Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331a.jpg" width="353">
Personal income rose 0.3% during February, a gain that fell just short of Consensus expectations for a 0.4% increase though the firm 0.7% January advance was unrevised.
Wage &amp; salary disbursements continued firm with a 0.4% (5.1% y/y) increase. Factory sector wages rose 0.2% (2.9% y/y) after an upwardly revised 0.3% January gain and the rise in service sector wages halved to 0.4% (5.4% y/y) after a 0.8% jump during January.
Wages adjusted for price inflation during the last twelve months rose 2.1%, a deceleration from the 2005 advance. Last year, real wage growth of 3.3% just outpaced the 2.7% gain in worker productivity.
Disposable personal income increased 0.2% (5.1% y/y) after an upwardly revised 0.6% January increase. Adjusted for price inflation disposable income rose 0.2% (2.2% y/y). Real disposable income per capita increased 0.1% (1.3% y/y).
Personal consumption rose 0.1%, a bit more than the Consensus expectation for no change. In real terms, a 2.1% (-4.6% y/y) drop in motor vehicles &amp; parts held back the advance but spending on furniture &amp; household equipment fell just 1.6% (+10.5% y/y) after a 4.4% January boom that was double the gain initially estimated. Spending on clothing &amp; shoes gave back all of the downwardly revised January gain with a 1.1% (+4.1% y/y) decline. Real services spending rose 0.8% (3.0% y/y). Spending on household services &amp; operation recovered 5.3% m/m as temperatures turned more normal.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331b.jpg" width="353">
The PCE chain price index was unchanged as gasoline &amp; oil prices fell 0.9% (21.4% y/y) though in March the wholesale price of gasoline has surged. Prices for clothing &amp; shoes dropped 1.0% (-2.2% y/y) during February and furniture &amp; household equipment prices fell another 0.3% (-4.2% y/y).
Incentives and Prices for Motor Vehicles: What has been happening in recent years? is a Working Paper from the Federal Reserve Board and is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200609/200609pap.pdf"> here</a>.
The personal savings rate was negative for the tenth month in the last eleven.
Temptation and Self-Control: Some Evidence and Applications from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/SR/SR367.pdf"> here</a>.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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">Personal Income</td>
<td>0.3%</td>
<td>0.7%</td>
<td>5.6%</td>
<td>5.5%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.1%</td>
<td>0.8%</td>
<td>6.2%</td>
<td>6.5%</td>
<td>6.5%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.5%</td>
<td>-0.5%</td>
<td>0.5% (Feb &#39;05)</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.0%</td>
<td>0.5%</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>


</html>

Personal income rose 0.3% during February, a gain that fell just short of Consensus expectations for a 0.4% increase though the firm 0.7% January advance was unrevised. Wage & salary disbursements continued firm with a 0.4% (5.1% y/y) [...]

