Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped 0.1% last week. The decline was the fifth in the last six weeks and lowered the index&#39;s six month growth rate to 3.0% from an early February high of 5.1%.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and US real GDP growth during the following quarter. The correlation has risen to 71% during the last five years.
The very recent deceleration in the leaders&#39; growth follows improvement early this year. That slowdown mirrors the pattern of slightly slower growth in the leading series from the Conference Board and the OECD.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">3/10/06</th>
<th scope="col">12/30/05</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>
<td class="firstcol">Weekly Leading Index</td>
<td>136.8</td>
<td>135.7</td>
<td>0.8%</td>
<td>134.5</td>
<td>132.6</td>
<td>124.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>3.0%</td>
<td>3.1%</td>
<td>&nbsp;</td>
<td>1.9%</td>
<td>4.2%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped 0.1% last week. The decline was the fifth in the last six weeks and lowered the index's six month growth rate to 3.0% from an [...]

ECRI Leading Index: Momentum Strength Diminished

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320b.jpg" width="353">
The Composite Index of Leading Economic Indicators fell 0.2% last month following four months of increase, reported the Conference Board. The decline about matched Consensus expectations for a 0.3% drop but it was accompanied by a revision to January which halved that month&#39;s gain to 0.5% from the 1.1% surge estimated initially.
During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 50% in February from 70% in January although over six months the breadth of gain in the leaders surged back to 90%.
Higher initial claims for unemployment insurance, easier vendor performance, lower consumer expectations and lower building permits made large negative contributions to last month&#39;s decline in the leading index.
The minimal 0.01 percentage point positive contribution from the spread between yields on the 10 year Treasury Note and the Fed funds rate was the was the second in two months. The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.3% following an unchanged reading for January, initially reported at +0.2%. All of the four component series rose both last month and during the last six months. During the last ten years there has been a 64% correlation between the change in the coincident indicators and real GDP.
The lagging indicators rose just 0.1% following a downwardly revised 0.5% January gain. Over the last six months, three quarters of the series&#39; components rose. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, reversed most of the prior month&#39;s decline.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">6 Month Chg., AR</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">Leading</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>4.7%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.7%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Composite Index of Leading Economic Indicators fell 0.2% last month following four months of increase, reported the Conference Board. The decline about matched Consensus expectations for a 0.3% drop but it was accompanied by a [...]

