Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104f.jpg" width="353">
November factory inventories rose 0.2% following an unrevised 0.6% gain in October. Less a 3.2% (+14.4% y/y) decline in petroleum, factory inventories rose 0.3% (3.3% y/y) and that y/y gain is nearly one third the rate of accumulation early in 2005.
The increase in November inventories was paced by a 1.4% (1.3% y/y) gain in computers &amp; electronic products. Machinery inventories also rose a strong 0.5% (5.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104e.jpg" width="353">
Factory shipments rose a modest 0.2%, held back by a 5.7% drop in petroleum. Total factory orders surged 2.5% and the advance report of a 4.4% jump in durables goods orders was unrevised.
A 10.6% m/m surge (46.9% y/y) in unfilled orders for nondefense aircraft orders caused the total of unfilled orders to jump 1.6%. Less the transportation sector backlogs continued strong and rose 0.6% (9.6% y/y) while the ratio of total unfilled orders to shipments rose further to the highest level since 2002.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.8%</td>
<td>7.7%</td>
<td>-1.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.5%</td>
<td>1.7%</td>
<td>8.7%</td>
<td>9.3%</td>
<td>3.5%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.2%</td>
<td>0.7%</td>
<td>5.7%</td>
<td>9.5%</td>
<td>1.5%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>3.0%</td>
<td>1.4%</td>
<td>13.9%</td>
<td>8.4%</td>
<td>8.0%</td>
<td>-8.5%</td>
</tr>
</tbody>
</table>
Mortgage Apps Down With Fewer For Purchase, Delinquencies Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104d.jpg" width="353">
The total number of mortgage applications fell another 1.5% last week on top of the 6.8% drop the previous week. The decline rounded out 2005 when the average level fell 3.6% y/y after a nearly one third drop during 2004.
Purchase applications have been notably weak during the last several weeks. The 3.4% drop last week pulled the December average of purchase applications down 3.7% from November and the latest week was down 21.0% from the high during June.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales
Applications to refinance recovered 8.3% of the prior week&#39;s 11.2% plunge yet the December average fell 13.8% from November.
The Mortgage Bankers Association also reported that through 3Q05, the percentage of mortgage loans past due crept higher to 4.44% versus the 1Q low 4.31%. The increase was due to higher delinquencies in the South. In the Northeast and in the West delinquencies are near or at the series&#39; low. In the Midwest, however, a decline last quarter ran counter to the rising trend of the last ten years when the delinquency rate rose to roughly 5% from 3.6% in 1994.
The effective interest rate on a conventional 30-year mortgage fell slightly for the fourth straight week. At 6.42% the rate was down from 6.58% at the start of the month and averaged 6.48% in December versus a low average 5.81% in June. The effective rate on a 15-year mortgage was 6.05%. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
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 accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
The minutes to the latest meeting of the Federal Open Market Committee can be found <a href="http://www.federalreserve.gov/fomc/minutes/20051213.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">12/30/05</th>
<th scope="col">12/23/05</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>545.9</td>
<td>554.1</td>
<td>-9.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>418.3</td>
<td>432.9</td>
<td>0.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,363.2</td>
<td>1,259.1</td>
<td>-19.9%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Higher CPI in Thailand Is Rare Instance of Energy Cost Pass-Through 
by <a href="/comment/Stone.html">Carol Stone</a> January 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104g.jpg" width="353">
