Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060302a.jpg" width="353">
US light vehicle sales in February retraced all of the January gain and fell 5.8% to 16.61M units, the lowest level since November according to the Autodata Corporation. The decline about matched Consensus expectations for a 16.5M sales rate last month.
The sharp decline in February sales resulted from a 21.1% m/m drop (-0.5% y/y) in US made car sales. It fully retraced the prior month&#39;s rise which occurred as automakers &quot;restocked&quot; rental fleets.
A 1.1% (1.2% y/y) rise in sales of domestic trucks recovered a portion of the prior month&#39;s sharp drop.
Imported car sales in February recovered most of the prior month&#39;s drop and increased 13.5% (1.3% y/y) to 2.17M units while imported truck sales rose a steady 2.6% (7.8% y/y) to a record high of 1.32M units.
Imports&#39; share of the US light vehicle market recovered to 21.0% from the depressed 18.1% during January. Imports&#39; share during all of last year was 20.3%.
Variations in consumer sentiment across demographic groups from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2006_part2_toussaint_et_al.pdf"> here</a>. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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</td>
<td>16.61</td>
<td>17.64</td>
<td>1.2%</td>
<td>16.92</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.42</td>
<td>8.56</td>
<td>0.1%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.20</td>
<td>9.08</td>
<td>2.1%</td>
<td>9.27</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
U.S. Construction Increase Light  
by <a href="/comment/Moeller.html">Tom Moeller</a>  March 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060302b.jpg" width="353">
Warm temperatures in January did little for the value of construction put in place which increased just 0.2%. Consensus expectations had been for a 1.1% gain but the firm 1.0% advance in December was unrevised.
Residential building rose only 0.1 following a downwardly revised 0.9% December increase. New single family building inched up just 0.1% (13.2% y/y) while the value of improvements rose 0.2% (-10.6% y/y). The value of new multi-family residential construction fell 0.5% (+12.4% y/y).
Nonresidential building added 0.5% to a downwardly revised 1.1% December increase. Office construction slipped 0.2% (+8.9% y/y) and commercial building rose 0.4% (+9.5% y/y). These y/y gains pale when compared to multi-retail commercial which rose 7.9% in January (40.0% y/y).
Public construction spending rose 0.2% following an upwardly revised 1.3% December increase. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, recovered the prior month&#39;s decline and rose 0.9% (12.7% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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</td>
<td>0.2%</td>
<td>1.0%</td>
<td>7.4%</td>
<td>9.1%</td>
<td>10.9%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.2%</td>
<td>0.9%</td>
<td>6.3%</td>
<td>9.6%</td>
<td>13.6%</td>
<td>6.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.1%</td>
<td>0.9%</td>
<td>6.5%</td>
<td>11.4%</td>
<td>18.2%</td>
<td>12.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.5%</td>
<td>1.1%</td>
<td>5.6%</td>
<td>5.2%</td>
<td>3.9%</td>
<td>-5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.2%</td>
<td>1.3%</td>
<td>11.3%</td>
<td>7.6%</td>
<td>2.5%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
Challenger Layoffs Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060302d.jpg" width="353">
Challenger, Grey &amp; Christmas reported that job cut announcements during February fell 15.5% (-19.3% y/y) to 87,437, the lowest level since October.
Layoffs in the auto industry fell sharply from the heated January pace but still were more than double the prior February&#39;s level. Announced job cuts in government rose 11.6% to a level more than double the prior February while layoffs in the financial industry surged m/m to a level more than double the prior year.
During the last ten years there has been an 84% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported the third consecutive m/m drop in announced hiring plans (-69.2% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">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>
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</thead>
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<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>87,437</td>
<td>103,466</td>
<td>-19.3%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Ticked Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060302c.jpg" width="353">
Initial unemployment insurance claims last week reversed most of the prior week&#39;s revised decline and rose 15,000 to 294,000. Consensus expectations had been for 285,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims rose to 287,250 (-6.5% y/y).
Continuing unemployment insurance claims fell 2,000 following the prior week&#39;s revised 16,000 decline which compared to a rise estimated initially.
The insured rate of unemployment was stable at 1.9% for the third week.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">02/25/06</th>
<th scope="col">02/18/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>294</td>
<td>279</td>
<td>-7.0%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,486</td>
<td>-6.8%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
January Retail Trade Gains in 4 Very Diverse Places 
by <a href="/comment/Stone.html">Carol Stone</a> March 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060302e.jpg" width="353">
Four widely diverse areas reported retail trade today for January. Generally, these reports indicated some strength. In Hong Kong, for example, sales were up 11.6% over a year ago, extending a firmer performance into a second month. In a larger area, Germany&#39;s sales rebounded to a 2.2% year-on-year gain after being down in December. Australia and Estonia also had favorable sales increases in January.
The Hong Kong retail sales firmed noticeably for consumer electronics, and clothing had a modest increase, apparently picking up after a lull in late summer and autumn. Also in that region of the world, sales in Australia gained 4.2% from January 2005, with the food and hospitality sectors leading. Department stores and recreation good were both down from a year ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060302f.jpg" width="353">
For Germany, only total sales are available in their initial release. However, notably, the improvement here corresponds to the improved sentiment of retail trade business executives reported in the Ifo survey. In detail Ifo data released Tuesday, the Business Climate Index for that sector was 96.0 in January, the third highest since 2001. Then for February, the index climbed more than 4 points to 100.7, its first reading above 100 since the base year of 2000. The correlation between year-to-year percent changes in this index and in actual retail sales is 0.44. Correlations of other Ifo indexes are even better; for instance, the total index is 0.53 and the index for consumer goods less food is 0.62. Thus, business executives of related production industries are at least as concerned about the performance in final sales as managers of the stores themselves.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060302g.jpg" width="353">
Finally, retail sales gains were good in Estonia. The year-on-year pace in January was 23%, although this magnitude partly reflects a base effect in which January 2005 was quite weak. So, when we look at the seasonally adjusted data calculated by Haver Analytics, we see that the latest figure actually shows a small decrease from December&#39;s amount. Despite this modest setback, volume growth in Estonia has actually been quite strong, up 18.8% from a year ago and off just 0.4% from December. The last three months of 2005 averaged 2.5% month-to-month gains in the volume index. Thus, Estonian consumer demand appears quite buoyant. 

