Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales rose another 0.3% last week after the 0.6% increase at the end of August.
The gains were the first back to back weekly increases in a month and lifted sales in early September 0.6% above the August average which rose 0.4% from July.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS slipped another 0.1% (-2.5% y/y) in the latest week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906a.jpg" width="353">
The retail price for a gallon of regular unleaded gasoline dropped a sharp twelve cents to an average $2.73 (-11.1% y/y), the lowest level since early April. In spot market trading yesterday, regular unleaded gasoline prices fell again to $1.67, down twelve cents from last week&#39;s average.
Oil prices also fell with the spot price of WTI crude down to $68.61 per bbl. (+4.0% y/y). Natural gas prices similarly fell to $5.49/mmbtu (-52.6% y/y) in spot trading.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/02/06</th>
<th scope="col">08/26/06</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">Total Weekly Chain Store Sales</td>
<td>473.2</td>
<td>471.7</td>
<td>3.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales rose another 0.3% last week after the 0.6% increase at the end of August. The gains were the first back to back weekly increases in a [...]

Chain Store Sales Up Again, Gasoline Prices Down Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906f.jpg" width="353">
The August Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) improved to 57.0 and exceeded Consensus expectations for stability near 55.0.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index fell for the fourth consecutive month to the lowest level in three years while the employment index also fell to its lowest level since January. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power fell for the second month in the last three and was somewhat below the 2Q average. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
Barreling Down the Road to Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060901/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#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">Business Activity Index</td>
<td>57.0</td>
<td>54.8</td>
<td>64.8</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.4</td>
<td>74.8</td>
<td>67.2</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


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The August Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) improved to 57.0 and exceeded Consensus expectations for stability near 55.0. Since the series' inception in 1997 there [...]

ISM Nonmanufacturing Index Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906d.jpg" width="353">
Non-farm labor productivity growth last quarter was revised upward to 1.6%, about as expected. The gain remained, however, quite a bit slower than the 2.7% average quarterly growth during the prior four quarters.
Compensation growth also was revised up, but to a much greater degree. The revised 6.6% 2Q increase compared to a preliminary report of a 5.4% gain and the revised 13.7% surge during 1Q was more than double the initial report.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906c.jpg" width="353">
Unit labor costs, therefore, surged. The revised 2Q increase of 4.9% was up from the initial report of a 4.2% gain and the 9.0% increase now estimated for 1Q compares to a 2.5% increase reported last month.
Factory sector productivity growth was revised down slightly to 2.6% (3.7% y/y) after a 3.7% 1Q increase. Factory sector compensation per hour, however, was revised up to a 4.0% (6.1% y/y) gain from 1.7%.
The previous sense that unit labor costs in the factory sector were under control, therefore, was revised away. Costs rose 1.3% (2.4% y/y) after a 9.3% 1Q rise that was revised from 1.4%.
In the nonfinancial corporate sector 2Q productivity, reported for the first time, grew 2.2% (4.8% y/y) after an 11.1% surge during 1Q. Unit labor costs grew 4.2% (2.6% y/y), the most since 3Q &#39;05.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906e.jpg" width="353">
Prices in the nonfinancial corporate sector rose and the implicit price deflator increased 3.4% (3.3% y/y). As a result the ratio of prices to unit labor costs fell. Corporate profit growth of 3.2% last quarter was down from 12.6% during 1Q and was the slowest in nearly a year. During the last ten years there has been a 46% correlation between the ratio and the y/y change in corporate profits.
Do Inflation Targeters Outperform Non-targeters? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf">here</a><a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf">.</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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q&#39; 06 (Revised)</th>
<th scope="col">1Q &#39;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">Output per Hour</td>
<td>1.6%</td>
<td>4.3%</td>
<td>2.5%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>6.6%</td>
<td>13.7%</td>
<td>7.7%</td>
<td>4.4%</td>
<td>3.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>4.9%</td>
<td>9.0%</td>
<td>5.0%</td>
<td>2.0%</td>
<td>0.7%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>


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Non-farm labor productivity growth last quarter was revised upward to 1.6%, about as expected. The gain remained, however, quite a bit slower than the 2.7% average quarterly growth during the prior four quarters. Compensation growth [...]

