Tom Moeller

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      <p>Nonfarm business sector productivity improved 1.8% last quarter (1.3%
      y/y), revised down from last month's estimate of 3.2% growth. That
      followed a little-revised Q3 increase of 3.5%. The gain fell short of
      expectations for a 2.5% rise in the Action Economics Forecast Survey. For
      all of last year productivity rose 0.5%, down from the 1.5% rise in 2012.
      A downward revision to output growth to 3.4% (2.9% y/y) from 4.9%
      estimated earlier accounted for the revision to productivity. That
      accompanied last week's revision to GDP growth. Hours worked increased a
      little-changed 1.6% (1.7% y/y). Compensation rose 1.7% (0.3% y/y) but when
      adjusted for inflation it increased 0.8% in Q4 (-0.9% y/y). Unit labor
      costs fell minimally, compared to the initial estimate of a 1.6% fall.
      They were down a lessened 0.9% y/y.</p>
      
      <p>In the factory sector, worker productivity increased at a 1.3% rate
      (1.9% y/y), revised down from 2.0%. For the year productivity rose 1.8%.
      Output surged at a lessened 5.0% rate (3.0% y/y) while hours worked gained
      3.6% (1.1% y/y). Worker compensation increased at a 1.2% rate (0.9% y/y).
      Adjusted for price inflation, compensation edged 0.4% higher (0.1% y/y).
      Unit labor costs slipped a lessened 0.1% (-1.0% y/y) in Q4 and for all of
      last year costs declined 0.9%. All of the productivity &amp; cost figures
      were revised back to 2009.</p>
      
      <p>The productivity &amp; cost figures are available in Haver's <b>USECON</b>
      database.&nbsp;The expectations figure is from Action Economics and is the
      <b>AS1REPNA</b> database.</p>
      
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        <thead>
          <tr>
            <th class="firstcol" scope="col" ><b>Productivity &amp;
              Costs (SAAR,%)</b></th>
            <th>Q4'13</th>
            <th>Q3'13</th>
            <th>Q2'13</th>
            <th>Q4 Y/Y</th>
            <th>2013</th>
            <th>2012</th>
            <th>2011</th>
          </tr>
        </thead>
        <tbody>
          <tr class="grey3">
            <td class="firstcol" colSpan="8" ><b>Nonfarm Business
              Sector</b></td>
          </tr>
          <tr>
            <td class="firstcol" >Output per Hour (Productivity)</td>
            <td  >1.8</td>
            <td  >3.5</td>
            <td  >1.8</td>
            <td  >1.3</td>
            <td  >0.5</td>
            <td  >1.5</td>
            <td  >0.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Compensation per Hour</td>
            <td  >1.7</td>
            <td  >1.3</td>
            <td  >3.8</td>
            <td  >0.3</td>
            <td  >1.6</td>
            <td  >2.6</td>
            <td  >2.5</td>
          </tr>
          <tr>
            <td class="firstcol" >Unit Labor Costs</td>
            <td  >-0.1</td>
            <td  >-2.1</td>
            <td  >2.0</td>
            <td  >-0.9</td>
            <td  >1.1</td>
            <td  >1.2</td>
            <td  >2.0</td>
          </tr>
          <tr class="grey3">
            <td class="firstcol" colSpan="8" ><b>Manufacturing
              Sector</b></td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Output per Hour</td>
            <td  >1.3</td>
            <td  >0.2</td>
            <td  >2.5</td>
            <td  >1.9</td>
            <td  >1.8</td>
            <td  >1.8</td>
            <td  >1.0</td>
          </tr>
          <tr>
            <td class="firstcol" >Compensation per Hour</td>
            <td  >1.2</td>
            <td  >0.5</td>
            <td  >2.9</td>
            <td  >0.9</td>
            <td  >0.9</td>
            <td  >1.9</td>
            <td  >1.3</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Unit Labor Costs</td>
            <td  >-0.1</td>
            <td  >0.2</td>
            <td  >0.4</td>
            <td  >-1.0</td>
            <td  >-0.9</td>
            <td  >0.1</td>
            <td  >0.4</td>
        </tr>
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Nonfarm business sector productivity improved 1.8% last quarter (1.3% y/y), revised down from last month's estimate of 3.2% growth. That followed a little-revised Q3 increase of 3.5%. The gain fell short of expectations for a 2.5% [...]

U.S. Worker Productivity Growth Is Revised Lower

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      <p>Orders to all manufacturers fell 0.7% (+2.0% y/y) during January
      following a 2.0% December decline, revised from -1.5%. Consensus
      expectations had been for a 0.3% slip. Last month's decline reflected an
      unrevised 1.0% drop (+4.6% y/y) in durable goods orders, again led lower
      by aircraft bookings. Orders for nondurable goods (which equal shipments)
      slipped 0.4% (-0.1% y/y) after a 1.0% December jump. Shipments of textile
      products were off 11.4% (-3.2% y/y) while shipments of apparel fell 1.0%
      (-0.1% y/y). Basic chemical shipments also fell 1.0% (-0.5% y/y) but paper
      product shipments improved 0.4% (0.1% y/y).</p>
      
      <p>Inventories in the factory sector increased 0.2% (2.0% y/y).
      Transportation equipment inventories rose 0.9% (9.1% y/y) and primary
      metals inventories gained 0.2% (-2.7 y/y). Computers &amp; electronics
      inventories slipped 0.5% (+3.0% y/y) while machinery inventories were off
      0.3% (-0.2% y/y). Amongst nondurable goods industries, apparel inventories
      slipped 0.3% (+16.4% y/y) but chemical inventories were roughly unchanged
      (-0.2% y/y). Petroleum inventories declined 0.4% (-3.0% y/y) while paper
      product inventories gained 0.3% (-0.2% y/y).</p>
      
      <p>Unfilled orders were unchanged (7.1% y/y) but excluding the
      transportation sector, backlogs rose 0.3% (5.8% y/y). Backlogs in the
      machinery sector gained 1.8% (5.9% y/y) and backlogs of electrical
      equipment increased 0.8% (7.4% y/y). Backlogs of primary metals were off
      0.8% +16.3% y/y) while unfilled orders for transportation equipment
      slipped 0.1% (+7.9% y/y).</p>
      
      <p>The factory sector figures are available in Haver's <b>USECON </b>database.
      The expectation figure is in <b>AS1REPNA</b>.</p>
      
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
        <thead>
          <tr>
            <th class="firstcol" scope="col" >Factory Sector- NAICS
              Classification</th>
            <th scope="col" ><b>Jan</b></th>
            <th scope="col" ><b>Dec</b></th>
            <th scope="col" ><b>Nov</b></th>
            <th scope="col" ><b>Y/Y</b></th>
            <th scope="col" ><b>2013</b></th>
            <th scope="col" ><b>2012</b></th>
            <th scope="col" ><b>2011</b></th>
          </tr>
        </thead>
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            <td class="firstcol" >New Orders</td>
            <td  >-0.7</td>
            <td  >-2.0</td>
            <td  >1.5</td>
            <td  >2.0</td>
            <td  >2.7</td>
            <td  >2.9</td>
            <td  >12.9</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Shipments</td>
            <td  >-0.3</td>
            <td  >-0.3</td>
            <td  >0.8</td>
            <td  >1.6</td>
            <td  >2.1</td>
            <td  >4.0</td>
            <td  >12.1</td>
          </tr>
          <tr>
            <td class="firstcol" >Inventories</td>
            <td  >0.2</td>
            <td  >0.5</td>
            <td  >0.1</td>
            <td  >2.0</td>
            <td  >2.3</td>
            <td  >2.4</td>
            <td  >10.2</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Unfilled Orders</td>
            <td  >0.0</td>
            <td  >0.2</td>
            <td  >0.9</td>
            <td  >7.1</td>
            <td  >7.0</td>
            <td  >3.7</td>
            <td  >10.0</td>
            </tr>
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Orders to all manufacturers fell 0.7% (+2.0% y/y) during January following a 2.0% December decline, revised from -1.5%. Consensus expectations had been for a 0.3% slip. Last month's decline reflected an unrevised 1.0% drop (+4.6% y/y) [...]

