Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070423c.jpg" width="353">
Mortgage lending data for the United Kingdom compiled by the Council of Mortgage Lenders (CML) and the Building Societies Association (BSA) were released today. In addition to building societies, the CML includes banks and others engaged in mortgage lending to individuals. Building societies account for roughly 18% of the total mortgage lending.
Gross mortgage lending reported by the CML was 31,260 million pounds in March, 22% above February and 10% above March of 2006. A breakdown of the mortgage lending total among house purchase, remortgage and other is not yet available for March, but in view of the sharp rise in the total of some 22%, the components should obviously show good rises as well, perhaps reversing the recent down trends in mortgages for house purchase and remortgages.The total and components are shown in the first chart. Since the figures are seasonally unadjusted, the month to month rise is less meaningful than the year to year rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070423d.jpg" width="353">
Gross advances for mortgages by the building societies (seasonally unadjusted to be comparable with the CML data) were 5,469 million pounds in March, a 30% increase over February and 30% over March 2006. In the last four month, the gap between the increases in mortgage lending by building societies and by all lenders has widened indicating that lending by building societies has been increasing faster than that by banks and other institutions.
The CML data are grossed up estimates based on a sample of lenders reflecting market size. The data since April, 2005 are based on product sales data reported to the CML; data prior to April, 2005 are taken from the Survey of Mortgage Lenders. There are differences in the methodologies and in the samples of lenders in the data before and after 2005.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">&nbsp;MORTGAGE LENDING IN THE UK</th>
<th scope="col">Mar 07</th>
<th scope="col">Feb&nbsp;07</th>
<th scope="col">Mar&nbsp;06</th>
<th scope="col">M/M %</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">CML Gross Lending (NSA Million Pounds)</td>
<td>31,260</td>
<td>25,535</td>
<td>28,397</td>
<td>22.42</td>
<td>10.08</td>
<td>19.75</td>
<td>-1.13</td>
<td>5.05</td>
</tr>
<tr>
<td class="firstcol">BSA Gross Advances &nbsp;(NSA Million Pounds) </td>
<td>5,469</td>
<td>4,214</td>
<td>4,199</td>
<td>29.78</td>
<td>30.25</td>
<td>20.97</td>
<td>-7.35</td>
<td>1.52</td>
</tr>
</tbody>
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Mortgage lending data for the United Kingdom compiled by the Council of Mortgage Lenders (CML) and the Building Societies Association (BSA) were released today. In addition to building societies, the CML includes banks and others [...]

Mortgage Lending Continues Strong in the UK, Particularly by Building Societies

Robert Brusca

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<th scope="col" class="firstcol">&middot; The Chicago Fed&#146;s national activity Index is usually not much of a market mover. One reason is that this 85 indicator monster of an index has a very strong correlation to industrial production, a report that is released ahead of it. IP has an R-squared with the CFNAI of 0.77, quite high. That leaves only 23% of the variance in the index to be explained by the other 84 factors in the index. In other words, once you&#146;ve got IP out of the way you largely know what the CFNAI is going to do. &middot; The CFNAI index rose in March snapping a two month declining streak. The report has had a negative reading in five of its last seven months.</th>
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Chicago National Activity Index
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="4">Selected Growth and Inflation Trends</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Chicago Index</td>
<td>IP 3-Mo AR</td>
<td>Core CPI</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>0.01</td>
<td>0.7</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>-0.11</td>
<td>2.1</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>-0.80</td>
<td>1.1</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td colspan="4">Average</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>-0.30</td>
<td>1.3</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">6-Mo</td>
<td>-0.23</td>
<td>-0.2</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>-0.12</td>
<td>2.3</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td colspan="4">12 month averages from 12 months ago</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>0.315</td>
<td>4.5</td>
<td>2.1</td>
</tr>
</tbody>
</table>
 



The index is not a leading index for activity. It was not even declining ahead of the 1973 recession, for example. But the Chicago Fed sees a different role for this index. 
On its web site the Chicago Fed says this: &#145;The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity. The derived index provides a single, summary measure of a factor common to these national economic data. The CFNAI corresponds to the index of economic activity developed by James Stock of Harvard University and Mark Watson of Princeton University in an article, &quot;Forecasting Inflation,&quot; published in the Journal of Monetary Economics in 1999. The idea behind their approach is that there is some factor common to all of the various inflation indicators, and it is this common factor, or index, that is useful for predicting inflation. Research has found that the CFNAI provides a useful gauge on current and future economic activity and inflation in the United States.&#146; See: <a href="http://www.chicagofed.org/economic_research_and_data/cfnai.cfm">http://www.chicagofed.org/economic_research_and_data/cfnai.cfm </a>
Since inflation is in the limelight what is this index saying about activity that might be useful for inflation-watchers?
<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070423a.jpg" width="353">
The chart on the left shows that the 12 month average of the Chicago activity index has been withering steadily. If the Fed takes this as an important barometer of inflation pressures, the index is saying that those pressures are abating and it explains why the Fed has been willing to sit tight with inflation over the top of its comfort zone.
Still, the same Chart offers a warning since the current month has brought a rebound in the index. If the declining phase of the index is over maybe the inflation alleviating aspects of this index have played out already? 
Even so we can see that the Chicago Index has not kept a close correlation to Core CPI shifts recently. On reason undoubtedly is the key role that oil prices have played in the run-up of inflation.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070423b.jpg" width="353"> 
From the Fed&#146;s point of view it is not clear that trends are still working in its favor. Compared to the twelve month average of one year ago, the recent 3-mo average of the Chicago activity index is lower at -0.30 compared to 0.315. On the same comparison growth has slowed to 1.3% for IP from 4.5%. But inflation on this basis has risen from 2.1% to 2.6% although it has been edging off peak. Inflation has been stubborn and has risen even as the activity index has moved lower (and gone negative) and even as industrial output soured. 
The added problem in assessing inflation trends is that industrial production is now showing some life again. Although the recent CFNAI number is small if the direction for the index is now upward, that would raise questions about the future calming of inflation. It is far from clear the Chicago Activity index should be a source of solace to anyone at the Fed who is concerned about inflation.

