Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822b.jpg" width="353">
The above quote from a wise bond trader has been voiced for years by skeptics who wonder why anything as important as the price for energy, food, etc. should be taken out of an inflation measure.
The short answer is that some supply shocks will be short lived. The &quot;core&quot; inflation rate is the rate which will be returned to.
The risk is of this analysis is that it misses two important definitions of the future rate of price inflation. 1) Inflation is governed by the growth of money (demand). 2) Inflation results from too much money chasing too few goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822c.jpg" width="353">
Since 1970 there has been a 67% correlation between the annual growth in the money supply (M2) and the growth in the GDP price deflator two years later.
Inflationary expectations will embody all of the forces that are affecting prices. So while it may be valid to exclude some short term price spike, the calculation misses the lingering effect of how those higher prices affect psychology. And there&#39;s always the possibility of some &quot;policy mistake.&quot; During the 1970s, it was argued that the wealth lost (to OPEC) due to the quadrupling of oil prices needed to be replaced. Money growth was ramped up, and we learned how inflation could be &quot;monetized.&quot;<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822d.jpg" width="353">
The inflation in home prices certainly is an area for study. The price measure of a &quot;constant quality&quot; house published by the Office of Federal Housing Enterprise Oversight (OFFEO) indicated that through the first quarter, home prices rose 12.5% y/y. The consumer price index rental equivalence, however, indicated only a 2.6% gain though that did accelerate last quarter to 3.3%.
Click <a href="http://www.haver.com/COMMENT/Owners%20Equivalent%20Rent%20and%20the%20Cost%20of%20Living.pdf">here</a> for a discussion of Owners Equivalent Rent and the Cost of Living by Federal Reserve Bank of New York economist Charles Steindel. <span style="FONT-SIZE: 10pt; FONT-FAMILY: Verdana; mso-fareast-font-family: &#39;Times New Roman&#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-family: &#39;Times New Roman&#39;">This paper was presented at the Annual Meeting of the National Association for Business Economics (<a href="http://www.nabe.com/">www.nabe.com</a>) and later published in the January 2006 issue of the NABE journal Business Economics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822e.jpg" width="353">
Indeed, the &quot;core&quot; rate of Consumer Price Inflation of 2.7% in July was higher than the 2.2% gain in the measure less homeowners equivalent rent. The divergence certainly would have been higher if the price appreciation in the OFFEO measure were fully reflected in the CPI, but ...
The core issue (pardon the pun) is whether home price inflation, however measured, is impacting the prices of other goods and services. Mortgage Equity Withdrawal (MEW) is a measure available in the Mortgage Market section of Haver&#39;s USECON database and it provides an indication of how money balances (demand) are being impacted by home price inflation.
Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences from the Board of Governors of the Federal Reserve System can be found <a href="http://www.federalreserve.gov/pubs/feds/2005/200541/200541abs.html"> here</a>. 
Reflections on Four Decades of Central Banking, today&#39;s speech by Atlanta Fed President Jack Guynn, can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=367F1CC5-5056-9F12-1235F3179BF494D8&amp;method=display">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">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&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.2%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.3%</td>
<td>3.7%</td>
<td>2.8%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>1.6%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Slip With Gasoline Prices 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 22, 2006


