Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319a.jpg" width="353">
The March index of manufacturing activity in New York State fell to a more negative reading of -22.23 in March after a -11.72 February figure. Expectations were for -6.3. The figures are reported by the Federal Reserve Bank of New York.
Since the series&#39; inception in 2001 there has been a 55% correlation between the index level and the three month change in U.S. factory sector industrial production.
New orders, shipments and inventories were deeply negative.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319b.jpg" width="353">
The employment index improved to a positive 4.49 from -2.11 in February. In the (perhaps too) short six year history of the NY employment index, there has been an 85% correlation between it and the three month growth in overall factory sector employment.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
Pricing pressure rose to its highest level since June of 2006. Since 2001 there has been an 81% correlation between the index of prices paid and the three month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months improved slightly and remained near its lowest in six years.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">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/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March &#39;07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)&nbsp;&nbsp;</td>
<td>-22.23</td>
<td>-11.72&nbsp;</td>
<td>6.63</td>
<td>17.23</td>
<td>20.24</td>
<td>15.53</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>50.56</td>
<td>47.37</td>
<td>30.23</td>
<td>35.64</td>
<td>41.88</td>
<td>44.74</td>
</tr>
</tbody>
</table>


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The March index of manufacturing activity in New York State fell to a more negative reading of -22.23 in March after a -11.72 February figure. Expectations were for -6.3. The figures are reported by the Federal Reserve Bank of New [...]

U.S. Empire State Index More Negative

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319d.jpg" align="left" border="0" height="265" width="353">
UK order books are high, in the 96th percentile of their range
of values since end-2000 in terms of the net balance readings of the
CBI survey. Total orders are strong and exports are the highest seen in
this seven-plus year period Output volume expected in the next 3-months
is more restrained but still resides in the top 18 percent of its range
(100-82=18). Stocks of product are mid range, neither too high nor too
low. Price expectations will not be good news to the BOE. Prices
expected in the next 3-months are the highest net balance we have sense
in this period at +25, up sharply from +22 in February and average
expectations of +18 over the past year.

In analyzing these trends one thing to consider is the recent
choppiness of recent movements. The export order jump month-to-month
lifted export orders to the top percentile of the seven plus year range
from its top 20th percentile reading last month. Output volume expected
jumped from the 70th percentile of the range last month to the 82nd
percentile (top 18%). So before we celebrate we need to recognize that
the UK industrial sector is doing better, but that the monthly readings
are volatile. The one exception might be for expected prices where the
monthly gains have been large and steady. It is not clear that the UK
industrial sector is as strong as a top of range reading makes it seem.
The chart makes it clear that there has been some recovery but that the
net positive readings are relatively moderate despite their relative
range position that the order readings have posted. For the most part
these readings are moving sideways and are not pointing to an
acceleration that might signal overheating. Still the price component
is a bit unsettling.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col"> UK
Industrial volume data CBI Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> Reported:</td>
<td> Mar-08</td>
<td> Feb-08</td>
<td> Jan-08</td>
<td> Dec-07</td>
<td> 12Mo Avg</td>
<td> Pcntle</td>
<td> Max</td>
<td> Min</td>
<td> Range</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Orders</td>
<td>7</td>
<td>3</td>
<td>2</td>
<td>2</td>
<td>3</td>
<td> 96%</td>
<td>9</td>
<td>-40</td>
<td>49</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>3</td>
<td>-8</td>
<td>-4</td>
<td>2</td>
<td>-4</td>
<td> 100%</td>
<td>3</td>
<td>-50</td>
<td>53</td>
</tr>
<tr class="grey2">
<td class="firstcol">Stocks: Final Goods</td>
<td>12</td>
<td>11</td>
<td>7</td>
<td>14</td>
<td>10</td>
<td> 50%</td>
<td>26</td>
<td>-2</td>
<td>28</td>
</tr>
<tr>
<td class="firstcol">Output Volume: Next 3-months</td>
<td>11</td>
<td>11</td>
<td>9</td>
<td>3</td>
<td>13</td>
<td> 70%</td>
<td>28</td>
<td>-28</td>
<td>56</td>
</tr>
<tr class="grey2">
<td class="firstcol">Avg Prices 4 Next 3-months</td>
<td>25</td>
<td>22</td>
<td>21</td>
<td>15</td>
<td>18</td>
<td> 100%</td>
<td>25</td>
<td>-30</td>
<td>55</td>
</tr>
<tr class="odd">
<td colspan="10" class="firstcol">From end 2000</td>
</tr>
</tbody>
</table>
</body></html>

UK order books are high, in the 96th percentile of their range of values since end-2000 in terms of the net balance readings of the CBI survey. Total orders are strong and exports are the highest seen in this seven-plus year period [...]

