Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124f.jpg" width="353">
GDP in the UK gained 0.8% in Q4, the largest quarterly increase in 2-1/2 years, according to preliminary data reported today by the Office for National Statistics. The pick-up from 0.7% in Q3 occurred in the services sector. Contrary to at least one press report, this did not happen in the financial industries. Instead it was in old-line, traditional activities, including wholesale and retail trade, hotels and restaurants, and transportation and communications; these surged from marginal increases in Q3 to 1.4-1.8% in Q4. Finance and business services were hardly slow, at 1.0% growth in Q4, but they had been stronger at 1.3-1.4% earlier in the year.
Manufacturing had three firm quarter running, but came to a dead halt in Q4, with virtually no change at all. Even so, this put Q4/Q4 at 2.3%, the strongest since 1999. The mining sector (which includes oil production) stabilized after two quarters of steep decline, while utility output continued to contract. In fact, electricity, gas and water supply fell 5.2% Q4/Q4 and 3.2% for 2006 as a whole, the weakest performance since the massive coal miners&#39; strike in 1984.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124h.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124g.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK GDP&nbsp;SA, % Changes</th>
<th scope="col">Q4 2006 &quot;Prel&quot;&nbsp;</th>
<th scope="col">Q3 2006&nbsp;</th>
<th scope="col">Q2 2006</th>
<th scope="col">Year/Year</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>0.8</td>
<td>0.7</td>
<td>0.7</td>
<td>3.0</td>
<td>2.7</td>
<td>2.0</td>
<td>3.2</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Manufacturing </td>
<td>0.0</td>
<td>0.6</td>
<td>0.9</td>
<td>2.3</td>
<td>1.2</td>
<td>-1.1</td>
<td>2.0</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining inc Oil Extraction</td>
<td>-0.1</td>
<td>-3.8</td>
<td>-3.7</td>
<td>-7.6</td>
<td>-8.0</td>
<td>-8.7</td>
<td>-7.9</td>
<td>-5.1</td>
</tr>
<tr>
<td class="firstcol">Electricity, Gas &amp; Water Supply</td>
<td>-2.3</td>
<td>-0.2</td>
<td>-2.7</td>
<td>-5.2</td>
<td>-3.2</td>
<td>0.3</td>
<td>1.2</td>
<td>1.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.0</td>
<td>0.8</td>
<td>1.0</td>
<td>3.6</td>
<td>3.7</td>
<td>2.9</td>
<td>3.9</td>
<td>3.1</td>
</tr>
</tbody>
</table>
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GDP in the UK gained 0.8% in Q4, the largest quarterly increase in 2-1/2 years, according to preliminary data reported today by the Office for National Statistics. The pick-up from 0.7% in Q3 occurred in the services sector. Contrary [...]

UK GDP Rises 0.8% in Q4: A Brief Summary

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124e.jpg" width="353">
Sweden&#39;s labor market conditions were favorable during 2006, with growth in employment and declining unemployment. The December labor force survey, reported today by Statistics Sweden, shows growth in the labor force of 1.1% year/year and growth in employment of 1.9%. The unemployment rate was 4.6%, the fourth consecutive month below 5% and down markedly from 5.4% in December 2005.
For the year as a whole, employment expanded by 2.0%, the best performance since before dot.com-related recessionary conditions struck Sweden in late 2001. The employment rate was 74.3%, up from 73.7% in December 2005 and the highest December since 2001.
Sweden&#39;s labor force data were harmonized with the rest of the EU beginning in April 2005. Earlier data were not restated. So historical comparisons are a bit tenuous. Even so, the growth in employment is a genuine and positive development for the nation&#39;s economy and its people.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">SWEDEN: NSA (000s)</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Dec 2005*</th>
<th scope="col">2006</th>
<th scope="col">2005*</th>
<th scope="col">2004*</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Labor Force</td>
<td>4,556</td>
<td>4,568</td>
<td>4,508</td>
<td>4,586</td>
<td>4,517</td>
<td>4,459</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.1%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>4,345</td>
<td>4,370</td>
<td>4,264</td>
<td>4,340</td>
<td>4,254</td>
<td>4,213</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>1.0%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.6%</td>
<td>4.3%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>5.8%</td>
<td>5.5%</td>
</tr>
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Sweden's labor market conditions were favorable during 2006, with growth in employment and declining unemployment. The December labor force survey, reported today by Statistics Sweden, shows growth in the labor force of 1.1% year/year [...]

