Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823c.jpg" width="353">
The BNB index fell to 3.3 in August from 4.2 in July and, along with the German Zew index, it gives us a signal of softening activity in the Euro area. However the decline in the index is not severe and the Belgian metric continues to signal small gains year-over-year. There is no evidence of financial contagion here.
This index does not apply to one of the large Euro countries, but it is an actual survey of industry respondents not just of financial experts, unlike Germany&#146;sZew Index. Also it is available earlier than most major Euro area country surveys. And those are the reasons we are attracted to it. Since Belgium is well-integrated into the EU and is a relatively small economy its activity tends to reflect that of its larger neighbors. Not surprisingly this report is treated as a harbinger of sorts for the upcoming EU and German surveys.
Viewed in that way the Belgian index&#146;s slide is not very severe. The Zew index in Germany fell by more partly because it is executed on a survey of financial experts who might see trouble coming before it hits real data or who might exaggerate the importance of a financial disruption to the real economy. At this point, we do not know if Zew respondents are prescient or lacking in staying power. In truth neither do we really know how widespread disruptions will get or even how widespread they ARE. But the BNB Survey says as of this time the slowdown is minor &#150; at least in Belgium.
This survey like others before it and others for other Euro area member countries, displays weaker domestic than foreign orders. This has become a Euro area theme of sorts. And while the total order assessment is lower than a year ago, foreign orders are assessed stronger. Wholesaling and retailing in Belgium continue to climb even though the joint sector reading is lower on a year/year basis. On balance Belgium does not seem much affected by the financial turmoil. On the other hand it is not clear how much turmoil had been underway at the time respondents filled in their surveys. Contagion is something we will continue to watch for over the next several months at least. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Belgium National Bank Indices
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-Mo Change</td>
<td>6-Mo Change</td>
<td>12-Mo Change</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Industry</td>
<td>3.3</td>
<td>4.2</td>
<td>5.5</td>
<td>-0.6</td>
<td>-0.2</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>2.8</td>
<td>4.5</td>
<td>6.5</td>
<td>-1.1</td>
<td>0.8</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Production</td>
<td>4.0</td>
<td>4.0</td>
<td>8.0</td>
<td>-1.0</td>
<td>-2.0</td>
<td>-2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Orders</td>
<td>1.0</td>
<td>-2.0</td>
<td>5.0</td>
<td>-3.0</td>
<td>-7.0</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Orders</td>
<td>9.0</td>
<td>14.0</td>
<td>11.0</td>
<td>6.0</td>
<td>2.0</td>
<td>10.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices</td>
<td>2.0</td>
<td>7.0</td>
<td>13.0</td>
<td>-5.0</td>
<td>-9.0</td>
<td>-9.0</td>
</tr>
<tr>
<td colspan="7">Current Assets</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total Orders</td>
<td>0.0</td>
<td>2.0</td>
<td>3.0</td>
<td>-4.0</td>
<td>0.0</td>
<td>-4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign Orders</td>
<td>2.0</td>
<td>4.0</td>
<td>4.0</td>
<td>1.0</td>
<td>5.0</td>
<td>-1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Inventories</td>
<td>0.0</td>
<td>-3.0</td>
<td>-7.0</td>
<td>1.0</td>
<td>-4.0</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale &amp; Retail Trade</td>
<td>6.5</td>
<td>4.8</td>
<td>4.2</td>
<td>-0.8</td>
<td>0.7</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>2.3</td>
<td>2.1</td>
<td>2.3</td>
<td>2.0</td>
<td>-6.0</td>
<td>-1.7</td>
</tr>
<tr>
<td class="firstcol">Comparisons:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">Changes lag one month</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; EU Index: Industry</td>
<td>#N/A</td>
<td>5.0</td>
<td>6.0</td>
<td>-2.0</td>
<td>-1.0</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Germany Index: Industry</td>
<td>#N/A</td>
<td>8.0</td>
<td>9.0</td>
<td>-1.0</td>
<td>-1.0</td>
<td>3.0</td>
</tr>
</tbody>
</table>
</body>
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The BNB index fell to 3.3 in August from 4.2 in July and, along with the German Zew index, it gives us a signal of softening activity in the Euro area. However the decline in the index is not severe and the Belgian metric continues to [...]

