Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318a.jpg" align="right" border="0" height="265" width="353">Last
year's sharp decline in energy prices came to an abrupt end with the
turn of the calendar page to 2009; and the consumer price index
published by the Bureau of Labor Statistics (along with consumers'
wallets) noted the shift. During February, the CPI rose for only the
second time since July. The 0.4% increase followed an unrevised 0.3%
January gain as a 3.3% rise in energy prices roughly doubled their
January increase. The latest increase in the CPI&nbsp; slightly
outpaced Consensus expectations for a 0.3% rise.
The increase in
energy prices reflected higher gasoline prices which jumped by 8.3%
following the 6.0% January rise. Despite these gains, however, prices
are more than one-third lower versus last February. This month gasoline
prices have held the higher February level of $1.92 per gallon of
regular but this week have moved even higher. Offsetting some of that
upward pressure have been lower fuel oil prices. They fell 1.8% last
month (-21.4% y/y) and have fallen in each month since July. Similarly,
prices for natural gas &amp; electricity have fallen in all but one
of the last seven months though they still are 5.7% higher than last
February.
Some of that upward pressure has been relieved by a
moderation in food &amp; beverage price increases. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318b.jpg" align="right" border="0" height="265" width="353">
Prices actually
slipped 0.1% last month after 0.1% upticks during January and&nbsp;
December. Nevertheless, food prices still are a firm 4.7% higher than
last year but that's versus a 6.3% comparison this past fall. Recent
weakness has been led by lower dairy product prices (-1.7% y/y) and
five consecutive months of slight decline in meat and dairy product
prices (+4.2% y/y).
Core prices (CPI less food and energy)
rose for the second month by 0.2%. Those gains were the strongest since
August and moved the year-to-year increase up slightly to
1.8%.
 Core goods prices increased a firm
0.4% and that was enough to lift the three-month change to 1.2% (AR),
its highest since last August. Prices of new &amp; used motor
vehicles rose 0.5% (-2.5% y/y) while apparel prices jumped 1.3% (0.8%
y/y). Prices for household furnishings &amp; operations firmed by
0.2% after the slight January decline and the y/y change remained
healthy at 1.9%. Tobacco prices again were quite strong and rose 0.7%
to leave them up 6.3% y/y. 
 Gains in core services prices moderated
even further and posted a 0.1% uptick. The three-month rate of increase
remained a low at 1.6% (AR) after growing at a 3.9% rate this past
summer. That moderation owes mostly to weakness in the housing market
which caused February shelter prices to fall slightly. That was enough
to pull the three-month change down to 0.7%. Owners equivalent rent of
primary residence, a measure not equivalent to other house price
measures, ticked up 0.1% (2.1% y/y). <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318c.jpg" align="right" border="0" height="265">
The increase in medical care
services prices fell back to 0.3% (3.1% y/y) while education costs rose
a moderate 0.4% (5.5% y/y).&nbsp; Public transportation prices fell
hard like they did during the prior month by 1.9%. They were down for
the sixth consecutive period (-1.8% y/y). The increase in recreation
prices held firm at 0.4% (1.9% y/y). v The chained CPI, which adjusts
for shifts in consumption patterns, rose 0.6%, about as it did during
January. Less food and energy, chained prices firmed even more and
doubled the January increase of 0.2%. 
 The consumer price data is
available in Haver's USECON database while detailed
figures can be found in the CPIDATA database. 
The
Impact of Credit Easing So Far from the Federal Reserve Bank
of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2009/0309/02monpol.cfm">here</a>.&nbsp;
<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/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>0.4</td>
<td>0.3</td>
<td>0.1</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.4</td>
<td>0.1</td>
<td>-0.0</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>0.2</td>
<td>2.5</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>3.3</td>
<td>1.7</td>
<td>-19.1</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.1</td>
<td>0.1</td>
<td>4.7</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.6</td>
<td>0.5</td>
<td>-0.3 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.4</td>
<td>0.2</td>
<td>1.3</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>

FOMC Leaves Rates Unchanged At
Historically Low Level; Fed's Balance Sheet Expanded 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 18, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318d.jpg" align="right" border="0" height="265" width="353">In an anticipated move the
Federal Open Market Committee today
left the Federal funds rate in a "range from 0 to 1/4
percent."&nbsp; The discount also was left unchanged at
0.50%.&nbsp; The Fed funds rate remained the lowest ever.
Regarding economic liquidity, the Fed focused on the housing
market indicating that "To provide greater support to mortgage lending
and housing markets, the Committee decided today to increase the size
of the Federal Reserve&#8217;s balance sheet further by purchasing up to an
additional $750 billion of agency mortgage-backed securities, bringing
its total purchases of these securities to up to $1.25 trillion this
year, and to increase its purchases of agency debt this year by up to
$100 billion to a total of up to $200 billion."&nbsp; Additional
action to provide liquidity also was taken.
Regarding economic growth, the Fed indicated that "that the
economy continues to contract.&nbsp; Job losses, declining equity
and housing wealth, and tight credit conditions have weighed on
consumer sentiment and spending.&nbsp; Weaker sales prospects and
difficulties in obtaining credit have led businesses to cut back on
inventories and fixed investment."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318e.jpg" align="right" border="0" height="265" width="353">

"... the Committee anticipates that policy actions to
stabilize financial markets and institutions, together with fiscal and
monetary stimulus, will contribute to a gradual resumption of
sustainable economic growth."
Regarding inflation the same statement was offered as at the
last meeting. "... that inflation will remain subdued.&nbsp;
Moreover, the Committee sees some risk that inflation could persist for
a time below rates that best foster economic growth and price stability
in the longer term.
The decision was unanimous amongst FOMC voters.
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm">link</a>.
The Fed's effort to liquefy the economic system has
succeeded.&nbsp; Growth in the money supply measure M2 has been
running at double-digit rates versus five-to-six percent from 2006 and
during all of 2008.&nbsp; Over the last three months growth in MZM
(M2 less time deposits, plus all money market funds) has been 22%
versus 14% during all of last year and 9% during 2007.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318f.jpg" align="right" border="0" height="265" width="353">
Growth
in the monetary base ran at a 32% annual rate from November to March
after the level of the base doubled last autumn.&nbsp; This year,
the bond market has met these liquidity injections with uncertainty but
on balance has been not overly concerned about the eventual
inflationary consequences.
The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.&nbsp;
Credit and Liquidity Programs and the Balance Sheet
from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/monetarypolicy/bst.htm">here.</a>
G-20 Asks IMF to Track, Assess Global Crisis Response
is a recent article published in the IMF Survey Magazine: In
the News and it can be found <a href="http://www.imf.org/external/pubs/ft/survey/so/2009/NEW031409A.htm">here</a>.&nbsp;
<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>

January IP Drops but the Pace of
Decline Slows 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 18, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318g.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s industrial production (IP) dropped again in January
but the decline was puny in comparison with the recent string of
monthly disasters. This month&#8217;s drop of 0.2% keeps the string of
declines alive but, ironically, gives some room for hope to come alive
that these declines will not go on forever. 
 

