Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302a.jpg" width="353">
The personal &amp; outlays report from the U.S. Bureau of Economic Analysis indicated that the savings rate continued its recent improvement. During January, individuals pared spending against the background of the current economic uncertainties and the personal savings rate rose to 5.0%, up from the monthly low of 0.0% reached last April. The saving rate averaged less than 1.0% from 2005 to 2007.
The personal income &amp; consumption figures are available in Haver&#39;s USECON and USNA databases.
Life expectancy and old age savings from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/workingpapers/wp2008_18.pdf"> here</a>
Personal consumption expenditures did rise last month, but the 0.6% increase was the first monthly increase since last June. The figure was slightly better than expectations for a 0.4% increase. Nevertheless, the three-month annualized rate of growth of -4.9% followed even more negative growth rates during the prior three months. The recent figures have been very much influenced by the change in energy prices. Real personal spending rose 0.4% during January and three-month growth amounted to 0.7%. The latest monthly increase was only the second since May.
Real spending on discretionary items continued weak. Motor vehicle &amp; parts purchases fell 0.8% in January after a 13.3% decline during all of last year. Real spending on household furniture &amp; appliances rose a moderate 0.6% and it has been flat since last summer while real spending on apparel fell 0.5% (-2.7% year-to-year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302b.jpg" width="353">
The pullback in personal spending continues to reflect the weakness in personal income. Though it rose 0.4% last month, it was the first monthly increase since September and the three month growth rate stood at -1.0%. The latest monthly figure was better than expectations for a 0.2% monthly decline. Disposable personal income also firmed and rose 1.7% last month (4.0% y/y) thanks to a 9.3% monthly drop in taxes. Real disposable income growth increased by 1.5% last month (3.3% y/y).
Wages &amp; salaries continued to move lower last month. Declines in employment levels dropped wage income by 0.2% during January and at a 3.3% rate during the last three months. That was the weakest growth rate since 2004. Private sector wages fell at a 5.2% rate during those three months while government sector wages remained immune to the recession and rose at a 5.9% annual rate.
Lower interest rates caused another decline in interest income which is down at a 17.6% annual rate during the last three months. Dividend income also fell at a 3.7% annual rate during that three-month period as corporate profits fell.
The PCE chain price index continued to reflect the weakness in income &amp; spending and rose just 0.2%. Prices rose 0.7% year-to-year, held back by the decline in energy prices. Core power logged just a 0.1% rise following the slight decline in December. The dip matched Consensus expectations. Durable goods prices fell 0.1% (-1.9% y/y).
The U.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan can be found <a href="http://www.federalreserve.gov/newsevents/press/other/20090302a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a> (%)&nbsp;</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4</td>
<td>-0.2</td>
<td>1.9</td>
<td>3.8</td>
<td>6.1</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Disposable Personal Income</td>
<td>1.7</td>
<td>-0.2</td>
<td>4.0</td>
<td>4.7</td>
<td>5.5</td>
<td>6.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption Expenditures</td>
<td>0.6</td>
<td>-1.0</td>
<td>-1.0</td>
<td>3.6</td>
<td>5.5</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>5.0</td>
<td>3.9</td>
<td>0.1 (Jan. 08)</td>
<td>1.8</td>
<td>0.5</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2</td>
<td>-0.5</td>
<td>0.7</td>
<td>3.3</td>
<td>2.6</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.1</td>
<td>-0.0</td>
<td>1.6</td>
<td>2.2</td>
<td>2.2</td>
<td>2.3</td>
</tr>
</tbody>
</table>
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The personal & outlays report from the U.S. Bureau of Economic Analysis indicated that the savings rate continued its recent improvement. During January, individuals pared spending against the background of the current economic [...]

