Robert Brusca

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<img align="left" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010d.jpg">
Survey backs off and points to weaker conditions ahead&#133; 
The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business expectations now sit at the lowest level among the respective percentiles of the components and that reading is still in the 83rdpercentile. The overall for economics conditions is in the 91stpercentile. The remaining indexes are all in their respective low 90s.
The chart on the left also looks at changes over one two and three years. (Survey reports three observations per year; plot on the chart is quarterly.) Economic conditions are up by 35 points over three years and 31 points over two years, so most of the rise has been in the last two years. In the current year the index is up by seven points compared to 31 points over two years. This is clear evidence that the rate of optimism is slowing down. The four point drop in the current quarter has not taken the year/year rise out of the series yet. The investment and hiring intention series show a similar slowing in the optimism in the past year after an outsized gain of the year before.
DIHK shows that while readings remain elevated, a slowing of some degree is in prospect.


<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">DIHK-Balance of Economic Opinion</th>
</tr>
</thead>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Net Balance Readings</td>
<td colspan="3">Change</td>
<td>Range Q4&#39;91</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q4-07</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Yr Ago</td>
<td>2-Yr</td>
<td>3-Yr</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Economic Conditions</td>
<td>31</td>
<td>35</td>
<td>36</td>
<td>7</td>
<td>31</td>
<td>35</td>
<td>91.9</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Business Expectations</td>
<td>15</td>
<td>24</td>
<td>17</td>
<td>6</td>
<td>12</td>
<td>12</td>
<td>83.9</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Export Expectations</td>
<td>39</td>
<td>38</td>
<td>42</td>
<td>4</td>
<td>7</td>
<td>4</td>
<td>95.2</td>
</tr>

<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Investment Intentions</td>
<td>13</td>
<td>16</td>
<td>13</td>
<td>6</td>
<td>19</td>
<td>24</td>
<td>93.5</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Hiring Intentions</td>
<td>9</td>
<td>12</td>
<td>8</td>
<td>9</td>
<td>23</td>
<td>26</td>
<td>93.3</td>
</tr>




</html>

Survey backs off and points to weaker conditions ahead The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business [...]

Germany's DIHK Survey Points to Slowdown

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010c.jpg" width="353">
EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain it&#146;s up at an 8% rate. Even Italy shows a 4.4% rate of increase. The UK, an EU member, is showing slower IP growth in Q3 as output is up at just a 0.8% rate of increase. Sequential IP growth figures show us that growth has been accelerating in Germany, France and Italy. Spain shows sudden weakness in the most recent three months The UK shows some sporadic slowing as the recent rates of growth reveal a slow down over three months but over six months, a speed up.
On balance, despite weakening orders and slowdown assessment from Germany&#146;s Chamber of Commerce (DIHK) and weaker surveys from the Reuters NTC survey as well as from various national surveys, actual production has been on an accelerating run. What we see is that this acceleration is counter to what surveys say they now expect. Some of the divergence reflects inter-temporal discord and mismatch. Since the financial market situation only began to turn abruptly in August before mid month, it is the reports of the next several months that should be most revealing as far as output is concerned. Up to now what we see is that, despite some weaker (and more topical) survey findings, actual output has remained firm through August for the main economies of EMU. Separately what survey data tell us is this: don&#146;t get used to it.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th scope="col" colspan="8">Main Euro Area Countries and UK IP in MFG</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>

<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Month</td>
<td>6-month</td>
<td>12-month</td>
<td>Q2-Date</td>
</tr>
<tr>
<td class="firstcol">Germany: Mfg IP</td>

<td>1.8%</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>7.2%</td>
<td>5.6%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP ex Construction</td>

<td>0.3%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>6.3%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">Italy: Mfg IP</td>

<td>1.5%</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>5.9%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain: Mfg IP</td>

<td>1.3%</td>
<td>1.7%</td>
<td>-4.2%</td>
<td>-5.3%</td>
<td>3.9%</td>
<td>0.5%</td>
<td>8.0%</td>
</tr>
<tr>
<td class="firstcol">UK: Mfg IP</td>

<td>0.4%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>3.4%</td>
<td>0.6%</td>
<td>0.8%</td>
</tr>
</tbody>
</table>
</body>
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EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain its up at an 8% rate. Even [...]