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The index is not a leading index for activity. It was not even declining ahead of the 1973 recession, for example. But the Chicago Fed sees a different role for this index. On its web site the Chicago Fed says this: The 85 economic [...]

CFNAI - Not Entirely Comforting

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<th scope="col" class="firstcol">&middot; The Chicago Fed&#146;s national activity Index is usually not much of a market mover. One reason is that this 85 indicator monster of an index has a very strong correlation to industrial production, a report that is released ahead of it. IP has an R-squared with the CFNAI of 0.77, quite high. That leaves only 23% of the variance in the index to be explained by the other 84 factors in the index. In other words, once you&#146;ve got IP out of the way you largely know what the CFNAI is going to do. &middot; The CFNAI index rose in March snapping a two month declining streak. The report has had a negative reading in five of its last seven months.</th>
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<colgroup></colgroup>
<thead>
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Chicago National Activity Index
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="4">Selected Growth and Inflation Trends</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Chicago Index</td>
<td>IP 3-Mo AR</td>
<td>Core CPI</td>
</tr>
<tr>
<td class="firstcol">Mar-07</td>
<td>0.01</td>
<td>0.7</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Feb-07</td>
<td>-0.11</td>
<td>2.1</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Jan-07</td>
<td>-0.80</td>
<td>1.1</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td colspan="4">Average</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>-0.30</td>
<td>1.3</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">6-Mo</td>
<td>-0.23</td>
<td>-0.2</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>-0.12</td>
<td>2.3</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td colspan="4">12 month averages from 12 months ago</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>0.315</td>
<td>4.5</td>
<td>2.1</td>
</tr>
</tbody>
</table>
 



The index is not a leading index for activity. It was not even declining ahead of the 1973 recession, for example. But the Chicago Fed sees a different role for this index. 
On its web site the Chicago Fed says this: &#145;The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity. The derived index provides a single, summary measure of a factor common to these national economic data. The CFNAI corresponds to the index of economic activity developed by James Stock of Harvard University and Mark Watson of Princeton University in an article, &quot;Forecasting Inflation,&quot; published in the Journal of Monetary Economics in 1999. The idea behind their approach is that there is some factor common to all of the various inflation indicators, and it is this common factor, or index, that is useful for predicting inflation. Research has found that the CFNAI provides a useful gauge on current and future economic activity and inflation in the United States.&#146; See: <a href="http://www.chicagofed.org/economic_research_and_data/cfnai.cfm">http://www.chicagofed.org/economic_research_and_data/cfnai.cfm </a>
Since inflation is in the limelight what is this index saying about activity that might be useful for inflation-watchers?
<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070423a.jpg" width="353">
The chart on the left shows that the 12 month average of the Chicago activity index has been withering steadily. If the Fed takes this as an important barometer of inflation pressures, the index is saying that those pressures are abating and it explains why the Fed has been willing to sit tight with inflation over the top of its comfort zone.
Still, the same Chart offers a warning since the current month has brought a rebound in the index. If the declining phase of the index is over maybe the inflation alleviating aspects of this index have played out already? 
Even so we can see that the Chicago Index has not kept a close correlation to Core CPI shifts recently. On reason undoubtedly is the key role that oil prices have played in the run-up of inflation.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070423b.jpg" width="353"> 
From the Fed&#146;s point of view it is not clear that trends are still working in its favor. Compared to the twelve month average of one year ago, the recent 3-mo average of the Chicago activity index is lower at -0.30 compared to 0.315. On the same comparison growth has slowed to 1.3% for IP from 4.5%. But inflation on this basis has risen from 2.1% to 2.6% although it has been edging off peak. Inflation has been stubborn and has risen even as the activity index has moved lower (and gone negative) and even as industrial output soured. 
The added problem in assessing inflation trends is that industrial production is now showing some life again. Although the recent CFNAI number is small if the direction for the index is now upward, that would raise questions about the future calming of inflation. It is far from clear the Chicago Activity index should be a source of solace to anyone at the Fed who is concerned about inflation.

