Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105g.jpg" align="left" border="0" height="265" width="353">
Retail sales fell again in September in the e-Zone. Retail
sales and vehicle registrations are on nearly opposite paths. Sales are
still falling while vehicle registrations bolstered by an assortment of
government programs have been spurred higher. All this stirs the pot of
controversy since in the EU Commission indices that describe the
various EMU sectors, consumer confidence and retailing tend to show the
highest relative scores. Based on the EU surveys it would seem that
consumer attitudes and retailing are leading EMU ahead, yet in terms of
the hard data on spending that matter most that does not seem to be
true. 
 

Partly this divergence is a question of looking at levels of
Vs changes. The levels of satisfaction assessed for the consumer and
retailing sector surveys by the EU Commission are high relative to
other sectors (though still low in absolute terms). For MFG and even
services the relative levels of the indices compared to normal times
are extremely low, but theses sectors had fallen hard in recession and
are now rising, or rising strongly as is the case with MFG and despite
their low ratings they are boosting growth the most. 
 

So far European recovery seems to have come on the back of the
industrial sector with rising output and orders but from an extremely
low level. But with the euro currency also rising in value Vs other
currencies, much of this demand seems to have been foreign-sourced thus
questioning how far Europe can go without participation from its own
consumers. The string of declines in retail sales raises that question
again. It may be that the auto incentive schemes have diverted some
spending from retail sales. But the European recovery cannot be based
simply on selling autos and exporting. We continue to look for life in
retailing to give optimism to the view of a sustained euro-recovery. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Euro Area
Retail Sales</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td colspan="3">SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Zone Total Value</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-3.0%</td>
<td>-3.3%</td>
<td>-4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food,Beverages,Tobacco</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>-1.8%</td>
<td>-2.1%</td>
<td>-2.1%</td>
</tr>
<tr>
<td class="firstcol" colspan="7">Registrations:</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Vehicle
Registration</td>
<td>6.7%</td>
<td>-6.8%</td>
<td>0.2%</td>
<td>-1.5%</td>
<td>33.3%</td>
<td>9.7%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Nonfood Country detail:
Volume</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany Value</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>1.5%</td>
<td>-3.4%</td>
<td>-3.9%</td>
<td>-4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK (EU) Volume</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>1.4%</td>
<td>3.3%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">The
EA 13 countries
are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia.</td>
</tr>
</tbody>
</table>
</body></html>

Retail sales fell again in September in the e-Zone. Retail sales and vehicle registrations are on nearly opposite paths. Sales are still falling while vehicle registrations bolstered by an assortment of government programs have been [...]

Retail Sales Continue to Sag as Auto Registrations See Stimulus

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105d.jpg" align="right" border="0" height="265" width="353">
The Labor
Department indicated that initial claims for unemployment insurance
fell moderately to 512,000 last week from a little-revised 532,000. The
latest figure represented material labor market improvement since it
was the lowest since the first week of January. Moreover, claims have
fallen sharply from the peak reached in March of 674,000 claims. The
four-week moving average of claims fell to 523,750 and the latest
weekly figure was lower than Consensus expectations for 520,000
claims.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105e.jpg" align="right" border="0" height="265" width="353">
Continuing claims for unemployment insurance during the latest
week fell 68,000 to their lowest level since late-March. The decline
reflects the improved job market but may also be a function of the
exhaustion of benefits. Continuing claims provide an indication of
workers' ability to find employment. The four-week average of
continuing claims fell modestly to 5,886,250 and have fallen 13.0% from
their peak. This series dates back to
1966.Extended benefits for unemployment insurance
rose moderately and reversed half of the prior week's decline. Through
early-October extended benefits averaged 551,355.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105f.jpg" align="right" border="0" height="265" width="353">
The insured rate of
unemployment held steady at 4.4% and matched its lowest since
late-March. The rate reached a high of 5.2% during late-June. During
the last ten years, there has been a 93% correlation between the level
of the insured unemployment rate and the overall rate of unemployment
published by the Bureau of Labor Statistics.The highest
insured unemployment rates in the week ending October 17 were in Puerto
Rico (6.4%), Nevada (5.4), Oregon (5.4), California (4.9), Pennsylvania
(4.9), Arkansas (4.8), Wisconsin (4.8), Michigan (4.7), Alaska (4.6),
North Carolina (4.6), and South Carolina (4.6). The lowest insured
unemployment rates were in North Dakota (1.0%), South Dakota (1.1),
Virginia (2.0), Wyoming (2.8), Maine (2.5), Texas (2.5), Colorado
(3.0), Maryland (3.0), Mississippi (3.6), New York (3.5), Florida
(3.7), and Georgia (3.8).The unemployment insurance claims data is
available in Haver's WEEKLY database and the state
data is in the REGIONW database.Asia
Recovering Rapidly, but Faces Challenges, says IMF from the
International Monetary Fund can be found <a href="http://www.imf.org/external/index.htm"> here</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">10/30/09</th>
<th scope="col">10/23/09</th>
<th scope="col">10/16/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>512</td>
<td>532</td>
<td>531</td>
<td>4.9%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,749</td>
<td>5,817</td>
<td>49.0%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>4.4</td>
<td>4.4</td>
<td>2.8 (10/2008)</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

