Robert Brusca

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	  <br>
	  <span id="articletitle">Or, How Can Such 'Good News' Be So Bad?</span><br>
      
      
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     <p> The European Monetary Union (EMU) current account surplus jumped to 25.9 billion euros in March from 14.6 billion euros in February. The surplus is the largest on record since the Union was formed. While there are some countries in the monetary union looking for some relief from their suppressed growth conditions by weakening the euro, this huge spurt in the current account makes it clear that a weaker euro should not be an option for Europe. Europe has internal problems that should not be addressed through manipulation of the external exchange rate. Japan is already doing that since the exchange rate is the cutting-edge of its program for quantitative easing. Europe is too large for it to join in 'the fun' and begin a new era of competitive devaluation.
</p><p>
In March, in goods trade, exports from the Zone rose by 2.6% as imports fell by 4.1%. Over three months goods exports are growing at a 6.9% annual rate while goods imports falling in a 16.4% annual rate. Over the year there is nearly a 10 percentage point gap between the growth rates of exports and imports, as imports are falling at a 5.8% annual rate and exports are rising at a 3.9% annual rate. The chart of the of the trade situation makes it clear what an incredible spurt is occurring in the EMU current account.
</p><p>
This surging surplus will be buffering the negative effects of growth within the euro-Zone and also will be transmitting substantial and severe negative growth effects to the rest of the world. The countries in EMU are continuing to advance their export penetration in foreign markets while pushing aside imports at an extremely strong pace after a long period of deceleration.
</p><p> 
The decline in imports is nowhere near as severe as it was during the financial crisis. However, in the financial crisis the entire global economy was mired in recession; the picture of the European economies was more or less mirrored by other global economies. Now the rest of the world is in the recovery phase but demand in Europe is continuing to sink. Europe is propping itself up by living off of exports to the rest of the world.  In the last recession both exports and imports were in a free-fall decline everywhere - not so for Europe today. Remember since these are figures are for the European Monetary Union they cancel out all the internal trade. What we are looking at, are the net exports out of the euro area to the rest of the world versus the net imports into the euro area from the rest of the world.
</p><p>
We can take this chart as another reason why the G7 changed its tilt to try to get countries to see a role for growth rather than simply for austerity. Continued, or growing, recessions in Europe could act like a black hole to help suck other countries down into a morass of weakness. In a world economy where growth is fragile and still floundering even a country like the US that only sends a moderate proportion of its exports to Europe could find the blowback from declining European imports a substantial impediment to deal with.
</p><p>
Today the IMF has released a report urging The United Kingdom to change or moderate its program of austerity. UK authorities have indicated that they intend to hold the line and to continue to stay with what they are doing. Some recent data for the UK have been a little bit more upbeat playing into the hand of the policymakers that want to stay the course. On the other hand, fresh retail sales data for April were announced as unexpectedly weak, just today. Meanwhile the BOE is getting prepared to install a new Governor, one who appears to be a strong advocate of more QE. The bulk of the BOE policymakers are still opposed to that. The BOE may get a new face but not a new policy. 
</p><p>
Let there be no doubt that the main problem facing the global economy is insufficient demand. There also are huge differences in competitiveness because of the extraordinarily rapid growth achieved in some developing nations that have developed without substantially raising their standard of living or letting their currencies appreciate to reflect their new status. 
</p><p>
In the developed world countries are grappling with ongoing banking sector issues as well as an excessive buildup in debt. Over the past several years Europe has pursued a policy of harsh and unrelenting austerity. It would now seem to that policy has gone about as far down the road as it can. The US has been more willing to use fiscal policy but now finds itself faced with yawning future deficits based on ever richer promises made to future generations. In the US a recent pickup in tax revenues seems to be short-circuiting the air of urgency that had existed around the need to deal with those future deficits.
</p><p>
The world economy appears to have come to a subtle crossroads. Fiscal policy has been excessively tight. Monetary policy has been trying to fill in the gaps and may have been too loose for too long. And, wherever, you would prefer to see changes made, it is clear that the fiscal/monetary mix has moved onto a stage where it's threatening to future growth.
</p><p>
When countries or regions like the European Monetary Union or Japan use policy and their special circumstances to export their deflation to the rest of the world that world becomes more dangerous place. 
</p><p>
While there certainly is evidence that the yen had been overcooked on the upside and is overdue for some of the backtracking that we are now seeing, in Europe the argument we make is different. Europe's problems are internal and they require an internal solution that Europe doesn't have the backbone to face. Its leading countries will not back its weak countries strongly enough, even when they undertake severe austerity. Europe's people want to keep the European dream alive, yet they unclear about whether they want to be European or nationalist. They don't want to give up on being 'European' but none of them wants to lose their national identity or control. Yet, the simplest solution for Europe would be to let the struggling countries leave the Zone and float their own currencies so that they could reset their competitiveness. So far that option is not on the table as Europe continues to kick the can down the road hoping that some new solution will somehow present itself. That seems unlikely.
</p>

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The European Monetary Union (EMU) current account surplus jumped to 25.9 billion euros in March from 14.6 billion euros in February. The surplus is the largest on record since the Union was formed. While there are some countries in [...]

EMU Current Account Spurts...Oh My!