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<th scope="col" class="firstcol">Retail Trade, Yr/Yr % Changes</th>
<th scope="col">Jan 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</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">Hong Kong</td>
<td>11.6</td>
<td>6.8</td>
<td>4.2</td>
<td>6.8</td>
<td>10.8</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Australia</td>
<td>4.2</td>
<td>3.9</td>
<td>3.8</td>
<td>2.8</td>
<td>7.2</td>
<td>6.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.2</td>
<td>-0.5</td>
<td>1.1</td>
<td>1.5</td>
<td>2.0</td>
<td>-0.5</td>
</tr>
<tr>
<td class="firstcol">Estonia</td>
<td>23.0</td>
<td>16.4</td>
<td>14.9</td>
<td>12.4</td>
<td>15.5</td>
<td>9.5</td>
</tr>
</tbody>
</table>
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US light vehicle sales in February retraced all of the January gain and fell 5.8% to 16.61M units, the lowest level since November according to the Autodata Corporation. The decline about matched Consensus expectations for a 16.5M [...]

U.S. Vehicle Sales Down in February

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301f.jpg" width="353">
According to the Office of Federal Housing Enterprise Oversight (OFHEO), U.S. home prices rose last quarter at roughly the same rate as during the prior two years. The 2.9% q/q rise certainly was down from the upwardly revised 3.1% gain during the prior quarter and was down from a 4.6% quarterly jump during 3Q04, but the 4Q/4Q gain of 13.0% was near the series&#39; peak. For all of 2005, the 13.2% rate of appreciation set a new record.
The House Price Indices in this report are weighted indexes based on repeat sales or refinancings using data provided by Fannie Mae or Freddie Mac.
Monday&#39;s report that median prices for new homes sold last year rose just 7.0%, roughly half the 2004 rate of growth, may suggest that fewer large expensive homes were sold during 2005 than during the prior year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301g.jpg" width="353">
While rates of home price appreciation appear to have topped throughout the country, they have been steady. Moreover, the variance in the rates of growth between regions remained high.
During the last year, job cutbacks in the auto industry helped lower the 4Q/4Q rate of home price appreciation in Michigan to 3.8% and the state&#39;s gain has lagged all others. Conversely, California home prices logged a strong 4Q05 gain of 4.6% (21.1% y/y) while demographic trends raised Arizona home prices by 34.9% 4Q/4Q and Florida home prices by 26.8%.
During the last five years, home price appreciation in the District of Columbia surpassed all others at 16.9% per year followed closely by California at 16.2% per annum. Indiana at 3.8%, Nebraska at 4.2% and Michigan at 4.5% are at the bottom of the list. New Jersey (12.7%), New York ((11.5%) and Massachusetts (11.1%) ranked high but just behind Hawaii at 14.6% home price appreciation averaged during the last five years.
The latest report from the Office of Federal Housing Enterprise Oversight (OFHEO) can be found <a href="http://www.ofheo.gov/media/pdf/4q05hpi.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/REGIONAL/@R11/@R1101/@R1101.HTM">House Price Index (OFHEO)</a></th>
<th scope="col">4Q &#39;05</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">United States</td>
<td>2.9%</td>
<td>3.1%</td>
<td>13.0%</td>
<td>13.2%</td>
<td>10.8%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; California</td>
<td>4.6%</td>
<td>4.6%</td>
<td>21.1%</td>
<td>23.3%</td>
<td>22.3%</td>
<td>12.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Jersey</td>
<td>3.5%</td>
<td>3.7%</td>
<td>15.6%</td>
<td>16.2%</td>
<td>15.0%</td>
<td>10.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Alabama</td>
<td>2.5%</td>
<td>2.1%</td>
<td>9.2%</td>
<td>7.9%</td>
<td>4.1%</td>
<td>4.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Michigan</td>
<td>0.7%</td>
<td>0.9%</td>
<td>3.8%</td>
<td>4.5%</td>
<td>4.4%</td>
<td>3.4%</td>
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According to the Office of Federal Housing Enterprise Oversight (OFHEO), U.S. home prices rose last quarter at roughly the same rate as during the prior two years. The 2.9% q/q rise certainly was down from the upwardly revised 3.1% [...]

Rumors of Home Prices' Demise Exaggerated

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301e.jpg" width="353">
The total number of mortgage applications dropped 1.2% last week, the fourth sharp decline in the last five weeks. The average level of applications during February fell 6.3% from the prior month.
Purchase applications dropped 1.9% from the prior week and the February average fell 10.2% from January. The latest level is down nearly one quarter from the high last Spring.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance ticked up 0.1% w/w but the February average fell 2.0% from January.
The effective interest rate on a conventional 30-year mortgage slipped to 6.42% and averaged 6.48% during February versus 6.34% in January. The effective rate on a 15-year mortgage also slipped to 6.15% and averaged 6.16% during February versus 5.98% in January. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Are Banks Vulnerable to a Housing Bust? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20060201/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">02/24/06</th>
<th scope="col">02/17/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>571.5</td>
<td>578.5</td>
<td>-19.5%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>400.8</td>
<td>408.7</td>
<td>-8.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,573.5</td>
<td>1,571.4</td>
<td>-31.0%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
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The total number of mortgage applications dropped 1.2% last week, the fourth sharp decline in the last five weeks. The average level of applications during February fell 6.3% from the prior month. Purchase applications dropped 1.9% [...]

