Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070608e.jpg" width="353">
Japan&#146;s economy watcher&#146;s survey cycled higher from late 2004 through early 2005. Then it dropped off until picking up to a minor peak in August 2006. From that mini- peak it spread out on a gradual increase until it fell sharply again in May, the figure reported today &#150; a sharp drop. 
The employment and future indexes are cycling in concert but with smaller amplitudes. 
The Teikoku indexes and NTC MFG survey echo the findings of weakness but the various surveys find weakness in differing magnitudes. See table below. 
The far right columns put the recent observations for each index or sub-reading in the context of its five year max or min. This allows us to compared intrinsically different indicators. 
Results show that the NTC MFG index is the weakest in the 30th percentile of its range for this period. Next in line comes the economy watcher index and its components with the headline index at 44.4% of its range. The Teikoku indices are the strongest with MFG relatively firm at a range reading of 75% (top 25% of its range) and with retail the relative weakest at 64% of its range. Wholesale services and construction are relatively healthy in the Teikoku scheme. Even so the Teikoku indices are dropping and all sectors dropped again in May. They made their local peak about one year and have been slipping slowly ever since.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Key Japanese Surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<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="odd">
<td class="firstcol">&nbsp;</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Economy Watchers</td>
<td>46.8</td>
<td>49.7</td>
<td>50.8</td>
<td>49.2</td>
<td>44.4%</td>
<td>59.8%</td>
<td>65.6%</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>50.7</td>
<td>57.1</td>
<td>56.3</td>
<td>55.9</td>
<td>35.6%</td>
<td>63.1%</td>
<td>59.7%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>50.0</td>
<td>51.9</td>
<td>51.3</td>
<td>52.1</td>
<td>52.9%</td>
<td>68.0%</td>
<td>70.6%</td>
</tr>
<tr>
<td class="firstcol">NTC MFG</td>
<td>51.4</td>
<td>52.3</td>
<td>--</td>
<td>--</td>
<td>30.2%</td>
<td>41.4%</td>
<td>43.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>45.2</td>
<td>47.0</td>
<td>47.2</td>
<td>46.7</td>
<td>76.2%</td>
<td>85.1%</td>
<td>86.2%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>39.6</td>
<td>41.1</td>
<td>41.1</td>
<td>39.9</td>
<td>64.3%</td>
<td>74.3%</td>
<td>74.3%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>42.8</td>
<td>44.3</td>
<td>44.6</td>
<td>43.8</td>
<td>75.6%</td>
<td>83.5%</td>
<td>85.8%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>49.1</td>
<td>50.3</td>
<td>49.9</td>
<td>49.4</td>
<td>88.4%</td>
<td>93.6%</td>
<td>92.2%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>37.7</td>
<td>38.4</td>
<td>38.7</td>
<td>38.7</td>
<td>84.4%</td>
<td>89.2%</td>
<td>91.2%</td>
</tr>
<tr>
<td colspan="8">100 is high; Zero is low</td>
</tr>
</tbody>
</table>
</body>
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Japans economy watchers survey cycled higher from late 2004 through early 2005. Then it dropped off until picking up to a minor peak in August 2006. From that mini- peak it spread out on a gradual increase until it fell sharply [...]

