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/060127c.jpg" width="353">
Japan business and government leaders today were excited to report a second straight month of positive consumer price performance. The most widely followed CPI series is the total excluding fresh food, and it rose 0.1% year-on-year in December, following an equal move in November. The index was flat in October. So, by this gauge, the nation has not experienced deflation since early autumn. This development is already sparking talk of monetary policy changes as it perhaps signals that the long era of deflation has finally concluded. There was further encouragement from the local Tokyo area index, which moved into positive territory for January.
The upward price movements in the national index came in several sectors: housing costs, clothing, transportation and fuel. There was also less deflation in communications charges and in furniture and appliance prices. A separate &quot;core&quot; rate which, similar those in other countries, excludes energy as well as food, rose to +0.1% in December, its first positive reading. There is only slightly more than a year&#39;s history for this measure in Japan, however, so this move is less meaningful.
While the &quot;increases&quot; in the aggregate CPI series are minimal, they are the first since mid-1998, that is, more than seven years ago. The trend at that time was headed clearly downward, in the wake of the Asian currency crisis and in the face of general weakness of the Japanese economy. Now, finally, prices are firming, and this on the back of better demand. Retail sales in December, also reported today, rose 0.8% month-to-month in December, making 2005 the first year of positive growth in these sales since 1996. So perhaps there is in fact room for encouragement about the state of the Japanese economy.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J504/@J504.HTM">Japan CPI: Yr/Yr % Changes, NSA</a></th>
<th scope="col">Jan 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">CPI Headline*</td>
<td>--</td>
<td>+0.1</td>
<td>+0.1</td>
<td>0.0</td>
<td>-0.2</td>
<td>0.0</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Total CPI</td>
<td>--</td>
<td>-0.1</td>
<td>-0.8</td>
<td>-0.7</td>
<td>+0.2</td>
<td>-0.4</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Commodities ex Fresh Food</td>
<td>--</td>
<td>+0.2</td>
<td>0.0</td>
<td>+0.1</td>
<td>-0.1</td>
<td>-0.3</td>
<td>-1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Fresh Food</td>
<td>--</td>
<td>-7.5</td>
<td>-16.8</td>
<td>-14.2</td>
<td>+9.3</td>
<td>-6.6</td>
<td>+9.6</td>
</tr>
<tr>
<td class="firstcol">Services ex Imputed Rent</td>
<td>--</td>
<td>0.0</td>
<td>0.0</td>
<td>-0.4</td>
<td>-0.5</td>
<td>+0.3</td>
<td>+0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Total CPI, Ku-area of Tokyo</td>
<td>+0.1</td>
<td>-0.2</td>
<td>-0.3</td>
<td>-0.3</td>
<td>-0.4</td>
<td>-0.1</td>
<td>-0.7</td>
</tr>
</tbody>
</table>
</body>
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Japan business and government leaders today were excited to report a second straight month of positive consumer price performance. The most widely followed CPI series is the total excluding fresh food, and it rose 0.1% year-on-year in [...]

Japan CPI Rises in December, a Second Consecutive Year/Year Increase

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060127b.jpg" width="353">
December new single-family home sales increased 2.9% to 1.269M after a 9.2% November decline that was less than initially estimated. Consensus expectations had been for a decline to 1.225M. For the year, new home sales set a new record of 1.280M, up 6.7% from 2004.
Sales gains out West, up 11.1% (12.9% y/y), and in the Midwest, up 22.7% (-8.0% y/y), offset declines in the Northeast (0.0% y/y) and in the South (4.0% y/y).
The median price of a new single family home fell 2.2% (-3.4% y/y) to $221,800. For the year, prices rose to an average $231,350 (6.2% Y/Y).
The figures from the Census Department reflect home sales counted at the time of sales contract or deposit.

<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/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</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">New Single-Family</td>
<td>1,269</td>
<td>1,233</td>
<td>1.8%</td>
<td>1,280</td>
<td>1,200</td>
<td>1,091</td>
</tr>
</tbody>
</table>
</body>
</html>

December new single-family home sales increased 2.9% to 1.269M after a 9.2% November decline that was less than initially estimated. Consensus expectations had been for a decline to 1.225M. For the year, new home sales set a new [...]

New Home Sales Finished a Record 2005 Firm, Prices Soft

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060127a.jpg" width="353">
US real GDP growth last quarter weakened to the slowest in over four years. Even when the 1.1% advance is combined with 3Q, the 2.6% average gain was the weakest since early 2003 and fell short of Consensus expectations for a 2.8% rise.
Domestic demand growth suffered due to a collapse in the demand for autos. Sales incentives had pumped up 3Q vehicle &amp; parts demand by 12.6% (AR) but the 44.9% decline last quarter pulled the demand level to its lowest since 2001. As a result, real PCE grew just 1.1% (3.0% y/y) during 4Q05.
Outside of autos, real consumer demand was firm last quarter as suggested by a 12.5% (10.6% y/y) advance in furniture &amp; household appliances, a 10.8% (6.6% y/y) rise in apparel and a 3.2% (2.9% y/y) increase in services spending.
Business fixed investment also eased due to a shortfall in spending on transportation equipment, off 17.6% (+1.5% y/y). Investment in industrial equipment rose 10.6% (5.6% y/y) and spending on information processing equipment &amp; software rose 9.1% (13.7% y/y).
Lower defense spending, which reversed all of the 3Q gain with a 13.1% (+0.5% y/y) decline, lowered government spending by 2.4% (+1.2% y/y). The decline in defense subtracted 0.7% percentage points from 4Q GDP growth.
Growth in residential investment eased to 3.5% (7.7% y/y), the slowest quarterly advance in a year.
The drag on GDP growth from a wider foreign trade deficit ballooned to 1.2 percentage points as imports grew 9.1% (4.6% y/y), the fastest rate of growth in a year. Exports rose 2.4% (5.7% y/y), steady with the 3Q rate of growth.
Countering the drag from foreign trade, inventories contributed a large 1.5 percentage points to GDP growth, the most since early 2002.
The chain price index grew 3.0% versus a Consensus expectation for a 2.5% rise. The upside surprise during 4Q was due to a 4.9% (3.5% y/y) increase in the price index for private fixed investment which raised the price index for domestic final sales by 3.4% (3.5% y/y).
Global Economic Expansion Rolls On Into 2006 from the Federal Reserve Bank of Atlanta can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=7C7CADB5-5056-9F06-998A5B38EE1874DC&amp;method=display"> 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/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;05 (Advance)</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.1%</td>
<td>4.1%</td>
<td>3.1%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>1.5%</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.3%</td>
<td>4.6%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-1.2%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>0.8%</td>
<td>4.5%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.0%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