Leading Economic Indicators Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320b.jpg" width="353">
The Composite Index of Leading Economic Indicators fell 0.2% last month following four months of increase, reported the Conference Board. The decline about matched Consensus expectations for a 0.3% drop but it was accompanied by a revision to January which halved that month&#39;s gain to 0.5% from the 1.1% surge estimated initially.
During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 50% in February from 70% in January although over six months the breadth of gain in the leaders surged back to 90%.
Higher initial claims for unemployment insurance, easier vendor performance, lower consumer expectations and lower building permits made large negative contributions to last month&#39;s decline in the leading index.
The minimal 0.01 percentage point positive contribution from the spread between yields on the 10 year Treasury Note and the Fed funds rate was the was the second in two months. The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.3% following an unchanged reading for January, initially reported at +0.2%. All of the four component series rose both last month and during the last six months. During the last ten years there has been a 64% correlation between the change in the coincident indicators and real GDP.
The lagging indicators rose just 0.1% following a downwardly revised 0.5% January gain. Over the last six months, three quarters of the series&#39; components rose. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, reversed most of the prior month&#39;s decline.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">6 Month Chg., AR</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">Leading</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>4.7%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.7%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
ECRI Leading Index: Momentum Strength Diminished 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) slipped 0.1% last week. The decline was the fifth in the last six weeks and lowered the index&#39;s six month growth rate to 3.0% from an early February high of 5.1%.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and US real GDP growth during the following quarter. The correlation has risen to 71% during the last five years.
The very recent deceleration in the leaders&#39; growth follows improvement early this year. That slowdown mirrors the pattern of slightly slower growth in the leading series from the Conference Board and the OECD.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">3/10/06</th>
<th scope="col">12/30/05</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>
<td class="firstcol">Weekly Leading Index</td>
<td>136.8</td>
<td>135.7</td>
<td>0.8%</td>
<td>134.5</td>
<td>132.6</td>
<td>124.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>3.0%</td>
<td>3.1%</td>
<td>&nbsp;</td>
<td>1.9%</td>
<td>4.2%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
 Inflation at the Producer Level Heats up in Germany 
by <a href="/comment/Curley.html">Louise Curley</a> March 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320c.jpg" width="353">
Producer prices in Germany rose 0.7% in February. Prices of intermediate goods were up 0.56%, those of investment goods fell 0.10% and prices of consumer goods were unchanged. The rise was due almost entirely to continued rising energy costs. As the first chart shows, energy price increases have greatly exceeded those of the index excluding construction and energy since early 2005, widening the gap between the two series
The rise in February was larger than expected and is likely to increase inflation concerns of the European Central Bank (ECB). The ECB has already raised its key interest rate from 2%, which had been in place since June 2003, to 2.25% last December and again in March to 2.5%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060320d.jpg" width="353">
While the ECB focuses on the consumer price index, it is mindful of the potential impact that rising producer prices may have on consumer prices. The second chart shows the course of consumer and producer prices over the past five years.The rise in producer prices over the past year has been bigger and more persistent than previous rises and is, therefore, more likely to have a significant impact on consumer prices.
Even if energy prices should stabilize or decline, these second-round effects of the high energy prices could soon begin to affect consumer prices particularly as the economy continues to show signs of increased activity. Early this month, February new orders, both foreign and domestic were reported to have increased and last week, Manpower reported that German employers intended to increase employment in the first two quarters of this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D4/@D45/@D45.HTM">German Producer&nbsp; Price Index (2000=100)</a></th>
<th scope="col">Feb 06</th>
<th scope="col">Jan 06</th>
<th scope="col">Feb 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</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">Total ex construction</td>
<td>114.9</td>
<td>114.1</td>
<td>108.5</td>
<td>0.70</td>
<td>5.89</td>
<td>110.7</td>
<td>105.8</td>
<td>104.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Intermediate goods&nbsp;</td>
<td>108.2</td>
<td>107.6</td>
<td>106.4</td>
<td>0.56</td>
<td>1.69</td>
<td>106.5</td>
<td>103.2</td>
<td>100.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Investment goods</td>
<td>103.3</td>
<td>103.4</td>
<td>102.9</td>
<td>-0.10</td>
<td>0.39</td>
<td>103.0</td>
<td>102.1</td>
<td>101.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer goods</td>
<td>107.7</td>
<td>107.7</td>
<td>106.4</td>
<td>0.00</td>
<td>1.22</td>
<td>106.9</td>
<td>105.2</td>
<td>104.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>148.8</td>
<td>145.8</td>
<td>121.2</td>
<td>2.06</td>
<td>22.77</td>
<td>131.5</td>
<td>115.4</td>
<td>112.6</td>
</tr>
<tr>
<td class="firstcol">Total ex construction &amp; energy&nbsp;</td>
<td>106.7&nbsp;</td>
<td>106.4</td>
<td>105.5</td>
<td>0.28&nbsp;</td>
<td>1.14&nbsp;</td>
<td>105.5&nbsp;</td>
<td>103.5&nbsp;</td>
<td>102.0&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Consumer Price Index</td>
<td>109.4</td>
<td>109.2</td>
<td>107.1</td>
<td>0.18</td>
<td>2.15</td>
<td>108.3</td>
<td>106.2</td>
<td>104.5</td>
</tr>
</tbody>
</table>
</body>
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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/060317c.jpg" width="353">
This morning, the Bureau of Labor Statistics published January employment and unemployment data for US metropolitan areas. These are contained in Haver&#39;s EMPLR database. The database includes labor force, employment, unemployment and unemployment rates for states, Census regions, metro areas and smaller municipalities. The data for states and some of the metro areas are available seasonally adjusted, but the data shown here for 8 selected large US metro areas are all not seasonally adjusted.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317d.jpg" width="353">
We spoke yesterday and the day before about labor market conditions in Europe and commented that such conditions can vary widely, even in neighboring regions there. The same is true here, as seen in the differences between Los Angeles and San Francisco. The economies of these two West Coast cities surely have differing characters, and this appears in the employment trends and the level of the unemployment rates. Employment growth in LA has generally been stronger, but the unemployment rate in San Francisco tends to be lower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317e.jpg" width="353">
Denver, with a fairly consistent growth trend over the past several years nevertheless has an unemployment rate slightly higher than the national average, at least in the latest month. We are pleasantly surprised by the good growth in our own locale, New York City, over the past two years, a nice cyclical rebound after the 2001 recession and the developments associated with 9/11.
Such major non-economic events can have a pointed economic impact, of course. Hurricane Katrina was devastating to the economy of New Orleans, and these figures show how dramatic that has been. Employment in the New Orleans-Metairie-Kenner MSA is off by nearly 200,000 from a year ago. The unemployment rate there is more than 50% higher than for the nation as a whole. Notably, though, employment has edged upward in the last three months. The increase totals only 2,900, but it&#39;s certainly a step in the right direction for that city.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317f.jpg" width="353">
Finally, Houston may be a beneficiary of migration out of New Orleans. Even though the September &quot;reference week&quot; for labor market data was very soon after the storm, that month showed a marked and unusual increase in the Houston area labor force. Compared with the total drop in New Orleans, this 24,700 increase is just a fraction, but September has often been a month when the Houston labor force declines, implying that a special factor was in play. A boost to employment in Houston seems to have come just in January, when the normal post-Christmas drop in the number employed did not take place, but instead held just about steady with December. In the previous 16 years of data, the smallest decrease in January was 14,000.
It is often said that &quot;all politics is local&quot;. The widely varying developments in labor markets reported this week in both entire adjoining countries and individual US cities suggest that much of economics must be local too. 