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UK inflation broke sharply lower in April, falling by 0.5% after rising 0.4% in March. The twelve-month growth rate for the harmonized consumer price index in the UK is at 2.3% down from a pace of 3% one year ago. Inflation is closing in- finally- on the 2% rate that the Bank of England tries to maintain is a ceiling- A CEILING. UK inflation on this measure was last at 2% in November 2009; in October 2009 it was up by 1.6% year-over-year. Since that time inflation has gone on a wild high roller coaster ride and is only now beginning to get down within a stone's throw of the Bank of England's target. Since December 2009 the HICP has averaged inflation of 3.2%; more than one full percentage point above the ostensible top of the BOE range for a period of 41months. That has to be hard on BOE credibility. Even with an aggressive program of QE, the austerity pursued by fiscal policy kept the economy dipping into recession during this period, accompanied by the inflation overshoot.  
</p><p>
Core inflation that lags a month was rising by 2.5% year-over-year in March; that's about the same as it was one year ago. Core inflation over this period of the extended headline overshoot has average 2.7%.
</p><p>
The all-item RPI was flat on the month and it is still up by 2.9% over 12 months.  Among the various RPI categories, only food and beverages, housing and housing expenses accelerated in April compared to March. Inflation not only decelerated month-to-month but the price level actually fell for the RPI as well as for the RPI excluding seasonal food. Among RPI categories clothing and footwear prices fell, leisure services prices fell, and leisure goods prices fell. The price of motoring expenditures as well as fares and travel costs also fell. The deceleration of inflation in the UK is broad-based.
</p><p>
While the HICP is very close to the BOE's inflation limit, in the RPI is up by 2.9% Year-over-year and the RPI x is up at the same rate. Only motoring expenses (-1.6%) and leisure goods (0.4%) show year-over-year momentum below the BOE ceiling of 2%. Among the rogue categories are clothing and footwear (6.4%), food and beverages (4.3%), Leisure services (4%), and Housing and Household expenses (3.6%).  
</p><p>
Still, the UK seems to be making progress on the inflation front and on growth at the same time.
</p><p>
<b>Compare to EMU trends through April:</b> We can also look at these UK trends in tandem with the trends we see in the European Monetary Union. There we are focusing on the trends in the original EMU members. We see that over three months the HICP inflation measure is falling in eight of 11 countries. The exceptions are Finland with a monthly rise of 2% Belgium with the monthly gain of 1% and Portugal with a monthly gain of 0.8%: these monthly rates are annualized. In addition, inflation is decelerating in over 70% of the countries in both April and March. 
</p><p>
Over three months the HICP is falling or is flat in five of 11 countries. The unweighted median for the group is a gain of 0.3% in its annualized 3-Mo rate. Over six-months inflation is negative in six of the 11 countries. The Netherlands has the highest annualized inflation rate at 1.8% Greece has the lowest at -2.4%. Over 12-months inflation is negative only and Greece with a 0.6% drop over 12 months. The highest inflation over 12 months is the Netherlands at 2.8% followed by Finland at 2.5% all the other countries are below the 2% ceiling that the ECB seeks in its inflation objective for the overall zone.
</p><p>
In addition to that inflation is decelerating over 12-months in about 91% of the countries. Over six-months it's decelerating in 100% of the countries. Over three months it's decelerating in over 45% of the countries.
</p><p>
Inflation simply doesn't seem to have a purchase anyplace. The challenge for the euro-Zone, for the UK and for the US is clearly shifting to growth. Despite any central bank's objectives it is becoming increasingly clear that growth is what is lacking and inflation is under control. 
</p>

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UK inflation broke sharply lower in April, falling by 0.5% after rising 0.4% in March. The twelve-month growth rate for the harmonized consumer price index in the UK is at 2.3% down from a pace of 3% one year ago. Inflation is closing [...]

UK and EMU Inflation Drop

Tom Moeller

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<p>Consumer spending growth continues to back away from the recent peak. The
International Council of Shopping Centers and Goldman Sachs reported that chain
store sales ticked up just 0.2% (3.1% y/y) last week following two weeks of
sharp decline. As a result, store sales so far this month are 1.9% below the
April average which increased 3.8% m/m to a record high. During the last ten
years there has been a 61% correlation between the y/y change in chain store
sales and the change in retail sales at general merchandise stores. That
correlation recently has declined.</p>
<p>General merchandise store sales account for 15% of total retail sales. The
ICSC-Goldman Sachs retail chain-store sales index is constructed using the
same-store sales (stores open for one year) reported by 78 stores of seven
retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and
Wal-Mart.</p>
<p>The chain store figures can be found in Haver's <b>SURVEYW</b> database.&nbsp;</p>
<p><b>Fiscal Policy. Oy!</b><b> (With
Reference to Ben Bernanke, Ken Arrow, Thomas Jefferson, William Shakespeare and
the Oracle of Omaha) </b>is last week's speech by Dallas Fed President &amp; CEO
Richard W. Fisher and they can be found <a href="http://www.dallasfed.org/assets/documents/news/speeches/fisher/2013/fs130516.pdf">here</a>.</p>



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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
        <thead>
          <tr>
      <th class="firstcol" scope="col">ICSC-Goldman Sachs (SA,
        1977=100)</th>
      <th scope="col">05/18/13</th>
      <th scope="col">05/11/13</th>
      <th scope="col">05/04/13</th>
      <th scope="col">Y/Y</th>
      <th scope="col">2012</th>
      <th scope="col">2011</th>
      <th scope="col">2010</th>
    </tr>
  </thead>
  <tbody>
    <tr class="odd">
      <td class="firstcol">Total Weekly Chain Store Sales</td>
      <td>547.9</td>
      <td>546.9</td>
      <td>558.0</td>
      <td>3.1%</td>
      <td>3.0%</td>
      <td>3.2%</td>
      <td>2.9%</td>
    </tr>
    <tr>
      <td class="firstcol">&nbsp;&nbsp; W/W %</td>
      <td>0.2</td>
      <td>-2.0</td>
      <td>-1.0</td>
      <td>--</td>
      <td>--</td>
      <td>--</td>
      <td>--</td>
      </tr>
              </tbody>
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Consumer spending growth continues to back away from the recent peak. The International Council of Shopping Centers and Goldman Sachs reported that chain store sales ticked up just 0.2% (3.1% y/y) last week following two weeks of [...]