UK Order Books are "Full".…but for How Long?

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319e.jpg" align="left" border="0" height="265" width="353">
The Commerce Department reported that for January total
business inventories rose 0.8% after an upwardly revised 0.7% rise in
December. The annualized three month growth in inventories rose as a
result to 7.7%, its strongest since mid-2006. The quicker rate of
accumulation, if sustained, would reverse much of the -1.4 percentage
point contribution inventories made to 4Q07 growth in real GDP.
A quicker rate of accumulation of factory inventories accounts
for much of the acceleration. In January they surged by 1.3% after a
strong 0.9% December increase. Together they raised the three month
rate of accumulation to 12.0%, up from 7.2% during 4Q07. Higher oil
prices were behind some of that faster rate of gain as petroleum
inventories rose 8.1% in January (29.7% y/y). Nevertheless, excluding
petroleum factory inventories still increased a firm 0.8% during
January, the same as in the prior month, and the three month rate of
accumulation rose to 8.8%, up from the 5.9% 4Q rate of gain and from
the 1.7% 3Q rise. 
 

Retail inventories are up, but the rate of gain shows a less
pronounced acceleration due to auto cutbacks. During January total
retail inventories rose 0.4% after no change in December. The three
month rate of increase was a minimal 0.7% after a 0.2% 4Q rise.
Inventories of motor vehicle &amp; parts rose just 0.4% in January
after four consecutive months of decline. As a result motor vehicle
inventories during the last three months fell at a 4.8% rate after an
8.0% 4Q drop. Motor vehicle inventories were reduced as production was
cut back. Outside of autos retail inventories were well behaved through
January and rose just 0.4%, half the December rise. That lowered the
three month growth rate to 3.3% from 4.3% during 4Q. 
 