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US real GDP growth last quarter weakened to the slowest in over four years. Even when the 1.1% advance is combined with 3Q, the 2.6% average gain was the weakest since early 2003 and fell short of Consensus expectations for a 2.8% [...]

US 4Q GDP Weak Due To Lower Autos & Lower Defense

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060127a.jpg" width="353">
US real GDP growth last quarter weakened to the slowest in over four years. Even when the 1.1% advance is combined with 3Q, the 2.6% average gain was the weakest since early 2003 and fell short of Consensus expectations for a 2.8% rise.
Domestic demand growth suffered due to a collapse in the demand for autos. Sales incentives had pumped up 3Q vehicle &amp; parts demand by 12.6% (AR) but the 44.9% decline last quarter pulled the demand level to its lowest since 2001. As a result, real PCE grew just 1.1% (3.0% y/y) during 4Q05.
Outside of autos, real consumer demand was firm last quarter as suggested by a 12.5% (10.6% y/y) advance in furniture &amp; household appliances, a 10.8% (6.6% y/y) rise in apparel and a 3.2% (2.9% y/y) increase in services spending.
Business fixed investment also eased due to a shortfall in spending on transportation equipment, off 17.6% (+1.5% y/y). Investment in industrial equipment rose 10.6% (5.6% y/y) and spending on information processing equipment &amp; software rose 9.1% (13.7% y/y).
Lower defense spending, which reversed all of the 3Q gain with a 13.1% (+0.5% y/y) decline, lowered government spending by 2.4% (+1.2% y/y). The decline in defense subtracted 0.7% percentage points from 4Q GDP growth.
Growth in residential investment eased to 3.5% (7.7% y/y), the slowest quarterly advance in a year.
The drag on GDP growth from a wider foreign trade deficit ballooned to 1.2 percentage points as imports grew 9.1% (4.6% y/y), the fastest rate of growth in a year. Exports rose 2.4% (5.7% y/y), steady with the 3Q rate of growth.
Countering the drag from foreign trade, inventories contributed a large 1.5 percentage points to GDP growth, the most since early 2002.
The chain price index grew 3.0% versus a Consensus expectation for a 2.5% rise. The upside surprise during 4Q was due to a 4.9% (3.5% y/y) increase in the price index for private fixed investment which raised the price index for domestic final sales by 3.4% (3.5% y/y).
Global Economic Expansion Rolls On Into 2006 from the Federal Reserve Bank of Atlanta can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=7C7CADB5-5056-9F06-998A5B38EE1874DC&amp;method=display"> 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/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;05 (Advance)</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>1.1%</td>
<td>4.1%</td>
<td>3.1%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>1.5%</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.3%</td>
<td>4.6%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-1.2%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>0.8%</td>
<td>4.5%</td>
<td>3.3%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.0%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
New Home Sales Finished a Record 2005 Firm, Prices Soft 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060127b.jpg" width="353">
December new single-family home sales increased 2.9% to 1.269M after a 9.2% November decline that was less than initially estimated. Consensus expectations had been for a decline to 1.225M. For the year, new home sales set a new record of 1.280M, up 6.7% from 2004.
Sales gains out West, up 11.1% (12.9% y/y), and in the Midwest, up 22.7% (-8.0% y/y), offset declines in the Northeast (0.0% y/y) and in the South (4.0% y/y).
The median price of a new single family home fell 2.2% (-3.4% y/y) to $221,800. For the year, prices rose to an average $231,350 (6.2% Y/Y).
The figures from the Census Department reflect home sales counted at the time of sales contract or deposit.

