Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040420b.jpg" width="353">
Institutional investors and analysts poled by the ZEW Center for European Economic Research are losing confidence in the German recovery. The ZEW indicator of economic sentiment, while still positive, indicating that the optimists outweigh the pessimists, fell to 49.7 in April. This was the fourth month of decline and is now 32% below the peak of December 2002.
Using industrial production, excluding construction, as a proxy for the economy, we find, according to the attached chart, that the Zew indicator tends to lead economic activity. As a result, the recent trend in the Zew indicator suggests that the economic recovery in Germany may be fall far short of previous expectations.
Institutional investors and analysts continue to view the stock market more favorably than the bond market. The stock market indicator in April was 6.7, up 0.6 points from March to April and 0.7 points above April 2003. The bond market indicator in April was -6.8, an increase of 0.1 points from March, but 3.9 points below the year ago figure.

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<th scope="col" class="firstcol">Zew Indicators</th>
<th scope="col">Apr 04</th>
<th scope="col">Mar 04</th>
<th scope="col">Apr 03</th>
<th scope="col">M/M&nbsp; &nbsp;chg</th>
<th scope="col">Y/Y&nbsp; &nbsp;chg</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">&nbsp; Economic Sentiment</td>
<td>49.7</td>
<td>57.6</td>
<td>14.0</td>
<td>-7.9</td>
<td>31.3</td>
<td>38.4</td>
<td>45.3</td>
<td>2.8</td>
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<td class="firstcol">&nbsp; Stock Market</td>
<td>6.7</td>
<td>6.1</td>
<td>6.0</td>
<td>0.6</td>
<td>0.7</td>
<td>6.5</td>
<td>2.0</td>
<td>7.3</td>
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<td class="firstcol">&nbsp; Bond Market</td>
<td>-6.8</td>
<td>-6.9</td>
<td>-2.9</td>
<td>0.1</td>
<td>-3.9</td>
<td>-4.8</td>
<td>-4.3</td>
<td>0.3</td>
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Institutional investors and analysts poled by the ZEW Center for European Economic Research are losing confidence in the German recovery. The ZEW indicator of economic sentiment, while still positive, indicating that the optimists [...]

German Investors and Analysts Losing Confidence in Germany's Recovery

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Mortgage applications edged up 0.5% (-7.8% y/y) in the week ended May 10, following a rise of 2.6% (-13.5% y/y) in the week ended May 3. Home purchase loans declined 1.7% (-14.3% y/y) following a rise of 1.8% (-17.0% y/y) in the prior week. Applications to refinance a loan rose 4.7% (6.8% y/y) in the latest week after rising 4.5% (-5.8% y/y) in the week before. These data are from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey.

The effective interest rate on a 30-year fixed-rate loan eased 11 bps to 7.26% in the week ended May 10, from 7.37% in the week ended May 3. It compared to a high of 8.12% in mid-October of last year and a low of 6.87% in the fourth week of December. The rate on 15-year fixed-rate mortgages edged up 2bps to 6.77% in the latest week from 6.75% in the week prior. The rate on 30-year Jumbo loans fell 5bps to 7.39% in the week ended May 10 from 7.44% in the week prior, and the rate on the 5-year ARM fell 4bps to 6.80% in the latest week from 6.84% the week before. These latter rates remain below the 7.31% high in the last week of October but above the recent low of 5.93% in the last week of December.

The share of applications for refinancing an existing loan rose to 32.0% in the week ended May 10 from 30.6% in the week ended May 3. That compared to a high of 39.7% in mid-December. The percentage of applications that were ARMs eased to 7.0% from 7.7%. The recent low of 5.4% was reached in early January.

The average loan size eased 1.6% (-3.0% y/y) to $379,400 in the week ended May 10, from a rise of 2.0% (-2.4% y/y) to $385,600 in the week ended May 3. The average size of a purchase loan declined 1.2% (-0.6% y/y) to $437,700 in the latest week from $443,200 in the prior week. The average loan size to refinance a mortgage was largely unchanged (-2.3% y/y) at $255,200 from $255,100 in the prior 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.

- Mortgage applications edged up in the latest week.
- Purchase applications fell while refinancing applications rose.
- The effective interest rate on 30-year fixed-rate loans eased.