U.S. January Personal Savings Rate Highest Since 1995

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302a.jpg" align="left" border="0" height="265" width="353">
The personal &amp; outlays report from the U.S. Bureau of
Economic Analysis indicated that the savings rate continued its recent
improvement. During January, individuals pared spending against the
background of the current economic uncertainties and the personal
savings rate rose to 5.0%, up from the monthly low of 0.0% reached last
April. The saving rate averaged less than 1.0% from 2005 to 2007.
The personal income &amp; consumption figures are
available in Haver's USECON and USNA
databases.
Life expectancy and old age savings from
the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/workingpapers/wp2008_18.pdf">
here</a>
Personal consumption expenditures did rise last month, but the
0.6% increase was the first monthly increase since last June. The
figure was slightly better than expectations for a 0.4% increase.
Nevertheless, the three-month annualized rate of growth of -4.9%
followed even more negative growth rates during the prior three months.
The recent figures have been very much influenced by the change in
energy prices. Real personal spending rose 0.4% during January and
three-month growth amounted to 0.7%. The latest monthly increase was
only the second since May.
Real spending on discretionary items continued weak. Motor
vehicle &amp; parts purchases fell 0.8% in January after a 13.3%
decline during all of last year. Real spending on household furniture
&amp; appliances rose a moderate 0.6% and it has been flat since
last summer while real spending on apparel fell 0.5% (-2.7%
year-to-year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302b.jpg" align="right" border="0" height="265" width="353">
The pullback in personal spending continues to reflect the
weakness in personal income. Though it rose 0.4% last month, it was the
first monthly increase since September and the three month growth rate
stood at -1.0%. The latest monthly figure was better than expectations
for a 0.2% monthly decline. Disposable personal income
also firmed and rose 1.7% last month (4.0% y/y) thanks to a 9.3%
monthly drop in taxes. Real disposable income growth increased by 1.5%
last month (3.3% y/y).
Wages &amp; salaries continued to move lower last month.
Declines in employment levels dropped wage income by 0.2% during
January and at a 3.3% rate during the last three months. That was the
weakest growth rate since 2004. Private sector wages fell at a 5.2%
rate during those three months while government sector wages remained
immune to the recession and rose at a 5.9% annual rate.
Lower interest rates caused another decline in interest income
which is down at a 17.6% annual rate during the last three months.
Dividend income also fell at a 3.7% annual rate during that three-month
period as corporate profits fell.
The PCE chain price index continued to
reflect the weakness in income &amp; spending and rose just 0.2%.
Prices rose 0.7% year-to-year, held back by the decline in energy
prices. Core power logged just a 0.1% rise following the slight decline
in December. The dip matched Consensus expectations. Durable goods
prices fell 0.1% (-1.9% y/y).
The U.S. Treasury and Federal Reserve Board Announce
Participation in AIG Restructuring Plan can be found <a href="http://www.federalreserve.gov/newsevents/press/other/20090302a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition
of Personal Income</a> (%)&nbsp;</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4</td>
<td>-0.2</td>
<td>1.9</td>
<td>3.8</td>
<td>6.1</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Disposable
Personal Income</td>
<td>1.7</td>
<td>-0.2</td>
<td>4.0</td>
<td>4.7</td>
<td>5.5</td>
<td>6.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption
Expenditures</td>
<td>0.6</td>
<td>-1.0</td>
<td>-1.0</td>
<td>3.6</td>
<td>5.5</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>5.0</td>
<td>3.9</td>
<td>0.1 (Jan. 08)</td>
<td>1.8</td>
<td>0.5</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2</td>
<td>-0.5</td>
<td>0.7</td>
<td>3.3</td>
<td>2.6</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food
&amp; energy</td>
<td>0.1</td>
<td>-0.0</td>
<td>1.6</td>
<td>2.2</td>
<td>2.2</td>
<td>2.3</td>
</tr>
</tbody>
</table>
ISM Index Flat Month-To-Month,
Still Near Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302c.jpg" align="left" border="0" height="265" width="353">
For February, the Institute for Supply Management (ISM)
reported that its Composite Index of Activity in the manufacturing
sector remained about unchanged at 35.8 versus the 35.6 January
reading. The latest was still near the lowest level since the recession
year of 1980. The break-even level for this diffusion index of factory
sector activity is a level of 50.
During the last twenty years there has been a 72% correlation
between the level of the Composite Index and the three-month growth in
factory sector industrial production. The latest reading of the
composite index suggests that the recent 10% rate of decline in
industrial output will continue.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302d.jpg" align="right" border="0" height="265" width="353">
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by using all of the positive
changes in activity added to one half of the zero change in activity
measures.
The separate index of prices paid also was unchanged from
January and still barely above the lowest level since 1949.
During the last twenty years there has been a 79% correlation between
the price index and the three-month change in the PPI for intermediate
goods.
The February new orders index was about unchanged from January
as 13% of survey participants reported higher orders but 44% reported
that orders fell. The export order index also was unchanged as economic
weakness outside of the U.S. continued. It was still near the lowest
level in this index's short twenty year history. During the last ten
years there has been a 53% correlation between the index and the q/q
change in real exports of goods in the GDP accounts.
The ISM data is available in Haver's USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>35.8</td>
<td>35.6</td>
<td>48.8</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>33.1</td>
<td>33.2</td>
<td>48.9</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>26.1</td>
<td>29.9</td>
<td>47.0</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>29.0</td>
<td>29.0</td>
<td>75.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
Euro Area MFG PMIs Drop 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302e.jpg" align="left" border="0" height="265" width="353">
Despite the slippage some consolidation is evident. 
 

