Tom Moeller

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<p>For all of 2015, the pump price for a gallon of regular gasoline averaged
$2.03 according to the U.S. Department of Energy, the lowest level since 2008.
Prices have fallen 45% since late-April of 2004. As of last week, pump prices
held at $2.03 per gallon (-8.4% y/y), where they've been since late-November.
Haver Analytics constructs factors adjusting for the seasonal variation in pump
prices. The seasonally adjusted price fell one penny last week to $2.26 per
gallon. Declines in spot market gasoline prices outpaced the decline in pump
prices, falling 16.2% y/y to $1.27 per gallon as of last week.</p>

<p>During 2015, <b>WTI crude oil costs</b> also fell sharply. Prices averaged
$48.90 last year, off 47.8% y/y and were $36.97 per barrel last week (-30.8% y/y).
Yesterday's price of $36.76 was up slightly from the $34.55 low reached two weeks
ago. Prices were down from the daily high of $113.93 in April 2011. Brent crude
oil prices held w/w at $37.06 per barrel (-33.6% y/y) and were $37.33 yesterday.</p>

<p><b>Natural gas</b> prices also were under pressure in 2015, falling 40.0% to
average $2.62 per mmbtu. Increased shale-gas production weighed heavily on
prices. Yesterday, prices rallied to $2.21 from their December low of $1.85, but
still were down roughly one-quarter y/y.</p>

<p>Falling <b>gasoline inventories</b> provided some support for prices last year
with a 3.3% decline, continuing to drop through last week. Inventories of all
petroleum products, however, rose 9.3% for the full year. Crude oil production
(input to refineries) increased 1.2% y/y during the last four weeks. <b>Gasoline
demand </b>improved 0.4% y/y last week but demand for all petroleum products eased
0.2% y/y.</p>

<p>The energy price data are reported by the U.S. Department of Energy. The
petroleum demand and inventory figures are from the Oil &amp; Gas Journal
Weekly. These data can be found in Haver's <b>WEEKLY </b>database. The daily
figures are in <b>DAILY</b> and greater detail on prices, demand and production,
along with regional breakdowns, are in <b>OILWKLY.</b></p>

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      <th class="firstcol" scope="col" >Weekly Energy Prices</th>
      <th scope="col" >01/04/16</th>
      <th scope="col" >12/28/15</th>
      <th scope="col" >12/21/15</th>
      <th scope="col" >Y/Y%</th>
      <th scope="col" >2015</th>
      <th scope="col" >2014</th>
      <th scope="col" >2013</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td class="firstcol" >Retail Gasoline ($ per Gallon, Regular)</td>
      <td  >2.03</td>
      <td  >2.03</td>
      <td  >2.03</td>
      <td  >-8.4</td>
      <td  >2.03</td>
      <td  >2.30</td>
      <td  >3.33</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl.,
        WSJ)</td>
      <td  >36.97</td>
      <td  >36.26</td>
      <td  >35.78</td>
      <td  >-30.8</td>
      <td  >48.90</td>
      <td  >93.64</td>
      <td  >97.96</td>
    </tr>
    <tr>
      <td class="firstcol" >Natural Gas ($/mmbtu, LA, WSJ)</td>
      <td  >2.21</td>
      <td  >1.63</td>
      <td  >1.69</td>
      <td  >-26.8</td>
      <td  >2.62</td>
      <td  >4.37</td>
      <td  >3.73</td>
    </tr>
               </tbody>
             </table>
             </span>
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For all of 2015, the pump price for a gallon of regular gasoline averaged $2.03 according to the U.S. Department of Energy, the lowest level since 2008. Prices have fallen 45% since late-April of 2004. As of last week, pump prices [...]