Belgian National Bank Index Declines in August

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823a.jpg" width="353">
Initial claims for unemployment insurance fell slightly last week, back to the level initially reported for the prior period. Claims for the week ending 8/18 fell to 322,000 from 324,000 during the week ended 8/11. Consensus expectations were for 320,000 claims in the latest week.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The latest figure is for the survey period for nonfarm payrolls due for release on September 7th. Claims rose 6.3% from the July period. A 7.1% decline in July claims was associated with the below average 92,000 increase in payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823b.jpg" width="353">
The four-week moving average of initial claims rose to 317,750 (0.3% y/y), its highest level since early July.
Continuing claims for unemployment insurance rose 16,000 after a downwardly revised 6,000 increase during the prior week. The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment remained at 1.9%.
The Minimum Wage and the Labor Market from the Federal Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/Commentary/2007/0501.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">08/18/07 </th>
<th scope="col">08/11/07 </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">Initial Claims</td>
<td>&nbsp;322</td>
<td>324</td>
<td>1.6%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,572</td>
<td>3.9%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
</tr>
</tbody>
</table>
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Initial claims for unemployment insurance fell slightly last week, back to the level initially reported for the prior period. Claims for the week ending 8/18 fell to 322,000 from 324,000 during the week ended 8/11. Consensus [...]

U.S. Initial Unemployment Insurance Claims Fell Slightly

Carol Stone, CBE

Financial markets have been in a "liquidity crisis". Weekly Federal Reserve data reported just this afternoon and also earlier today give several measures of this for the US and highlight what the Federal Reserve and bankers are [...]

Borrowings at the Federal Reserve Largest in 6 Years; Big Drops in Commercial Paper Outstanding

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822b.jpg" width="353">
Japan&#39;s trade surplus either widened a bit in July or narrowed noticeably, depending on how you look at it. The reported balance from the raw data diminished to &yen;671 million from &yen;851 million in July 2006. However, the seasonally adjusted balance inched outward to &yen;823 million from &yen;822 million. This compares with a seasonally adjusted balance of &yen;766 million a year ago. Both exports and imports rose 0.5% in July from June. Exports were up 11.7% from the year-ago amount and imports, a substantial 16.9%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822c.jpg" width="353">
Some observers highlighted the deterioration, noting that it was more than forecasters expected and might foretell more slowing of the Japanese economy. There was already some surprise in Q2 GDP, which saw quarter-to-quarter growth decrease to just a 0.5% annual rate from 3.2% in Q1. However, from this perspective of the ongoing trend in seasonally adjusted data, the recent string of trade figures looks fairly favorable (see first graph).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822d.jpg" width="353">
The feature of this report that caught our attention came when we started to look at petroleum imports. With prices up so sharply, these imports were up 14% from a year ago. But wait! total imports were up 16.9%. Other things must have increased considerably more than oil. Indeed. Iron ore 35%; iron and steel products, 55.7%; nonferrous ore, 59.6%; nonferrous alloys, 27.8%, chemicals, 23.8%; electrical machinery, 17.1%. Commodity prices have struck here, apparently, sticking resource-starved Japan with accelerating import costs; in some cases, such as copper, world markets have already eased, but Japan is still paying higher more, possibly for materials that were ordered some time ago. We show here another example, imports of iron and steel products with the Nikkei domestic commodity price index for steel products.
Will these facts help the Bank of Japan in its rate setting decision, due overnight tonight? They would present a two-handed argument for a rate change: high-cost imports weighing on the economy, but the accompanying prospect of a more notable resumption of inflation. We&#39;d guess -- without any credential as a forecaster of Japanese monetary policy -- that developments in world markets, more than these dual pressures within the Japanese economy itself, would stop the BoJ from raising a rate this week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN, Bil.&yen;</th>
<th scope="col">July 2007*</th>
<th scope="col">June 2007*</th>
<th scope="col">May 2007*</th>
<th scope="col">Year Ago*</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>823</td>
<td>822</td>
<td>796</td>
<td>766</td>
<td>658</td>
<td>726</td>
<td>996</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Not Seas Adj</td>
<td>671</td>
<td>1223</td>
<td>383</td>
<td>851</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>7086</td>
<td>7053</td>
<td>6973</td>
<td>6333</td>
<td>6271</td>
<td>5471</td>
<td>5097</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>1.1</td>
<td>2.9</td>
<td>11.7</td>
<td>14.6</td>
<td>7.3</td>
<td>12.1</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>6264</td>
<td>6231</td>
<td>6177</td>
<td>5567</td>
<td>5612</td>
<td>4746</td>
<td>4101</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>0.9</td>
<td>8.2</td>
<td>16.9</td>
<td>18.3</td>
<td>15.7</td>
<td>10.9</td>
</tr>
</tbody>
</table>
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Japan's trade surplus either widened a bit in July or narrowed noticeably, depending on how you look at it. The reported balance from the raw data diminished to ¥671 million from ¥851 million in July 2006. However, the seasonally [...]