<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/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</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">New Single-Family</td>
<td>1,269</td>
<td>1,233</td>
<td>1.8%</td>
<td>1,280</td>
<td>1,200</td>
<td>1,091</td>
</tr>
</tbody>
</table>
Japan CPI Rises in December, a Second Consecutive Year/Year Increase 
by <a href="/comment/Stone.html">Carol Stone</a> January 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060127c.jpg" width="353">
Japan business and government leaders today were excited to report a second straight month of positive consumer price performance. The most widely followed CPI series is the total excluding fresh food, and it rose 0.1% year-on-year in December, following an equal move in November. The index was flat in October. So, by this gauge, the nation has not experienced deflation since early autumn. This development is already sparking talk of monetary policy changes as it perhaps signals that the long era of deflation has finally concluded. There was further encouragement from the local Tokyo area index, which moved into positive territory for January.
The upward price movements in the national index came in several sectors: housing costs, clothing, transportation and fuel. There was also less deflation in communications charges and in furniture and appliance prices. A separate &quot;core&quot; rate which, similar those in other countries, excludes energy as well as food, rose to +0.1% in December, its first positive reading. There is only slightly more than a year&#39;s history for this measure in Japan, however, so this move is less meaningful.
While the &quot;increases&quot; in the aggregate CPI series are minimal, they are the first since mid-1998, that is, more than seven years ago. The trend at that time was headed clearly downward, in the wake of the Asian currency crisis and in the face of general weakness of the Japanese economy. Now, finally, prices are firming, and this on the back of better demand. Retail sales in December, also reported today, rose 0.8% month-to-month in December, making 2005 the first year of positive growth in these sales since 1996. So perhaps there is in fact room for encouragement about the state of the Japanese economy.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J504/@J504.HTM">Japan CPI: Yr/Yr % Changes, NSA</a></th>
<th scope="col">Jan 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">CPI Headline*</td>
<td>--</td>
<td>+0.1</td>
<td>+0.1</td>
<td>0.0</td>
<td>-0.2</td>
<td>0.0</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Total CPI</td>
<td>--</td>
<td>-0.1</td>
<td>-0.8</td>
<td>-0.7</td>
<td>+0.2</td>
<td>-0.4</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Commodities ex Fresh Food</td>
<td>--</td>
<td>+0.2</td>
<td>0.0</td>
<td>+0.1</td>
<td>-0.1</td>
<td>-0.3</td>
<td>-1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Fresh Food</td>
<td>--</td>
<td>-7.5</td>
<td>-16.8</td>
<td>-14.2</td>
<td>+9.3</td>
<td>-6.6</td>
<td>+9.6</td>
</tr>
<tr>
<td class="firstcol">Services ex Imputed Rent</td>
<td>--</td>
<td>0.0</td>
<td>0.0</td>
<td>-0.4</td>
<td>-0.5</td>
<td>+0.3</td>
<td>+0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Total CPI, Ku-area of Tokyo</td>
<td>+0.1</td>
<td>-0.2</td>
<td>-0.3</td>
<td>-0.3</td>
<td>-0.4</td>
<td>-0.1</td>
<td>-0.7</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/060126c.jpg" width="353">
The Bank for International Settlements today reported international banking statistics for Q3 2005, on a provisional basis. These data are contained in Haver&#39;s BIS database, which includes basically all the tables in the BIS Quarterly Review. The objective of this highly detailed data collection effort is to provide indications of the exposure of reporting countries&#39; banking systems to international developments. There are 39 reporting countries whose central banks provide comprehensive data on gross external assets and liabilities of their nation&#39;s banks with immediate borrowers. These reporting countries are mostly developed countries, but banks in emerging economies, such as Brazil, Mexico and Turkey, also report, along with a number of offshore banking centers. Claims and liabilities are classified by country and sector of the counter-party, by currency and by type of instrument, among other features. Of these 39 countries, 30 also report &quot;consolidated&quot; data, which net out inter-bank flows and indicate the amount of &quot;ultimate&quot; risk, including derivatives as well as on-balance-sheet items. In the following discussion, we look simply at the total of gross claims -- or assets -- for Q3 held by banks in various countries and the distribution of the so-called &quot;vis-&agrave;-vis&quot; countries which have incurred them.
At the end of September, external claims of banks in the 39 reporting countries totaled $20.713 trillion. This compares with $20.268 trillion on June 30 and $19,198.3 billion at the end of 2004. The largest claims are assets of banks in the UK, $4.122 trillion. The US is third in this ranking, having $1.965 trillion in foreign assets, while Germany is second at $2.184 trillion. Banks in Japan, France and the Cayman Islands all have more than $1.0 trillion in external assets.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126d.jpg" width="353">
Frequently, in considering banking figures such as these, the public tends to focus on the debts of developing or emerging market countries. But, as measured here, these are smaller than might be expected: BIS reporting banks&#39; assets in these countries came to only $1.338 trillion, 6.5% of the total. In an absolute sense, of course, $1.3 trillion is a large amount, and it probably carries more risk than the substantially bigger assets in more developed countries. The largest claims in this group of countries involve China and South Korea.
By type, loans constitute about three-quarters of these banking system assets. By currency, US dollar assets totaled $8.435 trillion on September 30. The next biggest currency is the euro, with $7.798 trillion. Non-trivial amounts are also denominated in yen, pounds and Swiss francs.
This is a quarterly release, with year-end 2005 likely to be released on April 25. The BIS established these reports as the eurocurrency markets developed in the 1970s. They were enhanced following significant international incidents, especially including the original Mexican debt crisis in 1983 and the Russian default in 1998.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BIS/BIS.HTM">BIS</a> (All Data in Trillions US $)</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
Year-End
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>20.713</td>
<td>20.268</td>
<td>19.808</td>
<td>19.198</td>
<td>15.999</td>
<td>13.370</td>
</tr>
<tr class="odd">
<td class="firstcol">UK Bank Assets</td>
<td>4.122</td>
<td>4.031</td>
<td>3.974</td>
<td>37.87</td>
<td>3.093</td>
<td>2.514</td>
</tr>
<tr>
<td class="firstcol">German Bank Assets</td>
<td>2.184</td>
<td>2.167</td>
<td>2.191</td>
<td>2.151</td>
<td>1.786</td>
<td>1.384</td>
</tr>
<tr class="odd">
<td class="firstcol">Claims on Developed Countries</td>
<td>16.372</td>
<td>16.038</td>
<td>15.765</td>
<td>15.206</td>
<td>12.714</td>
<td>10.619</td>
</tr>
<tr>
<td class="firstcol">Claims on Developing Countries</td>
<td>1.338</td>
<td>1.266</td>
<td>1.251</td>
<td>1.180</td>
<td>1.007</td>
<td>0.877</td>
</tr>
<tr class="odd">
<td class="firstcol">US Dollar Denominated</td>
<td>8.435</td>
<td>8.197</td>
<td>7.662</td>
<td>7.356</td>
<td>6.362</td>
<td>5.664</td>
</tr>
<tr>
<td class="firstcol">Euro Denominated (US$ value)</td>
<td>7.798</td>
<td>7.663</td>
<td>7.760</td>
<td>7.564</td>
<td>6.026</td>
<td>4.501</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bank for International Settlements today reported international banking statistics for Q3 2005, on a provisional basis. These data are contained in Haver's BIS database, which includes basically all the tables in the BIS Quarterly [...]

