Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100225a.jpg" style="width: 353px; height: 265px;" align="right">Improvement
in the factory sector looked material last month. The overall level of
durable goods orders jumped 3.0%, that followed an upwardly revised
1.9% December increase and it far outpaced Consensus expectations for a
1.5% gain. Unfortunately, the strength was limited. Orders for
nondefense aircraft &amp; parts more than doubled and mostly
recouped sharp declines during the prior two months.&nbsp;
 Regardless of
the January overstatement from the aircraft sector, the durable factory
goods sector appeared on the mend after last year's recession. Less the
transportation sector, orders slipped 0.6% though that followed two
strong 2.0% monthly increases. That was enough to lift the y/y gain in
orders to 8.6%. This strength suggests further improvement in shipments
and industrial output are on the come after the modest y/y gains
already logged.· Transportation sector orders last month were lifted by
the jump in nondefense aircraft as well as by an 11.6% (66.4% y/y) rise
in defense sector bookings. Orders for motor vehicles slipped m/m but
were up modestly from last year. That increase followed annual declines
during each of the last four years which left orders nearly half of
their 2006 level
Improvement in other sectors continued last month.
Primary metals orders increased 1.9% (31.6% y/y) following even
stronger gains during each of the prior four months. Electrical
equipment orders also rose 1.4% (3.8% y/y) while orders for computers
&amp; related equipment jumped 4.6% (16.0% y/y). Only machinery
orders lagged with a 9.7% decline (+8.9% y/y) but that followed sharp
increases during three of the prior four months.&nbsp;
Shipments
of durable goods slipped 0.2% (+1.7% y/y) during January following
increases during the prior four months. The increase was led by an 8.5%
jump (14.0% y/y) in shipments of computers &amp; electronic
products but that was offset by declines in shipments of nondefense
capital goods (-3.2% y/y), machinery (-7.9% y/y) and electrical
equipment (-2.2% y/y). Nevertheless, these negative y/y changes were
much-reduced from those during the recession.
 Perhaps the factory
sector's inventory retrenchment is winding down, but it's not over.
Durable goods inventories slipped just modestly during January (-10.6%
y/y) as they did during the prior two months. However, these followed
very sharp declines through September. Overall, since the December 2008
peak, inventories have fallen 11.7%.
The durable goods figures are
available in Haver's USECON database.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100225b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100225c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS
Classification
</a>(%)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>3.0</td>
<td>1.9</td>
<td>-0.4</td>
<td>10.2</td>
<td>-19.8</td>
<td>-6.0</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Excluding Transportation</td>
<td>-0.6</td>
<td>2.0</td>
<td>2.0</td>
<td>8.6</td>
<td>-17.3</td>
<td>-1.4</td>
<td>-0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>4.7</td>
<td>2.5</td>
<td>-3.0</td>
<td>15.9</td>
<td>-23.9</td>
<td>-7.0</td>
<td>3.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-2.9</td>
<td>3.3</td>
<td>3.2</td>
<td>10.7</td>
<td>-18.2</td>
<td>-0.5</td>
<td>-2.7</td>
</tr>
</tbody>
</table>


U.S. Initial Unemployment
Insurance Claims Jump With Poor Weather 
by <a href="/comment/Moeller.html">Tom
Moeller</a> February 25, 2010



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100225d.jpg" style="width: 353px; height: 265px;" align="right">Snowstorms
in the eastern half and the southern regions of the country helped
prompt a jump in unemployment insurance claims. Today's Labor
Department report indicated that initial claims for jobless insurance
increased&nbsp; 22,000 last week to 496,000. The rise followed
strong weekly gains during both January and February which raised the
level to its highest since early-November. Nevertheless claims remained
down from the recession peak of 674,000 hit last March and claims
remained near the lowest level since January 2009. The weekly rise in
claims contrasted with Consensus expectations for a decline to 460,000.
The four-week moving average of initial claims rose to 473,750 and
remained just above the cycle low.
Continuing claims for unemployment
insurance during the latest week rose slightly from the cycle-low and
were down by one-third since late-June. Continuing claims were at the
lowest level since early-January of last year. The overall decline is a
function of the improved job market but also reflects the exhaustion of
26 weeks of unemployment benefits. Continuing claims provide an
indication of workers' ability to find employment. The four-week
average of continuing claims fell to a cycle low of 4,585,750. This
series dates back to 1966.&nbsp;
&nbsp;Extended benefits for
unemployment insurance fell to another cycle low of 203,612. They were
down by two-thirds from a peak of 597,688 reached in
November.&nbsp;· The insured rate of unemployment remained stable
for the fifth week at a low of 3.5%. The rate reached a high of 5.2%
during late-June. During the last ten years, there has been a 93%
correlation between the level of the insured unemployment rate and the
overall rate of unemployment published by the Bureau of Labor
Statistics.&nbsp;
 The highest insured unemployment rates in the
week ending February 6 were in Alaska (7.5 percent), Oregon (6.5),
Idaho (6.4), Montana (6.2), Wisconsin (6.2), Michigan (5.9), Puerto
Rico (5.9), Nevada (5.8), Pennsylvania (5.7), and North Carolina (5.5).
The lowest insured unemployment rates were in Virginia (2.3), Texas
(2.5), Florida (3.4), Maryland (3.4), Mississippi (3.6), Wyoming (3.7),
Ohio (3.9), Indiana (4.0), New York (4.1) and Maine (4.5). These data
are not seasonally adjusted but the overall insured unemployment rate
is.
The unemployment insurance claims data is available in Haver's
WEEKLY
database and the state data is in the REGIONW
database.&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100225e.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100225f.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Unemployment Insurance (000s)</a></th>
<th scope="col">2/20/10</th>
<th scope="col">2/13/10</th>
<th scope="col">2/6/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>496</td>
<td>474</td>
<td>442</td>
<td>-24.4%</td>
<td>573</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,617</td>
<td>4,611</td>
<td>-8.8%</td>
<td>5,835</td>
<td>3,345</td>
<td>2,552</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.5</td>
<td>3.5</td>
<td>3.8 (2/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>

