Tom Moeller

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      <p><b>Unit sales of light motor vehicles last month
      edged 0.3% lower (+5.8% y/y) versus September to 15.23 million (SAAR)</b>,
      according to the Autodata Corporation. The latest level of sales compares
      to the August peak of 16.09 million.</p>
      
      <p><b>Light truck </b>sales were firm and inched up
      0.6% (9.0% y/y) in October to 7.61 million. Strongest were sales of
      imported light trucks which increased 2.0% month-to-month (27.6% y/y) to
      1.12 million. Domestic light truck sales gained 0.4% (6.4% y/y) to 6.49
      million.</p>
      
      <p>Offsetting these gains was 1.2% m/m (+2.8% y/y)
      slip in <b>auto sales </b>to 7.63 million. Domestic car sales ticked 0.8%
      higher (4.2% y/y) to 5.40 million but sales of imports fell 5.8% (-0.4%
      y/y) to 2.23 million. </p>
      
      <p><b>Imports share </b>of the U.S. light vehicle market fell m/m to 22.0%
      during October. (Imported vehicles are those produced outside the United
      States.) That share remained down from its peak of 29.9% in Q1'09.
      Imports' share of the U.S. car market fell m/m to 29.3% and remained down
      from its 37.6% monthly peak in 2010. Imports' share of the light truck
      market was roughly flat at 14.7%.</p>
      
      <p>U.S. vehicle sales figures can be found in Haver's<b> USECON </b>database.</p>
      
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
      
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            <th class="firstcol" scope="col" >Light Vehicle Sales
              (SAAR, Mil. Units)</th>
            <th scope="col" ><b>Oct</b></th>
            <th scope="col" ><b>Sep</b></th>
            <th scope="col" ><b>Aug</b></th>
            <th scope="col" ><b>Y/Y %</b></th>
            <th scope="col" ><b>2012</b></th>
            <th scope="col" ><b>2011</b></th>
            <th scope="col" ><b>2010</b></th>
          </tr>
        </thead>
        <tbody>
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            <td class="firstcol" >Total</td>
            <td  >15.23</td>
            <td  >15.28</td>
            <td  >16.09</td>
            <td  >5.8</td>
            <td  >14.49</td>
            <td  >12.78</td>
            <td  >11.59</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;Autos</td>
            <td  >7.63</td>
            <td  >7.72</td>
            <td  >8.03</td>
            <td  >2.8</td>
            <td  >7.42</td>
            <td  >6.23</td>
            <td  >5.77</td>
          </tr>
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            <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
            <td  >5.40</td>
            <td  >5.35</td>
            <td  >5.64</td>
            <td  >4.2</td>
            <td  >5.10</td>
            <td  >4.21</td>
            <td  >3.76</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Imported</td>
            <td  >2.23</td>
            <td  >2.37</td>
            <td  >2.39</td>
            <td  >-0.4</td>
            <td  >2.32</td>
            <td  >2.02</td>
            <td  >2.01</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;Light Trucks</td>
            <td  >7.61</td>
            <td  >7.56</td>
            <td  >8.06</td>
            <td  >9.0</td>
            <td  >7.08</td>
            <td  >6.55</td>
            <td  >5.82</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
            <td  >6.49</td>
            <td  >6.46</td>
            <td  >6.97</td>
            <td  >6.4</td>
            <td  >6.10</td>
            <td  >5.55</td>
            <td  >4.86</td>
          </tr>
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            <td class="firstcol" >&nbsp;&nbsp;Imported</td>
            <td  >1.12</td>
            <td  >1.10</td>
            <td  >1.09</td>
            <td  >27.6</td>
            <td  >0.97</td>
            <td  >1.00</td>
            <td  >0.96</td>
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              </tbody>
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Unit sales of light motor vehicles last month edged 0.3% lower (+5.8% y/y) versus September to 15.23 million (SAAR), according to the Autodata Corporation. The latest level of sales compares to the August peak of 16.09 million. Light [...]