Mortgage Applications Off Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301d.jpg" width="353">
Chain store sales surged 1.5% during the last week of February after a 0.2% up tick the prior week, according to the International Council of Shopping Centers (ICSC)-UBS survey.
Strength early and late in the month lifted the average of February sales 0.8% ahead of the January average which rose 1.0% from December.
The leading indicator of chain store sales rose for the first time in four weeks, but the weak 0.1% left the February average 0.5% below January.
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.

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<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">02/25/06</th>
<th scope="col">02/18/06</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>469.0</td>
<td>461.9</td>
<td>3.6%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales surged 1.5% during the last week of February after a 0.2% up tick the prior week, according to the International Council of Shopping Centers (ICSC)-UBS survey. Strength early and late in the month lifted the average [...]

Chain Store Sales Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301b.jpg" width="353">
The Institute of Supply Management (ISM) reported that the February Composite Index of activity in the manufacturing sector recovered 1.9 points to 56.7, the first m/m increase since October. Consensus expectations had been for a lesser increase to 55.2.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301c.jpg" width="353">
Each of the index&#39;s five components rose last month except vendor deliveries which, at 52.2, is off sharply from the 2004 high of 68.5. The new orders index rose to the highest level (61.9) in more than a year and the employment index recovered to the highest level (55.0) since November. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
Production recovered most of the drop in January but it was only the first increase in the last five months and the inventory index rose sharply to nearly a one year high.
The price index slipped 2.5 points to its lowest level since last summer. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;05</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">Composite Index</td>
<td>56.7</td>
<td>54.8</td>
<td>55.6</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>61.9</td>
<td>58.0</td>
<td>56.4</td>
<td>57.4</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>62.5</td>
<td>65.0</td>
<td>65.5</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The Institute of Supply Management (ISM) reported that the February Composite Index of activity in the manufacturing sector recovered 1.9 points to 56.7, the first m/m increase since October. Consensus expectations had been for a [...]

ISM Index Recovered, New Orders Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301a.jpg" width="353">
The 0.7% rise in personal income was slightly stronger than Consensus expectations for a 0.6% advance during January and followed an upwardly revised 0.5% increase in December.
Wage &amp; salary disbursements nearly doubled the prior month&#39;s pace and rose 0.7% (5.1% y/y). The December rise was upwardly revised to 0.4%. Factory sector wages rose 0.2% (3.0% y/y) and service sector wages jumped 0.8% (5.4% y/y) after the upwardly revised 0.6% December increase.
Disposable personal income rose 0.5% (5.4% y/y) for the third month in the last four but adjusted for a stiff 0.5% gain in prices, disposable income eked out only a negligible m/m rise (2.2% y/y).
The 0.9% rise in personal consumption expenditures was a bit short of expectations for a 1.0% gain due to a light 0.1% increase in services spending. That gain was restrained by an 8.8% m/m decline (+11.0% y/y) in spending on electricity &amp; gas services due to warm temperatures. Spending on motor vehicles &amp; parts rose 0.5% (1.6% y/y) but spending on furniture &amp; household equipment boomed 1.9% (6.7% y/y). Spending on clothing &amp; shoes also was quite strong and posted a 2.3% advance (6.9% y/y) and spending on food jumped for the second month in the last three, in January by 1.6% (8.9% y/y).
The PCE chain price index was quite firm and rose 0.5%, the first increase after two months of decline. Gasoline &amp; oil prices jumped 6.2% (26.4% y/y) though in February the retail price of gasoline backed off to an average $2.28 per gallon from $2.32 during January. During the latest week gasoline was $2.25 per gallon. Less food &amp; energy, prices increased 0.2% following an unrevised 0.1% December rise. Nondurables prices surged 1.0% due to the rise in gasoline but food prices also rose a firm 0.5% (2.5% y/y). Durables prices rose 0.1% (-1.3% y/y), held back by another decline in furniture &amp; household equipment prices (-4.4% y/y). Clothing &amp; shoes prices rose by -0.1% (-1.3% y/y).
The personal savings rate was negative for the ninth month in the last ten.
Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.7%</td>
<td>0.5%</td>
<td>5.8%</td>
<td>5.5%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.9%</td>
<td>0.7%</td>
<td>6.8%</td>
<td>6.5%</td>
<td>6.5%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-0.4%</td>
<td>0.7% (Jan &#39;05)</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.5%</td>
<td>-0.0%</td>
<td>3.1%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>


</html>

The 0.7% rise in personal income was slightly stronger than Consensus expectations for a 0.6% advance during January and followed an upwardly revised 0.5% increase in December. Wage & salary disbursements nearly doubled the prior [...]