A Pause And Backtrack In EU/EMU
Growth In February 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 25, 2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100225g.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Manufacturing orders are up by 0.8% in December but the
sequential growth rates do not show that the growth of orders continues
to accelerate. MFG sales are also slowing as capital goods and
intermediate goods sales rates over three-months are weaker than sales
rates for six months
The overall EU index of confidence rose in February but the
EMU index edged lower. Among the largest EU/EMU nations France and
Italy saw declines. Germany posted a gain of 0.9% in the month while
Spain&#8216;s index advanced by 1.2%. The UK saw confidence edge up by a tiny
0.1%.
The overall EMU confidence measure stands in the 62nd
percentile of its range but if we position it by queue among past
values it stands in the bottom third among all confidence measures
since 1989. Oddly the strongest relative standing of any sector is by
retailing which is in the 64th percentile of its range and in the 57th
percentile of its queue. The industrial sector and consumer confidence
in their respective 50th to 55th range percentiles and in their
respective 29th to 34th queue percentiles. The service sector stands
just below its range mid point in its 49th percentile but sags back to
a 23rd percentile standing in its queue
The difference between the range and queue percentiles tells
us something about the density of the distribution of values for these
readings. The queue percentile gives us a good fix on where the index
stands compared to where it has been historically since a queue
standing of 54% says that the indicator is weaker than this 54 percent
of the time and stronger only 46 percent of the time.
The range standing simply positions the current reading
between the best and worst readings in some historic span (since 1989).
For now the range readings are higher than the queue readings because
the current levels are elevated substantially from recession lows and
the lows skew the range. But compared to the full spectrum of readings
the current levels are not yet higher than they have been on average
except for retailing (in the 57th percentile of its queue). So Europe
is still lagging in its recovery. It is well short of getting back to
neutral even though the recovery has slowed and this month has brought
slippage to the EMU reading.
All the large countries continued to show overall sentiment
readings that are below their queue midpoints, although four exceed
their range midpoints. The highest queue standing is oddly and
surprisingly in Italy with confidence in the 44th percentile of its
queue followed by Germany, France and the UK all of which are in the
37th percentile of their respective queues. Spain is in the 16th
percentile; EMU is in the 26th percentile.
So EMU is better than this nearly 75% of the time and this is
after a 10 straight monthly rises in sentiment. That metric should stop
you in your tracks. Even though the overall EMU reading stands in the
55th percentile between its worst and best readings, the &#8216;queue
standing&#8217; is just above the lower quartile. In addition to this Europe
has big problems with Greece. You can see the dour mood in Spain with
its 19% unemployment rate and then there is beleaguered Portugal. The
ECB is on the cusp of new leadership &#8211; who will that be? Will it
inspire stability? Will it be a tough inflexible guy like Weber from
the Bundesbank or someone else? Europe is just a series of question
marks. And if it backslides who does the US export to? The US has
emerging troubles of its own
Welcome to 2010.

 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead><tr>
<th colspan="13" scope="col"> EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Feb 
10</td>
<td>Jan 
10</td>
<td>Dec 
09</td>
<td>Nov 
09</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>By Queue 
Rank%</td>
<td>Average 
Level</td>
</tr>
<tr>
<td class="firstcol">Overall Index</td>
<td>97.4</td>
<td>97.2</td>
<td>95</td>
<td>91.5</td>
<td>62.4</td>
<td>166</td>
<td>115</td>
<td>68</td>
<td>47</td>
<td>100</td>
<td>33.9%</td>
<td>100.5</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-13</td>
<td>-13</td>
<td>-16</td>
<td>-19</td>
<td>56.5</td>
<td>178</td>
<td>7</td>
<td>-39</td>
<td>46</td>
<td>-8</td>
<td>29.1%</td>
<td>-7.8</td>
</tr>
<tr>
<td class="firstcol">Consumer Confid</td>
<td>-14</td>
<td>-13</td>
<td>-14</td>
<td>-15</td>
<td>52.9</td>
<td>165</td>
<td>2</td>
<td>-32</td>
<td>34</td>
<td>-11</td>
<td>34.3%</td>
<td>-11.1</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-5</td>
<td>-3</td>
<td>-6</td>
<td>-6</td>
<td>64.5</td>
<td>108</td>
<td>6</td>
<td>-25</td>
<td>31</td>
<td>-6</td>
<td>57.0%</td>
<td>-5.7</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-32</td>
<td>-34</td>
<td>-33</td>
<td>-32</td>
<td>21.7</td>
<td>203</td>
<td>4</td>
<td>-42</td>
<td>46</td>
<td>-17</td>
<td>19.1%</td>
<td>-17.1</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0</td>
<td>-2</td>
<td>-2</td>
<td>-9</td>
<td>49.2</td>
<td>123</td>
<td>32</td>
<td>-31</td>
<td>63</td>
<td>13</td>
<td>23.1%</td>
<td>12.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td>Feb 
10</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td colspan="2">&nbsp;&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; &nbsp;EMU</td>
<td>-0.1%</td>
<td>2.0%</td>
<td>2.4%</td>
<td>95.9</td>
<td>55.4</td>
<td>185</td>
<td>116</td>
<td>71</td>
<td>46</td>
<td>100</td>
<td>26.3%</td>
<td>100.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Germany</td>
<td>0.9%</td>
<td>0.6%</td>
<td>1.6%</td>
<td>97.0</td>
<td>47.8</td>
<td>158</td>
<td>121</td>
<td>75</td>
<td>46</td>
<td>101</td>
<td>37.1%</td>
<td>100.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>-1.9%</td>
<td>1.7%</td>
<td>4.1%</td>
<td>98.4</td>
<td>54.4</td>
<td>157</td>
<td>119</td>
<td>74</td>
<td>44</td>
<td>100</td>
<td>37.5%</td>
<td>100.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>-1.7%</td>
<td>4.3%</td>
<td>2.6%</td>
<td>99.7</td>
<td>58.6</td>
<td>139</td>
<td>120</td>
<td>71</td>
<td>50</td>
<td>100</td>
<td>44.6%</td>
<td>100.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Spain</td>
<td>1.2%</td>
<td>0.3%</td>
<td>1.3%</td>
<td>90.1</td>
<td>41.2</td>
<td>210</td>
<td>116</td>
<td>72</td>
<td>44</td>
<td>100</td>
<td>16.3%</td>
<td>100.2</td>
</tr>
<tr>
<td class="firstcol">Memo:UK</td>
<td>0.1%</td>
<td>3.4%</td>
<td>6.9%</td>
<td>98.3</td>
<td>66.1</td>
<td>158</td>
<td>115</td>
<td>65</td>
<td>50</td>
<td>100</td>
<td>37.1%</td>
<td>100.2</td>
</tr>
<tr>
<td colspan="2">All since Feb 1989</td>
<td colspan="2">251</td>
<td colspan="2">-Count</td>
<td colspan="2">Services:</td>
<td></td>
<td>160</td>
<td>-Count</td>
<td></td>
<td></td>
</tr>
<tr>
<td colspan="11" class="firstcol">Sentiment
is an index,
sector readings are net balance diffusion measures</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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Improvement in the factory sector looked material last month. The overall level of durable goods orders jumped 3.0%, that followed an upwardly revised 1.9% December increase and it far outpaced Consensus expectations for a 1.5% gain. [...]