U.S. Vehicle Sales Are Off Highs, But Up Year-to-Year

Robert Brusca

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<p><a href="/comment/131101e_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131101e.png" align="left"></a>
Global growth has been and remained weak. The US has had consistent growth, but it has also fallen short of historic markers. Political developments make the future less certain. The US recently has attacked the `German model' of growth, which is to rely on export-led growth and to maintain a current account surplus. Most of the countries in the table above have relied on export-led growth and may be in for the same sorts of pressures from the US in the future. But if the US doesn't do it, someone else should. There is a great deal of reform needed to the underpinnings of our global trading system
</p><p>
The most highly developed countries in the world, roughly the G-10 countries, have relied too much on debt to drive their growth. Now it all has started to unravel. The modern export-led growth model that was developed in Japan to tap this growth, pursued by the Asian `dragons' and then taken to an extreme by China, has run to its logical conclusion. 
</p><p>
That program of export-led growth was never part of a sustained global growth model. Japan moved to the fore using export growth and a low savings rate to build a series of huge trade surpluses while building its foreign exchange reserves as its private financial firms also amassed dollar assets. After some point Japan's penetration of the US market became so great that `orderly marketing agreements' were used to slow the flow of Japanese automobile exports to the US. Japan began to erect factories in the US. A severely rising yen, the impact of the Tsunami and Japan's grappling with a transition away from nuclear power have greatly transformed the Japanese economy from its former export juggernaut days.
</p><p>
Except for China, the rest of the Asian exporters were smaller and did not raise the political backlash that Japan did. But the heavy debt load in the Western countries is beginning to slow demand and their growth rate of imports (exports to them). This, of course, has negative repercussions for nations that use the export-led growth strategy.
</p><p>
China was the game changer, the Baby Huey, who wanted the same thing as `the other kids' but whose size made that impossible. When China launched its own export-led growth drive, it sucked up all the air in the room. Output that had come from other developing economies often migrated to China where costs were even cheaper. China `learned' from Japan's experience and refused to let its currency rise. This allowed China to keep its low-cost advantage longer than it should have. China's international capital flows from its own surplus excesses helped to create the environment for the eventual financial collapse that occurred.
</p><p>
On balance we find the countries that have pursued export-led growth strategies as floundering. Some, like Brazil, blame the US. It blamed the US for the bad effects of QE and for planning to taper and the market effects that the expected taper spawned. This episode is a good example of why world growth needs to be balanced and whey trade needs to occur in a sustainable program. Countries need to take responsibility for their own growth.
</p><p>
Economics does not draw out clear rules on trade and current account balances. Conservatives may hold that a balance international position and domestic fiscal position is best. That is a safe policy but it may not be the best one. 
</p><p>
There is time when some nations should run surpluses and others should run deficits .For obvious reasons Saudi Arabia runs and will continue to run surpluses. Its situation is unusual. China cannot claim Saudi Arabia as a precedent. When countries at a high stage of development without any `clear need' to tap foreign savings are doing so and doing it year after year (as the US has done), there should be some questioning of that. Trade must eventually balance. It need not ever balance bilaterally. And in those two statements you can see room for a world of disagreement. When China was in its heyday it was growing fast and running large trade surpluses. Why was a county, in such need of development, running such large surpluses on its current account, accumulating financial assets instead of spending those resources on development? Why did China's consumption as percentage of GDP fall by so much? What kind of development was that?
</p><p>
It was exploitive. And this is the kind of development that is not only unsustainable but, instead, sure to help to contribute to the next meltdown because it is part of a disequilibrium process.
</p><p>
When we look at the progress of the formerly high growth developing economies, we see angst directed at others, as in the case of Brazil. We see China is trying to shift its focus to develop its own internal demand. China was not prepared for this. It stubbornly refused entreaties to let its currency rise and to go the route of normal development. China's path came to a sudden dead end instead of to a managed change in course because of its intransigence and inability to see how unsustainable its policies were. But economics were telling us that every day. 
</p><p>
As this growth cycle plays out there are many unanswered questions that all nations need to have answered.
</p><p>
First and foremost is this: Can we have free trade organizations -dedicated to free trade- if the rules of free trade are not ever met? Economists extoll the virtues of free trade, of comparative advantage and yet in the real world these concepts remain elusive. The benefits of comparative advantage are fleshed out in the framework of barter. But in the real world trade uses money (monies). To bridge that gap we need financial reforms. Free trade and comparative advantage principles do NOT play out in a world where currencies are misaligned especially not one where they are consistently misaligned. Following free-trade principles in a non-free trade environment leads to trouble
</p><p>
While trade flows are not a perfect judgment of whether trade is truly `free,' looking a trade flows and at reserve accumulation and at accumulated trade balances we can get a good idea of whose currency is breaking the rules.
</p><p>
We have many issues to deal with in the wake of the financial crisis. Developing nations that have long exploited demand by using a weak currency as a tool may feel deprived of an `old friend.' But if there is no exchange rate reform, we will simply be revisiting financial meltdowns again and again.
</p><p>
So as we watch this period of development play out, let's also watch what happens to trade and current account imbalances. If they are not becalmed, then we are simply on another road to our next BIG THING. And it won't be something good.
</p>

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Global growth has been and remained weak. The US has had consistent growth, but it has also fallen short of historic markers. Political developments make the future less certain. The US recently has attacked the `German model' of [...]

Peripheral Countries Are Still Lagging: Will That Continue?

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      <p>October was a constructive month for the manufacturing sector. The
      Composite Index of Manufacturing Sector Activity from the Institute for
      Supply Management ticked up to 56.4 from an unrevised 56.2 in September.
      The latest reading was the highest level since April 2011. It beat
      expectations for a decline to 55.1, as measured by the Action Economics
      Survey. Any figure above 50 indicates an increasing level of activity in
      the factory sector. During the last ten years, there has been a 69%
      correlation between the ISM index and the q/q change in real GDP.</p>
      
      <p>The inventories component again provided the greatest lift to the
      Composite Index as it rose to the highest level since August of last year.
      The supplier deliveries series index also rose, indicating the slowest
      delivery speeds since June 2011. New orders ticked up but the export
      orders series rose sharply to the highest level since April of last year.
      The factory sector employment series retreated to its lowest point since
      this past June. During the last ten years there has been an 88%
      correlation between the employment index and the m/m change in factory
      payrolls. The production index also dropped to it lowest level since June.
      </p>
      
      <p>The prices paid index reversed roughly half of its prior month's gain
      but still was up versus the low three months ago. Twenty two percent of
      firms raised prices while 11 percent lowered them. During the last ten
      years there has been a 65% correlation between the index and the m/m
      change in the intermediate producer price index. The order backlog series
      increased to its highest level in six months.</p>
      
      <p>The figures from the Institute For Supply Management (ISM) are
      diffusion indexes and can be found in Haver's <b>USECON</b> database. The
      expectations number is in the <b>AS1REPNA</b> database.</p>
      
      <p><b>Taking Stock of the Labor Market Recovery</b> from the Federal
      Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2013/1113/01labmar.cfm">here.</a></p>
      
      <p><a href="/comment/131101c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131101c.png"></a>
      <a href="/comment/131101d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131101d.png"></a></p>
      
