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/060316e.jpg" width="353">
Yesterday here, we talked about the persistent sluggishness of employment in the UK. A few weeks ago, we had a similar discussion about Germany. While these two large European economies are seeing their labor markets struggle, those of some other countries are doing comparatively better.
Even in France, where riots in early November highlighted the plight of one specific segment of the labor force, employment is actually rising. The increase is not large, but in Q4, there were 20,500 new jobs in manufacturing and services industries, bringing their total to 15.489 million, a new high. As in many Western countries, the gains are all in the service sector and for France, especially in consulting and other business services. Unemployment in France has also continued to decrease, with the 9.6% rate in December and January the lowest since January 2003. The sensitive youth age range, under 25, saw an uptick in January to 22.2%, but this remains below the high last May of 22.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316f.jpg" width="353">
In the Netherlands, as seen in the graph, employment fell sharply in 2003, much more so than in France, but it bounced back, particularly over the past six months. While not reaching a new peak, Dutch employment has regained more than half of its 184,000 drop between February 2003 and February 2005. Unemployment in the Netherlands is falling, with the rate down to 6.1% in January from a peak of 6.7% in February 2005. By age group, progress here is actually most noticeable in the younger segments. Unemployment for those under 25 was 12.1%, compared to 13.4% early in 2005 and as high as 14.5% in late 2004. Adult workers under 45 face only 5.6% unemployment, down slightly over the past year. Older workers, ages 45-64, also have unemployment rates in the mid-5% range, but they have remained stubbornly at that level all through the past 15 months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316g.jpg" width="353">
In one of the smaller European nations, Slovenia, jobs have increased modestly over the last year. In January, employment was 816,600, up from an average of 813,100 for all of last year and 809,700 for January a year ago. Unemployment increased slightly this January, but it has undergone a secular decline throughout almost the entirety of Slovenia&#39;s period of independence, carrying the rate down to just over 10% from 15% in late 1992. [Note that the data collection method changed at the beginning of 2005, accounting for the sudden jump in employment then. The labor force increased by a commensurate amount so the unemployment rate was not affected.]
Thus, labor markets can behave differently even in neighboring regions and among differing demographic groups within the same region. And as we see here, big economies don&#39;t necessarily have advantages over small ones in the ability to provide job opportunities for everyone. 

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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col"></th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France:&nbsp; &nbsp; Mfg &amp; Services Employees (Mil.)</td>
<td>--</td>
<td>15.49</td>
<td>15.47</td>
<td>15.44</td>
<td>15.47</td>
<td>15.42</td>
<td>15.43</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>--</td>
<td>5.13</td>
<td>5.14</td>
<td>5.18</td>
<td>5.15</td>
<td>5.20</td>
<td>5.28</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>--</td>
<td>10.35</td>
<td>10.33</td>
<td>10.26</td>
<td>10.32</td>
<td>10.22</td>
<td>10.15</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jan 2006</td>
<td>Dec 2005</td>
<td>--</td>
<td>Year Ago</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>9.6</td>
<td>9.6</td>
<td>--</td>
<td>10.1</td>
<td>9.9</td>
<td>10.0</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands: Total Employment*</td>
<td>6.99</td>
<td>6.97</td>
<td>--</td>
<td>6.90</td>
<td>6.91</td>
<td>6.92</td>
<td>7.00</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.1</td>
<td>6.2</td>
<td>--</td>
<td>6.7</td>
<td>6.5</td>
<td>6.5</td>
<td>5.4</td>
</tr>
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<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Slovenia: Employment (Thous.)</td>
<td>816.6</td>
<td>816.2</td>
<td>--</td>
<td>809.7</td>
<td>813.1</td>
<td>782.2</td>
<td>777.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>10.2</td>
<td>10.3</td>
<td>--</td>
<td>10.1</td>
<td>10.1</td>
<td>10.6</td>
<td>11.2</td>
</tr>
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Yesterday here, we talked about the persistent sluggishness of employment in the UK. A few weeks ago, we had a similar discussion about Germany. While these two large European economies are seeing their labor markets struggle, those [...]

France, Netherlands & Slovenia See Better Labor Market Conditions in Late 2005 and Early 2006

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316h.jpg" width="353">
The March Philadelphia Fed Index of General Business Conditions in the manufacturing sector gave back 3.1 points of the 12.1 point improvement last month. The decline to 12.3 compared to Consensus expectations for a lesser decline to 14.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
Declines in the sub indexes were broad based although new orders rose sharply to the highest level since October 2004 and shipments rose moderately. Unfilled orders fell sharply as did delivery times. The index covering the number of employees halved and fell to 5.4. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months halved and fell to 14.6. Expectations for employment also moved moderately lower.
The prices paid index fell sharply though the index of future prices fell only moderately. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0306.html">here</a>.
Global Imbalances or Bad Accounting? The Missing Dark Matter in the Wealth of Nations, analysis from the NBER and the Harvard University - John F. Kennedy School of Government is available <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=878096"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
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<td class="firstcol">General Activity Index</td>
<td>12.3</td>
<td>15.4</td>
<td>14.2</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>17.2</td>
<td>30.5</td>
<td>28.6</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
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The March Philadelphia Fed Index of General Business Conditions in the manufacturing sector gave back 3.1 points of the 12.1 point improvement last month. The decline to 12.3 compared to Consensus expectations for a lesser decline to [...]

Philadelphia Fed Business Activity Index Off

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316d.jpg" width="353">
Initial claims for unemployment insurance rose for the third consecutive week. Last week&#39;s gain of 5,000 to 309,000 followed a little revised 9,000 increase the prior period and it was to the highest level this year. Consensus expectations had been for 300,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims increased to 296,500 (-8.0% y/y), its highest level since mid-January.
Continuing unemployment insurance claims fell 49,000 to 2.445M, a five year low, and reversed all of a downwardly revised 17,000 gain the prior week.
The insured rate of unemployment was stable at 1.9% for the fifth week.
The Trend Growth Rate of Employment: Past, Present and Future from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/1q06clar.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">03/11/06</th>
<th scope="col">03/04/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>309</td>
<td>304</td>
<td>-6.1%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,445</td>
<td>-7.6%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
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Initial claims for unemployment insurance rose for the third consecutive week. Last week's gain of 5,000 to 309,000 followed a little revised 9,000 increase the prior period and it was to the highest level this year. Consensus [...]