U.S. Durable Goods Orders SurgeDue To Aircraft

Robert Brusca

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Manufacturing orders are up by 0.8% in December but the
sequential growth rates do not show that the growth of orders continues
to accelerate. MFG sales are also slowing as capital goods and
intermediate goods sales rates over three-months are weaker than sales
rates for six months
In December domestic orders have been especially strong rising
by 6.1% while foreign orders advanced by 2.2%. But over three months
Domestic orders are up at just a 0.8% rate while foreign orders are up
at an 11.9% pace. The pattern of growth rates in the chart shows us
that domestic and foreign growth rates peaked about six months ago and
have since been slowing down even though they continue to grow. This is
one reason for concern about whether the recovery is building momentum
or not.
Among large EU/EMU countries Italy and the UK are
demonstrating still accelerating orders from 12-months to six months
and again from six months to the three-month horizon. In France orders
accelerated in six months compared to 12-months and have stayed near
that mark for 3-month growth rates. Germany shows a decided
deceleration with growth rates rising in six-months compared to
12-months then submerging and going negative for the recent three-month
period. Still the Yr/Yr growth rates moved sharply higher in December
compared to November everywhere but in the UK. But the sequential
growth rates do give more of an up-close view of growth and on that
basis momentum truly is fading.
Obviously the various EU/EMU countries have some differences.
But the overriding message is that orders growth is slowing. It is
still positive but it is slowing. Europe now will be burdened with the
growing and festering problems of Greece and possibly other debt
ladened e-Zone members. The European consumer does not seem to have
gotten in gear. The recent German IFO survey was weak but it may have
been impacted by weather. We are always on a bit of a weather watch at
this time of year. But apart from weather there are ample trends that
tell us to be cautious about depending on the European recovery being
too strong.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col">Selected Euro-Area and UK Industrial Orders </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Dec 09</td>
<td>Nov 09</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Area Detail</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Oct 09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
</tr>
<tr>
<td class="firstcol">MFG
Orders</td>
<td>0.8%</td>
<td>2.7%</td>
<td>-2.1%</td>
<td>5.6%</td>
<td>9.2%</td>
<td>16.9%</td>
<td>21.5%</td>
<td>9.5%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">MFG Sales</td>
<td>-0.4%</td>
<td>1.4%</td>
<td>0.4%</td>
<td>6.1%</td>
<td>4.3%</td>
<td>8.8%</td>
<td>7.9%</td>
<td>-2.8%</td>
<td>-9.2%</td>
</tr>
<tr>
<td class="firstcol">
Consumer</td>
<td>0.7%</td>
<td>1.0%</td>
<td>-0.2%</td>
<td>6.1%</td>
<td>-3.4%</td>
<td>3.7%</td>
<td>-0.4%</td>
<td>-2.6%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">
Capital</td>
<td>-1.9%</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>-7.2%</td>
<td>6.4%</td>
<td>5.1%</td>
<td>5.8%</td>
<td>-5.7%</td>
<td>-10.3%</td>
</tr>
<tr>
<td class="firstcol">
Intermediate</td>
<td>6.1%</td>
<td>1.3%</td>
<td>-6.8%</td>
<td>0.8%</td>
<td>4.1%</td>
<td>18.6%</td>
<td>20.0%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr class="odd">
<td colspan="10" class="firstcol">Memo:MFG</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>0.8%</td>
<td>2.7%</td>
<td>-2.1%</td>
<td>5.6%</td>
<td>9.2%</td>
<td>16.9%</td>
<td>21.5%</td>
<td>9.5%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">E-13
Domestic MFG orders</td>
<td>6.1%</td>
<td>1.3%</td>
<td>-6.8%</td>
<td>0.8%</td>
<td>4.1%</td>
<td>18.6%</td>
<td>20.0%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">E-13
Foreign MFG orders</td>
<td>2.2%</td>
<td>3.0%</td>
<td>-2.3%</td>
<td>11.9%</td>
<td>35.2%</td>
<td>20.8%</td>
<td>34.2%</td>
<td>10.0%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Countries:</td>
<td>Dec09</td>
<td>Nov09</td>
<td>Oct09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
</tr>
<tr>
<td class="firstcol">Germany
(MFG):</td>
<td>-1.8%</td>
<td>3.2%</td>
<td>-2.1%</td>
<td>-3.4%</td>
<td>9.9%</td>
<td>10.3%</td>
<td>23.7%</td>
<td>4.2%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">France(Ind):</td>
<td>17.1%</td>
<td>0.5%</td>
<td>-8.2%</td>
<td>36.4%</td>
<td>-7.3%</td>
<td>40.5%</td>
<td>4.5%</td>
<td>15.5%</td>
<td>-4.2%</td>
</tr>
<tr>
<td class="firstcol">Italy
(Ind):</td>
<td>4.7%</td>
<td>2.9%</td>
<td>0.7%</td>
<td>38.5%</td>
<td>47.6%</td>
<td>18.5%</td>
<td>15.4%</td>
<td>5.3%</td>
<td>-3.5%</td>
</tr>
<tr>
<td class="firstcol">UK
(Engineering Industy):</td>
<td>8.5%</td>
<td>-15.6%</td>
<td>14.1%</td>
<td>19.1%</td>
<td>-18.1%</td>
<td>7.1%</td>
<td>-9.9%</td>
<td>-16.2%</td>
<td>-3.8%</td>
</tr>
</tbody>
</table>
</body></html>