Land of the Setting Sun? Japan’s Surveys Falter Again…

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070608a.jpg" width="353">
Lest the headline give you any misinformation let me point out that the US trade deficit is a nominal phenomenon and nominal exports did also outpace nominal imports. That is a necessary but not a sufficient condition to shrink the overall trade deficit in the US. Exports rose by 0.2% in April as imports sank by 1.9% as the bulk of the drop was outside of the petroleum complex of goods. 
Dropping imports is not a good sign for growth since imports tend to grow/shrink at twice the pace of GDP growth. Still imports also contain goods destined for inventories since so many consumer goods are imports and this may be a sign that the inventory cycle has not yet kicked up. That could mean that as of April inventories are still in a corrective phase and that they will not add to GDP or, not add much to 2007Q2 GDP. 
At 2% real import growth suggests GDP growth of 1% or less &#150; but the new quarter is young. 
Exports are less than 60% the size of imports (inverse ratio is nearly 1.75). That means that exports must grow by 1.75 times faster than nominal imports just to keep the nominal trade deficit from getting larger. While real exports are outpacing real imports and will augment REAL GDP the condition necessary for the nominal deficit to contract is a bit stronger: exports must grow by 1.75 times faster than imports. And over the past year or so that condition has been fulfilled. The deficit over the last 12 months has averaged -$61.81 while the deficit in April is a smaller -$58.50. The slowdown in US GDP has imparted a slowing to imports as import growth diminished to 4.8% Y/Y while exports grew by 10.7% Yr/Yr. However, recently exports have slowed and nonpetroleum imports have slowed as well (see table below). 
US trade trends are complex but telling. OPEC&#146;s own imports have slowed recently as oil prices had hit a plateau then fallen. But more recently yet, oil prices are on the rise and with it so will OPEC imports pick up again. This should mean that US exports to OPEC that had slowed will pick up as well even as higher oil prices bloat the US import total. 
US exports to China have slowed marked in early 2007 (no exhibit). In April Yr/Yr US exports to China ranked seventh out of nine since 1999. The Y/Y growth of exports to China is down to 12% in April after growing by 25% or more in each of the previous four 12-month periods ending in April. Earlier, US export figures for Jan-March show the same sort of gap with earlier years, except that Jan-March trade flows were very weak in comparison with this year as short a period ago as 2005. Early year weakness does not doom the trend for the year necessarily. But the weakness is a bit disconcerting and there is no guarantee of a reversal - still I think there is a likelihood that these exports to China will revive. 
China has been trying to slow but without much success. Rather than taking weak US exports to China as evidence of China slowing, it may be evidence of US slowing since there is also a good deal of round trip value-added trading between China and the US. Yr/Y US imports from China dropped to their lowest growth rate in NINE years in April at 2.7% Y/Y. <a name="1"></a> 
New trends show that: Technology exports and imports have slowed. Also oil prices at the time of import are now nearly the same as they have averaged over the past year: $57.29/bbl now compared to an average of $57.70/bbl. 
On the good news front: US exports to Japan received a boost in April. Their Yr/Yr growth rate ran up to 16.5% in April from 6.2% in March. A part of this is the favorable year ago comparison, however, as US exports to Japan fell by 2.6% Y/Y in April of 2006. Even so, US exports to Japan show more resilience even if they are at a lower growth rate that US exports to China or to the Asia NICs where Yr/Yr the growth rate of US export flows is dropping sharply. 
On balance there has been a slowing in US trade flows as the US economy has slowed. For a while it looked as though trade was confirming the domestic slowdown signals and that such signals could accumulate and become worrisome. But US employment growth has picked up and the inventory cycle seems to be winding itself down and in that context these slowing flows may simply be the lagged effects of that slowdown that seems to be transitioning into growth. Trade flows do lag. But we must remember that as much as US imports are tied to US growth, so US growth is still an important stimulant for global growth. The US and its hated deficit has been an engine of growth for the rest of the world; that role was reduced in the past year when the nominal US deficit actually shrank and that may have contributed to slower global growth. 
The OECD leading indicators (released today) show that growth in the US is on an upswing and points to still solid trends in China (albeit through March not April). Germany, Italy and Japan are flagged as slowing in the OECD framework though US exports to Japan seem to be a reason to cast some of those fears aside there. 
Trade, after having taken a big bite out of Q1 GDP seems to have become a mild positive for the US economy. Of course, a good deal of the reason for trade&#146;s more moderate role has been the slowing in US growth itself. Trade is one of the automatic stabilizers you may recall from your econ 101 studies. As the economy picks up trade will likely become more of a negative again, although probably by less than before because the US growth potential now seems lower. That will make imports slower and reduce their &#145;feedback&#146; drag on growth. The outlook for US exports, is, however, still questionable. There are again some scattered signs of slowing in Europe but mostly from Germany and they are new, scattered, and not pronounced, so far. Our best guess is that trade&#146;s drag is not going to be reduced and that If European growth lives up to its forecasts trade could continue to be a positive for growth in the US. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
US Merchandise and Services Trade
</tr>
</thead>
<tbody>
<tr class="grey6">
<td class="firstcol">Category</td>
<td>Current</td>
<td>Previous</td>
<td colspan="3">$SA % SAAR/Average</td>
</tr>
<tr class="grey6">
<td class="firstcol">&nbsp;</td>
<td colspan="2">% M/M: Current &amp; Prev</td>
<td colspan="3"></td>
</tr>
<tr class="grey5">
<td class="firstcol">Apr.07</td>
<td>M:$Bil/%</td>
<td>M:$Bil/%</td>
<td>3-MO</td>
<td>6-MO</td>
<td>Yr/Yr</td>
</tr>
<tr class="grey4">
<td class="firstcol">Goods &amp; Services Balance</td>
<td>-$58.50</td>
<td>-$62.39</td>
<td>-$59.49</td>
<td>-$59.01</td>
<td>-$61.81</td>
</tr>
<tr class="grey4">
<td class="firstcol">Goods Balance</td>
<td>-$67.08</td>
<td>-$70.74</td>
<td>-$67.77</td>
<td>-$67.13</td>
<td>-$69.16</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports (G&amp;S)</td>
<td>0.2%</td>
<td>2.6%</td>
<td>5.5%</td>
<td>8.0%</td>
<td>10.9%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Merchandise</td>
<td>0.1%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>6.7%</td>
<td>10.7%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Services</td>
<td>0.5%</td>
<td>2.2%</td>
<td>12.3%</td>
<td>11.1%</td>
<td>11.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports (G&amp;S)</td>
<td>-1.9%</td>
<td>4.4%</td>
<td>7.6%</td>
<td>5.8%</td>
<td>5.0%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Merchandise</td>
<td>-2.2%</td>
<td>5.0%</td>
<td>8.2%</td>
<td>5.9%</td>
<td>4.8%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Non-Petrol</td>
<td>-2.4%</td>
<td>2.2%</td>
<td>7.4%</td>
<td>1.3%</td>
<td>4.5%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Petrol &amp; Product</td>
<td>-0.2%</td>
<td>18.4%</td>
<td>1.6%</td>
<td>29.9%</td>
<td>4.0%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Services</td>
<td>-0.1%</td>
<td>1.3%</td>
<td>4.7%</td>
<td>5.0%</td>
<td>5.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Technology Trade</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">Tech Exports</td>
<td>-14.7%</td>
<td>24.6%</td>
<td>-4.0%</td>
<td>-14.4%</td>
<td>4.2%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Tech Imports</td>
<td>-6.4%</td>
<td>14.9%</td>
<td>-2.5%</td>
<td>-13.4%</td>
<td>17.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Crude Oil</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">MBD (Volume):Mb/d</td>
<td>10.16</td>
<td>10.46</td>
<td>9.88</td>
<td>9.90</td>
<td>10.22</td>
</tr>
<tr class="grey4">
<td class="firstcol">$/BBL</td>
<td>$57.28</td>
<td>$53.00</td>
<td>$53.66</td>
<td>$53.21</td>
<td>$57.70</td>
</tr>
<tr class="grey2">
<td class="firstcol">Non Petroleum trade</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">Exports</td>
<td>-0.1%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>7.9%</td>
<td>11.5%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Imports</td>
<td>-2.4%</td>
<td>2.2%</td>
<td>7.4%</td>
<td>1.3%</td>
<td>4.5%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Balance</td>
<td>-$42.29</td>
<td>-$45.51</td>
<td>-$44.38</td>
<td>-$43.96</td>
<td>-$44.82</td>
</tr>
<tr class="grey1">
<td colspan="6">Real Exports and Imports: Non-Petroleum trade</td>
</tr>
<tr class="grey4">
<td class="firstcol">Real Non Oil Exports</td>
<td>-0.3%</td>
<td>3.6%</td>
<td>1.2%</td>
<td>3.6%</td>
<td>7.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Real Non Oil Imports</td>
<td>-2.6%</td>
<td>2.1%</td>
<td>6.2%</td>
<td>-1.7%</td>
<td>1.8%</td>
</tr>
<tr class="grey4">
<td colspan="6">Balances are in Bil averages for period: Others % annualized except monthly</td>
</tr>
</tbody>
</table>
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Lest the headline give you any misinformation let me point out that the US trade deficit is a nominal phenomenon and nominal exports did also outpace nominal imports. That is a necessary but not a sufficient condition to shrink the [...]

