Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510f.jpg" width="353">
UK trade flows are strong. In both directions. A quick glance at today&#39;s March report would likely draw the most attention to a widening tendency in monthly deficit. The March figure, &pound;3.84 billion, came down from February&#39;s &pound;5.38 billion, but the general run has been toward larger gaps. See the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510g.jpg" width="353">
Nonetheless, the growth of exports as well as imports has been impressive. Exports are up13.7% from a year ago, with goods alone up 19.8%. Imports have risen 15.0%, with the goods portion up 18.9%. While some of this is a pick-up in prices, the volume indexes have also shown vigor: exports of goods are up 16.0% and imports, 13.3%.
Oil exports and imports are obviously up in value terms, and the trend may be shifting in the volume of oil exports. These are still below year ago amounts, but the one-month increase for March over February was a whopping 61.3%. Imports are quite erratic month-to-month, but for the first quarter as a whole, the amount of crude oil imported was 4.2% larger than in last year&#39;s first quarter. As seen in the table below, the overall &quot;fuel&quot; account recovered a bit in March from its recent unprecedented deficits. The recent high oil prices may be making it more economical for UK producers to raise the volume they pump, and indeed, the volume index for fuel, at 94 (2002=100) is the highest since last March, when it was 101.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510h.jpg" width="353">
Non-oil trade has generally been on an upswing as well, and many countries are increasing their purchases from the UK. The ONS cautions that some of the apparent gains may be due to the results of VAT fraud investigations, but even so, their carefully worded text suggests that much of the gains are genuine. The ONS release is available <a href="http://www.statistics.gov.uk/pdfdir/trd0506.pdf">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK Trade, SA, Bil.&pound;</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Mar 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Trade Balance: Goods &amp; Services</td>
<td>-3.84</td>
<td>-5.38</td>
<td>-4.45</td>
<td>-3.04</td>
<td>-3.91</td>
<td>-3.25</td>
<td>-2.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>29.29</td>
<td>28.81</td>
<td>28.68</td>
<td>25.76</td>
<td>26.33</td>
<td>24.49</td>
<td>23.52</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>33.12</td>
<td>34.20</td>
<td>33.13</td>
<td>28.80</td>
<td>30.23</td>
<td>27.74</td>
<td>26.10</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-5.46</td>
<td>-7.05</td>
<td>-6.14</td>
<td>-4.72</td>
<td>-5.47</td>
<td>-5.04</td>
<td>-3.99</td>
</tr>
<tr>
<td class="firstcol">Fuels</td>
<td>-0.28</td>
<td>-0.71</td>
<td>-0.81</td>
<td>0.35</td>
<td>-0.23</td>
<td>0.09</td>
<td>0.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>2.34</td>
<td>1.86</td>
<td>2.01</td>
<td>1.90</td>
<td>1.80</td>
<td>1.49</td>
<td>1.38</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>2.62</td>
<td>2.57</td>
<td>2.82</td>
<td>1.55</td>
<td>2.03</td>
<td>1.40</td>
<td>0.96</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.62</td>
<td>1.66</td>
<td>1.96</td>
<td>1.68</td>
<td>1.56</td>
<td>1.79</td>
<td>1.41</td>
</tr>
</tbody>
</table>
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UK trade flows are strong. In both directions. A quick glance at today's March report would likely draw the most attention to a widening tendency in monthly deficit. The March figure, £3.84 billion, came down from February's £5.38 [...]