Initial Claims for Jobless Insurance Higher Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316b.jpg" width="353">
Housing starts during February reversed roughly half of the prior month&#39;s upwardly revised rise and fell 7.9% m/m to 2.120M units. More normal Winter temperatures returned last month after the record warmth of January. Consensus expectations had been for a sharper decline to 2.03M starts.
The reason for the relatively moderate decline last month was that single-family starts fell just 2.3% to 1.800M from the record high in January. The two month average of 1.822M starts was still a record height. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316c.jpg" width="353">
A 30.4% m/m decline in multi family starts more than reversed the January surge.
Building permits also fell moderately reversing about half of February&#39;s unrevised gain with a 3.2% decline. Single family permits, however, fell hard. A 3.0% (+0.9% y/y) decline dropped single family permits to the lowest level since last May.
Single family housing starts in the Northeast fell 20.1% (-12.9% y/y) and in the Midwest starts dropped 9.2% (-15.9% y/y). Single family starts in the South fell 3.6% (+6.0% y/y) but out West starts recovered 13.3% (3.8% y/y).

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<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
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<td class="firstcol">Total</td>
<td>2,120</td>
<td>2,303</td>
<td>-4.8%</td>
<td>2,072</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,800</td>
<td>1,843</td>
<td>-0.4%</td>
<td>1,716</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>320</td>
<td>460</td>
<td>-23.8%</td>
<td>355</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,145</td>
<td>2,216</td>
<td>2.5%</td>
<td>2,122</td>
<td>2,058</td>
<td>1,8 88</td>
</tr>
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Housing starts during February reversed roughly half of the prior month's upwardly revised rise and fell 7.9% m/m to 2.120M units. More normal Winter temperatures returned last month after the record warmth of January. Consensus [...]

Housing Starts Decline Mostly Reflected Multi-Family

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316a.jpg" width="353">
The February consumer price index (CPI-U) rose an expected 0.1% on the heels of the 0.7% spurt during January.
Price declines for most fuels dragged energy prices lower by 1.2%. Natural gas prices fell 4.5% (+26.8% y/y) and fuel oil prices dropped for the fifth straight month, down 2.8% (+24.2% y/y). Gasoline prices fell 1.0% (20.6% y/y) and dented the 6.4% January surge but in March, gasoline prices moved higher to $2.37 per gallon last week from the $2.28 February average.
Prices less food &amp; energy rose a modest 0.1% that was less than the 0.2% Consensus expectation. Prices for core goods fell 0.1% due to a 1.0% (-1.7% y/y) decline in apparel prices and no change (0.5% y/y) in the prices for household furnishings &amp; operation. Medical care commodity prices rose 0.3% (3.8% y/y).
A 0.3% increase in core services prices reflected a 0.4% (2.6% y/y) increase in shelter prices and a 0.5% (4.1% y/y) increase in prices for medical care services prices. School tuition &amp; fees rose 0.3% (6.2% y/y) while public transportation prices fell 0.2% (+7.5% y/y).
Click <a href="Owners%20Equivalent%20Rent%20and%20the%20Cost%20of%20Living.pdf"> here</a> for a discussion of Owners Equivalent Rent and the Cost of Living by Federal Reserve Bank of New York economist Charles Steindel. <span style="font-size:10.0pt;font-family:Verdana;
mso-fareast-font-family:&quot;Times New Roman&quot;;mso-bidi-font-family:&quot;Times New Roman&quot;;
mso-ansi-language:EN-US;mso-fareast-language:EN-US;mso-bidi-language:AR-SA">This paper was presented at the Annual Meeting of the National Association for Business Economics (<a href="http://www.nabe.com/">www.nabe.com</a>) and later published in the January 2006 issue of the NABE journal Business Economics.
The gain in the chained CPI, which adjusts for shifts in the mix of consumer purchases, eased to 0.2% but less food &amp; energy prices rose 0.4%.
The Federal Reserve Board&#39;s latest Beige Book can be found <a href="http://www.federalreserve.gov/FOMC/BeigeBook/2006/20060315/"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>-1.2%</td>
<td>5.0%</td>
<td>20.1%</td>
<td>16.9%</td>
<td>10.9%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.1%</td>
<td>0.5%</td>
<td>2.8%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</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"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.2%</td>
<td>0.7%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.4%</td>
<td>0.3%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
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The February consumer price index (CPI-U) rose an expected 0.1% on the heels of the 0.7% spurt during January. Price declines for most fuels dragged energy prices lower by 1.2%. Natural gas prices fell 4.5% (+26.8% y/y) and fuel oil [...]