      <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
      
        <thead>
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            <th class="firstcol" scope="col" >ISM Mfg</th>
            <th scope="col" >Oct</th>
            <th scope="col" >Sep</th>
            <th scope="col" >Aug</th>
            <th scope="col" >Oct'12</th>
            <th scope="col" >2012</th>
            <th scope="col" >2011</th>
            <th scope="col" >2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >Composite Index</td>
            <td  >56.4</td>
            <td  >56.2</td>
            <td  >55.7</td>
            <td  >51.7</td>
            <td  >51.7</td>
            <td  >55.2</td>
            <td  >57.3</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;New Orders</td>
            <td  >60.6</td>
            <td  >60.5</td>
            <td  >63.2</td>
            <td  >52.8</td>
            <td  >52.9</td>
            <td  >56.4</td>
            <td  >59.2</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;Production</td>
            <td  >60.8</td>
            <td  >62.6</td>
            <td  >62.4</td>
            <td  >53.3</td>
            <td  >53.6</td>
            <td  >57.4</td>
            <td  >61.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;Employment</td>
            <td  >53.2</td>
            <td  >55.4</td>
            <td  >53.3</td>
            <td  >52.3</td>
            <td  >53.8</td>
            <td  >57.4</td>
            <td  >57.3</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;Supplier Deliveries</td>
            <td  >54.7</td>
            <td  >52.6</td>
            <td  >52.3</td>
            <td  >49.9</td>
            <td  >50.0</td>
            <td  >54.7</td>
            <td  >58.1</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;Inventories</td>
            <td  >52.5</td>
            <td  >50.0</td>
            <td  >47.5</td>
            <td  >50.0</td>
            <td  >48.2</td>
            <td  >50.1</td>
            <td  >50.8</td>
          </tr>
          <tr>
            <td class="firstcol" >Prices Paid Index (NSA)</td>
            <td  >55.5</td>
            <td  >56.5</td>
            <td  >54.0</td>
            <td  >55.0</td>
            <td  >53.2</td>
            <td  >65.2</td>
            <td  >68.9</td>
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October was a constructive month for the manufacturing sector. The Composite Index of Manufacturing Sector Activity from the Institute for Supply Management ticked up to 56.4 from an unrevised 56.2 in September. The latest reading was [...]