U.S. Personal Income Gain Light

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331a.jpg" width="353">
Personal income rose 0.3% during February, a gain that fell just short of Consensus expectations for a 0.4% increase though the firm 0.7% January advance was unrevised.
Wage &amp; salary disbursements continued firm with a 0.4% (5.1% y/y) increase. Factory sector wages rose 0.2% (2.9% y/y) after an upwardly revised 0.3% January gain and the rise in service sector wages halved to 0.4% (5.4% y/y) after a 0.8% jump during January.
Wages adjusted for price inflation during the last twelve months rose 2.1%, a deceleration from the 2005 advance. Last year, real wage growth of 3.3% just outpaced the 2.7% gain in worker productivity.
Disposable personal income increased 0.2% (5.1% y/y) after an upwardly revised 0.6% January increase. Adjusted for price inflation disposable income rose 0.2% (2.2% y/y). Real disposable income per capita increased 0.1% (1.3% y/y).
Personal consumption rose 0.1%, a bit more than the Consensus expectation for no change. In real terms, a 2.1% (-4.6% y/y) drop in motor vehicles &amp; parts held back the advance but spending on furniture &amp; household equipment fell just 1.6% (+10.5% y/y) after a 4.4% January boom that was double the gain initially estimated. Spending on clothing &amp; shoes gave back all of the downwardly revised January gain with a 1.1% (+4.1% y/y) decline. Real services spending rose 0.8% (3.0% y/y). Spending on household services &amp; operation recovered 5.3% m/m as temperatures turned more normal.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331b.jpg" width="353">
The PCE chain price index was unchanged as gasoline &amp; oil prices fell 0.9% (21.4% y/y) though in March the wholesale price of gasoline has surged. Prices for clothing &amp; shoes dropped 1.0% (-2.2% y/y) during February and furniture &amp; household equipment prices fell another 0.3% (-4.2% y/y).
Incentives and Prices for Motor Vehicles: What has been happening in recent years? is a Working Paper from the Federal Reserve Board and is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200609/200609pap.pdf"> here</a>.
The personal savings rate was negative for the tenth month in the last eleven.
Temptation and Self-Control: Some Evidence and Applications from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/SR/SR367.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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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">Personal Income</td>
<td>0.3%</td>
<td>0.7%</td>
<td>5.6%</td>
<td>5.5%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.1%</td>
<td>0.8%</td>
<td>6.2%</td>
<td>6.5%</td>
<td>6.5%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.5%</td>
<td>-0.5%</td>
<td>0.5% (Feb &#39;05)</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.0%</td>
<td>0.5%</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Recovered Late in March 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331d.jpg" width="353">
During late March, consumer sentiment recovered enough to lift the University of Michigan&#39;s Sentiment Index for the month to 88.9 from a preliminary indication of 86.7. Consensus expectations had been for a reading of 87.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
The current conditions index for the month improved 3.3% after a 4.3% decline during February. The index of personal finances recovered all of the prior month&#39;s drop with a 5.4% (+0.9% y/y) gain and the reading of buying conditions for large household goods rose 1.9% (1.2% y/y). Consumers&#39; assessment of gov&#39;t economic policy improved late in the month enough to recover a piece of the sharp decline during February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331c.jpg" width="353">
Consumer expectations rose 2.0% from February due to the late month improvement. The near term economic outlook still fell m/m but the long term outlook improved dramatically.
The mean expected inflation rate for the next twelve months rose m/m to 3.8%, still down from the 5.5% expected in October &amp; September.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Variations in consumer sentiment across demographic groups from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2006_part2_toussaint_et_al.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">March</th>
<th scope="col">March (p)</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">Consumer Sentiment</td>
<td>88.9</td>
<td>86.7</td>
<td>86.7</td>
<td>-4.0%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>109.1</td>
<td>106.2</td>
<td>105.6</td>
<td>1.0%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>76.0</td>
<td>74.2</td>
<td>74.5</td>
<td>-8.2%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
U.S. Factory Inventories Flew Off The Shelves 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331e.jpg" width="353">
Factory inventories dropped 0.4% last month. This first decline since August of last year followed 1.1% accumulation during January, that was twice the 0.5% gain initially estimated.
Motor vehicle &amp; parts inventories dropped 0.4% (-3.3% y/y), the third consecutive monthly decline. Nondefense aircraft inventories also were off 1.5% (+2.2% y/y). Less transportation altogether factory inventories fell 0.2% (+3.4% y/y) after a 1.2% jump during January.
Primary metals inventories jumped 1.2% (2.9% y/y) but machinery inventories fell 0.1% (+5.2% y/y and electrical equipment fell 0.2% (+6.7% y/y). These latter two declines followed huge increases during January.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331f.jpg" width="353">