CPI Eased: Energy Prices Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316h.jpg" width="353">
The March Philadelphia Fed Index of General Business Conditions in the manufacturing sector gave back 3.1 points of the 12.1 point improvement last month. The decline to 12.3 compared to Consensus expectations for a lesser decline to 14.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
Declines in the sub indexes were broad based although new orders rose sharply to the highest level since October 2004 and shipments rose moderately. Unfilled orders fell sharply as did delivery times. The index covering the number of employees halved and fell to 5.4. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months halved and fell to 14.6. Expectations for employment also moved moderately lower.
The prices paid index fell sharply though the index of future prices fell only moderately. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0306.html">here</a>.
Global Imbalances or Bad Accounting? The Missing Dark Matter in the Wealth of Nations, analysis from the NBER and the Harvard University - John F. Kennedy School of Government is available <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=878096"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>12.3</td>
<td>15.4</td>
<td>14.2</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>17.2</td>
<td>30.5</td>
<td>28.6</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
CPI Eased: Energy Prices Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316a.jpg" width="353">
The February consumer price index (CPI-U) rose an expected 0.1% on the heels of the 0.7% spurt during January.
Price declines for most fuels dragged energy prices lower by 1.2%. Natural gas prices fell 4.5% (+26.8% y/y) and fuel oil prices dropped for the fifth straight month, down 2.8% (+24.2% y/y). Gasoline prices fell 1.0% (20.6% y/y) and dented the 6.4% January surge but in March, gasoline prices moved higher to $2.37 per gallon last week from the $2.28 February average.
Prices less food &amp; energy rose a modest 0.1% that was less than the 0.2% Consensus expectation. Prices for core goods fell 0.1% due to a 1.0% (-1.7% y/y) decline in apparel prices and no change (0.5% y/y) in the prices for household furnishings &amp; operation. Medical care commodity prices rose 0.3% (3.8% y/y).
A 0.3% increase in core services prices reflected a 0.4% (2.6% y/y) increase in shelter prices and a 0.5% (4.1% y/y) increase in prices for medical care services prices. School tuition &amp; fees rose 0.3% (6.2% y/y) while public transportation prices fell 0.2% (+7.5% y/y).
Click <a href="Owners.pdf"> here</a> for a discussion of Owners Equivalent Rent and the Cost of Living by Federal Reserve Bank of New York economist Charles Steindel. <span style="font-size:10.0pt;font-family:Verdana;
mso-fareast-font-family:&quot;Times New Roman&quot;;mso-bidi-font-family:&quot;Times New Roman&quot;;
mso-ansi-language:EN-US;mso-fareast-language:EN-US;mso-bidi-language:AR-SA">This paper was presented at the Annual Meeting of the National Association for Business Economics (<a href="http://www.nabe.com/">www.nabe.com</a>) and later published in the January 2006 issue of the NABE journal Business Economics.
The gain in the chained CPI, which adjusts for shifts in the mix of consumer purchases, eased to 0.2% but less food &amp; energy prices rose 0.4%.
The Federal Reserve Board&#39;s latest Beige Book can be found <a href="http://www.federalreserve.gov/FOMC/BeigeBook/2006/20060315/"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>-1.2%</td>
<td>5.0%</td>
<td>20.1%</td>
<td>16.9%</td>
<td>10.9%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.1%</td>
<td>0.5%</td>
<td>2.8%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</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"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.2%</td>
<td>0.7%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.4%</td>
<td>0.3%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Housing Starts Decline Mostly Reflected Multi-Family  
by <a href="/comment/Moeller.html">Tom Moeller</a> March 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316b.jpg" width="353">
Housing starts during February reversed roughly half of the prior month&#39;s upwardly revised rise and fell 7.9% m/m to 2.120M units. More normal Winter temperatures returned last month after the record warmth of January. Consensus expectations had been for a sharper decline to 2.03M starts.
The reason for the relatively moderate decline last month was that single-family starts fell just 2.3% to 1.800M from the record high in January. The two month average of 1.822M starts was still a record height. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316c.jpg" width="353">
A 30.4% m/m decline in multi family starts more than reversed the January surge.
Building permits also fell moderately reversing about half of February&#39;s unrevised gain with a 3.2% decline. Single family permits, however, fell hard. A 3.0% (+0.9% y/y) decline dropped single family permits to the lowest level since last May.
Single family housing starts in the Northeast fell 20.1% (-12.9% y/y) and in the Midwest starts dropped 9.2% (-15.9% y/y). Single family starts in the South fell 3.6% (+6.0% y/y) but out West starts recovered 13.3% (3.8% y/y).

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,120</td>
<td>2,303</td>
<td>-4.8%</td>
<td>2,072</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,800</td>
<td>1,843</td>
<td>-0.4%</td>
<td>1,716</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>320</td>
<td>460</td>
<td>-23.8%</td>
<td>355</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,145</td>
<td>2,216</td>
<td>2.5%</td>
<td>2,122</td>
<td>2,058</td>
<td>1,8 88</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Higher Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316d.jpg" width="353">
Initial claims for unemployment insurance rose for the third consecutive week. Last week&#39;s gain of 5,000 to 309,000 followed a little revised 9,000 increase the prior period and it was to the highest level this year. Consensus expectations had been for 300,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims increased to 296,500 (-8.0% y/y), its highest level since mid-January.
Continuing unemployment insurance claims fell 49,000 to 2.445M, a five year low, and reversed all of a downwardly revised 17,000 gain the prior week.
The insured rate of unemployment was stable at 1.9% for the fifth week.
The Trend Growth Rate of Employment: Past, Present and Future from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/1q06clar.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">03/11/06</th>
<th scope="col">03/04/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>309</td>
<td>304</td>
<td>-6.1%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,445</td>
<td>-7.6%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
France, Netherlands & Slovenia See Better Labor Market Conditions in Late 2005 and Early 2006 
by <a href="/comment/Stone.html">Carol Stone</a> March 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316e.jpg" width="353">
Yesterday here, we talked about the persistent sluggishness of employment in the UK. A few weeks ago, we had a similar discussion about Germany. While these two large European economies are seeing their labor markets struggle, those of some other countries are doing comparatively better.
Even in France, where riots in early November highlighted the plight of one specific segment of the labor force, employment is actually rising. The increase is not large, but in Q4, there were 20,500 new jobs in manufacturing and services industries, bringing their total to 15.489 million, a new high. As in many Western countries, the gains are all in the service sector and for France, especially in consulting and other business services. Unemployment in France has also continued to decrease, with the 9.6% rate in December and January the lowest since January 2003. The sensitive youth age range, under 25, saw an uptick in January to 22.2%, but this remains below the high last May of 22.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316f.jpg" width="353">
In the Netherlands, as seen in the graph, employment fell sharply in 2003, much more so than in France, but it bounced back, particularly over the past six months. While not reaching a new peak, Dutch employment has regained more than half of its 184,000 drop between February 2003 and February 2005. Unemployment in the Netherlands is falling, with the rate down to 6.1% in January from a peak of 6.7% in February 2005. By age group, progress here is actually most noticeable in the younger segments. Unemployment for those under 25 was 12.1%, compared to 13.4% early in 2005 and as high as 14.5% in late 2004. Adult workers under 45 face only 5.6% unemployment, down slightly over the past year. Older workers, ages 45-64, also have unemployment rates in the mid-5% range, but they have remained stubbornly at that level all through the past 15 months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316g.jpg" width="353">
In one of the smaller European nations, Slovenia, jobs have increased modestly over the last year. In January, employment was 816,600, up from an average of 813,100 for all of last year and 809,700 for January a year ago. Unemployment increased slightly this January, but it has undergone a secular decline throughout almost the entirety of Slovenia&#39;s period of independence, carrying the rate down to just over 10% from 15% in late 1992. [Note that the data collection method changed at the beginning of 2005, accounting for the sudden jump in employment then. The labor force increased by a commensurate amount so the unemployment rate was not affected.]
Thus, labor markets can behave differently even in neighboring regions and among differing demographic groups within the same region. And as we see here, big economies don&#39;t necessarily have advantages over small ones in the ability to provide job opportunities for everyone. 

