Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327c.jpg" width="353">
New orders for durable goods increased 2.6% last month following an 8.9% drop during January that was somewhat shallower than initially reported. The gain outpaced Consensus expectations for a 1.0% increase, however, unlike the prior month&#39;s report covering activity in the factory sector, the details were not constructive.
During the last ten years there has been a 51% correlation between the y/y change in durable goods orders and the level of the ISM orders index.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327d.jpg" width="353">
A 26.0% rebound in aircraft &amp; parts orders predominated last month&#39;s gain. It followed a 59.9% January plunge and was led by a 52.5% surge in nondefense (66.3% y/y) aircraft.
New orders for motor vehicles &amp; parts fell for the fourth month in the last five and the 3.3% m/m decline was to the lowest level in nearly one year.
Less the transportation sector altogether, durable goods orders fell 1.3% following an upwardly revised 1.6% January increase. The decline disappointed Consensus expectations for a 1.1% increase.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327a.jpg" width="353">
Declines in orders were widespread during February. Electrical equipment orders fell 3.2% (+12.5% y/y) though the decline followed an 8.5% gain the month earlier which was quite a bit stronger than initially estimated. A 6.3% (+4.4% y/y) drop in machinery orders followed a 3.5% January slip while orders for fabricated metals fell 1.9% (+5.6% y/y) and primary metals also fell by 2.5% (+6.0% y/y). Orders for computers &amp; electronic products rose 4.2% (2.9% y/y) though the y/y gain is well below the double digit increases of 2004 and 2005.
Orders for nondefense capital goods increased a scant 1.6% following the 19.8% plunge during January and orders less aircraft fell 2.3%. The January figures were little revised.
During the last ten years there has been an 87% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327b.jpg" width="353">
Shipments of durable goods rose 0.2% after the 1.8% drop during January and less the transportation sector shipments rose 0.1% (8.3% y/y) following the 0.5% January increase.
Order backlogs rose 0.9% (17.0% y/y), again dominated by the strength in unfilled orders for aircraft &amp; parts which rose 1.1% (39.3% y/y). Less transportation backlogs rose 0.5% (10.2% y/y). The ratio of backlogs to shipments outside of transportation increased moderately but remained near the middle of the range of the last two years.
Durable inventories fell 0.5% (+2.6% y/y) after a 1.0% January gain. Less transportation, the 0.4% (+2.8% y/y) February decline followed a 1.2% January surge. The inventory to sales ratio outside of the transportation sector fell to near the historic low.
Macroeconomic News and Real Interest Rates from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/03/KliesenSchmid.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>2.6%</td>
<td>-8.9%</td>
<td>8.1%</td>
<td>8.6%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.3%</td>
<td>1.6%</td>
<td>6.4%</td>
<td>8.6%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.6%</td>
<td>-19.8%</td>
<td>9.4%</td>
<td>20.0%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-2.3%</td>
<td>0.3%</td>
<td>5.0%</td>
<td>10.7%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
 Another Indication of the End of Deflation in Japan:   Prices of Commercial Land Rise in Metropolitan Areas 
by <a href="/comment/Curley.html">Louise Curley</a> March 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327e.jpg" width="353">
Further evidence that deflation in Japan is becoming a thing of the past is showing up in land prices. Commercial land prices in the three metropolitan areas--Tokyo, Osaka and Nagoya--rose last year for the first time since the peak in Japan&#39;s land prices was reached in the first half of 1991. After fourteen years of ever lower prices, the price of commercial land in the three metropolitan areas rose 1.0% in 2005.Nationwide, prices of commercial land were still falling, but the decline has been decelerating and in 2005 was 2.7% versus 5.6% the year before. The first chart shows the annual percentage changes in the prices of commercial land in the three metropolitan areas and in the nation as a whole for the past twenty years.Residential land prices have not yet shown an increase but the declines have been moderating both in the metropolitan areas and in the nation as a whole, as the second chart shows.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327f.jpg" width="353">
These price changes are published by the Department of Land, Infrastructure and Transport annually. Percentage changes from a year ago are shown on January 1st of each year, the latest being January 1, 2006. Indexes of urban land prices (End of March =100) are compiled and published by the Japan Real Estate Institute semiannually in March and September. The March figure is representative of the first half of the year and the September figure, the second half. The index of is based on conditions in some 223 cities.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327g.jpg" width="353">
The indexes give a good picture of the rise and fall of land prices in urban areas. The rise of land prices in the boom of the eighties was more pronounced in commercial land prices than in residential land prices. Between 1980 and 1991 commercial land prices rose almost 130% and have subsequently declined 70%. The index of commercial land prices was 58.60 in the last half of 2005 below the level of the index in the first half of 1980. The rise in residential land prices was less, 108%, and the subsequent decline has been more muted, 40%. The Index of residential land prices was 75.60 in the last half of 2005, still above the 60.60 of the first half of 1980. The rise and fall of commercial and residential land prices are shown in the third chart. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM">Percent Changes in Land Prices (%)</a></th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Commercial&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Metropolitan Areas</td>
<td>1.0</td>
<td>-3.2</td>
<td>-5.8</td>
<td>-7.1</td>
<td>8.5</td>
<td>-9.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nationwide</td>
<td>-2.7</td>
<td>-5.6</td>
<td>-7.4</td>
<td>-8.0</td>
<td>-8.3</td>
<td>-8.0</td>
</tr>
<tr>
<td class="firstcol">Residential&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Metropolitan Areas</td>
<td>&nbsp;-1.2</td>
<td>-3.7&nbsp;</td>
<td>-5.7</td>
<td>-6.5&nbsp;</td>
<td>-5.6</td>
<td>&nbsp;-5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nationwide</td>
<td>-2.7</td>
<td>-4.6</td>
<td>-5.7</td>
<td>-5.8</td>
<td>-5.2</td>
<td>-4.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; <a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM"> Urban Land Price Index</a> &nbsp; (End of March 2000=100)</td>
<td>1980</td>
<td>Peak 1991</td>
<td>Current Second half 2005</td>
<td>1980-Peak &nbsp; % Change</td>
<td>Peak-Current &nbsp;% Change</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Commercial Land</td>
<td>86.00</td>
<td>195.90</td>
<td>58.60</td>
<td>127.79</td>
<td>-70.09</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Residential Land</td>
<td>60.61</td>
<td>126.10</td>
<td>75.60</td>
<td>108.09</td>
<td>-40.05</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

New orders for durable goods increased 2.6% last month following an 8.9% drop during January that was somewhat shallower than initially reported. The gain outpaced Consensus expectations for a 1.0% increase, however, unlike the prior [...]