U.S. Gasoline Prices Near Seven-Year Low

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<p>The value of construction put-in-place declined 0.4% (+9.7% y/y) during
November following a 0.3% October rise, revised from 1.0%. Three-month growth of
0.2% (AR) compared to 29.2% during Q2. A 0.5% rise in November had been expected
in the Action Economics Forecast Survey. Data back to 2005 were revised, notably
for 2014.</p>

<p>Public sector building fell 1.0% (+6.0% y/y), the fourth decline in the last
five months. Water supply spending declined 7.6% (-7.0% y/y) but office
construction increased 1.1% (8.0% y/y). Highway and street construction eased
1.3% (+6.0% y/y) and power construction declined 2.4% (-2.0% y/y).</p>

<p>Building activity in the private sector slipped 0.2% following a 0.7% October
rise. During the last three months, activity increased at a much-reduced 3.6%
rate. Residential building activity improved 0.3% for the second consecutive
month (10.4% y/y). These increases are reduced from a 13.2% rise during Q2. The
increase was led by a diminished 0.6% rise in single-family building (9.4% y/y).
Multi-family construction fell 0.7% but still rose by roughly one-quarter y/y.
Spending on improvements inched 0.1% higher (6.1% y/y). Nonresidential building
fell 0.7% (+11.7% y/y) as factory sector construction declined 4.0% (+27.3% y/y).</p>

<p>The construction spending figures are in Haver's <b>USECON</b> database and
the expectations figure is contained in the <b>AS1REPNA</b> database.</p>

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    <tr>
      <th class="firstcol" scope="col" >Construction Put in Place
        (SA, %)</th>
      <th scope="col" >Nov</th>
      <th scope="col" >Oct</th>
      <th scope="col" >Sep</th>
      <th scope="col" >Nov Y/Y</th>
      <th scope="col" >2014</th>
      <th scope="col" >2013</th>
      <th scope="col" >2012</th>
    </tr>
  </thead>
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    <tr>
      <td class="firstcol" >Total</td>
      <td  >-0.4</td>
      <td  >0.3</td>
      <td  >0.2</td>
      <td  >9.7</td>
      <td  >9.6</td>
      <td  >6.6</td>
      <td  >7.9</td>
    </tr>
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      <td class="firstcol" >&nbsp; Private</td>
      <td  >-0.2</td>
      <td  >0.7</td>
      <td  >0.4</td>
      <td  >11.0</td>
      <td  >12.9</td>
      <td  >11.3</td>
      <td  >13.8</td>
    </tr>
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      <td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
      <td  >0.3</td>
      <td  >0.3</td>
      <td  >1.2</td>
      <td  >10.4</td>
      <td  >14.4</td>
      <td  >19.9</td>
      <td  >10.5</td>
    </tr>
  </tbody>
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      <td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
      <td  >-0.7</td>
      <td  >1.1</td>
      <td  >-0.4</td>
      <td  >13.6</td>
      <td  >12.7</td>
      <td  >2.7</td>
      <td  >17.5</td>
    </tr>
  </tbody>
  <tbody>
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      <td class="firstcol" >&nbsp; Public</td>
      <td  >-1.0</td>
      <td  >-0.8</td>
      <td  >-0.5</td>
      <td  >6.0</td>
      <td  >1.8</td>
      <td  >-3.1</td>
      <td  >-2.8</td>
  </tr>
              </tbody>
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The value of construction put-in-place declined 0.4% (+9.7% y/y) during November following a 0.3% October rise, revised from 1.0%. Three-month growth of 0.2% (AR) compared to 29.2% during Q2. A 0.5% rise in November had been expected [...]

U.S. Construction Activity Eased in November

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<p>Activity in the manufacturing sector fell to the weakest level since June
2009. The ISM Composite Index of factory sector activity fell to 48.2 during
December from an unrevised 48.6 in November. The reading disappointed
expectations for 49.0 in the Action Economics Forecast Survey. For the year as a
whole, the index averaged 51.4, also its lowest level since 2009. The data from
the Institute for Supply Management are diffusion indexes where a reading below
50 indicates decline.</p>

<p>Weakness in last month's composite centered on the decline in the employment
index. It backpedaled to 48.1, the third month in 2015 with falling payrolls.
For the year as a whole, it averaged 51.0, the lowest reading since 2009. An
easier supplier delivery reading of 50.3 suggested the quickest product delivery
speeds in three months. Nevertheless, it was well below the high of 58.6 reached
twelve months earlier. The three other component series showed limited
improvement with new orders, production and inventories remaining near the
expansion lows.</p>

<p>Showing improvement was the export order index. Its rise to 51.0 provided the
first indication of rising orders since April. The imports series fell sharply
to 45.5, continuing to suggest declining volumes as it has for three straight
months. The backlog of orders index fell to a new expansion low.</p>

