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Abdel M. Zellou, Ph.D.

Bootcamp and Econometric Tools 1 & 2

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Larger-than-usual income tax refunds this year are supporting consumer spending

Tian Yong Woon

In this week’s Letter, we track the dual drivers of AI optimism and the ongoing Middle East conflict, and how they continue to shape market prices and investor expectations. AI-related enthusiasm has remained a key support for equity markets, particularly in highly exposed indexes in Taiwan and South Korea, while continued oil supply bottlenecks stemming from the closure of the Strait of Hormuz have kept crude prices elevated (chart 1). These dual forces are also evident in the latest Blue Chip Economic Indicators survey. Year to date, all Asian economies have seen upward revisions to inflation forecasts, while the most AI-exposed advanced Asian economy, Taiwan, has recorded a particularly large upgrade to real GDP growth expectations (chart 2). Looking more closely at the monetary policy implications of higher oil prices, this month’s survey shows an increasing share of panellists expecting central banks to resume or extend tightening cycles, marking a modest shift from last month’s results (chart 3). This shift is already partially reflected in recent data, with average inflation across Asia edging higher and several central banks already opting to tighten policy in response (chart 4).

Looking ahead, attention will likely centre on the Trump–Xi summit taking place in Beijing later this week. While any potential for additional Chinese mediation efforts regarding the Middle East conflict will be closely watched, developments on the US–China trade front should not be overlooked given the range of unresolved issues (chart 5). Finally, despite recent headline focus on the Middle East, China has continued to post steady export growth, while also managing to temper excessive domestic producer competition. Together, this has supported a combination of firmer external demand and more stable pricing dynamics—an “all-win” outcome for now (chart 6).

**AI vs. the Middle East conflict**
The divergence between AI-driven equity market optimism and the persistence of elevated crude oil prices amid the ongoing Middle East conflict remains striking. On the one hand, equity markets—particularly in AI-heavy economies such as Taiwan and South Korea (chart 1)—have largely shrugged off concerns over energy supply disruptions. Investors remain focused on the upside potential from the current AI buildout cycle, driven by the rising computational demands of increasingly capable AI models. More recently, attention has shifted toward the scalability and broader applications of physical AI, including humanoid robots, and their potential implications for manufacturing, healthcare, and even household use. On the other hand, crude oil prices remain well above pre-conflict levels. The latest development is the US rejection of Iran’s most recent peace proposal, underscoring that a swift resolution to the US-Iran conflict remains unlikely.

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**The latest Blue Chip Economic Indicators survey**
The divergence described above is also evident in our Blue Chip Economic Indicators surveys, with the May edition providing further insight (chart 2). Largely reflecting higher energy prices stemming from the ongoing Strait of Hormuz disruption—though other factors have also played a role—panellists have made significant upward revisions to their 2026 CPI inflation forecasts year to date. Australia has seen the largest upgrade at +1.4 ppts, while other economies have recorded more moderate increases, including India (+0.8 ppts) and South Korea (+0.7 ppts). The growth outlook, however, is more mixed. Taiwan stands out with a substantial +4.7 ppt upgrade to its growth forecast, likely reflecting continued optimism around AI-related investment. By contrast, Australia and Japan have each seen modest downgrades of 0.2 ppts.

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We also observed subtle shifts in panellists’ expectations regarding how central banks are likely to respond to the recent surge in oil prices (chart 3). In the May survey, compared with April, a larger share of panellists (26% versus 17%) now expects central banks to resume or extend tightening cycles. Correspondingly, a smaller share expects policymakers to simply look through the energy-driven inflation shock or delay easing moves. This shift in expectations likely reflects several factors, including the increasingly protracted closure of the Strait of Hormuz and growing recognition that a quick resolution remains unlikely. While a US-Iran peace agreement would be a direct route to restoring normal shipping flows, the Strait could potentially be reopened through enhanced security arrangements even in the absence of a formal peace deal. Nonetheless, the latest developments suggest that neither outcome appears imminent.