Sweden Employment Gain Best in 5 Years; Unemployment Holds Below 5%

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124b.jpg" width="353">
The composite index of leading economic indicators increased 0.3% last month after a downwardly revised no change during November, according to the Conference Board. October&#39;s gain also was revised away to a minus 0.1%. Consensus expectations had been for a 0.2% gain during December.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The lagging indicators rose a firm 0.9% after an upwardly revised 0.6% increase during November. December&#39;s gain was the largest increase since January of last year. It was led by higher C&amp;I loans and a longer duration of unemployment. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, fell sharply to the lowest level since late 2000.
The breadth of one month gain amongst the 10 components of the leading index improved sharply to 70%, its best since March, but over the last six months only 40% of the component series rose.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124a.jpg" width="353">
Lower initial claims for unemployment insurance, higher building permits and higher stock prices made the largest contributions to last month&#39;s gain in the leading index.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.2% for the third straight month. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">December</th>
<th scope="col">November</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">Leading</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
</body>
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The composite index of leading economic indicators increased 0.3% last month after a downwardly revised no change during November, according to the Conference Board. October's gain also was revised away to a minus 0.1%. Consensus [...]

U.S. Leading Economic Indicators Rose, Signs of Excess Surfaced

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124b.jpg" width="353">
The composite index of leading economic indicators increased 0.3% last month after a downwardly revised no change during November, according to the Conference Board. October&#39;s gain also was revised away to a minus 0.1%. Consensus expectations had been for a 0.2% gain during December.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The lagging indicators rose a firm 0.9% after an upwardly revised 0.6% increase during November. December&#39;s gain was the largest increase since January of last year. It was led by higher C&amp;I loans and a longer duration of unemployment. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, fell sharply to the lowest level since late 2000.
The breadth of one month gain amongst the 10 components of the leading index improved sharply to 70%, its best since March, but over the last six months only 40% of the component series rose.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124a.jpg" width="353">
Lower initial claims for unemployment insurance, higher building permits and higher stock prices made the largest contributions to last month&#39;s gain in the leading index.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.2% for the third straight month. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">December</th>
<th scope="col">November</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">Leading</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
Mortgage Applications Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124d.jpg" width="353">
The total number of mortgage applications fell a sharp 8.4% last week, after a slight decline the prior week according to the Mortgage Bankers Association.
Purchase applications slumped 8.4% after the prior period&#39;s sharp 7.0% fall. Nevertheless, as a result of a 16.2% surge at the beginning of January, the average level of purchase applications this month is up 3.2% from December which rose 4.7%.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance also fell a sharp 9.6%. Applications to refinance in January are 2.0% above the December average which was unchanged from November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124c.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose w/w to 6.41% to the highest level this year and compared to the December average of 6.28%. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing also rose to 6.19%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
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>.