Germany Spain and Austria were among the ground hogs that left
their heads in February and did not scurry lower for the winter. There,
MFG PMIs managed to stay higher even though for most of the region
manufacturing was seeing darker days in February. France, a country
that had been holding off the declines succumbed in February with its
MFG index dropping to 34.81 from 37.90; Ireland&#8217;s MFG sector made a
similarly large drop. EMU as a whole, France, Ireland and The
Netherlands this month sport MFG PMI readings that are the lowest ever.
The UK, Italy and Germany each are less than 1% up from their
respective lows. To be sure it remains a very weak February for
European manufacturing. But the good news is that the downturn is NOT
getting worse in several key countries and that the pace of
deterioration where things are unraveling is largely slowing. France
and Ireland are to be taken as notable exceptions. Looks like the Irish
have run out of luck and the French continue to buck the trends to
which everyone else is subject. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">NTC/Markit
MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-09</td>
<td> Jan-09</td>
<td> Dec-08</td>
<td> 3Mo</td>
<td> 6Mo</td>
<td> 12Mo</td>
<td> Percentile</td>
</tr>
<tr>
<td class="firstcol"> Euro-13</td>
<td> 33.55</td>
<td> 34.42</td>
<td> 33.87</td>
<td> 33.95</td>
<td> 37.25</td>
<td> 43.41</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>32.14</td>
<td> 31.96</td>
<td> 32.66</td>
<td>32.25</td>
<td>37.11</td>
<td>44.84</td>
<td> 0.7%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td> 34.81</td>
<td>37.90</td>
<td> 34.91</td>
<td>35.87</td>
<td>38.08</td>
<td>43.75</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td> 34.99</td>
<td>36.06</td>
<td>35.54</td>
<td>35.53</td>
<td>37.61</td>
<td>42.55</td>
<td> 0.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>31.85</td>
<td>31.51</td>
<td> 28.49</td>
<td>30.62</td>
<td>32.37</td>
<td>37.65</td>
<td> 11.7%</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>34.58</td>
<td> 33.12</td>
<td> 35.01</td>
<td>34.24</td>
<td>38.40</td>
<td>43.95</td>
<td> 5.7%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td> 33.20</td>
<td>38.94</td>
<td>37.87</td>
<td>36.67</td>
<td>38.42</td>
<td>41.62</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td> 35.47</td>
<td> 36.29</td>
<td> 38.42</td>
<td>36.73</td>
<td>40.41</td>
<td>45.62</td>
<td> 0.0%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol"> EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td> 34.68</td>
<td>35.79</td>
<td>34.94</td>
<td>35.14</td>
<td>36.94</td>
<td>42.26</td>
<td> 0.2%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">percentile
is over range since March
2000</td>
</tr>
</tbody>
</table>
South Korea: Industrial Production
Improves a Bit; Exports in Won Rise, but in USD, Fall
 
