Tom Moeller

New orders for durable manufactured goods fell 1.7% last month. During January orders declined 4.7% and that was slightly less severe than originally reported. Consensus expectations had been for a slight uptick in February orders. [...]

U.S. Durable Goods Orders Post Surprising Decline

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325f.jpg" align="left" border="0" height="265" width="353">

Iceland unexpectedly raised its official discount rate
today to 15% from 13.75%. According to the Board of Governors of the
Bank of Iceland, inflation has been higher than forecast and its
currency, the kroner, has depreciated sharply. The kroner fell 14%
during the week ending March 19 as seen in the first chart. Demand is
down and it is becoming more difficult to finance its current account
deficit.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325g.jpg" align="right" border="0" height="265" width="353">
Iceland's action is in stark contrast to that of the
majority of developed nations who are lowering rates to combat the
spreading effects of the sub prime crisis. Iceland's problems appear to
have little to do with the financial turmoil resulting from the sub
prime crisis, rather its problems appear to be more the result of its
role in the "Carry Trade." (Investors borrow money in low interest
countries, say in Japan, and invest the proceeds in high interest
countries, say in Iceland. Providing that exchange rates are relatively
stable, the trade is profitable. When exchange rates go against the
borrower, the trade becomes unprofitable.) Iceland with its relatively
high interest rates was a favorite recipient of funds in the "Carry
Trade". With relative stability in exchange rates in the period from
2002 to 2006, the Carry Trade was, for the most part, very profitable.
When exchange rates began rising in the low interest countries in 2007
and falling in the high interest countries, the Carry Trade lost much
of its appeal. Inflows were reduced and, in some cases, reversed. The
ups and downs in the carry trade in Iceland are shown in the second
chart which shows the dramatic rise in the inflow of foreign investment
in debt securities. These flows rose dramatically beginning in 2003,
holding at high levels through 2006, plummeting in most of 2007 and
recovering slightly in the last quarter.
The Carry Trade inflows are more like "hot money" flows
than more long term oriented inflows. As such they tend to cause
disruptions in an economy. Among other things, they result in bigger
current account deficits and, unless they are sterilized, they tend to
add to inflationary pressures.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">ICELAND&nbsp;</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 07&nbsp;</th>
<th scope="col">Q1&nbsp; 07&nbsp;</th>
<th scope="col">Q/Q Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Inflows of Foreign
Invest in Debt Securities
(Mil Korona)</td>
<td>11,212</td>
<td>-138,609</td>
<td>278,074</td>
<td>149,981</td>
<td>-266,862</td>
<td>37,891</td>
<td>925,191</td>
<td>1,057,402</td>
</tr>
</tbody>
</table>
</body></html>

Iceland unexpectedly raised its official discount rate today to 15% from 13.75%. According to the Board of Governors of the Bank of Iceland, inflation has been higher than forecast and its currency, the kroner, has depreciated [...]

Iceland Raises Its Official Discount Rate to 15%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325e.jpg" width="353">
The International Council of Shopping Centers ICSC-UBS Chain Store survey indicated that chain store sales last week fell 0.4% and gave back all of the prior week&#39;s modest increase. The decline left sales so far in March up a negligible 0.1% after February&#39;s 0.4% rise.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS 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 latest week the leading indicator of chain store sales from ICSC-UBS also retreated 0.5% after the prior week&#39;s 0.9% increase.

<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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/21/08</th>
<th scope="col">03/14/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>488.3</td>
<td>490.1</td>
<td>1.0%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers ICSC-UBS Chain Store survey indicated that chain store sales last week fell 0.4% and gave back all of the prior week's modest increase. The decline left sales so far in March up a [...]

U.S. Chain Store Sales Backpedal

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325d.jpg" width="353">
Retail gasoline prices ticked down two cents last week after rising strongly during each of the prior five weeks. The retreat to $3.26 per gallon was so modest that prices so far in March are still up 6.6% from February. They were roughly stable for three months before that.
Yesterday, the wholesale price of unleaded gasoline continued strong. A five cent rise in Monday&#39;s price to $2.48 per gallon versus Friday pulled gas prices up nearly a dime versus last week&#39;s average.
Crude oil prices also retreated with last week&#39;s average price for WTI crude down three dollars w/w to $106.02 per bbl. Yesterday crude prices backed off even further to $101.07 per barrel.
Natural gas prices also topped last week and were down w/w to $9.12 /mmbtu. Nevertheless, natural gas prices were up sharply from February and were up by nearly one third versus last year.
These energy price series are available in Haver&#39;s Daily and Weekly databases.
Globalization and the Determinants of Domestic Inflation is a panel discussion held by Janet L. Yellen, President of the San Francisco Federal Reserve Bank and it is available <a href="http://www.frbsf.org/news/speeches/2008/0307.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">03/24/08</th>
<th scope="col">03/17/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.26</td>
<td>3.28</td>
<td>24.9%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>106.02</td>
<td>109.43</td>
<td>81.0%</td>
<td>94.00</td>
<td>61.11</td>
<td>58.16</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas Price, Henry Hub ($/mmbtu)</td>
<td>9.12</td>
<td>9.75</td>
<td>42.3%</td>
<td>6.96</td>
<td>6.74</td>
<td>8.68</td>
</tr>
</tbody>
</table>
</body>
</html>

