Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060406a.jpg" width="353">
Initial claims for unemployment insurance dropped for the third consecutive period last week. The 5,000 person decline to 299,000 compared to Consensus expectations for 305,000 claims. It followed a 8,000 fall the prior week which was slightly less than initially estimated.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims fell to 308,500 (-9.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060406b.jpg" width="353">
Continuing claims for unemployment insurance fell a sharp 22,000 during the latest week following a revised decline of 1,000 the prior period, initially reported as an increase.
The insured rate of unemployment was stable at 1.9% for the seventh week.
The highest insured unemployment rates during the week ending March 18 were in Alaska (5.1%), Michigan (4.5%), Wisconsin (3.5%), Puerto Rico (3.4%), Pennsylvania (3.3%), Rhode Island (3.3%), New Jersey (3.1%), Vermont (3.1%), Massachusetts (3.0%), Connecticut (2.8%), and Oregon (2.8%).
Look Who&#39;s Working Now from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20060401/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">04/01/06</th>
<th scope="col">03/25/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>299</td>
<td>304</td>
<td>-13.6%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,440</td>
<td>-9.0%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Employment Grows in Israel; Wages Rise, but Lose Ground to Inflation 
by <a href="/comment/Stone.html">Carol Stone</a> April 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060406c.jpg" width="353">
The number of jobs in Israel increased 5,000 in January from December, seasonally adjusted, to 2.59 million, according to data reported today by Israel&#39;s Central Bureau of Statistics (CBS). The gain from a year ago was 79,000 jobs, or 2.9%. The CBS also publishes a subset of the jobs data that excludes foreign workers, mostly Palestinians. There were 82,000 of them in January, up from 70,000 a year ago. So the number of jobs covered by Israeli workers was 2.508 million, up just 1,000 from December and 2.7% from January 2005. Both the total number of jobs and those held by Israelis increased by 3.3% for 2005 as a whole.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060406d.jpg" width="353">
The average job paid NIS7,232 for the month of January, about US$1,565. For jobs held by Israelis only, the comparable figure was NIS7,614, about US$1,648. In shekels, both total and Israeli wages were up 1.6% from a year ago. Taking account of inflation, &quot;real&quot; wages have fallen 1.3% for all workers and 1.0% for Israeli workers since January 2005.
While real purchasing power per job in Israel has stagnated over the last few years, the number of jobs themselves has advanced nicely. As we point out frequently here, employment in Europe is nearly at a standstill, and in the US, prior to the release tomorrow of March data, recent trends show roughly 1.5% gains in nonfarm payrolls, only about half the pace in Israel. So midst all the Middle East tension, the Israeli economy is presently able to increase jobs and overall growth as well. In industry data through Q4 2005, accommodation, trade and business services were seeing the greatest percentage job gains.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jan 2006</th>
<th scope="col">Dec 2005</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">Total Number of Jobs (thous.)</td>
<td>2,590</td>
<td>2,585</td>
<td>2,511</td>
<td>2,548</td>
<td>2,466</td>
<td>2,425</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change</td>
<td>2.9</td>
<td>3.0</td>
<td>--</td>
<td>3.3</td>
<td>2.2</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Jobs ex Foreign Workers (thous.)</td>
<td>2,508</td>
<td>2,507</td>
<td>2,441</td>
<td>2,472</td>
<td>2,393</td>
<td>2,342</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change</td>
<td>2.7</td>
<td>2.9</td>
<td>--</td>
<td>3.3</td>
<td>2.8</td>
<td>-0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Wages, All Jobs (NIS)</td>
<td>7,232</td>
<td>7,208</td>
<td>7,138</td>
<td>7,225</td>
<td>7,000</td>
<td>6,863</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change</td>
<td>1.6</td>
<td>-1.4</td>
<td>--</td>
<td>3.3</td>
<td>2.1</td>
<td>-2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Wages, ex Foreign Workers (NIS)</td>
<td>7,614</td>
<td>7,636</td>
<td>7,481</td>
<td>7,334</td>
<td>7,081</td>
<td>6,981</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change</td>
<td>1.6</td>
<td>-1.2</td>
<td>--</td>
<td>3.1</td>
<td>2.2</td>
<td>-2.5</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance dropped for the third consecutive period last week. The 5,000 person decline to 299,000 compared to Consensus expectations for 305,000 claims. It followed a 8,000 fall the prior week which was [...]