U.S. Factory Orders Move Lower as Inventories Rise

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      <p>The outplacement firm of Challenger, Gray &amp; Christmas reported that
      job cut announcements edged down slightly to 41,835 (-24.4% y/y) during
      February but only dented the prior month's jump. Layoffs declined m/m in
      the retail, computers, automotive, transportation, commodities, consumer
      products, electronics, energy, entertainment/leisure, health care and
      legal industries. An increase in announcements occurred in the
      telecommunications, financial, food, industrial goods, education,
      insurance, media, pharmaceutical and utility industries. During
      the last ten years there has been a 62% correlation between the level of
      job cut announcements and the m/m change in payroll employment.</p>
      
      <p>Challenger also samples firms' hiring plans. They improved moderately
      to 11,054 (-88.0% y/y) due to more hiring in the retail, computer,
      industrial goods, electronics, financial and health care industries.
      Hiring plans eased in the aerospace, automotive, chemical, construction,
      food, insurance, legal, media, pharmaceutical, services and transportation
      industries.</p>
      
      <p>The Challenger figures are available in Haver's <b>SURVEYS</b>
      database.</p>
      
      <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

        <thead>
          <tr>
            <th class="firstcol" scope="col" >Challenger, Gray &amp;
              Christmas</th>
            <th scope="col" ><b>Feb</b></th>
            <th scope="col" ><b>Jan</b></th>
            <th scope="col" ><b>Dec</b></th>
            <th scope="col" ><b>Y/Y%</b></th>
            <th scope="col" ><b>2013</b></th>
            <th scope="col" ><b>2012</b></th>
            <th scope="col" ><b>2011</b></th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >Announced Job Cuts</td>
            <td  >41,835</td>
            <td  >45,017</td>
            <td  >30,623</td>
            <td  >-24.4</td>
            <td  >509,051</td>
            <td  >523,362</td>
            <td  >606,082</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Announced Hiring Plans</td>
            <td  >11,054</td>
            <td  >6,312</td>
            <td  >11,362</td>
            <td  >-88.0</td>
            <td  >764,206</td>
            <td  >630,447</td>
            <td  >537,572</td>
            </tr>
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The outplacement firm of Challenger, Gray & Christmas reported that job cut announcements edged down slightly to 41,835 (-24.4% y/y) during February but only dented the prior month's jump. Layoffs declined m/m in the retail, [...]

Challenger Job Cut Announcements Slip While Hiring Plans Improve

Robert Brusca

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German orders returned to their expansion path in January. Orders rose by 1.2% in January after slipping by 0.2% in December. Foreign orders rose by 1% while domestic orders advanced by 1.6% in January. Foreign orders rose for the third consecutive month while domestic orders rose following a drop a month earlier.
</p><p>
Foreign orders' rate of growth exceeds growth for domestic orders over three-months, six-months and twelve-months. Year-over-year foreign orders are up by 11.8% compared to a 4.5% advance for domestic orders. Year-over-year foreign orders have been exceeding domestic orders with regularity since May of 2012. These statistics are for the country with the largest current account surplus in the world.
</p><p>
In addition to running this persistent huge surplus, Germany's growth is being led predominately by export growth, not by rising domestic demand. Foreign orders are rising faster than domestic orders in nineteen of the last twenty months in terms of year-over-year rates of growth. Germany is sucking domestic demand out of the rest of the world to fire its economy and replacing it with inferior domestic demand growth.
</p><p>
This mix of growth is reflected in German-reported sales growth as well. Sales of capital goods items are soaring, rising by 12.9% year-over-year and by 5.2% (not annualized!) in January. Intermediate goods sales are up by 3.6% over one year. Consumer goods sales are up by just 1.6% over the last twelve months. Germany's hot exports are not giving rise to much domestic stimulus. And a pick-up in German domestic demand would contribute to export growth across the EMU, as other countries could tap into German demand growth. But they can't tap into German supply expansion so Germany's success in servicing foreign demand has no legs except through firing up domestic demand. German domestic growth is hampered as German population growth is working against domestic demand strength.
</p><p>
Germany has become a black hole for the forces of global domestic demand. German firms exploit that demand and take it off-stream- as other countries cannot exploit it after Germany does. When the impact of servicing this demand has its full force back home in Germany, domestic demand does not fire up by all that much.
</p><p>
Germany needs to become a proactive force for growth in the EMU. So long as German exports are growing faster than German imports there is a clear signal that Germany is living off export-led growth at a time when much weaker countries need to increase their output and hire their workers to keep their respective recoveries going. They need to reduce rates of unemployment around the EMU area, rates that tend to dwarf Germany's own rate of unemployment. Since these nations all are locked in the same currency area, EMU members cannot depreciate their currencies to regain lost competitive ground to Germany. Instead their road back to being competitive with Germany is long and hard. Germany will retain most of the advantage it has over fellow EMU members for many years even if those members set their sights and policies on redressing this competitiveness gap now. The process of getting back lost competitiveness is a tough one.
</p><p>
When you are in a currency union, national policies have to be much less about the greedy solution. Germany, for its own sake and prosperity, needs to make sure that its fellow EMU members are growing and prospering or tensions could build in the EMU again. As long as Germany's surplus is large and the gap is getting larger, we know that Germany is doing the euro area no favors.   
</p>


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German orders returned to their expansion path in January. Orders rose by 1.2% in January after slipping by 0.2% in December. Foreign orders rose by 1% while domestic orders advanced by 1.6% in January. Foreign orders rose for the [...]

German Orders Recover and Show Strength

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      <p>The labor market continues to show erratic improvement. Initial claims
      for unemployment insurance fell to 323,000 in the week ended March 1 from
      349,000 in the prior week, initially reported as 348,000. The latest level
      was the lowest since late-November. Expectations had been for 337,000
      claims in the Action Economics Forecast Survey. The four-week moving
      average of initial claims slipped to 336,500. During the last ten years
      there has been a 75% correlation between the level of claims and the m/m
      change in nonfarm payrolls.</p>
      
      <p>Continuing claims for unemployment insurance in the week ended February
      22 ticked lower to 2.907 million (-6.4% y/y) from 2.964 million. The
      four-week moving average slipped to 2.928 million. The insured rate of
      unemployment remained at 2.2% for the second week. This particular count
      covers only &quot;regular&quot; programs and does not include all extended
      benefit and other specialized jobless insurance programs. In the week of
      February 15, the latest available, the total of all benefit recipients
      declined to 3.399 million (-37.1% y/y). This broader measure is not
      seasonally adjusted. It compares to a cycle peak of 12.060 million in
      January 2010 and pre-recession figures that averaged 2.596 million in
      2007.</p>
      
      <p>By state, the insured rate of unemployment continued to vary greatly
      with Louisiana (1.18%), Florida (1.43%), Tennessee (1.48%), Texas (1.49%),
      North Carolina (1.85%), Indiana (1.93%) and Ohio (2.27%) at the low end of
      the range. At the high end were Michigan (3.23%), Massachusetts (3.39%),
      Illinois (3.52%), California (3.55%), New Jersey (4.12%), Pennsylvania (4.19%)
      and Alaska (5.68%). These data are not seasonally adjusted.</p>
      