Retail gasoline prices ticked down two cents last week after rising strongly during each of the prior five weeks. The retreat to $3.26 per gallon was so modest that prices so far in March are still up 6.6% from February. They were [...]

U.S. Petroleum Prices Tick Lower

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325c.jpg" align="left" border="0" height="265" width="353">
The S&amp;P/Case-Shiller Composite 20
home price index fell 2.4% m/m in January. As a result this index of U.S.
home prices was down 10.7% from January of 2007, a record
decline for this series which dates back only to 2000. Home prices have
fallen in every month since July of 2006 and the decline over that
period totals 12.5%.
The index of 20 U.S. cities and their surrounding areas is not
adjusted for the quality or the size of the home. The home price index
from the Office of Federal Housing Enterprise Oversight (OFHEO) does
make these adjustments. This series indicates that during the fourth
quarter of 2007 house prices rose a negligible 0.8% y/y, the weakest
gain since 1990.
The Case-Shiller composite index of homes in a fewer 10 a
metropolitan areas fell 2.3% (-11.4% y/y) last month.
Home prices in San Francisco prices fell 13.2% and prices in
Miami Florida also fell sharply by 19.3% y/y. Home prices in Las Vegas
Nevada matched that decline and fell 19.3% y/y while in Los Angeles
prices fell 16.5% y/y.
Relatively moderate declines were registered in New York
(-5.8% y/y), Chicago (-6.6% y/y), Denver (-5.1% y/y) and San Diego
California (-5.8% y/y).
An overview of the S&amp;P/Case-Shiller home price series
can be found <a href="http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html">here</a>.
The S&amp;P/Case-Shiller home price series can be found in
Haver's REGIONAL database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">S&amp;P/Case-Shiller
Home Price Index (NSA, Jan 00 = 100)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">20 City Composite
Index</td>
<td>180.65</td>
<td>185.01</td>
<td>-10.7%</td>
<td>-3.8%</td>
<td>7.6%</td>
<td>15.8%</td>
</tr>
</tbody>
</table>
</body></html>

The S&P/Case-Shiller Composite 20 home price index fell 2.4% m/m in January. As a result this index of U.S. home prices was down 10.7% from January of 2007, a record decline for this series which dates back only to 2000. Home prices [...]

Case-Shiller Home Price Index Posts 10.7% y/y Decline

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325a.jpg" align="left" border="0" height="265" width="353"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325b.jpg" align="right" border="0" height="265" width="353">
The Conference Board reported today that consumer confidence
in March again fell sharply. The 15.6% m/m decline to a reading of 64.5
followed February's 12.4% drop. It was the sharpest two month decline
since late 1991. A consensus of economists foresaw less of a decline in
March to a level of 73.8.

The expectations component of the index fell 17.4% m/m and
dropped the level to its lowest since the 1970s. Expectations for
business conditions and for income dropped sharply while expectations
for the inflation rate surged to 6.1%, its highest since 2005.
Respondents planning to buy a household appliance dropped
sharply.
The present conditions index also fell a sharp 14.2% m/m to
the lowest level since mid 2004.
Just 15.4% of respondents saw business conditions as good, the
lowest since 2003. Jobs as plentiful were seen by 18.8% while 25.1% saw
them as hard to get, the highest since mid 2005.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Conference
Board &nbsp;(SA, 1985=100)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y %</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer
Confidence Index</td>
<td>64.5</td>
<td>76.4</td>
<td>-40.4</td>
<td>103.4</td>
<td>105.9</td>
<td>100.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Present Situation</td>
<td>89.2</td>
<td>104.0</td>
<td>-35.6</td>
<td>128.8</td>
<td>130.2</td>
<td>116.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Expectations</td>
<td>47.9</td>
<td>58.0</td>
<td>-45.5</td>
<td>86.4</td>
<td>89.7</td>
<td>89.7</td>
</tr>
</tbody>
</table>
</body></html>

The Conference Board reported today that consumer confidence in March again fell sharply. The 15.6% m/m decline to a reading of 64.5 followed February's 12.4% drop. It was the sharpest two month decline since late 1991. A consensus of [...]

