Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328h.jpg" width="353">
The Federal Open Market Committee increased the target interest rate for Federal funds 25 basis points to 4.75% at today&#39;s meeting. It was the fifteenth increase since June of 2004 and the unanimous decision was widely expected by analysts.
The discount rate also was raised 25 basis points to 5.75%.
Reflecting little worry about the economic expansion, the Fed statement indicated &quot;The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328g.jpg" width="353">
Future rate increases were suggested by the FOMC statement. &quot;The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/BoardDocs/press/monetary/2006/20060328/default.htm">here</a>.
Goodbye to M3 from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060401/cover.pdf"> here</a>.
What is Tight Money? from the American Enterprise Institute is available <a href="http://www.aei.org/publications/pubID.24126,filter.all/pub_detail.asp"> here</a>.

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The Federal Open Market Committee increased the target interest rate for Federal funds 25 basis points to 4.75% at today's meeting. It was the fifteenth increase since June of 2004 and the unanimous decision was widely expected by [...]

FOMC Increased Fed Funds Rate to 4.75%

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Consumer credit outstanding rose $6.3 billion (2.3% y/y) during March after a $15.0 billion February rise, revised from $14.1 billion. These figures compare to an $18.4 billion gain during January. A $15.3 billion rise had been expected in the Action Economics Forecast Survey. The ratio of consumer credit outstanding to disposable personal income of 24.3% in March compared to 24.4% in February. It remained below the December 2022 high of 25.4%.

Revolving credit outstanding, which includes credit cards, edged $0.16 billion higher (7.8% y/y) in March after a $10.7 billion increase in February and an $8.1 billion January rise. It was the smallest increase since falling $1.3 billion in April 2021. Borrowing at banks rose 8.7% y/y, but finance company loans fell 7.0% y/y. Credit union loans increased 7.6% y/y.

Nonrevolving credit balances increased $6.1 billion (0.5% y/y) in March following a $4.3 billion February gain and a $10.3 billion January increase. Borrowing at banks fell 2.7% y/y, while finance company loans grew 7.7% y/y. Credit unions loans increased 1.3% y/y but federal government loans eased 0.9% y/y. The total of nonrevolving credit includes secured and unsecured credit for big-ticket items, such as autos, mobile homes, trailers, durable goods and vacations.

The value of student loans outstanding declined 1.3% y/y in Q1’24, while motor vehicle loans increased 2.6% y/y in Q1’24.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPA** database.

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- Revolving credit usage increases minimally.
- Nonrevolving credit growth picks up.

Consumer Credit Growth Slows Sharply in March

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Retail gasoline prices for all grades edged lower to $3.77 per gallon (+3.3% y/y) in the week ended May 6 after falling to $3.78 in the prior week. These compare to a low of $3.18 in the middle of January. The recent high stands at $4.00 per gallon in the third week of September, and the all-time high was $5.11 in the week ended June 13, 2022. Retail prices for on-highway diesel fuel declined an average $3.89 per gallon (-0.7% y/y) last week versus $3.95 per gallon in the prior week. A recent low of $3.77 per gallon occurred in the week ended July 3, 2023.

The average price of West Texas Intermediate crude oil declined to $80.76 per barrel (+13.5% y/y) in the week ended May 3 from an average $83.95 in the prior week. It remained well above its low of $69.37 per barrel in the week of June 30, 2023 but below a high of $91.45 in the week of September 29, 2023. The all-time high was seen in the week of July 4, 2008 at $142.46 per barrel. Yesterday, the price of West Texas Intermediate crude oil fell to $78.48 per barrel. The price of European Brent crude oil slipped to an average $85.73 per barrel (+14.9% y/y) in the week ended May 3 from $88.53 in the prior week. The price of Brent has recently ranged from a low of $73.55 in the week ended June 30, 2023 to a high of $127.40 in the week ended June 10, 2022.

Natural gas prices rose to an average of $1.64/mmbtu (-19.6% y/y) in the week ended May 3 compared to $1.54/mmbtu in the prior week. Still, these were near the lowest prices since December 1998 and compare to a recent high of $3.20 averaged in the week of October 13, 2023. Yesterday, the natural gas price was $1.88/mmbtu.

