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/060504e.jpg" width="353">
Retailers in several diverse regions are seeing mixed demand, according to data available today for February and March. In the EuroZone12 (the grouping that includes Greece throughout), sales were down 0.8% in March after a 0.1% decrease in February. The March drop carried the total down 0.2% below the year-ago amount. As seen in the table below, retailing in the major European nations has hardly been robust over recent years, and these latest data indicate that the trend is not improving. Food stores are the leader in the downward movement, but sales volume at nonfood stores is also weakening.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504f.jpg" width="353">
Just on the south side of the Euro-Zone, Slovenia&#39;s retail sector looks fairly mixed. Total sales fell in both January and February, but some of February&#39;s weakness is due to quirks in the arithmetic of combining the food and nonfood segments into a common index. Each of these categories actually increased, food stores by 2.0% and nonfood outlets by 1.3%. Food recovered somewhat from a steep 13.5% fall in January. In general, though, consumers in Slovenia have been increasing their spending in stores, with 2005 showing total growth of 7.6%.
Significantly further south, retail trade in South Africa seems to be going strong. After a hesitation in January, sales in February expanded 3.8%, putting the year-on-year gain at 10.4%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504g.jpg" width="353">
All of these retail sales figures are seasonally adjusted and adjusted for inflation. They also exclude motor vehicles. To give these data some context, we consulted some US information, the retail sales dataset prepared by the BEA, which includes comparable adjustments. These sales were flat in March and eased by 0.2% in February. So they&#39;ve slowed too, then, in the last couple of months, although they remain a hefty 7.6% ahead of a year ago. Thus, while European consumers appear to be dragging, in other select regions, they have been spending at a good clip. Now that gasoline prices have taken off again, it will be interesting to see what the reaction of these other spending patterns will be.
The EuroZone data are contained in Haver&#39;s EUROSTAT database as is that for Slovenia. Other Slovenia data are in EMERGECW, and South Africa in EMERGEMA. The US series is from those compiled by the BEA from the original Census data; these appear in USECON in the menu just beneath the main Census entry and also in USNA in the Underlying Detail tables.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mo/Mo &amp; Yr/Yr % Changes, SA*</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EuroZone12</td>
<td>-0.8</td>
<td>-0.1</td>
<td>0.5</td>
<td>-0.2</td>
<td>1.3</td>
<td>1.5</td>
<td>0.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food</td>
<td>-1.0</td>
<td>-0.1</td>
<td>0.8</td>
<td>-0.9</td>
<td>0.7</td>
<td>1.2</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonfood</td>
<td>-0.5</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.5</td>
<td>1.8</td>
<td>1.7</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Slovenia</td>
<td>--</td>
<td>-1.1</td>
<td>-5.3</td>
<td>4.8</td>
<td>7.6</td>
<td>2.6</td>
<td>3.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food</td>
<td>--</td>
<td>2.0</td>
<td>-13.5</td>
<td>-1.7</td>
<td>7.4</td>
<td>3.3</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonfood</td>
<td>--</td>
<td>1.3</td>
<td>0.4</td>
<td>12.7</td>
<td>7.1</td>
<td>2.6</td>
<td>8.0</td>
</tr>
<tr class="odd">
<td class="firstcol">South Africa</td>
<td>--</td>
<td>3.8</td>
<td>-1.0</td>
<td>10.4</td>
<td>6.7</td>
<td>9.7</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">United States**</td>
<td>0.0</td>
<td>-0.2</td>
<td>2.2</td>
<td>7.6</td>
<td>6.1</td>
<td>6.3</td>
<td>4.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Retailers in several diverse regions are seeing mixed demand, according to data available today for February and March. In the EuroZone12 (the grouping that includes Greece throughout), sales were down 0.8% in March after a 0.1% [...]

Retail Trade Stagnates in Europe, But Shows Some Vigor in Slovenia and South Africa

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504c.jpg" width="353">
Initial claims for jobless insurance rose 5,000 last week to 322,000 from an upwardly revised level the prior period. Consensus expectations had been for 310,000 claims.
The increase pulled the level of claims filed last month up to 314,000. The 1.6% increase versus March was the third m/m rise since the January low when just 286,000 claims were filed.
The four week moving average of initial claims rose to 314,250 (-4.4% y/y).
Continuing claims for unemployment insurance rose for the third consecutive week. The 21,000 increase followed a downwardly revised 14,000 increase the prior week.
The insured unemployment rate remained at 1.9%, where it&#39;s been since early February.
Assessing the impact of job loss on workers and firms from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflapril2006_225a.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">04/29/06</th>
<th scope="col">04/22/06</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>322</td>
<td>317</td>
<td>-5.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,462</td>
<td>-5.5%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for jobless insurance rose 5,000 last week to 322,000 from an upwardly revised level the prior period. Consensus expectations had been for 310,000 claims. The increase pulled the level of claims filed last month up to [...]

