Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416f.jpg" width="353">
The EU-13 headline HICP rose sharply and so did the core measure in March. Goods prices had all of the momentum, as services prices were dead flat in the month.
As for broad trends, the HICP and the HICP Core for the EU-13 shows pressure in both measures. The year-over-year growth rate for the core had dropped to a low of 1.2% in early 2006. But since then the Core has been in the grip of a steady upward trend for the year-over-year rate. It now stands at 1.9%, a bit higher that it was in 2003 and 2004 before the drop in the core set in. And there is still the question about upward momentum.
However the sequential growth rates are in better shape, in the sense that their signal is not as clearly bad as the year-over-year pattern for the core (see the table). They show an acceleration in goods prices from 1-year to 6-months to 3-months, but Service sector inflation does not have a real definable trend. It is growing at a 1.8% pace over three months, however. Despite the break in services inflation for the month of March the trend has not broken lower in terms of sequential growth rates. 
Sequential trends for Core rates across Main EMU countries show mixed patterns. For all the main EMU countries 3-month inflation pressure has been alleviated in the recent period compared to earlier in the year. In the case of Spain inflation has been steadily decelerating from the year/year pace of one year ago (2.8%) to -1.8% over the recent three months. Italy also shows deceleration within the current year.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends in HICP
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% Mo/Mo</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EU-13</td>
<td>0.7%</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.7%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>0.7%</td>
<td>2.1%</td>
<td>1.9%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>1.1%</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>1.8%</td>
<td>1.6%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>1.8%</td>
<td>2.4%</td>
<td>2.4%</td>
<td>1.9%</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">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>2.0%</td>
<td>2.8%</td>
<td>2.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>1.2%</td>
<td>0.1%</td>
<td>-1.1%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>2.1%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.5%</td>
<td>-0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.8%</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>0.5%</td>
<td>2.1%</td>
<td>2.5%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core excl Food Energy and Alcohol</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>2.2%</td>
<td>1.6%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>1.3%</td>
<td>1.7%</td>
<td>1.5%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>1.5%</td>
<td>0.1%</td>
<td>-1.6%</td>
<td>0.0%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-1.0%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.7%</td>
<td>0.1%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body>
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The EU-13 headline HICP rose sharply and so did the core measure in March. Goods prices had all of the momentum, as services prices were dead flat in the month. As for broad trends, the HICP and the HICP Core for the EU-13 shows [...]

