Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516g.jpg" width="353">
German investors and analysts, who report to the ZEW Center for European Economic Research, have become less optimistic regarding the economic outlook over the next six months. The excess of those expecting better conditions over those expecting worsening conditions dropped sharply from 62.7% in April to 50.0% in May. It is, however, still above the historical average of 35.3%. The consensus had expected a more modest drop. There has been a steady erosion of confidence since January when the percent balance reached 71.1%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516h.jpg" width="353">
At the same time, the excess of those German investors and analysts who rate current conditions as &quot;good&quot; over those who rate them &quot;bad&quot; rose from 2.9% in April to 8.7% in May. These two ratings were the first positive ratings since April 2001. They may have reflected the improvement in the economy as measured by the 0.04% increase in GDP in the first quarter of this year, up from 0.01% in the fourth quarter of 2005. From the beginning of the this year until April, the price of a barrel of oil had remained below $66 and the euro had ranged in a fairly narrow band between $1.19 and $1.23. Investor expectations and appraisals of current conditions are shown in the first chart.
Since then, however, the price of oil has spiked up to more than $74 a barrel and the euro has climbed to $1.29. (See the second chart.) The threat to German exports from a higher euro and the impact of higher oil prices on consumer demand have, no doubt, made investors and analysts more cautious.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany: ZEW</a></th>
<th scope="col">May 06</th>
<th scope="col">Apr 06</th>
<th scope="col">May 05</th>
<th scope="col">M/M dif </th>
<th scope="col">Y/Y dif</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Expectations &nbsp;&nbsp;</td>
<td>50.0</td>
<td>62.7</td>
<td>13.9</td>
<td>-12.7</td>
<td>36.1</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
<tr>
<td class="firstcol">Current conditions</td>
<td>8.7</td>
<td>2.9</td>
<td>-69.3</td>
<td>5.8</td>
<td>78.0</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-92.6</td>
</tr>
</tbody>
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</body>
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German investors and analysts, who report to the ZEW Center for European Economic Research, have become less optimistic regarding the economic outlook over the next six months. The excess of those expecting better conditions over [...]

A Stronger Euro and Rising Oil Prices Shake German Investors' Confidence

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060517a.jpg" width="353">
Chain store sales remained unchanged last week after a 0.4% slip to open the month, according to the International Council of Shopping Centers (ICSC)-UBS survey. So far in May sales are 0.3% above the April average which rose 1.6% from March.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The leading indicator of chain store sales fell 0.6% (-2.2% y/y) to begin May and has been declining steadily since late March.
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.
Retail gasoline prices rose four cents last week to $2.95 per gallon after averaging $2.74 during April.

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<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">05/13/06</th>
<th scope="col">05/06/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>475.7</td>
<td>475.9</td>
<td>4.2%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales remained unchanged last week after a 0.4% slip to open the month, according to the International Council of Shopping Centers (ICSC)-UBS survey. So far in May sales are 0.3% above the April average which rose 1.6% [...]

Chain Store Sales Tread Water; Gasoline Prices Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516e.jpg" width="353">
Total industrial output jumped 0.8% last month following two months of 0.5% gain. Consensus expectations had been for another 0.5% increase.
Factory sector output surged 0.8% (5.5% y/y) after an unrevised 0.5% March increase. That increase matched a 0.8% January spike and lifted the y/y gain in factory output to its highest since in over a year.
A 1.7% (12.4% y/y) rise in business equipment output provided umph to last month&#39;s gain in output as output of computers, communication equipment and semiconductors jumped 2.4% (21.7% y/y). Factory output excluding high tech, however, also was strong and rose 0.7% (4.6% y/y).
Output of nondurable consumer goods rose 0.4% (2.1% y/y) as appliance &amp; furniture output rose 0.2% (4.0% y/y). Automotive products&#39; production fell 1.1% (+4.2% y/y). Excluding motor vehicles and high tech factory output increased 0.9% (4.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516f.jpg" width="353">
Output of primary metals jumped 1.2% (6.7% y/y) following two months of decline and fabricated metals output rose 0.5% (6.1% y/y).
Total capacity utilization surged to 81.9%, the highest level since July of 2000. Factory sector utilization rose to 80.5%, also its highest level since 2000. During the last twenty years there has been a 36% correlation between the level of factory sector utilization and the y/y change in &quot;core&quot; producer prices. There also has been a 37% correlation with the change in core consumer prices.
Industrial capacity grew 0.1% (1.9% y/y) and the annual rate of growth is up from 1.3% last year and 0.3% during 2004. Factor sector capacity grew 0.2% (2.3% y/y) compared to 1.6% growth last year and 0.2% growth during 2004. Much of that growth has been in the high tech sector. Excluding high tech, factory sector capacity is up 1.0% y/y.
The 1990s Acceleration in Labor Productivity: Causes and Measurement from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/05/Anderson.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Industrial Production</td>
<td>0.8%</td>
<td>0.6%</td>
<td>4.8%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.8%</td>
<td>0.5%</td>
<td>5.5%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>0.2%</td>
<td>0.8%</td>
<td>2.7%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>1.7%</td>
<td>0.7%</td>
<td>12.4%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.9%</td>
<td>81.4%</td>
<td>79.7% (4/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
</body>
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Total industrial output jumped 0.8% last month following two months of 0.5% gain. Consensus expectations had been for another 0.5% increase. Factory sector output surged 0.8% (5.5% y/y) after an unrevised 0.5% March increase. That [...]