The declines in the quarter&#8211;to-date are still quite severe &#8211;
despite the small drop in January. That&#8217;s because the level of
industrial activity at the end of the quarter in Q4-2008 is so low that
the first month of 2009 leaves the early quarter reading at a very low
level compared to the Q4 2008 average level. 
 

All the main sectors industrial sectors have been showing
strong declines. Italy&#8217;s GDP has been dropping and its neighbors in the
Euro Area are experiencing continuing weakness. It is far too early to
treat the smaller IP decline in Italy as the beginning of good news on
the industrial front. The news is welcome but the good news is the
first such news and appears totally out of context and so far without
support elsewhere. Generally this is not the sector where you expect to
see good new appear first. 
 


 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy IP
Excluding Construction</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-date</td>
</tr>
<tr>
<td class="firstcol">IP-MFG</td>
<td>-0.2%</td>
<td>-2.7%</td>
<td>-3.2%</td>
<td>-21.9%</td>
<td>-20.7%</td>
<td>-14.6%</td>
<td>-17.2%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-1.7%</td>
<td>-0.9%</td>
<td>0.4%</td>
<td>-8.5%</td>
<td>-8.4%</td>
<td>-8.2%</td>
<td>-12.3%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.5%</td>
<td>-3.5%</td>
<td>-2.9%</td>
<td>-21.3%</td>
<td>-19.5%</td>
<td>-15.0%</td>
<td>-15.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-2.0%</td>
<td>-4.7%</td>
<td>-3.5%</td>
<td>-33.9%</td>
<td>-30.9%</td>
<td>-21.8%</td>
<td>-32.2%</td>
</tr>
</tbody>
</table>
</body></html>

Last year's sharp decline in energy prices came to an abrupt end with the turn of the calendar page to 2009; and the consumer price index published by the Bureau of Labor Statistics (along with consumers' wallets) noted the shift. [...]

Higher Energy Prices Lift U.S. CPIBy Most Since July; Core Pricing Power Firm

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317h.jpg" align="right" border="0" height="265" width="353">
The German investors and analysts who participated in the ZEW
survey conducted between March 2 and March 16, were slightly less
pessimistic about expectations six months ahead and slightly more
pessimistic about current conditions. The excess of pessimists over
optimists regarding the outlook declined from 5.8% in February to 3.5%
in March, while the excess of pessimists regarding current conditions
increased from 86.2% in February to 89.4% in March. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317i.jpg" align="right" border="0" height="265" width="353">
The percent
balances on current conditions and expectations are shown in the first
chart.
The release of the January data for new orders in
manufacturing and industrial production during the period of the
survey, provided little evidence that current economic conditions were
improving. Industrial production fell 7.5% in the month of January and
new orders were down 8.0%. The year over year declines in new orders
and industrial production, shown in the second chart, are significantly
greater than those of the last recession.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317j.jpg" align="right" border="0" height="265" width="353">

The reduction from 2% to 1.5% in its key interest rate by the
European Central Bank on March 5 may have played a role in the slight
improvement in the participants expectations of the outlook six months
ahead. And the stock market stopped declining. From March 2 to March
16, the Frankfurt Xetra Dax Index rose 9%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMANY</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb 09</th>
<th scope="col">Jan&nbsp; 09&nbsp;</th>
<th scope="col">Dec 08&nbsp;</th>
<th scope="col">Nov 08</th>
<th scope="col">Oct O8</th>
<th scope="col">Sep 08</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">ZEW SURVEY&nbsp;(%
balance)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions </td>
<td>-89.4</td>
<td>-86.2</td>
<td>-77.1</td>
<td>-64.5</td>
<td>-50.4</td>
<td>-35.9</td>
<td>-1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations 6 months
ahead</td>
<td>-3.5</td>
<td>-5.8</td>
<td>-31.0</td>
<td>-45.2</td>
<td>-53.5</td>
<td>-63.0</td>
<td>-41.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Profit Expectations
Telecommunications</td>
<td>-16.1</td>
<td>-20.2</td>
<td>-28.3</td>
<td>-27.7</td>
<td>-29.7</td>
<td>-35.7</td>
<td>-12.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Profit Expectations
Vehicle/Car</td>
<td>-70.2</td>
<td>-75.3</td>
<td>-90.3</td>
<td>-89.3</td>
<td>-94.6</td>
<td>-91.7</td>
<td>-51.7</td>
</tr>
<tr class="even">
<td class="firstcol">Industrial Production
(Y/Y %)&nbsp;</td>
<td>N. A.</td>
<td>N. A.</td>
<td>-19.24</td>
<td>-11.58</td>
<td>-7.25</td>
<td>-3.53</td>
<td>-1.50</td>
</tr>
<tr>
<td class="firstcol">&nbsp;New Orders
Manufacturing&nbsp; (Y/Y %)</td>
<td>N. A.</td>
<td>N. A.</td>
<td>-35.11</td>
<td>-30.5</td>
<td>-26.07</td>
<td>-18.80</td>
<td>-9.80</td>
</tr>
</tbody>
</table>
</body></html>

The German investors and analysts who participated in the ZEW survey conducted between March 2 and March 16, were slightly less pessimistic about expectations six months ahead and slightly more pessimistic about current conditions. [...]

