Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328c.jpg" width="353">
March surveys indicate that business confidence is surprisingly strong in Germany and Italy, but subdued in France. The first chart shows the IFO business climate index for Germany and the ISAE business confidence indicator for Italy. The second chart shows the percent balance between those in the manufacturing industry, who believe conditions are improving and those who believe they are worsening for Germany and France.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328e.jpg" width="353">
Protests over a new law that makes it easier to fire young workers may have dampened French business confidence--it has shown little improvement since October of last year. However, in Germany, a strike by municipal workers against a proposal to increase the work week to 40 hours from 38.5 hours with no increase in pay has been in progress since February 6, with little or no effect on confidence.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328d.jpg" width="353">
On the contrary, Germany&#39;s IFO Business Climate Index (2000=100) rose 1.9% in March surprising most observers. The consensus had been for a slight decline. The index is now at 105.4, its highest level since April, 1991. The Business Situation or Current Conditions Index at 105.1 is also at a level last reached in November, 1991 and the Expectations Index is at its highest level since October 94. The third chart shows the history of the Business Situation and Expectations Indexes since their inception in January, 1991.
Although Italy&#39;s ISAE measure of business confidence rose in March--1.6%--to reach 94.2 (2000=100), the highest level since January, 2000, the level of confidence remains almost 6% below that of 2000 while the level in Germany is now some 5% above the 2000 average level. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Confidence</th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 05</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M % or Pct chg</th>
<th scope="col">Y/Y % or Pct chg</th>
<th scope="col">2005&nbsp; </th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany:&nbsp; IFO&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Climate</td>
<td>105.4</td>
<td>103.3</td>
<td>93.9</td>
<td>1.93</td>
<td>12.37</td>
<td>95.5</td>
<td>95.4</td>
<td>91.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current Situation</td>
<td>105.1</td>
<td>101.9</td>
<td>92.3</td>
<td>3.14</td>
<td>13.87</td>
<td>94.7</td>
<td>93.1</td>
<td>88.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expectations</td>
<td>105.7</td>
<td>104.9</td>
<td>95.2</td>
<td>0.76</td>
<td>11.03</td>
<td>96.3</td>
<td>97.8</td>
<td>95.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy: ISAE&nbsp;(2000=100)</td>
<td>94.2</td>
<td>92.7</td>
<td>84.9</td>
<td>1.62</td>
<td>10.95</td>
<td>87.5</td>
<td>89.5</td>
<td>88.0</td>
</tr>
<tr>
<td class="firstcol">France: General Outlook Manufacturing % Balance</td>
<td>&nbsp;-2.0</td>
<td>-2.0&nbsp;</td>
<td>-5.0&nbsp;</td>
<td>0.0&nbsp;</td>
<td>3.0&nbsp;</td>
<td>-12&nbsp;</td>
<td>5&nbsp;</td>
<td>-29&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany: Business Climate in Mfg % Balance</td>
<td>19.2</td>
<td>14.9</td>
<td>-1.5</td>
<td>4.3</td>
<td>20.7</td>
<td>1.1</td>
<td>4.4</td>
<td>-8.0</td>
</tr>
</tbody>
</table>
</body>
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March surveys indicate that business confidence is surprisingly strong in Germany and Italy, but subdued in France. The first chart shows the IFO business climate index for Germany and the ISAE business confidence indicator for Italy. [...]

Business Confidence Improves in Germany and Italy; Is Unchanged in France

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328h.jpg" width="353">
The Federal Open Market Committee increased the target interest rate for Federal funds 25 basis points to 4.75% at today&#39;s meeting. It was the fifteenth increase since June of 2004 and the unanimous decision was widely expected by analysts.
The discount rate also was raised 25 basis points to 5.75%.
Reflecting little worry about the economic expansion, the Fed statement indicated &quot;The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328g.jpg" width="353">
Future rate increases were suggested by the FOMC statement. &quot;The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/BoardDocs/press/monetary/2006/20060328/default.htm">here</a>.
Goodbye to M3 from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060401/cover.pdf"> here</a>.
What is Tight Money? from the American Enterprise Institute is available <a href="http://www.aei.org/publications/pubID.24126,filter.all/pub_detail.asp"> here</a>.