by <a href="/comment/Curley.html">Louise
Curley</a> March 2, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302f.jpg" align="left" border="0" height="265" width="353">
Industrial production in South Korea increased 1.35% in
January, the first increase in four months. However, compared to a year
ago, the unadjusted index is down some 25%. Production of motor
vehicles continues to be the biggest drag with production down more
than 10% in January and down over 40% from a year ago. Production in
Electronic equipment and devices increased 22% in January, but was
still 32% below the year ago figure. Production in the Pharmaceuticals,
medical chemicals and botanical products industry was up only 2.5% in
January, but production in this industry has held relatively steady
and, although only 4% above January 2007,it is one of the few
industries where production is greater than a year ago. These four
indexes are shown in the first chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302g.jpg" align="right" border="0" height="265" width="353">
Data on international trade in goods in US dollars and Korean
won were released yesterday. The Bank of Korea publishes balance of
payments data in USD and much of the discussion of Korea's trade takes
place in USD terms. However, for domestic considerations the won data
may be more relevant. The two series can differ significantly when
there is a substantial appreciation or depreciation in the won. For
example, in February seasonally unadjusted data on exports in USD show
a year to year decline of 17%, while the seasonally unadjusted data in
won show and increase of 26%. The difference is due to the change that
has taken place in the won over the year. As can be seen in the third
chart which shows the won versus the USD on an inverted scale, the won
has depreciated substantially over the past year. As a result, the
increase in exports in yen, when converted to USD, turn into a decline.
Recent data are shown in the table below.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">SOUTH
KOREA&nbsp;</th>
<th scope="col">Jan&nbsp; 09&nbsp;</th>
<th scope="col">Dec 08&nbsp;</th>
<th scope="col">Nov 08&nbsp;</th>
<th scope="col">Oct 08</th>
<th scope="col">Sep 08</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Industrial Production
(2005=100)&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>97.9</td>
<td>*6.6</td>
<td>106.8</td>
<td>118.8</td>
<td>121.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Pharmaceuticals, medical chemicals and botanic products</td>
<td>140.1</td>
<td>136.7</td>
<td>124.6</td>
<td>129.5</td>
<td>130.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Motor
Vehicles</td>
<td>69.2</td>
<td>77.5</td>
<td>102.2</td>
<td>117.2</td>
<td>103.3</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Electronic
equipment and devices&nbsp;</td>
<td>117.2</td>
<td>96.2</td>
<td>119.8</td>
<td>143.9</td>
<td>159.9</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>Feb 09</td>
<td>Jan&nbsp; 09&nbsp;</td>
<td>Dec 08&nbsp;</td>
<td>Nov 08&nbsp;</td>
<td>Oct 08</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y %
Change in Yen Exports</td>
<td>25.55</td>
<td>-4.83</td>
<td>20.06</td>
<td>22.61</td>
<td>56.57</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y %
Change in Yen Depreciation</td>
<td>52.50</td>
<td>43.70</td>
<td>42.03</td>
<td>52.57</td>
<td>45.05</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y $
Change in USD Exports</td>
<td>-17.67</td>
<td>-33.76</td>
<td>-18.36</td>
<td>-19.64</td>
<td>7.94</td>
</tr>
</tbody>
</table>
</body></html>

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

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

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Michael J. Moran

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The consumer price index for April matched expectations with an increase of 0.6%. As universally expected, the energy component led the increase, rising 3.8%. The pace in April was notably slower than the jump of 10.9% in March, but it was still brisk by recent standards (third fastest in the past three years and well ahead of the average monthly increase of 0.2% in 2025).

Several media reports have portrayed the current energy episode as the most pronounced disruption in history. Possibly. The average increase in the energy component of the CPI totaled 7.3% in March and April. Only one two-month increase has exceeded this total, and that jump might be viewed as a special factor (driven by hurricanes in August and September 2005 that closed drilling rigs and energy transport in the Gulf of Mexico). Other episodes, although not matching the latest two-month increase, have come close. Energy prices jumped in the aftermath of Russia’s invasion of Ukraine, and other instances of instability in the Middle East have caused problems (oil embargo in 1973, Iranian revolution in 1979, and Iraq’s invasion of Kuwait in 1990). Whether or not the current disruption is the most pronounced in history will depend on what unfolds in the months ahead.

Thus far, the pressure on energy prices has been concentrated in oil-based products (gasoline and fuel oil). Surprisingly, prices of natural gas have not changed meaningfully. Natural gas services for consumers as reported in the CPI dipped in March and April, and Henry Hub prices have eased on balance over this two-month period as well. Futures prices for natural gas also have been tame. The cost of electrical services in the CPI have started to move, increasing 2.1% in April. Prices of natural gas for consumers and electricity are included in the energy services component of the CPI. As shown in the chart below, the pickup in electrical charges has not had much influence on the year-over-year change.

The food component of the CPI rose 0.5% in April. The change might be viewed as benign, as it followed a flat reading in March. However, food prices rose 0.4% in February, leaving an average of 0.3% in the past three months, an uncomfortable pace.