IP in Euro Area Still Growing Despite Slowing Signs

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010b.jpg" width="353">
The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices have moved sideways.
The lack of a further decline in gasoline prices continues to reflect the positive fundamentals including low inventories of gasoline, very low gasoline production and higher crude oil prices.
It might have been hoped that the recent downtick in crude oil prices would help gasoline prices decline further. That downtick likely reflects speculation of a warm Winter in the northern hemisphere and higher OPEC production.
But WTI crude oil prices of roughly $80 per barrel remain up 15% from the recent low of $70 per barrel in early August. The recent downtick in prices is from late September highs above $83 which were held for only a few days.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010a.jpg" width="353">
Spot market prices for home heating oil have moved slightly lower as well to $2.14 per gallon from the daily high of $2.22 reached last week. That price is, however, up from the low of $1.50 reached early this year.
Henry Hub prices for natural gas have moved higher ahead of the home heating season. The rise to 6.76 per million BTU is from the weekly low in early September. But those prices are down from last winter&#39;s high near 8.00
Energy statistics are available daily in Haver Analytics&#39; DAILY database, weekly in WEEKLY and OILWKLY, monthly/quarterly in USECON and OGJ, and annual in OGJANN. Data from Energy Intelligence are also available in OMI, NGW and WGI.
The minutes from the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071009a.htm">here</a>.
A Pattern of Regional Differences in the Effects of Monetary Policy from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q3/crone_pattern-regional-differences.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/@EF/@EF14/@EF1402/@EF1402.HTM">Department of Energy</a></th>
<th scope="col">10/08/07</th>
<th scope="col">10/01/07 </th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Gasoline ($/gallon)</td>
<td>2.77</td>
<td>2.79</td>
<td>2.80</td>
<td>2.79</td>
<td>2.58</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Home Heating Oil ($/gallon)</td>
<td>--</td>
<td>2.14</td>
<td>2.15</td>
<td>1.96</td>
<td>1.59</td>
<td>1.63</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas $/mmbtu)</td>
<td>--</td>
<td>6.76</td>
<td>6.06</td>
<td>6.24</td>
<td>6.74</td>
<td>8.68</td>
</tr>
<tr>
<td class="firstcol">WTI Crude Oil ($/bbl.)</td>
<td>--</td>
<td>80.06</td>
<td>79.12</td>
<td>71.51</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>
</body>
</html>

The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices [...]