The industry detail in the retail sector shows that building
materials inventories grew at a 6.4% rate over the last three months
versus a 7.6% 4Q gain. Furniture inventories fell at a 5.7% rate after
a 2.3% 4Q rise. At clothing &amp; accessory stores the three month
rate of accumulation of 0.4% offset a 0.3% rate of decumulation during
4Q. General merchandise stores' inventories rose at a 0.8% rate over
the last three months following decumulation at a 1.7% rate during 4Q.
The gains in wholesale inventories have been strong, rising
0.8% in January after a 1.1% December rise. Curiously, the value of
inventories of petroleum products fell 3.4% in January and offset half
of the prior month's increase. Less petroleum wholesale inventories
rose a strong 1.0% and the three month rate of increase nearly doubled
to 10.5% versus 4Q. During the last ten years there has been a 59%
correlation between the annual change in wholesale inventories less
petroleum and the change in merchandise imports.
Business sales rose 1.5% and three month growth was still a
firm 9.4% as of January. Much of that strength was due to wholesale
sales which grew at a 17.7% rate over the three months. Petroleum
industry sales grew at a 76.2% rate but less petroleum wholesale sales
still were strong and grew at a 10.7% rate over the last three months.
As of January, strength in sales offset the gain in
inventories and the I/S ratio fell to 1.25%, the lowest since 2005.
Inventories, Lumpy Trade, and Large Devaluations from
the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/wps/2008/wp08-3.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/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business
Inventories</a></th>
<th scope="col">January</th>
<th scope="col">December</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>0.8%</td>
<td>0.7%</td>
<td>4.8%</td>
<td>4.1%</td>
<td>5.8%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.4%</td>
<td>0.0%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>3.2%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>0.4%</td>
<td>0.8%</td>
<td>3.8%</td>
<td>3.3%</td>
<td>4.5%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.8%</td>
<td>1.1%</td>
<td>6.4%</td>
<td>6.1%</td>
<td>8.5%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>1.3%</td>
<td>0.9%</td>
<td>5.0%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>8.9%</td>
</tr>
</tbody>
</table>
U.S. Empire State Index More
Negative 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 19, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319a.jpg" align="left" border="0" height="265" width="353">
The March index of manufacturing activity in New York State
fell to a more negative reading of -22.23 in March after a -11.72
February figure. Expectations were for -6.3. The figures are reported
by the Federal Reserve Bank of New York.
Since the series' inception in 2001 there has been a 55%
correlation between the index level and the three month change in U.S.
factory sector industrial production.
New orders, shipments and inventories were deeply negative.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319b.jpg" align="right" border="0" height="265" width="353">
The employment index improved to a positive 4.49 from -2.11 in
February. In the (perhaps too) short six year history of the NY
employment index, there has been an 85% correlation between it and the
three month growth in overall factory sector employment.
Like the Philadelphia Fed Index of General Business
Conditions, the Empire State Business Conditions Index reflects answers
to an independent survey question; it is not a weighted combination of
the components.
Pricing pressure rose to its highest level since June of 2006.
Since 2001 there has been an 81% correlation between the index of
prices paid and the three month change in the core intermediate
materials PPI.
The Empire State index of expected business
conditions in six months improved slightly and remained near
its lowest in six years.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State conducted by the Federal Reserve Bank
of New York. Participants from across the state in a variety of
industries respond to a questionnaire and report the change in a
variety of indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead. April
2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">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/@S5/@S511/@S511.HTM">Empire
State Manufacturing Survey</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March '07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions
(diffusion index)&nbsp;&nbsp;</td>
<td>-22.23</td>
<td>-11.72&nbsp;</td>
<td>6.63</td>
<td>17.23</td>
<td>20.24</td>
<td>15.53</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>50.56</td>
<td>47.37</td>
<td>30.23</td>
<td>35.64</td>
<td>41.88</td>
<td>44.74</td>
</tr>
</tbody>
</table>
UK Order Books are "Full".&#8230;but
forHow Long? 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 19, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319d.jpg" align="left" border="0" height="265" width="353">
UK order books are high, in the 96th percentile of their range
of values since end-2000 in terms of the net balance readings of the
CBI survey. Total orders are strong and exports are the highest seen in
this seven-plus year period Output volume expected in the next 3-months
is more restrained but still resides in the top 18 percent of its range
(100-82=18). Stocks of product are mid range, neither too high nor too
low. Price expectations will not be good news to the BOE. Prices
expected in the next 3-months are the highest net balance we have sense
in this period at +25, up sharply from +22 in February and average
expectations of +18 over the past year.