<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>
Jan 2006
<th scope="col">Mo/Mo % Chg</th>
<th scope="col">Jan 2005</th>
<th scope="col">Yr/Yr % Chg</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">Unemployment Rate</td>
<td>Number Employed</td>
</tr>
<tr>
<td class="firstcol">Total US</td>
<td>5.1</td>
<td>141,481</td>
<td>-1.0</td>
<td>138,682</td>
<td>2.0</td>
<td>1.8</td>
<td>1.1</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Los Angeles</td>
<td>4.9</td>
<td>6,117</td>
<td>-2.9</td>
<td>6,032</td>
<td>1.4</td>
<td>2.9</td>
<td>1.4</td>
<td>0.5</td>
</tr>
<tr>
<td class="firstcol">San Francisco</td>
<td>4.4</td>
<td>2,078</td>
<td>-3.1</td>
<td>2,067</td>
<td>0.5</td>
<td>2.2</td>
<td>-0.3</td>
<td>-2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Denver</td>
<td>5.3</td>
<td>1,238</td>
<td>-0.3</td>
<td>1,222</td>
<td>1.3</td>
<td>1.2</td>
<td>2.1</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">Houston</td>
<td>5.6</td>
<td>2,512</td>
<td>-0.0</td>
<td>2,422</td>
<td>3.7</td>
<td>2.4</td>
<td>1.4</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orleans</td>
<td>7.8</td>
<td>394</td>
<td>0.2</td>
<td>582</td>
<td>-32.4</td>
<td>-9.6</td>
<td>1.5</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Chicago</td>
<td>5.6</td>
<td>4,466</td>
<td>-0.2</td>
<td>4,440</td>
<td>0.6</td>
<td>0.8</td>
<td>1.2</td>
<td>-0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Boston</td>
<td>4.7</td>
<td>2,317</td>
<td>-1.4</td>
<td>2,311</td>
<td>0.2</td>
<td>0.1</td>
<td>0.0</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">New York</td>
<td>5.1</td>
<td>8,742</td>
<td>-0.5</td>
<td>8,570</td>
<td>2.0</td>
<td>1.6</td>
<td>1.3</td>
<td>-0.2</td>
</tr>
</tbody>
</table>
</body>
</html>

This morning, the Bureau of Labor Statistics published January employment and unemployment data for US metropolitan areas. These are contained in Haver's EMPLR database. The database includes labor force, employment, unemployment and [...]

