Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817a.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in August fell 7.9% m/m to 83.3. The decline was the largest m/m drop in over a year and, likewise, pulled the index to its lowest level since last August. Consensus expectations had been for a lesser decline to 87.
A 9.1% decline in consumer expectations led this month&#39;s decline in overall sentiment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817c.jpg" width="353">
Consumers worried that business conditions during the next six months would deteriorate and the index measuring these expectations fell 14.3% (+20.0% y/y). Expectations for business conditions during the next five years also fell (-7.3% m/m, +6.0% y/y). Finally, the index measuring the expected change in consumers&#39; finances fell 5.6% (+5.4% y/y) and reversed most of the prior month&#39;s increase.
Perceptions about current economic conditions also fell. The view of current personal finances fell 13.0% (-8.3% y/y) and consumers&#39; view of current buying conditions for large household goods fell 1.9% (-4.4% y/y).
The assessment of government policy fell a hard 7.0% m/m (-2.4% y/y) to the lowest level in over one year..<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817b.jpg" width="353">
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end.
The U.S. Federal Reserve today took action to <a href="http://http://www.federalreserve.gov/boarddocs/press/monetary/2007/200708172/default.htm">reduce the Discount Rate</a>. An accompanying statement to this action can be found <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070817/default.htm"> here</a>. Today&#39;s actionis meant toencourage the use of the discount window by specific banksthat need more liquidity without reducing the cost of funds toall banks, as an easing of the fed funds rate would do.
William Poole, President, Federal Reserve Bank of St. Louis, spoke today on U.S. Export Opportunities and his comments are available <a href="http://www.stlouisfed.org/news/speeches/2007/08_17_07.html"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a>&nbsp;</th>
<th scope="col">August (Prelim.)</th>
<th scope="col">July</th>
<th scope="col">Aug 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">Consumer Sentiment</td>
<td>83.3</td>
<td>90.4</td>
<td>1.6%</td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>97.7</td>
<td>104.5</td>
<td>-5.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.1</td>
<td>81.5</td>
<td>9.0%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
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The University of Michigan's preliminary reading of consumer sentiment in August fell 7.9% m/m to 83.3. The decline was the largest m/m drop in over a year and, likewise, pulled the index to its lowest level since last August. [...]