2Q U.S. Productivity Revised Up, Compensation Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906d.jpg" width="353">
Non-farm labor productivity growth last quarter was revised upward to 1.6%, about as expected. The gain remained, however, quite a bit slower than the 2.7% average quarterly growth during the prior four quarters.
Compensation growth also was revised up, but to a much greater degree. The revised 6.6% 2Q increase compared to a preliminary report of a 5.4% gain and the revised 13.7% surge during 1Q was more than double the initial report.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906c.jpg" width="353">
Unit labor costs, therefore, surged. The revised 2Q increase of 4.9% was up from the initial report of a 4.2% gain and the 9.0% increase now estimated for 1Q compares to a 2.5% increase reported last month.
Factory sector productivity growth was revised down slightly to 2.6% (3.7% y/y) after a 3.7% 1Q increase. Factory sector compensation per hour, however, was revised up to a 4.0% (6.1% y/y) gain from 1.7%.
The previous sense that unit labor costs in the factory sector were under control, therefore, was revised away. Costs rose 1.3% (2.4% y/y) after a 9.3% 1Q rise that was revised from 1.4%.
In the nonfinancial corporate sector 2Q productivity, reported for the first time, grew 2.2% (4.8% y/y) after an 11.1% surge during 1Q. Unit labor costs grew 4.2% (2.6% y/y), the most since 3Q &#39;05.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906e.jpg" width="353">
Prices in the nonfinancial corporate sector rose and the implicit price deflator increased 3.4% (3.3% y/y). As a result the ratio of prices to unit labor costs fell. Corporate profit growth of 3.2% last quarter was down from 12.6% during 1Q and was the slowest in nearly a year. During the last ten years there has been a 46% correlation between the ratio and the y/y change in corporate profits.
Do Inflation Targeters Outperform Non-targeters? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf">here</a><a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf">.</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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q&#39; 06 (Revised)</th>
<th scope="col">1Q &#39;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">Output per Hour</td>
<td>1.6%</td>
<td>4.3%</td>
<td>2.5%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>6.6%</td>
<td>13.7%</td>
<td>7.7%</td>
<td>4.4%</td>
<td>3.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>4.9%</td>
<td>9.0%</td>
<td>5.0%</td>
<td>2.0%</td>
<td>0.7%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906f.jpg" width="353">
The August Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) improved to 57.0 and exceeded Consensus expectations for stability near 55.0.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index fell for the fourth consecutive month to the lowest level in three years while the employment index also fell to its lowest level since January. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power fell for the second month in the last three and was somewhat below the 2Q average. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
Barreling Down the Road to Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20060901/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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#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">Business Activity Index</td>
<td>57.0</td>
<td>54.8</td>
<td>64.8</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.4</td>
<td>74.8</td>
<td>67.2</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>
Chain Store Sales Up Again, Gasoline Prices Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906b.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales rose another 0.3% last week after the 0.6% increase at the end of August.
The gains were the first back to back weekly increases in a month and lifted sales in early September 0.6% above the August average which rose 0.4% from July.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS slipped another 0.1% (-2.5% y/y) in the latest week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906a.jpg" width="353">
The retail price for a gallon of regular unleaded gasoline dropped a sharp twelve cents to an average $2.73 (-11.1% y/y), the lowest level since early April. In spot market trading yesterday, regular unleaded gasoline prices fell again to $1.67, down twelve cents from last week&#39;s average.
Oil prices also fell with the spot price of WTI crude down to $68.61 per bbl. (+4.0% y/y). Natural gas prices similarly fell to $5.49/mmbtu (-52.6% y/y) in spot trading.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/02/06</th>