Japanese Trade Picture Murky: Rising World Commodity Prices Push Imports Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822a.jpg" width="353">
Euro area domestic orders are fine but are slower than export orders - both are accelerating over 3 months. 
The UK alone (not a Euro area member) shows orders weakening but the CBI survey shows gains in August. We are left with a bit of uncertainty about Europe. But nothing has truly been weak apart from the episodic experience of things like UK orders weakening then rebounding. There are more substantial hints of slowing, but none of weakness. And during the liquidity squeeze the Euro has lost some ground, a factor that is good for Euro area growth prospects. 
While there is some irregularity in the Euro area, Italy and France have showed the most consistent signs of weakness among large economies, although French industrial orders have emerged again as strong after some weakness. The ECB is under pressure to not hike rates and today the French finance minister proves there is at least a side and one-half to every argument, by making a case for a rate cut from the ECB. Yes I said (he said) &#145;cut&#146;. 
Within the Euro area there is this odd result that domestic orders are softer while export orders are strong and accelerating strongly. Exports still undertake a national definition in these data. So export orders from Germany to a French firm would be export orders to France but would still reflect internal EMU orders. This sort of thing makes it a bit hard to sort out what is in train here. For now domestic orders are a bit weaker but are not suspect since they are accelerating, too. Europe&#146;s slowdown may be in progress but it does not seem to be anything more serious than that. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area and UK Industrial Orders &amp; Sales Trends
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">% m/m</td>
<td>Jun-07</td>
<td>Jun-07</td>
<td>Jun-07</td>
<td>Jun-06</td>
<td>Jun-05</td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro area Detail</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Orders</td>
<td>4.4%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>24.5%</td>
<td>17.5%</td>
<td>15.5%</td>
<td>6.3%</td>
<td>5.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG Sales</td>
<td>0.9%</td>
<td>0.7%</td>
<td>0.3%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>7.1%</td>
<td>7.7%</td>
<td>3.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.9%</td>
<td>4.1%</td>
<td>4.8%</td>
<td>7.7%</td>
<td>3.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>8.2%</td>
<td>4.0%</td>
<td>1.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate</td>
<td>0.9%</td>
<td>0.7%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>4.0%</td>
<td>10.6%</td>
<td>6.9%</td>
<td>2.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">MFG Orders</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>4.4%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>24.5%</td>
<td>17.5%</td>
<td>15.5%</td>
<td>6.3%</td>
<td>5.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-13 Domestic MFG orders</td>
<td>1.8%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>4.0%</td>
<td>10.6%</td>
<td>4.2%</td>
<td>0.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-13 Foreign MFG orders</td>
<td>8.7%</td>
<td>3.7%</td>
<td>-2.0%</td>
<td>48.4%</td>
<td>30.7%</td>
<td>23.1%</td>
<td>8.5%</td>
<td>9.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Countries:</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany:</td>
<td>4.7%</td>
<td>3.2%</td>
<td>-1.5%</td>
<td>28.3%</td>
<td>27.2%</td>
<td>17.9%</td>
<td>9.7%</td>
<td>7.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France:</td>
<td>5.1%</td>
<td>2.6%</td>
<td>0.6%</td>
<td>38.6%</td>
<td>26.6%</td>
<td>8.4%</td>
<td>-0.6%</td>
<td>9.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy:</td>
<td>#N/A</td>
<td>2.5%</td>
<td>-0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>10.1%</td>
<td>4.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK:</td>
<td>-1.7%</td>
<td>-2.4%</td>
<td>-6.7%</td>
<td>-35.9%</td>
<td>12.2%</td>
<td>-7.2%</td>
<td>10.2%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