U.S. Mortgage Applications Edged Up as Interest Rates Eased Last Week

Tom Moeller

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The Producer Price Index for final demand increased 0.5% (2.2% y/y) during April after easing 0.1% in March, revised from a 0.2% increase, according to the Bureau of Labor Statistics. A 0.3% gain had been expected in the Action Economics Forecast Survey. The PPI excluding food and energy strengthened 0.5% (2.4% y/y) after easing 0.1% in March. It was the largest increase in three months. A 0.2% rise had been expected. Producer prices excluding food, energy & trade services rose 0.4% (3.1% y/y) in April following increases of 0.2% and 0.4% in the prior two months.

Final demand energy prices rose 2.0% last month (1.0% y/y) after a 1.3% decline. Gasoline prices rose 5.4% (-1.9% y/y) after falling 3.0% in March. Electric power prices rose 0.3% (4.5% y/y) following a 0.7% increase. Food prices were off 0.7% (+0.5% y/y) after increasing 0.4% in March. The gain reflected a 7.3% increase (-7.5% y/y) in fruit & melon prices as well as an 11.2% increase (21.7% y/y) in fresh egg prices. Offsetting these increases, beef & veal costs fell 5.9% (+10.8% y/y) and fresh & dried vegetable prices eased 18.7% (NSA, -23.9% y/y). Grain prices weakened 4.5% (-35.6% y/y).

Prices for goods less food & energy rose 0.3% (1.6% y/y) in April after holding steady in March. Finished consumer goods prices increased 0.1% (1.9% y/y) for a second straight month. Core nondurable goods prices rose 0.1% (2.4% y/y) after holding steady in March. Durable consumer goods prices also edged 0.1% higher (1.1% y/y) after rising 0.3% in March. Capital equipment prices rose 0.2% (2.8% y/y), the weakest increase in four months, while government purchased goods prices rose 0.3% (2.1% y/y).

Prices for final demand services increased 0.6% last month (2.7% y/y) after easing 0.1% in March. Trade services prices strengthened 0.8% (-0.3% y/y) after a 1.0% decline. Prices for final demand transportation and warehousing services fell 0.6% (+0.3% y/y) after a 0.2% increase. Services prices less these costs increased 0.6% (4.4% y/y) following two straight 0.3% increases. Prices of travel accommodation services strengthened 2.4% (-1.2% y/y).

Construction costs rose 0.1% in April (-0.8 y/y) for the second consecutive month.

Prices for intermediate demand processed goods increased 0.6% (-0.5% y/y) in April after falling 0.5% in March. Processed energy goods prices rose 1.6%, while food prices were off 0.2%. The index for intermediate demand unprocessed goods jumped 3.2% (-4.6% y/y).

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Core goods prices rise moderately.
- Services prices surge after a slight decline.
- Energy prices jump, but food prices decline.

U.S. Producer Price Strength in April is Pronounced; March Revised Lower

Winnie Tapasanun

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The NFIB Small Business Optimism Index rebounded to 89.7 in April, the first monthly increase since December, from 88.5 in March, according to the April 2024 Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index, while slightly up from a low of 89.0 in April 2023, had been below the 50-year average of 98 for the 28th straight month; it was also down from a high of 102.5 in June 2021. Seven of the 10 index components rose, two fell, and one was unchanged. The NFIB Small Business Uncertainty Index increased to 78 in April, the highest level since September, from 77 in March; it was up from 72 in April 2023 and a low of 55 in June 2022.

The outlook for business conditions in the next six months remained deeply negative in the latest survey. The net balance of respondents expecting the economy to improve fell to -37% in April, the third monthly fall in four months, after increasing slightly to -36% in March, but it was up from a record-low -61% in June 2022. Expected real sales improved to a net -12% in April after falling 8 pts. to -18% in March, indicating continued pessimism at a less severe pace. The latest reading was up from a low of -21% in May 2023 and a low of -29% in July 2022. A net -13% of respondents reported higher nominal sales in the past three months, down from -10% reported in March; these numbers were up from a low of -17% in November.

Plans to make capital outlays rose to 22% in April, the first m/m rise in four months, from 20% in March. These readings were up slightly from a low of 19% in April 2023 but down from a high of 27% in July 2023 and a high of 31% in October 2021. Plans to expand the business registered at 4% in April and March, the lowest reading since May 2023. The latest figure, while slightly up from a low of 2% in March 2023, was below a high of 11% in December 2021 and a high of 15% in June 2021. Meanwhile, expected credit conditions declined to -9% in April, the lowest reading since November, after falling 2 pts. to -8% in March; the latest number was also down from a high of -4% in May 2022 and a high of -3% in November 2021.

