Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217a.jpg" width="353">
The 0.3% increase in the January Producer Price Index for Finished Goods again outpaced Consensus expectations which had been for a 0.2% rise, although the huge 0.9% rise previously reported for December was revised lower to 0.6%.
Producer prices less food &amp; energy also were (quite a bit) stronger than expectations for a 0.2% advance and rose 0.4%. The source of the upside surprise was concentrated in a 1.1% (-2.8% y/y) gain in passenger car prices and a 0.7% (-4.8% y/y) rise in light motor trucks. Civilian aircraft prices also rose a strong 0.7% (4.3% y/y).
Prices of all finished consumer goods less food &amp; energy rose 0.4% (1.6% y/y) and core consumer nondurable goods prices gained 0.3% (2.8% y/y). Capital equipment prices increased 0.3% (1.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217b.jpg" width="353">
Finished energy prices were unchanged (25.1% y/y) in January as gasoline prices fell 3.5% (+40.5% y/y) and fuel oil prices fell 0.1% (+36.5% y/y). These declines were offset by residential electric power costs which rose 3.0% (9.2% y/y) and natural gas, up 0.8% (31.3% y/y).
Intermediate goods prices posted the strongest increase since October with a 1.2% gain led by a 1.0% rise in prices for core intermediate goods.
Crude goods prices fell for the third straight month. The 0.5% drop mostly reflected a 3.0% (-3.8% y/y) decline in food prices. Core crude prices slipped marginally after an upwardly revised 0.5% December increase. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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">Finished Goods</td>
<td>0.3%</td>
<td>0.6%</td>
<td>5.7%</td>
<td>4.9%</td>
<td>3.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.2%</td>
<td>0.1%</td>
<td>9.2%</td>
<td>8.0%</td>
<td>6.6%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.0%</td>
<td>0.3%</td>
<td>4.8%</td>
<td>5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>22.4%</td>
<td>14.6%</td>
<td>17.5%</td>
<td>25.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>6.0%</td>
<td>4.9%</td>
<td>26.5%</td>
<td>12.4%</td>
</tr>
</tbody>
</table>
Philadelphia Fed Business Activity Index Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217f.jpg" width="353">
The Philadelphia Fed&#39;s February Index of General Business Conditions in the manufacturing sector more than reversed its recent weakness and jumped 12.1 points to 15.4, the highest level since last August. Consensus expectations had been for more moderate improvement to 9.1.
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.
The sub index measuring unfilled orders improved markedly to the highest level since 20904. New orders also rose to 12.5, its highest since October and shipments surged to 22.5the highest level since last April. The index covering the number of employees slipped marginally to 11.3. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217e.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes, and most of the sub indexes improved this month versus December.
The separate index of expected business conditions in six months recovered about half of the prior month&#39;s decline. Expectations for employment also moved back into positive territory.
The prices paid index fell sharply as did the index of future prices. 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/bos0206.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#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>15.4</td>
<td>3.3</td>
<td>22.1</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>30.5</td>
<td>44.9</td>
<td>43.4</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Down Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217c.jpg" width="353">
Consumer sentiment, according to the University of Michigan, fell this month. The preliminary sentiment index fell 4.2% m/m to 87.4 and compared to Consensus expectations for a roughly unchanged reading of 91.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Lower consumer expectations led the decline with a 5.7% drop following the 1.6% January fall. The long term economic outlook deteriorated sharply as the index of expected business conditions during the next five years fell 8.8% (-15.3% y/y). The one year outlook for business conditions suffered as well with the index down 6.7% (-14.0% y/y) and expectations for personal finances slipped another 1.7% (-7.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217d.jpg" width="353">
The mean expected inflation rate for the next twelve months was about stable m/m at 3.7%, still well below the 5.5% expected in October &amp; September.
The current conditions index declined 2.4% as the reading of personal finances fell 2.5% (-5.0% y/y) and of buying conditions for large household goods fell 1.8%. Consumers&#39; assessment of gov&#39;t economic policy slipped m/m (-9.7% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 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">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">Consumer Sentiment</td>
<td>87.4</td>
<td>91.2</td>
<td>-7.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>107.7</td>
<td>110.3</td>
<td>-1.4%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.4</td>
<td>78.9</td>
<td>-11.8%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Japan GDP Grows 5.5% in Q4; Shows Biggest Yearly Gains in 9 Years 
by <a href="/comment/Stone.html">Carol Stone</a> February 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217g.jpg" width="353">
Japan&#39;s GDP grew at a 5.5% annual rate in Q4, making three strong quarters during 2005 and bringing the Q4/Q4 growth to 4.2%. Calculations of GDP have changed in recent years, so long history is not available on this same basis, but this Q4/Q4 advance is likely the strongest performance of the Japanese economy since about 1990. Moreover, the recent range of growth is similar to the magnitudes of the halcyon period of the late 1980s. [Note that &quot;real GDP&quot; is now defined in chain prices, but is available only since 1994. Fixed-weight GDP is available back to 1980, but Q4 on this basis will not be published until after the second release next month of the chained Q4 data. So exact information on these historical comparisons is not yet available.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217h.jpg" width="353">
In Q4, household consumption grew at a 3.2% pace; this wasn&#39;t the highest of the year, but it brought the four-quarter growth to 3.3%, which was the highest since Q1 1997 (4.0%). The year 2005 as a whole saw 2.2% consumption growth, the largest since 1996. Similar comparisons apply to investment outlays (fixed capital formation): four-quarter growth of 6.0% is indeed the strongest since the current &quot;official&quot; GDP series begins in 1994, and the yearly total of 3.9% is the largest since 4.7% in 1996. [The good gains in 1996, it might be noted, were marked by substantial anticipatory buying ahead of an increase in Japan&#39;s consumption tax, so growth then was stimulated somewhat artificially, unlike the present, more fundamental progress.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217i.jpg" width="353">
Net exports made a major contribution to Q4 GDP, with a continuing double-digit pace (annualized) for growth in exports, 13% in the quarter, the third consecutive such increase. Imports declined in chain-price terms, due to a substantial increase in import prices.
We have noted here several times recently that various price measures in Japan have started to stabilize following their long bout of deflation. The GDP deflator and other related price aggregates in the national accounts are still generally falling, though, as seen in the accompanying graph. However, in the latest quarter the role of that surge in import prices is evident as the total deflator is off 1.6% from a year earlier, but that for domestic demand (which nets out exports and imports) is down &quot;only&quot; 0.6%. But the increasing vigor of domestic demand suggests the possibility of reflation of the Japanese economy. In fact, investors picked this element to focus on in the wake of the better-than-expected growth report. Stock prices fell as investors evidently interpreted the good growth as a sign that the Bank of Japan&#39;s liquefying monetary policy might be shifted to a less accommodative stance.