U.S. Durable Goods Orders Up, But ...

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060324a.jpg" width="353">
New home sales fell 10.5% in February, the largest one-month decline since February 1995. Sales were 1.08 million (SAAR), the lowest volume since March 2003. Following January&#39;s 5.3% drop, sales over the two months were down 15.3%, the largest two-month fall since February 1994.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060324b.jpg" width="353">
Builders have not yet caught up, of course, with the change in the sales pace, and inventories of unsold homes rose again last month, reaching 548,000. At February&#39;s sales rate, that equals a 6.3-month supply. Four months ago, this ratio was 4.5 months. This too marks a sharp turn.
How disturbing is this sudden downdraft in home sales? There are some mitigating factors. The sales drop was not nationwide. They actually rose in the northeast, 12.7%, and midwest, 5.2%. The jump in the inventory position, while large, serves mainly to highlight how very low stocks were the last several years. As seen in our graph, the long-run average supply is 5.9+ months (calculated on DLXVG3 by taking the 518-month moving average, that is, the full span of the data). <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060324c.jpg" width="353">Also, the roundly 4-month average from 1998 to 2004 is (very) roughly the length of time it takes to build a house. So for that period at least, it seems that builders were selling homes just about as fast as they could produce them. Additionally, existing home sales, down in previous months, had a nice rebound in February, as documented here yesterday by Tom Moeller. So total housing demand did not fall in the month.
Finally, home prices are showing some signs of hesitation, with a fourth consecutive monthly decline in February. Part of this price measure relates to the geographic distribution of the sales; they fell most sharply in the West, one of the high-priced regions, while they grew in the Midwest, a lower-priced region, giving a downward bias to the national price measure. Prices are available by region only quarterly, so we cannot yet tell what is happening within each area.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Feb 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales (SAAR, Thous)</td>
<td>1,080</td>
<td>1,207</td>
<td>1,247</td>
<td>1,280</td>
<td>1,200</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Inventory of Unsold Homes&nbsp; (SA, Thous)</td>
<td>548</td>
<td>525</td>
<td>513</td>
<td>469</td>
<td>395</td>
<td>348</td>
</tr>
<tr class="odd">
<td class="firstcol">Months&#39; Supply (SA)</td>
<td>6.3</td>
<td>5.3</td>
<td>4.4</td>
<td>4.5</td>
<td>4.0</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA,$)</td>
<td>230,400</td>
<td>234,200</td>
<td>237,800</td>
<td>234,058</td>
<td>217,817</td>
<td>191,385</td>
</tr>
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New home sales fell 10.5% in February, the largest one-month decline since February 1995. Sales were 1.08 million (SAAR), the lowest volume since March 2003. Following January's 5.3% drop, sales over the two months were down 15.3%, [...]

New Home Sales Fall 10.5% in February; Inventories Rose and Prices Declined

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323d.jpg" width="353">
Besides its wide array of macroeconomic databases, Haver Analytics also features a number of industry offerings. Just this morning, for example, Chemical Week magazine released its weekly report on chemical prices. These are maintained in Haver&#39;s CHEMWEEK database. Far from being esoteric trivia, the chemicals in this collection are main building blocks of products and fuels consumers use every day. If not ingredients in the items themselves, several of these chemicals are important in the manufacturing process.
The database consists of 29 major chemicals. We list just four in the table below as a sampling. The prices we show here averages; &quot;highs&quot; and &quot;lows&quot; are also available. These are US spot prices; spot prices are also given for European markets and contract prices for several specific delivery months are available for most items for both US and European markets.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323e.jpg" width="353">
The particular items we show here are multipurpose chemicals. Many plastics are made from polyvinyl chloride and combinations of propylene with various other substances. Both have experienced a near doubling over the past couple of years, but have shown some signs of stabilizing so far this year. PVC is a hard plastic, frequently used now in pipes, as in household plumbing, and other building products, such as vinyl siding. Its price has been steady now since last April at $930 per metric ton. However, the price rose in steep steps from just $370/MT in early 2002.
Propylene is an ingredient in other products, such as aerosol sprays, other plastics and fibers and synthetic rubber. Its price has more than tripled since early 2002, when it traded at just $0.13/pound, compared with as much as $0.52 briefly in late November and $0.41 most currently.
Methanol, or wood alcohol, was once thought to be a potential substitute or complement to gasoline in motor vehicle fuels. Racecars and some specialty vehicles do run on it. However, it is also highly toxic, causing safety concerns. So other items, such as ethanol, are developing more as alternative fuels. This shift in potential usage may be reflected in the price trend for methanol. It has risen markedly, from $0.57/gallon in late 2003 to $0.94 recently, but on a relative basis, it has moved much less than other chemicals, as is evident in the second graph.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323f.jpg" width="353">
Finally, the price of caustic soda is also up dramatically. Caustic soda is more familiarly known as lye and its more formal chemical name is sodium hydroxide. It is a very widely used in the manufacture of such diverse items as aluminum, textiles, soap and paper and in petroleum refining. As recently as the spring of 2004, this key substance was selling for as little as $65 a ton. But in November, it reached $587.50 before falling back to &quot;just&quot; $335 in the last couple of weeks.
The mere wide ranges covered by these price movements highlight the value of the CHEMWEEK database. Unlike many commodities that have tighter markets, these chemical prices often seem to move in fits and spurts, sometimes doubling virtually &quot;overnight&quot;. So monitoring them would seem vital for industry analysts and even macroeconomists.
Further, several are closely tied to petroleum prices. In the third graph, for instance, we show the simple spot price for crude oil, West Texas Intermediate, from the WEEKLY and OILWKLY databases. It has a high 86% correlation with PVC prices since 1999 and as high or for even longer periods with numerous other chemicals. So the role of oil is closely intertwined not only with heating and driving costs, but also with the raw material and processing costs for many other products.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US Spot Prices</th>
<th scope="col">Mar 22, 2006</th>
<th scope="col">Feb 22, 2006</th>
<th scope="col">End-Dec 2005*</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">PVC General Purpose, $/metric ton</td>
<td>930</td>
<td>930</td>
<td>930</td>
<td>914</td>
<td>810</td>
<td>585</td>
</tr>
<tr>
<td class="firstcol">Propylene, Chemical Grade, $/lb</td>
<td>0.41</td>
<td>0.41</td>
<td>0.42</td>
<td>0.41</td>
<td>0.31</td>
<td>0.20</td>
</tr>
<tr class="odd">
<td class="firstcol">Methanol, $/gal</td>
<td>0.94</td>
<td>0.94</td>
<td>0.91</td>
<td>0.86</td>
<td>0.82</td>
<td>0.73</td>
</tr>
<tr>
<td class="firstcol">Caustic Soda, $/short ton</td>
<td>335</td>
<td>345</td>
<td>415</td>
<td>369</td>
<td>176</td>
<td>139</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: Crude Oil, $/bbl**</td>
<td>62.69</td>
<td>60.00</td>
<td>59.49</td>
<td>56.29</td>
<td>41.31</td>
<td>31.14</td>
</tr>
</tbody>
</table>
</body>
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Besides its wide array of macroeconomic databases, Haver Analytics also features a number of industry offerings. Just this morning, for example, Chemical Week magazine released its weekly report on chemical prices. These are [...]

