Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212d.jpg" align="left" border="0" height="265" width="353">
The German financial community has become slightly less
pessimistic. For the first time since May of last year, the ZEW (Center
for European Economic Research, Manheim) indicator of sentiment for the
next six months rose. The rise was a mere 2.1 percentage points to
-39.5% from -41.6% in January. The measure is still at its second
lowest value it its history. The long term average for the indicator is
30.7%.
While the participants in the survey were slightly less
pessimistic about the future, they assessed the current situation much
less positively. The excess of optimists over pessimists regarding the
current situation fell 22.9 points from 56.6% to 33.7%. This was one of
the largest declines ever recorded.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212e.jpg" align="right" border="0" height="265" width="353">
The absolute values for the appraisals of expectations and
current conditions are shown in the first chart. Their month to month
changes are shown in the second chart. Both charts cover the entire
history of the indicators, so that the current values can be viewed in
their historical perspectives. The appraisal of current conditions is
slightly above its long term average while the appraisal of expectation
remains among it lowest values.
In its press release, the Center for European Economic
Research, interpreted the decline in the number of pessimists over
optimists regarding the outlook as an indication that the current
crisis is unlikely to develop into a downward spiral for the German
Economy, rather it suggests that the economy might show some recovery
by mid year. 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">ZEW
INDICATORS&nbsp;&nbsp; (Percent Balance)</th>
<th scope="col">Feb 08</th>
<th scope="col">Jan 08&nbsp;</th>
<th scope="col">Feb 07&nbsp;</th>
<th scope="col">M/M&nbsp; Dif&nbsp;</th>
<th scope="col">Y/Y Dif&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Expectations Six
Months Ahead</td>
<td>-39.5</td>
<td>-41.6</td>
<td>2.9</td>
<td>2.1</td>
<td>-42.4</td>
<td>3.0</td>
<td>22.3</td>
<td>34.8</td>
</tr>
<tr>
<td class="firstcol">Current
Conditions&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>33.7</td>
<td>56.6</td>
<td>70.9</td>
<td>-22.9</td>
<td>-37.2</td>
<td>75.9</td>
<td>18.8</td>
<td>-61.8</td>
</tr>
</tbody>
</table>
</body></html>

The German financial community has become slightly less pessimistic. For the first time since May of last year, the ZEW (Center for European Economic Research, Manheim) indicator of sentiment for the next six months rose. The rise was [...]

German Financial Community a Bit Less Pessimistic About the Outlook

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212f.jpg" width="353">
The Bureau of Labor Statistics reported in the Job Openings &amp; Labor Turnover Survey (JOLTS) that the December &#39;07 job openings rate was unchanged from the prior month at 2.8%. That level was, however, down from the highs of late 2006. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of total job openings rose 0.4% m/m to 4.039 million but the number of job openings was down 8.2% last year from year end 2006. Professional &amp; business service sector openings fell 8.5%, retail trade fell 22.7% while openings in manufacturing fell 15.2% y/y.
The hires rate fell m/m to 3.3%, its lowest level since 2004. The hires rate is the number of hires during the month divided by employment.
The actual number of hires fell 0.5% (-6.5% y/y) to 4.636 million. Last year, hires in the construction industry rose 3.5% but factory sector hires were 9.3% lower.
The job separations rate in December fell to 3.1% versus 3.3% at yearend 2006. Separations include quits, layoffs, discharges, and other separations as well as retirements. The level of job separations fell 4.1% since yearend 2006.
The JOLTS survey dates only to December 2000 but has since followed the movement in nonfarm payrolls, though the actual correlation between the two series is low.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.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/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor &nbsp;Turnover Survey)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Job Openings, Total&nbsp;&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.8</td>
<td>2.8</td>
<td>3.1</td>
<td>2.8</td>
<td>3.1</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,039</td>
<td>4,024</td>
<td>4,401</td>
<td>4,039</td>
<td>4,401</td>
<td>3,880</td>
</tr>
<tr>
<td class="firstcol">Hires, Total</td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Rate (%)</td>
<td>3.3</td>
<td>3.4</td>
<td>3.6</td>
<td>41.7</td>
<td>43.6</td>
<td>43.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,636</td>
<td>4,657</td>
<td>4,959</td>
<td>57,659</td>
<td>59,409</td>
<td>57,508</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
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The Bureau of Labor Statistics reported in the Job Openings & Labor Turnover Survey (JOLTS) that the December '07 job openings rate was unchanged from the prior month at 2.8%. That level was, however, down from the highs of late 2006. [...]

