Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401d.jpg" width="353">
Chain store sales slipped another 0.2% last week, according to the International Council of Shopping Centers ICSC-UBS Chain Store survey. Together with the prior week&#39;s 0.4% slip, the two declines left sales in March essentially flat with the February average after 0.4% increase.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
During the latest week the leading indicator of chain store sales from ICSC-UBS surged 0.7% and recovered after the prior week&#39;s 0.5% decline. 
Assessing Employment Growth in 2007 from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-09.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/29/08</th>
<th scope="col">03/22/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>487.5</td>
<td>488.3</td>
<td>0.5%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


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Chain store sales slipped another 0.2% last week, according to the International Council of Shopping Centers ICSC-UBS Chain Store survey. Together with the prior week's 0.4% slip, the two declines left sales in March essentially flat [...]

U.S. Chain Store Sales Slipped Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401a.jpg" width="353">
The Institute of Supply Management (ISM) reported that in March its Composite Index of Manufacturing Sector Activity ticked up to 48.6 from 48.3 in February. The rise exceeded Consensus expectations for a decline to 47.5. However, the index remained below the break even level for activity of 50 for the third month in the last four.
Last month&#39;s composite reading was down from 50.7 in January and 48.4 in December. The three month average level of 49.2 remained near its lowest since early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401b.jpg" width="353">
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by being constructed using all of the absolute positive changes in activity added to one half of the no change in activity measures.
The employment index rose a sharp 3.2 points to 49.2 and made up all of the declines during the prior two months. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment. The supplier deliveries index also surged 3.5 points to its highest level since late 2006.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401c.jpg" width="353">
Three of the index&#39;s component series fell. The new orders index declined sharply to its lowest level since late in the recession year of 2001. Production also fell sharply to its lowest level since early 2003 and the inventory component slipped to its lowest level since last September.
The new export orders sub-series rose slightly by 0.5 points and recovered just a piece of a large 2.5 point February drop.
The prices paid index surged to its highest level since October 2005. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.
The Economic Review 2008 from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/review/2008/er2008.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/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>48.6</td>
<td>48.3</td>
<td>50.7</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>46.5</td>
<td>49.1</td>
<td>51.5</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>49.2</td>
<td>46.0</td>
<td>49.2</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>83.5</td>
<td>75.5</td>
<td>65.5</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The Institute of Supply Management (ISM) reported that in March its Composite Index of Manufacturing Sector Activity ticked up to 48.6 from 48.3 in February. The rise exceeded Consensus expectations for a decline to 47.5. However, the [...]

ISM Factory Sector Index Ticked Higher But Still Was Below 50

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401a.jpg" align="left" border="0" height="265" width="353">
The Institute of Supply Management (ISM) reported that in
March its Composite Index of Manufacturing Sector Activity ticked up to
48.6 from 48.3 in February. The rise exceeded Consensus expectations
for a decline to 47.5. However, the index remained below the break even
level for activity of 50 for the third month in the last four.
Last month's composite reading was down from 50.7 in January
and 48.4 in December. The three month average level of 49.2 remained
near its lowest since early 2003.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401b.jpg" align="right" border="0" height="265" width="353">
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three month growth in
factory sector industrial production.
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by being constructed using all
of the absolute positive changes in activity added to one half of the
no change in activity measures.
The employment index rose a sharp 3.2 points to 49.2 and made
up all of the declines during the prior two months. During the last
twenty years there has been a 67% correlation between the level of the
ISM employment Index and the three month growth in factory sector
employment. The supplier deliveries index also surged 3.5 points to its
highest level since late 2006.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401c.jpg" align="left" border="0" height="265" width="353">
Three of the index's component series fell. The new orders
index declined sharply to its lowest level since late in the recession
year of 2001. Production also fell sharply to its lowest level since
early 2003 and the inventory component slipped to its lowest level
since last September.
The new export orders sub-series rose slightly by 0.5 points
and recovered just a piece of a large 2.5 point February drop.
The prices paid index surged to its highest level since
October 2005. During the last twenty years there has been a 77%
correlation between the price index and the three month change in the
PPI for intermediate goods.
The Economic Review 2008 from the Federal
Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/review/2008/er2008.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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March '07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>48.6</td>
<td>48.3</td>
<td>50.7</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>46.5</td>
<td>49.1</td>
<td>51.5</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>49.2</td>
<td>46.0</td>
<td>49.2</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>83.5</td>
<td>75.5</td>
<td>65.5</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
U.S. Construction Spending
Slipped; Nonresidential Activity Slackened 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 1, 2008



<div align="left"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401e.jpg" align="left" border="0" height="265" width="353">

The value of construction put in place slipped 0.3% during
February and January was revised to less of a decline of 1.0%. The
latest decline was the fifth consecutive monthly drop and the level was
8.5% below the March 2006 peak.
The value of nonresidential building activity ticked down 0.1%
after a 1.0% January decline which was half that reported initially.
Momentum here recently has diminished substantially. Three month growth
in activity is -5.3%. Education facility building slipped 0.2% (+17.3%
y/y) after a 2.4% January surge. Spending in the factory sector rose
2.7% (27.4% y/y) and made up a revised 1.6% decline in January. Office
construction fell 2.2% (+6.4% y/y) and commercial construction rose
2.6% (2.1% y/y).
The value of residential building activity fell another 0.9%.
Construction activity on new single family units collapsed an
additional 5.7% (-33.6% y/y). Building activity on multi-family units
also slipped 0.3% (-18.5% y/y) but spending on improvements surged 5.1%
(8.8% y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401f.jpg" align="right" border="0" height="265" width="353">
During the last twenty years there has been an 84% correlation
between the q/q change in the value of residential building and its
contribution to growth in real GDP.
Public construction spending rose a slight 0.4% for the second
month. Construction on highways &amp; streets rose 0.9% (3.7% y/y)
after a very much upwardly revised 0.5% January increase. The value of
construction on highways &amp; streets is nearly one third of the
value of total public construction spending. Building activity of
educational facilities slipped 0.2% (+15.0% y/y).
These more detailed categories represent the Census Bureau&#8217;s
reclassification of construction activity into end-use groups. Finer
detail is available for many of the categories; for instance,
commercial construction is shown for Automotive sales and parking
facilities, drugstores, building supply stores, and both commercial
warehouses and mini-storage facilities. Note that start dates vary for
some seasonally adjusted line items in 2000 and 2002 and that
constant-dollar data are no longer computed.
</div>