The core CPI rose 0.4% in March, a pace well ahead of that desired by the Federal Reserve. However, a special factor tied to the government shutdown in October led to a sharp increase in rental rates in April (0.5%, versus an average of 0.2% in the prior six months). Rental rates in the CPI are based on six-month averages, and because of the government shutdown, observations for October 2025 were not available. The Bureau of Labor Statistics, in the absence of data, used a value of 0.0% for the increase in rental rates for October. That reading led to understatements of the rental component of the CPI from October of last year through March of this year. The reading of 0.0% dropped out of the April calculation, and thus a jump in the six-month average and the rental component for April. This distortion probably added 0.1 percentage point to the core CPI in the latest month. Without this distortion, the core CPI most likely would have increased 0.3%, a still-firm pace.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- The increase in gasoline prices slowed from the blistering pace in March, but April still brought the third sharpest increase in the past three years.
- Fluctuating food prices left a high-side average change in the past three months.
- The core component was distorted by an anomaly in rents, but the pace was still brisk excluding rents.

April CPI: More Energy Pressure; Food and Core Uncomfortable

Winnie Tapasanun

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The NFIB Small Business Optimism Index edged up to 95.9 in April, the first m/m increase since December, after a three-point decline to 95.8 in March, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index was below its 52-year average of 98.0 for the second consecutive month and down from a peak of 105.1 in December 2024 but above a low of 88.5 in March 2024. Seven of the 10 index components rose, while three fell. The NFIB Small Business Uncertainty Index declined to 88 in April following a four-point increase to 92 in March, remaining well above its historical average of 68. The index was below its record high of 110 in October 2024 but above its recent low of 84 in December 2025 and a low of 65 in November 2023.

The outlook for business conditions in the next six months remained positive for the 18th straight month in the latest survey. The net balance of respondents expecting the economy to improve dropped to 4% in April, the lowest level since October 2024, on top of a seven-point decline to 11% in March; these readings were well below a high of 52% in December 2024 but significantly above a record low of -61% in June 2022. Expected real sales fell to a net 3% in April, the weakest reading since April 2025, from 7% in March; the latest figure was below a high of 22% in December 2024 but above a low of -18% in August 2024. A net -8% of respondents reported higher nominal sales in the past three months, down from -5% in March and marking the lowest reading in four months; the latest result remained below the most recent positive reading of 1% in February and a peak of 9% in June 2021 but above a low of -20% in October 2024.

Plans to expand the business fell to 7% in April, the lowest reading since October 2024, from 11% in March; the latest figure was down from a high of 20% in December 2024 but up from a low of 2% in March 2023. Plans to make capital outlays rebounded to 17% in April from 16% in March; these numbers were still below a high of 28% in November 2024 and a peak of 31% in October 2021. Expected credit conditions inched up to -4% in April after holding at -5% in March and February; this result was slightly below a high of -2% in December 2024 but above a low of -11% in November 2023. Meanwhile, a net -2% of respondents viewed current inventory stocks as “too low” in April, up from -5% in March.

On the labor front, 46% of respondents reported that qualified workers to fill job openings were hard to find in April, slightly up from 45% in March. These numbers were up from a low of 43% in August 2025 but below a high of 56% in August 2024 and a peak of 62% in September 2021. A net 13% planned to increase employment in April, up from 12% in March and February; it was above a low of 11% in March 2024 but below a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 34% reported positions not able to be filled in April, up from 32% in March and registering the highest level since June 2025; these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The measure increased to -19% in April, a still-weak reading, following an 11-point drop to -25% in March. These readings, while up from a low of -37% in August 2024, were below the most recent high of -14% in February and a high of -5% in June 2021.

On the pricing front, actual and expected selling prices, though trending lower, remained at an inflationary level, indicating continued inflationary pressures. The net percent of firms raising their average selling prices rose to 30% in April, the highest reading since December, after a one-point increase to 25% in March. The latest reading was up from a low of 20% in August 2024 but well below a peak of 66% in March 2022. The percentage planning to raise prices increased to 27% in April following a four-point decline to 24% in March; it was below a high of 34% in November 2023 but above a low of 21% in April 2023.

Wage inflation remained relatively high in the April survey. A net 30% of respondents raised compensation during the last three months, down from 33% in March. It was also below a high of 46% in February 2023 and a peak of 50% in January 2022. A net 18% of firms planned to raise worker compensation in the next three months, unchanged from March and marking the lowest reading since July 2025; this remained below highs of 28% in November 2024, 30% in November 2023, and 32% in October 2022.