JOLTS: Job Openings Down in 2007

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212c.jpg" width="353">
Small business optimism fell a sharp 3.0% last month according to the National Federation of Independent Business (NFIB). It was the largest m/m decline since December 2006 and it pulled optimism to the lowest level since during the recession of 1990.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
Twenty two percent fewer respondents expected the economy to improve following declines during the prior three months. Only 9% reported that now is a good time to expand the business.
The percent planning to increase employment fell to its lowest level since early 2006 while the percentage with one or more job openings did recover further after November&#39;s sharp decline. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls. The percentage of firms planning to raise employment remained depressed.
The percentage of firms planning to increase capital expenditures fell to the lowest level since 2002.
The percentage of firms expecting higher real sales in six months fell to 4%, the lowest level since 2003.
The percentage of firms actually raising prices fell sharply m/m to the lowest level since late 2006. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices was stable for the third month at the highest level in a year.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<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/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>91.8</td>
<td>94.6</td>
<td>-7.2%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
</body>
</html>

Small business optimism fell a sharp 3.0% last month according to the National Federation of Independent Business (NFIB). It was the largest m/m decline since December 2006 and it pulled optimism to the lowest level since during the [...]

Small Business Optimism Lowest Since 1990

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212a.jpg" align="left" border="0" height="265" width="353">
According to the International Council of Shopping Centers ICSC-UBS
Chain store survey, chain store sales fell 0.7% last week after the
1.7% recovery during the prior period. Despite the decline, sales so
far this month are up 0.5% from January.
During the last ten years there has been a 45% correlation
between the y/y change in chain store sales and the change in nonauto
retail sales less gasoline.
The ICSC-UBS retail chain-store sales
index is constructed using the same-store sales (stores open for one
year) reported by 78 stores of seven retailers: Dayton Hudson,
Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212b.jpg" align="right" border="0" height="265" width="353">
During the last week of January the leading indicator of chain store
sales from ICSC-UBS ticked up 0.2% after the 1.8% w/w collapse during
the prior week.
Prospects for the Economy in 2008 by Janet L. Yellen, President of the San Francisco Federal Reserve Bank, can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-04.pdf"> here</a>.
Retail gasoline prices recently moved further off the high reached
last Spring of over $3.20 per gallon, according to the US Department of
Energy survey.Last week the average retail price for regular grade
gasoline fell to $2.96, down 8.0% from last year's peak in May. Prices
did, however, remain up nearly 6% from an average of $2.80 last year.
The recent decline in gasoline prices owes mostly to the topping and
decline in the price of crude oil. For spot WTI crude oil prices last
week of $88.42 per barrel were down 10% from last year's high which
nearly touched $100 per barrel.

<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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">02/09/08</th>
<th scope="col">02/02/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>487.2</td>
<td>490.6</td>
<td>1.8%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
<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/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">02/11/08</th>
<th scope="col">02/04/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>2.96</td>
<td>2.98</td>
<td>32.1%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>--</td>
<td>88.42</td>
<td>50.1%</td>
<td>94.00</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>
</body></html>

According to the International Council of Shopping Centers ICSC-UBS Chain store survey, chain store sales fell 0.7% last week after the 1.7% recovery during the prior period. Despite the decline, sales so far this month are up 0.5% [...]

U.S. Chain Store Sales Fell, Gasoline Prices Down

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212a.jpg" align="left" border="0" height="265" width="353">
According to the International Council of Shopping Centers ICSC-UBS
Chain store survey, chain store sales fell 0.7% last week after the
1.7% recovery during the prior period. Despite the decline, sales so
far this month are up 0.5% from January.
During the last ten years there has been a 45% correlation
between the y/y change in chain store sales and the change in nonauto
retail sales less gasoline.
The ICSC-UBS retail chain-store sales
index is constructed using the same-store sales (stores open for one
year) reported by 78 stores of seven retailers: Dayton Hudson,
Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212b.jpg" align="right" border="0" height="265" width="353">
During the last week of January the leading indicator of chain store
sales from ICSC-UBS ticked up 0.2% after the 1.8% w/w collapse during
the prior week.
Prospects for the Economy in 2008 by Janet L. Yellen, President of the San Francisco Federal Reserve Bank, can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-04.pdf"> here</a>.
Retail gasoline prices recently moved further off the high reached
last Spring of over $3.20 per gallon, according to the US Department of
Energy survey.Last week the average retail price for regular grade
gasoline fell to $2.96, down 8.0% from last year's peak in May. Prices
did, however, remain up nearly 6% from an average of $2.80 last year.
The recent decline in gasoline prices owes mostly to the topping and
decline in the price of crude oil. For spot WTI crude oil prices last
week of $88.42 per barrel were down 10% from last year's high which
nearly touched $100 per barrel.