<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/@E9/@E907/@E907.HTM">Construction</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.3%</td>
<td>-1.0%</td>
<td>-3.5%</td>
<td>-2.7%</td>
<td>5.6%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.5%</td>
<td>-1.5%</td>
<td>-7.1%</td>
<td>-6.8%</td>
<td>4.7%</td>
<td>12.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.9%</td>
<td>-1.9%</td>
<td>-18.8%</td>
<td>-18.1%</td>
<td>0.5%</td>
<td>13.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.1%</td>
<td>-1.0%</td>
<td>13.2%</td>
<td>18.0%</td>
<td>15.2%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>0.4%</td>
<td>0.4%</td>
<td>8.2%</td>
<td>12.2%</td>
<td>9.2%</td>
<td>6.2%</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Slipped
Again 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 1, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401d.jpg" align="left" border="0" height="265" width="353">
Chain store sales slipped another 0.2% last week, according to
the International Council of Shopping Centers ICSC-UBS Chain Store
survey. Together with the prior week's 0.4% slip, the two declines left
sales in March essentially flat with the February average after 0.4%
increase.

During the last ten years there has been a 45% correlation
between the y/y change in chain store sales and the change in nonauto
retail sales less gasoline.

The ICSC-UBS retail
chain-store sales index is constructed using the same-store sales
(stores open for one year) reported by 78 stores of seven retailers:
Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.


During the latest week the leading indicator of chain store
sales from ICSC-UBS surged 0.7% and recovered after the
prior week's 0.5% decline. 
Assessing Employment Growth in 2007 from
the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-09.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/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">03/29/08</th>
<th scope="col">03/22/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>487.5</td>
<td>488.3</td>
<td>0.5%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
&nbsp;Japan: TANKAN
ResultsShow Growing Concerns Among Business&nbsp; 
by <a href="/comment/Curley.html">Louise
Curley</a> April 1, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401g.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401h.jpg" border="0" height="265" width="312">
The Bank of Japan's Tankan Survey released today shows growing
concerns among large manufacturers and non manufacturers, as can be
seen in the first and second charts. The excess of optimists over
pessimists among large manufacturers appraising current conditions
declined to 11% from 19% in December. A slightly smaller decline was
registered for non manufacturers--12% from 16%. In looking to the
second quarter, the excess of optimists over pessimists among large
manufacturers dropped to 7%. For non manufacturers, the excess of
optimists dropped to 13%. One of the factors influencing the
manufacturers, in particular, has been the steep rise in the yen over
the past nine months, can be seen in the third chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401i.jpg" align="right" border="0" height="265" width="312">
Among the most closely watched items in the Tankan survey are
the forecasts of capital spending.In the current survey, manufacturers
plan to increase capital spending in the current fiscal year ending
last month, March, 2008 by 9.5% and non manufacturers by 5.2%. For next
fiscal year ending March 2009, however, both large manufacturers and
non manufacturers are planning to cut capital spending, the
manufacturers by 3.3% and the non manufacturers by 0.6%, as can be seen
in the fourth and fifth charts.
Much more detail from the Tankan can be found in the Haver
Database, JAPAN. Data are available for medium and
small enterprises and for specific industries as well as sales and
profit expectations.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401j.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401k.jpg" border="0" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">JAPAN:&nbsp;
TANKAN SURVEY&nbsp;</th>
<th scope="col">Q2 08</th>
<th scope="col">Q1 08&nbsp;</th>
<th scope="col">Q4 07&nbsp;</th>
<th scope="col">Q3 07&nbsp;</th>
<th scope="col">Q2 07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="9" class="firstcol">Actual
Business Conditions
(% balance)</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Large
Manufacturing Co. &nbsp;</td>
<td></td>
<td>11</td>
<td>19</td>
<td>23</td>
<td>23</td>
<td>22</td>
<td>23</td>
<td>18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Large Non
manufacturing Co.&nbsp;</td>
<td></td>
<td>12</td>
<td>16</td>
<td>20</td>
<td>22</td>
<td>20</td>
<td>20</td>
<td>15</td>
</tr>
<tr class="even">
<td colspan="9" class="firstcol">Forecast
of Business
Conditions Next Quarter ( % balance)</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Large
Manufacturing Co. &nbsp;</td>
<td>7</td>
<td>15</td>
<td>19</td>
<td>22</td>
<td>20</td>
<td>21</td>
<td>21</td>
<td>16</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Large Non
manufacturing Co.&nbsp;</td>
<td>13</td>
<td>15</td>
<td>21</td>
<td>23</td>
<td>23</td>
<td>22</td>
<td>20</td>
<td>13</td>
</tr>
<tr class="even">
<td colspan="9">&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Capital
Spending % Change</td>
<td>&nbsp;Fiscal '07</td>
<td>Fiscal '08</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Large
Manufacturing Co.</td>
<td>9.5</td>
<td>-3.3</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Large Non
manufacturing Co.&nbsp;</td>
<td>5.2</td>
<td>-0.6</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
European Economic Data Hits Blow
Hot and Cold: This Time Cold: German Retail Sales 
by <a href="/comment/Brusca.html">Robert
Brusca</a> April 1, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080401j.jpg" align="left" border="0" height="265" width="353">
While German unemployment fell more than expected in March
there has been no relief to German retailers or by association
consumers. The growth rate series in the chart is remarkable for its
tranquility. German real retail sales are simply flat after some
turbulence early in 2007 stemming from the VAT tax that shifted sales
into 2007 then sucked them out of 2008. Sales
are settling down into a very narrow growth band in late 2007 and 2008.
Even though Germany continues to post acceptable rates of growth, the
consumer has long been forecast as a force to join in to extend the
expansion but he simply has not. Indeed, real retail sales ex-auto
sales (see table, at the bottom) fell sharply in February. Sales by
this measure at the two-month mark in the new quarter are declining at
a 1.3% annual rate. Real ex auto sales would have to rise by 1.6% in
March to &#8216;elevate&#8217; the quarter&#8217;s sales pace to zero.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">German
Real and Nominal Retail Sales </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAGo</td>
<td>QTR, SAAR</td>
</tr>
<tr>
<td class="firstcol">Retaill Ex auto</td>
<td>-0.7%</td>
<td>1.6%</td>
<td>-0.6%</td>
<td>1.2%</td>
<td>-0.6%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicle and Parts</td>
<td>#N/A</td>
<td>-3.8%</td>
<td>2.9%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>-4.7%</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Food, Beverages &amp;
Tobacco</td>
<td>-2.2%</td>
<td>2.1%</td>
<td>-2.3%</td>
<td>-9.1%</td>
<td>-4.5%</td>
<td>-3.9%</td>
<td>-0.3%</td>
<td>-5.1%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>2.5%</td>
<td>1.6%</td>
<td>0.8%</td>
<td>21.6%</td>
<td>4.4%</td>
<td>4.0%</td>
<td>3.6%</td>
<td>16.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&nbsp;</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">Retail Ex auto</td>
<td>-1.6%</td>
<td>0.9%</td>
<td>-0.1%</td>
<td>-3.2%</td>
<td>-5.0%</td>
<td>-3.2%</td>
<td>-0.9%</td>
<td>-1.3%</td>
</tr>
</tbody>
</table>
</body></html>