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**Inflation and Policy Rates in Asia**
The shifts in panellists’ expectations are already beginning to show up in the hard data. Average consumer inflation across Asia rose in the immediate aftermath of the Middle East conflict, although inflation rates remain well below the peaks seen during earlier price shocks, such as those in the early 2020s. Chart 4 also shows that the average policy rate in Asia has edged higher in recent months. This reflects a combination of central banks that have kept policy rates unchanged—which still represent the majority in the region—and those that have already raised rates to contain inflation and keep inflation expectations anchored. Taken together, these developments suggest that the gradual easing trend that had been in place since around mid-2024 is beginning to reverse, albeit only marginally at this stage. While the shift remains modest, it points to a regional policy stance that is becoming somewhat less accommodative in response to renewed inflation pressures.

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**China and the Trump-Xi Summit**
With all that aside, one key event that Asia observers will likely focus on this week is the Trump–Xi summit, scheduled to take place later this week in Beijing and officially confirmed by China earlier today. The meeting had previously been delayed due to the Middle East conflict. While markets will be watching for any signal that China may play a greater mediating role in de-escalating tensions in the Middle East, attention will also be firmly on the state of US–China relations. In particular, any extension of the current trade truce, or incremental improvements in bilateral trade conditions, will be closely scrutinised. This includes developments around Chinese imports of US agricultural goods, as well as US access to Chinese exports such as rare earths, among other strategic goods. At the same time, China’s trade balance with the US—while meaningfully narrowing over 2025—has recently entered a phase of relative stabilisation, and its broader global trade surplus has also levelled off after expanding further in 2025 despite the reduced US surplus (chart 5).

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That said, the recent focus on the Middle East conflict has somewhat displaced attention from China’s structural overcapacity concerns. This shift has also coincided with policy efforts by Chinese authorities to curb excessive domestic competition and reduce disorderly price competition in key industrial sectors. In combination with sustained external demand—particularly for high-tech products, including select electronics and AI-related goods—China has recently seen producer prices move back into inflationary territory. At the same time, exports and new export orders have continued to show healthy growth, pointing to a more balanced external demand backdrop (chart 6). Taken together, these dynamics suggest a near-term “all-win” configuration of firmer pricing power alongside resilient external demand, albeit one that will likely remain sensitive to both geopolitical developments and the durability of the current AI-driven investment cycle.

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Asia

Economic Letter from Asia: Of Bits and Barrels

Michael J. Moran

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Nonfarm payrolls rose 115k in April, exceeding an expected gain of 70k. The increase represented the second consecutive advance, ending a nine-month string of up and down shifts. The erratic changes in prior months had left average job growth close to zero, but the new results showed a solid six-month average of 55k.

The soft results in prior months reflected respectable gains in the health-care sector that were largely offset by declines in other areas. However, job growth excluding health care also rose for the second consecutive month, and the six-month average moved into positive territory (although barely so, 1K). The construction industry has done well recently, and employment in wholesale and retail trade has improved as well. Employment in the business-services sector has inched up recently. Employment remained weak in financial services and information (motion pictures, publishing, internet-based services).

The unemployment rate was unchanged at 4.3 percent, but when calculated with more precision it showed an increase of almost 0.1 percentage point (4.337% versus 4.258% in March). The steady reading was soft in that both the labor force and employment as measured by the household survey declined, with the drop in employment exceeding the shift in the size of the labor force (-226K and -92k, respectively). The broad unemployment rate rose 0.2 percentage point to 8.2%, but it remained below the recent high of 8.7% in November of last year. A jump in the number of individuals working part time for economic reasons dominated a drop in the number of individuals marginally attached to the labor force (those that would like a job but are not actively searching).

The Bureau of Labor Statistics published an increase of 0.2% in average hourly earnings, but the change almost rounded down to 0.1% (0.161%). Most monthly changes in the past year have been in a range of 0.2% to 0.4%, with a slight downward drift developing recently. The year-over-year change in April totaled 3.6% versus readings close to 4.0% in most of 2025.