Consumer Confidence Fell Sharply

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325a.jpg" align="left" border="0" height="265" width="353">
The Conference Board reported today that consumer confidence
in March again fell sharply. The 15.6% m/m decline to a reading of 64.5
followed February's 12.4% drop. It was the sharpest two month decline
since late 1991. A consensus of economists foresaw less of a decline in
March to a level of 73.8.
<div align="left"> 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325b.jpg" align="right" border="0" height="265" width="353">

The expectations component of the index fell 17.4% m/m and
dropped the level to its lowest since the 1970s. Expectations for
business conditions and for income dropped sharply while expectations
for the inflation rate surged to 6.1%, its highest since 2005.
<div align="left"> </div>
<div align="left">

Respondents planning to buy a household appliance dropped
sharply.
<div align="left"> </div>
</div>
</div>
<div align="left">

The present conditions index also fell a sharp 14.2% m/m to
the lowest level since mid 2004.
<div align="left"> </div>
<div align="left">

Just 15.4% of respondents saw business conditions as good, the
lowest since 2003. Jobs as plentiful were seen by 18.8% while 25.1% saw
them as hard to get, the highest since mid 2005.
</div>
</div>


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Conference
Board &nbsp;(SA, 1985=100)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y %</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer
Confidence Index</td>
<td>64.5</td>
<td>76.4</td>
<td>-40.4</td>
<td>103.4</td>
<td>105.9</td>
<td>100.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Present Situation</td>
<td>89.2</td>
<td>104.0</td>
<td>-35.6</td>
<td>128.8</td>
<td>130.2</td>
<td>116.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Expectations</td>
<td>47.9</td>
<td>58.0</td>
<td>-45.5</td>
<td>86.4</td>
<td>89.7</td>
<td>89.7</td>
</tr>
</tbody>
</table>
Case-Shiller Home Price Index
Posts 10.7% y/y Decline 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 25, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325c.jpg" align="left" border="0" height="265" width="353">
The S&amp;P/Case-Shiller Composite 20
home price index fell 2.4% m/m in January. As a result this index of U.S.
home prices was down 10.7% from January of 2007, a record
decline for this series which dates back only to 2000. Home prices have
fallen in every month since July of 2006 and the decline over that
period totals 12.5%.
The index of 20 U.S. cities and their surrounding areas is not
adjusted for the quality or the size of the home. The home price index
from the Office of Federal Housing Enterprise Oversight (OFHEO) does
make these adjustments. This series indicates that during the fourth
quarter of 2007 house prices rose a negligible 0.8% y/y, the weakest
gain since 1990.
The Case-Shiller composite index of homes in a fewer 10 a
metropolitan areas fell 2.3% (-11.4% y/y) last month.
Home prices in San Francisco prices fell 13.2% and prices in
Miami Florida also fell sharply by 19.3% y/y. Home prices in Las Vegas
Nevada matched that decline and fell 19.3% y/y while in Los Angeles
prices fell 16.5% y/y.
Relatively moderate declines were registered in New York
(-5.8% y/y), Chicago (-6.6% y/y), Denver (-5.1% y/y) and San Diego
California (-5.8% y/y).
<div align="left">

An overview of the S&amp;P/Case-Shiller home price series
can be found <a href="http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html">here</a>.
<div align="left">

The S&amp;P/Case-Shiller home price series can be found in
Haver's REGIONAL database.
</div>
<div align="left"></div>
</div>