<p>On the pricing front, the prices paid index eased to 33.5, a six year low.
Four percent (NSA) of respondents reported paying higher prices while 37 percent
paid less.</p>

<p>The figures from the Institute For Supply Management (ISM) are diffusion
indexes. A reading above 50 represents growth in factory sector activity. They
can be found in Haver's <b>USECON</b> database. The expectations number is in
Haver's <b>AS1REPNA</b> database.</p>

<p><b>Monetary Policy, Financial Stability, and the Zero Lower Bound</b> is the
title of yesterday's speech by Fed Vice Chairman Stanley Fischer and is available
<a href="http://www.federalreserve.gov/newsevents/speech/fischer20160103a.htm">here</a>.</p>

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

  <thead>
    <tr>
      <th class="firstcol" scope="col" >ISM Mfg (SA)</th>
      <th scope="col" >Dec</th>
      <th scope="col" >Nov</th>
      <th scope="col" >Oct</th>
      <th scope="col" >Dec '14</th>
      <th scope="col" >2015</th>
      <th scope="col" >2014</th>
      <th scope="col" >2013</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td class="firstcol" >Composite Index</td>
      <td  >48.2</td>
      <td  >48.6</td>
      <td  >50.1</td>
      <td  >55.1</td>
      <td  >51.4</td>
      <td  >55.7</td>
      <td  >53.8</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;New Orders</td>
      <td  >49.2</td>
      <td  >48.9</td>
      <td  >52.9</td>
      <td  >57.8</td>
      <td  >52.7</td>
      <td  >59.0</td>
      <td  >56.9</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;Production</td>
      <td  >49.8</td>
      <td  >49.2</td>
      <td  >52.9</td>
      <td  >57.7</td>
      <td  >53.5</td>
      <td  >59.2</td>
      <td  >57.5</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;Employment</td>
      <td  >48.1</td>
      <td  >51.3</td>
      <td  >47.6</td>
      <td  >56.0</td>
      <td  >51.0</td>
      <td  >54.5</td>
      <td  >53.2</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;Supplier Deliveries</td>
      <td  >50.3</td>
      <td  >50.6</td>
      <td  >50.4</td>
      <td  >58.6</td>
      <td  >50.7</td>
      <td  >55.0</td>
      <td  >51.9</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;Inventories</td>
      <td  >43.5</td>
      <td  >43.0</td>
      <td  >46.5</td>
      <td  >45.5</td>
      <td  >49.0</td>
      <td  >50.8</td>
      <td  >49.4</td>
    </tr>
    <tr>
      <td class="firstcol" >Prices Paid Index (NSA)</td>
      <td  >33.5</td>
      <td  >35.5</td>
      <td  >39.0</td>
      <td  >38.5</td>
      <td  >39.8</td>
      <td  >55.6</td>
      <td  >53.8</td>
  </tr>
              </tbody>
            </table>
            </span>
</body></html>


Activity in the manufacturing sector fell to the weakest level since June 2009. The ISM Composite Index of factory sector activity fell to 48.2 during December from an unrevised 48.6 in November. The reading disappointed expectations [...]

U.S. ISM Factory Index and Prices Continue to Deteriorate to 2009 Lows

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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Sandy Batten

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Housing starts and permits data were released for both February and March today. Release of these data has been delayed by the federal government shutdown in October 2025. Total starts fell 3.0% m/m in February to 1.356 million units from a downwardly revised 1.398 million in January (previously 1.487 million) but then rebounded to 1.502 million (+10.8% m/m) in March. The March level was the highest since December 2024 and 10.8% higher than a year earlier. The Action Economics Forecast Survey expected a 5.9% decline in March from January to a level of 1.4 million units. The 7.2% q/q increase in starts in Q1 is the first quarterly increase since Q1 2025. Residential investment has been a drag on overall GDP growth over the past year. The sharp Q1 increase raises hope that residential investment could make a small contribution to Q1 GDP growth in tomorrow’s report.

Single-family starts rose 4.8% m/m in February and 9.7% m/m in March to be 8.9% higher than a year ago. Multi-family starts plunged 17.0% m/m in February following an 18.2% monthly surge in January. They rebounded in March, rising 13.2% m/m to be up 15.5% y/y. The strong performance of starts in March following weakness earlier this year most likely reflects some catch-up as building conditions improved in March after having been very challenging in January and February.