Euro Area Inflation Shows a Prickly Side in March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416b.jpg" width="353">
For business overall, the Inventory/Sales ratio (I/S ratio) has roughly stabilized above its recent low and slightly off peak. This has been achieved by reductions in the pace of sales and in the pace of inventory accumulation. The recent fall off has been about the same for inventories and sales but has not been the same for all sectors, and that&#146;s where we find some lingering problems. There is some complication in discussing the I/S ratio since the ratio has been in a long secular decline. But with the low hit in January 2006 that trend seems to have been set aside. As a result we need to pick a recent horizon to assess I/S ratios. I choose a time frame of three years for that purpose. 
Table 1 below shows the inventory/sales ratios across the major business groups, manufacturing, retailing and wholesaling. We also look at max and min statistics over the past three years in this table. To the right in that table you will find a column labeled &#147;%-Tile&#148;. That column puts each sector&#146;s I/S ratio in the percentile of the range it has occupied over the past three years. There we find retailer inventories are low by this standard, as they reside in the bottom 20th percentile of their range. Wholesalers are perhaps about right with the ratio in the middle of its range. Manufacturing is in trouble for even as sales have softened and inventory growth has been reduced, the ratio of inventories to sales is still the highest it has been over the past three years in that sector. That is to say that manufactures have not yet adjusted output to the weaker pace of sales. And of course, we have no indications that the pace of sales is picking up either. 
Table 2 below shows the paired growth rates across sectors and through time. These trends underlie the shifts in I/S ratios. You can view the S to I growth rate relationship in each period directly or peruse the time series of growth rates for say sales as its changes from a year ago to the current yr/yr pace to six months to three months. Two out of three is not bad, but not good enough&#133; 
Of the three business sectors, two seem to be turning the corner and the other seems mired in a business quicksand of sorts. For overall business, sales rates have declined but they have not declined monotonically across the time groupings in the table, having rebounded in the recent three months. 
Manufacturing: For manufactures the current three-month sales growth rate is still negative and the associated inventory growth rate is still positive, thus I/S problems are clearly still being exacerbated there. That&#146;s bad news. 
Retail: In retailing the recent 3-month sales bounce is strong in that there is barely any degradation when compared to the Yr/Yr pace. And the Yr/Yr pace for inventories is only slightly stronger for 3-month than over the past year. Moreover since sales are growing faster &#150; much faster - than inventories, that sector seems OK. 
Wholesaling: For wholesaling, the recent three-month sales growth rate is up strongly as well but it is noticeably weaker than its Yr/Yr rate of growth. But this sector is also quite healthy since sales are growing at about twice the pace of inventories, showing us that inventory adjustment seems to have been made smoothly. 
Indeed if growth gaps like those between I and S persist inventory building will be in order for both wholesalers and retailers. Manufacturing is another sad story. 
For now the inventory report paints a promising picture in wholesaling and retailing but continues to paint a bleak one in manufacturing where PMI surveys and orders data also show that other troubles lurk.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Table 1. Inventory-to-Sales Ratios In Perspective
Over three Years
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007 February</td>
<td>Current</td>
<td>3-Mo Ago</td>
<td>6-Mo Ago</td>
<td>Year Ago</td>
<td>2 Years Ago</td>
<td>3 Years Ago</td>
<td>%-tile</td>
<td>Max</td>
<td>Min</td>
</tr>
<tr>
<td class="firstcol">Total Business</td>
<td>1.29</td>
<td>1.29</td>
<td>1.26</td>
<td>1.25</td>
<td>1.30</td>
<td>1.31</td>
<td>71.4%</td>
<td>1.31</td>
<td>1.24</td>
</tr>
<tr>
<td class="firstcol">Manufacturers</td>
<td>1.25</td>
<td>1.23</td>
<td>1.17</td>
<td>1.16</td>
<td>1.21</td>
<td>1.22</td>
<td>100.0%</td>
<td>1.25</td>
<td>1.15</td>
</tr>
<tr>
<td class="firstcol">Retailers</td>
<td>1.48</td>
<td>1.50</td>
<td>1.50</td>
<td>1.48</td>
<td>1.55</td>
<td>1.55</td>
<td>20.0%</td>
<td>1.6</td>
<td>1.45</td>
</tr>
<tr>
<td class="firstcol">Wholesalers</td>
<td>1.15</td>
<td>1.16</td>
<td>1.13</td>
<td>1.14</td>
<td>1.17</td>
<td>1.17</td>
<td>50.0%</td>
<td>1.18</td>
<td>1.12</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Table 2. Inventory and Sales Paired Growth Rates by Major Divisions
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007 February</td>
<td colspan="2">3-Mo Growth</td>
<td colspan="2">6-Mo Growth</td>
<td colspan="2">12-Mo Growth</td>
<td colspan="2">Year Ago Growth</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
</tr>
<tr>
<td class="firstcol">Total Business</td>
<td>3.3%</td>
<td>2.3%</td>
<td>-2.3%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>5.9%</td>
<td>7.9%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Manufacturers</td>
<td>-3.5%</td>
<td>1.0%</td>
<td>-9.4%</td>
<td>2.8%</td>
<td>-1.0%</td>
<td>6.4%</td>
<td>6.6%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Retailers</td>
<td>7.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>0.0%</td>
<td>3.4%</td>
<td>3.5%</td>
<td>7.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Wholesalers</td>
<td>8.0%</td>
<td>3.4%</td>
<td>1.6%</td>
<td>5.7%</td>
<td>7.1%</td>
<td>8.3%</td>
<td>10.2%</td>
<td>6.8%</td>
</tr>
</tbody>
</table>
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For business overall, the Inventory/Sales ratio (I/S ratio) has roughly stabilized above its recent low and slightly off peak. This has been achieved by reductions in the pace of sales and in the pace of inventory accumulation. The [...]