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">S&amp;P/Case-Shiller
Home Price Index (NSA, Jan 00 = 100)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">20 City Composite
Index</td>
<td>180.65</td>
<td>185.01</td>
<td>-10.7%</td>
<td>-3.8%</td>
<td>7.6%</td>
<td>15.8%</td>
</tr>
</tbody>
</table>
U.S. Petroleum Prices Tick Lower 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 25, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325d.jpg" align="left" border="0" height="265" width="353">
Retail gasoline prices ticked down two
cents last week after rising strongly during each of the prior five
weeks. The retreat to $3.26 per gallon was so modest that prices so far
in March are still up 6.6% from February. They were roughly stable for
three months before that.
Yesterday, the wholesale price of unleaded gasoline continued
strong. A five cent rise in Monday's price to $2.48 per gallon versus
Friday pulled gas prices up nearly a dime versus last week's average.
Crude oil prices also retreated with last week's average price
for WTI crude down three dollars w/w to $106.02 per bbl. Yesterday
crude prices backed off even further to $101.07 per barrel.
Natural gas prices also topped last week and were down w/w to
$9.12 /mmbtu. Nevertheless, natural gas prices were up sharply from
February and were up by nearly one third versus last year.
These energy price series are available in Haver's Daily
and Weekly databases.
Globalization and the Determinants of Domestic Inflation is a
panel discussion held by Janet L. Yellen, President of the San
Francisco Federal Reserve Bank and it is available <a href="http://www.frbsf.org/news/speeches/2008/0307.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">03/24/08</th>
<th scope="col">03/17/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.26</td>
<td>3.28</td>
<td>24.9%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>106.02</td>
<td>109.43</td>
<td>81.0%</td>
<td>94.00</td>
<td>61.11</td>
<td>58.16</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas Price, Henry Hub
($/mmbtu)</td>
<td>9.12</td>
<td>9.75</td>
<td>42.3%</td>
<td>6.96</td>
<td>6.74</td>
<td>8.68</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Backpedal 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 25, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325e.jpg" align="left" border="0" height="265" width="353">
The International Council of Shopping Centers ICSC-UBS Chain
Store survey indicated that chain store sales last week fell 0.4% and
gave back all of the prior week's modest increase. The decline left
sales so far in March up a negligible 0.1% after February's 0.4% rise.

During the last ten years there has been a 45% correlation
between the y/y change in chain store sales and the change in nonauto
retail sales less gasoline.

The ICSC-UBS 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 latest week the leading indicator of chain store
sales from ICSC-UBS also retreated 0.5% after the prior week's 0.9%
increase.
<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/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">03/21/08</th>
<th scope="col">03/14/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>488.3</td>
<td>490.1</td>
<td>1.0%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Iceland Raises Its
Official Discount Rate to 15% 
by <a href="/comment/Curley.html">Louise
Curley</a> March 25, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325f.jpg" align="left" border="0" height="265" width="353">

Iceland unexpectedly raised its official discount rate
today to 15% from 13.75%. According to the Board of Governors of the
Bank of Iceland, inflation has been higher than forecast and its
currency, the kroner, has depreciated sharply. The kroner fell 14%
during the week ending March 19 as seen in the first chart. Demand is
down and it is becoming more difficult to finance its current account
deficit.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080325g.jpg" align="right" border="0" height="265" width="353">


Iceland's action is in stark contrast to that of the
majority of developed nations who are lowering rates to combat the
spreading effects of the sub prime crisis. Iceland's problems appear to
have little to do with the financial turmoil resulting from the sub
prime crisis, rather its problems appear to be more the result of its
role in the "Carry Trade." (Investors borrow money in low interest
countries, say in Japan, and invest the proceeds in high interest
countries, say in Iceland. Providing that exchange rates are relatively
stable, the trade is profitable. When exchange rates go against the
borrower, the trade becomes unprofitable.) Iceland with its relatively
high interest rates was a favorite recipient of funds in the "Carry
Trade". With relative stability in exchange rates in the period from
2002 to 2006, the Carry Trade was, for the most part, very profitable.
When exchange rates began rising in the low interest countries in 2007
and falling in the high interest countries, the Carry Trade lost much
of its appeal. Inflows were reduced and, in some cases, reversed. The
ups and downs in the carry trade in Iceland are shown in the second
chart which shows the dramatic rise in the inflow of foreign investment
in debt securities. These flows rose dramatically beginning in 2003,
holding at high levels through 2006, plummeting in most of 2007 and
recovering slightly in the last quarter.


The Carry Trade inflows are more like "hot money" flows
than more long term oriented inflows. As such they tend to cause
disruptions in an economy. Among other things, they result in bigger
current account deficits and, unless they are sterilized, they tend to
add to inflationary pressures.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">ICELAND&nbsp;</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 07&nbsp;</th>
<th scope="col">Q1&nbsp; 07&nbsp;</th>
<th scope="col">Q/Q Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Inflows of Foreign
Invest in Debt Securities
(Mil Korona)</td>
<td>11,212</td>
<td>-138,609</td>
<td>278,074</td>
<td>149,981</td>
<td>-266,862</td>
<td>37,891</td>
<td>925,191</td>
<td>1,057,402</td>
</tr>
</tbody>
</table>
</body></html>

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080324d.jpg" align="left" border="0" height="265" width="353">Italy&#8217;s retail sales edged up in January, rising by 0.2% in
nominal terms, likely a decline in volume terms given the recent pace
of inflation. Over the past three months, sales values fell at a 0.4%
annual rate. And, overall value growth has been eroding ever so
slightly over this period. In the first quarter of 2008 value growth is
up at a 0.5% annual pace and at a stronger 0.7% pace for food,
beverages and tobacco &#8211; both likely representing volume declines.