U.S. Personal Income & Spending Firm Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301a.jpg" width="353">
The 0.7% rise in personal income was slightly stronger than Consensus expectations for a 0.6% advance during January and followed an upwardly revised 0.5% increase in December.
Wage &amp; salary disbursements nearly doubled the prior month&#39;s pace and rose 0.7% (5.1% y/y). The December rise was upwardly revised to 0.4%. Factory sector wages rose 0.2% (3.0% y/y) and service sector wages jumped 0.8% (5.4% y/y) after the upwardly revised 0.6% December increase.
Disposable personal income rose 0.5% (5.4% y/y) for the third month in the last four but adjusted for a stiff 0.5% gain in prices, disposable income eked out only a negligible m/m rise (2.2% y/y).
The 0.9% rise in personal consumption expenditures was a bit short of expectations for a 1.0% gain due to a light 0.1% increase in services spending. That gain was restrained by an 8.8% m/m decline (+11.0% y/y) in spending on electricity &amp; gas services due to warm temperatures. Spending on motor vehicles &amp; parts rose 0.5% (1.6% y/y) but spending on furniture &amp; household equipment boomed 1.9% (6.7% y/y). Spending on clothing &amp; shoes also was quite strong and posted a 2.3% advance (6.9% y/y) and spending on food jumped for the second month in the last three, in January by 1.6% (8.9% y/y).
The PCE chain price index was quite firm and rose 0.5%, the first increase after two months of decline. Gasoline &amp; oil prices jumped 6.2% (26.4% y/y) though in February the retail price of gasoline backed off to an average $2.28 per gallon from $2.32 during January. During the latest week gasoline was $2.25 per gallon. Less food &amp; energy, prices increased 0.2% following an unrevised 0.1% December rise. Nondurables prices surged 1.0% due to the rise in gasoline but food prices also rose a firm 0.5% (2.5% y/y). Durables prices rose 0.1% (-1.3% y/y), held back by another decline in furniture &amp; household equipment prices (-4.4% y/y). Clothing &amp; shoes prices rose by -0.1% (-1.3% y/y).
The personal savings rate was negative for the ninth month in the last ten.
Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.7%</td>
<td>0.5%</td>
<td>5.8%</td>
<td>5.5%</td>
<td>5.9%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.9%</td>
<td>0.7%</td>
<td>6.8%</td>
<td>6.5%</td>
<td>6.5%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-0.4%</td>
<td>0.7% (Jan &#39;05)</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.5%</td>
<td>-0.0%</td>
<td>3.1%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>
ISM Index Recovered, New Orders Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 1, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301b.jpg" width="353">
The Institute of Supply Management (ISM) reported that the February Composite Index of activity in the manufacturing sector recovered 1.9 points to 56.7, the first m/m increase since October. Consensus expectations had been for a lesser increase to 55.2.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301c.jpg" width="353">
Each of the index&#39;s five components rose last month except vendor deliveries which, at 52.2, is off sharply from the 2004 high of 68.5. The new orders index rose to the highest level (61.9) in more than a year and the employment index recovered to the highest level (55.0) since November. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
Production recovered most of the drop in January but it was only the first increase in the last five months and the inventory index rose sharply to nearly a one year high.
The price index slipped 2.5 points to its lowest level since last summer. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;05</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">Composite Index</td>
<td>56.7</td>
<td>54.8</td>
<td>55.6</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>61.9</td>
<td>58.0</td>
<td>56.4</td>
<td>57.4</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>62.5</td>
<td>65.0</td>
<td>65.5</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
Rumors of Home Prices' Demise Exaggerated 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 1, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301f.jpg" width="353">
According to the Office of Federal Housing Enterprise Oversight (OFHEO), U.S. home prices rose last quarter at roughly the same rate as during the prior two years. The 2.9% q/q rise certainly was down from the upwardly revised 3.1% gain during the prior quarter and was down from a 4.6% quarterly jump during 3Q04, but the 4Q/4Q gain of 13.0% was near the series&#39; peak. For all of 2005, the 13.2% rate of appreciation set a new record.
The House Price Indices in this report are weighted indexes based on repeat sales or refinancings using data provided by Fannie Mae or Freddie Mac.
Monday&#39;s report that median prices for new homes sold last year rose just 7.0%, roughly half the 2004 rate of growth, may suggest that fewer large expensive homes were sold during 2005 than during the prior year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301g.jpg" width="353">
While rates of home price appreciation appear to have topped throughout the country, they have been steady. Moreover, the variance in the rates of growth between regions remained high.
During the last year, job cutbacks in the auto industry helped lower the 4Q/4Q rate of home price appreciation in Michigan to 3.8% and the state&#39;s gain has lagged all others. Conversely, California home prices logged a strong 4Q05 gain of 4.6% (21.1% y/y) while demographic trends raised Arizona home prices by 34.9% 4Q/4Q and Florida home prices by 26.8%.
During the last five years, home price appreciation in the District of Columbia surpassed all others at 16.9% per year followed closely by California at 16.2% per annum. Indiana at 3.8%, Nebraska at 4.2% and Michigan at 4.5% are at the bottom of the list. New Jersey (12.7%), New York ((11.5%) and Massachusetts (11.1%) ranked high but just behind Hawaii at 14.6% home price appreciation averaged during the last five years.
The latest report from the Office of Federal Housing Enterprise Oversight (OFHEO) can be found <a href="http://www.ofheo.gov/media/pdf/4q05hpi.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/REGIONAL/@R11/@R1101/@R1101.HTM">House Price Index (OFHEO)</a></th>
<th scope="col">4Q &#39;05</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">United States</td>
<td>2.9%</td>
<td>3.1%</td>
<td>13.0%</td>
<td>13.2%</td>
<td>10.8%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; California</td>
<td>4.6%</td>
<td>4.6%</td>
<td>21.1%</td>
<td>23.3%</td>
<td>22.3%</td>
<td>12.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Jersey</td>
<td>3.5%</td>
<td>3.7%</td>
<td>15.6%</td>
<td>16.2%</td>
<td>15.0%</td>
<td>10.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Alabama</td>
<td>2.5%</td>
<td>2.1%</td>
<td>9.2%</td>
<td>7.9%</td>
<td>4.1%</td>
<td>4.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Michigan</td>
<td>0.7%</td>
<td>0.9%</td>
<td>3.8%</td>
<td>4.5%</td>
<td>4.4%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
Chain Store Sales Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 1, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301d.jpg" width="353">
Chain store sales surged 1.5% during the last week of February after a 0.2% up tick the prior week, according to the International Council of Shopping Centers (ICSC)-UBS survey.
Strength early and late in the month lifted the average of February sales 0.8% ahead of the January average which rose 1.0% from December.
The leading indicator of chain store sales rose for the first time in four weeks, but the weak 0.1% left the February average 0.5% below January.
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.