Across the four major geographic regions, starts in the Northeast increased 24.8% m/m in March but fell 21.2% m/m in February. They were up 18.9% y/y. In the Midwest, starts increased 12.2% m/m in Mach on top of a 20.9% monthly gain in February. The March figure was down 0.9% from a year ago. In the South, starts rose 9.1% m/m in March but fell 3.6% m/m in February. In March they were up 14.1% from a year ago. In the West, starts rose 7.2% m/m in March after monthly declines of 7.7% in January and 3.7% in February. Compared with a year ago, they were up 8.0%.

The performance of building permits in February and March mirrored that of starts. Total permits rose 11.0% m/m in February but fell 10.8% m/m in March to be down 7.4% from a year ago. Single-family permits rose 6.2% m/m in February and then fell 3.8% m/m in March. They were 7.9% lower than a year ago. Multi-family permits rebounded 19.2% m/m in February after an 11.1% m/m fall in January. In March, they plunged 21.5% m/m and were down 6.3% from a year earlier.

In March, permits fell in each of the four major regions. In the Northeast, permits plunged 29.0% m/m in March following a 5.9% monthly gain in February. In the Midwest, permits declined 3.1% m/m in February and another 2.3% m/m in March. In the South, permits slumped 7.7% m/m in March but this following a 11.8% monthly jump in February. The March decline was the third in the past four months. In the West, permits fell 14.2% m/m in March following a 21.8% monthly surge in February and a 13.8% m/m slump in January.

The housing starts and permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Data for both February and March were included in today’s report to catch up from delays due to the federal government shutdown last October.
- Starts fell 3.0% m/m in February but rebounded 10.8% m/m in March.
- The 7.2% q/q increase in Q1 was the largest quarterly gain since the economy reopened after the pandemic shutdown in 2020.
- In contrast, permits jumped 11.0% m/m in February but fell 10.8% m/m in March and were up only 1.0% q/q in Q1.

U.S. Housing Starts Fell in February but Rebounded in March

Winnie Tapasanun

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New orders for durable goods rose a stronger-than-expected 0.8% m/m in March, the first monthly rise since November, after declines of 1.2% in February (-1.4% initially) and 0.4% in January (-0.5% previously), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 0.5% m/m March increase. The year-on-year rate decelerated to 0.8% in March, the lowest since December 2024 (-4.5%), from 7.6% in February, though remaining positive since January 2025. Durable goods orders excluding the transportation sector rose 0.9% (7.6% y/y) in March, the 11th consecutive m/m rise, after a 1.2% gain in February. Durable goods orders excluding defense, however, fell 0.3% (-1.8% y/y), the third m/m fall in four months, following a 1.2% February drop.

The m/m rise in March durable goods orders was driven by a 16.9% m/m jump in orders for defense aircraft & parts, the fourth gain in five months, following a 0.5% increase in February and a 26.9% slump in January. Orders for nondefense aircraft & parts dropped 21.1%, adding to a 33.3% February plunge and a 1.7% January decline. Orders excluding aircraft climbed 1.9% (9.2% y/y), the fourth straight m/m rise and the eighth in nine months, after a 1.8% February gain.

Durable goods orders for transportation rebounded 0.8% (-10.4% y/y) in March, the first m/m increase in four months, following a 5.6% drop in February. In addition to March’s m/m jump in defense aircraft orders and drop in nondefense aircraft orders, motor vehicles & parts orders rose 1.2% (7.9% y/y), the fourth successive m/m rise, after a 3.7% February gain. Orders for computers & electronic products jumped 3.7% (15.0% y/y), the largest of seven consecutive m/m increases, following a 1.3% February rise. Machinery orders grew 0.8% (10.4% y/y), the 11th straight m/m gain, on top of a 2.3% February advance. Orders for electrical equipment, appliances & components rose 0.7% (6.5% y/y), the first m/m rise in three months, reversing a 0.7% February decline. Orders for primary metals grew 0.4% (10.2% y/y), the fourth consecutive m/m increase, after a 2.4% February gain. Orders for all other durable goods rose 0.3% (1.2% y/y), up for the seventh straight month, after a 0.5% February rise. Orders for fabricated metal products rose 0.2% (7.2% y/y), the eighth m/m increase in nine months, following a 1.1% February gain.

