5</td>
<td>0.1</td>
<td>5.4</td>
<td>6.0</td>
<td>3.6</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Exchange Rate: Yen/Dollar</td>
<td>104.12</td>
<td>103.18</td>
<td>106.13</td>
<td>107.10</td>
<td>107.79</td>
<td>115.70</td>
<td>124.65</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Chg</td>
<td>-2.8</td>
<td>-5.8</td>
<td>-2.4</td>
<td>-10.7</td>
<td>-6.8</td>
<td>-7.2</td>
<td>2.1</td>
</tr>
</tbody>
</table>
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Japan's leading indicators declined in December, falling 1.1% to 101.8 (1000=100) and ending the year 0.6% below the year's average. Six of the 10 available components dragged down the month's results, among them new home [...]

Japan's Leading Indicators Hesitate, but Strength Remains in Employment, Stock Market Components

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050204c.jpg" width="353">
The University of Michigan&#39;s January index of consumer sentiment fell to 95.5 versus Consensus expectations for little change from the preliminary reading of 95.8. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations fell 5.7% m/m and reversed nearly all of a 6.7% jump in December. The decline in expectations was to the lowest level since last May and due to lower expectations for growth in real income.
The reading of current conditions improved for the fourth consecutive month as sentiment regarding personal finances vs. a year ago improved to the highest level since late 2000. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050204d.jpg" width="353">
Current conditions for buying large household goods slipped slightly in January but the trend has been improving for nearly two years in large part due to expectations of higher prices.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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>95.5</td>
<td>97.1</td>
<td>-8.0%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.9</td>
<td>106.7</td>
<td>1.3%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>85.7</td>
<td>90.9</td>
<td>-14.4%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
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The University of Michigan's January index of consumer sentiment fell to 95.5 versus Consensus expectations for little change from the preliminary reading of 95.8. During the last ten years there has been a 74% correlation between the [...]

U.S. Consumer Sentiment Down in January

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050204b.jpg" width="353">
Non-farm payrolls rose a moderate 146,000 in January following a downwardly revised gain of 133,000 the month prior. Consensus expectations had been for a 200,000 January increase. Benchmark revisions to payrolls beginning in January 2000 were modest.
From the separate household survey the unemployment rate fell to 5.2%, the lowest level since October 2001. Employment rose 85,000 (+1.3% y/y) but the labor force fell by 224,000 (0.8% y/y), the second consecutive monthly drop. The labor force participation rate fell to 65.8% versus a high in 2000 of 67.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050204a.jpg" width="353">
Factory sector payrolls fell a sharp 25,000 reflecting an 11,800 drop in transportation equipment and a 13,000 decline in nondurables. The prior month&#39;s initial read of an increase was revised to a 7,000 worker decline.
Construction jobs fell 9,000 (+3.2% y/y), the first monthly decline in nearly a year.
Private service producing payrolls rose 165,000 (2.0% y/y) led by strong gains in finance (2.0% y/y) and transportation (3.1% y/y). Professional &amp; business services also were strong (3.3% y/y) as were jobs in education &amp; health (2.5% y/y). Government employment rose 12,000 (0.8% y/y). The one month diffusion index for private payrolls rose to 57.6.
The index of aggregate hours worked (employment times hours worked) dipped 0.1% (+2.1% y/y) in January and began the new year just slightly above 4Q04.
Average hourly earnings rose the same 0.2% (2.6% y/y) as in an upwardly revised December. Private service producing wages rose 0.3% (2.8% y/y) led by strong growth in information (3.4% y/y) and transportation industries (2.5% y/y). Manufacturing earnings ticked up 0.1% (2.6% y/y).
Fed Chairman Alan Greenspan&#39;s Speech on the Current Account can be found <a href="http://www.federalreserve.gov/boardDocs/speeches/2005/20050204/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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">Payroll Employment</td>
<td>146,000</td>
<td>133,000</td>
<td>1.7%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-25,000</td>
<td>-7,000</td>
<td>0.2%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.2%</td>
<td>5.4%</td>
<td>5.7%</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
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</tbody>
</table>
</body>
</html>

Non-farm payrolls rose a moderate 146,000 in January following a downwardly revised gain of 133,000 the month prior. Consensus expectations had been for a 200,000 January increase. Benchmark revisions to payrolls beginning in January [...]