Gasoline demand declined 3.6% y/y in the four weeks ended April 26 after similarly falling in the prior four weeks. Demand for all petroleum products rose held steady y/y, about as they did in the earlier prior four-week period. Crude oil input to refineries rose 0.3% y/y in the four weeks ended April 26, rising 0.9% y/y in the previous four week period.

Gasoline inventories increased 1.9% y/y in the week of April 26 following a 2.5% y/y increase in the prior week. Inventories of residual fuel oil fell 9.8% y/y in the week of April 26 after declining 12.0% y/y in the previous week. Crude oil inventories, including the Strategic Petroleum Reserve, rose 0.3% y/y in the week of April 26 following a 1.0% y/y decline one week earlier.

Measured in days’ supply, gasoline inventories were 26.5 days in the week of April 26 versus 26.0 days in the prior week. The recent low was 23.4 days in the week of June 30, 2023. Crude oil inventories declined to 29.2 days of supply in the week of April 26, up from 28.6 days in the prior week. These compare to a recent high of 31.9 days in the week of March 3, 2023 and a low of 25.0 days in the week of September 1, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline & diesel fuel prices slip.
- Crude oil prices fall to seven-week low.
- Natural gas prices improve.

U.S. Gasoline & Crude Oil Prices Decline in Latest Week

Robert Brusca

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Real German orders fell by 0.4% month-to-month in March after falling by 0.8% month-to-month in February. These two declines followed a much larger 10.9% drop in real orders posted in January of this year.  Foreign orders in March rose by 2% after falling by 2.2% in February and falling by 10.8% in January. Domestic orders were basically on that same roller coaster, falling by 3.6% month-to-month in March after rising 1% in February and falling by 10.9% month-to-month in January. January was a tough month for German orders no matter where you look; since January, there hasn't been any recovery in German orders.

**Sequential Real Orders**
But the sharp drop in orders in January, just three months ago, sets the stage for the three-month annual rate in orders to decline sharply; it falls at a nearly 40% annual rate compared to a 5.9% annual rate decline over six months and a 1.7% decline over 12 months. Foreign orders and domestic orders show similar progressions as you can see in the table. With the extra drop over three months, it does not make much sense to dwell on whether the declining pattern is sequentially enabled or not.

**Real Sales**
Real sales by sector are less affected by whatever machinations are buffeting orders. Sales across categories fell in March after posting a full slate of monthly gains in February. That followed a near-full-slate of declines in January, with consumer nondurables an exception to the weakness and one that showed enough strength to boost overall consumer goods sales to a gain as well. Sequentially real sector sales show declines on all horizons, a series that barely escapes showing progressive weakness but annualized sales over three months are weaker than sales over 12 months.

**Q1 Assessment**
March completes the orders and sales data for the first quarter; that finds orders falling at an 11.3% annual rate with similar drops for both domestic and foreign orders. Real sector sales in the quarter fall at a 1.8% annual rate on declines across categories except over all consumer sales and consumer nondurable goods sales.

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**EU Commission Industrial Rankings**
Turning to broader European data, we find across-the-board negative readings for the EU Commission’s industrial confidence measure for Germany, France, Italy and Spain, the four largest economies in the EMU. Each country shows net negative readings in January, February, and March. Net negative EU Commission readings persist over three months, six months, and 12 months on this gauge. Germany progresses to weaker readings over more recent time periods. France and Spain show less weakness progressively in train. Italy is a mixed case. The queue standings, calculated in the table on the EU Commission data, are below median readings for Germany, Italy and Spain, with only France logging an above-median ranking at its 63.6 percentile near the top third border of its ranked percentile data. All countries show weaker EU Commission readings than in January 2020- underlining how long conditions have been adversely impacted by events. German orders and real sector sales show all components weaker than their January 2020 levels as well.

Germany

German Orders Are Still Challenged; Volatile Foreign Orders May Show Some Recovery

Tian Yong Woon

In this week's letter, we examine recent developments in China. We first take a pulse on the economy, with a nod to its consensus-beating real GDP performance in Q1. We note, however, some signs of weakening momentum, and, most notably, some disappointing industrial and retail sales readings seen for March. As such, it remains to be seen if the economy is conclusively out of the woods, especially when pockets of weakness remain. We analyze next some trends in China’s tourism space, which has seen a pickup in international air travel volumes, likely boding well for tourism-reliant economies in Asia. We then investigate export trends in the broader Asian region in relation to China. Here, we notice a mixed landscape: while some economies like Japan have reduced their export dependence on China, others, such as Vietnam, are seeking deeper economic integration.  Lastly, we delve into shifts in cross-currency relationships, observing a decline in the correlation between yuan-yen and yuan-baht returns, among other notable trends.