U.S. Trade Deficit Shrinks Real Exports Outpace Real Imports

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607e.jpg" width="353">
As prices are sustained at stratospheric levels, we&#39;re all learning the mechanics of gasoline production. Special conditions that matter little at $1.00/gallon become significantly more important at $3.00. It&#39;s also hard to know what represents ordinary supply-demand movement and what is a &quot;special condition&quot;.
The Energy Information Administration of the Department of Energy (EIA) publishes its weekly petroleum situation every Wednesday, with gasoline prices measured through the Monday just before and other data taken as of the previous Friday. In this week&#39;s report, released yesterday morning, the national average retail price of &quot;regular grade&quot; gasoline fell -- that&#39;s &quot;fell&quot; -- in the week to June 4 by 5.2 cents to $3.157/gallon. The prior week, which included the Memorial Day weekend, saw a minuscule 0.9-cents decline. Small though this was, it is notable that the price did not rise further despite the holiday weekend driving.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607b.jpg" width="353">
We last checked in with the energy markets three weeks ago, and we highlighted the light inventory situation for gasoline, unusual for the post-winter season, which has pushed gasoline prices to record highs. We attributed this to demand conditions that weren&#39;t nearly as weak this winter as has traditionally been the case. It&#39;s also evident from the second graph that even as demand for gasoline has grown, refiners have not been able to keep up. We show refining capacity utilization and we&#39;ve drawn a line at 90%. Almost continuously since the middle of 1993, utilization has been well above this reference line. If we graph the variable with bars, they point up and down around the &quot;horizontal reference&quot;. We see easily then that Hurricanes Katrina and Rita hurt refiners badly, and it&#39;s clear that refinery utilization rates have remained well below our reference point even as they have increased somewhat over the last few weeks. Thus, refining has not recovered from those big 2005 storms, leaving the industry -- and prices -- more vulnerable to ordinary operating outages.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607d.jpg" width="353">
Another quirk in these data concerns the relationship between prices of various crudes, especially the US base, West Texas Intermediate (WTI) as delivered at Cushing, Oklahoma. As the EIA explain in <a href="http://tonto.eia.doe.gov/oog/info/twip/twiparch/070502/twipprint.html">This Week in Petroleum</a> for May 2, conditions regarding the oil itself and also the operation of the Cushing Hub have depressed the price of WTI relative to other oils. In the third graph, WTI is seen to be lower over the last 3 months or so than Brent and Indonesian oil, which are both &quot;heavier&quot; and should have lower prices than WTI. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607c.jpg" width="353">So when the price of gasoline has risen more than proportionately to the crude oil we&#39;re most familiar with, it may not be so much that refiners are trying to gouge their customers. In fact, the &quot;crack spread&quot; for Brent crude, while still high by past comparisons, has come down markedly from its recent levels. A similar measure for WTI fell last week, but it remains about $5 more per barrel than Brent, when the usual condition has been for the WTI crack spread to be marginally less than the Brent spread (since the crude is usually more expensive to begin with). As we noted at the beginning of this commentary, it makes one wonder if this mismatch of WTI and Brent (and other crude oils) is a &quot;special condition&quot; to be discounted as temporary, or is it a characteristic of the increasing supply/demand strains in the world energy market and in the US in particular? In that event, both energy suppliers and users would want factor the new relationships into their operating strategies.
The data here on prices and US inventories are in the OILWKLY database. Haver Analytics analysts perform seasonal adjustment on some demand and supply series; these are maintained in our WEEKLY database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Select Oil Market Indicators</th>
<th scope="col">June 4</th>
<th scope="col">May 28</th>
<th scope="col">May 21</th>
<th scope="col">Month- Ago Week</th>
<th scope="col">Year-Ago Week</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gasoline, US Regular Grade (cents/gal)</td>
<td>315.7</td>
<td>320.9</td>
<td>321.8</td>
<td>305.4</td>
<td>289.2</td>
<td>257.2</td>
<td>227.0</td>
</tr>
<tr>
<td class="firstcol">Crude Oil: West Texas Intermediate ($/barrel)</td>
<td>June 1</td>
<td>May 25</td>
<td>May 18</td>
<td>63.79</td>
<td>71.50</td>
<td>66.13</td>
<td>56.50</td>
</tr>
<tr class="odd">
<td class="firstcol">63.94</td>
<td>64.94</td>
<td>63.61</td>
</tr>
<tr>
<td class="firstcol"> UK Brent &nbsp;</td>
<td>68.91</td>
<td>70.32</td>
<td>66.92</td>
<td>66.92</td>
<td>69.43</td>
<td>65.19</td>
<td>54.58</td>
</tr>
<tr class="odd">
<td class="firstcol">Refinery Utilization (%)</td>
<td>89.63</td>
<td>91.08</td>
<td>91.10</td>
<td>89.03</td>
<td>90.97</td>
<td>89.36</td>
<td>90.35</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stock: Days&#39; Supply</td>
<td>21.3</td>
<td>21.0</td>
<td>21.0</td>
<td>20.9</td>
<td>22.5</td>
<td>22.7</td>
<td>22.8</td>
</tr>
</tbody>
</table>
</body>
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As prices are sustained at stratospheric levels, we're all learning the mechanics of gasoline production. Special conditions that matter little at $1.00/gallon become significantly more important at $3.00. It's also hard to know what [...]

Slight Relief for Gasoline Prices as Inventories Loosen. But What Is Happening to West Texas Intermediate?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607a.jpg" width="353">
Wholesale inventory trends tell a very positive story. We take out the volatile and special readings from autos and petroleum to look at aggregated stocks and sales trends for all other wholesale classifications. Once done we obtain the chart plotted on the left that shows sales have speeded up as inventories have slowed. They have done that now for the second month in a row on six-month trends. Moreover, it shows that the ramping down in inventories has hit a low and apparent turning point in its decelerating rate of growth, yet another indication that the industry might be through its adjustment phase. 
The table below on inventories and sales behavior provides industry detail and time horizon cohorts for that detail. Over three months all main categories, save two, show that sales growth has surpassed inventory growth. The trend of sales (S) outstripping inventories (I) is widespread. Indeed, the two categories that have sales growth above inventory growth are not deficient in their rate of growth by much. Six-month horizons also are very solid. The S&gt;I growth trend seems pretty solid and well-established for now. 
Additionally the I/S ratios are in good shape. The overall ratio for all of wholesaling is at a new low dating back to 1998. Durables excluding autos are in their bottom 18 percentile and for nondurables excluding petroleum the ratio is in its bottom 10 percentile. 
Conclusion: Overall inventories are in good shape relative to sales. The recent growth rates of inventories relative to sales are settled into a good set of relationships as well. And best of all is the fact that sales growth is on an uptrend. The wholesale report is quite constructive and upbeat.