U.S. Gasoline Prices Move Further Sideways

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010b.jpg" width="353">
The Department of Energy indicated yesterday that U.S. retail gasoline prices were $2.77 per gallon. That is down 47 cents, or 15%, from the recent high of $3.22 in the middle of May. But since the beginning of August, gasoline prices have moved sideways.
The lack of a further decline in gasoline prices continues to reflect the positive fundamentals including low inventories of gasoline, very low gasoline production and higher crude oil prices.
It might have been hoped that the recent downtick in crude oil prices would help gasoline prices decline further. That downtick likely reflects speculation of a warm Winter in the northern hemisphere and higher OPEC production.
But WTI crude oil prices of roughly $80 per barrel remain up 15% from the recent low of $70 per barrel in early August. The recent downtick in prices is from late September highs above $83 which were held for only a few days.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010a.jpg" width="353">
Spot market prices for home heating oil have moved slightly lower as well to $2.14 per gallon from the daily high of $2.22 reached last week. That price is, however, up from the low of $1.50 reached early this year.
Henry Hub prices for natural gas have moved higher ahead of the home heating season. The rise to 6.76 per million BTU is from the weekly low in early September. But those prices are down from last winter&#39;s high near 8.00
Energy statistics are available daily in Haver Analytics&#39; DAILY database, weekly in WEEKLY and OILWKLY, monthly/quarterly in USECON and OGJ, and annual in OGJANN. Data from Energy Intelligence are also available in OMI, NGW and WGI.
The minutes from the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071009a.htm">here</a>.
A Pattern of Regional Differences in the Effects of Monetary Policy from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q3/crone_pattern-regional-differences.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/@EF/@EF14/@EF1402/@EF1402.HTM">Department of Energy</a></th>
<th scope="col">10/08/07</th>
<th scope="col">10/01/07 </th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Gasoline ($/gallon)</td>
<td>2.77</td>
<td>2.79</td>
<td>2.80</td>
<td>2.79</td>
<td>2.58</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Home Heating Oil ($/gallon)</td>
<td>--</td>
<td>2.14</td>
<td>2.15</td>
<td>1.96</td>
<td>1.59</td>
<td>1.63</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas $/mmbtu)</td>
<td>--</td>
<td>6.76</td>
<td>6.06</td>
<td>6.24</td>
<td>6.74</td>
<td>8.68</td>
</tr>
<tr>
<td class="firstcol">WTI Crude Oil ($/bbl.)</td>
<td>--</td>
<td>80.06</td>
<td>79.12</td>
<td>71.51</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>
IP in Euro Area Still Growing Despite Slowing Signs 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010c.jpg" width="353">
EMU growth is cropping to be strong in Q3, at least for industrial output. In France manufacturing output excluding energy is up at a 9% annualized Q/Q rate. In Germany output is up at a 7.9% rate. In Spain it&#146;s up at an 8% rate. Even Italy shows a 4.4% rate of increase. The UK, an EU member, is showing slower IP growth in Q3 as output is up at just a 0.8% rate of increase. Sequential IP growth figures show us that growth has been accelerating in Germany, France and Italy. Spain shows sudden weakness in the most recent three months The UK shows some sporadic slowing as the recent rates of growth reveal a slow down over three months but over six months, a speed up.
On balance, despite weakening orders and slowdown assessment from Germany&#146;s Chamber of Commerce (DIHK) and weaker surveys from the Reuters NTC survey as well as from various national surveys, actual production has been on an accelerating run. What we see is that this acceleration is counter to what surveys say they now expect. Some of the divergence reflects inter-temporal discord and mismatch. Since the financial market situation only began to turn abruptly in August before mid month, it is the reports of the next several months that should be most revealing as far as output is concerned. Up to now what we see is that, despite some weaker (and more topical) survey findings, actual output has remained firm through August for the main economies of EMU. Separately what survey data tell us is this: don&#146;t get used to it.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th scope="col" colspan="8">Main Euro Area Countries and UK IP in MFG</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>

<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Month</td>
<td>6-month</td>
<td>12-month</td>
<td>Q2-Date</td>
</tr>
<tr>
<td class="firstcol">Germany: Mfg IP</td>

<td>1.8%</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>7.2%</td>
<td>5.6%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP ex Construction</td>

<td>0.3%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>6.3%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>9.0%</td>
</tr>
<tr>
<td class="firstcol">Italy: Mfg IP</td>

<td>1.5%</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>5.9%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain: Mfg IP</td>

<td>1.3%</td>
<td>1.7%</td>
<td>-4.2%</td>
<td>-5.3%</td>
<td>3.9%</td>
<td>0.5%</td>
<td>8.0%</td>
</tr>
<tr>
<td class="firstcol">UK: Mfg IP</td>

<td>0.4%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>1.2%</td>
<td>3.4%</td>
<td>0.6%</td>
<td>0.8%</td>
</tr>
</tbody>
</table>
Germany's DIHK Survey Points to Slowdown 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 10, 2007


<img align="left" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010d.jpg">
Survey backs off and points to weaker conditions ahead&#133; 
The German chamber of commerce survey (DIHK) is still strong, make no bones about that. But the survey is now off peak and clearly pointing to softer conditions ahead.Business expectations now sit at the lowest level among the respective percentiles of the components and that reading is still in the 83rdpercentile. The overall for economics conditions is in the 91stpercentile. The remaining indexes are all in their respective low 90s.
The chart on the left also looks at changes over one two and three years. (Survey reports three observations per year; plot on the chart is quarterly.) Economic conditions are up by 35 points over three years and 31 points over two years, so most of the rise has been in the last two years. In the current year the index is up by seven points compared to 31 points over two years. This is clear evidence that the rate of optimism is slowing down. The four point drop in the current quarter has not taken the year/year rise out of the series yet. The investment and hiring intention series show a similar slowing in the optimism in the past year after an outsized gain of the year before.
DIHK shows that while readings remain elevated, a slowing of some degree is in prospect.