Euro area domestic orders are fine but are slower than export orders - both are accelerating over 3 months. The UK alone (not a Euro area member) shows orders weakening but the CBI survey shows gains in August. We are left with a bit [...]

Euro Orders are Quite Firm Within the Zone but Extremely Strong for "Exports"

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822b.jpg" width="353">
Japan&#39;s trade surplus either widened a bit in July or narrowed noticeably, depending on how you look at it. The reported balance from the raw data diminished to &yen;671 million from &yen;851 million in July 2006. However, the seasonally adjusted balance inched outward to &yen;823 million from &yen;822 million. This compares with a seasonally adjusted balance of &yen;766 million a year ago. Both exports and imports rose 0.5% in July from June. Exports were up 11.7% from the year-ago amount and imports, a substantial 16.9%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822c.jpg" width="353">
Some observers highlighted the deterioration, noting that it was more than forecasters expected and might foretell more slowing of the Japanese economy. There was already some surprise in Q2 GDP, which saw quarter-to-quarter growth decrease to just a 0.5% annual rate from 3.2% in Q1. However, from this perspective of the ongoing trend in seasonally adjusted data, the recent string of trade figures looks fairly favorable (see first graph).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822d.jpg" width="353">
The feature of this report that caught our attention came when we started to look at petroleum imports. With prices up so sharply, these imports were up 14% from a year ago. But wait! total imports were up 16.9%. Other things must have increased considerably more than oil. Indeed. Iron ore 35%; iron and steel products, 55.7%; nonferrous ore, 59.6%; nonferrous alloys, 27.8%, chemicals, 23.8%; electrical machinery, 17.1%. Commodity prices have struck here, apparently, sticking resource-starved Japan with accelerating import costs; in some cases, such as copper, world markets have already eased, but Japan is still paying higher more, possibly for materials that were ordered some time ago. We show here another example, imports of iron and steel products with the Nikkei domestic commodity price index for steel products.
Will these facts help the Bank of Japan in its rate setting decision, due overnight tonight? They would present a two-handed argument for a rate change: high-cost imports weighing on the economy, but the accompanying prospect of a more notable resumption of inflation. We&#39;d guess -- without any credential as a forecaster of Japanese monetary policy -- that developments in world markets, more than these dual pressures within the Japanese economy itself, would stop the BoJ from raising a rate this week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN, Bil.&yen;</th>
<th scope="col">July 2007*</th>
<th scope="col">June 2007*</th>
<th scope="col">May 2007*</th>
<th scope="col">Year Ago*</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>823</td>
<td>822</td>
<td>796</td>
<td>766</td>
<td>658</td>
<td>726</td>
<td>996</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Not Seas Adj</td>
<td>671</td>
<td>1223</td>
<td>383</td>
<td>851</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>7086</td>
<td>7053</td>
<td>6973</td>
<td>6333</td>
<td>6271</td>
<td>5471</td>
<td>5097</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>1.1</td>
<td>2.9</td>
<td>11.7</td>
<td>14.6</td>
<td>7.3</td>
<td>12.1</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>6264</td>
<td>6231</td>
<td>6177</td>
<td>5567</td>
<td>5612</td>
<td>4746</td>
<td>4101</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>0.9</td>
<td>8.2</td>
<td>16.9</td>
<td>18.3</td>
<td>15.7</td>
<td>10.9</td>
</tr>
</tbody>
</table>
Euro Orders are Quite Firm Within the Zone but Extremely Strong for "Exports" 
by <a href="/comment/Brusca.html">Robert Brusca</a> August 22, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070822a.jpg" width="353">
Euro area domestic orders are fine but are slower than export orders - both are accelerating over 3 months. 
The UK alone (not a Euro area member) shows orders weakening but the CBI survey shows gains in August. We are left with a bit of uncertainty about Europe. But nothing has truly been weak apart from the episodic experience of things like UK orders weakening then rebounding. There are more substantial hints of slowing, but none of weakness. And during the liquidity squeeze the Euro has lost some ground, a factor that is good for Euro area growth prospects. 
While there is some irregularity in the Euro area, Italy and France have showed the most consistent signs of weakness among large economies, although French industrial orders have emerged again as strong after some weakness. The ECB is under pressure to not hike rates and today the French finance minister proves there is at least a side and one-half to every argument, by making a case for a rate cut from the ECB. Yes I said (he said) &#145;cut&#146;. 