ZEW Survey: German Finance Types More Pessimistic On Current Conditions, Less Pessimistic On Expectations

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317f.jpg" width="353">
Regular gasoline prices dipped last week to $1.91 per gallon. That&#39;s at the bottom end of the $1.89 to $1.96 range in place since early February. Nevertheless the latest was up 30 cents from the December low. Yesterday, the spot market price for regular gasoline rose from Friday to $1.27 per gallon, up from $1.20 averaged last week. These prices compare to those that were slightly below $1.00 at the end of last year. The figures are reported by the U.S. Department of Energy.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
Gasoline demand has recovered due to the earlier declines in prices. The latest y/y change of -0.8% moderated from the 4.8% rate of decline seen last October. (Gasoline prices at the time were just off their peak.) The change in demand is measured using the latest four weeks versus the same four weeks in 2008. Demand for all petroleum products was down 2.1% y/y after the -8.0% comparison last October. These numbers are available in Haver&#39;s OILWKLY database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317g.jpg" width="353">
The rise in gasoline prices reflects the modest firming of crude oil prices. For a barrel of West Texas Intermediate crude oil, prices rose last week to $45.68, up 41% from the December low of $32.37 per barrel. Prices reached a high of $145.66 last July. In futures trading yesterday, the one-month price for crude oil rose even further to $47.35 per barrel.
The price of natural gas continued to slide last week with a sharp decline to $3.88 per mmbtu (-60.2% y/y), the lowest level since 2002. The latest average price was down more than two-thirds from the high reached in early-July of $13.19/mmbtu.
Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">03/16/09</th>
<th scope="col">03/09/09</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">Retail Regular Gasoline ($ per Gallon, Regular)</td>
<td>1.91</td>
<td>1.94</td>
<td>-41.8%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>45.68</td>
<td>43.26</td>
<td>-58.3%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
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Regular gasoline prices dipped last week to $1.91 per gallon. That's at the bottom end of the $1.89 to $1.96 range in place since early February. Nevertheless the latest was up 30 cents from the December low. Yesterday, the spot [...]

U.S. Gasoline Prices Dip While Crude Oil Prices Rise

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317d.jpg" width="353">
The severe downturn in housing starts took a breather last month as starts of multi-family homes nearly doubled. The Commerce Department indicated that total housing starts for February rose 22.2% from January to 583,000 (AR). January starts were revised up slightly and the latest figure compares to Consensus expectations for 450,000 starts.
Starts of multi-family homes rose 82.3%. That followed four consecutive months of sharp decline and returned starts to the highest level since October.
More indicative of the condition of the housing market is starts of single-family homes. Though they rose 1.0% last month to 357,000 (AR), starts remained near the record low for the series which dates back to 1959. The latest level is down eighty percent since the peak in early 2006. Permits to build single-family homes, a leading indicator of starts, rose and reversed their January decrease. However, they remained off by more than one-third over just the last three months. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317e.jpg" width="353">
By region, starts of single-family units in the Northeast reversed their January collapse and rose by 54.2%. Nevertheless, that gain left them still off by nearly one half from the year ago level. Starts in the Midwest rose a lesser 12.8% (-51.8 % y/y) after their sharp 21.7% January falloff. In the South, starts also reversed the January decline and rose a modest 2.5% (-45.7% y/y). In the West, starts ran counter to the m/m trend in the rest of the country and fell by nearly one quarter (-62.7% y/y). That followed a slight January increase.
The housing starts figures can be found in Haver&#39;s USECON database.
Quick Exits of Subprime Mortgages from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/03/Demyanyk.pdf"> here</a>.
Facts and Myths about the Financial Crisis of 2008 from Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/WP/WP666.pdf">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">Housing Starts (000s, SAAR)</th>
<th scope="col">February</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">Total</td>
<td>583</td>
<td>477</td>
<td>558</td>
<td>-47.3%</td>
<td>903</td>
<td>1,341</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>357</td>
<td>353</td>
<td>394</td>
<td>-50.6</td>
<td>617</td>
<td>1,034</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>226</td>
<td>124</td>
<td>164</td>
<td>-41.3</td>
<td>286</td>
<td>307</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>547</td>
<td>531</td>
<td>547</td>
<td>-44.2</td>
<td>880</td>
<td>1,389</td>
<td>1,844</td>
</tr>
</tbody>
</table>
</body>
</html>

The severe downturn in housing starts took a breather last month as starts of multi-family homes nearly doubled. The Commerce Department indicated that total housing starts for February rose 22.2% from January to 583,000 (AR). January [...]

Surprising Rebound In U.S. Housing Starts Owes To Multi-Family

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317a.jpg" align="right" border="0" height="265" width="353">
U.S.
producer prices for finished goods increased a modest 0.1% last month.
The slim gain offset last month's upside surprise of 0.8%, which was
unrevised. Moreover, it contrasted with Consensus expectations for a
0.4% gain.Much of the reason for the latest moderation was a slimmer
0.2% rise in prices less food &amp; energy which followed the
strong 0.4% January increase. A 0.1% has been expected. Prices of core
finished consumer goods rose 0.4% last month (4.1% y/y). Durable
consumer goods prices increased 0.2% (3.0% y/y) while core nondurable
goods prices increased another firm 0.5% (5.1% y/y). Finally, the gain
in monthly capital equipment prices eased to 0.1% after a 0.5% January
jump but the 3.7% increase y/y remained the strongest since 1991.· A
1.3% increase (-19.3% y/y) in finished energy prices moderated from the
3.7% rise during January. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317b.jpg" align="right" border="0" height="265" width="353">
The rise in gasoline prices moderated to 8.7%
from a 15% spike in January (42.4% y/y) and home heating oil prices
reversed all of their January increase with a 7.2% decline (-46.4%
y/y). Natural gas prices fell 3.61% (-2.4% y/y). Prices for finished
foods continued weak and they posted a 1.6% decline (+0.9% y/y), the
third consecutive down month. The drop was led by lower meat (-3.8%
y/y) and dairy product costs (-15.3% y/y).Prices for intermediate
goods continued downward and continued to hold promise for weaker
finished goods prices. Intermediate goods prices fell 0.9% during
February and are down 5.6% year-to-year, the weakest since 1949.
Excluding food &amp; energy, prices also were quite weak dropping
0.6%, the fifth consecutive monthly decline. The 0.1% y/y decline was
the weakest comparison since 2002. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317c.jpg" align="right" border="0" height="265" width="353">
The crude materials PPI
fell with the economy's loss of momentum. The 4.5% decline in the total
was led by an 8.5% drop (-48.3% y/y) in energy prices. Crude food
prices continued lower by 3.9% (-19.5% y/y) after the brief 1.0% rise
during January. Less food &amp; energy, January crude prices rose
by 1.5% on the strength of higher metals prices.The Producer Price
Index data is available in Haver's USECON database.
More detailed data is in the PPI and in the PPIR
databases. Foreign Direct Investment, Productivity, and
Country Growth: An Overview from the Federal Reserve Bank of
St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/03/Contessi.pdf">
here</a>.&nbsp;
<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/@E8/@E802/@E80201/@E80201.HTM">Producer
Price Index</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</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">Finished Goods</td>
<td>0.1</td>
<td>0.8</td>
<td>-1.6</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.9</td>
<td>-0.7</td>
<td>-5.6</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.6</td>
<td>-1.1</td>
<td>-0.1</td>
<td>7.6</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-4.5</td>
<td>-2.9</td>
<td>-34.7</td>
<td>21.2</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.5</td>
<td>0.1</td>
<td>&nbsp;-29.4</td>
<td>15.0</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>
</body></html>

U.S. producer prices for finished goods increased a modest 0.1% last month. The slim gain offset last month's upside surprise of 0.8%, which was unrevised. Moreover, it contrasted with Consensus expectations for a 0.4% gain.Much of [...]