The overall CPI for Thailand was flat in December from November, when it had fallen 0.4% from October. But the total index for the year was up 5.8%, exactly double the increase in 2004. The December &quot;core&quot; rate, excluding raw food and energy, was 2.6%, compared with a mere 0.6% in 2004 and zero in 2003. This is the highest core rate for Thailand since the aftermath of the currency crises in 1997-98. Thus, this marked advance in core inflation in 2005, indicates at least one nation where energy prices forced up some other costs enough to show through in core and total inflation outcomes. These data were reported today by the Thai Ministry of Commerce and are contained in Haver&#39;s EMERGEPR database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104h.jpg" width="353">
As regular readers might be aware, we have monitored consumer prices throughout 2005 for signs of second-round effects of surging energy costs on other prices and have found precious little evidence of this. In the table below, we include data for Italy and the &quot;flash&quot; estimate for the Euro-Zone, which were both released today as well. They show that total inflation was steady or lower in 2005 compared with 2004, and through November, the Euro-Zone core CPI (excludes energy and unprocessed food) was 1.5%, lower than 2.1% across all of 2004.
In Thailand, though, there was apparently some pass-through of energy large enough to impact core inflation. Several categories experienced larger price increases last year, and the most notable was transportation and communication. This sector began to trend upward more rapidly in the spring of 2004 and continued to accelerate during 2005, reaching 13.3% in December, year-on-year. World Bank reports indicate that the government had been subsidizing diesel fuel and discontinued this subsidy; this added to the price increase from the cost of the fuel alone and led to substantially greater diesel costs in 2005, which apparently then generated a sizable rise in transportation costs generally in Thailand. This effect may not spread, especially since it was due to a change in Thai government price policy as well as the raw material cost, so we would conclude in this instance that the pick-up in Thai core inflation is &quot;the exception that proves the rule&quot; that general world-wide inflation has been remarkably impervious to the enormous rises in energy prices. Whether this will last through the winter heating season in the northern hemisphere remains to be seen, however. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P3/@P34/@P34.HTM">Thailand</a></th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">All Commodities (SA)</td>
<td>0.0</td>
<td>-0.4</td>
<td>0.4</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>5.8</td>
<td>5.9</td>
<td>6.2</td>
<td>2.9</td>
<td>1.8</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">Core CPI (SA)</td>
<td>0.2</td>
<td>0.0</td>
<td>0.2</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>2.6</td>
<td>2.4</td>
<td>2.4</td>
<td>0.6</td>
<td>0.0</td>
<td>0.3</td>
</tr>
<tr>
<td class="firstcol">Transportation &amp; Communication (SA)</td>
<td>0.2</td>
<td>-0.7</td>
<td>0.1</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>13.3</td>
<td>11.3</td>
<td>13.1</td>
<td>4.1</td>
<td>3.1</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">Memo: Italy CPI (NSA, Yr/Yr %)</td>
<td>2.0</td>
<td>2.2</td>
<td>2.2</td>
<td>2.0</td>
<td>2.5</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Zone CPI &quot;Flash&quot; (NSA, Yr/Yr %)</td>
<td>2.2</td>
<td>2.3</td>
<td>2.5</td>
<td>2.4</td>
<td>2.0</td>
<td>2.3</td>
</tr>
</tbody>
</table>
</body>
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November factory inventories rose 0.2% following an unrevised 0.6% gain in October. Less a 3.2% (+14.4% y/y) decline in petroleum, factory inventories rose 0.3% (3.3% y/y) and that y/y gain is nearly one third the rate of accumulation [...]