U.S. Inventory Growth Stays Low as Sales Pick Up -- But Not Everywhere

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416a.jpg" width="353">
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, showed an increase of 0.7 percent from the previous month. It is also up 3.8 percent from March 2006. Total sales for the January through March 2007 period were up 3.2 percent from the same period a year ago. The January 2007 to February 2007 percent change was revised from 0.1 percent to 0.5 percent. As result, spending in the first quarter is looking more solid. 
Bolstered by Easter shopping, retail trade sales alone were up 0.6 percent from February 2007 and were 3.6 percent above last year. Clothing and clothing accessories stores were up 8.0 percent from March 2006 and sales of general merchandise stores were up by a solid 5.8 percent from last year. 
The table below tells the story&#133;. Service station sales we up strongly based on the sharp rise in gasoline prices in the month (+3.1% and +13.9% SAARr over three months). The strength in the spring clothing sales are apparent in clothing and general merchandise selling strength in March. Of the main retail categories, only nonstore shopping (catalogue, mail order and internet) was negative. 
Good weather may have helped to boost building materials spending but spending on furniture and electronics, another category that is solely linked to home sales (that have been weak), continued to stagger in the month. 
In quarterly terms, retail sales are up at a nominal pace of 5.7%. Excluding motor vehicles and gasoline sales, the quarterly rise drops to a pace of 4.6%, but that is quite a respectable gain with oil taken out of the equation. Still, the core CPI is rising at a 3% pace over the first two months of the year. There is some considerable inflation gnawing away at these gains reducing the impact in real terms. But for total consumer spending we have to factor in services spending that has been pretty firm. Consumer spending probably made a real gain in Q1 of between 2% and 2.5% and could be closer to the top of that range. 
Meanwhile some hopeful trends are in place. Building materials trend is showing some gains and overall sales trends have stabilized. The two weakest broad retail categories are medical care expenditures where the three month growth rate is down to 1.9% and nonstore retailers where the three month sales change is negative. Also, eating and drinking places expenditures is a discretionary type of spending where sales have contracted by 2.8% over the most recent three months. 
We are left with a good monthly report and stabilized trends. However, the report remains a patchwork of mixed trends with sectors still in a state of flux. In the April report we will see how much the shift in Easter affected sales (despite seasonal adjustments that try to account for this shift). 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Retail Sales Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual Rate</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Aggregates</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Retail &amp; Food Service</td>
<td>0.7%</td>
<td>4.7%</td>
<td>5.4%</td>
<td>3.8%</td>
<td>7.6%</td>
</tr>
<tr>
<td class="firstcol">Retail excl Motor Vehicles &amp; Parts</td>
<td>0.8%</td>
<td>5.5%</td>
<td>5.6%</td>
<td>3.9%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol">Retail excl Motor Vehicles &amp; Parts &amp; Gas</td>
<td>0.4%</td>
<td>3.7%</td>
<td>4.5%</td>
<td>3.8%</td>
<td>9.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Durables</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Totals</td>
<td>0.5%</td>
<td>2.2%</td>
<td>3.7%</td>
<td>1.2%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">Building Materials</td>
<td>1.4%</td>
<td>6.3%</td>
<td>3.0%</td>
<td>-4.4%</td>
<td>17.8%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; Parts</td>
<td>0.4%</td>
<td>1.8%</td>
<td>4.6%</td>
<td>3.2%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles Dealers</td>
<td>0.3%</td>
<td>1.6%</td>
<td>5.0%</td>
<td>3.4%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Furniture, electronics</td>
<td>-0.6%</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>2.4%</td>
<td>8.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Non durables</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Totals</td>
<td>0.8%</td>
<td>6.0%</td>
<td>6.2%</td>
<td>5.2%</td>
<td>8.1%</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Beverages</td>
<td>0.2%</td>
<td>4.7%</td>
<td>7.5%</td>
<td>5.7%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Health</td>
<td>0.1%</td>
<td>1.9%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Gasoline</td>
<td>3.1%</td>
<td>19.9%</td>
<td>14.1%</td>
<td>5.2%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>2.4%</td>
<td>13.9%</td>
<td>5.0%</td>
<td>8.0%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">Sport Goods</td>
<td>1.1%</td>
<td>8.9%</td>
<td>-0.6%</td>
<td>-1.0%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">General Merchandise</td>
<td>1.1%</td>
<td>6.2%</td>
<td>5.6%</td>
<td>5.8%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Nonstore Retailers</td>
<td>-3.3%</td>
<td>7.9%</td>
<td>4.3%</td>
<td>4.4%</td>
<td>15.2%</td>
</tr>
<tr>
<td class="firstcol">Miscellaneous Retail</td>
<td>0.6%</td>
<td>1.9%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Non Durables excl Gas</td>
<td>0.4%</td>
<td>3.9%</td>
<td>5.0%</td>
<td>5.2%</td>
<td>7.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Food Service &amp; Drinking</td>
<td>1.2%</td>
<td>-2.8%</td>
<td>4.8%</td>
<td>5.3%</td>
<td>9.6%</td>
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The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, showed an increase of [...]