<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/JAPAN/@J2/@J201/@J201.HTM">Japan (SAAR, %)</a></th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total GDP</td>
<td>5.5</td>
<td>1.4</td>
<td>5.4</td>
<td>2.8</td>
<td>2.3</td>
<td>1.8</td>
<td>0.1</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>3.2</td>
<td>1.7</td>
<td>3.3</td>
<td>2.2</td>
<td>1.9</td>
<td>0.4</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Domestic Fixed Capital Formation</td>
<td>4.3</td>
<td>6.1</td>
<td>5.9</td>
<td>3.9</td>
<td>1.0</td>
<td>0.5</td>
<td>-5.0</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>13.0</td>
<td>12.6</td>
<td>14.6</td>
<td>6.7</td>
<td>13.9</td>
<td>9.0</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-5.1</td>
<td>13.5</td>
<td>9.0</td>
<td>6.1</td>
<td>8.5</td>
<td>4.0</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">Domestic Demand</td>
<td>3.2</td>
<td>1.3</td>
<td>4.6</td>
<td>2.6</td>
<td>1.5</td>
<td>1.2</td>
<td>-0.6</td>
</tr>
</tbody>
</table>
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The 0.3% increase in the January Producer Price Index for Finished Goods again outpaced Consensus expectations which had been for a 0.2% rise, although the huge 0.9% rise previously reported for December was revised lower to 0.6%. [...]