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The Federal Open Market Committee increased the target interest rate for Federal funds 25 basis points to 4.75% at today's meeting. It was the fifteenth increase since June of 2004 and the unanimous decision was widely expected by [...]

FOMC Increased Fed Funds Rate to 4.75%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328a.jpg" width="353">
Chain store sales slid 1.6% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey.The w/w drop followed a 0.1% decline during the prior period and rounded a lackluster March when sales ended the month about 1.4% lower than at the start. 
The average level of sales in March nevertheless rose roughly 1.0% versus the prior month due to a strong gain at the end of 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.
The leading indicator of chain store sales ticked up 0.2% after the prior week&#39;s 0.3% decline and in March is up 0.1% versus 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.
Higher gasoline prices during March certainly did little to aid chain stores. Last week, the average retail price for regular gasoline held steady w/w at $2.50 per gallon (+16.0% y/y) but that followed a fourteen cent w/w jump the prior period and a fifteen cent rise in the monthly average versus February. During March, gasoline prices were at their highest since last October.
In spot market trading, yesterday&#39;s price for regular unleaded gasoline of $1.82 per gallon was up four cents from last week&#39;s average. U.S. demand for gasoline rose 1.2% from the February average (+0.3% y/y) during the latest four weeks though the very latest figures showed a decline w/w.

<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">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">Total Weekly Chain Store Sales</td>
<td>462.4</td>
<td>470.0</td>
<td>2.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales slid 1.6% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey.The w/w drop followed a 0.1% decline during the prior period and rounded a lackluster March when sales ended the month [...]

Chain Store Sales Slide, Gasoline Prices Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328b.jpg" width="353">
The Conference Board&#39;s Index of Consumer Confidence jumped 4.4% during March to 107.2, the highest level in nearly four years. The jump compared to Consensus expectations for stability at 102.0 and the m/m stability in the University of Michigan&#39;s March Index of Consumer Sentiment.
During the last twenty years there has been a 52% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.
The index of consumers&#39; expectations recovered most of the prior month&#39;s decline with a sharp 6.8% (-4.1% y/y) gain. Expectations for business conditions improved for the first month in four and more jobs were expected for the first month in three. Expectations for stock prices surged.
Consumers&#39; assessment of the present situation rose for the fifth straight month. The 2.3% increase (13.9% y/y) was driven by a rise in the percentage of respondents who viewed jobs as plentiful to 28.4%, the highest since 2001. Business conditions were thought to be good by 28.3% of respondents, the highest since last July.
Price inflation expected in twelve months fell to 4.8%, down slightly from the 5.2% expected in December and down sharply from the 6.8% expected last September.
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<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/@EF14/@EF1401/@EF1401.HTM">Conference Board</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">Consumer Confidence</td>
<td>107.2</td>
<td>102.7</td>
<td>4.1%</td>
<td>100.3</td>
<td>96.1</td>
<td>79.8</td>
</tr>
</tbody>
</table>
</body>
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The Conference Board's Index of Consumer Confidence jumped 4.4% during March to 107.2, the highest level in nearly four years. The jump compared to Consensus expectations for stability at 102.0 and the m/m stability in the University [...]

