Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210a.jpg" style="width: 353px; height: 265px;" align="right">Higher
oil prices and economic recovery were December's double-punch to the
U.S. trade accounts. Together, they raised imports and increased the
international trade deficit to $40.2B which was the highest level in
twelve months. The rise was from November's unrevised deficit of
$36.4B. The latest figure was quite a bit higher than Consensus
expectations for a deficit of $35.5B.
 Imports rose 4.8% in part due to
a rise in crude oil prices to $73.20 per barrel which was the highest
price since October of 2008. In addition the quantity of crude oil
imports jumped 14.3% (-17.5% y/y) to the highest level since March.
U.S. economic recovery also was evident in a 3.3% increase (3.0% y/y)
in real nonoil imports which was the fifth increase in six months. Real
non-auto capital goods imports jumped 4.6% (2.5% y/y) after a 3.9%
November increase. Real automotive vehicles &amp; parts imports
also were strong with a 9.6% increase (18.9% y/y) and have nearly
doubled since May. Real nonauto consumer goods imports were unchanged
(3.4% y/y) following earlier strength since June. Finally, services
imports jumped 1.1% (-1.5% y/y) and have risen a firm 6.5% since March.
U.S. travels abroad rose 1.8% (-5.4% y/y recouping the&nbsp;
November decline while passenger fares jumped 2.9% (-20.5% y/y).
Again
reflecting the competitive value of the dollar, nominal exports jumped
3.3% m/m and by 17.3% from the April low. More impressive was the 4.4%
monthly increase in real merchandise exports which are up 18.7% from
their low. Real capital goods exports jumped 5.2% in December (0.6%
y/y) and have risen 14.9% from their low. Real exports of non-auto
consumer goods also posted a firm 2.1% gain and have risen 16.2% from
the January low. Real automotive exports surged 10.2% in December and
by 17.4% during the last twelve months. Exports of services slipped
0.1% (-0.3% y/y).&nbsp;
 By country, the trade deficit with
mainland China lessened to $18.1B, its least since April. The deficit
has narrowed from its peak of $27.9B in October of 2008. Exports to
China rose nearly two-thirds y/y while imports rose just 5.7%. With
Japan, the trade deficit improved modestly to $4.6B from $5.3B one year
earlier as exports rose 9.7% and imports fell 2.7%. With the European
Union, the trade deficit was stable m/m at&nbsp; $6.4B as exports
declined 3.7% y/y and imports fell 4.5%.&nbsp;&nbsp;
 
The
international trade data can be found in Haver's USECON database.
Detailed figures are available in the USINT
database.
Is the International Role of the Dollar Changing? from
the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci16-1.pdf">here</a>.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210c.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/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</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">U.S. Trade Deficit</td>
<td>$40.2B</td>
<td>$36.4B</td>
<td>$33.2B</td>
<td>$41.9B (12/08)</td>
<td>$380.7B</td>
<td>$695.9B</td>
<td>$701.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Exports - Goods
&amp; Services</td>
<td>3.3%</td>
<td>0.9%</td>
<td>2.7%</td>
<td>7.4%</td>
<td>-15.0%</td>
<td>11.2%</td>
<td>13.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Imports - Goods
&amp; Services</td>
<td>4.8</td>
<td>2.6</td>
<td>0.7</td>
<td>4.6</td>
<td>-23.3</td>
<td>7.6</td>
<td>6.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>14.8</td>
<td>0.3</td>
<td>-10.6</td>
<td>24.5</td>
<td>-44.1</td>
<td>37.0</td>
<td>9.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>3.8</td>
<td>2.3</td>
<td>3.2</td>
<td>2.6</td>
<td>-21.0</td>
<td>1.5</td>
<td>4.8</td>
</tr>
</tbody>
</table>