U.S. ISM Index Nudges Higher While Prices Index Slips

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      <p><span id="articletext">Initial claims for unemployment insurance fell
      to 340,000 (-7.4% y/y) during the week ended October 26 from an unrevised
      350,000 during the prior week. The Labor Department indicated that no
      claims were due to a processing difficulties in California. For last week,
      the Action Economics Forecast Survey expected 340,000 claims. The
      four-week moving average of initial claims increased to 356,250, its
      highest level since late-May. During the last ten years there has been a
      74% correlation between the level of claims and the m/m change in payroll
      employment.
      <p>Continuing claims for unemployment insurance in the week ended October
      19 rose to 2.881 million (-11.3% y/y). The figure remained up from the
      early-September low of 2.788 million. The four-week moving average of
      continuing claims slipped to 2.879 million. The insured rate of
      unemployment remained at 2.2%, where it's been since late-August. 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 October 12, the latest figure available, the
      total of all benefit recipients increased slightly to 3.896 million (-22.6%
      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 for 2007. The number of individuals collecting
      emergency and extended payments in the week of October 12 fell to 1.318
      million (-37.2% y/y), a new low for the economic recovery.</p>
      <p>By state, the insured rate of unemployment continued to vary greatly
      with South Dakota (0.36%), Virginia (1.13%), Florida (1.19%), Tennessee
      (1.28%), Indiana (1.37%), Georgia (1.42%) and Texas (1.42%) at the low end
      of the range. At the high end were Massachusetts (1.96%), Wisconsin (2.07%),
      Illinois (2.34%), Pennsylvania (2.55%), California (2.70%), New Jersey (2.92%)
      and Alaska (3.86%).</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 consensus estimates come from
      the Action Economics survey, carried in the <b>AS1REPNA</b> database.</p>
      <table class="centered" border="0" cellSpacing="0" width="1231">
        <thead>
          <tr>
            <th class="firstcol" 0801 width="407">Unemployment Insurance (000s)</th>
            <th 0801 width="117">10/26/13</th>
            <th 0801 width="117">10/19/13</th>
            <th 0801 width="117">10/12/13</th>
            <th 0801 width="117">Y/Y %</th>
            <th 0801 width="117">2012</th>
            <th 0801 width="117">2011</th>
            <th 0801 width="118">2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" 0801 width="407">Initial Claims</td>
            <td 0801 align="center" width="117">340</td>
            <td 0801 align="center" width="117">350</td>
            <td 0801 align="center" width="117">362</td>
            <td 0801 align="center" width="117">-7.4</td>
            <td 0801 align="center" width="117">375</td>
            <td 0801 align="center" width="117">409</td>
            <td 0801 align="center" width="118">459</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0801 width="407">Continuing Claims</td>
            <td 0801 align="center" width="117">--</td>
            <td 0801 align="center" width="117">2,881</td>
            <td 0801 align="center" width="117">2,850</td>
            <td 0801 align="center" width="117">-11.3</td>
            <td 0801 align="center" width="117">3,318</td>
            <td 0801 align="center" width="117">3,744</td>
            <td 0801 align="center" width="118">4,544</td>
          </tr>
          <tr>
            <td class="firstcol" 0801 width="407">Insured Unemployment Rate (%)</td>
            <td 0801 align="center" width="117">--</td>
            <td 0801 align="center" width="117">2.2</td>
            <td 0801 align="center" width="117">2.2</td>
            <td 0801 align="center" width="117">2.5<br>
              (10/12)</td>
            <td 0801 align="center" width="117">2.6</td>
            <td 0801 align="center" width="117">3.0</td>
            <td 0801 align="center" width="118">3.6</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0801 width="407">Total &quot;All Programs&quot;
              (NSA)</td>
            <td 0801 align="center" width="117">--</td>
            <td 0801 align="center" width="117">--</td>
            <td 0801 align="center" width="117">3.896 mil.</td>
            <td 0801 align="center" width="117">-22.6</td>
            <td 0801 align="center" width="117">6.047 mil.</td>
            <td 0801 align="center" width="117">7.750 mil.</td>
            <td 0801 align="center" width="118">9.850 mil.</td>
          </tr>
        </tbody>
      </table>
      </span>
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      <span id="articletitle">MNI Chicago Index Jumps to Highest Level in Nearly
      Three Years</span><br>
      <span id="byline">by <a href="http://www.haver.com/comment/Moeller.html">Tom
      Moeller</a>&nbsp;&nbsp;October 31, 2013</span>
      <p><span id="byline">Factory sector activity in the Midwest region heated
      up this month.</span> <span id="articletext">The MNI Chicago Report
      business barometer jumped to 65.9, its highest level since March of 2011.
      Expectations in the Action Economics Forecast Survey were for 55.0. <b>Haver
      Analytics constructs a seasonally adjusted figure comparable to the MNI
      Barometer and it rose to 60.7, its highest level since November 2011.</b>
      During the last ten years there has been an 66% correlation between the
      adjusted Chicago index the quarterly change in real GDP.
      <p>Improvement in the components during September was broad-based. led by
      production, new orders and a slower pace of vendor deliveries. Working the
      other way, the employment index fell to its lowest level since April.
      During the last ten years there has been an 80% correlation between the
      employment index and the m/m change in factory sector payrolls.</p>
      <p>Pricing power also deteriorated as the prices index reversed its
      increases of the prior two months. During the last ten years there has
      been a 67% correlation between the prices paid index and three-month
      growth in the intermediate goods PPI.</p>
      <p>The survey panel consists of 200 manufacturing purchasing professionals
      in the Chicago area. The MNI figures are copyrighted by the MNI Chicago
      Report in partnership with the Institute for Supply Management-Chicago.
      The figures from the survey can be found in Haver's <b>SURVEYS</b>
      database. The Consensus expectations figure is available in <b>AS1REPNA</b>.&nbsp;</p>
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            <th class="firstcol" scope="col" width="690">MNI Chicago Report
              (Diff. Index, 50=No Chg.)</th>
            <th scope="col" width="76">Oct</th>
            <th scope="col" width="76">Sep</th>
            <th scope="col" width="77">Aug</th>
            <th scope="col" width="77">Oct'12</th>
            <th scope="col" width="77">2012</th>
            <th scope="col" width="77">2011</th>
            <th scope="col" width="77">2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" width="690">ISM-Adjusted Business Barometer</td>
            <td align="center" width="76">60.7</td>
            <td align="center" width="76">54.0</td>
            <td align="center" width="77">52.2</td>
            <td align="center" width="77">51.2</td>
            <td align="center" width="77">54.8</td>
            <td align="center" width="77">61.3</td>
            <td align="center" width="77">59.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="690">Business Barometer</td>
            <td align="center" width="76">65.9</td>
            <td align="center" width="76">55.7</td>
            <td align="center" width="77">53.0</td>
            <td align="center" width="77">50.7</td>
            <td align="center" width="77">54.6</td>
            <td align="center" width="77">62.7</td>
            <td align="center" width="77">61.3</td>
          </tr>
          <tr>
            <td class="firstcol" width="690">&nbsp;&nbsp;New Orders</td>
            <td align="center" width="76">74.3</td>
            <td align="center" width="76">58.9</td>
            <td align="center" width="77">57.2</td>
            <td align="center" width="77">50.6</td>
            <td align="center" width="77">55.1</td>
            <td align="center" width="77">65.3</td>
            <td align="center" width="77">63.4</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="690">&nbsp;&nbsp;Production</td>
            <td align="center" width="76">71.1</td>
            <td align="center" width="76">58.0</td>
            <td align="center" width="77">53.0</td>
            <td align="center" width="77">53.6</td>
            <td align="center" width="77">57.5</td>
            <td align="center" width="77">66.5</td>
            <td align="center" width="77">65.0</td>
          </tr>
          <tr>
            <td class="firstcol" width="690">&nbsp;&nbsp;Order Backlogs</td>
            <td align="center" width="76">61.0</td>
            <td align="center" width="76">46.7</td>
            <td align="center" width="77">46.5</td>
            <td align="center" width="77">45.6</td>
            <td align="center" width="77">48.0</td>
            <td align="center" width="77">55.5</td>
            <td align="center" width="77">54.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="690">&nbsp;&nbsp;Deliveries</td>
            <td align="center" width="76">52.3</td>
            <td align="center" width="76">53.7</td>
            <td align="center" width="77">50.8</td>
            <td align="center" width="77">51.0</td>
            <td align="center" width="77">54.8</td>
            <td align="center" width="77">60.0</td>
            <td align="center" width="77">61.0</td>
          </tr>
          <tr>
            <td class="firstcol" width="690">&nbsp;&nbsp;Inventories</td>
            <td align="center" width="76">48.0</td>
            <td align="center" width="76">46.0</td>
            <td align="center" width="77">45.0</td>
            <td align="center" width="77">49.6</td>
            <td align="center" width="77">51.4</td>
            <td align="center" width="77">55.2</td>
            <td align="center" width="77">50.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="690">&nbsp;&nbsp;Employment</td>
            <td align="center" width="76">57.7</td>
            <td align="center" width="76">53.2</td>
            <td align="center" width="77">54.9</td>
            <td align="center" width="77">51.1</td>
            <td align="center" width="77">55.3</td>
            <td align="center" width="77">59.4</td>
            <td align="center" width="77">55.2</td>
          </tr>
          <tr>
            <td class="firstcol" width="690">&nbsp;&nbsp;Prices Paid</td>
            <td align="center" width="76">56.7</td>
            <td align="center" width="76">57.1</td>
            <td align="center" width="77">65.2</td>
            <td align="center" width="77">60.8</td>
            <td align="center" width="77">62.2</td>
            <td align="center" width="77">72.4</td>
            <td align="center" width="77">65.3</td>
          </tr>
        </tbody>
      </table>
      </span>
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Initial claims for unemployment insurance fell to 340,000 (-7.4% y/y) during the week ended October 26 from an unrevised 350,000 during the prior week. The Labor Department indicated that no claims were due to a processing [...]