Consumer Confidence Up Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328b.jpg" width="353">
The Conference Board&#39;s Index of Consumer Confidence jumped 4.4% during March to 107.2, the highest level in nearly four years. The jump compared to Consensus expectations for stability at 102.0 and the m/m stability in the University of Michigan&#39;s March Index of Consumer Sentiment.
During the last twenty years there has been a 52% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.
The index of consumers&#39; expectations recovered most of the prior month&#39;s decline with a sharp 6.8% (-4.1% y/y) gain. Expectations for business conditions improved for the first month in four and more jobs were expected for the first month in three. Expectations for stock prices surged.
Consumers&#39; assessment of the present situation rose for the fifth straight month. The 2.3% increase (13.9% y/y) was driven by a rise in the percentage of respondents who viewed jobs as plentiful to 28.4%, the highest since 2001. Business conditions were thought to be good by 28.3% of respondents, the highest since last July.
Price inflation expected in twelve months fell to 4.8%, down slightly from the 5.2% expected in December and down sharply from the 6.8% expected last September.
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<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/@EF14/@EF1401/@EF1401.HTM">Conference Board</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">Consumer Confidence</td>
<td>107.2</td>
<td>102.7</td>
<td>4.1%</td>
<td>100.3</td>
<td>96.1</td>
<td>79.8</td>
</tr>
</tbody>
</table>
Chain Store Sales Slide, Gasoline Prices Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 28, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328a.jpg" width="353">
Chain store sales slid 1.6% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey.The w/w drop followed a 0.1% decline during the prior period and rounded a lackluster March when sales ended the month about 1.4% lower than at the start. 
The average level of sales in March nevertheless rose roughly 1.0% versus the prior month due to a strong gain at the end of 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.
The leading indicator of chain store sales ticked up 0.2% after the prior week&#39;s 0.3% decline and in March is up 0.1% versus 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.
Higher gasoline prices during March certainly did little to aid chain stores. Last week, the average retail price for regular gasoline held steady w/w at $2.50 per gallon (+16.0% y/y) but that followed a fourteen cent w/w jump the prior period and a fifteen cent rise in the monthly average versus February. During March, gasoline prices were at their highest since last October.
In spot market trading, yesterday&#39;s price for regular unleaded gasoline of $1.82 per gallon was up four cents from last week&#39;s average. U.S. demand for gasoline rose 1.2% from the February average (+0.3% y/y) during the latest four weeks though the very latest figures showed a decline w/w.

<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">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">Total Weekly Chain Store Sales</td>
<td>462.4</td>
<td>470.0</td>
<td>2.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
FOMC Increased Fed Funds Rate to 4.75% 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 28, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328h.jpg" width="353">
The Federal Open Market Committee increased the target interest rate for Federal funds 25 basis points to 4.75% at today&#39;s meeting. It was the fifteenth increase since June of 2004 and the unanimous decision was widely expected by analysts.
The discount rate also was raised 25 basis points to 5.75%.
Reflecting little worry about the economic expansion, the Fed statement indicated &quot;The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328g.jpg" width="353">
Future rate increases were suggested by the FOMC statement. &quot;The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/BoardDocs/press/monetary/2006/20060328/default.htm">here</a>.
Goodbye to M3 from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20060401/cover.pdf"> here</a>.
What is Tight Money? from the American Enterprise Institute is available <a href="http://www.aei.org/publications/pubID.24126,filter.all/pub_detail.asp"> here</a>.