<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead>
<tr>
Inventories: Wholesaling
<th scope="col">I:S ratio</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">All growth rates annualized</td>
<td colspan="6">Inventory-&amp;-Sales Trends: Wholesalers</td>
<td>Percent of</td>
</tr>
<tr class="odd">
<td class="firstcol">2007.Apr</td>
<td colspan="2">3-mos</td>
<td colspan="2">6-mos</td>
<td colspan="2">12-mos</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>1998-date</td>
</tr>
<tr>
<td class="firstcol">All Wholesaling</td>
<td>19.3%</td>
<td>4.3%</td>
<td>12.8%</td>
<td>4.6%</td>
<td>8.8%</td>
<td>7.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>9.2%</td>
<td>-1.7%</td>
<td>7.2%</td>
<td>0.4%</td>
<td>7.8%</td>
<td>5.2%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">Durables less autos</td>
<td>9.2%</td>
<td>2.2%</td>
<td>7.0%</td>
<td>3.0%</td>
<td>7.6%</td>
<td>7.8%</td>
<td>19.1%</td>
</tr>
<tr>
<td class="firstcol">Autos</td>
<td>9.4%</td>
<td>-21.0%</td>
<td>8.0%</td>
<td>-13.1%</td>
<td>8.7%</td>
<td>-7.6%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Computers</td>
<td>3.6%</td>
<td>5.1%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>5.4%</td>
<td>10.6%</td>
<td>38.3%</td>
</tr>
<tr>
<td class="firstcol">Machinery</td>
<td>3.5%</td>
<td>-2.5%</td>
<td>8.4%</td>
<td>2.3%</td>
<td>5.7%</td>
<td>7.7%</td>
<td>33.0%</td>
</tr>
<tr>
<td class="firstcol">Other Durables</td>
<td>11.8%</td>
<td>4.2%</td>
<td>7.8%</td>
<td>3.5%</td>
<td>8.5%</td>
<td>7.6%</td>
<td>14.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Non-durables</td>
<td>29.9%</td>
<td>15.7%</td>
<td>18.6%</td>
<td>12.4%</td>
<td>9.7%</td>
<td>10.4%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Non-durables less Petrol</td>
<td>17.0%</td>
<td>12.2%</td>
<td>12.3%</td>
<td>12.9%</td>
<td>9.8%</td>
<td>11.0%</td>
<td>9.6%</td>
</tr>
<tr>
<td class="firstcol">Petroleum</td>
<td>94.5%</td>
<td>58.5%</td>
<td>46.4%</td>
<td>8.2%</td>
<td>9.3%</td>
<td>4.7%</td>
<td>45.2%</td>
</tr>
<tr>
<td class="firstcol">Groceries</td>
<td>21.7%</td>
<td>23.4%</td>
<td>21.8%</td>
<td>20.7%</td>
<td>15.3%</td>
<td>17.1%</td>
<td>50.4%</td>
</tr>
<tr>
<td class="firstcol">Other Non-durables</td>
<td>15.0%</td>
<td>9.6%</td>
<td>8.5%</td>
<td>11.0%</td>
<td>7.7%</td>
<td>9.6%</td>
<td>11.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

Wholesale inventory trends tell a very positive story. We take out the volatile and special readings from autos and petroleum to look at aggregated stocks and sales trends for all other wholesale classifications. Once done we obtain [...]

U.S. Wholesale Inventories Signal Smoother Sailing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607a.jpg" width="353">
Wholesale inventory trends tell a very positive story. We take out the volatile and special readings from autos and petroleum to look at aggregated stocks and sales trends for all other wholesale classifications. Once done we obtain the chart plotted on the left that shows sales have speeded up as inventories have slowed. They have done that now for the second month in a row on six-month trends. Moreover, it shows that the ramping down in inventories has hit a low and apparent turning point in its decelerating rate of growth, yet another indication that the industry might be through its adjustment phase. 
The table below on inventories and sales behavior provides industry detail and time horizon cohorts for that detail. Over three months all main categories, save two, show that sales growth has surpassed inventory growth. The trend of sales (S) outstripping inventories (I) is widespread. Indeed, the two categories that have sales growth above inventory growth are not deficient in their rate of growth by much. Six-month horizons also are very solid. The S&gt;I growth trend seems pretty solid and well-established for now. 
Additionally the I/S ratios are in good shape. The overall ratio for all of wholesaling is at a new low dating back to 1998. Durables excluding autos are in their bottom 18 percentile and for nondurables excluding petroleum the ratio is in its bottom 10 percentile. 
Conclusion: Overall inventories are in good shape relative to sales. The recent growth rates of inventories relative to sales are settled into a good set of relationships as well. And best of all is the fact that sales growth is on an uptrend. The wholesale report is quite constructive and upbeat.