Manufacturing orders are up by 0.8% in December but the sequential growth rates do not show that the growth of orders continues to accelerate. MFG sales are also slowing as capital goods and intermediate goods sales rates over three- [...]

Orders Continue In Their Upswing

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224c.jpg" style="width: 353px; height: 265px;" align="right">
The housing
market's upturn increasingly looks to have lost steam. The Mortgage
Bankers Association reported that mortgage applications slipped 8.5%
last week for the third week consecutive weekly decline. Nevertheless,
it's not all bad news since a late-January jump in applications was not
wholly unwound. The February average of applications still is up 8.8%
from January.&nbsp;&nbsp; &nbsp;For last week,
applications to refinance mortgages fell 8.9% and
applications to purchase a home fell 7.3%, the
third down week. Overall, there has been a downtrend in purchase
applications despite an uplift provided by an up-to $8,000 Federal tax
credit for first-time homebuyers. During the last ten years there has
been a 51% correlation between the y/y change in purchase applications
and the change in new plus existing single family home sales. The
correlation has lessened recently.The effective fixed interest rate
on conventional 15-year mortgages moved higher again to 4.68%. For the
month overall rates have been near the six year low. For 30-year
mortgages the rate also ticked up to 5.30% from a November average of
5.06%. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224d.jpg" style="width: 353px; height: 265px;" align="right">
Rates reached a high of 5.79% in early-June. Interest rates on
fixed 15-year and 30-year mortgages are closely correlated (near-90%)
with the rate on 10-year Treasury securities. Rates on adjustable
one-year mortgages fell to 6.64% last week from a November average of
6.81%.&nbsp;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
covers roughly 50% of all U.S. residential mortgage applications
processed each week by mortgage banks, commercial banks and thrifts.
Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.&nbsp;The figures for weekly
mortgage applications are available in Haver's SURVEYW
database.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><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%22" style="color: black;">MBA Mortgage Applications
(SA, 3/16/90=100)</a></th>
<th scope="col">02/19/10</th>
<th scope="col">02/12/10</th>
<th scope="col">02/05/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>549.5</td>
<td>600.5</td>
<td>613.1</td>
<td>-26.1%</td>
<td>736.4</td>
<td>642.9</td>
<td>652.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>196.8</td>
<td>212.3</td>
<td>221.2</td>
<td>-21.4</td>
<td>263.5</td>
<td>345.4</td>
<td>424.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,605.3</td>
<td>2,860.1</td>
<td>2,893.9</td>
<td>-28.0</td>
<td>3,509.2</td>
<td>2,394.1</td>
<td>1,997.9</td>
</tr>
<tr>
<td class="firstcol">15-Year Mortgage Effective
Interest Rate (%)</td>
<td>4.68</td>
<td>4.59</td>
<td>4.57</td>
<td>5.07 (02/09)</td>
<td>4.85</td>
<td>5.9</td>
<td>6.2</td>
</tr>
</tbody>
</table>
</body></html>

The housing market's upturn increasingly looks to have lost steam. The Mortgage Bankers Association reported that mortgage applications slipped 8.5% last week for the third week consecutive weekly decline. Nevertheless, it's not all [...]

U.S. Weekly Mortgage Applications Slip Again

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<html><head>
</head>
<body>
 




<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224a.jpg" style="width: 353px; height: 265px;" align="right">Whether
record snowfall this season hurt housing activity is tough to say. This
morning's report that new home sales fell 11.2% from December to
309,000 (AR) following that month's moderate decline suggests that it
did, but January single-family housing starts were reported last week
to have risen. Perhaps builders have thicker skin than buyers? It
remains to be seen. Nevertheless, January sales fell well short of
Consensus expectations for 355,000 and reached a record low for the
series which dates back to 1963.&nbsp;
 The one-third m/m drop in
home sales in the Northeast certainly suggests a strong weather factor
after they rose sharply during December. Conversely, Mid-West sales
rose 2.1% following their sharp December decline. In the West, sales
drifted lower and neared their record low while sales in the South fell
for the fifth month in the last six.<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224b.jpg" style="width: 353px; height: 265px;" align="right">
Home prices
also were quite weak last month posting a 5.6% decline from December to
$203,500. Prices fell 2.4% during the last twelve months to the lowest
level since late-2003. Since the 2007 peak prices have fallen
22.5%.
Price discounts had been lowering the inventory of
unsold homes, but weakness in sales and stable starts recently have
lifted the inventory to&nbsp;&nbsp; its highest level since
May. The months' supply of unsold homes also has increased to 11.1
months from its July low of 7.2 months though that remained down from
the high of 12.4 months in January '09. Despite the shrinkage of
inventory, it still took a record median 13.9 months to sell a new home
as of December.
Fed Chairman Ben S. Bernanke's Semiannual
Monetary Policy Report to the Congress can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20100224a.htm">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">US
New Homes</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales
(SAAR, 000s)</td>
<td>309</td>
<td>348</td>
<td>362</td>
<td>-6.1%</td>
<td>372</td>
<td>481</td>
<td>769</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>24</td>
<td>37</td>
<td>30</td>
<td>-20.0</td>
<td>31</td>
<td>35</td>
<td>64</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>49</td>
<td>48</td>
<td>68</td>
<td>-7.5</td>
<td>54</td>
<td>69</td>
<td>118</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>162</td>
<td>179</td>
<td>187</td>
<td>-10.5</td>
<td>201</td>
<td>264</td>
<td>409</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>74</td>
<td>84</td>
<td>77</td>
<td>13.8</td>
<td>87</td>
<td>113</td>
<td>178</td>
</tr>
<tr>
<td class="firstcol">Median Price
(NSA, $)</td>
<td>203,500</td>
<td>215,600</td>
<td>219,100</td>
<td>&nbsp;-2.4</td>
<td>213,567</td>
<td>230,408</td>
<td>243,742</td>
</tr>
</tbody>
</table>