      <p>Data on weekly unemployment insurance are contained in Haver's <b>WEEKLY</b>
      database and they are summarized monthly in <b>USECON</b>. Data for
      individual states are in <b>REGIONW</b>. The expectations figure is from
      the Action Economics survey, carried in the <b>AS1REPNA</b> database.</p>
      
      <p>Janet L. Yellen's remarks at the <b>Ceremonial Swearing-in</b> as Chair
      of the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/newsevents/speech/yellen20140305a.htm">here</a>.</p>
      
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

        <thead>
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            <th class="firstcol" 0801 >Unemployment Insurance (000s)</th>
            <th 0801 >03/01/14</th>
            <th 0801 >02/22/14</th>
            <th 0801 >02/15/14</th>
            <th 0801 >Y/Y %</th>
            <th 0801 >2013</th>
            <th 0801 >2012</th>
            <th 0801 >2011</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" 0801 >Initial Claims</td>
            <td 0801  >323</td>
            <td 0801  >349</td>
            <td 0801  >334</td>
            <td 0801  >-5.0</td>
            <td 0801  >343</td>
            <td 0801  >374</td>
            <td 0801  >409</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0801 >Continuing Claims</td>
            <td 0801  >--</td>
            <td 0801  >2,907</td>
            <td 0801  >2,964</td>
            <td 0801  >-6.4</td>
            <td 0801  >2,980</td>
            <td 0801  >3,319</td>
            <td 0801  >3,742</td>
          </tr>
          <tr>
            <td class="firstcol" 0801 >Insured Unemployment Rate (%)</td>
            <td 0801  >--</td>
            <td 0801  >2.2</td>
            <td 0801  >2.2</td>
            <td 0801  >2.4<br>
              (3/13)</td>
            <td 0801  >2.3</td>
            <td 0801  >2.6</td>
            <td 0801  >3.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0801 >Total &quot;All Programs&quot;
              (NSA)</td>
            <td 0801  >--</td>
            <td 0801  >--</td>
            <td 0801  >3.399 mil.</td>
            <td 0801  >-37.1</td>
            <td 0801  >4.659 mil.</td>
            <td 0801  >6.047 mil.</td>
            <td 0801  >7.750 mil.</td>
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The labor market continues to show erratic improvement. Initial claims for unemployment insurance fell to 323,000 in the week ended March 1 from 349,000 in the prior week, initially reported as 348,000. The latest level was the lowest [...]