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331e.jpg" align="left" border="0" height="265" width="353">
Inflation in the Euro Area continues to climb. The flash
estimate for March was released today and reached 3.5%, up from 3.3% in
February and the highest level since the creation of the Euro Area in
January, 1999. Not surprisingly, business sentiment has been eroding as
a result, not only of rising inflation but also the turmoil in
financial markets. The Economic Sentiment Indicator for the entire
area, also released today, fell to 99.6 in March, the first time it has
been below its long term average of 100 since November, 2005. The first
chart show inflation and confidence in the Euro Area.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331d.jpg" align="right" border="0" height="265" width="353">
While sentiment for the entire area has declined, there has
been considerable variation in the way sentiment has changed among the
big four large countries--Germany, France, Italy and Spain. In Germany,
confidence actually rose slightly--0.3%--to 104.0 in March. In France,
it was unchanged at 105.6. In Italy, however, it was down 1.3% and in
Spain, 4.1%, taking their respective levels to 93.7 and 83.9, well
below their long term averages of 100. In year over year comparisons,
sentiment in Germany was down 4.9% compared with only 2.8% for France.
The big losses in sentiment were in Italy and Spain where the level of
sentiment was 16% and 17%, respectively, below the year ago levels.
Economic Sentiment Indicators for Germany, France, Italy and Spain are
shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">CONFIDENCE
MEASURES&nbsp;</th>
<th scope="col">Mar 08</th>
<th scope="col">Feb&nbsp; 08&nbsp;</th>
<th scope="col">Mar&nbsp; 07&nbsp;</th>
<th scope="col">M/M % Chg&nbsp;</th>
<th scope="col">Y/Y % Chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Area: Inflation
(Percent)</td>
<td>3.5*</td>
<td>3.3</td>
<td>1.9</td>
<td>0.2</td>
<td>1.6</td>
<td>2.14</td>
<td>2.18</td>
<td>2.19</td>
</tr>
<tr>
<td class="firstcol" colspan="9">Euro Area: Economic
Sentiment Indicator (Long term average =100)&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total
</td>
<td>99.6</td>
<td>100.2</td>
<td>110.6</td>
<td>-0.60</td>
<td>-9.95</td>
<td>108.4</td>
<td>106.3</td>
<td>97.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Germany&nbsp;</td>
<td>104.0</td>
<td>103.7</td>
<td>109.3</td>
<td>0.29</td>
<td>-4.85</td>
<td>108.4</td>
<td>105.2</td>
<td>94.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; France</td>
<td>105.6</td>
<td>105.6</td>
<td>108.0</td>
<td>0.0</td>
<td>-2.76</td>
<td>109.8</td>
<td>106.2</td>
<td>102.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Italy&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>93.7</td>
<td>94.9</td>
<td>111.4</td>
<td>-1.26</td>
<td>-15.89</td>
<td>105.4</td>
<td>108.4</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Spain</td>
<td>83.9</td>
<td>87.5</td>
<td>101.5</td>
<td>-4.11</td>
<td>-17.34</td>
<td>97.7</td>
<td>98.9</td>
<td>100.6</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">*Flash Estimate (Changes are
differences)</td>
</tr>
</tbody>
</table>
</body></html>

Inflation in the Euro Area continues to climb. The flash estimate for March was released today and reached 3.5%, up from 3.3% in February and the highest level since the creation of the Euro Area in January, 1999. Not surprisingly, [...]