U.S. Chain Store Sales Continue to Lose Forward Momentum

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      <p>The upcoming summer driving season is lending strength to gasoline
      prices. The price of<b> regular gasoline</b> gained another seven cents
      last week to $3.67 per gallon, still off a slim 1.1% versus last year.
      Prices remain below the $3.78 per gallon peak reached late in February.
      Haver Analytics constructs seasonal factors to account for seasonal
      volatility and the adjusted price rose w/w to $3.43 per gallon.&nbsp;</p>
      <p>Moving away from the recent high was the price for <b>light sweet crude
      oil.</b> It slipped to $94.97 per barrel (+2.0% y/y) but remained up from
      the recent low of $87.97. Yesterday prices recovered to $96.61. Brent
      crude oil prices also fell last week to $102.87 per barrel (-6.6% y/y) but
      recovered to $104.71 yesterday.</p>
      <p><b>Natural gas </b>prices stabilized last week and ticked up to $3.95
      per mmbtu (58.9% y/y). They rose further yesterday at $4.10.</p>
      <p>The<b> demand for gasoline fell 3.1% y/y last week. </b>Residual fuel
      oil needs, used for heating, fell 14.4% y/y while distillate demand was
      off 3.0% y/y. Gasoline inventories rose 6.5% y/y.</p>
      <p>The energy price data are reported by the U.S. Department of Energy and
      can be found in Haver's <b>WEEKLY </b>database. The daily figures are in <b>DAILY</b>
      and the gasoline demand figures are in <b>OILWKLY.</b>&nbsp;</p>
      
   <p><a href="/comment/130521e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130521e.png"></a>
      <a href="/comment/130521f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130521f.png"></a></p>

      
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            <th class="firstcol" scope="col">Weekly Energy Prices</th>
            <th scope="col">05/20/13</th>
            <th scope="col">05/13/13</th>
            <th scope="col">05/06/13</th>
            <th scope="col">Y/Y%</th>
            <th scope="col">2012</th>
            <th scope="col">2011</th>
            <th scope="col">2010</th>
          </tr>
        </thead>
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            <td class="firstcol">Retail Regular Gasoline ($ per
              Gallon, Regular)</td>
            <td>3.67</td>
            <td>3.60</td>
            <td>3.54</td>
            <td>-1.1</td>
            <td>3.62</td>
            <td>3.52</td>
            <td>2.78</td>
          </tr>
          <tr class="odd">
            <td class="firstcol">Light Sweet Crude Oil, WTI ($ per
              bbl.)</td>
            <td>94.97</td>
            <td>96.17</td>
            <td>93.72</td>
            <td>2.0</td>
            <td>94.20</td>
            <td>95.14</td>
            <td>79.51</td>
          </tr>
          <tr>
            <td class="firstcol">Natural Gas ($/mmbtu)</td>
            <td>3.95</td>
            <td>3.89</td>
            <td>4.21</td>
            <td>58.9</td>
            <td>2.75</td>
            <td>3.99</td>
            <td>4.00</td>
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The upcoming summer driving season is lending strength to gasoline prices. The price of regular gasoline gained another seven cents last week to $3.67 per gallon, still off a slim 1.1% versus last year. Prices remain below the $3.78 [...]