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

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- Nonfarm payrolls advance for the second consecutive month.
- Unemployment rate steady; average hourly earnings tame.

April Employment: Signs of Improvement

Andrew Cates

**Resilient Output, Rising Prices**
Against the backdrop of ongoing tensions in the Middle East and the associated rise in energy prices, global manufacturing activity has shown a notable degree of resilience. The latest PMI data suggest that output continues to expand at a steady pace, defying what might typically be expected in the face of a renewed energy shock. Several factors appear to be underpinning this resilience, including continued momentum in AI-related investment, a partial easing of earlier US tariff-related disruptions, and a sustained ramp-up in defence-related production. At the same time, however, the chart highlights a clear firming in output prices, pointing to a re-emergence of cost pressures within the global manufacturing sector. This combination—resilient activity alongside rising price pressures—reinforces the view that the current shock is feeding more into inflation dynamics than into an outright contraction in global output, at least for now.

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**Supply Chains Stir Again**
If the resilience of global manufacturing suggests that activity is holding up, this next chart highlights where the strain is re-emerging—on the supply side. Both the Baltic Dry Index and broader measures of global supply chain pressure have begun to move higher again, pointing to a renewed tightening in shipping capacity and logistics conditions. While nowhere near the extremes seen during the pandemic, the recent upturn is notable in the context of heightened geopolitical risk, particularly given the vulnerability of key shipping routes through the Middle East. Disruptions to energy flows and maritime traffic, alongside rising insurance and freight costs, are feeding through into global trade costs more broadly.

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**Oil Production Constraints**
If the previous chart highlights rising supply chain frictions, this one shows how those pressures are now feeding directly into production decisions. Crude oil output among key producers has begun to adjust in response to disruptions around the Strait of Hormuz, with countries such as Saudi Arabia, Iran and the UAE facing growing constraints on their ability to export. With shipping routes impaired, production has increasingly been diverted into storage—but this is not a limitless buffer. As storage capacity tightens, producers are effectively forced to scale back output, not because of weak demand, but due to logistical bottlenecks. This dynamic helps explain the recent softness in aggregate production levels and underscores the supply-driven nature of the current energy shock. Looking ahead, even a reopening of key routes may not immediately normalize flows. Elevated inventories, constrained tanker capacity, and evolving OPEC dynamics—not least the UAE’s departure—suggest that supply adjustment could remain uneven, prolonging upward pressure on energy prices and, by extension, global inflation.

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**A More Hawkish Bias** 
If supply-side pressures are beginning to reassert themselves, the implications for monetary policy are becoming increasingly evident. The latest Blue Chip Financial Forecasts survey points to a growing consensus that policy rates are more likely to move higher over the next twelve months across most major economies, with expectations for further tightening particularly evident in Japan, the euro area, Canada and Australia. This reflects a broader reassessment of the inflation outlook, as persistent energy-related pressures raise the risk of more durable price dynamics. That said, the picture is more nuanced in the US and the UK, where the consensus view still leans toward modest easing over the coming year. However, market pricing and broader sentiment appear to be shifting more quickly, with an increasing number of participants questioning whether rate cuts will materialise at all. Indeed, in both the US and the UK, there is a growing sense that further tightening could yet be required if energy-driven inflation proves more persistent, underscoring the increasingly uncertain and finely balanced policy environment facing central banks.

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**US Credit Conditions: Neither Tight Nor Loose**
If the policy outlook is becoming more finely balanced, credit conditions appear to be reflecting a similar sense of equilibrium. The latest US Senior Loan Officer Opinion Survey (SLOOS) suggests that, in aggregate, bank lending standards are no longer tightening meaningfully but nor are they easing materially either. This is consistent with the chart, where the share of banks tightening standards has moved closer to neutral territory following earlier periods of more pronounced tightening. As a result, the broader credit backdrop does not currently point to strong deleveraging pressures, nor does it suggest a renewed wave of credit expansion. Instead, the private sector appears to be in a holding pattern, with balance sheets broadly stable and credit conditions neither acting as a significant headwind nor a meaningful tailwind to growth.