Initial Claims for Jobless Insurance Below Expectations

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/060405e.jpg" width="353">
Commercial real estate has increased significantly in importance as an investment medium in recent years. Securitization of commercial mortgage securities and direct interests in portfolios of properties join residential real estate as outlets for capital. But it is complicated to assess the returns on such investments. Each property is sizable and very different from every other property. So, unlike other objects to be priced, there are not simple rules-of-thumb or statistical properties that can be exploited to derive valuations.
Just in mid-February, the Massachusetts Institute of Technology&#39;s Center for Real Estate introduced a helpful tool in this process, the Transactions-Based Index. A client brought these new quarterly series to Haver&#39;s attention, and they were added to our basic USECON product about two weeks ago.
The Total Return Index shows that commercial real estate holdings earned 34.3% in 2005, following valuation gains of 16.0% in 2004 and 10.0% in 2003. Returns based on price change alone were 29.4% last year, 10.7% in 2004 and 4.2% in 2003.
These figures are weighted indexes for &quot;All Properties&quot;, including apartments, industrial buildings, offices and retail centers. Sub-indexes are available for each one of these segments. Retail properties were the strongest in 2005, with a 40.2% total return, while industrial buildings earned &quot;only&quot; 24.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405f.jpg" width="353">
The secret to these indexes is a proprietary database maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF). This group is a trade association of pension funds managers; they collectively own some $200 billion worth of commercial properties numbering about 5,000. Data on pricing and income is taken from actual transactions involving these properties.
Further, since the properties are all distinct, the &quot;average&quot; value of transactions cannot by obtained by simply toting up individual prices and dividing by some appropriate number. The indexes are compiled by appeal to the same kind of weighted &quot;hedonic&quot;, quality-adjusting econometric techniques used by BEA and BLS for constructing many of the price indexes used by economists every day. The NCREIF database has been maintained for many years, allowing the MIT econometricians to construct 22 years of history for the &quot;All Property&quot; index and 12 years for the individual property types. A press release and more detailed description of the data are found <a href="http://web.mit.edu/cre/news/060216-tbi.html">here</a> on the website of the MIT Center for Real Estate. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">MIT Commercial Real Estate &quot;TBI&quot; Indexes</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
Year-End
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total Return Index</td>
<td>668.0</td>
<td>638.9</td>
<td>601.1</td>
<td>497.1</td>
<td>428.5</td>
<td>389.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Change</td>
<td>34.3</td>
<td>31.8</td>
<td>26.0</td>
<td>16.0</td>
<td>10.0</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">TBI Price Index</td>
<td>194.3</td>
<td>187.3</td>
<td>177.7</td>
<td>150.2</td>
<td>135.7</td>
<td>130.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Change</td>
<td>29.4</td>
<td>26.6</td>
<td>20.6</td>
<td>10.7</td>
<td>4.2</td>
<td>4.3</td>
</tr>
</tbody>
</table>
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Commercial real estate has increased significantly in importance as an investment medium in recent years. Securitization of commercial mortgage securities and direct interests in portfolios of properties join residential real estate [...]

MIT Center for Real Estate Compiles Price and Total Return Indexes for Commercial Real Estate Transactions: [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405b.jpg" width="353">
The total number of mortgage applications rose for the second consecutive period. The 7.2% increase last week limited the average decline during March to 1.0% after a 6.3% drop during February.
Purchase applications jumped 8.4% at month end and the average level during March ticked up 0.2% after a 10.2% decline during 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 also recovered with a 5.3% increase last week though the average March level fell 2.4% m/m after a 2.0% February drop.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose sharply. The sixteen basis point increase w/w lifted the effective rate to 6.72% and the rate on 15-year financing likewise surged to 6.43%, its highest since June 2002. 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>.
A New Perspective on Policy, yesterday&#39;s speech by Dallas Federal Reserve Bank President &amp; CEO Richard W. Fisher, is available <a href="http://www.dallasfed.org/news/speeches/fisher/2006/fs060404.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/31/06</th>
<th scope="col">03/24/06</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>612.8</td>
<td>571.7</td>
<td>-4.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>438.2</td>
<td>404.1</td>
<td>-1.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,640.8</td>
<td>1,558.4</td>
<td>-8.8%</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 rose for the second consecutive period. The 7.2% increase last week limited the average decline during March to 1.0% after a 6.3% drop during February. Purchase applications jumped 8.4% at [...]