Much Of EMU&#8217;s IP Stumbles In
December...How Worried Should We Be? 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 10, 2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
The drop &#8211;a sharp drop- in German IP has been echoed
throughout the e-zone&#8217;s largest economies. In December IP has also
fallen in France, in Italy and in Spain. The UK, an EU member country,
reports that its IP rose by a strong 0.9% in December.
Over three-months all the large EMU members are showing
moderating growth rates but only Germany and Spain have posted actual
IP drops. Germany&#8217;s -14% rate of decline is huge. Spain&#8217;s three-month
drop is just at a -4.7% annual rate- but is still substantial. Italy&#8217;s
5.9% gain over three months is the sharpest 3-mo gain among the lot of
large e-Zone members. Outside the Zone, the UK&#8217;s 4.6% rise in output
rivals Italy&#8217;s three-month gain. Better still, for the UK the
acceleration in output is still in place.
For the fourth quarter, Germany continues to show that output
expanded compared to Q3 even with the December weakness. France&#8217;s
output also posted a rise in the quarter. Both Italy and Spain suffered
setbacks in the quarter; Spain&#8217;s 6.2% annual rate of decline is
especially deep. The UK&#8217;s IP registers a rise at a pace of 3.2% in the
quarter.
The chart at the top of this report plots Yr/Yr rates of
growth and on that basis the recovery in output still seems to be fully
in train. But the widespread drop off in output in December must be
taken as bad news. But how bad? The UK is not in EMU but it is still in
the same region and trades with most of the same partners as Europe yet
its IP managed a rather large boost in December. Perhaps the UK results
give us some reassurance that output in the Zone is not on the brink of
collapsing. It&#8217;s too soon to tell what December means for the trend but
the drop off is not the sort of signal of weakness or even of slowing
growth that we want to see at this time. The recovery&#8217;s fragility
underlines Mervyn King&#8217;s statement that it is too soon to put a
definitive end the BOE&#8217;s securities purchase program.
Meanwhile those looking for more guidance on policy will have
to wait another day. US central bank head Ben Bernanke has his
testimony put off for a day due to a Washington DC snow storm. We will
not get the usual information from questioning of the Chairman until he
testifies on Thursday. But the Fed Chairman&#8217;s speech is being released
on time today so his general thoughts will available as previously
scheduled.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Main
Euro-Area Countries and UK IP in MFG</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">Mo/Mo</td>
<td style="font-weight: bold;">3-Mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
<td style="font-weight: bold;">Dec-09</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">MFG
Only</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Nov-09</td>
<td style="font-weight: bold;">Oct-09</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Q:4-Date</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Germany:</td>
<td>-2.8%</td>
<td>0.9%</td>
<td>-1.8%</td>
<td>-14.0%</td>
<td>1.9%</td>
<td>-7.2%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;France:IPxConstruct'n</td>
<td>-0.1%</td>
<td>0.6%</td>
<td>-0.1%</td>
<td>1.4%</td>
<td>4.6%</td>
<td>-2.3%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>1.2%</td>
<td>5.9%</td>
<td>6.7%</td>
<td>-6.3%</td>
<td>-1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Spain</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-4.7%</td>
<td>1.2%</td>
<td>-2.4%</td>
<td>-6.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;UK</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>4.6%</td>
<td>2.3%</td>
<td>-1.9%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Mo/Mo are
simple
percent changes others are at saars</td>
</tr>
</tbody>
</table>
U.S. Weekly Mortgage Applications
Slip 
by <a href="/comment/Moeller.html">Tom
Moeller</a> February 10, 2010