 Business Confidence Improves in Germany and Italy; Is Unchanged in France 
by <a href="/comment/Curley.html">Louise Curley</a> March 28, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328c.jpg" width="353">
March surveys indicate that business confidence is surprisingly strong in Germany and Italy, but subdued in France. The first chart shows the IFO business climate index for Germany and the ISAE business confidence indicator for Italy. The second chart shows the percent balance between those in the manufacturing industry, who believe conditions are improving and those who believe they are worsening for Germany and France.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328e.jpg" width="353">
Protests over a new law that makes it easier to fire young workers may have dampened French business confidence--it has shown little improvement since October of last year. However, in Germany, a strike by municipal workers against a proposal to increase the work week to 40 hours from 38.5 hours with no increase in pay has been in progress since February 6, with little or no effect on confidence.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060328d.jpg" width="353">
On the contrary, Germany&#39;s IFO Business Climate Index (2000=100) rose 1.9% in March surprising most observers. The consensus had been for a slight decline. The index is now at 105.4, its highest level since April, 1991. The Business Situation or Current Conditions Index at 105.1 is also at a level last reached in November, 1991 and the Expectations Index is at its highest level since October 94. The third chart shows the history of the Business Situation and Expectations Indexes since their inception in January, 1991.
Although Italy&#39;s ISAE measure of business confidence rose in March--1.6%--to reach 94.2 (2000=100), the highest level since January, 2000, the level of confidence remains almost 6% below that of 2000 while the level in Germany is now some 5% above the 2000 average level. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Confidence</th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 05</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M % or Pct chg</th>
<th scope="col">Y/Y % or Pct chg</th>
<th scope="col">2005&nbsp; </th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany:&nbsp; IFO&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Climate</td>
<td>105.4</td>
<td>103.3</td>
<td>93.9</td>
<td>1.93</td>
<td>12.37</td>
<td>95.5</td>
<td>95.4</td>
<td>91.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current Situation</td>
<td>105.1</td>
<td>101.9</td>
<td>92.3</td>
<td>3.14</td>
<td>13.87</td>
<td>94.7</td>
<td>93.1</td>
<td>88.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expectations</td>
<td>105.7</td>
<td>104.9</td>
<td>95.2</td>
<td>0.76</td>
<td>11.03</td>
<td>96.3</td>
<td>97.8</td>
<td>95.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy: ISAE&nbsp;(2000=100)</td>
<td>94.2</td>
<td>92.7</td>
<td>84.9</td>
<td>1.62</td>
<td>10.95</td>
<td>87.5</td>
<td>89.5</td>
<td>88.0</td>
</tr>
<tr>
<td class="firstcol">France: General Outlook Manufacturing % Balance</td>
<td>&nbsp;-2.0</td>
<td>-2.0&nbsp;</td>
<td>-5.0&nbsp;</td>
<td>0.0&nbsp;</td>
<td>3.0&nbsp;</td>
<td>-12&nbsp;</td>
<td>5&nbsp;</td>
<td>-29&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany: Business Climate in Mfg % Balance</td>
<td>19.2</td>
<td>14.9</td>
<td>-1.5</td>
<td>4.3</td>
<td>20.7</td>
<td>1.1</td>
<td>4.4</td>
<td>-8.0</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/060327e.jpg" width="353">
Further evidence that deflation in Japan is becoming a thing of the past is showing up in land prices. Commercial land prices in the three metropolitan areas--Tokyo, Osaka and Nagoya--rose last year for the first time since the peak in Japan&#39;s land prices was reached in the first half of 1991. After fourteen years of ever lower prices, the price of commercial land in the three metropolitan areas rose 1.0% in 2005.Nationwide, prices of commercial land were still falling, but the decline has been decelerating and in 2005 was 2.7% versus 5.6% the year before. The first chart shows the annual percentage changes in the prices of commercial land in the three metropolitan areas and in the nation as a whole for the past twenty years.Residential land prices have not yet shown an increase but the declines have been moderating both in the metropolitan areas and in the nation as a whole, as the second chart shows.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327f.jpg" width="353">
These price changes are published by the Department of Land, Infrastructure and Transport annually. Percentage changes from a year ago are shown on January 1st of each year, the latest being January 1, 2006. Indexes of urban land prices (End of March =100) are compiled and published by the Japan Real Estate Institute semiannually in March and September. The March figure is representative of the first half of the year and the September figure, the second half. The index of is based on conditions in some 223 cities.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327g.jpg" width="353">
The indexes give a good picture of the rise and fall of land prices in urban areas. The rise of land prices in the boom of the eighties was more pronounced in commercial land prices than in residential land prices. Between 1980 and 1991 commercial land prices rose almost 130% and have subsequently declined 70%. The index of commercial land prices was 58.60 in the last half of 2005 below the level of the index in the first half of 1980. The rise in residential land prices was less, 108%, and the subsequent decline has been more muted, 40%. The Index of residential land prices was 75.60 in the last half of 2005, still above the 60.60 of the first half of 1980. The rise and fall of commercial and residential land prices are shown in the third chart. 