UK Trade Flows Show Strengthening Trend; Deficit Narrows in March

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510e.jpg" width="353">
The U.S. federal government ran a budget surplus in April of $118.9B that was more than double the surplus during the same month last year. The surplus improved the FY06 to-date budget deficit to $184.1B versus a deficit of $236.9B during the first seven months of FY05.
A quirky 21.5% m/m drop in U.S. net outlays helped minimize the government&#39;s red ink. As a result of the drop the y/y growth in FYTD outlays fell to 5.7% from 8.7% one month earlier. Lower spending during April was logged by most outlay categories. Defense spending (19% of total outlays) reversed all of the prior month&#39;s surge and fell 21.6% (-10.9% y/y) and for the first seven months of FY06 rose 5.7% from &#39;05.
Medicare spending (12% of total outlays) also reversed the March jump and fell by about half m/m. Still the FYTD growth in Medicare spending was strong at 7.9%, helped by the initiation of prescription drug coverage. Spending on social security (21% of total outlays) remained strong at 5.7%.
Net revenues nearly doubled m/m during April and that lifted growth to 11.2% during the first seven months of this fiscal year versus FY05. Individual income tax receipts (44% of total receipts) rose 13.8% from last April and that pulled FYTD growth to 9.9%. Corporate income taxes (10% of total receipts) similarly were strong and rose 28.0% y/y and rose 29.9% during fiscal year 06&#39;s first seven months.
The improved job market raised employment taxes (36% of total receipts) 7.4% y/y and estate &amp; gift taxes surged by 13.1% y/y.
Presidential Approval Ratings: How Low Can Bush Go? from the American Enterprise Institute (AEI) can be found <a href="http://www.aei.org/publications/pubID.24359,filter.all/pub_detail.asp">here</a>.
Also from AEI is Taking Stock of Congress: A Lot of Bad to Go Around and it is available <a href="http://www.aei.org/publications/filter.all,pubID.24357/pub_detail.asp">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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$118.9B</td>
<td>$-85.5B</td>
<td>$57.7B (4/05)</td>
<td>$-318.3B</td>
<td>$-412.7B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$315.1B</td>
<td>$164.6B</td>
<td>13.5%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$196.2B</td>
<td>$250.0B</td>
<td>-10.8%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
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The U.S. federal government ran a budget surplus in April of $118.9B that was more than double the surplus during the same month last year. The surplus improved the FY06 to-date budget deficit to $184.1B versus a deficit of $236.9B [...]

U.S. Budget Surplus Doubled in April

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510c.jpg" width="353">
The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.00% at today&#39;s meeting. This sixteenth 25 basis point increase since June of 2004 was the result of a unanimous decision and was widely expected by analysts.
The discount rate also was raised 25 basis points to 6.00%.
The Fed&#39;s rationale for raising the rate was succinct. &quot;Economic growth has been quite strong so far this year.&quot;
Future rate increases were perhaps suggested by the statement &quot;... further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510d.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/BoardDocs/press/monetary/2006/20060510/default.htm.">link</a>.
Is Price Stability Enough? by William R. White at the Bank for International Settlements can be found <a href="http://www.bis.org/publ/work205.htm">here</a>.
Transparency, Expectations and Forecasts from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/erq106_bauer.pdf">here</a>.
Enhancing Fed Credibility from the Federal Reserve Bank of San Francisco is found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-05.pdf">here</a>.

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The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.00% at today's meeting. This sixteenth 25 basis point increase since June of 2004 was the result of a unanimous decision and was [...]

Fed Funds Rate Increased to 5.00%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510a.jpg" width="353">
The total number of mortgage applications fell another 5.8% last week. It was the fourth decline during the last five weeks and pulled the opening level in May 2.0% below April which fell 1.1% from the March average.
Purchase applications gave back 3.9% w/w of an 11.3% recovery at the end of April. Nevertheless, at the start of May purchase applications were 1.1% ahead of April which rose 1.1% versus March.
During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
An 8.8% w/w decline in applications to refinance lowered the level in early May 6.6% below the April average which fell 4.1% from March.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose again to 6.84% from 6.81% at the end of April. The rate on 15-year financing similarly increased to 6.51%, the highest level since early 2002. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/05/06</th>
<th scope="col">04/28/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>562.1</td>
<td>596.8</td>
<td>-28.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>416.5</td>
<td>433.3</td>
<td>-20.8%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,427.4</td>
<td>1,565.6</td>
<td>-36.9%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications fell another 5.8% last week. It was the fourth decline during the last five weeks and pulled the opening level in May 2.0% below April which fell 1.1% from the March average. Purchase [...]