Mortgage Applications Manage Late-March Recovery

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405c.jpg" width="353">
The March Business Activity Index for the non-manufacturing sector inched up to 60.5 from 60.1 during February, reported the Institute for Supply Management (ISM). These levels are much improved versus the low January reading of 56.8 and the latest beat Consensus expectations for a decline to 59.0.
Since the series&#39; inception in 1997 there has been a 53% 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 improved to the highest level this year, though at 59.5 remained below the 2005 average. The employment index backpedaled to 54.6 and so far this year is down slightly 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. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405d.jpg" width="353">
Pricing power fell again and has fallen continually since the series peak last September. 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.
&quot;This is Bangalore Calling: Hang Up or Speed Dial? What Technology-Enabled International Trade in Services Means for the U.S. Economy and Workforce from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/Research/Com2005/0115.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#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>60.5</td>
<td>60.1</td>
<td>61.8</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>60.5</td>
<td>64.8</td>
<td>65.9</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


</html>

The March Business Activity Index for the non-manufacturing sector inched up to 60.5 from 60.1 during February, reported the Institute for Supply Management (ISM). These levels are much improved versus the low January reading of 56.8 [...]

ISM Nonmanufacturing Index Sustained Improvement

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405c.jpg" width="353">
The March Business Activity Index for the non-manufacturing sector inched up to 60.5 from 60.1 during February, reported the Institute for Supply Management (ISM). These levels are much improved versus the low January reading of 56.8 and the latest beat Consensus expectations for a decline to 59.0.
Since the series&#39; inception in 1997 there has been a 53% 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 improved to the highest level this year, though at 59.5 remained below the 2005 average. The employment index backpedaled to 54.6 and so far this year is down slightly 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. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405d.jpg" width="353">
Pricing power fell again and has fallen continually since the series peak last September. 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.
&quot;This is Bangalore Calling: Hang Up or Speed Dial? What Technology-Enabled International Trade in Services Means for the U.S. Economy and Workforce from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/Research/Com2005/0115.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#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>60.5</td>
<td>60.1</td>
<td>61.8</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>60.5</td>
<td>64.8</td>
<td>65.9</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>
Mortgage Applications Manage Late-March Recovery 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405b.jpg" width="353">
The total number of mortgage applications rose for the second consecutive period. The 7.2% increase last week limited the average decline during March to 1.0% after a 6.3% drop during February.
Purchase applications jumped 8.4% at month end and the average level during March ticked up 0.2% after a 10.2% decline during 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 also recovered with a 5.3% increase last week though the average March level fell 2.4% m/m after a 2.0% February drop.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose sharply. The sixteen basis point increase w/w lifted the effective rate to 6.72% and the rate on 15-year financing likewise surged to 6.43%, its highest since June 2002. 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>.
A New Perspective on Policy, yesterday&#39;s speech by Dallas Federal Reserve Bank President &amp; CEO Richard W. Fisher, is available <a href="http://www.dallasfed.org/news/speeches/fisher/2006/fs060404.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/31/06</th>
<th scope="col">03/24/06</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>612.8</td>
<td>571.7</td>
<td>-4.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>438.2</td>
<td>404.1</td>
<td>-1.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,640.8</td>
<td>1,558.4</td>
<td>-8.8%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
MIT Center for Real Estate Compiles Price and Total Return Indexes for Commercial Real Estate Transactions: Properties Earn 34% in 2005 
by <a href="/comment/Stone.html">Carol Stone</a> April 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405e.jpg" width="353">
Commercial real estate has increased significantly in importance as an investment medium in recent years. Securitization of commercial mortgage securities and direct interests in portfolios of properties join residential real estate as outlets for capital. But it is complicated to assess the returns on such investments. Each property is sizable and very different from every other property. So, unlike other objects to be priced, there are not simple rules-of-thumb or statistical properties that can be exploited to derive valuations.
Just in mid-February, the Massachusetts Institute of Technology&#39;s Center for Real Estate introduced a helpful tool in this process, the Transactions-Based Index. A client brought these new quarterly series to Haver&#39;s attention, and they were added to our basic USECON product about two weeks ago.
The Total Return Index shows that commercial real estate holdings earned 34.3% in 2005, following valuation gains of 16.0% in 2004 and 10.0% in 2003. Returns based on price change alone were 29.4% last year, 10.7% in 2004 and 4.2% in 2003.
