Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714h.jpg" width="353">
Consumer sentiment early this month reversed part of its June improvement and sagged 2.2% to 83.0, according to the University of Michigan. The decline ran counter to Consensus expectations for a modest increase to 85.5.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The reading of current economic conditions reversed about half of the June increase with a 4.0% decline. The index of current personal finances reversed nearly all of the prior month&#39;s rise with an 8.0% (-14.8% y/y) decline though buying conditions for large household goods fell a modest 1.3% (-8.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714i.jpg" width="353">
Expectations for the economy fell a modest 0.6% but it was the fifth decline his year. It was led by a 5.7% (-25.9% y/y) decline in 12 month expected business conditions although 5 year expected conditions improved modestly, the first gain in four months, as did expected personal finances.
Consumers&#39; opinion about gov&#39;t economic policy recovered 5.4% m/m (-15.2% y/y), the first monthly increase since March while expected inflation during the next year fell sharply to 3.7%, its lowest since February. The five to ten year expected rate of inflation also fell to 3.2%, its lowest in over a year.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">July (Prelim.)</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">Consumer Sentiment</td>
<td>83.0</td>
<td>84.9</td>
<td>-14.0%</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>105.0</td>
<td>-11.2%</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>71.6</td>
<td>72.0</td>
<td>-16.3%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
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Consumer sentiment early this month reversed part of its June improvement and sagged 2.2% to 83.0, according to the University of Michigan. The decline ran counter to Consensus expectations for a modest increase to 85.5. During the [...]

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/060714a.jpg" width="353">
The 2Q &#39;06 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell moderately to 71 from 74 the prior quarter. The figure, however, was higher than the year earlier level and so far in 2006 the average reading of 73 compared favorably to last year&#39;s average of 70.
During the last ten years there has been a 69% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index fell to 81 from 85 in 1Q and the average this year equaled that for all of last year. Since early 2004 the orders index has trended lower from a high of 93.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714b.jpg" width="353">
The 2Q export orders index fell to 72 from 78 in 1Q and from 74 averaged in 2004 &amp; 2005. During the last ten years there has been a 59% correlation between the export orders index and quarterly growth in real US exports.
The profit margins index fell sharply to 74 from 82 in 1Q. Both figures were up sharply from the 2005 average of 65.Capital spending intentions for the coming year moved higher q/q with the index at a record high of 86. During the last ten years there has been a 75% correlation between the capital spending index a q/q growth in business investment.
The survey of 60 senior financial executives representing a broad range of manufacturing industries reflects the views on current &amp; future business conditions. The business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2316">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Business Index</td>
<td>71</td>
<td>74</td>
<td>68</td>
<td>70</td>
<td>76</td>
<td>67</td>
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</tbody>
</table>
</body>
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The 2Q '06 Composite Business Index published by the Manufacturers' Alliance/MAPI fell moderately to 71 from 74 the prior quarter. The figure, however, was higher than the year earlier level and so far in 2006 the average reading of [...]

MAPI Business Outlook Survey Off Moderately

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714c.jpg" width="353">
US retail sales fell 0.1% last month following an unrevised 0.1% up tick during May. It was the first m/m decline since February and it resulted in a 3.7% (AR) increase for 2Q after the 13.4% jump the prior quarter. Consensus expectations had been for a 0.4% increase in sales last month.
Nonauto retail sales increased an expected 0.3% but the rise during May was revised up to 0.7%. Nonauto retail spending grew 6.6% (AR) last quarter after an 11.4% rise during 1Q.
Lower sales by motor vehicle &amp; parts dealers led last month&#39;s sales decline. A 1.4% drop (-3.5% y/y) was the third m/m decline this year despite a 1.3% rise in June unit auto sales to 16.30M.
Building material sales fell further in June. The 1.0% (+8.8% y/y) m/m decline was the third in a row and the fifth in the last seven months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714d.jpg" width="353">
Sales at gasoline stations increased another 1.1% (20.4% y/y) even though retail gasoline prices fell 0.8% m/m during June to an average of $2.89 per gallon. Gas prices have since jumped to $2.97.
Less gasoline, nonauto retail sales rose 0.1% (7.0% y/y) after a 0.6% May increase that was double the rise estimated initially. During 2Q, nonauto retail sales less gasoline increased 3.3% (AR) after a 12.2% spurt during 1Q.
Sales of discretionary items were firm last month. Sales of furniture, electronics &amp; appliances increased 0.4% (6.8% y/y) after a 0.3% gain during May which was initially estimated as a 0.1% decline. General merchandise stores rose 0.3% (4.6% y/y) after an unrevised like gain during May and apparel store sales also rose 0.3% (4.9% y/y) though the prior month&#39;s increase was doubled to 0.4%. Sales of nonstore retailers (internet &amp; catalogue) slipped 0.3% (12.3% y/y) after an upwardly revised 3.0% May spike.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">June</th>
<th scope="col">May</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.1%</td>
<td>0.1%</td>
<td>5.9%</td>
<td>7.2%</td>
<td>6.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.3%</td>
<td>0.7%</td>
<td>8.5%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