Total factory orders gained back 0.2% of January&#39;s 3.9% skid. Durable goods orders gained 2.7%, little revised from the advance report. Factory orders less the transportation sector altogether fell 2.0% (+6.2% y/y) and that wholly reversed the gain during January.
Factory shipments fell 1.1% and less transportation shipments fell an even greater 1.3% (7.2% y/y). The total was dragged down by an 11.8% (+19.7% y/y) drop in shipments of petroleum. Factory shipments less transportation and petroleum slipped 0.1% (+6.2% y/y) after a 1.1% surge during January.
Unfilled orders rose 0.9% but the 0.2% January decline was shallower than originally estimated. Less the transportation sector, backlogs rose 0.4% (10.0% y/y) and the 0.6% January increase was upwardly revised.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>3.2%</td>
<td>4.4%</td>
<td>7.7%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.2%</td>
<td>-3.9%</td>
<td>7.2%</td>
<td>8.5%</td>
<td>9.3%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-1.1%</td>
<td>0.1%</td>
<td>7.1%</td>
<td>7.4%</td>
<td>9.5%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.9%</td>
<td>-0.2%</td>
<td>17.0%</td>
<td>16.5%</td>
<td>8.4%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
More Good News from Japan: Lower Unemployment, Higher CPI 
by <a href="/comment/Stone.html">Carol Stone</a> March 31, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331g.jpg" width="353">
We&#39;ve written about Japan frequently here the last few weeks, and candidly, we make no apology for appearing to be single-minded. Economists, practitioners of &quot;the dismal science&quot;, rarely, it seems, have the opportunity to discuss genuinely pleasing developments. So on a day at the end of the Japanese fiscal year, when we can talk about sizable gains in employment, the largest one-month drop in the unemployment rate ever and continuing modest inflation in Japan, we&#39;re going to do it, even if it&#39;s just been a few days since we commented on rising land prices, another positive sign.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331h.jpg" width="353">
The labor force survey for February shows a 240,000 increase the number of people employed; this follows 270,000 in January, making more than half-a-million new workers since the beginning of calendar 2006. Employment in Japan has actually been ratcheting modestly higher since sometime in 2003, but these recent gains pick up the pace significantly. February&#39;s total, at 63.92 million workers, was up 0.8% from a year ago, nearly twice the relative increase for all of 2005. Moreover, the number of &quot;employees&quot; has increased more; people who work for companies are up 82,000 cumulatively in January and February and the number of people otherwise employed fell by 310,000 in the same two months to just barely over 9 million. When economies are weak, many people who are unable to find jobs elsewhere, start their own business or go to work in the family store. But as the economy strengthens, they can find more jobs at companies; this is happening in Japan and the percentage drop in the number of independent workers from a year ago was the steepest ever in January and February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060331i.jpg" width="353">
Another decline that was the biggest ever was that in the unemployment rate, 0.4%, from January to February. This was due, of course, to the increase in employment, but also to only a minimal increase in the total labor force. Even so, the labor force appears to be growing now, albeit modestly and irregularly. The slim 80,000 advance in 2005 was the first yearly increase since 1998. Renewed gains here are also a sign of a better outlook among workers; those unemployed were apparently withdrawing from the labor force, but now they are &quot;available for work&quot;, perhaps with hopes raised that a job might be forthcoming.
Finally, we can&#39;t let the CPI go without brief mention. The increases remain quite small, but they are there nonetheless. The most widely watched line item is the &quot;general index excluding fresh food&quot;. It has shown a year-to-year increase now for four months. Some of the rise is due to higher energy prices, but a new version of a core index excluding energy was also up in February, by 0.2% from a year earlier. Clothing, &quot;miscellaneous&quot; (including personal care), and housing costs are all rising.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Feb 2006</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">Employment (SA, mil)</td>
<td>63.92</td>
<td>63.68</td>
<td>63.41</td>
<td>63.43</td>
<td>63.56</td>
<td>63.29</td>
<td>63.16</td>
</tr>
<tr>
<td class="firstcol">Change (thous)/% Change</td>
<td>+240</td>
<td>+270</td>
<td>-40</td>
<td>0.8</td>
<td>0.4</td>
<td>0.2</td>
<td>-0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (SA, %)</td>
<td>4.1</td>
<td>4.5</td>
<td>4.4</td>
<td>4.6</td>
<td>4.4</td>
<td>4.7</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Monthly Change</td>
<td>-0.4</td>
<td>+0.1</td>
<td>-0.1</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&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">CPI: General(NSA,yr/yr % chg)</td>
<td>0.4</td>
<td>0.5</td>
<td>-0.1</td>
<td>--</td>
<td>-0.3</td>
<td>-0.0</td>
<td>-0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI: General ex Fresh Food (NSA, yr/yr % chg)</td>
<td>0.5</td>
<td>0.5</td>
<td>0.1</td>
<td>--</td>
<td>-0.1</td>
<td>-0.1</td>
<td>-0.3</td>
</tr>
</tbody>
</table>


