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/060427a.jpg" width="353">
Initial claims for jobless insurance are hovering in a narrow range as they once again reversed their previous week&#39;s move. After falling in the April 15 week from 314,000 to 304,000, they rose to 315,000 in the April 22 week. Consensus expectations had been for a nearly unchanged reading at 305,000.
The prior week included both Christian and Jewish religious holidays, and that may have restrained filings in some areas. So it seems only a modest surprise that claims rebounded a bit last week. The four-week moving average is 308,500, within a few thousand of its level since early March. This is 6.5% below the year-ago amount.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060427b.jpg" width="353">
Continuing claims for unemployment insurance rose 22,000 during the latest week, but the prior week was revised downward by 12,000, so there&#39;s a net increase of just 10,000 from the unrevised level.
The insured rate of unemployment continues at 1.9%, where it&#39;s been for almost two months. Notably, the lowest level ever for this rate was right at the end of the tech boom in the spring of 2000, when it was 1.6%. The current 1.9% reading is the next lowest in the 35-year history of these data.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">04/22/06</th>
<th scope="col">04/15/06</th>
<th scope="col">04/08/06</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>315</td>
<td>304</td>
<td>314</td>
<td>-3.1%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,449</td>
<td>2,427</td>
<td>-5.4%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
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Initial claims for jobless insurance are hovering in a narrow range as they once again reversed their previous week's move. After falling in the April 15 week from 314,000 to 304,000, they rose to 315,000 in the April 22 week. [...]

Initial Claims for Unemployment Insurance Maintain Tight Range

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426g.jpg" width="353">
In the UK, the first major economy to report for Q1, growth maintained a 0.6% quarterly rate, the same as in Q4. However, growth was much more evenly balanced among various sectors, so the gain can be viewed more favorably because it is more broadly based.
Production industries, in particular, turned up after four consecutive quarterly declines, and at 0.7% growth, had their best performance since Q3 1999. All three major sectors, mining (including oil and gas extraction), manufacturing and utilities, participated.
Service industries, in contrast, slowed from their pace in the second half of last year, although their 0.6% growth remained in a range that has characterized the last several years. In Q1, the distribution, lodging and catering industries were flat following a sizable increase in Q4. Transportation and communications increased 0.9% after Q4&#39;s 1.5%; this sector has been somewhat less volatile in recent quarters than the saw-tooth pattern it has generally traced over the past 20 years. The business services and finance sector has been smoothing even more. It grew almost exactly 1.0% in Q1, equal to its six-quarter average increase. So while the latest gain isn&#39;t the largest ever, it is far more likely to be sustained than the pointed ups and downs of the years before 2004.
So the UK experienced growth this past quarter that is steadier and broader than before. This combination, like diversity in an investment portfolio, puts that economy in a better position to withstand adverse developments in the months ahead, such as still higher energy prices or other inflationary stresses. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426h.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426i.jpg" width="353">

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U2/@U2.HTM">United Kingdom:</a> (Chained, SA, 2002=100)</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year/ Year</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">GDP*</td>
<td>0.6</td>
<td>0.6</td>
<td>0.5</td>
<td>2.2</td>
<td>1.8</td>
<td>3.1</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Production Industries</td>
<td>0.7</td>
<td>-0.9</td>
<td>-0.7</td>
<td>-1.0</td>
<td>-1.9</td>
<td>0.6</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Service Industries</td>
<td>0.6</td>
<td>1.0</td>
<td>0.8</td>
<td>3.0</td>
<td>2.8</td>
<td>3.5</td>
<td>2.7</td>
</tr>
</tbody>
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In the UK, the first major economy to report for Q1, growth maintained a 0.6% quarterly rate, the same as in Q4. However, growth was much more evenly balanced among various sectors, so the gain can be viewed more favorably because it [...]

UK GDP: Broader, Steadier Growth in Q1

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426e.jpg" width="353">
The total number of mortgage applications dropped 3.7% last week, down hard for the third consecutive period. In April applications are 2.4% below the March average which fell 1.0% from February.
Purchase applications fell another 4.4% w/w and that pulled the April average 0.7% below March which rose 0.2% versus February.
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance dropped 2.4% and in April are 4.9% below the March average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426f.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage eased slightly to 6.75% from 6.78% the prior week while the rate on 15-year financing slipped to 6.45%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/21/06</th>
<th scope="col">04/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
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<td class="firstcol">Total Market Index</td>
<td>548.6</td>
<td>569.6</td>
<td>-23.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.4</td>
<td>407.4</td>
<td>-19.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,489.4</td>
<td>1,526.1</td>
<td>-27.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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The total number of mortgage applications dropped 3.7% last week, down hard for the third consecutive period. In April applications are 2.4% below the March average which fell 1.0% from February. Purchase applications fell another [...]