Chemical Prices Surge with Petroleum, But Some Stabilize or Even Decline Recently

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323b.jpg" width="353">
The U.S. federal government posted a deeper budget deficit during February of $119.2B versus last February&#39;s deficit of $113.9B. Nevertheless, the fiscal year to date budget deficit narrowed to $217.5B versus 223.4B during the first five months of FY05.
Net revenues collapsed 50.9% m/m as is often the case during February but rose 10.5% during the first five months versus FY04. Individual income tax receipts (44% of total receipts) rose 10.8% y/y and corporate income taxes (10% of total receipts) rose 29.6% y/y during fiscal year 2005&#39;s first five months.
The improved job market raised employment taxes (36% of total receipts) 6.0% y/y though estate &amp; gift taxes fell 0.4% y/y. 
U.S. net outlays continued strong and rose 7.6% y/y fiscal year to date. Defense (19% of total outlays) for the first five months of FY06 rose 7.6% from the year prior. The growth in Medicare spending (12% of total outlays) accelerated to 8.5% y/y and spending on social security (21% of total outlays) grew 5.6%. s
Agriculture spending grew 10.6%. Also strong was spending on community &amp; regional development which nearly tripled this fiscal year to date versus last. Spending on health programs (10% of the total) rose 2.1% while spending on education &amp; training (4% of the total) fell 1.9% y/y. Interest expense (8% of the total) grew 24.3% with higher interest rates.
The Current Budget Projections from the US Congressional Budget Office released March 3rd are available <a href="http://www.cbo.gov/budget/budproj.shtml"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-119.2B</td>
<td>$21.0B</td>
<td>$-113.9B (2/05)</td>
<td>$-318.3B</td>
<td>$-412.7B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$112.9B</td>
<td>$230.0B</td>
<td>11.9%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$232.1B</td>
<td>$209.0B</td>
<td>8.0%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
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The U.S. federal government posted a deeper budget deficit during February of $119.2B versus last February's deficit of $113.9B. Nevertheless, the fiscal year to date budget deficit narrowed to $217.5B versus 223.4B during the first [...]

February U.S. Budget Deficit Deeper, Fiscal YTD Narrower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323c.jpg" width="353">
 The National Association of Realtors reported that total existing home sales rose 5.2% m/m to 6.910M last month following a 2.7% January decline that was about half the drop initially estimated. Consensus expectations had been for sales last month of 6.50M. 
Sales of single-family homes rose 4.7% after a 1.2% January decline that was revised from -6.8% reported initially. The data cover sales closed in the latest and previous months, and contrast to the new home sales data which count sales at the signing of a contract. 
February single family home sales rose sharply in the Northeast (+2.4% y/y). Sales in the Midwest also were strong (+2.1% y/y) and sales in the West rose for the first month in six (-10.9% y/y). Sales in the South fell m/m but rose y/y by 4.2%.
The median price of an existing single-family home fell 0.5%. At $208,500 the median price is 5.1% below the August peak. Prices are not seasonally adjusted.
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
The Road to Price Stability from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200605/200605pap.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>&nbsp;6,910</td>
<td>6,570</td>
<td>-0.3%</td>
<td>7,064</td>
<td>6,722</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>6,060</td>
<td>5,790</td>
<td>-0.2%</td>
<td>6,170</td>
<td>5,912</td>
<td>5,443</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price ($,000) </td>
<td>$208.5 </td>
<td>$209.6 </td>
<td>11.6% </td>
<td>$206.3</td>
<td>$182.8 </td>
<td>$169.1 </td>
</tr>
</tbody>
</table>


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The National Association of Realtors reported that total existing home sales rose 5.2% m/m to 6.910M last month following a 2.7% January decline that was about half the drop initially estimated. Consensus expectations had been for [...]