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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330d.jpg" width="353">
Labor policies are at the fore currently in France and Germany. France, as it tries to modify its basic &quot;lifetime employment&quot; work arrangements, faces massive riots by people at the other end of the economic spectrum -- who basically benefit from this policy -- from the young people who rioted last autumn because, due to this policy, they can&#39;t get a foot in the employment door. The government&#39;s proposal for a probationary employment period for young workers may sound good to these latter people, but it is not at all popular with current workers.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330e.jpg" width="353">
So today, the French statistics agency, INSEE, published the March household confidence survey. Does it show a reaction to these developments? Mildly so, and very specifically. The overall sentiment measure fell 2 points to -26 in March from -24 last month. These are both better than the November survey, in the midst of the labor disturbances; that figure was -33, down 3 points from October and the worst reading of the year, which averaged -28. So the current readings look &quot;good&quot; by comparison.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330f.jpg" width="353">
Two components showed some impact that may be related to these current disputes. Expectations about living standards fell 5 points this month to -38. In November, as well, this measure fell noticeably, to -43 from -37 in October. Expectations about unemployment also worsened each time: the new reading is +41 (meaning that 41% more people believe unemployment will increase than believe it will decrease), up sharply from February&#39;s +12. In November, by contrast, expectations about unemployment did not change from October&#39;s +20 value. Apparently, people see some fall-out from the government&#39;s current &quot;probation&quot; proposal, while they saw no implications from the November demonstrations.
In Germany, the February labor force survey (LFS) was reported today, along with &quot;registered&quot; unemployment for March. In the LFS, employment remained stagnant, increasing a mere 5,000 from January&#39;s level; since mid-2003, the number of people employed has hovered in a narrow range around 38.6 million. Despite the flatness in the number of workers, unemployment rates have generally drifted lower. The rate according to the ILO definition, which is similar to that used in the United States, was 8.6% in February, down from 8.7% in January and from several months a year ago that were at or near 9.5%. The ILO definition is standard to all the Euro-Zone countries. The more widely watched local German measure, &quot;registered&quot; unemployment is also below year-ago levels, although it ticked up to 11.4% in the March report; its recent low was 11.2% in December. Government and private commentators attributed the March increase to cold weather, which has limited seasonal hiring for outdoor work. They anticipate a rapid rise in hiring as temperatures rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330g.jpg" width="353">
The combination of stagnant employment conditions and downtrends in unemployment rates is clarified through developments in the labor force as a whole. As seen in the accompanying graph, it is declining, and is down by about 1 million workers since late 2004. This allows reported unemployment to go down, even if employment is not going up.
Germany too wants to liberalize its labor laws, and its leaders are sensitive to the violent situation in France. While German business confidence rose sharply this month, as documented here earlier in the week by Louise Curley, its political leaders are waffling in the face of the dilemma the strong reaction causes them. Each of the accompanying economic reports thus takes on greater weight in view of the high political stakes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France: Overall Household Confidence (%)</td>
<td>-26</td>
<td>-24</td>
<td>-27</td>
<td>-25</td>
<td>-28</td>
<td>-22</td>
<td>-27</td>
</tr>
<tr>
<td class="firstcol">Living Standard, Next 12 Mos. (%)</td>
<td>-38</td>
<td>-33</td>
<td>-37</td>
<td>-34</td>
<td>-37</td>
<td>-27</td>
<td>-38</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment, Next 12 Mos. (%)</td>
<td>+41</td>
<td>+12</td>
<td>+15</td>
<td>+57</td>
<td>+39</td>
<td>+49</td>
<td>+68</td>
</tr>
<tr>
<td class="firstcol">Germany LFS</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (Mil.)</td>
<td>&nbsp;</td>
<td>38.604</td>
<td>38.599</td>
<td>38.719</td>
<td>38.668</td>
<td>38.779</td>
<td>38.631</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (ILO) (%)</td>
<td>&nbsp;</td>
<td>8.6</td>
<td>8.7</td>
<td>9.5</td>
<td>9.1</td>
<td>9.2</td>
<td>8.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Registered&quot; Unemployment (%)</td>
<td>11.4</td>
<td>11.3</td>
<td>11.3</td>
<td>12.1</td>
<td>11.7</td>
<td>10.5</td>
<td>10.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Labor policies are at the fore currently in France and Germany. France, as it tries to modify its basic "lifetime employment" work arrangements, faces massive riots by people at the other end of the economic spectrum -- who basically [...]