Producer Price Index Firm

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/060216f.jpg" width="353">
Germany&#39;s Federal Statistics Office reported Q4 employment data today, classified by industry. These data are an input to German GDP data, due for release next Wednesday, February 22.
Early last week (February 7), Louise Curley discussed here weakness in German industrial production for Q4 and sluggish wage performance for workers, already bringing a strike by one major union. Today&#39;s employment data give further evidence of weakening in the German economy. Total employment fell 5,000 in Q4 from Q3 and was off 0.3% from a year ago. Subtracting out government, education and other public service activities, we see that the private sector is even weaker. Jobs there decreased by 88,000 over the second half of 2005 and were off 1.0% from the year-ago period. They fell 0.8% for the year as a whole, while total employment was off 0.2% in 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216g.jpg" width="353">
Jobs in industry declined 135,000 from Q4 2004 to Q4 2005 and the trade and transportation sector was down 102,000. Agriculture and construction employment also declined. Growth in finance and other business services, by contrast, showed a 76,000 increase across the year. Government and related jobs had a substantial 152,000 increase from Q4 2004. The sharp rise in public sector jobs clearly offset a good portion of the total 280,000 job loss in the private sector. At the same time, it increases the burden on private sector firms and workers to generate tax revenues with which to pay the public sector workers. So the support to the economy from added government workers comes with a cost to businesses, which are already weighed down with pressure from labor unions wanting greater compensation, as explained by Ms. Curley here last week.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D5/@D51/@D51.HTM">Germany (SA*, Thousands</a>)</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q4 2004</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 Domestic Employment**</td>
<td>38,779</td>
<td>38,784</td>
<td>38,907</td>
<td>38,779</td>
<td>38,869</td>
<td>38,719</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>-5</td>
<td>+29</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>+0.4%</td>
<td>-1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Industry</td>
<td>7,844</td>
<td>7,864</td>
<td>7,979</td>
<td>7,882</td>
<td>8,018</td>
<td>8,138</td>
</tr>
<tr>
<td class="firstcol">Trade***</td>
<td>9,709</td>
<td>9,735</td>
<td>9,811</td>
<td>9,737</td>
<td>9,791</td>
<td>9,716</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance &amp; Business Services</td>
<td>6,443</td>
<td>6,423</td>
<td>6,369</td>
<td>6,411</td>
<td>6,309</td>
<td>6,128</td>
</tr>
<tr>
<td class="firstcol">Government/Education/Health/Etc</td>
<td>11,826</td>
<td>11,779</td>
<td>11,676</td>
<td>11,753</td>
<td>11,628</td>
<td>11,535</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>+47</td>
<td>+65</td>
<td>+1.3%</td>
<td>+1.1%</td>
<td>+0.8%</td>
<td>+0.3%</td>
</tr>
<tr>
<td class="firstcol">Total - Government/Etc</td>
<td>26,953</td>
<td>27,005</td>
<td>27,231</td>
<td>27,026</td>
<td>27,241</td>
<td>27,184</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>-52</td>
<td>-36</td>
<td>-1.0%</td>
<td>-0.8%</td>
<td>+0.2%</td>
<td>-1.5%</td>
</tr>
</tbody>
</table>
</body>
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Germany's Federal Statistics Office reported Q4 employment data today, classified by industry. These data are an input to German GDP data, due for release next Wednesday, February 22. Early last week (February 7), Louise Curley [...]

German Employment Falls in Q4; Gain in Public Sector, but Private Sector Jobs Base Has Marked Erosion

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216d.jpg" width="353">
Initial claims for jobless insurance rose 19,000 last week to 297,000, the highest level since early January. The prior week&#39;s increase was little revised so initial claims have been below 300,000 during six of the last seven weeks. Consensus expectations had been for an increase to 285,000 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 rose to 283,000 (-9.3% y/y).
Continuing unemployment insurance claims reversed most of the prior week&#39;s revised increase and fell 39,000.
The insured rate of unemployment remained at 2.0% for the second week.

<table border="0" cellspacing="0" width="100%">
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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">02/11/06</th>
<th scope="col">02/04/06</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>297</td>
<td>278</td>
<td>-3.6%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,511</td>
<td>-7.2%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
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Initial claims for jobless insurance rose 19,000 last week to 297,000, the highest level since early January. The prior week's increase was little revised so initial claims have been below 300,000 during six of the last seven weeks. [...]

Initial Unemployment Insurance Claims Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216c.jpg" width="353">
The import prices jumped 1.3% last month, the first m/m increase since October. Consensus expectations for a 1.0% increase.
Higher petroleum prices led the January strength in import prices with a 6.4% jump. Crude oil prices rose 8.0% (48.2% y/y) m/m but in February have reversed course. Yesterday&#39;s price for Brent Crude of $57.61 compared to a January average of $63.15 per bbl. and a December average of $57.03.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216e.jpg" width="353">
Nonpetroleum import prices rose 0.2% following and upwardly revised 0.1% December gain. The increase reflected a 1.2% (6.9% y/y) jump in foods, feeds &amp; beverages. Prices for nonauto consumer goods also rose 0.2% (0.1% y/y) and capital goods prices fell 0.1% (-1.6% y/y). Excluding a 1.0% decline in computer prices (-6.6% y/y), capital goods prices rose 0.3% (0.8% y/y).
During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.
Export prices jumped 0.7% led by a 1.7% (8.2% y/y) surge in industrial materials prices.
The Dollar U-Turn from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20060201/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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">Import - All Commodities</td>
<td>1.3%</td>
<td>-0.1%</td>
<td>8.8%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>6.4%</td>
<td>-0.4%</td>
<td>49.3%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.7%</td>
<td>0.1%</td>
<td>2.7%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

The import prices jumped 1.3% last month, the first m/m increase since October. Consensus expectations for a 1.0% increase. Higher petroleum prices led the January strength in import prices with a 6.4% jump. Crude oil prices rose 8.0% [...]

Import Prices Back Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216a.jpg" width="353">
In February, the National Association of Home Builders&#39; (NAHB) Composite Housing Market Index remained at the depressed level of 57 for the third straight month. The figure compares to a high of 72 posted last June.
During the last twenty years there has been an 82% correlation between the y/y change in the annual composite index and the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.
The January index for current sales of single family homes was stable at 62, down 20% from the January &#39;05 level of 77. The index for sales in six months slipped to 65 from an upwardly revised 66 during January, but it averaged 75 last year.
Traffic of prospective home buyers remained quite depressed at an index level of 40, the lowest level since April 2003.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</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/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">&nbsp;Feb &#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">Composite Housing Market Index</td>
<td>57</td>
<td>57</td>
<td>69</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
</body>
</html>

In February, the National Association of Home Builders' (NAHB) Composite Housing Market Index remained at the depressed level of 57 for the third straight month. The figure compares to a high of 72 posted last June. During the last [...]