<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">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">01/19/07</th>
<th scope="col">01/12/07</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>611.3</td>
<td>667.2</td>
<td>-7.4%</td>
<td>584.2</td>
<td>708.6</td>
<td>735.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>402.7</td>
<td>439.7</td>
<td>-15.0%</td>
<td>406.9</td>
<td>470.9</td>
<td>454.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,848.8</td>
<td>2,045.8</td>
<td>4.2%</td>
<td>1,634.0</td>
<td>2,092.3</td>
<td>2,366.8</td>
</tr>
</tbody>
</table>
Sweden Employment Gain Best in 5 Years; Unemployment Holds Below 5% 
by <a href="/comment/Stone.html">Carol Stone</a> January 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124e.jpg" width="353">
Sweden&#39;s labor market conditions were favorable during 2006, with growth in employment and declining unemployment. The December labor force survey, reported today by Statistics Sweden, shows growth in the labor force of 1.1% year/year and growth in employment of 1.9%. The unemployment rate was 4.6%, the fourth consecutive month below 5% and down markedly from 5.4% in December 2005.
For the year as a whole, employment expanded by 2.0%, the best performance since before dot.com-related recessionary conditions struck Sweden in late 2001. The employment rate was 74.3%, up from 73.7% in December 2005 and the highest December since 2001.
Sweden&#39;s labor force data were harmonized with the rest of the EU beginning in April 2005. Earlier data were not restated. So historical comparisons are a bit tenuous. Even so, the growth in employment is a genuine and positive development for the nation&#39;s economy and its people.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">SWEDEN: NSA (000s)</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Dec 2005*</th>
<th scope="col">2006</th>
<th scope="col">2005*</th>
<th scope="col">2004*</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Labor Force</td>
<td>4,556</td>
<td>4,568</td>
<td>4,508</td>
<td>4,586</td>
<td>4,517</td>
<td>4,459</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.1%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>4,345</td>
<td>4,370</td>
<td>4,264</td>
<td>4,340</td>
<td>4,254</td>
<td>4,213</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>1.0%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.6%</td>
<td>4.3%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>5.8%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
UK GDP Rises 0.8% in Q4: A Brief Summary 
by <a href="/comment/Stone.html">Carol Stone</a> January 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124f.jpg" width="353">
GDP in the UK gained 0.8% in Q4, the largest quarterly increase in 2-1/2 years, according to preliminary data reported today by the Office for National Statistics. The pick-up from 0.7% in Q3 occurred in the services sector. Contrary to at least one press report, this did not happen in the financial industries. Instead it was in old-line, traditional activities, including wholesale and retail trade, hotels and restaurants, and transportation and communications; these surged from marginal increases in Q3 to 1.4-1.8% in Q4. Finance and business services were hardly slow, at 1.0% growth in Q4, but they had been stronger at 1.3-1.4% earlier in the year.
Manufacturing had three firm quarter running, but came to a dead halt in Q4, with virtually no change at all. Even so, this put Q4/Q4 at 2.3%, the strongest since 1999. The mining sector (which includes oil production) stabilized after two quarters of steep decline, while utility output continued to contract. In fact, electricity, gas and water supply fell 5.2% Q4/Q4 and 3.2% for 2006 as a whole, the weakest performance since the massive coal miners&#39; strike in 1984. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124g.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070124h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK GDP&nbsp;SA, % Changes</th>
<th scope="col">Q4 2006 &quot;Prel&quot;&nbsp;</th>
<th scope="col">Q3 2006&nbsp;</th>
<th scope="col">Q2 2006</th>
<th scope="col">Year/Year</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>0.8</td>
<td>0.7</td>
<td>0.7</td>
<td>3.0</td>
<td>2.7</td>
<td>2.0</td>
<td>3.2</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Manufacturing </td>
<td>0.0</td>
<td>0.6</td>
<td>0.9</td>
<td>2.3</td>
<td>1.2</td>
<td>-1.1</td>
<td>2.0</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining inc Oil Extraction</td>
<td>-0.1</td>
<td>-3.8</td>
<td>-3.7</td>
<td>-7.6</td>
<td>-8.0</td>
<td>-8.7</td>