U.S. Payroll Gain Moderate in January, Jobless Rate Lowest Since 2001

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050204b.jpg" width="353">
Non-farm payrolls rose a moderate 146,000 in January following a downwardly revised gain of 133,000 the month prior. Consensus expectations had been for a 200,000 January increase. Benchmark revisions to payrolls beginning in January 2000 were modest.
From the separate household survey the unemployment rate fell to 5.2%, the lowest level since October 2001. Employment rose 85,000 (+1.3% y/y) but the labor force fell by 224,000 (0.8% y/y), the second consecutive monthly drop. The labor force participation rate fell to 65.8% versus a high in 2000 of 67.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050204a.jpg" width="353">
Factory sector payrolls fell a sharp 25,000 reflecting an 11,800 drop in transportation equipment and a 13,000 decline in nondurables. The prior month&#39;s initial read of an increase was revised to a 7,000 worker decline.
Construction jobs fell 9,000 (+3.2% y/y), the first monthly decline in nearly a year.
Private service producing payrolls rose 165,000 (2.0% y/y) led by strong gains in finance (2.0% y/y) and transportation (3.1% y/y). Professional &amp; business services also were strong (3.3% y/y) as were jobs in education &amp; health (2.5% y/y). Government employment rose 12,000 (0.8% y/y). The one month diffusion index for private payrolls rose to 57.6.
The index of aggregate hours worked (employment times hours worked) dipped 0.1% (+2.1% y/y) in January and began the new year just slightly above 4Q04.
Average hourly earnings rose the same 0.2% (2.6% y/y) as in an upwardly revised December. Private service producing wages rose 0.3% (2.8% y/y) led by strong growth in information (3.4% y/y) and transportation industries (2.5% y/y). Manufacturing earnings ticked up 0.1% (2.6% y/y).
Fed Chairman Alan Greenspan&#39;s Speech on the Current Account can be found <a href="http://www.federalreserve.gov/boardDocs/speeches/2005/20050204/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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">Payroll Employment</td>
<td>146,000</td>
<td>133,000</td>
<td>1.7%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-25,000</td>
<td>-7,000</td>
<td>0.2%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.2%</td>
<td>5.4%</td>
<td>5.7%</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Down in January 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050204c.jpg" width="353">
The University of Michigan&#39;s January index of consumer sentiment fell to 95.5 versus Consensus expectations for little change from the preliminary reading of 95.8. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations fell 5.7% m/m and reversed nearly all of a 6.7% jump in December. The decline in expectations was to the lowest level since last May and due to lower expectations for growth in real income.
The reading of current conditions improved for the fourth consecutive month as sentiment regarding personal finances vs. a year ago improved to the highest level since late 2000. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050204d.jpg" width="353">
Current conditions for buying large household goods slipped slightly in January but the trend has been improving for nearly two years in large part due to expectations of higher prices.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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>95.5</td>
<td>97.1</td>
<td>-8.0%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.9</td>
<td>106.7</td>
<td>1.3%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>85.7</td>
<td>90.9</td>
<td>-14.4%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</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/050203h.jpg" width="353">
Some months ago, we wondered here how it was that the well known practice of international companies &quot;outsourcing&quot; production to India should be accompanied by a trade deficit for the nation. Further, as 2004 wore on, this trade deficit only got larger, reaching a record $22.0 billion for the year as a whole. The monthly trade figures, released for December during the last 24 hours, along with balance of payments data through Q3, supply some answers to this query.
First, as in many places around the world, the value of petroleum imports has increased, with rupee data converted to dollars showing a whopping 39% advance in 2004 over 2003. But this is only a partial explanation, as non-petroleum imports themselves surged 29%, smaller than for petroleum, to be sure, but still large in an absolute sense.
The Ministry of Commerce and Industry, source of these monthly trade figures, reports detail for select major commodities. Through September, those details show steep advances in chemicals, steel and machinery; in fact, steel imports were already larger in the first nine months of 2004 than in all of 2003. Gains in such categories might indicate expanding investment and would hardly be a cause for concern over rising imports.
Finally, other accounts in the balance of payments data are really the place to look for the impact of &quot;outsourcing&quot;. This phenomenon occurs mainly in service functions. So, as seen in the chart, &quot;credits&quot; in the &quot;invisibles&quot; accounts have been very strong through Q3; the first three quarters of 2004 are up 42% from the comparable year-earlier span. And the surplus on invisibles, expressed on an annualized basis, increased almost enough to offset the year&#39;s increase in the trade deficit. Thus, India&#39;s trade and balance of payments situation is a complex one, highlighting the diversity of its rapidly developing economy.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Billions of US$</th>
<th scope="col">Dec 2004</th>
<th scope="col">Nov 2004</th>
<th scope="col">Dec 2003</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">Trade Balance</td>
<td>-2.94</td>
<td>-2.32</td>
<td>-1.61</td>
<td>-22.03</td>
<td>-12.38</td>
<td>-7.00</td>
</tr>
<tr>
<td class="firstcol">Exports of Goods</td>
<td>6.75</td>
<td>6.83</td>
<td>5.90</td>
<td>73.48</td>
<td>58.81</td>
<td>49.53</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports of Goods</td>
<td>9.69</td>
<td>9.15</td>
<td>7.51</td>
<td>95.51</td>
<td>71.19</td>
<td>56.53</td>
</tr>
<tr>
<td class="firstcol">Imports of Petroleum*</td>
<td>1.57</td>
<td>2.92</td>
<td>1.92</td>
<td>27.26</td>
<td>19.62</td>
<td>16.05</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3Q 2004</td>
<td>2Q 2004</td>
<td>3Q 2003</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Invisibles Balance</td>
<td>6.35</td>
<td>9.42</td>
<td>6.29</td>
<td>30.29*</td>
<td>22.33</td>
<td>16.89</td>
</tr>
<tr class="odd">
<td class="firstcol">Invisibles Credits</td>
<td>15.49</td>
<td>19.29</td>
<td>12.89</td>
<td>66.21*</td>
<td>47.71</td>
<td>41.64</td>
</tr>
<tr>
<td class="firstcol">Invisibles Debits</td>
<td>9.14</td>
<td>9.87</td>
<td>6.59</td>
<td>35.92*</td>
<td>25.38</td>
<td>24.76</td>
</tr>
</tbody>
</table>
</body>
</html>

Some months ago, we wondered here how it was that the well known practice of international companies "outsourcing" production to India should be accompanied by a trade deficit for the nation. Further, as 2004 wore on, this trade [...]

India's Trade Deficit Widens, but So Does Its Surplus on "Invisibles"

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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Globally Manufacturing Weakens

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tariff Truce, Tenuous Trust

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

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

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

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

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

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

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

Economy in Brief: February 2005

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Chile's Monthly Economic Indicator Predicts 5.9% Growth in GDP in 2004

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