<th scope="col">08/26/06</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">Total Weekly Chain Store Sales</td>
<td>473.2</td>
<td>471.7</td>
<td>3.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Mortgage Applications Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906g.jpg" width="353">
The total number of mortgage applications recovered 1.8% last week, according to the Mortgage Bankers Association, after a 0.9% decline at the end of August. The gain lifted the opening September level 1.5% versus the August average which rose 2.9% from July.
A 3.7% w/w increase in purchase applications followed several weeks of decline and lifted applications 1.7% above the August average which fell 3.5% from July.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance slipped 0.9%.
The effective interest rate on a conventional 30-year mortgage fell to 6.53% from 6.60% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell to 6.25% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
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">09/01/06</th>
<th scope="col">08/25/06</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>566.3</td>
<td>556.5</td>
<td>-26.6%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.7</td>
<td>375.9</td>
<td>-21.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,594.7</td>
<td>1,609.2</td>
<td>-26.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
How Much Does It Cost To Produce Heat? 
by <a href="/comment/Stone.html">Carol Stone</a> September 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906h.jpg" width="353">
There&#39;s a nip of autumn in the air in the New York region, and that change in the weather begins to shift our attention from the price of gasoline to heating fuel costs. Haver has three new databases that help us assess &quot;how much it costs to produce heat&quot; and many other energy questions. Coming from Energy Intelligence, a leading oil industry consulting firm, Oil Market Intelligence (OMI), Natural Gas Week (NGW) and World Gas Intelligence (WGI) contain extensive price, supply, demand and stock data for several energy sources in the US and around the world.
For instance, we can compare the cost of various fuels on a common basis, since NGW and WGI contain prices expressed in both the unit each fuel is commonly sold in, as well as in millions of Btu of energy produced. Last week, WTI Cushing crude was priced at $70.54/barrel and $12.16 per million Btu, and heating oil at the New York harbor was $1.9312/gallon and $13.92/MMBtu. By contrast, coal from Big Sandy River, Ohio, was $46.50 a ton, which translates into $1.94/MMBtu.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060906i.jpg" width="353">
These databases also facilitate comparisons across geographic markets. So in the winter of 2000/2001, we can quickly see how distorted the natural gas market was in California. As evident from the second graph, the New York &quot;City Gate&quot; price was about $4.50/MMBtu in late summer and peaked over the New Year in a range of $10-$16. It has shown seasonal spikes during the winter in most other years. However, in California, there looks to be only the mildest of seasonal swings then, as one might surmise from the temperate climate there. Except in 2001. In August 2000, the price was $5 to $6. In December it was $26, reaching a peak of $37.12 in the third week of December and remaining above $10/MMBtu until early May. A casual observer [in truth, someone just now passing by my desk] remarked, &quot;my, what was wrong in LA that winter!&quot; Lots. Similarly, it&#39;s easy to see the impact of Hurricanes Katrina and Rita in 2005.
The frequencies of these data vary, with some daily, some weekly and some monthly. Coverage of Europe is quite detailed, and supply and demand information on Asia is extensive. These databases, well established in the industry, should be very useful to Haver clients.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Selected Fuel Prices prices, $</th>
<th scope="col">9/4/06</th>
<th scope="col">8/28/06</th>
<th scope="col">July 2006</th>
<th scope="col">Aug 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">Heating Oil: New York Harbor, &nbsp;&nbsp; $/bbl</td>
<td>1.9312</td>
<td>1.9764</td>
<td>1.9270</td>
<td>1.7059</td>
<td>1.6109</td>
<td>1.1089</td>
<td>0.8418</td>
</tr>
<tr>
<td class="firstcol">&nbsp; $/MMBtu</td>
<td>13.92</td>
<td>14.25</td>
<td>13.89</td>
<td>12.30</td>
<td>11.82</td>
<td>8.05</td>
<td>6.13</td>
</tr>
<tr class="odd">
<td class="firstcol">Natural Gas: New York City Gate, &nbsp; $/MMBtu</td>