The chart at the top shows the ISAE consumer sentiment index
plotted against retail sales Yr/Yr. Notice that the ISAE index plotted
in its raw levels format tends to lead the Yr/Yr decline in retail
sales: Sentiment peaks first and rebounds first. It gives reasonably
good signals about what retail sales are about to do. In the recent
period the weak consumer sentiment readings are pointed to further
weakness in Italy&#8217;s already weak retail sales.

Italy&#8217;s HICP is rising at a 2.9% pace in Q1 (also through
January) and its core is up at a 1.5% pace. But in terms of Italy&#8217;s own
domestic inflation indicator (NIC) inflation is at a 5% pace in the
first quarter or 4.6% excluding tobacco (NIC ex-tobacco). Food prices
alone in Italy are up at a 5.8% pace in Q1.

As in the table above these inflation statistics for the first
quarter growth rates take the January level over the Q4 average
(centered in November) and compound that pace. Italy&#8217;s Q1 inflation
calculated on that same basis produces some dismal implicit estimates
of &#8216;retail sales growth (-2.5% to -4.5% depending on the deflator
used). Inflation is clearly outstripping the nominal growth rates for
sales in these comparisons by a wide margin. Italy is the most severely
impacted economy of the EMU Big Three or EU Big Four (i.e. Germany,
France &amp; Italy for EMU, adding the UK for EU).

All of the EMU nations are having a hard time getting retail
sales to grow. (The EU&#8217;s UK retail sales are an exception to most of
the rest of Europe). Germany continues to look for the consumer to fill
in some gaps. But flagging confidence is an issue and the EMU
industrial sector is slowing. Fear seems to have gripped the EMU
nations as the euro has climbed in value despite policymakers extolling
European strength and flexibility, and growth has continued to be
registered. Someone is either worried about nothing or someone else is
whistling past the graveyard. Who is out of touch? Is it the consumer
whose pull back is reminiscent of the consumer in the fetal position,
or is it the policymaker who is trying to put a brave face on an ugly
situation? I report, you decide&#8230; For the moment we are in opinion-land
on this or deeply into shrink-o-nomics as we try and assess the state
of mind of the government official vs the consumer.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">Italy Retail Sales Growth </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">mo/mo %</td>
<td colspan="4">At annual rates</td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
<td>Qtr-to-Date</td>
</tr>
<tr>
<td class="firstcol">Retail Trade</td>
<td>0.2%</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>-0.4%</td>
<td>0.9%</td>
<td>0.8%</td>
<td>0.2%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>-0.3%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Clothing&amp;Furniture</td>
<td>0.7%</td>
<td>0.2%</td>
<td>-1.5%</td>
<td>-2.6%</td>
<td>0.4%</td>
<td>0.7%</td>
<td>0.5%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body></html>

Italy’s retail sales edged up in January, rising by 0.2% in nominal terms, likely a decline in volume terms given the recent pace of inflation. Over the past three months, sales values fell at a 0.4% annual rate. And, overall value [...]

Italy Retail Sales and Consumer Confidence Sag

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

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

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The NFIB Small Business Optimism Index eased 0.6% (+4.8%) to 98.2 in October after falling 2.0% to a 98.8 in September and rising 0.5% to 100.8 in August, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. Four of the ten index components increased last month while five fell and one was unchanged. The NFIB Small Business Uncertainty Index fell 12.0% (-20.0% y/y) last month to 88 after rising 7.5% in September.

The outlook for business conditions was mixed in the latest survey. The net balance of respondents planning to add to inventories declined to a six-month low of -2% from +1% in September. The net percent expecting the economy to improve fell to 20% last month after weakening to 23% in September. A lessened 6% expected higher real sales in six months, compared to 8% in September. A lessened 15% of respondents indicated that now was a good time to increase employment compared to 16% in September. Earnings trends deteriorated sharply.

Offsetting these declines, plans to make capital outlays rose to a ten-month high of 23% of firms after steadying at 21%. The index of expected credit conditions jumped to -3% from -7%. It remained up from a low of -11 in November 2023. A modestly increased 13% of respondents felt that now was a good time to expand. Inventories were assessed as being too low by a lessened 4% of respondents after 7% in September.

On the labor front, 49% of businesses reported few or no qualified workers to fill job openings in October, down slightly from 50% in September. That remained up, however, from a low of 43% in August. These readings remained below a high of 56% in August of 2024.