Initial Unemployment Insurance Claims Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504a.jpg" width="353">
Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average quarterly growth rates during 2004 (2.7%) and 2005 (2.5%).
Output growth surged to 5.8% (4.1% y/y) from just 1.5% during 4Q. That surge was on the back of only a 2.5% (1.7% y/y) rise in hours worked after a 1.8% increase the prior quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504b.jpg" width="353">
Unit labor cost growth of 2.5% was slower than the 4Q increase but nevertheless represented an acceleration in labor cost pressures from a quarterly average of 1.3% during 2005.
Factory sector productivity grew 4.2% (4.1% y/y), right on the firm 4.3% quarterly pace of last year. Compensation grew just 1.5% (3.0% y/y). Therefore unit labor costs in the factory sector declined for the third of the last four quarters, off 2.6% (-1.1% y/y) during 1Q06.
A Leaner, More Skilled U.S. Manufacturing Workforce from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-2.pdf"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504d.jpg" width="353">
The implicit price deflator for the nonfarm business sector rose 2.8% (3.1% y/y) after a 3.6% jump during 4Q05.The rise lifted the ratio of prices to unit labor costs to near the highest level since 1997. During the last ten years there has been an 81% correlation between this ratio and corporate profit margins.
In Why Did U.S. Market Hours Boom in the 1990s?, the Federal Reserve Bank of Minneapolis examines the impact of longer hours worked on productivity &amp; profits. The paper can be found <a href="http://www.minneapolisfed.org/research/SR/SR369.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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">4Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>3.2%</td>
<td>-0.3%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>3.4%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>5.7%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>5.4%</td>
<td>4.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.5%</td>
<td>3.0%</td>
<td>1.4%</td>
<td>2.5%</td>
<td>1.1%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average [...]