</body></html>

Whether record snowfall this season hurt housing activity is tough to say. This morning's report that new home sales fell 11.2% from December to 309,000 (AR) following that month's moderate decline suggests that it did, but January [...]

U.S. New Home Sales Plumb Record Low, Weather or Not?

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224a.jpg" style="width: 353px; height: 265px;" align="right">Whether
record snowfall this season hurt housing activity is tough to say. This
morning's report that new home sales fell 11.2% from December to
309,000 (AR) following that month's moderate decline suggests that it
did, but January single-family housing starts were reported last week
to have risen. Perhaps builders have thicker skin than buyers? It
remains to be seen. Nevertheless, January sales fell well short of
Consensus expectations for 355,000 and reached a record low for the
series which dates back to 1963.&nbsp;
 The one-third m/m drop in
home sales in the Northeast certainly suggests a strong weather factor
after they rose sharply during December. Conversely, Mid-West sales
rose 2.1% following their sharp December decline. In the West, sales
drifted lower and neared their record low while sales in the South fell
for the fifth month in the last six.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224b.jpg" style="width: 353px; height: 265px;" align="right">Home
prices
also were quite weak last month posting a 5.6% decline from December to
$203,500. Prices fell 2.4% during the last twelve months to the lowest
level since late-2003. Since the 2007 peak prices have fallen
22.5%.
Price discounts had been lowering the inventory of
unsold homes, but weakness in sales and stable starts recently have
lifted the inventory to&nbsp;&nbsp; its highest level since
May. The months' supply of unsold homes also has increased to 11.1
months from its July low of 7.2 months though that remained down from
the high of 12.4 months in January '09. Despite the shrinkage of
inventory, it still took a record median 13.9 months to sell a new home
as of December.
Fed Chairman Ben S. Bernanke's Semiannual
Monetary Policy Report to the Congress can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20100224a.htm">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">US
New Homes</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales
(SAAR, 000s)</td>
<td>309</td>
<td>348</td>
<td>362</td>
<td>-6.1%</td>
<td>372</td>
<td>481</td>
<td>769</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>24</td>
<td>37</td>
<td>30</td>
<td>-20.0</td>
<td>31</td>
<td>35</td>
<td>64</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>49</td>
<td>48</td>
<td>68</td>
<td>-7.5</td>
<td>54</td>
<td>69</td>
<td>118</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>162</td>
<td>179</td>
<td>187</td>
<td>-10.5</td>
<td>201</td>
<td>264</td>
<td>409</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>74</td>
<td>84</td>
<td>77</td>
<td>13.8</td>
<td>87</td>
<td>113</td>
<td>178</td>
</tr>
<tr>
<td class="firstcol">Median Price
(NSA, $)</td>
<td>203,500</td>
<td>215,600</td>
<td>219,100</td>
<td>&nbsp;-2.4</td>
<td>213,567</td>
<td>230,408</td>
<td>243,742</td>
</tr>
</tbody>
</table>

U.S. Weekly Mortgage Applications
Slip Again 
by <a href="/comment/Moeller.html">Tom
Moeller</a> February 24, 2010



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224c.jpg" style="width: 353px; height: 265px;" align="right">The
housing
market's upturn increasingly looks to have lost steam. The Mortgage
Bankers Association reported that mortgage applications slipped 8.5%
last week for the third week consecutive weekly decline. Nevertheless,
it's not all bad news since a late-January jump in applications was not
wholly unwound. The February average of applications still is up 8.8%
from January.&nbsp;&nbsp; &nbsp;
For last week,
applications to refinance mortgages fell 8.9% and
applications to purchase a home fell 7.3%, the
third down week. Overall, there has been a downtrend in purchase
applications despite an uplift provided by an up-to $8,000 Federal tax
credit for first-time homebuyers. During the last ten years there has
been a 51% correlation between the y/y change in purchase applications
and the change in new plus existing single family home sales. The
correlation has lessened recently.
The effective fixed interest rate
on conventional 15-year mortgages moved higher again to 4.68%. For the
month overall rates have been near the six year low. For 30-year
mortgages the rate also ticked up to 5.30% from a November average of
5.06%. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224d.jpg" style="width: 353px; height: 265px;" align="right">
Rates reached a high of 5.79% in early-June. Interest rates on
fixed 15-year and 30-year mortgages are closely correlated (near-90%)
with the rate on 10-year Treasury securities. Rates on adjustable
one-year mortgages fell to 6.64% last week from a November average of
6.81%.&nbsp;
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
covers roughly 50% of all U.S. residential mortgage applications
processed each week by mortgage banks, commercial banks and thrifts.
Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.&nbsp;The figures for weekly
mortgage applications are available in Haver's SURVEYW
database.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><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%22" style="color: black;">MBA Mortgage Applications
(SA, 3/16/90=100)</a></th>
<th scope="col">02/19/10</th>
<th scope="col">02/12/10</th>
<th scope="col">02/05/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>549.5</td>
<td>600.5</td>
<td>613.1</td>
<td>-26.1%</td>
<td>736.4</td>
<td>642.9</td>
<td>652.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>196.8</td>
<td>212.3</td>
<td>221.2</td>
<td>-21.4</td>
<td>263.5</td>
<td>345.4</td>
<td>424.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,605.3</td>
<td>2,860.1</td>
<td>2,893.9</td>
<td>-28.0</td>
<td>3,509.2</td>
<td>2,394.1</td>
<td>1,997.9</td>
</tr>
<tr>
<td class="firstcol">15-Year Mortgage Effective
Interest Rate (%)</td>
<td>4.68</td>
<td>4.59</td>
<td>4.57</td>
<td>5.07 (02/09)</td>
<td>4.85</td>
<td>5.9</td>
<td>6.2</td>
</tr>
</tbody>
</table>