<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">DIHK-Balance of Economic Opinion</th>
</tr>
</thead>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Net Balance Readings</td>
<td colspan="3">Change</td>
<td>Range Q4&#39;91</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q4-07</td>
<td>Q2-07</td>
<td>Q1-07</td>
<td>Yr Ago</td>
<td>2-Yr</td>
<td>3-Yr</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Economic Conditions</td>
<td>31</td>
<td>35</td>
<td>36</td>
<td>7</td>
<td>31</td>
<td>35</td>
<td>91.9</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Business Expectations</td>
<td>15</td>
<td>24</td>
<td>17</td>
<td>6</td>
<td>12</td>
<td>12</td>
<td>83.9</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Export Expectations</td>
<td>39</td>
<td>38</td>
<td>42</td>
<td>4</td>
<td>7</td>
<td>4</td>
<td>95.2</td>
</tr>

<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Investment Intentions</td>
<td>13</td>
<td>16</td>
<td>13</td>
<td>6</td>
<td>19</td>
<td>24</td>
<td>93.5</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">&nbsp;</td>

</tr>
<tr class="odd">
<td class="firstcol">Hiring Intentions</td>
<td>9</td>
<td>12</td>
<td>8</td>
<td>9</td>
<td>23</td>
<td>26</td>
<td>93.3</td>
</tr>


New Bank of England Credit Survey Shows Tightening Availability Amidst Mixed Demand from Borrowers 
by <a href="/comment/Stone.html">Carol Stone</a> October 10, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010e.jpg" width="353">
Last Friday, we wrote here about the current ECB survey of bank lending policies. A couple of weeks ago, the Bank of England published the first results of a similar, brand new survey of bank and nonbank lenders in the UK. These survey results for Q2 and Q3 were published together on September 26 and they were added to Haver&#39;s UK database this past Monday. Survey questions cover secured loans to households and small business, unsecured loans to households and small business and overall lending to corporations, each queried for the lenders&#39; experience over the past three months and their expectations for the coming three months. The Q2 survey was taken between May 21 and June 14 and Q3 between August 20 and September 13. Here is a brief summary of what the survey showed. Keep in mind that there are just two datapoints for each item so far; responses are shown as net balance figures compiled from a 5-point rating scheme: down or negative a lot, down a little, unchanged, up a little and up a lot.
Secured Lending to Households. Lenders reported in June that they had reduced the availability of secured credit to households just slightly during the spring, with a reading of -2.9 on this question. They expected then to increase availability distinctly over the summer, with a &quot;next 3 months&quot; reading of +13.4. However, by the September survey dates, it turns out that this credit supply was basically unchanged, at +0.1, but lenders still expect to be somewhat more liberal in the coming months, at +5.8. Changes in the economic outlook and in the lenders&#39; views on risk are the main factors making secured credit less available than expected in Q3. On the demand side, developments were mixed: demand for credit for house purchase, whether for owner-occupied or &quot;buy-to-let&quot;, was stronger (or less weak) than expected in Q3, but demand for &quot;remortgaging&quot; and other secured credit was less than expected. Other survey questions cover pricing, including both spreads and fees and other lending terms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010f.jpg" width="353"> 
Unsecured Lending to Households. In June, lenders said they had been restrictive on balance in granting unsecured credit to households during Q2, with a reading of -14.3, but they were planning to be more liberal, at +4.9, over the summer. However, as it turned out, they remained restrictive in Q3, again showing a double-digit negative, at -10.2. Further, they expected to remain a little tight in Q4 at -2.9. At the same time, the proportion of loan applications approved has gone up. Compared with the expectation of +5.2, the Q3 outcome was +15.0; both credit card and &quot;other&quot; unsecured loan categories had this general pattern. Demand for this type of borrowing was mildly weaker than expected, showing slightly negative readings in contrast to expectations of small positives. Small business credit demand was more clearly negative than expected. Pricing, i.e., spreads, was more favorable for lending in Q3 than in Q2 and also more favorable than had been expected. 
Lending to Corporations. Major business lending policies were significantly more restrictive in Q3 than they had been in Q2 and also than they were expected to be then. Credit availability was +1.8 in Q2 and anticipated to be flat in Q3. Instead, it was -20.2 in Q3 and it is expected to become much more restricted in Q4 at -49.3. All factors on credit supply which are queried on the survey were more negative in the later polling. These include sector-specific risks and pressure from capital markets, as well as more general factors also queried with household lending: economic outlook, appetite for risk, cost and availability of funding and market share objectives. Loan demand from both large and medium-size nonfinancial corporations (PNFCs) became weaker over the summer. That from &quot;other financial corporations&quot; (OFCs) generally went from flat or modestly positive to modestly negative. Balance sheet restructuring and a slowing commercial real estate market are seen as the factors impinging most on the demand shifts. 
In our third graph, we show one of the non-price features of lending policy, the lender&#39;s fees and commissions. The graph shows the impact of this on credit volume, so the positive bars indicate a reduction in fees and the negative bars show a increase. Thus, these survey results say that lenders had cut their fees in Q2 and expected to do so again in Q3. But instead they raised their fees -- discouraging borrowing -- and intend to do so even more in Q4.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071010g.jpg" width="353">
As is evident from these overly terse comments, this survey is comprehensive, covering many of the determinants of credit supply and demand at lending institutions. The Bank of England points out that when data on flows and outstandings are examined, it is not possible to tell whether a change is due to supply or demand factors. This survey will help considerably to assess those developments, and as we see here, they are not uniform over credit sectors, so the three-part survey is a most helpful approach. The present results are too sketchy, though, to compare with actual lending patterns. It will take time to accumulate results that permit matching survey readings, such as a +10 or a -20, with specific loan volumes. We wish we could do that now!