U.S. Finished Goods PPI Rises Modestly; "Downstream" Pricing Remains Weak

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317a.jpg" align="right" border="0" height="265" width="353">U.S.
producer prices for finished goods increased a modest 0.1% last month.
The slim gain offset last month's upside surprise of 0.8%, which was
unrevised. Moreover, it contrasted with Consensus expectations for a
0.4% gain.
Much of the reason for the latest moderation was a slimmer
0.2% rise in prices less food &amp; energy which followed the
strong 0.4% January increase. A 0.1% has been expected. Prices of core
finished consumer goods rose 0.4% last month (4.1% y/y). Durable
consumer goods prices increased 0.2% (3.0% y/y) while core nondurable
goods prices increased another firm 0.5% (5.1% y/y). Finally, the gain
in monthly capital equipment prices eased to 0.1% after a 0.5% January
jump but the 3.7% increase y/y remained the strongest since 1991.· A
1.3% increase (-19.3% y/y) in finished energy prices moderated from the
3.7% rise during January. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317b.jpg" align="right" border="0" height="265" width="353">
The rise in gasoline prices moderated to 8.7%
from a 15% spike in January (42.4% y/y) and home heating oil prices
reversed all of their January increase with a 7.2% decline (-46.4%
y/y). Natural gas prices fell 3.61% (-2.4% y/y).
 Prices for finished
foods continued weak and they posted a 1.6% decline (+0.9% y/y), the
third consecutive down month. The drop was led by lower meat (-3.8%
y/y) and dairy product costs (-15.3% y/y).
Prices for intermediate
goods continued downward and continued to hold promise for weaker
finished goods prices. Intermediate goods prices fell 0.9% during
February and are down 5.6% year-to-year, the weakest since 1949.
Excluding food &amp; energy, prices also were quite weak dropping
0.6%, the fifth consecutive monthly decline. The 0.1% y/y decline was
the weakest comparison since 2002.
 <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317c.jpg" align="right" border="0" height="265" width="353">The crude
materials PPI
fell with the economy's loss of momentum. The 4.5% decline in the total
was led by an 8.5% drop (-48.3% y/y) in energy prices. Crude food
prices continued lower by 3.9% (-19.5% y/y) after the brief 1.0% rise
during January. Less food &amp; energy, January crude prices rose
by 1.5% on the strength of higher metals prices.
The Producer Price
Index data is available in Haver's USECON database.
More detailed data is in the PPI and in the PPIR
databases.
 Foreign Direct Investment, Productivity, and
Country Growth: An Overview from the Federal Reserve Bank of
St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/03/Contessi.pdf">
here</a>.&nbsp;
<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/@E8/@E802/@E80201/@E80201.HTM">Producer
Price Index</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</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">Finished Goods</td>
<td>0.1</td>
<td>0.8</td>
<td>-1.6</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.9</td>
<td>-0.7</td>
<td>-5.6</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.6</td>
<td>-1.1</td>
<td>-0.1</td>
<td>7.6</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-4.5</td>
<td>-2.9</td>
<td>-34.7</td>
<td>21.2</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.5</td>
<td>0.1</td>
<td>&nbsp;-29.4</td>
<td>15.0</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>