The Labor Department indicated that initial claims for unemployment insurance fell moderately to 512,000 last week from a little-revised 532,000. The latest figure represented material labor market improvement since it was the lowest [...]

U.S. Weekly Initial Claims For Unemployment Insurance Lowest Since January

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105a.jpg" align="right" border="0" height="265" width="353">
The U.S. labor market is clearly signaling that the recession
is over. The magnitude of the 9.5% jump in nonfarm worker productivity
during 3Q'09 wasn't unprecedented for this early in a recovery. Its
size is noteworthy because the rise in output was moderate. The 3Q gain
in productivity followed a similarly firm 6.9% 2Q rise which was
little-revised. It was the strongest since 3Q'03 and outpaced Consensus
expectations for a 6.4% increase.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105b.jpg" align="right" border="0" height="265" width="353">
The gain in productivity occurred as output posted its first
increase in over a year. The moderate 4.0% rise was accompanied by a
continuation of the sharp decline in hours-worked (employment times
hours), which has been so much a part of this recession. The 5.0%
(-7.5% y/y) decline in hours-worked followed a 7.5% 2Q drop.
Compensation costs, however, improved with the gain in output
per hour. The 3.8% quarterly increase was the first gain in a year
though it left costs up just 0.5% y/y. That gain was nearly the weakest
since 1949.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105c.jpg" align="right" border="0" height="265" width="353">
The surge in productivity combined with a moderate increase in
compensation combined to further drop unit labor costs. The 5.2% q/q
decline was the third consecutive quarterly fall and it lowered the y/y
change to -3.6%, the sharpest since early-1950.
Surging worker productivity growth in the factory sector led
the overall gain in output-per-hour. The 13.6% (AR) quarterly increase
was a record and it lifted y/y growth to 3.1%, the highest since early
last year. The increase came as output rose at a 7.7% rate (-10.8% y/y)
and hours worked fell at a 5.2% rate (-13.5% y/y). Compensation rose
5.5% (5.5% y/y), therefore unit labor costs in the factory sector fell
at a 7.1% annual rate (+2.3% y/y).
The productivity &amp; cost figures are available in
Haver's USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm
Business Sector</a> (SAAR, %)</th>
<th scope="col">3Q '09</th>
<th scope="col">2Q '09</th>
<th scope="col">1Q '08</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">Output per Hour</td>
<td>9.5</td>
<td>6.9</td>
<td>0.3</td>
<td>4.3</td>
<td>1.8</td>
<td>1.9</td>
<td>0.9</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.8</td>
<td>0.3</td>
<td>-4.7</td>
<td>0.5</td>
<td>2.8</td>
<td>4.2</td>
<td>3.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-5.2</td>
<td>-6.1</td>
<td>-5.0</td>
<td>-3.6</td>
<td>1.0</td>
<td>2.3</td>
<td>2.8</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. labor market is clearly signaling that the recession is over. The magnitude of the 9.5% jump in nonfarm worker productivity during 3Q'09 wasn't unprecedented for this early in a recovery. Its size is noteworthy because the [...]