U.S. Initial Claims for Jobless Insurance Move Lower

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      <p>The <b>ADP/Moody's
      National Employment Report indicated a 139,000</b> rise (1.9% y/y) in nonfarm
      private sector jobs during February.
      Expectations were for a 157,000 gain in the Action Economics Forecast
      Survey. Last
      month's rise followed increases of 127,000 and 191,000 during January and
      December, revised down from 175,000 and 227,000. During the last
      three months, job increases averaged 152,000, below the peak of 259,000 in
      February of 2012.</p>
      <p>The ADP survey is based on ADP's business payroll transaction system
      covering 406,000 companies and roughly 23 million employees. The data are
      processed by Moody's Analytics Inc., then calibrated and aligned with the
      BLS data. Extensive information on the methodology is available <a href="http://www.adpemploymentreport.com/common/docs/ADP-NER-Methodology-Exec-Summary.pdf">here</a>.</p>
      <p>A moderate 120,000 rise (2.0% y/y) in service-producing payrolls led job growth last month.
      The gain was, however, half the increase in November 2012. Jobs in professional and business
      services increased 33,000 (2.8% y/y), transportation and utilities
      employment grew 32,000 (1.9% y/y) while financial activities headcount
      slipped 1,000 (+0.5% y/y). Goods-producing payrolls rose 19,000 (1.5%
      y/y). Factory sector employment edged up 1,000 (0.4% y/y) while construction payrolls
      increased 14,000 (3.5%
      y/y), the weakest monthly rise since August.</p>
      <p>Hiring amongst small businesses totaled 59,000 (2.1% y/y). Medium-sized
      firms' payrolls advanced 35,000 (1.4% y/y) while jobs at large-size
      companies rose 44,000 (2.4% y/y).</p>
      <p>The ADP National Employment Report data are maintained in Haver's <b>USECON</b>
      database; historical figures date back to March 2001. The figures in this
      report cover jobs only in the private sector. The expectation figure is
      available in Haver's <b>AS1REPNA</b> database.</p>
      <p>The Fed's latest <b>Beige Book</b> covering regional economic
      conditions can be found here <a href="http://www.federalreserve.gov/monetarypolicy/beigebook/beigebook201403.htm">http://www.federalreserve.gov/monetarypolicy/beigebook/beigebook201403.htm</a></p>
      <table class="centered" border="0" cellSpacing="0" width="1871">
        <thead>
          <tr>
            <th class="firstcol" scope="col" width="1118">ADP/Moody's National
              Employment Report</th>
            <th scope="col" width="107">Feb</th>
            <th scope="col" width="107">Jan</th>
            <th scope="col" width="107">Dec</th>
            <th scope="col" width="107">Y/Y</th>
            <th scope="col" width="107">2013</th>
            <th scope="col" width="107">2012</th>
            <th scope="col" width="107">2011</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" width="1118">Nonfarm Private Payroll Employment
              (m/m chg, 000s)</td>
            <td align="center" width="107">139</td>
            <td align="center" width="107">127</td>
            <td align="center" width="107">191</td>
            <td align="center" width="107">1.9%</td>
            <td align="center" width="107">2.0%</td>
            <td align="center" width="107">2.3%</td>
            <td align="center" width="107">1.8%</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="1118">&nbsp;Small Payroll (1-49)</td>
            <td align="center" width="107">59</td>
            <td align="center" width="107">52</td>
            <td align="center" width="107">91</td>
            <td align="center" width="107">2.1</td>
            <td align="center" width="107">2.1</td>
            <td align="center" width="107">2.5</td>
            <td align="center" width="107">1.1</td>
          </tr>
          <tr>
            <td class="firstcol" width="1118">&nbsp;Medium Payroll (1-49)</td>
            <td align="center" width="107">35</td>
            <td align="center" width="107">49</td>
            <td align="center" width="107">46</td>
            <td align="center" width="107">1.4</td>
            <td align="center" width="107">1.6</td>
            <td align="center" width="107">2.0</td>
            <td align="center" width="107">2.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="1118">&nbsp;Large Payroll (&gt;500)</td>
            <td align="center" width="107">44</td>
            <td align="center" width="107">27</td>
            <td align="center" width="107">55</td>
            <td align="center" width="107">2.4</td>
            <td align="center" width="107">2.3</td>
            <td align="center" width="107">2.4</td>
            <td align="center" width="107">2.7</td>
          </tr>
          <tr>
            <td class="firstcol" width="1118">Goods-Producing</td>
            <td align="center" width="107">19</td>
            <td align="center" width="107">12</td>
            <td align="center" width="107">36</td>
            <td align="center" width="107">1.5</td>
            <td align="center" width="107">1.6</td>
            <td align="center" width="107">2.2</td>
            <td align="center" width="107">1.7</td>
          </tr>
          <tr>
            <td class="firstcol" width="1118">&nbsp;Manufacturing</td>
            <td align="center" width="107">1</td>
            <td align="center" width="107">-6</td>
            <td align="center" width="107">16</td>
            <td align="center" width="107">0.4</td>
            <td align="center" width="107">0.6</td>
            <td align="center" width="107">1.6</td>
            <td align="center" width="107">1.9</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="1118">Service-Producing</td>
            <td align="center" width="107">120</td>
            <td align="center" width="107">116</td>
            <td align="center" width="107">154</td>
            <td align="center" width="107">2.0</td>
            <td align="center" width="107">2.0</td>
            <td align="center" width="107">2.3</td>
            <td align="center" width="107">1.8</td>
          </tr>
        </tbody>
      </table>
      </span>
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      <span id="articletitle">U.S. ISM Nonmanufacturing Index Drops to Four Year
      Low</span><br>
      <span id="byline">by <a href="http://www.haver.com/comment/Moeller.html">Tom
      Moeller</a>&nbsp;&nbsp;March 5, 2014</span><span id="articletext">
      <p>The <b>Composite Index for the service and construction sectors</b>
      from the Institute for Supply Management (ISM) plunged last month to 51.6,
      the lowest reading since February 2010. The latest figure fell short of
      expectations for 53.2 in the Action Economics Forecast Survey. During the last ten years, there has been a 75% correlation between the
      level of the nonmanufacturing composite index and the q/q change in real
      GDP for the service and the construction sectors.</p>
      <p><b>Haver Analytics calculates an index</b> using the ISM
      nonmanufacturing series and the ISM manufacturing sector index released
      Monday. The February figure fell to 51.8, also the lowest reading since
      February 2010. During the last ten years, there has been a 76%
      correlation between the composite index and the quarterly change in real
      GDP.</p>
      <p>Dragging the total index lower last month was an 8.9 point drop in the
      employment component to 47.5. This indication of m/m contraction in
      non-manufacturing payrolls was the weakest reading since March 2010.
      During the last ten years, there has been an 89% correlation between the
      employment index and the m/m change in private service sector plus
      construction payrolls. The business activity index showed a lesser 1.7
      point decline to 54.6, the weakest reading since December. The supplier
      delivery index nudged up to 53.0, indicating the slowest delivery speeds
      since March of last year. The new orders series also inched up to 51.3 but
      remained near the four year low.&nbsp;</p>
      <p>The prices paid index fell to 53.7 and reversed most of the gains in
      the prior two months.
      Twenty three percent of respondents indicated higher prices last month while
      six percent reported lower. During the last ten years, there has
      been a 78% correlation between the price index and the q/q change in the
      GDP services chain price index.</p>
      <p>Beginning with the January 2008 Nonmanufacturing <cite>Report On
      Business, </cite>the composite index is calculated as an indication of
      overall economic conditions for the non-manufacturing sector. It is a
      composite index based on the diffusion indices of four of the indicators
      (business activity, new orders, employment and supplier deliveries) with
      equal weights. Readings above 50 indicate expansion in activity.</p>
      <p>The ISM data are available in Haver's <b>USECON</b> database. The
      expectations figure from ACTION ECONOMICS is in the <b>AS1REPNA </b>database.&nbsp;</p>
      <table class="centered" border="0" cellSpacing="0" width="1871">
        <thead>
          <tr>
            <th class="firstcol" scope="col" width="935"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM
              Nonmanufacturing Survey (SA)</a></th>
            <th scope="col" width="133">Feb</th>
            <th scope="col" width="133">Jan</th>
            <th scope="col" width="133">Dec</th>
            <th scope="col" width="133">Feb'13</th>
            <th scope="col" width="133">2013</th>
            <th scope="col" width="133">2012</th>
            <th scope="col" width="134">2011</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" width="935">Composite Diffusion Index</td>
            <td align="center" width="133">51.6</td>
            <td align="center" width="133">54.0</td>
            <td align="center" width="133">53.0</td>
            <td align="center" width="133">54.8</td>
            <td align="center" width="133">54.7</td>
            <td align="center" width="133">54.6</td>
            <td align="center" width="134">54.4</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="935">&nbsp;&nbsp; Business Activity</td>
            <td align="center" width="133">54.6</td>
            <td align="center" width="133">56.3</td>
            <td align="center" width="133">54.3</td>
            <td align="center" width="133">56.3</td>
            <td align="center" width="133">56.7</td>
            <td align="center" width="133">57.7</td>
            <td align="center" width="134">57.2</td>
          </tr>
          <tr>
            <td class="firstcol" width="935">&nbsp;&nbsp; New Orders</td>
            <td align="center" width="133">51.3</td>
            <td align="center" width="133">50.9</td>
            <td align="center" width="133">50.4</td>
            <td align="center" width="133">56.0</td>
            <td align="center" width="133">55.9</td>
            <td align="center" width="133">56.6</td>
            <td align="center" width="134">56.3</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="935">&nbsp;&nbsp; Employment</td>
            <td align="center" width="133">47.5</td>
            <td align="center" width="133">56.4</td>
            <td align="center" width="133">55.6</td>
            <td align="center" width="133">55.5</td>
            <td align="center" width="133">54.4</td>
            <td align="center" width="133">53.5</td>
            <td align="center" width="134">52.4</td>
          </tr>
          <tr>
            <td class="firstcol" width="935">&nbsp;&nbsp; Supplier Deliveries
              (NSA)</td>
            <td align="center" width="133">53.0</td>
            <td align="center" width="133">52.5</td>
            <td align="center" width="133">51.5</td>
            <td align="center" width="133">51.5</td>
            <td align="center" width="133">51.7</td>
            <td align="center" width="133">50.6</td>
            <td align="center" width="134">51.9</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="935">Prices Index</td>
            <td align="center" width="133">53.7</td>
            <td align="center" width="133">57.1</td>
            <td align="center" width="133">54.7</td>
            <td align="center" width="133">57.4</td>
            <td align="center" width="133">55.6</td>
            <td align="center" width="133">59.3</td>
            <td align="center" width="134">65.1</td>
          </tr>
        </tbody>
      </table>
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      <span id="articletitle">U.S. Mortgage Loan Applications Stabilize</span><br>
      <span id="byline">by <a href="http://www.haver.com/comment/Moeller.html">Tom
      Moeller</a>&nbsp;&nbsp;March 5, 2014</span><span id="articletext">
      <p>The Mortgage Bankers Association indicated that their total mortgage market
      index increased 9.4% last week (-55.9% y/y) following three successive
      weeks of sharp decline. Applications to <i>purchase</i> a home rebounded
      9.4% (-19.1% y/y) after four weeks of decline. Applications to <i>refinance</i>
      a loan improved 9.6% (-66.1% y/y) and made up most of the prior week's
      drop.</p>
      <p>The effective interest rate on a 15-year mortgage slipped last week to
      3.57% but remained up from the 2.89%
      low early in May of 2013. The effective rate on a 30-year fixed rate loan
      edged lower to 4.56% last week while the rate on a Jumbo 30-year loan
      slipped to 4.43%. The effective interest rate on an adjustable
      5-year mortgage at 3.23% remained up from its low of 2.59% at the
      beginning of May last year.</p>
      <p>Applications for fixed interest rate loans fell 57.5% y/y while
      adjustable rate loan applications fell 17.5% y/y. The average mortgage
      loan size rose to $231,600, up sharply from $209,000 averaged in February
      of last year. The average loan size for home purchases held at $269,400 last week and for refinancings it
      was $204,000.</p>
      <p>The survey covers over 75 percent of all U.S. retail residential
      mortgage applications, and has been conducted weekly since 1990.
      Respondents include mortgage bankers, commercial banks and thrifts. The
      base period and value for all indexes is March 16, 1990=100. The figures
      for weekly mortgage applications and interest rates are available in
      Haver's <b>SURVEYW</b> database.</p>
      <table class="centered" border="0" cellSpacing="0" width="1871">
        <thead>
          <tr>
            <th class="firstcol" scope="col" 0918 0925 width="855">MBA Mortgage
              Applications (SA, 3/16/90=100)</th>
            <th scope="col" 0918 0925 width="144">02/28/14</th>
            <th scope="col" 0918 0925 width="144">02/21/14</th>
            <th scope="col" 0918 0925 width="144">02/14/14</th>
            <th scope="col" 0918 0925 width="145">Y/Y%</th>
            <th scope="col" 0918 0925 width="145">2013</th>
            <th scope="col" 0918 0925 width="145">2012</th>
            <th scope="col" 0918 0925 width="145">2011</th>
          </tr>
        </thead>
        <tbody>
          <tr class="odd">
            <td class="firstcol" 0918 0925 width="855">Total Market Index</td>
            <td 0918 0925 align="center" width="144">381.4</td>
            <td 0918 0925 align="center" width="144">348.5</td>
            <td 0918 0925 align="center" width="144">380.9</td>
            <td 0918 0925 align="center" width="145">-55.9</td>
            <td 0918 0925 align="center" width="145">616.6</td>
            <td 0918 0925 align="center" width="145">813.8</td>
            <td 0918 0925 align="center" width="145">572.3</td>
          </tr>
          <tr>
            <td class="firstcol" 0918 0925 width="855">&nbsp;Purchase</td>
            <td 0918 0925 align="center" width="144">169.6</td>
            <td 0918 0925 align="center" width="144">155.0</td>
            <td 0918 0925 align="center" width="144">160.7</td>
            <td 0918 0925 align="center" width="145">-19.1</td>
            <td 0918 0925 align="center" width="145">197.5</td>
            <td 0918 0925 align="center" width="145">187.8</td>
            <td 0918 0925 align="center" width="145">182.6</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0918 0925 width="855">&nbsp;Refinancing</td>
            <td 0918 0925 align="center" width="144">1,597.6</td>
            <td 0918 0925 align="center" width="144">1,457.2</td>
            <td 0918 0925 align="center" width="144">1,644.5</td>
            <td 0918 0925 align="center" width="145">-66.1</td>
            <td 0918 0925 align="center" width="145">3,070.0</td>
            <td 0918 0925 align="center" width="145">4,505.0</td>
            <td 0918 0925 align="center" width="145">2,858.4</td>
          </tr>
          <tr>
            <td class="firstcol" 0918 0925 width="855">15-Year Mortgage
              Effective Interest Rate (%)</td>
            <td 0918 0925 align="center" width="144">3.57</td>
            <td 0918 0925 align="center" width="144">3.63</td>
            <td 0918 0925 align="center" width="144">3.63</td>
            <td 0918 0925 align="center" width="145">3.10<br>
              (2/13)</td>
            <td 0918 0925 align="center" width="145">3.42</td>
            <td 0918 0925 align="center" width="145">3.25</td>
            <td 0918 0925 align="center" width="145">3.97</td>
          </tr>
        </tbody>
      </table>
      </span>
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The ADP/Moody's National Employment Report indicated a 139,000 rise (1.9% y/y) in nonfarm private sector jobs during February. Expectations were for a 157,000 gain in the Action Economics Forecast Survey. Last month's rise followed [...]