NAHB Housing Market Index Unchanged at a Low Level

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216b.jpg" width="353">
Housing starts jumped 14.5% m/m during January to 2.276M units, the highest since 1973, following a December decline which was revised shallower. New construction activity most certainly was aided by the record warm temperatures last month. Consensus expectations had been for a lesser rise to 2.02M starts.
A 12.8% spike in single-family starts to 1.819M, a new record, more than reversed a 10.5% decline during December. The benefit from mild weather was clear from the regional figures which indicated a 23.3% (21.4% y/y) surge in the Northeast and a 31.0% (19.6% y/y) gain in the Midwest. The continuing benefit from low mortgage interest rates also was evident as single family starts in the South rose 8.3% (-1.0% y/y) and in the West by 7.3% (-5.3% y/y).
Multi family starts also were helped by the warmth and jumped 21.9% m/m to a new record high. Building permits rounded out last month&#39;s strength with a 6.8% gain to the highest level since September.
Today&#39;s testimony of Chairman Ben S. Bernanke before the U.S. Senate Committee on Banking, Housing, and Urban Affairs was identical to yesterday&#39;s and is available <a href="http://www.federalreserve.gov/boarddocs/hh/2006/february/testimony.htm"> here</a>.

<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">Jan</th>
<th scope="col">Dec</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>2,276</td>
<td>1,988</td>
<td>4.0%</td>
<td>2,072</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,819</td>
<td>1,613</td>
<td>2.8%</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>457</td>
<td>375</td>
<td>9.1%</td>
<td>355</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,217</td>
<td>2,075</td>
<td>3.8%</td>
<td>2,122</td>
<td>2,058</td>
<td>1,8 88</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts jumped 14.5% m/m during January to 2.276M units, the highest since 1973, following a December decline which was revised shallower. New construction activity most certainly was aided by the record warm temperatures last [...]

Housing Starts Lifted By Mild Weather

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216b.jpg" width="353">
Housing starts jumped 14.5% m/m during January to 2.276M units, the highest since 1973, following a December decline which was revised shallower. New construction activity most certainly was aided by the record warm temperatures last month. Consensus expectations had been for a lesser rise to 2.02M starts.
A 12.8% spike in single-family starts to 1.819M, a new record, more than reversed a 10.5% decline during December. The benefit from mild weather was clear from the regional figures which indicated a 23.3% (21.4% y/y) surge in the Northeast and a 31.0% (19.6% y/y) gain in the Midwest. The continuing benefit from low mortgage interest rates also was evident as single family starts in the South rose 8.3% (-1.0% y/y) and in the West by 7.3% (-5.3% y/y).
Multi family starts also were helped by the warmth and jumped 21.9% m/m to a new record high. Building permits rounded out last month&#39;s strength with a 6.8% gain to the highest level since September.
Today&#39;s testimony of Chairman Ben S. Bernanke before the U.S. Senate Committee on Banking, Housing, and Urban Affairs was identical to yesterday&#39;s and is available <a href="http://www.federalreserve.gov/boarddocs/hh/2006/february/testimony.htm"> here</a>.

<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">Jan</th>
<th scope="col">Dec</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>2,276</td>
<td>1,988</td>
<td>4.0%</td>
<td>2,072</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,819</td>
<td>1,613</td>
<td>2.8%</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>457</td>
<td>375</td>
<td>9.1%</td>
<td>355</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,217</td>
<td>2,075</td>
<td>3.8%</td>
<td>2,122</td>
<td>2,058</td>
<td>1,8 88</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index Unchanged at a Low Level 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216a.jpg" width="353">
In February, the National Association of Home Builders&#39; (NAHB) Composite Housing Market Index remained at the depressed level of 57 for the third straight month. The figure compares to a high of 72 posted last June.
During the last twenty years there has been an 82% correlation between the y/y change in the annual composite index and the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.
The January index for current sales of single family homes was stable at 62, down 20% from the January &#39;05 level of 77. The index for sales in six months slipped to 65 from an upwardly revised 66 during January, but it averaged 75 last year.
Traffic of prospective home buyers remained quite depressed at an index level of 40, the lowest level since April 2003.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</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/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">&nbsp;Feb &#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">Composite Housing Market Index</td>
<td>57</td>
<td>57</td>
<td>69</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
Import Prices Back Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216c.jpg" width="353">
The import prices jumped 1.3% last month, the first m/m increase since October. Consensus expectations for a 1.0% increase.
Higher petroleum prices led the January strength in import prices with a 6.4% jump. Crude oil prices rose 8.0% (48.2% y/y) m/m but in February have reversed course. Yesterday&#39;s price for Brent Crude of $57.61 compared to a January average of $63.15 per bbl. and a December average of $57.03.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216e.jpg" width="353">
Nonpetroleum import prices rose 0.2% following and upwardly revised 0.1% December gain. The increase reflected a 1.2% (6.9% y/y) jump in foods, feeds &amp; beverages. Prices for nonauto consumer goods also rose 0.2% (0.1% y/y) and capital goods prices fell 0.1% (-1.6% y/y). Excluding a 1.0% decline in computer prices (-6.6% y/y), capital goods prices rose 0.3% (0.8% y/y).
During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.
Export prices jumped 0.7% led by a 1.7% (8.2% y/y) surge in industrial materials prices.
The Dollar U-Turn from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20060201/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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">Import - All Commodities</td>
<td>1.3%</td>
<td>-0.1%</td>
<td>8.8%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>6.4%</td>
<td>-0.4%</td>
<td>49.3%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.7%</td>
<td>0.1%</td>
<td>2.7%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216d.jpg" width="353">
Initial claims for jobless insurance rose 19,000 last week to 297,000, the highest level since early January. The prior week&#39;s increase was little revised so initial claims have been below 300,000 during six of the last seven weeks. Consensus expectations had been for an increase to 285,000 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 rose to 283,000 (-9.3% y/y).
Continuing unemployment insurance claims reversed most of the prior week&#39;s revised increase and fell 39,000.
The insured rate of unemployment remained at 2.0% for the second week.