BIS Totals $20.7 Trillion in International Banking Assets on 9/30

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126b.jpg" width="353">
Initial claims for unemployment insurance ticked 11,000 higher to 283,000 following a little revised 36,000 decline the prior week. Consensus expectations had been for 305,000 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 fell further to 288,750 (-14.1% y/y), its lowest level since June 2000.
Continuing unemployment insurance claims increased 53,000 following a deepened 154,000 decline the prior week.
The insured rate of unemployment held at 2.0% for the second week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">01/21/06</th>
<th scope="col">01/14/06</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>283</td>
<td>272</td>
<td>-11.8%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,581</td>
<td>-7.0%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance ticked 11,000 higher to 283,000 following a little revised 36,000 decline the prior week. Consensus expectations had been for 305,000 claims. During the last ten years there has been a [...]

Initial Jobless Insurance Claims Up A Bit

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126a.jpg" width="353">
Orders for durable goods in December rose 1.3% following an upwardly revised 5.4% increase in November. The rise about matched Consensus expectations for a 1.0% gain, however, the details of the report painted a more constructive picture of factory sector activity than was portrayed in the November release.
Aircraft &amp; parts orders which rose 77% and 69% in October &amp; November, respectively, and dominated those two months&#39; reports fell just 2.9% and were triple the year earlier level in December.
Moving in the other direction, new orders for motor vehicles &amp; parts rose 6.6% (-1.3% y/y) following two months of sharp decline.
Less the transportation sector altogether, durable goods orders rose 0.9% following an upwardly revised 0.6% November increase.
Machinery orders rose 6.5% (10.9% y/y) after a 3.1% November increase, initially reported as a decline. Fabricated metals orders rose 1.3% (3.2% y/y) following a 1.6% November decline that was shallower than initially reported and orders for computers &amp; related products rose 1.5% (8.0% y/y) after an upwardly revised 8.1% November increase.
Orders for nondefense capital goods fell 0.6% due to the drop in aircraft but less aircraft, nondefense capital goods orders increased 3.5% after a slight November increase that initially was reported as a 2.0% drop.
On the downside in December were communications equipment orders which fell 3.3% (-7.4% y/y) and electrical equipment orders which fell 2.8% (+14.8% y/y).
Shipments of durable goods jumped 3.5% (6.7% y/y) in December following a 0.6% November increase. Less the transportation sector, shipments rose 2.3% (6.0% y/y) after an upwardly revised 0.5% November increase.
Order backlogs surged another 2.4% (16.3% y/y) due to the high level of aircraft orders. Less transportation backlogs ticked up 0.3% (10.0% y/y) and the ratio of backlogs to shipments outside of transportation fell from the November high.
Durable inventories ticked 0.1% higher (3.5% y/y) after an upwardly revised 0.8% November increase.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>1.3%</td>
<td>5.4%</td>
<td>12.7%</td>
<td>8.5%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>0.9%</td>
<td>0.6%</td>
<td>5.8%</td>
<td>8.5%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-0.6%</td>
<td>22.2%</td>
<td>31.3%</td>
<td>19.7%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>3.5%</td>
<td>0.2%</td>
<td>7.0%</td>
<td>10.6%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

Orders for durable goods in December rose 1.3% following an upwardly revised 5.4% increase in November. The rise about matched Consensus expectations for a 1.0% gain, however, the details of the report painted a more constructive [...]