3Q U.S. Worker Productivity Surges -- Strongest Since 2003

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105a.jpg" align="right" border="0" height="265" width="353">
The U.S. labor market is clearly signaling that the recession
is over. The magnitude of the 9.5% jump in nonfarm worker productivity
during 3Q'09 wasn't unprecedented for this early in a recovery. Its
size is noteworthy because the rise in output was moderate. The 3Q gain
in productivity followed a similarly firm 6.9% 2Q rise which was
little-revised. It was the strongest since 3Q'03 and outpaced Consensus
expectations for a 6.4% increase.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105b.jpg" align="right" border="0" height="265" width="353">
The gain in productivity occurred as output posted its first
increase in over a year. The moderate 4.0% rise was accompanied by a
continuation of the sharp decline in hours-worked (employment times
hours), which has been so much a part of this recession. The 5.0%
(-7.5% y/y) decline in hours-worked followed a 7.5% 2Q drop.
Compensation costs, however, improved with the gain in output
per hour. The 3.8% quarterly increase was the first gain in a year
though it left costs up just 0.5% y/y. That gain was nearly the weakest
since 1949.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105c.jpg" align="right" border="0" height="265" width="353">
The surge in productivity combined with a moderate increase in
compensation combined to further drop unit labor costs. The 5.2% q/q
decline was the third consecutive quarterly fall and it lowered the y/y
change to -3.6%, the sharpest since early-1950.
Surging worker productivity growth in the factory sector led
the overall gain in output-per-hour. The 13.6% (AR) quarterly increase
was a record and it lifted y/y growth to 3.1%, the highest since early
last year. The increase came as output rose at a 7.7% rate (-10.8% y/y)
and hours worked fell at a 5.2% rate (-13.5% y/y). Compensation rose
5.5% (5.5% y/y), therefore unit labor costs in the factory sector fell
at a 7.1% annual rate (+2.3% y/y).
The productivity &amp; cost figures are available in
Haver's USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm
Business Sector</a> (SAAR, %)</th>
<th scope="col">3Q '09</th>
<th scope="col">2Q '09</th>
<th scope="col">1Q '08</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">Output per Hour</td>
<td>9.5</td>
<td>6.9</td>
<td>0.3</td>
<td>4.3</td>
<td>1.8</td>
<td>1.9</td>
<td>0.9</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.8</td>
<td>0.3</td>
<td>-4.7</td>
<td>0.5</td>
<td>2.8</td>
<td>4.2</td>
<td>3.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-5.2</td>
<td>-6.1</td>
<td>-5.0</td>
<td>-3.6</td>
<td>1.0</td>
<td>2.3</td>
<td>2.8</td>
</tr>
</tbody>
</table>
 U.S. Weekly Initial Claims For
Unemployment Insurance Lowest Since January 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 5, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105d.jpg" align="right" border="0" height="265" width="353">The Labor
Department indicated that initial claims for unemployment insurance
fell moderately to 512,000 last week from a little-revised 532,000. The
latest figure represented material labor market improvement since it
was the lowest since the first week of January. Moreover, claims have
fallen sharply from the peak reached in March of 674,000 claims. The
four-week moving average of claims fell to 523,750 and the latest
weekly figure was lower than Consensus expectations for 520,000
claims.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105e.jpg" align="right" border="0" height="265" width="353">Continuing
claims for unemployment insurance during the latest
week fell 68,000 to their lowest level since late-March. The decline
reflects the improved job market but may also be a function of the
exhaustion of benefits. Continuing claims provide an indication of
workers' ability to find employment. The four-week average of
continuing claims fell modestly to 5,886,250 and have fallen 13.0% from
their peak. This series dates back to
1966.
Extended benefits for unemployment insurance
rose moderately and reversed half of the prior week's decline. Through
early-October extended benefits averaged 551,355.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105f.jpg" align="right" border="0" height="265" width="353">The
insured rate of
unemployment held steady at 4.4% and matched its lowest since
late-March. The rate reached a high of 5.2% during late-June. During
the last ten years, there has been a 93% correlation between the level
of the insured unemployment rate and the overall rate of unemployment
published by the Bureau of Labor Statistics.
The highest
insured unemployment rates in the week ending October 17 were in Puerto
Rico (6.4%), Nevada (5.4), Oregon (5.4), California (4.9), Pennsylvania
(4.9), Arkansas (4.8), Wisconsin (4.8), Michigan (4.7), Alaska (4.6),
North Carolina (4.6), and South Carolina (4.6). The lowest insured
unemployment rates were in North Dakota (1.0%), South Dakota (1.1),
Virginia (2.0), Wyoming (2.8), Maine (2.5), Texas (2.5), Colorado
(3.0), Maryland (3.0), Mississippi (3.6), New York (3.5), Florida
(3.7), and Georgia (3.8).
The unemployment insurance claims data is
available in Haver's WEEKLY database and the state
data is in the REGIONW database.
Asia
Recovering Rapidly, but Faces Challenges, says IMF from the
International Monetary Fund can be found <a href="http://www.imf.org/external/index.htm"> here</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">10/30/09</th>
<th scope="col">10/23/09</th>
<th scope="col">10/16/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>512</td>
<td>532</td>
<td>531</td>
<td>4.9%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,749</td>
<td>5,817</td>
<td>49.0%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>4.4</td>
<td>4.4</td>
<td>2.8 (10/2008)</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>