US retail sales fell 0.1% last month following an unrevised 0.1% up tick during May. It was the first m/m decline since February and it resulted in a 3.7% (AR) increase for 2Q after the 13.4% jump the prior quarter. Consensus [...]

U.S. Retail Sales Lower Due To Weakness in Autos & Housing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714c.jpg" width="353">
US retail sales fell 0.1% last month following an unrevised 0.1% up tick during May. It was the first m/m decline since February and it resulted in a 3.7% (AR) increase for 2Q after the 13.4% jump the prior quarter. Consensus expectations had been for a 0.4% increase in sales last month.
Nonauto retail sales increased an expected 0.3% but the rise during May was revised up to 0.7%. Nonauto retail spending grew 6.6% (AR) last quarter after an 11.4% rise during 1Q.
Lower sales by motor vehicle &amp; parts dealers led last month&#39;s sales decline. A 1.4% drop (-3.5% y/y) was the third m/m decline this year despite a 1.3% rise in June unit auto sales to 16.30M.
Building material sales fell further in June. The 1.0% (+8.8% y/y) m/m decline was the third in a row and the fifth in the last seven months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714d.jpg" width="353">
Sales at gasoline stations increased another 1.1% (20.4% y/y) even though retail gasoline prices fell 0.8% m/m during June to an average of $2.89 per gallon. Gas prices have since jumped to $2.97.
Less gasoline, nonauto retail sales rose 0.1% (7.0% y/y) after a 0.6% May increase that was double the rise estimated initially. During 2Q, nonauto retail sales less gasoline increased 3.3% (AR) after a 12.2% spurt during 1Q.
Sales of discretionary items were firm last month. Sales of furniture, electronics &amp; appliances increased 0.4% (6.8% y/y) after a 0.3% gain during May which was initially estimated as a 0.1% decline. General merchandise stores rose 0.3% (4.6% y/y) after an unrevised like gain during May and apparel store sales also rose 0.3% (4.9% y/y) though the prior month&#39;s increase was doubled to 0.4%. Sales of nonstore retailers (internet &amp; catalogue) slipped 0.3% (12.3% y/y) after an upwardly revised 3.0% May spike.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">June</th>
<th scope="col">May</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.1%</td>
<td>0.1%</td>
<td>5.9%</td>
<td>7.2%</td>
<td>6.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.3%</td>
<td>0.7%</td>
<td>8.5%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Sagged 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714h.jpg" width="353">
Consumer sentiment early this month reversed part of its June improvement and sagged 2.2% to 83.0, according to the University of Michigan. The decline ran counter to Consensus expectations for a modest increase to 85.5.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The reading of current economic conditions reversed about half of the June increase with a 4.0% decline. The index of current personal finances reversed nearly all of the prior month&#39;s rise with an 8.0% (-14.8% y/y) decline though buying conditions for large household goods fell a modest 1.3% (-8.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714i.jpg" width="353">
Expectations for the economy fell a modest 0.6% but it was the fifth decline his year. It was led by a 5.7% (-25.9% y/y) decline in 12 month expected business conditions although 5 year expected conditions improved modestly, the first gain in four months, as did expected personal finances.
Consumers&#39; opinion about gov&#39;t economic policy recovered 5.4% m/m (-15.2% y/y), the first monthly increase since March while expected inflation during the next year fell sharply to 3.7%, its lowest since February. The five to ten year expected rate of inflation also fell to 3.2%, its lowest in over a year.
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>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">July (Prelim.)</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">Consumer Sentiment</td>
<td>83.0</td>
<td>84.9</td>
<td>-14.0%</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>105.0</td>
<td>-11.2%</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>71.6</td>
<td>72.0</td>
<td>-16.3%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Import Prices Up Just 0.1% 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714l.jpg" width="353">
Total import prices rose just 0.1% last month after a 1.7% surge during May and about matched Consensus expectations for a 0.2% advance.
Lower petroleum prices held back the increase with a 1.4% decline. That likely will not be repeated in July given that Brent crude oil prices this month have ranged between $72 and $76 per barrel versus a June average of $68.56.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714k.jpg" width="353">
Import prices less petroleum rose 0.4% after an upwardly revised 0.7% May increase. The rise was led by a 1.1% (11.2% y/y) increase in nonoil industrial supplies such as a 9.3% (66.4% y/y) spike in nonferrous metals prices.
Capital goods prices rose 0.3% (-1.1% y/y) but excluding computers, capital goods prices rose 0.5% (1.2% y/y). Prices for nonauto consumer goods inched up 0.1% for the second consecutive month (-0.1% y/y).
During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.
Export prices rose a firm 0.8% led by a 1.8% gain in industrial supplies (13.3% y/y) prices.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.1%</td>
<td>1.7%</td>
<td>7.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-1.4%</td>
<td>6.1%</td>
<td>32.6%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.4%</td>
<td>0.7%</td>
<td>2.2%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.8%</td>
<td>0.6%</td>
<td>4.2%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
U.S. Business Inventories Gain 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714j.jpg" width="353">
Total business inventories increased 0.8% during May, about matched the prior month&#39;s strong gain and easily surpassed Consensus expectations for a 0.4% rise.
Retail inventories jumped 1.6% after a slight slip during April. Motor vehicle inventories surged 3.2% (4.1% y/y) while less autos, retail inventories rose a strong 0.8% led by a 1.1% (6.3% y/y) jump in apparel. General merchandise inventories firmed 0.7% (-0.7% y/y) but furniture inventories rose just 0.2% (5.2% y/y).
Wholesale inventories jumped 0.8% as petroleum inventories surged 7.1% (35.9% y/y). Durables rose 0.8% (8.7% y/y). During the last ten years there has been a 67% correlation between the y/y change in wholesale inventories and the change in imports of nonpetroleum goods.
Factory sector inventories slipped modestly after a 1.0% April spike.
The inventory to sales ratio for total business slipped back to its low 1.25 as business sales jumped 1.4% (8.8% y/y).