Mortgage Applications Crimped By Higher Rates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510c.jpg" width="353">
The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.00% at today&#39;s meeting. This sixteenth 25 basis point increase since June of 2004 was the result of a unanimous decision and was widely expected by analysts.
The discount rate also was raised 25 basis points to 6.00%.
The Fed&#39;s rationale for raising the rate was succinct. &quot;Economic growth has been quite strong so far this year.&quot;
Future rate increases were perhaps suggested by the statement &quot;... further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510d.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/BoardDocs/press/monetary/2006/20060510/default.htm.">link</a>.
Is Price Stability Enough? by William R. White at the Bank for International Settlements can be found <a href="http://www.bis.org/publ/work205.htm">here</a>.
Transparency, Expectations and Forecasts from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/erq106_bauer.pdf">here</a>.
Enhancing Fed Credibility from the Federal Reserve Bank of San Francisco is found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-05.pdf">here</a>.

U.S. Budget Surplus Doubled in April 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510e.jpg" width="353">
The U.S. federal government ran a budget surplus in April of $118.9B that was more than double the surplus during the same month last year. The surplus improved the FY06 to-date budget deficit to $184.1B versus a deficit of $236.9B during the first seven months of FY05.
A quirky 21.5% m/m drop in U.S. net outlays helped minimize the government&#39;s red ink. As a result of the drop the y/y growth in FYTD outlays fell to 5.7% from 8.7% one month earlier. Lower spending during April was logged by most outlay categories. Defense spending (19% of total outlays) reversed all of the prior month&#39;s surge and fell 21.6% (-10.9% y/y) and for the first seven months of FY06 rose 5.7% from &#39;05.
Medicare spending (12% of total outlays) also reversed the March jump and fell by about half m/m. Still the FYTD growth in Medicare spending was strong at 7.9%, helped by the initiation of prescription drug coverage. Spending on social security (21% of total outlays) remained strong at 5.7%.
Net revenues nearly doubled m/m during April and that lifted growth to 11.2% during the first seven months of this fiscal year versus FY05. Individual income tax receipts (44% of total receipts) rose 13.8% from last April and that pulled FYTD growth to 9.9%. Corporate income taxes (10% of total receipts) similarly were strong and rose 28.0% y/y and rose 29.9% during fiscal year 06&#39;s first seven months.
The improved job market raised employment taxes (36% of total receipts) 7.4% y/y and estate &amp; gift taxes surged by 13.1% y/y.
Presidential Approval Ratings: How Low Can Bush Go? from the American Enterprise Institute (AEI) can be found <a href="http://www.aei.org/publications/pubID.24359,filter.all/pub_detail.asp">here</a>.
Also from AEI is Taking Stock of Congress: A Lot of Bad to Go Around and it is available <a href="http://www.aei.org/publications/filter.all,pubID.24357/pub_detail.asp">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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$118.9B</td>
<td>$-85.5B</td>
<td>$57.7B (4/05)</td>
<td>$-318.3B</td>
<td>$-412.7B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$315.1B</td>
<td>$164.6B</td>
<td>13.5%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$196.2B</td>
<td>$250.0B</td>
<td>-10.8%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
Mortgage Applications Crimped By Higher Rates 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510a.jpg" width="353">
The total number of mortgage applications fell another 5.8% last week. It was the fourth decline during the last five weeks and pulled the opening level in May 2.0% below April which fell 1.1% from the March average.
Purchase applications gave back 3.9% w/w of an 11.3% recovery at the end of April. Nevertheless, at the start of May purchase applications were 1.1% ahead of April which rose 1.1% versus March.
During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
An 8.8% w/w decline in applications to refinance lowered the level in early May 6.6% below the April average which fell 4.1% from March.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose again to 6.84% from 6.81% at the end of April. The rate on 15-year financing similarly increased to 6.51%, the highest level since early 2002. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/05/06</th>
<th scope="col">04/28/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>562.1</td>
<td>596.8</td>
<td>-28.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>416.5</td>
<td>433.3</td>
<td>-20.8%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,427.4</td>
<td>1,565.6</td>
<td>-36.9%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK Trade Flows Show Strengthening Trend; Deficit Narrows in March 
by <a href="/comment/Stone.html">Carol Stone</a> May 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510f.jpg" width="353">