 Retail Sales Continue to Sag as
Auto Registrations See Stimulus 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 5, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091105g.jpg" align="left" border="0" height="265" width="353">
Retail sales fell again in September in the e-Zone. Retail
sales and vehicle registrations are on nearly opposite paths. Sales are
still falling while vehicle registrations bolstered by an assortment of
government programs have been spurred higher. All this stirs the pot of
controversy since in the EU Commission indices that describe the
various EMU sectors, consumer confidence and retailing tend to show the
highest relative scores. Based on the EU surveys it would seem that
consumer attitudes and retailing are leading EMU ahead, yet in terms of
the hard data on spending that matter most that does not seem to be
true. 
 

Partly this divergence is a question of looking at levels of
Vs changes. The levels of satisfaction assessed for the consumer and
retailing sector surveys by the EU Commission are high relative to
other sectors (though still low in absolute terms). For MFG and even
services the relative levels of the indices compared to normal times
are extremely low, but theses sectors had fallen hard in recession and
are now rising, or rising strongly as is the case with MFG and despite
their low ratings they are boosting growth the most. 
 

So far European recovery seems to have come on the back of the
industrial sector with rising output and orders but from an extremely
low level. But with the euro currency also rising in value Vs other
currencies, much of this demand seems to have been foreign-sourced thus
questioning how far Europe can go without participation from its own
consumers. The string of declines in retail sales raises that question
again. It may be that the auto incentive schemes have diverted some
spending from retail sales. But the European recovery cannot be based
simply on selling autos and exporting. We continue to look for life in
retailing to give optimism to the view of a sustained euro-recovery. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Euro Area
Retail Sales</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td colspan="3">SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Zone Total Value</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-3.0%</td>
<td>-3.3%</td>
<td>-4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food,Beverages,Tobacco</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>-1.8%</td>
<td>-2.1%</td>
<td>-2.1%</td>
</tr>
<tr>
<td class="firstcol" colspan="7">Registrations:</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Vehicle
Registration</td>
<td>6.7%</td>
<td>-6.8%</td>
<td>0.2%</td>
<td>-1.5%</td>
<td>33.3%</td>
<td>9.7%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Nonfood
Country detail:
Volume</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany Value</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>1.5%</td>
<td>-3.4%</td>
<td>-3.9%</td>
<td>-4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK (EU) Volume</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>1.4%</td>
<td>3.3%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">The
EA 13 countries
are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia.</td>
</tr>
</tbody>
</table>
</body></html>

3Q U.S. Worker Productivity Surges-- Strongest Since 2003

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104k.jpg" width="353">
In an anticipated and unanimous vote, the Federal Open Market Committee today left the Federal funds rate in a &quot;range from 0 to 1/4 percent.&quot; The discount rate also was left unchanged at 0.5%. The action was as expected and left the Fed funds rate at its lowest level ever.
Citing economic improvement, the Fed stated that &quot;Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104l.jpg" width="353">
Continued strengthening of economic activity in a &quot;context of price stability&quot; was anticipated.
Regarding inflation the FOMC statement again indicated that &quot;With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.&quot;<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104m.jpg" width="353">
In its effort to promote economic liquidity, the Fed used similar language as during the last meeting. &quot;... the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
A complete text of the Fed&#39;s latest press release can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20091104a.htm">here</a>.
The Haver databases USECON, WEEKLY and DAILY contain the figures from the Federal Reserve Board.
The Determinants of International Flows of U.S. Currency from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr400.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>
</body>
</html>

In an anticipated and unanimous vote, the Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent." The discount rate also was left unchanged at 0.5%. The action was as expected and left the [...]