Mortgage Lending Continues Strong in the UK, Particularly by Building Societies  
by <a href="/comment/Curley.html">Louise Curley</a> April 23, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070423c.jpg" width="353">
Mortgage lending data for the United Kingdom compiled by the Council of Mortgage Lenders (CML) and the Building Societies Association (BSA) were released today. In addition to building societies, the CML includes banks and others engaged in mortgage lending to individuals. Building societies account for roughly 18% of the total mortgage lending.
Gross mortgage lending reported by the CML was 31,260 million pounds in March, 22% above February and 10% above March of 2006. A breakdown of the mortgage lending total among house purchase, remortgage and other is not yet available for March, but in view of the sharp rise in the total of some 22%, the components should obviously show good rises as well, perhaps reversing the recent down trends in mortgages for house purchase and remortgages.The total and components are shown in the first chart. Since the figures are seasonally unadjusted, the month to month rise is less meaningful than the year to year rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070423d.jpg" width="353">
Gross advances for mortgages by the building societies (seasonally unadjusted to be comparable with the CML data) were 5,469 million pounds in March, a 30% increase over February and 30% over March 2006. In the last four month, the gap between the increases in mortgage lending by building societies and by all lenders has widened indicating that lending by building societies has been increasing faster than that by banks and other institutions.
The CML data are grossed up estimates based on a sample of lenders reflecting market size. The data since April, 2005 are based on product sales data reported to the CML; data prior to April, 2005 are taken from the Survey of Mortgage Lenders. There are differences in the methodologies and in the samples of lenders in the data before and after 2005.

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<th scope="col" class="firstcol">&nbsp;MORTGAGE LENDING IN THE UK</th>
<th scope="col">Mar 07</th>
<th scope="col">Feb&nbsp;07</th>
<th scope="col">Mar&nbsp;06</th>
<th scope="col">M/M %</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">CML Gross Lending (NSA Million Pounds)</td>
<td>31,260</td>
<td>25,535</td>
<td>28,397</td>
<td>22.42</td>
<td>10.08</td>
<td>19.75</td>
<td>-1.13</td>
<td>5.05</td>
</tr>
<tr>
<td class="firstcol">BSA Gross Advances &nbsp;(NSA Million Pounds) </td>
<td>5,469</td>
<td>4,214</td>
<td>4,199</td>
<td>29.78</td>
<td>30.25</td>
<td>20.97</td>
<td>-7.35</td>
<td>1.52</td>
</tr>
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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/070420a.jpg" width="353">
UK retail sales rose 0.3% in volume in March, according to ONS data reported today. This followed a 1.6% jump in February, revised from 1.4% reported initially and more than recouping a 1.5% drop in January. At least one forecast survey had called for volume to rise 0.5%, so some interpreted the 0.3% outcome as &quot;below expectations&quot;. But the 0.2% upward revision to February puts sales at the level where forecasters would have seen them. The value of sales rose 0.6% in the month, indicating that prices increased 0.3%. This one month&#39;s increase in prices accounts for the entire price increase over the last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070420b.jpg" width="353">
Among store types, sizable year/year volume gains are evident in clothing and in household goods outlets. During the first quarter of the year, household goods sales were up 7.5% from a year ago and clothing store sales 6.6%. [Notice that in this graph, we have made a 3-month moving average and taken the year-on-year % change, illustrating the &quot;nested function&quot; feature of the new DLXVG3 version we are now &quot;beta-testing&quot; internally.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070420c.jpg" width="353">
A quick calculation of the price deflators for each major store group shows that it&#39;s food store prices where the upturn has occurred. As seen in the third graph, this deflator is up 2.9% from a year ago, extending a trend that began last June. Prices in other sectors remain relatively calm.
These data, from 5,000 UK retailers, measure an average week&#39;s sales during March. In addition to standard seasonal adjustment, the ONS makes a specific adjustment for the date of Easter, which was April 8 this year, earlier than last year and therefore judged to inflate March sales more. Their press release explains that adjusting for this calendar difference reduced the seasonally adjusted March total by 0.3%. These retail sales data, unlike those for the US, do not include motor vehicle dealers or gasoline stations. Internet sales are included in &quot;nonstore retailers&quot; for companies that sell exclusively on the Internet, and in the respective category for Internet operations of conventional stores.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">UK Retail Sales, 2000=100*</th>
<th scope="col">Mar 2007</th>
<th scope="col">Feb 2007 </th>
<th scope="col">Jan 2007</th>
<th scope="col">Mar 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Volume</td>
<td>134.0</td>
<td>133.6</td>
<td>131.5</td>
<td>127.9</td>
<td>129.4</td>
<td>125.3</td>
<td>122.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.3</td>
<td>1.6</td>
<td>-1.5</td>
<td>5.4</td>
<td>3.3</td>
<td>2.0</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Value</td>
<td>127.4</td>
<td>126.7</td>
<td>124.6</td>
<td>121.3</td>
<td>122.8</td>
<td>119.4</td>
<td>118.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.6</td>
<td>1.7</td>
<td>-1.5</td>
<td>5.8</td>
<td>2.8</td>
<td>0.9</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Implicit Price Deflator**</td>
<td>95.1</td>
<td>94.8</td>
<td>94.8</td>
<td>94.8</td>
<td>94.9</td>
<td>95.3</td>
<td>96.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.3</td>
<td>0.1</td>
<td>0.0</td>
<td>0.3</td>
<td>-0.4</td>
<td>-1.1</td>
<td>-1.5</td>
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UK retail sales rose 0.3% in volume in March, according to ONS data reported today. This followed a 1.6% jump in February, revised from 1.4% reported initially and more than recouping a 1.5% drop in January. At least one forecast [...]