UK trade flows are strong. In both directions. A quick glance at today&#39;s March report would likely draw the most attention to a widening tendency in monthly deficit. The March figure, &pound;3.84 billion, came down from February&#39;s &pound;5.38 billion, but the general run has been toward larger gaps. See the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510g.jpg" width="353">
Nonetheless, the growth of exports as well as imports has been impressive. Exports are up13.7% from a year ago, with goods alone up 19.8%. Imports have risen 15.0%, with the goods portion up 18.9%. While some of this is a pick-up in prices, the volume indexes have also shown vigor: exports of goods are up 16.0% and imports, 13.3%.
Oil exports and imports are obviously up in value terms, and the trend may be shifting in the volume of oil exports. These are still below year ago amounts, but the one-month increase for March over February was a whopping 61.3%. Imports are quite erratic month-to-month, but for the first quarter as a whole, the amount of crude oil imported was 4.2% larger than in last year&#39;s first quarter. As seen in the table below, the overall &quot;fuel&quot; account recovered a bit in March from its recent unprecedented deficits. The recent high oil prices may be making it more economical for UK producers to raise the volume they pump, and indeed, the volume index for fuel, at 94 (2002=100) is the highest since last March, when it was 101.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510h.jpg" width="353">
Non-oil trade has generally been on an upswing as well, and many countries are increasing their purchases from the UK. The ONS cautions that some of the apparent gains may be due to the results of VAT fraud investigations, but even so, their carefully worded text suggests that much of the gains are genuine. The ONS release is available <a href="http://www.statistics.gov.uk/pdfdir/trd0506.pdf">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK Trade, SA, Bil.&pound;</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Mar 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Trade Balance: Goods &amp; Services</td>
<td>-3.84</td>
<td>-5.38</td>
<td>-4.45</td>
<td>-3.04</td>
<td>-3.91</td>
<td>-3.25</td>
<td>-2.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>29.29</td>
<td>28.81</td>
<td>28.68</td>
<td>25.76</td>
<td>26.33</td>
<td>24.49</td>
<td>23.52</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>33.12</td>
<td>34.20</td>
<td>33.13</td>
<td>28.80</td>
<td>30.23</td>
<td>27.74</td>
<td>26.10</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-5.46</td>
<td>-7.05</td>
<td>-6.14</td>
<td>-4.72</td>
<td>-5.47</td>
<td>-5.04</td>
<td>-3.99</td>
</tr>
<tr>
<td class="firstcol">Fuels</td>
<td>-0.28</td>
<td>-0.71</td>
<td>-0.81</td>
<td>0.35</td>
<td>-0.23</td>
<td>0.09</td>
<td>0.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>2.34</td>
<td>1.86</td>
<td>2.01</td>
<td>1.90</td>
<td>1.80</td>
<td>1.49</td>
<td>1.38</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>2.62</td>
<td>2.57</td>
<td>2.82</td>
<td>1.55</td>
<td>2.03</td>
<td>1.40</td>
<td>0.96</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.62</td>
<td>1.66</td>
<td>1.96</td>
<td>1.68</td>
<td>1.56</td>
<td>1.79</td>
<td>1.41</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509e.jpg" width="353">
March industrial production in Germany fell 2.4% in contrast to expectations of a small rise. The decline was the biggest monthly fall since June, 2000. Excluding construction, which declined by 14.5%, production still declined by 1.7%. Manufacturing output declined 1.3% with declines in capital goods production of 2.5%, in consumer goods, 1.0%, in energy, 5.3% and in intermediate goods, 0.5%. Production in Manufacturing and Construction are compared in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509f.jpg" width="353">
The set back in production is not necessarily a sign that the moderate upturn in the German economy is in danger. The month of March was unseasonally very cold, a fact that could account for some of the sharp drop in construction activity. In addition there was a brief work stoppage in late March when 700,000 workers in North Rhine-Westphalia were called off the job in connection with the 2006 wage negotiations of IG Metall (Germany&#39;s union of some 3.4 million engineering workers). The union&#39;s initial demand was for a 5% wage increase, but the workers in North Rhine-Westphalia subsequently settled for a 3% wage increase. Expectations are that this settlement will be accepted by the six remaining regional chapters of the union and become a model for a nationwide agreement.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509g.jpg" width="353">
Industrial production in Eastern Europe continues to show strength--Slovakia, in particular, with an 11% rise in production from February to March. Production in Hungary was up a more modest 1.5% in the same period. Industrial production in the two countries is shown in the second chart. The year-over-year gains were 16.6% in Slovakia and 10.1% in Hungary. (These data are found in the Haver data base EMERGECW.) The data for Hungary are preliminary and are based on the output of firms with five or more employees.
As an example of the different trends in industrial production in Western and Eastern Europe, production in Germany and Hungary are shown in the third chart.