<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822a.jpg" width="353">
Last week, chain store sales slipped 0.2% again. The decline was the third consecutive week of lackluster sales, according to the International Council of Shopping Centers (ICSC)-UBS survey, and lowered the latest week&#39;s total 0.4% below the end of July.
Sales in August on average are 0.3% above July due to a strong gain at the end of last month.
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 was unchanged (-2.3% y/y) in the latest week after several weeks of decline.
Retail gasoline prices fell for the second consecutive week. The eight cent decline to an average $2.92 (+11.9% y/y) for regular unleaded gas compared to a July average of $2.98. In spot market trading yesterday, regular unleaded gasoline prices dropped sharply $1.78, down 60 cents from the daily high reached late last month.
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">08/19/06</th>
<th scope="col">08/12/06</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>469.1</td>
<td>470.1</td>
<td>2.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Confidence in the Future among German Investors and Analysts Dips Sharply    
by <a href="/comment/Curley.html">Louise Curley</a> August 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822f.jpg" width="353">
Confidence among the German investors and analysts who participate in the ZEW survey, deteriorated sharply in August. Those expecting economic conditions to worsen six months from now outnumbered those expecting improvement by 5.6% in contrast to July when the optimists outnumbered the pessimists by 15.1%. The decline in sentiment was not only greater than the consensus had expected, but has brought confidence to a level well below the long term average (35%) as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822g.jpg" width="353">
While becoming more pessimistic about the outlook, these same investors and analysts continue to view current conditions more favorably. In August, those viewing current conditions as &quot;good&quot; outnumbered those viewing current conditions as &quot;bad&quot; by 33.6% versus 23.3% in July. July was the first month since early 2001 in which the appraisal of current conditions was better than that of expectations. In general the investors and analysts tend to be more optimistic about the future than they are about present conditions as can be seen in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany: ZEW Survey of Investors and Analysts</a></th>
<th scope="col">Aug 06</th>
<th scope="col">Jul 06</th>
<th scope="col">Aug 05</th>
<th scope="col">M/M Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp; Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Current Conditions (% balance)</td>
<td>33.6</td>
<td>23.3</td>
<td>-61.1</td>
<td>10.3</td>
<td>94.7</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-97.6</td>
</tr>
<tr>
<td class="firstcol">Expectations of Conditions 6 Months Ahead (% balance)</td>
<td>-5.6</td>
<td>15.1</td>
<td>50.0</td>
<td>-20.7</td>
<td>-55.6</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
</tbody>
</table>


</html>

The above quote from a wise bond trader has been voiced for years by skeptics who wonder why anything as important as the price for energy, food, etc. should be taken out of an inflation measure. The short answer is that some supply [...]

"For the CPI excluding everything, inflation is zero."ĀĀ

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821d.jpg" width="353">
Inflation in Germany has largely been the result of rising energy costs as can be seen in the first chart which shows the total index of inflation and the core index excluding energy. The widening difference between the two series is due to the rising price of oil. So far there has been little evidence that the rise in energy prices has had secondary effects on the economy. In this connection, one series to watch is that of the monthly data on German hourly wages for the whole economy that was announced today.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821e.jpg" width="353">
Although the index declined 0.29% in June to 102.1 from 102.4 in May, it was 0.99% above June of 2005. Since the data are not seasonally adjusted, the year to year comparison is the more meaningful.While it is volatile, the second chart shows that wage growth is beginning to accelerate reversing the downward trend started in 2003. The annual increase in hourly wages was 2.68% in 2002, 2.03% in 2003, 1.17% in 2004 and 0.97% in 2005. For the first six months of this year, hourly wages have averaged an increase of 1.2% over the first six months of last year. With declines in the unemployment rate, union demands are likely to rise. Last week, IG Metall, the German steel and metalworkers&#39; union demanded a 7% pay rise for the steel industry. While such demands are likely to be moderated, it appears that the secondary effects of the rise in oil prices are beginning to be felt.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">Germany</a></th>
<th scope="col">Jun 06</th>
<th scope="col">May&nbsp;&nbsp; 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M %</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 Price Index (2000=100)</td>
<td>110.3</td>
<td>110.0</td>
<td>108.1</td>
<td>0.29</td>
<td>2.04</td>
<td>108.3</td>
<td>105.5</td>
<td>104.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Core Index, Total ex Energy&nbsp;</td>
<td>107.6</td>
<td>107.4</td>
<td>106.6</td>
<td>0.19</td>
<td>0.94</td>
<td>106.7</td>
<td>105.5</td>
<td>104.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Hourly Wages (NSA, 2000=100)</td>
<td>102.79</td>
<td>105.25</td>
<td>104.86</td>
<td>-1.40</td>
<td>-1.97</td>
<td>105.41</td>
<td>144.40</td>
<td>100.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Annual % Change</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.51</td>
<td>1.81</td>
<td>2.52</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflation in Germany has largely been the result of rising energy costs as can be seen in the first chart which shows the total index of inflation and the core index excluding energy. The widening difference between the two series is [...]