UK Retail Sales Rise 0.3% in March, Following Upward Revision to February; Food Group Pushes Price Deflator Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419h.jpg" width="353">
Gasoline prices are rising inexorably, surpassing $3.00/gallon in some high-tax areas by last week, and almost certainly due to cross that line imminently for the nation as a whole. In the week ended this past Monday, April 16, Department of Energy data put regular gasoline at $2.876 a gallon, up 7.4 cents on the week, following 9.5 and 9.7 cent increases the week of April 9 and April 2 respectively. The price is up 29.9 cents from four weeks ago. From the same week a year ago, the price is up 9.3 cents, or 3.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419g.jpg" width="353">
On Tuesday, the price of crude oil was $63.11 per barrel, up $1.21 from the week before and $6.37 from four weeks ago. However, the price is down from the extremes of the year-ago period, when the effects of Hurricane Katrina were still impacting availability.
Three weeks ago, when we last looked at these price patterns, we noted that prices were rebounded from a mid-winter lull. Then we cited the new information on the days&#39; supply of gasoline inventories, which was lower at its winter peak than in prior years. Now we see that figure has dropped to 21.0 days, an unprecedentedly short period for the spring, ahead of the summer driving season. In fact, it&#39;s low for anytime, with only the Katrina period and the mid-summer of 2003 showing weaker supplies of gasoline relative to current demand.
This is likely related to calm weather and the reduced number of storms over the winter. According to the National Climate Data Center in figures released yesterday, the national average amount of precipitation in Q1 was the second smallest for that period since 1988. So people could drive more and they used more gasoline over the winter. The distinctive plunge in demand during those months of prior years was simply not repeated this year, as is clear in the second graph.
Meantime, data from the Oil and Gas Journal show that gasoline was above $3.00 in a number of cities by last week: San Francisco, Portland, San Diego and Chicago, most notably.
In this commentary, the data on gas prices, demand and inventories come from Haver&#39;s OILWKLY database. The price of crude oil is in WEEKLY, with another version of the same product also in OILWKLY and national average precipitation is in USECON. Most of the energy data is sourced from the Department of Energy, but gasoline prices in various cities are compiled by the Oil and Gas Journal publication. 

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<th scope="col" class="firstcol">GASOLINE PRICES &amp; DEMAND</th>
<th scope="col">4/16/07</th>
<th scope="col">4/9/07</th>
<th scope="col">3/19/07</th>
<th scope="col">2/19/07</th>
<th scope="col">4/17/06</th>
Annual Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
</tr>
<tr>
<td class="firstcol">Retail Price, Regular Gasoline, $/gal</td>
<td>2.876</td>
<td>2.802</td>
<td>2.577</td>
<td>2.296</td>
<td>2.783</td>
<td>2.572</td>
<td>2.270</td>
</tr>
<tr>
<td class="firstcol">Spot Price, West Texas Intermediate, $/bbl</td>
<td>63.11</td>
<td>61.90</td>
<td>56.74</td>
<td>58.08</td>
<td>71.36</td>
<td>66.10</td>
<td>56.47</td>
</tr>
<tr>
<td class="firstcol">Gasoline Demand&nbsp; (000 b/d, 4-wk Avg)*</td>
<td>9,365</td>
<td>9,363</td>
<td>9,178</td>
<td>9,121</td>
<td>9,134</td>
<td>9,259</td>
<td>9,146</td>
</tr>
<tr>
<td class="firstcol">Inventory: Days&#39; Supply*</td>
<td>21.0</td>
<td>21.3</td>
<td>22.9</td>
<td>24.4</td>
<td>22.2</td>
<td>22.4</td>
<td>22.0</td>
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Gasoline prices are rising inexorably, surpassing $3.00/gallon in some high-tax areas by last week, and almost certainly due to cross that line imminently for the nation as a whole. In the week ended this past Monday, April 16, [...]