U.S. Finished Goods PPI Rises
Modestly; "Downstream" Pricing Remains Weak 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 17, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317d.jpg" align="left" border="0" height="265" width="353">
The severe downturn in housing starts took a breather last
month as starts of multi-family homes nearly doubled. The Commerce
Department indicated that total housing starts for February rose 22.2%
from January to 583,000 (AR). January starts were revised
up slightly and the latest figure compares to Consensus expectations
for 450,000 starts.
Starts of multi-family homes rose 82.3%. That followed four
consecutive months of sharp decline and returned starts to the highest
level since October.
More indicative of the condition of the housing market is
starts of single-family homes. Though they rose 1.0% last month to
357,000 (AR), starts remained near the record low for the series which
dates back to 1959. The latest level is down eighty percent since the
peak in early 2006. Permits to build
single-family homes, a leading indicator of starts, rose
and reversed their January decrease. However, they remained off by more
than one-third over just the last three months. During the
last ten years, there has been an 84% correlation between the q/q
change in single-family starts and their contribution to quarterly GDP
growth.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317e.jpg" align="right" border="0" height="265" width="353">
By region, starts of single-family units in the Northeast
reversed their January collapse and rose by 54.2%. Nevertheless, that
gain left them still off by nearly one half from the year ago level.
Starts in the Midwest rose a lesser 12.8% (-51.8 % y/y) after their
sharp 21.7% January falloff. In the South, starts also reversed the
January decline and rose a modest 2.5% (-45.7% y/y). In the West,
starts ran counter to the m/m trend in the rest of the country and fell
by nearly one quarter (-62.7% y/y). That followed a slight January
increase.
The housing starts figures can be found in Haver's USECON
database.
Quick Exits of Subprime Mortgages from the
Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/03/Demyanyk.pdf">
here</a>.
Facts and Myths about the Financial Crisis of 2008
from Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/WP/WP666.pdf">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">Housing
Starts (000s, SAAR)</th>
<th scope="col">February</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">Total</td>
<td>583</td>
<td>477</td>
<td>558</td>
<td>-47.3%</td>
<td>903</td>
<td>1,341</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>357</td>
<td>353</td>
<td>394</td>
<td>-50.6</td>
<td>617</td>
<td>1,034</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>226</td>
<td>124</td>
<td>164</td>
<td>-41.3</td>
<td>286</td>
<td>307</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>547</td>
<td>531</td>
<td>547</td>
<td>-44.2</td>
<td>880</td>
<td>1,389</td>
<td>1,844</td>
</tr>
</tbody>
</table>
Surprising Rebound In U.S. Housing
Starts Owes To Multi-Family 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 17, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317f.jpg" align="left" border="0" height="265" width="353">
Regular gasoline prices dipped last week
to $1.91 per gallon. That's at the bottom end of the $1.89 to $1.96
range in place since early February. Nevertheless the latest was up 30
cents from the December low. Yesterday, the spot market price for
regular gasoline rose from Friday to $1.27 per gallon, up from $1.20
averaged last week. These prices compare to those that were slightly
below $1.00 at the end of last year. The figures are reported by the
U.S. Department of Energy.
Weekly gasoline prices can be found in Haver's WEEKLY
database. Daily prices are in the DAILY
database.
Gasoline demand has recovered due to the
earlier declines in prices. The latest y/y change of -0.8% moderated
from the 4.8% rate of decline seen last October. (Gasoline prices at
the time were just off their peak.) The change in demand is measured
using the latest four weeks versus the same four weeks in 2008. Demand
for all petroleum products was down 2.1% y/y after
the -8.0% comparison last October. These numbers are available in
Haver's OILWKLY database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317g.jpg" align="right" border="0" height="265" width="353">
The rise in gasoline prices reflects the modest firming of
crude oil prices. For a barrel of West Texas Intermediate crude
oil, prices rose last week to $45.68, up 41% from the
December low of $32.37 per barrel. Prices reached a high of $145.66
last July. In futures trading yesterday, the one-month price for crude
oil rose even further to $47.35 per barrel.
The price of natural gas continued to slide last week with a
sharp decline to $3.88 per mmbtu (-60.2% y/y), the lowest level since
2002. The latest average price was down more than two-thirds from the
high reached in early-July of $13.19/mmbtu.
Changes in U.S.
Family Finances from 2004 to 2007: Evidence from the Survey of Consumer
Finances from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">03/16/09</th>
<th scope="col">03/09/09</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">Retail Regular Gasoline ($ per
Gallon, Regular)</td>
<td>1.91</td>
<td>1.94</td>
<td>-41.8%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>45.68</td>
<td>43.26</td>
<td>-58.3%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
ZEW Survey: German Finance Types
More Pessimistic On Current Conditions, Less Pessimistic On
Expectations 
by <a href="/comment/Curley.html">Louise
Curley</a> March 17, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317h.jpg" align="right" border="0" height="265" width="353">The German investors and
analysts who participated in the ZEW
survey conducted between March 2 and March 16, were slightly less
pessimistic about expectations six months ahead and slightly more
pessimistic about current conditions. The excess of pessimists over
optimists regarding the outlook declined from 5.8% in February to 3.5%
in March, while the excess of pessimists regarding current conditions
increased from 86.2% in February to 89.4% in March. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317i.jpg" align="right" border="0" height="265" width="353">
The percent
balances on current conditions and expectations are shown in the first
chart.
The release of the January data for new orders in
manufacturing and industrial production during the period of the
survey, provided little evidence that current economic conditions were
improving. Industrial production fell 7.5% in the month of January and
new orders were down 8.0%. The year over year declines in new orders
and industrial production, shown in the second chart, are significantly
greater than those of the last recession.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090317j.jpg" align="right" border="0" height="265" width="353">

The reduction from 2% to 1.5% in its key interest rate by the
European Central Bank on March 5 may have played a role in the slight
improvement in the participants expectations of the outlook six months
ahead. And the stock market stopped declining. From March 2 to March
16, the Frankfurt Xetra Dax Index rose 9%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMANY</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb 09</th>
<th scope="col">Jan&nbsp; 09&nbsp;</th>
<th scope="col">Dec 08&nbsp;</th>
<th scope="col">Nov 08</th>
<th scope="col">Oct O8</th>
<th scope="col">Sep 08</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">ZEW SURVEY&nbsp;(%
balance)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions </td>
<td>-89.4</td>
<td>-86.2</td>
<td>-77.1</td>
<td>-64.5</td>
<td>-50.4</td>
<td>-35.9</td>
<td>-1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations 6 months
ahead</td>
<td>-3.5</td>
<td>-5.8</td>
<td>-31.0</td>
<td>-45.2</td>
<td>-53.5</td>
<td>-63.0</td>
<td>-41.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Profit Expectations
Telecommunications</td>
<td>-16.1</td>
<td>-20.2</td>
<td>-28.3</td>
<td>-27.7</td>
<td>-29.7</td>
<td>-35.7</td>
<td>-12.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Profit Expectations
Vehicle/Car</td>
<td>-70.2</td>
<td>-75.3</td>
<td>-90.3</td>
<td>-89.3</td>
<td>-94.6</td>
<td>-91.7</td>
<td>-51.7</td>
</tr>
<tr class="even">
<td class="firstcol">Industrial Production
(Y/Y %)&nbsp;</td>
<td>N. A.</td>
<td>N. A.</td>
<td>-19.24</td>
<td>-11.58</td>
<td>-7.25</td>
<td>-3.53</td>
<td>-1.50</td>
</tr>
<tr>
<td class="firstcol">&nbsp;New Orders
Manufacturing&nbsp; (Y/Y %)</td>
<td>N. A.</td>
<td>N. A.</td>
<td>-35.11</td>
<td>-30.5</td>
<td>-26.07</td>
<td>-18.80</td>
<td>-9.80</td>
</tr>
</tbody>
</table>
</body></html>

U.S. producer prices for finished goods increased a modest 0.1% last month. The slim gain offset last month's upside surprise of 0.8%, which was unrevised. Moreover, it contrasted with Consensus expectations for a 0.4% gain. Much of [...]

U.S. Finished Goods PPI RisesModestly; "Downstream" Pricing Remains Weak

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090316i.jpg" align="left" border="0" height="265" width="353">
Still under extreme pressure, the March Housing Market Index
(HMI) from the National Association of Home Builders remained stable
month-to-month at 9. During four of the last five months the index
level of 9 was barley above the record low of 8 touched during January.
The index is compiled from survey questions asking builders to rate
market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to &#8220;very
low&#8221;. Numerical results over 50 indicate a
predominance of &#8220;good&#8221; readings.
The Home Builders Association indicated that its sub-index of
present sales remained at a reading of 7, up just slightly from the
record low touched during January. The latest figure remained well
below last year's average level of 16, 2007's average of 27, 2006's
average of 45 and 2005's average of 73.Since 1990, the year-to-year
change in this index has had an 80% correlation with the year-to-year
percentage change in new single-family home sales.
The index of builders&#8217; expectations for home sales in six
months remained at its record low. In addition, the
&#8220;traffic" of prospective buyers fell back and reversed most of the
February uptick. The index remained near the record low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090316j.jpg" align="right" border="0" height="265" width="353">
Index readings in each of the country's regions remained near
the record low.
Not only are builders disturbed by the market for new homes,
but in the fourth quarter the assessment of conditions for remodeling a
home reached a record low. The conditions for major and minor
alterations fell sharply. Expectations also fell to a record low.
Emphasizing that weakness was that the backlog of remodeling jobs fell
to one third the peak reached during 2005.
During the fourth quarter the Home Builders' Housing
Opportunity Index, which is the share of homes sold that could be
considered affordable to a family earning the median income, rose even
higher to its highest level since early 2002. It was up by nearly one
half from the 2006 low due to lower home prices, lower interest rates
and higher income. (There is a break in the series from 2002 to 2003.)
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.
Relief for Responsible Homeowners One Step Closer
Under New Treasury Guidelines is available <a href="http://www.ustreas.gov/press/releases/tg48.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/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">March</th>
<th scope="col">February&nbsp;</th>
<th scope="col">&nbsp;March '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 Housing Market Index
(All Good = 100)</td>
<td>9</td>
<td>9</td>
<td>20</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>7</td>
<td>7</td>
<td>20</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>15</td>
<td>15</td>
<td>26</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>9</td>
<td>11</td>
<td>19</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body></html>

