Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070808d.jpg" width="353">
The Bureau of Labor Statistics reported in the Job Openings &amp; Labor Turnover Survey (JOLTS) that the June job openings rate increased slightly from the prior month to 3.0%, the highest level since January. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of job openings rose 5.1% m/m to 4.305 million (7.8% y/y). Private sector openings rose 5.6% (8.3% y/y) reflecting a 22.5% m/m jump in professional &amp; business services (34.6% y/y). That made up a 29.9% (-34.5% y/y) drop in the number of construction jobs.
The hires rate fell m/m to 3.4%, its lowest level in three years. The hires rate is the number of hires during the month divided by employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070808e.jpg" width="353">
The actual number of hires decreased 4.6% (-4.7% y/y) to 4.752 million. Retail sector jobs fell by 15.7% (-19.3% y/y). Hires in the construction and the factory sectors offset each other with small changes.
The job separations rate in June was unchanged m/m at 3.3%. Separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment. The level of job separations fell a modest 0.7% (-3.0% y/y) from an upwardly revised level the prior month.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.
The FOMC in 1978 from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20070801/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor &nbsp;Turnover Survey)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Job Openings Rate: Total</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>3.1%</td>
<td>2.8%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.4%</td>
<td>3.6%</td>
<td>3.7%</td>
<td>43.6%</td>
<td>43.1%</td>
<td>41.7%</td>
</tr>
</tbody>
</table>
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The Bureau of Labor Statistics reported in the Job Openings & Labor Turnover Survey (JOLTS) that the June job openings rate increased slightly from the prior month to 3.0%, the highest level since January. The job openings rate is the [...]

JOLTS: Job Openings Up, Hires Rate Down

Robert Brusca

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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/070808c.jpg" width="353">
Trends for Japan&#146;s economy-watchers index have turned lower and remain in a downtrend after having made a local peak between February and April, depending on the series. Even this local peak is part of an ongoing downtrend for the indexes whose true cycle peak dates to early 2006. Japan&#146;s policy markets do look at this index and it is considered reliable. One attribute of the index is that it is timely. The current and future portions of the index are turning lower and each displays three straight months of declines. The employment index &#145;triggered the slide&#146; with a huge drop three months ago followed by two months of begrudging gains. The index does tell a reassuring story of Japan&#146;s growth.</div>

<table border="0" cellspacing="0" width="100%">
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Key Japanese Surveys
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
</tr>
<tr class="grey2">
<td colspan="8">Diffusion</td>
</tr>
<tr class="grey1">
<td class="firstcol">Economy Watchers</td>
<td>44.7</td>
<td>46.0</td>
<td>46.8</td>
<td>49.7</td>
<td>3.8%</td>
<td>25.7%</td>
<td>44.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; Employment</td>
<td>51.2</td>
<td>51.2</td>
<td>50.7</td>
<td>57.1</td>
<td>4.0%</td>
<td>27.5%</td>
<td>35.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; Future</td>
<td>46.7</td>
<td>48.4</td>
<td>50.0</td>
<td>51.9</td>
<td>21.4%</td>
<td>34.9%</td>
<td>52.9%</td>
</tr>
</tbody>
</table>
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Trends for Japans economy-watchers index have turned lower and remain in a downtrend after having made a local peak between February and April, depending on the series. Even this local peak is part of an ongoing downtrend for the [...]

Japan Economy Watchers Index in Steady Decline

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<div align="left"><img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070808a.jpg">
The total number of mortgage applications surged 8.1% last week following declines during the prior two weeks, according to the Mortgage Bankers Association.
Strongest was a 9.1% gain in applications to refinance which rose after a 1.8% increase during the prior week.
Purchase applications also were strong and rose 7.4%. The gain followed steady declines during five of the previous six weeks. It was to the highest level since early July.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070808b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage dropped a sharp ten basis points w/w to 6.74%, the lowest since early June. Rates averaged 6.91% during July, up from 6.28% in December. Rates for 15-year financing similarly fell sharply to 6.45% last week. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 and 35 top lenders in the U.S. housing industry. Then it derives its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>. 
For yesterday&#39;s statement by the FOMC follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070807/default.htm">link</a>.
The U.S. Economy and Monetary Policy from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/news/speeches/2007/0712.html">here</a>.</div>

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/03/07</th>
<th scope="col">7/27/07</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>656.5</td>
<td>607.1</td>
<td>18.7%</td>
<td>584.2</td>
<td>708.6</td>
<td>735.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>447.4</td>
<td>416.6</td>
<td>15.0%</td>
<td>406.9</td>
<td>470.9</td>
<td>454.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,881.1</td>
<td>1,724.1</td>
<td>23.9%</td>
<td>1,633.0</td>
<td>2,092.3</td>
<td>2,366.8</td>
</tr>
</tbody>
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The total number of mortgage applications surged 8.1% last week following declines during the prior two weeks, according to the Mortgage Bankers Association. Strongest was a 9.1% gain in applications to refinance which rose after a [...]