Orders Continue In Their Upswing 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 24, 2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100224e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Manufacturing orders are up by 0.8% in December but the
sequential growth rates do not show that the growth of orders continues
to accelerate. MFG sales are also slowing as capital goods and
intermediate goods sales rates over three-months are weaker than sales
rates for six months
In December domestic orders have been especially strong rising
by 6.1% while foreign orders advanced by 2.2%. But over three months
Domestic orders are up at just a 0.8% rate while foreign orders are up
at an 11.9% pace. The pattern of growth rates in the chart shows us
that domestic and foreign growth rates peaked about six months ago and
have since been slowing down even though they continue to grow. This is
one reason for concern about whether the recovery is building momentum
or not.
Among large EU/EMU countries Italy and the UK are
demonstrating still accelerating orders from 12-months to six months
and again from six months to the three-month horizon. In France orders
accelerated in six months compared to 12-months and have stayed near
that mark for 3-month growth rates. Germany shows a decided
deceleration with growth rates rising in six-months compared to
12-months then submerging and going negative for the recent three-month
period. Still the Yr/Yr growth rates moved sharply higher in December
compared to November everywhere but in the UK. But the sequential
growth rates do give more of an up-close view of growth and on that
basis momentum truly is fading.
Obviously the various EU/EMU countries have some differences.
But the overriding message is that orders growth is slowing. It is
still positive but it is slowing. Europe now will be burdened with the
growing and festering problems of Greece and possibly other debt
ladened e-Zone members. The European consumer does not seem to have
gotten in gear. The recent German IFO survey was weak but it may have
been impacted by weather. We are always on a bit of a weather watch at
this time of year. But apart from weather there are ample trends that
tell us to be cautious about depending on the European recovery being
too strong.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">Selected Euro-Area
and UK Industrial Orders </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Dec 
09</td>
<td>Nov 
09</td>
<td>Dec 
09</td>
<td>Nov 
09</td>
<td>Dec 
09</td>
<td>Nov 
09</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Area Detail</td>
<td>Dec 
09</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
</tr>
<tr>
<td class="firstcol">MFG
Orders</td>
<td>0.8%</td>
<td>2.7%</td>
<td>-2.1%</td>
<td>5.6%</td>
<td>9.2%</td>
<td>16.9%</td>
<td>21.5%</td>
<td>9.5%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">MFG Sales</td>
<td>-0.4%</td>
<td>1.4%</td>
<td>0.4%</td>
<td>6.1%</td>
<td>4.3%</td>
<td>8.8%</td>
<td>7.9%</td>
<td>-2.8%</td>
<td>-9.2%</td>
</tr>
<tr>
<td class="firstcol">
Consumer</td>
<td>0.7%</td>
<td>1.0%</td>
<td>-0.2%</td>
<td>6.1%</td>
<td>-3.4%</td>
<td>3.7%</td>
<td>-0.4%</td>
<td>-2.6%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">
Capital</td>
<td>-1.9%</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>-7.2%</td>
<td>6.4%</td>
<td>5.1%</td>
<td>5.8%</td>
<td>-5.7%</td>
<td>-10.3%</td>
</tr>
<tr>
<td class="firstcol">
Intermediate</td>
<td>6.1%</td>
<td>1.3%</td>
<td>-6.8%</td>
<td>0.8%</td>
<td>4.1%</td>
<td>18.6%</td>
<td>20.0%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr class="odd">
<td colspan="10" class="firstcol">Memo:MFG</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>0.8%</td>
<td>2.7%</td>
<td>-2.1%</td>
<td>5.6%</td>
<td>9.2%</td>
<td>16.9%</td>
<td>21.5%</td>
<td>9.5%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">E-13
Domestic MFG orders</td>
<td>6.1%</td>
<td>1.3%</td>
<td>-6.8%</td>
<td>0.8%</td>
<td>4.1%</td>
<td>18.6%</td>
<td>20.0%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">E-13
Foreign MFG orders</td>
<td>2.2%</td>
<td>3.0%</td>
<td>-2.3%</td>
<td>11.9%</td>
<td>35.2%</td>
<td>20.8%</td>
<td>34.2%</td>
<td>10.0%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Countries:</td>
<td>Dec09</td>
<td>Nov09</td>
<td>Oct09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
</tr>
<tr>
<td class="firstcol">Germany
(MFG):</td>
<td>-1.8%</td>
<td>3.2%</td>
<td>-2.1%</td>
<td>-3.4%</td>
<td>9.9%</td>
<td>10.3%</td>
<td>23.7%</td>
<td>4.2%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">France(Ind):</td>
<td>17.1%</td>
<td>0.5%</td>
<td>-8.2%</td>
<td>36.4%</td>
<td>-7.3%</td>
<td>40.5%</td>
<td>4.5%</td>
<td>15.5%</td>
<td>-4.2%</td>
</tr>
<tr>
<td class="firstcol">Italy
(Ind):</td>
<td>4.7%</td>
<td>2.9%</td>
<td>0.7%</td>
<td>38.5%</td>
<td>47.6%</td>
<td>18.5%</td>
<td>15.4%</td>
<td>5.3%</td>
<td>-3.5%</td>
</tr>
<tr>
<td class="firstcol">UK
(Engineering Industy):</td>
<td>8.5%</td>
<td>-15.6%</td>
<td>14.1%</td>
<td>19.1%</td>
<td>-18.1%</td>
<td>7.1%</td>
<td>-9.9%</td>
<td>-16.2%</td>
<td>-3.8%</td>
</tr>
</tbody>
</table>
</body></html>

U.S. New Home Sales Plumb RecordLow, Weather or Not?