U.S. Gasoline Prices Improve But Crude Oil Prices Slip From High

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<title>NABE Lowers Projected GDP Growth by Tom Moeller&nbsp; October 22</title>
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      <span id="articletext"> 
      <p>The upcoming summer driving season is lending strength to gasoline
      prices. The price of<b> regular gasoline</b> gained another seven cents
      last week to $3.67 per gallon, still off a slim 1.1% versus last year.
      Prices remain below the $3.78 per gallon peak reached late in February.
      Haver Analytics constructs seasonal factors to account for seasonal
      volatility and the adjusted price rose w/w to $3.43 per gallon.&nbsp;</p>
      <p>Moving away from the recent high was the price for <b>light sweet crude
      oil.</b> It slipped to $94.97 per barrel (+2.0% y/y) but remained up from
      the recent low of $87.97. Yesterday prices recovered to $96.61. Brent
      crude oil prices also fell last week to $102.87 per barrel (-6.6% y/y) but
      recovered to $104.71 yesterday.</p>
      <p><b>Natural gas </b>prices stabilized last week and ticked up to $3.95
      per mmbtu (58.9% y/y). They rose further yesterday at $4.10.</p>
      <p>The<b> demand for gasoline fell 3.1% y/y last week. </b>Residual fuel
      oil needs, used for heating, fell 14.4% y/y while distillate demand was
      off 3.0% y/y. Gasoline inventories rose 6.5% y/y.</p>
      <p>The energy price data are reported by the U.S. Department of Energy and
      can be found in Haver's <b>WEEKLY </b>database. The daily figures are in <b>DAILY</b>
      and the gasoline demand figures are in <b>OILWKLY.</b>&nbsp;</p>
      <table class="centered" border="0" cellSpacing="0" width="1231">
        <thead>
          <tr>
            <th class="firstcol" scope="col" width="580">Weekly Energy Prices</th>
            <th scope="col" width="92">05/20/13</th>
            <th scope="col" width="92">05/13/13</th>
            <th scope="col" width="92">05/06/13</th>
            <th scope="col" width="92">Y/Y%</th>
            <th scope="col" width="93">2012</th>
            <th scope="col" width="93">2011</th>
            <th scope="col" width="93">2010</th>
          </tr>
        </thead>
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            <td class="firstcol" width="580">Retail Regular Gasoline ($ per
              Gallon, Regular)</td>
            <td align="center" width="92">3.67</td>
            <td align="center" width="92">3.60</td>
            <td align="center" width="92">3.54</td>
            <td align="center" width="92">-1.1</td>
            <td align="center" width="93">3.62</td>
            <td align="center" width="93">3.52</td>
            <td align="center" width="93">2.78</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="580">Light Sweet Crude Oil, WTI ($ per
              bbl.)</td>
            <td align="center" width="92">94.97</td>
            <td align="center" width="92">96.17</td>
            <td align="center" width="92">93.72</td>
            <td align="center" width="92">2.0</td>
            <td align="center" width="93">94.20</td>
            <td align="center" width="93">95.14</td>
            <td align="center" width="93">79.51</td>
          </tr>
          <tr>
            <td class="firstcol" width="580">Natural Gas ($/mmbtu)</td>
            <td align="center" width="92">3.95</td>
            <td align="center" width="92">3.89</td>
            <td align="center" width="92">4.21</td>
            <td align="center" width="92">58.9</td>
            <td align="center" width="93">2.75</td>
            <td align="center" width="93">3.99</td>
            <td align="center" width="93">4.00</td>
          </tr>
        </tbody>
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<span id="articletitle">U.S. Chain Store Sales Continue to Lose Forward Momentum</span><br>
<span id="byline">by <a href="http://www.haver.com/comment/Moeller.html">Tom
Moeller</a>&nbsp;&nbsp;May 21, 2013</span>
<p>Consumer spending growth continues to back away from the recent peak. The
International Council of Shopping Centers and Goldman Sachs reported that chain
store sales ticked up just 0.2% (3.1% y/y) last week following two weeks of
sharp decline. As a result, store sales so far this month are 1.9% below the
April average which increased 3.8% m/m to a record high. During the last ten
years there has been a 61% correlation between the y/y change in chain store
sales and the change in retail sales at general merchandise stores. That
correlation recently has declined.</p>
<p>General merchandise store sales account for 15% of total retail sales. The
ICSC-Goldman Sachs retail chain-store sales index is constructed using the
same-store sales (stores open for one year) reported by 78 stores of seven
retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and
Wal-Mart.</p>
<p>The chain store figures can be found in Haver's <b>SURVEYW</b> database.&nbsp;</p>
<p><font color="#000000" size="3"><b>Fiscal Policy. Oy!</b></font> <span id="articletext"><font color="#000000" size="3"><b>(With
Reference to Ben Bernanke, Ken Arrow, Thomas Jefferson, William Shakespeare and
the Oracle of Omaha) </b>is last week's speech by Dallas Fed President &amp; CEO
Richard W. Fisher and they can be found here <a href="http://www.dallasfed.org/assets/documents/news/speeches/fisher/2013/fs130516.pdf">http://www.dallasfed.org/assets/documents/news/speeches/fisher/2013/fs130516.pdf</a></font></span></p>
<span id="articletext"><b><font SIZE="5" COLOR="#000000"></font></b>
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        1977=100)</th>
      <th scope="col" width="98">05/18/13</th>
      <th scope="col" width="98">05/11/13</th>
      <th scope="col" width="99">05/04/13</th>
      <th scope="col" width="99">Y/Y</th>
      <th scope="col" width="99">2012</th>
      <th scope="col" width="99">2011</th>
      <th scope="col" width="99">2010</th>
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      <td class="firstcol" width="536">Total Weekly Chain Store Sales</td>
      <td align="center" width="98">547.9</td>
      <td align="center" width="98">546.9</td>
      <td align="center" width="99">558.0</td>
      <td align="center" width="99">3.1%</td>
      <td align="center" width="99">3.0%</td>
      <td align="center" width="99">3.2%</td>
      <td align="center" width="99">2.9%</td>
    </tr>
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      <td class="firstcol" width="536">&nbsp;&nbsp; W/W %</td>
      <td align="center" width="98">0.2</td>
      <td align="center" width="98">-2.0</td>
      <td align="center" width="99">-1.0</td>
      <td align="center" width="99">--</td>
      <td align="center" width="99">--</td>
      <td align="center" width="99">--</td>
      <td align="center" width="99">--</td>
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<title>NABE Lowers Projected GDP Growth by Tom Moeller&nbsp; October 22</title>
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      <p>The Chicago Federal Reserve reported that its April National Activity
      Index (CFNAI) declined to -0.53 from an unrevised -0.23 in March. The
      three-month moving average was relatively stable at -0.04, its lowest
      reading since October. During the last ten years, there has been a 79%
      correlation between the Chicago Fed Index and the q/q change in real GDP.</p>
      <p>The Production &amp; Income component again showed the greatest m/m
      deterioration as it fell to roughly its lowest level since August. The