Inflation and Economic Sentiment in the Euro Area

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331a.jpg" width="353">
Not only have petroleum prices and gold prices surged, but in their wake has been broad based strength in commodity prices.
Industrial metals have remained strong recently despite the weakening of U.S. industrial sector activity. Continued strength in activity in the rest of the world accounts for the increase in metals prices. The table below indicates that aluminum prices are 10% above their 2007 average and they are 46% above 2005. Stainless steel scrap is up 6% from 2007 and more than double the 2005 average price. Prices for copper scrap round out the story of price strength and are 21% higher than last year and they are they are up one and a half times since 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331b.jpg" width="353">
Food prices show less broad based strength. Beef prices generally have moved sideways during the last few years. Milk prices have been volatile. Recently a sharp decline offset what previously was a huge milk price gain and left prices up by nearly one third from the 2005 average. Grain prices are another story with corn prices up strongly in part due to demand for ethanol. Corn prices have nearly tripled the 2005 average and wheat prices similarly have surged.
Strength in oil prices comes from several sources that have nearly doubled crude costs since 2005. 1) Growth in U.S. demand for oil remains firm. It only recently turned slightly negative y/y. 2) Demand from the rest of the world, notably China, is firm. 3) Supply is questionable with the War in Iraq ongoing.
Then there&#39;s the price of gold which has nearly doubled since 2005 and touched $1,000 per ounce mostly due to global unrest.
Why hasn&#39;t all this commodity price strength shown up more in consumer prices? That&#39;s because processing and distribution costs of food account for most of the price consumers pay. Distribution &amp; processing costs have gone up but not nearly as dramatically. The same is true for industrial materials prices, at least in the U.S. As for crude oil, the price gain has fed through and lifted gasoline prices by nearly 50% since 2005 (That&#39;s not to mention that gas prices have more than tripled since 1995.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331c.jpg" width="353">
How does all this shake out? For a while the price strength caused slower than anticipated declines in U.S. interest rates. That has now changed as the Federal Reserve is reacting more to the weakening in economic activity. For U.S. inflation the price gains likely will add further upward pressure, especially since labor costs are rising as is economic liquidity. Will consumer price inflation, therefore, move much higher? A Consensus of economists says no. Weaker U.S. economic growth is expected to diffuse the price pressure and leave the GDP price index up just 2.2% this year and next, down from a 2.7% rise last year and 3.2% during the prior two years.
The commodity price series in the table below can be found in Haver&#39;s WEEKLY database
Current Events in the Economy and Financial Markets is last week&#39;s speech by Sandra Pianalto, President and CEO Federal Reserve Bank of Cleveland and it can be found <a href="http://www.clevelandfed.org/NewsEvents/32708.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/SURVEYS/@S5/@S503/@S503.HTM">Commodity Prices</a></th>
<th scope="col">Latest Week</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Metals</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Aluminum ($/ Metric Ton)</td>
<td>1.30</td>
<td>1.23</td>
<td>1.10</td>
<td>1.26</td>
<td>1.18</td>
<td>1.18</td>
<td>0.89</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Stainless Steel Scrap ($/Ton)</td>
<td>2,961</td>
<td>2,603</td>
<td>2,570</td>
<td>3,156</td>
<td>2,786</td>
<td>2,918</td>
<td>1,268</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Copper Scrap ($/lb)</td>
<td>3.70</td>
<td>3.57</td>
<td>3.20</td>
<td>2.61</td>
<td>3.06</td>
<td>3.04</td>
<td>2.28</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foods</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Milk (Cents/lb.)</td>
<td>130</td>
<td>140</td>
<td>158</td>
<td>145</td>
<td>173</td>
<td>98</td>
<td>95</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Beef Carcass (Index Value)</td>
<td>133</td>
<td>138</td>
<td>139</td>
<td>139</td>
<td>141</td>
<td>136</td>
<td>136</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corn ($/bushel)</td>
<td>5.10</td>
<td>4.88</td>
<td>4.54</td>
<td>3.87</td>
<td>3.49</td>
<td>2.41</td>
<td>1.90</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Wheat ($/bushel)</td>
<td>8.69</td>
<td>9.82</td>
<td>8.44</td>
<td>4.30</td>
<td>5.91</td>
<td>3.78</td>
<td>3.21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Light Sweet Crude Oil, WTI ($/bbl.)</td>
<td>104.2</td>
<td>94.9</td>
<td>93.4</td>
<td>58.5</td>
<td>72.2</td>
<td>66.1</td>
<td>56.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Gold, Handy &amp; Harmon ($/oz.)</td>
<td>926.8</td>
<td>1,006.8</td>
<td>916.4</td>
<td>884.0</td>
<td>810.5</td>
<td>628.7</td>
<td>507.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Not only have petroleum prices and gold prices surged, but in their wake has been broad based strength in commodity prices. Industrial metals have remained strong recently despite the weakening of U.S. industrial sector activity. [...]