<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/JAPAN/@J5/@J5.HTM">Industrial Production</a> (2000=100)</th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total</td>
<td>105.0</td>
<td>107.6</td>
<td>101.1</td>
<td>-2.42</td>
<td>3.86</td>
<td>103.8</td>
<td>100.8</td>
<td>98.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total ex &nbsp;Construction</td>
<td>108.4</td>
<td>110.3</td>
<td>104.1</td>
<td>-1.72</td>
<td>4.13</td>
<td>106.1</td>
<td>102.5</td>
<td>99.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Construction</td>
<td>64.3</td>
<td>75.2</td>
<td>65.5</td>
<td>-14.49</td>
<td>-1.83</td>
<td>76.1</td>
<td>80.4</td>
<td>85.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Manufacturing&nbsp;</td>
<td>109.2</td>
<td>110.2</td>
<td>104.3</td>
<td>-1.27</td>
<td>4.70</td>
<td>106.6</td>
<td>102.7</td>
<td>99.4</td>
</tr>
<tr>
<td class="firstcol">Hungary</td>
<td>&nbsp;139.36</td>
<td>137.3&nbsp;</td>
<td>126.6&nbsp;</td>
<td>1.50&nbsp;</td>
<td>10.08&nbsp;</td>
<td>131.5&nbsp;</td>
<td>122.11&nbsp;</td>
<td>114.42&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia</td>
<td>146.5</td>
<td>132.0</td>
<td>125.6</td>
<td>10.98</td>
<td>16.64</td>
<td>129.1</td>
<td>124.6</td>
<td>119.6</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
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March industrial production in Germany fell 2.4% in contrast to expectations of a small rise. The decline was the biggest monthly fall since June, 2000. Excluding construction, which declined by 14.5%, production still declined by [...]

European Industrial Production: Germany, an Unexpected Sharp Decline; Hungary and Slovakia, Show Continued Strength

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509d.jpg" width="353">
Chain store sales slipped 0.4% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey. The decline, however, followed several heady gains during April. Therefore, the opening level of May sales was 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 chain store sales leading indicator was unchanged (-1.0% y/y) during the last week of April. The month&#39;s average fell 0.8% from March which rose 0.3% versus February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509a.jpg" width="353">
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 slipped one penny last week to $2.91 per gallon, reversing the modest rise during the prior week. Yesterday, the recent decline in spot market gasoline prices continued and for unleaded regular, the NY price was off 13 cents from last week&#39;s average.
Bringing Down Gas and Oil Prices from the American Enterprise Institute is available <a href="http://www.aei.org/publications/pubID.24336,filter.all/pub_detail.asp"> 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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/06/06</th>
<th scope="col">04/29/06</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>475.9</td>
<td>477.7</td>
<td>3.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales slipped 0.4% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey. The decline, however, followed several heady gains during April. Therefore, the opening level of May sales was [...]

Chain Store Sales Fell With Gasoline Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509b.jpg" width="353">
Small business optimism in April recovered most of the prior month&#39;s decline with a 2.1% rise, according to the National Federation of Independent Business (NFIB).
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.
Respondents expecting higher real sales in six months recovered about half of a precipitous March decline though expectations that the economy would improve remained negative for the second month. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509c.jpg" width="353">
The percentage of firms with one or more job openings improved sharply to the highest level since early 2001. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percent planning to raise capital expenditures recovered half of the sharp March decline..The percentage of firms planning to raise average selling prices rose to the highest level since January and the percentage of firms actually raising prices rose as well. 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.
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">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>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>100.1</td>
<td>98.0</td>
<td>0.3%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
</tr>
</tbody>
</table>
</body>
</html>

Small business optimism in April recovered most of the prior month's decline with a 2.1% rise, according to the National Federation of Independent Business (NFIB). During the last ten years there has been a 70% correlation between the [...]