U.S. ADP Job Growth is Constrained

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The services sector in the European Monetary Union improved in February, registering a diffusion value of 52.57, up from 51.57 in January. The 12-month average for the diffusion metric is 49.94. The euro area has progressed to a point where the services sector is advancing. However, when we take a look at this value and place it in its queue of historic values, it resides in the 49.7th percentile, which is just below the median. Although the euro area has shown an expansion, it has not yet reached the point of normalcy.let alone `recovery.'
</p><p>
Germany also saw its services PMI improve in February, along with Italy. France, Spain, and Ireland saw slippage in their service sector readings in February. Ireland saw a sharp decline to 57.47 from 61.54. However, despite that drop, Ireland's reading still sits at about the 70th percentile of its historic queue. Spain, at 53.70, sits in the 73rd percentile of its historic queue. But France, having slipped to 47.17 from 48.90, now sits in the bottom 13th percentile of its historic queue, at an exceptionally weak reading. There continues to be a good deal of dispersion in the performance metrics for the EMU services sector.
</p><p>
The UK is not a member of the single currency union. It saw a very slight drop in its services PMI to 58.2 from 58.3. That's still represents a slight pick up from 58.0, its 12-months average. The UK measure sits in the 83rd percentile of its historic queue and is among one of the strongest services sectors in Europe.
</p><p>
Along with the services sectors, we show surveys of consumer confidence in a number of countries and continue to find that there is a great divide between Germany and other EMU members when it comes to the assessment of consumer sentiment. Germany's metric is near the top 20th percentile of its historic queue of data while France is in the bottom 30% and Italy and Spain are just above the 52nd percentile of their respective historic queues. In the UK, we find a strong showing for consumer confidence as its consumer sentiment gauge resides in the 98th percentile of its historic queue. 
</p><p>
The services sector is showing improvement in Europe. Although the metric itself points to service sector growth, we have to remember that the services sector usually does grow and that its current value is actually below its median performance. For those looking for economic recovery, `recovery per se' is usually a period when growth exceeds its long-term average -and its long-run potential - for a spell. Europe is not there yet. There also are, as we saw, substantial differences among member countries in the performance of their respective services sectors. In addition, German consumer confidence is leagues ahead of confidence levels in fellow monetary union member countries although its level of confidence is exceeded by consumer confidence in the UK.
</p><p>
By comparison, the US nonmanufacturing sector (services plus construction) registered a small decline in February. Although its diffusion value is only slightly below the value for Europe, the queue standing for the US PMI is in the bottom 25th percentile of its historic queue. Services sectors around the world continue to lag which is a problem because services sectors tend to be the job creating sectors. Jobs simply are not being created with enough vigor in the US and Europe. Domestic demand continues to lag in most countries, while those same countries continue to put their hopes on export-led growth, which depends on domestic demand in other countries. There is an obvious inconsistency here.
</p><p>
There has been no sense of trying to manage and coordinate international growth. There has been no sense of trying to reduce the international imbalances where they seem to be the most entrenched. Europe has gone the route of addressing internal budget imbalances alone. That effort has produced some results, but also has had enormous side-effects on growth. There is a great deal of excitement about Europe finally turning the corner to growth, but perhaps we put too many eggs in that basket as Europe's growth continues to be measured and is rife with internal inconsistencies. Europe may have achieved growth, but it has not achieved recovery yet. Some think that, with the PMI indicators for Europe improving, some of the heat will be taken off of the European Central Bank. However, Europe is not exactly knocking them dead with its strength and the growth irregularities within the Community are still severe and threaten continuity. It is always it's the laggard countries within the Community that need the help - and some of them continue to lag badly.
</p><p>
For its part, the Federal Reserve has already taken several steps down the road of tapering, to reduce its accommodative stance. However, economic statistics, since the Fed began taking those steps, have become mixed and weaker. The question surrounding the US economy revolves around the weather which has been unseasonably cold, blustery and filled with storms. Is the recent US weakening, due to weather or due to a change in the economic climate? For the most part, there are unclear signs. The weather seems to have disrupted the economy to some extent. Yet, it's not uncommon for economists overestimate the impact of storms on the economy since when one part of economic activity is affected often another part of economic activity is stimulated. As a result of that, the deadweight loss from storms tends to be overestimated. I dwell on the US to some extent because Europe depends on US domestic demand to fire its export machine and it's unclear that the US is going to provide that kind of growth. China has publicly and purposely declared that it is trying to stimulate its domestic growth through the revival of domestic demand. Perhaps Europe should try to do the same thing; especially having Germany, the country with the largest current account surplus in the world, in it's very midst?
</p>

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The services sector in the European Monetary Union improved in February, registering a diffusion value of 52.57, up from 51.57 in January. The 12-month average for the diffusion metric is 49.94. The euro area has progressed to a point [...]