U.S. Retail Sales Show Unexpected True Strength for March and in Q1

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/070413d.jpg" width="353">
The University of Michigan&#39;s consumer sentiment index has lost 11.6 points through mid-April to 85.3 from its January peak of 96.9 (Q1 1966 = 100). The reading of current conditions stands at 102.4, down from 111.3 in January, while expectations are at 74.3 from January&#39;s 87.6. These declines have come in roughly equal installments in February, March and early April.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413e.jpg" width="353">
Consumers&#39; reading of personal finances has fallen to 112 in early April from 123 in January, but is actually up from 111 in March. A few more people have rising incomes and a few less have lower incomes, both helping this component. But a growing number of respondents are saying their purchasing power is suffering from higher prices, even though their income position looks better. Survey participants see buying conditions deteriorate for &quot;large household goods&quot;; even among those who say this is a &quot;good time to buy&quot; a rising number give the reason that prices will go up, so buy now before that happens.
The fall in the expectations component results from concern over general business conditions. Fewer people look for &quot;good times&quot; and more people look for &quot;bad times&quot;. However, they remained generally positive about their own personal finances: those looking to be &quot;better off&quot; did edge down by 1 percentage point from January but those expecting to be &quot;worse off&quot; fell by 2 points.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413f.jpg" width="353">
Inflation and unemployment expectations both contributed to the deterioration in sentiment. Median inflation expectations rose to 3.3% from 3% in January, February and March; the mean is 4.1%. Both figures are the highs since the high energy price period last summer. The unemployment outlook worsened as the smallest number of people since the 2001 recession expect &quot;less unemployment&quot; while the number expecting &quot;more unemployment&quot; returned to 40%, a kind of threshold of concern that has recently coincided with high energy price periods and was last breached in August.
The University of Michigan survey is not seasonally adjusted.This mid-month survey was based on telephone interviews with about 304 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month-end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">April (Prelim)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<td class="firstcol">Consumer Sentiment</td>
<td>85.3</td>
<td>88.4</td>
<td>91.3</td>
<td>-2.4%</td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
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<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>102.4</td>
<td>103.5</td>
<td>106.7</td>
<td>-6.2%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
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<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.3</td>
<td>78.7</td>
<td>81.5</td>
<td>+1.2%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
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The University of Michigan's consumer sentiment index has lost 11.6 points through mid-April to 85.3 from its January peak of 96.9 (Q1 1966 = 100). The reading of current conditions stands at 102.4, down from 111.3 in January, while [...]