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col"></th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France:&nbsp; &nbsp; Mfg &amp; Services Employees (Mil.)</td>
<td>--</td>
<td>15.49</td>
<td>15.47</td>
<td>15.44</td>
<td>15.47</td>
<td>15.42</td>
<td>15.43</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>--</td>
<td>5.13</td>
<td>5.14</td>
<td>5.18</td>
<td>5.15</td>
<td>5.20</td>
<td>5.28</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>--</td>
<td>10.35</td>
<td>10.33</td>
<td>10.26</td>
<td>10.32</td>
<td>10.22</td>
<td>10.15</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jan 2006</td>
<td>Dec 2005</td>
<td>--</td>
<td>Year Ago</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>9.6</td>
<td>9.6</td>
<td>--</td>
<td>10.1</td>
<td>9.9</td>
<td>10.0</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands: Total Employment*</td>
<td>6.99</td>
<td>6.97</td>
<td>--</td>
<td>6.90</td>
<td>6.91</td>
<td>6.92</td>
<td>7.00</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.1</td>
<td>6.2</td>
<td>--</td>
<td>6.7</td>
<td>6.5</td>
<td>6.5</td>
<td>5.4</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Slovenia: Employment (Thous.)</td>
<td>816.6</td>
<td>816.2</td>
<td>--</td>
<td>809.7</td>
<td>813.1</td>
<td>782.2</td>
<td>777.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>10.2</td>
<td>10.3</td>
<td>--</td>
<td>10.1</td>
<td>10.1</td>
<td>10.6</td>
<td>11.2</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060315h.jpg" width="353">
Since we last reported on the UK labor market here in mid-January, conditions have continued to soften. Measured by 3-month centered moving averages, employment and unemployment have both deteriorated. In the December period (November, December and January), employment was off 7,000 from three months before (the usual UK comparison), following a 56,000 decline in the November period and 22,000 in October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060315i.jpg" width="353"> The unemployment rate reached 5.1% in the November period and edged lower in December to 5.0%. It had averaged 4.8% for all of 2005.
More current data on claims for unemployment benefits and job vacancies point toward further possible labor market softening. The so-called &quot;claimant count&quot; shows that 919,700 people were collecting benefits in February, up from 901,900 in December and an average of 861,100 for 2005. The number of job vacancies is decreasing, pointing to fewer new opportunities for work: there were 610,700 reported vacancies in February, down from 627,900 in December and 626,700 for all of 2005. Other indicators of less-than-full participation in employment are also showing negative patterns. The number of employees who are working part-time because they can&#39;t find full-time work is rising. And the number of temporary workers who are working &quot;temp&quot; because they can&#39;t find permanent work has been ratcheting upward for several months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060315j.jpg" width="353">
Finally, as might be expected from a pattern of diminished demand for labor, workers&#39; earnings are remaining on soft side. The headline series* for the average earnings index was 3.5% in January, flat with December and down from 4.0% in 2005 and 4.5% in 2004. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U7/@U7.HTM">United Kingdom</a></th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (3Mo Avg, SA, Thous)</td>
<td>--</td>
<td>--</td>
<td>28,806</td>
<td>28,769</td>
<td>28,743</td>
<td>28,465</td>
<td>28,183</td>
</tr>
<tr>
<td class="firstcol">Chg from 1 &amp; 3 Months Ago</td>
<td>--</td>
<td>--</td>
<td>+37/-7</td>
<td>+5/-56</td>
<td>1.0</td>
<td>1.0</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate &nbsp;(3Mo Avg, SA, %)</td>
<td>--</td>
<td>--</td>
<td>5.0</td>
<td>5.1</td>
<td>4.8</td>
<td>4.8</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">Claimant Count (Monthly, Thous)</td>
<td>919.7</td>
<td>905.1</td>
<td>906.2</td>
<td>901.9</td>
<td>861.1</td>
<td>853.6</td>
<td>933.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Vacancies (Monthly, Thous)</td>
<td>610.7</td>
<td>612.9</td>
<td>627.9</td>
<td>607.6</td>
<td>626.7</td>
<td>635.5</td>
<td>587.4</td>
</tr>
<tr>
<td class="firstcol">Average Earnings Index inc Bonus (Headline Rate*)</td>
<td>--</td>
<td>3.5</td>
<td>3.5</td>
<td>3.4</td>
<td>4.0</td>
<td>4.5</td>
<td>3.4</td>
</tr>
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Since we last reported on the UK labor market here in mid-January, conditions have continued to soften. Measured by 3-month centered moving averages, employment and unemployment have both deteriorated. In the December period [...]