Capital goods orders recovered 1.7% (-6.7% y/y) in March, the first m/m rise since November, after a 6.5% decrease in February. Nondefense capital goods orders slid 1.2% (-15.4% y/y), the sixth m/m slide in seven months, after a 7.9% February drop. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rose 3.3% (9.4% y/y), the eighth m/m gain in nine months, following a 1.6% February rise. Defense capital goods orders surged 18.0% (80.0% y/y) after a 2.3% February rebound. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 1.2% (7.0% y/y), the sixth m/m rise in seven months, after a 1.3% February increase.

Shipments of all manufactured goods rose 1.4% (5.5% y/y) in March, the fifth m/m rise in six months, after a 1.7% gain in February. Durable goods shipments increased 0.7% (7.6% y/y), up for the sixth time in seven months, after a 1.6% February rise. Nondurable goods shipments advanced 2.1% (3.4% y/y), the strongest of four consecutive m/m increases, after a 1.9% February gain.

Unfilled orders of durable goods edged up 0.1% (9.5% y/y) in March, the eighth straight m/m increase, after a 0.1% uptick in February. Excluding transportation, unfilled orders rose 0.3% (2.5% y/y), also up for the eighth consecutive month, following a 0.3% February rise.

Manufacturing inventories advanced 0.6% (1.3% y/y) in March, the largest of five successive m/m increases, after a 0.1% uptick in February. Durable goods inventories grew 0.2% (1.9% y/y) in March, the sixth consecutive m/m rise, following a 0.1% increase in February, while nondurable goods inventories climbed 1.3% (0.4% y/y) after inching up 0.1%.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- March headline orders +0.8% m/m, first increase in four mths.; +0.8% y/y, lowest since Dec. ’24.
- Defense aircraft & parts +16.9% m/m following February’s +0.5%.
- Transportation orders +0.8%, first m/m rise since Nov.; orders ex transp. +0.9%, 11th straight m/m increase.
- Core capital goods shipments +1.2%, sixth m/m gain in seven mths., pointing to a solid contribution to Q1’26 GDP from business equipt. spending.
- Durable goods shipments +0.7%; unfilled orders +0.1%; inventories +0.2%.

U.S. Durable Goods Orders Rise in March, Led by a Jump in Defense Aircraft Orders

Kathleen Stephansen, CBE

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Mortgage applications fell 1.6% w/w (+33.4% y/y) in the week ending April 24, after rising 7.9% w/w (29.9% y/y) in the week ending April 17, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house rose 1.2% w/w (21.2% y/y) in the April 24 week, following a jump of 10.1% w/w (14.5% y/y) in the April 17 week.  Applications for loan refinancing declined 4.4% w/w (+50.7% y/y) after rising 5.8% w/w (51.9% y/y) in the week of April 17. 

The effective interest rate on a 30-year fixed-rate loan rose 1bps to 6.54% in the week ending April 24 from 6.53% in the week ending April 17. The rate on 15-year fixed-rate mortgages was unchanged at 5.92% in the latest week from the prior week. The 30-year Jumbo rate was also unchanged at 6.56% in the April 24 week from the April 17 week, while the rate on a 5-year ARM jumped 21bps to 6.02% in the latest week from 5.81% in the week ending April 17.

The share of applications for refinancing an existing loan declined to 42.5% of total applications in the week of April 24, from 44.2% in the April 17 week. The adjustable-rate mortgage (ARM) share of activity rose to 8.3% in the week ending April 24 from 8.0% in the week ending April 17.

The average size of a mortgage loan rose 2.0% w/w (6.2% y/y) to $407,900 in the week ending April 24, after rising 1.2% w/w (3.4% y/y) to $399,900 in the week ending April 17. The average size of a purchase loan rose 1.0% w/w (4.6% y/y) to $460,200 in the latest week, after edging down 0.1% w/w (+3.6% y/y) to $455,600 in the April 17 week. The average size of a loan to refinance a mortgage rose 2.3% w/w (16.3% y/y) to $337,100 in the April 24 week, after rising 2.4% w/w (10.7% y/y) to $329,500 in the April 17 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Applications for loans to purchase rose, while applications for loan refinancing declined in the latest week.
- Interest rate on 30-year fixed-rate loans rose 1bps to 6.54%. 
- Average loan size edged up.