Industrial Production Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516c.jpg" width="353">
The April finished goods producer price index jumped 0.9%. That was the largest gain since a 1.4% spike last September but it about matched Consensus expectations had been for a 0.8% rise.
Less food &amp; energy the (core) PPI increased 0.1% last month and fell short of expectations for a 0.2% rise. Durable consumer goods prices were unchanged (0.3% y/y) following two months of 0.1% increase and core consumer nondurable prices rose 0.1% (2.6% y/y) following three months of stronger gain. Apparel prices continued lower. Prices of all finished consumer goods less food &amp; energy rose 0.1% (1.6% y/y).
Capital equipment prices rose 0.2% (1.4% y/y) after two months of 0.1% gains.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516d.jpg" width="353">
Finished energy prices jumped 4.0% (17.8% y/y) as gasoline prices increased 12.3% (33.9% y/y) and home heating oil rose 13.7% (27.6% y/y). A 3.0% decline in natural gas prices (+12.4% y/y) was the third consecutive monthly drop.
Intermediate goods prices jumped 0.9% on higher energy prices which rose 2.8% (18.4% y/y). Core intermediate prices increased 0.4%.
Crude goods prices regained about half of the prior month&#39;s decline with a 1.2% increase. Energy prices rose 1.3% higher crude oil prices were offset by lower prices for natural gas. Core crude prices, however, were notably strong and posted a 4.7% gain and are up 8.4% year to date. Copper base scrap (59.1% y/y), aluminum scrap (28.7% y/y) and iron &amp; steel scrap (8.7% y/y) all continued strong. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Finished Goods</td>
<td>0.9%</td>
<td>0.5%</td>
<td>4.0%</td>
<td>4.9%</td>
<td>3.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.9%</td>
<td>-0.1%</td>
<td>7.3%</td>
<td>8.0%</td>
<td>6.6%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.1%</td>
<td>4.9%</td>
<td>5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>1.2%</td>
<td>-2.7%</td>
<td>3.3%</td>
<td>14.6%</td>
<td>17.5%</td>
<td>25.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>4.7%</td>
<td>0.8%</td>
<td>16.0%</td>
<td>4.8%</td>
<td>26.5%</td>
<td>12.4%</td>
</tr>
</tbody>
</table>
</body>
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The April finished goods producer price index jumped 0.9%. That was the largest gain since a 1.4% spike last September but it about matched Consensus expectations had been for a 0.8% rise. Less food & energy the (core) PPI increased [...]

PPI Up Expected 0.9%, Core Tame

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516b.jpg" width="353">
During April, housing starts fell 7.4% m/m to 1.849M units following the 6.4% March decline that was revised slightly shallower. Again, the decline by far exceeded Consensus expectations for a modest drop to 1.95M starts and reduced the number of starts to the lowest level since November 2004.
Since the peak this past January, total starts have fallen 18.4%.
Single-family starts dropped 5.6% to 1.535M units and added to the 10.3% March decline. The latest level is down 15.4% from the January peak and is the lowest since November 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516a.jpg" width="353">
By region, single family housing starts were quite mixed last month. Starts in the South fell 15.9% m/m to a level that was off 19.9% from the January peak. In the West starts fell a moderate 3.6% but that added to the 19.1% slide in March and pulled the latest level down 22.0% from the February peak. In the Midwest single family starts moved in the opposite direction and reversed the prior month&#39;s decline with a 21.4% (+3.2% y/y) gain. In the Northeast starts also recovered the prior month&#39;s down draft and rose 6.7% though starts were still 17.7% off the January peak.
Multi family starts reversed the sharp March increase with a 15.1% decline to the lowest level since March of last years.
Building permits dropped by 5.4% for the third consecutive monthly decline and are off 10.7% from the peak last September.

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<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,849</td>
<td>1,996</td>
<td>-11.1%</td>
<td>2,073</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,535</td>
<td>1,626</td>
<td>-8.6%</td>
<td>1,719</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>314</td>
<td>370</td>
<td>-21.3%</td>
<td>354</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,984</td>
<td>2,097</td>
<td>-8.0%</td>
<td>2,144</td>
<td>2,057</td>
<td>1,8 88</td>
</tr>
</tbody>
</table>
</body>
</html>

During April, housing starts fell 7.4% m/m to 1.849M units following the 6.4% March decline that was revised slightly shallower. Again, the decline by far exceeded Consensus expectations for a modest drop to 1.95M starts and reduced [...]