Michigan Consumer Sentiment Sags as Inflation Concern Rises

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<th scope="col" class="firstcol">The flows in the table below are the detail behind the trade headlines. In February the US trade deficit shrank by a small amount to -$58.44 billion from -$58.88 billion in January. If we look at the inflation adjusted flows for the quarter to date versus Q4 2006 there is a slight deterioration implying some subtraction from GDP due to trade flows in Q1 2007.</th>
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US Merchandise Real End-Use Trade Flows
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<tbody>
<tr class="even">
<td class="firstcol">Category</td>
<td>Current</td>
<td>Previous</td>
<td colspan="3">$SA % SAAR</td>
<td>MEMO:</td>
</tr>
<tr class="odd">
<td class="firstcol">Feb.07</td>
<td>MO %</td>
<td>MO %</td>
<td>3-MO</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Yr/Yr</td>
</tr>
<tr>
<td class="firstcol">Real Exports</td>
<td>-3.7%</td>
<td>1.7%</td>
<td>-9.7%</td>
<td>-0.7%</td>
<td>5.3%</td>
<td>10.3%</td>
</tr>
<tr>
<td class="firstcol">Food, Feed, &amp; Beverages</td>
<td>-2.5%</td>
<td>5.2%</td>
<td>24.7%</td>
<td>-12.4%</td>
<td>7.3%</td>
<td>-0.2%</td>
</tr>
<tr>
<td class="firstcol">Industrial&nbsp; Materials</td>
<td>-4.0%</td>
<td>1.8%</td>
<td>-16.4%</td>
<td>-0.7%</td>
<td>5.4%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-5.7%</td>
<td>3.2%</td>
<td>-13.4%</td>
<td>-0.2%</td>
<td>3.1%</td>
<td>18.5%</td>
</tr>
<tr>
<td class="firstcol">Autos &amp; Parts</td>
<td>3.6%</td>
<td>-6.8%</td>
<td>8.4%</td>
<td>-5.1%</td>
<td>2.3%</td>
<td>13.6%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-2.8%</td>
<td>3.7%</td>
<td>7.3%</td>
<td>7.2%</td>
<td>10.6%</td>
<td>7.6%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>-3.6%</td>
<td>-3.5%</td>
<td>-46.5%</td>
<td>-0.4%</td>
<td>14.9%</td>
<td>15.5%</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>
</tr>
<tr>
<td class="firstcol">Real Imports</td>
<td>-1.9%</td>
<td>0.3%</td>
<td>0.5%</td>
<td>-3.8%</td>
<td>2.6%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Food, Feeds, &amp; Beverages</td>
<td>0.5%</td>
<td>0.9%</td>
<td>6.9%</td>
<td>-0.4%</td>
<td>4.1%</td>
<td>5.8%</td>
</tr>
<tr>
<td class="firstcol">Industrial Materials</td>
<td>-7.7%</td>
<td>3.6%</td>
<td>-4.9%</td>
<td>-17.5%</td>
<td>-9.3%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.9%</td>
<td>5.5%</td>
<td>6.8%</td>
<td>0.4%</td>
<td>11.4%</td>
<td>10.3%</td>
</tr>
<tr>
<td class="firstcol">Autos &amp; Parts</td>
<td>-0.4%</td>
<td>-7.2%</td>
<td>-2.9%</td>
<td>-3.9%</td>
<td>-1.7%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>2.8%</td>
<td>-3.4%</td>
<td>1.8%</td>
<td>10.5%</td>
<td>13.5%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>0.2%</td>
<td>-2.6%</td>
<td>-3.8%</td>
<td>4.4%</td>
<td>5.8%</td>
<td>5.2%</td>
</tr>
</tbody>
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<td>The table above is a table of inflation adjusted merchandise trade for the end use commodity designations used to categorize trade flows. They show some slight deterioration in the quarter-to-date trade balance. But the real story in this report is export and import weakness. These flows are all inflation-adjusted so oil has a minimal impact even on industrial materials, the category that contains it. For the month we can see all export categories decline. The table also tells a tale of weak export trends. Export trends weaken overall and are outright negative in three of four categories in February. But broader export trends weaken too, and this is even more disturbing. Overall real export growth rates drop from 10.3% a year ago, to 5.3% Yr/Yr as of February 2007. Then they drop to -0.7% over six months and to -9.7% over the most recent three months (all expressed as annual rates of change). This pronounced slowdown in exports is disturbing. For imports the slowing is not as dramatic but still is clear: from a 4% pace a year ago to a Yr/Yr pace of 2.6% currently. Then the pace drops off to -3.8% over six months slightly rebounds to an anemic +0.5% over three months (all expressed at annual rates). <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413a.jpg" width="353"> Meanwhile, over a fairly long period, the dollar has been falling. Weak US exports cannot be blamed on poor US competitiveness; US competitiveness has been improving. US export weakness suggests instead that growth overseas is weaker than what the IMF is saying in its recent WEO (World Economic Outlook). The weakness in export trends is quite apparent and does not seem to be the result of a normal statistical variation. The slowing seems real and economic instead of false and statistical in nature. For imports the slowing is more gradual and authentically fits in with the slowdown in the US economy, it may be this slowing that has transmitted weakness abroad and come back to haunt the US in the form of slower US exports abroad.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413b.jpg" width="353">One thing about the world economy, for all its growth few regions have really developed much true domestic demand. US growth has been the lynchpin of world growth and as it has faded no other source of indigenous demand has cropped up. Japan has faltered, recent Germany&#146;s weakness is exaggerated by its VAT introduction. Still Germany does not show that much strength except from external orders and exports.There is no pick up in local demand of any significant degree. &nbsp;While everyone remains upbeat on Europe it has yet to show it can prosper without export-led growth. The strong euro may already be putting it to a test too strong for it to pass. Is that the message in weak US exports?</td>
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Key Trends In Producer Prices
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<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td> Mar-07</td>
<td colspan="4">PPI Trends By Type Of Good</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td> 1-Mo (M/M)</td>
<td> 3-Mo, AR</td>
<td> 6-Mo, AR</td>
<td> 1-Yr</td>
<td> Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Total PPI</td>
<td> 1.0%</td>
<td> 6.9%</td>
<td> 5.2%</td>
<td> 3.1%</td>
<td> 3.6%</td>
</tr>
<tr>
<td class="firstcol"> Finished Consumer Gds</td>
<td>1.4%</td>
<td>8.6%</td>
<td>6.1%</td>
<td>3.5%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Foods</td>
<td>1.4%</td>
<td>18.7%</td>
<td>10.9%</td>
<td>7.9%</td>
<td> -1.2%</td>
</tr>
<tr>
<td class="firstcol">Finished Consumer Goods Excl Foods</td>
<td>1.3%</td>
<td>5.1%</td>
<td>4.3%</td>
<td>1.9%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">Nondurables less Food</td>
<td>1.9%</td>
<td>7.7%</td>
<td>5.7%</td>
<td>2.5%</td>
<td>9.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer Nondur ex Food &amp; Energy</td>
<td>0.4%</td>
<td>5.9%</td>
<td>3.5%</td>
<td>2.3%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Durable Goods</td>
<td> -0.3%</td>
<td> -0.9%</td>
<td>1.0%</td>
<td>0.6%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">Finished Core Consumer Goods</td>
<td> 0.1%</td>
<td> 3.1%</td>
<td> 2.4%</td>
<td> 1.5%</td>
<td> 1.9%</td>
</tr>
<tr>
<td class="firstcol"> Capital Goods</td>
<td> -0.1%</td>
<td>1.9%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Manufacturing Industries</td>
<td>0.0%</td>
<td>2.7%</td>
<td>2.5%</td>
<td>2.8%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Nonmanufacturing Industries</td>
<td> -0.1%</td>
<td>1.4%</td>
<td>2.2%</td>
<td>1.6%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol"> Core PPI</td>
<td>0.0%</td>
<td>2.3%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Memo: Finished Energy</td>
<td>3.6%</td>
<td>9.4%</td>
<td>8.0%</td>
<td>2.8%</td>