In analyzing these trends one thing to consider is the recent
choppiness of recent movements. The export order jump month-to-month
lifted export orders to the top percentile of the seven plus year range
from its top 20th percentile reading last month. Output volume expected
jumped from the 70th percentile of the range last month to the 82nd
percentile (top 18%). So before we celebrate we need to recognize that
the UK industrial sector is doing better, but that the monthly readings
are volatile. The one exception might be for expected prices where the
monthly gains have been large and steady. It is not clear that the UK
industrial sector is as strong as a top of range reading makes it seem.
The chart makes it clear that there has been some recovery but that the
net positive readings are relatively moderate despite their relative
range position that the order readings have posted. For the most part
these readings are moving sideways and are not pointing to an
acceleration that might signal overheating. Still the price component
is a bit unsettling.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col"> UK
Industrial volume data CBI Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> Reported:</td>
<td> Mar-08</td>
<td> Feb-08</td>
<td> Jan-08</td>
<td> Dec-07</td>
<td> 12Mo Avg</td>
<td> Pcntle</td>
<td> Max</td>
<td> Min</td>
<td> Range</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Orders</td>
<td>7</td>
<td>3</td>
<td>2</td>
<td>2</td>
<td>3</td>
<td> 96%</td>
<td>9</td>
<td>-40</td>
<td>49</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>3</td>
<td>-8</td>
<td>-4</td>
<td>2</td>
<td>-4</td>
<td> 100%</td>
<td>3</td>
<td>-50</td>
<td>53</td>
</tr>
<tr class="grey2">
<td class="firstcol">Stocks: Final Goods</td>
<td>12</td>
<td>11</td>
<td>7</td>
<td>14</td>
<td>10</td>
<td> 50%</td>
<td>26</td>
<td>-2</td>
<td>28</td>
</tr>
<tr>
<td class="firstcol">Output Volume: Next 3-months</td>
<td>11</td>
<td>11</td>
<td>9</td>
<td>3</td>
<td>13</td>
<td> 70%</td>
<td>28</td>
<td>-28</td>
<td>56</td>
</tr>
<tr class="grey2">
<td class="firstcol">Avg Prices 4 Next 3-months</td>
<td>25</td>
<td>22</td>
<td>21</td>
<td>15</td>
<td>18</td>
<td> 100%</td>
<td>25</td>
<td>-30</td>
<td>55</td>
</tr>
<tr class="odd">
<td colspan="10" class="firstcol">From end
2000</td>
</tr>
</tbody>
</table>
Italy Orders Rise in Month but
Still Faltering Trend 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 19, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319c.jpg" align="left" border="0" height="265" width="353">Italy&#8217;s orders jumped
sharply in January but only after an
even larger fall in December. As a result the Q1 sales growth for
orders in January over the Q4 average is a dismal -1.8%. Foreign orders
in Q1 2008 are still rising however at a 4.4% rate but domestic orders
are a very weak -5.4%.

Italian sales are however up sharply higher in 2008-Q1: as of
January. Sales are growing at a strong 18% pace in the quarter with
3.6% growth over three months and 5.7% growth over 12 months. So order
weakness has yet to hit the sales bottom line. Still, order and sales
in Italy have tracked closely in the past, so the weakness in orders
should be ignored.
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2.6%</td>
<td>-5.6%</td>
<td>2.9%</td>
<td>-1.0%</td>
<td>-3.0%</td>
<td>7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>5.3%</td>
<td>-8.1%</td>
<td>3.9%</td>
<td>2.0%</td>
<td>-8.3%</td>
<td>10.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Domestic</td>
<td>1.1%</td>
<td>-4.1%</td>
<td>2.4%</td>
<td>-2.8%</td>
<td>-0.2%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">Memo</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">&nbsp; Sales</td>
<td>4.6%</td>
<td>-2.6%</td>
<td>0.2%</td>
<td>9.0%</td>
<td>3.6%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>

Japan Slips and its Assessment is
Cut&#8230; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 19, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319f.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s all-industry index was flat in January. The tertiary
index that it tracks so closely was up to 110.3 from 109.5 in December.
In terms of year-to-year changes the tertiary and all-industries
indices are about the same showing a small bounce in the recent month
but holding in a shallow downtrend overall. Mining and MFG are well off
peak and the sector moved lower in January to 109.5 from 112.0 in
December. This left the year/year change in the index near zero. Over
the past several months Japan&#8217;s sector indices have more or less held
steady in terms of their year/year changes. Even the very weak
construction index that fell again in January is steady to a bit higher
over 12 months.
Amid these signals the Japanese government has downgraded its
assessment of the economy for the second consecutive month in March.The Cabinet Office that issues the
assessment cited stalled corporate capital spending and weak industrial
production. Private
consumption has lagged for time and was also on the laundry list of
reason to downgrade the economy. The
government said in its March report that "the economic recovery appears
to be pausing recently." This pronouncement is a bold contrast to its
overview in the February report that held: "the economy is recovering
at a moderate pace recently." Things change.
This is the &#8216;first second&#8217; for a downgrade: It is the first
time in this cycle that the government has downgraded its overall
assessment of the economy for the second month in a row. Last time it
did such a thing was in November and December 2004.
The first downgrade in this cycle came in February a
period that is not yet covered in the data table below.
In February the government lowered its assessment of the
economy due to slower growth of exports and industrial production in
addition to continuing weakness in private consumption and housing
construction. This month&#8217;s downgrade features some of the same sectors:
capital investment, industrial output and private consumer spending.
Japan once again has issues. With the yen now rising, Japan faces
challenges and still needs a head at its central bank. &#8230;and it&#8217;s not a
good time to be without monetary leadership. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col"> Up to
date Japan Industry Surveys</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jan 
2008</td>
<td>Dec 
2007</td>
<td>Nov 
2007</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>107.0</td>
<td>107.0</td>
<td>107.4</td>
<td>107.1</td>
<td>107.4</td>
<td>107.3</td>
<td>108.4</td>
<td>93.6</td>
<td>90.5%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>71.5</td>
<td>72.0</td>
<td>72.1</td>
<td>71.9</td>
<td>72.3</td>
<td>76.3</td>
<td>124.6</td>
<td>71.1</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>109.5</td>
<td>112.0</td>
<td>110.4</td>
<td>110.6</td>
<td>111.1</td>
<td>109.4</td>
<td>112.2</td>
<td>87.7</td>
<td>89.0%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>110.3</td>
<td>109.5</td>
<td>110.5</td>
<td>110.1</td>
<td>110.2</td>
<td>110.1</td>
<td>111.2</td>
<td>91.0</td>
<td>95.5%</td>
</tr>
<tr>
<td class="firstcol" colspan="10">Ranges,
Max, Min since
1993</td>
</tr>
</tbody>
</table>
</body></html>