Housing Starts Lowest Since 2004

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516b.jpg" width="353">
During April, housing starts fell 7.4% m/m to 1.849M units following the 6.4% March decline that was revised slightly shallower. Again, the decline by far exceeded Consensus expectations for a modest drop to 1.95M starts and reduced the number of starts to the lowest level since November 2004.
Since the peak this past January, total starts have fallen 18.4%.
Single-family starts dropped 5.6% to 1.535M units and added to the 10.3% March decline. The latest level is down 15.4% from the January peak and is the lowest since November 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516a.jpg" width="353">
By region, single family housing starts were quite mixed last month. Starts in the South fell 15.9% m/m to a level that was off 19.9% from the January peak. In the West starts fell a moderate 3.6% but that added to the 19.1% slide in March and pulled the latest level down 22.0% from the February peak. In the Midwest single family starts moved in the opposite direction and reversed the prior month&#39;s decline with a 21.4% (+3.2% y/y) gain. In the Northeast starts also recovered the prior month&#39;s down draft and rose 6.7% though starts were still 17.7% off the January peak.
Multi family starts reversed the sharp March increase with a 15.1% decline to the lowest level since March of last years.
Building permits dropped by 5.4% for the third consecutive monthly decline and are off 10.7% from the peak last September.

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<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/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,849</td>
<td>1,996</td>
<td>-11.1%</td>
<td>2,073</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,535</td>
<td>1,626</td>
<td>-8.6%</td>
<td>1,719</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>314</td>
<td>370</td>
<td>-21.3%</td>
<td>354</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,984</td>
<td>2,097</td>
<td>-8.0%</td>
<td>2,144</td>
<td>2,057</td>
<td>1,8 88</td>
</tr>
</tbody>
</table>
PPI Up Expected 0.9%, Core Tame 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516c.jpg" width="353">
The April finished goods producer price index jumped 0.9%. That was the largest gain since a 1.4% spike last September but it about matched Consensus expectations had been for a 0.8% rise.
Less food &amp; energy the (core) PPI increased 0.1% last month and fell short of expectations for a 0.2% rise. Durable consumer goods prices were unchanged (0.3% y/y) following two months of 0.1% increase and core consumer nondurable prices rose 0.1% (2.6% y/y) following three months of stronger gain. Apparel prices continued lower. Prices of all finished consumer goods less food &amp; energy rose 0.1% (1.6% y/y).
Capital equipment prices rose 0.2% (1.4% y/y) after two months of 0.1% gains.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516d.jpg" width="353">
Finished energy prices jumped 4.0% (17.8% y/y) as gasoline prices increased 12.3% (33.9% y/y) and home heating oil rose 13.7% (27.6% y/y). A 3.0% decline in natural gas prices (+12.4% y/y) was the third consecutive monthly drop.
Intermediate goods prices jumped 0.9% on higher energy prices which rose 2.8% (18.4% y/y). Core intermediate prices increased 0.4%.
Crude goods prices regained about half of the prior month&#39;s decline with a 1.2% increase. Energy prices rose 1.3% higher crude oil prices were offset by lower prices for natural gas. Core crude prices, however, were notably strong and posted a 4.7% gain and are up 8.4% year to date. Copper base scrap (59.1% y/y), aluminum scrap (28.7% y/y) and iron &amp; steel scrap (8.7% y/y) all continued strong. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.9%</td>
<td>0.5%</td>
<td>4.0%</td>
<td>4.9%</td>
<td>3.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.9%</td>
<td>-0.1%</td>
<td>7.3%</td>
<td>8.0%</td>
<td>6.6%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.1%</td>
<td>4.9%</td>
<td>5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>1.2%</td>
<td>-2.7%</td>
<td>3.3%</td>
<td>14.6%</td>
<td>17.5%</td>
<td>25.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>4.7%</td>
<td>0.8%</td>
<td>16.0%</td>
<td>4.8%</td>
<td>26.5%</td>
<td>12.4%</td>
</tr>
</tbody>
</table>
Industrial Production Jumped 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516e.jpg" width="353">
Total industrial output jumped 0.8% last month following two months of 0.5% gain. Consensus expectations had been for another 0.5% increase.
Factory sector output surged 0.8% (5.5% y/y) after an unrevised 0.5% March increase. That increase matched a 0.8% January spike and lifted the y/y gain in factory output to its highest since in over a year.
A 1.7% (12.4% y/y) rise in business equipment output provided umph to last month&#39;s gain in output as output of computers, communication equipment and semiconductors jumped 2.4% (21.7% y/y). Factory output excluding high tech, however, also was strong and rose 0.7% (4.6% y/y).
Output of nondurable consumer goods rose 0.4% (2.1% y/y) as appliance &amp; furniture output rose 0.2% (4.0% y/y). Automotive products&#39; production fell 1.1% (+4.2% y/y). Excluding motor vehicles and high tech factory output increased 0.9% (4.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516f.jpg" width="353">
Output of primary metals jumped 1.2% (6.7% y/y) following two months of decline and fabricated metals output rose 0.5% (6.1% y/y).
Total capacity utilization surged to 81.9%, the highest level since July of 2000. Factory sector utilization rose to 80.5%, also its highest level since 2000. During the last twenty years there has been a 36% correlation between the level of factory sector utilization and the y/y change in &quot;core&quot; producer prices. There also has been a 37% correlation with the change in core consumer prices.
Industrial capacity grew 0.1% (1.9% y/y) and the annual rate of growth is up from 1.3% last year and 0.3% during 2004. Factor sector capacity grew 0.2% (2.3% y/y) compared to 1.6% growth last year and 0.2% growth during 2004. Much of that growth has been in the high tech sector. Excluding high tech, factory sector capacity is up 1.0% y/y.
The 1990s Acceleration in Labor Productivity: Causes and Measurement from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/05/Anderson.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

