Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814f.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales fell 0.9% last week, the third weekly decline in the last four periods.
The average level, thus, so far in August is up just 0.1% from July which rose 0.4% from the June level of sales.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814g.jpg" width="353">
The leading indicator of chain store sales from ICSC-UBS rose 0.5% (1.8% y/y).
The recent weakness in chain store sales came as gasoline prices for regular, on average, fell 2.4% last week to $2.77 per gallon (-7.6% y/y).
The average gas price so far in August is 5.4% lower than in July and prices have fallen 13.9% from their peak during May of $3.22 per gallon.
The market price for regular gasoline in N.Y. harbor fell yesterday to $1.99 (-0.9% y/y), but that was up slightly from the July average price of $1.96.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a>&nbsp;</th>
<th scope="col">08/11/07&nbsp;</th>
<th scope="col">08/04/06&nbsp;</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales&nbsp;</td>
<td>481.3&nbsp;</td>
<td>482.1&nbsp;</td>
<td>2.3%&nbsp;</td>
<td>3.3%&nbsp;</td>
</tr>
</tbody>
</table>


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The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales fell 0.9% last week, the third weekly decline in the last four periods. The average level, thus, so far in August is up just 0.1% from [...]

Weekly Chain Store Sales Fell Despite Lower Gas Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814c.jpg" width="353">
In June, the U.S. foreign trade deficit narrowed to $59.2B from a revised $59.2B in May. Consensus expectations had been for a deeper deficit of $62.0B.
Total exports jumped 1.5% after also surging 2.6% in May. The gain mostly reflected higher exports of industrial supplies. Exports of non-auto consumer goods fell 1.4% (+9.2% y/y) while capital goods exports rose just 0.2% (5.2% y/y). Exports of advanced technology goods rose a strong 8.5% (NSA, 9.0% y/y).
Exports of services from the U.S. were firm again and rose 0.6% (13.2% y/y) while imports of services rose the same 0.6% (4.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814d.jpg" width="353">
Imports of nonpetroleum products were strong again and increased 1.0% (4.6% y/y) but imports of petroleum products fell 0.2% (-1.1% y/y). Capital goods imports jumped again, in June by 1.6% (7.0% y/y) but imports of nonauto consumer goods fell 0.6% (+5.9% y/y). Imports of advanced technology products surged 8.3% (12.3% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814e.jpg" width="353">
The U.S. trade deficit in goods with China deteriorated to $21.2B from $20.0B in May as imports surged 6.8% (12.8% y/y. U.S. exports to China, however, were also strong and posted a 10.8% (35.7% y/y) jump. <span style="FONT-SIZE: 10pt; FONT-FAMILY: Verdana; mso-fareast-font-family: &#39;Times New Roman&#39;; mso-fareast-language: EN-US; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-family: &#39;Times New Roman&#39;">
Globalization and Capital Markets: Implications for Inflation and the Yield Curve is a speech delivered by Fed Governor Randall S. Kroszner and it can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070516/default.htm"> here</a>. 

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U.S. Trade Deficit</td>
<td>$58.1B</td>
<td>$59.2B</td>
<td>$64.5B (6/06)</td>
<td>$758.5</td>
<td>$714.4B</td>
<td>$612.1B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>1.5%</td>
<td>2.6%</td>
<td>11.2%</td>
<td>12.7%</td>
<td>10.9%</td>
<td>13.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.1%</td>
<td>3.8%</td>
<td>10.4%</td>
<td>12.9%</td>
<td>16.8%</td>
</tr>
</tbody>
</table>


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In June, the U.S. foreign trade deficit narrowed to $59.2B from a revised $59.2B in May. Consensus expectations had been for a deeper deficit of $62.0B. Total exports jumped 1.5% after also surging 2.6% in May. The gain mostly [...]