These figures are weighted indexes for &quot;All Properties&quot;, including apartments, industrial buildings, offices and retail centers. Sub-indexes are available for each one of these segments. Retail properties were the strongest in 2005, with a 40.2% total return, while industrial buildings earned &quot;only&quot; 24.2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060405f.jpg" width="353">
The secret to these indexes is a proprietary database maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF). This group is a trade association of pension funds managers; they collectively own some $200 billion worth of commercial properties numbering about 5,000. Data on pricing and income is taken from actual transactions involving these properties.
Further, since the properties are all distinct, the &quot;average&quot; value of transactions cannot by obtained by simply toting up individual prices and dividing by some appropriate number. The indexes are compiled by appeal to the same kind of weighted &quot;hedonic&quot;, quality-adjusting econometric techniques used by BEA and BLS for constructing many of the price indexes used by economists every day. The NCREIF database has been maintained for many years, allowing the MIT econometricians to construct 22 years of history for the &quot;All Property&quot; index and 12 years for the individual property types. A press release and more detailed description of the data are found <a href="http://web.mit.edu/cre/news/060216-tbi.html">here</a> on the website of the MIT Center for Real Estate. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">MIT Commercial Real Estate &quot;TBI&quot; Indexes</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
Year-End
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total Return Index</td>
<td>668.0</td>
<td>638.9</td>
<td>601.1</td>
<td>497.1</td>
<td>428.5</td>
<td>389.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Change</td>
<td>34.3</td>
<td>31.8</td>
<td>26.0</td>
<td>16.0</td>
<td>10.0</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">TBI Price Index</td>
<td>194.3</td>
<td>187.3</td>
<td>177.7</td>
<td>150.2</td>
<td>135.7</td>
<td>130.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Change</td>
<td>29.4</td>
<td>26.6</td>
<td>20.6</td>
<td>10.7</td>
<td>4.2</td>
<td>4.3</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060404f.jpg" width="353">
The accumulation of foreign reserves by the developing countries in the Far East appears to be decelerating. Reserves are still increasing, but much more slowly than the pace of early 2004 when the year-to-year increases in reserves were of the order of 30-50%. Taiwan and South Korea are the latest countries to report. Total foreign reserves in Taiwan were unchanged in March from February and only 2.4% above March 2005, down from year-to-year increases of 35% in early 2004. Total reserves in South Korea were up less than one percent from February and less than 6% from March 2005, compared to year-to-year increases of over 30% in early 2004. The year-to-year increases in reserves in Taiwan and South Korea are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060404g.jpg" width="353">
China is much slower to report its reserve holdings. The latest data are for December, but even here a deceleration can be detected. In December the year-over-year increase in reserves was down to 33.7% from 51.1% in August. 2005. The deceleration has been going on longer in India where the year-to-year increase in reserves was 11.5% in February, 2006, down from 52.5% in April, 2004. The year-to-year increases in the reserves of China and India are shown in the second chart.
The International Monetary Fund has recently published information on the composition of total reserves and those held by the industrial countries and developing countries. Data are available in US Dollars, Euros, Pounds Sterling, Japanese Yen, Swiss Francs and a miscellaneous category &quot;other currencies&quot;. (These data are found in the IFS data base.) The data, however, show only the composition of allocated reserves, which, in the case of the developing countries, is only slightly more than half the total. Nevertheless, the changing composition of these allocated reserves gives some indication of the broader shifts that may be taking place in total reserves. Over the period from the first quarter of 1999 when the data began to the fourth quarter of 2005, the proportion of euro claims in the allocated reserves of the developing countries rose from 19% to 29% while the proportion of US$ claims declined from 70% to 60%. (See the third and fourth charts.)<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060404i.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060404h.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/JAPAN/@J5/@J5.HTM">International Reserves:&nbsp; Developing Countries in the Far East</a> (Bil US$)</th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Jan 06</th>
<th scope="col">Dec 05</th>
<th scope="col">Y/Y % Current</th>
<th scope="col">Y/Y % Past Peak&nbsp;</th>
<th scope="col">2004&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">South Korea</td>
<td>217.3</td>
<td>215.9</td>
<td>216.9</td>
<td>210.3</td>
<td>5.8</td>
<td>32.4</td>
<td>April</td>
</tr>
<tr>
<td class="firstcol">Taiwan&nbsp;</td>
<td>257.0</td>
<td>257.0</td>
<td>257.3</td>
<td>253.3</td>
<td>2.4</td>
<td>35.2</td>
<td>February</td>
</tr>
<tr class="odd">
<td class="firstcol">China</td>
<td></td>
<td></td>
<td></td>
<td>821.5</td>
<td>33.7</td>
<td>51.1</td>
<td>August</td>
</tr>
<tr>
<td class="firstcol">India</td>
<td></td>
<td>135.9</td>
<td>134.7</td>
<td>131.9</td>
<td>11.5</td>
<td>52.5</td>
<td>April</td>
</tr>
</tbody>
</table>
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The accumulation of foreign reserves by the developing countries in the Far East appears to be decelerating. Reserves are still increasing, but much more slowly than the pace of early 2004 when the year-to-year increases in reserves [...]