UK Employment Conditions Continue To Erode

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060315f.jpg" width="353">
The total number of mortgage applications slipped 0.2% following a 0.7% increase the prior week. In March, applications are 1.9% below the February average which fell 6.3% m/m.
The effective interest rate on a conventional 30-year mortgage jumped for the second week. The nine basis point rise in the effective rate on a 15-year mortgage to 6.36% was to the highest level since mid-2002. The ten basis point rise in the effective rate on a 30 year mortgage pulled it to 6.65%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060315g.jpg" width="353">
Purchase applications rose for the first week in three, by 1.0%. The March level is down 1.4% from the February average.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance retraced most of the prior week&#39;s rise and fell 1.9%. The March level is 2.1% below the February average which fell 2.0% from January.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/10/06</th>
<th scope="col">03/03/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>574.4</td>
<td>575.6</td>
<td>-21.1%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>403.0</td>
<td>399.0</td>
<td>-12.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,583.6</td>
<td>1,614.4</td>
<td>-30.2%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications slipped 0.2% following a 0.7% increase the prior week. In March, applications are 1.9% below the February average which fell 6.3% m/m. The effective interest rate on a conventional 30-year [...]

Mortgage Applications Meander, Interest Rates Jump Further

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

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The Consumer Price Index rose 0.2% in April after easing 0.1% in March and rising 0.2% in February. A 0.3% rise had been expected in the Action Economics Forecast Survey. The y/y increase in the headline CPI dropped to 2.3% from 2.4% in March, the weakest y/y gain since February 2021. It stood below the 9.1% peak in June 2022. The CPI excluding food & energy rose 0.2% in April following increases of 0.1% in March and 0.2% in February. A 0.3% rise had been expected. The 2.8% y/y gain remained the weakest rise in core prices in four years and below the 6.6% peak in September 2022.

Energy prices rose 0.7% (-3.7% y/y) last month after falling 2.4% in March. Gasoline prices slipped 0.1% (-11.7% y/y) after falling 6.3% in March. Fuel oil prices weakened 1.3% (-9.6% y/y) after falling 4.2% in March. Natural gas prices jumped 3.7% (15.7% y/y) following a 3.6% gain, and electricity prices gained 0.8% (3.6% y/y) after rising 0.9% in March.

Food prices eased 0.1% (+2.8% y/y) in April after a 0.4% March increase as egg prices fell 12.7% (+49.3% y/y) following a 5.9% gain. Meat, poultry & fish prices held steady (+3.4% y/y) after a 0.6% rise, while dairy product prices slipped 0.2% (+1.6% y/y) after a 1.0% March strengthening. Cereal & bakery product costs weakened 0.5% (unchanged y/y) after a 0.1% easing while fruit & vegetable prices dropped 0.4% (-0.9% y/y), the fifth decline in six months. Nonalcoholic beverage prices rose 0.7% (3.2% y/y) in April after rising 0.6% in March.

Goods prices less food and energy rose 0.1% both m/m and y/y in April after easing 0.1% in March. Prices of used cars and trucks fell 0.5% (+1.5% y/y) last month after falling 0.7% in March while new vehicle costs held steady (0.3% y/y) after edging up 0.1% in March. Apparel prices eased 0.2% (-0.7% y/y) following a 0.4% gain. Appliance prices increased 0.8% (-1.2% y/y) after a 0.1% easing. Home furnishings prices increased 0.2% (0.3% y/y) after holding steady in March. Recreation product costs rose 0.4% (-1.8% y/y) in April after falling 0.3%. Education & communication product costs rose 0.3% last month (-5.3% y/y) after rising 0.5% in March.

Services prices less energy moved up 0.3% (3.6% y/y) last month following a 0.1% March gain. Shelter prices rose 0.3% (4.0% y/y) last month after a 0.2% rise as owners’ equivalent rent of primary residences increased 0.4% (4.3% y/y), the same as in March. The cost of lodging away from home eased 0.1% (-1.4% y/y) after falling 3.5% in March. Rents of primary residences gained 0.3% (4.0% y/y) for the fifth consecutive month. Transportation service prices edged 0.1% higher (2.5% y/y) after falling 1.4% in March reflecting a 0.6% rise (6.4% y/y) in the cost of motor vehicle insurance. Public transportation costs declined 1.8% (-5.6% y/y) after falling 4.2% during March. The cost of medical services increased 0.5% (3.1% y/y), the same as in March, but the cost of recreation services fell 0.3% (3.6% y/y) after increasing 0.1% in March. Education & communication services prices fell 0.2% (+1.2% y/y) after rising 0.2%.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Annual total & core gains are the weakest in four-years.
- Energy costs move up but food prices slip.
- Core goods prices edge higher & service price gain picks up.

U.S. Consumer Price Index & Core Prices Rise Modestly in April

Winnie Tapasanun

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The NFIB Small Business Optimism Index fell to 95.8 in April, the lowest level since October, after a 3.3-point decline to 97.4 in March, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the second successive month that the index was below the 51-year average of 98. The index was down from its recent peak of 105.1 in December but up from 89.7 in April 2024 and a low of 88.5 in March 2024. Six of the 10 index components fell, three rose, and one was unchanged. The NFIB Small Business Uncertainty Index declined to 92 in April, the lowest level since December, after an eight-point drop to 96 in March. The index, while down from its record high of 110 in October, was well above a low of 65 in November 2023 and its historical average of 68.

The outlook for business conditions in the next six months remained positive for the sixth consecutive month in the latest survey. The net balance of respondents expecting the economy to improve decreased to 15% in April, the lowest level since October, on top of a 16-point plunge to 21% in March; however, having remained significantly above a record low of -61% in June 2022. Expected real sales dropped to a net -1% in April after an 11-point slide to 3% in March, posting the first negative reading and the lowest since October. The latest figure was up from its recent low of -18% in August. A net -8% of respondents reported higher nominal sales in the past three months, up from -11% in March and registering the highest reading since September 2023. The latest result, however, was below the most recent positive reading of 1% in May 2022 and a peak of 9% in June 2021.

Plans to make capital outlays slid to 18% in April, the lowest level since April 2020, following a two-point increase to 21% in March. These numbers were down from their recent high of 28% in November and a high of 31% in October 2021. Plans to expand the business registered at 9% in April and March, the lowest reading since October, following 12% in February; the latest figure was down from its most recent high of 20% in December but up from a low of 2% in March 2023. Meanwhile, expected credit conditions declined to -7% in April, the lowest reading since September, from -4% in March; these readings were above a low of -11% in November 2023.