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210e.jpg" style="width: 353px; height: 265px;" align="right">The
Mortgage
Bankers Association reported that mortgage applications slipped 1.2%
last week after a 21.0% jump at the end of January. As a result,
applications began February up sharply from last month.&nbsp;
&nbsp;
Applications to refinance mortgages
increased 1.4% last week and were double the June low due to rate
declines. Applications to purchase a home have not
shared that degree of strength. They fell 7.0% last week after
declining in January from December. The volatility in the numbers
likely reflects the expiration of an up-to $8,000 Federal tax credit
for first-time homebuyers which was extended to April. 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 slipped last week to
4.57%. That equaled the November low and was down from the June average
of 5.21%. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210f.jpg" style="width: 353px; height: 265px;" align="right">
For 30-year mortgages the rate ticked up last week to 5.16%
from a November average of 5.06%. 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;
Since a December low,
the number of fixed-rate mortgages has risen by one third and roughly
equaled the rise in adjustable-rate mortgage
applications.&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.
Federal Reserve's exit strategy
is this morning's House testimony by Fed Chairman Ben S. Bernanke and
it can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20100210a.htm">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/SURVEYW/@S5/@S5.HTM%22" style="color: black;">MBA Mortgage Applications
(SA, 3/16/90=100)</a></th>
<th scope="col">02/05/10</th>
<th scope="col">01/29/10</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>613.1</td>
<td>620.7</td>
<td>2.1%</td>
<td>736.4</td>
<td>642.9</td>
<td>652.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>221.2</td>
<td>237.8</td>
<td>-6.2</td>
<td>263.5</td>
<td>345.4</td>
<td>424.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,893.9</td>
<td>2,854.8</td>
<td>6.3</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>4.57</td>
<td>4.62</td>
<td>5.07 (02/09)</td>
<td>4.85</td>
<td>5.9</td>
<td>6.2</td>
</tr>
</tbody>
</table>

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Higher oil prices and economic recovery were December's double-punch to the U.S. trade accounts. Together, they raised imports and increased the international trade deficit to $40.2B which was the highest level in twelve months. The [...]

U.S. Trade Deficit Hits 12-MonthHigh

Louise Curley

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209i.jpg" style="width: 353px; height: 265px;" align="right">The
budget
crises in Greece, Spain and Portugal have left their mark on the
Euro.&nbsp; The first chart shows the dramatic rise over the past
year or so in the budget deficits of the three countries on a twelve
months moving average basis. By yesterday, the euro had declined
against the dollar by more than 10% from its peak of $1.512 on December
3 of last year.&nbsp; the decline in the euro is shown in the
second chart.&nbsp;
The euro gained some ground today as&nbsp;
the talk of possible ways to resolve the budget problems has begun to
drown out the talk of doomsday.&nbsp;&nbsp; Nevertheless, the
euro is likely to remain under pressure until an accommodation to the
problem can be seen.&nbsp;.Pressure on the euro could prove to be
not such a bad thing.&nbsp; Europeans have been complaining that
the strong euro has affected the demand for their exports
adversely.&nbsp; A lower euro could stimulate demand and increase
production, which would provide a better background for working out the
budget problems.&nbsp;&nbsp;
The day to day progress of the
euro can be found in The Haver Data Base, INTDAILY.&nbsp;
The narrow and broad trade weighted indexes of exchange
rates for the Euro Area are also found in this data base.&nbsp; The
narrow trade weighted index for the Euro Area is shown in the third
chart.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209j.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209k.jpg" style="width: 312px; height: 265px;">
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The budget crises in Greece, Spain and Portugal have left their mark on the Euro. The first chart shows the dramatic rise over the past year or so in the budget deficits of the three countries on a twelve months moving average basis. [...]