"All Economics Is Local": Labor Markets in US Cities

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317b.jpg" width="353">
The index of consumer sentiment remained unchanged early this month versus February at 86.7, according to the University of Michigan. Consensus expectations for an increase to 88.0.
Sentiment figures are not seasonally adjusted and 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 ticked up 0.6% m/m after a 4.3% decline during February. The index of personal finances rose just 0.9% (-3.4% y/y) after the 5.1% February collapse and the reading of buying conditions for large household goods remained unchanged (-0.6% y/y). Consumers&#39; assessment of gov&#39;t economic policy fell to the lowest level this year. The index level of 80 (-14.0% y/y) compared to an average of 88 during 2005.
Consumer expectations slipped 0.4% from February, the third consecutive monthly decline. The economic outlook deteriorated sharply with the index of expected business conditions during the next twelve months off 5.2% (-12.5% y/y).
The mean expected inflation rate for the next twelve months rose m/m to 3.8%, still well below 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.
Consumer Sentiment, the Economy, and the News Media from the Federal Reserve board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200451/200451abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></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>86.7</td>
<td>86.7</td>
<td>-6.4%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.2</td>
<td>105.6</td>
<td>-1.7%</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>74.2</td>
<td>74.5</td>
<td>-10.4%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
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The index of consumer sentiment remained unchanged early this month versus February at 86.7, according to the University of Michigan. Consensus expectations for an increase to 88.0. Sentiment figures are not seasonally adjusted and [...]

U.S. Consumer Sentiment Unchanged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317a.jpg" width="353">
Overall industrial output surged an expected 0.7% during February. The rise, however, was entirely due to a 7.9% rebound in utility output as winter temperatures returned to normal. Utility output had fallen 11.5% during the record warm January.
Factory sector production was unchanged following the upwardly revised 0.8% January increase and m/m declines in output were widespread amongst industries.
Motor vehicles &amp; parts fell 0.8% (-2.0% y/y) after a 2.4% spurt in January. Excluding motor vehicles, factory output inched up 0.1% (4.8% y/y). That increase very much reflected a 1.2% (19.0% y/y) jump in output of computer &amp; electronic components. Excluding both autos and high tech, factory output was unchanged (+3.6% y/y) during February.
Output of primary metals slipped 0.1% (+4.2% y/y) last month and the 0.5% (+4.6% y/y) decline in machinery output was the second in a row. Electrical equipment &amp; appliance output dropped 1.7% (+7.3% y/y) but furniture &amp; related products output rose 1.3% (-1.6% y/y).
The 0.2% decline (+1.5% y/y) in nondurables output reflected a 0.5% (+2.4% y/y) fall in apparel output and a 1.8% (-4.2% y/y) drop in petroleum &amp; coal production.
Total capacity utilization rose to 81.2% although factory sector utilization reversed a bit of the prior month&#39;s jump and fell to 80.4% versus an average 78.9% during 2005.
Greenspan&#39;s Unconventional View of the Long-Run Inflation/Output Trade-off from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20060101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@EA/@EA.HTM">Production &amp; Capacity</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">Total Industrial Production</td>
<td>0.7%</td>
<td>-0.3%</td>
<td>3.3%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.0%</td>
<td>0.8%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; Consumer Goods</td>
<td>0.8%</td>
<td>-0.8%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; &nbsp; Business Equipment</td>
<td>0.1%</td>
<td>1.2%</td>
<td>10.4%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.2%</td>
<td>80.8%</td>
<td>80.0% (2/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
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Overall industrial output surged an expected 0.7% during February. The rise, however, was entirely due to a 7.9% rebound in utility output as winter temperatures returned to normal. Utility output had fallen 11.5% during the record [...]