U.S. Existing Home Sales Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323a.jpg" width="353">
Last week, initial claims for unemployment insurance reversed all of the upwardly revised increase the prior period. The 11,000 person decline to 302,000 compared with Consensus expectations for 305,000 claims.
The latest figure covers the survey period for March nonfarm payrolls and claims rose 24,000 (8.6%) from the February period.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims rose to 303,500 (-7.3% y/y), its highest level since early January.
Continuing unemployment insurance claims reversed most of the prior week&#39;s sharp drop, which was revised deeper, and rose 38,000 to 2.472M.
The insured rate of unemployment was stable at 1.9% for the sixth week.
Using Cyclical Regimes of Output Growth to Predict Jobless Recoveries from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/03/Dueker.pdf"> here</a>.
Also from the St. Louis Fed is Entrepreneurship and the Policy Environment and the article can be found <a href="http://research.stlouisfed.org/publications/review/06/03/GeorgellisWall.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">03/18/06</th>
<th scope="col">03/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>302</td>
<td>313</td>
<td>-8.5%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,472</td>
<td>-7.6%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
</html>

Last week, initial claims for unemployment insurance reversed all of the upwardly revised increase the prior period. The 11,000 person decline to 302,000 compared with Consensus expectations for 305,000 claims. The latest figure [...]

Initial Jobless Insurance Claims Drop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323c.jpg" width="353">
 The National Association of Realtors reported that total existing home sales rose 5.2% m/m to 6.910M last month following a 2.7% January decline that was about half the drop initially estimated. Consensus expectations had been for sales last month of 6.50M. 
Sales of single-family homes rose 4.7% after a 1.2% January decline that was revised from -6.8% reported initially. The data cover sales closed in the latest and previous months, and contrast to the new home sales data which count sales at the signing of a contract. 
February single family home sales rose sharply in the Northeast (+2.4% y/y). Sales in the Midwest also were strong (+2.1% y/y) and sales in the West rose for the first month in six (-10.9% y/y). Sales in the South fell m/m but rose y/y by 4.2%.
The median price of an existing single-family home fell 0.5%. At $208,500 the median price is 5.1% below the August peak. Prices are not seasonally adjusted.
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
The Road to Price Stability from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200605/200605pap.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>&nbsp;6,910</td>
<td>6,570</td>
<td>-0.3%</td>
<td>7,064</td>
<td>6,722</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>6,060</td>
<td>5,790</td>
<td>-0.2%</td>
<td>6,170</td>
<td>5,912</td>
<td>5,443</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price ($,000) </td>
<td>$208.5 </td>
<td>$209.6 </td>
<td>11.6% </td>
<td>$206.3</td>
<td>$182.8 </td>
<td>$169.1 </td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Drop 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323a.jpg" width="353">
Last week, initial claims for unemployment insurance reversed all of the upwardly revised increase the prior period. The 11,000 person decline to 302,000 compared with Consensus expectations for 305,000 claims.
The latest figure covers the survey period for March nonfarm payrolls and claims rose 24,000 (8.6%) from the February period.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims rose to 303,500 (-7.3% y/y), its highest level since early January.
Continuing unemployment insurance claims reversed most of the prior week&#39;s sharp drop, which was revised deeper, and rose 38,000 to 2.472M.
The insured rate of unemployment was stable at 1.9% for the sixth week.
Using Cyclical Regimes of Output Growth to Predict Jobless Recoveries from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/03/Dueker.pdf"> here</a>.
Also from the St. Louis Fed is Entrepreneurship and the Policy Environment and the article can be found <a href="http://research.stlouisfed.org/publications/review/06/03/GeorgellisWall.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">03/18/06</th>
<th scope="col">03/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>302</td>
<td>313</td>
<td>-8.5%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,472</td>
<td>-7.6%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
February U.S. Budget Deficit Deeper, Fiscal YTD Narrower 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323b.jpg" width="353">
The U.S. federal government posted a deeper budget deficit during February of $119.2B versus last February&#39;s deficit of $113.9B. Nevertheless, the fiscal year to date budget deficit narrowed to $217.5B versus 223.4B during the first five months of FY05.
Net revenues collapsed 50.9% m/m as is often the case during February but rose 10.5% during the first five months versus FY04. Individual income tax receipts (44% of total receipts) rose 10.8% y/y and corporate income taxes (10% of total receipts) rose 29.6% y/y during fiscal year 2005&#39;s first five months.
The improved job market raised employment taxes (36% of total receipts) 6.0% y/y though estate &amp; gift taxes fell 0.4% y/y. 
U.S. net outlays continued strong and rose 7.6% y/y fiscal year to date. Defense (19% of total outlays) for the first five months of FY06 rose 7.6% from the year prior. The growth in Medicare spending (12% of total outlays) accelerated to 8.5% y/y and spending on social security (21% of total outlays) grew 5.6%. s
Agriculture spending grew 10.6%. Also strong was spending on community &amp; regional development which nearly tripled this fiscal year to date versus last. Spending on health programs (10% of the total) rose 2.1% while spending on education &amp; training (4% of the total) fell 1.9% y/y. Interest expense (8% of the total) grew 24.3% with higher interest rates.
The Current Budget Projections from the US Congressional Budget Office released March 3rd are available <a href="http://www.cbo.gov/budget/budproj.shtml"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-119.2B</td>
<td>$21.0B</td>
<td>$-113.9B (2/05)</td>
<td>$-318.3B</td>
<td>$-412.7B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$112.9B</td>
<td>$230.0B</td>
<td>11.9%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$232.1B</td>
<td>$209.0B</td>
<td>8.0%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
Chemical Prices Surge with Petroleum, But Some Stabilize or Even Decline Recently 
by <a href="/comment/Stone.html">Carol Stone</a> March 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323d.jpg" width="353">
Besides its wide array of macroeconomic databases, Haver Analytics also features a number of industry offerings. Just this morning, for example, Chemical Week magazine released its weekly report on chemical prices. These are maintained in Haver&#39;s CHEMWEEK database. Far from being esoteric trivia, the chemicals in this collection are main building blocks of products and fuels consumers use every day. If not ingredients in the items themselves, several of these chemicals are important in the manufacturing process.
The database consists of 29 major chemicals. We list just four in the table below as a sampling. The prices we show here averages; &quot;highs&quot; and &quot;lows&quot; are also available. These are US spot prices; spot prices are also given for European markets and contract prices for several specific delivery months are available for most items for both US and European markets.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323e.jpg" width="353">
The particular items we show here are multipurpose chemicals. Many plastics are made from polyvinyl chloride and combinations of propylene with various other substances. Both have experienced a near doubling over the past couple of years, but have shown some signs of stabilizing so far this year. PVC is a hard plastic, frequently used now in pipes, as in household plumbing, and other building products, such as vinyl siding. Its price has been steady now since last April at $930 per metric ton. However, the price rose in steep steps from just $370/MT in early 2002.
Propylene is an ingredient in other products, such as aerosol sprays, other plastics and fibers and synthetic rubber. Its price has more than tripled since early 2002, when it traded at just $0.13/pound, compared with as much as $0.52 briefly in late November and $0.41 most currently.
Methanol, or wood alcohol, was once thought to be a potential substitute or complement to gasoline in motor vehicle fuels. Racecars and some specialty vehicles do run on it. However, it is also highly toxic, causing safety concerns. So other items, such as ethanol, are developing more as alternative fuels. This shift in potential usage may be reflected in the price trend for methanol. It has risen markedly, from $0.57/gallon in late 2003 to $0.94 recently, but on a relative basis, it has moved much less than other chemicals, as is evident in the second graph.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060323f.jpg" width="353">
Finally, the price of caustic soda is also up dramatically. Caustic soda is more familiarly known as lye and its more formal chemical name is sodium hydroxide. It is a very widely used in the manufacture of such diverse items as aluminum, textiles, soap and paper and in petroleum refining. As recently as the spring of 2004, this key substance was selling for as little as $65 a ton. But in November, it reached $587.50 before falling back to &quot;just&quot; $335 in the last couple of weeks.
The mere wide ranges covered by these price movements highlight the value of the CHEMWEEK database. Unlike many commodities that have tighter markets, these chemical prices often seem to move in fits and spurts, sometimes doubling virtually &quot;overnight&quot;. So monitoring them would seem vital for industry analysts and even macroeconomists.
Further, several are closely tied to petroleum prices. In the third graph, for instance, we show the simple spot price for crude oil, West Texas Intermediate, from the WEEKLY and OILWKLY databases. It has a high 86% correlation with PVC prices since 1999 and as high or for even longer periods with numerous other chemicals. So the role of oil is closely intertwined not only with heating and driving costs, but also with the raw material and processing costs for many other products.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US Spot Prices</th>
<th scope="col">Mar 22, 2006</th>
<th scope="col">Feb 22, 2006</th>
<th scope="col">End-Dec 2005*</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">PVC General Purpose, $/metric ton</td>
<td>930</td>
<td>930</td>
<td>930</td>
<td>914</td>
<td>810</td>
<td>585</td>
</tr>
<tr>
<td class="firstcol">Propylene, Chemical Grade, $/lb</td>
<td>0.41</td>
<td>0.41</td>
<td>0.42</td>
<td>0.41</td>
<td>0.31</td>
<td>0.20</td>
</tr>
<tr class="odd">
<td class="firstcol">Methanol, $/gal</td>
<td>0.94</td>
<td>0.94</td>
<td>0.91</td>
<td>0.86</td>
<td>0.82</td>
<td>0.73</td>
</tr>
<tr>
<td class="firstcol">Caustic Soda, $/short ton</td>
<td>335</td>
<td>345</td>
<td>415</td>
<td>369</td>
<td>176</td>
<td>139</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: Crude Oil, $/bbl**</td>
<td>62.69</td>
<td>60.00</td>
<td>59.49</td>
<td>56.29</td>
<td>41.31</td>
<td>31.14</td>
</tr>
</tbody>
</table>