French Consumers Look for Higher Unemployment; German Jobs and Unemployment Little Changed in Latest Labor Data

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330c.jpg" width="353">
Last week, initial claims for unemployment insurance fell 10,000 to 302,000 from an upwardly revised level the prior period. The figure matched Consensus expectations.
Revisions raised the recent claims figures by roughly 10,000.
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 310,750 (-7.7% y/y).
Continuing unemployment insurance claims reversed most of the prior week&#39;s sharp drop, which was revised deeper, and rose 38,000 to 2.472M.
The insured rate of unemployment was stable at 1.9% for the sixth week.

<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">03/25/06</th>
<th scope="col">03/18/06</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>302</td>
<td>312</td>
<td>-14.2%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,483</td>
<td>-4.4%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
</html>

Last week, initial claims for unemployment insurance fell 10,000 to 302,000 from an upwardly revised level the prior period. The figure matched Consensus expectations. Revisions raised the recent claims figures by roughly 10,000. [...]

Initial Jobless Insurance Claims Drop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330a.jpg" width="353">
US real growth last quarter was revised up slightly, as expected, to 1.7% (AR) from the preliminary estimate of 1.6% and from 1.1% growth estimated two months ago. This quarter, growth is widely expected to bounce back with several forecasts calling for a 5% advance.
Reported today for the first time, the estimate of 4Q corporate profitability surged. A 14.4% (21.3% y/y) jump was the strongest for any quarter since 4Q 1992 and was driven by a 37.6% (12.3% y/y) surge in financial sector earnings. They recovered after the losses suffered due to payments in the wake of three hurricanes during 3Q. Domestic nonfinancial profits snapped back 12.1% (26.8% y/y) from the 1.1% loss during 3Q while profit margins surged. Foreign sector profitability fell 6.5% (+16.8% y/y).
After tax profits (w/CCA and IVA) increased 13.8% (14.6% y/y) as taxes rose 15.8% (42.4% y/y). After tax profits without adjustment grew 11.7% (38.7% y/y) while the inventory valuation and capital consumption adjustments roughly offset one another. Corporate net cash flow grew a strong 4.1% (18.5% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330b.jpg" width="353">
Domestic demand was reduced during 4Q as personal consumption of motor vehicles &amp; parts slumped 2.9% (-10.6% y/y). Lower auto consumption reduced real GDP growth by 1.9 percentage points but the GDP subtraction from lower auto output was limited to 0.6 percentage points as inventories built up. Overall, real PCE grew just 0.9% at an annual rate (2.9% y/y) during 4Q05, the slowest quarterly rate of growth in over ten years.
Defense spending is now estimated to have fallen 2.3% (+1.7% y/y) and that decline subtracted 0.4% percentage points from 4Q GDP growth.
The drag on GDP growth from a wider foreign trade deficit ballooned to 1.4 percentage points as imports grew 12.1% (AR, 5.3% y/y) while exports rose 5.0% (6.4% y/y).
Countering the drag from foreign trade, inventories contributed 1.9 percentage points to GDP growth after more than a year of little or no positive contribution.
The chain price index grew 3.5%, an upward revision from the early estimate of a 3.0% rise. The upside surprise during 4Q was that the price index for private fixed investment grew 5.4% (AR, 3.7% y/y), inflated by an 8.3% (5.2% y/y) jump in residential and a 3.8% (2.8% y/y) rise in nonresidential fixed investment.

<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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;05 (Final)</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.7%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>1.9%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.2%</td>
<td>4.6%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>1.1%</td>
<td>4.5%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.5%</td>
<td>3.3%</td>
<td>3.1%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


</html>

US real growth last quarter was revised up slightly, as expected, to 1.7% (AR) from the preliminary estimate of 1.6% and from 1.1% growth estimated two months ago. This quarter, growth is widely expected to bounce back with several [...]

US 4Q GDP Little Revised at 1.7%, Profits Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330a.jpg" width="353">
US real growth last quarter was revised up slightly, as expected, to 1.7% (AR) from the preliminary estimate of 1.6% and from 1.1% growth estimated two months ago. This quarter, growth is widely expected to bounce back with several forecasts calling for a 5% advance.
Reported today for the first time, the estimate of 4Q corporate profitability surged. A 14.4% (21.3% y/y) jump was the strongest for any quarter since 4Q 1992 and was driven by a 37.6% (12.3% y/y) surge in financial sector earnings. They recovered after the losses suffered due to payments in the wake of three hurricanes during 3Q. Domestic nonfinancial profits snapped back 12.1% (26.8% y/y) from the 1.1% loss during 3Q while profit margins surged. Foreign sector profitability fell 6.5% (+16.8% y/y).
After tax profits (w/CCA and IVA) increased 13.8% (14.6% y/y) as taxes rose 15.8% (42.4% y/y). After tax profits without adjustment grew 11.7% (38.7% y/y) while the inventory valuation and capital consumption adjustments roughly offset one another. Corporate net cash flow grew a strong 4.1% (18.5% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330b.jpg" width="353">
Domestic demand was reduced during 4Q as personal consumption of motor vehicles &amp; parts slumped 2.9% (-10.6% y/y). Lower auto consumption reduced real GDP growth by 1.9 percentage points but the GDP subtraction from lower auto output was limited to 0.6 percentage points as inventories built up. Overall, real PCE grew just 0.9% at an annual rate (2.9% y/y) during 4Q05, the slowest quarterly rate of growth in over ten years.
Defense spending is now estimated to have fallen 2.3% (+1.7% y/y) and that decline subtracted 0.4% percentage points from 4Q GDP growth.
The drag on GDP growth from a wider foreign trade deficit ballooned to 1.4 percentage points as imports grew 12.1% (AR, 5.3% y/y) while exports rose 5.0% (6.4% y/y).
Countering the drag from foreign trade, inventories contributed 1.9 percentage points to GDP growth after more than a year of little or no positive contribution.
The chain price index grew 3.5%, an upward revision from the early estimate of a 3.0% rise. The upside surprise during 4Q was that the price index for private fixed investment grew 5.4% (AR, 3.7% y/y), inflated by an 8.3% (5.2% y/y) jump in residential and a 3.8% (2.8% y/y) rise in nonresidential fixed investment.