<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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">02/09/08</th>
<th scope="col">02/02/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>487.2</td>
<td>490.6</td>
<td>1.8%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
<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/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">02/11/08</th>
<th scope="col">02/04/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>2.96</td>
<td>2.98</td>
<td>32.1%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>--</td>
<td>88.42</td>
<td>50.1%</td>
<td>94.00</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>
Small Business Optimism Lowest Since 1990 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 12, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212c.jpg" align="left" border="0" height="265" width="353">
Small business optimism fell a sharp 3.0% last month according to
the National Federation of Independent Business (NFIB). It was the
largest m/m decline since December 2006 and it pulled optimism to the
lowest level since during the recession of 1990.
During the last ten years there has been a 70% correlation between
the level of the NFIB index and the two quarter change in real GDP.
Twenty two percent fewer respondents expected the economy to improve
following declines during the prior three months. Only 9% reported that
now is a good time to expand the business.
The percent planning to increase employment fell to its lowest level
since early 2006 while the percentage with one or more job openings did
recover further after November's sharp decline. During the last ten
years there has been a 72% correlation between the NFIB percentage and
the y/y change in nonfarm payrolls. The percentage of firms planning to
raise employment remained depressed.
The percentage of firms planning to increase capital expenditures fell to the lowest level since 2002.
The percentage of firms expecting higher real sales in six months fell to 4%, the lowest level since 2003.
The percentage of firms actually raising prices fell sharply
m/m to the lowest level since late 2006. During the last ten years
there has been a 60% correlation between the change in the producer
price index and the level of the NFIB price index. The percentage of
firms planning to raise prices was stable for the third month at the highest level in a year.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<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/@S7/@S7.HTM">Nat'l Federation of Independent Business</a></th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>91.8</td>
<td>94.6</td>
<td>-7.2%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
JOLTS: Job Openings Down in 2007 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 12, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212f.jpg" align="left" border="0" height="265" width="353">
The Bureau of Labor Statistics reported in the Job Openings &amp;
Labor Turnover Survey (JOLTS) that the December '07 job openings rate
was unchanged from the prior month at 2.8%. That level was, however,
down from the highs of late 2006. The job openings rate is the
number of job openings on the last business day of the month as a
percent of total employment plus job openings.
The actual number of total job openings rose 0.4% m/m to 4.039 million but the number of job openings was down 8.2% last year from year end 2006.
Professional &amp; business service sector openings fell 8.5%, retail
trade fell 22.7% while openings in manufacturing fell 15.2% y/y.
The hires rate fell m/m to 3.3%, its lowest level since 2004. The hires rate is the number of hires during the month divided by employment.
The actual number of hires fell 0.5% (-6.5% y/y) to 4.636 million.
Last year, hires in the construction industry rose 3.5% but factory
sector hires were 9.3% lower.
The job separations rate in December fell to 3.1% versus 3.3% at yearend 2006. Separations include quits, layoffs, discharges, and other separations as well as retirements. The level of job separations fell 4.1% since yearend 2006.
The JOLTS survey dates only to December 2000 but has since followed
the movement in nonfarm payrolls, though the actual correlation between
the two series is low.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.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/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor &nbsp;Turnover Survey)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December '06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Job Openings, Total&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.8</td>
<td>2.8</td>
<td>3.1</td>
<td>2.8</td>
<td>3.1</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,039</td>
<td>4,024</td>
<td>4,401</td>
<td>4,039</td>
<td>4,401</td>
<td>3,880</td>
</tr>
<tr>
<td class="firstcol">Hires, Total</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; Rate (%)</td>
<td>3.3</td>
<td>3.4</td>
<td>3.6</td>
<td>41.7</td>
<td>43.6</td>
<td>43.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,636</td>
<td>4,657</td>
<td>4,959</td>
<td>57,659</td>
<td>59,409</td>
<td>57,508</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
German Financial Community a Bit Less Pessimistic About the Outlook 
by <a href="/comment/Curley.html">Louise Curley</a> February 12, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212d.jpg" align="left" border="0" height="265" width="353">
The German financial community has become slightly less pessimistic.
For the first time since May of last year, the ZEW (Center for European
Economic Research, Manheim) indicator of sentiment for the next six
months rose. The rise was a mere 2.1 percentage points to -39.5% from
-41.6% in January. The measure is still at its second lowest value it
its history. The long term average for the indicator is 30.7%.
While the participants in the survey were slightly less pessimistic
about the future, they assessed the current situation much less
positively. The excess of optimists over pessimists regarding the
current situation fell 22.9 points from 56.6% to 33.7%. This was one of
the largest declines ever recorded.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080212e.jpg" align="right" border="0" height="265" width="353">
The absolute values for the appraisals of expectations and current
conditions are shown in the first chart. Their month to month changes
are shown in the second chart. Both charts cover the entire history of
the indicators, so that the current values can be viewed in their
historical perspectives. The appraisal of current conditions is
slightly above its long term average while the appraisal of expectation
remains among it lowest values.
In its press release, the Center for European Economic Research,
interpreted the decline in the number of pessimists over optimists
regarding the outlook as an indication that the current crisis is
unlikely to develop into a downward spiral for the German Economy,
rather it suggests that the economy might show some recovery by mid
year. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW INDICATORS&nbsp;&nbsp; (Percent Balance)</th>
<th scope="col">Feb 08</th>
<th scope="col">Jan 08&nbsp;</th>
<th scope="col">Feb 07&nbsp;</th>
<th scope="col">M/M&nbsp; Dif&nbsp;</th>
<th scope="col">Y/Y Dif&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Expectations Six Months Ahead</td>
<td>-39.5</td>
<td>-41.6</td>
<td>2.9</td>
<td>2.1</td>
<td>-42.4</td>
<td>3.0</td>
<td>22.3</td>
<td>34.8</td>
</tr>
<tr>
<td class="firstcol">Current
Conditions&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>33.7</td>
<td>56.6</td>
<td>70.9</td>
<td>-22.9</td>
<td>-37.2</td>
<td>75.9</td>
<td>18.8</td>
<td>-61.8</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080211d.jpg" align="left" border="0" height="265" width="353">
The preliminary data for January 2008 for industrial
production in the Ukraine show a minimal increase of 0.06% and that for
Kazakhstan, a 2% decline, as can be seen in the first chart. Industrial
production in both countries, which has been growing faster than that
in the United States and the European Community over the past several
years appears to be slowing up, as can be seen in the second chart.
(All the data have been indexed to 2001=100 for comparative purposes.)
Data are available in the Ukraine for the value of production
and its components. Machinery is by far the most important major
component, as can be seen in the third chart. Given the value of
industrial production it is possible to derive the importance of
industrial production in the total economy. In 2006, industrial
production accounted for about 7% of Gross Domestic Product, the value
of production being 38.364 million Hryvania and Gross Domestic Product
, 537,667 million Hryvania (5.05 Hryvania = $1.00).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080211e.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080211c.jpg" height="265" width="312">