The quality of labor was cited as the single most important problem facing small businesses, as reported by 18% of NFIB members in April, up from 15% in March and representing the highest since December. Taxes ranked second as the next most important problem, as reported by 17% of respondents in April—the lowest since November—compared with 19% in March and February. Inflation ranked third and remained a key challenge for small businesses, as reported by 16% of respondents in April—the highest since March 2025—compared with 14% in March; these readings were well below a peak of 37% in July 2022. Other concerns (in April vs. March) included poor sales (10% vs. 10%), labor costs (9% vs. 10%), insurance cost/availability (8% vs. 9%), government requirements (8% vs. 7%), and competition from large businesses (7% vs. 7%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

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- NFIB Small Business Optimism Idx up 0.1 pts. to 95.9 in Apr., still below its 52-year avg. of 98.0.
- Uncertainty Idx down 4 pts. to 88, remaining well above the historical avg. of 68.
- Expectations for economy down 7 pts. to 4%, lowest since Oct. ’24.
- Expected real sales down 4 pts. to 3%, a one-year low.
- Plans to expand business down 4 pts. to 7%, lowest since Oct. ’24.
- Firms raising avg. selling prices up 5 pts. to 30%, a four-month high.
- Top three business concerns: quality of labor (18%), taxes (17%), and inflation (16%).

U.S. NFIB Small Business Optimism Still Fragile in April

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Existing home sales rose 0.2% m/m (0.0% y/y) to 4.02 million units (SAAR) in April, the second m/m rise in three months, following an upwardly revised 2.9% decline to 4.01 million in March (previously -3.6%; 3.98 mil.), according to the National Association of Realtors (NAR). The Action Economics Forecast Survey had expected April sales of 4.06 million units. Sales remained 37.5% below a high of 6.43 million in January 2022 and 39.1% below a peak of 6.60 million in January 2021. The April gain coincided with an increase in the average 30-year fixed mortgage rate to 6.33% in April, the highest since September 2025, after rising to 6.18% in March, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales were flat m/m (-0.3% y/y) at 3.64 million units in April and March after a 3.3% rise to 3.76 million in February, while remaining 36.1% below a high of 5.70 million in January 2022. Sales of condos and co-ops rose 2.7% (2.7% y/y) to 380,000 after holding at 370,000 in March and February, though remaining 47.9% below a high of 730,000 in January 2022.

Regionally, April existing home sales showed a mixed performance. Sales in the Midwest rose 2.2% (-1.0% y/y) to 950,000 in April following a 3.1% decline in March, and sales in the South increased 0.5% (2.7% y/y) to 1.87 million after a 3.1% March decrease; both posted the second m/m gain in three months. Sales in the West, however, slid 2.6% (0.0% y/y) to 750,000, the third m/m slide in four months and a three-month low, on top of a 1.3% March fall. Sales in the Northeast held steady m/m (-8.2% y/y) at 450,000 in April and March after a 6.0% drop to 470,000 in February. Notably, the South remained the dominant region, accounting for 46.5% of total U.S. existing home sales.

The median price of all existing homes (NSA) rose 2.1% (0.9% y/y) to $417,700 in April—the third consecutive m/m rise and the highest since August 2025—following a 2.8% increase to $409,100 in March ($408,800 previously) and three straight m/m declines. Prices were 3.5% below a high of $432,700 in June 2025 but 15.8% above a low of $360,800 in January 2023. The median price of an existing single-family home climbed 2.2% (1.0% y/y) to $422,300 in April, the highest since August 2025, after a 2.7% increase to $413,300 in March. The median price of condos and co-ops, up for the fourth time in five months, rose 1.6% (1.1% y/y) to $374,100, the highest since June 2025, following a 3.9% March rebound to $368,100. Regionally, overall prices increased m/m in April in the Northeast (+3.7%; +4.8% y/y), Midwest (+1.9%; +3.6% y/y), West (+1.7%; -1.4% y/y), and South (+1.2%; +0.4% y/y).