      other component series were fairly stable m/m, but the Employment,
      Unemployment &amp; Hours series remained at nearly its lowest in nine
      months. The Sales, Orders &amp; Inventories component also was roughly
      unchanged m/m but it remained in negative territory. The Personal
      Consumption &amp; Housing reading remained negative but has stayed in the
      improved trend since the middle of 2011. The Chicago Fed reported that
      during April, 32 of the 85 individual indicators made positive
      contributions to the overall index while 53 made negative contributions.</p>
      <p>The CFNAI is a weighted average of 85 indicators of national economic
      activity. It is constructed to have an average value of zero and a
      standard deviation of one. Since economic activity tends toward trend
      growth rate over time, a positive index reading corresponds to growth
      above trend and a negative index reading corresponds to growth below
      trend.</p>
      <p>The Chicago Federal Reserve figures are available in Haver's <b>SURVEYS</b>
      database.&nbsp;</p>
      <p><b>The Delayed Recovery of Investment in Nonresidential Structures</b>
      from the Federal Reserve Bank of Cleveland can be found here <a href="http://www.clevelandfed.org/research/trends/2013/0513/core.cfm">http://www.clevelandfed.org/research/trends/2013/0513/core.cfm</a></p>
      <table class="centered" border="0" cellSpacing="0" width="1231">
        <thead>
          <tr>
            <th class="firstcol" scope="col" width="597">Chicago Federal Reserve
              Bank</th>
            <th scope="col" width="90">Apr</th>
            <th scope="col" width="90">Mar</th>
            <th scope="col" width="90">Feb</th>
            <th scope="col" width="90">Apr'12</th>
            <th scope="col" width="90">2012</th>
            <th scope="col" width="90">2011</th>
            <th scope="col" width="90">2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" width="597">CFNAI</td>
            <td align="center" width="90">-0.53</td>
            <td align="center" width="90">-0.23</td>
            <td align="center" width="90">0.63</td>
            <td align="center" width="90">-0.02</td>
            <td align="center" width="90">-0.08</td>
            <td align="center" width="90">-0.08</td>
            <td align="center" width="90">0.02</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="597">&nbsp;3-Month Moving Average</td>
            <td align="center" width="90">-0.04</td>
            <td align="center" width="90">-0.05</td>
            <td align="center" width="90">0.08</td>
            <td align="center" width="90">-0.13</td>
            <td align="center" width="90">--</td>
            <td align="center" width="90">--</td>
            <td align="center" width="90">--</td>
          </tr>
          <tr>
            <td class="firstcol" width="597">&nbsp;&nbsp;Personal Consumption
              &amp; Housing</td>
            <td align="center" width="90">-0.17</td>
            <td align="center" width="90">-0.15</td>
            <td align="center" width="90">-0.14</td>
            <td align="center" width="90">-0.24</td>
            <td align="center" width="90">-0.22</td>
            <td align="center" width="90">-0.30</td>
            <td align="center" width="90">-0.30</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="597">&nbsp;&nbsp;Employment,
              Unemployment &amp; Hours</td>
            <td align="center" width="90">0.00</td>
            <td align="center" width="90">0.01</td>
            <td align="center" width="90">0.35</td>
            <td align="center" width="90">-0.08</td>
            <td align="center" width="90">0.10</td>
            <td align="center" width="90">0.14</td>
            <td align="center" width="90">0.03</td>
          </tr>
          <tr>
            <td class="firstcol" width="597">&nbsp;&nbsp;Production &amp; Income</td>
            <td align="center" width="90">-0.34</td>
            <td align="center" width="90">-0.04</td>
            <td align="center" width="90">0.39</td>
            <td align="center" width="90">0.29</td>
            <td align="center" width="90">0.04</td>
            <td align="center" width="90">0.05</td>
            <td align="center" width="90">0.20</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="597">&nbsp;&nbsp;Sales, Orders &amp;
              Inventories</td>
            <td align="center" width="90">-0.01</td>
            <td align="center" width="90">-0.04</td>
            <td align="center" width="90">0.03</td>
            <td align="center" width="90">0.01</td>
            <td align="center" width="90">-0.01</td>
            <td align="center" width="90">0.04</td>
            <td align="center" width="90">0.09</td>
          </tr>
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<span id="articletitle0">NABE Forecast Shows Improved GDP Growth</span><br>
<span id="byline0">by <a href="http://www.haver.com/comment/Moeller.html">Tom
Moeller</a>&nbsp;&nbsp;May 20, 2013</span>
<p>The <b>National Association for Business Economics</b> <b>raised the median
expectation for real GDP growth to 2.9% for next year from the 2.8% estimate in
its November survey. That follows a 2.1% growth projection for this year. </b>Quarterly
growth is expected to improve to 3.0% by Q2'14 and remain at that pace through
year-end. Personal consumption expenditures growth is forecast to improve to a
still-moderate 2.6% next year. That would, nevertheless, be its fastest growth
rate since 2006. Growth in residential investment should continue to be the
economy's strongest sector with a second year of 15.0% growth. Business
investment growth should follow as producers durable equipment gains 6.8% and
spending on structures increases 5.2%. Inventory investment and real net exports
should remain roughly stable at current levels.</p>
<p>Expectations call for an upwardly-revised 1.18M housing starts in 2014 after
1.00M during this year. Expected light vehicle sales show further improvement to
15.9M after a raised 2013 expectation of 15.4M. Forecasted average monthly gains
in payroll employment this year of 198,000 were improved slightly from the last
forecast and up from the 168,000 rise projected for this year. The unemployment
rate is expected to average 7.1% for all of next year, a slight downward
revision. The forecast for consumer price inflation remains low at 2.0% versus a
downwardly revised 1.8% projection for 2013. Expectations for the core PCE price
index are for a 1.8% advance in 1014 after a 1.5% rise this year and last.</p>
<p>Recent improvement in the bond market is expected to end with continued
economic growth. The forecasted 2.81% interest rate on 10-year Treasury notes at
the end of next year was raised slightly from six months ago but the Fed still
is not expected to raise rates. The forecast for 7.5% corporate profit growth in
2014 is improved from a 5.3% rise this year. These growth rates remain well
below the 23.2% gain in 2010, when the economic recovery first got going, and 16.1%
growth in 2012. Moderate economic growth is forecast to reduce the Federal
government budget deficit to $707 billion in 2014, half its $1.4 trillion peak
in 2009.</p>
<p>The figures from the latest NABE report can be found in Haver's <b>SURVEYS</b>
database.<b>&nbsp;</b></p>
<p><b>Economic Prospects for the Long Run</b> is the title of Saturday's speech
by Fed Chairman Ben S. Bernanke and it can be found here <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20130518a.htm">http://www.federalreserve.gov/newsevents/speech/bernanke20130518a.htm</a></p>