</html>

US is big leader in global surge in private AI investment

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

Sharply rising share of AI-related jobs

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

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Sandy Batten

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Industrial production (IP) rose a much larger-than-expected 0.7% m/m in April, rebounding from an upwardly revised 0.3% m/m decline in March (previously -0.5% m/m), according to data released by the Federal Reserve Board. The Action Economics Survey looked for a 0.2% monthly gain. The y/y rate also rebounded in April, rising to 1.4% y/y after having fallen to 0.7% in March. IP has clearly trended up since late last year. Since November 2025, it has grown at a 3.6% annual rate. The current level of output is the highest since August 2019 but is still 1.5% below the November 2018 series peak.

Manufacturing output led the April rebound, rising 0.6% m/m (1.3% y/y) following an upwardly revised 0.1% monthly increase in March (previously -0.1% m/m). Mining output fell in April for the second consecutive month, edging down 0.1% m/m (+0.2% y/y) after a 1.6% monthly drop in March (revised down from -1.2% m/m). Utilities production rebounded in April, jumping 1.6% m/m (2.7% y/y) and more than offsetting a 1.4% monthly decline in March (revised up from -2.3% previously). The rebound in utilities output reflected a 1.1% rise in electricity production and a 7.3% monthly jump in natural gas distribution, the first monthly gain in four months.

Within manufacturing, durable goods production jumped 1.2% m/m (3.2% y/y) in April after having been unchanged in March. A 3.7% m/m rebound in motor vehicles and parts production, the largest monthly gain since May 2025, led the April increase. Motor vehicles and parts production had fallen 2.4% m/m in March. Production of computers and electronic products increased 1.5% m/m, the fourth consecutive monthly rise. Aerospace output rose 1.6% m/m in April, the third consecutive monthly gain and the largest since July 2025. By contrast, furniture production fell 1.8% m/m, the third consecutive monthly decline. 