U.S. Mortgage Applications Surge

Carol Stone, CBE

Consumer price behavior varies widely in Central and Eastern Europe, apparently depending on the degree of development in various economies. In the Czech Republic, inflation is slow and restrained, much like that in Western Europe, [...]

CPI Inflation Restrained in Czech Republic, Moderate in Lithuania and Very Fast in Latvia

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807e.jpg" width="353">
A number of Euro Area countries have reported wavering business confidence in July. Today, France&#39;s INSEE (Institute National de la Statistiques et des Etudes Economiques) released its measure of business confidence for the area as a whole. The measure declined in July to 112 from 113 in June and is below the recent peak of 114 last seen in September, 2006. Confidence, however, appears to be plateauing rather than declining sharply as at previous peaks, as can be seen in the first chart.
One of the reasons that might explain the fact that business confidence in the Euro Area has not gone off the cliff is that such factors as the slowdown in the U. S. and the rise in the Euro, which would ordinarily weaken confidence, have been offset by the rise in the demand for European exports from Asia. The second chart shows the Euro Area exports to Asia and to the U. S. In addition, as we noted yesterday German manufacturing orders from other Euro Area countries have recently risen sharply. This suggests that intra Euro Area activity, which is not affected by changes in the euro, is increasing. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807f.jpg" width="353">
Note: The European Business Confidence measure is based on six balance of opinion indicators: production over the past three months, production forecast for the next three months, inventories, order books, foreign order book and selling price expectations. The data are gathered from surveys in France, Germany, Italy, Spain, the Netherlands and Belgium. These six countries account for about 90% of the total Euro Area&#39;s GDP. The measure is conducted so that its average is 100 and has a standard deviation of 10..

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol">EURO AREA&nbsp;</th>
<th scope="col">Jul&nbsp; 07</th>
<th scope="col">Jun 07&nbsp;</th>
<th scope="col">May&nbsp; 06&nbsp;</th>
<th scope="col">Apr 06&nbsp;</th>
<th scope="col">Mar 06&nbsp;</th>
<th scope="col">Feb 06</th>
<th scope="col">Jan 06</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">Business Confidence</td>
<td>112</td>
<td>113</td>
<td>112</td>
<td>113</td>
<td>111</td>
<td>111</td>
<td>111</td>
<td>112</td>
<td>102</td>
<td>106</td>
</tr>
<tr>
<td colspan="11">Euro Area&nbsp; Exports&nbsp; (Mil Euro)</td>
</tr>
<tr class="odd">
<td class="firstcol">To Asia</td>
<td>--</td>
<td>--</td>
<td>&nbsp; 24275</td>
<td>23754</td>
<td>23970</td>
<td>23915</td>
<td>24004</td>
<td>277184</td>
<td>243246</td>
<td>233896</td>
</tr>
<tr class="odd">
<td class="firstcol"> To U. S. </td>
<td>--</td>
<td>--</td>
<td>16603</td>
<td>16320</td>
<td>16099</td>
<td>16754</td>
<td>15743</td>
<td>199521</td>
<td>184992</td>
<td>172546</td>
</tr>
</tbody>
</table>
</body>
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A number of Euro Area countries have reported wavering business confidence in July. Today, France's INSEE (Institute National de la Statistiques et des Etudes Economiques) released its measure of business confidence for the area as a [...]