Still under extreme pressure, the March Housing Market Index (HMI) from the National Association of Home Builders remained stable month-to-month at 9. During four of the last five months the index level of 9 was barley above the [...]

U.S. Home Builders' Index Still Under Extreme Pressure

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090316h.jpg" align="left" border="0" height="265" width="353">
Inflation in the Area rose in February but at 1.2% the Yr/yr
pace of inflation remained well in check. Core inflation at 1.7% is
confirming that tepid reading. Three-month
inflation and service sector inflation ticked up over three-months
compared to their respective 6-month pace. Core inflation trends in
Germany Italy and Spain seem to be well contained as well, contributing
to the notion that inflation in the zone is truly under control.
Headline inflation did rise on a broad front in February but the core
pace remains solid and low and the annual numbers are quite well
behaved. The report should be quite acceptable to the ECB.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Trends in HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>-0.9%</td>
<td>-1.0%</td>
<td>1.2%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>1.1%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>0.3%</td>
<td>-1.2%</td>
<td>-0.8%</td>
<td>-6.3%</td>
<td>-3.2%</td>
<td>0.3%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>3.9%</td>
<td>0.6%</td>
<td>2.4%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>1.0%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-1.0%</td>
<td>1.0%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>1.6%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>-0.5%</td>
<td>-2.4%</td>
<td>-2.7%</td>
<td>0.7%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core: xFE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>1.1%</td>
<td>2.2%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>-1.3%</td>
<td>-0.1%</td>
<td>1.6%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
</body></html>

Inflation in the Area rose in February but at 1.2% the Yr/yr pace of inflation remained well in check. Core inflation at 1.7% is confirming that tepid reading. Three-month inflation and service sector inflation ticked up over three- [...]

HICP Is Behaving Despite Month's Rise

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

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Sandy Batten

260121N4.jpg

260121O4.jpg

Total construction spending fell 0.6% m/m (-1.5% y/y) in September to $2,164.3 billion following a 0.4% monthly gain in August. However, it rebounded in October, rising 0.5% m/m (-1.0% y/y) to $2,175.2 billion (saar). This is the ninth consecutive month that construction spending has been lower than a year ago. A 0.1% m/m decline in September and an unchanged reading in October had been expected in the Action Economics Forecast Survey. Over the first ten months of this year, construction spending amounted to $1,825.3 billion, 1.4% below the $1,851.4 billion for the same period in 2024.

Spending on private construction was at a seasonally adjusted annual rate of $1,651.3 billion in October, 0.6% above the September estimate of $1,640.8 billion (-3.0% y/y), which fell 0.9% m/m from August. Private residential construction was at a seasonally adjusted annual rate of $913.9 billion in October, up 1.3% m/m from September, which declined 1.4% from August. Private nonresidential construction was at a seasonally adjusted annual rate of $737.4 billion in October, down 0.2% m/m from September, which also had declined 0.2% in September from August.

The October increase in private residential investment was due entirely to a 4.5% m/m increase in spending on improvements, its largest monthly gain since April 2024, following a 2.2% monthly decline in September. Single family construction fell 1.3% m/m in October, its eight consecutive monthly decline, while multi-family construction slipped 0.2% m/m, its first monthly decline in five months. The decline in private nonresidential construction was more than accounted for by a 0.9% m/m drop in manufacturing construction, its ninth consecutive monthly decline.

The value of public construction spending edged up 0.1% m/m in October to $524.0 billion after having risen 0.4% m/m in September. Of particular importance, educational construction was at a seasonally adjusted annual rate of $114.8 billion, up 0.7% m/m in October on top of a 1.1% m/m increase in September. Highway construction was at a seasonally adjusted annual rate of $141.6 billion, 0.1% m/m above the September estimate after a 0.4% monthly decline in September from August. Spending on highways and educational facilities are by far the two largest components of public construction spending. Spending on water supply construction at $35.2 billion was also important in October, up 1.2% m/m on top of a 1.5% monthly gain in September.

The construction figures can be found in Haver’s **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

260121P4.jpg

260121Q4.jpg

- Total construction spending fell 0.6% m/m in September but rebounded 0.5% m/m in October.
- Private construction spending slumped 0.9% m/m in September but rose 0.6% m/m in October.
- Private nonresidential construction fell for the fourth consecutive month while private residential construction posted a 1.3% m/m gain.

U.S. Construction Spending Slipped in September but Rebounded in October

Winnie Tapasanun

260121F.jpg

260121G.jpg

The Pending Home Sales Index, a forward-looking measure of home sales based on contract signings, fell 9.3% m/m to 71.8 in December following unrevised increases of 3.3% in November and 2.4% in October, according to the National Association of Realtors (NAR). December marked the first m/m fall since July and the steepest since April 2020. The year-on-year rate was -3.0% in December, the first negative y/y reading since September, compared to +2.6% in November and -5.0% in December 2024. The index had fallen 42.6% since its October 2021 high of 125.1. In 2025, the PHSI declined 0.9% after drops of 3.0% in 2024 and 16.1% in 2023.