U.S. Initial Unemployment Insurance Filings Slip

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      <p></p>

     
<p><a href="/comment/131031i_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031i.png" align="left"></a>
The GfK consumer climate survey that extrapolates a November figure for German confidence foresees a tailing off in consumer climate in Nov. 
</p><p> 
The GfK components are not updated for the projected climate reading in November, so they lag one month. But the indicators for income and buying propensities already had peaked and started lower. Income expectations peaked in July at a reading of 42.8 and have been rapidly losing ground ever since. The buying propensity had been moving higher until this month when it fell back from 45.0 to 44.4. It is the economic reading which has continued to surge higher, even in October. We cannot be sure what the shift in November is due to since we do not have component values for that month. But a decline is not really a surprise; except for the surging economic reading, the GfK components had already showed signs of exhaustion.
</p><p>
Still the German index is much better off than that for other EMU nations. The November Climate reading stands in the 89th percentile of its historic queue (count). This means it has been higher only about 11% of the time. The economic gauge stands in the 66th percentile of its queue, income stands in the 78th percentile of its queue and the buying propensity is in the 92nd percentile of its queue. From these assessments we can surmise that it is the economic index that has been surging and playing catch-up with the other metrics. The overall climate ranking is more in step with the rankings on income and buying than with the economy ranking.
</p><p>
When we compare these assessments with other EMU members, we find that over this same period from January 2002 to date, Italy's consumer metric stands only in the 28th percentile of its queue. France stands in the 26th percentile of its queue. German consumers are leagues ahead of other consumers in EMU.
</p><p>
It will be interesting to see if the German optimism is really going to start turning lower. European expectations have been lifted by the improved performance of the countries of Southern Europe and by Spain's emergence from recession. Still, it isn't at all clear what a setback in Germany would do to all this optimism. After all the German economy works off of export-led growth, not a phenomenon that helps to boost its neighbors.
</p><p>
In fact the US has just launched a criticism of the German model of export led growth in its semiannual report to Congress. Germany is already up in arms defending its system <a href="http://www.reuters.com/article/2013/10/31/us-germany-usa-trade-idUSBRE99U0M920131031">here.</a> 
</p><p>
But the fact is that demand is becoming increasingly scarce globally as formerly high consumption countries are pulling back as consumers are paying down debt and governments worldwide are becoming more debt-conscience, limiting their own spending. Countries whose national economics are geared to exploit that which is getting scare are bound to encounter criticism. In competitive markets a surplus country will find its currency is forced higher, diminishing its competiveness and causing its exports to slow. It follows that a country cannot have a policy of persistent export-led growth without manipulating exchange rate values.
</p><p>
In the case of Germany the exchange rate question becomes even more muddied since Germany is a highly competitive country whose currency should probably rise in value to diminish is export prowess (this will also increase German wealth and buying power-and eventually, German imports). But Germany is locked in a currency union with a lot of other nations with exactly the opposite problem! 
</p><p>
This is simply another way to see the inconsistencies in EMU and to recognize that the rest of the world is not immune from the effect of the imbalances created within the eurozone. 
</p>

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The GfK consumer climate survey that extrapolates a November figure for German confidence foresees a tailing off in consumer climate in Nov. The GfK components are not updated for the projected climate reading in November, so they lag [...]

German Consumer Climate Edges Lower with Repercussions?

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      <p><a href="/comment/131031e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031e.png"></a>
      <a href="/comment/131031f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031f.png"></a></p>  
      
      <p>Factory sector activity in the Midwest region heated
      up this month. The MNI Chicago Report
      business barometer for October jumped to 65.9, its highest level since March
      of 2011. Expectations in the Action Economics Forecast Survey were for 55.0.
      <b>Haver Analytics constructs a seasonally adjusted, ISM adjusted index
      and it rose to 60.7, its highest level since November 2011.</b> During the
      last ten years there has been an 67% correlation between the adjusted
      Chicago index the quarterly change in real GDP.</p>
      
      <p>Improvement in the component series during October was broad-based, but
      new orders, production and unfilled orders each jumped. The employment
      series also rose to its highest level since June. During the last ten
      years there has been an 80% correlation between the employment index and
      the m/m change in factory sector payrolls.</p>
      
      <p>Pricing power deteriorated as the prices paid index fell to its lowest
      level since May. During the last ten years there has been a 67%
      correlation between the prices paid index and three-month growth in the
      intermediate goods PPI.</p>
      
      <p>The survey panel consists of 200 manufacturing purchasing professionals
      in the Chicago area. The MNI figures are copyrighted by the MNI Chicago
      Report in partnership with the Institute for Supply Management-Chicago.
      The figures from the survey can be found in Haver's <b>SURVEYS</b>
      database. The Consensus expectations figure is available in <b>AS1REPNA</b>.&nbsp;</p>
      