U.S. Factory Inventories and Backlogs Up

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104c.jpg" width="353">
Signs of improvement in the German economy have been coming to the fore. The latest bit of good news relates to unemployment conditions. The Federal Labor Agency reported that the number of registered workers without work adjusted for seasonal swings, in December fell by 110,000 to 4.64 million. the biggest drop since reunification. The unemployment rate fell to 11.2% from 11.4%. Registered unemployment in West Germany was 82, 000 lower in December than November, but was still 260,000 above December, 2004. Registered unemployment in East Germany, declined in December by 28,000 from November but was also 115,000 below December, 2004. The first chart shows the year to year changes in the number of registered unemployment in West and East Germany. The unemployment data in Germany were distorted early in 2005 when 200,000 people were added to the unemployment roles under the new definitions introduced by Hartz IV of the labor reforms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104a.jpg" width="353">
In addition to the data on registered unemployment, the Federal Statistical Office publishes data based on concepts of the the International Labor Office (ILO). These data do not show the early 2005 distortion in the unemployment figures. The second chart compares the unemployment rate as measured by the two agencies. There is no rise in the rate of ILO unemployment in early 2005 comparable to that of the registered unemployment rate. According to the ILO concept, the unemployment rate appears to have shown a somewhat steeper down trend so far this year than the registered data. The latest data are for November. While employment rose by 15,0000 in November on a seasonally adjusted basis to 38,611 million, unemployment also rose by 7,000, taking the unemployment rate to 9.0% from 8.8% in October.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104b.jpg" width="353">
The ILO data form the basis of Eurostat&#39;s harmonized rates of unemployment for all the Euro Zone countries, but, as can seen in the third chart that compares Germany&#39;s ILO unemployment rate and the Eurostat harmonized rate, further adjustments are made to the harmonized indexes. The latest Eurostat Harmonized Index for Germany is October. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Number of Registered Unemployed, S. A. (000)</th>
<th scope="col">Dec 05&nbsp;</th>
<th scope="col">Nov 05</th>
<th scope="col">Dec 04</th>
<th scope="col">M/M Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Unified Germany&nbsp;&nbsp;</td>
<td>4638</td>
<td>4748</td>
<td>4493</td>
<td>-110</td>
<td>145</td>
<td>4803</td>
<td>4389</td>
<td>4383</td>
<td>4075</td>
</tr>
<tr>
<td class="firstcol">West Germany</td>
<td>3122</td>
<td>3204</td>
<td>2862</td>
<td>-82</td>
<td>266</td>
<td>3201</td>
<td>2789</td>
<td>2759</td>
<td>2509</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;East Germany</td>
<td>1516</td>
<td>1544</td>
<td>1631</td>
<td>-28</td>
<td>-115</td>
<td>1612</td>
<td>1600</td>
<td>1624</td>
<td>1585</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>11.2</td>
<td>11.4</td>
<td>10.8</td>
<td>-0.2</td>
<td>0.4</td>
<td>11.6</td>
<td>10.5</td>
<td>10.5</td>
<td>9.8</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>
<td></td>
</tr>
<tr>
<td class="firstcol">ILO Concept S. A. (000)</td>
<td>Nov 05</td>
<td>Oct 05</td>
<td>Nov 04&nbsp;</td>
<td>M/M Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>Y/Y Dif &nbsp;&nbsp;</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>2004 &nbsp;&nbsp;</td>
<td>2003</td>
<td>2002&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>38611</td>
<td>38596</td>
<td>38826</td>
<td>15</td>
<td>-215</td>
<td></td>
<td>38779</td>
<td>38632</td>
<td>383992</td>
</tr>
<tr>
<td class="firstcol">Unemployment</td>
<td>3800</td>
<td>3730</td>
<td>3910</td>
<td>70</td>
<td>110</td>
<td></td>
<td>3930</td>
<td>3710</td>
<td>3240</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>&nbsp;9.0</td>
<td>8.8</td>
<td>9.2&nbsp;</td>
<td>0.2&nbsp;</td>
<td>-0.2&nbsp;</td>
<td>&nbsp;</td>
<td>9.2&nbsp;</td>
<td>8.8</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Eurostat Harmonized Rate for Germany</td>
<td>&nbsp;n.a</td>
<td>9.1&nbsp;</td>
<td>9.5&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;9.5</td>
<td>9.1</td>
<td>8.2</td>
</tr>
</tbody>
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Signs of improvement in the German economy have been coming to the fore. The latest bit of good news relates to unemployment conditions. The Federal Labor Agency reported that the number of registered workers without work adjusted for [...]

Good News on German Unemployment

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103c.jpg" width="353">
The value of construction put in place rose a modest 0.2% in November following a 0.8% October increase and fell far short of Consensus expectations for a 0.7% rise.
Residential building dropped modestly for the first decline since June. The decline reflected a 4.1% plunge in the value of improvements (-5.7% y/y) and a 0.6% fall in new multi-family residential (+20.5% y/y). New single family building posted a strong 1.5% gain (14.8% y/y) which was on a par with increases during the prior ten months.
Nonresidential building recovered all of the previous month&#39;s 0.6% drop helped by a 2.4% gain in office construction (7.4% y/y) and a 2.7% rise in commercial (10.15 y/y).
Public construction spending rose 0.3% following a revised 1.7% increase during October. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 1.6% (8.1% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.2%</td>
<td>0.8%</td>
<td>7.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.2%</td>
<td>0.5%</td>
<td>7.8%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>9.7%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.3%</td>
<td>1.7%</td>
<td>7.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
</body>
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The value of construction put in place rose a modest 0.2% in November following a 0.8% October increase and fell far short of Consensus expectations for a 0.7% rise. Residential building dropped modestly for the first decline since [...]