<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">02/11/06</th>
<th scope="col">02/04/06</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>297</td>
<td>278</td>
<td>-3.6%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,511</td>
<td>-7.2%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
German Employment Falls in Q4; Gain in Public Sector, but Private Sector Jobs Base Has Marked Erosion 
by <a href="/comment/Stone.html">Carol Stone</a> February 16, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216f.jpg" width="353">
Germany&#39;s Federal Statistics Office reported Q4 employment data today, classified by industry. These data are an input to German GDP data, due for release next Wednesday, February 22.
Early last week (February 7), Louise Curley discussed here weakness in German industrial production for Q4 and sluggish wage performance for workers, already bringing a strike by one major union. Today&#39;s employment data give further evidence of weakening in the German economy. Total employment fell 5,000 in Q4 from Q3 and was off 0.3% from a year ago. Subtracting out government, education and other public service activities, we see that the private sector is even weaker. Jobs there decreased by 88,000 over the second half of 2005 and were off 1.0% from the year-ago period. They fell 0.8% for the year as a whole, while total employment was off 0.2% in 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216g.jpg" width="353">
Jobs in industry declined 135,000 from Q4 2004 to Q4 2005 and the trade and transportation sector was down 102,000. Agriculture and construction employment also declined. Growth in finance and other business services, by contrast, showed a 76,000 increase across the year. Government and related jobs had a substantial 152,000 increase from Q4 2004. The sharp rise in public sector jobs clearly offset a good portion of the total 280,000 job loss in the private sector. At the same time, it increases the burden on private sector firms and workers to generate tax revenues with which to pay the public sector workers. So the support to the economy from added government workers comes with a cost to businesses, which are already weighed down with pressure from labor unions wanting greater compensation, as explained by Ms. Curley here last week.