On the labor front, forty-seven percent of respondents reported that qualified workers to fill job openings were hard to find in April, unchanged from 47% in March. These numbers were below their recent high of 56% in August, a high of 57% in September 2023, and a peak of 62% in September 2021. A net 13% planned to increase employment in April, slightly up from 12% in March; it was below a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 34% reported positions not able to be filled in April, down from 40% in March and the lowest reading since September; these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The figure improved to -21% in April, still a poor reading, following a four-point drop to -28% in March. These readings were up from a low of -37% in August; nevertheless, having remained below a high of -18% in March 2023 and a high of -5% in June 2021.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent of firms raising their average selling prices slipped to 25% in April, the lowest reading since January, after a six-point decline to 26% in March. These numbers were virtually unchanged from 25% in April 2024 but well below a high of 66% in March 2022. The percentage planning to raise prices eased to a three-month-low 28% in April following a one-point increase to 30% in March; these figures were above 26% in April 2024 but below a high of 33% in March 2024 and a high of 52% in March 2022.

Wage inflation, while relatively high, eased somewhat in the April survey. A net 33% of respondents raised compensation during the last three months, down from 38% reported in the March survey and the same reading as in February and January. It was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 17% of firms planned to raise worker compensation in the next three months, down from 19% reported in March and the lowest reading since March 2021; these numbers were below a high of 28% in November, a high of 30% in November 2023, and a high of 32% in October 2022.

The quality of labor was reported as the single most important problem facing small businesses, as reported by 19% of NFIB members in April, March, and February. Taxes were reported as the next most important problem, with 16% reported in April vs. 18% in March. Inflation continued to be a problem facing small businesses, as reported by 14% in April; the figure was down from 16% in March and a peak of 37% in July 2022. Other concerns (in April vs. March) included insurance cost/availability (10% vs. 8%), poor sales (9% vs. 9%), government requirements (9% vs. 8%), the cost of labor (8% vs. 11%), and competition from large businesses (7% vs. 6%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

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- Apr. NFIB Small Business Optimism Index down 1.6 pts. to 95.8; the fourth straight m/m fall.
- Uncertainty Index down 4 pts. to 92, the lowest since Dec.
- Expectations for economy down 6 pts. to 15%, the lowest since Oct.
- Expected real sales down 4 pts. to -1%, the first negative reading since Oct.
- Net percent of firms raising avg. selling prices down 1 pt. to a 3-month-low 25%.
- Quality of labor (19%), taxes (16%), and inflation (14%) are the top three business concerns.

U.S. NFIB Small Business Optimism Falls to a Six-month Low in April Amid Continued Uncertainty

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Retail gasoline prices for all grades fell to an average $3.25 per gallon (-12.9% y/y) in the week ended May 12 after rising to $3.27 in the previous week, but	 remained above their low of $3.13 in the week of December 9. An earlier high was $3.79 in the week ending April 22, 2024. The all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel declined to $3.48 per gallon (-9.7% y/y) in the week of May 12 from $3.50 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil at $59.04 per barrel (-25.9% y/y) in the week ended May 9 compared to $59.64 per barrel in the prior week. Prices remained below a high of $91.45 in the week of September 29, 2023. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $61.95 per barrel. The price of European Brent crude oil declined to $62.29 per barrel (-24.9% y/y) in the week of May 9 from $63.50 in the previous week. Prices remained well below a recent high of $95.61 in the week of September 29, 2023 and compared to a peak of $127.40 in the week of June 10, 2022. Yesterday the price was $65.28 per barrel.

Natural gas prices edged up to an average $3.19 per mmbtu (59.5% y/y) in the week ended May 9, after improving to $3.09/mmbtu in the prior week. Prices have been well below earlier highs for four weeks but were well above a low of $1.40/mmbtu in the week of March 15, 2024. Prices peaked at $9.56/mmbtu in the week of August 26, 2022. Yesterday’s price was $3.19/mmbtu.

Gasoline demand rose 3.5% y/y in the four weeks ending May 2 following a 3.2% y/y rise in the prior four weeks. Demand for all petroleum products eased 0.6% y/y in the four weeks ending May 2 after a 0.3% y/y rise in the previous four-week period. Crude oil input to refineries rose 0.4% y/y in the four weeks ending May 2 after a 0.1% y/y slip in the prior four weeks.

Gasoline inventories fell 1.0% y/y in the week ending May 2 after a 0.7% y/y fall in the week ending April 25. Residual fuel oil inventories fell 10.9% y/y in the week of May 2, after an 18.7% y/y fall in the prior week. Crude oil inventories rose 1.3% y/y in the week of May 2 after a 1.4% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell w/w to 25.3 days in the week of May 2 from 25.5 days in the prior. The recent low was 22.9 days in the week of November 8. The supply of crude oil eased w/w to 27.6 days in the week of May 2 from 27.9 days in the prior week, and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices decline.
- Crude oil prices ease.
- Natural gas costs rise.

U.S. Energy Prices Are Mixed in Latest Week

Robert Brusca

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Forecasting is an ordinary part of economic analysis. And to a large extent, it gets taken for granted as we realize different people are making different forecasts and that there always are differences. We come to accept that, and we realize that there may be some economists who are more optimistic and some who are more pessimistic, some who favor growth more, some who fear inflation more. There are almost always some sorts of biases involved when people make forecasts simply because it's very hard to eliminate bias completely no matter how hard an economist tries to be objective. At the very least, economists usually feel somewhat bound by the previous forecast that they made in order to provide some stability in the guidance that they present.