Within the Euro area there is this odd result that domestic orders are softer while export orders are strong and accelerating strongly. Exports still undertake a national definition in these data. So export orders from Germany to a French firm would be export orders to France but would still reflect internal EMU orders. This sort of thing makes it a bit hard to sort out what is in train here. For now domestic orders are a bit weaker but are not suspect since they are accelerating, too. Europe&#146;s slowdown may be in progress but it does not seem to be anything more serious than that. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area and UK Industrial Orders &amp; Sales Trends
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">% m/m</td>
<td>Jun-07</td>
<td>Jun-07</td>
<td>Jun-07</td>
<td>Jun-06</td>
<td>Jun-05</td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro area Detail</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Orders</td>
<td>4.4%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>24.5%</td>
<td>17.5%</td>
<td>15.5%</td>
<td>6.3%</td>
<td>5.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG Sales</td>
<td>0.9%</td>
<td>0.7%</td>
<td>0.3%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>7.1%</td>
<td>7.7%</td>
<td>3.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.9%</td>
<td>4.1%</td>
<td>4.8%</td>
<td>7.7%</td>
<td>3.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital</td>
<td>0.5%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>8.2%</td>
<td>4.0%</td>
<td>1.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate</td>
<td>0.9%</td>
<td>0.7%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>4.0%</td>
<td>10.6%</td>
<td>6.9%</td>
<td>2.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">MFG Orders</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>4.4%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>24.5%</td>
<td>17.5%</td>
<td>15.5%</td>
<td>6.3%</td>
<td>5.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-13 Domestic MFG orders</td>
<td>1.8%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>4.0%</td>
<td>10.6%</td>
<td>4.2%</td>
<td>0.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-13 Foreign MFG orders</td>
<td>8.7%</td>
<td>3.7%</td>
<td>-2.0%</td>
<td>48.4%</td>
<td>30.7%</td>
<td>23.1%</td>
<td>8.5%</td>
<td>9.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Countries:</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany:</td>
<td>4.7%</td>
<td>3.2%</td>
<td>-1.5%</td>
<td>28.3%</td>
<td>27.2%</td>
<td>17.9%</td>
<td>9.7%</td>
<td>7.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France:</td>
<td>5.1%</td>
<td>2.6%</td>
<td>0.6%</td>
<td>38.6%</td>
<td>26.6%</td>
<td>8.4%</td>
<td>-0.6%</td>
<td>9.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy:</td>
<td>#N/A</td>
<td>2.5%</td>
<td>-0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>10.1%</td>
<td>4.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK:</td>
<td>-1.7%</td>
<td>-2.4%</td>
<td>-6.7%</td>
<td>-35.9%</td>
<td>12.2%</td>
<td>-7.2%</td>
<td>10.2%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821c.jpg" width="353">
The ZEW indicator of confidence among German institutional investors and analysts showed that pessimists outweighed optimists by 6.9% in August. In July, optimists outweighed pessimists by 10.9% in July. The decline of 17.3 percentage points was the largest since the decline of 20.7 last August. The participants&#39; appraisal of current conditions fell by 8 percentage points from 88.2 in July to 80.2 in August. Expectations and appraisals of current conditions are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821d.jpg" width="353">
The turmoil in stock markets around the world during the period when the survey took place--July 30 to August 20--no doubt affected the participants&#39; expectations and also their outlook for profits in selected industries.
Profit expectations for the banking and insurance industries were lowered sharply. For the banking industry, pessimists exceeded optimists by 37.3% in August while in July, optimists had exceeded pessimists by 21.9%. Comparable figures for the insurance industry were 13.2% and 23.7%. Monthly changes in profit expectations for the banking and insurance industries along with those for construction and consumer/trade industries--two other industries where profit expectations showed substantial declines in August are show in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821e.jpg" width="353">
There were some improvements in the monthly changes of profit expectations. Most improvements involved a decline in the excess of pessimists, but profit expectations in the telecommunication industry actually showed an excess of optimists of 3.5%. Monthly changes in profit expectations for the telecommunication industry are shown in the third chart along with those for the information technology, utilities and service industries that also showed improvement in that the excess of pessimists over optimists was lower in August than in July. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ZEW MEASURES OF CONFIDENCE (%)</th>
<th scope="col">Aug 07</th>
<th scope="col">Jul 07&nbsp;</th>
<th scope="col">Aug 06&nbsp;</th>
<th scope="col">M/M Dif&nbsp;</th>
<th scope="col">Y/Y Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Expectations</td>
<td>-6.9</td>
<td>10.4</td>
<td>-5.6</td>
<td>-17.3</td>
<td>-1.3</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr>
<td class="firstcol">Current conditions</td>
<td>80.2</td>
<td>88.2</td>
<td>33.6</td>
<td>-8.0</td>
<td>46.6</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.7</td>
</tr>
</tbody>
</table>
</body>
</html>