<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead>
<tr>
Inventories: Wholesaling
<th scope="col">I:S ratio</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">All growth rates annualized</td>
<td colspan="6">Inventory-&amp;-Sales Trends: Wholesalers</td>
<td>Percent of</td>
</tr>
<tr class="odd">
<td class="firstcol">2007.Apr</td>
<td colspan="2">3-mos</td>
<td colspan="2">6-mos</td>
<td colspan="2">12-mos</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>1998-date</td>
</tr>
<tr>
<td class="firstcol">All Wholesaling</td>
<td>19.3%</td>
<td>4.3%</td>
<td>12.8%</td>
<td>4.6%</td>
<td>8.8%</td>
<td>7.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>9.2%</td>
<td>-1.7%</td>
<td>7.2%</td>
<td>0.4%</td>
<td>7.8%</td>
<td>5.2%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">Durables less autos</td>
<td>9.2%</td>
<td>2.2%</td>
<td>7.0%</td>
<td>3.0%</td>
<td>7.6%</td>
<td>7.8%</td>
<td>19.1%</td>
</tr>
<tr>
<td class="firstcol">Autos</td>
<td>9.4%</td>
<td>-21.0%</td>
<td>8.0%</td>
<td>-13.1%</td>
<td>8.7%</td>
<td>-7.6%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Computers</td>
<td>3.6%</td>
<td>5.1%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>5.4%</td>
<td>10.6%</td>
<td>38.3%</td>
</tr>
<tr>
<td class="firstcol">Machinery</td>
<td>3.5%</td>
<td>-2.5%</td>
<td>8.4%</td>
<td>2.3%</td>
<td>5.7%</td>
<td>7.7%</td>
<td>33.0%</td>
</tr>
<tr>
<td class="firstcol">Other Durables</td>
<td>11.8%</td>
<td>4.2%</td>
<td>7.8%</td>
<td>3.5%</td>
<td>8.5%</td>
<td>7.6%</td>
<td>14.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Non-durables</td>
<td>29.9%</td>
<td>15.7%</td>
<td>18.6%</td>
<td>12.4%</td>
<td>9.7%</td>
<td>10.4%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Non-durables less Petrol</td>
<td>17.0%</td>
<td>12.2%</td>
<td>12.3%</td>
<td>12.9%</td>
<td>9.8%</td>
<td>11.0%</td>
<td>9.6%</td>
</tr>
<tr>
<td class="firstcol">Petroleum</td>
<td>94.5%</td>
<td>58.5%</td>
<td>46.4%</td>
<td>8.2%</td>
<td>9.3%</td>
<td>4.7%</td>
<td>45.2%</td>
</tr>
<tr>
<td class="firstcol">Groceries</td>
<td>21.7%</td>
<td>23.4%</td>
<td>21.8%</td>
<td>20.7%</td>
<td>15.3%</td>
<td>17.1%</td>
<td>50.4%</td>
</tr>
<tr>
<td class="firstcol">Other Non-durables</td>
<td>15.0%</td>
<td>9.6%</td>
<td>8.5%</td>
<td>11.0%</td>
<td>7.7%</td>
<td>9.6%</td>
<td>11.3%</td>
</tr>
</tbody>
</table>
 Slight Relief for Gasoline Prices as Inventories Loosen. But What Is Happening to West Texas Intermediate? 
by <a href="/comment/Stone.html">Carol Stone</a> June 7, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607e.jpg" width="353">
As prices are sustained at stratospheric levels, we&#39;re all learning the mechanics of gasoline production. Special conditions that matter little at $1.00/gallon become significantly more important at $3.00. It&#39;s also hard to know what represents ordinary supply-demand movement and what is a &quot;special condition&quot;.
The Energy Information Administration of the Department of Energy (EIA) publishes its weekly petroleum situation every Wednesday, with gasoline prices measured through the Monday just before and other data taken as of the previous Friday. In this week&#39;s report, released yesterday morning, the national average retail price of &quot;regular grade&quot; gasoline fell -- that&#39;s &quot;fell&quot; -- in the week to June 4 by 5.2 cents to $3.157/gallon. The prior week, which included the Memorial Day weekend, saw a minuscule 0.9-cents decline. Small though this was, it is notable that the price did not rise further despite the holiday weekend driving.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607b.jpg" width="353">
We last checked in with the energy markets three weeks ago, and we highlighted the light inventory situation for gasoline, unusual for the post-winter season, which has pushed gasoline prices to record highs. We attributed this to demand conditions that weren&#39;t nearly as weak this winter as has traditionally been the case. It&#39;s also evident from the second graph that even as demand for gasoline has grown, refiners have not been able to keep up. We show refining capacity utilization and we&#39;ve drawn a line at 90%. Almost continuously since the middle of 1993, utilization has been well above this reference line. If we graph the variable with bars, they point up and down around the &quot;horizontal reference&quot;. We see easily then that Hurricanes Katrina and Rita hurt refiners badly, and it&#39;s clear that refinery utilization rates have remained well below our reference point even as they have increased somewhat over the last few weeks. Thus, refining has not recovered from those big 2005 storms, leaving the industry -- and prices -- more vulnerable to ordinary operating outages.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607d.jpg" width="353">
Another quirk in these data concerns the relationship between prices of various crudes, especially the US base, West Texas Intermediate (WTI) as delivered at Cushing, Oklahoma. As the EIA explain in <a href="http://tonto.eia.doe.gov/oog/info/twip/twiparch/070502/twipprint.html">This Week in Petroleum</a> for May 2, conditions regarding the oil itself and also the operation of the Cushing Hub have depressed the price of WTI relative to other oils. In the third graph, WTI is seen to be lower over the last 3 months or so than Brent and Indonesian oil, which are both &quot;heavier&quot; and should have lower prices than WTI. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607c.jpg" width="353"> So when the price of gasoline has risen more than proportionately to the crude oil we&#39;re most familiar with, it may not be so much that refiners are trying to gouge their customers. In fact, the &quot;crack spread&quot; for Brent crude, while still high by past comparisons, has come down markedly from its recent levels. A similar measure for WTI fell last week, but it remains about $5 more per barrel than Brent, when the usual condition has been for the WTI crack spread to be marginally less than the Brent spread (since the crude is usually more expensive to begin with). As we noted at the beginning of this commentary, it makes one wonder if this mismatch of WTI and Brent (and other crude oils) is a &quot;special condition&quot; to be discounted as temporary, or is it a characteristic of the increasing supply/demand strains in the world energy market and in the US in particular? In that event, both energy suppliers and users would want factor the new relationships into their operating strategies.