      <p><a href="/comment/131031g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031g.png"></a>
      <a href="/comment/131031h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031h.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" >MNI Chicago Report
              (Diff. Index, 50=No Chg.)</th>
            <th scope="col" >Oct</th>
            <th scope="col" >Sep</th>
            <th scope="col" >Aug</th>
            <th scope="col" >Oct'12</th>
            <th scope="col" >2012</th>
            <th scope="col" >2011</th>
            <th scope="col" >2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >ISM-Adjusted Business Barometer</td>
            <td  >60.7</td>
            <td  >54.0</td>
            <td  >52.2</td>
            <td  >51.2</td>
            <td  >54.8</td>
            <td  >61.3</td>
            <td  >59.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Business Barometer</td>
            <td  >65.9</td>
            <td  >55.7</td>
            <td  >53.0</td>
            <td  >50.7</td>
            <td  >54.6</td>
            <td  >62.7</td>
            <td  >61.3</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;New Orders</td>
            <td  >74.3</td>
            <td  >58.9</td>
            <td  >57.2</td>
            <td  >50.6</td>
            <td  >55.1</td>
            <td  >65.3</td>
            <td  >63.4</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Production</td>
            <td  >71.1</td>
            <td  >58.0</td>
            <td  >53.0</td>
            <td  >53.6</td>
            <td  >57.5</td>
            <td  >66.5</td>
            <td  >65.0</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Order Backlogs</td>
            <td  >61.0</td>
            <td  >46.7</td>
            <td  >46.5</td>
            <td  >45.6</td>
            <td  >48.0</td>
            <td  >55.5</td>
            <td  >54.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Deliveries</td>
            <td  >52.3</td>
            <td  >53.7</td>
            <td  >50.8</td>
            <td  >51.0</td>
            <td  >54.8</td>
            <td  >60.0</td>
            <td  >61.0</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Inventories</td>
            <td  >48.0</td>
            <td  >46.0</td>
            <td  >45.0</td>
            <td  >49.6</td>
            <td  >51.4</td>
            <td  >55.2</td>
            <td  >50.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Employment</td>
            <td  >57.7</td>
            <td  >53.2</td>
            <td  >54.9</td>
            <td  >51.1</td>
            <td  >55.3</td>
            <td  >59.4</td>
            <td  >55.2</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Prices Paid</td>
            <td  >56.7</td>
            <td  >57.1</td>
            <td  >65.2</td>
            <td  >60.8</td>
            <td  >62.2</td>
            <td  >72.4</td>
            <td  >65.3</td>
 </tr>
              </tbody>
            </table>
            </span>
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Factory sector activity in the Midwest region heated up this month. The MNI Chicago Report business barometer for October jumped to 65.9, its highest level since March of 2011. Expectations in the Action Economics Forecast Survey were [...]

MNI Chicago Index Jumps to Highest Level in Nearly Three Years

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      <p></p>
      
      <p><a href="/comment/131031a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031a.png"></a>
      <a href="/comment/131031b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031b.png"></a></p>      
      
      <p>Initial claims for unemployment insurance fell
      to 340,000 (-7.4% y/y) during the week ended October 26 from an unrevised
      350,000 during the prior week. The Labor Department indicated that no
      claims were due to a processing difficulties in California. For last week,
      the Action Economics Forecast Survey expected 340,000 claims. The
      four-week moving average of initial claims increased to 356,250, its
      highest level since late-May. During the last ten years there has been a
      74% correlation between the level of claims and the m/m change in payroll
      employment.</p>
      
      <p>Continuing claims for unemployment insurance in the week ended October
      19 rose to 2.881 million (-11.3% y/y). The figure remained up from the
      early-September low of 2.788 million. The four-week moving average of
      continuing claims slipped to 2.879 million. The insured rate of
      unemployment remained at 2.2%, where it's been since late-August. 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 October 12, the latest figure available, the
      total of all benefit recipients increased slightly to 3.896 million (-22.6%
      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 for 2007. The number of individuals collecting
      emergency and extended payments in the week of October 12 fell to 1.318
      million (-37.2% y/y), a new low for the economic recovery.</p>
      
      <p>By state, the insured rate of unemployment continued to vary greatly
      with South Dakota (0.36%), Virginia (1.13%), Florida (1.19%), Tennessee
      (1.28%), Indiana (1.37%), Georgia (1.42%) and Texas (1.42%) at the low end
      of the range. At the high end were Massachusetts (1.96%), Wisconsin (2.07%),
      Illinois (2.34%), Pennsylvania (2.55%), California (2.70%), New Jersey (2.92%)
      and Alaska (3.86%).</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 consensus estimates come from
      the Action Economics survey, carried in the <b>AS1REPNA</b> database.</p>
      
      <p><a href="/comment/131031c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031c.png"></a>
      <a href="/comment/131031d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031d.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" 0801 >Unemployment Insurance (000s)</th>
            <th 0801 >10/26/13</th>
            <th 0801 >10/19/13</th>
            <th 0801 >10/12/13</th>
            <th 0801 >Y/Y %</th>
            <th 0801 >2012</th>
            <th 0801 >2011</th>
            <th 0801 >2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" 0801 >Initial Claims</td>
            <td 0801  >340</td>
            <td 0801  >350</td>
            <td 0801  >362</td>
            <td 0801  >-7.4</td>
            <td 0801  >375</td>
            <td 0801  >409</td>
            <td 0801  >459</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0801 >Continuing Claims</td>
            <td 0801  >--</td>
            <td 0801  >2,881</td>
            <td 0801  >2,850</td>
            <td 0801  >-11.3</td>
            <td 0801  >3,318</td>
            <td 0801  >3,744</td>
            <td 0801  >4,544</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  >2.5<br>
              (10/12)</td>
            <td 0801  >2.6</td>
            <td 0801  >3.0</td>
            <td 0801  >3.6</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0801 >Total &quot;All Programs&quot;
              (NSA)</td>
            <td 0801  >--</td>
            <td 0801  >--</td>
            <td 0801  >3.896 mil.</td>
            <td 0801  >-22.6</td>
            <td 0801  >6.047 mil.</td>
            <td 0801  >7.750 mil.</td>
            <td 0801  >9.850 mil.</td>
 </tr>
              </tbody>
            </table>
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      <p></p>
      