1Q U.S. Productivity Improved, Profits' Implication Good

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504a.jpg" width="353">
Non-farm labor productivity growth last quarter improved to 3.2% from the 0.3% decline during the final quarter of 2005. The increase beat Consensus expectations for a 2.8% rise and also represented improvement from the average quarterly growth rates during 2004 (2.7%) and 2005 (2.5%).
Output growth surged to 5.8% (4.1% y/y) from just 1.5% during 4Q. That surge was on the back of only a 2.5% (1.7% y/y) rise in hours worked after a 1.8% increase the prior quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504b.jpg" width="353">
Unit labor cost growth of 2.5% was slower than the 4Q increase but nevertheless represented an acceleration in labor cost pressures from a quarterly average of 1.3% during 2005.
Factory sector productivity grew 4.2% (4.1% y/y), right on the firm 4.3% quarterly pace of last year. Compensation grew just 1.5% (3.0% y/y). Therefore unit labor costs in the factory sector declined for the third of the last four quarters, off 2.6% (-1.1% y/y) during 1Q06.
A Leaner, More Skilled U.S. Manufacturing Workforce from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-2.pdf"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504d.jpg" width="353">
The implicit price deflator for the nonfarm business sector rose 2.8% (3.1% y/y) after a 3.6% jump during 4Q05.The rise lifted the ratio of prices to unit labor costs to near the highest level since 1997. During the last ten years there has been an 81% correlation between this ratio and corporate profit margins.
In Why Did U.S. Market Hours Boom in the 1990s?, the Federal Reserve Bank of Minneapolis examines the impact of longer hours worked on productivity &amp; profits. The paper can be found <a href="http://www.minneapolisfed.org/research/SR/SR369.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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;06</th>
<th scope="col">4Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>3.2%</td>
<td>-0.3%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>3.4%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>5.7%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>5.4%</td>
<td>4.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.5%</td>
<td>3.0%</td>
<td>1.4%</td>
<td>2.5%</td>
<td>1.1%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504c.jpg" width="353">
Initial claims for jobless insurance rose 5,000 last week to 322,000 from an upwardly revised level the prior period. Consensus expectations had been for 310,000 claims.
The increase pulled the level of claims filed last month up to 314,000. The 1.6% increase versus March was the third m/m rise since the January low when just 286,000 claims were filed.
The four week moving average of initial claims rose to 314,250 (-4.4% y/y).
Continuing claims for unemployment insurance rose for the third consecutive week. The 21,000 increase followed a downwardly revised 14,000 increase the prior week.
The insured unemployment rate remained at 1.9%, where it&#39;s been since early February.
Assessing the impact of job loss on workers and firms from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflapril2006_225a.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">04/29/06</th>
<th scope="col">04/22/06</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>322</td>
<td>317</td>
<td>-5.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,462</td>
<td>-5.5%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
Retail Trade Stagnates in Europe, But Shows Some Vigor in Slovenia and South Africa 
by <a href="/comment/Stone.html">Carol Stone</a> May 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504e.jpg" width="353">
Retailers in several diverse regions are seeing mixed demand, according to data available today for February and March. In the EuroZone12 (the grouping that includes Greece throughout), sales were down 0.8% in March after a 0.1% decrease in February. The March drop carried the total down 0.2% below the year-ago amount. As seen in the table below, retailing in the major European nations has hardly been robust over recent years, and these latest data indicate that the trend is not improving. Food stores are the leader in the downward movement, but sales volume at nonfood stores is also weakening.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504f.jpg" width="353">
Just on the south side of the Euro-Zone, Slovenia&#39;s retail sector looks fairly mixed. Total sales fell in both January and February, but some of February&#39;s weakness is due to quirks in the arithmetic of combining the food and nonfood segments into a common index. Each of these categories actually increased, food stores by 2.0% and nonfood outlets by 1.3%. Food recovered somewhat from a steep 13.5% fall in January. In general, though, consumers in Slovenia have been increasing their spending in stores, with 2005 showing total growth of 7.6%.
Significantly further south, retail trade in South Africa seems to be going strong. After a hesitation in January, sales in February expanded 3.8%, putting the year-on-year gain at 10.4%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060504g.jpg" width="353">
All of these retail sales figures are seasonally adjusted and adjusted for inflation. They also exclude motor vehicles. To give these data some context, we consulted some US information, the retail sales dataset prepared by the BEA, which includes comparable adjustments. These sales were flat in March and eased by 0.2% in February. So they&#39;ve slowed too, then, in the last couple of months, although they remain a hefty 7.6% ahead of a year ago. Thus, while European consumers appear to be dragging, in other select regions, they have been spending at a good clip. Now that gasoline prices have taken off again, it will be interesting to see what the reaction of these other spending patterns will be.
The EuroZone data are contained in Haver&#39;s EUROSTAT database as is that for Slovenia. Other Slovenia data are in EMERGECW, and South Africa in EMERGEMA. The US series is from those compiled by the BEA from the original Census data; these appear in USECON in the menu just beneath the main Census entry and also in USNA in the Underlying Detail tables.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mo/Mo &amp; Yr/Yr % Changes, SA*</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EuroZone12</td>
<td>-0.8</td>
<td>-0.1</td>
<td>0.5</td>
<td>-0.2</td>
<td>1.3</td>
<td>1.5</td>
<td>0.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food</td>
<td>-1.0</td>
<td>-0.1</td>
<td>0.8</td>
<td>-0.9</td>
<td>0.7</td>
<td>1.2</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonfood</td>
<td>-0.5</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.5</td>
<td>1.8</td>
<td>1.7</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Slovenia</td>
<td>--</td>
<td>-1.1</td>
<td>-5.3</td>
<td>4.8</td>
<td>7.6</td>
<td>2.6</td>
<td>3.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food</td>
<td>--</td>
<td>2.0</td>
<td>-13.5</td>
<td>-1.7</td>
<td>7.4</td>
<td>3.3</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonfood</td>
<td>--</td>
<td>1.3</td>
<td>0.4</td>
<td>12.7</td>
<td>7.1</td>
<td>2.6</td>
<td>8.0</td>
</tr>
<tr class="odd">
<td class="firstcol">South Africa</td>
<td>--</td>
<td>3.8</td>
<td>-1.0</td>
<td>10.4</td>
<td>6.7</td>
<td>9.7</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">United States**</td>
<td>0.0</td>
<td>-0.2</td>
<td>2.2</td>
<td>7.6</td>
<td>6.1</td>
<td>6.3</td>
<td>4.5</td>
</tr>
</tbody>
</table>
</body>
</html>