<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/GERMANY/@D5/@D51/@D51.HTM">Germany ( SA*, Thousands</a>)</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q4 2004</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 Domestic Employment**</td>
<td>38,779</td>
<td>38,784</td>
<td>38,907</td>
<td>38,779</td>
<td>38,869</td>
<td>38,719</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>-5</td>
<td>+29</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>+0.4%</td>
<td>-1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Industry</td>
<td>7,844</td>
<td>7,864</td>
<td>7,979</td>
<td>7,882</td>
<td>8,018</td>
<td>8,138</td>
</tr>
<tr>
<td class="firstcol">Trade***</td>
<td>9,709</td>
<td>9,735</td>
<td>9,811</td>
<td>9,737</td>
<td>9,791</td>
<td>9,716</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance &amp; Business Services</td>
<td>6,443</td>
<td>6,423</td>
<td>6,369</td>
<td>6,411</td>
<td>6,309</td>
<td>6,128</td>
</tr>
<tr>
<td class="firstcol">Government/Education/Health/Etc</td>
<td>11,826</td>
<td>11,779</td>
<td>11,676</td>
<td>11,753</td>
<td>11,628</td>
<td>11,535</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>+47</td>
<td>+65</td>
<td>+1.3%</td>
<td>+1.1%</td>
<td>+0.8%</td>
<td>+0.3%</td>
</tr>
<tr>
<td class="firstcol">Total - Government/Etc</td>
<td>26,953</td>
<td>27,005</td>
<td>27,231</td>
<td>27,026</td>
<td>27,241</td>
<td>27,184</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>-52</td>
<td>-36</td>
<td>-1.0%</td>
<td>-0.8%</td>
<td>+0.2%</td>
<td>-1.5%</td>
</tr>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060215e.jpg" width="353">
Foreign investors sharply reduced their net purchases of securities from US investors in December, according to the US Treasury&#39;s monthly Treasury International Capital (&quot;TIC&quot;) data reported this morning. Foreigners bought $74.16 billion in US securities from US resident investors, down from $105.70 billion in November. At the same time, they sold $17.56 billion in foreign securities to US investors, making their overall net transactions with US investors $56.60 billion, down from $91.6 billion in November and the smallest amount since May&#39;s $56.57 billion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060215f.jpg" width="353">
The TIC data, carried in Haver&#39;s USINT database, constitute a sizable body of information about interest in US markets from investors in many countries around the world. In the past, Japan has been the prime region absorbing US bonds and stocks. In the second graph, we show this with the share of Japanese gross purchases of US securities. In the late 1980s and early 1990s, Japan&#39;s purchase took about 35 - 40% of total foreign purchases. In more recent years, Japanese investors have reduced their buying. Not surprisingly, China&#39;s purchases have picked up. Additional monthly data are available on foreign holdings of Treasury securities and these show that Japan&#39;s portfolio has flattened. China&#39;s has trended consistently higher, but its Treasury ownership is still a mere fraction of Japan&#39;s.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060215g.jpg" width="353">
In interpreting these data, it&#39;s important to remember that they mark the first transaction between a US investor and a non-US investor. That foreign party may be an intermediary between the American and the final foreign owner. Thus, the UK and Caribbean centers are large purchasers of US securities. But they may not be large &quot;owners&quot;. For instance, UK gross purchases of US Treasuries were 9 times as much as those of Japanese investors in 2005, but their holdings of Treasuries at the end of the year were only 34% as much as Japan&#39;s. China&#39;s holdings are just a little bit larger than the UK&#39;s, but they are growing consistently. See the third graph. 

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<colgroup><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USINT/@U3/@U3.HTM">Net Foreign Purchases of Securities from US Investors</a> <a href="http://www.haverselect.com/dlx/USINT/@U3/@U3.HTM"> (Billions US$) </a></th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005 </th>
<th scope="col">Oct 2005 </th>
Monthly Averages&nbsp; 
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004 </td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total </td>
<td>56.6</td>
<td>91.6</td>
<td>105.6</td>
<td>75.9</td>
<td>63.6</td>
<td>55.3</td>
<td>47.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Domestic Securities</td>
<td>74.2</td>
<td>105.7</td>
<td>108.8</td>
<td>87.4</td>
<td>76.4</td>
<td>60.0</td>
<td>45.6</td>
</tr>
<tr>
<td class="firstcol">Treasuries </td>
<td>18.5</td>
<td>54.5</td>
<td>29.2</td>
<td>29.2</td>
<td>29.3</td>
<td>22.0</td>
<td>10.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;) </td>
<td>9.8</td>
<td>9.1</td>
<td>34.9</td>
<td>18.9</td>
<td>18.9</td>
<td>13.0</td>
<td>16.3</td>
</tr>
<tr>
<td class="firstcol">US Corporate Bonds </td>
<td>37.3</td>
<td>37.3</td>
<td>36.1</td>
<td>32.6</td>
<td>25.8</td>
<td>22.1</td>
<td>15.2</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Stocks </td>
<td>8.7</td>
<td>4.8</td>
<td>8.0</td>
<td>6.6</td>
<td>2.4</td>
<td>2.9</td>
<td>4.2</td>
</tr>
<tr>
<td class="firstcol">Foreign Bonds </td>
<td>-3.7</td>
<td>2.2</td>
<td>2.8</td>
<td>-1.4</td>
<td>-5.7</td>
<td>2.7</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Stocks </td>
<td>-13.8</td>
<td>-16.4</td>
<td>-6.0</td>
<td>-10.1</td>
<td>-7.1</td>
<td>-7.4</td>
<td>-0.1</td>
</tr>
</tbody>
</table>
</body>
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Foreign investors sharply reduced their net purchases of securities from US investors in December, according to the US Treasury's monthly Treasury International Capital ("TIC") data reported this morning. Foreigners bought $74.16 [...]

Foreign Investors Slow Net Buying of Securities from US Investors in December

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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Andrew Cates

**US port activity in Los Angeles**
Our first chart this week shows the number of container vessels in port at Los Angeles/Long Beach Harbor—America’s largest gateway for trans-Pacific trade—based on a 7-day moving average. While volatility is typical, a notable recent drop in activity has coincided with the escalation of US-China trade tensions following the tariff hikes imposed by the US in April 2025. The decline in vessel numbers reflects the early fallout from these measures, which have disrupted established trade flows and contributed to uncertainty across global supply chains. 