Small Business Optimism Recovered

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

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Sandy Batten

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Job openings fell 288,000 to 7.192 million in March from a downwardly revised 7.480 million in February (previously 7.568 million), according to the Job Openings and Labor Turnover Survey. This is the lowest level of openings since last September although openings have been relatively trendless for the past year. The number of openings continues to exceed the number unemployed, but by only 109,000, the smallest amount since the pandemic, and indicates a relatively balanced labor market. The job openings rate fell to 4.3% in March from 4.5% in February. The March figure was in line with those immediately prior to the pandemic and is well below a high of 7.4% reached in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings.

Private sector openings fell 229,000 to 6.359 million in March from 6.588 million in February. The March decline was widely spread with manufacturing (+4,000) and “other” (+20,000) the only major sectors experiencing an increase. Trade, transportation and utilities openings fell 62,000 on top of 198,000 plunge in February. Construction openings fell 38,000, their first monthly decline in three months. Private education and health services openings fell 61,000, their third monthly decline in the past four months. The private sector job openings rate edged down to 4.5% in March from 4.6% in February (revised down from 4.7%). It has fluctuated between 4.4% and 5.0% over the past 13 months without a noticeable trend.

Total hiring edged up 41,000 to 5.411 million in March. This was the second monthly gain in the past six months. Over the past year, hiring has fallen 61,000. Private hiring rose 30,000 to 5.050 million, its fourth consecutive monthly gain although it has fallen 41,000 over the past year. Hiring in leisure and hospitality increased 48,000, the first increase in three months. Private educational and health services hiring rose 36,000, also its first increase in three months. Finance hiring increased 28,000. In contrast, construction hiring fell 45,000, the first monthly decline in three months. And professional and business services hiring fell 43,000. Total government hiring rose 11,000 which included a 1,000 decline in federal government hiring. The total hiring rate was unchanged at 3.4%, where it has been for five of the past six months. The private hiring rate was also unchanged at 3.7% in March for the sixth consecutive month.

Total job separations fell 179,000 to 5.137 million in March. They have been little changed over the past year. Quits increased 82,000 to 3.332 million; layoffs fell 222,000, the largest monthly decline since February 2023; other separations fell 39,000 to 247,000. Quits are voluntary separations initiated by the employee and are often viewed as an indicator of workers’ willingness to leave jobs for other opportunities. Private quits (+91,000 in March to 3.145 million) have been on a modest uptrend since late last year, possibly pointing to a slight firming of the labor market. Private layoffs (separations initiated by the employer) appear to be reversing their uptrend from last year. They fell 229,000 to 1.451 million in March, also their largest monthly decline since Febuary2023, led by a 79,000 monthly decline in leisure and hospitality layoffs and a 56,000 drop in trade, transportation and utilities layoffs.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

- Job openings fell to 7.192 million from downwardly revised 7.480 million in February.
- The job opening rate slid to 4.3% from 4.5%.
- Hiring was little changed in March.
- Layoffs fell to lowest level since last June.

JOLTS: Openings and Layoffs Fall in March; Hiring Little Changed

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The advance estimate of the U.S. international trade deficit in goods deepened to $162.0 billion in March after narrowing to $147.8 billion in February, as reported by the U.S. Census Bureau showed. A deficit of $143.0 billion for March had been expected by the Action Economics Forecast Survey. In Q1'25, the goods trade deficit widened to $463.2 billion after rising to $324.0 billion in Q4'24 from $305.1 billion in Q3'24. In real terms, the Q1’25 trade deficit is likely to have subtracted from real GDP growth, after having added 0.26 percentage point to growth in Q4'24.