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.odd{
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503g.jpg" width="353">
Today, ADP, the well-known payroll processors for many employers, published an estimate of the upcoming nonfarm payroll data for April, pointing to an increase in private sector employment of 178,000 for the month (1.9% y/y). They have compiled this from their substantial database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator meant to project the BLS&#39;s official number. This 178,000 gain would follow March&#39;s 133,000 rise. 
These data are called the &quot;ADP National Employment Report&quot;. The series will be maintained in Haver&#39;s USECON database; historical data go back to December 2000. Importantly, the figures in this report cover only private sector jobs and exclude employment in the public sector, which grew an average of 13,000 per month over the last year. The monthly change also obviously varies, and indeed ranged from a decline of 34,000 to an increase of 35,000. This would be a significant difference between the ADP number and total nonfarm payrolls. Some analysts indicated that ADP&#39;s April estimate of 178,000 in private sector jobs would correspond to a gain in total payrolls of 200,000.
Unlike other indicators of the US labor market, such as unemployment insurance claims, the ADP measure is directly comparable to the kind of data in the official BLS report. Automatic Data Processing, Inc. is the nation&#39;s leading provider of payroll-related services. Their figure is based on information about 24,000,000 jobholders; this is distilled to cover the numbers actually on payrolls during the BLS survey week, about 14,000,000. The report will be issued at 8:15AM on the Wednesday prior to each employment release. 
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90. The estimator is shown by the firms&#39; analysis to outperform current &quot;consensus&quot; forecasts and models based on claims data. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/ADP_NER_Report_April.pdf">here</a>, and their methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">April</th>
<th scope="col">Mar</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">Nonfarm Private Payroll Employment (Chg.)</td>
<td>178,000</td>
<td>133,000</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
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</body>
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Today, ADP, the well-known payroll processors for many employers, published an estimate of the upcoming nonfarm payroll data for April, pointing to an increase in private sector employment of 178,000 for the month (1.9% y/y). They [...]

ADP National Employment Report & U.S. Payrolls

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503f.jpg" width="353">
Factory inventories rose 0.7% during March and more than made up for an unrevised 0.4% drop the prior month.
Much of the prior month&#39;s inventory decline had been due to lower computers &amp; electronic products which fully recovered with a 2.9% (4.1% y/y) rise. Machinery inventories also were down in February and then rose in March by 1.0% (6.0% y/y) while a 0.2% decline in electrical equipment inventories (6.1% y/y) also fully reversed.
Continuing with earlier accumulation, inventories of furniture &amp; related products jumped 1.9% (5.5% y/y) while primary metals inventories added 0.2% (0.5% y/y) to the very strong accumulation of January &amp; February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503e.jpg" width="353">
Total factory orders jumped 4.2% due to a 6.5% surge in durable goods orders, revised up from the advance report of a 6.1% surge. That was goosed by orders for nondefense aircraft &amp; parts which rose 71.3% (329.9% y/y). Factory orders less the transportation sector altogether rose 2.2% (6.8% y/y) and reversed all of the prior month&#39;s decline.
Factory shipments rose 0.8% and reversed most of a February drop while less transportation shipments gained back half of the February drop with a 0.8% increase (6.0% y/y). Petroleum shipments rose 7.8% (7.3% y/y). Factory shipments less transportation &amp; petroleum ticked up 0.1% (5.9% y/y).
Unfilled orders ballooned 2.9% due to the strength of aircraft orders. Nevertheless, less the transportation sector altogether backlogs rose 1.5% (11.1% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Mar</th>
<th scope="col">Feb</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">Inventories</td>
<td>0.7%</td>
<td>-0.4%</td>
<td>3.4%</td>
<td>4.4%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>4.2%</td>
<td>0.4%</td>
<td>11.6%</td>
<td>8.5%</td>
<td>9.3%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.8%</td>
<td>-1.2%</td>
<td>6.1%</td>
<td>7.4%</td>
<td>9.5%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>2.9%</td>
<td>1.1%</td>
<td>21.1%</td>
<td>16.5%</td>
<td>8.4%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
</body>
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Factory inventories rose 0.7% during March and more than made up for an unrevised 0.4% drop the prior month. Much of the prior month's inventory decline had been due to lower computers & electronic products which fully recovered with [...]

