Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905f.jpg" width="353">
In this time when homes and their values are playing a key role in financial market developments, it&#39;s important to examine the behavior of various house price indexes and to know what they are measuring. Last evening, the Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC) reported its quarterly index, Conventional Mortgage Home Price Index, for Q2, and last week, data were published by the Office of Federal Housing Enterprise Oversight (OFHEO), the National Association of Realtors (NAR) and S&amp;P/Case-Shiller. So a comparison is timely, too, with the freshness of the data. All of the measures shown here cover existing houses.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905g.jpg" width="353">
The easiest price measure to understand is the NAR median price for existing homes. The National Association of Realtors surveys real estate boards around the country each month for their sales reports. The price measure is the median of all those reported within each of the four Census regions of the country. The regions are combined in a national index, with each region weighted according to the number of housing units located there at the time of the 2000 decennial Census. Thus, in any given period, the price measure is not affected by the distribution of current sales. It does not matter whether sales or price changes were concentrated in an expensive region or a more moderately priced one. At the same time, the price is simply the median of the houses whose sales closed that month, regardless of size or other characteristics. So this composite price measure involves quality differences in homes as well as pure price change. Through Q2, it was down 1.6% from a year ago, having flattened after its run-up into mid-2005. [The July figure, not relevant for our present discussion, was down 1.0% from July 2006.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905i.jpg" width="353">
The issue of quality differentials is a significant problem, but not one the Realtors operations are designed to handle. The other indexes covered here do that through the method of &quot;repeat sales&quot;. An existing house that sells in a specific quarter would have been sold at least one other time, so its current price can be compared to its own previous price. To accomplish this comparison, the compilers need access to a database that includes such detailed price records. For the S&amp;P/Case-Shiller Index, they use county registrars&#39; mortgage and deed transfer records. This provides a universe, not just a sample of sales transactions. The huge volume of these data mean, though, that the index cannot practically be computed for every county in the country. So it covers 20 MSAs on a monthly basis with broader coverage for each quarter&#39;s national total. In Q2, this index was down 3.2% from its year-ago value; the latest monthly figures cover June, which was down 3.5% from June 2006. So additional time is required to produce this index, compared with the simple current- period averaging process of the NAR measure. The Case-Shiller index also uses value weights to combine local areas into the national total; thus, the more expensive regions carry more weight, possibly making this more useful to portfolio managers who want to judge the performance of a real estate portfolio.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905h.jpg" width="353">
The S&amp;P/Case-Shiller data begin in 1987. A series compiled and published by the Federal Home Loan Mortgage Corporation includes history back to 1970. Also a repeat-transaction series, it uses mortgage data for loans owned by FHLMC and the Federal National Mortgage Association (FNMA), so it is called the &quot;Conventional Mortgage House Price Index&quot;. In Q2, released just late on September 4, it was UP 3.3% from a year earlier. This is the weakest outcome in since early 1997, although it is not the weakest showing ever. These prices, which have never declined outright on a yearly basis, were up only 1.0% in Q4-1990 and 1.2-1.3% during the protracted 1982/83 recession. The federal government regulator of FHLMC and FNMA is the Office for Federal Housing Enterprise Oversight, OFHEO. This organization produces a similar series that goes back to 1975; it was up 3.2% in Q2, with a comparable historical performance to Freddie Mac&#39;s data. These series are available for states and a broad collections of MSAs. The national aggregate is computed, similar to the NAR series, using as weights the number of housing units in the various regions. Since they are based on loans owned by FNMA and FHLMC, they cover transactions that conform to the limits set on FNMA&#39;s and FHLMC&#39;s business; in particular, the highest priced home whose mortgage they can own is $417,000. Thus, more expensive homes are not included in these series.
The national aggregates of all these home price series are contained in Haver&#39;s USECON database. The state and local measures are in the REGIONAL database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Single Family House Prices</th>
<th scope="col">Q2 2007</th>
<th scope="col">Q1 2007</th>
<th scope="col">Q4 2006</th>
<th scope="col">Year Ago</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">NAR Median</td>
<td>$223,467</td>
<td>$212,633</td>
<td>$219,033</td>
<td>$227,067</td>
<td>$221,883</td>
<td>$217,492</td>
<td>$192,808</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Y/Y % Change</td>
<td>-1.6</td>
<td>-1.6</td>
<td>-2.8</td>
<td>+3.5</td>
<td>+2.0</td>
<td>+12.8</td>
<td>+8.1</td>
</tr>
<tr class="odd">
<td class="firstcol">S&amp;P/Case-Shiller &nbsp;2000Q1 = 100</td>
<td>183.9</td>
<td>185.6</td>
<td>187.4</td>
<td>189.9</td>
<td>188.7</td>
<td>179.0</td>
<td>155.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Y/Y % Change</td>
<td>-3.2</td>
<td>-1.6</td>
<td>+0.2</td>
<td>+7.5</td>
<td>+5.4</td>
<td>+15.3</td>
<td>+13.8</td>
</tr>
<tr class="odd">
<td class="firstcol">OFHEO, 1980Q1 = 100</td>
<td>409.4</td>
<td>409.1</td>
<td>406.8</td>
<td>396.8</td>
<td>399.1</td>
<td>366.3</td>
<td>324.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Y/Y % Change</td>
<td>3.2</td>
<td>4.4</td>
<td>6.1</td>
<td>10.0</td>
<td>9.0</td>
<td>13.0</td>
<td>10.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Conv Mrtg Home Price Index, 1987Q1 = 100</td>
<td>297.4</td>
<td>297.1</td>
<td>295.6</td>
<td>287.9</td>
<td>289.7</td>
<td>265.3</td>
<td>235.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Y/Y % Change</td>
<td>3.3</td>
<td>4.6</td>
<td>6.4</td>
<td>10.2</td>
<td>9.2</td>
<td>12.9</td>
<td>10.6</td>
</tr>
</tbody>
</table>
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In this time when homes and their values are playing a key role in financial market developments, it's important to examine the behavior of various house price indexes and to know what they are measuring. Last evening, the Federal [...]