U.S. Mortgage Applications Edged Down in the April 24 Week

Robert Brusca

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Globally, money supplies are accelerating. Three- and six-month money growth rates equal or exceed the year-on-year pace everywhere, and the 12-month growth rates accelerate over the recent 12 months compared to the 12-month pace of one year ago—except for the United Kingdom, where data lag by one month. This deviation may amount to the lack of topicality since money, credit, and inflation all are caught in an updraft prompted by rising oil prices. The oil price (Brent) is up at a 468% annual rate over three months, and over 12 months the oil price is up by 31.7%, compared to a 5.5% rise over 12 months one-year ago.

**Rising oil prices do NOT create inflation**
Now we all know that rising oil prices do not create inflation. So, thankfully, the 468% rise in oil prices is not driving up the inflation rate. But unfortunately, it is helping to drive up the price level. So, we are drawing a distinction between the price level and the inflation rate.

The year-over-year change in a price metric, like the CPI, is just that: the year-on-year gain. We often refer to this as ‘THE’ inflation rate. But that is only if the price level was at—and continued to rise at (about)—that same pace. Inflation is an ongoing rise in the price level. No one in their right mind thinks oil prices are going to rise by 468% year-over-year persistently. But of course, oil is a cost to producers and a price to consumers. It is a price that must be paid and cost that must be borne. The question is how much this bump-up in oil prices will contribute to the prices of the items we track in our various national price indexes in the future. Here I will refer to the CPI as the price index. And then we ask if that one-time rise in the relative price of oil will continue to bump up prices by the same amount month-after-month in the future. If it is, it is creating inflation. If not, it is creating a realignment of relative prices. The rise in relative prices is real. It may be painful to some and remunerative to others. The effects are complex.

But the spike in oil prices is not inflation. Even though we are tracking an unknown price rise that is continuing to waffle, I will speak of it as though we know the ultimate rise and speak of that as a one-time surge.

Expressed in this way, you should be able to see the oil price spurt as painful and as something that may be a temporary boost to inflation. If the price stays high, it will boost the price level based on the pass-through by commodity. After the oil price spurt, prices may be higher, but inflation will go back to ‘where it was.’

But all that happens if and only if monetary policy does not accommodate—does not monetize—the rise in oil prices. Unfortunately, we see money supplies are accelerating. Central banks have stepped up their rate of printing money as oil prices have risen, in order to stabilize interest rates. Printing more money, or increasing the money stock faster, is inflationary.

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**A dilemma**
Everywhere central banks have taken the bait, and to cushion the impact on oil prices, they are letting money supplies accelerate. They do this because of a focus on interest rates, as monetary policy has a ‘rule’ that has been developed that monetary policy should not respond to supply shocks. Should money supply respond and accelerate? Well, the answer to that is clear: no. So, we have a dilemma.

**Supply-demand argument**
Actually, the supply side edict is more complicated. Even those who note the monetary policy can’t solve supply problems realize that if a price spike is large enough or lasts long enough, it might, in the short run, impact prices with enough force to affect inflation expectations. Yet, for now we see no acknowledgement of this dilemma.

The expectations argument is the more sophisticated modern approach. Unfortunately, it refers to concepts we do not readily observe. Money supply growth, on the other hand we can measure. We see that money supply is accelerating, and that should make us worry about inflation. That in turn should, through one of several possible channels, get central banks to reign in money supply growth. To do that, they have to stop all this talk of ‘looking through’ the oil price increase, and they have to at least consider raising rates now. While the ECB and BOE have referred to this as a policy choice, the Federal Reserve in the U.S. has been far more circumspect and has just approved the election of a new chairman who thinks he can cut rates. I wonder whether, once he takes the helm at the Fed, he will continue to hold that view?

Economists are not watching money supply the way they used to. Central bankers need to have their eyes open as to the inflation risk, especially in the post Covid period, after which inflation targets had been consistently muddled by overshooting inflation.

Denial takes on many forms. The lesson learned is about money supply. The lesson is about not accommodating shocks to lessen their impact. But the focus on interest rates has muddied the meaning of that lesson in practice.

Globally, Money Supplies Accelerate... No Problemo?

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

Economy in Brief: 2016

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U.S. Gasoline Prices Near Seven-Year Low

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