Are German Wage Increases Beginning to Have an Effect on Inflation?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821c.jpg" width="353">
Inflationary concerns were piqued by the up-trend in prices for gold &amp; oil. That trend reversed a bit last week as the price of West Texas Intermediate Crude Oil settled on Friday at $71.15 per barrel, down 7.6% from the near-high of $76.99 reached early the prior week. Gold prices also moved lower to $613.90, off 7.5% from the July high.
Evidence that higher oil prices forced cutbacks in the demand for gasoline as well as some diminution of political tensions could have caused the trend reversal. In fact, the latest monthly figures on real personal consumption expenditures indicate demand for gasoline &amp; oil fell 5.5% from the peak during January of 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821b.jpg" width="353">
These gasoline demand figures through June were roughly consistent with the Department of Energy&#39;s estimates of lower demand, but during July &amp; August consumers seem to have grown accustomed to higher prices. Gasoline demand versus last year returned to the plus column.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821a.jpg" width="353">
The four week average of gasoline demand through mid-August rose 1.3% versus last year as a result of firm demand this Summer. Certainly that growth is well off the 4-8% rates of early 2004, but consumers&#39; resilience clearly is in evidence.
The just released figures from the Federal Highway Administration indicated that through 2004, the miles driven in the U.S. by passenger cars grew a steady 2.0% from the year earlier. These figures are available in Haver&#39;s USECON database under Highway Statistics.
The latest Short-Term Energy and Summer Fuels Outlook from the U.S. Energy Information Administration can be found <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/WEEKLY/@W4/@W403/@W40303/@W40303.HTM">US Weekly</a></th>
<th scope="col">08/15/06</th>
<th scope="col">12/31/05</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">Light Sweet Crude Oil, WTI (per BBL.)</td>
<td>$73.06</td>
<td>$58.16</td>
<td>10.5%</td>
<td>$57.59</td>
<td>$41.78</td>
<td>$32.781</td>
</tr>
<tr>
<td class="firstcol">Cash Gold Price, Handy &amp; Harmon</td>
<td>$625.50</td>
<td>$507.40</td>
<td>41.2%</td>
<td>$447.13</td>
<td>$411.72</td>
<td>$367.78</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflationary concerns were piqued by the up-trend in prices for gold & oil. That trend reversed a bit last week as the price of West Texas Intermediate Crude Oil settled on Friday at $71.15 per barrel, down 7.6% from the near-high of [...]