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The net percent raising their average selling prices fell to 21% last month compared to 24% in September. It had grown to 32% in February. The percentage planning to raise prices eased to 30% in October, down from a 32% high in June. Worker compensation deteriorated as a net 26% of respondents lifted compensation during the last three months versus 31% in the last survey. Compensation gains peaked at 50% of firms in January 2022. A steady net 19% of firms are making plans to raise worker compensation in the next three months, below the November 2024 high of 28%.

The quality of labor was reported by 27% of member firms as the single most important issue facing small businesses. That was increased from 18% in September, and the highest in five years. Moving lower, the cost of labor was ranked by 8% of respondents as the largest problem, compared to 11% in September, while financial & interest rates worries dropped to 2%, the lowest in two years. A lessened 12% cited inflation as the most important problem. Other major concerns were taxes (16%) and poor sales (10%). 

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

- Inventory, economy & employment concerns weigh on optimism.
- Percentage of respondents raising prices moves down; price expectations ease.
- Concerns about quality of labor surge but labor cost worries recede.

U.S. NFIB Small Business Optimism Index Slips in October

251111E.jpg

Macroeconomic expectations in the ZEW survey backtracked slightly in Germany while improving slightly in the United States in November. The economic situation improved slightly in the euro area and Germany while backtracking in the United States. That's the assessments of the current economic situation and expectations for Germany or the EMU that are moving in different directions in the U.S. and in Germany or in the U.S. vs. the European Monetary Union in November.

Inflation expectations backed off across the board easing slightly in the euro area, Germany, and also in the United States. While that happened, expectations for short-term interest rates became less focused on rate cuts in the euro area and slightly less tilted toward the expectation for rate cuts in the U.S. as well. Long-term rate expectations receded somewhat in both Germany and in the U.S. in November by small amounts. Stock market expectations picked up in the euro area, Germany, and the U.S., and in most cases, somewhat significantly.

**The queue standings**
The queue standings are ranked standings of these various metrics, and they tell a clear story of how the ZEW experts see current conditions and policy tradeoffs. The euro area has an economic situation where the queue standing is at its 51st percentile, slightly above its historic median (on data since the early 1990s). However, Germany and the U.S. have very weak percentile standings with Germany in its 14.5 percentile and the U.S. in its 35th percentile. Macroeconomic expectations, however, find Germany at a solid 63.6 percentile while the U.S. is at a 23.3 percentile. ZEW experts are far more upbeat on prospects for German recovery right now than in the United States – and that seems odd to me with a lot of fiscal stimulus in train in the U.S. and tons of ‘AI’ investment.

Inflation expectations are high in the U.S. at an 85.5 percentile standing, well above the historic median, and clearly showing threatening conditions. This compares to a 30% queue standing for the euro area and Germany.

Short-term rate expectations are significantly below the median for both the euro area and the U.S. with the euro area at a 26.8 percentile and the U.S. at a 9.3 percentile standing. Long-term rate expectations have Germany at a 43-percentile and the U.S. at a more similar 35-percentile. Stock market expectations are fairly similar across the lot with the euro area at a 38-percentile standing, Germany at a 35-percentile standing and the U.S. at a 38-percentile standing.

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**Summing up**
These metrics remind us that ZEW experts see different inflation circumstances in the U.S. compared to Europe as well as very different current economic situations, especially between the U.S. and the euro area and very different macroeconomic expectations between the U.S. and Germany. The U.S. is seen more as a place that's percolating inflation despite the fact that the Federal Reserve continues to say inflation is under control and inflation expectations are well anchored. Apparently, they are not well-anchored among the ZEW financial experts. We might add, nor are they well-anchored among participants in the University of Michigan survey, or for respondents to the NFIB survey that was just released. Maybe it's the Fed that is not very well anchored to reality when it comes to inflation expectations assessments?

ZEW Expectations Weaken Mildly

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Initial claims for unemployment insurance rose 9,379 during the week ended November 1 to 228,899 (3.4% y/y) and mostly reversed the prior week’s 12,643 decline to 219,520. The four-week moving average of initial claims eased to 225,213 from 226,766. The four-week average hit a low of 200,323 in January 2024.

Federal government employees filed 7,482 initial jobless insurance claims last week after 9,435 in the prior week. These figures are increased from 588 at the end of September.

Continuing claims for unemployment insurance rose to 1.964 million (4.4% y/y) in the week ended October 25 from 1.957 million in the prior week. The four-week moving average rose to 1.949 million from 1.940 million. It was the highest level since the last week of August.

Federal government employees continuing benefits rose to 30,649 in the week ended October 25 from 23,188 in the prior week. These figures are increased from 8,676 at the end of September.

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

- Increase in initial claims reverses most of earlier decline.
- Continuing claims continue to increase.