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Louise Curley

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<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009e.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009h.jpg">
The balance of trade in goods in France improved from a deficit of 3.2 billion euros in July to 2.8 billion euros in August. In Germany, the surplus on trade in goods declined to 15.3 billion euros from 16.5 billion euros in July. Since month-to-month changes in the balance of trade in goods tend to be erratic, we calculated six-month averages (using the &quot;advance functions&quot; button) to get a better idea of the trends in the two balances. On this basis, the trend in France&#39;s balance of trade in goods appears to be still toward greater deficits, while the trend in Germany suggests that the recent rise in surpluses may be decelerating, as can be seen in the first chart.
The rise in the Euro that began in late 2005 has led to a reduction in the portion of exports to the United States as can be seen in the second and third charts. These charts show the dollar value of the euro (scale inverted) and the portion of French and German exports to the United States. The relationship between the exchange rate and portion of exports appears to be closer in Germany than in France, but both show that an increase in the euro tends to dampen the portion of exports to the U. S. However, since exports to the US are a relatively small part of total exports in both countries, the impact on total exports has been small. The U. S. accounted for about 7% of total French exports in 2006. For Germany, the corresponding figure was about 9%. By far the most important buyers of French and German exports are other members of the Euro Area who are unaffected by changes in the currency. Over the past three years, between 40 and 45% of France&#39;s exports of goods and between 50 and 53% of Germany&#39;s exports of goods went to other members of the Euro Area, as shown in the fourth chart.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009g.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009f.jpg">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">TRADE IN GOODS--FRANCE AND GERMANY (Billions Euros)</th>
<th scope="col">Aug 07</th>
<th scope="col">Jul&nbsp; &nbsp; 07&nbsp;</th>
<th scope="col">Aug&nbsp; 06&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">FRANCE Balance</td>
<td>-2.8</td>
<td>-3.2</td>
<td>-3.0</td>
<td>0.4</td>
<td>0.2</td>
<td>-27.6</td>
<td>-22.7</td>
<td>-5.0</td>
</tr>
<tr>
<td class="firstcol">Total Exports</td>
<td>34.7</td>
<td>34.0</td>
<td>32.5</td>
<td>2.0</td>
<td>6.6</td>
<td>389.6</td>
<td>357.5</td>
<td>340.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports to Euro Area</td>
<td>17.2</td>
<td>16.9</td>
<td>16.9</td>
<td>1.7</td>
<td>1.6</td>
<td>194.4</td>
<td>180.7</td>
<td>173.9</td>
</tr>
<tr>
<td class="firstcol">Exports to US</td>
<td>2.1</td>
<td>2.2</td>
<td>2.1</td>
<td>-3.2</td>
<td>-1.8</td>
<td>26.4</td>
<td>25.1</td>
<td>23.0</td>
</tr>
<tr class="odd">
<td class="firstcol">GERMANY&nbsp; Balance</td>
<td>15.3</td>
<td>16.5</td>
<td>12.1</td>
<td>-1.2</td>
<td>3.2</td>
<td>162.2</td>
<td>157.8</td>
<td>154.0</td>
</tr>
<tr>
<td class="firstcol">Total Exports&nbsp;</td>
<td>82.7</td>
<td>80.3</td>
<td>73.7</td>
<td>2.0</td>
<td>12.4</td>
<td>893.8</td>
<td>783.7</td>
<td>726.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports to Euro Area</td>
<td>22.6</td>
<td>22.1</td>
<td>21.8</td>
<td>-3.2</td>
<td>-1.8</td>
<td>254.2</td>
<td>233.8</td>
<td>225.7</td>
</tr>
<tr>
<td class="firstcol">Exports to US</td>
<td>n.a.</td>
<td>6.1</td>
<td>6.3*</td>
<td>n.a..</td>
<td>-4.0*</td>
<td>78.0</td>
<td>68.8</td>
<td>94.1</td>
</tr>