<td>15.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td>The PPI has two headlines each month. One for the overall PPI, and one for the core. The core is the measure that excludes food and energy and that markets follow most closely. This month neither headline gives a true picture of what is going on in the PPI itself. As good as it gets&#133; Inflation is neither as strong as the 1% headline on the PPI nor as docile as the 0% rise in the core. Not surprisingly, the truth lies in between. Core inflation is the measure we prefer and the Fed prefers. But the indicators that the Fed prefers to apply the core definition to are broader than the PPI: they are the PCE deflator or the CPI index. These measures include the services sector that the PPI leaves out. That sector has been much more inflation prone than the core goods sector that we can expose for examination in the PPI. So when you look at the core PPI you are usually seeing inflation as good as it gets.About that CPI signal&#133; The table above gives us several readings on the PPI. The headline&#145;s main trend statistics are presented in the top line of the table; the PPI core is in the line that is second from the bottom. But the line that is more useful to us in the middle, entitled &quot;finished core consumer goods&quot;. This is the part of the PPI that fits directly into the core CPI number that the Fed does care about. Notice that the core for the CPI at the producer level shows a rise of 0.1%. It is stronger than the PPI&#146;s overall core because it excludes capital goods where prices fell in the month.And the CPI trends? Don&#146;t ask&#133;. Even more troubling than this minor one-tick change for the core as it applies to consumer goods is the adverse trend for this CPI Core series at the producer level. Finished core consumer goods at the producer level (FCCPPI) show steadily accelerating inflation. This is despite the small 0.1% up tick in March. &nbsp;Inflation has stepped up from 1.5% over 12-months to 2.4% over six months to 3.1% over three months (all SAAR). This progression is disturbing. Within the FCCPPI we find conflicting trends. Nondurable goods excluding energy and food are up by 0.4% in March and have their own -- much higher -- inflation progression in train (see table). But durable goods are tempered. Indeed, durable goods prices fell in March and they are showing a mixed tendency to decelerate over the course of the past year (see table). </td>
<td><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413c.jpg" width="353">The chart on the left looks at these trends using only the Yr/Yr tabulations Even so we can see that consumer durable goods inflation trends are turning lower. The upturn in nondurable core trends is also apparent as it turns higher. Capital goods trends are shown to hover at an inflation pace of about 2%. The core PPI, torn between these various trends, is in a slight downtrend itself.What&#146;s the point of a sullied point estimate? If I can make an obvious point here it is that with such disparate trends within the core PPI, it is obvious that the core is not very representative of its components. You can average (or weight-average) anything. But that does not make the resulting measure useful. We assert that the core inflation measure from the PPI is simply not useful in these circumstances. While we do need some assessment on the overall price level to tell what it is doing, (the Fed surely does) it should be clear that with important components moving in different directions final judgment depends on the weight applied to each. And since weighting is a controversial issue we would urge a great deal of caution in dealing with the trends core measures produce when components are flying every which way.&nbsp; If you peruse the chart on the left on component PPI Core trends you can see that this sort of trend convolution is not the norm. While the various core components often have differing rates of inflation, the direction is usually about the same even if the speed is not. Developments in PPI core inflation in early 2007 are odd indeed. On balance, the PPI is a report that can please no one. Inflation is still in a sort of twilight zone: too high to be comfortable but with yet enough moderation for the Fed to play along with it for a while &#150; if it so chooses. And there are plenty of convoluted &#150; or at least contrary - trends to choose from within the PPI core. What is most disturbing however is the knowledge that inflation in services tends to be stronger. That seems to imply that an uncomfortable CPI still lies ahead. The core goods portion of inflation has been the best behaved part of the CPI for some time.&nbsp; Inflation is now most troublesome in the services sector. As we move on to measures that include that sector next week with a goods sector inflation rate in hand that is itself a bit uncomfortable, disappointment seems to be the most likely result. Be prepared&#133;</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413d.jpg" width="353">
The University of Michigan&#39;s consumer sentiment index has lost 11.6 points through mid-April to 85.3 from its January peak of 96.9 (Q1 1966 = 100). The reading of current conditions stands at 102.4, down from 111.3 in January, while expectations are at 74.3 from January&#39;s 87.6. These declines have come in roughly equal installments in February, March and early April.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413e.jpg" width="353">
Consumers&#39; reading of personal finances has fallen to 112 in early April from 123 in January, but is actually up from 111 in March. A few more people have rising incomes and a few less have lower incomes, both helping this component. But a growing number of respondents are saying their purchasing power is suffering from higher prices, even though their income position looks better. Survey participants see buying conditions deteriorate for &quot;large household goods&quot;; even among those who say this is a &quot;good time to buy&quot; a rising number give the reason that prices will go up, so buy now before that happens.
The fall in the expectations component results from concern over general business conditions. Fewer people look for &quot;good times&quot; and more people look for &quot;bad times&quot;. However, they remained generally positive about their own personal finances: those looking to be &quot;better off&quot; did edge down by 1 percentage point from January but those expecting to be &quot;worse off&quot; fell by 2 points.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413f.jpg" width="353">
Inflation and unemployment expectations both contributed to the deterioration in sentiment. Median inflation expectations rose to 3.3% from 3% in January, February and March; the mean is 4.1%. Both figures are the highs since the high energy price period last summer. The unemployment outlook worsened as the smallest number of people since the 2001 recession expect &quot;less unemployment&quot; while the number expecting &quot;more unemployment&quot; returned to 40%, a kind of threshold of concern that has recently coincided with high energy price periods and was last breached in August.
The University of Michigan survey is not seasonally adjusted.This mid-month survey was based on telephone interviews with about 304 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month-end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">April (Prelim)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<td class="firstcol">Consumer Sentiment</td>
<td>85.3</td>
<td>88.4</td>
<td>91.3</td>
<td>-2.4%</td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
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<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>102.4</td>
<td>103.5</td>
<td>106.7</td>
<td>-6.2%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.3</td>
<td>78.7</td>
<td>81.5</td>
<td>+1.2%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
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U.S. Trade Trends Fit of a Friday the 13th