The m/m fall in December pending home sales occurred alongside a decline in the average 30-year mortgage rate to 6.20% in December, the lowest since September 2024, down from 6.24% in November and 6.25% in October. These rates, while below a peak of 7.62% in October 2023, had remained higher than a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

Pending home sales decreased m/m in December across all four major regions. The Midwest recorded the sharpest drop, with sales plunging 14.9% (-9.8% y/y) in December—the first m/m decline since September and the deepest since April 2020—after a 1.3% increase in November. Sales in the West slumped 13.3% (-5.1% y/y), the third m/m decrease in four months, following a 9.2% November rebound. Sales in the Northeast slid 11.0% (-3.6% y/y), the first m/m slide since August, after a 1.8% November rise. Sales in the South fell 4.0% (+2.0% y/y), the first m/m fall since June, after a 2.5% November gain.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- PHSI -9.3% m/m (-3.0% y/y) to 71.8 in Dec., lowest index level since July.
- Home sales m/m down in all four major regions, w/ the Midwest seeing the steepest drop (-14.9%).
- Home sales y/y down in the Northeast, Midwest, and West, but up in the South (+2.0%).

U.S. Pending Home Sales Drop in December Following Four Consecutive M/M Gains

Kathleen Stephansen, CBE

260121A2.jpg

260121B2.jpg

Mortgage applications rose 14.1% w/w (76.8% y/y) in the week ending January 16, after soaring 28.5% w/w (55.1% y/y) in the week ending January 9, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house rose 5.1% w/w (19.1% y/y) in the week ending January 16, after rising 15.9% w/w (14.0% y/y) in the week ending January 9.  Applications for loan refinancing jumped 20.4% w/w (182.9% y/y) in the latest week, following a surge of 40.1% w/w (128.1% y/y) in the January 9 week.

The effective interest rate on a 30-year fixed-rate loan fell 3bps to 6.32% in the week ending January 16 from 6.35% in the week ending January 9. The rate on 15-year fixed-rate mortgages dropped 4bps to 5.71% in the latest week from 5.75% in the prior week. The 30-year Jumbo rate also fell 4bps to 6.50% in the January 16 week from 6.54% in the January 9 week. The rate on a 5-year ARM rose 5bps to 5.65% in the latest week from 5.60% in the January 9 week.

The share of applications for refinancing an existing loan rose to 61.9% of total applications in the January 16 week from 60.2% in the week ending January 9. The adjustable-rate mortgage (ARM) share of activity rose to 7.1% in the week ending January 16 from 7.0% in the week ending January 9.

The average size of a mortgage loan rose 2.9% w/w (11.1% y/y) to $415,300 in the week ending January 16, after rising 6.3% w/w (9.9% y/y) to $403,600 in the week ending January 9. The average size of a purchase loan edged down 0.7% w/w (+1.3% y/y) to $437,100 in the latest week after rising 7.7% w/w (4.9% y/y) to $440,300 in the January 9 week. The average size of a loan to refinance a mortgage rose 6.0% w/w (39.4% y/y) to $401,900 in the week ending January 16, after rising 6.0% w/w (27.8% y/y) to $379,200 in the week ending January 9.

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

- Purchase and refinancing loan applications posted healthy rises in the latest week.
- Effective interest rate on 30-year fixed loans fell to 6.32%.
- Average loan size rose.

U.S. Mortgage Applications Continue to Surge in the Week of January 16

260120E.jpg

The ZEW survey for January showed improvement all around with both economic expectations and macroeconomic conditions showing improvements in the United States, Germany, and the euro area.

The economic situation in January in the euro area improved to a reading of -18.1 from -28.5 in December. In Germany, the reading improved to -72.7 from -81 in December, while in the United States the reading improved to +17.7 from -0.6 in December. The message here clearly is the month-to-month improvement. Still, the January readings leave the assessments of conditions in these three areas as quite different. The percentile-queue standings place each one of these topical readings in their queue of data back to December 1992, expressing the standing in percentile terms. Viewed in this way, the euro area has a 57.2 percentile standing, the U.S. has nearly a 45-percentile standing, while Germany has a 22.6 percentile standing, leaving each of these areas in their own distinctive positions relative to their historic norms. The euro area has a firm and above-median ranking since the reading is above the 50th percentile (where the median is located). The U.S. is slightly weaker than that, with a reading that's marginally below its median. Germany has a reading between the lower quartile and the one-fifth mark of its historic data, branding it as weak.

Macroeconomic expectations find that Germany in January moved up to a positive reading of 59.6 from 45.8 in December. The U.S. also improved, moving up to -3 from -12 in December. The macro-expectations find Germany and the U.S. in very different places with German expectations in an 80.4 percentile of their queue, placing them in the top 20% while the U.S. has a 45-percentile standing, below its historic median and essentially the same relative position as its current situation ranking. In contrast, Germany has a weak current economic assessment versus a stronger expectations assessment.

Inflation expectations weaken across the board in January, with the euro area falling to -7.6 from -4.6 in December, Germany falling to -6.0 from -1.7 and the U.S. falling to 44.2 from 54.9. The ZEW experts see a disinflationary environment, and they see that despite the pickup in current conditions and improved macroeconomic expectations. Expectations in the U.S. have a 61.1 percentile standing; the German and the euro area readings are much weaker and closer together, with the German standing at its 31.2 percentile and the euro area at its 25.8 percentile.

On the back of these expectations, short-term interest rates in the euro area are less weak, with the January reading at -7.7, up from -10.8 in December. The U.S. has a -65.6 reading, stronger than Decembers -73.9. On a ranking basis, the euro area’s short-term rates have a 37.4 percentile standing The U.S. has a 9.3 percentile standing. The interest rate assessment is that short-term rates are going to be modest to lower over the outlook.

Long-term interest rates in Germany and the U.S. weaken slightly in January from December to 44.5 in January for Germany, compared to 49.2 in December, and in the U.S., there is a very modest ‘decimal point’ change to 44.1 in January from 44.9 in December. German long-term rates have a 58.8 percentile standing while the U.S. has rates at about a 50-percentile standing, placing them just about on top of their historic median. Neither one of these expectations has long-term expectations different from historic norms.

Stock market expectations from December to January, however, are little changed and mostly weaker, with the euro area gauge falling to 35.2 from 41.3 in December. The German gauge slips to 35.9 from 36.3 in December. The January gauge for the U.S. is ticking slightly higher to 31.5 January from 30.2 in December. The rankings for the January gauges show the U.S. above its median at a 59.3 percentile mark, the euro area slightly below its median with a 44.9 percentile reading; the German stock market still scores as the weakest at a 39.7 percentile standing.