Gasoline Prices Head for $300

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<th scope="col" class="firstcol">&middot; The table below contains the main elements of the Philadelphia Fed regional manufacturing index. At the far right another column introduces a different index. This index is what the Philadelphia Fed index would be if it used ISM weights. But Philadelphia does not do that. Instead, it has a separate survey on managers where they tell you how they feel. Recently they have been candidates for a new Excedrin&#153; headache number &#147;XXX&#148; commercial.</th>
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Philadelphia Fed Diffusion Index
<th scope="col">FAO-Index</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Date</td>
<td>Current Index</td>
<td>Current New Orders</td>
<td>Current Shipment</td>
<td>Deliveries</td>
<td>Inventory</td>
<td>Backlog</td>
<td>Pr:Pd</td>
<td>Pr:Rcd</td>
<td>Current Employment</td>
<td>Worked Hours</td>
<td>INDEX Weighted</td>
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<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>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
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<td class="firstcol">Apr-07</td>
<td>0.2</td>
<td>2.8</td>
<td>4.3</td>
<td>-11.9</td>
<td>-3.1</td>
<td>-13.7</td>
<td>24.3</td>
<td>5.2</td>
<td>2.5</td>
<td>5.5</td>
<td>-0.6</td>
</tr>
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<td class="firstcol">Mar-07</td>
<td>0.2</td>
<td>1.9</td>
<td>6.8</td>
<td>-13.2</td>
<td>-3.7</td>
<td>-20.9</td>
<td>21.8</td>
<td>16.3</td>
<td>2.3</td>
<td>-4.9</td>
<td>-1.2</td>
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<td class="firstcol">Feb-07</td>
<td>0.6</td>
<td>-0.5</td>
<td>1.7</td>
<td>-6.3</td>
<td>-1.9</td>
<td>-10.5</td>
<td>15.8</td>
<td>9.4</td>
<td>-0.4</td>
<td>-12.9</td>
<td>-1.7</td>
</tr>
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<td class="firstcol">Jan-07</td>
<td>8.3</td>
<td>1.3</td>
<td>23.9</td>
<td>-7.1</td>
<td>0.4</td>
<td>-15.4</td>
<td>11.9</td>
<td>11.6</td>
<td>7.9</td>
<td>1.8</td>
<td>5.3</td>
</tr>
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<td class="firstcol">Dec-06</td>
<td>-2.3</td>
<td>-0.9</td>
<td>14</td>
<td>-4.9</td>
<td>-0.9</td>
<td>-18.6</td>
<td>19</td>
<td>8.9</td>
<td>7.5</td>
<td>-2.3</td>
<td>1.9</td>
</tr>
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<td class="firstcol">Nov-06</td>
<td>5.4</td>
<td>-1.1</td>
<td>7.8</td>
<td>1.8</td>
<td>5.3</td>
<td>-5.5</td>
<td>25.2</td>
<td>7.4</td>
<td>3</td>
<td>2.3</td>
<td>2.2</td>
</tr>
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<td class="firstcol">Oct-06</td>
<td>2.3</td>
<td>10.7</td>
<td>6.1</td>
<td>-4.8</td>
<td>10.9</td>
<td>-10.5</td>
<td>32.7</td>
<td>17.2</td>
<td>10.4</td>
<td>-0.4</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">Sep-06</td>
<td>2.3</td>
<td>0.2</td>
<td>-4.4</td>
<td>0</td>
<td>4.7</td>
<td>-3.8</td>
<td>37.8</td>
<td>20</td>
<td>10.3</td>
<td>5.4</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">Aug-06</td>
<td>12.6</td>
<td>12.8</td>
<td>20.3</td>
<td>1.4</td>
<td>6.8</td>
<td>-2</td>
<td>46.6</td>
<td>17.3</td>
<td>8.1</td>
<td>11.7</td>
<td>10.8</td>
</tr>
<tr>
<td class="firstcol">Jul-06</td>
<td>6.5</td>
<td>9.9</td>
<td>10.7</td>
<td>-1.3</td>
<td>0.5</td>
<td>-6.5</td>
<td>49.5</td>
<td>17.6</td>
<td>11.7</td>
<td>-2.4</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">Jun-06</td>
<td>12.1</td>
<td>17.2</td>
<td>18.3</td>
<td>0.2</td>
<td>-3.5</td>
<td>-0.7</td>
<td>49.3</td>
<td>16</td>
<td>8.2</td>
<td>8.2</td>
<td>10.6</td>
</tr>
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<td class="firstcol">May-06</td>
<td>13.6</td>
<td>3.5</td>
<td>14</td>
<td>9</td>
<td>-5.3</td>
<td>-2.8</td>
<td>53.9</td>
<td>11.3</td>
<td>2.9</td>
<td>9.6</td>
<td>5.1</td>
</tr>
<tr>
<td class="firstcol">Apr-06</td>
<td>11.7</td>
<td>12</td>
<td>17.7</td>
<td>-2.9</td>
<td>-9.7</td>
<td>5.6</td>
<td>30.4</td>
<td>15.1</td>
<td>16.3</td>
<td>7.9</td>
<td>9.8</td>
</tr>
<tr>
<td class="firstcol">Mar-06</td>
<td>12.9</td>
<td>21.1</td>
<td>23.2</td>
<td>2.5</td>
<td>11.6</td>
<td>4</td>
<td>22.5</td>
<td>15.7</td>
<td>7</td>
<td>7</td>
<td>15.0</td>
</tr>
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<td class="firstcol">Feb-06</td>
<td>13.2</td>
<td>12.9</td>
<td>23.5</td>
<td>6.6</td>
<td>9.3</td>
<td>10</td>
<td>32.3</td>
<td>18</td>
<td>10.5</td>
<td>7</td>
<td>13.9</td>
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<td class="firstcol">Jan-06</td>
<td>6.4</td>
<td>11.5</td>
<td>19.5</td>
<td>7.8</td>
<td>6.6</td>
<td>0.3</td>
<td>40.2</td>
<td>20.3</td>
<td>11.8</td>
<td>7.4</td>
<td>11.6</td>
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<td class="firstcol">Dec-05</td>
<td>12.8</td>
<td>7.3</td>
<td>5</td>
<td>1.5</td>
<td>3.9</td>
<td>0.8</td>
<td>45.8</td>
<td>28.1</td>
<td>7.5</td>
<td>5.5</td>
<td>5.2</td>
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<td class="firstcol">Nov-05</td>
<td>10.7</td>
<td>13.2</td>
<td>21.5</td>
<td>5.7</td>
<td>3.8</td>
<td>-8.2</td>
<td>53.9</td>
<td>31.8</td>
<td>18.4</td>
<td>12.4</td>
<td>12.2</td>
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<td class="firstcol">Oct-05</td>
<td>5.1</td>
<td>19.8</td>
<td>19</td>
<td>0</td>
<td>-2</td>
<td>-2.9</td>
<td>25.6</td>
<td>12.7</td>
<td>15.9</td>
<td>-1.2</td>
<td>12.6</td>
</tr>
<tr>
<td class="firstcol">Sep-05</td>
<td>8.8</td>
<td>1.3</td>
<td>16.2</td>
<td>-0.7</td>
<td>-0.9</td>
<td>-8.6</td>
<td>50.5</td>
<td>6.6</td>
<td>3.9</td>
<td>2.6</td>
<td>4.0</td>
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<tr>
<td class="firstcol">Aug-05</td>
<td>10.6</td>
<td>15</td>
<td>14.3</td>
<td>-0.2</td>
<td>-8</td>
<td>3.9</td>
<td>28.1</td>
<td>3.1</td>
<td>7</td>
<td>1</td>
<td>8.7</td>
</tr>
<tr>
<td class="firstcol">Jul-05</td>
<td>10.1</td>
<td>7.2</td>
<td>12</td>
<td>-1.3</td>
<td>-8.7</td>
<td>-8.1</td>
<td>30.4</td>
<td>13.1</td>
<td>2.4</td>
<td>5</td>
<td>3.7</td>
</tr>
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<td class="firstcol">Jun-05</td>
<td>-1.1</td>
<td>4.8</td>
<td>9.9</td>
<td>-10.8</td>
<td>-0.8</td>
<td>-16</td>
<td>28.3</td>
<td>12.4</td>
<td>8.5</td>
<td>4.3</td>
<td>2.4</td>
</tr>
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<td class="firstcol">May-05</td>
<td>9.1</td>
<td>16.5</td>
<td>18.8</td>
<td>0</td>
<td>-0.9</td>
<td>-3.6</td>
<td>31</td>
<td>16.5</td>
<td>8.7</td>
<td>-0.7</td>
<td>10.5</td>
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<td class="firstcol">Apr-05</td>
<td>23.2</td>
<td>19.3</td>
<td>28.6</td>
<td>4.1</td>
<td>0</td>
<td>-3.8</td>
<td>49.1</td>
<td>26.6</td>
<td>12.3</td>
<td>15.3</td>
<td>14.8</td>
</tr>
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<td class="firstcol">Mar-05</td>
<td>14.1</td>
<td>15.3</td>
<td>15.5</td>
<td>1.3</td>
<td>-2.4</td>
<td>-3.3</td>
<td>33.9</td>
<td>18.1</td>
<td>12.2</td>
<td>8</td>
<td>9.9</td>
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<td class="firstcol">Feb-05</td>
<td>20.1</td>
<td>12.3</td>
<td>22.2</td>
<td>3.5</td>
<td>-5.2</td>
<td>-1.8</td>
<td>45</td>
<td>23.6</td>
<td>11.4</td>
<td>7</td>
<td>10.6</td>
</tr>
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What is interesting is that the weighted Philly index and the barometer are related in particular way. The gap between the barometer and weighted index is a directional statement on the economy and functions similar to the Philly future index. On the left we plot the gap (the barometer less the weighted Philly values) vs the barometer itself. 
You can see that gap between what managers say and what the index actually does tracks the direction of the index itself. In other words when managers are more optimistic they offer a barometer reading that is stronger than the component&#146;s weight composite calls for. When conditions are getter weaker, they give a reading that is less buoyant relative to the surveyed components. It turns out that when managers are so pessimistic that the barometer reading is lower than the weighted reading it is a very bad sign for the economy. The good news is that we are not there yet. The bad news is that other Philadelphia measures have already crossed the line and are now worrisome in their degree of weakness.