<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">02/25/06</th>
<th scope="col">02/18/06</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>469.0</td>
<td>461.9</td>
<td>3.6%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Mortgage Applications Off Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 1, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060301e.jpg" width="353">
The total number of mortgage applications dropped 1.2% last week, the fourth sharp decline in the last five weeks. The average level of applications during February fell 6.3% from the prior month.
Purchase applications dropped 1.9% from the prior week and the February average fell 10.2% from January. The latest level is down nearly one quarter from the high last Spring.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance ticked up 0.1% w/w but the February average fell 2.0% from January.
The effective interest rate on a conventional 30-year mortgage slipped to 6.42% and averaged 6.48% during February versus 6.34% in January. The effective rate on a 15-year mortgage also slipped to 6.15% and averaged 6.16% during February versus 5.98% in January. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Are Banks Vulnerable to a Housing Bust? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20060201/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">02/24/06</th>
<th scope="col">02/17/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>571.5</td>
<td>578.5</td>
<td>-19.5%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>400.8</td>
<td>408.7</td>
<td>-8.9%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,573.5</td>
<td>1,571.4</td>
<td>-31.0%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060228a.jpg" width="353">
Preliminary estimates, released today, now estimate growth of the U. S. economy in the fourth quarter of last year at a seasonally adjusted annual rate of 1.6% vs. the advance estimate 1.1% reported earlier. A third and final estimate will be released on March 30, at which time data on corporate profits will be available.
As Tom Moeller pointed out in his commentary on the &quot;advance&quot; estimate last month, the slow down in the fourth quarter was due in part to the collapse in the demand for autos which led to one of the smallest advances in consumer spending in the past four years and in part to the increasing foreign trade deficit.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060228b.jpg" width="353">
The current estimate shows that consumer spending accounted for only 0.81 points of the total 1.6 percentage point increase. In the past few years, the contribution had been generally over 2.0 percentage points. Fixed investment accounted for 0.73 points and inventories, by far the largest contributor, accounted for 1.62 points. A decline in government spending subtracted 0.13 points and the record trade deficit on goods and services subtracted 1.40 points.
The impacts on total growth from consumer spending and from foreign trade are shown in the first chart. The contribution from consumer spending declined in the fourth quarter to one of the lowest levels of the past five years.While foreign trade constitutes a drag on growth, more often than not, the impact of the fourth quarter trade deficit was one of the largest in the past five years. The contribution to growth from the business sector is shown in the second chart. While the contribution from fixed investment declined in the fourth quarter the contribution from inventory accumulation was up sharply. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USNA/@NC/@NC.HTM">U.S. Gross Domestic Product &nbsp;(2000 Chained Dollars)</a></th>
<th scope="col">Q4 05 Preliminary</th>
<th scope="col">Q3 05</th>
<th scope="col">Q2 05</th>
<th scope="col">Q1 05</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">Seasonally Adjusted Annual Rate of Growth</td>
<td>1.6</td>
<td>4.1</td>
<td>3.3</td>
<td>3.5</td>
<td>3.5</td>
<td>4.2</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Contribution to Growth</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption Expenditures</td>
<td>0.81</td>
<td>2.85</td>
<td>2.35</td>
<td>2.44</td>
<td>2.49</td>
<td>2.71</td>
<td>2.05</td>
</tr>
<tr>
<td class="firstcol">Fixed Investment</td>
<td>0.73</td>
<td>1.31</td>
<td>1.51</td>
<td>1.12</td>
<td>1.30</td>
<td>1.47</td>
<td>0.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>1.62</td>
<td>-0.48</td>
<td>-2.14</td>
<td>0.29</td>
<td>-0.31</td>
<td>0.33</td>
<td>0.05</td>
</tr>
<tr>
<td class="firstcol">Net Exports</td>
<td>-1.40</td>
<td>-0.12&nbsp;</td>
<td>1.00&nbsp;</td>
<td>&nbsp;-0.40</td>
<td>&nbsp;-0.29</td>
<td>-0.73</td>
<td>-0.46&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Government Spending</td>
<td>-0.13</td>
<td>0.54</td>
<td>0.47</td>
<td>0.35</td>
<td>0.34</td>
<td>0.41</td>
<td>0.53</td>
</tr>
</tbody>
</table>
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Preliminary estimates, released today, now estimate growth of the U. S. economy in the fourth quarter of last year at a seasonally adjusted annual rate of 1.6% vs. the advance estimate 1.1% reported earlier. A third and final estimate [...]