The Commerce Department reported that for January total business inventories rose 0.8% after an upwardly revised 0.7% rise in December. The annualized three month growth in inventories rose as a result to 7.7%, its strongest since [...]

U.S. Business Inventories Starting to Back Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318n.jpg" width="353">
Today, the Federal Open Market Committee lowered the Federal funds rate by 75 basis points to 2.25% in a move that was somewhat more aggressive than generally expected. The funds rate was last this low early in 2005 and it was the largest cut since this past January.
The discount rate was lowered another 75 basis points to 2.5% after this weekend&#39;s cut from 3.5%.
The Fed indicated that &quot;the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.&quot;
The Fed further indicated that &quot;Today&#146;s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain.&quot;
Voting against taking the action was Richard W. Fisher, President of the Federal Reserve Bank of Dallas and Charles I. Plosser, President of the Philadelphia Fed, who preferred less aggressive action at this meeting.
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080318a.htm">link</a>.
Market Bailouts and the &quot;Fed Put&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/08/03/Poole.pdf">here</a>.
Booms and Busts: The Case of Subprime Mortgages from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/4q07Gramlich.pdf">here</a>.

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Today, the Federal Open Market Committee lowered the Federal funds rate by 75 basis points to 2.25% in a move that was somewhat more aggressive than generally expected. The funds rate was last this low early in 2005 and it was the [...]

FOMC Lowers Fed Funds Rate by 75 Basis Points

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318k.jpg" width="353">
For last week, the International Council of Shopping Centers ICSC-UBS Chain Store survey indicated that chain store sales rose 0.4% and added to the prior week&#39;s 0.3% rise. The increases raised the average level of sales so far this month 0.2% from February after that month&#39;s 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318l.jpg" width="353">
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 remained quit week and was unchanged w/w.The index has trended steadily lower since early January.
Retail gasoline prices were again strong last week and repeated the prior period&#39;s six cent rise. The level of $3.28 per gallon, according to the U.S. Department of Energy survey, was a new high.In real terms (calculated as the CPI for gasoline divided by the total CPI less energy) gasoline prices remained in February just above the old high reached early in 1981.
Real gasoline prices likely will reach a new high this month as the wholesale price of gasoline is up more than ten cents from the February average.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318m.jpg" width="353"> 
Crude oil prices have been quite strong with the average for WTI crude at $109.43 per bbl., up roughly ten dollars from the February average. Crude prices backed off slightly yesterday.
These energy price series are available in Haver&#39;s Daily and Weekly databases.

<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">03/14/08</th>
<th scope="col">03/08/08</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>490.1</td>
<td>488.3</td>
<td>1.6%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
<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">03/17/08</th>
<th scope="col">03/10/08</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">Retail Gasoline ($ per Gallon)</td>
<td>3.28</td>
<td>3.23</td>
<td>27.4%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>109.43</td>
<td>103.43</td>
<td>88.9%</td>
<td>94.00</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>


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For last week, the International Council of Shopping Centers ICSC-UBS Chain Store survey indicated that chain store sales rose 0.4% and added to the prior week's 0.3% rise. The increases raised the average level of sales so far this [...]