U.S. Durable Goods Orders Recover

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126a.jpg" width="353">
Orders for durable goods in December rose 1.3% following an upwardly revised 5.4% increase in November. The rise about matched Consensus expectations for a 1.0% gain, however, the details of the report painted a more constructive picture of factory sector activity than was portrayed in the November release.
Aircraft &amp; parts orders which rose 77% and 69% in October &amp; November, respectively, and dominated those two months&#39; reports fell just 2.9% and were triple the year earlier level in December.
Moving in the other direction, new orders for motor vehicles &amp; parts rose 6.6% (-1.3% y/y) following two months of sharp decline.
Less the transportation sector altogether, durable goods orders rose 0.9% following an upwardly revised 0.6% November increase.
Machinery orders rose 6.5% (10.9% y/y) after a 3.1% November increase, initially reported as a decline. Fabricated metals orders rose 1.3% (3.2% y/y) following a 1.6% November decline that was shallower than initially reported and orders for computers &amp; related products rose 1.5% (8.0% y/y) after an upwardly revised 8.1% November increase.
Orders for nondefense capital goods fell 0.6% due to the drop in aircraft but less aircraft, nondefense capital goods orders increased 3.5% after a slight November increase that initially was reported as a 2.0% drop.
On the downside in December were communications equipment orders which fell 3.3% (-7.4% y/y) and electrical equipment orders which fell 2.8% (+14.8% y/y).
Shipments of durable goods jumped 3.5% (6.7% y/y) in December following a 0.6% November increase. Less the transportation sector, shipments rose 2.3% (6.0% y/y) after an upwardly revised 0.5% November increase.
Order backlogs surged another 2.4% (16.3% y/y) due to the high level of aircraft orders. Less transportation backlogs ticked up 0.3% (10.0% y/y) and the ratio of backlogs to shipments outside of transportation fell from the November high.
Durable inventories ticked 0.1% higher (3.5% y/y) after an upwardly revised 0.8% November increase.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>1.3%</td>
<td>5.4%</td>
<td>12.7%</td>
<td>8.5%</td>
<td>9.5%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>0.9%</td>
<td>0.6%</td>
<td>5.8%</td>
<td>8.5%</td>
<td>11.7%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-0.6%</td>
<td>22.2%</td>
<td>31.3%</td>
<td>19.7%</td>
<td>11.0%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>3.5%</td>
<td>0.2%</td>
<td>7.0%</td>
<td>10.6%</td>
<td>9.5%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Up A Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126b.jpg" width="353">
Initial claims for unemployment insurance ticked 11,000 higher to 283,000 following a little revised 36,000 decline the prior week. Consensus expectations had been for 305,000 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 fell further to 288,750 (-14.1% y/y), its lowest level since June 2000.
Continuing unemployment insurance claims increased 53,000 following a deepened 154,000 decline the prior week.
The insured rate of unemployment held at 2.0% for the second week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">01/21/06</th>
<th scope="col">01/14/06</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>283</td>
<td>272</td>
<td>-11.8%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,581</td>
<td>-7.0%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
BIS Totals $20.7 Trillion in International Banking Assets on 9/30 
by <a href="/comment/Stone.html">Carol Stone</a> January 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126c.jpg" width="353">
The Bank for International Settlements today reported international banking statistics for Q3 2005, on a provisional basis. These data are contained in Haver&#39;s BIS database, which includes basically all the tables in the BIS Quarterly Review. The objective of this highly detailed data collection effort is to provide indications of the exposure of reporting countries&#39; banking systems to international developments. There are 39 reporting countries whose central banks provide comprehensive data on gross external assets and liabilities of their nation&#39;s banks with immediate borrowers. These reporting countries are mostly developed countries, but banks in emerging economies, such as Brazil, Mexico and Turkey, also report, along with a number of offshore banking centers. Claims and liabilities are classified by country and sector of the counter-party, by currency and by type of instrument, among other features. Of these 39 countries, 30 also report &quot;consolidated&quot; data, which net out inter-bank flows and indicate the amount of &quot;ultimate&quot; risk, including derivatives as well as on-balance-sheet items. In the following discussion, we look simply at the total of gross claims -- or assets -- for Q3 held by banks in various countries and the distribution of the so-called &quot;vis-&agrave;-vis&quot; countries which have incurred them.
At the end of September, external claims of banks in the 39 reporting countries totaled $20.713 trillion. This compares with $20.268 trillion on June 30 and $19,198.3 billion at the end of 2004. The largest claims are assets of banks in the UK, $4.122 trillion. The US is third in this ranking, having $1.965 trillion in foreign assets, while Germany is second at $2.184 trillion. Banks in Japan, France and the Cayman Islands all have more than $1.0 trillion in external assets.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060126d.jpg" width="353">
Frequently, in considering banking figures such as these, the public tends to focus on the debts of developing or emerging market countries. But, as measured here, these are smaller than might be expected: BIS reporting banks&#39; assets in these countries came to only $1.338 trillion, 6.5% of the total. In an absolute sense, of course, $1.3 trillion is a large amount, and it probably carries more risk than the substantially bigger assets in more developed countries. The largest claims in this group of countries involve China and South Korea.
By type, loans constitute about three-quarters of these banking system assets. By currency, US dollar assets totaled $8.435 trillion on September 30. The next biggest currency is the euro, with $7.798 trillion. Non-trivial amounts are also denominated in yen, pounds and Swiss francs.
This is a quarterly release, with year-end 2005 likely to be released on April 25. The BIS established these reports as the eurocurrency markets developed in the 1970s. They were enhanced following significant international incidents, especially including the original Mexican debt crisis in 1983 and the Russian default in 1998.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BIS/BIS.HTM">BIS</a> (All Data in Trillions US $)</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
Year-End
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>20.713</td>
<td>20.268</td>
<td>19.808</td>
<td>19.198</td>
<td>15.999</td>
<td>13.370</td>
</tr>
<tr class="odd">
<td class="firstcol">UK Bank Assets</td>
<td>4.122</td>
<td>4.031</td>
<td>3.974</td>
<td>37.87</td>
<td>3.093</td>
<td>2.514</td>
</tr>
<tr>
<td class="firstcol">German Bank Assets</td>
<td>2.184</td>
<td>2.167</td>
<td>2.191</td>
<td>2.151</td>
<td>1.786</td>
<td>1.384</td>
</tr>
<tr class="odd">
<td class="firstcol">Claims on Developed Countries</td>
<td>16.372</td>
<td>16.038</td>
<td>15.765</td>
<td>15.206</td>
<td>12.714</td>
<td>10.619</td>
</tr>
<tr>
<td class="firstcol">Claims on Developing Countries</td>
<td>1.338</td>
<td>1.266</td>
<td>1.251</td>
<td>1.180</td>
<td>1.007</td>
<td>0.877</td>
</tr>
<tr class="odd">
<td class="firstcol">US Dollar Denominated</td>
<td>8.435</td>
<td>8.197</td>
<td>7.662</td>
<td>7.356</td>
<td>6.362</td>
<td>5.664</td>
</tr>
<tr>
<td class="firstcol">Euro Denominated (US$ value)</td>
<td>7.798</td>
<td>7.663</td>
<td>7.760</td>
<td>7.564</td>
<td>6.026</td>
<td>4.501</td>
</tr>
</tbody>
</table>
</body>
</html>

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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

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

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Michael J. Moran

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The Consumer Price Index rose 0.9% in March, easily the sharpest monthly rise since the inflation burst in 2022. Although pronounced in magnitude, the increase was not surprising, as essentially all analysts had built in pressure from the energy sector. Energy prices jumped 10.9%, led by a surge of 21.2% in gasoline prices. Other energy components wiggled: charges for electricity services rose 0.8%, offsetting declines in the prior two months; a drop 0.9% in the price of natural gas services followed sharp increases in the prior three months.