Second Estimate of Q4 05 GDP Shows Moderately Higher Growth: 1.6% (SAAR) vs 1.1%

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

US productivity growth has been significantly faster than in other major economies

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Michael J. Moran

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As widely expected, energy prices surged in March, with the increase of 8.5% among the firmest in the history of the series. A reading in August 2023 was close (8.4%), and the increase in June 2022 was a touch firmer (8.9%). Only the June 2020 observation was decidedly stronger at 9.6%. (Data on the current version of the PPI begin in 2010.) The jump in energy prices pushed the headline index 0.5% higher, an uncomfortable reading but better than expectations in the market, which clustered in the range of 0.8% to 1.2%.

March represented the third consecutive month with a headline increase of 0.5%, and the advances in the prior two months were not entirely due to energy. Prices excluding food and energy also rose 0.5% in January and February (and December as well), which might stir thoughts of accelerating inflation.

However, pressure outside of energy cooled in March. Food prices fell 0.2% and prices excluding food and energy rose only 0.1%. Service prices, which rose an average of 0.6% in the prior three months, increased less than 0.1%. The modest changes outside of food and energy raised the prospect that an upward trend that seemed to be developing might now be fading. The March change, alone with a less-than-troubling increase in February, led to a downward tilt in the six-month moving average of core price changes (chart, below left).

All of the prices in the headline PPI and its components are final prices – that is, prices paid by the ultimate buyer of goods and services. For goods, the products involved will not undergo further processing. The full report on producer prices also includes price indexes for intermediate inputs. These indexes could provide clues on what might unfold for finished goods in months ahead. This obscure part of the PPI also offered a hint of encouragement.

Input prices for stage four production (i.e. the final stage of the production process) rose 0.5% in March. The increase, while hefty, was slower than the results in the prior two months and it stabilized the upward trend in the six-month average (chart, below right). The input price indexes should be interpreted cautiously because they tend to be more volatile than those for finished goods, but with broad-based cooling in March, this measure might have signal value in this instance.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Energy prices surged in March, but most other items showed modest changes.
- Tame readings were a relief from hints of upward pressure in prior months.

March PPI: Tame Excluding Energy

Robert Brusca

260414E.jpg

Japanese industrial production in February declined by 1.1%, led by a 2.1% drop in manufacturing output. By sector, consumer goods output fell by 0.3%, intermediate goods output fell by 2.1%, while investment goods output dropped by a strong 2.5%, all on a month-to-month basis. Mining sector output fell by 1.5% in February, while utilities output fell by 3.8%.

Sequentially, however, Japanese output had been accelerating, up by 0.1% over 12 months, at a 4.5% annual rate over six months, and at a 7% annual rate over three months.

**Manufacturing**
Manufacturing output is up at 0.3% over 12 months, at a 6.6% annual rate over six months, and by 11.7% annualized over three months.

Within manufacturing, consumer goods output is expanding at a strengthening pace, rising by 0.8% over 12 months, at a 4.8% annual rate over six months, and then at a 10.8% annual rate over three months. Intermediate goods output is flat over 12 months, rising at a 2.9% annual rate over six months, and at a 6.2% annual rate over three months. Investment goods output is up at a 7% annual rate over 12 months, at a 5.2% annual rate over six months, and at a 6% annual rate over three months. However, mining output is down year-over-year; output changes get progressively worse from 12 months to three months. Utilities show a 4.8% decline over 12 months, decline by 3.2% at an annual rate over six months, and then fall at a 4.7% annual rate drop over three months. Mining and utilities sectors are experiencing more in the way of contracting effects.

**Quarter-to-date**
Reported on a quarter-to-date basis (two months into Q1), total industry output is up at a 7.3% annual rate, with manufacturing up at a 15.2% annual rate on the same basis. For sectors, however, the strength is in consumer goods and investment goods where output is increasing at an 11.9% annual rate in the quarter; intermediate goods output is up at a 9.3% annual rate quarter-to-date. Mining output shows a decline at an annual rate in the quarter-to-date, while utilities output posts an increase.

260414.jpg

**The trends are good...but**
The trend data provide an upbeat assessment for Japanese output despite the setback in February. However, we know this isn't going to last. The global economy has run into a buzz-saw since then. Global PMI survey data took a sizable step back in March as the war with Iran began, and with oil prices spiking, all past trends are basically off the books, and we have to recalibrate everything. What we can see is that the Japanese economy was on a run and was doing better. It was beginning to make inroads before the Iran war took place.

Japan has a history of locking up oil supplies long in advance, so the economy may continue to have more resiliency to oil prices than other economies and compared to what people expect. On the other hand, if Japan has contracts to supply oil at a price and supplies cannot get out of the Middle East, those contracts may not count for much. However, there still are going to be perceptions and expectations for the future and concerns about what's going to happen to global demand—nobody is out of the woods yet. For now, trend-based data in Japan look extremely good; however, we know not to believe it will last. At this point, we're not sure what to expect next, except something that will be much worse.

Japan

Japan’s IP: A Step Back in February

Winnie Tapasanun

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Existing home sales fell 3.6% m/m (-1.0% y/y) to 3.98 million units (SAAR) in March, the lowest level since June 2025, following a 2.7% rebound to 4.13 million in February (previously +1.7%; 4.09 mil.), according to the National Association of Realtors (NAR). The Action Economics Forecast Survey had expected March sales of 4.08 million units. Sales remained 38.1% below a high of 6.43 million in January 2022 and 39.7% below a peak of 6.60 million in January 2021. The March fall coincided with an increase in the average 30-year fixed mortgage rate to a three-month-high 6.18% in March after declining to 6.05% in February, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales fell 3.5% (-0.3% y/y) to 3.63 million units in March, the second m/m fall in three months and the weakest reading since June 2025, after a 3.3% increase to 3.76 million in February. Sales of condos and co-ops slid 5.4% (-7.9% y/y) to 350,000, the fourth m/m slide in five months and the lowest level since May 2020, on top of a 2.6% February fall to 370,000.