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**Labouring the point**
If supply-side pressures and policy uncertainty are shaping the near-term outlook, labour market dynamics—and in particular wage growth—remain central to how this ultimately feeds through into inflation. The latest Indeed wage tracker suggests that while wage pressures have eased from their peaks across most major economies, they remain elevated relative to pre-pandemic norms. This is especially evident in the UK, where posted wage growth continues to run at comparatively high levels, underscoring persistent domestic cost pressures. More broadly, the stickiness of wage growth helps explain why central banks remain cautious in declaring victory over inflation. Even as energy-driven price pressures fluctuate, the risk is that tight labour markets and firm wage dynamics sustain underlying inflation at levels above target. In that sense, labour market conditions remain a critical transmission channel—determining whether the current supply shock proves temporary or evolves into a more persistent inflationary regime.

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Recent developments point to the possibility of a peace settlement in the Middle East, which has offered  some tentative relief to energy markets. Financial markets have responded with cautious optimism, but the outlook remains highly uncertain, with much depending on whether any agreement proves durable and supply disruptions are fully unwound. Against this backdrop, our charts this week highlight a global economy that is holding up better than expected but facing renewed cost pressures. Manufacturing activity remains resilient, supported by AI investment, reduced tariff disruption and defence spending, even as output prices firm (chart 1). Supply-side frictions are also still evident: shipping costs have risen, broader supply chain pressures are rebuilding (chart 2), and crude oil production has been curtailed by export and storage constraints among key regional producers (chart 3). These dynamics have reinforced inflation risks and shifted policy expectations in a more hawkish direction (chart 4). Meanwhile, US credit conditions appear broadly neutral, suggesting neither strong deleveraging nor releveraging pressures (chart 5). Finally, wage growth remains central to the outlook, particularly in the UK, where pressures are still comparatively elevated (chart 6). Taken together, the message is one of resilience under strain: growth is holding up, but the balance between inflation and activity is becoming increasingly delicate, leaving policymakers—and markets—navigating a narrow and uncertain path ahead.

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Charts of the Week: Still Standing

Winnie Tapasanun

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Construction spending data for March and February were released today to catch up from delays due to the federal government shutdown in October 2025. The value of construction put in place rose a stronger-than-expected 0.6% m/m in March to a seasonally adjusted annual rate of $2,185.5 billion, the first monthly rise since December, following declines of 0.2% in February and 1.9% in January (-0.3% initially), data from the U.S. Census Bureau showed. A 0.3% m/m March increase had been expected in the Action Economics Forecast Survey. The year-on-year rate accelerated to 1.6% in March, the fourth consecutive y/y gain, after holding at 0.4% in February and January (-1.1% in March 2025), though remaining well below a high of 12.9% in December 2023 and a peak of 18.4% in April 2022.

Private construction rose 0.8% (1.0% y/y) to $1,659.0 billion in March, the first m/m increase in three months, after decreases of 0.2% in February and 2.6% in January (-0.6% initially). Residential private construction climbed 1.7% (3.6% y/y) to $929.7 billion in March following a 0.1% downtick in February and a 4.6% drop in January (-0.8% initially). Single-family building recovered 2.7% (-4.2% y/y), the third m/m rise in four months, after a 1.4% February decline; it was 44.9% of the residential private construction. Multi-family building grew 0.3% (0.5% y/y) following a 0.2% February increase and two successive m/m falls; it was 12.4% of the residential private construction. Home improvement building rose 0.9% (14.3% y/y), up for the fifth time in six months, on top of a 1.2% February gain; it was 42.7% of the residential private construction.