Output of nondurable manufactured goods edged down 0.1% m/m (-0.6% y/y) in April, the first monthly decline in four months. Production of apparel and leather goods slumped 2.2% m/m on top of a 2.0% monthly fall in March. Chemical output fell 0.9% m/m in April, its first monthly decline in four months. Output of plastics and rubber products fell 0.9% m/m, the first monthly fall in four months. By contrast, production of petroleum and coal products rose 1.0% m/m in April, the same monthly increase as in March.

By market group, output of consumer goods rebounded in April, increasing 0.9% m/m (-0.2% y/y) following a 0.8% m/m decline in March. Production of business equipment surged 1.5% m/m (+6.0% y/y) in April, the largest monthly gain since March 2025. Output of construction supplies was unchanged in April from March (+1.2% y/y) following a 0.9% m/m gain in March. Materials production rebounded in April, rising 0.5% m/m (1.2% y/y) after a 0.4% m/m decline in March.

In special classifications, output of selected high-tech industries increased 1.0% m/m (+9.2% y/y) in April following a 0.5% monthly gain in March. The rebound in motor vehicles and parts production reflected a 5.3% monthly surge in vehicle output, the largest monthly gain since May 2025. Manufacturing output excluding selected high-tech industries rose 0.6% m/m in April, the largest increase since February 2025, following a 0.1% m/m increase in March. Manufacturing output excluding both selected high-tech industries and motor vehicles and parts advanced 0.3% m/m in April, the same monthly gain as in March.

Capacity utilization rose to 76.1% in April from 75.7% in March. The April reading was the highest since last August but was still 3.3%-points below its long-term (1972-2025) average. Manufacturing capacity utilization increased to 75.8% in April from 75.4% in March, 2.4%-points below its long-term average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.



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- Total industrial output increased a much larger-than-expected 0.7% m/m in April with a small upward revision to March.
- Manufacturing output increased 0.6% m/m, led by a 5.3% m/m rebound in vehicle production.
- Mining output edged down 0.1% m/m, while utilities production rose 1.9% m/m.
- The headline rate of capacity utilization rose to 76.1% in April, its highest reading since last August but still well below its long-term average.


U.S. Industrial Production Jumped in April

Robert Brusca

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Industrial orders in Canada are back on an expansion path with orders growing 4.7% in March on top of a 6.9% gain in February. These statistics chronicle Canadian orders digging out from a hole they fell into early in 2026. Now the data show emerging sequential growth in Canadian orders, which are advancing 3.6% over 12 months at a 14.9% annual rate over six-months, and a 26.7% annual rate over three-months. Still, on the chart that plots the year-over-year growth rates these recent accelerated rates of growth appear as mere recoveries from what had been earlier weakness. It remains to be seen how much acceleration the Canadian economy will actually undergo.

Unfilled orders expanded in March for the second month in a row, growing 2.4% after growing 1.4% in February once again following the recovery theme.

Manufacturing shipments grew by 3% in March after growing 3.4% in February and after dropping sharply in January - again echoing the recovery theme. Durable goods show two months of increases with the March increase weak after a very strong rise in February. Motor vehicle output recovered very strongly in February, after falling at a 37.1% annual rate in January; motor vehicle output is up by 15% in March, a hefty growth rate but short of what was posted in February. Once again, we see an echo of the theme of recovery. However, shipments of durable goods excluding motor vehicles are less robust, after dropping 1.8% in January output rose by 3.8% in February and has fallen back, dropping by 1.1% in March, a small fly in the ointment of this recovery theme for Canada. And nondurable goods shipments saw a small increase in January of 0.2%, a flat February, and now an extremely strong, 5.6% month-to-month gain in March.

Canada's sequential growth rates are on the verge of showing broad acceleration. Orders clearly do accelerate from 12-months to six-months to three-months. Unfilled orders, however, accelerate over six-months compared to 12-months and then take a small step back over three-months to an annualized growth rate of 13.4% - a very small step back that is still far above the 12-month growth pace. Manufacturing shipments, too, show a small flaw in acceleration as the 6-month pace dips ever so slightly before logging a very strong 3-month pace. Durable goods then are an exception to the acceleration theme; however, nondurable goods get back on board with the strong acceleration move.

**Rankings**
The rank standings for these categories are based on annual growth rates and comparison with data extend back approximately 25 years. Orders have a 58-percentile standing, unfilled orders have a 57-percentile standing, while manufacturing shipments have a 62-percentile standing. Shipments for durable goods durables excluding motor vehicles and from motor vehicles as a stand-alone have rankings in their 30th- to 40th-percentiles, below their historic medians. (medians occur at a ranking of 50). However, nondurables have an extremely strong 80.5 percentile standing. The data are consistent, the recovery and progress with the exception that durable goods shipments that are not fully on board and languish below their historic median results. Ranking the data over six-month growth rates improves the results somewhat and brings motor vehicles on board for a growth rate that is above its historic median.

**Signs of improvement**
Goods-based industry shows signs of picking up even in March as oil prices were rising and industry was facing greater challenges. The US industrial production report for April, similarly, shows acceleration across the board, even as the economy continued to deal with the difficulties of rising oil prices. Of course, the Canadian US economies are closely linked; we would expect the manufacturing sectors to be performing with some degree of synchronization. However, there's no reason to be complacent about the outlook. Oil prices have continued to rise, the challenge to consumers is strong and across all countries. In the US special tax cuts enacted last year, which went into effect earlier this year, have helped to deliver extra money to consumers that have helped them deal with the oil price shock. But these were funds that were supposed to help stimulate the economy to higher growth and were planned by the President to help him with midterm elections coming later in the year. The US economy still has to deal with those realities with sharply divided political reality as well.

**Outlook**
The US acrimony with Canada has taken a back burner for a while. And as that has happened the Canadian economy has come back to life. However, Canada still has some problems with inflation although it also has a broader inflation target to accommodate some flexibility. And the prospect for more inflation because of global oil prices continues to hang in the balance. The results for March are encouraging but certainly not definitive. Canada has mounted a nice recovery after a period of difficulty earlier in the year but it's still hard to say what comes next.