<tr>
<td class="firstcol">EXCHANGE RATE&nbsp; US$/Euro</td>
<td>1.3626</td>
<td>1.3726</td>
<td>1.2810</td>
<td>-0.7</td>
<td>6.4</td>
<td>1.2560</td>
<td>1.2447</td>
<td>1.2439</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=9>*July 2006&nbsp;&nbsp; n.a. not available</td>

</tr>
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The balance of trade in goods in France improved from a deficit of 3.2 billion euros in July to 2.8 billion euros in August. In Germany, the surplus on trade in goods declined to 15.3 billion euros from 16.5 billion euros in July. [...]

August Trade in Goods: a Dip in Germany's Surplus and a Small Improvement in France's Deficit

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009d.jpg" width="353">
Economy watchers index at five year low. 
Japan&#146;s economy watcher&#146;s index fell again for the six month running and extending a drop from a local peak reached back in March of 2006. The current future and employment indexes all are trending lower.The current economy watchers index and the employment components are at their five-year lows. The future index stands in the bottom 20% of its five-year range.
Japan&#146;s economy continues to emit irregular signals despite ongoing statements of optimism from the BOJ.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=8 scope="col">Key Japanese Surveys</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
</tr>
<tr>
<td class="firstcol" colspan=8>Diffusion</td>

</tr>
<tr class="odd">
<td class="firstcol">Economy Watchers</td>
<td>44.1</td>
<td>44.7</td>
<td>46.0</td>
<td>46.8</td>
<td>0.0%</td>
<td>3.8%</td>
<td>25.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>48.3</td>
<td>51.2</td>
<td>51.2</td>
<td>50.7</td>
<td>0.0%</td>
<td>4.0%</td>
<td>27.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Future</td>
<td>46.5</td>
<td>46.7</td>
<td>48.4</td>
<td>50.0</td>
<td>19.8%</td>
<td>21.4%</td>
<td>34.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">NTC MFG</td>
<td>49.6</td>
<td>49.0</td>
<td>50.4</td>
<td>51.4</td>
<td>6.7%</td>
<td>0.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol" colspan=8>Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion)</td>

</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>44.2</td>
<td>44.5</td>
<td>44.6</td>
<td>45.2</td>
<td>55.7%</td>
<td>63.2%</td>
<td>69.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>38.3</td>
<td>37.9</td>
<td>39.2</td>
<td>39.6</td>
<td>39.6%</td>
<td>37.0%</td>
<td>52.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale</td>
<td>41.2</td>
<td>41.3</td>
<td>42.1</td>
<td>42.8</td>
<td>51.1%</td>
<td>56.6%</td>
<td>68.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>47.3</td>
<td>47.6</td>
<td>48.6</td>
<td>49.1</td>
<td>67.9%</td>
<td>74.0%</td>
<td>83.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>36.3</td>
<td>36.6</td>
<td>36.8</td>
<td>37.7</td>
<td>68.2%</td>
<td>71.9%</td>
<td>77.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=8>100 is high; zero is low</td>

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</tbody>
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Japan's Economy Watcher’s Index Drops for Sixth Month in a Row

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009a.jpg" width="353">
For the second straight week, the International Council of Shopping Centers (ICSC)-UBS reported that chain store sales showed roughly no change from the prior period. That followed declines of roughly 1.0% during each of the prior two consecutive weeks.
The average level of chain store sales during September fell 0.8% versus the August average. That average had risen 0.1% from July. Retail sales for September will be published by the Commerce Department this coming Friday.
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.
The leading indicator of chain store sales from ICSC-UBS fell 0.8% (-0.2% y/y) after a 0.2% decline during the prior week.
Changing Productivity Trends from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-25.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">10/06/07</th>
<th scope="col">09/29/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>475.3</td>
<td>475.5</td>
<td>2.1%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


</html>

For the second straight week, the International Council of Shopping Centers (ICSC)-UBS reported that chain store sales showed roughly no change from the prior period. That followed declines of roughly 1.0% during each of the prior two [...]