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419e.jpg" width="353">
The Philadelphia Fed&#146;s future barometer is a good example of what is disturbing. It has very regular cyclical properties, as you can see. Generally it turns negative before recession. Often it is actually rebounding even before the onset of recession or shortly after the onset of recession. In 2007 it is giving off all the recession signals except for having broken the zero line on the graph. However, we can form a second gap index for the future components just as did for current conditions. And that index performs just as the current conditions index performs. When plotted it has cut though the zero line and rebounded as it does in recession periods. 
Next we show how the current gap indicator tracks the future barometer from the Philadelphia Fed. It is not too surprising that managers who respond to the survey are CONSISTENT in calling future conditions better at the same time they are evaluating current conditions to be better than their own assessment of the main business components at the time of survey.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419f.jpg" width="353"> 
The point of all this discussion is to head off some of the criticism of this indicator. There are some economists who do not like it or trust it and think the Philadelphia survey is too small and too unreliable. But what is interesting about it is how the various components of the survey give off compatible signals and how those signals have been so closely correlated in the past with the cycles in the NATIONAL ECONOMY. It is and has been a better NATIONAL indicator than the ISM. 
I have not been a pessimist about the prospects for this economy. But the Philadelphia Fed MFG survey with all its consistent slow-down signals is not giving us any room to be very optimistic. I also run a specific recession diagnostic off this index and it has been forecasting a national recession for several months running. That is not a finding that has found favor. The Philadelphia Fed survey has, using my method, been fighting off a recession signal starting back in March of 2005. It has turned that signal on and off several times since, but it now has six monthly recession signals in a row. Historically the lead time from this index&#146;s signal to the onset of recession is 13 to 18 months. So we are touch longer than that from the first signal, but then signals are still in the offing. 
Alan Greenspan has spoken of recession and called the probability about one-third and then said he thought that the economy would grow. Other economists have noted that a one-third probability of recession is not that high. But now I have this Philadelphia Fed index that is so persistent in emitting this signal that it is all a bit frightening. We also have persistent, but not yet deep weakness in the LEI (Leading economic Index). Jobless claims have recently ratcheted higher. While housing measures seem to have stabilized and job growth still seems at least firm (strong enough to drive the unemployment rate down!) the economy is indeed sending out some very mixed signals. If it were food it be Chinese: sweet and sour. 
We have noted the wide disparity in the various regional indicators. Maybe Philadelphia is going to prove to be not so representative of the nation in 2006 and 2007 as it was in the past. But it is certainly giving off weak signals and there is nothing in the index to reassure us. 
The Philadelphia barometer has been below the level of 9 for six months running. The orders index has not been above 2.8 in that period. Shipments have held up a lot better but they are still below the mid point of their normal range of values and well below their average and median readings. But employees hired and hours-worked are still above average and median norms. Job data are of course, notorious for lagging. 
Even so&#133;. what does not SMELL like recession about this report is&#150; like the LEI- the fact that the rate of change is so slow. The Philadelphia Fed report says that the MFG economy is just sitting there and has been doing so for six months. Is this a regional problem or a national trend? Will manufacturing drag the economy down or will services hold it up? On this score I am still betting on services but recent economic reports have not been kind to this view. The regional disparities give us some reason to distrust the Philadelphia track record as a national bellwether. But we do that at our own risk. Remember, the famous last words are, &#145;this time it will be different.&#146;