U.S. Trade Deficit Narrowed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814a.jpg" width="353">
Finished producer prices rose 0.6% last month, twice the Consensus forecast for a 0.3% rise. That followed a 0.2% decline during June. The increase raised the y/y gain in prices to 3.9%, its highest in a year.
The core finished goods PPI increased a modest and expected 0.1%, down from the 0.3% gain in June. The increase was a bit below the average monthly increase of 0.2% so far this year.
Energy prices surged 2.5% as gasoline prices jumped 5.1% (6.4% y/y) and fuel oil prices rose 1.1% (1.6% y/y).Natural gas prices also were strong and posted a 3.2% (9.0% y/y) gain.
Food prices fell 0.1% (+6.2% y/y) following the 0.8% jump during June. Lower prices for meat and pork offset higher costs for dairy products. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070814b.jpg" width="353">
Finished consumer goods prices less food &amp; energy rose 0.2% (2.4% y/y). Passenger car prices reversed the strong June gain with a 1.2% decline (+1.1% y/y) and household furniture prices also fell a modest 0.1% (NSA,+1.4% y/y).
Capital equipment prices fell 0.2% (+2.3% y/y) after a 0.1% uptick in June. Prices of light motor trucks fell and costs of heavy trucks were unchanged (6.8% y/y) for the third consecutive month.
Intermediate goods prices were firm again and rose 0.6% after a 0.5% June rise. Food prices were strong with a 0.8% (15.3% y/y) jump. The index excluding food &amp; energy prices rose 0.2% (2.5% y/y). 
The crude materials PPI jumped 1.2% due to the 11.8% rise in crude oil prices (-3.2% y/y). The core crude materials PPI was unchanged as most metal prices fell.
Inflation Dynamics, remarks by Federal Reserve Board Governor Frederic S. Mishkin, are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070323/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.6%</td>
<td>-0.2%&nbsp;</td>
<td>&nbsp; 3.9%&nbsp;</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.3%</td>
<td>&nbsp;2.4%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.6%</td>
<td>0.5%</td>
<td>3.9%</td>
<td>6.4%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>0.4%</td>
<td>2.5%</td>
<td>6.0%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>1.2%</td>
<td>&nbsp;0.3%&nbsp;</td>
<td>&nbsp;13.2%</td>
<td>1.4%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.0%</td>
<td>-0.2%</td>
<td>&nbsp;8.5%</td>
<td>20.9%</td>
<td>4.9%</td>
<td>&nbsp;26.5%</td>
</tr>
</tbody>
</table>
</body>
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Finished producer prices rose 0.6% last month, twice the Consensus forecast for a 0.3% rise. That followed a 0.2% decline during June. The increase raised the y/y gain in prices to 3.9%, its highest in a year. The core finished goods [...]

U.S. PPI Above Forecasts; Weak Core Prices As Expected

Louise Curley

According to Flash Estimates, growth in the Euro Area slowed more than expected in the second quarter to a rate of 0.3% from 0.7% in the first quarter.Consensus estimates suggested a rate of 0.5%. While details of the composition of [...]

