Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220c.jpg" width="353">
Housing starts surged 5.3% m/m in November. The gain to 2.123M units reversed most of the prior month&#39;s decline and beat Consensus expectations for a decline to 2.015M starts.
A 4.8% gain in single-family starts returned the level to its record height of 1.808M achieved this past February. The gain was most pronounced in the West where starts rose 14.4% (25.8% y/y) and in the Midwest where starts rose 7.5% (22.5% y/y). In the South single family starts rose just 0.8% (22.1% y/y) but in the Northeast single family starts fell for the fourth month in the last five (+5.8% y/y).
Multi family starts recovered about one third of the prior month&#39;s skid with a 7.9% m/m gain and building permits recovered about half of the prior month&#39;s 5.2% drop as single family permits inched up just 0.2% (7.7% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,123</td>
<td>2,017</td>
<td>17.5%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,808</td>
<td>1,725</td>
<td>21.8%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>315</td>
<td>292</td>
<td>-2.5%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,155</td>
<td>2,103</td>
<td>3.0%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
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Housing starts surged 5.3% m/m in November. The gain to 2.123M units reversed most of the prior month's decline and beat Consensus expectations for a decline to 2.015M starts. A 4.8% gain in single-family starts returned the level to [...]

Housing Starts Post Surprising Gain; Single Family At Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220e.jpg" width="353">
The November Producer Price Index reversed the prior month&#39;s gain and fell 0.7%. The decline was the largest for any month since April 2003 andslightly exceeded Consensus expectations for a 0.5% drop.
In a reverse of the prior month&#39;s strength, home heating oil prices fell 15.5% (+30.5% y/y) and natural gas prices declined 0.5% (+31.0% y/y), both seasonally adjusted. Gasoline prices added to the prior month&#39;s drop with a 10.7% (+19.4% y/y) decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220f.jpg" width="353">
&quot;Core&quot; producer prices edged up 0.1% following the prior month&#39;s 0.3% decline and the rise fell short of Consensus expectations for a 0.2% increase.
Prices of finished consumer goods less food &amp; energy rose 0.2% (2.0% y/y) and the gain was driven by a 0.5% (3.7% y/y) surge in core consumer nondurable goods prices. Durable goods prices fell another 0.2% -0.2% y/y) on top of the 0.9% October decline led by passenger car prices which fell 0.8% (-3.2% y/y). Capital equipment prices fell for the third month in the last four led by a 0.8% (-4.1% y/y) decline in truck prices.
Intermediate goods prices reversed only some of the prior month&#39;s strength with a 1.2% decline. Core intermediate goods prices remained firm and rose 0.5% on top of two months of 1.2% gain.
Crude energy prices similarly remained firm. The 1.2% decline in the total only dented the strong gains during four months because core crude prices soared 5.4% led by an 18.8% (-14.4% y/y) surge in iron &amp; steel scrap prices. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
Inflation Targeting under Commitment and Discretion from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/review/2005/dennis.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.7%</td>
<td>0.7%</td>
<td>4.5%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-1.2%</td>
<td>3.0%</td>
<td>8.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5%</td>
<td>1.2%</td>
<td>4.5%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-1.2%</td>
<td>6.7%</td>
<td>20.8%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>5.4%</td>
<td>-1.2%</td>
<td>3.1%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
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The November Producer Price Index reversed the prior month's gain and fell 0.7%. The decline was the largest for any month since April 2003 andslightly exceeded Consensus expectations for a 0.5% drop. In a reverse of the prior month's [...]

PPI Down 0.7%, Core Tame

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220a.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell again in December; by four points on top of a seven point November decline. The decline to 57 dropped the index to the lowest level since April 2003 and the index ended the year roughly 20% below the year end 2004 level.
During the last twenty years the y/y change in the annual composite index has had an 85% correlation with the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220b.jpg" width="353">
The m/m drop reflected sharp declines throughout the country, notably in the West.
The index for current sales of single family homes in December fell sharply to the lowest level since May 2003 while the index for sales in six months also fell hard the lowest in over two years.
Traffic of prospective home buyers plunged to its lowest level since the Spring of 2003.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>57</td>
<td>61</td>
<td>71</td>
<td>67</td>
<td>68</td>
<td>64</td>
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</tbody>
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</body>
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The National Association of Home Builders' (NAHB) Composite Housing Market Index fell again in December; by four points on top of a seven point November decline. The decline to 57 dropped the index to the lowest level since April 2003 [...]