250515Z1.jpg

**The Blue Chip Growth Consensus**
The May 2025 Blue Chip survey revealed a broadly-based downward revision to consensus GDP growth forecasts for 2025 and 2026, reflecting the global economic fallout from the Trump administration’s sweeping trade measures announced in April. The downgrades spanned most major economies, with particularly sharp forecast cuts for Canada, South Korea, and Mexico—all closely integrated with US supply chains. The US and China also saw notable forecast reductions amid expectations of trade-related disruption and weaker investment sentiment. The sole upward revision was for Taiwan, where stronger-than-expected Q1 GDP data boosted short-term momentum. Importantly, these forecasts were finalised prior to the May 12 announcement of sharply reduced tariffs on US-China trade, suggesting a potential improvement in forecasters’ sentiment ahead.

250515Z2.jpg

**The Blue Chip Inflation Consensus**
The May 2025 Blue Chip survey also showed a broad-based downward revision to inflation forecasts for 2025 and 2026, reflecting softer growth prospects and the disinflationary impulse from tighter financial conditions following the Trump administration’s April tariff measures. The largest downgrades were recorded for India, China, and Canada, suggesting a stronger-than-expected drag on domestic demand and import prices in those economies. Most others- including the euro area and Japan - also saw modest downward adjustments. The UK was the only exception, with a slight upward revision likely linked to localised price pressures. 

250515Z3.jpg

**The Blue Chip consensus toward global imbalances**
In addition to this the May 2025 Blue Chip survey showed a widespread downward revision in current account balance forecasts for 2025 and 2026, with particularly steep deteriorations expected for China, Australia, the euro area, and Canada. These revisions clearly reflect the expected trade and income effects stemming from the Trump administration’s new tariff measures introduced in April.

250515Z4.jpg

**US Bank Lending Standards**
This week’s Senior Loan Officer Survey from the US Federal Reserve showed a modest further tightening in overall lending standards for both consumers and businesses, alongside a continued decline in loan demand. During 2022 and into 2023, the rapid rise in policy rates prompted a sharp tightening in credit conditions, as banks responded to higher funding costs and growing macroeconomic uncertainty. At the same time, demand for loans from households and firms fell significantly—mirroring past cycles in which Fed tightening curbed credit appetite and heightened risk aversion. Although there had been tentative signs of easing more recently, the latest data suggest a renewed drift toward tighter credit conditions. Taken together, the persistence of subdued loan demand and cautious bank lending points to a US monetary policy stance that remains restrictive.

250515Z5.jpg

**Oil prices and inflation expectations**
Despite renewed tariff tensions following the Trump administration’s trade actions in April 2025, market-based inflation expectations remain well anchored, with the 5-year forward inflation rate holding close to 2%. This resilience reflects, in part, declining oil prices, which have softened from their 2022 peaks amid concerns about global demand. The correlation in the chart suggests that the disinflationary impact of energy markets is acting as a counterweight to tariff-related cost pressures, helping to keep medium-term inflation expectations stable. 

250515Z6.jpg

Financial market sentiment has improved notably in recent days, buoyed by an unexpected pause in the US-China tariff war and the May 12 announcement of significantly reduced bilateral tariff rates. This détente has eased investor fears of a deepening global trade shock and sparked a rebound in risk appetite. The shift follows several weeks of anxiety triggered by the Trump administration’s April tariff actions, which led to sharp declines in high-frequency indicators of shipping activity (chart 1). More broadly, these developments have prompted substantial downgrades to consensus GDP and inflation forecasts for 2025 and 2026. Expectations for growth and inflation weakened across most major economies, while current account projections deteriorated markedly—underscoring the perceived economic toll of disrupted trade flows and supply chains (charts 2, 3, and 4). And, notwithstanding the more recent improvement in sentiment, underlying risks to the US outlook persist, not least via still-high uncertainty. This week’s Fed Senior Loan Officer Survey additionally points to continued tight credit conditions and subdued loan demand, suggesting that monetary policy remains a drag on activity (chart 5). On a brighter note, lower oil prices have helped to anchor inflation expectations, with market-based measures—such as the US 5-year forward inflation rate—remaining relatively stable despite tariff-related volatility (chart 6).

Charts of the Week: Sentiment Up, Forecasts Down

Robert Brusca

250514E.JPG

Measured on the HICP headline scale, German inflation has reached the promised land. Sequentially Germany’s HICP measure is up 1.9% over 12-months up at a 1.9% annual rate over six-months and much weaker at a -0.6% annual rate over three-months. A year ago, the pace of the HICP was 2.6% so this slide of German inflation into its overall target zone for European Monetary Union-wide inflation rate has been slow and relatively consistent.

The German domestic inflation measure isn't quite as well behaved and shows more signs of simply being stable skimming just above that hallowed 2% mark. A year ago, German domestic inflation ran at a 2.2% annual rate, currently, year-over-year it's at 2.1%, the six-month pace is at 2.3%, the same as the three-month pace, which is 2.3%. None of these are deal-breakers for monetary policy since German inflation has been within a couple of ticks of the desired path even on this domestic scale now for over a year, tracking the target that the ECB seeks for the monetary union as a whole.