Mortgage Applications Plummet

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426c.jpg" width="353">
Last month new home sales showed surprising resilience with a 13.8% jump to 1.21 million (SAAR), the highest level this year. The jump contrasted to Consensus expectations for a more moderate increase to 1.115M and a 10.9% drop during February was little revised.
Despite last month&#39;s increase in sales, the latest level was 11.5% below last July&#39;s peak and sales during the first quarter were 9.4% below the 2005 average.
On the up trend has been the number of homes up for sale. That figure rose 2.8% last month and it&#39;s up by nearly one quarter during the last twelve months. Most pronounced is the 60.6% y/y gain in homes for sale in the Northeast.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426d.jpg" width="353">
Gains in March sales throughout the nation were robust but most pronounced was a 35.7% (-13.1% y/y) jump out West which recovered about all of the prior month&#39;s plunge. Sales in the Midwest also were strong and rose 10.9% (-8.9% y/y) while sales in the Northeast rose 4.7% (-15.2% y/y). The 6.9% gain in sales down South (-2.3% y/y) recovered nearly all of the declines during the prior two months.
Prices were under pressure as suggested by a 6.5% (-2.2% y/y decline in the median sales price. The average sales price fell 7.1% (-3.6% y/y) suggesting either more price discounting of large homes or greater sales declines of large homes.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></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>
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<tr>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,213</td>
<td>1,066</td>
<td>-7.2%</td>
<td>1,279</td>
<td>1,200</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$224,200</td>
<td>$239,900</td>
<td>-2.2%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
</body>
</html>

Last month new home sales showed surprising resilience with a 13.8% jump to 1.21 million (SAAR), the highest level this year. The jump contrasted to Consensus expectations for a more moderate increase to 1.115M and a 10.9% drop during [...]

New Home Sales Surged Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426a.jpg" width="353">
New orders for durable goods jumped 6.1% last month and the 3.4% February increase was upwardly revised. The jump pulled the y/y increase in orders to 17.7%, its strongest in six years, and the m/m gain by far outpaced Consensus expectations for a 1.8% rise. Moreover, the details of the report were constructive for factory sector activity.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
Higher orders for nondefense aircraft &amp; parts led last month&#39;s strength with a 71.1% (329.3% y/y) spike that followed the 59.9% February spurt. And new orders for motor vehicles &amp; parts reversed the prior month&#39;s decline with a 2.8% (4.2% y/y) rise.
Less the transportation sector altogether, durable goods orders rose 2.8% which more than made up for a little revised 1.1% decline during February.
Orders for computers &amp; electronic products were notably strong last month and posted a 7.5% (7.4% y/y) gain while machinery orders recouped about all of the prior month&#39;s decline with a 7.5% (16.3% y/y) increase. Also strong were orders for fabricated metals which increased 1.3% (7.1% y/y) and orders for primary metals rose 1.1% (8.5% y/y). Electrical equipment orders were the laggard last month and fell 1.8% (+13.2% y/y) after a 4.1% February drop.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426b.jpg" width="353">
Orders for nondefense capital goods jumped 12.1% with higher Boeing orders but orders less aircraft still increased 3.0% after a 0.8% February decline that was shallower than initially reported.
During the last ten years there has been an 87% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Shipments of durable goods increased 0.3% (7.6% y/y) following a 0.4% February rise and less the transportation sector shipments were unchanged (8.1% y/y) following a 0.4% February increase. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs surged 2.8% (20.9% y/y), a jump dominated by the strength in unfilled orders for aircraft &amp; parts which rose 6.6% (70.6% y/y). Less transportation backlogs also were strong and rose 1.3% (10.8% y/y) lifting the ratio of backlogs to shipments outside of transportation to the highest level since November.
Durable inventories rose 0.7% (3.0% y/y) after a 0.4% February decline. Less transportation inventories rose an identical 0.7% (3.4% y/y) while the inventory to sales ratio outside of the transportation sector rose to the highest level since November.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></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">Durable Goods Orders</td>
<td>6.1%</td>
<td>3.4%</td>
<td>17.7%</td>
<td>8.6%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>2.8%</td>
<td>-1.1%</td>
<td>9.6%</td>
<td>8.6%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>12.1%</td>
<td>4.0%</td>
<td>31.5%</td>
<td>20.0%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>3.0%</td>
<td>-0.8%</td>
<td>11.8%</td>
<td>10.7%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

New orders for durable goods jumped 6.1% last month and the 3.4% February increase was upwardly revised. The jump pulled the y/y increase in orders to 17.7%, its strongest in six years, and the m/m gain by far outpaced Consensus [...]