Nonresidential private construction fell 0.2% (-2.1% y/y) to $729.4 billion in March, the fifth m/m decline in six months, after a 0.4% decrease in February and no change in January (-0.4% initially). The March decline reflected m/m drops in several nonresidential private construction categories, driven by manufacturing (-1.2%; -17.0% y/y), followed by commercial (-0.6%; +1.5% y/y), lodging (-0.5%; +4.5% y/y), and communication (-0.4%; +1.9% y/y). To the upside, the following nonresidential private constructions rose m/m in March, led by religious (+3.3%; +14.6% y/y), followed by amusement & recreation (+1.3%; +14.2% y/y), office (+1.1%; +9.1% y/y), transportation (+0.4%; +2.3% y/y), utilities (+0.2%; +4.6% y/y), and educational (+0.1%; +7.3% y/y). Meanwhile, health care private construction was essentially unchanged (+1.2% y/y) after a 0.3% February decline.

The value of public construction fell 0.2% (+3.6% y/y) to $526.4 billion in March following a 0.3% decrease in February and a 0.5% gain in January (+0.6% initially), reflecting drops of 2.3% (+0.9% y/y) in residential public construction and 0.2% (+3.7% y/y) in nonresidential public construction. Many nonresidential public construction categories fell m/m in March, led by conservation & development (-3.4%; +7.2% y/y), followed by commercial (-0.7%; -13.2% y/y), transportation (-0.7%; +2.5% y/y), educational (-0.6%; +0.6% y/y), and office (-0.4%; -4.3% y/y). Notably, spending on highways & streets, which accounted for 28.1% of public construction spending, slipped 0.1% (+3.8% y/y), the first m/m decline since October, following a 0.2% February increase. In contrast, the following public constructions rose m/m in March, led by amusement & recreation (+0.8%; +6.3% y/y), followed by utilities (+0.7%; +10.6% y/y), health care (+0.5%; +5.7% y/y), sewage & waste disposal (+0.3%; +9.7% y/y), and public safety (+0.2%; +1.7% y/y). Meanwhile, water supply public construction was virtually unchanged (+5.7% y/y) following a 0.4% February increase and three consecutive m/m decreases.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- Headline +0.6% m/m, first monthly gain in three mths.; +1.6% y/y, fourth straight y/y rise.
- Residential private construction +1.7% m/m, driven by a 2.7% rebound in single-family building.
- Nonresidential private construction -0.2% m/m, fifth decline in six mths.
- Public construction -0.2% m/m, led by a 2.3% drop in residential public building.

U.S. Construction Spending Rebounds in March, Exceeding Forecasts

Sandy Batten

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Nonfarm business productivity (output per hour) slowed more than expected in Q1 to 0.8% q/q saar from a downwardly revised 1.6% in last year’s fourth quarter (previously 1.8%). The Action Economics Forecast Survey expected a 1.6% quarterly increase in productivity. Compared to a year ago, productivity rose 2.9% y/y in Q1, up from 2.5% in Q4. Since productivity growth began to accelerate at the beginning of 2023, it has grown at a well above trend 2.6% annual rate, likely a reflection of AI and other technology advances. Strong productivity is a key factor for boosting real incomes and restraining inflation pressures.

Nonfarm business output (not quite the same as real GDP) increased 1.5% q/q saar in Q1 versus a downwardly revised 1.3% in Q4 (previously 1.5%). By contrast, real GDP grew 2.0% q/q in Q1. Hours worked rebounded in Q1, rising 0.7% after falling an unrevised 0.2% in Q4. Compensation growth slowed to 3.1% in Q1 from an unrevised 6.3% in Q4. Compared to a year ago, compensation growth slowed to 4.2% y/y from 5.0%. On a quarterly basis, compensation growth slowed much more than did productivity growth. Consequently, growth of unit labor costs slowed markedly to 2.3% q/q in Q1 from 4.6% in Q4. The y/y rate of advance for unit labor costs also slowed, to 1.2% y/y, its slowest annual pace since Q3 2023, from 2.4% in Q4.