The press report from the Bureau of Labor Statistics showed food prices as unchanged, but calculating the shift to more than one decimal point showed a marginal decline (-0.005%) The dip was almost imperceptible, but it nevertheless was a welcome rarity. The decline occurred in the food-at-home component (i.e. grocery store prices, -0.2%); prices of food away from home (i.e. at restaurants and bars) rose 0.2%.

Core prices rose 0.2 percent, softer than the expected increase of 0.3%. Only two areas posted high-side readings. Apparel prices increased 1.0% after a jump of 1.3% in February, perhaps reflecting hope for an active spring selling season. Airfares jumped 2.7%, hardly surprising in light of recent energy developments. Sharper increases are likely in coming months because of higher fuel prices. Most other core items were contained, including declines of 1.0% in medical-care commodities and 0.4% in the prices of used motor vehicles. Prices of medical-care commodities have been quiet since the middle of 2024; the latest year-over-year change totaled only 0.3%. Prices of used cars and trucks have declined for four consecutive months, leaving a year-over-year decline of 3.2%.

Although core prices were well contained in March, the outlook is uncertain because of potential passthrough from higher energy prices. At the same time, recent trends in the inflation rates for core goods and core services offer a reason to be optimistic, as both are decelerating. As shown in the left chart below, core goods prices in the past six months have been subdued, which has pulled the year-over-year change from 1.5% last fall (August to October) to 1.2% in March. Core service prices, shown in the right chart below, have registered changes of 0.3% or 0.4% in the three months before the 0.2% reading in March. However, results for October and November were restrained, and changes in the past six months in total show deceleration. The year-over-year change of 3.0% in core service prices in March reflects an advance of 3.3% in the first six months of this span (annual rate) and 2.7% in the past six months. The pattern is choppy, but it traces a decelerating trend.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Gasoline prices drove the energy component higher; electricity prices also contributed.
- Food prices provided a surprise by posting a fractional decline.
- Core prices rose less than expected; both goods and services components were contained.

March CPI: Pressure in the Energy Sector (as Expected); Tame Elsewhere (Surprisingly)

Winnie Tapasanun

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Total factory orders were virtually unchanged m/m in February following a flat reading in January and a 0.4% decline in December, data from the U.S. Census Bureau showed. The Action Economics Forecast Survey had expected a 0.2% m/m February increase. The year-on-year growth rate eased to 3.7% in February, the lowest since October, from 4.2% in January (+3.0% in February 2025), remaining far below the April 2021 peak of 39.6%. Notably, orders for nondefense aircraft & parts plunged 28.6% m/m in February following decreases of 1.7% in January and 22.7% in December, while orders for defense aircraft & parts fell 2.1% after a 26.9% January slump and an 11.8% December jump. Factory orders excluding defense edged up 0.1% (3.6% y/y), the third m/m increase in four months, following a 0.4% January rebound. Factory orders excluding the transportation sector rose 1.2% (2.5% y/y), the strongest of four consecutive m/m gains, after a 0.5% January increase.

Durable goods orders fell 1.3% (+7.4% y/y) in February after a 0.4% decline in January (in line with a 1.4% m/m decrease in the advance report on April 7), marking the fourth m/m decline in five months. The February m/m fall reflected a 5.3% orders drop (+10.2% y/y) in transportation equipment following a 1.9% January decrease, alongside m/m declines of 0.5% (+2.4% y/y) in furniture & related products and 0.3% (+4.9% y/y) in electrical equipment, appliances & components. Other major durable goods orders categories rose m/m in February, led by a 2.4% gain (10.5% y/y) in primary metals, followed by increases of 1.7% (9.5% y/y) in machinery, 0.5% (5.4% y/y) in fabricated metal products, and 0.2% (7.7% y/y) in computers & electronic products.

Nondurable goods orders, which equal nondurable goods shipments, advanced 1.5% (0.1% y/y) in February, the biggest of three successive m/m gains, after a 0.5% increase in January. The February m/m rise was led by a 6.2% jump (-6.4% y/y) in petroleum & coal products, followed by gains of 5.9% (-5.8% y/y) leather & allied products, 1.2% (-2.8% y/y) in textile mills, 1.0% (1.6% y/y) in paper products, 0.9% (1.2% y/y) in plastics & rubber products, 0.6% (3.7% y/y) in beverage & tobacco products, 0.5% (3.2% y/y) in chemical products, 0.4% (3.2% y/y) in apparel, and 0.2% (0.5% y/y) in food products. To the downside, nondurable goods shipments for textile products (-1.4%; -1.5% y/y) and printing (-0.4%; -0.9% y/y) fell m/m in February following their January increases.

Total shipments rose 1.4% (3.5% y/y) in February after gains of 0.7% in January and December, registering the fourth m/m rise in five months. Excluding transportation, shipments advanced 1.4% (2.3% y/y), the fifth m/m gain in six months, after a 0.5% January increase. Shipments of durable goods industries also rose 1.4% (6.9% y/y), up for the fifth time in six months, after a 0.9% January gain. This reflected m/m increases across nearly all durable goods shipments categories, led by a 2.5% rise (10.1% y/y) in primary metals, followed by gains of 1.7% (5.5% y/y) in electrical equipment, appliances & components, 1.7% (4.0% y/y) in furniture & related products, 1.6% (9.7% y/y) in transportation equipment, 1.4% (7.6% y/y) in machinery, 1.3% (3.8% y/y) in nonmetallic mineral products, 1.0% (6.1% y/y) in computers & electronic products, 1.0% (2.5% y/y) in miscellaneous durable goods, and 0.9% (5.4% y/y) in fabricated metal products. In contrast, durable goods shipments for wood products were the only category with a monthly decline in February, easing 0.1% (-2.9% y/y) following a flat January reading.