<td>5.92</td>
<td>7.72</td>
<td>6.85</td>
<td>9.54</td>
<td>10.01</td>
<td>6.78</td>
<td>6.41</td>
</tr>
<tr>
<td class="firstcol">Natural Gas: Los Angeles City Gate, &nbsp; $/MMBtu</td>
<td>--</td>
<td>6.81</td>
<td>6.22</td>
<td>8.04</td>
<td>7.93</td>
<td>5.93</td>
<td>5.61</td>
</tr>
<tr class="odd">
<td class="firstcol">Coal: Sandy River, Ohio, &nbsp; $/ton</td>
<td>46.50</td>
<td>47.25</td>
<td>46.85</td>
<td>57.05</td>
<td>56.26</td>
<td>54.56</td>
<td>32.96</td>
</tr>
<tr>
<td class="firstcol">&nbsp; $/MMBtu</td>
<td>1.94</td>
<td>1.97</td>
<td>1.95</td>
<td>2.40</td>
<td>2.38</td>
<td>2.28</td>
<td>1.38</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905i.jpg" width="353">
Data on the volume of retail trade in the twelve members of the Euro-zone and the twenty-five members of the European Union are, for the most part, reported on a seasonally unadjusted basis, a working day adjusted basis, which is also unadjusted for seasonality, a seasonally adjusted basis, which includes the working day adjustment and an estimate of the trend. Eurostat highlights the year over year changes in the working day adjusted series and the month to month changes in the seasonally adjusted series.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905g.jpg" width="353">
Preliminary data were released today for July. In the Euro-zone, based on partial data (data for Greece, Ireland, Italy, Luxembourg and the Netherlands are not yet available*), the volume of trade was 2.5% above July, 2005 and, on a seasonally adjusted basis, 0.6% above June. 2006. Similar figures for the European Union 25 were 3.3% and 0.3%. In addition to the missing Euro-zone data, data for the Czech Republic, Cyprus, Malta and Hungary are not available**.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905h.jpg" width="353">
The trends of the volume of trade in the two series are shown in the first chart. The increasing gap between the two series, indicates that the growth in the volume of retail trade in the eastern European countries, the Baltic states, and Denmark, Sweden and the U. K. the European, has, on average, been greater than that of the Euro-zone countries as a whole. Growth in retail trade. however, has varied widely in both the Euro-zone and the non-Euro-zone countries in the European Union. As an example of the different growth rates in the Euro-zone, the second chart compares, the volume of retail trade in France and Germany. In July, 2006, the volume of retail trade in Germany was only 2.4% above the volume in 2000, while the volume in France was 18.0% above the 2000 volume. As an example of the different growth rates in the non Euro-zone countries, the third chart compares the volume of trade in Poland and in Estonia. Although Poland&#39;s growth in retail trade is low when compared to that of Estonia, it is within the range of that of France which is one of the faster growth countries in the Euro-zone. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Volume of Retail Trade (2000=100)</th>
<th scope="col">Jul&nbsp; 06</th>
<th scope="col">Jun 06</th>
<th scope="col">Jul 05</th>
<th scope="col">M/M Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dif&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</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;</td>
<td>118.0</td>
<td>116.2</td>
<td>114.3</td>
<td>1.55</td>
<td>3.24</td>
<td>114.7</td>
<td>113.2</td>
<td>109.7</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>102.4</td>
<td>104.0</td>
<td>101.6</td>
<td>-1.54</td>
<td>0.79</td>
<td>101.6</td>
<td>100.1</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Estonia</td>
<td>218.5</td>
<td>211.9</td>
<td>183.4</td>
<td>3.11</td>
<td>19.14</td>
<td>181.84</td>
<td>158.98</td>
<td>141.34</td>
</tr>
<tr>
<td class="firstcol">Poland</td>
<td>122.2</td>
<td>124.3</td>
<td>112.1</td>
<td>-1.69</td>
<td>9.01</td>
<td>111.59</td>
<td>110.24</td>
<td>105.14</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-zone</td>
<td>108.8</td>
<td>108.1</td>
<td>106.</td>
<td>0.65</td>
<td>2.64</td>
<td>106.58</td>
<td>105.21</td>
<td>103.73</td>
</tr>
<tr>
<td class="firstcol">European Union</td>
<td>115.1</td>
<td>114.5</td>
<td>111.5</td>
<td>0.26</td>
<td>3.23</td>
<td>111.91</td>
<td>109.84</td>
<td>106.83</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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Data on the volume of retail trade in the twelve members of the Euro-zone and the twenty-five members of the European Union are, for the most part, reported on a seasonally unadjusted basis, a working day adjusted basis, which is also [...]