Services Mostly Turn Higher in EMU

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      <p>The <b>Composite Index for the service and construction sectors</b>
      from the Institute for Supply Management (ISM) plunged last month to 51.6,
      the lowest reading since February 2010. The latest figure fell short of
      expectations for 53.2 in the Action Economics Forecast Survey. During the last ten years, there has been a 75% correlation between the
      level of the nonmanufacturing composite index and the q/q change in real
      GDP for the service and the construction sectors.</p>
      
      <p><b>Haver Analytics calculates an index</b> using the ISM
      nonmanufacturing series and the ISM manufacturing sector index released
      Monday. The February figure fell to 51.8, also the lowest reading since
      February 2010. During the last ten years, there has been a 76%
      correlation between the composite index and the quarterly change in real
      GDP.</p>
      
      <p>Dragging the total index lower last month was an 8.9 point drop in the
      employment component to 47.5. This indication of m/m contraction in
      non-manufacturing payrolls was the weakest reading since March 2010.
      During the last ten years, there has been an 89% correlation between the
      employment index and the m/m change in private service sector plus
      construction payrolls. The business activity index showed a lesser 1.7
      point decline to 54.6, the weakest reading since December. The supplier
      delivery index nudged up to 53.0, indicating the slowest delivery speeds
      since March of last year. The new orders series also inched up to 51.3 but
      remained near the four year low.</p>
      
      <p>The prices paid index fell to 53.7 and reversed most of the gains in
      the prior two months. Twenty three percent of respondents indicated higher prices 
      last month while six percent reported lower. During the last ten years, there has
      been a 78% correlation between the price index and the q/q change in the
      GDP services chain price index.</p>
      
      <p>Beginning with the January 2008 Nonmanufacturing <cite>Report On
      Business, </cite>the composite index is calculated as an indication of
      overall economic conditions for the non-manufacturing sector. It is a
      composite index based on the diffusion indices of four of the indicators
      (business activity, new orders, employment and supplier deliveries) with
      equal weights. Readings above 50 indicate expansion in activity.</p>
      
      <p>The ISM data are available in Haver's <b>USECON</b> database. The
      expectations figure from ACTION ECONOMICS is in the <b>AS1REPNA </b>database.</p>
      
      <p><a href="/comment/140305k_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140305k.png"></a>
      <a href="/comment/140305l_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/140305l.png"></a></p>
      
      <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

        <thead>
          <tr>
            <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM
              Nonmanufacturing Survey (SA)</a></th>
            <th scope="col" >Feb</th>
            <th scope="col" >Jan</th>
            <th scope="col" >Dec</th>
            <th scope="col" >Feb'13</th>
            <th scope="col" >2013</th>
            <th scope="col" >2012</th>
            <th scope="col" >2011</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >Composite Diffusion Index</td>
            <td  >51.6</td>
            <td  >54.0</td>
            <td  >53.0</td>
            <td  >54.8</td>
            <td  >54.7</td>
            <td  >54.6</td>
            <td  >54.4</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp; Business Activity</td>
            <td  >54.6</td>
            <td  >56.3</td>
            <td  >54.3</td>
            <td  >56.3</td>
            <td  >56.7</td>
            <td  >57.7</td>
            <td  >57.2</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp; New Orders</td>
            <td  >51.3</td>
            <td  >50.9</td>
            <td  >50.4</td>
            <td  >56.0</td>
            <td  >55.9</td>
            <td  >56.6</td>
            <td  >56.3</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp; Employment</td>
            <td  >47.5</td>
            <td  >56.4</td>
            <td  >55.6</td>
            <td  >55.5</td>
            <td  >54.4</td>
            <td  >53.5</td>
            <td  >52.4</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp; Supplier Deliveries
              (NSA)</td>
            <td  >53.0</td>
            <td  >52.5</td>
            <td  >51.5</td>
            <td  >51.5</td>
            <td  >51.7</td>
            <td  >50.6</td>
            <td  >51.9</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Prices Index</td>
            <td  >53.7</td>
            <td  >57.1</td>
            <td  >54.7</td>
            <td  >57.4</td>
            <td  >55.6</td>
            <td  >59.3</td>
            <td  >65.1</td>
           </tr>
              </tbody>
            </table>
            </span>
</body></html>

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) plunged last month to 51.6, the lowest reading since February 2010. The latest figure fell short of expectations for 53.2 in [...]

U.S. ISM Nonmanufacturing Index Drops to Four Year Low

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

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

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Andrew Cates

**Front-End Yields Reflect Policy Reassessment**
Against a backdrop of key central bank meetings either having just taken place or imminent, short-dated government bond yields have moved decisively higher across most major economies since the escalation of the Middle East conflict, with the sharpest increase seen in the UK. The rise in 2-year yields reflects a repricing of near-term monetary policy expectations, as markets respond to the inflationary implications of higher energy prices and the growing likelihood that central banks will delay easing cycles. Moves have been most pronounced in economies where inflation is expected to be more persistent—most notably the UK—while increases have been more modest in the US and particularly Japan, where policy normalisation remains gradual. In effect, the front end of the curve is signalling a shift away from the “rate cuts soon” narrative that prevailed earlier in the year toward a more cautious, higher-for-longer policy outlook.

260430Z1.jpg

**US Recession Risks Remain Contained—For Now**
Despite the recent deterioration in the macro backdrop, real-time recession risk indicators for the US remain relatively subdued. This is notable given the combination of softer growth momentum, higher bond yields and heightened geopolitical risk. The nowcast—derived from a blend of high-frequency activity data and financial stress measures—has historically tended to move sharply when conditions turn, rather than drift higher gradually. That asymmetry is important in the current environment. While recession risks are not yet flashing red, past cycles suggest they can reprice abruptly, and arguably at present if energy-driven inflation were to feed much more forcefully into financial conditions or begin to weigh more materially on demand.

260430Z2.jpg

**Consumer Confidence Diverges: Europe and UK Slide, US Stabilises**
Consumer confidence has weakened across the major economies, but the deterioration has been more pronounced in the euro area and the UK than in the US. While sentiment in the US has recently edged up, it remains at relatively subdued levels. By contrast, confidence in Europe and the UK has fallen more sharply, reflecting greater exposure to higher energy costs and a more direct squeeze on real household incomes. This divergence is consistent with broader macro trends, suggesting that demand in Europe may prove more sensitive to the current shock, with weaker sentiment feeding more quickly into consumption.

260430Z3.jpg

**Euro area Credit Conditions Turn More Restrictive**
The latest ECB lending survey points to a clear tightening in credit conditions across the euro area, with banks raising lending standards for both firms and households while loan demand weakens. This combination—more restrictive supply alongside softer demand—is typically associated with a cooling in activity, particularly in interest-sensitive sectors. Recent evidence suggests that higher perceived risks, rising funding costs and geopolitical uncertainty are all weighing on banks’ willingness to lend, while weaker confidence and reduced investment appetite are dampening borrowing needs. The result is a tightening in financial conditions that is likely to amplify the broader slowdown already evident in survey data, reinforcing the more fragile growth dynamics now emerging across the region.