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On balance, there are improvements expected in the macroeconomic realm as well as improvements detected in the current economic situation. Inflation is expected to remain tame; short-term interest rates are expected to continue declining, while long-term interest rates are going to be showing some pressure or in the case of the U.S. will continue to oscillate around current levels or firm slightly. Stock market conditions in the U.S. are modestly higher than their historic norms; however, the euro area stocks are in for modest weakness; German stocks weakened and are historically weak. Looking ahead, the thing to do is to watch the market metrics in particular to see how the recent U.S.-European rift over Greenland is going to play out in markets and how much it's going to affect expectations. That's the newest trend in play. How quickly they forget drug running boat sinkings, Maduro’s capture, threats on Iran, and cage rattling the Fed Chair. It’s all about Greenland now- at least for now, don’t blink!

ZEW Survey Shows Advancement All Around

Tian Yong Woon

This week, we dive into several key developments across Asia. China’s Q4 GDP marked a further extension of its recent growth slowdown, yet full-year growth still came in exactly at the government’s 5% target for 2025 (chart 1). That said, the road ahead remains challenging, as December’s data delivered a mixed set of outcomes. Encouragingly, new external inroads, starting with Canada’s opening up of EV trade with China, could pave the way for additional opportunities (chart 2). In semiconductors, the latest US tariff measures proved far more limited in scope than initially feared, helping to explain the muted market reaction to the announcement (chart 3). Relatedly, commitments by major Taiwanese chipmakers to expand investment in the US have brought Washington and its largest chip supplier closer together, culminating in a US–Taiwan trade deal (chart 4).

In Japan, attention has turned to the possibility of a snap Lower House election in February. The interim political uncertainty, alongside expectations around future policy, has weighed on the yen and pushed Japanese yields higher (chart 5), with some observers increasingly concerned about the narrowing window to pass the FY2026 budget by April, given the likely dissolution of the Lower House. In South Korea, President Lee’s recent visits to China and Japan point to improving bilateral ties, although he continues to navigate a delicate balancing act amid still-elevated China–Japan tensions. Domestically, elevated house prices and high household debt continue to limit the scope for further monetary policy easing (chart 6).

**China**
Alongside its regular slate of monthly economic releases, China unveiled its Q4 GDP figures earlier today, with the economy expanding by 4.5% y/y during the quarter. While Q4 growth continues the recent trend of deceleration seen over the past few quarters, the outcome brings China’s full-year growth for 2025 right in line with the government’s 5% target (chart 1). This defied expectations among some investors that the economy would fall short. This outcome aligns with earlier discussions that China remained within reach of its growth target despite slowing momentum. That said, the outlook ahead remains challenging. December’s monthly data painted a mixed picture, with declines in fixed asset investment accelerating and retail sales growth cooling further, even as industrial production growth remained relatively resilient.

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On China’s external developments, another high-profile outcome followed Canadian Prime Minister Carney’s visit to Beijing. Canada and China unveiled a trade deal lowering tariffs on Canada’s imports of 49,000 Chinese EVs to 6.1% from 100%, in exchange for China easing tariffs on Canadian agricultural products. Carney remarked that China is now a “more predictable” trading partner than the US and that “a new world order” is taking hold. These comments likely reflect longstanding trade frictions between the US and Canada, as US President Trump has sought to renegotiate what he views as unfair trade arrangements. The new Canada–China agreement is also expected to catalyse significant Chinese joint-venture investment in Canada over the coming years. The move marks a notable shift for Canada, which has traditionally been an exceptionally close partner of the US, not only economically (chart 2). That Ottawa has inked a trade deal with Beijing while US–China tensions remain elevated represents a clear break from its previous stance and has, unsurprisingly, drawn criticism from Washington.

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**US semiconductor tariffs**
Turning to US-originated developments, President Trump signed a proclamation last week imposing a 25% tariff on certain advanced computing chips, including Nvidia’s H200 and AMD’s MI325X. The tariff will not apply to chips imported to support the buildout of the US tech supply chain or to strengthen domestic manufacturing capacity for semiconductor derivatives. The move stops short of a blanket tariff on all AI chips and semiconductor imports, easing—at least for now—initial investor concerns and likely explaining the market’s relatively muted reaction to the announcement (chart 3). A broader tariff would have had far more severe implications, given the  US economy’s substantial imports of semiconductor goods. In the case of Nvidia’s H200—designed to comply with US export restrictions and primarily targeted at the Chinese market—the tariff appears intended to capture a 25% levy before the chips are shipped onward to China. That said, China’s demand response remains uncertain, particularly as the H200 is reportedly banned in China.

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Not long after the tariff announcement, the US and Taiwan — the largest source of US semiconductor imports, as shown in chart 4 — were reported to have reached a trade deal. Under the agreement, Taiwanese chipmakers such as TSMC that expand production in the US will face lower tariffs on semiconductors and related manufacturing equipment, with duty-free treatment applying to some imports. In addition, tariffs on most other Taiwanese exports to the US will be reduced to 15% from 20%. In return, Taiwanese companies will invest $250 billion in the US, including an expanded manufacturing footprint by TSMC in Arizona, aimed at boosting domestic production of semiconductors, energy, and AI. As illustrated in chart 4, Taiwan already dominates US semiconductor imports, with its share having risen sharply in recent years and far outstripping contributions from other major suppliers such as Southeast Asian economies and South Korea.

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**Japan snap elections**
Turning to Japan, the country is drumming up for an anticipated February Lower House snap election as Prime Minister Takaichi looks poised to capitalize on her strong approval ratings to secure a firmer parliamentary footing. In reaction, opposition parties have already started galvanizing for the expected upcoming electoral fight, with the opposition Constitutional Democratic Party (CDP) and the ruling party’s former coalition partner, Komeito, having announced a plan to form a new Centrist Reform Alliance (CRA) to fight the current ruling bloc. Given this interim bout of uncertainty, there is now some doubt cast on whether Japan’s budget this year can be debated robustly and passed in time by April 2026 (when the new fiscal year starts), especially if the Lower House gets dissolved soon, meaning less parliamentary time will be available for the purpose. Tracking such developments, the yen had extended its recent slide, whilst Japanese yields have firmed further (chart 5).

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**South Korea**
Lastly, we turn to South Korea, where President Lee has embarked on visits to China and Japan that point to a warming of regional ties. In China, Lee’s meeting with President Xi yielded agreements to restore strategic dialogue channels and deepen cooperation in areas such as critical minerals, with Lee calling for a “full restoration” of bilateral relations. In Japan, his visit similarly signalled a thaw in ties following previous periods of tension. Overall, South Korea appears to be seeking closer relations with its two major Asian neighbours even as China–Japan tensions remain elevated. Domestically, however, while the semiconductor sector has benefited from the AI-driven upswing, South Korea continues to face challenges such as elevated house prices and high household debt. These factors have constrained the scope for further monetary policy easing (chart 6).