Commodity Prices Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331a.jpg" width="353">
Not only have petroleum prices and gold prices surged, but in their wake has been broad based strength in commodity prices.
Industrial metals have remained strong recently despite the weakening of U.S. industrial sector activity. Continued strength in activity in the rest of the world accounts for the increase in metals prices. The table below indicates that aluminum prices are 10% above their 2007 average and they are 46% above 2005. Stainless steel scrap is up 6% from 2007 and more than double the 2005 average price. Prices for copper scrap round out the story of price strength and are 21% higher than last year and they are they are up one and a half times since 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331b.jpg" width="353">
Food prices show less broad based strength. Beef prices generally have moved sideways during the last few years. Milk prices have been volatile. Recently a sharp decline offset what previously was a huge milk price gain and left prices up by nearly one third from the 2005 average. Grain prices are another story with corn prices up strongly in part due to demand for ethanol. Corn prices have nearly tripled the 2005 average and wheat prices similarly have surged.
Strength in oil prices comes from several sources that have nearly doubled crude costs since 2005. 1) Growth in U.S. demand for oil remains firm. It only recently turned slightly negative y/y. 2) Demand from the rest of the world, notably China, is firm. 3) Supply is questionable with the War in Iraq ongoing.
Then there&#39;s the price of gold which has nearly doubled since 2005 and touched $1,000 per ounce mostly due to global unrest.
Why hasn&#39;t all this commodity price strength shown up more in consumer prices? That&#39;s because processing and distribution costs of food account for most of the price consumers pay. Distribution &amp; processing costs have gone up but not nearly as dramatically. The same is true for industrial materials prices, at least in the U.S. As for crude oil, the price gain has fed through and lifted gasoline prices by nearly 50% since 2005 (That&#39;s not to mention that gas prices have more than tripled since 1995.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331c.jpg" width="353">
How does all this shake out? For a while the price strength caused slower than anticipated declines in U.S. interest rates. That has now changed as the Federal Reserve is reacting more to the weakening in economic activity. For U.S. inflation the price gains likely will add further upward pressure, especially since labor costs are rising as is economic liquidity. Will consumer price inflation, therefore, move much higher? A Consensus of economists says no. Weaker U.S. economic growth is expected to diffuse the price pressure and leave the GDP price index up just 2.2% this year and next, down from a 2.7% rise last year and 3.2% during the prior two years.
The commodity price series in the table below can be found in Haver&#39;s WEEKLY database
Current Events in the Economy and Financial Markets is last week&#39;s speech by Sandra Pianalto, President and CEO Federal Reserve Bank of Cleveland and it can be found <a href="http://www.clevelandfed.org/NewsEvents/32708.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/SURVEYS/@S5/@S503/@S503.HTM">Commodity Prices</a></th>
<th scope="col">Latest Week</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Metals</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Aluminum ($/ Metric Ton)</td>
<td>1.30</td>
<td>1.23</td>
<td>1.10</td>
<td>1.26</td>
<td>1.18</td>
<td>1.18</td>
<td>0.89</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Stainless Steel Scrap ($/Ton)</td>
<td>2,961</td>
<td>2,603</td>
<td>2,570</td>
<td>3,156</td>
<td>2,786</td>
<td>2,918</td>
<td>1,268</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Copper Scrap ($/lb)</td>
<td>3.70</td>
<td>3.57</td>
<td>3.20</td>
<td>2.61</td>
<td>3.06</td>
<td>3.04</td>
<td>2.28</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foods</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Milk (Cents/lb.)</td>
<td>130</td>
<td>140</td>
<td>158</td>
<td>145</td>
<td>173</td>
<td>98</td>
<td>95</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Beef Carcass (Index Value)</td>
<td>133</td>
<td>138</td>
<td>139</td>
<td>139</td>
<td>141</td>
<td>136</td>
<td>136</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corn ($/bushel)</td>
<td>5.10</td>
<td>4.88</td>
<td>4.54</td>
<td>3.87</td>
<td>3.49</td>
<td>2.41</td>
<td>1.90</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Wheat ($/bushel)</td>
<td>8.69</td>
<td>9.82</td>
<td>8.44</td>
<td>4.30</td>
<td>5.91</td>
<td>3.78</td>
<td>3.21</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Light Sweet Crude Oil, WTI ($/bbl.)</td>
<td>104.2</td>
<td>94.9</td>
<td>93.4</td>
<td>58.5</td>
<td>72.2</td>
<td>66.1</td>
<td>56.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Gold, Handy &amp; Harmon ($/oz.)</td>
<td>926.8</td>
<td>1,006.8</td>
<td>916.4</td>
<td>884.0</td>
<td>810.5</td>
<td>628.7</td>
<td>507.4</td>
</tr>
</tbody>
</table>
 Inflation and Economic Sentiment in the Euro Area  
by <a href="/comment/Curley.html">Louise Curley</a> March 31, 2008


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331e.jpg" width="353">
Inflation in the Euro Area continues to climb. The flash estimate for March was released today and reached 3.5%, up from 3.3% in February and the highest level since the creation of the Euro Area in January, 1999. Not surprisingly, business sentiment has been eroding as a result, not only of rising inflation but also the turmoil in financial markets. The Economic Sentiment Indicator for the entire area, also released today, fell to 99.6 in March, the first time it has been below its long term average of 100 since November, 2005. The first chart show inflation and confidence in the Euro Area.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080331d.jpg" width="353">
While sentiment for the entire area has declined, there has been considerable variation in the way sentiment has changed among the big four large countries--Germany, France, Italy and Spain. In Germany, confidence actually rose slightly--0.3%--to 104.0 in March. In France, it was unchanged at 105.6. In Italy, however, it was down 1.3% and in Spain, 4.1%, taking their respective levels to 93.7 and 83.9, well below their long term averages of 100. In year over year comparisons, sentiment in Germany was down 4.9% compared with only 2.8% for France. The big losses in sentiment were in Italy and Spain where the level of sentiment was 16% and 17%, respectively, below the year ago levels. Economic Sentiment Indicators for Germany, France, Italy and Spain are shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">CONFIDENCE MEASURES&nbsp;</th>
<th scope="col">Mar 08</th>
<th scope="col">Feb&nbsp; 08&nbsp;</th>
<th scope="col">Mar&nbsp; 07&nbsp;</th>
<th scope="col">M/M % Chg&nbsp;</th>
<th scope="col">Y/Y % Chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro Area: Inflation (Percent)</td>
<td>3.5*</td>
<td>3.3</td>
<td>1.9</td>
<td>0.2</td>
<td>1.6</td>
<td>2.14</td>
<td>2.18</td>
<td>2.19</td>
</tr>
<tr>
<td class="firstcol">Euro Area: Economic Sentiment Indicator (Long term average =100)&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>99.6</td>
<td>100.2</td>
<td>110.6</td>
<td>-0.60</td>
<td>-9.95</td>
<td>108.4</td>
<td>106.3</td>
<td>97.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Germany&nbsp;</td>
<td>104.0</td>
<td>103.7</td>
<td>109.3</td>
<td>0.29</td>
<td>-4.85</td>
<td>108.4</td>
<td>105.2</td>
<td>94.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; France</td>
<td>105.6</td>
<td>105.6</td>
<td>108.0</td>
<td>0.0</td>
<td>-2.76</td>
<td>109.8</td>
<td>106.2</td>
<td>102.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>93.7</td>
<td>94.9</td>
<td>111.4</td>
<td>-1.26</td>
<td>-15.89</td>
<td>105.4</td>
<td>108.4</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Spain</td>
<td>83.9</td>
<td>87.5</td>
<td>101.5</td>
<td>-4.11</td>
<td>-17.34</td>
<td>97.7</td>
<td>98.9</td>
<td>100.6</td>
</tr>
<tr class="odd">
<td class="firstcol">*Flash Estimate (Changes are differences)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
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Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080328e.jpg" align="left" border="0" height="265" width="353">
Japan has been gradually making progress toward ridding itself
of its chronic deflation. Headline inflation now has turned positive
year-over-year and is positive over three months as well as over the
six-month horizon. The 12-month calculations are markedly different
from the year ago calculations which refer to the previous 12-month
period when the economy was more firmly in the grip of deflation.
Still, core inflation (ex-food and energy) has not yet moved up above
the zero mark.&gt;

In the quarter to date, inflation also has a positive tone.
Headline inflation is up at a 1% pace while the core is up at a 0.4%
pace and ex-food prices are rising at a 2.3% rate. Most CPI components
are rising in the first quarter of 2008 as well.