Oil & Gold Prices Down. A Trend Reversal?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821c.jpg" width="353">
Inflationary concerns were piqued by the up-trend in prices for gold &amp; oil. That trend reversed a bit last week as the price of West Texas Intermediate Crude Oil settled on Friday at $71.15 per barrel, down 7.6% from the near-high of $76.99 reached early the prior week. Gold prices also moved lower to $613.90, off 7.5% from the July high.
Evidence that higher oil prices forced cutbacks in the demand for gasoline as well as some diminution of political tensions could have caused the trend reversal. In fact, the latest monthly figures on real personal consumption expenditures indicate demand for gasoline &amp; oil fell 5.5% from the peak during January of 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821b.jpg" width="353">
These gasoline demand figures through June were roughly consistent with the Department of Energy&#39;s estimates of lower demand, but during July &amp; August consumers seem to have grown accustomed to higher prices. Gasoline demand versus last year returned to the plus column.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821a.jpg" width="353">
The four week average of gasoline demand through mid-August rose 1.3% versus last year as a result of firm demand this Summer. Certainly that growth is well off the 4-8% rates of early 2004, but consumers&#39; resilience clearly is in evidence.
The just released figures from the Federal Highway Administration indicated that through 2004, the miles driven in the U.S. by passenger cars grew a steady 2.0% from the year earlier. These figures are available in Haver&#39;s USECON database under Highway Statistics.
The latest Short-Term Energy and Summer Fuels Outlook from the U.S. Energy Information Administration can be found <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/WEEKLY/@W4/@W403/@W40303/@W40303.HTM">US Weekly</a></th>
<th scope="col">08/15/06</th>
<th scope="col">12/31/05</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">Light Sweet Crude Oil, WTI (per BBL.)</td>
<td>$73.06</td>
<td>$58.16</td>
<td>10.5%</td>
<td>$57.59</td>
<td>$41.78</td>
<td>$32.781</td>
</tr>
<tr>
<td class="firstcol">Cash Gold Price, Handy &amp; Harmon</td>
<td>$625.50</td>
<td>$507.40</td>
<td>41.2%</td>
<td>$447.13</td>
<td>$411.72</td>
<td>$367.78</td>
</tr>
</tbody>
</table>
Are German Wage Increases Beginning to Have an Effect on Inflation? 
by <a href="/comment/Curley.html">Louise Curley</a> August 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821d.jpg" width="353">
Inflation in Germany has largely been the result of rising energy costs as can be seen in the first chart which shows the total index of inflation and the core index excluding energy. The widening difference between the two series is due to the rising price of oil. So far there has been little evidence that the rise in energy prices has had secondary effects on the economy. In this connection, one series to watch is that of the monthly data on German hourly wages for the whole economy that was announced today.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060821e.jpg" width="353">
Although the index declined 0.29% in June to 102.1 from 102.4 in May, it was 0.99% above June of 2005. Since the data are not seasonally adjusted, the year to year comparison is the more meaningful.While it is volatile, the second chart shows that wage growth is beginning to accelerate reversing the downward trend started in 2003. The annual increase in hourly wages was 2.68% in 2002, 2.03% in 2003, 1.17% in 2004 and 0.97% in 2005. For the first six months of this year, hourly wages have averaged an increase of 1.2% over the first six months of last year. With declines in the unemployment rate, union demands are likely to rise. Last week, IG Metall, the German steel and metalworkers&#39; union demanded a 7% pay rise for the steel industry. While such demands are likely to be moderated, it appears that the secondary effects of the rise in oil prices are beginning to be felt.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">Germany</a></th>
<th scope="col">Jun 06</th>
<th scope="col">May&nbsp;&nbsp; 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M %</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 Price Index (2000=100)</td>
<td>110.3</td>
<td>110.0</td>
<td>108.1</td>
<td>0.29</td>
<td>2.04</td>
<td>108.3</td>
<td>105.5</td>
<td>104.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Core Index, Total ex Energy&nbsp;</td>
<td>107.6</td>
<td>107.4</td>
<td>106.6</td>
<td>0.19</td>
<td>0.94</td>
<td>106.7</td>
<td>105.5</td>
<td>104.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Hourly Wages (NSA, 2000=100)</td>
<td>102.79</td>
<td>105.25</td>
<td>104.86</td>
<td>-1.40</td>
<td>-1.97</td>
<td>105.41</td>
<td>144.40</td>
<td>100.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Annual % Change</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>1.51</td>
<td>1.81</td>
<td>2.52</td>
</tr>
</tbody>
</table>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818e.jpg" width="353">
A surge in merchandise exports pushed Brazil&#39;s current account to a record surplus in July, $3043 million, as reported late August 17 by the Central Bank of Brazil. With seasonal adjustment by Haver Analytics, the balance is $2203 million, as seen in the table below, the second largest monthly amount after $2715 million in November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818f.jpg" width="353">
Brazil sells oil, coffee and copper, among numerous other items. Obviously, two of these items have seen major price increases that have raised the value of Brazil&#39;s exports. They are up more than 23% from a year ago. This good gain, $2.6 billion, has more than offset a larger percentage increase in imports, nearly 32% on the year, or $1.9 billion.
Frequently, economists and other analysts assess a nation&#39;s trade and current account conditions over against the capital and financial accounts. But for Brazil, the more relevant comparison involves the trade balance versus the service and income flows. It is the large trade surplus that &quot;finances&quot; a modest deficit in services and a more significant deficit in income. Brazil has a sizable negative international investment position, -$340 billion at the end of last year, and it sends out considerable amounts of profits, dividends and interest payments. As noted below, the deficit on income exceeds $2.1 billion in most months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818g.jpg" width="353">
Flows on the financial side are very erratic, but generally direct investment remains positive. So there are consistent flows of foreign equity funds into Brazil, suggesting that companies want increasingly to be represented in that sizable market. Portfolio and &quot;other&quot; investments swing widely from month to month, making it hard to characterize other investors&#39; attitudes toward the country.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGELA/@E2/@E208/@E208.HTM">Brazil</a> Mil. US$, Seas Adj.</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">July 2005</th>
Monthly Averages*
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>2203</td>
<td>578</td>
<td>524</td>
<td>1851</td>
<td>1183</td>
<td>973</td>
<td>348</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade Balance</td>
<td>4945</td>
<td>3714</td>
<td>2908</td>
<td>4454</td>
<td>3729</td>
<td>2803</td>
<td>2066</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>12651</td>
<td>11007</td>
<td>10058</td>
<td>10304</td>
<td>9859</td>
<td>8040</td>
<td>6090</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>7705</td>
<td>7292</td>
<td>7150</td>
<td>5850</td>
<td>6130</td>
<td>5236</td>
<td>4020</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-952</td>
<td>-747</td>
<td>-663</td>
<td>-632</td>
<td>-679</td>
<td>-390</td>
<td>-411</td>
</tr>
<tr class="odd">
<td class="firstcol">Income</td>
<td>-2102</td>
<td>-2764</td>
<td>-2113</td>
<td>-2253</td>
<td>-2164</td>
<td>-1710</td>
<td>-1546</td>
</tr>
</tbody>
</table>
</body>
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A surge in merchandise exports pushed Brazil's current account to a record surplus in July, $3043 million, as reported late August 17 by the Central Bank of Brazil. With seasonal adjustment by Haver Analytics, the balance is $2203 [...]