      <p><a href="/comment/131030q_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131030q.png" align="left"></a>
      At today's meeting of the Federal Open Market
      Committee, the Fed elected to continue purchasing $85 billion per month of
      agency mortgage-backed and Treasury securities. It &quot;reaffirmed its
      view that a highly accommodative stance of monetary policy will remain
      appropriate for a considerable time after the asset purchase program ends
      and the economic recovery strengthens.&quot; The Federal funds rate was left
      unchanged in a range of 0.00% - 0.25% and the discount rate remained at
      0.75%.</p>
      
      <p>The Fed painted a picture of modest economic
      improvement. &quot;Economic activity has continued to expand at a moderate
      pace. Indicators of labor market conditions have shown some further
      improvement, but the unemployment rate remains elevated. Available data
      suggest that household spending and business fixed investment advanced,
      while the recovery in the housing sector slowed somewhat in recent months.
      Fiscal policy is restraining economic growth.&quot;</p>
      
      <p>To the upside, &quot;Taking into account the extent of federal fiscal
      retrenchment over the past year, the Committee sees the improvement in
      economic activity and labor market conditions since it began its asset
      purchase program as consistent with growing underlying strength in the
      broader economy.&quot;</p>
      
      <p>Regarding inflation, &quot;Apart from fluctuations
      due to changes in energy prices, inflation has been running below the
      Committee's longer-run objective, but longer-term inflation expectations
      have remained stable.&quot;</p>
      
      <p>Reiterated was that &quot;a highly accommodative
      stance of monetary policy will remain appropriate for a considerable time
      after the asset purchase program ends and the economic recovery
      strengthens.&quot;</p>
      
      <p>The press release for today's <b>FOMC meeting</b> can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20131030a.htm">here.</a></p>
      
      <p>Haver's <b>SURVEYS</b> database contains the projections from the Federal Reserve Board.</p>
      
      <p><a href="/comment/131030r_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131030r.png"></a>
      <a href="/comment/131030s_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131030s.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" >&nbsp;</th>
            <th scope="col" ><b>Current</b></th>
            <th scope="col" ><b>Last</b></th>
            <th scope="col" ><b>2012</b></th>
            <th scope="col" ><b>2011</b></th>
            <th scope="col" ><b>2010</b></th>
            <th scope="col" ><b>2009</b></th>
          </tr>
        </thead>
        <tbody>
          <tr class="odd">
            <td class="firstcol" >Federal Funds Rate, % (Target)</td>
            <td  >0.00-0.25</td>
            <td  >0.00-0.25</td>
            <td  >0.14</td>
            <td  >0.10</td>
            <td  >0.17</td>
            <td  >0.16</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Discount Rate, %</td>
            <td  >0.75</td>
            <td  >0.75</td>
            <td  >0.75</td>
            <td  >0.75</td>
            <td  >0.72</td>
            <td  >0.50</td>
</tr>
              </tbody>
            </table>
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At today's meeting of the Federal Open Market Committee, the Fed elected to continue purchasing $85 billion per month of agency mortgage-backed and Treasury securities. It "reaffirmed its view that a highly accommodative stance of [...]

FOMC Reaffirms the Need to Maintain An Easy-Money Posture

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Kathleen Stephansen, CBE

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

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

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

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

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

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

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

Michael J. Moran

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The Conference Board’s index of Consumer Confidence inched higher in April from an upwardly revised reading in March. The combined changes left the measure 1.1% higher than the preliminary tally in March. Despite the improvement, the index remained in the low end of the range for the current expansion. The index in April totaled 92.8, down from an average of 96.1 in 2025 and an annual cyclical high of 105.4 in 2023.

The Improvement in April reflected a pickup in the expectations component, which rose 1.7%. The current conditions component inched 0.2% lower. Overall views on current conditions slipped despite more favorable assessments of the labor market. The so-called measure of the jobs gap (share of respondents indicating that jobs are plentiful less the share saying that jobs are hard to get) rose 1.4 percentage points higher to 7.5%. The pickup reflected a drop in the share indicating that jobs are hard to get (down 1.5 percentage points to 19.8%). The share indicating that jobs are plentiful eased 0.1 percentage point to 27.3%.

Although expectations improved in April, from a long-term perspective they could be viewed as the more important factor restraining the headline measure of confidence. As shown in the left chart below, the expectations component of confidence shows considerably less volatility than the current conditions component does. The contrasting patterns suggest that individuals realize that the economy will undergo possibly sharp cyclical swings, but they expect conditions at some point to return to an underlying norm.

The current conditions index in the current cycle has indeed dropped noticeably, but it is still above the long run average (123.8 in April versus the average of approximately 108 from 1990 to 2025). The expectations component, as usual, has eased less than the current conditions component, but its shift has pushed the measure to the low end of its long-run range (72.2 in April versus an average of approximately 88).

Interestingly, concern about the labor market seems to be a factor affecting expectations. While current views on the labor market are favorable (plentiful less hard to get jobs gap of 7.5%), Individual are concerned about the future. The survey asks respondents if they expect more jobs or fewer jobs six months hence. The share indicating fewer jobs has moved well into the upper end of the historical range. Such observations in the past were typically seen only during recession (chart, below right). An unfavorable view on interest rates also seems to be playing a role in depressing the expectations component. More than 60% of respondents to the current survey expect higher interest rates 12 months from now.