For Japan this mild inflation is a mark of success while other
countries are suffering with true inflation risks. Japan is emerging
from its battle with deflation, but it is still fighting to secure
growth.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">Japan CPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>Qtr-to-Date</td>
</tr>
<tr>
<td class="firstcol">All items</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>1.0%</td>
<td>-0.8%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">All items less food and energy</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-1.2%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">All items except fresh food</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.4%</td>
<td>1.8%</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">seasonally
adjusted BY Haver</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Beverage</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr>
<td class="firstcol">Housing</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>-1.2%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Clothing and Personal&nbsp;</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>0.7%</td>
<td>1.6%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.7%</td>
<td>3.2%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Medical care</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-0.8%</td>
<td>0.1%</td>
<td>-1.2%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Miscellaneous</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>4.5%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Reading &amp; Recreation</td>
<td>-0.3%</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>-2.0%</td>
<td>-0.8%</td>
<td>-0.9%</td>
<td>-4.4%</td>
<td>-1.2%</td>
</tr>
<tr>
<td class="firstcol">Transport &amp;
Communication</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>1.0%</td>
<td>4.4%</td>
<td>5.0%</td>
<td>3.1%</td>
<td>-1.6%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
</body></html>

Japan has been gradually making progress toward ridding itself of its chronic deflation. Headline inflation now has turned positive year-over-year and is positive over three months as well as over the six-month horizon. The 12-month [...]

Japan’s Inflation Rate Rises but ‘Core’ Still Below Zero Y/Y

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080328c.jpg" width="353">
The University of Michigan&#39;s consumer sentiment index for all of March fell 1.8% m/m to 69.5. That was larger than the 0.4% decline in the preliminary reading and it was just slightly greater than Consensus expectations for a reading of 70.
The index of expected business conditions during the next year still accounted for all of the decline in March sentiment. The 3.7% decline followed an 8.4% February drop and left the index at its lowest since early 1992. Expectations for business conditions during the next year fell 14.8% (-51.6% y/y). hat m/m drop was double the decline in the preliminary report. And expectations for conditions over the next five years fell m/m rather than rose. Expectations for personal finances also were unchanged rather than posting a slight rise.
Opinions about government policy fell slightly m/m (-23.6% y/y) following the sharp 11.5% drop during February. The percentage of those surveyed who indicated that they thought government was doing a good job rose somewhat but 44% had a poor opinion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080328d.jpg" width="353">
Expectations for inflation during the next twelve months surged to 4.6%, the highest level in nearly two years though inflation expectations during the next five to ten years fell slightly to 3.3%. That was the same expectation as in the preliminary reading.
The current conditions index fell 0.5% m/m after the 11.2% February plunge. The view of current conditions for buying large household goods improved slightly but the view of current personal finances fell for the fourth month in the last five (-16.2% y/y).
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">March</th>
<th scope="col">March (Prelim)</th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">March y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>&nbsp;69.5</td>
<td>70.5</td>
<td>70.8</td>
<td>78.4</td>
<td>-21.4% </td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>84.2</td>
<td>84.6</td>
<td>83.8</td>
<td>94.4</td>
<td>-18.6%</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>60.1</td>
<td>61.4</td>
<td>62.4</td>
<td>68.1</td>
<td>-23.6%</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan's consumer sentiment index for all of March fell 1.8% m/m to 69.5. That was larger than the 0.4% decline in the preliminary reading and it was just slightly greater than Consensus expectations for a reading [...]

Michigan Consumer Sentiment Fell Further

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

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

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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Sandy Batten

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Total retail sales rose a much larger-than-expected 0.9% m/m (6.9%y/y) in May following a slightly downwardly revised 0.4% monthly gain in April (previously 0.5% m/m), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 0.5% m/m gain. Excluding autos, other sales increased 0.8% m/m (7.5% y/y) after an unrevised 0.7% m/m increase in April. Expectations were for a 0.5% monthly rise.

Elevated retail gasoline prices continued to boost the value of gasoline sales in May. Gasoline sales increased 3.4% m/m (26.5% y/y) in May on top of a 2.8% m/m increase in April. However, both monthly increases were slower than the 14.2% monthly jump reported in March. Gasoline sales accounted for 31% of total sales in May. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.7% m/m in April, up from 0.2% m/m in April. Sales excluding both autos and gasoline increased 0.5% m/m in May, the same monthly gain as in April.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in May, rising 0.7% m/m (6.3% y/y) following an unrevised 0.5% monthly increase in April. The strong performance at the end of Q1 followed by solid gains in April and May put the April-May level of control group sales up 8.6% at an annual rate from the Q1 average, pointing to another solid contribution by consumption to overall GDP growth in Q2. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales generally increased across major sectors in May. Auto sales rebounded, rising 1.2% m/m in May and more than reversing the 0.9% monthly decline in April. This was the third gain in auto sales in the past four months. Furniture sales rose 1.0% m/m but sales at electronics and appliance stores slipped 0.5% m/m. Building material sales gained 1.0% m/m on top of a 1.1% monthly increase in April. Clothing sales rose 0.3% m/m. Sales at general merchandise stores gained 0.4% m/m in May. Miscellaneous sales jumped 2.3% m/m in May, their first monthly gain in three months. Sales by nonstore retailers continued their strong performance, increasing 1.5% m/m in May on top of a 1.1% monthly rise in April. Over the first five months of this year, nonstore retail sales have risen 7.2%, not annualized. By contrast, food sales were unchanged in May from April while sales at restaurants edged down 0.1% m/m in May, their first monthly decline in four months.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total sales increased 0.9% m/m in May, nearly twice expectations.
- Auto sales rebounded, rising 1.2% m/m in May, more than reversing a 0.9% monthly decline in April. 
- Gasoline sales rose 3.4% m/m in May.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in May, the same monthly increase as in April.
- Sales of the retail control group that is used to construct PCE rose 0.7% m/m in May and are 8.6% annualized above the Q1 average.