By region, March existing home sales declined m/m across all major regions. Sales in the Northeast dropped 8.5% (-12.2% y/y) to 430,000 in March after a 6.0% decrease in February, marking the third consecutive m/m fall and a record low. Sales in the Midwest fell 4.2% (-3.2% y/y) to 920,000, the lowest reading since September 2024, reversing a 3.2% February increase. Sales in the South slid 3.1% (+2.2% y/y) to 1.86 million after a 3.2% February rise. Sales in the West fell 1.3% (+1.3% y/y) to 770,000 following a 6.8% February rebound. The Midwest, South, and West each posted the second m/m decline in three months. Notably, the South remained the dominant region, accounting for 46.7% of total U.S. existing home sales.

The median price of all existing homes (NSA) rose 2.7% (1.4% y/y) to $408,800 in March, the highest since November, following a 0.8% increase to $398,000 in February (unrevised) and three successive m/m declines. Prices were 5.5% below a high of $432,700 in June 2025 but 13.3% above a low of $360,800 in January 2023. The median price of an existing single-family home grew 2.5% (1.3% y/y) to $412,400 in March, the highest since November, after a 1.0% rebound to $402,300 in February. The median price of condos and co-ops, up for the third time in four months, climbed 4.8% (2.3% y/y) to $371,500, the highest since June 2025, following a 2.9% February drop to $354,400. Regionally, overall prices rose m/m in March in the Midwest (+3.8%; +4.9% y/y), Northeast (+3.5%; +5.7% y/y), West (+2.7%; -1.3% y/y), and South (+1.7%; +0.8% y/y).

Inventories of homes for sale increased for the third consecutive in March. The number of existing homes for sale (NSA) rose 3.0% (2.3% y/y) to 1.36 million units, the highest level since November, following a 4.8% February rise to 1.32 million. The supply of homes on the market at the current selling rate (NSA) rose to 4.1 months, the highest in four months, after holding at 3.8 months in February and January. The recent high of 4.6 months was in August 2025, while a record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- March sales -3.6% m/m to lower-than-expected 3.98 mil.; -1.0% y/y, fifth straight y/y decrease.
- Broad-based regional m/m declines: Northeast (-8.5%), Midwest (-4.2%), South (-3.1%), West (-1.3%); y/y sales up in the South and West but down in the Northeast and Midwest.
- Median sales price +2.7% (+1.4% y/y) to $408,800, highest since November.
- Unsold inventory +3.0% (+2.3% y/y) to four-month-high 1.36 mil. units; 4.1 months' supply.

U.S. Existing Home Sales Drop in March to a Nine-Month Low

260413E.jpg

As the chart makes clear, Dutch exports and imports are driven by very complementary forces and tend to track one another closely. Both flows boomed when COVID ended, slowed to a contraction in 2023, and then recovered to maintain steady levels (growth rates that hugged a zero-percent growth rate) from mid-2024 to late-2025. Recently, exports and imports have begun to weaken, with both flows showing contraction over 12 months. Goods imports are falling at a 5.5% pace as exports are falling at a 4% pace. 

As for intra-year trends, the sequential growth rates show exports have transitioned into a progressively more contractive mode, while imports have declined over 12 months, six months, and three months, but without a clear signal on whether the trend is getting better or worse.

Of course, the trade flow depends on price trends and economic trends; both are under strain and uncertainty.

260413.jpg

The S&P Global PMIs had been tracing improvement through February, but their March values showed a broad weakening globally. We have yet to see the March number for Dutch trade in that window, but it’s coming, and we should brace for things to get worse. Oil prices, of course, will be rising sharply, and there are concerns about the knock-on effects of higher oil prices on activity. Already there are supply chain disruptions for goods other than oil, with fertilizers and helium frequently cited. It is the planting season for farms, and fertilizer is in strong demand. Helium is an input into the chip-making process, and a shortage is not good for the tech sector. The largest hub producing helium is in Qatar, and it has been shuttered since the war in Iran began.

If the closure of the Strait of Hormuz drags on—and the newest development is that the U.S. has put an embargo on that passage—we will have to see what other shortages develop and how bad the oil shortage becomes. It is a difficult time; it comes during a period in which central banks have largely been missing their inflation targets, leaving them less flexibility to deal with shortages and fallout.  The Bank of England and the European Central Bank have put markets on notice that, if the Iran conflict drags on, at their next meeting rate hikes are quite possible. In the U.S., the Fed has given markets no guidance.

So far, the Baltic dry index has held up and does not show any clear evidence of global trade slowing. But that is something else to watch for. In economics, there is an expression about how things happen. And it says: first things take longer than you expect to occur, and then they progress at pace much faster than expected. There may not be a good warning period if these conditions worsen.

Netherlands

Dutch Trade Trends Improve Goods Balance—for Now

Tian Yong Woon

In this week’s Letter, we continue to track developments in the Middle East and their implications for Asia. While the recent US–Iran ceasefire initially provided some relief to markets, subsequent complications have kept uncertainty elevated, with no conclusive resumption of trade flows yet through the Strait of Hormuz (chart 1)—flows that are critical to restoring the global energy system to more normal conditions.