European GDP Growth Slows More Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070813g.jpg" width="353">
On July 12, Toshihiko Fukui, Governor of the Bank of Japan said that slow growth in the second quarter would not determine the outcome of the August 22 and 23 monetary policy meeting. However, the unexpectedly big slowdown in real GDP, from a revised 3.2% annual rate in the first quarter to 0.5% annual rate in the second quarter may weaken his resolve to raise the key overnight lending rate from 0.5%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070813h.jpg" width="353">
The disappointing report was the result of a decline in fixed capital formation, a deceleration in net exports of goods and services and private consumption. In addition, private sector inventories declined in the second quarter. The changes in the major components of real GDP are shown in the first chart.
While the GDP report gives little support for a rise in interest rates a determined BOJ could cite the rise in deflator for domestic demand, the preferred measure of inflation.The second chart shows the year to year changes in the total GDP deflator and those in the Domestic Demand Deflator. The total deflator has yet to show a year to year increase but the domestic demand deflator rose 0.1% in the second quarter, the third positive showing over the past seven years. Even so this hardly constitutes strong evidence that inflation is a near term threat.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Japan Gross Domestic Product</th>
<th scope="col">Q2 07</th>
<th scope="col">Q1 07&nbsp;</th>
<th scope="col">Q2 06&nbsp;</th>
<th scope="col">Q/Q Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP&nbsp; (Trillion 2000 Chained Yen&nbsp;</td>
<td>560.2</td>
<td>559.4</td>
<td>547.5</td>
<td>0.54</td>
<td>2.31</td>
<td>548.9</td>
<td>537.2</td>
<td>527.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Current GDP (Trillion Yen)</td>
<td>516.7</td>
<td>515.3</td>
<td>506.7</td>
<td>1.05</td>
<td>2.04</td>
<td>507.7</td>
<td>501.4</td>
<td>498.5</td>
</tr>
<tr>
<td colspan="9">Components of Real GDP</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Private Consumption&nbsp; (Trillion 2000 Chained Yen)</td>
<td>309.2</td>
<td>308.1</td>
<td>305.2</td>
<td>1.41</td>
<td>1.31</td>
<td>304.2</td>
<td>301.</td>
<td>297.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Fixed Capital Formation &nbsp;(Trillion 2000 Chained Yen)</td>
<td>130.0</td>
<td>130.1</td>
<td>127.0</td>
<td>-0.39</td>
<td>2.36</td>
<td>127.6</td>
<td>123.4</td>
<td>120.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports of Goods and Services &nbsp;(Trillion 2000 Chained Yen)</td>
<td>85.7</td>
<td>85.0</td>
<td>79.7</td>
<td>3.47</td>
<td>7.55</td>
<td>80.6</td>
<td>73.5</td>
<td>68.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports of Goods and Services &nbsp;(Trillion 2000 Chained Yen)</td>
<td>61.6</td>
<td>61.1</td>
<td>60.8</td>
<td>3.10</td>
<td>1.21</td>
<td>60.5</td>
<td>57.9</td>
<td>54.7</td>
</tr>
<tr>
<td colspan="9">Deflators (2000=100)</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>93.7</td>
<td>91.0</td>
<td>93.9</td>
<td>--</td>
<td>-0.21</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol"> Domestic Demand </td>
<td>96.4</td>
<td>93.3</td>
<td>96.3</td>
<td>--</td>
<td>0.10</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
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On July 12, Toshihiko Fukui, Governor of the Bank of Japan said that slow growth in the second quarter would not determine the outcome of the August 22 and 23 monetary policy meeting. However, the unexpectedly big slowdown in real [...]

Japan: Will the BOJ Raise Rates in the Face of a Bigger than Expected Drop in Real GDP and Only Little Progress on [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070813e.jpg" width="353">
 Total business inventories in June rose 0.4% following the unrevised 0.5% increase the month prior. Together, the increases raised the three month growth accumulation rate to 5.3%, its fastest since last Autumn. The June increase exceeded Consensus expectations for a 0.3% one month rise.
Retail inventories rose 0.5% after the May gain of 0.7%. Auto inventories led the June gain and jumped 1.0% after moderate increases during the prior three months that were upwardly revised. General merchandise inventories increased 0.2% (6.5% y/y), half the May gain of 0.4% but clothing store inventories fell 0.2% (+6.7% y/y) after a 0.4% May gain that was revised down. Furniture inventories reversed the prior month&#39;s decline with a 0.6% (0.2% y/y) rise. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070813f.jpg" width="353">
Business sales fell 0.3% (+3.3% y/y) as retail sales slumped 0.9&amp; after the prior month&#39;s 1.7% surge. Less autos, retail sales fell 0.2% following the 1.7% jump during May. Factory shipments fell 0.6% (-0.9% y/y) but wholesale sales increased 0.6% (8.1% y/y) with the strength in U.S. imports. During the last ten years there has been an 87% correlation between the y/y change in wholesale sales and the change in merchandise imports. 
The inventory to sales ratio ticked up, off its low level during the prior month. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.4%</td>
<td>0.5%</td>
<td>3.6%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.5%</td>
<td>0.7%</td>
<td>1.3%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>6.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.2%</td>
<td>0.7%</td>
<td>4.0%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.5%</td>
<td>0.5%</td>
<td>6.3%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>9.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>7.9%</td>
<td>7.7%</td>
</tr>
</tbody>
</table>


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Total business inventories in June rose 0.4% following the unrevised 0.5% increase the month prior. Together, the increases raised the three month growth accumulation rate to 5.3%, its fastest since last Autumn. The June increase [...]