How Much Have Home Values Changed? -- Well, It Depends . . . .

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905e.jpg" width="353">
Service sector trends are still rising in the Euro area and the UK. 
The services industry eased in August in the Euro area, if below the Zone&#146;s 3-month average, but not by much. If these indexes are a litmus test on how much the services sector (that includes the troubled financial sector) has been hurt by the recent market unrest, it is nothing to worry about. Unfortunately it is too soon to tell. Germany, a country that had two banks propped up by authorities saw its service sector strengthen in August. Germany&#146;s sector reading is in the 93rd percentile of its range. France, Spain and Ireland show current readings that are below their 12-month averages. Clearly the Euro area has seen some slowing downs in its service sector. And while there seems to be different trends in play across countries the Euro area itself is still in the growth zone. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
NTC Services Indexes
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-13</td>
<td>58.04</td>
<td>58.34</td>
<td>58.24</td>
<td>57.72</td>
<td>57.46</td>
<td>80.1%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>59.76</td>
<td>58.47</td>
<td>59.04</td>
<td>58.33</td>
<td>57.36</td>
<td>93.1%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>58.40</td>
<td>58.93</td>
<td>58.77</td>
<td>58.68</td>
<td>59.06</td>
<td>57.5%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>56.18</td>
<td>58.46</td>
<td>57.52</td>
<td>56.18</td>
<td>55.69</td>
<td>57.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>53.51</td>
<td>56.33</td>
<td>55.05</td>
<td>55.37</td>
<td>56.74</td>
<td>48.7%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>56.98</td>
<td>56.19</td>
<td>56.70</td>
<td>57.42</td>
<td>59.19</td>
<td>51.2%</td>
</tr>
<tr class="odd">
<td colspan="7">EU only</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>57.55</td>
<td>57.02</td>
<td>57.44</td>
<td>57.39</td>
<td>58.13</td>
<td>78.9%</td>
</tr>
<tr>
<td colspan="5">percentile is over range since May 2000</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
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Service sector trends are still rising in the Euro area and the UK. The services industry eased in August in the Euro area, if below the Zones 3-month average, but not by much. If these indexes are a litmus test on how much the [...]