Overall, our Blue Chip Economic Indicators panellists have broadly downgraded growth expectations for Asia this year, with the exceptions of China and Taiwan, while inflation forecasts have been revised higher across the board (chart 2). That said, the growth and inflation impact from the conflict are largely viewed as transitory, with most panellists expecting them to last between six and twelve months (chart 3). Nonetheless, central banks in the region appear increasingly reluctant to ease policy further. This is evident in the latest round of decisions, where India, South Korea, and New Zealand all held policy rates steady (chart 4), citing heightened uncertainty stemming from the ongoing conflict.

While inflationary pressures are beginning to build more broadly across the region, China had already been experiencing a pickup in recent months (chart 5). This has been supported by easing producer price deflation and improving industrial profits, alongside policy efforts to curb excessive price competition among producers. Attention now turns to China’s upcoming Q1 GDP release and the full slate of monthly data due later this week (chart 6).

**Middle east conflict developments**
Crude oil prices fell sharply earlier last week following news of a temporary US–Iran ceasefire. That said, the geopolitical backdrop remains highly fragile, as reflected in continued rhetoric from both sides, alongside the US announcement of a naval blockade over the strait after talks failed to yield an agreement. Compounding this, Iran has indicated that it cannot fully reopen the strait, citing uncertainty over the location of sea mines it had previously laid—further complicating any swift normalization of oil flows. Even prior to these latest developments, IMF-tracked shipping volumes had only begun to show tentative signs of recovery and remain well below pre-escalation levels. As such, while the ceasefire provides a welcome reprieve, meaningful economic relief will hinge on a sustained restoration of oil flows—crucially without additional frictions or costs that could impair global trade. Until then, crude prices are likely to remain elevated, albeit possibly off recent highs, weighing on growth while sustaining inflationary pressures. In Asia, where many economies are heavily reliant on oil imports, the region is likely to bear a disproportionate share of these effects.

260413T1.jpg

**The latest Blue Chip Economic Indicators survey**
In light of recent developments, our latest Blue Chip Economic Indicators (BCEI) survey provides a timely update. It is a monthly poll of forecasters covering key economic indicators across a wide range of economies. As shown in chart 2, panellists have generally trimmed their 2026 growth forecasts across most Asian economies. Taiwan is a notable exception, with growth expectations revised higher, likely continuing to be supported by the ongoing AI-driven expansion. Meanwhile, forecasts for China’s 2026 growth were left unchanged. On the inflation front, expectations for 2026 have been revised higher across all Asian economies, consistent with the pass-through from the recent surge in oil prices. The largest upward revision was seen in Australia (+0.7 ppts), while increases were more modest in economies such as Japan and China (+0.3 ppts each).

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Digging deeper into this month’s BCEI survey, the special questions provide additional insight into panellists’ views. In particular, one question asked about the time horizon over which current energy supply chain disruptions are expected to materially affect global inflation and growth. Panellists largely view the impact as short term (chart 3), with most clustering around a six- to twelve-month window. Smaller shares see effects lasting either less than six months or extending between one and three years, while only a very small minority expect disruptions to persist beyond three years. Overall, while the recent oil price surge represents a clear shock to the global economy, it is widely seen as transitory—temporarily lifting inflation and weighing modestly on growth, but unlikely to drive a fundamental shift in the broader macroeconomic outlook.

260413T3.jpg

**The week’s central bank decisions**
Turning to last week’s key monetary policy decisions in the region, the central banks of India (RBI), South Korea (BoK), and New Zealand (RBNZ) all kept policy rates unchanged, with several common threads across their communications. Notably, each highlighted the considerable uncertainty stemming from the Middle East conflict, which has already begun to feed into global inflation via higher oil prices. This aligns with broader investor sentiment: the bar for further policy easing has risen given renewed inflationary pressures, while the threshold for a shift toward tightening remains high, as most economies are still far from overheating. On central bank–specific nuances, the RBI emphasized the delicate trade-off between anchoring inflation expectations and minimizing growth sacrifices. The BoK noted that its policy rate is around the neutral level, while flagging potential additional pressure on the won from elevated oil prices. Meanwhile, the RBNZ signalled that near-term inflation is likely to rise even as the economic recovery softens, citing significant supply chain disruptions linked to the Middle East conflict.

260413T4.jpg

**China and the week ahead**
Lastly, we turn to China and the week ahead. As shown in chart 5, even prior to the Middle East conflict, China had already begun to see a pickup in inflation—an early indication that it may be moving out of its prolonged period of chronically low, or even negative, price pressures. This recent firming in CPI inflation has been accompanied by more sustained growth in industrial profits and a steady improvement in producer price pressures, with PPI inflation recently turning positive after a multi-year stretch of deflation. Together, these trends point to gradually strengthening price dynamics. The shift in inflation also reflects underlying policy efforts to curb excessive price competition among producers, which had weighed on prices for an extended period. Looking ahead, the recent oil price shock could provide an additional boost to inflation, as higher energy costs begin to feed through into future readings.

260413T5.jpg

Looking ahead to the coming week, Asia faces a packed data calendar, with the spotlight firmly on China as its Q1 GDP release and the usual slate of monthly indicators are due (chart 6). A key focus will be how March data shapes overall Q1 growth, particularly given that activity in the first two months of the year largely surprised to the upside. Investors will also be watching for any early signs of spillovers from the Middle East conflict in the March prints. Retail sales will be closely monitored as a gauge of the effectiveness of policy support for consumption, while developments in house prices will remain in focus as the property downturn continues to unfold gradually.

Economy in Brief

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Second Estimate of Q4 05 GDP Shows Moderately Higher Growth: 1.6% (SAAR) vs 1.1%