The results from the Conference Board survey of consumers differ markedly from those of the University of Michigan Survey Research Center. The Michigan results show consumer sentiment at a record low, while the Conference Board index is only slightly below its long-run average. The difference most likely reflects the nature of the questions in the surveys. The Conference Board focuses on business and employment conditions, while Michigan emphasizes personal finances. The focus on finances, along with questions on inflation, probably picks up concerns about affordability.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Expectations improved slightly in April, but are still subdued relative to norms.
- Moderately favorable view of current conditions.

Consumer Confidence: Modest Change in April

Winnie Tapasanun

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U.S. house prices were essentially unchanged m/m in February after rises of 0.2% in January (+0.1% initially) and 0.3% in December (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. February marked the first flat reading since September following four consecutive m/m increases. The HPI was at 441.43 in February, up 14.8% from its August 2022 low of 384.59. The year-on-year growth rate eased to 1.7% in February—the lowest since March 2012—from 1.8% in January (+4.1% in February 2025), down from a high of 6.9% in February 2024 and well below a peak of 18.5% in February 2022.

By region, February FHFA house prices showed a mixed performance. House prices fell m/m in February (vs. January) in four of the nine census divisions. Declines were led by Mountain (-1.1% vs. +0.4%), followed by Pacific (-0.5% vs. +0.6%), West North Central (-0.4% vs. +0.3%), and Middle Atlantic (-0.1% vs. +0.3%). To the upside, house prices rose m/m in four census divisions in February (vs. January): South Atlantic (+0.6% vs. -0.2%), East South Central (+0.2% vs. +1.2%), New England (+0.2% vs. +0.6%), and West South Central (+0.2% vs. -0.3%). Meanwhile, house prices in East North Central were virtually unchanged m/m for the second successive month in February following seven straight m/m gains.

Year-on-year house prices continued to rise in February in most regions, except Mountain, Pacific, and West South Central. The y/y growth rate accelerated in February (vs. January) in only two of the nine census divisions: East South Central (+4.0% vs. +3.2%) and South Atlantic (+0.9% vs. +0.4%). Meanwhile, house price growth decelerated y/y in February (vs. January) in four regions: New England (+3.1% vs. +3.9%), West North Central (+3.1% vs. +3.6%), East North Central (+3.8% vs. +4.5%), and Middle Atlantic (+4.2% vs. +4.5%). To the downside, Mountain (-0.7% vs. 0.0%), Pacific (-0.4% vs. -0.3%), and West South Central (-0.1% vs. -0.4%) posted y/y declines in February.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- February FHFA HPI 0.0% m/m; +1.7% y/y, lowest since Mar. ’12.
- House prices down m/m in four of nine census divisions, led by Mountain (-1.1%); up in four, driven by South Atlantic (+0.6%); flat in East North Central.
- House prices up y/y in six of nine regions, led by Middle Atlantic (+4.2%), but down in Mountain (-0.7%), Pacific (-0.4%), and West South Central (-0.1%).

U.S. FHFA House Prices Flat in February After Four Straight M/M Gains

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Early PPI reports in the monetary union show collective pressures building over the past year, with newly emergent pressures popping up strongly in March.

The sequence of monthly inflation observations for these five early reporters in March shows that inflation pressure has not been clearly building but did jump up suddenly in March. In February, before the Iran war, the median monthly PPI gain was -0.5%. In March, that jumped to +3.9% (median month-to-month gain). Monthly pressure does not show steady gains anywhere except moderately in Germany. Finland shows deceleration in progress (!) even through—especially through—March, as its PPI in March fell by 5.3%. But the whole Finish pattern is somewhat upside down, with prices up month-to-month by 6.2% in January and 2.9% in February. It is not a trend that is easy to understand.

However, the March monthly gains are strong enough to drive sequential inflation higher from 12-months, to 6-months, to 3-months across all early-reporting countries. Even the German ex-energy index shows acceleration on that profile.

On a year-on-year basis, two of the early reporters have PPI inflation below 2%. Finland has 12-month PPI inflation at 2.1%, but Italy and Spain have inflation much higher, up by 3.4% over 12 months in Spain and by 5.6% in Italy.

The PPI has been very well-behaved in the last few years. Looking at 12-month changes for the year ended in March, the median change for this group in 2025 was -0.1%, compared to -4.6% in 2024.

The chart shows the PPI flared sharply in 2021 and 2022, then fell quickly into line in 2023. Clearly, the inflation tune now is being called by oil prices, the same as for that spike prices in 2022 and 2023.

The hope is that the oil price bump up will not be as long-lived, that the war will end soon, with the Strait of Hormuz reopened, and that oil prices—and other inflation pressures—will sink back to prerevision norms relatively quickly. That could happen, but so could other outcomes so markets remain wary. One problem this time is the destruction of oil facilities and the shutting of oil fields that could cause high prices to linger longer.

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**A new dynamic**
However, there is now a new dynamic with the UAE leaving OPEC. OPEC has been a vehicle to harness common behavior to control oil prices mostly to keep them higher. While undermining OPEC (UAE pumps about 13% of OPEC capacity) at a time the U.S. oil prowess has risen, this defection will make it much harder for OPEC to control prices. When countries are not bound together, the incentive is for countries to cheat on their production quota. In a cartel arrangement, when many cheat, the output reduction does not hold, and oil prices fall. A cartel arrangement allows for supply control and reduction which raises prices. But once prices are up, each member has an individual incentive to cheat—to sell more than his quota share of oil at the higher price. But that undermines the cartel. So, this move, this exit of UAE from the cartel, will create instability in the OPEC by moving more production outside the OPEC framework, beyond its control. Unless the Saudis are willing to be the ‘swing man’ and cut back their output to keep prices on target—something the Saudis have been increasingly unwilling to do—OPEC will be in less control.

EMU PPIs Show Instant Pressure

Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

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**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

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**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

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**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

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The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

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**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

Economy in Brief

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