Michigan Consumer Sentiment Fell Sharply, Fed's Discount Rate Cut

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817g.jpg" width="353">
Trends in German producer prices are partly favorable.
Excluding energy, manufacturing PPI trends are sideways. The year- over-year rate has showed a slight downtrend while the six- month rate has popped up and the 3-month rate has dropped from its month-ago pop-up. The three- month trend is unclear as despite its drop-off in the month it may still be in an uptrend that dates back to March. Prices of German manufacturing and mfg excluding energy show different forces are acting on them. As energy prices have ebbed overall German PPI inflation is dropping and has slowed to a 1.1% pace year/year. But the year/year pace for the Excl Energy Manufacturing PPI inflation rate is at 2.5% and is barely beginning to edge lower. With the ECB inflation ceiling for its HICP at 2% the PPI is not helping and the trend does not show the promise of much help to come, at least for nonenergy prices. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Germany PPI
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> M/M % Changes</td>
<td colspan="4"> %-SAAR</td>
</tr>
<tr>
<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>
<td> 12-moY-Ago</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>3.0%</td>
</tr>
<tr>
<td colspan="7">&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
Where Does the Oil Come From? 
by <a href="/comment/Stone.html">Carol Stone</a> August 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817d.jpg" width="353">
We speak often about oil demand, in which regions it has grown and where it is more restrained and how can we use oil more efficiently. But price, of course, results from both demand AND supply. So discussion of oil markets is not really complete without some consideration of supply conditions. Even if we believe supply is exogenous to consumers, we still need to understand how much is coming from where.
These details are arrayed nicely in Haver&#39;s OMI database, furnished by our partner source, Energy Intelligence, as part of their publication &quot;Oil Market Intelligence&quot;. This company has representatives in fields around the world to assess the availability of this important resource.
In July total oil available from wellhead production was 83,530 thousand barrels/day, compared with 82,434 in June and 83,266 in July 2006. For this July, there were also refining processing gains of approximately 2,000 barrels/day, so the supply of products was about in line with the separately measured product demand, 85,482 thousand barrels/day. The increase in supply for the month was 1.33%, the largest monthly rise since 1.73% in June 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817e.jpg" width="353">
Among the leading producers, OPEC output was 35.3 million b/d, up from 34.8 mbd in June. It represents 42.2% of total world output. In recent years, OPEC&#39;s largest share was 44.3% in September 2005. For much of the time since 1990, their share hovered around 40%; it began to increase from that range during 2002.
In examining the other regions&#39; performance, it looks that higher prices are eliciting added output. Nearly every other major area of the world is participating, at least to some extent. Many of us tend to think that the &quot;oil is running out&quot;, but there seems still to be some more. The most distinctive example is the new UK field in the North Sea. For all of Europe, this appears to have halted the steep downtrend in output, making it just about steady in July with the year-ago figure, off a mere 1.3%, compared with year-on-year declines last autumn of 10% and more. In the Americas, production is climbing slowly after the plunge and rebound associated with 2005&#39;s hurricanes; it&#39;s even steady in the US, and &quot;other&quot; countries, though small, are growing rapidly.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817f.jpg" width="353">
The main growth is in Asia. The OMI classifies Russia as an Asian producer. Its output is rising at about a 2.2% year-on-year pace and now accounts for about 11.6% of the world total. Other former Soviet republics are growing their output rapidly, albeit from a small base; they have enlarged their market share by 0.75% in just the past two years. In China, production is growing, but demand is growing so much faster. This imbalance is likely one reason for recent price spikes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">World Oil Supply, Mil. Bbl/Day</th>
<th scope="col">July 2007</th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">July 2006</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>83.5</td>
<td>82.4</td>
<td>82.6</td>
<td>83.3</td>
<td>82.9</td>
<td>82.4</td>
<td>81.4</td>
</tr>
<tr>
<td class="firstcol">OPEC</td>
<td>32.3</td>
<td>34.8</td>
<td>34.6</td>
<td>35.7</td>
<td>35.4</td>
<td>35.6</td>
<td>34.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Americas</td>
<td>15.6</td>
<td>15.3</td>
<td>15.6</td>
<td>15.5</td>
<td>15.6</td>
<td>15.4</td>
<td>15.5</td>
</tr>
<tr>
<td class="firstcol">Europe</td>
<td>4.6</td>
<td>4.4</td>
<td>4.6</td>
<td>4.7</td>
<td>4.7</td>
<td>5.2</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Russia</td>
<td>9.7</td>
<td>9.6</td>
<td>9.6</td>
<td>9.5</td>
<td>9.4</td>
<td>9.2</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Other Asia</td>
<td>9.0</td>
<td>8.9</td>
<td>8.9</td>
<td>8.6</td>
<td>8.5</td>
<td>8.2</td>
<td>8.1</td>
</tr>
</tbody>
</table>
 Michigan Consumer Sentiment Fell Sharply, Fed's Discount Rate Cut 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817a.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in August fell 7.9% m/m to 83.3. The decline was the largest m/m drop in over a year and, likewise, pulled the index to its lowest level since last August. Consensus expectations had been for a lesser decline to 87.
A 9.1% decline in consumer expectations led this month&#39;s decline in overall sentiment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817c.jpg" width="353">
Consumers worried that business conditions during the next six months would deteriorate and the index measuring these expectations fell 14.3% (+20.0% y/y). Expectations for business conditions during the next five years also fell (-7.3% m/m, +6.0% y/y). Finally, the index measuring the expected change in consumers&#39; finances fell 5.6% (+5.4% y/y) and reversed most of the prior month&#39;s increase.
Perceptions about current economic conditions also fell. The view of current personal finances fell 13.0% (-8.3% y/y) and consumers&#39; view of current buying conditions for large household goods fell 1.9% (-4.4% y/y).
The assessment of government policy fell a hard 7.0% m/m (-2.4% y/y) to the lowest level in over one year..<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070817b.jpg" width="353">
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end.
The U.S. Federal Reserve today took action to <a href="http://http://www.federalreserve.gov/boarddocs/press/monetary/2007/200708172/default.htm">reduce the Discount Rate</a>. An accompanying statement to this action can be found <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070817/default.htm"> here</a>. Today&#39;s actionis meant toencourage the use of the discount window by specific banksthat need more liquidity without reducing the cost of funds toall banks, as an easing of the fed funds rate would do.
William Poole, President, Federal Reserve Bank of St. Louis, spoke today on U.S. Export Opportunities and his comments are available <a href="http://www.stlouisfed.org/news/speeches/2007/08_17_07.html"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a>&nbsp;</th>
<th scope="col">August (Prelim.)</th>
<th scope="col">July</th>
<th scope="col">Aug 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">Consumer Sentiment</td>
<td>83.3</td>
<td>90.4</td>
<td>1.6%</td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>97.7</td>
<td>104.5</td>
<td>-5.9%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.1</td>
<td>81.5</td>
<td>9.0%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
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Trends in German producer prices are partly favorable. Excluding energy, manufacturing PPI trends are sideways. The year- over-year rate has showed a slight downtrend while the six- month rate has popped up and the 3-month rate has [...]