<td>-7.9</td>
<td>-5.1</td>
</tr>
<tr>
<td class="firstcol">Electricity, Gas &amp; Water Supply</td>
<td>-2.3</td>
<td>-0.2</td>
<td>-2.7</td>
<td>-5.2</td>
<td>-3.2</td>
<td>0.3</td>
<td>1.2</td>
<td>1.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.0</td>
<td>0.8</td>
<td>1.0</td>
<td>3.6</td>
<td>3.7</td>
<td>2.9</td>
<td>3.9</td>
<td>3.1</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124e.jpg" width="353">
Last week Carol Stone commented on the signs of weakness in the United Kingdom&#39;s economy. Lower employment, reduced confidence, declining orders and industrial production. Today the Confederation of British Industries cast further gloom with the releases of their monthly and quarterly surveys of industrial trends. The latest survey was conducted between December 12, 2005 and January 11, 2006. During this period the pound averaged $1.75 and the price of Brent crude averaged $59.02 per barrel.
The balance between those reporting an increase in orders and those reporting a decrease was -28% in January, 6 percentage points more negative than December and 15 percentage points more negative than January, a year ago. Export orders fared somewhat better. The balance between those reporting an increase in export orders and those reporting a decrease was -10 0% in January, significant improvements from the -23% in December and the -26% in January, 2005. There have been very few months in the past five years when the balances on the total order book or the export order book have been positive, as can be seen in the first chart. In general more manufacturers have reported decreases in orders than have reported increases over this period.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124f.jpg" width="353">
While there has been a slight decline in pessimism in the current quarter survey, pessimists continue to outweigh the optimists, as they have since late 2004. The balance of those expecting an improvement in the business situation was -14% in the first quarter, compared with -21% in the fourth quarter, 2005 and -22% in the first quarter, 2005. Again, there is a somewhat better outlook for the export situation. The balance of those expecting a decrease in the export situation was -5% in the first quarter, an improvement from the -11% of the fourth quarter. The balances for optimism for the whole economy and for exports are shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124g.jpg" width="353">
Manufacturers are having trouble passing higher input prices on to the final consumer. Although there was some reduction in the balance of those expecting lower final prices in the first quarter to -4% from -8% in the fourth quarter of 2005, there was an increase to 23% in the balance of those expecting higher costs. Since early last year, the year over year increases in costs have exceeded those of final prices as can be seen in the third chart. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U9/@U9.HTM">Confederation of British Industries (% Balances)</a></th>
<th scope="col">Q1 06 %</th>
<th scope="col">Q4 05 % </th>
<th scope="col">Q1 05 %</th>
<th scope="col">Q/Q dif</th>
<th scope="col">Y/Y dif</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Optimism -General Business Situation</td>
<td>-14</td>
<td>-21</td>
<td>-22</td>
<td>7</td>
<td>8</td>
<td>-19</td>
<td>7</td>
<td>-17</td>
</tr>
<tr>
<td class="firstcol">Optimism-Exports</td>
<td>-5</td>
<td>-11</td>
<td>-6</td>
<td>6</td>
<td>1</td>
<td>-6</td>
<td>7</td>
<td>-1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices</td>
<td>-4</td>
<td>-8</td>
<td>11</td>
<td>4</td>
<td>-15</td>
<td>2</td>
<td>-4</td>
<td>-16</td>
</tr>
<tr>
<td class="firstcol">Costs</td>
<td>23</td>
<td>20</td>
<td>23</td>
<td>3</td>
<td>0</td>
<td>22</td>
<td>9</td>
<td>3</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jan 06 %</td>
<td>Dec 05 % </td>
<td>Jan 05 %</td>
<td>M/M dif</td>
<td>Y/Y dif</td>
<td>2005 %</td>
<td>2004 %</td>
<td>2003 %&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Order Book</td>
<td>-28</td>
<td>-22</td>
<td>-13</td>
<td>-6</td>
<td>-15</td>
<td>-21</td>
<td>-9</td>
<td>-29&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Export Order Book</td>
<td>&nbsp;-10</td>
<td>-23</td>
<td>-26</td>
<td>13</td>
<td>16&nbsp;</td>
<td>-21&nbsp;</td>
<td>-13&nbsp;</td>
<td>-33&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Last week Carol Stone commented on the signs of weakness in the United Kingdom's economy. Lower employment, reduced confidence, declining orders and industrial production. Today the Confederation of British Industries cast further [...]