</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/USECON/@EA/@EA.HTM">Production &amp; Capacity</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Industrial Production</td>
<td>0.8%</td>
<td>0.6%</td>
<td>4.8%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.8%</td>
<td>0.5%</td>
<td>5.5%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>0.2%</td>
<td>0.8%</td>
<td>2.7%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>1.7%</td>
<td>0.7%</td>
<td>12.4%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.9%</td>
<td>81.4%</td>
<td>79.7% (4/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
  A Stronger Euro and Rising Oil Prices Shake German Investors' Confidence  
by <a href="/comment/Curley.html">Louise Curley</a> May 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516g.jpg" width="353">
German investors and analysts, who report to the ZEW Center for European Economic Research, have become less optimistic regarding the economic outlook over the next six months. The excess of those expecting better conditions over those expecting worsening conditions dropped sharply from 62.7% in April to 50.0% in May. It is, however, still above the historical average of 35.3%. The consensus had expected a more modest drop. There has been a steady erosion of confidence since January when the percent balance reached 71.1%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060516h.jpg" width="353">
At the same time, the excess of those German investors and analysts who rate current conditions as &quot;good&quot; over those who rate them &quot;bad&quot; rose from 2.9% in April to 8.7% in May. These two ratings were the first positive ratings since April 2001. They may have reflected the improvement in the economy as measured by the 0.04% increase in GDP in the first quarter of this year, up from 0.01% in the fourth quarter of 2005. From the beginning of the this year until April, the price of a barrel of oil had remained below $66 and the euro had ranged in a fairly narrow band between $1.19 and $1.23. Investor expectations and appraisals of current conditions are shown in the first chart.
Since then, however, the price of oil has spiked up to more than $74 a barrel and the euro has climbed to $1.29. (See the second chart.) The threat to German exports from a higher euro and the impact of higher oil prices on consumer demand have, no doubt, made investors and analysts more cautious.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany: ZEW</a></th>
<th scope="col">May 06</th>
<th scope="col">Apr 06</th>
<th scope="col">May 05</th>
<th scope="col">M/M dif </th>
<th scope="col">Y/Y dif</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Expectations &nbsp;&nbsp;</td>
<td>50.0</td>
<td>62.7</td>
<td>13.9</td>
<td>-12.7</td>
<td>36.1</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
<tr>
<td class="firstcol">Current conditions</td>
<td>8.7</td>
<td>2.9</td>
<td>-69.3</td>
<td>5.8</td>
<td>78.0</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-92.6</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/060515e.jpg" width="353">
Stock markets around the world began to falter last week and continued to do so this morning. Both developed and emerging markets are succumbing to rising interest rates, the falling dollar and most recently signs of overshooting in commodity prices.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515f.jpg" width="353">
Morgan Stanley International Capital (MSCI) computes stock market indexes and returns on stock market investments for a wide range of individual countries and various aggregates. Among the latter are a world index, regional indexes, EAFE, (includes the developed markets of western Europe and Japan, Hong Kong, Singapore, Australia and New Zealand) and Emerging Markets, among others. The data are available on a daily, weekly and monthly bases in the Haver databases, MSCID, MSCIW, MSCIM.
The Dow Jones declined 1.76% from Monday, May 8th to Friday May 12th. The (MSCI) EAFE index declined 1.61% in the same period and MSCI&#39;s emerging market index fell 2.79%. The first chart shows the recent down turn in the Dow Jones Index and in MSCI&#39;s EFAE index. The second chart compares the trends in MSCI&#39;s EAFE and Emerging markets indexes.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515g.jpg" width="353">
Haver Analytic&#39;s DAILY and WEEKLY databases of interest rates, commodity prices, and exchange rates provide much of the data needed to monitor the short term data that may affect stock markets. In the third chart we show the trade weighted value of the U. S Dollar and the price of oil as two of the many factors that may affect stock prices. The rise in oil prices generally has a dampening effect on domestic and foreign stock markets. The impact of a decline in the dollar may be mixed. As far as the US market is concerned it could be positive, but foreign markets are likely to view a decline in the dollar as a negative since it will make their exports less competitive.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">May 12&nbsp;</th>
<th scope="col">May 11</th>
<th scope="col">May 10&nbsp;</th>
<th scope="col">May 9 </th>
<th scope="col">May 8</th>
<th scope="col">% Change</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Dow Jones&nbsp;</td>
<td>11380</td>
<td>11501</td>
<td>11643</td>
<td>11640</td>
<td>11584</td>
<td>-1.76</td>
</tr>
<tr>
<td class="firstcol">MSCI&nbsp; EAFE (12/31/69=1000</td>
<td>1938.7</td>
<td>1966.8</td>
<td>1973.1</td>
<td>1966.82</td>
<td>1970.5</td>
<td>-1.61</td>
</tr>
<tr class="odd">
<td class="firstcol">MSCI&nbsp; Emerging Mkts (12/31/87=100)</td>
<td>&nbsp;856.9</td>
<td>873.3</td>
<td>879.9</td>
<td>881.2</td>
<td>881.5</td>
<td>-2.79</td>
</tr>
<tr>
<td class="firstcol">Trade Weighted Dollar (Jan 97=100)</td>
<td>106.73</td>
<td>106.43</td>
<td>106.51</td>
<td>06.85</td>
<td>107.85</td>
<td>-0.23</td>
</tr>
<tr class="odd">
<td class="firstcol">Price of Oil Brent Crude ($ per barrel)</td>
<td>71.49</td>
<td>72.30</td>
<td>69.74</td>
<td>70.66</td>
<td>68.83</td>
<td>3.86</td>
</tr>
</tbody>
</table>
</body>
</html>

Stock markets around the world began to falter last week and continued to do so this morning. Both developed and emerging markets are succumbing to rising interest rates, the falling dollar and most recently signs of overshooting in [...]