U.S. Durable Goods Orders' Rise = Factory Sector Resilience

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426a.jpg" width="353">
New orders for durable goods jumped 6.1% last month and the 3.4% February increase was upwardly revised. The jump pulled the y/y increase in orders to 17.7%, its strongest in six years, and the m/m gain by far outpaced Consensus expectations for a 1.8% rise. Moreover, the details of the report were constructive for factory sector activity.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
Higher orders for nondefense aircraft &amp; parts led last month&#39;s strength with a 71.1% (329.3% y/y) spike that followed the 59.9% February spurt. And new orders for motor vehicles &amp; parts reversed the prior month&#39;s decline with a 2.8% (4.2% y/y) rise.
Less the transportation sector altogether, durable goods orders rose 2.8% which more than made up for a little revised 1.1% decline during February.
Orders for computers &amp; electronic products were notably strong last month and posted a 7.5% (7.4% y/y) gain while machinery orders recouped about all of the prior month&#39;s decline with a 7.5% (16.3% y/y) increase. Also strong were orders for fabricated metals which increased 1.3% (7.1% y/y) and orders for primary metals rose 1.1% (8.5% y/y). Electrical equipment orders were the laggard last month and fell 1.8% (+13.2% y/y) after a 4.1% February drop.
Orders for nondefense capital goods jumped 12.1% with higher Boeing orders but orders less aircraft still increased 3.0% after a 0.8% February decline that was shallower than initially reported.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426b.jpg" width="353">
During the last ten years there has been an 87% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Shipments of durable goods increased 0.3% (7.6% y/y) following a 0.4% February rise and less the transportation sector shipments were unchanged (8.1% y/y) following a 0.4% February increase. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs surged 2.8% (20.9% y/y), a jump dominated by the strength in unfilled orders for aircraft &amp; parts which rose 6.6% (70.6% y/y). Less transportation backlogs also were strong and rose 1.3% (10.8% y/y) lifting the ratio of backlogs to shipments outside of transportation to the highest level since November.
Durable inventories rose 0.7% (3.0% y/y) after a 0.4% February decline. Less transportation inventories rose an identical 0.7% (3.4% y/y) while the inventory to sales ratio outside of the transportation sector rose to the highest level since November.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></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">Durable Goods Orders</td>
<td>6.1%</td>
<td>3.4%</td>
<td>17.7%</td>
<td>8.6%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>2.8%</td>
<td>-1.1%</td>
<td>9.6%</td>
<td>8.6%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>12.1%</td>
<td>4.0%</td>
<td>31.5%</td>
<td>20.0%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>3.0%</td>
<td>-0.8%</td>
<td>11.8%</td>
<td>10.7%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
New Home Sales Surged Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426c.jpg" width="353">
Last month new home sales showed surprising resilience with a 13.8% jump to 1.21 million (SAAR), the highest level this year. The jump contrasted to Consensus expectations for a more moderate increase to 1.115M and a 10.9% drop during February was little revised.
Despite last month&#39;s increase in sales, the latest level was 11.5% below last July&#39;s peak and sales during the first quarter were 9.4% below the 2005 average.
On the up trend has been the number of homes up for sale. That figure rose 2.8% last month and it&#39;s up by nearly one quarter during the last twelve months. Most pronounced is the 60.6% y/y gain in homes for sale in the Northeast.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426d.jpg" width="353">
Gains in March sales throughout the nation were robust but most pronounced was a 35.7% (-13.1% y/y) jump out West which recovered about all of the prior month&#39;s plunge. Sales in the Midwest also were strong and rose 10.9% (-8.9% y/y) while sales in the Northeast rose 4.7% (-15.2% y/y). The 6.9% gain in sales down South (-2.3% y/y) recovered nearly all of the declines during the prior two months.
Prices were under pressure as suggested by a 6.5% (-2.2% y/y decline in the median sales price. The average sales price fell 7.1% (-3.6% y/y) suggesting either more price discounting of large homes or greater sales declines of large homes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></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>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,213</td>
<td>1,066</td>
<td>-7.2%</td>
<td>1,279</td>
<td>1,200</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$224,200</td>
<td>$239,900</td>
<td>-2.2%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