Unfilled orders edged up 0.1% (11.1% y/y) in February, the smallest of seven consecutive m/m increases, following a 0.6% rise in January. Excluding transportation, unfilled orders grew 0.2% (1.9% y/y), up for the seventh straight month, after a 0.3% January increase. Backlogs of durable goods ticked up 0.1% (11.1% y/y) in February, led by gains of 0.5% (2.0% y/y) in machinery and 0.2% (4.9% y/y) in electrical equipment, appliances & components, partially offset by declines of 0.7% (+1.5% y/y) in furniture & related products and 0.1% (+2.3% y/y) in primary metals.

Inventories inched up 0.1% (0.8% y/y) in February, the fourth successive m/m increase, following matching 0.1% gains in January and December. Excluding transportation, inventories edged up 0.1% (1.0% y/y) after no change in January. Durable goods inventories increased 0.1% (1.8% y/y) in February after rising 0.2% for four straight months, while nondurable goods inventories were virtually unchanged (-0.8% y/y) after declining 0.3% in January and December.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Factory orders virtually unchanged (+3.7% y/y) in Feb. for second straight month; still 7.6% above the Jan. ’24 low.
- Durable goods orders (-1.3%), fourth m/m fall in five mths.; nondurable goods orders (+1.5%), largest of three successive m/m gains; shipments (+1.4%), fourth m/m rise in five mths.
- Transportation orders -5.3% m/m, led by a 28.6% plunge in nondefense aircraft orders.
- Unfilled orders +0.1%, smallest of seven straight m/m increases.
- Inventories +0.1%, holding within a narrow 0.1%-0.2% range for four consecutive mths.

U.S. Factory Orders Flat in February on Weak Nondefense Aircraft Orders

Andrew Cates

**Positive Growth Surprises, Negative Inflation Surprises—For Now**
The global macro backdrop heading into the latest Middle East shock was, by recent standards, relatively constructive. As the chart shows, growth data had been consistently surprising to the upside, while inflation surprises have been in negative territory—an unusually benign combination suggesting resilient activity alongside easing price pressures. What is striking, however, is that—at least through March and into early April—this pattern has not yet been meaningfully dislodged. For now, the data flow still reflects a world that was stabilising rather than deteriorating. That said, this is almost certainly a lagging signal. Supply-side shocks of this nature—particularly those centred on energy—tend to work with a delay but can be highly disruptive once they feed through. The risk, therefore, is that the current “goldilocks” surprise dynamic proves short-lived as higher energy costs, supply chain frictions and rising uncertainty begin to reshape the incoming data in the weeks ahead.

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**Monetary Policy Expectations Shift as Easing Bets Are Repriced**
How policymakers respond to the evolving situation in the Middle East will be critical in shaping both market dynamics and the broader global outlook. This chart, based on the latest April Blue Chip Financial Forecasts survey, suggests that expectations are already beginning to shift. Forecasters are now less inclined to anticipate policy easing in the period ahead—particularly in the euro area, where expectations for rate cuts have been scaled back. Similarly, some of the easing previously priced for the Federal Reserve and the Bank of England has been pared back over the next 12 months. While this is not yet a full pivot toward tightening, it does point to a more cautious policy backdrop, reflecting the risk that renewed energy-driven inflation pressures could constrain central banks’ ability to support growth.

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**Delay, Don’t Tighten: Central Banks’ Likely Playbook**
If the previous chart highlights a shift in policy expectations, this one gives a clearer sense of the reaction function underpinning it. When asked how central banks would respond if energy-driven inflation proves more persistent, most panellists point not to renewed tightening, but to a more cautious delay in easing. In other words, the hurdle for rate cuts has risen, even if the bar for  hikes remains relatively high. This distinction matters. It suggests that policymakers are likely to treat the shock as a supply-driven inflation impulse—one that complicates the outlook but does not automatically warrant aggressive tightening. At the same time, the responses underscore a second important theme: divergence. A sizeable share of forecasters expect policy paths to vary significantly across regions, reflecting differences in energy exposure, inflation dynamics and domestic growth conditions. Taken together, the message is one of constrained flexibility. Central banks may want to support growth, but persistent energy pressures could keep them on hold for longer than previously anticipated—reinforcing the more cautious policy outlook already evident in market pricing.

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**Markets Signal Fiscal Concern, Not Inflation Panic**
If central banks are likely to proceed cautiously, financial markets are already beginning to draw their own conclusions. This chart shows that the recent adjustment in US Treasury markets has been driven primarily by a rise in real yields rather than a meaningful increase in inflation expectations. In other words, markets are not yet pricing a loss of monetary policy credibility or a sharp unanchoring of inflation expectations. Instead, the move points more toward concerns around the broader policy mix—particularly the fiscal backdrop and the potential for increased borrowing needs in an environment of heightened geopolitical risk. This distinction is important. A rise in inflation expectations would suggest fears of central banks falling behind the curve. What we are seeing instead is a repricing of real rates, consistent with tighter financial conditions and a higher risk premium. For now, at least, markets appear to view the shock less as a classic inflation spiral and more as a development that complicates the growth outlook and places greater strain on policy frameworks—especially on the fiscal side.

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**Electricity Prices Reflect Energy Dependence**
The initial response in electricity markets since the Middle East disruption has followed a familiar pattern. Economies with greater domestic energy capacity—such as Scandinavia and, to a lesser extent, the US—have seen relatively contained electricity prices. By contrast, those more reliant on imported energy—most notably the UK and parts of Europe—continue to face significantly higher costs

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**Generation Capacity Determines Energy Resilience**
These price dynamics are closely linked to underlying differences in electricity generation capacity. As the sixth chart shows, countries with higher per capita electricity production—again including Scandinavia and the US—are structurally better positioned to absorb external shocks. In contrast, economies with more limited domestic generation capacity, such as the UK and Germany, are inherently more exposed to fluctuations in global energy markets. This structural divide is likely to prove increasingly important in the period ahead, influencing not just near-term inflation outcomes but also the relative resilience of growth across economies as energy costs remain volatile.