A Bad Week for Domestic and International Stock Markets

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515h.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) reported that the May Composite Housing Market Index dropped 11.8% from April to the lowest level since June 1995. The figure was quite a bit weaker than Consensus expectations for stability at 50 and was one-third below the level of May 2005.
During the last twenty years there has been an 82% correlation between the y/y change in the annual composite index and the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.
The sub indexes covering current sales of single family homes (-34.2% y/y) and sales in six months (-29.9% y/y) both fell roughly 9% month-to-month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515i.jpg" width="353">
An index of the traffic of prospective home buyers plunged 17.9% m/m, also to more than a ten year low (-39.6% y/y).
Housing markets around the country weakened in May with the index for the Northeast off 6.0% (-32.9% y/y) and in the Midwest it fell 6.3% (-40.0% y/y). Out West the housing market index dropped 11.6% (-27.4% y/y) and in the South it fell 10.5% (-32.0% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</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/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>45</td>
<td>51</td>
<td>70</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Home Builders' (NAHB) reported that the May Composite Housing Market Index dropped 11.8% from April to the lowest level since June 1995. The figure was quite a bit weaker than Consensus expectations for [...]

NAHB Housing Market Index Lowest Since 1995

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

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

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Tian Yong Woon

This week, we focus on the immediate impacts of the recent US-China trade escalation. As we discuss below these are already being exhibited in the data. While still within historical ranges, high-frequency estimates of US and China cargo trade volumes have begun to deteriorate (chart 1). In tandem with these volume declines, freight rates on certain Shanghai-to-US routes have fallen (chart 2), suggesting reduced shipping demand. This has been further corroborated by widespread reports of large-scale shipment cancellations from China to the US. A potentially clearer signal comes from South Korea’s trade data for the first 20 days of the month, often viewed as a bellwether for global trade. The figures point to a notable slump compared with a year ago (chart 3). More complete April data are expected later this week.

Turning to broader developments in China, we observe that the dominant shifts in the country's financial balances over the past decade have occurred between the general government and the private sector. In contrast, China’s foreign sector balance—essentially its current account—has remained relatively stable (chart 4). As we further discuss financial balances and the underlying causes of the US’ persistent current account deficit (chart 5) have been a recurring topic in recent conversations with clients in Asia. It is argued that the US dollar’s role as a global reserve currency effectively necessitates the US running a current account deficit. Consequently, attempts to narrow the deficit through tariffs may address symptoms rather than root causes. Finally, we revisit the China Plus One strategy adopted by firms since the initial US-China trade fallout in 2018. This approach has contributed to ballooning trade deficits between the US and some of its other major trading partners (chart 6), prompting renewed scrutiny under President Trump’s early “Liberation Day” trade actions.

**US and China cargo trade**
Financial markets have recently found some reason for relief, as both the US and China appear to be lowering the temperature on further trade tariff actions. Recent messaging has leaned more toward a de-escalation of trade tensions, though concrete details remain sparse, and it is unclear how or when formal negotiations might begin. That said, the substantial and mutually imposed tariffs between the US and China remain firmly in place, and a significant rollback does not seem likely in the near term. In the meantime the economic impact of these tariffs is beginning to surface in the data, as shown in charts 1 to 3. Chart 1, based on IMF estimates, shows a sharp decline in daily activity at several key ports involved in US-China trade. However, while the drop is notable, port activity still remains within historical ranges, so a more fundamental shift is not yet evident.

250429T1.jpg

**US-China freight rates**
Another indication of the impact of escalating US-China tensions is seen in global freight rates, as shown in chart 2. Freight costs on routes from Shanghai to New York and Los Angeles have dropped sharply—even before the most recent round of trade escalations—likely due to growing caution among shippers about what trade actions might come next for China. This decline contrasts with the year-end spike in shipping rates in 2024, which likely reflected front-loading of shipments in anticipation of potential US tariffs. Looking ahead, the outlook remains uncertain and potentially discouraging, especially following recent reports of widespread shipment cancellations from China to the US. These developments suggest that China-to-US shipping volumes may remain subdued or decline further over the near-term.

250429T2.jpg

**Trade indications from South Korea**
A perhaps firmer indication comes from South Korea’s trade figures for the first 20 days of April, widely regarded as an early signal of global trade trends. The data showed a notable slump compared to the same period last year, driven largely by a sharp drop in shipments to the United States. This move has made US-China trade increasingly difficult, aside from a few exemptions on key goods such as electronics and semiconductors. Even so, South Korea’s semiconductor export growth continued to slow in April, highlighting the broader fallout from ongoing trade tensions. More definitive trade data from South Korea are expected later this week.