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What is interesting is that the weighted Philly index and the barometer are related in particular way. The gap between the barometer and weighted index is a directional statement on the economy and functions similar to the Philly [...]

Philadelphia Index Remains Near Zero

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<th scope="col" class="firstcol">&middot; The LEI is weak and faltering. One very reliable signal from the LEI is its year/year growth rate. Since the early 1960s, with one exception, significant year/year declines have foreshadowed the onset of recession. The sole exception was in 1966. Although in January 1996 a minor year/year&nbsp; reading of -0.1% also was recorded. Currently the LEI is off by 0.8% year/year &#150; a worrisome signal.</th>
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Leading Economic Indicators
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<td class="firstcol">&nbsp;</td>
<td>LEADING</td>
<td>COINCIDENT</td>
<td>LAGGING</td>
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<td colspan="4">Month-to-month</td>
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<td class="firstcol">Mar-07</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
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<td class="firstcol">Feb-07</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.2%</td>
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<tr>
<td class="firstcol">Jan-07</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>0.0%</td>
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<tr>
<td class="firstcol">Dec-06</td>
<td>0.6%</td>
<td>0.3%</td>
<td>0.7%</td>
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<tr class="odd">
<td colspan="4">SAAR</td>
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<td class="firstcol">3-Mos</td>
<td>-2.9%</td>
<td>1.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">6-Mos</td>
<td>-0.3%</td>
<td>1.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">12-Mos</td>
<td>-0.8%</td>
<td>1.7%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419a.jpg" width="353">
However, the signal for recession is not only a weakening in the LEI but also in the coincident index of economic indicators (COIN). The COIN is weakening only by a very small amount and at a very moderate pace, in effect blunting the weakening signal from the LEI itself&#133;at least so far. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419b.jpg" width="353"> 
 The blown up chart on the right allows closer inspection of the recent LEI and COIN trends. The ongoing and disturbing weakens in the LEI is clear, although its RATE OF DESCENT is not very pre-recession-like. The faltering in the COIN index after a spurt earlier in the year is also put in its less worrisome context, at least for the moment. 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070419c.jpg" width="353">
 Moreover...if we look at short-term (3-month) growth rates of the COIN components, they still seem to be relatively firm. The coincident index does appear to be about to collapse. It seems still solid. 
 On balance what we have is evidence of ongoing weakness in the economy. The slippage of the year/year LEI growth rate, below zero and into negative territory, is very disturbing by itself given the reliability of that growth rate as a recession indicator. Yet the LEI itself is slipping at a very slow &#150; almost slow-motion - speed compared to other pre-recession periods. More to the point, for recession to occur the coincident index must decline and the components of that index are showing no sign of doing that. The coincident index itself has undergone some slowing but the index is a product of its components and even three-month growth rates of its components still look quite solid.Verdict: worry but do not grieve for growth. A downturn still looks less than probable.

</body>
</html>

However, the signal for recession is not only a weakening in the LEI but also in the coincident index of economic indicators (COIN). The COIN is weakening only by a very small amount and at a very moderate pace, in effect blunting the [...]

U.S. Leading Indicator Weak

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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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

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.