German PPI Steadies at Above 2% Pace

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/070816k.jpg" width="353">
The US Treasury&#39;s monthly &quot;TIC&quot; data were reported yesterday for June. They indicate that foreign interest in US capital markets remained strong with the same magnitude of net flows into the US as occurred in May, the record period. Foreign investors bought $148.6 billion of US securities compared with $163.7 billion in May and &quot;just&quot; $91.8 billion in June 2006. At the same time, US investors bought $27.8 billion of foreign securities in June, noticeably less than May&#39;s $37.6 billion, but still historically large.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816l.jpg" width="353">
The mix of US securities purchased by foreign investors shifted considerably from May to June. After May&#39;s outsized amount of corporate bonds, $72.6 billion, they bought only about one-third as much in June, $25.9 billion. Purchases of equities also decreased, from $42.0 billion in May to $28.8 billion. But net buying of federal agency and Treasury securities both established new records: agency debt advanced from $27.5 billion to $39.7 billion and Treasury purchases from $21.6 billion to $54.3 billion.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816m.jpg" width="353">
Last month, we commented here on the increased participation by Chinese investors in US markets. This expanded further in June, with $20.2 billion in net purchases, up from $10.1 billion in May. The London markets reduced their US buying, but at $66.7 billion, it remained large compared with both most previous periods and other investment centers. Speaking of other investment centers, a number of them were active in June: Hong Kong investors bought, on net, a record $13.3 billion; the Cayman Islands, $11.1 billion, about average for them; and Russia $6.6 billion, also a record and following $6.0 billion in May. The one we found interesting was Brazil, whose investors purchased $10.1 billion in June and a total of $20 billion during the second quarter. The June amount was more than accounted for with $12.2 billion in Treasuries. Euro-Zone investors, by contrast, were net sellers of $20 billion in US securities markets in June, consisting of a large portion of foreign stock sales to US investors. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net ForeignPurchases fromUS Residents, Bil $</th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">June 2006</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Last 12 Months</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Headline&quot;: Net Foreign Purchases &nbsp;= 1 + 2</td>
<td>120.9</td>
<td>126.0</td>
<td>83.5</td>
<td>81.4</td>
<td>73.7</td>
<td>69.9</td>
<td>63.6</td>
</tr>
<tr>
<td class="firstcol">Domestic Securities</td>
<td>148.6</td>
<td>163.7</td>
<td>91.8</td>
<td>107.0</td>
<td>94.6</td>
<td>84.3</td>
<td>76.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>54.3</td>
<td>21.6</td>
<td>28.7</td>
<td>22.1</td>
<td>16.3</td>
<td>28.2</td>
<td>29.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>39.7</td>
<td>27.5</td>
<td>23.0</td>
<td>24.5</td>
<td>24.1</td>
<td>18.3</td>
<td>18.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>25.9</td>
<td>72.6</td>
<td>41.7</td>
<td>43.6</td>
<td>41.7</td>
<td>31.0</td>
<td>25.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>28.8</td>
<td>42.0</td>
<td>-1.6</td>
<td>16.9</td>
<td>12.5</td>
<td>6.8</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Foreign Securities&nbsp;</td>
<td>-27.8</td>
<td>-37.6</td>
<td>-8.3</td>
<td>-25.7</td>
<td>-20.9</td>
<td>-14.4</td>
<td>-12.7</td>
</tr>
<tr>
<td class="firstcol">Net Foreign Acquisition</td>
<td>107.0</td>
<td>112.5</td>
<td>67.8</td>
<td>67.9</td>
<td>60.7</td>
<td>58.3</td>
<td>60.4</td>
</tr>
<tr>
<td class="firstcol">Total TIC Flows&nbsp; </td>
<td>58.8</td>
<td>107.3</td>
<td>-2.6</td>
<td>73.6</td>
<td>87.4</td>
<td>55.7</td>
<td>81.6</td>
</tr>
<tr class="odd">
<td colspan="8">Select Countries Net Purchases of US Securities</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>20.2</td>
<td>10.1</td>
<td>12.2</td>
<td>11.0</td>
<td>9.1</td>
<td>7.2</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">United Kingdom</td>
<td>66.7</td>
<td>92.7</td>
<td>57.2</td>
<td>47.0</td>
<td>38.7</td>
<td>30.3</td>
<td>21.2</td>
</tr>
</tbody>
</table>
</body>
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The US Treasury's monthly "TIC" data were reported yesterday for June. They indicate that foreign interest in US capital markets remained strong with the same magnitude of net flows into the US as occurred in May, the record period. [...]