250429T3.jpg

**Broader topics on China**
Next, we turn to broader structural trends in China’s economy, starting with chart 4, which depicts China’s financial balances based on its flow of funds accounts. Over the past decade, the general government has accumulated an increasingly large net deficit, as its sources of funds (liabilities) have consistently outpaced the uses of funds (assets). This has fuelled growing investor concerns over government indebtedness. In contrast, the private sector—particularly households—has seen a sharp rise in its net surplus, almost mirroring the government’s deterioration. Meanwhile, the foreign sector has continued to run net deficits with China, consistent with China maintaining a current account surplus with the rest of the world. That said, unlike in the 2000s and early 2010s—when private and foreign sector balances often moved closely together—recent shifts in the general government and private sector balances appear to have had a more limited effect on the foreign sector's position.

250429T4.jpg

**The US’ current account deficit**
Expanding on these themes, chart 5 highlights the persistent current account deficits of the US alongside the cumulative current account surpluses of its major trading partners. Some may advocate for reducing US imports—such as through tariffs, as President Trump is currently pursuing—as a way to close the current account deficit. However, such measures tend to address only the symptoms rather than the root causes. This topic featured prominently in client meetings in Singapore. Fundamentally, the persistent current account deficit in the US can be seen as a structural outcome of the dollar’s role as the world’s primary reserve currency. The global demand for dollar-denominated assets drives sustained financial inflows into the US, which, by balance of payments accounting, necessitates a corresponding current account deficit.

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**What China Plus One?**
Lastly, we turn to the China Plus One strategy, a diversification approach adopted by firms and governments since US-China tensions began during Trump’s first term in 2018. However, even this approach may no longer offer a full hedge against additional US trade actions. As chart 6 shows, the shift away from China has contributed to a sharp rise in the US trade deficit with several alternative partners, particularly Asian economies such as Vietnam. In light of the broader scope of US trade actions—exemplified by Trump’s recent “Liberation Day” tariffs—businesses are being forced to rethink their global strategies. Some may find themselves needing to reshore production to the US, despite the fact that labour cost advantages, technical know-how, and manufacturing infrastructure for many goods remain more competitive abroad.

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Asia

Economic Letter from Asia: How Freightening?

Robert Brusca

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**Retailing and Wholesaling continue to show wear and tear**
The United Kingdom’s distributive trades survey has four parts. There's a survey of retailing and a separate survey of wholesaling. Then for each one of these surveys, there's a module that addresses current conditions and another one that addresses expected conditions.

**Current Conditions vs. Expectations for the distributive trades**
In this month's report, the current conditions assessments improved in retailing but were mixed for wholesaling. Expectations in retailing and wholesaling were also mixed as to month-to-month changes, but the levels of the responses remained quite weak.

**The Specifics**
Current Retailing- Retail sales compared to a year ago improved sharply to a -8 reading in April compared to a draconian -41 in March. Orders compared to a year ago improved at a reading of -24 in April from -38 in March. Sales for the time of year improved to -31 from -36. Sales compared to a year ago have a below median 29.2 percentile standing, while orders compared to a year ago have a 16.9 percentile standing and sales evaluated for the time of year have a 12.3 percentile standing. In each case, the reading from April is below its median reading of the last 24 years. These readings as a collection are weak readings.

Expected Retailing- The expected results for retailing in the survey show mixed results. The reading for sales compared to a year ago at -33 in May is slightly weaker than -30 in April. Orders compared to a year ago improved to -29 in May from -41 in April. But the survey shows a deterioration in sales for the time of year at -38 in May compared to -35 in April. The rankings for these readings range between the 10.5 percentile and 4.2 percentile, range marking them as all extremely weak readings in their historic queue of standings.

Current Wholesaling- Wholesaling also generally shows slippage in April. Sales compared to a year ago fell to -33 in April from in -29 in March, while orders compared to a year ago improved to -32 from March’s -38. Sales for the time of year, which post a reading of -31 in April compared to a reading of -20 in March, demonstrated slippage again. The rankings for these readings range from 4.2 to 9.2 in percentile standing terms.

Expected Wholesaling- Turning to expectations, sales compared to a year ago nudged lower to -26 in May from -25 in April. Orders compared to a year ago improved nicely to a reading of -28 in May compared to -38 in April; expected sales for the time of year slipped to -28 from April’s -27. Several of these are small stumbles month-to-month. But these readings range from a low percentile standing of 7.7 percentile to a high standing at a 12.6 percentile – all weak metrics.

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**Summing up**
What is quite clear in all of these readings is that the standings are exceptionally low. There’s widespread, even if somewhat mixed, slippage in these readings. Current sales are somewhat of an exception with some monthly traction amid still very low readings. Yet, the United Kingdom has been an economy that has continued to fight against an inflation overshoot so that the Bank of England does not really have a great deal of flexibility in the conduct of policy. Still, the U.K. is geographically close to the European Monetary Union where rate reductions are still in train.

The U.K. continues to be at risk to the U.S. tariff plan even though the U.S. does not run a deficit with the U.K. in trade. Despite ‘The Formula’ that allegedly has been used to set reciprocal tariffs, the Trump administration has found some different wrinkle to generate a tariff on goods from the U.K. Given this evolving situation, it's not surprising that the expectations are continuing to erode in the U.K. distributive trades survey.