U.S. Retail Sales Jumped More than Expected in May

Winnie Tapasanun

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Mortgage applications fell 3.8% w/w (+8.6% y/y) in the week ending June 12 following a 10.8% rebound in the week ending June 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the fourth w/w fall in five weeks, lowering the index to 269.5. Applications for loans to purchase a house slid 3.4% (+3.0% y/y) in the June 12 week, down for the fourth time in five weeks, after a 7.3% rise in the previous week. Applications for loan refinancing dropped 4.5% (+17.0% y/y) in the June 12 week, the seventh w/w decline in eight weeks, following a 15.3% jump in the June 5 week.

The effective interest rate on a 30-year fixed-rate loan was unchanged at 6.78% in the week ending June 12; it was above a low of 6.24% in the February 27 week but below a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages edged up 2bps to 6.18% in the June 12 week, the highest in three weeks, from 6.16% in the previous week; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. Meanwhile, the rate on 30-year jumbo loans declined 4bps to 6.78% in the June 12 week from 6.82% in the prior week; it was above a low of 6.25% in the February 27 week but below a high of 7.99% in the week of October 27, 2023. The rate on a 5-year ARM fell 7bps to 6.16% in the June 12 week, the first w/w decline in six weeks, from 6.23% in the previous week (the highest since the week of August 15, 2025); it was above a low of 5.38% in the February 20 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan edged up to 40.3% of total applications in the week ending June 12—the fourth w/w increase in five weeks and the highest level since the May 15 week—after rising to 40.2% in the week ending June 5; it remained below a peak of 61.9% in the January 16 week but above a low of 34.6% in the week of May 23, 2025. The adjustable-rate mortgage (ARM) share of activity slipped to 8.5% in the June 12 week from 8.6% in the prior week; it was below a peak of 12.9% in the week of September 12, 2025 but above a low of 4.7% in the week of January 3, 2025.

The average size of a mortgage loan fell 1.5% w/w (+3.7% y/y) to $394,100 in the June 12 week, the lowest level since the April 3 week, after a 0.4% rebound to $399,900 in the June 5 week. The average size of a purchase loan dropped 1.9% (+4.0% y/y) to $456,600 in the June 12 week following a 2.8% recovery to $465,300 in the prior week. The average size of a loan to refinance a mortgage fell 0.4% (+7.0% y/y) to $301,400 in the June 12 week on top of a 2.3% decline to $302,500 in the previous week, marking the third consecutive w/w fall, the sixth decline in seven weeks, and the lowest level since the week of July 25, 2025.

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 applications -3.4% w/w, down for fourth time in five weeks; refinance applications -4.5% w/w, seventh fall in eight weeks.
- Effective interest rate on 30-year fixed loans unchanged at 6.78%, up from a late-February low of 6.24%.
- Average loan size down for the second time in three weeks, lowest since the April 3 week.

U.S. Mortgage Applications Down 3.8% in the June 12 Week, Fourth Drop in Five Weeks

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It's an interesting time for the Bank of England to be meeting; it has its next policy meeting on June 18. Top money center central banks have been meeting, and the European Central Bank delivered a rate hike, with what is believed to be a likelihood of another hike before the end of the year. The Bank of Japan as just met and executed a 25-basis-point rate hike that brought the overnight interest rate up to 1% for the first time in 31 years. The Federal Reserve meets today and although the Fed is not expected to make an interest rate change, it is widely expected to remove the language that implies the next rate change is likely to be a reduction. Against that background, there is a pending deal to be signed on Friday between the United States and Iran to end the hostilities, to open the Strait of Hormuz, and to allow a normalization—or at least a transition toward normalization—of traffic flow through the Strait of Hormuz and the restoration of the delivery of the world's oil supplies.

Against this background, the Bank of England will be making its rate decision. Part of this background shows other central banks having taken steps to become less accommodative or more vigilant against inflation risks and what have been ongoing overshoots of inflation targets by monetary policy globally. The Bank of England is part of this phenomenon as its rate of inflation, measured by the CPIH, is 3% year-over-year, a full percentage point above where it's supposed to be. However, both the CPIH and the HICP treatments for measuring U.K. inflation show inflation edging slightly lower—from 3% for the CPIH over 12 months to 2.7% over three months annualized. For the HICP, it moves from 2.9% over 12 months to a 2.7% annual rate over three months. Both of these are small moves but in the right direction. In addition, the CPIH core measure, excluding food, energy, alcohol, and tobacco, shows inflation declining from 2.9% over 12 months to 2.6% at an annual rate over six months, and to 1.7% at an annual rate over three months.

In short, inflation progress in the U.K. is very much in gear for the headline; inflation is quite moderately easing, however. For the core, the move lower is impressive and considerable. The question is whether the MPC at the Bank of England will find these movements sufficient in and of themselves to stay their hand and hold interest rate policy, or whether the Committee will join the ranks of central banks hiking interest rates to make sure that inflation makes that turn lower.

The situation in the Strait of Hormuz is hopeful, but not definitive, and there have been a number of ceasefires in the Middle East that have been called and then broken up relatively quickly. This time, markets are reacting to this particular announcement much more decisively and treating it as if this one is the ‘Real McCoy’ with oil prices having fallen down into the mid $70/barrel range and other indicators showing that markets are convinced that prices are moving lower too. Are the Bank of England's MPC members buying onto this as well? Or are they going to treat this as perhaps one last opportunity to get interest rates up and to make sure that the inflation rate goes down?

U.K. inflation on a monthly basis shows a slight tendency to accelerate in May, with inflation diffusion measuring inflation acceleration month-to-month at 58.3%, above the neutral reading of 50. However, diffusion had been at 50% in April and at 41.7% in March. Acceleration has been broadly blunted. In addition, the May increase in the CPIH was only 0.1%, the same as in April, with March having posted a much stronger increase of 0.4%.

Looking at trends sequentially over 12 months, six months and three months, diffusion is only 25% over 12 months; it is 50% over six months and 25% over three months. These metrics reinforce the view that inflation is not broadly accelerating but rather decelerating and moving back into line.