U.S. Initial Claims for Unemployment Insurance Rise in Latest Week

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Industrial production for the European Monetary Union (EMU) is not yet available for the union as a whole; however, a number of European countries have reported production, and they give us a good sense of what's happening. In September, among the 13 European countries that reported in the table, all but four of them showed increases in industrial production. Declines were posted in Ireland where production fell by 9.4% in one month, Luxembourg where it fell by 6.1%, Malta where it fell by 1.7%, and in Finland where it fell by 0.4%. In the remaining nine countries, production increased. The median increase for monetary union members in the table was a rise of 0.8% month-to-month. 45.5% of the reporters in the monetary union showed production acceleration.

In August, there were 5 European members with production decreasing. Among European Monetary Union members, the median was a decline of 0.5% with 46.2% of the reporters showing output accelerating on the month. July had been a much worse month with 8 reporting European countries showing declines and with the monetary union median showing a decline of 0.3% and only 38.5% of the reporting EMU members showing output accelerating month-to-month.

There has been gradual moderate improvement in these monthly statistics both in terms of improvement in the median and improvement in the breadth as output has accelerated, with a step back in August.

Looking at the sequential data that compare three-month results to six-month results to 12-month results, we see a median annualized increase of 2.9% for output across monetary union members over three months; that's up from 0.8% over six months and compares to a 2.1% increase for monetary union members over twelve months. The breadth of increase over the period is above 50% on all the horizons and it's fairly steady over three months and six months at about a 54-percentile standing.

September data conclude the results for the third quarter. In this quarter-to-date calculation, 6 of the 13 reporters in the table shows output declining in the third quarter. Monetary Union members generate a median increase of 0.3% in terms of annualized quarter-to-quarter industrial output changes. The pattern and the monthly data seem to be slightly stronger than what we see in the quarter-to-date.

The final column of the table presents the queue standings that calculate the positioning of the year-over-year growth rates across country-reporters among growth rates back to late-2007. Ranked among this cluster of growth rates, only five of the current year-over-year rates stand at levels that are below their median growth rate for the period. Countries with below median growth rates (below a standing of 50%) for industrial production growth are Austria, Germany, Finland, Luxembourg, and Malta. Among these, only one belongs to the four largest economies in the monetary union—Germany, which is also the largest of them. Germany has the standing only its 39th percentile. The unweighted median ranking for the group of monetary union economies is at 57.3%, above the 50% mark and therefore above the historic median.

The industrial production data for the monetary union in September is somewhat encouraging but certainly not crystal clear. There continues to be a lot of weaknesses displayed in the data. While the aggregate ranking is above its historic median, it's not above it by very much and clearly the growth rates are still relatively weak. There still is not a clear trend of acceleration in the group. However, what's lacking in the data is any sign of real deterioration. There clearly is weakness across countries but not a sense of deterioration. The best news in the report may be that there's not any really bad news.

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Europe

Production in a Gradual Recovery in Europe Despite Recent Setbacks

Tian Yong Woon

This week, we review key developments across several Asian economies as the year nears its close. On balance, many of investors’ and policymakers’ worst fears did not materialize. Despite US tariffs, regional exports have shown resilience (chart 1), partly supported by stronger intra-Asia trade, even as exports to the US declined in some cases.

In China, factors including importer front-loading, stronger exports to non-US markets, and government efforts to boost consumption—albeit with potentially one-off effects—have kept the economy on track to meet its 5% growth target this year (chart 2), barring a substantial slowdown in Q4. In Japan, political uncertainty has eased following Prime Minister Takaichi’s rise, though her pro-growth, pro-loose monetary stance has contributed to further yen weakness (chart 3). India, while still likely Asia’s fastest-growing major economy this year, has seen trade setbacks (chart 4) as US–India discussions continue, though recent progress suggests a deal may be near.

However, not all developments in Asia have avoided worst-case outcomes. For example, the Philippines, which has already been hit by a string of storms this year, continues to reel from the effects of Typhoons Fung-wong and Kalmaegi. These storms have highlighted corruption in the Philippines’ flood control systems, rattling investors and pressuring the peso (chart 5), in a manner reminiscent of the rupiah’s decline during Indonesia’s political turmoil earlier this year. In Thailand, political uncertainty continues ahead of general elections eyed at next March, while the expected full return of Chinese tourists has yet to materialize (chart 6).

**Trade in Asia**
For Asia, the year has ultimately not played out as bleakly as investors once feared, particularly on the trade front. Despite US President Trump’s tariffs and a persistent backdrop of uncertainty, export performance in several Asian economies has proven more resilient than expected. This is most clearly reflected in export growth readings for China and key Southeast Asian economies (chart 1), which have remained firm—and at times exceeded expectations—even as China’s shipments to the US fell sharply. Much of this resilience reflects a redirection of exports toward other markets, often within the region. India, however, has seen more limited gains, with exports in US dollar terms struggling to materially surpass last year’s levels.