United Kingdom

U.K. Distributive Trades Survey: Weakness Lingers and Is Mixed

Andrew Cates

**Global growth**
Latest flash PMI readings reveal a widening gap in manufacturing performance across major economies. Europe remains mired in contraction, with both the UK and euro area registering PMI figures below the 50 threshold. The UK’s manufacturing sector is particularly under pressure, with the PMI dropping to a new low not seen in over a year—reflecting weak output and mounting challenges from both domestic uncertainty and external shocks, including the disruptive impact of recent US trade actions. While the euro area shows tentative signs of stabilization, with PMI readings inching higher, the recovery remains fragile. In sharp contrast, India’s manufacturing sector continues to outperform, with PMI figures climbing further and signalling resilient industrial momentum amidst global headwinds.

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**US capex intentions**
The latest reading from the US Philly Fed survey suggests a sharp drop in capex intentions among manufacturers in the Philadelphia region, likely reflecting growing uncertainty in the wake of the US administration’s surprise announcement of sweeping tariffs on April 2nd, 2025. This abrupt policy shift has rattled business confidence, echoing past episodes—such as during the 2008 financial crisis and early stages of the pandemic—when capex sentiment similarly plunged. The downturn underscores how policy-induced trade disruptions can swiftly chill investment appetite, particularly in manufacturing sectors exposed to global supply chains.

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**South Korean trade**
The fallout from President Trump’s “reciprocal” tariffs and the rapid escalation of the trade dispute with China is also now becoming evident in Asia’s trade data. South Korea’s trade figures for the first 20 days of April—often seen as a bellwether for global trade—fell sharply compared to the same period last year. The drop was led by a steep decline in exports to the United States, where tariffs on Chinese goods have surged to as high as 145%, effectively choking bilateral trade flows outside a narrow band of exemptions for strategic goods like electronics and semiconductors. Even these sectors are feeling the strain: South Korea’s semiconductor exports continued to decelerate in April, highlighting the broader collateral damage of deepening trade tensions.

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**Gold prices**
The latest escalation in US-China trade tensions is reverberating far beyond traditional trade channels. Market sentiment has deteriorated noticeably, weighed down by darkening global growth prospects and deepening uncertainty over the future of relations between the world’s two largest economies. The forced decoupling is also reshaping investor behaviour, particularly among Chinese investors, who are increasingly turning to stateless safe-haven assets like gold. This shift is evident in the surge in trading volumes on the Shanghai Gold Exchange and the steady climb in global gold prices—buoyed further by a weakening US dollar. The trend points to rising concern among Chinese investors about the geographic concentration of their wealth, as Washington’s increasingly hawkish posture prompts a reassessment of cross-border financial exposure.

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**The US dollar and market volatility** 
Recent sweeping US-led trade actions and a broader turn toward protectionism have sharply eroded the goodwill and soft power long associated with the US and its financial assets. As Washington becomes an increasingly prominent source of global instability, investor confidence in the US dollar as a safe-haven currency has weakened. This loss of faith is reflected across asset markets, with the dollar’s persistent and more entrenched decline against major currencies standing out as a clear signal of a broader reassessment of the US’s global economic role. Elevated market uncertainty reinforces this shift, as underscored by still-high—albeit slightly moderated—readings on the VIX volatility index.

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**Asia’s consumption**
Viewed in a broader context, the recent actions by the US may signal an effort to rebalance its economy—though whether this strategy is well-calibrated remains highly contested. As the issuer of the world’s dominant reserve currency, the US has long been ensnared in the so-called Triffin dilemma: global demand for dollar-denominated assets has sustained persistent trade deficits, gradually undermining the competitiveness of its domestic manufacturing and other tradable sectors. China, by contrast, grapples with the mirror image of this problem. Its growth model remains heavily anchored in manufacturing and external surpluses, and it is now under mounting pressure to pivot toward consumption-led growth—an imperative sharpened by the latest wave of US measures designed to curb Chinese export strength.

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Financial market volatility has remained elevated over the past several days as investors attempted to weigh a modest improvement in sentiment—driven by a potential, if partial, retreat by the US administration from its aggressive tariff stance—against a still-cloudy global outlook. Signals from flash PMI surveys on global growth remain mixed: Europe continues to stagnate, with the UK particularly weak, while India stands out with resilient and rising manufacturing activity (chart 1). In the US, most of the incoming data suggest that business confidence has faltered, with capital expenditure intentions plunging particularly sharply in the wake of the April 2nd tariff announcement (chart 2). The drag from trade tensions is, moreover, becoming more evident: South Korea’s exports have slumped, especially to the US, and even sectors granted exemptions—like semiconductors—are showing signs of strain (chart 3). These pressures are reverberating through financial markets as well, where Chinese investors are shifting into gold as a hedge, fuelling record trading volumes on the Shanghai Gold Exchange and lifting global gold prices (chart 4). Meanwhile, a broadly-based decline in the US dollar and persistently high readings on the VIX index arguably reflect a deeper reassessment of US assets as reliable safe havens amid mounting policy unpredictability (chart 5). Beneath these short-term ripples lie more entrenched structural challenges: the US is seeking to rebalance away from external deficits linked to its reserve currency role, while China is under growing pressure to pivot toward consumption-led growth—an imperative sharpened by American efforts to choke off its export strength (chart 6). In short, the latest softening in US trade rhetoric may offer brief relief, but the underlying economic, geopolitical, and structural crosswinds remain very much in play.