<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/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">May</th>
<th scope="col">April</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>0.8%</td>
<td>0.7%</td>
<td>5.1%</td>
<td>4.4%</td>
<td>7.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>1.6%</td>
<td>-0.1%</td>
<td>4.1%</td>
<td>2.7%</td>
<td>6.7%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.8%</td>
<td>0.2%</td>
<td>4.2%</td>
<td>4.5%</td>
<td>7.1%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.8%</td>
<td>1.3%</td>
<td>7.8%</td>
<td>7.1%</td>
<td>9.8%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.0%</td>
<td>1.0%</td>
<td>3.9%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
</tbody>
</table>
MAPI Business Outlook Survey Off Moderately   
by <a href="/comment/Moeller.html">Tom Moeller</a> July 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714a.jpg" width="353">
The 2Q &#39;06 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell moderately to 71 from 74 the prior quarter. The figure, however, was higher than the year earlier level and so far in 2006 the average reading of 73 compared favorably to last year&#39;s average of 70.
During the last ten years there has been a 69% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index fell to 81 from 85 in 1Q and the average this year equaled that for all of last year. Since early 2004 the orders index has trended lower from a high of 93.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714b.jpg" width="353">
The 2Q export orders index fell to 72 from 78 in 1Q and from 74 averaged in 2004 &amp; 2005. During the last ten years there has been a 59% correlation between the export orders index and quarterly growth in real US exports.
The profit margins index fell sharply to 74 from 82 in 1Q. Both figures were up sharply from the 2005 average of 65.Capital spending intentions for the coming year moved higher q/q with the index at a record high of 86. During the last ten years there has been a 75% correlation between the capital spending index a q/q growth in business investment.
The survey of 60 senior financial executives representing a broad range of manufacturing industries reflects the views on current &amp; future business conditions. The business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2316">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/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">2Q &#39;06</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Business Index</td>
<td>71</td>
<td>74</td>
<td>68</td>
<td>70</td>
<td>76</td>
<td>67</td>
</tr>
</tbody>
</table>
Bank of Japan Raises Key Interest Rates 
by <a href="/comment/Stone.html">Carol Stone</a> July 14, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714e.jpg" width="353">
The Bank of Japan announced a policy change today (Friday). The best way to describe it is to quote the Bank&#39;s own text:&quot;At the Monetary Policy Meeting held today, the Bank of Japan decided, by a unanimous vote, to change the guideline for money market operations for the intermeeting period, effective immediately from the announcement of the decision. &quot;The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0.25 percent.&quot; This reflects basically a 25-basis-point increase in that key money market interest rate. The Bank also raised its discount rate from 0.1% to 0.4%. This rate covers bank borrowing directly from the Bank of Japan under its lending facility; at the same time, waivers of extra fees -- &quot;add-on rates&quot; -- will continue for frequent users of the facility, so the Bank is not trying to discourage its use. The Bank will also continue buying long-term Japanese government bonds in an attempt to restrain any general rise in long-term interest rates.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714f.jpg" width="353">
This is the first increase in the BoJ&#39;s basic rate structure since July 2000, when the call rate was also raised from near zero to 0.25%. The strength of the Japanese economy was fairly tenuous then, though, and this hike was reversed in March 2001. Now, in contrast, the BoJ believes that &quot;Japan&#39;s economy continues to expand moderately, with domestic and external demand and also the corporate and household sectors well in balance. The economy is likely to expand for a sustained period.&quot; Moreover, &quot;the year-on-year rate of change in consumer prices is projected to continue to follow a positive trend.&quot;
The Bank remains somewhat skeptical, however, and concludes its announcement with the assessment that it expects to &quot;adjust the level of the policy interest rate gradually . . . In this process, an accommodative monetary environment ensuing from very low interest rates will probably be maintained for some time.&quot;
The moderate language of the statement and the implication that further rate increases would come only slowly was milder than some market participants were anticipating, apparently, and they actually traded the yen downward on the day. The stock market fell as well, but this may be related to declines in other world markets that are in response to the violence in the Middle East and the accompanying pressure on oil prices.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060714g.jpg" width="353">
We&#39;d probably agree with the BoJ, though, in their cautious attitude. Just on Tuesday, Louise Curley discussed &quot;wavering&quot; consumer sentiment in the country and on June 30, we expressed some discomfort of our own with evident hesitation in labor markets. These caveats notwithstanding, the Japanese economy is in the best condition it has seen in a good many years. The second graph here illustrates this with the Cabinet Office&#39;s index of coincident indicators and the unemployment rate. Two other conditions have changed over the past several months. Bank lending has begun to grow again. In the third graph, we see the nice uptrend developing in loans at domestic banks. At the time of the last BoJ rate hike in 2000, the banks were still under pressure from distressed loans and their loan portfolios were contracting, a process that continued until June of last year. Additionally, prices are rising, with positive year-on-year changes in the CPI now for five consecutive months. As Louise noted in her discussion Tuesday, people are now concerned that there might be more inflation than they want!