Euro Area Budget Crises And The Euro

Robert Brusca

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209h.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Germany&#8217;s HICP and domestic CPI show modest inflation in
Germany but headline inflation is still in a steady upward progression.
Since the headline rate for the HICP is only 0.7% that is not
disturbing at all. The HICP core is not yet available but the domestic
German CPI measure shows core inflation at 0.8% Yr/Yr and yet dropping
at a pace of 0.8% over the most recent three months. Domestic inflation
shows modest diffusion. Inflation is accelerating over six months in
only 54% of the categories and inflation is accelerating over
three-months in only a bit more than one-quarter of the categories.
Germany, a big part of the e-zone and its inflation measure,
shows inflation pressures are still contained but not entirely dormant.
At this point that is good news since we want inflation to stay under
control but we do not want it so docile that the economy appears to
lack any life. The economy needs to make a recovery so the existence of
some price pressure is a good signal, too.
Germany has a mixed mission. It is to keep inflation under
wraps and still to generate recovery. The German CPI and HICP seem
consistent with those goals.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup><thead><tr>
<th scope="col" colspan="8">German
HICP and CPI details</th>
</tr>
</thead><tbody>
<tr class="" odd="">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jan-10</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr
Ago</td>
</tr>
<tr>
<td class="firstcol">HICP
Total</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>0.7%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.2%</td>
</tr>
<tr ="">
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">CPI
</td>
</tr>
<tr>
<td class="firstcol">All</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.7%</td>
<td>1.1%</td>
<td>0.8%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;
CPIxF&amp;E</td>
<td>-0.3%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>-0.8%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>2.9%</td>
<td>-0.5%</td>
<td>-1.3%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Alcohol</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>1.1%</td>
<td>3.6%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Clothing
&amp; Shoes</td>
<td>-1.9%</td>
<td>2.2%</td>
<td>-1.3%</td>
<td>-4.2%</td>
<td>2.8%</td>
<td>0.3%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Rent
&amp;Util</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.7%</td>
<td>0.7%</td>
<td>-0.3%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Health
Care</td>
<td>-0.3%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>0.9%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Transport</td>
<td>0.5%</td>
<td>0.2%</td>
<td>1.4%</td>
<td>8.7%</td>
<td>10.0%</td>
<td>4.6%</td>
<td>-2.7%</td>
</tr>
<tr>
<td class="firstcol">Communication</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>-3.5%</td>
<td>-2.0%</td>
<td>-1.9%</td>
<td>-3.0%</td>
</tr>
<tr>
<td class="firstcol">Rec
&amp;Culture</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-3.9%</td>
<td>-1.8%</td>
<td>0.1%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.5%</td>
<td>0.8%</td>
<td>5.9%</td>
<td>4.6%</td>
<td>-1.5%</td>
<td>-4.3%</td>
</tr>
<tr>
<td class="firstcol">Restaurant&amp; Hotel</td>
<td>0.1%</td>
<td>0.5%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol"><Other =""></Other>Others</td>
<td>-0.7%</td>
<td>0.3%</td>
<td>-0.3%</td>
<td>-2.9%</td>
<td>0.7%</td>
<td>1.3%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td colspan="3">&nbsp;</td>
<td>27.3%</td>
<td>54.5%</td>
<td>36.4%</td>
<td>&nbsp;--</td>
</tr>
<tr class="grey2">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Current Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>--</td>
</tr>
</tbody>
</table>
</body></html>

Germany’s HICP and domestic CPI show modest inflation in Germany but headline inflation is still in a steady upward progression. Since the headline rate for the HICP is only 0.7% that is not disturbing at all. The HICP core is not yet [...]