<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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;05 (Final)</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.7%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>1.9%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.2%</td>
<td>4.6%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>1.1%</td>
<td>4.5%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.5%</td>
<td>3.3%</td>
<td>3.1%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Drop 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 30, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330c.jpg" width="353">
Last week, initial claims for unemployment insurance fell 10,000 to 302,000 from an upwardly revised level the prior period. The figure matched Consensus expectations.
Revisions raised the recent claims figures by roughly 10,000.
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 310,750 (-7.7% y/y).
Continuing unemployment insurance claims reversed most of the prior week&#39;s sharp drop, which was revised deeper, and rose 38,000 to 2.472M.
The insured rate of unemployment was stable at 1.9% for the sixth week.

<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">03/25/06</th>
<th scope="col">03/18/06</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>302</td>
<td>312</td>
<td>-14.2%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,483</td>
<td>-4.4%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
French Consumers Look for Higher Unemployment; German Jobs and Unemployment Little Changed in Latest Labor Data 
by <a href="/comment/Stone.html">Carol Stone</a> March 30, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330d.jpg" width="353">
Labor policies are at the fore currently in France and Germany. France, as it tries to modify its basic &quot;lifetime employment&quot; work arrangements, faces massive riots by people at the other end of the economic spectrum -- who basically benefit from this policy -- from the young people who rioted last autumn because, due to this policy, they can&#39;t get a foot in the employment door. The government&#39;s proposal for a probationary employment period for young workers may sound good to these latter people, but it is not at all popular with current workers.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330e.jpg" width="353">
So today, the French statistics agency, INSEE, published the March household confidence survey. Does it show a reaction to these developments? Mildly so, and very specifically. The overall sentiment measure fell 2 points to -26 in March from -24 last month. These are both better than the November survey, in the midst of the labor disturbances; that figure was -33, down 3 points from October and the worst reading of the year, which averaged -28. So the current readings look &quot;good&quot; by comparison.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330f.jpg" width="353">
Two components showed some impact that may be related to these current disputes. Expectations about living standards fell 5 points this month to -38. In November, as well, this measure fell noticeably, to -43 from -37 in October. Expectations about unemployment also worsened each time: the new reading is +41 (meaning that 41% more people believe unemployment will increase than believe it will decrease), up sharply from February&#39;s +12. In November, by contrast, expectations about unemployment did not change from October&#39;s +20 value. Apparently, people see some fall-out from the government&#39;s current &quot;probation&quot; proposal, while they saw no implications from the November demonstrations.
In Germany, the February labor force survey (LFS) was reported today, along with &quot;registered&quot; unemployment for March. In the LFS, employment remained stagnant, increasing a mere 5,000 from January&#39;s level; since mid-2003, the number of people employed has hovered in a narrow range around 38.6 million. Despite the flatness in the number of workers, unemployment rates have generally drifted lower. The rate according to the ILO definition, which is similar to that used in the United States, was 8.6% in February, down from 8.7% in January and from several months a year ago that were at or near 9.5%. The ILO definition is standard to all the Euro-Zone countries. The more widely watched local German measure, &quot;registered&quot; unemployment is also below year-ago levels, although it ticked up to 11.4% in the March report; its recent low was 11.2% in December. Government and private commentators attributed the March increase to cold weather, which has limited seasonal hiring for outdoor work. They anticipate a rapid rise in hiring as temperatures rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060330g.jpg" width="353">
The combination of stagnant employment conditions and downtrends in unemployment rates is clarified through developments in the labor force as a whole. As seen in the accompanying graph, it is declining, and is down by about 1 million workers since late 2004. This allows reported unemployment to go down, even if employment is not going up.
Germany too wants to liberalize its labor laws, and its leaders are sensitive to the violent situation in France. While German business confidence rose sharply this month, as documented here earlier in the week by Louise Curley, its political leaders are waffling in the face of the dilemma the strong reaction causes them. Each of the accompanying economic reports thus takes on greater weight in view of the high political stakes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">France: Overall Household Confidence (%)</td>
<td>-26</td>
<td>-24</td>
<td>-27</td>
<td>-25</td>
<td>-28</td>
<td>-22</td>
<td>-27</td>
</tr>
<tr>
<td class="firstcol">Living Standard, Next 12 Mos. (%)</td>
<td>-38</td>
<td>-33</td>
<td>-37</td>
<td>-34</td>
<td>-37</td>
<td>-27</td>
<td>-38</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment, Next 12 Mos. (%)</td>
<td>+41</td>
<td>+12</td>
<td>+15</td>
<td>+57</td>
<td>+39</td>
<td>+49</td>
<td>+68</td>
</tr>
<tr>
<td class="firstcol">Germany LFS</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (Mil.)</td>
<td>&nbsp;</td>
<td>38.604</td>
<td>38.599</td>
<td>38.719</td>
<td>38.668</td>
<td>38.779</td>
<td>38.631</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (ILO) (%)</td>
<td>&nbsp;</td>
<td>8.6</td>
<td>8.7</td>
<td>9.5</td>
<td>9.1</td>
<td>9.2</td>
<td>8.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Registered&quot; Unemployment (%)</td>
<td>11.4</td>
<td>11.3</td>
<td>11.3</td>
<td>12.1</td>
<td>11.7</td>
<td>10.5</td>
<td>10.5</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060329b.jpg" width="353">
British retailers face disappointing sales this month, according to today&#39;s release of the monthly CBI (Confederation of British Industry) Distributive Trades Survey. A month ago, a net of just 5% of respondents said they looked for March sales to weaken from a year earlier. Instead, a net of 16% saw sales fall. This was a second consecutive actual result that came in far below survey participants&#39; expectations. In February, a slim majority of 1% expected sales to rise, but the actual balance was significantly different, at -18%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060329c.jpg" width="353">
In the motor trades, March results were also far below survey participants&#39; plans. After a difficult year in 2005, many dealers expected sales to recover, so that in January, only a net balance of 7% expected further declines in sales. But sales came in lower, on balance, at 34%. Some recovery did take place in February, when a net of 5% of dealers saw rising sales, albeit over a weak year-ago base. However, this improvement did not last. Dealers looked for continuing modest gains in March to a +7% reading, but sales fell on balance at 18% of outlets.
Retailers have cut orders from their suppliers; after a brief period of less negative readings, a full 25% of firms, on net, reduced order volume in March, following -12% in January and -17% in February. In the motor trades, the number of firms raising or reducing orders is just about even, but this follows a decline at 44% of firms overall for last year, with weakness as deep as -67% in October.
We have cited here the weakening labor markets in the UK, most recently on March 15. Apparently, while disappointing, it should be no wonder that retail sales are feeling the effects.