Consumer Confidence: Modest Change in April

Winnie Tapasanun

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U.S. house prices were essentially unchanged m/m in February after rises of 0.2% in January (+0.1% initially) and 0.3% in December (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. February marked the first flat reading since September following four consecutive m/m increases. The HPI was at 441.43 in February, up 14.8% from its August 2022 low of 384.59. The year-on-year growth rate eased to 1.7% in February—the lowest since March 2012—from 1.8% in January (+4.1% in February 2025), down from a high of 6.9% in February 2024 and well below a peak of 18.5% in February 2022.

By region, February FHFA house prices showed a mixed performance. House prices fell m/m in February (vs. January) in four of the nine census divisions. Declines were led by Mountain (-1.1% vs. +0.4%), followed by Pacific (-0.5% vs. +0.6%), West North Central (-0.4% vs. +0.3%), and Middle Atlantic (-0.1% vs. +0.3%). To the upside, house prices rose m/m in four census divisions in February (vs. January): South Atlantic (+0.6% vs. -0.2%), East South Central (+0.2% vs. +1.2%), New England (+0.2% vs. +0.6%), and West South Central (+0.2% vs. -0.3%). Meanwhile, house prices in East North Central were virtually unchanged m/m for the second successive month in February following seven straight m/m gains.

Year-on-year house prices continued to rise in February in most regions, except Mountain, Pacific, and West South Central. The y/y growth rate accelerated in February (vs. January) in only two of the nine census divisions: East South Central (+4.0% vs. +3.2%) and South Atlantic (+0.9% vs. +0.4%). Meanwhile, house price growth decelerated y/y in February (vs. January) in four regions: New England (+3.1% vs. +3.9%), West North Central (+3.1% vs. +3.6%), East North Central (+3.8% vs. +4.5%), and Middle Atlantic (+4.2% vs. +4.5%). To the downside, Mountain (-0.7% vs. 0.0%), Pacific (-0.4% vs. -0.3%), and West South Central (-0.1% vs. -0.4%) posted y/y declines in February.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- February FHFA HPI 0.0% m/m; +1.7% y/y, lowest since Mar. ’12.
- House prices down m/m in four of nine census divisions, led by Mountain (-1.1%); up in four, driven by South Atlantic (+0.6%); flat in East North Central.
- House prices up y/y in six of nine regions, led by Middle Atlantic (+4.2%), but down in Mountain (-0.7%), Pacific (-0.4%), and West South Central (-0.1%).

U.S. FHFA House Prices Flat in February After Four Straight M/M Gains

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Early PPI reports in the monetary union show collective pressures building over the past year, with newly emergent pressures popping up strongly in March.

The sequence of monthly inflation observations for these five early reporters in March shows that inflation pressure has not been clearly building but did jump up suddenly in March. In February, before the Iran war, the median monthly PPI gain was -0.5%. In March, that jumped to +3.9% (median month-to-month gain). Monthly pressure does not show steady gains anywhere except moderately in Germany. Finland shows deceleration in progress (!) even through—especially through—March, as its PPI in March fell by 5.3%. But the whole Finish pattern is somewhat upside down, with prices up month-to-month by 6.2% in January and 2.9% in February. It is not a trend that is easy to understand.

However, the March monthly gains are strong enough to drive sequential inflation higher from 12-months, to 6-months, to 3-months across all early-reporting countries. Even the German ex-energy index shows acceleration on that profile.

On a year-on-year basis, two of the early reporters have PPI inflation below 2%. Finland has 12-month PPI inflation at 2.1%, but Italy and Spain have inflation much higher, up by 3.4% over 12 months in Spain and by 5.6% in Italy.

The PPI has been very well-behaved in the last few years. Looking at 12-month changes for the year ended in March, the median change for this group in 2025 was -0.1%, compared to -4.6% in 2024.

The chart shows the PPI flared sharply in 2021 and 2022, then fell quickly into line in 2023. Clearly, the inflation tune now is being called by oil prices, the same as for that spike prices in 2022 and 2023.

The hope is that the oil price bump up will not be as long-lived, that the war will end soon, with the Strait of Hormuz reopened, and that oil prices—and other inflation pressures—will sink back to prerevision norms relatively quickly. That could happen, but so could other outcomes so markets remain wary. One problem this time is the destruction of oil facilities and the shutting of oil fields that could cause high prices to linger longer.

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**A new dynamic**
However, there is now a new dynamic with the UAE leaving OPEC. OPEC has been a vehicle to harness common behavior to control oil prices mostly to keep them higher. While undermining OPEC (UAE pumps about 13% of OPEC capacity) at a time the U.S. oil prowess has risen, this defection will make it much harder for OPEC to control prices. When countries are not bound together, the incentive is for countries to cheat on their production quota. In a cartel arrangement, when many cheat, the output reduction does not hold, and oil prices fall. A cartel arrangement allows for supply control and reduction which raises prices. But once prices are up, each member has an individual incentive to cheat—to sell more than his quota share of oil at the higher price. But that undermines the cartel. So, this move, this exit of UAE from the cartel, will create instability in the OPEC by moving more production outside the OPEC framework, beyond its control. Unless the Saudis are willing to be the ‘swing man’ and cut back their output to keep prices on target—something the Saudis have been increasingly unwilling to do—OPEC will be in less control.

EMU PPIs Show Instant Pressure

Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

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**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

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**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

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**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

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The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

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**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

Economy in Brief

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