<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/JAPAN/@J5/@J5.HTM">Percent Changes in Land Prices (%)</a></th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Commercial&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Metropolitan Areas</td>
<td>1.0</td>
<td>-3.2</td>
<td>-5.8</td>
<td>-7.1</td>
<td>8.5</td>
<td>-9.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nationwide</td>
<td>-2.7</td>
<td>-5.6</td>
<td>-7.4</td>
<td>-8.0</td>
<td>-8.3</td>
<td>-8.0</td>
</tr>
<tr>
<td class="firstcol">Residential&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Metropolitan Areas</td>
<td>&nbsp;-1.2</td>
<td>-3.7&nbsp;</td>
<td>-5.7</td>
<td>-6.5&nbsp;</td>
<td>-5.6</td>
<td>&nbsp;-5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nationwide</td>
<td>-2.7</td>
<td>-4.6</td>
<td>-5.7</td>
<td>-5.8</td>
<td>-5.2</td>
<td>-4.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; <a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM">Urban Land Price Index</a> &nbsp; (End of March 2000=100)</td>
<td>1980</td>
<td>Peak 1991</td>
<td>Current Second half 2005</td>
<td>1980-Peak &nbsp; % Change</td>
<td>Peak-Current &nbsp;% Change</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Commercial Land</td>
<td>86.00</td>
<td>195.90</td>
<td>58.60</td>
<td>127.79</td>
<td>-70.09</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Residential Land</td>
<td>60.61</td>
<td>126.10</td>
<td>75.60</td>
<td>108.09</td>
<td>-40.05</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

Further evidence that deflation in Japan is becoming a thing of the past is showing up in land prices. Commercial land prices in the three metropolitan areas--Tokyo, Osaka and Nagoya--rose last year for the first time since the peak [...]

Another Indication of the End of Deflation in Japan: Prices of Commercial Land Rise in Metropolitan Areas

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327c.jpg" width="353">
New orders for durable goods increased 2.6% last month following an 8.9% drop during January that was somewhat shallower than initially reported. The gain outpaced Consensus expectations for a 1.0% increase, however, unlike the prior month&#39;s report covering activity in the factory sector, the details were not constructive.
During the last ten years there has been a 51% correlation between the y/y change in durable goods orders and the level of the ISM orders index.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327d.jpg" width="353">
A 26.0% rebound in aircraft &amp; parts orders predominated last month&#39;s gain. It followed a 59.9% January plunge and was led by a 52.5% surge in nondefense (66.3% y/y) aircraft.
New orders for motor vehicles &amp; parts fell for the fourth month in the last five and the 3.3% m/m decline was to the lowest level in nearly one year.
Less the transportation sector altogether, durable goods orders fell 1.3% following an upwardly revised 1.6% January increase. The decline disappointed Consensus expectations for a 1.1% increase.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327a.jpg" width="353">
Declines in orders were widespread during February. Electrical equipment orders fell 3.2% (+12.5% y/y) though the decline followed an 8.5% gain the month earlier which was quite a bit stronger than initially estimated. A 6.3% (+4.4% y/y) drop in machinery orders followed a 3.5% January slip while orders for fabricated metals fell 1.9% (+5.6% y/y) and primary metals also fell by 2.5% (+6.0% y/y). Orders for computers &amp; electronic products rose 4.2% (2.9% y/y) though the y/y gain is well below the double digit increases of 2004 and 2005.
Orders for nondefense capital goods increased a scant 1.6% following the 19.8% plunge during January and orders less aircraft fell 2.3%. The January figures were little revised.
During the last ten years there has been an 87% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327b.jpg" width="353">
Shipments of durable goods rose 0.2% after the 1.8% drop during January and less the transportation sector shipments rose 0.1% (8.3% y/y) following the 0.5% January increase.
Order backlogs rose 0.9% (17.0% y/y), again dominated by the strength in unfilled orders for aircraft &amp; parts which rose 1.1% (39.3% y/y). Less transportation backlogs rose 0.5% (10.2% y/y). The ratio of backlogs to shipments outside of transportation increased moderately but remained near the middle of the range of the last two years.
Durable inventories fell 0.5% (+2.6% y/y) after a 1.0% January gain. Less transportation, the 0.4% (+2.8% y/y) February decline followed a 1.2% January surge. The inventory to sales ratio outside of the transportation sector fell to near the historic low.
Macroeconomic News and Real Interest Rates from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/03/KliesenSchmid.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</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">Durable Goods Orders</td>
<td>2.6%</td>
<td>-8.9%</td>
<td>8.1%</td>
<td>8.6%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.3%</td>
<td>1.6%</td>
<td>6.4%</td>
<td>8.6%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.6%</td>
<td>-19.8%</td>
<td>9.4%</td>
<td>20.0%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-2.3%</td>
<td>0.3%</td>
<td>5.0%</td>
<td>10.7%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

New orders for durable goods increased 2.6% last month following an 8.9% drop during January that was somewhat shallower than initially reported. The gain outpaced Consensus expectations for a 1.0% increase, however, unlike the prior [...]