German: HICP Moderate But Accelerating

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209e.jpg" style="width: 353px; height: 265px;" align="right">The
Bureau
of Labor Statistics indicated that job market conditions changed little
during December. The latest Job Openings &amp; Labor Turnover
Survey (JOLTS) indicated that though the job openings rate ticked
up to 1.9%, it remained off sharply from the 3.1% rate when the current
recession began. The job openings rate is the number of job
openings on the last business day of the month as a percent of total
employment plus job openings. Job
availability rose 2.6% from November after two months of decline, and
remained off 22.5% year-to-year. The series dates back to December
2000.&nbsp;
Earlier weakness in the service sector stabilized last
month. Leisure &amp; hospitality job openings ticked up 2.2%
(-25.7% y/y), and educational &amp; health service jobs rose 1.3%
(-19.7% y/y). Finally, the number of government sector job openings
ticked up 0.6% (-0.6% y/y). Offsetting these gains was a 3.7% (-26.2%
y/y) decline in the number of professional &amp; business service
jobs. That was down for the third straight month. Though the number of
retail job openings rose 24.9% (-27% y/y) that just made up a November
decline. Countering weakness in service sector hiring was the factory
sector where job openings rose for the fifth consecutive month and were off a lessened 6.9% y/y. Construction
sector job openings posted a sharp 29.3% decline (-19.7% y/y) which
reversed most of the prior four months' increases.
The hires
rate remained stable for the fifth straight month at 3.1% but
was slightly improved from the series' low of 3.0% last
spring.&nbsp;The hires rate is the number of hires during
the month divided by employment.&nbsp;The actual number
of hires fell 1.3% m/m but was down 9.6% year-to-year. Professional
&amp; business service sector hires fell to the lowest level since
June with an 18.2% decline (-15.9% y/y) while leisure &amp;
hospitality hires fell 2.7% (-3.8% y/y). Factory sector hiring fell
6.0% and was off a diminished 6.0% y/y however construction sector
hiring rose 10.5% m/m (-2.2% y/y).
The job separations rate fell
back to the series' low of 3.2% with the actual number of separations
off 14.5% year-to-year. Separations include quits, layoffs,
discharges, and other separations as well as retirements. The
layoff rate alone ticked up to 1.6% but was down sharply from the
January high of 1.9%.
The JOLTS survey dates only to December 2000 but
has followed the movement in nonfarm payrolls, though the actual
correlation between the two series is low.· A description of the Jolts
survey and the latest release from the U.S. Department of Labor is
available <a href="http://www.bls.gov/news.release/pdf/jolts.pdf">here</a>
and the figures are available in Haver's USECON
database.&nbsp;&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209f.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209g.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/@EB/@EB14/@EB14.HTM">JOLTS (Job Openings &amp; Labor
&nbsp;Turnover Survey)</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Dec. '08</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="8">Job Openings, Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>1.9</td>
<td>1.8</td>
<td>1.9</td>
<td>2.3</td>
<td>1.9</td>
<td>2.3</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>2,497</td>
<td>2,434</td>
<td>2,571</td>
<td>3,224</td>
<td>2,497</td>
<td>3,224</td>
<td>4,382</td>
</tr>
<tr class="odd">
<td colspan="8">Hires, Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>3.1</td>
<td>3.1</td>
<td>3.1</td>
<td>3.3</td>
<td>37.4</td>
<td>41.1</td>
<td>46.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,073</td>
<td>4,125</td>
<td>4,045</td>
<td>4,508</td>
<td>49,448</td>
<td>56,486</td>
<td>63,666</td>
</tr>
<tr class="odd">
<td colspan="8">Layoffs &amp;
Discharges, Total</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>1.6</td>
<td>1.5</td>
<td>1.6</td>
<td>1.7</td>
<td>20.7</td>
<td>17.7</td>
<td>16.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>2,079</td>
<td>2,011</td>
<td>2,128</td>
<td>2,360</td>
<td>27,594</td>
<td>24,362</td>
<td>22,613</td>
</tr>
</tbody>
</table>

</body></html>

The Bureau of Labor Statistics indicated that job market conditions changed little during December. The latest Job Openings & Labor Turnover Survey (JOLTS) indicated that though the job openings rate ticked up to 1.9%, it remained off [...]

JOLTS: U.S. Job Openings Improve Slightly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209d.jpg" align="left" border="0" height="265" width="353">
Consumer spending has recovered from its post-holiday slump,
but real life is not yet apparent. Weekly chain store sales improved
last week although the 1.4% w/w rise left purchases up just slightly
from the January average. That average had been boosted by price
discounting early in the month.
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 suffering from post-Holiday blues was the leading
indicator of chain store sales. It's been roughly unchanged during the
last two weeks following four weeks of sharp decline. 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: rgb(0, 0, 0);">ICSC-UBS (SA,
1977=100)</a></th>
<th scope="col">02/06/10</th>
<th scope="col">01/30/10</th>
<th scope="col">01/23/10</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>487.1</td>
<td>480.4</td>
<td>479.8</td>
<td>1.8%</td>
<td>0.1%</td>
<td>1.4%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body></html>

Consumer spending has recovered from its post-holiday slump, but real life is not yet apparent. Weekly chain store sales improved last week although the 1.4% w/w rise left purchases up just slightly from the January average. That [...]