Industrial Production Up As Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317a.jpg" width="353">
Overall industrial output surged an expected 0.7% during February. The rise, however, was entirely due to a 7.9% rebound in utility output as winter temperatures returned to normal. Utility output had fallen 11.5% during the record warm January.
Factory sector production was unchanged following the upwardly revised 0.8% January increase and m/m declines in output were widespread amongst industries.
Motor vehicles &amp; parts fell 0.8% (-2.0% y/y) after a 2.4% spurt in January. Excluding motor vehicles, factory output inched up 0.1% (4.8% y/y). That increase very much reflected a 1.2% (19.0% y/y) jump in output of computer &amp; electronic components. Excluding both autos and high tech, factory output was unchanged (+3.6% y/y) during February.
Output of primary metals slipped 0.1% (+4.2% y/y) last month and the 0.5% (+4.6% y/y) decline in machinery output was the second in a row. Electrical equipment &amp; appliance output dropped 1.7% (+7.3% y/y) but furniture &amp; related products output rose 1.3% (-1.6% y/y).
The 0.2% decline (+1.5% y/y) in nondurables output reflected a 0.5% (+2.4% y/y) fall in apparel output and a 1.8% (-4.2% y/y) drop in petroleum &amp; coal production.
Total capacity utilization rose to 81.2% although factory sector utilization reversed a bit of the prior month&#39;s jump and fell to 80.4% versus an average 78.9% during 2005.
Greenspan&#39;s Unconventional View of the Long-Run Inflation/Output Trade-off from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20060101/cover.pdf"> here</a>.

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<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/@EA/@EA.HTM">Production &amp; Capacity</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">Total Industrial Production</td>
<td>0.7%</td>
<td>-0.3%</td>
<td>3.3%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.0%</td>
<td>0.8%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &nbsp; Consumer Goods</td>
<td>0.8%</td>
<td>-0.8%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; &nbsp; Business Equipment</td>
<td>0.1%</td>
<td>1.2%</td>
<td>10.4%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.2%</td>
<td>80.8%</td>
<td>80.0% (2/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317b.jpg" width="353">
The index of consumer sentiment remained unchanged early this month versus February at 86.7, according to the University of Michigan. Consensus expectations for an increase to 88.0.
Sentiment figures are not seasonally adjusted and 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 ticked up 0.6% m/m after a 4.3% decline during February. The index of personal finances rose just 0.9% (-3.4% y/y) after the 5.1% February collapse and the reading of buying conditions for large household goods remained unchanged (-0.6% y/y). Consumers&#39; assessment of gov&#39;t economic policy fell to the lowest level this year. The index level of 80 (-14.0% y/y) compared to an average of 88 during 2005.
Consumer expectations slipped 0.4% from February, the third consecutive monthly decline. The economic outlook deteriorated sharply with the index of expected business conditions during the next twelve months off 5.2% (-12.5% y/y).
The mean expected inflation rate for the next twelve months rose m/m to 3.8%, still well below 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.
Consumer Sentiment, the Economy, and the News Media from the Federal Reserve board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200451/200451abs.html"> 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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></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>86.7</td>
<td>86.7</td>
<td>-6.4%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.2</td>
<td>105.6</td>
<td>-1.7%</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>74.2</td>
<td>74.5</td>
<td>-10.4%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
"All Economics Is Local": Labor Markets in US Cities 
by <a href="/comment/Stone.html">Carol Stone</a> March 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317c.jpg" width="353">
This morning, the Bureau of Labor Statistics published January employment and unemployment data for US metropolitan areas. These are contained in Haver&#39;s EMPLR database. The database includes labor force, employment, unemployment and unemployment rates for states, Census regions, metro areas and smaller municipalities. The data for states and some of the metro areas are available seasonally adjusted, but the data shown here for 8 selected large US metro areas are all not seasonally adjusted.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317d.jpg" width="353">
We spoke yesterday and the day before about labor market conditions in Europe and commented that such conditions can vary widely, even in neighboring regions there. The same is true here, as seen in the differences between Los Angeles and San Francisco. The economies of these two West Coast cities surely have differing characters, and this appears in the employment trends and the level of the unemployment rates. Employment growth in LA has generally been stronger, but the unemployment rate in San Francisco tends to be lower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317e.jpg" width="353">
Denver, with a fairly consistent growth trend over the past several years nevertheless has an unemployment rate slightly higher than the national average, at least in the latest month. We are pleasantly surprised by the good growth in our own locale, New York City, over the past two years, a nice cyclical rebound after the 2001 recession and the developments associated with 9/11.
Such major non-economic events can have a pointed economic impact, of course. Hurricane Katrina was devastating to the economy of New Orleans, and these figures show how dramatic that has been. Employment in the New Orleans-Metairie-Kenner MSA is off by nearly 200,000 from a year ago. The unemployment rate there is more than 50% higher than for the nation as a whole. Notably, though, employment has edged upward in the last three months. The increase totals only 2,900, but it&#39;s certainly a step in the right direction for that city.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060317f.jpg" width="353">
Finally, Houston may be a beneficiary of migration out of New Orleans. Even though the September &quot;reference week&quot; for labor market data was very soon after the storm, that month showed a marked and unusual increase in the Houston area labor force. Compared with the total drop in New Orleans, this 24,700 increase is just a fraction, but September has often been a month when the Houston labor force declines, implying that a special factor was in play. A boost to employment in Houston seems to have come just in January, when the normal post-Christmas drop in the number employed did not take place, but instead held just about steady with December. In the previous 16 years of data, the smallest decrease in January was 14,000.
It is often said that &quot;all politics is local&quot;. The widely varying developments in labor markets reported this week in both entire adjoining countries and individual US cities suggest that much of economics must be local too. 