FOMC Cites Economic Improvement But Leaves Rates Unchanged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104j.jpg" width="353">
The outplacement firm of Challenger, Grey &amp; Christmas indicated that job cut announcements fell further last month to a new current cycle low. Layoffs dropped to 55,679, compared to a high of 241,748 cuts in January of this year.
During the last ten years there has been a 67% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment. Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Layoffs have moderated sharply in the chemical, consumer goods, financial, health care, media and telecommunication industries. They picked up modestly in the computer and entertainment/leisure industries.
The Challenger figures are available in Haver&#39;s SURVEYS 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/@S3/@S301/@S301.HTM" style="color:#000000">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">October</th>
<th scope="col">September</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>
<td class="firstcol">Announced Job Cuts</td>
<td>55,679</td>
<td>66,404</td>
<td>-50.7%</td>
<td>1,223,993</td>
<td>768,264</td>
<td>839,822</td>
</tr>
</tbody>
</table>
</body>
</html>

The outplacement firm of Challenger, Grey & Christmas indicated that job cut announcements fell further last month to a new current cycle low. Layoffs dropped to 55,679, compared to a high of 241,748 cuts in January of this year. [...]

Challenger Layoffs Moderate Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104g.jpg" width="353">
Improvement in service sector activity continued to be evident in the latest purchasing report. Though the October Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) ticked slightly lower to 50.6, it still was nearly its highest level since May of last year. The latest figure roughly equaled Consensus expectations. A level of the ISM index above 50 indicates rising overall service sector activity. Since the series&#39; inception in 1997 there has been a 64% correlation between the level of the composite index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104h.jpg" width="353">
ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997. The figures are available in Haver&#39;s USECON database.
Amongst the components, there was broad-based improvement tempered by a lower employment reading. The business activity index for the service sector remained above the break-even level of 50 for the third month. The new orders series also remained at its highest in two years, up from November&#39;s low of 35.6. The speed of vendor deliveries fell further (higher index level) to its slowest since January. Only the employment index deteriorated, falling to its lowest level since May. Since the series&#39; inception in 1997 there has been an 80% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104i.jpg" width="353">
Pricing power improved as the overall index moved back above 50. The pricing index ticked just slightly higher m/m to 53.0 but was up sharply from the December low of 36.1. Since its inception ten years ago, there has been a 73% correlation between the price index and the q/q change in the GDP services chain price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM" style="color:#000000">ISM Nonmanufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct. &#39;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>50.6</td>
<td>50.9</td>
<td>48.4</td>
<td>44.6</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Business Activity</td>
<td>55.2</td>
<td>55.1</td>
<td>51.3</td>
<td>44.5</td>
<td>47.4</td>
<td>56.0</td>
<td>58.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>55.6</td>
<td>54.2</td>
<td>49.9</td>
<td>44.3</td>
<td>47.0</td>
<td>54.8</td>
<td>57.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>41.1</td>
<td>44.3</td>
<td>43.5</td>
<td>41.7</td>
<td>43.8</td>
<td>52.0</td>
<td>53.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Supplier Deliveries</td>
<td>50.5</td>
<td>50.0</td>
<td>49.0</td>
<td>48.0</td>
<td>51.1</td>
<td>51.1</td>
<td>53.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Index</td>
<td>53.0</td>
<td>48.8</td>
<td>63.1</td>
<td>53.3</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>
</body>
</html>

Improvement in service sector activity continued to be evident in the latest purchasing report. Though the October Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) ticked slightly lower to [...]