<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">INDUSTRIAL
PRODUCTION 
&nbsp;SA, (2001=100)&nbsp;</th>
<th scope="col">Jan 08</th>
<th scope="col">Dec 07&nbsp;</th>
<th scope="col">Nov 07&nbsp;</th>
<th scope="col">Oct 07</th>
<th scope="col">Sep 07</th>
<th scope="col">2007 %Chg</th>
<th scope="col">2006 %Chg</th>
<th scope="col">2005 %Chg</th>
<th scope="col">2004 % Chg</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Kazakhstan</td>
<td>175.96</td>
<td>179.06</td>
<td>178.00</td>
<td>177.08</td>
<td>176.54</td>
<td>5.64</td>
<td>6.57</td>
<td>10.19</td>
<td>13.98</td>
</tr>
<tr>
<td class="firstcol">Ukraine&nbsp;Domestic&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>167.5</td>
<td>167.4</td>
<td>166.7</td>
<td>166.8</td>
<td>164.0</td>
<td>9.45</td>
<td>5.77</td>
<td>12.82</td>
<td>11.75</td>
</tr>
<tr class="odd">
<td class="firstcol">European Community (27)</td>
<td>n.a.</td>
<td>n.a.</td>
<td>112.77</td>
<td>113.32</td>
<td>112.36</td>
<td>n.a.</td>
<td>3.93</td>
<td>1.22</td>
<td>2.10</td>
</tr>
</tbody>
</table>
</body></html>

The preliminary data for January 2008 for industrial production in the Ukraine show a minimal increase of 0.06% and that for Kazakhstan, a 2% decline, as can be seen in the first chart. Industrial production in both countries, which [...]