U.S. Inventory Accumulation Continued

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070813d.jpg" width="353">
PPI a bit unsteady but moving sideways.
PPI trends in the UK have gone essentially flat. Compared to a year ago the Y/Y pace is slightly lower and the recent 3-month and 6-month paces have been moderate but still above the point that the BOE (and the Fed and the ECB) regard as price stability. There does not seem to be any special problem in the making but inflation is hovering in the 2% to 2.5% range instead of the 1.5% to 2% range where the BOE would be more content. This does not seem to be actionable discrepancy nor is the PPI the rate that would be the deciding one for the BOE. The report was a touch on the high side but not a bad one. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK PPI
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M % Change</td>
<td colspan="4">% Change-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>0.2%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>3.6%</td>
<td>3.6%</td>
<td>2.4%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td colspan="7">Core: ex food beverages, tobacco &amp; Petroleum</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>


</html>

UK PPI Trends are Pretty Flat

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070813c.jpg" width="353">
The U.S. federal government in July posted a deficit of $36.3B versus a surplus of $27.5B during June and a deficit of $33.2B last July.
The monthly figure was near Consensus expectations for a deficit of $35B. Analysts&#39; forecasts of the Federal budget benefit from access to the Government&#39;s Daily Treasury Statement, the data for which is available in Haver&#39;s DAILY database.
The administration&#39;s latest Midsession Review of the Budget can be found <a href="http://www.whitehouse.gov/omb/budget/fy2008/">here</a>
The July budget figures pulled the deficit for the ten months of FY07 to $157.3B, down from $239.6B during the first ten months of FY06. 
Net revenues grew 8.8% y/y during the first ten months of FY07. Individual income tax receipts (44% of total receipts) grew 9.0% as withheld taxes grew 9.7% during the first ten months but non-withheld taxes rose a stronger 13.6% due to estimated capital gains. Corporate income taxes (13% of total receipts) recovered a strong 10.7% y/y but estate &amp; gift taxes fell 7.0%. Higher employment levels raised employment contributions by 4.4%.
U.S. net outlays grew 2.9% during this fiscal year&#39;s first ten months. Defense spending (19% of total outlays) grew 6.3% and Medicare expenditures (12% of outlays) surged by14.4%. Social security spending (21% of outlays) rose 5.7% but the government&#39;s interest expense rose by 5.1% y/y. Holding back the overall gain in expenditures were large declines in spending on energy and agriculture as well as a 3.0% decline in spending on international affairs and a 7.9% drop in spending on natural resources &amp; environment. 

<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/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">FYTD 2007</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-36.3B</td>
<td>$27.5B</td>
<td>$-33.2B (7/06)</td>
<td>-$247.7</td>
<td>-$318.7B</td>
<td>-$412.7B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$170.4B</td>
<td>$276.5B</td>
<td>6.7%</td>
<td>7.5%</td>
<td>11.8%</td>
<td>14.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$206.8B</td>
<td>$249.0B</td>
<td>7.2%</td>
<td>2.5%</td>
<td>7.4%</td>
<td>7.8%</td>
</tr>
</tbody>
</table>


</html>

The U.S. federal government in July posted a deficit of $36.3B versus a surplus of $27.5B during June and a deficit of $33.2B last July. The monthly figure was near Consensus expectations for a deficit of $35B. Analysts' forecasts of [...]

U.S. Budget Deepened in July

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.

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

260430Z2.jpg

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

260430Z3.jpg

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

260430Z4.jpg

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

260430Z5.jpg

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

260430Z6.jpg

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

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/20j2LcPyLFkPvV7NrquXuj?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tension Beneath the Surface

Michael J. Moran

260430N.jpg

260430O.jpg

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

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

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

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

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

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

260430P.jpg

260430Q.jpg

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

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Sandy Batten

260430A.jpg

260430B.jpg

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

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

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

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

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

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

260430C.jpg

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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

260430A2.jpg

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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.

260430C2.jpg

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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

260430E.jpg

**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.

260430.jpg

**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.