Manufacturing productivity rebounded in Q1, jumping 3.6% q/q saar following a downwardly revised 3.2% quarterly decline in Q4 (previously -2.5%). Factory output increased 3.3% q/q in Q1 following a downwardly revised 3.4% quarterly decline in Q4 (previously -2.8%). Hours worked fell 0.4% q/q in Q1, the seventh consecutive quarterly decline. Factory compensation remained elevated but slowed to 6.1% in Q1 from an unrevised 6.3% in Q4. With the rebound in productivity growth and the slowdown in compensation growth, unit labor cost growth slowed markedly to 2.4% q/q in Q1 from an upwardly revised 9.8% in Q4 (previously 9.1%). However, the y/y pace of unit labor cost growth increased further to 3.7% y/y in Q1 from 3.1% in Q4 and 1.4% in Q3.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Output per hour growth slowed to 0.8% q/q saar in Q1 from 1.6%.
- However, longer-term productivity growth remained solidly well above trend.
- Compensation growth slowed to 3.1% q/q resulting in a slowdown in unit labor cost growth to 2.3% from 4.6% in Q4.

U.S. Productivity Growth Slowed in Q1 2026

Robert Brusca

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Retail sales in the European monetary area fell in March by 0.1%, continuing a streak of declines in retail sales volumes since the beginning of 2026. Motor vehicle sales, however, as a separate category, showed recovery in registrations and sales from January to February to March.

Among six early reporting monetary union and other European countries, Germany and Norway showed sales declines in March, while Denmark, the Netherlands, the United Kingdom, and Sweden recorded month to month increases. However, these March data belie the weakness in February, when sales declined month-to-month in all six of these areas. Prior to that, January sales had increased month-to-month in all these countries except Germany; Germany posted a 1.1% decline in retail sales in January.

**Sequential trends**
Sequential trends for these countries show that retail sales in Germany have been slipping more rapidly, falling 2% over 12 months, at a 3.9% annual rate of decline over six months, and at an accelerated 13.1% annual rate of decline over three months. Norway also has seen increasing weakness in retail sales, rising by 0.9% over 12 months, gaining at only a 0.4% annual rate over six months, and then falling at a 1.2% annual rate over three months. However, Denmark, the Netherlands, the U.K., and Sweden each show retail sales accelerating from their 12-month growth rate to their six-month growth rate and to their three-month growth rate. Only the Netherlands is an EMU member country. These data pool together monetary union and non-monetary union countries.

Looking at the headline for the monetary union, we see sales are clearly slipping and decelerating, with total sales volume up 1.1% over 12 months, up at a 0.2% annual rate over six months, and then falling at a 1.9% annual rate over three months. Sales in the monetary union are weak and getting weaker.

In the quarter-to-date (the now-completed first quarter), monetary union sales fell by 0.5% at an annual rate. Among the other countries in the table, only Germany—the largest economy in the monetary union—shows a quarterly decline at a 4.3% annual rate. All the other reporters in the table show increases, ranging from 0.1% at an annual rate in Norway to a 6.3% annual rate in the United Kingdom.

Looking at the sales gains back to January 2020, before COVID, in the euro area total retail sales volume is up by 6.3% over that broad period. U.K. sales volumes are actually lower by 0.6% over that same span. Germany, the largest euro area economy, shows a 2% increase since January 2020, implying a very slow gain for retail sales over that period. The strongest gains since January 2020 are logged by Denmark, with a 12% gain, followed by the Netherlands with a 6.4% gain and Sweden with a 5.6% gain. Since we're looking at a broad six-year period, on that time horizon these are all relatively weak numbers, with the exception of Denmark.

Activity in the monetary union has been weak, with the service sector having been quite weak during the period since COVID ended—especially on the back of the invasion of Ukraine by Russia. Recently, manufacturing and goods sector data have shown a little bit of life, even as service sector data continue to be very touch and go. We see that again in this retail sales report. Now oil prices are jumping, and there is a new ‘hot’ situation in the Middle East; the Strait of Hormuz is showing either impeded or shuttered traffic conditions. The outlook remains very uncertain. Consumer confidence measures continue to show consumers as somewhat off balance and concerned about circumstances and the outlook. This means we'll continue to watch all these trends closely. In the meantime, these retail sales trends indicate caution on the part of consumers as to their willingness to spend—even though they appear to have opened their pocketbooks to spend on vehicles in recent months and even sequentially. In context, the rebound in auto sales still leaves total vehicle registrations 5% lower than they were in January 2020—six years ago. There is nothing there to indicate that the consumer is out of the woods and back to normal.