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**China**
Among the main investor concerns earlier this year was China, which once again came under close scrutiny as President Trump sought to address issues ranging from the large US–China trade imbalance to intensifying AI competition and perceived overcapacity. Yet China’s growth—particularly on the export front—has proven more resilient than expected, with increased shipments to other markets more than offsetting reduced trade with the US. Earlier front-loading by importers ahead of anticipated tariff hikes also temporarily supported export figures. Domestically, government initiatives to stimulate consumption led to a brief lift in retail spending, though signs suggest these effects may be fading, indicating their largely one-off nature. Even so, China has maintained year-to-date growth above its 5% annual target (chart 2), keeping that goal within reach provided momentum does not weaken significantly in Q4. Meanwhile, the more conciliatory tone in recent US–China discussions, including the halving of US fentanyl-related tariffs, offers a modest further relief. That said, longer-term structural issues still loom, including the difficult shift toward a more consumption-led economy, demographic pressures, and questions around sustained overcapacity in key industries.

251110T2.jpg

**Japan**
In Japan, the political uncertainty that followed the Liberal Democratic Party’s weak election performances earlier in the year has largely eased with Takaichi’s appointment as the country’s first female Prime Minister. Attention now turns to her supplementary budget—reported to be around $65 billion—which aims to address the rising cost of living while also bolstering defence and diplomatic capabilities. Investors, however, are already contemplating the policy implications. In particular, expectations that Takaichi’s agenda could make it harder for the Bank of Japan to pursue further significant tightening have added renewed pressure on the yen, pushing it to multi-year lows (chart 3). And while a weaker yen could, in theory, support tourism, forthcoming measures to curb overtourism—such as Kyoto’s planned 900% increase in accommodation taxes—may act as offsetting factors.

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**India**
Turning to India, the economy remains on track to be the region’s fastest-growing major economy. Growth forecasts were downgraded earlier in the year by the IMF and Blue Chip survey panellists, but these revisions were later reversed. These early-year downgrades reflected India’s heavy exposure to US trade, a concern that materialized when the US raised its reciprocal tariff rate on India from 25% to 50%. This contrasts with the situation of many other Asian economies, who successfully negotiated lower rates below the “Liberation Day” baseline. Although India managed to expand exports to other trading partners, this gain resulted in only a muted net impact on overall exports and, in turn, GDP growth. That said, US–India discussions have made some progress over the year, particularly on previously contentious issues such as India’s purchases of Russian crude. While these developments bring India closer to a potential trade deal, the benefits are likely to materialize beyond this year, meaning current growth readings still largely reflect the impact of the steep US tariffs in place today.

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**The Philippines**
Moving to the Philippines, the country is grappling with the impact of Typhoon Fung-wong, which struck the northern regions on Sunday, forcing over a million people to evacuate and causing widespread landslides and damaged roads. Fung-wong follows a string of storms this year, including Typhoon Kalmaegi, which also inflicted substantial damage just a few days ago. The disasters have reignited concerns over longstanding corruption in the country’s flood control systems, spooking investors and prompting capital outflows, which have weighed on the Philippine peso (chart 5). The currency’s weakness has been compounded by the central bank’s ongoing easing, which has cut the policy rate from last year’s peak of 6.5% to 4.75%—nearly 200 basis points—and with markets still pricing in further cuts.

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**Thailand**
Lastly, Thailand’s economy continues to struggle to regain the footing it had before the pandemic, weighed down by both domestic and external factors. Politically, the country remains in a transitional phase, with new Prime Minister Anutin under scrutiny to deliver on his pledge to hold general elections soon. Deputy Prime Minister indications suggest March 29, 2026 as a likely date, leaving a period of uncertainty in the meantime, as the durability of policies enacted during this interim phase remains unclear. Externally, tourism—which should have been a key growth driver—has underperformed, as the return of Chinese visitors to pre-pandemic levels did not materialize, partly due to tourism-related scares. In contrast, Vietnam appears to have captured a larger share of Chinese tourists this year (chart 6).

Economy in Brief: 2008

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U.S. Durable Goods Orders Post Surprising Decline

Iceland Raises Its Official Discount Rate to 15%

U.S. Chain Store Sales Backpedal

U.S. Petroleum Prices Tick Lower

Case-Shiller Home Price Index Posts 10.7% y/y Decline

Consumer Confidence Fell Sharply

Consumer Confidence Fell Sharply

Italy Retail Sales and Consumer Confidence Sag