CBI (Confederation of British Industries): Orders Decline, Price Squeeze Continues

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124d.jpg" width="353">
Chain store sales edged 0.3% higher last week following the sharp 1.4% drop during the prior period, according to the International Council of Shopping Centers (ICSC)-UBS survey.
The increase left sales in January 1.3% ahead of December.
The leading indicator of chain store sales slipped 0.1% following two weeks of strong increase and the January average remained 1.2% ahead of December which rose 0.8%.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124c.jpg" width="353">
Redbook Research reported that chain store sales in January were 0.4% below (+3.6% y/y) December. The Redbook survey samples same-store sales at general merchandise retailers representing about 9,000 stores. Same-store sales measure revenue at stores open at least a year.
During the last ten years there has been a 67% correlation between the y/y change in the Redbook tally of chain store sales and the change in non-auto retail sales less gasoline.
The latest store sales were accompanied by another rise in gasoline prices at the pump. Last week&#39;s two cent increase to an average $2.34 per gallon of regular unleaded followed a slight dip the prior week and pulled the January average to $2.31. In spot market trading yesterday gasoline fell three cents after a four cent rise on Friday, but declines early last week left the latest level two cents below last week&#39;s average.

<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">01/21/06</th>
<th scope="col">01/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>459.0</td>
<td>457.7</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales edged 0.3% higher last week following the sharp 1.4% drop during the prior period, according to the International Council of Shopping Centers (ICSC)-UBS survey. The increase left sales in January 1.3% ahead of [...]

Chain Store Sales Edged Up, With Gasoline Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124c.jpg" width="353">
Chain store sales edged 0.3% higher last week following the sharp 1.4% drop during the prior period, according to the International Council of Shopping Centers (ICSC)-UBS survey.
The increase left sales in January 1.3% ahead of December.
The leading indicator of chain store sales slipped 0.1% following two weeks of strong increase and the January average remained 1.2% ahead of December which rose 0.8%.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124c.jpg" width="353">
Redbook Research reported that chain store sales in January were 0.4% below (+3.6% y/y) December. The Redbook survey samples same-store sales at general merchandise retailers representing about 9,000 stores. Same-store sales measure revenue at stores open at least a year.
During the last ten years there has been a 67% correlation between the y/y change in the Redbook tally of chain store sales and the change in non-auto retail sales less gasoline.
The latest store sales were accompanied by another rise in gasoline prices at the pump. Last week&#39;s two cent increase to an average $2.34 per gallon of regular unleaded followed a slight dip the prior week and pulled the January average to $2.31. In spot market trading yesterday gasoline fell three cents after a four cent rise on Friday, but declines early last week left the latest level two cents below last week&#39;s average.

<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">01/21/06</th>
<th scope="col">01/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>459.0</td>
<td>457.7</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
CBI (Confederation of British Industries): Orders Decline, Price Squeeze Continues 
by <a href="/comment/Curley.html">Louise Curley</a> January 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124e.jpg" width="353">
Last week Carol Stone commented on the signs of weakness in the United Kingdom&#39;s economy. Lower employment, reduced confidence, declining orders and industrial production. Today the Confederation of British Industries cast further gloom with the releases of their monthly and quarterly surveys of industrial trends. The latest survey was conducted between December 12, 2005 and January 11, 2006. During this period the pound averaged $1.75 and the price of Brent crude averaged $59.02 per barrel.
The balance between those reporting an increase in orders and those reporting a decrease was -28% in January, 6 percentage points more negative than December and 15 percentage points more negative than January, a year ago. Export orders fared somewhat better. The balance between those reporting an increase in export orders and those reporting a decrease was -10 0% in January, significant improvements from the -23% in December and the -26% in January, 2005. There have been very few months in the past five years when the balances on the total order book or the export order book have been positive, as can be seen in the first chart. In general more manufacturers have reported decreases in orders than have reported increases over this period.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124f.jpg" width="353">
While there has been a slight decline in pessimism in the current quarter survey, pessimists continue to outweigh the optimists, as they have since late 2004. The balance of those expecting an improvement in the business situation was -14% in the first quarter, compared with -21% in the fourth quarter, 2005 and -22% in the first quarter, 2005. Again, there is a somewhat better outlook for the export situation. The balance of those expecting a decrease in the export situation was -5% in the first quarter, an improvement from the -11% of the fourth quarter. The balances for optimism for the whole economy and for exports are shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060124g.jpg" width="353">
Manufacturers are having trouble passing higher input prices on to the final consumer. Although there was some reduction in the balance of those expecting lower final prices in the first quarter to -4% from -8% in the fourth quarter of 2005, there was an increase to 23% in the balance of those expecting higher costs. Since early last year, the year over year increases in costs have exceeded those of final prices as can be seen in the third chart. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U9/@U9.HTM">Confederation of British Industries (% Balances)</a></th>
<th scope="col">Q1 06 %</th>
<th scope="col">Q4 05 % </th>
<th scope="col">Q1 05 %</th>
<th scope="col">Q/Q dif</th>
<th scope="col">Y/Y dif</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Optimism -General Business Situation</td>
<td>-14</td>
<td>-21</td>
<td>-22</td>
<td>7</td>
<td>8</td>
<td>-19</td>
<td>7</td>
<td>-17</td>
</tr>
<tr>
<td class="firstcol">Optimism-Exports</td>
<td>-5</td>
<td>-11</td>
<td>-6</td>
<td>6</td>
<td>1</td>
<td>-6</td>
<td>7</td>
<td>-1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices</td>
<td>-4</td>
<td>-8</td>
<td>11</td>
<td>4</td>
<td>-15</td>
<td>2</td>
<td>-4</td>
<td>-16</td>
</tr>
<tr>
<td class="firstcol">Costs</td>
<td>23</td>
<td>20</td>
<td>23</td>
<td>3</td>
<td>0</td>
<td>22</td>
<td>9</td>
<td>3</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jan 06 %</td>
<td>Dec 05 % </td>
<td>Jan 05 %</td>
<td>M/M dif</td>
<td>Y/Y dif</td>
<td>2005 %</td>
<td>2004 %</td>
<td>2003&nbsp; %&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Order Book</td>
<td>-28</td>
<td>-22</td>
<td>-13</td>
<td>-6</td>
<td>-15</td>
<td>-21</td>
<td>-9</td>
<td>-29&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Export Order Book</td>
<td>&nbsp;-10</td>
<td>-23</td>
<td>-26</td>
<td>13</td>
<td>16&nbsp;</td>
<td>-21&nbsp;</td>
<td>-13&nbsp;</td>
<td>-33&nbsp;</td>
</tr>
</tbody>
</table>