Accumulation of Foreign Reserves of Developing Countries in the Far East Slowing: Shift in Composition of Holdings [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060404e.jpg" width="353">
Announced job cuts fell another 25.7% m/m during March on top of the 15.5% February decline, according to the Challenger, Grey &amp; Christmas survey. The decline was to the lowest level in nearly one year
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs in the auto industry dropped sharply for the second month after the January surge but the three month average remained quite elevated. Cuts in financial (-21.7 y/y, electronics (-37.7% y/y) and government (-72.0% y/y) also fell sharply. Announced job cuts in the apparel and chemical industries, however, surged.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported an increase in announced hiring plans (31.7% y/y) after three months of decline.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">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">Announced Job Cuts</td>
<td>64,975</td>
<td>87,437</td>
<td>-24.8%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
</body>
</html>

Announced job cuts fell another 25.7% m/m during March on top of the 15.5% February decline, according to the Challenger, Grey & Christmas survey. The decline was to the lowest level in nearly one year During the last ten years there [...]

Challenger Layoffs Skid Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060404d.jpg" width="353">
Chain store sales tread water last week, according to the International Council of Shopping Centers (ICSC)-UBS survey.The unchanged w/w level of sales followed three consecutive periods of decline. 
Sales began April 1.4% lower than at the start of March but the average level of sales last month did rise 0.7% versus February.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060404c.jpg" width="353">
The leading indicator of chain store sales rose 0.5% (0.5% /y) after the prior week&#39;s 0.1% up tick. The March rose 0.3% from February.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Retail gasoline prices opened April with a nine cent w/w increase to $2.59 per gallon (16.7% y/y). In yesterday&#39;s spot market trading the price for regular unleaded gasoline of $1.92 per gallon was up another two cents from last week&#39;s average. 
The strength in gasoline prices has been helped by growing U.S. gasoline demand which rose 3.3% last month from the February average and 0.3% y/y.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">04/01/06</th>
<th scope="col">03/25/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>462.3</td>
<td>462.4</td>
<td>2.4%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales tread water last week, according to the International Council of Shopping Centers (ICSC)-UBS survey.The unchanged w/w level of sales followed three consecutive periods of decline. Sales began April 1.4% lower than at [...]

Chain Store Sales Soft as Gasoline Prices Surged

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 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.

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Asia

Economic Letter from Asia: Barrel of Doubt

Michael J. Moran

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The industrial production index fell 0.5% in March, noticeably weaker than the expected increase of 0.1%. In addition, the March results were joined by slight net downward revisions in prior months (sharp upward revision in February offset by a larger downward adjustment in January and tweaks in earlier months). A good portion of the March softness was the result of a drop of 2.3% in utility output, which is not deeply concerning because changes in this sector typically are driven by weather conditions. However, mining activity also was soft (-1.2%), and manufacturing production dipped 0.1%.

Within manufacturing, auto production played a large role in the dip, registering a decline of 3.7%. However, the auto sector had plenty of company on the soft side, as furniture, textiles, apparel, and printing all posted declines of more than 1.0%. Given these drags, manufacturing output excluding autos rose only 0.1%. There was a nearly even split between expanding and contracting industries within manufacturing: 11 boosting production and 9 reducing activity.

The dip in manufacturing activity in March might seem inconsequential in light of solid advances in January and February (up 0.6% and 0.4%, respectively). However, the gains early in the year followed a weak fourth quarter, leaving an unimpressive trend.

Trends in industrial activity are often more apparent by focusing on the level of production indexes rather than month-to-month (or quarter-to-quarter) changes. As shown the chart below, the level of the manufacturing index stirred for a time in 2025, but it lost momentum in the closing months of the year. Changes so far in 2026 have not pushed the index above the September 2025 peak. The 6-month moving average of the manufacturing index is now running sideways.

The capacity utilization rate in manufacturing has naturally reflected movement in production. Utilization rose in 2025 as production strengthened, but it retraced most of the upward movement once momentum in production faded. The utilization rate in manufacturing stood at 75.2% in March, down slightly from the average of 75.4% in 2025.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- Downward noise in utility output; slow activity in manufacturing and mining.
- Flat underlying trend in recent months.

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