Brazil's Large Exports Yield Record Current Account Surplus in July

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818c.jpg" width="353">
Consumer sentiment in early August dropped sharply to the lowest level since last October, according to the University of Michigan. The 7.1% m/m decline in the sentiment index to 78.7 compared to consensus expectations for stability at 84.0.
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 and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy posted a notable 11.0% m/m drop to the lowest level last October. The decline was led by a sharp decline in expected 12 month business conditions to the lowest level since September and a more moderate drop in expected conditions during the next five years. The expected change in personal finances also fell sharply to the lowest level since May. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818d.jpg" width="353">
The reading of current economic conditions fell moderately for the second straight month. Details indicate that the index of current personal finances dropped to the lowest level since May but perceived buying conditions for large household goods slipped just modestly m/m (-4.3% y/y).
Consumers&#39; opinion about gov&#39;t economic policy slipped a modest 2.4% m/m (-5.9% y/y) after sharp improvement during July. Expected inflation during the next year surged m/m to 4.9%, its highest level in nearly a year. The five to ten year expected rate of inflation also rose to 3.5%, its highest since May.
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.

<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/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August (Prelim)</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 class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>78.7</td>
<td>84.7</td>
<td>-11.7%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>100.8</td>
<td>103.5</td>
<td>-6.8%</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>64.5</td>
<td>72.5</td>
<td>-16.1%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
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Consumer sentiment in early August dropped sharply to the lowest level since last October, according to the University of Michigan. The 7.1% m/m decline in the sentiment index to 78.7 compared to consensus expectations for stability [...]

U.S. Consumer Sentiment Sagged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818a.jpg" width="353">
For August, the Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector improved to 18.5 from an unrevised 6.0 during July. The rebound by far outpaced Consensus expectations for an uptick to 8.0 and was to the highest level since April of last year.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
A higher level of shipments drove much of the improvement as the index rose twelve points to 22.3, its highest since March. The new orders sub-index also recovered most of the prior month&#39;s sharp decline. Moving in the other direction, the employment index reversed most of its July rebound but still indicated positive growth in factory payrolls. During the last ten years there has been a 75% 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/060818b.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index fell sharply to the lowest level since April. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months reversed about all of its July improvement and during the third quarter the average monthly level (11.4) is down sharply from 2Q (19.2). Notably, expectations for orders and employment were either stable or improved during 3Q versus the 2Q average.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0806.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</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">General Activity Index</td>
<td>18.5</td>
<td>6.0</td>
<td>15.5</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>45.3</td>
<td>50.3</td>
<td>26.9</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
</body>
</html>

For August, the Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector improved to 18.5 from an unrevised 6.0 during July. The rebound by far outpaced Consensus expectations for an uptick [...]