</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060123a.jpg" width="353">
Crude oil prices strengthened last week on market worry that supplies from Iran could be disrupted. Iran produces roughly 4 million barrels of crude oil per day, a bit more than 15% of the OPEC&#39;s total and about 6% of the world&#39;s total.
Concerns about supplies from Nigeria and Venezuela added further to the rise in the price of Brent Crude Oil to nearly $65 per barrel on Friday. The latest was the highest level since last year&#39;s record daily high of $66.99 reached in early September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060123b.jpg" width="353">
The spot market price for regular unleaded gasoline rose in sympathy to $1.75 per gallon, up 22% from the weekly average low of $1.43 in mid-November of last year.
Warm winter weather, conversely, eased the earlier pressure which had lifted the price of natural gas to a record high of $15/mmbtu in early December. At $8.45 prices were off 40% from that high but still were up roughly one third from last year.
Oil Prices, Monetary Policy and the Macroeconomy from the Federal Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/Research/Com2005/July.pdf"> here</a>.
Do Oil Futures Prices Help Predict Future Oil Prices? from the federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-38.pdf"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/DAILY/@D3/@D306/@D306.HTM">Daily Energy Prices</a></th>
<th scope="col">1/20/06</th>
<th scope="col">Y/Y Chg.</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Brent Crude Oil ($/bbl.)</td>
<td>$64.91</td>
<td>42%</td>
<td>$54.75</td>
<td>$38.33</td>
<td>$28.76</td>
</tr>
<tr>
<td class="firstcol">Natural Gas ($/mmbtu)</td>
<td>$8.45</td>
<td>31%</td>
<td>$8.68</td>
<td>$5.90</td>
<td>$5.48</td>
</tr>
</tbody>
</table>
</body>
</html>

Crude oil prices strengthened last week on market worry that supplies from Iran could be disrupted. Iran produces roughly 4 million barrels of crude oil per day, a bit more than 15% of the OPEC's total and about 6% of the world's [...]

Energy Prices Mixed

US is big leader in global surge in private AI investment

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

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

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Sandy Batten

260515r1.jpg

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

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

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

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

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

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

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

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



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


U.S. Industrial Production Jumped in April

Robert Brusca

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

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

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

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

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

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

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



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Canada

Canadian Industry Perks Up

Andrew Cates

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

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

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

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

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

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

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

Charts of the Week: The Tug of War

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

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

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

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

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


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


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

Kathleen Stephansen, CBE

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

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

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

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


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

Economy in Brief: 2006

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UK GDP Rises 0.8% in Q4: A Brief Summary

Sweden Employment Gain Best in 5 Years; Unemployment Holds Below 5%

U.S. Leading Economic Indicators Rose, Signs of Excess Surfaced

U.S. Leading Economic Indicators Rose, Signs of Excess Surfaced

CBI (Confederation of British Industries): Orders Decline, Price Squeeze Continues

Chain Store Sales Edged Up, With Gasoline Prices

Chain Store Sales Edged Up, With Gasoline Prices

Energy Prices Mixed