**The ZEW Forecasts**
In this month’s ZEW survey, there is an example of this with what I consider to be somewhat quizzical forecasts being offered by the ZEW financial experts, who are largely European experts, at a time that the United States is threatening tariffs. Now this, of course, makes the U.S. the aggressor in this campaign and according to the ZEW experts the U.S. is going to suffer from this more than European economies. However, the U.S. is much less trade-dependent than Europe and certainly far less dependent than Germany which is one of the most trade-dependent large, advanced economies in the world. We measure trade dependency by looking at exports plus imports as a percentage of GDP. By this measure, trade-dependency is around 90% to 95% of for Germany; U.S. dependency is around 30% to 35%. The ZEW experts see the tariff situation making the U.S. economy much worse off than the European or the German economy- why?

**Tariff impact**
To put this in perspective, in the U.S., high tariffs, if they are binding, will cause imported goods to be more expensive. U.S. firms and consumers will have the choice of deciding whether they want to pay the higher costs to consume those items or to replace them in consumption or their production process. In the case of consumers, it's probably easier because a consumer can switch from an expensive French champagne to a less expensive but still quite good California sparkling wine or Chardonnay- or pay the higher price and enjoy French champaign! However, if U.S. consumers shift, that is going to leave France with a lot of unsold champagne and they need to sell it someplace else and that's a problem since the U.S. is a huge high-income market; that’s the reason that it's sought after by so many countries who export to the United States. U.S. consumers may choose to be satisfied with a different product. In this example the French, or it could be the Germans, or anyone whose exports are distained because of higher prices, might find that they have goods piling up in the shelves that they are not selling. This could cause an unemployment problem that could really snowball- a more severe problem than drinking Chardonnay instead of French champaign! 

**The U.S. side**
On the U.S. side, if people continue to buy these goods, the U.S. will have more inflation that may cause the Fed to stop cutting rates. The Fed might even raise rates, and this could slow the economy down. However, as we know, tariffs are one-time increase in the price level and it's only if the Fed runs ‘bad monetary policy’ that the price bump caused by the tariffs would become inflation… inflation is a persisting increase in prices.

**The new ZEW in May**
In this new survey, we see the economic situation in May improving relatively substantially in the euro area, as well as worsening slightly in the U.S. and in Germany. We see macroeconomic expectations sharply higher in Germany in May and while they also improve substantially in the U.S., the U.S. is left with economic expectations that are weaker less than 5% of the time, while German macroeconomic expectations are above their historic median (above a ranking of 50%).

**Got inflation?**
Inflation expectations are falling in the euro area in May and in Germany and, while they edged slightly lower in the U.S., they rank very high - higher only 8% of the time in the U.S. Whereas inflation expectations are lower only about 20% of the time in the euro area and in Germany. What's interesting, is that we see a big decline in inflation expectations in the euro area and in Germany despite the fact that growth conditions either improve or hardly unchanged and macro-expectations for Germany get sharply higher and yet inflation is improving. This has to be viewed as a curiosity.

**Interest rates**
Short-term rate expectations in the euro area are more negative than they are in the U.S. with both the euro area and the U.S. having low rank standings for short-term interest rate expectations. Long-term rate expectations in Germany and the U.S. show a decline both in Germany and in the U.S., but the German rank-standing is at its 15th percentile and the U.S. standings in its 36th percentile. That, at least, matches with the inflation expectations outlook.

Through all this, stock markets are improving in May compared to April. The European stock market and the German market are doing better than they are than the U.S. on a queue standing basis. And the dollar is expected to get weaker.

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**Forecasts and contradictions**
It seems to me there are a lot of contradictions in these scenarios or forecasts and the Europeans are somewhat angry at the U.S. for having done what it did, and they are projecting that the U.S. will suffer a worse consequence basically because they don't like what the U.S. is doing. However, based on trade dependency, it would seem to me that Europe is far more at risk of an ugly outcome: its exports are at greater risk compared to U.S. imports being at greater risk. One mitigating factor, of course, is that many things have changed as the U.S. has made alterations on the geopolitical front by forcing Europe to accept a larger role in NATO, defending itself. This will increase military expenditure and will help to sustain economic growth in Europe in the face of whatever shock may come on the tariff side. However, at this time, there isn't that much of a defense industry in Europe to serve the build-up that they need, if they source goods out of the U.S. that's not going to stimulate European growth very much. However, it's likely that Europe will try to develop more of a domestic arms industry although it’s going to have to weigh that against the need to beef up armaments in the short-run.

**Lots of change afoot**
There's a lot of change afoot, and we see a lot of forecasts being made both by Europeans and by people in the U.S. that reflect the heavy dose of what they want to see rather than what they're probably going to see. A lot of that analysis swirls around the belief that free trade is something sacred that's being violated by tariffs and therefore these violations are going to create a lot of bad events. That viewpoint, of course, ignores the many ways in which free trade is already violated. And, of course, another set of pre-existing beliefs simply sees everything that Donald Trump does as wrong. Wishing or even hating is no way to run a forecasting exercise and so I've cautioned that people beware about the conclusions they draw especially in the wake of the tariff news which now has the U.S.-China animosity set aside and has some temporary abeyance of other tariffs in progress. The problem with being an economist is that you have to have a forecast, and you have to explain it, and make it public, and, of course, once you do that, if the facts suddenly change, you are left either having to keep your forecast (and hoping…) or having to embarrass yourself by shifting your forecast back to where it was before things changed. And this reflects where we are right now. There were a number of analyses that emerged about how we would have inflation, or we would have recession because these tariffs were huge and terrible and now it's the tariffs get peeled back and we see there's going to be a more reasoned approach. But there is still no permanence. Yet, economists with forecasts out there are gradually looking for a diplomatic way to soften some of the forecasts they have made without looking like a bobble-head doll on a cars dashboard as it encounters a bumping road. This also goes for some of the analysis of reports that we see as the Wall Street Journal's first take on today's CPI report in the U.S. was that there was evidence of tariff inflation although if you read the report the WSJ talks about how it was the best year-over-year inflation rate that we had seen in quite some time and up by only 0.2% month-to-month. So, which is it? When it's hard to make the headline of a report match the content of the story that it represents, you know there's something else going on. So be careful what you read and be more careful what you believe. There is a lot of bias and ideology out there. It is a lot just because we are human- but not all of it.