Retail Trade Volume in the Euro-zone and the European Union: The Gap Continues to Widen

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905c.jpg" width="353">
Announced job cuts in August, reported by Challenger, Grey &amp; Christmas, reversed nearly all of a whopping July decline. The 28,100 increase to 65,278 pulled the three month moving average up 7.3% but it was still 40.4% than last year.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs rose sharply m/m in the automotive (83.9% y/y), consumer goods (42.2% y/y), electronics (-72.9% y/y), and retail (107.0 % y/y) industries but fell in financial (-21.3% y/y), services (-73.3% y/y) and telecommunications (-77.3% y/y).
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans dropped sharply m/m (-73.6% y/y).
Remarks by Fed Chairman Ben S. Bernanke in South Carolina on Friday can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060901/default.htm">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/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">August</th>
<th scope="col">July</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">Announced Job Cuts</td>
<td>65,278</td>
<td>37,178</td>
<td>-7.5%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
</body>
</html>

Announced job cuts in August, reported by Challenger, Grey & Christmas, reversed nearly all of a whopping July decline. The 28,100 increase to 65,278 pulled the three month moving average up 7.3% but it was still 40.4% than last year. [...]

Challenger Layoffs Back Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905d.jpg" width="353">
The Office of Federal Housing Enterprise Oversight (OFHEO) reported that during 2Q &#39;06, home prices rose 1.2% q/q and that it was the slowest gain since 4Q &#39;99.
The OFHEO house price index is a geometric weighted average based on more than 26.5 million repeat transactions (purchase or refinance) over 29 years and 12,000 transactions annually.
Year to year, the 10.1% gain in prices nationwide also represented slower growth, the slowest in nearly two years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905e.jpg" width="353">
The purchase only home price index rose just 1.2% (8.3% y/y), its slowest quarterly gain since 1997.
The Middle Atlantic (11.0% y/y) and the South Atlantic (13.7% y/y) regions of the country along with the Mountain (14.1% y/y) and the Pacific (14.1% y/y) regions continued to experience firm y/y home price gains, double &amp; triple the rates of appreciation elsewhere in the country.
Slower growth in home prices y/y ranged across the country but prices declined 0.4% q/q in Massachusetts (+3.4% y/y). Prices also fell 0.7% q/q in Michigan (+1.0% y/y) and very slightly in Ohio (+2.1% y/y).
In New York, house prices rose a modest 0.9% (9.9% y/y) and in California prices increased 1.2% (14.3% y/y), a slowdown from the 28.0% y/y gain in late 2004. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905f.jpg" width="353">
House price appreciation continued strong in Florida as evidenced by a 2.5% q/q gain (21.3% y/y). Last year prices in Florida rose 25.9% and in 2004 were up 17.0%.In New Jersey prices also were firm and rose 1.9% (12.4% y/y).
View the latest OFHEO release <a href="http://www.ofheo.gov/media/pdf/2q06hpi.pdf">here</a>.
What Happens to Banks When House Prices Fall? U.S. Regional Housing Busts of the 1980s and 1990s from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Wheelock.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/@E9/@E911/@E91101/@E91101.HTM">OFHEO</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;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">House Price Index</td>
<td>1.2%</td>
<td>2.2%</td>
<td>10.1%</td>
<td>13.3%</td>
<td>10.8%</td>
<td>6.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Office of Federal Housing Enterprise Oversight (OFHEO) reported that during 2Q '06, home prices rose 1.2% q/q and that it was the slowest gain since 4Q '99. The OFHEO house price index is a geometric weighted average based on more [...]