Business Confidence in the Euro Area Falls in July but Is Still Healthy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807g.jpg" width="353">
For the full quarter total German IP is up by 0.3%. Construction is off by 31% at an annual rate in Q2, accounting for much of the drag. But MFG is up by 0.8% roughly the same as for consumer goods, intermediate goods and capital goods output. Of course in Q2 2007 German orders are up at a spectacular 17.6% annual rate.
The accompanying graph shows that orders often peak at the same time or before industrial output (note that that is a two-scale chart). In that sense the ongoing rise in orders is reassuring. From Nov 2006 through Jan 2007 orders growth did slip below the pace of growth for output. This event is coincident with the year-end/new year period when the VAT hike was initiated and that tax accounted for some uncertainty at the time. Uncertainty seems to have interrupted the flow of new orders more than of output because what we see is that the flow of orders was interrupted at that time but the growth of output was not. Now however there is a lull in output in Q2 as orders have sped ahead. The reasonable question to ask is whether this is some sort of catch up in orders after that year-end lull when IP was stronger than orders &#150; since that is an unusual configuration for these two series, to have output stronger than orders. Or is the new spurt in orders entirely of a different cause and does it point to even stronger gains in IP for the period ahead?
At this time most Europeans are very upbeat and no end of laudatory statements have been made about Euro-growth and growth prospects. But the fact remains that some Euro area members are not doing so well and that even for Germany much of this strength in orders comes from cross-border transactions. The latter trend seems to imply that the spurt in orders is for real and reflects some new demand phenomenon. But the UK has also turned in some hot/cold signals recently and Italy is showing a protracted period of anemia. France benefited from elections and post-election euphoria and it is not clear that it will continue to have so much good news to buoy its spirits in the period ahead. Sarkozy can only keep pointing his finger at others as the source of the problem for so long until one day he steps in front of a mirror.
I think the series of German reports from the Zew and IFO indexes peaking to the flap about IP in Germany to some irregular signals from the UK as well as ongoing weakness in Italy point to some real world problems creeping into the Euro area. Europe still does not have a flexible economy. The US is still clearly the leader on that score. The raft of mini-problems or question marks arising in Europe I believe will prove to have some real causes behind them.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Total German IP
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">SAAR&nbsp; except M/M</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>-0.4%</td>
<td>1.9%</td>
<td>-1.5%</td>
<td>0.0%</td>
<td>2.8%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>-0.9%</td>
<td>-8.2%</td>
<td>-1.5%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.9%</td>
<td>2.1%</td>
<td>-1.1%</td>
<td>0.3%</td>
<td>6.7%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.8%</td>
<td>2.1%</td>
<td>-2.1%</td>
<td>3.0%</td>
<td>4.5%</td>
<td>7.5%</td>
</tr>
<tr>
<td class="firstcol">Memo: Construction</td>
<td>-2.1%</td>
<td>0.2%</td>
<td>-5.6%</td>
<td>-26.5%</td>
<td>-17.0%</td>
<td>-3.7%</td>
</tr>
</tbody>
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For the full quarter total German IP is up by 0.3%. Construction is off by 31% at an annual rate in Q2, accounting for much of the drag. But MFG is up by 0.8% roughly the same as for consumer goods, intermediate goods and capital [...]

German IP Weakens as Orders Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807c.jpg" width="353">
Chain store sales last week rebounded a strong 1.1% after the 0.2% decline during the prior week, according to the International Council of Shopping Centers (ICSC)-UBS. 
The rise pulled sales for all of July up 0.4% from June, modest because of many declines during the last eight weeks.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807d.jpg" width="353">
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.7% (+0.2% y/y) last week and gave back much of a 1.2% rise during the prior week. 
Evaluating the Relative Strength of the U.S. Capital Markets from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/newsevents/news/research/2007/rp070730.html"> here</a>. 

<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></th>
<th scope="col">07/28/07</th>
<th scope="col">07/21/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>486.5</td>
<td>481.3</td>
<td>3.2%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


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Chain store sales last week rebounded a strong 1.1% after the 0.2% decline during the prior week, according to the International Council of Shopping Centers (ICSC)-UBS.

Chain Store Sales Rebound, Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807a.jpg" width="353">
Growth in non-farm labor productivity of 1.8% last quarter fell a bit short of Consensus forecasts for a 2.1% increase but it was the fastest since a 2.5% rise during 1Q06. The gain was up from the revised 0.7% increase during the first quarter but the average of the two at 1.2% barely exceeds the 1.0% gain last year and falls well short of 2.7% growth during 2004.
What Happened to the Gains From Strong Productivity Growth? from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/Publicat/econrev/PDF/1q07will.pdf"> here</a>.
Output growth of 4.2% (2.0% y/y) also was the best since 1Q06 and was an acceleration from the 1.5% average of the prior four quarters.
Compensation growth held at an elevated 3.9% (5.2% y/y), the fastest y/y growth since 2000. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807b.jpg" width="353">
As a result, unit labor costs rose 2.1% during 2Q07 which was down from a 3.0% rise the prior quarter, but the 4.5 gain from the prior year also was the fastest since 2000.
The implicit price deflator rose 2.4% (2.0% y/y) and the increase lifted the ratio of prices to unit labor costs just slightly. It still well below the high during last year. During the last ten years there has been a 59% correlation between the ratio and the y/y growth in corporate profits.
Factory sector productivity grew 1.6% (2.9% y/y, about the same as during the prior quarter. Manufacturing compensation grew 2.8% (6.2% y/y) which was the fastest y/y gain since 2005. And though the 1.2% quarterly gain in unit labor costs was down from 5.0% during 1Q, the y/y gain of 3.2% in factory sector unit labor costs was the fastest since 2000.