UK trade data came out today for February, with the goods balance, -£6.8 billion, somewhat larger than the -£6.5 billion expected in at least two forecast surveys. Exports eased very slightly to -£18.4 billion from -£18.5 billion in [...]

U.S. Export and Import Prices: No Excitement but Uneven Trends

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070411h.jpg" width="353">
The U.S. federal government ran a deficit of $96.3B during March, well ahead of last March&#39;s $85.3B and also larger than consensus forecasts of $89B.
This performance brought the fiscal-year-to-date deficit to $258.4B, down from $302.9B through March last year.
Summary data for the monthly budget, reported in the Monthly Treasury Statement, are available Haver&#39;s USECON database. Details are carried in the GOVFIN database.
The excess of the monthly deficit over the forecast amount may result from the acceleration into March of April payments for veterans&#39; benefits, supplemental security income and some Medicare outlays; these are ordinarily paid on the first day of each month, but are moved forward when the First falls on a weekend. April outlays will be commensurately reduced. Additionally, individual income tax refunds reached a record for a single month, $55.5B. The previous records were $52.4B in April 2004 and $52.2B in March last year. This is possibly due to earlier filing by taxpayers, and April and May refunds could turn out to be somewhat smaller.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070411g.jpg" width="353">
In total, net revenues were $166.5B in March, up just 1.2% from March 2006; for the fiscal-year-to-date, they were 8.0% above the comparable period of fiscal 2006. Individual income tax receipts were $35.4B in March, down 9.8% from March 2006, but fiscal 2007-to-date saw $479.2B, up 10.8%. Corporate income taxes were $40.2B, a record for March and up 11.8% from a year ago. Social insurance taxes were $76.5B in the month, up 6.2% from a year ago.
The U.S. Government&#39;s net outlays grew 5.2% from March 2006, reaching $262.8B, with the cumulative total for the first six fiscal months up 2.9%. Defense outlays were $52.0B in the month, up 2.4% on the year earlier. Social security outlays (benefits and administrative costs) were $48.9B, up 5.9%. Net interest turned somewhat higher, reaching $21.1B, up 8.8% on March a year ago, while smaller amounts in previous months put the total for the fiscal year so far up only 2.5%.
This report gives an inconclusive read on the state of the budget, since key tax payments are going on this month and the timing of other tax filing seems to be changing from year to year. Major outlay patterns are also erratic from month to month. Nonetheless, overall, revenues are continuing to grow faster than outlays and the budget deficit is continuing to diminish.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US Government Budget</a>, Bil.$</th>
<th scope="col">Mar 2007</th>
<th scope="col">Feb 2007</th>
<th scope="col">Oct 2006 &nbsp;Mar 2007</th>
<th scope="col">Oct 2005 &nbsp;Mar 2006</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-96.3</td>
<td>-120.0</td>
<td>-258.4</td>
<td>-302.9</td>
<td>-248.2</td>
<td>-318.7</td>
<td>-411.1</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>166.5</td>
<td>120.3</td>
<td>1120.9</td>
<td>1037.6</td>
<td>11.8%</td>
<td>14.6%</td>
<td>5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">8.0%</td>
<td>10.5%</td>
</tr>
<tr>
<td class="firstcol">Net Outlays</td>
<td>262.8</td>
<td>240.3</td>
<td>1379.3</td>
<td>1340.6</td>
<td>7.4%</td>
<td>7.9%</td>
<td>6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">2.9%</td>
<td>8.7%</td>
</tr>
</tbody>
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The U.S. federal government ran a deficit of $96.3B during March, well ahead of last March's $85.3B and also larger than consensus forecasts of $89B. This performance brought the fiscal-year-to-date deficit to $258.4B, down from [...]