  <colgroup>
  </colgroup>
  <thead>
    <tr>
      <th class="firstcol" scope="col" width="800"><b><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">National
        Association For Business Economics</a></b></th>
      <th scope="col" width="106"><b>2014</b></th>
      <th scope="col" width="107"><b>2013</b></th>
      <th scope="col" width="107"><b>2012</b></th>
      <th scope="col" width="107"><b>2011</b></th>
    </tr>
  </thead>
  
    
      <td class="firstcol" width="800">Real GDP (% Chg. SAAR)</td>
      <td align="center" width="106">2.9</td>
    <span id="articletext0">
    <td align="center" width="107">2.1</td>
    <td align="center" width="107">2.2</td>
    <td align="center" width="107">1.8</td>
    
    <tr class="odd">
      <td class="firstcol" width="800">&nbsp;&nbsp;Personal Consumption
        Expenditures</td>
      <td align="center" width="106">2.6</td>
      <td align="center" width="107">2.3</td>
      <td align="center" width="107">1.9</td>
      <td align="center" width="107">2.5</td>
    </tr>
    <tr>
      <td class="firstcol" width="800">&nbsp;&nbsp;Nonresidential Structures</td>
      <td align="center" width="106">5.2</td>
      <td align="center" width="107">4.6</td>
      <td align="center" width="107">10.8</td>
      <td align="center" width="107">2.7</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="800">&nbsp;&nbsp;Producers' Durable Equipment
        &amp; Software</td>
      <td align="center" width="106">6.8</td>
      <td align="center" width="107">5.3</td>
      <td align="center" width="107">6.9</td>
      <td align="center" width="107">11.0</td>
    </tr>
    <tr>
      <td class="firstcol" width="800">&nbsp;&nbsp;Residential Investment</td>
      <td align="center" width="106">15.0</td>
      <td align="center" width="107">15.0</td>
      <td align="center" width="107">12.1</td>
      <td align="center" width="107">-1.4</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="800">&nbsp;&nbsp;Change in Real Business
        Inventories (Bil. $)</td>
      <td align="center" width="106">44.5</td>
      <td align="center" width="107">45.1</td>
      <td align="center" width="107">43.0</td>
      <td align="center" width="107">31.0</td>
    </tr>
    <tr>
      <td class="firstcol" width="800">&nbsp;&nbsp;Real Net Exports (Bil. $)</td>
      <td align="center" width="106">-402.3</td>
      <td align="center" width="107">-405.9</td>
      <td align="center" width="107">-400.7</td>
      <td align="center" width="107">-408.0</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="800">Housing Starts (Mil. Units)</td>
      <td align="center" width="106">1.18</td>
      <td align="center" width="107">1.00</td>
      <td align="center" width="107">0.78</td>
      <td align="center" width="107">0.61</td>
    </tr>
    <tr>
      <td class="firstcol" width="800">Light Vehicle Sales (Mil. Units)</td>
      <td align="center" width="106">15.9</td>
      <td align="center" width="107">15.4</td>
      <td align="center" width="107">14.4</td>
      <td align="center" width="107">12.7</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="800">Payroll Employment Avg. Monthly Change
        (000s)</td>
      <td align="center" width="106">198</td>
      <td align="center" width="107">168</td>
      <td align="center" width="107">183</td>
      <td align="center" width="107">175</td>
    </tr>
    <tr>
      <td class="firstcol" width="800">Unemployment Rate (%)</td>
      <td align="center" width="106">7.1</td>
      <td align="center" width="107">7.6</td>
      <td align="center" width="107">8.1</td>
      <td align="center" width="107">8.9</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="800">Consumer Price Index (Y/Y %)</td>
      <td align="center" width="106">2.0</td>
      <td align="center" width="107">1.8</td>
      <td align="center" width="107">2.1</td>
      <td align="center" width="107">3.1</td>
    </tr>
    <tr>
      <td class="firstcol" width="800">Fed Funds Rate (%, Year End)</td>
      <td align="center" width="106">0.125</td>
      <td align="center" width="107">0.125</td>
      <td align="center" width="107">0.125</td>
      <td align="center" width="107">0.125</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" width="800">10-Year Treasury Note (%, Year End)</td>
      <td align="center" width="106">2.81</td>
      <td align="center" width="107">2.20</td>
      <td align="center" width="107">1.78</td>
      <td align="center" width="107">1.89</td>
    </tr>
  

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</html>

The Chicago Federal Reserve reported that its April National Activity Index (CFNAI) declined to -0.53 from an unrevised -0.23 in March. The three-month moving average was relatively stable at -0.04, its lowest reading since October. [...]

U.S. Chicago Fed National Activity Index Suggests Economic Weakness

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   <p><a href="/comment/130520d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130520d.png"></a>
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      </p>

            <p>The <b>National Association for Business Economics</b> <b>raised the median
expectation for real GDP growth to 2.9% for next year from the 2.8% estimate in
its November survey. That follows a 2.1% growth projection for this year. </b>Quarterly
growth is expected to improve to 3.0% by Q2'14 and remain at that pace through
year-end. Personal consumption expenditures growth is forecast to improve to a
still-moderate 2.6% next year. That would, nevertheless, be its fastest growth
rate since 2006. Growth in residential investment should continue to be the
economy's strongest sector with a second year of 15.0% growth. Business
investment growth should follow as producers durable equipment gains 6.8% and
spending on structures increases 5.2%. Inventory investment and real net exports
should remain roughly stable at current levels.</p>

<p><a href="/comment/130520f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130520f.png"></a>
   <a href="/comment/130520g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130520g.png"></a>
   </p>
   
<p>Expectations call for an upwardly-revised 1.18M housing starts in 2014 after
1.00M during this year. Expected light vehicle sales show further improvement to
15.9M after a raised 2013 expectation of 15.4M. Forecasted average monthly gains
in payroll employment this year of 198,000 were improved slightly from the last
forecast and up from the 168,000 rise projected for this year. The unemployment
rate is expected to average 7.1% for all of next year, a slight downward
revision. The forecast for consumer price inflation remains low at 2.0% versus a
downwardly revised 1.8% projection for 2013. Expectations for the core PCE price
index are for a 1.8% advance in 2014 after a 1.5% rise this year and last.</p>
<p>Recent improvement in the bond market is expected to end with continued
economic growth. The forecasted 2.81% interest rate on 10-year Treasury notes at
the end of next year was raised slightly from six months ago but the Fed still
is not expected to raise rates. The forecast for 7.5% corporate profit growth in
2014 is improved from a 5.3% rise this year. These growth rates remain well
below the 23.2% gain in 2010, when the economic recovery first got going, and 16.1%
growth in 2012. Moderate economic growth is forecast to reduce the Federal
government budget deficit to $707 billion in 2014, half its $1.4 trillion peak
in 2009.</p>
<p>The figures from the latest NABE report can be found in Haver's <b>SURVEYS</b>
database.<b>&nbsp;</b></p>
<p><b>Economic Prospects for the Long Run</b> is the title of Saturday's speech
by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20130518a.htm">here</a>.</p>

   <p>
      <a href="/comment/130520h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130520h.png"></a>
      <a href="/comment/130520i_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130520i.png"></a></p>
      <p>&nbsp;</p>



	<colgroup><col><col><col><col><col><col><col><col></colgroup>
        <thead>
    <tr>
      <th class="firstcol" scope="col" ><b><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">National
        Association For Business Economics</a></b></th>
      <th scope="col" ><b>2014</b></th>
      <th scope="col" ><b>2013</b></th>
      <th scope="col" ><b>2012</b></th>
      <th scope="col" ><b>2011</b></th>
    </tr>
  </thead>
  
    
      <td class="firstcol" >Real GDP (% Chg. SAAR)</td>
      <td  >2.9</td>
    <span id="articletext0">
    <td>2.1</td>
    <td>2.2</td>
    <td>1.8</td>
    