U.S. Chain Store Sales Up Slightly and Gasoline Prices Up Sharply

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318h.jpg" align="left" border="0" height="265" width="353">
With turmoil in world financial markets and slowing economies,
monetary authorities in some of the countries that have been targeting
inflation may find the "target" too restrictive.
The release of inflation data in the United Kingdom and Canada
today illustrates two different cases. In the United Kingdom where
inflation is increasing and economic conditions deteriorating,
inflation targeting may be relaxed. In Canada where inflation is
falling, weakening demand can be addressed by easier monetary policies
without fear of setting off an inflationary spiral.
In the UK, where the base interest rate is 5.25%, a reduction
in the rate would ordinarily be likely in view of the slowing economy.
However, inflation has been creeping up since a low of 1.75% was
reached last August. It was 2.51% in February, the highest since June
of last year and well above the Bank of England's target rate of 2%. On
the other hand, Core inflation, defined as total excluding energy,
food, alcoholic beverages and tobacco, has been declining over the same
period and is now 1.17%. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318i.jpg" align="right" border="0" height="265" width="353">Overall
inflation and core inflation in the UK are shown in the first chart.
The better performance of the core relative to total inflation may
influence the Monetary Policy Committee against raising interest rates
and may even pave the way for a cut. The next meeting of the Monetary
Policy Commission of the Bank of England will be on April 10th.
The Bank of Canada reduced its base rate by 50 basis points to
3.5% on March 4, 2008. At that time the Bank suggested that further
monetary stimulus might be required. It is unlikely that monetary
policy in Canada in the coming months will be restrained by inflation
considerations. Inflation has been declining since November and was
1.8% in February. below the Bank of Canada's target rate of 2%.
Although core inflation, defined as total inflation less 8 volatile
items and indirect taxes, increased from 1.38% in January to 1.47% in
February it was the first increase in core inflation since June, 2006
and the level is still relatively subdued. Overall inflation and core
inflation in Canada are shown in the second chart. The next interest
rate announcement by the Bank of Canada will be on April 22, 2008.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">CONSUMER
PRICE INDEXES AND INFLATION&nbsp;</th>
<th scope="col">Feb 08</th>
<th scope="col">Jan&nbsp; 08&nbsp;</th>
<th scope="col">Feb 07&nbsp;</th>
<th scope="col">M/M %Chg&nbsp;</th>
<th scope="col">Y/Y %Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol" colspan="9">UNITED
KINGDOM</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total
CPI&nbsp;&nbsp; (2005
=100)</td>
<td>106.3</td>
<td>105.5</td>
<td>103.7</td>
<td>0.76</td>
<td>2.51</td>
<td>104.7</td>
<td>102.33</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core
CPI&nbsp; (2005 =100)&nbsp;</td>
<td>103.4</td>
<td>103.1</td>
<td>102.2</td>
<td>0.29</td>
<td>1.17</td>
<td>103.0</td>
<td>101.3</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">CANADA</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total
CPI&nbsp;&nbsp;(2005=100)*
</td>
<td>104.9</td>
<td>104.5</td>
<td>103.0</td>
<td>0.36</td>
<td>1.81</td>
<td>104.2</td>
<td>102.0</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core
CPI&nbsp;&nbsp; (2005=100)*</td>
<td>105.0</td>
<td>104.4</td>
<td>103.4</td>
<td>0.54</td>
<td>1.47</td>
<td>104.1</td>
<td>101.9</td>
<td>100.0</td>
</tr>
<tr>
<td colspan="9">* Rebased
from&nbsp;&nbsp;(2002=100)</td>
</tr>
</tbody>
</table>
</body></html>

With turmoil in world financial markets and slowing economies, monetary authorities in some of the countries that have been targeting inflation may find the "target" too restrictive. The release of inflation data in the United Kingdom [...]