Labor markets remained tight but seemed to ease slightly. Fifty-one percent of respondents reported that qualified workers to fill job openings were hard to find in April, following 48% in March and 51% in February. These figures, however, were below a high of 57% in September 2023, a high of 61% in May 2022, and a peak of 62% in September 2021. A net 12% planned to increase employment in April, slightly up from 11% in March, but it was down from a high of 26% in May 2022 and well below a high of 32% in August 2021. Notably, 40% reported positions not able to be filled in April, the highest reading since December, following 37% in March and February (37% was the lowest reading since January 2021). These figures were historically high; however, having remained below a high of 51% in May 2022. Overall earnings trends increased slightly to -27% in April, still a poor reading, from -29% in March; these numbers were below a high of -18% in March 2023.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent raising their average selling prices eased to 25% in April after rising 7 pts. to 28% in March; it was meaningfully down from 33% in April 2023 and a high of 66% in March 2022. The percentage planning to raise prices fell to 26% in April after a three-point increase to 33% in March, registering the lowest reading since April 2023’s 21%; these figures were well below a high of 52% in March 2022.

Wage inflation remained high as a net 38% of respondents raised compensation during the last three months, unchanged from 38% reported in the previous survey. Nevertheless, it was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 21% of firms planned to raise worker compensation in the next three months, unchanged from 21% in the previous survey. However, it was down from a high of 30% in November and a high of 32% in October 2022.

Inflation continued to be an issue facing small businesses, as reported by 22% of NFIB members in April as the single most important problem. It was down from 25% in March and well below a peak of 37% in July 2022. The quality of labor was the second important concern with 19% in April, up from 18% in March. Other concerns (in April vs. March) included taxes (15% vs. 14%), the cost of labor (11% vs. 10%), and government requirements (8% vs. 6%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

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- Apr. NFIB Small Business Optimism Index inches up 1.2 pts. to 89.7, the first m/m gain since December.
- Expected real sales increase to -12% after falling to -18%, still indicating pessimism.
- Business conditions in the next six months decline to -37%, down for the third month in four.
- Inflation (22%) is top business problem, followed by Quality of Labor (19%).

U.S. NFIB Small Business Optimism Index Edges Up in April While Inflation Remains the Number One Problem

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Retail gasoline prices for all grades declined to $3.73 per gallon (+2.3 y/y) in the week ended May 13 from $3.77 in the prior week. It was the lowest price in five weeks and 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 slipped to an average $3.85 per gallon (-1.3% y/y) last week from $3.89 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 $79.32 per barrel (+10.1% y/y) in the week ended May 7 from an average $81.07 in the prior week. It remained well above its low of $69.37 per barrel in the week of June 30, 2023. The price remained 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 was $79.12 per barrel. The price of European Brent crude oil declined to $83.36 per barrel (+9.9% y/y) in the week ended May 10 compared to $84.82 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. Yesterday, the price was $83.06 per barrel.

Natural gas prices strengthened to an average of $2.00/mmbtu (-4.8% y/y) in the week ended May 10 from $1.64/mmbtu in the prior week. These compare to a high of $3.20 averaged in the week of October 13, 2023. Yesterday, the natural gas price was $2.11/mmbtu.

Gasoline demand fell 4.0% y/y in the four weeks ended May 3 after declining 3.6% y/y in the four weeks ended April 26. Demand for all petroleum products was little changed y/y for the second consecutive four-week period. Crude oil input to refineries rose 0.3% y/y in the four weeks ended May 3, the same as during the previous four week period.

Gasoline inventories rose 3.8% y/y in the week of May 3 after rising 1.9% y/y in the prior week. Inventories of residual fuel oil fell 14.8% y/y in the week of May 3 after declining 9.8% y/y in the previous week. Crude oil inventories, including the Strategic Petroleum Reserve, improved 0.3% y/y in the week of May 3, the same as in the prior week.

Measured in days’ supply, gasoline inventories eased w/w to 26.4 days in the week of May 3. The recent low was 23.4 days in the week of June 30, 2023. Crude oil inventories fell to 29.0 days of supply in the week of May 3 from 29.2 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 prices fall for third straight week.
- Crude oil costs decline sharply.
- Natural gas prices strengthen.

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