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Europe

EMU Retail Sales Recede in April

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U.S. nonfarm private-sector payrolls rose a larger-than-expected 109,000 (+0.4% y/y) in April following a slightly downwardly revised 61,000 in March (previously 62,000), according to the ADP National Employment Report. The Action Economics Forecast Survey expected a 79,000 increase. The three-month average change rose to 79,000 in April from 46,000 in March and 38,000 in February. This was the highest three-month average change since February 2025.

A pickup in service-producing employment led the April increase. The service-producing sectors added 94,000 jobs in April (+0.6% y/y) after a subpar 28,000 increase in March. Monthly gains in April were widespread with increases reported in every major industry except professional and business services (-8,000, the fourth monthly decline in the past five months). Education and health services employment continued to trend up, posting a 61,000 increase in April, the largest since last October. Trade, transportation and utilities employment rebounded in April, rising 25,000 after a 54,000 decline in March and a 1,000 fall in February.

Goods-producing employment gains slowed in April with goods-producing sectors adding 15,000 jobs (-0.4% y/y) following an outsized 33,000 increase in March. Construction played the largest role in the slowdown with that sector adding 10,000 jobs in April versus 32,000 in March. Natural resources and mining jobs increased 3,000 in April, down from 13,000 in March. By contrast, manufacturing jobs increased by 2,000 in April. While this rise seems small, it was the first monthly increase since March 2024.

In terms of employment by firm size, increases at small firms (1-49 employees) continued to dominate. Employment at small firms rose 65,000 in April, the tenth consecutive monthly increase, on top of gains of 85,000 in March and 61,000 in February. Medium-size firms (50-499 employees) added only 2,000 jobs in April, but this was after a 20,000 decline in March and a 6,000 decline in February. Employment at large firms (500 or more employees) rose 42,000 in April following a 4,000 decline in March. Over the past four months, employment at large firms has risen only 30,000.

By region, nonfarm private sector employment increased 18,000 in the Northeast, 11,000 in the Midwest (the first increase in three months), 34,000 in the South and 46,000 in the West.

Wage growth for job changers was unchanged in April from March at 6.6% y/y. Job-changer wage growth has fluctuated between 6.3% and 6.6% over the past six months. Wage growth for job stayers slowed slightly to 4.4% y/y in April from 4.5% in March but remained elevated relative to rates that existed prior to the inflation surge in 2021-22. Job-stayer wage growth has been either 4.4% or 4.5% for the past 13 months. Wage growth in April either slowed or was the same as in March in every major industry.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Private-sector payrolls rose 109,000 led by a pickup in service-producing employment.
- Services employment increased by 94,000 while the rise in goods employment slowed to 15,000.
- April job gains continued to be dominated by job increases at small firms.
- Wage growth was little changed but remained elevated for job stayers.

U.S. ADP Employment Rises More than Expected in April

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Mortgage applications fell 4.4% w/w (+14.9% y/y) in the week ending May 1 following a 1.6% drop in the week ending April 24 and two consecutive w/w increases, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the second successive w/w decline and the deepest since the March 27 week, easing the index to a three-week-low 285.3. Applications for loans to purchase a house slid 3.7% (+5.1% y/y) in the May 1 week, the first w/w slide since the April 10 week, after a 1.2% rise in the previous week. Applications for loan refinancing dropped 5.0% (+28.8% y/y) in the May 1 week following a 4.4% decline in the April 24 week and two straight w/w gains.