Inventories of homes for sale rose for the fourth consecutive month in April. The number of existing homes for sale (NSA) advanced 5.8% (1.4% y/y) to 1.47 million units, the highest level since October 2025, following a 5.3% March rise to 1.39 million. The supply of homes on the market at the current selling rate (NSA) increased to 4.4 months, the highest in six months, from 4.2 months in March. The recent high of 4.6 months was in August 2025, while a record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- April sales +0.2% m/m to lower-than-expected 4.02 mil.; 0.0% y/y after five straight y/y declines.
- Sales m/m up in the Midwest (+2.2%) and South (+0.5%), down in West (-2.6%), flat in Northeast; sales y/y up only in South (+2.7%).
- Median sales price +2.1% (+0.9% y/y) to $417,700, highest since Aug. ’25.
- Unsold inventory +5.8% (+1.4% y/y) to six-month-high 1.47 mil. units; 4.4 months' supply.

U.S. Existing Home Sales Up Modestly in April, Second M/M Gain in Three Months

Tian Yong Woon

In this week’s Letter, we track the dual drivers of AI optimism and the ongoing Middle East conflict, and how they continue to shape market prices and investor expectations. AI-related enthusiasm has remained a key support for equity markets, particularly in highly exposed indexes in Taiwan and South Korea, while continued oil supply bottlenecks stemming from the closure of the Strait of Hormuz have kept crude prices elevated (chart 1). These dual forces are also evident in the latest Blue Chip Economic Indicators survey. Year to date, all Asian economies have seen upward revisions to inflation forecasts, while the most AI-exposed advanced Asian economy, Taiwan, has recorded a particularly large upgrade to real GDP growth expectations (chart 2). Looking more closely at the monetary policy implications of higher oil prices, this month’s survey shows an increasing share of panellists expecting central banks to resume or extend tightening cycles, marking a modest shift from last month’s results (chart 3). This shift is already partially reflected in recent data, with average inflation across Asia edging higher and several central banks already opting to tighten policy in response (chart 4).

Looking ahead, attention will likely centre on the Trump–Xi summit taking place in Beijing later this week. While any potential for additional Chinese mediation efforts regarding the Middle East conflict will be closely watched, developments on the US–China trade front should not be overlooked given the range of unresolved issues (chart 5). Finally, despite recent headline focus on the Middle East, China has continued to post steady export growth, while also managing to temper excessive domestic producer competition. Together, this has supported a combination of firmer external demand and more stable pricing dynamics—an “all-win” outcome for now (chart 6).

**AI vs. the Middle East conflict**
The divergence between AI-driven equity market optimism and the persistence of elevated crude oil prices amid the ongoing Middle East conflict remains striking. On the one hand, equity markets—particularly in AI-heavy economies such as Taiwan and South Korea (chart 1)—have largely shrugged off concerns over energy supply disruptions. Investors remain focused on the upside potential from the current AI buildout cycle, driven by the rising computational demands of increasingly capable AI models. More recently, attention has shifted toward the scalability and broader applications of physical AI, including humanoid robots, and their potential implications for manufacturing, healthcare, and even household use. On the other hand, crude oil prices remain well above pre-conflict levels. The latest development is the US rejection of Iran’s most recent peace proposal, underscoring that a swift resolution to the US-Iran conflict remains unlikely.

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**The latest Blue Chip Economic Indicators survey**
The divergence described above is also evident in our Blue Chip Economic Indicators surveys, with the May edition providing further insight (chart 2). Largely reflecting higher energy prices stemming from the ongoing Strait of Hormuz disruption—though other factors have also played a role—panellists have made significant upward revisions to their 2026 CPI inflation forecasts year to date. Australia has seen the largest upgrade at +1.4 ppts, while other economies have recorded more moderate increases, including India (+0.8 ppts) and South Korea (+0.7 ppts). The growth outlook, however, is more mixed. Taiwan stands out with a substantial +4.7 ppt upgrade to its growth forecast, likely reflecting continued optimism around AI-related investment. By contrast, Australia and Japan have each seen modest downgrades of 0.2 ppts.

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We also observed subtle shifts in panellists’ expectations regarding how central banks are likely to respond to the recent surge in oil prices (chart 3). In the May survey, compared with April, a larger share of panellists (26% versus 17%) now expects central banks to resume or extend tightening cycles. Correspondingly, a smaller share expects policymakers to simply look through the energy-driven inflation shock or delay easing moves. This shift in expectations likely reflects several factors, including the increasingly protracted closure of the Strait of Hormuz and growing recognition that a quick resolution remains unlikely. While a US-Iran peace agreement would be a direct route to restoring normal shipping flows, the Strait could potentially be reopened through enhanced security arrangements even in the absence of a formal peace deal. Nonetheless, the latest developments suggest that neither outcome appears imminent.