<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>
Jan 2006
<th scope="col">Mo/Mo % Chg</th>
<th scope="col">Jan 2005</th>
<th scope="col">Yr/Yr % Chg</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">Unemploy ment Rate</td>
<td>Number Employed</td>
</tr>
<tr>
<td class="firstcol">Total US</td>
<td>5.1</td>
<td>141,481</td>
<td>-1.0</td>
<td>138,682</td>
<td>2.0</td>
<td>1.8</td>
<td>1.1</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Los Angeles</td>
<td>4.9</td>
<td>6,117</td>
<td>-2.9</td>
<td>6,032</td>
<td>1.4</td>
<td>2.9</td>
<td>1.4</td>
<td>0.5</td>
</tr>
<tr>
<td class="firstcol">San Francisco</td>
<td>4.4</td>
<td>2,078</td>
<td>-3.1</td>
<td>2,067</td>
<td>0.5</td>
<td>2.2</td>
<td>-0.3</td>
<td>-2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Denver</td>
<td>5.3</td>
<td>1,238</td>
<td>-0.3</td>
<td>1,222</td>
<td>1.3</td>
<td>1.2</td>
<td>2.1</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">Houston</td>
<td>5.6</td>
<td>2,512</td>
<td>-0.0</td>
<td>2,422</td>
<td>3.7</td>
<td>2.4</td>
<td>1.4</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orleans</td>
<td>7.8</td>
<td>394</td>
<td>0.2</td>
<td>582</td>
<td>-32.4</td>
<td>-9.6</td>
<td>1.5</td>
<td>0.2</td>
</tr>
<tr>
<td class="firstcol">Chicago</td>
<td>5.6</td>
<td>4,466</td>
<td>-0.2</td>
<td>4,440</td>
<td>0.6</td>
<td>0.8</td>
<td>1.2</td>
<td>-0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Boston</td>
<td>4.7</td>
<td>2,317</td>
<td>-1.4</td>
<td>2,311</td>
<td>0.2</td>
<td>0.1</td>
<td>0.0</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">New York</td>
<td>5.1</td>
<td>8,742</td>
<td>-0.5</td>
<td>8,570</td>
<td>2.0</td>
<td>1.6</td>
<td>1.3</td>
<td>-0.2</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/060316e.jpg" width="353">
Yesterday here, we talked about the persistent sluggishness of employment in the UK. A few weeks ago, we had a similar discussion about Germany. While these two large European economies are seeing their labor markets struggle, those of some other countries are doing comparatively better.
Even in France, where riots in early November highlighted the plight of one specific segment of the labor force, employment is actually rising. The increase is not large, but in Q4, there were 20,500 new jobs in manufacturing and services industries, bringing their total to 15.489 million, a new high. As in many Western countries, the gains are all in the service sector and for France, especially in consulting and other business services. Unemployment in France has also continued to decrease, with the 9.6% rate in December and January the lowest since January 2003. The sensitive youth age range, under 25, saw an uptick in January to 22.2%, but this remains below the high last May of 22.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316f.jpg" width="353">
In the Netherlands, as seen in the graph, employment fell sharply in 2003, much more so than in France, but it bounced back, particularly over the past six months. While not reaching a new peak, Dutch employment has regained more than half of its 184,000 drop between February 2003 and February 2005. Unemployment in the Netherlands is falling, with the rate down to 6.1% in January from a peak of 6.7% in February 2005. By age group, progress here is actually most noticeable in the younger segments. Unemployment for those under 25 was 12.1%, compared to 13.4% early in 2005 and as high as 14.5% in late 2004. Adult workers under 45 face only 5.6% unemployment, down slightly over the past year. Older workers, ages 45-64, also have unemployment rates in the mid-5% range, but they have remained stubbornly at that level all through the past 15 months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060316g.jpg" width="353">
In one of the smaller European nations, Slovenia, jobs have increased modestly over the last year. In January, employment was 816,600, up from an average of 813,100 for all of last year and 809,700 for January a year ago. Unemployment increased slightly this January, but it has undergone a secular decline throughout almost the entirety of Slovenia&#39;s period of independence, carrying the rate down to just over 10% from 15% in late 1992. [Note that the data collection method changed at the beginning of 2005, accounting for the sudden jump in employment then. The labor force increased by a commensurate amount so the unemployment rate was not affected.]
Thus, labor markets can behave differently even in neighboring regions and among differing demographic groups within the same region. And as we see here, big economies don&#39;t necessarily have advantages over small ones in the ability to provide job opportunities for everyone. 