The data here on prices and US inventories are in the OILWKLY database. Haver Analytics analysts perform seasonal adjustment on some demand and supply series; these are maintained in our WEEKLY database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Select Oil Market Indicators</th>
<th scope="col">June 4</th>
<th scope="col">May 28</th>
<th scope="col">May 21</th>
<th scope="col">Month- Ago Week</th>
<th scope="col">Year-Ago Week</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gasoline, US Regular Grade (cents/gal)</td>
<td>315.7</td>
<td>320.9</td>
<td>321.8</td>
<td>305.4</td>
<td>289.2</td>
<td>257.2</td>
<td>227.0</td>
</tr>
<tr>
<td class="firstcol">Crude Oil: West Texas Intermediate ($/barrel)</td>
<td>June 1</td>
<td>May 25</td>
<td>May 18</td>
<td>63.79</td>
<td>71.50</td>
<td>66.13</td>
<td>56.50</td>
</tr>
<tr class="odd">
<td class="firstcol">63.94</td>
<td>64.94</td>
<td>63.61</td>
</tr>
<tr>
<td class="firstcol"> UK Brent &nbsp;</td>
<td>68.91</td>
<td>70.32</td>
<td>66.92</td>
<td>66.92</td>
<td>69.43</td>
<td>65.19</td>
<td>54.58</td>
</tr>
<tr class="odd">
<td class="firstcol">Refinery Utilization (%)</td>
<td>89.63</td>
<td>91.08</td>
<td>91.10</td>
<td>89.03</td>
<td>90.97</td>
<td>89.36</td>
<td>90.35</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stock: Days&#39; Supply</td>
<td>21.3</td>
<td>21.0</td>
<td>21.0</td>
<td>20.9</td>
<td>22.5</td>
<td>22.7</td>
<td>22.8</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606c.jpg" width="353">
Australian GDP grew 1.6% in Q1, up from 1.1% in Q4 and the strongest quarter since Q4 2003. This compared with 1.3% expected in one major forecast survey. Year-to-year growth was 4.0%. Data for Australia are contained in Haver&#39;s ANZ database and in G10+ as well as numerous international databases from the OECD, IMF and others.
The pick-up resulted from positive inputs in several demand areas. Private consumption was up 1.5% compared to 1.2% the quarter before. Exports expanded 1.4%, up from 1.0%, while growth in imports was lower, 2.1% from 6.5%. This latter, of course, helps raise the total growth rate since imports enter the GDP calculation negatively. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606d.jpg" width="353">
Fixed capital formation grew nicely as well, although the Q1 rise of 2.0% was less than Q4&#39;s 2.6%. It is important to note here the impact of the privatization of the telephone and telecommunications utility in Australia, Telstra. The government sold this company to private owners in November and it enters the GDP accounts in the private investment category for the first time in this report. Thus, the 5.8% surge in private fixed investment and the 16.9% plunge in public investment exaggerate the underlying movements. The Australian Bureau of Statistics reports that private investment would still have looked pretty good, at 4.8% growth in Q1, if the telephone company had been in the private sector all during Q4 as well. Public investment would still have fallen in Q1, but by &quot;only&quot; 7.5%. These latter growth rates are recorded in a footnote in our ANZ menu.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606c.jpg" width="353">
Interestingly, among the various industrial sectors, manufacturing output declined, despite the gain in overall GDP. Gross value added in manufacturing eased by 0.5%, although that did follow two very good quarters of 1.7% and 2.0%. Agricultural output also declined, but only 0.3% and far less than in the prior two quarters. So agriculture actually contributed to the increase in GDP growth by subtracting less. Construction activity gained 2.5%, a reputable figure, but less than Q4&#39;s 3.9%. The best performances came in retail trade, up 2.4%, and finance, up 2.3%, with both at least a percentage point stronger than the quarter before. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">AUSTRALIA, % Chg,&nbsp; Chn A$, Q3/2004-Q2/2005</th>
<th scope="col">Q1 2007*</th>
<th scope="col">Q4 2006*</th>
<th scope="col">Q3 2006*</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP</td>
<td>1.6</td>
<td>1.1</td>
<td>0.5</td>
<td>4.0</td>
<td>2.7</td>
<td>2.7</td>
<td>3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Consumption</td>
<td>1.5</td>
<td>1.2</td>
<td>0.7</td>
<td>4.2</td>
<td>3.1</td>
<td>3.0</td>
<td>5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Fixed Capital Formation</td>
<td>2.0</td>
<td>2.6</td>
<td>-0.5</td>
<td>5.8</td>
<td>6.3</td>
<td>7.8</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private</td>
<td>5.8**</td>
<td>0.9</td>
<td>-1.5</td>
<td>7.1</td>
<td>5.4</td>
<td>7.6</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Public</td>
<td>-16.9**</td>
<td>-11.3</td>
<td>5.2</td>
<td>-2.1</td>
<td>11.9</td>
<td>8.7</td>
<td>9.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>1.4</td>
<td>1.0</td>
<td>0.2</td>
<td>4.6</td>
<td>3.4</td>
<td>2.4</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>2.1</td>
<td>6.5</td>
<td>-0.5</td>
<td>11.4</td>
<td>7.7</td>
<td>8.5</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>-0.5</td>
<td>2.0</td>
<td>1.8</td>
<td>3.3</td>
<td>-1.3</td>
<td>0.2</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance &amp; Insurance</td>
<td>2.3</td>
<td>1.0</td>
<td>0.9</td>
<td>5.9</td>
<td>6.1</td>
<td>2.5</td>
<td>3.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Australian GDP grew 1.6% in Q1, up from 1.1% in Q4 and the strongest quarter since Q4 2003. This compared with 1.3% expected in one major forecast survey. Year-to-year growth was 4.0%. Data for Australia are contained in Haver's ANZ [...]