Home Prices: Sporadic Regional Declines

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905a.jpg" width="353">
In July, the value of construction put in place dropped 1.2% following a little revised 0.4% gain during June. Consensus expectations had been for a 0.1% decline. The m/m drop was the largest since July 2001 and lowered the opening level for 3Q spending 1.0% below the 2Q average.
The 2.0% July drop in residential building activity was an accelerated rate of decline versus the 1.0% to 1.6% range of monthly shortfalls during the prior three months. New single family building collapsed 3.0% (-6.0% y/y) and the July level was down 9.9% from the peak in February. Moving in the other direction, spending on multi-family projects rose 1.6% (14.9% y/y) but the value of spending on improvements fell 0.8% (-0.2% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP. During April and May the value of residential building activity was down 1.3% from the 1Q average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060905b.jpg" width="353">
Nonresidential building ticked up 0.3% following strong monthly gains which have now lifted spending by roughly one quarter since the low last year. Office construction surged 5.5% (29.3% y/y) while multi-retail building increased another 3.0% (38.6% y/y). Building by the factory sector fell 3.1% (+26.3% y/y).
Public construction spending fell 0.7%. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, fell by 0.6% (+18.2% y/y), the second consecutive monthly decline.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.
Recent Trends in Homeownership from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/09/Garriga.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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">July</th>
<th scope="col">June</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>-1.2%</td>
<td>0.4%</td>
<td>5.1%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.3%</td>
<td>0.4%</td>
<td>4.0%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.0%</td>
<td>-1.0%</td>
<td>3.0%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.3%</td>
<td>3.7%</td>
<td>22.0%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.7%</td>
<td>0.4%</td>
<td>9.5%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

In July, the value of construction put in place dropped 1.2% following a little revised 0.4% gain during June. Consensus expectations had been for a 0.1% decline. The m/m drop was the largest since July 2001 and lowered the opening [...]

U.S. Construction Spending Drop Largest Since 2001

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

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**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

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**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

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**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

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**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

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**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

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Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

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Charts of the Week: Risks Build, Markets Shrug

Robert Brusca

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The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

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Germany

German Ifo Plunges Everywhere

Sandy Batten

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The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Chicago Fed National Activity Index Slipped in March

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 6,000 to 214,000 in the week ending April 18, from 208,000 in the week ending April 11, revised from 207,000. The four-week average rose 750 to 210,750 in the week ending April 18, from 210,000 the April 11 week, revised from 209,750. The Action Economics/Haver Analytics Survey looked for 210,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 12,000 to 1.821 million in the week ending April 11, from 1.809 million in the week ending April 4. The four-week moving average rose to 1.812 million in the latest week from 1.811 million in the March 28 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 4, the highest unemployment rates were in New Jersey (2.51%), Massachusetts (2.37%), Rhode Island (2.31%), Washington (2.25%), Minnesota (2.11%), and California (2.02%). The lowest rates were in Florida (0.30%), Louisiana (0.31%), Arkansas (0.35%), Alabama (0.36%), North Carolina (0.39%), Tennessee (0.46%), South Dakota (0.47%), Kansas and Virginia (both 0.49%). Rates in other notable states include New York (1.92%), Illinois (1.82%), Pennsylvania (1.52%), and Texas (1.04%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims rose by 6,000 to 214,000.
- Continuing claims rose by 12,000 to 1.821 million.
- The insured unemployment rate remained at 1.2%.