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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/060713e.jpg" width="353">
We continue to marvel at the low non-energy inflation rates in many countries. Today, June CPI was reported by two major countries, France and Germany, and the year-on-year pace excluding energy remains quite modest in both. For France, the monthly CPI was unchanged following a 0.3% increase in May. The 12-month rate is just 1.2%, about even with 2005&#39;s performance and only half of the increase in 2003. The overall index rose 0.1% in June and 1.9% year-on-year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713f.jpg" width="353">
For Germany, the ex-energy monthly increase was 0.2%; this came after three consecutive increases of just 0.1% and the year-on-year rate is a mere 0.9%. This last has been less than 1.0% every month this year, with January and May as low as 0.7%. The total index rose 0.3% in June and stands 2.0% above June 2005.
In part, the modest CPI trends in both countries owe to restrained health care costs. These are much more administered sectors than in the US, of course, and except for periods of regulated changes, their price indexes tend not to move much. Communications costs continue to fall in both places as technology helps them decline in many countries. The culture and recreation sectors are also soft in France and Germany. In Germany, household goods and clothing remain weak, and in France they are running on a flat trend.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713g.jpg" width="353">
Sectors pushing upward on the price indexes include housing, transportation and travel. In each nation, the &quot;housing&quot; category, as in the US, includes fuel and electricity. So the pattern of relative inflation performance among various CPI components describes a situation that still confines the dramatic increases in energy to the sectors of each economy that are directly impacted: home heating, cooling, and lighting, driving and other transportation and other travel-related expenses. Another source of upward pressure in both France and Germany is food prices, but they are picking up from very slow rates; food inflation remains less than total inflation in both countries.
Haver maintains these price data in two different databases. Each country has a database, FRANCE and GERMANY, respectively, that contains data as published by local country sources. We also have &quot;G10&quot;, a collection of data for a number of major countries (actually several more than 10). In that database, we make some calculations of our own on selected series. In the case of the CPI, we seasonally adjust more components than the statistical agencies of each country do. Another example is the calculation of GDP in US dollars, which is not usually published by the local country. So while there is generally more underlying detail in the country-sourced database, G10 contains some more analytical data that are useful for international comparisons and other purposes.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/G10/G10.HTM">% Changes, SA*</a></th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">Year/Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">France: Total CPI</td>
<td>0.1</td>
<td>0.5</td>
<td>0.4</td>
<td>1.9</td>
<td>1.5</td>
<td>2.1</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; ex Energy</td>
<td>0.0</td>
<td>0.3</td>
<td>0.2</td>
<td>1.2</td>
<td>1.1</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Germany: Total CPI</td>
<td>0.3</td>
<td>0.1</td>
<td>0.5</td>
<td>2.0</td>
<td>2.1</td>
<td>2.1</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; ex Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>0.9</td>
<td>1.0</td>
<td>1.7</td>
<td>1.0</td>
</tr>
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</table>
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We continue to marvel at the low non-energy inflation rates in many countries. Today, June CPI was reported by two major countries, France and Germany, and the year-on-year pace excluding energy remains quite modest in both. For [...]