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**Inflation and Policy Rates in Asia**
The shifts in panellists’ expectations are already beginning to show up in the hard data. Average consumer inflation across Asia rose in the immediate aftermath of the Middle East conflict, although inflation rates remain well below the peaks seen during earlier price shocks, such as those in the early 2020s. Chart 4 also shows that the average policy rate in Asia has edged higher in recent months. This reflects a combination of central banks that have kept policy rates unchanged—which still represent the majority in the region—and those that have already raised rates to contain inflation and keep inflation expectations anchored. Taken together, these developments suggest that the gradual easing trend that had been in place since around mid-2024 is beginning to reverse, albeit only marginally at this stage. While the shift remains modest, it points to a regional policy stance that is becoming somewhat less accommodative in response to renewed inflation pressures.

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**China and the Trump-Xi Summit**
With all that aside, one key event that Asia observers will likely focus on this week is the Trump–Xi summit, scheduled to take place later this week in Beijing and officially confirmed by China earlier today. The meeting had previously been delayed due to the Middle East conflict. While markets will be watching for any signal that China may play a greater mediating role in de-escalating tensions in the Middle East, attention will also be firmly on the state of US–China relations. In particular, any extension of the current trade truce, or incremental improvements in bilateral trade conditions, will be closely scrutinised. This includes developments around Chinese imports of US agricultural goods, as well as US access to Chinese exports such as rare earths, among other strategic goods. At the same time, China’s trade balance with the US—while meaningfully narrowing over 2025—has recently entered a phase of relative stabilisation, and its broader global trade surplus has also levelled off after expanding further in 2025 despite the reduced US surplus (chart 5).

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That said, the recent focus on the Middle East conflict has somewhat displaced attention from China’s structural overcapacity concerns. This shift has also coincided with policy efforts by Chinese authorities to curb excessive domestic competition and reduce disorderly price competition in key industrial sectors. In combination with sustained external demand—particularly for high-tech products, including select electronics and AI-related goods—China has recently seen producer prices move back into inflationary territory. At the same time, exports and new export orders have continued to show healthy growth, pointing to a more balanced external demand backdrop (chart 6). Taken together, these dynamics suggest a near-term “all-win” configuration of firmer pricing power alongside resilient external demand, albeit one that will likely remain sensitive to both geopolitical developments and the durability of the current AI-driven investment cycle.

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Asia

Economic Letter from Asia: Of Bits and Barrels

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Nonfarm payrolls rose 115k in April, exceeding an expected gain of 70k. The increase represented the second consecutive advance, ending a nine-month string of up and down shifts. The erratic changes in prior months had left average job growth close to zero, but the new results showed a solid six-month average of 55k.

The soft results in prior months reflected respectable gains in the health-care sector that were largely offset by declines in other areas. However, job growth excluding health care also rose for the second consecutive month, and the six-month average moved into positive territory (although barely so, 1K). The construction industry has done well recently, and employment in wholesale and retail trade has improved as well. Employment in the business-services sector has inched up recently. Employment remained weak in financial services and information (motion pictures, publishing, internet-based services).

The unemployment rate was unchanged at 4.3 percent, but when calculated with more precision it showed an increase of almost 0.1 percentage point (4.337% versus 4.258% in March). The steady reading was soft in that both the labor force and employment as measured by the household survey declined, with the drop in employment exceeding the shift in the size of the labor force (-226K and -92k, respectively). The broad unemployment rate rose 0.2 percentage point to 8.2%, but it remained below the recent high of 8.7% in November of last year. A jump in the number of individuals working part time for economic reasons dominated a drop in the number of individuals marginally attached to the labor force (those that would like a job but are not actively searching).

The Bureau of Labor Statistics published an increase of 0.2% in average hourly earnings, but the change almost rounded down to 0.1% (0.161%). Most monthly changes in the past year have been in a range of 0.2% to 0.4%, with a slight downward drift developing recently. The year-over-year change in April totaled 3.6% versus readings close to 4.0% in most of 2025.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Nonfarm payrolls advance for the second consecutive month.
- Unemployment rate steady; average hourly earnings tame.

April Employment: Signs of Improvement

Economy in Brief: March 2009

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U.S. January Personal Savings Rate Highest Since 1995

U.S. January Personal Savings Rate Highest Since 1995