Inflation Targeting in UK and CANADA

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318d.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s export and import rise in January and continue to show
good momentum despite forecasts of slowing in the Euro Area and a
continually rising euro. While MFG readings have showed slowing the
export picture remains surprisingly strong. 
 

After declines in the year ago period Italy&#8217;s exports have
come back to life with strong growth across the export categories.
Capital goods exports remain especially strong. On the import side
growth has also been quite strong. Year over year both export and
imports up by just about 10%. 
 

However the chart provides a different perspective. Despite
all the solid growth rates the time series of Yr/Yr growth rates shows
that apart from a sharp drop and recovery over the past year Italy&#8217;s
export and import Year-over-year growth rates are still locked in a
broad declining trend. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy's
Trade Trends </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/mo % monthly rate</td>
<td colspan="4">Period Specified saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Current Account Balance</td>
<td>&#8364;&#8364; (3,670)</td>
<td>&#8364;&#8364; (3,589)</td>
<td>&#8364;&#8364; (2,763)</td>
<td>&#8364;&#8364; (3,341)</td>
<td>&#8364;&#8364; (3,311)</td>
<td>&#8364;&#8364; (3,060)</td>
<td>&#8364;&#8364; (3,299)</td>
</tr>
<tr>
<td class="firstcol">Goods Balance</td>
<td>&#8364;&#8364; 288</td>
<td>&#8364;&#8364; (1,255)</td>
<td>&#8364;&#8364; 455</td>
<td>&#8364;&#8364; (171)</td>
<td>&#8364;&#8364; 174</td>
<td>&#8364;&#8364; 171</td>
<td>&#8364;&#8364; (762)</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>16.2%</td>
<td>-9.1%</td>
<td>-3.3%</td>
<td>8.9%</td>
<td>8.7%</td>
<td>9.9%</td>
<td>13.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>10.3%</td>
<td>-3.6%</td>
<td>-2.7%</td>
<td>14.4%</td>
<td>3.3%</td>
<td>9.9%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">Services Balance</td>
<td>&#8364;&#8364; 247</td>
<td>&#8364;&#8364; (40)</td>
<td>&#8364;&#8364; (415)</td>
<td>&#8364;&#8364; (69)</td>
<td>&#8364;&#8364; (392)</td>
<td>&#8364;&#8364; (476)</td>
<td>&#8364;&#8364; (180)</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>3.6%</td>
<td>8.0%</td>
<td>-2.6%</td>
<td>40.6%</td>
<td>27.5%</td>
<td>10.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>-0.3%</td>
<td>2.4%</td>
<td>-2.9%</td>
<td>-3.3%</td>
<td>5.4%</td>
<td>-1.0%</td>
<td>18.3%</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="4">Not
Seasonally Adjusted</td>
<td colspan="4">All Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>Jan-08</td>
<td>&nbsp;</td>
<td>Jan-07</td>
<td>&nbsp;</td>
<td>Jan-06</td>
<td>&nbsp;</td>
<td>Jan-05</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>18.3%</td>
<td>--</td>
<td>-2.0%</td>
<td>--</td>
<td>10.9%</td>
<td>--</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>14.2%</td>
<td>--</td>
<td>5.3%</td>
<td>--</td>
<td>14.4%</td>
<td>--</td>
<td>8.8%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Transport</td>
<td>12.1%</td>
<td>--</td>
<td>-3.1%</td>
<td>--</td>
<td>24.0%</td>
<td>--</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>12.3%</td>
<td>--</td>
<td>-2.7%</td>
<td>--</td>
<td>10.8%</td>
<td>--</td>
<td>8.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Other Goods</td>
<td>7.2%</td>
<td>--</td>
<td>18.1%</td>
<td>--</td>
<td>9.2%</td>
<td>--</td>
<td>22.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>Jan-08</td>
<td>&nbsp;</td>
<td>Jan-07</td>
<td>&nbsp;</td>
<td>Jan-06</td>
<td>&nbsp;</td>
<td>Jan-05</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>6.4%</td>
<td>--</td>
<td>-5.2%</td>
<td>--</td>
<td>14.7%</td>
<td>--</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>10.6%</td>
<td>--</td>
<td>5.7%</td>
<td>--</td>
<td>7.2%</td>
<td>--</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Transport</td>
<td>11.2%</td>
<td>--</td>
<td>11.2%</td>
<td>--</td>
<td>4.4%</td>
<td>--</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>8.1%</td>
<td>--</td>
<td>-1.2%</td>
<td>--</td>
<td>18.8%</td>
<td>--</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Other Goods</td>
<td>17.8%</td>
<td>--</td>
<td>3.0%</td>
<td>--</td>
<td>37.2%</td>
<td>--</td>
<td>17.2%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Balances in
Mil of Euros</td>
</tr>
</tbody>
</table>
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Italy’s export and import rise in January and continue to show good momentum despite forecasts of slowing in the Euro Area and a continually rising euro. While MFG readings have showed slowing the export picture remains surprisingly [...]