Weekly Chain Store Sales Improve Yet Remain Off From Earlier Highs

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209a.jpg" style="width: 353px; height: 265px;" align="right">
A sense of
modest improvement returned to small business. The National Federation
of Independent Business (NFIB) reported their January small business
optimism index made up the prior two months' declines with an increase
to 88.0. During the last ten years, there has been an 85% correlation
between the level of the NFIB index and the two-quarter change in real
GDP.Two factors drove the overall improvement -- sales expectations
&amp; credit. The percentage of firms expecting higher real sales
in six months increased to its highest level in two years. Also, the
rate of inventory decumulation was slowed to meet those sales and the
inventory index rose to the highest since last February. Finally,
credit loosened. The percentage of firms reporting that credit was
harder to get eased m/m to a net -13 but that still was near the
series' low. That credit may have been used to finance higher capital
expenditures.Offsetting these gains was the percentage of small
businesses expecting the overall economy to improve dipped slightly m/m
to 1 after a sharp November decline. The latest was down from the May
high of 12 but well improved from last year's recession low. The
percentage which thought that now was a good time to expand the
business fell to its lowest level since August. Also, hiring intentions
remained weak. The percentage of firms planning to raise employment
remained in net-layoff, though it has improved from the March low. For
now, the percentage of firms with one or more job openings remained
stable m/m at 10% during January. During the last ten years there has
been a 74% correlation between the NFIB employment percentage and the
six-month change in nonfarm payrolls.On the pricing front, weakness
continued. The percentage of firms actually raising
prices stood at -18% (indicating deflation). It's improved slightly
from the prior several months but remains near the record low. During
the last ten years there has been a 60% correlation between the
six-month change in the producer price index and the level of the NFIB
price index.&nbsp;The percentage of firms planning
to raise prices also improved to its highest level since late-2008.
Finally, the percentage planning to raise worker compensation fell to
1.The most important problems seen by business were poor sales (31%),
taxes (22%, close to its highest level since 2007), government
requirements (13%), insurance cost &amp; availability (8%),
competition from large businesses (7%) and inflation
(3%).About 24 million small businesses exist in the United
States. Small business creates 80% of all new jobs in America and the
NFIB figures can be found in Haver's SURVEYS
database.&nbsp;Controlling Risk in a lightening speed
trading environment from the Federal Reserve Bank of Chicago
is available <a href="http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2010/cflmarch2010_272.pdf">here</a>.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100209c.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/SURVEYS/@S7/@S7.HTM">Nat'l
Federation of Independent Business</a></th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Jan.'09</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">Small Business Optimism Index
(SA, 1986=100)</td>
<td>89.3</td>
<td>88.0</td>
<td>88.3</td>
<td>84.1</td>
<td>86.7</td>
<td>89.8</td>
<td>96.7</td>
</tr>
<tr>
<td class="firstcol">Percent of Firms Expecting
Economy To Improve</td>
<td>1</td>
<td>2</td>
<td>3</td>
<td>-12</td>
<td>-0</td>
<td>-10</td>
<td>-4</td>
</tr>
<tr class="odd">
<td class="firstcol">Percent of Firms With One or
More Job Openings</td>
<td>10</td>
<td>10</td>
<td>8</td>
<td>11</td>
<td>9</td>
<td>18</td>
<td>24</td>
</tr>
<tr>
<td class="firstcol">Percent of Firms Reporting That
Credit Was Harder To Get</td>
<td>14</td>
<td>15</td>
<td>15</td>
<td>13</td>
<td>14</td>
<td>9</td>
<td>6</td>
</tr>
<tr class="odd">
<td class="firstcol">Percent of Firms Raising Avg.
Selling Pric1es (Net)</td>
<td>-18</td>
<td>-22</td>
<td>-17</td>
<td>-15</td>
<td>-20</td>
<td>17</td>
<td>15</td>
</tr>
</tbody>
</table>


</body></html>

A sense of modest improvement returned to small business. The National Federation of Independent Business (NFIB) reported their January small business optimism index made up the prior two months' declines with an increase to 88.0. [...]