Weekly U.S. Chain Store Sales Roughly Unchanged: Again

Sharply rising share of AI-related jobs

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

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

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

Cost of transporting crude oil has soared to series high

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

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

Is recent drop in sentiment signaling softer growth ahead?

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

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

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

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260501A9.jpg

260501B9.jpg

The ISM U.S. manufacturing PMI held at a lower-than-expected 52.7 in April and March following a 0.2-point easing to 52.4 in February, data from the Institute for Supply Management showed. The April reading, above the 50 expansion-contraction dividing line, indicated the U.S. manufacturing sector expanded for the fourth successive month. A reading of 53.0 for April had been expected in the Action Economics Forecast Survey. The April manufacturing PMI, while above a contraction-level 48.8 in April 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index slipped to 53.4 in April from 55.1 in March, indicating production expanded for the sixth consecutive month but at the slowest pace since December. The index was above its recent low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In April, 28.3% (NSA) of respondents reported higher production while 13.0% reported lower production. The new orders index rebounded to 54.1 in April from 53.5 in March, signaling new orders grew for the fourth straight month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023. In April, an increased 31.6% (NSA) of respondents reported higher new orders while 15.2% reported declines. The inventories index increased to 49.0 in April from 47.1 in March, marking the 12th straight month of contraction. The index was below its recent high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index rose to 60.6 in April from 58.9 in March, indicating slower delivery performance for the fifth consecutive month after faster deliveries in November. In April, 22.6% (NSA) of respondents reported slower delivery speeds while only 1.5% reported faster speeds.

On the labor front, the employment index slid to 46.4 in April from 48.7 in March, showing employment contracted for the 31st straight month and at the lowest level since December following a brief expansion in September 2023. The index was above its recent low of 44.1 in November 2025 but below a high of 49.7 in January 2025 and a high of 56.5 in March 2022. In April, 17.5% (NSA) of respondents reported higher employment while 20.2% reported less hiring.

On the pricing front, the prices paid index jumped to 84.6 (NSA) in April from 78.3 in March, indicating raw materials prices rose for the 19th consecutive month and at the fastest pace since April 2022. The index remained well above a low of 39.4 in December 2022 but below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. In April, an increased 70.3% (NSA) of respondents reported higher prices while only 1.2% reported price declines.

In other ISM series not included in the composite index, the new export orders index fell to 47.9 in April from 49.9 in March, indicating new export orders contracted for the second successive month after expanding in February and January. The index was up from a low of 40.1 in May 2025 but down from its recent high of 52.4 in January 2025 and a high of 57.1 in February 2022. The imports index decreased to 50.3 in April from 52.6 in March, suggesting imports expanded at the weakest pace in three months. The index was below its recent high of 54.9 in February but above a low of 39.9 in May 2025. The order backlog index declined to 51.4 (NSA) in April from 54.4 in March, showing backlog levels grew at the slowest pace in four months. The index was well above a low of 37.5 in May 2023 but far below a peak of 70.6 in May 2021.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

260501C9.jpg

260501D9.jpg

- ISM Mfg. PMI at 52.7 in Apr. and Mar.; fourth consecutive month of expansion.
- Production (53.4) expands for the sixth straight mth.; new orders (54.1) for the fourth successive mth.
- Employment (46.4) contracts for the 31st straight mth.; at a four-month low.
- Prices Index (84.6) highest since Apr. ’22; prices rising for the 19th consecutive mth.
- Exports (47.9) contract; imports (50.3) still grow but at a three-month low.

U.S. ISM Manufacturing PMI Steady in April; New Orders and Production Growing; Employment Contracting

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tension Beneath the Surface

Michael J. Moran

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

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

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

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

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

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

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

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Sandy Batten

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

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

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

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

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

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

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

Surging Energy Prices Push Up PCE Prices and Consumption in March

Kathleen Stephansen, CBE

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

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

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

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

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

Economy in Brief

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