Mortgage Applications Plummet 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426e.jpg" width="353">
The total number of mortgage applications dropped 3.7% last week, down hard for the third consecutive period. In April applications are 2.4% below the March average which fell 1.0% from February.
Purchase applications fell another 4.4% w/w and that pulled the April average 0.7% below March which rose 0.2% versus February.
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance dropped 2.4% and in April are 4.9% below the March average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426f.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage eased slightly to 6.75% from 6.78% the prior week while the rate on 15-year financing slipped to 6.45%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/21/06</th>
<th scope="col">04/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>548.6</td>
<td>569.6</td>
<td>-23.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.4</td>
<td>407.4</td>
<td>-19.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,489.4</td>
<td>1,526.1</td>
<td>-27.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK GDP: Broader, Steadier Growth in Q1 
by <a href="/comment/Stone.html">Carol Stone</a> April 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426g.jpg" width="353">
In the UK, the first major economy to report for Q1, growth maintained a 0.6% quarterly rate, the same as in Q4. However, growth was much more evenly balanced among various sectors, so the gain can be viewed more favorably because it is more broadly based.
Production industries, in particular, turned up after four consecutive quarterly declines, and at 0.7% growth, had their best performance since Q3 1999. All three major sectors, mining (including oil and gas extraction), manufacturing and utilities, participated.
Service industries, in contrast, slowed from their pace in the second half of last year, although their 0.6% growth remained in a range that has characterized the last several years. In Q1, the distribution, lodging and catering industries were flat following a sizable increase in Q4. Transportation and communications increased 0.9% after Q4&#39;s 1.5%; this sector has been somewhat less volatile in recent quarters than the saw-tooth pattern it has generally traced over the past 20 years. The business services and finance sector has been smoothing even more. It grew almost exactly 1.0% in Q1, equal to its six-quarter average increase. So while the latest gain isn&#39;t the largest ever, it is far more likely to be sustained than the pointed ups and downs of the years before 2004.
So the UK experienced growth this past quarter that is steadier and broader than before. This combination, like diversity in an investment portfolio, puts that economy in a better position to withstand adverse developments in the months ahead, such as still higher energy prices or other inflationary stresses. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426h.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060426i.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U2/@U2.HTM">United Kingdom:</a> (Chained, SA, 2002=100)</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year/ Year</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">GDP*</td>
<td>0.6</td>
<td>0.6</td>
<td>0.5</td>
<td>2.2</td>
<td>1.8</td>
<td>3.1</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Production Industries</td>
<td>0.7</td>
<td>-0.9</td>
<td>-0.7</td>
<td>-1.0</td>
<td>-1.9</td>
<td>0.6</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Service Industries</td>
<td>0.6</td>
<td>1.0</td>
<td>0.8</td>
<td>3.0</td>
<td>2.8</td>
<td>3.5</td>
<td>2.7</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060425e.jpg" width="353">
Following on yesterday&#39;s reports on business confidence from France and Belgium, two more reports were released today from Germany and the Netherlands. In Germany, the IFO institute&#39;s index rose to 105.9 in April from 105.4 in March. This was the highest level since April, 1991. In terms of the diffusion index, which shows the percent balance of opinion of the respondents, the excess of optimists over pessimists was 11.0%, up from 10.0% in March. Both measures have been rising for the past four months. The consensus had predicted a slight decline for April. Business confidence has also risen in the Netherlands over the past four months and now the excess of optimists over pessimists is 6.1%, the highest since November 2000. The percent balances for Germany and the Netherlands are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060425f.jpg" width="353">
In spite of the show of confidence in the current situation, business is beginning to show a little caution regarding the outlook. In Germany the percentage of respondents who expect better conditions six months ahead over those who expect worse condition fell from 13.9% to 13.4%. In the Netherlands the percentage of respondents who expect increased production over the next six months over those who expect lower production fell from 22% to 17% in April. The latter figure is not seasonally adjusted whereas the German figure is.