U.S. Small Business Optimism Improves Modestly

U.S. Small Business OptimismImproves Modestly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100208d.jpg" align="left" border="0" height="265" width="353">
The Bank of France and France's INSEE (Institute National des
Statistiques et Etudes Economiques) publish measures of business
sentiment in industry. The Bank of France measure canvasses about 6000
managers on various business conditions. The responses are based on the
difference between those who view conditions optimistically and those
who views them pessimistically. The resulting balances of opinion are
expressed in terms of their long term average which is set to 100. Thus
the January value of 103.89, released today, indicates that business
sentiment is about 4% above its long term average. It has improved, if
somewhat erratically, since December 2008 when the indicator was 67.40
or about 33% below the long term average but it is still below 109.69,
the peak reached in October 2007, before the current downturn started.
INSEE's measure, which was released last week, is based on the
responses of 4000 companies engaged in manufacturing, food processing
industries and petroleum refining. It also collects balances of opinion
on various business conditions, but expresses the data such that its
average is 100 with a standard deviation of 10. The INSEE measure at 92
for January indicates that sentiment is below average--8%--but it has
been improving since March 2009 when it was 69 or 31%, or more than
three standard deviations, below average.
The two measures are shown in the attached chart. As can be
seen, there is a high degree of correlation between the two. Although
both show that much of the loss in sentiment suffered during the
current downturn has been recovered both show that business sentiment
is well below the peaks reached in 2000.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Business
Sentiment in Industry</th>
<th scope="col">Jan 10&nbsp;</th>
<th scope="col">Dec 09</th>
<th scope="col">Jan 09</th>
<th scope="col">M/M % Chg</th>
<th scope="col">Y/Y % Chg</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Bank of France</td>
<td>103.89</td>
<td>102.19</td>
<td>70.47</td>
<td>1.66</td>
<td>47.42</td>
<td>85.89</td>
<td>90.62</td>
<td>107.18</td>
</tr>
<tr>
<td class="firstcol">INSEE</td>
<td>92</td>
<td>88</td>
<td>75</td>
<td>4.55</td>
<td>26.67</td>
<td>79</td>
<td>97</td>
<td>109</td>
</tr>
</tbody>
</table>
</body></html>

The Bank of France and France's INSEE (Institute National des Statistiques et Etudes Economiques) publish measures of business sentiment in industry. The Bank of France measure canvasses about 6000 managers on various business [...]

Two French Authorities Point To Improving Business Sentiment

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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Michael J. Moran

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The Conference Board’s index of Consumer Confidence inched higher in April from an upwardly revised reading in March. The combined changes left the measure 1.1% higher than the preliminary tally in March. Despite the improvement, the index remained in the low end of the range for the current expansion. The index in April totaled 92.8, down from an average of 96.1 in 2025 and an annual cyclical high of 105.4 in 2023.

The Improvement in April reflected a pickup in the expectations component, which rose 1.7%. The current conditions component inched 0.2% lower. Overall views on current conditions slipped despite more favorable assessments of the labor market. The so-called measure of the jobs gap (share of respondents indicating that jobs are plentiful less the share saying that jobs are hard to get) rose 1.4 percentage points higher to 7.5%. The pickup reflected a drop in the share indicating that jobs are hard to get (down 1.5 percentage points to 19.8%). The share indicating that jobs are plentiful eased 0.1 percentage point to 27.3%.

Although expectations improved in April, from a long-term perspective they could be viewed as the more important factor restraining the headline measure of confidence. As shown in the left chart below, the expectations component of confidence shows considerably less volatility than the current conditions component does. The contrasting patterns suggest that individuals realize that the economy will undergo possibly sharp cyclical swings, but they expect conditions at some point to return to an underlying norm.