U.S. Initial Unemployment Claims Rose in the Week of April 18

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**Manufacturing looks strong while service sectors weaken**
S&P's April flash PMI readings show some very mixed results. For the United States, India, Australia, and the United Kingdom, there is a strengthening in the readings month-to-month for services, manufacturing, and the composite.

For Japan, France, and the European Monetary Union as a whole, there is improvement in the manufacturing sector on the month but a weaker services reading and a weaker composite overall.

Germany is the only responding area in the table showing weakness all around—in all three sectors—a weaker composite, a weaker manufacturing sector, and a weaker services sector in April. For Germany, this follows a weaker composite and service sector in March as well.

Most reporters—France, the United Kingdom, Japan, Australia, and India—had weaker readings for all three metrics in March: the composite, services, and manufacturing. The March exceptions were the United States, Germany, and the European Monetary Union; in each case, the exception was that the manufacturing sector improved month-to-month, while the composite and services both weakened.

This has been a period of weakening—in March and April—since the war in Iran began. The 48 separate sector readings produced 30 readings that were weaker month-to-month in March and April. Among the 16 composite readings, 12 reported weaker conditions month-to-month. In March, the immediate aftermath of the outbreak of war brought instantaneous step backs across the PMI readings, while April, responding to at least a military success in the area, has shown a significant bounce back that is now more common than further weakness.

The sequential data over three months, six months, and 12 months are based only on completed data; therefore, they're up to date through March. On that basis, we have triple sector weakness in the U.S., India, and Australia, with only Japan and the United Kingdom showing triple-sector improvement over three months. However, if we look at six months compared to 12 months, we have triple sector strength in the Monetary Union, Germany, France, the United Kingdom, Japan, and Australia. India and the U.S. each show only one stronger sector over that comparison—services in India’s case and manufacturing in the U.S. case.

**Ranking Peculiarity**
The ranking data take the current flash data and compare them to the history of observations back to January 2022. What is quite surprising is that, on that timeline, the manufacturing sectors of all the countries in the table—except for Australia and India—show manufacturing standings in their respective 80th to 90th percentiles. Meanwhile, services standings are typically in the 30th percentile or lower.

**Odd Impact of War**
If the war in Iran has an impact on something, we would expect that to fall on the goods trade sector. We would expect this to have an impact on manufacturing although it's the opposite thing that's happening. Manufacturing is showing a revival, while services sectors are showing weaker performance across these countries generally. India is an interesting case, with manufacturing only in its 32nd percentile; however, India’s raw diffusion reading for manufacturing is the strongest raw diffusion reading in the table. What India's ranking is telling us is that India had been extremely strong over the period since 2022, and now compared to that past standard, it's relatively weaker. However, it's still strong in absolute terms, showing a great deal of strength based on its pure diffusion value, just not in comparison to historic performance.

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**Next?**
At this point, it's not clear to me at least what these PMI data are telling us since the strength in manufacturing is a curiosity as is the weakness in the services sector. You see these two phenomena displayed in the chart above, in the case of the European Monetary Union’s flash readings as well.

**War breeds negative effects**
It's not a surprise that war would take some toll on consumer confidence or that it would be reflected in the services sector. However, seeing the kind of weakness being portrayed now in services against the strength in manufacturing is simply a bit hard to rationalize and understand. So, I think we're going to have to keep an eye on these readings as well as other readings in the months ahead to try to discern how global events, the war, conditions in the Strait of Hormuz, inflation currency shifts, and central bank policy are playing out across these various countries. None of what is happening is obvious to me. Japan clearly continues to benefit from a weak yen as its manufacturing sector is flying high, at its best reading since January 2022.

Economy in Brief

Jump to:

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