Philadelphia Fed Index Highest Since 2005

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818c.jpg" width="353">
Consumer sentiment in early August dropped sharply to the lowest level since last October, according to the University of Michigan. The 7.1% m/m decline in the sentiment index to 78.7 compared to consensus expectations for stability at 84.0.
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 and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy posted a notable 11.0% m/m drop to the lowest level last October. The decline was led by a sharp decline in expected 12 month business conditions to the lowest level since September and a more moderate drop in expected conditions during the next five years. The expected change in personal finances also fell sharply to the lowest level since May. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818d.jpg" width="353">
The reading of current economic conditions fell moderately for the second straight month. Details indicate that the index of current personal finances dropped to the lowest level since May but perceived buying conditions for large household goods slipped just modestly m/m (-4.3% y/y).
Consumers&#39; opinion about gov&#39;t economic policy slipped a modest 2.4% m/m (-5.9% y/y) after sharp improvement during July. Expected inflation during the next year surged m/m to 4.9%, its highest level in nearly a year. The five to ten year expected rate of inflation also rose to 3.5%, its highest since May.
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.

<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/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August (Prelim)</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 class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>78.7</td>
<td>84.7</td>
<td>-11.7%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>100.8</td>
<td>103.5</td>
<td>-6.8%</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>64.5</td>
<td>72.5</td>
<td>-16.1%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Highest Since 2005 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818a.jpg" width="353">
For August, the Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector improved to 18.5 from an unrevised 6.0 during July. The rebound by far outpaced Consensus expectations for an uptick to 8.0 and was to the highest level since April of last year.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
A higher level of shipments drove much of the improvement as the index rose twelve points to 22.3, its highest since March. The new orders sub-index also recovered most of the prior month&#39;s sharp decline. Moving in the other direction, the employment index reversed most of its July rebound but still indicated positive growth in factory payrolls. During the last ten years there has been a 75% 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/060818b.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index fell sharply to the lowest level since April. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months reversed about all of its July improvement and during the third quarter the average monthly level (11.4) is down sharply from 2Q (19.2). Notably, expectations for orders and employment were either stable or improved during 3Q versus the 2Q average.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0806.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</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">General Activity Index</td>
<td>18.5</td>
<td>6.0</td>
<td>15.5</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>45.3</td>
<td>50.3</td>
<td>26.9</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
Brazil's Large Exports Yield Record Current Account Surplus in July 
by <a href="/comment/Stone.html">Carol Stone</a> August 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818e.jpg" width="353">
A surge in merchandise exports pushed Brazil&#39;s current account to a record surplus in July, $3043 million, as reported late August 17 by the Central Bank of Brazil. With seasonal adjustment by Haver Analytics, the balance is $2203 million, as seen in the table below, the second largest monthly amount after $2715 million in November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818f.jpg" width="353">
Brazil sells oil, coffee and copper, among numerous other items. Obviously, two of these items have seen major price increases that have raised the value of Brazil&#39;s exports. They are up more than 23% from a year ago. This good gain, $2.6 billion, has more than offset a larger percentage increase in imports, nearly 32% on the year, or $1.9 billion.
Frequently, economists and other analysts assess a nation&#39;s trade and current account conditions over against the capital and financial accounts. But for Brazil, the more relevant comparison involves the trade balance versus the service and income flows. It is the large trade surplus that &quot;finances&quot; a modest deficit in services and a more significant deficit in income. Brazil has a sizable negative international investment position, -$340 billion at the end of last year, and it sends out considerable amounts of profits, dividends and interest payments. As noted below, the deficit on income exceeds $2.1 billion in most months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060818g.jpg" width="353">
Flows on the financial side are very erratic, but generally direct investment remains positive. So there are consistent flows of foreign equity funds into Brazil, suggesting that companies want increasingly to be represented in that sizable market. Portfolio and &quot;other&quot; investments swing widely from month to month, making it hard to characterize other investors&#39; attitudes toward the country.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGELA/@E2/@E208/@E208.HTM">Brazil</a> Mil. US$, Seas Adj.</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">July 2005</th>
Monthly Averages*
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>2203</td>
<td>578</td>
<td>524</td>
<td>1851</td>
<td>1183</td>
<td>973</td>
<td>348</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade Balance</td>
<td>4945</td>
<td>3714</td>
<td>2908</td>
<td>4454</td>
<td>3729</td>
<td>2803</td>
<td>2066</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>12651</td>
<td>11007</td>
<td>10058</td>
<td>10304</td>
<td>9859</td>
<td>8040</td>
<td>6090</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>7705</td>
<td>7292</td>
<td>7150</td>
<td>5850</td>
<td>6130</td>
<td>5236</td>
<td>4020</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-952</td>
<td>-747</td>
<td>-663</td>
<td>-632</td>
<td>-679</td>
<td>-390</td>
<td>-411</td>
</tr>
<tr class="odd">
<td class="firstcol">Income</td>
<td>-2102</td>
<td>-2764</td>
<td>-2113</td>
<td>-2253</td>
<td>-2164</td>
<td>-1710</td>
<td>-1546</td>
</tr>
</tbody>
</table>
</body>
</html>