U.S. Factory Inventories Accumulate

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503d.jpg" width="353">
In April, the Business Activity Index for the non-manufacturing sector rose a convincing two and one half points to the highest level since August, reported the Institute for Supply Management (ISM). The rise to 63.0 by far outpaced Consensus expectations for a decline to 59.5.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders index jumped five points to 64.6, the highest level since 2004 while the employment index recouped about half of the prior month&#39;s decline with a rise to 56.5 and was up from the 2005 average of 55.9. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power recovered all of the March decline and rose ten points to the highest level since November. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>63.0</td>
<td>60.5</td>
<td>60.4</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>70.5</td>
<td>60.5</td>
<td>64.1</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


</html>

In April, the Business Activity Index for the non-manufacturing sector rose a convincing two and one half points to the highest level since August, reported the Institute for Supply Management (ISM). The rise to 63.0 by far outpaced [...]

ISM Nonmanufacturing Index Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503b.jpg" width="353">
US light vehicle sales rose a slight 0.9% during April to 16.74M units according to the Autodata Corporation. The sales level matched Consensus expectations.
The rough month-to-month stability of the total, however, masked divergent underlying patterns. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503c.jpg" width="353">
Perhaps reflecting the effects of higher fuel costs, sales of domestic trucks fell a sharp 6.6% (-9.3% y/y) and that decline pulled overall light truck sales down 4.8% (-6.1% y/y) last month. Sales of the relatively fuel efficient imported light trucks, in contrast, rose 5.6% (15.0% y/y).
Auto sales during April rose 7.8% (0.8% y/y) led by an 11.3% jump in imported car sales (12.3% y/y) to 2.58M units, the highest level since early 1990. Sales of domestic autos also improved 6.3% (-3.8% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060503a.jpg" width="353">
Imports&#39; share of the US light vehicle market surged to another record level, at 23.8%. For the first four months of 2006 imports&#39; share averaged 21.2% versus 20.3% during all of last year.
Inventories of domestically made autos fell 10.2% y/y through February while truck inventories, domestics &amp; imports, through March were off 2.7% y/y.
Production of autos was up 14.5% through March though the GDP estimate of total real motor vehicle output through 1Q was down 2.5% y/y.
The U.S. auto supplier industry in transition from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflmay2006_226.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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">April</th>
<th scope="col">Mar</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>16.74</td>
<td>16.59</td>
<td>-2.9%</td>
<td>16.92</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.00</td>
<td>7.42</td>
<td>0.8%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.74</td>
<td>9.17</td>
<td>-6.1%</td>
<td>9.27</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
</body>
</html>

US light vehicle sales rose a slight 0.9% during April to 16.74M units according to the Autodata Corporation. The sales level matched Consensus expectations. The rough month-to-month stability of the total, however, masked divergent [...]

U.S. Auto Sales Up, Light Truck Sales Down

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

AI boosting US investment in data centers

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Sandy Batten

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Total retail sales rose a larger-than-expected 1.7% m/m (+4.0% y/y) in March following an upwardly revised 0.7% m/m gain in February (previously +0.6% m/m) in February, according to data from the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 1.4% m/m increase. Excluding autos, other sales soared 1.9% m/m (+5.5% y/y) in March after an upwardly revised 0.7% monthly gain in February (previously +0.5% m/m). The Action Economics Forecast Survey looked for a 1.4% m/m increase in sales excluding autos. The March increase in total sales was the largest monthly increase since last March while the March jump in ex-auto sales was the largest monthly gain since January 2023.

As expected, a 15.5% m/m surge in sales at gasoline stations, largely reflecting a previously reported 21.2% m/m jump in retail gasoline prices, accounted for much of the monthly increase in both overall and ex-auto sales in March. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.6% in March versus a 0.7% monthly gain in February. Sales excluding both autos and gasoline increased 0.6% m/m in March, the same rise as in February. Forecasters expected only a 0.2% m/m increase in sales ex both autos and gasoline.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in March, rising 0.7% m/m following an upwardly revised 0.6% monthly increase in February (previously +0.5% m/m). For all of Q1, control group sales were up 1.2% q/q, up from a 0.7% quarterly gain in Q4. This points to a somewhat surprising pickup in household spending growth when Q1 GDP is reported on April 30. Many analysts had feared that the sharp rise in gasoline prices would put significant stress on household finances and thereby slow spending. A possible explanation for the recent resilience of sales is larger income tax refunds this year owing to the OBBBA which reduced taxes during last year while the withholding tables were not adjusted until this year (resulting in more over-withholding last year).