ZEW Experts Shift Forecasts Less Pessimistic on Europe

Tian Yong Woon

This week, we focus on US-China trade developments in light of the economies’ joint 90-day tariff pause announcement. The extent of the interim tariff cuts has surpassed investors’ expectations. As such, the cuts have understandably boosted sentiment in Chinese equity markets (chart 1), though sentiment had already been buoyed by the increasingly conciliatory tone in US-China communications leading up to the announcement. The tariff cuts are a significant reprieve for both economies. The US is likely to see reduced price pressures on producers and consumers in the near term, while China stands to gain from a temporary easing of growth drags amid ongoing domestic challenges (chart 2).

Turning to the hard numbers, China’s April trade readings were relatively resilient, partly due to significant front-loading ahead of the prior US-imposed 145% tariffs taking effect (chart 3). As shown in chart 4, sharp declines in shipments to the US were more than offset by rising exports to Asian partners, including ASEAN, India, and Taiwan. Looking ahead, with the tariff pause beginning around mid-May, we may not see a full month’s data capturing trade responses to the earlier steep tariffs.

Next, we turn to how investors and analysts are responding. In the May survey, our Blue Chip panellists continued to mark down growth forecasts across several economies relative to end-2024 expectations (chart 5). At the same time, they raised US inflation forecasts and lowered China inflation forecasts (chart 6). However, these forecasts are likely to see favourable revisions in future surveys—barring new adverse developments—especially in light of this week’s positive news.

**Latest US-China trade developments**
Financial market sentiment has remained fairly buoyant despite the flare-up in US-China trade tensions in April. Recent messaging from both sides has moved away from the fiery rhetoric of previous months, adopting a more conciliatory tone aimed at de-escalating rather than intensifying frictions. Encouragingly, developments earlier this week reinforced this shift: the US and China issued a joint statement agreeing to a 90-day cooling-off period as they pursue trade talks following a relationship “reset.” During this time, the US will reportedly reduce its 145% tariffs on Chinese imports to 30% by May 14, while China will lower its 125% tariffs on US imports to 10%. Markets have understandably reacted positively, as seen in chart 1, with this move representing a significant rollback of mutual tariffs and bringing rates much closer to their pre–“Liberation Day” baseline. As a result, the growth-dampening effects from elevated tariffs are now considerably more muted—though it is worth noting that these measures remain temporary.

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The latest developments are indeed cause for optimism, as neither the US nor China stood to benefit from maintaining steep, mutually applied tariffs. For China, this short-term reprieve will help ease what would have been another significant growth headwind, compounding an already challenging set of domestic issues. Among these, China continues to struggle with persistently low inflation—likely stemming from weak demand and a long-standing problem of excess supply, both of which have contributed to downward pressure on prices. This is particularly evident in producer prices, which have been falling for years now, as shown in chart 2. These underlying drivers likely explain why our Blue Chip survey panellists continue to expect weak price pressures in China this year—a topic discussed in more detail later. Also, the sustained price decline not only highlights China's oversupply problem but has also provoked frustration among trading partners who had to absorb the effects.

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**First round effects of US tariffs on China**
Moving next to initial hard numbers reflecting the effects of the US' 145% tariffs before the announced pause, China’s April trade data were released last week. Exports rose a strong 8.1% y/y, as shown in chart 3—well above expectations. This eased initial concerns that the US-imposed tariffs would severely hit trade. While the April export print beat forecasts, it was driven by several underlying factors. A key contributor was significant front-loading by importers ahead of the tariff implementation in mid-April, which likely offset the drop in shipments that followed. As a result, though April’s data capture the early impact of the steep US tariffs, they also reflect a surge in pre-tariff activity, making the figures somewhat noisy. On the import side, shipments to China declined modestly, extending the recent trend of weak import growth. Although the drop was less severe than expected, continued weakness in imports may reflect subdued domestic demand—a concerning signal.

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A closer look at the April data (chart 4) shows that China’s stronger-than-expected export performance was largely driven by shipments to ASEAN economies, India, and Taiwan, where exports posted double-digit y/y growth. This surge reflects several dynamics. First, it underscores the deep integration of regional supply chains and the critical role of Chinese inputs in broader manufacturing processes. Second, it points to these economies’ capacity to absorb some of China’s excess capacity—diverted from the US, which has become a less viable destination due to steep tariffs. However, it remains uncertain whether these markets can sustainably absorb such redirected trade flows. Exports to the EU and Japan also grew in April, though at a more modest pace. Overall, the surge in shipments to regional and European partners more than offset the sharp 21% y/y drop in exports to the US.

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**May Blue Chip survey outlook**
Next, we turn to investor and analyst expectations for global growth amid the seemingly unrelenting stream of trade developments between the US and its trading partners. The latest Blue Chip survey results continue to paint a bleak picture for global growth, with panellists having sharply downgraded their forecasts in the May survey compared to those expressed in December last year, as shown in chart 5. However, given the recent and substantial de-escalation in US-China trade tensions—and barring any new growth-negative developments—panellists may soon be compelled to revise their outlooks upward. Notably, the May survey did not capture this week’s positive trade breakthrough, and a significant portion of the tariff burden has now been temporarily lifted from both economies.

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Lastly, we examine investor and analyst expectations for inflation in light of US-China trade developments prior to this week’s positive news. Understandably, our Blue Chip panellists had significantly revised upward their inflation outlook for the US, given the potentially inflationary effects of the previously announced tariffs. In contrast, the inflation outlook for China has become increasingly pessimistic, largely due to the structural factors discussed in earlier sections. However, with the latest de-escalation in US-China trade tensions, expectations for US inflation—and even those for some other economies—now stand to be revised downward. Whether expectations for Chinese inflation can be meaningfully adjusted upward remains uncertain. Looking further ahead, attention will also turn to US President Trump’s other 90-day pause, specifically concerning his “reciprocal” tariffs on economies other than China. The outcome of these trade discussions will be critical in determining the trajectory of future inflation expectations.

Economy in Brief

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