<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/@U9/@U9.HTM">United Kingdom</a></th>
<th scope="col">Apr 2006</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</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">Retail Sales: Expected</td>
<td>-7</td>
<td>-5</td>
<td>+1</td>
<td>-9</td>
<td>-7</td>
<td>+25</td>
<td>+18</td>
</tr>
<tr>
<td class="firstcol">Reported</td>
<td>--</td>
<td>-16</td>
<td>-18</td>
<td>-11</td>
<td>-14</td>
<td>+24</td>
<td>+14</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Trades: Expected</td>
<td>-30</td>
<td>+7</td>
<td>+10</td>
<td>-34</td>
<td>-36</td>
<td>-8</td>
<td>-18</td>
</tr>
<tr>
<td class="firstcol">Reported</td>
<td>--</td>
<td>-18</td>
<td>+5</td>
<td>-7</td>
<td>-39</td>
<td>-8</td>
<td>-19</td>
</tr>
</tbody>
</table>
</body>
</html>

British retailers face disappointing sales this month, according to today's release of the monthly CBI (Confederation of British Industry) Distributive Trades Survey. A month ago, a net of just 5% of respondents said they looked for [...]

Retail Sales Lag Shops' Plans in March, New CBI Distributive Trades Survey Shows

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060329a.jpg" width="353">
Last week, the total number of mortgage applications recovered 1.2% following two weeks of decline. Nevertheless, applications in March are 2.4% below the February average which fell 6.3% m/m.
Purchase applications recovered all of the prior week&#39;s decline with a 2.7% rise but the average level during March remained down 1.6% from the February average.
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 fell for the third straight week, off 1.0% w/w and the March level is 3.1% below the February average which fell 2.0% from January.
The effective interest rate on a conventional 30-year mortgage rose two basis points to 6.56% and the rate on 15-year financing ticked up to 6.28%. 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>.
Money and Modern Banking without Bank Runs from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr242.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/24/06</th>
<th scope="col">03/17/06</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>571.7</td>
<td>565.0</td>
<td>-15.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>404.1</td>
<td>393.6</td>
<td>-14.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,558.4</td>
<td>1,574.5</td>
<td>-16.1%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
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</body>
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Last week, the total number of mortgage applications recovered 1.2% following two weeks of decline. Nevertheless, applications in March are 2.4% below the February average which fell 6.3% m/m. Purchase applications recovered all of [...]