<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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;07</th>
<th scope="col">1Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.8%</td>
<td>0.7%</td>
<td>0.6%</td>
<td>1.0%</td>
<td>1.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.9%</td>
<td>3.7%</td>
<td>5.2%</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.1%</td>
<td>3.0%</td>
<td>4.5%</td>
<td>2.9%</td>
<td>2.0%</td>
<td>0.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Growth in non-farm labor productivity of 1.8% last quarter fell a bit short of Consensus forecasts for a 2.1% increase but it was the fastest since a 2.5% rise during 1Q06. The gain was up from the revised 0.7% increase during the [...]

U.S. Productivity Missed 2Q Estimate, Cost Increase Fastest Since 2000

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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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

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

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Tension Beneath the Surface

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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Housing starts and permits data were released for both February and March today. Release of these data has been delayed by the federal government shutdown in October 2025. Total starts fell 3.0% m/m in February to 1.356 million units from a downwardly revised 1.398 million in January (previously 1.487 million) but then rebounded to 1.502 million (+10.8% m/m) in March. The March level was the highest since December 2024 and 10.8% higher than a year earlier. The Action Economics Forecast Survey expected a 5.9% decline in March from January to a level of 1.4 million units. The 7.2% q/q increase in starts in Q1 is the first quarterly increase since Q1 2025. Residential investment has been a drag on overall GDP growth over the past year. The sharp Q1 increase raises hope that residential investment could make a small contribution to Q1 GDP growth in tomorrow’s report.

Single-family starts rose 4.8% m/m in February and 9.7% m/m in March to be 8.9% higher than a year ago. Multi-family starts plunged 17.0% m/m in February following an 18.2% monthly surge in January. They rebounded in March, rising 13.2% m/m to be up 15.5% y/y. The strong performance of starts in March following weakness earlier this year most likely reflects some catch-up as building conditions improved in March after having been very challenging in January and February.

Across the four major geographic regions, starts in the Northeast increased 24.8% m/m in March but fell 21.2% m/m in February. They were up 18.9% y/y. In the Midwest, starts increased 12.2% m/m in Mach on top of a 20.9% monthly gain in February. The March figure was down 0.9% from a year ago. In the South, starts rose 9.1% m/m in March but fell 3.6% m/m in February. In March they were up 14.1% from a year ago. In the West, starts rose 7.2% m/m in March after monthly declines of 7.7% in January and 3.7% in February. Compared with a year ago, they were up 8.0%.

The performance of building permits in February and March mirrored that of starts. Total permits rose 11.0% m/m in February but fell 10.8% m/m in March to be down 7.4% from a year ago. Single-family permits rose 6.2% m/m in February and then fell 3.8% m/m in March. They were 7.9% lower than a year ago. Multi-family permits rebounded 19.2% m/m in February after an 11.1% m/m fall in January. In March, they plunged 21.5% m/m and were down 6.3% from a year earlier.

In March, permits fell in each of the four major regions. In the Northeast, permits plunged 29.0% m/m in March following a 5.9% monthly gain in February. In the Midwest, permits declined 3.1% m/m in February and another 2.3% m/m in March. In the South, permits slumped 7.7% m/m in March but this following a 11.8% monthly jump in February. The March decline was the third in the past four months. In the West, permits fell 14.2% m/m in March following a 21.8% monthly surge in February and a 13.8% m/m slump in January.

The housing starts and permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Data for both February and March were included in today’s report to catch up from delays due to the federal government shutdown last October.
- Starts fell 3.0% m/m in February but rebounded 10.8% m/m in March.
- The 7.2% q/q increase in Q1 was the largest quarterly gain since the economy reopened after the pandemic shutdown in 2020.
- In contrast, permits jumped 11.0% m/m in February but fell 10.8% m/m in March and were up only 1.0% q/q in Q1.