June CPI Stays Low in France & Germany

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713b.jpg" width="353">
The U.S. federal government ran a budget surplus in June, as it usually does. The as expected figure of $20.5B narrowed the FY06 to-date budget deficit to $206.5B versus a deficit of $249.4B during the first nine months of FY05.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713c.jpg" width="353">
Growth in &#39;06 net revenues FYTD versus the first nine months of FY05 remained strong at 12.8%. Individual income tax receipts (44% of total receipts) rose 14.5% FYTD as withheld taxes rose 8.4% due to improved job markets and non-withheld taxes surged 21.7%. The improved job market also lifted employment taxes (36% of total receipts) 6.3% y/y.
Corporate income taxes (10% of total receipts) surged 27.0% y/y during FY06&#39;s first nine monthsand estate &amp; gift taxes rose 15.1% y/y.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713d.jpg" width="353">
U.S. net outlays rose 8.8% FYTD versus &#39;05. Defense spending (19% of total outlays) rose 7.8% during the first nine months of FY06 versus &#39;05.Medicare spending (12% of total outlays) jumped 16.5% and spending on social security (21% of total outlays) remained strong at 5.8%. Spending on income security grew just 2.7%.
Social Security and Medicare : the impending fiscal challenge from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/Publicat/econrev/PDF/1q06hakk.pdf"> here</a>.
The Mid-Session Review of the U.S. Government Budget for FY 2007 is available <a href="http://www.whitehouse.gov/omb/budget/fy2007/pdf/07msr.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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
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</thead>
<tbody>
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<td class="firstcol">Budget Balance</td>
<td>$20.5B</td>
<td>$-42.8B</td>
<td>$22.9B (6/05)</td>
<td>$-318.3B</td>
<td>$-412.7B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$264.4B</td>
<td>$192.7B</td>
<td>12.6%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$243.9B</td>
<td>$235.5B</td>
<td>15.1%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
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The U.S. federal government ran a budget surplus in June, as it usually does. The as expected figure of $20.5B narrowed the FY06 to-date budget deficit to $206.5B versus a deficit of $249.4B during the first nine months of FY05. [...]