March/April Calendar Quirk, Big Refunds Raise March Budget Deficit. Year-to-Date Down $45 Billion

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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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.

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Asia

Economic Letter from Asia: Not Just About the Strait

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**The Distributive Trades Survey**

The U.K. Distributive Trades Survey for April 2026 and the look-ahead expectation readings for May paint an extremely soured outlook for the U.K. economy.

**Retail ranking**: Surveys for retail sales compared to a year ago, orders compared to a year ago, and sales evaluated for the time of year all have rankings near zero, which is the worst result on this timeline. This zero distinction applies to retail sales compared to a year ago. The best ranking is 11.6%; that is for sales evaluated for the time of year. Orders compared to a year ago have a 4.2 percentile standing. The stock-to-sales ratio—which is a completely different concept—shows that the inventory-to-sales ratio has a 29.9 percentile standing.

**Retail diffusion**: The raw April diffusion readings (up minus down diffusion) show that sales compared to a year ago slipped to a reading of -68 in April from -52 in March. Orders fell to -46 in April from -26 in March. Sales evaluated for the time of year fell to -32 April from -23 in March. All three measures weakened, and all three weakened decisively, resulting in extremely weak rankings. All of the rankings are executed on data back to 2002.

**Expectations for retailing**: The expectations readings for May show slippage again across all three metrics: expected sales compared to a year ago, expected orders compared to a year ago, and expected sales for the time of year. Expected sales compared to a year ago fell to -60 in May from -49 in April. Orders compared to a year ago declined to -45 in May from -30 in April, and sales for the time of year slipped to -43 from -19. In May, these readings have rankings in a 0.4 percentile standing for sales compared to a year ago, a 1.8 percentile standing for sales evaluated relative to the time of year, and a 4.6 percentile standing for orders compared to a year ago. These two panels on current and expected retail sales volumes are just simply terrible: weak monthly, weak in ranking terms, and showing slipping momentum.

The distributor trade series also provides data on the wholesale sector. While the wholesale sector is not quite as beat up as the retail sector, it's still extremely weak. There is no cause for any kind of hope that things are getting better based on wholesaling trends.

**Wholesaling**: The wholesale survey for sales compared to a year ago edged lower to -32 in April from -31 in March. Orders compared to a year ago remained at a reading of -41 in April. Sales evaluated for the time of year improved to a reading of -20 in April from -39 in March—a significant step up, but still very weak. The percentile standings for these three categories show sales compared to a year ago at the 8.8 percentile, orders compared to a year ago at the 5.6 percentile, and sales evaluated for the time of year at the 14.8 percentile.

**Wholesale Expectations**: The look-ahead observations, which provide expectations for wholesaling in May, show a similar constellation of readings, with sales compared to a year ago falling to -37 in May from -27 in April and orders compared to a year ago falling to -42 from -38, while sales evaluated for the time of year improved to  16 from  37. That category for wholesale sales improved both in April in real time and in May for expectations; however, it continues to have a very weak percentile standing, at the 17.9 percentile in May, while sales for a year ago have a 6.7 percentile standing and orders for a year ago have a 6.0 percentile standing.

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While some of the global PMI data have improved, these survey data for the U.K. are particularly dour. The war in Ukraine drags on, and there's a new conflict in Iran that has shut the Strait of Hormuz, creating energy problems for much of Europe. More broadly, supply chains have been harmed. In addition, the U.K. is undergoing a bout of political instability, as its Prime Minister is under pressure and a good deal of political uncertainty is being worsened by deteriorating economic performance.

Both the U.K. and the European Monetary Union had been showing some progress on inflation until the Iran war hit. Now, as the oil prices are up so sharply, headline inflation is going to be worse everywhere and there will probably be a bit more attention directed to the core inflation rate. However, the U.K. has had inflation too hot for a while, and it has failed to settle down. At its last meeting, the Bank of England’s Monetary Policy Committee warned that if the war was still ongoing at the next meeting, there would be a risk of a rate hike. So, it would seem that a rate hike is going to be in play unless the economy falls off a cliff first, which, based on the distributive trades data, is also something that could happen. The U.K. economy appears to be on very unsound footing, and what happens next is just about anybody's guess.

Economy in Brief

Jump to:

Euro Area Inflation Shows a Prickly Side in March

U.S. Inventory Growth Stays Low as Sales Pick Up -- But Not Everywhere

U.S. Retail Sales Show Unexpected True Strength for March and in Q1

U.S. Retail Sales Show Unexpected True Strength for March and in Q1

Michigan Consumer Sentiment Sags as Inflation Concern Rises

U.S. Trade Trends Fit of a Friday the 13th

U.S. Export and Import Prices: No Excitement but Uneven Trends

March/April Calendar Quirk, Big Refunds Raise March Budget Deficit. Year-to-Date Down $45 Billion