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Canada

Canadian Industry Perks Up

Andrew Cates

**A Tug of War Between AI Hope and Geopolitical Shock**
The latest Blue Chip Economic Indicators survey highlights a growing divergence between economies benefiting from AI-driven optimism and those more exposed to the inflationary consequences of renewed geopolitical instability. Taiwan stands out as the clearest AI beneficiary, with growth forecasts revised sharply higher while inflation expectations have risen only modestly, reflecting surging semiconductor demand and continued investment in global technology supply chains. China also remains relatively resilient, supported by ongoing AI-related capital spending and stronger technology sectors. By contrast, the euro area and UK have seen much larger upward revisions to inflation forecasts alongside weaker or declining growth expectations, underscoring their greater vulnerability to the recent Middle East shock and higher energy costs. Korea sits somewhere in between: benefiting from the AI hardware cycle but still exposed to trade and energy headwinds. Overall, the chart illustrates the increasingly important push-and-pull shaping the global outlook: AI optimism and productivity hopes on one side, and geopolitical fragmentation, energy insecurity and supply-side inflation pressures on the other.

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**Forecasters See Contained Pass-Through**
Against this backdrop, our latest Blue Chip special question sought to gauge whether economists believe the recent rise in energy prices will remain largely contained — or whether it risks spilling more meaningfully into underlying global inflation dynamics. The results suggest forecasters have become somewhat less concerned about a broad and persistent inflationary impulse since April. A larger share of respondents in the May survey now expect only a “limited and temporary” pass-through into core inflation, while the proportion anticipating “moderate and persistent” effects has declined noticeably. Very few panelists expect significant second-round effects, implying that most still believe inflation expectations and wage-setting behaviour remain relatively well anchored. In part, this reflects confidence in central bank credibility and the view that softer global demand conditions will constrain firms’ pricing power. Yet the persistence of a sizeable minority still expecting moderate pass-through underscores the uncomfortable tension facing policymakers. 

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**Energy Reawakens as a US Inflation Driver**
While survey respondents generally expect only limited pass-through from higher energy prices into broader inflation, the latest US CPI data provide a reminder that the process may already be underway at the margin. April’s CPI report showed core inflation coming in slightly firmer than expected, suggesting underlying price pressures remain more persistent than many policymakers had hoped. The decomposition of CPI inflation highlights that services continue to dominate overall inflation dynamics, reflecting still-elevated wage and labour-intensive price pressures across the economy. However, the more notable recent development has been the renewed contribution from energy prices, which had previously acted as a disinflationary force through much of 2025. Food inflation has also remained comparatively steady, while non-energy goods prices continue to exert only modest upward pressure despite ongoing tariff and supply-chain concerns. Taken together, the data reinforce the idea that the US economy is not facing a classic demand collapse, but rather a more uncomfortable supply-side environment in which geopolitical energy shocks risk colliding with still-resilient domestic demand, AI-related investment spending and sticky service-sector inflation.

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**AI: The Powerful Counterweight to Geopolitical Headwinds**
If rising energy prices and geopolitical instability represent one major force shaping the current macroeconomic outlook, the extraordinary surge in AI-related investment represents the other. The latest data from Our World in Data show global private investment in AI accelerating sharply again in 2025, reaching close to $300 billion — more than double the level seen just two years earlier. The United States continues to dominate the global AI landscape, accounting for the overwhelming majority of private investment spending, while China and Europe remain considerably smaller contributors despite continued growth. The scale and speed of the 2025 increase is particularly striking given the broader backdrop of elevated policy uncertainty, trade fragmentation and concerns about slowing global productivity growth. In effect, the global economy is now being pulled in two competing directions: on one side, geopolitical tensions, supply-chain fragilities and more recent energy shocks are weighing on confidence and raising supply-side costs; on the other, AI enthusiasm is driving an enormous wave of capital expenditure, infrastructure build-out and technology-related demand. This helps explain why growth expectations — particularly in the US and parts of Asia — have remained comparatively resilient despite an increasingly uncertain global environment.

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**Industrial Winners and Losers in a Fragmenting Global Economy**
The divergence in industrial performance across advanced economies has become increasingly striking. Taiwan has emerged as one of the clearest beneficiaries of the global AI boom, with industrial production surging as semiconductor demand, data-centre investment and advanced electronics exports continue to accelerate. Denmark has also significantly outperformed, though for very different reasons, with the extraordinary global success of its pharmaceutical sector — particularly weight-loss and diabetes drugs — driving a powerful expansion in manufacturing output. By contrast, the UK and Germany have experienced a far weaker industrial recovery. In both cases, elevated energy costs and greater dependence on imported energy have weighed heavily on industrial competitiveness since the post-pandemic energy shock. Germany’s large manufacturing sector has been particularly exposed to higher natural gas prices and weaker external demand, while the UK has continued to struggle with a combination of high energy costs, weak productivity growth and subdued business investment. The chart highlights an increasingly important feature of the global economy: countries exposed to powerful structural growth themes such as AI or pharmaceuticals are pulling away from those still burdened by energy dependence and deteriorating industrial competitiveness.

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**China’s Pulse Is Picking Up Again**
China’s economic backdrop has shown clearer signs of improvement in recent months, with both the Citigroup Economic Surprise Index and the Yicai High Frequency Economic Activity Index moving higher. The rebound suggests that incoming data have begun consistently outperforming expectations after a prolonged period of disappointment. Part of the recent improvement likely reflects the cumulative effects of policy easing, including targeted fiscal support, infrastructure spending and further efforts to stabilise the property sector. Export demand has also remained more resilient than many expected, helped in part by the continued strength of global technology and AI-related supply chains. At the same time, improving domestic mobility and energy usage indicators point to firmer underlying activity momentum. The Yicai index itself is designed to provide a near real-time pulse of the Chinese economy using a basket of high-frequency indicators including subway usage, air pollution, coal consumption, freight activity, unemployment and bankruptcy trends. While China still faces significant structural headwinds — including weak household confidence, property-sector fragilities and deflationary pressures — the recent pickup suggests that growth momentum may be stabilising at a time when several other major economies are becoming more vulnerable to geopolitical and energy-related shocks.