Service Sector Indexes for Euro area and the UK

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905d.jpg" width="353">
Euro area sales trends point lower. Food as well as nonfood trends are on the decline. These trends are weighted significantly toward the trends for Germany where the recent deterioration is severe. The UK (an EU not EMU member) and France on the other hand still have relatively strong trends in force. 
Detailed data lag by one month but they show weakness in household items, books and other spending. Pharmacy and textile spending has held up. 
We can calculate the growth in the new quarter which is one month old by assessing the July growth rate of sales over the Q2 average and annualizing it appropriately. In Q3 total retail sales volumes in the Euro area are growing at a 1.2% pace; for nonfood items the pace is 2.2%. 
We are past the point of being able to blame Germany&#146;s VAT tax for the weakness. Year/year measures will still be impacted by that effect but three-month trends are free from it and they are weak. Germany has not been able to engage its consumer in the recovery. So far that has not been a problem since having an industry-led recovery is normal for Germany. But now, just when the consumer is expected to show up, the financial turmoil could keep the wary Germany consumer away. Italy already is weakened. France is ripe for a slowdown and, after some real post election euphoria, Europe faces question marks over the future of consumer spending.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area (13) Retail Sales Volume
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Zone-13 Total</td>
<td>0.1%</td>
<td>0.6%</td>
<td>-0.8%</td>
<td>-0.5%</td>
<td>1.6%</td>
<td>0.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Food</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-0.8%</td>
<td>-2.7%</td>
<td>0.2%</td>
<td>-1.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Non-food</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-0.8%</td>
<td>0.8%</td>
<td>2.7%</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Textiles</td>
<td>#N/A</td>
<td>2.8%</td>
<td>-3.5%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>4.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Household Goods</td>
<td>#N/A</td>
<td>1.4%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-2.2%</td>
<td>3.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Books news</td>
<td>#N/A</td>
<td>1.3%</td>
<td>-0.9%</td>
<td>0.8%</td>
<td>1.5%</td>
<td>2.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Pharmaceuticals</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.5%</td>
<td>2.9%</td>
<td>2.3%</td>
<td>3.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Other Non-special Goods</td>
<td>#N/A</td>
<td>1.2%</td>
<td>-0.8%</td>
<td>-1.7%</td>
<td>-1.2%</td>
<td>0.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Mail Order</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>1.3%</td>
<td>7.3%</td>
<td>-5.5%</td>
<td>0.1%</td>
</tr>
<tr class="grey2">
<td colspan="7">Non-Food Country Detail: Volume</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>-0.6%</td>
<td>2.8%</td>
<td>-4.3%</td>
<td>-8.5%</td>
<td>6.9%</td>
<td>0.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>1.1%</td>
<td>0.1%</td>
<td>5.4%</td>
<td>6.1%</td>
<td>6.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy (Total Value)</td>
<td>#N/A</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>-3.0%</td>
<td>-1.8%</td>
<td>-1.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK (EU)</td>
<td>0.9%</td>
<td>0.9%</td>
<td>0.4%</td>
<td>9.1%</td>
<td>10.1%</td>
<td>8.0%</td>
</tr>
<tr class="grey1">
<td colspan="7">Shaded areas calculated on a one-month lag due to lagging data</td>
</tr>
<tr class="grey3">
<td colspan="7">The EA 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
</body>
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Euro area sales trends point lower. Food as well as nonfood trends are on the decline. These trends are weighted significantly toward the trends for Germany where the recent deterioration is severe. The UK (an EU not EMU member) and [...]

EU Retail Trends: At Odds

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905c.jpg" width="353">
The ADP Nat&#39;l Employment Report, reported by the payroll processor, found that private nonfarm payrolls rose just 38,000 last month. The increase was the smallest since 2003.
The U.S. Bureau of Labor Statistics employment figure for August will be published this Friday.
Last month, ADP&#39;s measure of private nonfarm payrolls for July indicated a revised 41,000 increase in jobs that was followed by a 120,000 increase in private nonfarm payrolls. 
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/FINAL_NER_August2007_Report.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.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/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">August</th>
<th scope="col">July</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">Nonfarm Private Payroll Employment (m/m Chg.)</td>
<td>38,000</td>
<td>41,000</td>
<td>1.1%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>


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The ADP Nat'l Employment Report, reported by the payroll processor, found that private nonfarm payrolls rose just 38,000 last month. The increase was the smallest since 2003.