Sales across major sectors generally posted solid gains in March. Auto sales rose 0.5% m/m on top of a 1.0% m/m increase in February. Furniture and appliance sales jumped 1.6%, the third consecutive monthly gain and the largest since December 2024. General merchandise store sales jumped 1.0% m/m, their largest monthly gain since April 2023. Nonstore retail sales increased 1.0% m/m in March, their third consecutive month with an increase of 1% or more. Building material and garden supply store sales rose 0.7% m/m in March, their fifth consecutive monthly increase. Sales at food and beverage stores increased 0.7% m/m in March, their first monthly gain in three months. By contrast, clothing sales were unchanged following a 2.8% monthly jump in February. Sales at sporting goods, book and music stores were also unchanged in March after a 0.7% monthly rise in February. Eating out sales edged up 0.1% m/m in March following a 0.5% m/m increase in February. The only major category posting a monthly decline in March was “miscellaneous” sales which fell 0.9% m/m but this was after 2.2% m/m gains in both January and February.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total sales jumped 1.7% m/m in March with small upward revisions to January and February.
- Gasoline sales surged 15.5% m/m in March, but even excluding that increase, the remainder of retail sales rose 0.6% m/m.
- Excluding autos, sales soared 1.9% m/m in March with small upward revisions to January and February.
- Sales of the retail control group that is used to construct PCE rose 0.7% m/m in March and 1.2% q/q for all of Q1.

U.S. Retail Sales Jumped in March only Partly Due to Surging Gasoline Prices

Winnie Tapasanun

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The Pending Home Sales Index, a forward-looking measure of home sales based on contract signings, rose 1.5% m/m to 73.7 in March following an upwardly revised 2.5% gain in February (+1.8% initially) and a 1.0% decline in January (unrevised), according to the National Association of Realtors (NAR). March marked the second straight m/m rise and the highest index level since November (77.2). The year-on-year rate was -1.1% in March, the fourth consecutive negative y/y reading, compared to -0.1% in February and -2.1% in March 2025. The index had fallen 41.1% since its October 2021 high of 125.1.

The m/m rise in March pending home sales coincided with an increase in the average 30-year fixed mortgage rate to a three-month-high 6.18% in March after a 6-bps decline to 6.05% in February. These rates, while below a peak of 7.62% in October 2023, had remained above a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

By region, March pending home sales showed a mixed performance. Sales in the Northeast rebounded 4.4% (-6.5% y/y) in March, the first m/m increase since November, after a 2.6% decrease in February. Sales in the South rose 3.9% (2.3% y/y) following a 3.5% February rise and two successive m/m declines. Sales in the West dropped 2.6% (-1.7% y/y) after a 0.9% February increase, and sales in the Midwest fell 1.3% (-3.1% y/y) after a 5.5% February gain; both regions declined m/m for the first time since December.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- PHSI +1.5% m/m (-1.1% y/y) to 73.7 in Mar., highest level since Nov.
- Home sales m/m up in the Northeast (+4.4%) and South (+3.9%); down in the Midwest (-1.3%) and West (-2.6%).
- Home sales y/y down in the Northeast (-6.5%), Midwest (-3.1%), and West (-1.7%); up in the South (+2.3%).

U.S. Pending Home Sales Up for Second Consecutive Month in March

Robert Brusca

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The overarching survey indicator for March stepped up despite enhanced global challenges. The March headline index rose to 99.3 from 98 in both January and February.

The March level of the headline compares to a 12-month average of 97.2. Nearly all the components in March are above their 12-month averages. The exception is the output change, which is substantially weaker than its 12-month average. Expected production, at 3.1 in March, is just a tick below its 12 month average of 3.2. Finally, expected employment in March is tied with its 12-month average.

In addition, only 3 readings weaker month-to-month in March were output change, expected production, and expected employment.

On the month, output change is a weak reading, falling by 3.5 points month-to-month; it may be the clearest example of the report showing weakness ahead, affected by upcoming global issues related to the war and rising oil and energy prices.

In addition to output change, expected production slipped to 3.1 in March from 4.8 in February. There was also a step back in expected employment, a modest one to 0.8 in March from 1.0 in February.