However, a good deal of inflation progress continues to reside in the behavior of oil prices Brent oil prices are down for three-months in a row and they've certainly helped to contribute to good performance on the overall and domestic inflation measures. Germany's domestic CPI excluding energy was up 2.6% a year ago, currently it's up by 2.8% over 12-months it's up at a 2.6% annual rate over six-months, and at a 2.7% annual rate over three-months. Once energy is excluded, Germany's domestic inflation measure is steady, much like its headline measure, however it's skimming somewhere between half a percent and eight-tenths of a percentage point above the 2% target that the ECB sets for the European Monetary Union as a whole.

The point of saying it that way, talking about German inflation compared to the target for the monetary union as a whole, is to remind everyone that there is no target for inflation in Germany there's only a target for the monetary union as a complete entity. But Germany is the largest economy in the monetary union; what Germany does goes a long way toward putting the overall European measure in its proper place. Currently Brent inflation is down 27.7% over 12 months, it's falling at a 25.4% annual rate over six-months, and dropping at a 60.3% annual rate over three-months. These sharp declines in energy prices certainly go a long way toward making the headline inflation pace for Germany as well as for EMU behave.

The HICP measure doesn't give us up-to-date energy readings yet so we cannot calculate comparable statistics for the monetary union as a whole. However, the German data are quite suggestive that if we were to do that, we would find a similar outcome, that the HICP headline appears to be well behaved but that the core would probably appear to be a little more stubborn. Regardless of that fact, the question is where the ECB would come down with its discretion. And recently central banks have been quite tolerant about inflation-overshooting. However, that worm may have turned.

**A new future…unfolds or unravels**
Economies now face different challenges. Europe is going to be in charge of more of its own military defense and that's going to require more spending; that will create more stimulus and possibly generate more inflation pressures. In addition, there is this tariff imbroglio that could resolve either with a closer-to-free-trade result with tariffs being reduced, or a worse-result with more tariffs being imposed. A world with more tariffs or higher tariffs would be a world that was likely to be flirting with inflation a little bit more, at least over the next year or so. The ECB might still continue to be tolerant of that. However, a lot about these economic circumstances remains unknown. There's a lot of uncertainty about the performance of the US economy that can help to set the stage for how the global economy is going to perform. So, the future still offers the potential for more economic drag from a high tariff world or lower inflation performance from a lower tariff world and it's still hard to judge which of these worlds we're going to be in over the next 12- to 24-months. And now, German headline inflation is behaving quite well although the core reminds us that Germany may be farther away from its goal than the headline makes it appear, like that famous rearview mirror image in the movie Jurassic Park. Looking at things through mirrors can distort them. And at this point I don't think policymakers know exactly how to look at the future whether they know the rearview mirror from the windshield or the future from the present. There's a great deal of uncertainty, a great deal of disagreement and very little trust. Stirred together, it's not a good combination for policymakers. Double, double toil and...trouble? We shall see.


250514.JPG

Germany

German Inflation Affirmed as Stable 

250514a0.jpg

250514B0.jpg

Mortgage applications increased 1.1% (26.8% y/y) in the week ended May 9, after rising 11.0% in the week ended May 2, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications to purchase a home rose 2.3% (17.5% y/y) in the week ended May 9 after rising 11.1% in the previous week. Applications to refinance a home loan eased 0.4% (+43.6% y/y) last week after increasing 11.1% in the prior week.

The effective interest rate on a 30-year fixed rate loan of 7.06% in the week ended May 9 compared to 7.03% in the prior week. The effective rate on a 15-year fixed rate loan fell to 6.27% in the week ended May 9 from 6.34% in the prior week. The rate on a 30-year jumbo loan of 7.00% compared to 6.99% in the prior week, while the rate on a 5-year ARM rose to 6.36% in the week ended May 9 from 6.08% in the prior week.

The share of applications to refinance an existing mortgage eased to 36.4% in the week ended May 9 from 37.1% in the prior week. The share of loans with an adjustable rate declined to 7.4% last week from 8.3% one week earlier.

The average size of a mortgage loan eased 0.7% (+4.7% y/y) to $397,300 in the week ended May 9, after rising 4.2% to $400,200 in the prior week. The average size of a loan to purchase a home increased 1.1% (2.7% y/y) to $449,300 in the latest week after rising to $444,300 in the week prior. The average size of a loan to refinance an outstanding mortgage declined 5.8% (+20.1% y/y) last week to $306,500 after rising 12.3% to $325,400 one week earlier.

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


- Purchase applications rise but loan refinancing edges down.
- Effective interest rates remain range-bound.
- Average loan size increases.


Mortgage Applications Edge Higher Last Week as Interest Rates Remain Elevated

250513L4.jpg

250513M4.jpg

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.

250513N4.jpg

250513O4.jpg

- 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

250513T23.jpg

250513U23.jpg

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.

Economy in Brief

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