ADP Report: Private Payroll Growth Smallest Since 2003

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905a.jpg" width="353">
U.S. sales of light vehicles during August improved 6.5% versus a weak performance in July. The increase followed two months of sharp m/m decline and resulted in a small 0.7% increase in sales versus last August, according to the Autodata Corporation.
Overall sales of domestic light vehicles rose 10.1% m/m to an annualized selling rate of 12.57M (1.7% y/y). Sales of domestic light trucks recovered to one of the best selling rates this year with a 12.9% rise to 7.54M (4.5% y/y). Domestic car sales also made up for a weak July with a 6.2% m/m rise to 5.03M units (-2.2% y/y) <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070905b.jpg" width="353">
Sales of imported light vehicles were weak and posted a 4.4% decline to 3.7M units (-2.5% y/y). It was the sixth m/m decline this year. Sales of imported cars led the decline with a 5.9% drop (-9.38 y/y) to 2.3 units. Imported light truck sales also fell 1.6% to 1.39M (+11.5% y/y).
Remarks by Richmond Federal Reserve Bank President Jeffrey M. Lacker on the Economic Outlook are available <a href="http://www.richmondfed.org/news_and_speeches/presidents_speeches/index.cfm/id=102/pdf=true"> 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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a> </th>
<th scope="col">August </th>
<th scope="col">July</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 class="odd">
<td class="firstcol">Total </td>
<td>16.27 </td>
<td>15.54 </td>
<td>.71% </td>
<td>16.55 </td>
<td>16.96 </td>
<td>16.87 </td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos </td>
<td>7.34</td>
<td>7.19</td>
<td>-4.61% </td>
<td>7.77 </td>
<td>7.65 </td>
<td>7.49 </td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks </td>
<td>8.93 </td>
<td>8.09 </td>
<td>5.55% </td>
<td>8.78 </td>
<td>9.32 </td>
<td>9.37 </td>
</tr>
</tbody>
</table>
</body>
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U.S. sales of light vehicles during August improved 6.5% versus a weak performance in July. The increase followed two months of sharp m/m decline and resulted in a small 0.7% increase in sales versus last August, according to the [...]

U.S. Vehicle Sales Better than Bleak Newspaper Headlines

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070904h.jpg" width="353">
The EMU ex-energy PPI inflation rate is excessive. It is up by 0.2% in the month and at a 2.4% pace over three-months. Still over six-month its pace had been 3.2%. That deceleration is a hopeful sign, but it still leaves the pace of the PPI above the Yr/Yr inflation rate of 2.9%. In any event the ECB inflation guideline is for inflation below 2%; having the PPI running at a pace in excess of that is not helpful.
All main sectors three-month inflation rates are above the 2% ceiling except for capital goods. The overall pace of ex-energy inflation is 2.4% for three months and 2.9% Yr/Yr. For Germany and Italy ex energy inflation is lower Yr/yr compared to the year previous period and the 3-month inflation rates each are lower that their respective six month counterpart rates. In the UK Yr/Yr ex-energy inflation is steady at 3% but over three months ex-energy inflation is lower at 2.5%.
The situation for W. Europe seems to be that inflation is on its way to behaving if only at a slow pace. Still that is something and with the weakness and concerns about subprime and the financial sector that just might be enough to help to keep the ECB&#146;s next rate hike at bay.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area and UK PPI Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol"> Euro area 13</td>
<td> Jul-07</td>
<td> Jun-07</td>
<td> 3-Mo</td>
<td> 6-MO</td>
<td> Yr/Yr</td>
<td> Y/Y Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Total ex Construction</td>
<td>0.3%</td>
<td>0.1%</td>
<td> 2.8%</td>
<td>3.7%</td>
<td> 1.8%</td>
<td>6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excl Energy</td>
<td> 0.2%</td>
<td> 0.1%</td>
<td> 2.4%</td>
<td> 3.2%</td>
<td> 2.9%</td>
<td> 3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>0.1%</td>
<td>0.0%</td>
<td> 0.6%</td>
<td> 1.1%</td>
<td>1.7%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.8%</td>
<td>2.6%</td>
<td> 1.8%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate &amp; Capital Goods</td>
<td>0.1%</td>
<td>0.1%</td>
<td> 2.2%</td>
<td>3.5%</td>
<td> 3.5%</td>
<td>4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>0.5%</td>
<td>-0.1%</td>
<td> 4.3%</td>
<td>5.6%</td>
<td> -1.9%</td>
<td>14.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>0.3%</td>
<td>0.2%</td>
<td> 4.1%</td>
<td>5.6%</td>
<td> 2.3%</td>
<td>4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Germany</td>
<td>-0.1%</td>
<td>0.2%</td>
<td> 1.7%</td>
<td>2.0%</td>
<td> 1.1%</td>
<td>6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany ex Energy</td>
<td> 0.1%</td>
<td> 0.2%</td>
<td> 1.8%</td>
<td> 2.8%</td>
<td> 2.4%</td>
<td> 3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol"> France</td>
<td>#N/A</td>
<td>0.2%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France ex Energy</td>
<td> #N/A</td>
<td> 0.1%</td>
<td> #N/A</td>
<td> #N/A</td>
<td> #N/A</td>
<td> 2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Italy</td>
<td>0.4%</td>
<td>0.1%</td>
<td> 3.7%</td>
<td>4.6%</td>
<td> 2.1%</td>
<td>7.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy ex Energy</td>
<td> 0.3%</td>
<td> 0.1%</td>
<td> 2.8%</td>
<td> 3.3%</td>
<td> 3.2%</td>
<td> 4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol"> UK</td>
<td>0.6%</td>
<td>0.6%</td>
<td>5.9%</td>
<td> -1.6%</td>
<td> 0.4%</td>
<td>9.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK ex Energy</td>
<td> 0.4%</td>
<td> 0.1%</td>
<td> 2.5%</td>
<td> 3.3%</td>
<td> 3.0%</td>
<td> 3.0%</td>
</tr>
<tr>
<td colspan="7">Euro area 13 Harmonized PPI excluding Construction.</td>
</tr>
<tr>
<td colspan="7">The Euro area 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain and Slovenia.</td>
</tr>
</tbody>
</table>
</body>
</html>