260430Z4.jpg

**An Intensifying AI Boom with Supply-Side Undercurrents**
Against the backdrop of surging AI-related investment, semiconductor prices are not just high—they are rising at an increasingly rapid pace. This chart shows a clear acceleration in both prices and export values, pointing to an intensifying boom in global chip demand. While this is in part a reflection of strong, structural demand, supply-side factors may also be playing a growing role. Although the Middle East is not a direct source of key chip-making minerals, it is central to the energy and petrochemical inputs that underpin semiconductor production. Ongoing geopolitical tensions are therefore likely feeding into higher costs and renewed frictions across supply chains. The combination of accelerating demand and tightening supply conditions suggests that semiconductor inflation could prove more persistent—and more globally consequential—than currently assumed.

260430Z5.jpg

**Labour Markets Reflect the AI Acceleration**
Our final chart this week highlights the extent to which the current AI boom is now feeding through into labour markets. This high-frequency indicator—based on the share of job listings containing AI-related keywords—shows a sharp and sustained increase since the widespread adoption of generative AI tools in late 2022. What began as a more traditional build-out in machine learning roles has evolved into a broader and more intense wave of hiring tied to generative AI capabilities, with demand accelerating markedly across multiple economies. The scale and persistence of this trend point to a structural shift rather than a cyclical upswing, reinforcing the view that AI is becoming an increasingly important driver of investment, productivity expectations and, potentially, broader macroeconomic dynamics.

260430Z6.jpg

Against a backdrop of persistent geopolitical tensions, firmer energy prices and a busy week of central bank meetings—including the Fed, ECB, BoE and BoJ—financial markets have remained notably resilient, even as the macro narrative has softened at the margin. The message from this week’s charts is one of growing tension beneath that surface calm. Front-end bond yields have moved higher, signalling a shift toward a more cautious, “higher-for-longer” policy outlook (chart 1). At the same time, real-time recession indicators for the United States suggest risks remain contained for now (chart 2). Consumer confidence data paint a more uneven picture, with sharper declines in the euro area and UK than in the US, highlighting regional vulnerabilities to the current energy shock (chart 3). The ECB’s latest bank lending survey reinforces this, pointing to tighter credit conditions and weaker demand—factors that are likely to weigh further on European growth (chart 4). By contrast, developments in the semiconductor sector underline a different dynamic: an intensifying global boom, with accelerating price pressures reflecting both strong AI-driven demand and emerging supply-side constraints linked indirectly to energy and logistics disruptions (chart 5). Finally, labour market data confirm that the AI surge is not merely a market narrative but a tangible structural shift, with hiring for AI-related roles accelerating across economies (chart 6). Taken together, these signals point to a more complex macro environment—one in which resilient markets coexist with softening growth, more persistent inflation risks and increasingly delicate policy trade-offs.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/20j2LcPyLFkPvV7NrquXuj?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tension Beneath the Surface

Michael J. Moran

260430N.jpg

260430O.jpg

Real GDP grew at an annual rate of 2.0% in the first quarter of 2026, almost identical to the expected advance of 2.1%. The latest change was comfortably within the range of recent observations and close to the economy’s potential rate of growth. The year-over-year change totaled 2.7%, but that shift reflected what might be viewed as a special factor (robust growth in the second and third quarters that offset a trade-tariff-induced drop in 2025-Q1 GDP).

Business fixed investment was the star of the show in the first quarter, registering growth of 10.4%. Outlays for information processing equipment and software were especially strong, while outlays for industrial equipment and Research & Development contributed positively as well. Outlays for structures remained decidedly soft, dropping for the ninth consecutive quarter. Building of data centers have been vigorous, but softness in offices and manufacturing facilities has dwarfed the strength in this new area.

Federal spending surged 9.4% in Q1, but the rise reflected the reopening of most federal agencies after their closure during much of the fourth quarter. Excluding this noise, support from the federal government has been softening. Nondefense outlays peaked in the fourth quarter of 2024, and they were 6.9% shy of that total in the first quarter. Defense spending also peaked in 2024-Q4 and has eased 2.4% since then. Defense spending most likely will grow in coming quarters because of the efforts in the Middle East. Orders for defense goods have already started to rise.

Consumer spending rose 1.5% in the first quarter, a bit shy of the 2.1% pace over the four quarters of last year and less than half the rates in 2023 and 2024. Consumer spending showed signs of softening in late 2025 and January of this year, but activity picked up in February and March. Firm tax refunds might have provided a boost to household spending in the latest months. Some of the tax cuts from the One Big Beautiful Bill were applied retroactively to 2025, but withholding schedules were not adjusted last year. Thus, many households are receiving larger-than-normal tax refunds.

International trade acted as a drag on economic growth in Q1, with net exports subtracting 1.3 percentage points from the GDP increase. Exports did well in the first quarter with growth of 12.9%, but imports were even stronger with a jump of 21.4%. The real trade deficit of $1.1 trillion was noticeably smaller than the shortfall of $1.4 trillion in 2025-Q1 when importers were rushing to get goods into the US before the imposition of tariffs. Still, the trade shortfall was sizeable and its effect on growth noticeable.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

260430P.jpg

260430Q.jpg

- Robust business investment led the advance; moderate support from consumers.
- Government spending jumped with the reopening of most federal agencies.
- The trade sector remained volatile, making a sizeable negative contribution in Q1.

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Sandy Batten

260430A.jpg

260430B.jpg

This monthly report contains a wealth of information concerning the state of the consumer. The anticipation ahead of today’s report centered on how much the surge in energy prices since the escalation of the US-Iran conflict in early March would push up overall PCE inflation. Prices of energy goods and services jumped 11.6% m/m not annualized in March. This was the largest monthly increase since September 2005. As a result, the headline PCE price index increased 0.7% m/m (3.5% y/y versus 2.8% y/y in February), the largest monthly gain since July 2022 but in line with expectations of the Action Economics Forecast Survey.

The core index (that is, excluding food and energy prices) rose by a more modest 0.3% m/m in March, down from a 0.4% monthly increase in February and in line with expectations. However, the yearly rate rose further to 3.2% y/y in March from 3.0% in February, well above and moving away from the Fed’s 2% target. The FOMC left its fed funds rate target unchanged at yesterday’s meeting, but some committee members dissented, opposing the implied easing bias contained in the statement. Chair Powell, in his press conference, noted that a number of members have become more concerned over the inflation outlook and the possible need for a Fed response.

Nominal personal income posted a solid 0.6% m/m (3.7% y/y) increase in March following an upwardly revised unchanged reading in February (previously -0.1% m/m). The March increase was twice the 0.3% monthly gain expected by the Action Economics Forecast Survey. However, after adjusting for inflation, real personal income slipped 0.1% m/m in March on top of a 0.4% m/m decline in February.

Employee compensation continued to be a major driver of personal income in March. It rose 0.4% m/m (4.1% y/y) in March after a 0.2% monthly increase in February. In March, proprietors’ income jumped 2.8%. This outsized increase reflected payments to farmers from the federal government’s Farmer Bridge Assistance Program. Rental income rose a solid 0.7% m/m, the same gain as in February. Income from financial assets increased 0.4% m/m following a 0.9% m/m decline in February. Personal current transfer payments edged up 0.1% m/m versus a 0.3% m/m decline in February.