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<colgroup><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"></th>
<th scope="col"></th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 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">France:&nbsp; &nbsp; Mfg &amp; Services Employees (Mil.)</td>
<td>--</td>
<td>15.49</td>
<td>15.47</td>
<td>15.44</td>
<td>15.47</td>
<td>15.42</td>
<td>15.43</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>--</td>
<td>5.13</td>
<td>5.14</td>
<td>5.18</td>
<td>5.15</td>
<td>5.20</td>
<td>5.28</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>--</td>
<td>10.35</td>
<td>10.33</td>
<td>10.26</td>
<td>10.32</td>
<td>10.22</td>
<td>10.15</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jan 2006</td>
<td>Dec 2005</td>
<td>--</td>
<td>Year Ago</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>9.6</td>
<td>9.6</td>
<td>--</td>
<td>10.1</td>
<td>9.9</td>
<td>10.0</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands: Total Employment*</td>
<td>6.99</td>
<td>6.97</td>
<td>--</td>
<td>6.90</td>
<td>6.91</td>
<td>6.92</td>
<td>7.00</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.1</td>
<td>6.2</td>
<td>--</td>
<td>6.7</td>
<td>6.5</td>
<td>6.5</td>
<td>5.4</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Slovenia: Employment (Thous.)</td>
<td>816.6</td>
<td>816.2</td>
<td>--</td>
<td>809.7</td>
<td>813.1</td>
<td>782.2</td>
<td>777.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>10.2</td>
<td>10.3</td>
<td>--</td>
<td>10.1</td>
<td>10.1</td>
<td>10.6</td>
<td>11.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Yesterday here, we talked about the persistent sluggishness of employment in the UK. A few weeks ago, we had a similar discussion about Germany. While these two large European economies are seeing their labor markets struggle, those [...]

France, Netherlands & Slovenia See Better Labor Market Conditions in Late 2005 and Early 2006

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

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AI-related outperformance of IP in Advanced Asia ex Japan

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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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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. 

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.

260420T5.jpg

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.

260420T6.jpg

Asia

Economic Letter from Asia: Barrel of Doubt

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.

260420.jpg

**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

Michael J. Moran

260416A.jpg

260416B.jpg

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.

260416C.jpg

260416D.jpg

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

Industrial Production: Soft in March

Winnie Tapasanun

260416N12.jpg

260416O12.jpg

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**.

260416P12.jpg

260416Q12.jpg

- 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

260416A8.jpg

260416B8.jpg

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.


260416C8.jpg

260416D8.jpg

- 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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ECRI Leading Index: Momentum Strength Diminished

Leading Economic Indicators Fell

Leading Economic Indicators Fell

"All Economics Is Local": Labor Markets in US Cities

U.S. Consumer Sentiment Unchanged

Industrial Production Up As Expected

Industrial Production Up As Expected

France, Netherlands & Slovenia See Better Labor Market Conditions in Late 2005 and Early 2006