June U.S. Budget Surplus As Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713a.jpg" width="353">
Initial claims for unemployment insurance jumped 19,000 to 332,000 last week after an unrevised 2,000 slip during the prior week. Consensus expectations had been for a lesser gain to 320,000 claims.
The Labor Department indicated that the increase reflected the annual July automobile industry plant closings for model changeover as well as 4,000 unadjusted new claims caused by a partial shutdown of the New Jersey state government. It furloughed 45,000 state workers but the shutdown over a missed budget deadline has since been resolved.
The four-week moving average of initial claims rose to 317,250 (-2.0% y/y).
Continuing claims for unemployment insurance fell 18,000 following a slightly revised 45,000 increase the previous week.
The insured rate of unemployment was stable at 1.9% where it has been since February.
Employment growth, job creation, and job destruction in Ohio from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/com2006/0401.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">07/08/06</th>
<th scope="col">07/01/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>332</td>
<td>313</td>
<td>0.0%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,429</td>
<td>-7.3%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
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Initial claims for unemployment insurance jumped 19,000 to 332,000 last week after an unrevised 2,000 slip during the prior week. Consensus expectations had been for a lesser gain to 320,000 claims. The Labor Department indicated that [...]

Initial Unemployment Insurance Claims Increased

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713a.jpg" width="353">
Initial claims for unemployment insurance jumped 19,000 to 332,000 last week after an unrevised 2,000 slip during the prior week. Consensus expectations had been for a lesser gain to 320,000 claims.
The Labor Department indicated that the increase reflected the annual July automobile industry plant closings for model changeover as well as 4,000 unadjusted new claims caused by a partial shutdown of the New Jersey state government. It furloughed 45,000 state workers but the shutdown over a missed budget deadline has since been resolved.
The four-week moving average of initial claims rose to 317,250 (-2.0% y/y).
Continuing claims for unemployment insurance fell 18,000 following a slightly revised 45,000 increase the previous week.
The insured rate of unemployment was stable at 1.9% where it has been since February.
Employment growth, job creation, and job destruction in Ohio from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/com2006/0401.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">07/08/06</th>
<th scope="col">07/01/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>332</td>
<td>313</td>
<td>0.0%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,429</td>
<td>-7.3%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
June U.S. Budget Surplus As Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 13, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713b.jpg" width="353">
The U.S. federal government ran a budget surplus in June, as it usually does. The as expected figure of $20.5B narrowed the FY06 to-date budget deficit to $206.5B versus a deficit of $249.4B during the first nine months of FY05.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713c.jpg" width="353">
Growth in &#39;06 net revenues FYTD versus the first nine months of FY05 remained strong at 12.8%. Individual income tax receipts (44% of total receipts) rose 14.5% FYTD as withheld taxes rose 8.4% due to improved job markets and non-withheld taxes surged 21.7%. The improved job market also lifted employment taxes (36% of total receipts) 6.3% y/y.
Corporate income taxes (10% of total receipts) surged 27.0% y/y during FY06&#39;s first nine monthsand estate &amp; gift taxes rose 15.1% y/y.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713d.jpg" width="353">
U.S. net outlays rose 8.8% FYTD versus &#39;05. Defense spending (19% of total outlays) rose 7.8% during the first nine months of FY06 versus &#39;05.Medicare spending (12% of total outlays) jumped 16.5% and spending on social security (21% of total outlays) remained strong at 5.8%. Spending on income security grew just 2.7%.
Social Security and Medicare : the impending fiscal challenge from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/Publicat/econrev/PDF/1q06hakk.pdf"> here</a>.
The Mid-Session Review of the U.S. Government Budget for FY 2007 is available <a href="http://www.whitehouse.gov/omb/budget/fy2007/pdf/07msr.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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$20.5B</td>
<td>$-42.8B</td>
<td>$22.9B (6/05)</td>
<td>$-318.3B</td>