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The global economy is still caught between two powerful and competing forces. On one side, the AI investment boom continues to support growth, industrial activity and equity markets, particularly in the US and parts of Asia. On the other, renewed Middle East tensions and higher energy prices are adding to inflation risks and broader policy uncertainty. The latest Blue Chip survey reflects this divide clearly: growth expectations have generally held up best in economies tied to AI-related investment and technology supply chains, while inflation forecasts have risen more sharply in more energy-exposed economies such as the UK and euro area (chart 1). Forecasters still largely expect only limited pass-through from higher energy prices into core inflation, although recent US CPI data suggest underlying price pressures remain somewhat sticky (charts 2 and 3). At the same time, the extraordinary continued surge in global AI investment — now approaching $300 billion annually — highlights the sheer scale of capital being deployed into semiconductors, data centres and digital infrastructure, particularly in the United States (chart 4). The divergence in industrial production trends also reinforces the growing gap between economies benefiting from structural growth drivers — such as Taiwan’s semiconductor sector and Denmark’s pharmaceutical industry — and those struggling with higher energy costs and weaker competitiveness, notably Germany and the UK (chart 5). Meanwhile, improving Chinese activity indicators suggest policy support and stronger technology demand may finally be helping to stabilise growth (chart 6). Overall, the world economy remains resilient, but increasingly uneven, with AI-related investment continuing to offset — though not eliminate — the drag from geopolitical fragmentation and rising energy insecurity.

Charts of the Week: The Tug of War

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Total retail sales rose a solid 0.5% m/m (4.9% y/y) in April on top of a slightly downwardly revised 1.6% monthly jump in March (previously 1.7%), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 05% m/m gain. Excluding autos, other sales increased 0.7% m/m (6.3% y/y) in April following an unrevised 1.9% monthly jump in March. Expectations were for a 0.6% monthly increase. The strong performance in March and the additional solid gain in April put the April level up 7.8% at an annual rate from the Q1 average, providing a very solid start for Q2.

As expected, the continued rise in retail gasoline prices boosted gasoline sales further in April. Gasoline sales increased 2.8% m/m in April following a 13.7% m/m surge in March and accounted for more than 40% of the April increase in total sales. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.3% m/m in April versus a 0.7% monthly gain in March. Sales excluding both autos and gasoline increased 0.5% m/m in April following a 0.7% m/m rise in March.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in March, rising 0.5% m/m in April following an upwardly revised 0.8% m/m increase in March (previously (0.7% m/m). The solid performances of the control group sales in March and April provide a strong start to Q2. April control-group sales are 5.4% at an annual rate above the Q1 average, in line with the 5.7% annualized increase in Q1. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales across major sectors were varied in April. Consumers clearly spent more on necessities, owing largely to higher prices. Food sales increased 0.8% m/m in April on top of a 1.0% m/m rise in March. And as already noted, gasoline sales posted another outsized monthly increase. By contrast, department store sales slumped 3.2% m/m, clothing sales fell 1.5% m/m, auto sales declined 0.4% m/m and furniture sales fell 2.0% m/m. More encouragingly, sales of nonstore retailers rose 1.1% m/m, their fourth consecutive solid monthly gain. And sales at restaurants increased 0.6% m/m in April, their third consecutive monthly rise. Analysts frequently use restaurant sales as a barometer of consumer attitudes, believing that consumers would not eat out regularly if they were under serious financial stress.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.


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- Total sales increase 0.5% m/m in April after a 1.6% monthly jump in March.
- Gasoline sales rose 2.8% m/m in April on top of a 13.7% surge in March.
- Auto sales fell 0.4% m/m after a 0.6% m/m rise in March.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in April versus a 0.7% m/m rise in March.
- Sales of the retail control group that is used to construct PCE rose 0.5% m/m in April and are 5.4% annualized above the Q1 average, providing a good start to Q2.


U.S. Retail Sales Slowed in April But Remained Solid

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 12,000 to 211,000 in the week ending May 9, from 199,000 in the week ending May 2, revised from 200,000. The four-week average rose 750 to 203,750 in the week ending May 9, from 203,000 the May 2 week, revised from 203,250. The Action Economics/Haver Analytics Survey looked for 205,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 24,000 to 1.782 million in the week ending May 2, from 1.758 million in the week ending April 25, revised from 1.766 million. The four-week moving average declined to 1.781 million in the latest week from 1.788 million in the April 25 week. The four-week moving average reached the lowest level since May 2024. The insured unemployment rate rose back to 1.2% in the week of May 2 from the one-week dip to 1.1% in the April 25 week. It had been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 25, the highest unemployment rates were in Rhode Island (2.29%), New Jersey and Massachusetts (both 2.20%), and Washington (2.15%). The lowest rates were in Florida and Louisiana (both 0.31%), South Dakota (0.32%), Alabama and Arkansas (both 0.36%), North Carolina (0.38%), Tennessee (0.47%) and Iowa, Kansas and Virginia (all 0.48%). Rates in other notable states include California (1.99%), New York (1.66%), Illinois (1.56%), Pennsylvania (1.28%), and Texas (1.03%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.


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- New claims rose by 12,000 to 211,000.
- Continuing claims rose by 24,000 to 1.782 million.
- The insured unemployment rate was back up to 1.2% in the week of May 2, from the one-week dip to 1.1% the prior week.

Economy in Brief: 2006

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U.S. Durable Goods Orders Up, But ...

New Home Sales Fall 10.5% in February; Inventories Rose and Prices Declined

New Home Sales Fall 10.5% in February; Inventories Rose and Prices Declined

Chemical Prices Surge with Petroleum, But Some Stabilize or Even Decline Recently

February U.S. Budget Deficit Deeper, Fiscal YTD Narrower

U.S. Existing Home Sales Up

Initial Jobless Insurance Claims Drop

U.S. Existing Home Sales Up