Total goods imports jumped 5.0% (31.3% y/y) to $342.7 billion in March after a 0.3% February gain. Consumer goods imports surged 27.7% (54.1% y/y) following a 2.9% increase. Auto imports strengthened 6.6% (9.5% y/y) after a 1.2% rise while capital goods imports increased 4.0% in March (23.2% y/y) following a 1.7% February gain. Offsetting these increases, imports of industrial supplies & materials declined 13.3% (+39.9% y/y) after falling 3.7% in February. Foods, feeds & beverage imports eased 0.4% (+10.9% y/y) following a 2.1% decline and imports of “other” goods were off 5.6% (+13.7% y/y) after a 4.7% February increase.

Total goods exports rose 1.2% (6.9% y/y) to $180.8 billion in March, the fourth rise in five months, after increasing 3.7% in February. The rise reflected a 6.9% surge (-0.5% y/y) in foods, feeds & beverages after a decline of 2.5% In February. Industrial supplies & materials exports gained 3.2% (4.5% y/y) after increasing 4.6% in February. Exports of autos surged 7.9% (10.8% y/y) following a 2.7% increase. Exports of other goods edged 0.3% higher (2.4% y/y) after four straight months of decline. Offsetting these gains, consumer goods exports declined 1.6% (+1.9% y/y) following a 0.6% rise. Capital goods exports were off 2.6% (+13.3% y/y) after rising 4.8% in February.  

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Advance reading reflects higher consumer goods & auto imports.
- Other imports also are strong, while exports rise modestly.
- Exports growth held back by fall in nonauto consumer & capital goods.

U.S. Goods Trade Deficit Deepens to Another Record in March as Imports Surge

Winnie Tapasanun

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U.S. house prices edged up 0.1% m/m in February after rises of 0.3% in January (+0.2% initially) and 0.4% in December (+0.5% previously), according to the Federal Housing Finance Agency (FHFA) House Price Index. The February HPI at 437.32 was 13.3% above a low of 386.15 in August 2022. The February m/m reading was the 11th straight monthly gain but the smallest since May 2024. The year-on-year rate of increase decelerated to 3.9% in February, the lowest since June 2023, from 5.0% in January; thus, having remained lower than 7.3% in February 2024 and well below a high of 18.7% in February 2022.

House prices rose m/m in February (vs. January) in six of the nine census divisions. These included New England (1.3% vs. 0.1%), East North Central (0.8% vs. 0.5%), Middle Atlantic (0.6% vs. 1.0%), South Atlantic (0.3% vs. -0.6%), West North Central (0.2% vs. 0.8%), and East South Central (0.1% vs. -0.03%). To the downside, house prices fell m/m in three census divisions in February (vs. January): Pacific (-0.8% vs. 0.6%), Mountain (-0.7% vs. -0.02%), and West South Central (-0.1% vs. 0.9%).

Year-on-year house prices continued to gain in February. However, the pace of increase decelerated y/y in February (vs. January) in all of the nine census divisions. These were Pacific (0.9% vs. 3.6%), West South Central (2.1% vs. 2.8%), South Atlantic (3.2% vs. 4.1%), Mountain (3.5% vs. 4.3%), East South Central (3.7% vs. 4.4%), West North Central (4.2% vs. 5.0%), New England (6.1% vs. 7.5%), East North Central (6.5% vs. 7.0%), and Middle Atlantic (7.0% vs. 8.5%).

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- Feb. FHFA HPI +0.1% m/m (+3.9% y/y, lowest since June ’23); +0.3% m/m (+5.0% y/y) in Jan.
- House prices up m/m in six of nine census divisions but down in Pacific, Mountain, and West South Central.
- House prices up y/y in all of the nine regions, w/ the highest rate in Middle Atlantic (7.0%) and the lowest rate in Pacific (0.9%).


U.S. FHFA House Price Growth Continues to Decelerate in February

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.

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**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.

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**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.

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**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.

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**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.

Economy in Brief

Jump to:

UK Trade Flows Show Strengthening Trend; Deficit Narrows in March

U.S. Budget Surplus Doubled in April

Fed Funds Rate Increased to 5.00%

Mortgage Applications Crimped By Higher Rates

Fed Funds Rate Increased to 5.00%

European Industrial Production: Germany, an Unexpected Sharp Decline; Hungary and Slovakia, Show Continued Strength

Chain Store Sales Fell With Gasoline Prices

Small Business Optimism Recovered