U.S. Durable Goods Orders Up, But ...

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327c.jpg" width="353">
New orders for durable goods increased 2.6% last month following an 8.9% drop during January that was somewhat shallower than initially reported. The gain outpaced Consensus expectations for a 1.0% increase, however, unlike the prior month&#39;s report covering activity in the factory sector, the details were not constructive.
During the last ten years there has been a 51% correlation between the y/y change in durable goods orders and the level of the ISM orders index.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327d.jpg" width="353">
A 26.0% rebound in aircraft &amp; parts orders predominated last month&#39;s gain. It followed a 59.9% January plunge and was led by a 52.5% surge in nondefense (66.3% y/y) aircraft.
New orders for motor vehicles &amp; parts fell for the fourth month in the last five and the 3.3% m/m decline was to the lowest level in nearly one year.
Less the transportation sector altogether, durable goods orders fell 1.3% following an upwardly revised 1.6% January increase. The decline disappointed Consensus expectations for a 1.1% increase.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327a.jpg" width="353">
Declines in orders were widespread during February. Electrical equipment orders fell 3.2% (+12.5% y/y) though the decline followed an 8.5% gain the month earlier which was quite a bit stronger than initially estimated. A 6.3% (+4.4% y/y) drop in machinery orders followed a 3.5% January slip while orders for fabricated metals fell 1.9% (+5.6% y/y) and primary metals also fell by 2.5% (+6.0% y/y). Orders for computers &amp; electronic products rose 4.2% (2.9% y/y) though the y/y gain is well below the double digit increases of 2004 and 2005.
Orders for nondefense capital goods increased a scant 1.6% following the 19.8% plunge during January and orders less aircraft fell 2.3%. The January figures were little revised.
During the last ten years there has been an 87% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327b.jpg" width="353">
Shipments of durable goods rose 0.2% after the 1.8% drop during January and less the transportation sector shipments rose 0.1% (8.3% y/y) following the 0.5% January increase.
Order backlogs rose 0.9% (17.0% y/y), again dominated by the strength in unfilled orders for aircraft &amp; parts which rose 1.1% (39.3% y/y). Less transportation backlogs rose 0.5% (10.2% y/y). The ratio of backlogs to shipments outside of transportation increased moderately but remained near the middle of the range of the last two years.
Durable inventories fell 0.5% (+2.6% y/y) after a 1.0% January gain. Less transportation, the 0.4% (+2.8% y/y) February decline followed a 1.2% January surge. The inventory to sales ratio outside of the transportation sector fell to near the historic low.
Macroeconomic News and Real Interest Rates from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/03/KliesenSchmid.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</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">Durable Goods Orders</td>
<td>2.6%</td>
<td>-8.9%</td>
<td>8.1%</td>
<td>8.6%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.3%</td>
<td>1.6%</td>
<td>6.4%</td>
<td>8.6%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.6%</td>
<td>-19.8%</td>
<td>9.4%</td>
<td>20.0%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-2.3%</td>
<td>0.3%</td>
<td>5.0%</td>
<td>10.7%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
 Another Indication of the End of Deflation in Japan:   Prices of Commercial Land Rise in Metropolitan Areas 
by <a href="/comment/Curley.html">Louise Curley</a> March 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327e.jpg" width="353">
Further evidence that deflation in Japan is becoming a thing of the past is showing up in land prices. Commercial land prices in the three metropolitan areas--Tokyo, Osaka and Nagoya--rose last year for the first time since the peak in Japan&#39;s land prices was reached in the first half of 1991. After fourteen years of ever lower prices, the price of commercial land in the three metropolitan areas rose 1.0% in 2005.Nationwide, prices of commercial land were still falling, but the decline has been decelerating and in 2005 was 2.7% versus 5.6% the year before. The first chart shows the annual percentage changes in the prices of commercial land in the three metropolitan areas and in the nation as a whole for the past twenty years.Residential land prices have not yet shown an increase but the declines have been moderating both in the metropolitan areas and in the nation as a whole, as the second chart shows.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327f.jpg" width="353">
These price changes are published by the Department of Land, Infrastructure and Transport annually. Percentage changes from a year ago are shown on January 1st of each year, the latest being January 1, 2006. Indexes of urban land prices (End of March =100) are compiled and published by the Japan Real Estate Institute semiannually in March and September. The March figure is representative of the first half of the year and the September figure, the second half. The index of is based on conditions in some 223 cities.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060327g.jpg" width="353">
The indexes give a good picture of the rise and fall of land prices in urban areas. The rise of land prices in the boom of the eighties was more pronounced in commercial land prices than in residential land prices. Between 1980 and 1991 commercial land prices rose almost 130% and have subsequently declined 70%. The index of commercial land prices was 58.60 in the last half of 2005 below the level of the index in the first half of 1980. The rise in residential land prices was less, 108%, and the subsequent decline has been more muted, 40%. The Index of residential land prices was 75.60 in the last half of 2005, still above the 60.60 of the first half of 1980. The rise and fall of commercial and residential land prices are shown in the third chart. 