TIC Data Show Sizable Foreign Interest in US Securities Even Through June; Hong Kong, Russia & Brazilian Investors [...]

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<div align="left"><img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816j.jpg">
Inflation trends are peaking and falling in the Euro area with the key core measure. Still that core measure is hugging the 2% ceiling rate for the overall HICP. While Year/year inflation is lower and 3-month inflation is lower 6-month inflation is NOT.
Overall and core rate of inflation are mostly conforming to the ECB ceiling across major countries. There is no sense of accelerating inflation in this group and that is certainly good news. The bad news is that the trends for the components of inflation are more decidedly mixed. While goods price inflation is still falling (and that one contains oil and gas price effects), services inflation is high and accelerating. It may contain some energy price impacts as well, but the speed right now is over the top of acceptability. Internal inflation (services) can be more stubborn than goods inflation. These days, due to international competition, goods price inflation tends to be better behaved. Pressure from services prices tends to be longer lived while goods price oscillations may not be so permanent. As a result the drop in goods prices that helped to contain the overall HICP is to be closely watched in the coming months. We obviously want to see as well the service sector trends and how much they are able to deflate.</div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends in HICP
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M % Change</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<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>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EMU-13</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.6%</td>
<td>1.8%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.3%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>-1.0%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>-2.9%</td>
<td>2.6%</td>
<td>1.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.8%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>5.2%</td>
<td>4.5%</td>
<td>2.6%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.0%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>1.9%</td>
<td>2.7%</td>
<td>1.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>1.5%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.1%</td>
<td>3.4%</td>
<td>2.3%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Core:xFE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.4%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>1.4%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.2%</td>
<td>3.0%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>1.2%</td>
<td>1.6%</td>
<td>1.8%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflation trends are peaking and falling in the Euro area with the key core measure. Still that core measure is hugging the 2% ceiling rate for the overall HICP. While Year/year inflation is lower and 3-month inflation is lower [...]

HICP is Losing Momentum

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816i.jpg" width="353">
In the new third quarter, UK real retail sales excluding autos were up strongly - in July. Real retail sales are rising at a 7% annual rate in the new quarter. Real ex-auto retail sales are ramping up in terms of 3-month and 6-month trends as well. The UK is one country in the EU where consumers seem to have stepped up. In Germany growth has been strong but the consumer has lagged. In France recent stock market events have been worse than in other countries and its business surveys have weakened. The consumer remains the key to the next leg up in growth in Europe and only in the UK do we have evidence that the consumer is ready to comply.</div>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK Real and Nominal Retail Sales
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</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>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">Retail Total</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>6.5%</td>
<td>3.5%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">Food Beverages &amp; Tobacco</td>
<td>-0.4%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-4.4%</td>
<td>0.6%</td>
<td>0.8%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Clothing Footwear</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>-4.3%</td>
<td>-17.1%</td>
<td>9.7%</td>
<td>1.6%</td>
<td>5.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Retail ex auto</td>
<td>0.7%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>6.4%</td>
<td>8.1%</td>
<td>4.4%</td>
<td>4.1%</td>
</tr>
</tbody>
</table>
</body>
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In the new third quarter, UK real retail sales excluding autos were up strongly - in July. Real retail sales are rising at a 7% annual rate in the new quarter. Real ex-auto retail sales are ramping up in terms of 3-month and 6-month [...]