    <tr class="odd">
      <td class="firstcol" >&nbsp;&nbsp;Personal Consumption
        Expenditures</td>
      <td  >2.6</td>
      <td>2.3</td>
      <td>1.9</td>
      <td>2.5</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;&nbsp;Nonresidential Structures</td>
      <td  >5.2</td>
      <td>4.6</td>
      <td>10.8</td>
      <td>2.7</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;&nbsp;Producers' Durable Equipment
        &amp; Software</td>
      <td  >6.8</td>
      <td>5.3</td>
      <td>6.9</td>
      <td>11.0</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;&nbsp;Residential Investment</td>
      <td  >15.0</td>
      <td>15.0</td>
      <td>12.1</td>
      <td>-1.4</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;&nbsp;Change in Real Business
        Inventories (Bil. $)</td>
      <td  >44.5</td>
      <td>45.1</td>
      <td>43.0</td>
      <td>31.0</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;&nbsp;Real Net Exports (Bil. $)</td>
      <td  >-402.3</td>
      <td>-405.9</td>
      <td>-400.7</td>
      <td>-408.0</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >Housing Starts (Mil. Units)</td>
      <td  >1.18</td>
      <td>1.00</td>
      <td>0.78</td>
      <td>0.61</td>
    </tr>
    <tr>
      <td class="firstcol" >Light Vehicle Sales (Mil. Units)</td>
      <td  >15.9</td>
      <td>15.4</td>
      <td>14.4</td>
      <td>12.7</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >Payroll Employment Avg. Monthly Change
        (000s)</td>
      <td  >198</td>
      <td>168</td>
      <td>183</td>
      <td>175</td>
    </tr>
    <tr>
      <td class="firstcol" >Unemployment Rate (%)</td>
      <td  >7.1</td>
      <td>7.6</td>
      <td>8.1</td>
      <td>8.9</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >Consumer Price Index (Y/Y %)</td>
      <td  >2.0</td>
      <td>1.8</td>
      <td>2.1</td>
      <td>3.1</td>
    </tr>
    <tr>
      <td class="firstcol" >Fed Funds Rate (%, Year End)</td>
      <td  >0.125</td>
      <td>0.125</td>
      <td>0.125</td>
      <td>0.125</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >10-Year Treasury Note (%, Year End)</td>
      <td  >2.81</td>
      <td>2.20</td>
      <td>1.78</td>
      <td>1.89</td>
    </tr>
  

</span>


</html>

The National Association for Business Economics raised the median expectation for real GDP growth to 2.9% for next year from the 2.8% estimate in its November survey. That follows a 2.1% growth projection for this year. Quarterly [...]

NABE Forecast Shows Improved GDP Growth

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	  <br>
      
      <span id="articletext">
      <p></p>

   <p><a href="/comment/130520a_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130520a.png" align="left"></a>

            The Chicago Federal Reserve reported that its April National Activity
      Index (CFNAI) declined to -0.53 from an unrevised -0.23 in March. The
      three-month moving average was relatively stable at -0.04, its lowest
      reading since October. During the last ten years, there has been a 79%
      correlation between the Chicago Fed Index and the q/q change in real GDP.</p>
      <p>The Production &amp; Income component again showed the greatest m/m
      deterioration as it fell to roughly its lowest level since August. The
      other component series were fairly stable m/m, but the Employment,
      Unemployment &amp; Hours series remained at nearly its lowest in nine
      months. The Sales, Orders &amp; Inventories component also was roughly
      unchanged m/m but it remained in negative territory. The Personal
      Consumption &amp; Housing reading remained negative but has stayed in the
      improved trend since the middle of 2011. The Chicago Fed reported that
      during April, 32 of the 85 individual indicators made positive
      contributions to the overall index while 53 made negative contributions.</p>
      <p>The CFNAI is a weighted average of 85 indicators of national economic
      activity. It is constructed to have an average value of zero and a
      standard deviation of one. Since economic activity tends toward trend
      growth rate over time, a positive index reading corresponds to growth
      above trend and a negative index reading corresponds to growth below
      trend.</p>
      <p>The Chicago Federal Reserve figures are available in Haver's <b>SURVEYS</b>
      database.&nbsp;</p>
      <p><b>The Delayed Recovery of Investment in Nonresidential Structures</b>
      from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/trends/2013/0513/core.cfm">here</a>.
            </p>

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      <a href="/comment/130520c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130520c.png"></a></p>
      <p>&nbsp;</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" >Chicago Federal Reserve
              Bank</th>
            <th scope="col" width="90">Apr</th>
            <th scope="col" width="90">Mar</th>
            <th scope="col" width="90">Feb</th>
            <th scope="col" width="90">Apr'12</th>
            <th scope="col" width="90">2012</th>
            <th scope="col" width="90">2011</th>
            <th scope="col" width="90">2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >CFNAI</td>
            <td>-0.53</td>
            <td>-0.23</td>
            <td>0.63</td>
            <td>-0.02</td>
            <td>-0.08</td>
            <td>-0.08</td>
            <td>0.02</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;3-Month Moving Average</td>
            <td>-0.04</td>
            <td>-0.05</td>
            <td>0.08</td>
            <td>-0.13</td>
            <td>--</td>
            <td>--</td>
            <td>--</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Personal Consumption
              &amp; Housing</td>
            <td>-0.17</td>
            <td>-0.15</td>
            <td>-0.14</td>
            <td>-0.24</td>
            <td>-0.22</td>
            <td>-0.30</td>
            <td>-0.30</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Employment,
              Unemployment &amp; Hours</td>
            <td>0.00</td>
            <td>0.01</td>
            <td>0.35</td>
            <td>-0.08</td>
            <td>0.10</td>
            <td>0.14</td>
            <td>0.03</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Production &amp; Income</td>
            <td>-0.34</td>
            <td>-0.04</td>
            <td>0.39</td>
            <td>0.29</td>
            <td>0.04</td>
            <td>0.05</td>
            <td>0.20</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Sales, Orders &amp;
              Inventories</td>
            <td>-0.01</td>
            <td>-0.04</td>
            <td>0.03</td>
            <td>0.01</td>
            <td>-0.01</td>
            <td>0.04</td>
            <td>0.09</td>
          </tr>
        </tbody>
      </table>
      </span>
</body>
</html>