Australia GDP Up 1.6% in Q1; Best Quarter in 3 Years

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

PMIs show still-elevated but slowing US inflation

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Sandy Batten

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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.

U.S. Housing Starts Fell in February but Rebounded in March

Winnie Tapasanun

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New orders for durable goods rose a stronger-than-expected 0.8% m/m in March, the first monthly rise since November, after declines of 1.2% in February (-1.4% initially) and 0.4% in January (-0.5% previously), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 0.5% m/m March increase. The year-on-year rate decelerated to 0.8% in March, the lowest since December 2024 (-4.5%), from 7.6% in February, though remaining positive since January 2025. Durable goods orders excluding the transportation sector rose 0.9% (7.6% y/y) in March, the 11th consecutive m/m rise, after a 1.2% gain in February. Durable goods orders excluding defense, however, fell 0.3% (-1.8% y/y), the third m/m fall in four months, following a 1.2% February drop.

The m/m rise in March durable goods orders was driven by a 16.9% m/m jump in orders for defense aircraft & parts, the fourth gain in five months, following a 0.5% increase in February and a 26.9% slump in January. Orders for nondefense aircraft & parts dropped 21.1%, adding to a 33.3% February plunge and a 1.7% January decline. Orders excluding aircraft climbed 1.9% (9.2% y/y), the fourth straight m/m rise and the eighth in nine months, after a 1.8% February gain.

Durable goods orders for transportation rebounded 0.8% (-10.4% y/y) in March, the first m/m increase in four months, following a 5.6% drop in February. In addition to March’s m/m jump in defense aircraft orders and drop in nondefense aircraft orders, motor vehicles & parts orders rose 1.2% (7.9% y/y), the fourth successive m/m rise, after a 3.7% February gain. Orders for computers & electronic products jumped 3.7% (15.0% y/y), the largest of seven consecutive m/m increases, following a 1.3% February rise. Machinery orders grew 0.8% (10.4% y/y), the 11th straight m/m gain, on top of a 2.3% February advance. Orders for electrical equipment, appliances & components rose 0.7% (6.5% y/y), the first m/m rise in three months, reversing a 0.7% February decline. Orders for primary metals grew 0.4% (10.2% y/y), the fourth consecutive m/m increase, after a 2.4% February gain. Orders for all other durable goods rose 0.3% (1.2% y/y), up for the seventh straight month, after a 0.5% February rise. Orders for fabricated metal products rose 0.2% (7.2% y/y), the eighth m/m increase in nine months, following a 1.1% February gain.

Capital goods orders recovered 1.7% (-6.7% y/y) in March, the first m/m rise since November, after a 6.5% decrease in February. Nondefense capital goods orders slid 1.2% (-15.4% y/y), the sixth m/m slide in seven months, after a 7.9% February drop. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rose 3.3% (9.4% y/y), the eighth m/m gain in nine months, following a 1.6% February rise. Defense capital goods orders surged 18.0% (80.0% y/y) after a 2.3% February rebound. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 1.2% (7.0% y/y), the sixth m/m rise in seven months, after a 1.3% February increase.

Shipments of all manufactured goods rose 1.4% (5.5% y/y) in March, the fifth m/m rise in six months, after a 1.7% gain in February. Durable goods shipments increased 0.7% (7.6% y/y), up for the sixth time in seven months, after a 1.6% February rise. Nondurable goods shipments advanced 2.1% (3.4% y/y), the strongest of four consecutive m/m increases, after a 1.9% February gain.

Unfilled orders of durable goods edged up 0.1% (9.5% y/y) in March, the eighth straight m/m increase, after a 0.1% uptick in February. Excluding transportation, unfilled orders rose 0.3% (2.5% y/y), also up for the eighth consecutive month, following a 0.3% February rise.

Manufacturing inventories advanced 0.6% (1.3% y/y) in March, the largest of five successive m/m increases, after a 0.1% uptick in February. Durable goods inventories grew 0.2% (1.9% y/y) in March, the sixth consecutive m/m rise, following a 0.1% increase in February, while nondurable goods inventories climbed 1.3% (0.4% y/y) after inching up 0.1%.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- March headline orders +0.8% m/m, first increase in four mths.; +0.8% y/y, lowest since Dec. ’24.
- Defense aircraft & parts +16.9% m/m following February’s +0.5%.
- Transportation orders +0.8%, first m/m rise since Nov.; orders ex transp. +0.9%, 11th straight m/m increase.
- Core capital goods shipments +1.2%, sixth m/m gain in seven mths., pointing to a solid contribution to Q1’26 GDP from business equipt. spending.
- Durable goods shipments +0.7%; unfilled orders +0.1%; inventories +0.2%.

U.S. Durable Goods Orders Rise in March, Led by a Jump in Defense Aircraft Orders

Kathleen Stephansen, CBE

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Mortgage applications fell 1.6% w/w (+33.4% y/y) in the week ending April 24, after rising 7.9% w/w (29.9% y/y) in the week ending April 17, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house rose 1.2% w/w (21.2% y/y) in the April 24 week, following a jump of 10.1% w/w (14.5% y/y) in the April 17 week.  Applications for loan refinancing declined 4.4% w/w (+50.7% y/y) after rising 5.8% w/w (51.9% y/y) in the week of April 17. 

The effective interest rate on a 30-year fixed-rate loan rose 1bps to 6.54% in the week ending April 24 from 6.53% in the week ending April 17. The rate on 15-year fixed-rate mortgages was unchanged at 5.92% in the latest week from the prior week. The 30-year Jumbo rate was also unchanged at 6.56% in the April 24 week from the April 17 week, while the rate on a 5-year ARM jumped 21bps to 6.02% in the latest week from 5.81% in the week ending April 17.

The share of applications for refinancing an existing loan declined to 42.5% of total applications in the week of April 24, from 44.2% in the April 17 week. The adjustable-rate mortgage (ARM) share of activity rose to 8.3% in the week ending April 24 from 8.0% in the week ending April 17.

The average size of a mortgage loan rose 2.0% w/w (6.2% y/y) to $407,900 in the week ending April 24, after rising 1.2% w/w (3.4% y/y) to $399,900 in the week ending April 17. The average size of a purchase loan rose 1.0% w/w (4.6% y/y) to $460,200 in the latest week, after edging down 0.1% w/w (+3.6% y/y) to $455,600 in the April 17 week. The average size of a loan to refinance a mortgage rose 2.3% w/w (16.3% y/y) to $337,100 in the April 24 week, after rising 2.4% w/w (10.7% y/y) to $329,500 in the April 17 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Applications for loans to purchase rose, while applications for loan refinancing declined in the latest week.
- Interest rate on 30-year fixed-rate loans rose 1bps to 6.54%. 
- Average loan size edged up.

U.S. Mortgage Applications Edged Down in the April 24 Week

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Globally, money supplies are accelerating. Three- and six-month money growth rates equal or exceed the year-on-year pace everywhere, and the 12-month growth rates accelerate over the recent 12 months compared to the 12-month pace of one year ago—except for the United Kingdom, where data lag by one month. This deviation may amount to the lack of topicality since money, credit, and inflation all are caught in an updraft prompted by rising oil prices. The oil price (Brent) is up at a 468% annual rate over three months, and over 12 months the oil price is up by 31.7%, compared to a 5.5% rise over 12 months one-year ago.