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Charts of the Week: Dollar Dips and Trade Trips

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The Federal Reserve Bank of Kansas City reported that its index of manufacturing sector activity declined to -4 during April from -2 in March, indicating a continued decline in factory sector activity. The index has been at zero or below since October 2022. This survey was taken between April 16-21.

Haver Analytics calculates an index based on the Kansas City results which is comparable to the ISM series. This index eased to 50.0 (NSA) from 51.4 in March. It compared to a low of 43.7 last July.

The new orders index of -11 this month compared to -12 in March. Thirty percent (NSA) of respondents reported higher orders while 37% reported a decline. Shipments improved to -2 from -4 and remained above -12 in December. Thirty-three percent (NSA) of respondents reported higher shipments while 28% reported a decline. Employment fell to -11 this month from -4 In March. It has been negative for three straight months. Thirteen percent (NSA) of respondents reported more hiring while 25% reported less. The average workweek index fell to -6 from +6 in March. Supplier delivery times surged to 13 from -1 as a higher 18% (NSA) of respondents reported a quickening of delivery speeds and a lessened 2% indicated a slowdown. Finished goods inventories rose to +5 from -8 in March, indicating the greatest rate of inventory accumulation in four months. Materials inventories weakened to -5 in April from +4 in March.

Inflation indicators strengthened in April. The prices paid index for finished products jumped to 29 from 15 in March. It was the highest reading in almost three years, up from a low of -3 in July 2023. Thirty-four percent (NSA) of respondents reported higher prices while none paid less. The raw materials index held at 42, up from a low of -1 in October 2023.

The composite index of expectations six months ahead fell to 6 in April from 10 in March. It was below a high of 17 in December. Expectations for future shipments fell to 9 this month, down from 31 in December. Orders expectations also weakened significantly, with the index falling to a minimal 3 from 20 in March. The employment reading of 1 compared to zero in March and 19 in December. Expectations continue to be for higher prices. The expectations index for finished goods prices jumped to 59, a roughly three-year high, from 39 in March. Raw material prices jumped to 71 in April, also a three-year high, from 57 in March.

The latest survey was conducted between April 16-21, 2024 and included 97 responses from factories in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Data for the Kansas City Fed Survey can be found in Haver’s **SURVEYS** database.

The Fed’s latest **Beige Book** covering regional economic conditions is available [here](https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20250423.pdf).

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- Index has moved sideways for over two years.
- Most components remain negative.
- Prices paid reading surges.

Kansas City Fed Manufacturing Activity Index Declines in April; Expectations Diminish

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Existing home sales declined 5.9% (-2.4% y/y) during March to 4.02 million units after rising 4.4% to 4.270 million units in February, revised from 4.26 million, according to the National Association of Realtors (NAR). The Action Economics Forecast Survey expected 4.15 million unit sales. The March sales decline accompanied an easing in the effective 30-year mortgage interest rate to an average 6.65% in March from 6.84% in February. The sales figures are based on closings of sales signed over the past couple of months.

Existing single-family home sales in March declined 6.4% (-2.2% y/y) to 3.64 million units after a 5.7% increase to 3.89 million in February. Sales of condos and co-ops held steady (-5.0% y/y) at 380,000, following a 7.3% February decline.

Sales declined in all regions in March. Sales in the West fell 9.4% (+1.3% y/y) to 770,000 after a 13.3% strengthening in February. Sales in the South declined 5.7% (-4.2% y/y) to 1.81 million after a 4.9% February increase. Sales in the Northeast were off 2.0%, unchanged y/y to 490,000, down for the third straight month. Sales in the Midwest declined 5.0% (-3.1% y/y) to 950,000 units after holding steady in February.

The median price averaged by all existing homes (NSA) rose 1.7% (2.7% y/y) to $403,700 in March after a 0.9% February increase. Prices remained below a high of $426,900 in June 2024. The median price of an existing single-family home rose 1.8% (2.9% y/y) to $408,000 in March and the median price of condos and co-ops increased 2.3% (1.5% y/y) to $363,000 last month. Prices for all homes rose 2.3% (+3.5 y/y) in the Midwest to $302,100. In the South, prices rose 1.2% (0.6% y/y) to $360,400. Prices in the Northeast prices increased 0.8% (7.7% y/y) to $468,000 while in the West prices rose 1.1% (2.6% y/y) to $621,200.

The number of existing homes for sale (NSA) rose 8.1% (19.8% y/y) to 1.33 million units in March following a 4.2% February increase. The supply of homes on the market at the current selling rate (NSA) increased to 4.0 months. A high of 4.2 months occurred in September 2024. The record low in supply of 1.6 months occurred in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- Sales are lowest since September.
- Decline extends throughout the country.
- Median sales price increases.

Economy in Brief

Jump to:

A Stronger Euro and Rising Oil Prices Shake German Investors' Confidence

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Industrial Production Jumped

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A Bad Week for Domestic and International Stock Markets

NAHB Housing Market Index Lowest Since 1995