But order books showed a 10.2 reading in March, up from 5.6 in February. Changes in new foreign orders and total orders both showed more strength in March than in February, with foreign orders at 5.5 in March compared to 5.2 in February. The change in total orders, at 10.2 in March, was much stronger than 5.6 in February. Inventories registered 0.6 in March, up from -0.3 in February.

However, capacity space is being used up as capacity use rose to 77.0 in March from 76.6 in February.

The employment metric at 2.6 in March was much stronger than its zero reading in February.

On balance, the components indicate the sector is moving ahead as the headline gain suggests in March. But the major question mark is probably the strength in orders—which we take to be forward-looking compared to the setback in output change.

The index in March has a 64.1 percentile standing. Only three components in March ranked below their respective 50% marks (below their medians). The strongest readings generated standings in the 90th and mid-80th-percentile levels. These included finished inventories, the change in total orders, and order books. The lagging components, below their median values, were output change, expected production, and capacity utilization.

The French industrial readings are surprising for their resilience.

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France

Bank of France Survey Advances in March

260420E.jpg

The German PPI rose by 2.4% month-to-month in March. That was, of course, boosted by oil prices as Brent crude soared, gaining 46.9% month-over-month (yikes!). However, very little of that got into German ex-energy prices, which did rise, but by only 0.4%. Still, do not be fooled by that ‘only.’ That 0.4% rise is the largest rise of that magnitude since February 2023—a period of about 2¼ years. So be wary of what might be in train here; 0.4% does not seem so large, but it annualizes to about a 5% pace.

In addition, 12 months to six months to three months, the headline PPI is accelerating—from a 12-month drop, to a well-behaved 2.1% pace of expansion over six months, and then to an elevated 3.9% annual rate over three months.

The core PPI is a bit more copacetic, but it shows clear acceleration, rising from a 12-month pace of 1.3%, to a 1.8% pace over six months, and to 2.4% annualized over three months.

**Consumer prices in Germany**
The sky is not falling. So far, there is no evidence of inflation in consumer goods: the consumer goods index does not even rise over 12 months, six months, or three months—though it is flat over three months. Investment goods, by contrast, show clear price acceleration, rising from 1.9% over 12 months, to 2.6% over six months, and to 4.1% over three months. Intermediate goods show the inflation wallop as prices rise by 1.5% over 12 months, to a 5.1% pace over six months, and at an 8.1% annual rate pace over three months. That annualized intermediate goods gain is something to watch. It is driven by oil, but other commodities and goods are caught up in supply chain woes as well.

For reference, the headline CPI shows acceleration, rising from a 12-month pace of 2.7% to a 5% annualized rate over three months. The ex-energy CPI, however, remains subdued, rising 2.3% over 12 month and at a more modest 2% annualized pace over three months.

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**Global conditions will call the tune**
The Strait of Hormuz, once shut, was opened. Then, once open, it was again shut. So, we are back at square one with the Trump deadline on Tuesday fast approaching. Soon something will have to give, and that something will affect oil, oil prices, and inflation. Conditions in the Strait and in the oil market globally are distorted by warfare and the threat of it.

Oil is an extremely important commodity and that is doubly so in Europe where nations have still not fully adjusted to the loss of the Russian pipelines.

But fertilizer and helium are two other commodities reported to be put in short supply because of the closing of the Strait. Iran is trying to gain a toehold here for leverage and survival—and to be able to claim victory; meanwhile, they have lost nearly all their military prowess, but they retain the means to enforce their policies on the domestic population—at least for now.

Trump has been declaring that they gave him everything he asked for, but then they close the strait and the U.S. kept its blockage of Iran’s ports in place. There is still a lot going on here. Despite the rhetoric, there is a lot that is unsettled and not agreed to, and a lot that could still go wrong or escalate. This puts both inflation and growth outlooks in jeopardy.

Germany

German PPI Takes Partial Flight

Tian Yong Woon

In this week’s Letter, we take stock of the latest economic data from China, assessing what it tells us about the outlook for growth and policy. We also continue our coverage of the Middle East conflict, focusing on its broader implications for Asia through energy markets, trade routes, and regional risk sentiment.On China, while Q1 GDP data exceeded expectations, putting the economy on a firm footing to meet its annual growth target (chart 1), a closer look at the underlying monthly indicators suggests the headline resilience may be masking a more uneven underlying picture (chart 2). 