UK Real Retail Sales Pop in July

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816g.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector fell more than expected during August. The drop to 0.0 from 9.2 indicated that activity was &quot;steady,&quot; but Consensus expectations had been for a reading that was roughly unchanged from July at 10.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 43% correlation with q/q growth in real GDP.
The sub indexes for new orders, shipments, unfilled orders and inventories all fell, the latter two into negative territory. The employment reading, however, improved to its best reading since 2004. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816h.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index fell for the third consecutive month, back to its lowest level since January. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months rose to its best level since late in 2004.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0708.html">here</a>.
The latest Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/spf/survq307.html"> here</a>. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">August</th>
<th scope="col">July &nbsp;</th>
<th scope="col">Aug. &#145;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>0.0&nbsp;</td>
<td>9.2</td>
<td>12.6&nbsp;</td>
<td>8.1</td>
<td>11.5</td>
<td>28.1</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>15.4&nbsp;</td>
<td>28.1&nbsp;</td>
<td>46.6&nbsp;</td>
<td>36.6</td>
<td>40.1</td>
<td>51.2</td>
</tr>
</tbody>
</table>
</body>
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The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector fell more than expected during August. The drop to 0.0 from 9.2 indicated that activity was "steady," but Consensus expectations [...]

Philadelphia Fed Index Unexpectedly Steady

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816f.jpg" width="353">
Initial claims for unemployment insurance rose again last week. This third increase in as many weeks was to 322,000 from an unrevised 316,000 during the opening week of the month. The increase exceeded Consensus expectations for 315,000 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 four-week moving average of initial claims rose to 312,500 (-0.2% y/y), its highest level in one month.
Continuing claims for unemployment insurance rose 17,000 after a downwardly revised 16,000 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%.
Family Caregiver: Balancing Home and Work from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/commdev/c&amp;b/2007/summer/Lochhead_home_health.pdf"> here</a>.</div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">08/11/07 </th>
<th scope="col">08/04/07 </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>316</td>
<td>1.9%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,567</td>
<td>3.1%</td>
<td>2,545</td>
<td>3.3%</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance rose again last week. This third increase in as many weeks was to 322,000 from an unrevised 316,000 during the opening week of the month. The increase exceeded Consensus expectations for [...]

U.S. Initial Claims for Jobless Insurance Rose Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816d.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070816e.jpg" width="353">
The Composite Housing Market Index from the National Association of Home Builders&#39; (NAHB) fell hard this month to the lowest level since early 1991. At 22, for August, the index fell 8.3% from July after a 14.3% during that month. 
During the last twenty years there has been a 76% correlation between the y/y change in the Composite Index and the change in single family housing starts. 
The sub-index for current sales also was down and fell 4.2% (-37.8% y/y) from July. The sub-index covering prospective sales in the next six months dropped 5.9% m/m (-22.0% y/y). 
Traffic of prospective home buyers fell 15.8% m/m (-27.3% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions good than poor. 
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a>&nbsp;</th>
<th scope="col">August</th>
<th scope="col">July &nbsp;</th>
<th scope="col">Aug. &#39;06&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>22&nbsp;</td>
<td>24</td>
<td>33</td>
<td>42</td>
<td>67</td>
<td>68</td>
</tr>
</tbody>
</table>
</body>
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The Composite Housing Market Index from the National Association of Home Builders' (NAHB) fell hard this month to the lowest level since early 1991. At 22, for August, the index fell 8.3% from July after a 14.3% during that month. [...]

U.S. NAHB Housing Market Index Lowest Since 1991

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.

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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.