The effective interest rate on a 30-year fixed-rate loan rose 10bps to 6.64% in the week ending May 1, the highest since the April 3 week, from 6.54% in the week ending April 24; it was above its most recent low of 6.24% in the February 27 week but below a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages rose 9bps to 6.01% in the May 1 week after holding at 5.92% in the previous two weeks; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. The rate on 30-year jumbo loans increased 4bps to 6.60% in the May 1 week from 6.56% in the prior two weeks; it was above a recent low of 6.25% in the February 27 week but below a high of 7.99% in the week of October 27, 2023. Meanwhile, the rate on a 5-year ARM fell 12bps to 5.90% in the May 1 week, the first w/w decline in three weeks, from 6.02% in the previous week (the highest since the week of August 29, 2025); it was above a low of 5.38% in the February 20 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan fell to 42.0% of total applications in the week ending May 1—the eighth w/w fall in nine weeks and the lowest level since the week of August 1, 2025—after declining to 42.5% in the week ending April 24; it remained below a peak of 61.9% in the January 16 week but above a low of 34.6% in the week of May 23, 2025. The adjustable-rate mortgage (ARM) share of activity rose to 8.8% in the May 1 week, the highest since the March 6 week, from 8.3% in the prior week; it was below a peak of 12.9% in the week of September 12, 2025 but above a low of 4.7% in the week of January 3, 2025.

The average size of a mortgage loan, up for the fifth consecutive week, rose 0.7% w/w (2.7% y/y) to $410,900 in the May 1 week, the highest level since the March 6 week, after a 2.0% rise to $407,900 in the April 24 week. The average size of a purchase loan grew 1.5% (5.2% y/y) to $467,300 in the May 1 week—the third w/w gain in four weeks and a record high—following a 1.0% rebound to $460,200 in the prior week. The average size of a loan to refinance a mortgage fell 1.3% (+2.3% y/y) to $332,800 in the May 1 week, the first w/w fall since the March 27 week, after a 2.3% rise to $337,100 in the previous week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications -3.7% w/w, first decrease in three weeks; refinancing loan applications -5.0% w/w, second consecutive drop.
- Effective interest rate on 30-year fixed loans up 10bps to 6.64%, a four-week high.
- Average loan size up for the fifth straight week, highest level since the March 6 week.

U.S. Mortgage Applications Down 4.4% in the May 1 Week, Second Straight Decline

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The Producer Price Index surged 1.4% in April, far in excess of the expected increase of 0.5%. Energy prices accounted for much of the increase with a jump of 7.8%, a much sharper change than the advance of 3.8% in the CPI. The marked difference between the energy components of the CPI and the PPI was primarily due to the nature of the customers. The Consumer Price Index, naturally, collects prices paid by individuals; the PPI, in addition to individuals, collects prices paid by businesses, governments, and exporters. Energy prices paid by governments and exporters rose sharply (12.1% and 15.8%, respectively). The PPI also showed a sharp increase in energy prices paid by individuals (6.1% versus 3.8% in the CPI).

Service prices also contributed to the high-side surprise in the PPI, posting an increase of 1.2%. This area often moves erratically, but still the latest move can be viewed as unusual, as it marked the second largest increase in service prices since the current structure of the PPI began in 2010 (three other observations were close with increases of 1.1%; the largest increase was 1.3% during the inflation burst in 2022).

Goods prices other than energy items were tame compared with service prices, but they too were unsettling. This grouping posted an increase of 0.6%, a reading in the upper end of the range from the past few years. The increase, although pronounced, was not broadly based. In a list of 53 non-energy goods provided by the BLS, only 13 posted increases of 0.4% or more, although a handful were especially sharp (electronic components 8.1%, industrial chemicals 4.4%, household furniture 1.8%).

Food represented the only major grouping that was not troubling, registering an increase of 0.2%. 


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- The energy component led the sharp increase in the PPI, but it had support from many other areas
- Excluding energy, most service prices rose sharply; prices of non-energy goods also were under pressure
- The food component went against the grain with an increase of only 0.2%


April PPI: Broad-Based Pressure

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