As for the Middle East, the latest round of regional March CPI prints largely confirms the initial pass-through from higher oil prices to consumer inflation. If energy prices remain elevated, second-round effects will likely become more evident in the coming months (chart 3). Turning to the Strait of Hormuz, shipping data point to a gradual recovery in flows. However, conflicting signals on the strait’s status—alongside renewed US–Iran tensions—continue to cloud the outlook for a sustained normalization in global oil supply (chart 4). In response, global players have begun to adapt, including rerouting shipments via the longer but safer Cape of Good Hope route, and exploring alternative export channels through Red Sea ports, even though these remain exposed to regional risks (chart 5). Finally, the conflict has prompted a reassessment of the global outlook. In its latest World Economic Outlook, the IMF delivered broad-based growth downgrades across economies, with only a handful of exceptions (chart 6).

**China**
China released a raft of data late last week, with March figures particularly pertinent as they capture the initial effects of the Middle East conflict that erupted in late February. Notably, Q1 GDP exceeded expectations, with the economy expanding 5% y/y despite incorporating March data (chart 1). This suggests China has secured a firm early footing toward its 4.5%–5% growth target for the year—a slight step down from last year’s “about 5%” goal. But a closer look at the March data reveals several nuances. On the external front, export growth slowed sharply year-to-date, falling behind import growth, thereby dragging on trade balance growth. 

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On a more downbeat note, growth in retail sales, industrial production, and fixed asset investment all moderated in March (chart 2). While this may partly reflect spillovers from the Middle East conflict, it likely also points to underlying domestic factors, including the fading impact of earlier, possibly one-off, policy support measures. That said, not all signals point to deterioration. Industrial profits have shown signs of improvement, likely supported in part by authorities’ efforts to curb intense price competition, also termed as “involution”, amid excess supply. This has contributed to a gradual easing in producer price deflation, which is beginning to feed through to a modest improvement in consumer inflation.

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**The Middle East conflict – Impacts**
Among economies that have reported March CPI so far, chart 3 shows that Asian inflation prints have more often than not come in higher y/y than in February. While specific domestic factors are also at play, the uptick has largely coincided with a rebound in energy-related inflation, in line with the global price surge following the Middle East supply shock. Given the pervasive role of energy as a key input across economic activity—from manufacturing to trade—what we are observing thus far likely reflects primarily first-round effects. Should energy prices remain elevated, second-round effects are likely to emerge in subsequent inflation prints.

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Whether energy prices remain elevated in the near term ultimately hinges on the same factor that drove the initial surge: oil flows through the critical Strait of Hormuz. On that front, IMF data suggest shipping volumes have continued to edge higher, though recent headlines have kept crude prices volatile. For instance, earlier assurances by Iranian authorities that the strait was “fully open” triggered a sharp decline in crude oil prices. However, weekend reports of a renewed closure—alongside news that the US had seized an Iranian-flagged vessel—serve as a stark reminder that tensions remain elevated and that disruptions to oil flows may well be set to persist. 

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**The Middle East conflict – Considerations**
That said, the global response has not been passive. Economies have increasingly sought alternative energy sources and rerouted oil shipments via other channels. Over a longer horizon, both producers constrained by exports through the Strait of Hormuz and importers heavily reliant on the route are likely developing contingency plans to hedge against the risk of a prolonged disruption at this critical chokepoint. For instance, amid heightened geopolitical tensions in the Middle East, more shipments are being diverted along the longer—but relatively safer—route via the Cape of Good Hope, bypassing the region. At the same time, there has been growing consideration of redirecting exports through Red Sea ports by shifting flows away from Hormuz-linked terminals. However, these alternatives are not without limitations. They remain exposed to regional risks, while capacity constraints—particularly in existing pipeline infrastructure—mean they could not fully offset a disruption to flows through the strait.

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Lastly, we turn to the IMF’s latest World Economic Outlook, released last week. Reflecting the growth-dampening effects of the Middle East crisis, the IMF downgraded its real GDP forecasts for most economies, resulting in a modest downward revision to global growth overall. Across Asian and major non-Asian economies (chart 6), only India and Japan saw upgrades, likely supported by offsetting domestic or structural drivers. European economies registered the steepest downgrades, while China and the US, though also revised lower, appear relatively more insulated. Importantly, these projections assume the conflict remains contained in duration, intensity, and scope, and begins to fade by mid-year. Should it persist or escalate beyond that, further downside risks to growth are likely to materialize.

Economy in Brief

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