Mortgage Applications Recover Some

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

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.

260420T2.jpg

**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.

260420T3.jpg

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. 

260420T4.jpg

**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.

Industrial Production: Soft in March

Winnie Tapasanun

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The current general activity diffusion index unexpectedly jumped to 26.7 in April from 18.1 in March and 16.3 in February, the latest Manufacturing Business Outlook Survey (MBOS) from the Federal Reserve Bank of Philadelphia showed, indicating continued expansion in manufacturing activity in the Third Federal Reserve District this month and at the highest level since January 2025. April was the fourth successive m/m increase and the fifth in six months, showing a sharp improvement from -12.9 in April 2025. A reading of 15.0 for April had been expected by the Action Economics Forecast Survey. In April, 32.6% of firms reported increases in current general activity (down from 39.2% in March), while 5.9% reported decreases (down from 21.1%); 61.5% reported no change (up from 34.6%). Survey responses were collected from April 6 to April 13.

Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology along the lines of the national ISM index. The index eased to 54.5 in April after a 6.2-point rebound to 54.8 in March, indicating manufacturing activity expanded for the fourth time in five months; it was above a contraction-level 44.8 in April 2025.

In the latest survey, the new orders index surged to 33.0 in April from 8.6 in March, signaling new orders expanded for the fifth straight month and at the highest level since November 2021. The shipments index advanced to 34.0 this month from 22.2 in March, marking the fifth consecutive expansion and the highest level since May 2022. In contrast, the unfilled orders index dropped to -10.2 in April from -4.7 in March, extending its ninth straight contraction. The inventories index decreased to -1.9 this month from 1.4 in March, showing the third contraction in four months. Meanwhile, the delivery times index fell to a near‑neutral 1.7 in April from 18.9 in March (the highest reading since April 2022), suggesting a rapid easing of supply‑chain pressures rather than a demand‑driven slowdown.

On the labor front, the number of employees index slid to -5.1 in April from 0.8 in March, indicating employment contracted for the second time in three months and hit its lowest level since June 2025. In April, 10.1% of respondents reported increases in employment, while a higher 15.2% reported declines; 70.4% reported no change in employment levels. The average employee workweek index rose to 7.7 this month, the highest reading since January, from 2.8 in March.

Inflation indicators remained elevated in April. The prices paid index jumped to 59.3 this month, the highest level since August, after a 5.8-point rise to 44.7 in March. A higher 61.4% of respondents reported increases in input prices in April, while only 2.1% reported decreases. The prices received index rose to 33.5, an eight-month high, after a 4.5-point March increase to 21.2. In April, 33.5% of respondents reported increases in prices received, while 0.0% reported decreases.

The future indexes generally remained in positive territory, signaling continued overall growth over the next six months, although most future indicators declined. The future general activity diffusion index rebounded to 40.8 in April from 40.0 in March, staying positive since February 2024. The following future indexes fell in April (vs. March) but remained in positive territory: new orders (45.7 vs. 49.6), shipments (40.8 vs. 53.6), and employment (35.9 vs. 40.4). Future indexes for unfilled orders (-4.1 vs. 15.3) and inventories (-0.7 vs. 16.8) moved into contraction in April after expanding in March. Notably, the future capital expenditures index rose to 35.2 this month, the highest level since August, from 25.8 in March. Prices continued to increase, with the future prices paid index easing to a still‑high 50.2 in April from 53.7 in March and the future prices received index rising to a three-month-high 50.2 from 38.4.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The indexes range from -100 to +100 with positive values indicating an increase in activity. The series from the survey dating back to May 1968 can be found in Haver’s **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Current General Activity Index up 8.6 pts. to 26.7 in Apr.; fourth consecutive m/m rise.
- Positive: Shipments (34.0), highest since May ’22; New Orders (33.0), highest since Nov. ’21.
- Negative: Employment (-5.1), lowest since June ’25; Unfilled Orders (-10.2), ninth straight contraction.
- Inflation indicators at eight-month highs and well above long-run nonrecession avgs.
- Future General Activity Index up to 40.8; most subindexes down but still positive; future price indexes still above long-run avgs.

Economy in Brief

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U.S. Personal Income Gain Light

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