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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Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

260423Z1.jpg

**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

260423Z2.jpg

**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

260423Z3.jpg

**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

260423Z4.jpg

**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

260423Z5.jpg

**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

260423Z6.jpg

Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/44A12ktUaoJGHZG7pEVcul?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Risks Build, Markets Shrug

260424E.jpg

The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

260424.jpg

Germany

German Ifo Plunges Everywhere

Sandy Batten

260423F8.jpg

260423G8.jpg

The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Chicago Fed National Activity Index Slipped in March

Kathleen Stephansen, CBE

260423A1.jpg

260423B1.jpg

Initial claims for unemployment insurance rose by 6,000 to 214,000 in the week ending April 18, from 208,000 in the week ending April 11, revised from 207,000. The four-week average rose 750 to 210,750 in the week ending April 18, from 210,000 the April 11 week, revised from 209,750. The Action Economics/Haver Analytics Survey looked for 210,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 12,000 to 1.821 million in the week ending April 11, from 1.809 million in the week ending April 4. The four-week moving average rose to 1.812 million in the latest week from 1.811 million in the March 28 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 4, the highest unemployment rates were in New Jersey (2.51%), Massachusetts (2.37%), Rhode Island (2.31%), Washington (2.25%), Minnesota (2.11%), and California (2.02%). The lowest rates were in Florida (0.30%), Louisiana (0.31%), Arkansas (0.35%), Alabama (0.36%), North Carolina (0.39%), Tennessee (0.46%), South Dakota (0.47%), Kansas and Virginia (both 0.49%). Rates in other notable states include New York (1.92%), Illinois (1.82%), Pennsylvania (1.52%), and Texas (1.04%). These state data are not seasonally adjusted.

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

260423C1.jpg

260423D1.jpg

- New claims rose by 6,000 to 214,000.
- Continuing claims rose by 12,000 to 1.821 million.
- The insured unemployment rate remained at 1.2%.


U.S. Initial Unemployment Claims Rose in the Week of April 18

260423E.jpg

**Manufacturing looks strong while service sectors weaken**
S&P's April flash PMI readings show some very mixed results. For the United States, India, Australia, and the United Kingdom, there is a strengthening in the readings month-to-month for services, manufacturing, and the composite.

For Japan, France, and the European Monetary Union as a whole, there is improvement in the manufacturing sector on the month but a weaker services reading and a weaker composite overall.

Germany is the only responding area in the table showing weakness all around—in all three sectors—a weaker composite, a weaker manufacturing sector, and a weaker services sector in April. For Germany, this follows a weaker composite and service sector in March as well.

Most reporters—France, the United Kingdom, Japan, Australia, and India—had weaker readings for all three metrics in March: the composite, services, and manufacturing. The March exceptions were the United States, Germany, and the European Monetary Union; in each case, the exception was that the manufacturing sector improved month-to-month, while the composite and services both weakened.

This has been a period of weakening—in March and April—since the war in Iran began. The 48 separate sector readings produced 30 readings that were weaker month-to-month in March and April. Among the 16 composite readings, 12 reported weaker conditions month-to-month. In March, the immediate aftermath of the outbreak of war brought instantaneous step backs across the PMI readings, while April, responding to at least a military success in the area, has shown a significant bounce back that is now more common than further weakness.

The sequential data over three months, six months, and 12 months are based only on completed data; therefore, they're up to date through March. On that basis, we have triple sector weakness in the U.S., India, and Australia, with only Japan and the United Kingdom showing triple-sector improvement over three months. However, if we look at six months compared to 12 months, we have triple sector strength in the Monetary Union, Germany, France, the United Kingdom, Japan, and Australia. India and the U.S. each show only one stronger sector over that comparison—services in India’s case and manufacturing in the U.S. case.

**Ranking Peculiarity**
The ranking data take the current flash data and compare them to the history of observations back to January 2022. What is quite surprising is that, on that timeline, the manufacturing sectors of all the countries in the table—except for Australia and India—show manufacturing standings in their respective 80th to 90th percentiles. Meanwhile, services standings are typically in the 30th percentile or lower.

**Odd Impact of War**
If the war in Iran has an impact on something, we would expect that to fall on the goods trade sector. We would expect this to have an impact on manufacturing although it's the opposite thing that's happening. Manufacturing is showing a revival, while services sectors are showing weaker performance across these countries generally. India is an interesting case, with manufacturing only in its 32nd percentile; however, India’s raw diffusion reading for manufacturing is the strongest raw diffusion reading in the table. What India's ranking is telling us is that India had been extremely strong over the period since 2022, and now compared to that past standard, it's relatively weaker. However, it's still strong in absolute terms, showing a great deal of strength based on its pure diffusion value, just not in comparison to historic performance.

260423.jpg

**Next?**
At this point, it's not clear to me at least what these PMI data are telling us since the strength in manufacturing is a curiosity as is the weakness in the services sector. You see these two phenomena displayed in the chart above, in the case of the European Monetary Union’s flash readings as well.

**War breeds negative effects**
It's not a surprise that war would take some toll on consumer confidence or that it would be reflected in the services sector. However, seeing the kind of weakness being portrayed now in services against the strength in manufacturing is simply a bit hard to rationalize and understand. So, I think we're going to have to keep an eye on these readings as well as other readings in the months ahead to try to discern how global events, the war, conditions in the Strait of Hormuz, inflation currency shifts, and central bank policy are playing out across these various countries. None of what is happening is obvious to me. Japan clearly continues to benefit from a weak yen as its manufacturing sector is flying high, at its best reading since January 2022.

Economy in Brief

Jump to:

EMU Current Account Spurts...Oh My!

UK and EMU Inflation Drop

U.S. Chain Store Sales Continue to Lose Forward Momentum

U.S. Gasoline Prices Improve But Crude Oil Prices Slip From High

U.S. Gasoline Prices Improve But Crude Oil Prices Slip From High

U.S. Chicago Fed National Activity Index Suggests Economic Weakness

NABE Forecast Shows Improved GDP Growth

U.S. Chicago Fed National Activity Index Suggests Economic Weakness