Nominal consumption expenditures jumped 0.9% m/m (5.7% y/y) in March following an upwardly revised 0.6% monthly gain in February (previously +0.5% m/m). Spending on goods rose 2.0% m/m (4.5% y/y) while spending on services increased 0.4% m/m (6.3% y/y). As for overall inflation, the surge in energy prices also accounted for a large portion of the March gain in nominal spending. After adjusting for overall inflation, real PCE rose a more modest 0.2% m/m following an upwardly revised 0.3% m/m increase in February (previously +0.1% m/m). Still, the solid gains in February and March provide a strong starting point for Q2. The March level is 1.5% at an annual rate above the Q1 average. For all of Q1, real PCE rose 1.6% q/q saar.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

260430C.jpg

260430D.jpg

- The PCE price index jumped 0.7%, reflecting an 11.6% m/m surge in energy prices.
- The core index was up 0.3%, in line with expectations but still well above the Fed’s target.
- Personal income increased 0.6% m/m, led by a 0.4% m/m rise in compensation.
- Personal consumption jumped 0.9% m/m with a slight upward revision to February.
- However, much of the March gain in nominal consumption also reflected the jump in energy prices.
- Real consumption rose by a more modest 0.2% m/m.

Surging Energy Prices Push Up PCE Prices and Consumption in March

Kathleen Stephansen, CBE

260430A2.jpg

260430B2.jpg

Initial claims for unemployment insurance dropped by 26,000 to 189,000 in the week ending April 25, from 215,000 in the week ending April 18, revised from 214,000. The four-week average declined by 3,500 to 207,500 in the week ending April 25, from 211,000 the April 18 week, revised from 210,750. The Action Economics/Haver Analytics Survey looked for 214,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—dropped by 23,000 to 1.785 million in the week ending April 18, from 1.808 million in the week ending April 11, revised from 1.821 million. The four-week moving average declined to 1.797 million in the latest week from 1.809 million in the April 11 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 11, the highest unemployment rates were in New Jersey (2.51%), Washington (2.25%), Massachusetts (2.21%), Rhode Island (2.10%), and California (2.06%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas, North Carolina and Mississippi (all 0.35%), Alabama (0.36%), South Dakota (0.41%) and Tennessee (0.43%). Rates in other notable states include New York (1.96%), Illinois (1.77%), Pennsylvania (1.40%), and Texas (1.04%). 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.

260430C2.jpg

260430D2.jpg

- New claims dropped by 26,000 to 189,000.
- Continuing claims declined by 23,000 to 1.785 million.
- The insured unemployment rate remained at 1.2%.

U.S. Initial Unemployment Claims dropped in the Week of April 25

260430E.jpg

**Unemployment rates are stable near all-time lows for EMU**
Unemployment rates in the European Monetary Union (EMU) continued to hover at the lowest level. The EMU all-time low unemployment rate is 6.2%, and that’s the number reported for March. There have been five of these 6.2% unemployment rates monthly in the history of the monetary union.

Unemployment rates in March saw declines in five of the 12 early reporting countries: the Netherlands, Italy, Finland, Belgium, and Austria. Over the last three months, there were net declines in the unemployment rates in four countries, while year-over-year once again four countries—though a different four—showed declines in the unemployment rate.

Unemployment rates, evaluated relative to their historic standings, have a median rank standing in their 33.6 percentile. That is the median unemployment rank among these 12 countries; it shows that the unemployment rate is in the lower one-third of its historic rank. Among the 12 early reporting countries, only three failed to have unemployment rate rankings below their 30th percentile; those three are Austria with a 71.3 percentile ranking, Finland with an 80th percentile ranking, and Luxembourg with a 98.8 percentile ranking. So, there are three countries among these 12 that have relatively high unemployment rates compared to their histories, whereas the rest of the reporters have unemployment rates below their respective 30th percentiles.

260430.jpg

**Good, but not great, labor markets**
Clearly, the labor situation is in good hands; however, at the same time, inflation runs over the top of the ECB target, and with war in the Middle East and flurrying oil prices, inflation is going to climb higher. The ECB, like the Federal Reserve, finds itself in the awkward position of not wanting to raise rates because the economy is generating growth; on the other hand, growth seems somewhat fragile. The unemployment rate is low, and inflation has been overshooting, so the central bank is in a difficult position.

**Are central banks awakening from their slumber?**
Despite the good news on the unemployment front, central banks have been wary not to raise interest rates to fend off inflation. Inflation can really be described as having been moved around by financial crises and shocks going back to the great financial crisis. That shock, coupled with the losses that it created, left a legacy of inflation discipline for a very long run, basically, right into the COVID-created recession. COVID weakened economies globally as they were shut down by government policies and then inflation spurted as result of stimulative monetary action and fiscal excess. After that experience, central banks kept stimulative policies on the books and tried to coax growth out of a wounded economy and maintain low unemployment rates, while tolerating inflation that was excessive relative to their targets, but that did not accelerate and did decline slowly—at least for a while. As a result, there's now a legacy of overshooting inflation and more question marks about central banks and their backbone than central bankers want to admit as inflation rises, and as they continue to watch and postpone acting.

**ECB met and declared watchful waiting—not policy action**
At the recent meeting, the ECB policy statement admitted that “Longer-term inflation expectations remain well anchored, although inflation expectations over shorter horizons have moved up significantly.” They are following the model used in the U.S. to contend that long-term inflation expectations are still firmly anchored while they are only slipping away for the short term—a year ahead or so. However, to its credit, the ECB does refer to expectations having moved up significantly in the near term. This is something policy must be wary of, and it also must be wary that long-term expectations may have been damaged as well.

In her press conference, Christine Lagarde noted that the forward guidance from the ECB has several different elements: “There are sort of three anchors of what our reaction function is. So first of all, to remind you: target is 2% medium term, number one. Number two: symmetry. We discussed that today and we reaffirmed it. Number three: our reaction will depend on the type of deviation from target that we observe. Is it large and sustainable?”

"The increase in energy prices will keep inflation well above 2% in the near term. ⁠As the period of high energy prices extends, the likely impact on broader inflation through indirect and second-round effects intensifies. We will therefore closely monitor the size and persistence of the energy price surge, and how it feeds through to price and wage setting, inflation expectations and overall economic dynamics." (Source [here](https://www.reuters.com/business/finance/lagarde-comments-ecb-press-conference-2026-04-30/)).

**The road they kick the can down is getting narrower**
So, we are in store for more watchful waiting. Central bankers can feel that the flexibility is closing in on them. There's been a long period in which post financial crisis and post-COVID events helped to keep inflation under control, but now we're getting into a situation where it may be harder to keep control of inflation, especially since central bank credibility has been eroded by a long period of target misses. Two wars are in progress, and fiscal excess is the order of the day. So why not wait longer?

**No eager-beaver rate hikers**
No central bank seems eager to undertake this new challenge; however, they seem to be circling around the policy change and preparing to do something they haven't done in a long time, which would be to raise interest rates. Last time, in the wake of COVID, the central banks raised interest rates they waited too long to hike them, calling the situation of inflation temporary or transitory. Once again, the central banks see the oil price shock as something that is temporary; however, it's also severe, and while it's temporary, it could turn out to be ‘temporary’ but fairly long-lasting, making it harder to ignore or for a central bank that plans to ‘look through.’

**Some act, some talk, some just look...**
As I noted in the [report on money supplies](https://www.haver.com/articles/globally-money-supplies-accelerate-no-problemo) yesterday, the current practice of trying to look through this supply shock is creating an overshoot of money supply as we have money supply accelerations brewing in the U.S., the U.K., and the European Monetary Union. However, one of the rules from the 1970s was to not accommodate an oil price shock. Unfortunately, the practice of ‘looking through’ a supply shock—which means holding interest rates steady—is at the same time encouraging acceleration in the money supply, which looks accommodative to me. I don't see any evidence that central bankers have recognized the contradiction implied by these policies; it's something we should keep an eye on.