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

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

Robert Brusca

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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.

S&P PMIs Show Mixed Fortunes

Winnie Tapasanun

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Mortgage applications rose 7.9% w/w (29.9% y/y) in the week ending April 17 following a 1.8% rebound in the week ending April 10, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the second successive w/w gain and the largest since the February 27 week, lifting the index to 303.3, its highest level since the March 20 week. Applications for loans to purchase a house jumped 10.1% (14.5% y/y) in the April 17 week, the biggest w/w increase since the January 9 week, after a 1.0% decline in the previous week. Applications for loan refinancing rose 5.8% (51.9% y/y) in the April 17 week following a 5.1% rebound in the April 10 week.

The effective interest rate on a 30-year fixed-rate loan fell 7bps to 6.53% in the week ending April 17 from 6.60% in the week ending April 10; it was above a low of 6.29% in the week of September 20, 2024 but below a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages dropped 12bps to 5.92% in the April 17 week from 6.04% in the previous week; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. The rate on 30-year jumbo loans declined 5bps to 6.56% in the April 17 week from 6.61% in the prior week; it was above its most recent low of 6.25% in the February 27 week but below a high of 7.99% in the week of October 27, 2023. These three rates hit their lowest levels since the March 13 week. Meanwhile, the rate on a 5-year ARM edged up to 5.81% in the April 17 week, the first w/w increase in four weeks, from 5.80% in the previous week (the lowest since the March 6 week); it was above its most recent low of 5.38% in the February 20 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan fell to 44.2% of total applications in the week ending April 17—the sixth w/w fall in seven weeks and the lowest level since the week of August 1, 2025—after rising to 45.5% in the week ending April 10; those numbers remained below a peak of 61.9% in the January 16 week. The adjustable-rate mortgage (ARM) share of activity declined to a three-week-low 8.0% in the April 17 week from 8.4% in the prior week; it was below a peak of 12.9% in the week of September 12, 2025 but above a low of 4.7% in the week of January 3, 2025.

The average size of a mortgage loan, up for the third consecutive week, rose 1.2% w/w (3.4% y/y) to $399,900 in the April 17 week, the highest level since the March 13 week, after a 1.3% increase to $395,000 in the April 10 week. The average size of a purchase loan eased 0.1% (+3.6% y/y) to $455,600 in the April 17 week, the fourth w/w decline in five weeks, following a 1.8% rebound to $456,100 in the prior week. The average size of a loan to refinance a mortgage climbed 2.4% (10.7% y/y) to $329,500 in the April 17 week after a 1.5% rise to $321,800 in the previous week, marking the third successive w/w increase and the highest level since the March 20 week.

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

- Purchase applications +10.1% w/w, biggest increase since the Jan. 9 week; refinancing loan applications +5.8% w/w, second consecutive rise.
- Effective interest rate on 30-year fixed loans down 7bps to 6.53%, a five-week low.
- Average loan size up for the third straight week, highest level since the March 13 week.

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