Taking the year-over-year inflation rate, it's a ranking of overall inflation rates back to January 2000. The headline CPIH is still high at a 74.4 percentile standing; that means it has been higher than 3% about 25% of the time and lower about 75% of the time. The average ranking across the various metrics in the table is 61%. That's above a ranking of 50% that delineates the median for the period. And despite the fast fall in the CPIH core rate, the year-over-year core is at 2.9% and has an 81.2 percentile ranking, meaning it has been higher since January 2000, less than 20% of the time. However, that 12-month rate of 2.9% is now down to 1.7% over three months. There are too many ways to look at inflation, at the environment, at what other central banks have done, and at trends to know with any certainty what the BOE will do.

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The Bank of England has had a long period of overshooting its inflation target. It certainly will want to make sure that it's on a clear path toward getting inflation back to 2%. There's a question here about how much the Bank of England will want to trust the trend that it sees, how much it wants to trust the fast drop in the core rate, and then how much it wants to believe that the deal struck with Iran to open the Strait of Hormuz is going to prove durable. There are no real answers to these questions; they're going to be based upon opinions and perceptions, and they're also going to be based upon the pressure that the Bank of England feels about needing to make sure that it gets inflation back to 2% after its long period of intransigence. We'll find this out tomorrow.

United Kingdom

U.K. Inflation Dips and Shows Progress

Michael J. Moran

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The headline index on import prices rose 1.9% in May, close to the blistering pace in April and the fourth consecutive high-side reading. This recent pressure has pulled the year-over-year change to 6.7%, a distinct shift from last year when import prices showed no change over the 12 months of 2025.

Prices of petroleum products have been the most important factor behind the recent surge, increasing 13.0% in May after an average of 17.8% in the prior two months. However, prices excluding petroleum products also have stirred this year, as they have increased more than 0.6% in each of the past five months. May posted the firmest increase in this string of brisk readings (1.3%). Prices of consumer goods had been increasing moderately in early 2026, but they jumped 0.5% in May. The changes in capital and consumer goods led to an increase of 0.8% in nonpetroleum prices in May and an average of 0.6% in the first five months of the year.

Some observers might seek to look for the effects of tariffs on import prices, but these figures would not be especially helpful in this regard, as prices are recorded before the imposition of tariffs. However, if foreign producers wished to absorb the tariff burden to remain competitive in the US market, they could reduce invoiced prices to keep post-tariff prices steady. Indeed, nonpetroleum prices softened after April of last year following the announcement of President Trump’s Liberation Day tariffs. The subsequent easing of some of the draconian tariffs and the nullification of tariffs imposed under the International Emergency Economic Powers Act might be factors leading importers to return to original prices this year. Given that the pressure on import prices ex-petroleum has been concentrated in the capital goods area, there does not seem to be a rush to return to pre-tariff pricing.

On the export side, prices rose 1.3% in May, continuing the firm pace seen in the preceding four months. Petroleum prices have played a role in this pressure, as shown by an increase of 2.4% in the industrial supply category (petroleum prices alone are not available on the export side). Food prices also have jumped this year, increasing 0.8% in May after an average of 1.2% in the prior three months. Prices of capital goods were tame in the early months of the year, but they have firmed in the past two months (0.5% in April and 0.7% in May).

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Petroleum products led import prices higher, but capital goods also had an influence.
- Petroleum was also a factor on the export side; some stirring in food and capital goods.

Import and Export Prices: Firm in May

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Weighed down by further rises in longer-term interest rates, housing construction continued to languish in May. Housing starts plunged 15.4% m/m (-8.7% y/y) in May on top of a downwardly revised 8.5% monthly decline in April (previously -2.8% m/m). The level of starts plummeted to 1.177 million, the lowest since May 2020 when the economy was locked down during the COVID pandemic. The Action Economics Forecast Survey expected a 2.4% m/m decline to a level of 1.432 million units. The April/May average for starts was 1.285 million, 9.4% below the Q1 average. Residential investment has been a persistent drag on real GDP growth recently, subtracting from overall growth in each of the previous five quarters. Today’s report points to another subtraction in Q2.

Single-family starts fell 1.9% m/m (-6.7% y/y) in May on top of a downwardly revised 11.6% monthly plunge in April (previously -9.0% m/m). Multi-family starts, which had generally been trending up over the past year or so, albeit with quite a bit of volatility, plummeted 40.2% m/m (-14.2% y/y) in May following a downwardly revised 2.4% m/m decline in April (previously +10.3% m/m).

Starts fell in three of the four major geographic regions. Starts rose 3.7% m/m in the Midwest with gains in both single-family and multi-family starts. By contrast, starts fell in each of the other three regions, plunging 26.8% m/m in the Northeast, the third monthly decline in the past four months, falling 17.0% m/m in the South, also the third monthly decline in the past four months, and declining 17.2% m/m in the West, the fourth monthly decline in the past five months.

The performance of building permits is typically less volatile than that of starts. Total permits edged down 0.7% m/m (-0.2% y/y) to 1.413 million units in May following a 4.4% monthly gain in April and an 11.5% m/m fall in March. Expectations were for a 0.3% monthly increase in May. Single-family permits edged up 0.6% m/m (-1.8% y/y) in May versus a 1.6% monthly decline in April and a 3.7% m/m drop in March. By contrast, multi-family permits fell 2.8% m/m (+2.5 y/y) in May but this was after a 15.8% monthly surge in April.

In contrast to the regional performance of starts, permits fell in the Midwest (-18.7% m/m) but rose in each of the other three major geographic regions. Permits increased 3.1% m/m in the Northeast in May on top of a 18.1% monthly jump in April. They edged up 1.6% m/m in the South and rose 5.5% m/m in the West, the first monthly gain in three months.

The housing starts and permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Housing starts plunged 15.4% m/m in May to the lowest level since May 2020 with a significant downward revision to the previously reported April decline.
- Single family starts fell 1.9% m/m while multi-family starts plummeted 40.2% m/m to their lowest level since November 2024.
- Less volatile permits slid 0.7% m/m in May with a slight rise (+0.6% m/m) in single-family permits and a 2.8% monthly drop in multi-family permits.

Economy in Brief

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