The ZEW indicator of confidence among German institutional investors and analysts showed that pessimists outweighed optimists by 6.9% in August. In July, optimists outweighed pessimists by 10.9% in July. The decline of 17.3 percentage [...]

Market Turmoil Shakes Confidence of German Investors and Analysts

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070821f.jpg" width="353">
Exports were up more strongly in June than were imports shrinking the Euro area trade deficit in the month. Exports have a reasonably strong history of growth across its main categories. Import growth also has been firm and broad-based. However, manufacturing exports and imports are the slowest year-over-year. Manufacturing exports are rising at an 8.8% pace compared to imports at 7.6%. But over short time horizons both export and import growth has slowed.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Ezone 13-Trade Trends for Goods
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M%</td>
<td colspan="3">% SAAR</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jun-07</td>
<td>May-07</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr>
<td class="firstcol">Balance*</td>
<td>&#128;&#128; 5,217</td>
<td>&#128;&#128; 3,893</td>
<td>&#128;&#128; 4,211</td>
<td>&#128;&#128; 3,427</td>
<td>&#128;&#128; 1,563</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">All Exports</td>
<td>1.7%</td>
<td>0.6%</td>
<td>8.8%</td>
<td>4.9%</td>
<td>10.1%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>0.5%</td>
<td>14.7%</td>
<td>2.3%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Raw Materials</td>
<td>--</td>
<td>2.3%</td>
<td>30.0%</td>
<td>7.4%</td>
<td>13.6%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>0.8%</td>
<td>4.6%</td>
<td>-0.1%</td>
<td>8.8%</td>
</tr>
<tr>
<td class="firstcol">IMPORTS</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">All Imports</td>
<td>0.7%</td>
<td>0.3%</td>
<td>10.2%</td>
<td>-1.2%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-0.1%</td>
<td>15.8%</td>
<td>7.4%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Raw Materials</td>
<td>--</td>
<td>2.3%</td>
<td>14.7%</td>
<td>5.4%</td>
<td>16.3%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>1.6%</td>
<td>4.1%</td>
<td>4.3%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td colspan="6">*Eur mlns; mo or period average; Gray shaded areas lag one month</td>
</tr>
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Exports were up more strongly in June than were imports shrinking the Euro area trade deficit in the month. Exports have a reasonably strong history of growth across its main categories. Import growth also has been firm and broad- [...]

Euro Area Export and Import Growth Both Tic Up in June

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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.

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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%.

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

Jump to:

Belgian National Bank Index Declines in August

U.S. Initial Unemployment Insurance Claims Fell Slightly

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Japanese Trade Picture Murky: Rising World Commodity Prices Push Imports Higher

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