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Amid further tentative signs of de-escalation—most notably President Trump’s decision on April 7th to step back from further escalation—financial markets have stabilised somewhat, but the macroeconomic implications of the Middle East crisis remain highly uncertain. As our charts show, the global economy entered this shock from a position of relative strength, with positive growth surprises and easing inflation pressures still evident in the data (chart 1). However, that benign backdrop now looks vulnerable. Central banks are already reassessing the outlook, with expectations for policy easing being pared back (chart 2) and a growing consensus that any response to persistent energy-driven inflation will likely involve delaying cuts rather than tightening aggressively—albeit with significant regional divergence (chart 3). Financial markets, for their part, are not yet signalling a loss of inflation control, but the rise in real yields suggests increasing concern around the broader policy mix, particularly fiscal pressures (chart 4). Finally, the adjustment to the shock is unlikely to be uniform. Structural differences in domestic energy capacity are already driving wide divergences in electricity prices, leaving more import-dependent economies exposed to higher costs and sharper trade-offs between growth and inflation (charts 5 and 6). Taken together, the message is clear: even if geopolitical tensions ease, the economic aftershocks are likely to be uneven, persistent and increasingly shaped by structural constraints.

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Charts of the Week: From Oil Shock to Policy Dilemma

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This monthly report is always packed with information relating to the household sector. At this time, most observers will probably be most interested in price developments, and the results for February were a bit unsettling. The headline price index rose 0.4%, influenced by a jump of 0.8% in energy prices. This increase was largely anticipated and not especially troubling when viewed in isolation. Energy prices have shown little net change in the past two years, and the latest reading of the index was comfortably within the recent range of observations. However, given developments in the Middle East, energy prices undoubtedly will surge out of that recent range in the months ahead.

Core PCE prices also rose 0.4%, a touch firmer than the expected increase of 0.3%. An increase of 0.4% in core inflation is a quick pace even when viewed in Isolation, but this advance followed a similar increase in January, and the December reading almost rounded to 0.4%. These recent changes pulled the year-over-year increase in core prices to 3.0%, a full percentage point above the Federal Reserve’s target.

Nominal personal income dipped 0.1% in February, which translated to a decline of 0.4% after adjusting for inflation (almost rounding to -0.5%). The softness is striking, but a review of the detail suggests that special factors played a role. Much of the weakness reflected a decline of 1.7% in dividend income, which followed a jump of 1.9% in January. Dividend payments in the prior two years followed the same pattern, leaving one to suspect that seasonal adjustment has gone awry. Government transfer payments also declined, with the miscellaneous category accounting for most of the drop. Medicaid payments also fell, marking the fifth consecutive decline, most likely driven by the tightening of provisions included in the One Big Beautiful Bill Act.

Nominal consumer expenditures rose 0.5%, a seemingly strong result, but the change amounted to only 0.1% in real terms. The small increase followed a flat reading in January and increases of only 0.1% in November and December. Consumers spent actively in the second and third quarters of last year, but they have become cautious recently. The data in hand suggest real outlay growth of approximately 1.0% in the first quarter, slower than the average pace of 3.0% in the middle of last year and 1.9% in 2025-Q4.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- The energy component contributed to a high-side reading on the price index for personal consumption expenditures; the core component was firm as well.
- Consumer spending showed signs of slowing.

Personal Income, Consumption, and Prices: Higher Prices Dampen Real Gains

Sandy Batten

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The third estimate of Q4 2025 GDP showed that real GDP growth slowed to 0.5% q/q saar versus 0.7% in the second estimate and 1.4% in the advance estimate. GDP had grown 4.4% in Q3. The more than one-month long shutdown of the federal government continued to have been a notable restraint on GDP growth in Q4, subtracting 1.0%-point from overall growth, the same as in the second estimate.

Revisions were very small across major expenditure categories. Growth of personal consumption expenditures was revised down slightly to 1.9% q/q saar from 2.0% previously. Nonresidential fixed investment increased 2.4%, up slightly from the 2.2% reported in the second estimate. The 0.5% q/q decline previously reported for residential investment was revised to a larger decline of 1.7%, subtracting 0.1%-point from overall growth versus 0.0%-point in the previous estimate. Inventories declined more than previously estimated, reducing their contribution to growth from 0.3%-point in the second estimate to 0.1%-point in today’s estimate.

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There were slight downward revisions to the declines previously reported for both exports and imports, leaving net exports essentially unrevised. As already noted, a 16.6% q/q saar plunge in federal government spending (revised down slightly from -16.7%) accounted for most of the weakness in Q4. This included a 24.3% q/q collapse in nondefense spending, the second largest quarterly decline in nearly forty years. By contrast, state and local government spending increased 1.5%, revised up from 1.2% in the previous estimate.

Private domestic demand growth (final sales to private domestic purchasers, a favored gauge of demand by the Federal Reserve) was revised slower to 1.8% q/q saar in Q4 from 1.9% in the second estimate and 2.4% in the advance report. However, even the revised pace of growth is respectable and close to the economy’s potential growth rate.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Q4 GDP growth revised to 0.5% q/q saar from 0.7% in the first revision and 1.4% in the advance report.
- The shutdown of the federal government still played a critical role in the slowdown, subtracting 1.0%-point from Q4 growth.
- Domestic demand slowed further with final sales to private domestic purchasers revised down to 1.8% from 1.9% in the first revision and 2.4% in the advance report.

Economy in Brief

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