We deduce from the recent developments that China’s recovery, whilst still underway, remains uneven and not yet set in stone. Nonetheless, China’s tourism sector continues to strengthen, initially in domestic travel and more recently in international trips. Moreover, beneath the interim recovery lies shifts in economic relationships with other Asian economies, relating to both export dependence and to currency moves.

**China’s recent economic results**
China continues to be focal point for global investors, given its potential impacts on the world economy. The domestic economy posted better than expected real GDP results for Q1, with growth accelerating to 5.3% y/y during the period. The impulse came from net exports, which contributed to growth for the first time in six quarters. Looking at China’s March data, however, we saw rather disappointing results from its industrial and retail sector as growth rates slowed towards the end of the quarter (Chart 1). Hence, while China’s January and February figures offered some hope of economic stabilization, its more recent dataflow for March now raise concerns about weakening momentum.

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Moving to more forward-looking indicators, we saw last week that activity expanded at a slower place in April, as indicated by weaker official PMI readings (Chart 2). The key drag on the manufacturing figure stemmed from new orders, which grew at a much slower rate even as output growth accelerated. Touching on the non-manufacturing sector, new orders registered a more pronounced decline over the period, as input prices increased and business expectations turned sour. The Caixin manufacturing gauge, however, which is based on a smaller sample size and fewer large producers, indicated a slightly quickened expansion for the period.

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**China’s tourism space**
There have been some bright spots, however, despite hints of cooling momentum. For one, air passenger traffic via international routes have surged since December 2023 to reach over 70% of pre-pandemic levels in March this year (Chart 3). The upswing implies that China’s travel-related rebound has perhaps finally expanded more conclusively beyond its borders, a development which may bode well for tourism-reliant economies in Asia. Meanwhile, domestic civil air traffic seems to have reached a plateau after having exceeded pre-pandemic levels in mid-2023.

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The boost in Chinese international travel is reflected in the numbers of receiving Asia Pacific economies as well, as shown in Chart 4. Specifically, tourist arrivals from China reached 73% of their pre-pandemic average in February for some ASEAN economies, although the proportion tapered to about 65% in March. Apart from potential boosts from China’s week-long New Year holidays, visa-free travel, introduced by some ASEAN economies for Chinese tourists, may have driven the increase too. The jump in arrivals has benefited economies like Thailand, which had been lacking one of its main sources of tourism revenue – namely Chinese tourists – until recently. Looking ahead, the outturn of China’s May Day holidays, which span nearly a week, is one to watch for indications of China’s outbound tourist momentum.

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**Shifts in export dependence on China**
In the trade sector, we continue to observe gradual shifts in the significance of China as an export destination among Asian economies. For advanced Asian economies like Japan and South Korea, the proportion of exports destined for China has decreased to approximately 17.8% and 19.5% respectively. Conversely, the share of exports from ASEAN economies like Vietnam and Indonesia to China has increased, driven by factors such as enhanced manufacturing integration and commodity exports.

**Currency patterns**
Lastly, we examine the changes in currency return correlations within Asia. There has been a noticeable decrease in the one-day return correlation between the offshore yuan and several Asian currencies. For one, the correlation between the yuan and the yen has notably weakened, a trend that is understandable given the yen’s recent volatility. In contrast, the baht has shown a reduced correlation with both the yuan and the US Dollar Index (DXY), suggesting that its fluctuations are driven by factors beyond movements in the yuan and the dollar. Meanwhile, the returns correlations for the Singapore dollar, Indonesian rupiah, and the South Korean won with both the yuan and the dollar remain relatively stable. These observations highlight the dynamic interplay between economic policies, market trends, and currency movements in shaping the economic landscape of Asia.

FOMC Increased Fed Funds Rate to 4.75%

Summary

Tom Moeller

More Economy in Brief

Consumer Credit Growth Slows Sharply in March

U.S. Gasoline & Crude Oil Prices Decline in Latest Week

German Orders Are Still Challenged; Volatile Foreign Orders May Show Some Recovery

Economic Letter From Asia: Chinese Ruminations