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100223h.jpg" style="width: 353px; height: 265px;" align="right">
There was a
slowing of retail sales during December and January. More weakness may
be in the offing given the latest souring of consumers' mood. For
February, the Conference Board reported that consumer confidence fell
18.6% from January and that brought down the level of confidence to its
lowest since last April. Just a modest m/m decline had been the
Consensus expectation for February and during the last ten years there
has been an 83% correlation between the level of consumer confidence
and the y/y change in real consumer spending. The Conference Board data
can be found in Haver's CBDB database.Consumers'
assessment of current economic conditions slumped by nearly one-quarter
m/m. That reversed all of a January increase and left the measure near
the historic low. Jobs were seen as hard to get by 47.7% of respondents
and jobs were seen as plentiful by only 3.6%. That was up just slightly
from the series' historic low. Also at a record low was the percentage
of respondents who saw business conditions as good. The percentage of
consumers who thought business conditions were bad rose to 46.3%, off
somewhat from its peak but nearly the highest since 1983.&nbsp;The expectations component of confidence also fell sharply to its
lowest level since April. Lessened expectations for business
conditions, employment and income have led the latest downdraft.
Expectations for the inflation rate in twelve months held stable at
5.2%, the lowest level since 2007 and down from last year's high of
7.7%. Interest rates in twelve months were expected to be higher by
52.2% of respondents while 14.2% expected rates to fall. A greatly
lessened 28.6% of respondents expected stock prices to rise.
&nbsp;An improved 2.7% of those surveyed plan to buy a home
during the next six months. An increased 27.1% plan to buy a major
appliance versus 30.9% back in 2007. Only 4.8% plan to buy an
automobile versus 6.0% in 2007 and just 1.8% plan to buy a new
one.&nbsp;&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100223i.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100223j.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Conference
Board&nbsp;(SA, 1985=100)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y %</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer
Confidence Index</td>
<td>46.0</td>
<td>56.5</td>
<td>53.6</td>
<td>81.8</td>
<td>45.2</td>
<td>57.9</td>
<td>103.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Present Situation</td>
<td>19.4</td>
<td>25.2</td>
<td>20.2</td>
<td>-13.0</td>
<td>24.0</td>
<td>69.9</td>
<td>128.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Expectations</td>
<td>63.8</td>
<td>77.3</td>
<td>75.9</td>
<td>133.7</td>
<td>59.3</td>
<td>50.0</td>
<td>86.4</td>
</tr>
</tbody>
</table>
</body></html>

There was a slowing of retail sales during December and January. More weakness may be in the offing given the latest souring of consumers' mood. For February, the Conference Board reported that consumer confidence fell 18.6% from [...]

U.S. Consumer Confidence Falls Sharply

Louise Curley

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100223g.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
German business confidence, which had been improving since
March 2009, declined slightly in February. On a percent balance
measure, which subtracts the percentage of respondents who are negative
from those who are positive, confidence among German entrepreneurs fell
to -10.3% from -9.0%. The climate measure is a combination of the
business opinions regarding current conditions and expectations for the
next six months.. The percent balance of business opinion on current
conditions fell to -23.8% in February from -21.0% in January. Much of
the decline can probably be attributed to the weather. Heavy snow fall
and cold temperatures were particularly bad for construction and the
distributive trades, both wholesale and retail.
In spite of the fact
that the pessimists have exceeded the optimists regarding current
conditions by more than 20% over the past several months, the
proportion of German entrepreneurs who expect better condition six
months ahead has been increasing. In December there was a slight excess
of optimists over pessimists of 0.3%. In February the percent balance
on expectations increased to 4.2% from 3.8% in January.The increase
in the proportion of business people who expect better conditions is in
sharp contrast to the declines in the proportion of financial people
who expect better conditions as revealed last Week in the ZEW survey.
Not only do the business and financial communities sometimes differ in
their appraisals of the future, but, they apparently differ in
temperament, as shown in the attached chart which compares the percent
balances on expectations of the two surveys. The financial community
appears to have a positive bias and to have wide mood swings while the
business community tends to have a negative bias and more restrained
mood swings. In statistical terms--over entire history of each of the
two series--the mean of the ZEW series is 27.1% and its standard
deviation, 40.6%; the mean of the IFO series is -5.2% and its standard
deviation, 10.6%

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMANY</th>
<th scope="col">Feb 10&nbsp;</th>
<th scope="col">Jan 10&nbsp;</th>
<th scope="col">Dec 09</th>
<th scope="col">Nov 09</th>
<th scope="col">Oct 09</th>
<th scope="col">Sep 09</th>
<th scope="col">Low</th>
<th scope="col">Date</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">IFO:&nbsp;&nbsp;
Climate (% Bal.)</td>
<td>-10.3</td>
<td>-9.0</td>
<td>-16.5</td>
<td>-12.9</td>
<td>-16.5</td>
<td>-17.8</td>
<td>-36.0</td>
<td>Mar 09</td>
</tr>
<tr>
<td class="firstcol">Current Conditions (% Bal.)</td>
<td>-23.8</td>
<td>-21.0</td>
<td>-22.5</td>
<td>-24.9</td>
<td>-28.4</td>
<td>-29.0</td>
<td>-38.1</td>
<td>Jun 09</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations
(% Bal.)</td>
<td>4.2</td>
<td>3.8</td>
<td>0.3</td>
<td>0.0</td>
<td>-3.9</td>
<td>-5.9</td>
<td>-44.8</td>
<td>Dec 08</td>
</tr>
<tr>
<td class="firstcol">ZEW: Expectations
(% Bal.)</td>
<td>45.1</td>
<td>47.2</td>
<td>50.4</td>
<td>51.1</td>
<td>56.0</td>
<td>57.7</td>
<td>-63.0</td>
<td>Oct 08</td>
</tr>
</tbody>
</table>
</body></html>

German business confidence, which had been improving since March 2009, declined slightly in February. On a percent balance measure, which subtracts the percentage of respondents who are negative from those who are positive, confidence [...]