Industrial Production in the Ukraine and Kazakhstan

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080211b.jpg" align="left" border="0" height="265" width="353">
Italy is the most troubled of the large EMU economies. It&#8217;s
Industrial Output is declining on a clear downward trend. For its three
major sectors, Consumer goods, Intermediate goods and Capital goods
output trends are declining over horizons of three months, six months,
and twelve months. The degree of deceleration is becoming more intense. 
 

Italy is the exception to the Euro Area economy &#8216;rule&#8217; since
the output of even capital goods is weak there. Indeed, the capital
goods sector has the sharpest negative growth rate over three months at
-23.6%. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> Italy IP excluding construction</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Saar except m/m</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">IP-MFG</td>
<td>-0.5%</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>-11.5%</td>
<td>-6.7%</td>
<td>-6.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-1.4%</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>-6.6%</td>
<td>-3.2%</td>
<td>-6.8%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-2.3%</td>
<td>-2.5%</td>
<td>-1.9%</td>
<td>-23.6%</td>
<td>-11.0%</td>
<td>-10.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-0.3%</td>
<td>-1.4%</td>
<td>-0.6%</td>
<td>-8.9%</td>
<td>-6.7%</td>
<td>-5.7%</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Transportation</td>
<td>-3.7%</td>
<td>-3.8%</td>
<td>0.1%</td>
<td>-25.9%</td>
<td>-10.3%</td>
<td>-5.9%</td>
</tr>
</tbody>
</table>
</body></html>

Italy is the most troubled of the large EMU economies. It’s Industrial Output is declining on a clear downward trend. For its three major sectors, Consumer goods, Intermediate goods and Capital goods output trends are declining over [...]

Italy’s IP is Sinking Fast…

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080211a.jpg" align="left" border="0" height="265" width="353">
France's IP was kicked down in November as a transit strike
slowed the France economy. A December rebound was expected. But the
rebound is less that the November drop, stirring suspicions that growth
may be more fundamentally impaired in France. Certainly Q4 is looking
weaker. IP in the quarter to date period (which is now for the full
quarter) is up by just 1.1% SAAR. This compares with a 4.8% rise in the
previous quarter. 
 

The sector growth rates do not show a consistent pattern. The
consumer sector by itself does show a clear trend to deceleration.
Intermediate goods output is waffling around zero. Capital goods output
is still strong. Strength in capital goods &#8211; or relative strength &#8211; is
one continuing feature of Euro Area economies. Even though the consumer
sector is weak capital goods output has remained strong with few
exceptions in Euro Area nations. The chart shows that consumer and
intermediate goods output trends are more of problem while the capital
goods trends continue to be firm. 
 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> French IP excluding Construction</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-date</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>0.7%</td>
<td>-1.7%</td>
<td>2.0%</td>
<td>3.9%</td>
<td>3.3%</td>
<td>1.2%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-0.4%</td>
<td>-1.9%</td>
<td>0.3%</td>
<td>-7.8%</td>
<td>-4.2%</td>
<td>-2.1%</td>
<td>-7.8%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.1%</td>
<td>0.5%</td>
<td>1.2%</td>
<td>7.4%</td>
<td>6.2%</td>
<td>4.1%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.0%</td>
<td>-1.9%</td>
<td>1.8%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>-1.3%</td>
<td>-1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Auto</td>
<td>3.5%</td>
<td>-5.0%</td>
<td>6.4%</td>
<td>19.6%</td>
<td>15.2%</td>
<td>5.4%</td>
<td>9.2%</td>
</tr>
</tbody>
</table>
</body></html>

France's IP was kicked down in November as a transit strike slowed the France economy. A December rebound was expected. But the rebound is less that the November drop, stirring suspicions that growth may be more fundamentally impaired [...]

French IP Rebounds Without Enthusiasm

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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250502A5.jpg

250502B5.jpg

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.

250502C5.jpg

250502D5.jpg

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.

250502X5.jpg

250502F5.jpg

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

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

Winnie Tapasanun

250502F32.jpg

250502G32.jpg

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: February 2008

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