<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/JAPAN/@J5/@J5.HTM">Percent Changes in Land Prices (%)</a></th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Commercial&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Metropolitan Areas</td>
<td>1.0</td>
<td>-3.2</td>
<td>-5.8</td>
<td>-7.1</td>
<td>8.5</td>
<td>-9.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nationwide</td>
<td>-2.7</td>
<td>-5.6</td>
<td>-7.4</td>
<td>-8.0</td>
<td>-8.3</td>
<td>-8.0</td>
</tr>
<tr>
<td class="firstcol">Residential&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Metropolitan Areas</td>
<td>&nbsp;-1.2</td>
<td>-3.7&nbsp;</td>
<td>-5.7</td>
<td>-6.5&nbsp;</td>
<td>-5.6</td>
<td>&nbsp;-5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nationwide</td>
<td>-2.7</td>
<td>-4.6</td>
<td>-5.7</td>
<td>-5.8</td>
<td>-5.2</td>
<td>-4.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; <a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM"> Urban Land Price Index</a> &nbsp; (End of March 2000=100)</td>
<td>1980</td>
<td>Peak 1991</td>
<td>Current Second half 2005</td>
<td>1980-Peak &nbsp; % Change</td>
<td>Peak-Current &nbsp;% Change</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Commercial Land</td>
<td>86.00</td>
<td>195.90</td>
<td>58.60</td>
<td>127.79</td>
<td>-70.09</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Residential Land</td>
<td>60.61</td>
<td>126.10</td>
<td>75.60</td>
<td>108.09</td>
<td>-40.05</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

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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Robert Brusca

260420E.jpg

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

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

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

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

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

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

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

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

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

Germany

German PPI Takes Partial Flight

Tian Yong Woon

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

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

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

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

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

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

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

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

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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.

U.S. Philadelphia Fed Index Climbs in April to Highest Level Since Jan. ’25

Sandy Batten

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Initial claims for unemployment insurance declined by 11,000 to 207,000 in the week ending April 11, from 218,000 in the week ending April 4, revised down slightly from 219,000. The four-week average edged up to 209,750 from 209,250. The Action Economics Forecast Survey looked for 215,000 new claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 31,000 to 1.818 million in the week ending April 4, from 1.787 million in the week ending March 28 (revised down from 1.794 million). The four-week moving average declined to 1.813 million in the latest week from 1.821 million in the March 28 week. The insured unemployment rate remained at 1.2% in the week of April 4. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending March 28, the highest unemployment rates were in Rhode Island (2.50%), Massachusetts (2.50%), New Jersey (2.49%), Washington (2.28%), and Minnesota (2.16%). The lowest rates were in Florida (0.31%), Louisiana (0.31%), Alabama (0.36%), North Carolina (0.39%), and Virgin Islands (0.39%). Rates in other notable states include California (2.06%), New York (1.91%), Illinois (1.88%), Michigan (1.75%), Pennsylvania (1.56%), and Texas (1.05%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.


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- New claims fell by 11,000 to 207,000.
- Continuing claims jumped 31,000 to 1.818 million.
- The insured unemployment rate was unchanged at 1.2%.

Economy in Brief

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