The current conditions index in the current cycle has indeed dropped noticeably, but it is still above the long run average (123.8 in April versus the average of approximately 108 from 1990 to 2025). The expectations component, as usual, has eased less than the current conditions component, but its shift has pushed the measure to the low end of its long-run range (72.2 in April versus an average of approximately 88).

Interestingly, concern about the labor market seems to be a factor affecting expectations. While current views on the labor market are favorable (plentiful less hard to get jobs gap of 7.5%), Individual are concerned about the future. The survey asks respondents if they expect more jobs or fewer jobs six months hence. The share indicating fewer jobs has moved well into the upper end of the historical range. Such observations in the past were typically seen only during recession (chart, below right). An unfavorable view on interest rates also seems to be playing a role in depressing the expectations component. More than 60% of respondents to the current survey expect higher interest rates 12 months from now.

The results from the Conference Board survey of consumers differ markedly from those of the University of Michigan Survey Research Center. The Michigan results show consumer sentiment at a record low, while the Conference Board index is only slightly below its long-run average. The difference most likely reflects the nature of the questions in the surveys. The Conference Board focuses on business and employment conditions, while Michigan emphasizes personal finances. The focus on finances, along with questions on inflation, probably picks up concerns about affordability.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Expectations improved slightly in April, but are still subdued relative to norms.
- Moderately favorable view of current conditions.

Consumer Confidence: Modest Change in April

Winnie Tapasanun

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U.S. house prices were essentially unchanged m/m in February after rises of 0.2% in January (+0.1% initially) and 0.3% in December (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. February marked the first flat reading since September following four consecutive m/m increases. The HPI was at 441.43 in February, up 14.8% from its August 2022 low of 384.59. The year-on-year growth rate eased to 1.7% in February—the lowest since March 2012—from 1.8% in January (+4.1% in February 2025), down from a high of 6.9% in February 2024 and well below a peak of 18.5% in February 2022.

By region, February FHFA house prices showed a mixed performance. House prices fell m/m in February (vs. January) in four of the nine census divisions. Declines were led by Mountain (-1.1% vs. +0.4%), followed by Pacific (-0.5% vs. +0.6%), West North Central (-0.4% vs. +0.3%), and Middle Atlantic (-0.1% vs. +0.3%). To the upside, house prices rose m/m in four census divisions in February (vs. January): South Atlantic (+0.6% vs. -0.2%), East South Central (+0.2% vs. +1.2%), New England (+0.2% vs. +0.6%), and West South Central (+0.2% vs. -0.3%). Meanwhile, house prices in East North Central were virtually unchanged m/m for the second successive month in February following seven straight m/m gains.

Year-on-year house prices continued to rise in February in most regions, except Mountain, Pacific, and West South Central. The y/y growth rate accelerated in February (vs. January) in only two of the nine census divisions: East South Central (+4.0% vs. +3.2%) and South Atlantic (+0.9% vs. +0.4%). Meanwhile, house price growth decelerated y/y in February (vs. January) in four regions: New England (+3.1% vs. +3.9%), West North Central (+3.1% vs. +3.6%), East North Central (+3.8% vs. +4.5%), and Middle Atlantic (+4.2% vs. +4.5%). To the downside, Mountain (-0.7% vs. 0.0%), Pacific (-0.4% vs. -0.3%), and West South Central (-0.1% vs. -0.4%) posted y/y declines in February.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- February FHFA HPI 0.0% m/m; +1.7% y/y, lowest since Mar. ’12.
- House prices down m/m in four of nine census divisions, led by Mountain (-1.1%); up in four, driven by South Atlantic (+0.6%); flat in East North Central.
- House prices up y/y in six of nine regions, led by Middle Atlantic (+4.2%), but down in Mountain (-0.7%), Pacific (-0.4%), and West South Central (-0.1%).

U.S. FHFA House Prices Flat in February After Four Straight M/M Gains

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.

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**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.

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**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.

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**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.

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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.

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**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.

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Asia

Economic Letter from Asia: Not Just About the Strait

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**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.

Economy in Brief: 2010

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