Italy’s Trade Deficit Widens: Complex Picture Emerges

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Finished producer prices in the U.S. rose 0.3% during February following a 1.0% surge in January. The latest increase fell just short of Consensus expectations for a 0.4% rise but the 6.8% increase versus last February was near this cycle&#39;s high. Moreover it was well up from the 3.9% increase during all of last year.
Less food and energy the 0.5% increase in prices was quite a bit stronger than expectations for a 0.2% gain. While the y/y increase held roughly steady at 2.5% the annualized rate of growth during the last three months surged to 4.7%, about the fastest in ten years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318f.jpg" width="353">
Energy prices rose 0.8% (20.7% y/y) and added to the prior month&#39;s 1.5% surge. Gasoline prices rose 2.9% for the second consecutive month (43.2% y/y) though home heating oil prices fell 3.7% (+36.8% y/y). Natural gas prices jumped 5.7% (5.3% y/y).
Why Do Gasoline Prices React to Things That Have Not Happened? from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2007/c/pages/gas-prices.html">here</a>.
Finished consumer food prices fell 0.5% (+6.0% y/y) and gave back just a piece of the 1.7% January surge. During the past three months food prices have risen at a 10.8% annual rate.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080318g.jpg" width="353">
Prices of core finished consumer goods rose 0.5% (2.5% y/y). That gain was well ahead of expectations for a 0.2% increase and it raised the three month change to 4.7% (AR). Passenger car prices rose 0.8% (1.2% y/y). Capital equipment prices rose a firm 0.5% (1.9% y/y) led by a 0.8% rise in prices of light trucks (0.1% y/y).
Intermediate goods prices rose 0.8% following the 1.4% January surge. Excluding food &amp; energy prices were strong again and posted a 0.6% increase. Industrial chemical prices remained quite firm and rose 17.8% from last year.
The crude materials PPI surged again during February. A 3.7% rise followed the 2.5% jump during January. Crude energy materials prices jumped another 5.6% (30.2% y/y). The core crude materials PPI also was quite firm and posted a 3.3% gain. Prices for iron &amp; steel scrap are up 34.5% y/y and copper base scrap prices are 25.1% higher y/y.

<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">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.3</td>
<td>1.0&nbsp;</td>
<td>6.8&nbsp;</td>
<td>3.9</td>
<td>3.0</td>
<td>&nbsp;4.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5</td>
<td>0.4</td>
<td>2.5</td>
<td>1.9</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.8</td>
<td>1.4</td>
<td>9.1</td>
<td>4.1</td>
<td>6.4</td>
<td>&nbsp;8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.6</td>
<td>0.8</td>
<td>4.8</td>
<td>2.8</td>
<td>6.0</td>
<td>&nbsp;5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>3.7</td>
<td>&nbsp;2.5&nbsp;</td>
<td>24.6</td>
<td>12.2</td>
<td>1.4</td>
<td>14.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>3.3</td>
<td>4.0</td>
<td>&nbsp;20.6</td>
<td>15.9</td>
<td>20.8</td>
<td>4.9</td>
</tr>
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Finished producer prices in the U.S. rose 0.3% during February following a 1.0% surge in January. The latest increase fell just short of Consensus expectations for a 0.4% rise but the 6.8% increase versus last February was near this [...]

U.S. PPI Total & Total Firm

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.