<td>$-412.7B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$264.4B</td>
<td>$192.7B</td>
<td>12.6%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$243.9B</td>
<td>$235.5B</td>
<td>15.1%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
June CPI Stays Low in France & Germany 
by <a href="/comment/Stone.html">Carol Stone</a> July 13, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713e.jpg" width="353">
We continue to marvel at the low non-energy inflation rates in many countries. Today, June CPI was reported by two major countries, France and Germany, and the year-on-year pace excluding energy remains quite modest in both. For France, the monthly CPI was unchanged following a 0.3% increase in May. The 12-month rate is just 1.2%, about even with 2005&#39;s performance and only half of the increase in 2003. The overall index rose 0.1% in June and 1.9% year-on-year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713f.jpg" width="353">
For Germany, the ex-energy monthly increase was 0.2%; this came after three consecutive increases of just 0.1% and the year-on-year rate is a mere 0.9%. This last has been less than 1.0% every month this year, with January and May as low as 0.7%. The total index rose 0.3% in June and stands 2.0% above June 2005.
In part, the modest CPI trends in both countries owe to restrained health care costs. These are much more administered sectors than in the US, of course, and except for periods of regulated changes, their price indexes tend not to move much. Communications costs continue to fall in both places as technology helps them decline in many countries. The culture and recreation sectors are also soft in France and Germany. In Germany, household goods and clothing remain weak, and in France they are running on a flat trend.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060713g.jpg" width="353">
Sectors pushing upward on the price indexes include housing, transportation and travel. In each nation, the &quot;housing&quot; category, as in the US, includes fuel and electricity. So the pattern of relative inflation performance among various CPI components describes a situation that still confines the dramatic increases in energy to the sectors of each economy that are directly impacted: home heating, cooling, and lighting, driving and other transportation and other travel-related expenses. Another source of upward pressure in both France and Germany is food prices, but they are picking up from very slow rates; food inflation remains less than total inflation in both countries.
Haver maintains these price data in two different databases. Each country has a database, FRANCE and GERMANY, respectively, that contains data as published by local country sources. We also have &quot;G10&quot;, a collection of data for a number of major countries (actually several more than 10). In that database, we make some calculations of our own on selected series. In the case of the CPI, we seasonally adjust more components than the statistical agencies of each country do. Another example is the calculation of GDP in US dollars, which is not usually published by the local country. So while there is generally more underlying detail in the country-sourced database, G10 contains some more analytical data that are useful for international comparisons and other purposes.

<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/G10/G10.HTM">% Changes, SA*</a></th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">Year/Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">France: Total CPI</td>
<td>0.1</td>
<td>0.5</td>
<td>0.4</td>
<td>1.9</td>
<td>1.5</td>
<td>2.1</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; ex Energy</td>
<td>0.0</td>
<td>0.3</td>
<td>0.2</td>
<td>1.2</td>
<td>1.1</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Germany: Total CPI</td>
<td>0.3</td>
<td>0.1</td>
<td>0.5</td>
<td>2.0</td>
<td>2.1</td>
<td>2.1</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; ex Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>0.9</td>
<td>1.0</td>
<td>1.7</td>
<td>1.0</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.

260423Z6.jpg

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.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/44A12ktUaoJGHZG7pEVcul?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

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

260423E.jpg

**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.

Economy in Brief

Jump to:

U.S. Consumer Sentiment Sagged

MAPI Business Outlook Survey Off Moderately

U.S. Retail Sales Lower Due To Weakness in Autos & Housing

U.S. Retail Sales Lower Due To Weakness in Autos & Housing

June CPI Stays Low in France & Germany

June U.S. Budget Surplus As Expected

Initial Unemployment Insurance Claims Increased

Initial Unemployment Insurance Claims Increased