NAHB Housing Market Index: Down Hard Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220e.jpg" width="353">
The November Producer Price Index reversed the prior month&#39;s gain and fell 0.7%. The decline was the largest for any month since April 2003 andslightly exceeded Consensus expectations for a 0.5% drop.
In a reverse of the prior month&#39;s strength, home heating oil prices fell 15.5% (+30.5% y/y) and natural gas prices declined 0.5% (+31.0% y/y), both seasonally adjusted. Gasoline prices added to the prior month&#39;s drop with a 10.7% (+19.4% y/y) decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220f.jpg" width="353">
&quot;Core&quot; producer prices edged up 0.1% following the prior month&#39;s 0.3% decline and the rise fell short of Consensus expectations for a 0.2% increase.
Prices of finished consumer goods less food &amp; energy rose 0.2% (2.0% y/y) and the gain was driven by a 0.5% (3.7% y/y) surge in core consumer nondurable goods prices. Durable goods prices fell another 0.2% -0.2% y/y) on top of the 0.9% October decline led by passenger car prices which fell 0.8% (-3.2% y/y). Capital equipment prices fell for the third month in the last four led by a 0.8% (-4.1% y/y) decline in truck prices.
Intermediate goods prices reversed only some of the prior month&#39;s strength with a 1.2% decline. Core intermediate goods prices remained firm and rose 0.5% on top of two months of 1.2% gain.
Crude energy prices similarly remained firm. The 1.2% decline in the total only dented the strong gains during four months because core crude prices soared 5.4% led by an 18.8% (-14.4% y/y) surge in iron &amp; steel scrap prices. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
Inflation Targeting under Commitment and Discretion from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/review/2005/dennis.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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.7%</td>
<td>0.7%</td>
<td>4.5%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-1.2%</td>
<td>3.0%</td>
<td>8.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5%</td>
<td>1.2%</td>
<td>4.5%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-1.2%</td>
<td>6.7%</td>
<td>20.8%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>5.4%</td>
<td>-1.2%</td>
<td>3.1%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
Housing Starts Post Surprising Gain; Single Family At Record 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220c.jpg" width="353">
Housing starts surged 5.3% m/m in November. The gain to 2.123M units reversed most of the prior month&#39;s decline and beat Consensus expectations for a decline to 2.015M starts.
A 4.8% gain in single-family starts returned the level to its record height of 1.808M achieved this past February. The gain was most pronounced in the West where starts rose 14.4% (25.8% y/y) and in the Midwest where starts rose 7.5% (22.5% y/y). In the South single family starts rose just 0.8% (22.1% y/y) but in the Northeast single family starts fell for the fourth month in the last five (+5.8% y/y).
Multi family starts recovered about one third of the prior month&#39;s skid with a 7.9% m/m gain and building permits recovered about half of the prior month&#39;s 5.2% drop as single family permits inched up just 0.2% (7.7% y/y).

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,123</td>
<td>2,017</td>
<td>17.5%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,808</td>
<td>1,725</td>
<td>21.8%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>315</td>
<td>292</td>
<td>-2.5%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,155</td>
<td>2,103</td>
<td>3.0%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index: Down Hard Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220a.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell again in December; by four points on top of a seven point November decline. The decline to 57 dropped the index to the lowest level since April 2003 and the index ended the year roughly 20% below the year end 2004 level.
During the last twenty years the y/y change in the annual composite index has had an 85% correlation with the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220b.jpg" width="353">
The m/m drop reflected sharp declines throughout the country, notably in the West.
The index for current sales of single family homes in December fell sharply to the lowest level since May 2003 while the index for sales in six months also fell hard the lowest in over two years.
Traffic of prospective home buyers plunged to its lowest level since the Spring of 2003.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</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/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>57</td>
<td>61</td>
<td>71</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
Chain Store Sales: The Holiday Spirit Found? 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220d.jpg" width="353">
Chain store sales rose 2.4% last week. The jump followed a 0.9% gain the prior period and thus recovered all of December&#39;s opening week skid of 3.1%, according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, sales so far in December remained 2.0% below the November average which rose 1.2% from October.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slipped 0.4% (-1.6% y/y) following two weeks of gain.
The gains in store sales may be limited by the drain on consumers&#39; budgets from higher gasoline prices, which rose to $2.21 per gallon (21.8% y/y) last week. Some relief may, however, be forthcoming if the last two days&#39; decline in the spot market price for unleaded gasoline hold.
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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<thead>
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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">12/17/05</th>
<th scope="col">12/10/05</th>
<th scope="col">Y/Y</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>455.0</td>
<td>444.5</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Production and New Orders in the Euro Zone's Big Three: Germany, France and Italy 
by <a href="/comment/Curley.html">Louise Curley</a> December 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220i.jpg" width="353">
Industrial production in France, Germany and Italy, the three largest countries in the Euro Zone, shows distinctly different trends. While German industrial production has recently shown strength, Italian production has trended downward and French production has shown little trend. In Germany, industrial production increased 1.1% in October from September and was 4.2% above October, 2004. The comparable figures for France were -2.5% and 1.4%; and, for Italy, -0.9% and -1.6%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220h.jpg" width="353"> The sharp drop in French production in October may have been affected by the racial unrest that took place during that time, nevertheless, the trend of production in France has been relatively flat since early 2004. Industrial production in Italy, on the other hand, has been in a declining trend over most of the last five years. Industrial production in France and Italy are shown in the first chart. (The data on industrial production are from Eurostat which insures comparability of data among countries by harmonizing the concepts used by individual countries of the Euro Zone.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220g.jpg" width="353">
 Eurostat data on new orders will not be published until Thursday of this week, but Germany, France and Italy have released their national data on new orders today. In contrast to the trends in industrial production, the trends in new orders in all three countries have generally been rising since mid 2003. German new orders increased by 2.4% in October from September and were almost 10% above October 2004. While the October figures for France and Italy showed declines from September of respectively -2.1% and -1.1%, they were 2.6% and 2.2% respectively above October 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220j.jpg" width="353">
It is not possible to generalize on the relationship between new orders and industrial production on the basis of the experience of these three countries. In the three charts showing new orders and industrial production for each country, the correlations between the two series vary from -0.17 for Italy, 0.47 for France and 0.92 for Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Oct 05</th>
<th scope="col">Sep 05</th>
<th scope="col">Oct 04</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production ex Construction ( 2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>99.8</td>
<td>102.4</td>
<td>101.2</td>
<td>-2.54</td>
<td>-1.38</td>
<td>101.3</td>
<td>99.5</td>
<td>99.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy</td>
<td>95.0</td>
<td>95.9</td>
<td>96.5</td>
<td>-0.94</td>
<td>-1.55</td>
<td>96.7</td>
<td>97.3</td>
<td>97.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>108.3</td>
<td>107.1</td>
<td>103.9</td>
<td>1.12</td>
<td>4.23</td>
<td>102.5</td>
<td>99.5</td>
<td>99.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total Euro Zone</td>
<td>102.8</td>
<td>103.6</td>
<td>102.6</td>
<td>-0.81</td>
<td>0.20</td>
<td>102.1</td>
<td>100.2</td>
<td>99.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>107.4</td>
<td>109.7</td>
<td>104.7</td>
<td>-2.10</td>
<td>2.58</td>
<td>111.6</td>
<td>100.7</td>
<td>99.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy</td>
<td>102.0</td>
<td>103.1</td>
<td>99.8</td>
<td>-1.07</td>
<td>2.20</td>
<td>99.0</td>
<td>95.5</td>
<td>99.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>&nbsp;116.6</td>
<td>113.9&nbsp;</td>
<td>106.1&nbsp;</td>
<td>&nbsp;2.37</td>
<td>9.90&nbsp;</td>
<td>104.8&nbsp;.</td>
<td>99.0&nbsp;</td>
<td>&nbsp;98.3</td>
</tr>
</tbody>
</table>