The EMU ex-energy PPI inflation rate is excessive. It is up by 0.2% in the month and at a 2.4% pace over three-months. Still over six-month its pace had been 3.2%. That deceleration is a hopeful sign, but it still leaves the pace of [...]

Euro area PPI ex Energy is Excessive but Slowly Behaving

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070904f.jpg" width="353">
The value of construction put in place fell 0.4% after a 0.1% increase in July. Consensus expectations had been for no change. Year-to-year, the value of total construction has been up 2.0%, but all of the increase has been due to a gain in public construction.
Residential building was down a sharp 1.4%. New single family building fell a whopping 2.2% and brought the y/y decline in activity to 25.3%. Spending on improvements softened the decline with just a 0.1% dip and increased y/y by 2.4%.
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070904g.jpg" width="353">
Nonresidential building increased 0.4% for the second consecutive month. The gain lifted y/y gain in activity to 15.4%. Office construction rose 0.6% (10.4% y/y) and construction in the commercial sector popped 1.0% (15.0% y/y) led by a 4.1% rise in multi-retail building (15.7% y/y).
Public construction spending increased 0.7% (12.7% y/y). Though construction on highways &amp; streets fell 4.3% in July, the year-to-year gain amounts to 59.2%. The value of construction on highways and streets is nearly one third of the value of total public construction spending.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">July</th>
<th scope="col">June</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 class="odd">
<td class="firstcol">Total</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>5.6%</td>
<td>10.7%</td>
<td>11.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>-6.0%</td>
<td>4.7%</td>
<td>12.0%</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.4%</td>
<td>-0.6%</td>
<td>-16.1%</td>
<td>0.5%</td>
<td>13.7%</td>
<td>18.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.4%</td>
<td>0.4%</td>
<td>15.4%</td>
<td>15.2%</td>
<td>7.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.7%</td>
<td>1.0%</td>
<td>12.7%</td>
<td>9.2%</td>
<td>6.2%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place fell 0.4% after a 0.1% increase in July. Consensus expectations had been for no change. Year-to-year, the value of total construction has been up 2.0%, but all of the increase has been due to a [...]

U.S. Construction Spending Declined 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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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.

260430Z1.jpg

**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.

260430Z2.jpg

**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.

260430Z3.jpg

**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.

260430Z4.jpg

**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.

260430Z5.jpg

**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.

260430Z6.jpg

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

260430N.jpg

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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**.

260430P.jpg

260430Q.jpg

- 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

260430A.jpg

260430B.jpg

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

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

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

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

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

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

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

Surging Energy Prices Push Up PCE Prices and Consumption in March

Kathleen Stephansen, CBE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief

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