In addition to the overall measure of the business climate, the IFO also provides measures of the business climate for its component industries--manufacturing, construction, wholesale and retail trade. Also available at a later date are data for the components of the manufacturing industry and a wealth of other detail. Current conditions in manufacturing, construction and wholesale trade all improved in April but the conditions in the retail trade sector deteriorated slightly after a sharp improvement earlier in the year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060425g.jpg" width="353">
Available since May, 2001, are the results of the IFO&#39;s survey of about 2000 firms in the business-oriented segments of the tertiary sector (excluding distribution, financial services, leasing, insurance and government.) This indicator is not yet seasonally adjusted and has not yet been incorporated into the IFO Business Climate Index for industry and trade. In general those engaged in the service sector have had a more positive appraisal of the business climate than those engaged in industry and trade as can be seen in the second chart which compares the diffusion index for the service sector with that for industry and trade.
After September 11, 2001 consumer confidence in the Netherlands fell much more sharply than business confidence and it has yet to reach a point where the optimists outweigh the pessimists, however, the excess of pessimists is diminishing. The third chart compares consumer and business confidence in the Netherlands.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Confidence Measures Percent Balances</th>
<th scope="col">Apr 06</th>
<th scope="col">Mar 06</th>
<th scope="col">Apr 05</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003 &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany: IFO Business Climate Total</td>
<td>11.0</td>
<td>10.0</td>
<td>-14.8</td>
<td>1.0</td>
<td>25.8</td>
<td>-9.8</td>
<td>-9.9</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>20.7</td>
<td>19.2</td>
<td>-4.9</td>
<td>1.5</td>
<td>25.6</td>
<td>1.1</td>
<td>4.4</td>
<td>-7.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Construction</td>
<td>-13.9</td>
<td>-17.6</td>
<td>-37.8</td>
<td>3.7</td>
<td>23.9</td>
<td>-37.2</td>
<td>-42.2</td>
<td>-43.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale Trade</td>
<td>10.7</td>
<td>9.6</td>
<td>-17.4</td>
<td>1.1</td>
<td>28.1</td>
<td>-9.9</td>
<td>-16.6</td>
<td>-25.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Retail Trade</td>
<td>-5.3</td>
<td>-1.8</td>
<td>-31.1</td>
<td>-3.5</td>
<td>25.8</td>
<td>-28.0</td>
<td>-30.8</td>
<td>-22.6</td>
</tr>
<tr>
<td class="firstcol">Service (Not Included in Total)</td>
<td>23.5</td>
<td>21.0</td>
<td>5.5</td>
<td>2.5</td>
<td>18.0</td>
<td>8.1</td>
<td>6.5</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations Total</td>
<td>13.4</td>
<td>13.9</td>
<td>-10.2</td>
<td>-0.5</td>
<td>23.6</td>
<td>-5.2</td>
<td>-2.1</td>
<td>-6.6</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">The Netherlands</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Producers&#39; Confidence</td>
<td>6.1</td>
<td>5.8</td>
<td>-0.1</td>
<td>0.2</td>
<td>6.2</td>
<td>0.6</td>
<td>-0.1</td>
<td>-5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expected Production</td>
<td>17</td>
<td>22</td>
<td>10</td>
<td>-5</td>
<td>7</td>
<td>6</td>
<td>4</td>
<td>1</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-6</td>
<td>-10</td>
<td>-16</td>
<td>4</td>
<td>10</td>
<td>-22</td>
<td>-25</td>
<td>-35</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Climate</td>
<td>6</td>
<td>-1</td>
<td>-10</td>
<td>7</td>
<td>16</td>
<td>-23</td>
<td>-32</td>
<td>-56</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Willingness to buy</td>
<td>-14</td>
<td>-15</td>
<td>-20</td>
<td>1</td>
<td>6</td>
<td>-22</td>
<td>-21</td>
<td>-21</td>
</tr>
</tbody>
</table>
</body>
</html>

Following on yesterday's reports on business confidence from France and Belgium, two more reports were released today from Germany and the Netherlands. In Germany, the IFO institute's index rose to 105.9 in April from 105.4 in March. [...]

German and Dutch Business Confidence Continues to Rise: Dutch Consumers Less Negative

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

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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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Initial Claims for Unemployment Insurance Maintain Tight Range

Initial Claims for Unemployment Insurance Maintain Tight Range

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U.S. Durable Goods Orders' Rise = Factory Sector Resilience

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