U.S. Construction Gain Eased, Single Family Still Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103b.jpg" width="353">
The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, dropped the index to the lowest level since August and exceeded Consensus expectations for a more moderate decline to 57.4.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
Each of the index&#39;s five components fell last month. The 4.3 point drop in new orders was to the lowest level since July and the 3.6 point drop in production was the fourth in the last five months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103a.jpg" width="353">
The 3.9 point decline in the employment index reversed about all of the gains during the prior three months. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
Prices continued to rise, though an eleven point decline in the index level added to the ten point drop in November. Widespread increases in commodities prices were offset by limited declines in diesel fuel and resins. Commodities in short supply were caustic soda, plastics, resins, and steel.
The Diffusion of Personal Computers across the U.S. from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-37.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</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">Composite Index</td>
<td>54.2</td>
<td>58.1</td>
<td>57.3</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>55.5</td>
<td>59.8</td>
<td>62.6</td>
<td>57.5</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.0</td>
<td>74.0</td>
<td>72.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>


</html>

The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, [...]

ISM Index Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103b.jpg" width="353">
The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, dropped the index to the lowest level since August and exceeded Consensus expectations for a more moderate decline to 57.4.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
Each of the index&#39;s five components fell last month. The 4.3 point drop in new orders was to the lowest level since July and the 3.6 point drop in production was the fourth in the last five months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103a.jpg" width="353">
The 3.9 point decline in the employment index reversed about all of the gains during the prior three months. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
Prices continued to rise, though an eleven point decline in the index level added to the ten point drop in November. Widespread increases in commodities prices were offset by limited declines in diesel fuel and resins. Commodities in short supply were caustic soda, plastics, resins, and steel.
The Diffusion of Personal Computers across the U.S. from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-37.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</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">Composite Index</td>
<td>54.2</td>
<td>58.1</td>
<td>57.3</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>55.5</td>
<td>59.8</td>
<td>62.6</td>
<td>57.5</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.0</td>
<td>74.0</td>
<td>72.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
U.S. Construction Gain Eased, Single Family Still Strong  
by <a href="/comment/Moeller.html">Tom Moeller</a>  January 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103c.jpg" width="353">
The value of construction put in place rose a modest 0.2% in November following a 0.8% October increase and fell far short of Consensus expectations for a 0.7% rise.
Residential building dropped modestly for the first decline since June. The decline reflected a 4.1% plunge in the value of improvements (-5.7% y/y) and a 0.6% fall in new multi-family residential (+20.5% y/y). New single family building posted a strong 1.5% gain (14.8% y/y) which was on a par with increases during the prior ten months.
Nonresidential building recovered all of the previous month&#39;s 0.6% drop helped by a 2.4% gain in office construction (7.4% y/y) and a 2.7% rise in commercial (10.15 y/y).
Public construction spending rose 0.3% following a revised 1.7% increase during October. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 1.6% (8.1% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.2%</td>
<td>0.8%</td>
<td>7.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.2%</td>
<td>0.5%</td>
<td>7.8%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>9.7%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.3%</td>
<td>1.7%</td>
<td>7.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
Good News on German Unemployment  
by <a href="/comment/Curley.html">Louise Curley</a> January 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104c.jpg" width="353">