Confidence Among German Industrialists Slips A Bit In February

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100223f.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Consumer spending has yet to show real spark. Weekly chain
store sales improved by 2.3% last week but for the month so far sales
remained down slightly from the January average. Sales also remained
down 1.6% from last summer's high.
The ICSC-Goldman
Sachs 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.
 During the last ten years there has been a 69%
correlation between the year-to-year growth in chain store sales and
the growth in general merchandise retail sales. The weekly
figures are available in Haver's SURVEYW database.

Also treading water has been the leading indicator of chain
store sales. It's been roughly unchanged since early-January and flat
for the last year. This composite leading economic indicator is
compiled from four series: (1) the MBA's volume index of mortgage
applications for home purchase (2) the ABC News/Money magazine's survey
of consumer buying conditions (3) new filings for jobless benefits and
(4) the 30-year government bond yield.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><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" style="color: white;">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">02/20/10</th>
<th scope="col">02/13/10</th>
<th scope="col">02/06/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>490.4</td>
<td>479.5</td>
<td>487.1</td>
<td>0.9%</td>
<td>0.1%</td>
<td>1.4%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body></html>

Consumer spending has yet to show real spark. Weekly chain store sales improved by 2.3% last week but for the month so far sales remained down slightly from the January average. Sales also remained down 1.6% from last summer's high. [...]

U.S. Weekly Chain Store Sales Look Lifeless

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

260427T1.jpg

**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

260427T2.jpg

**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

260427T3.jpg

**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

260427T4.jpg

The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

260427T5.jpg

**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

260427T6.jpg

Asia

Economic Letter from Asia: Not Just About the Strait

260427E.jpg

**The Distributive Trades Survey**

The U.K. Distributive Trades Survey for April 2026 and the look-ahead expectation readings for May paint an extremely soured outlook for the U.K. economy.

**Retail ranking**: Surveys for retail sales compared to a year ago, orders compared to a year ago, and sales evaluated for the time of year all have rankings near zero, which is the worst result on this timeline. This zero distinction applies to retail sales compared to a year ago. The best ranking is 11.6%; that is for sales evaluated for the time of year. Orders compared to a year ago have a 4.2 percentile standing. The stock-to-sales ratio—which is a completely different concept—shows that the inventory-to-sales ratio has a 29.9 percentile standing.

**Retail diffusion**: The raw April diffusion readings (up minus down diffusion) show that sales compared to a year ago slipped to a reading of -68 in April from -52 in March. Orders fell to -46 in April from -26 in March. Sales evaluated for the time of year fell to -32 April from -23 in March. All three measures weakened, and all three weakened decisively, resulting in extremely weak rankings. All of the rankings are executed on data back to 2002.

**Expectations for retailing**: The expectations readings for May show slippage again across all three metrics: expected sales compared to a year ago, expected orders compared to a year ago, and expected sales for the time of year. Expected sales compared to a year ago fell to -60 in May from -49 in April. Orders compared to a year ago declined to -45 in May from -30 in April, and sales for the time of year slipped to -43 from -19. In May, these readings have rankings in a 0.4 percentile standing for sales compared to a year ago, a 1.8 percentile standing for sales evaluated relative to the time of year, and a 4.6 percentile standing for orders compared to a year ago. These two panels on current and expected retail sales volumes are just simply terrible: weak monthly, weak in ranking terms, and showing slipping momentum.

The distributor trade series also provides data on the wholesale sector. While the wholesale sector is not quite as beat up as the retail sector, it's still extremely weak. There is no cause for any kind of hope that things are getting better based on wholesaling trends.

**Wholesaling**: The wholesale survey for sales compared to a year ago edged lower to -32 in April from -31 in March. Orders compared to a year ago remained at a reading of -41 in April. Sales evaluated for the time of year improved to a reading of -20 in April from -39 in March—a significant step up, but still very weak. The percentile standings for these three categories show sales compared to a year ago at the 8.8 percentile, orders compared to a year ago at the 5.6 percentile, and sales evaluated for the time of year at the 14.8 percentile.

**Wholesale Expectations**: The look-ahead observations, which provide expectations for wholesaling in May, show a similar constellation of readings, with sales compared to a year ago falling to -37 in May from -27 in April and orders compared to a year ago falling to -42 from -38, while sales evaluated for the time of year improved to  16 from  37. That category for wholesale sales improved both in April in real time and in May for expectations; however, it continues to have a very weak percentile standing, at the 17.9 percentile in May, while sales for a year ago have a 6.7 percentile standing and orders for a year ago have a 6.0 percentile standing.

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While some of the global PMI data have improved, these survey data for the U.K. are particularly dour. The war in Ukraine drags on, and there's a new conflict in Iran that has shut the Strait of Hormuz, creating energy problems for much of Europe. More broadly, supply chains have been harmed. In addition, the U.K. is undergoing a bout of political instability, as its Prime Minister is under pressure and a good deal of political uncertainty is being worsened by deteriorating economic performance.

Both the U.K. and the European Monetary Union had been showing some progress on inflation until the Iran war hit. Now, as the oil prices are up so sharply, headline inflation is going to be worse everywhere and there will probably be a bit more attention directed to the core inflation rate. However, the U.K. has had inflation too hot for a while, and it has failed to settle down. At its last meeting, the Bank of England’s Monetary Policy Committee warned that if the war was still ongoing at the next meeting, there would be a risk of a rate hike. So, it would seem that a rate hike is going to be in play unless the economy falls off a cliff first, which, based on the distributive trades data, is also something that could happen. The U.K. economy appears to be on very unsound footing, and what happens next is just about anybody's guess.

United Kingdom

U.K. Retail Sales: Worse Than During Covid

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The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

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Germany

German Ifo Plunges Everywhere

Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

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**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

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**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

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**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

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**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

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**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

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Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

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Charts of the Week: Risks Build, Markets Shrug

Sandy Batten

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The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Economy in Brief: 2010

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