**Rising oil prices do NOT create inflation**
Now we all know that rising oil prices do not create inflation. So, thankfully, the 468% rise in oil prices is not driving up the inflation rate. But unfortunately, it is helping to drive up the price level. So, we are drawing a distinction between the price level and the inflation rate.

The year-over-year change in a price metric, like the CPI, is just that: the year-on-year gain. We often refer to this as ‘THE’ inflation rate. But that is only if the price level was at—and continued to rise at (about)—that same pace. Inflation is an ongoing rise in the price level. No one in their right mind thinks oil prices are going to rise by 468% year-over-year persistently. But of course, oil is a cost to producers and a price to consumers. It is a price that must be paid and cost that must be borne. The question is how much this bump-up in oil prices will contribute to the prices of the items we track in our various national price indexes in the future. Here I will refer to the CPI as the price index. And then we ask if that one-time rise in the relative price of oil will continue to bump up prices by the same amount month-after-month in the future. If it is, it is creating inflation. If not, it is creating a realignment of relative prices. The rise in relative prices is real. It may be painful to some and remunerative to others. The effects are complex.

But the spike in oil prices is not inflation. Even though we are tracking an unknown price rise that is continuing to waffle, I will speak of it as though we know the ultimate rise and speak of that as a one-time surge.

Expressed in this way, you should be able to see the oil price spurt as painful and as something that may be a temporary boost to inflation. If the price stays high, it will boost the price level based on the pass-through by commodity. After the oil price spurt, prices may be higher, but inflation will go back to ‘where it was.’

But all that happens if and only if monetary policy does not accommodate—does not monetize—the rise in oil prices. Unfortunately, we see money supplies are accelerating. Central banks have stepped up their rate of printing money as oil prices have risen, in order to stabilize interest rates. Printing more money, or increasing the money stock faster, is inflationary.

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**A dilemma**
Everywhere central banks have taken the bait, and to cushion the impact on oil prices, they are letting money supplies accelerate. They do this because of a focus on interest rates, as monetary policy has a ‘rule’ that has been developed that monetary policy should not respond to supply shocks. Should money supply respond and accelerate? Well, the answer to that is clear: no. So, we have a dilemma.

**Supply-demand argument**
Actually, the supply side edict is more complicated. Even those who note the monetary policy can’t solve supply problems realize that if a price spike is large enough or lasts long enough, it might, in the short run, impact prices with enough force to affect inflation expectations. Yet, for now we see no acknowledgement of this dilemma.

The expectations argument is the more sophisticated modern approach. Unfortunately, it refers to concepts we do not readily observe. Money supply growth, on the other hand we can measure. We see that money supply is accelerating, and that should make us worry about inflation. That in turn should, through one of several possible channels, get central banks to reign in money supply growth. To do that, they have to stop all this talk of ‘looking through’ the oil price increase, and they have to at least consider raising rates now. While the ECB and BOE have referred to this as a policy choice, the Federal Reserve in the U.S. has been far more circumspect and has just approved the election of a new chairman who thinks he can cut rates. I wonder whether, once he takes the helm at the Fed, he will continue to hold that view?

Economists are not watching money supply the way they used to. Central bankers need to have their eyes open as to the inflation risk, especially in the post Covid period, after which inflation targets had been consistently muddled by overshooting inflation.

Denial takes on many forms. The lesson learned is about money supply. The lesson is about not accommodating shocks to lessen their impact. But the focus on interest rates has muddied the meaning of that lesson in practice.

Globally, Money Supplies Accelerate... No Problemo?

Michael J. Moran

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The Conference Board’s index of Consumer Confidence inched higher in April from an upwardly revised reading in March. The combined changes left the measure 1.1% higher than the preliminary tally in March. Despite the improvement, the index remained in the low end of the range for the current expansion. The index in April totaled 92.8, down from an average of 96.1 in 2025 and an annual cyclical high of 105.4 in 2023.

The Improvement in April reflected a pickup in the expectations component, which rose 1.7%. The current conditions component inched 0.2% lower. Overall views on current conditions slipped despite more favorable assessments of the labor market. The so-called measure of the jobs gap (share of respondents indicating that jobs are plentiful less the share saying that jobs are hard to get) rose 1.4 percentage points higher to 7.5%. The pickup reflected a drop in the share indicating that jobs are hard to get (down 1.5 percentage points to 19.8%). The share indicating that jobs are plentiful eased 0.1 percentage point to 27.3%.

Although expectations improved in April, from a long-term perspective they could be viewed as the more important factor restraining the headline measure of confidence. As shown in the left chart below, the expectations component of confidence shows considerably less volatility than the current conditions component does. The contrasting patterns suggest that individuals realize that the economy will undergo possibly sharp cyclical swings, but they expect conditions at some point to return to an underlying norm.

The current conditions index in the current cycle has indeed dropped noticeably, but it is still above the long run average (123.8 in April versus the average of approximately 108 from 1990 to 2025). The expectations component, as usual, has eased less than the current conditions component, but its shift has pushed the measure to the low end of its long-run range (72.2 in April versus an average of approximately 88).

Interestingly, concern about the labor market seems to be a factor affecting expectations. While current views on the labor market are favorable (plentiful less hard to get jobs gap of 7.5%), Individual are concerned about the future. The survey asks respondents if they expect more jobs or fewer jobs six months hence. The share indicating fewer jobs has moved well into the upper end of the historical range. Such observations in the past were typically seen only during recession (chart, below right). An unfavorable view on interest rates also seems to be playing a role in depressing the expectations component. More than 60% of respondents to the current survey expect higher interest rates 12 months from now.

The results from the Conference Board survey of consumers differ markedly from those of the University of Michigan Survey Research Center. The Michigan results show consumer sentiment at a record low, while the Conference Board index is only slightly below its long-run average. The difference most likely reflects the nature of the questions in the surveys. The Conference Board focuses on business and employment conditions, while Michigan emphasizes personal finances. The focus on finances, along with questions on inflation, probably picks up concerns about affordability.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Expectations improved slightly in April, but are still subdued relative to norms.
- Moderately favorable view of current conditions.

Economy in Brief

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Australia GDP Up 1.6% in Q1; Best Quarter in 3 Years