U.S. ISM Nonmanufacturing Index Ticks Lower But Stays Near May '08 High

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104f.jpg" align="left" border="0" height="265" width="353">
The EMU services PMI rose for the fourth month in a row. The
services index is above the 50 mark for the second month running. The
services PMI is on a tear as it is surging up at least as fast as it
had dropped in the recession. So far so good. Still it has not restored
the pre-recession level of the services index. It remains pure
speculation as to how fast or soon it will recoup its pre-recession
level.
The Markit PMI readings are higher and stronger in their
ranges than are their counterpart indices from the European Commission.
The EMU index from Markit for the service sector is in the 59th
percentile of its range since May of 2000. Over the same period the EU
Commission services index is in its 31st percentile about half as
strong in relative terms.
The same sort of shortfalls exist across countries
In the Markit framework all the largest countries&#8217; services
sectors score above the 50 (neutral) mark except Spain whose index
still lags at 47.7. But in percentile of range terms it is Germany that
is lagging and stands below the mid-point mark. Germany is doing well
in absolute terms but it is not doing well relative to its past
performance.
On balance the rise in the services sector is sharp and still
seems to carry good upward momentum. This month among the larger
countries only Germany backtracked. In the EU the UK&#8217;s reading is up to
56.9 and stands in the 82nd percentile (top 18%) of its range. The
recovery across Europe is taking hold in the key services sector where
most of the jobs are. It&#8217;s good news. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="" col="">Markit
Services Indices for EU/EMU</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Area</td>
<td>52.58</td>
<td>50.86</td>
<td>49.92</td>
<td>51.12</td>
<td>48.09</td>
<td>44.93</td>
<td>59.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>50.73</td>
<td>52.06</td>
<td>53.82</td>
<td>52.20</td>
<td>49.18</td>
<td>46.61</td>
<td>47.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>57.71</td>
<td>53.16</td>
<td>49.30</td>
<td>53.39</td>
<td>50.20</td>
<td>46.74</td>
<td>69.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>52.20</td>
<td>48.53</td>
<td>46.42</td>
<td>49.05</td>
<td>46.18</td>
<td>43.08</td>
<td>57.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>47.74</td>
<td>46.39</td>
<td>45.34</td>
<td>46.49</td>
<td>43.44</td>
<td>38.41</td>
<td>59.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ireland</td>
<td>47.37</td>
<td>45.46</td>
<td>46.71</td>
<td>46.51</td>
<td>43.95</td>
<td>38.67</td>
<td>42.4%</td>
</tr>
<tr class="even">
<td colspan="8" class="firstcol">EU only</td>
</tr>
<tr class="odd">
<td class="firstcol">UK (CIPs)</td>
<td>56.90</td>
<td>55.30</td>
<td>54.07</td>
<td>55.42</td>
<td>53.81</td>
<td>48.58</td>
<td>82.1%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">EU Commission Indices for
EU and EMU</td>
</tr>
<tr class="even">
<td class="firstcol">EU Index</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">EU Services</td>
<td>-11</td>
<td>-11</td>
<td>-11</td>
<td>-19.67</td>
<td>-22.50</td>
<td>-26.75</td>
<td>43.2%</td>
</tr>
<tr class="even">
<td class="firstcol">EMU</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-7</td>
<td>-9</td>
<td>-11</td>
<td>-9.00</td>
<td>-14.67</td>
<td>-19.67</td>
<td>31.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Cons Confidence</td>
<td>-18</td>
<td>-19</td>
<td>-22</td>
<td>-19.67</td>
<td>-22.50</td>
<td>-22.03</td>
<td>43.2%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Consumer confidence by
country</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany-Ccon</td>
<td>-16</td>
<td>-19</td>
<td>-23</td>
<td>-19.33</td>
<td>-24.17</td>
<td>-25.67</td>
<td>39.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France-Ccon</td>
<td>-21</td>
<td>-24</td>
<td>-32</td>
<td>-25.67</td>
<td>-27.50</td>
<td>-31.00</td>
<td>40.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ital-Ccon</td>
<td>-18</td>
<td>-16</td>
<td>-15</td>
<td>-16.33</td>
<td>-18.33</td>
<td>-23.17</td>
<td>40.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK-Ccon</td>
<td>-8</td>
<td>-10</td>
<td>-16</td>
<td>-11.33</td>
<td>-14.83</td>
<td>-21.67</td>
<td>71.1%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">percentile is over range since May
2000</td>
</tr>
</tbody>
</table>
</body></html>

The EMU services PMI rose for the fourth month in a row. The services index is above the 50 mark for the second month running. The services PMI is on a tear as it is surging up at least as fast as it had dropped in the recession. So [...]

Service Sector In Europe Continues To Dig Out

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

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Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tension Beneath the Surface

Michael J. Moran

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

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

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

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

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

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

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

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Sandy Batten

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

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

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

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

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

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

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

Surging Energy Prices Push Up PCE Prices and Consumption in March

Kathleen Stephansen, CBE

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

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

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 11, the highest unemployment rates were in New Jersey (2.51%), Washington (2.25%), Massachusetts (2.21%), Rhode Island (2.10%), and California (2.06%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas, North Carolina and Mississippi (all 0.35%), Alabama (0.36%), South Dakota (0.41%) and Tennessee (0.43%). Rates in other notable states include New York (1.96%), Illinois (1.77%), Pennsylvania (1.40%), and Texas (1.04%). These state data are not seasonally adjusted.

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

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

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

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

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

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

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

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

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

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

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

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

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

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