Signs of improvement in the German economy have been coming to the fore. The latest bit of good news relates to unemployment conditions. The Federal Labor Agency reported that the number of registered workers without work adjusted for seasonal swings, in December fell by 110,000 to 4.64 million. the biggest drop since reunification. The unemployment rate fell to 11.2% from 11.4%. Registered unemployment in West Germany was 82, 000 lower in December than November, but was still 260,000 above December, 2004. Registered unemployment in East Germany, declined in December by 28,000 from November but was also 115,000 below December, 2004. The first chart shows the year to year changes in the number of registered unemployment in West and East Germany. The unemployment data in Germany were distorted early in 2005 when 200,000 people were added to the unemployment roles under the new definitions introduced by Hartz IV of the labor reforms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104a.jpg" width="353">
In addition to the data on registered unemployment, the Federal Statistical Office publishes data based on concepts of the the International Labor Office (ILO). These data do not show the early 2005 distortion in the unemployment figures. The second chart compares the unemployment rate as measured by the two agencies. There is no rise in the rate of ILO unemployment in early 2005 comparable to that of the registered unemployment rate. According to the ILO concept, the unemployment rate appears to have shown a somewhat steeper down trend so far this year than the registered data. The latest data are for November. While employment rose by 15,0000 in November on a seasonally adjusted basis to 38,611 million, unemployment also rose by 7,000, taking the unemployment rate to 9.0% from 8.8% in October.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104b.jpg" width="353">
The ILO data form the basis of Eurostat&#39;s harmonized rates of unemployment for all the Euro Zone countries, but, as can seen in the third chart that compares Germany&#39;s ILO unemployment rate and the Eurostat harmonized rate, further adjustments are made to the harmonized indexes. The latest Eurostat Harmonized Index for Germany is October. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Number of Registered Unemployed, S. A. (000)</th>
<th scope="col">Dec 05&nbsp;</th>
<th scope="col">Nov 05</th>
<th scope="col">Dec 04</th>
<th scope="col">M/M Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Unified Germany&nbsp;&nbsp;</td>
<td>4638</td>
<td>4748</td>
<td>4493</td>
<td>-110</td>
<td>145</td>
<td>4803</td>
<td>4389</td>
<td>4383</td>
<td>4075</td>
</tr>
<tr>
<td class="firstcol">West Germany</td>
<td>3122</td>
<td>3204</td>
<td>2862</td>
<td>-82</td>
<td>266</td>
<td>3201</td>
<td>2789</td>
<td>2759</td>
<td>2509</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;East Germany</td>
<td>1516</td>
<td>1544</td>
<td>1631</td>
<td>-28</td>
<td>-115</td>
<td>1612</td>
<td>1600</td>
<td>1624</td>
<td>1585</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>11.2</td>
<td>11.4</td>
<td>10.8</td>
<td>-0.2</td>
<td>0.4</td>
<td>11.6</td>
<td>10.5</td>
<td>10.5</td>
<td>9.8</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>
<td></td>
</tr>
<tr>
<td class="firstcol">ILO Concept S. A. (000)</td>
<td>Nov 05</td>
<td>Oct 05</td>
<td>Nov 04&nbsp;</td>
<td>M/M Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>Y/Y Dif &nbsp;&nbsp;</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>2004 &nbsp;&nbsp;</td>
<td>2003</td>
<td>2002&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>38611</td>
<td>38596</td>
<td>38826</td>
<td>15</td>
<td>-215</td>
<td></td>
<td>38779</td>
<td>38632</td>
<td>383992</td>
</tr>
<tr>
<td class="firstcol">Unemployment</td>
<td>3800</td>
<td>3730</td>
<td>3910</td>
<td>70</td>
<td>110</td>
<td></td>
<td>3930</td>
<td>3710</td>
<td>3240</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>&nbsp;9.0</td>
<td>8.8</td>
<td>9.2&nbsp;</td>
<td>0.2&nbsp;</td>
<td>-0.2&nbsp;</td>
<td>&nbsp;</td>
<td>9.2&nbsp;</td>
<td>8.8</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Eurostat Harmonized Rate for Germany</td>
<td>&nbsp;n.a</td>
<td>9.1&nbsp;</td>
<td>9.5&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;9.5</td>
<td>9.1</td>
<td>8.2</td>
</tr>
</tbody>
</table>


</html>

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

260515s1.jpg

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.



260515t1.jpg

260515u1.jpg

- 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

260515e.jpg

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.



260515e1.jpg

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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