</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219c.jpg" width="353">
China&#39;s total balance of merchandise trade declined $328 million in November from $7,188 million in October to $6,860. China&#39;s trade balance with the United States, however, increased $267 million to $10,583 million from $10,315 million in October. Through November of this year, the cumulative over-all balance of trade was $92,049 million and that with the United States $103,348 million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219d.jpg" width="353">
China typically runs an even larger favorable balance of trade with Hong Kong. In 2004, the balance with Hong Kong was $89,326 million compared with $80,321 million for the United States. In both countries, a large part of the Chinese exports are the products of Hong Kong and U.S. factories built in China. Because of its special relationship with China, Hong Kong is much less concerned with the imbalance in its trade with China than is the United States. The other area where China has a significant positive balance of trade is Europe. Over the past five years, the balance of trade with the United States has almost always been larger than the total balance as shown in the first chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219e.jpg" width="353">
China does have substantial trade deficits on merchandise in many Asian countries. The largest of these are Taiwan, Korea and Japan. In the second and third charts, China&#39;s exports to and imports from Korea and Japan are shown. The deficit with Korea, as shown by the difference between the two series, has been growing steadily over the past several years. The deficit with Japan had been narrowing, but more recently has widened. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">China:&nbsp; Merchandise Trade Balances (Millions US$)&nbsp;</th>
<th scope="col">Nov 05&nbsp;&nbsp;</th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Nov 04&nbsp;</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004&nbsp; </th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6,860</td>
<td>7,188</td>
<td>7,531</td>
<td>-328</td>
<td>-671</td>
<td>32,569</td>
<td>25,389</td>
<td>30,426</td>
</tr>
<tr>
<td class="firstcol">With:&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>10,583</td>
<td>10,316</td>
<td>8,344</td>
<td>267</td>
<td>2,240</td>
<td>80,321</td>
<td>58,627</td>
<td>42,731</td>
</tr>
<tr>
<td class="firstcol">Europe</td>
<td>n.a.</td>
<td>5,976</td>
<td>4,817</td>
<td>n.a.</td>
<td>n.a.</td>
<td>33,648</td>
<td>18,401</td>
<td>5,770</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>n.a.</td>
<td>10,292</td>
<td>8,738</td>
<td>n.a.</td>
<td>n.a.</td>
<td>89,326</td>
<td>65,185</td>
<td>47,695</td>
</tr>
<tr>
<td class="firstcol">Taiwan</td>
<td>-5,378</td>
<td>-5,315</td>
<td>-4,140</td>
<td>-63</td>
<td>-1,238</td>
<td>-51,212</td>
<td>-40,350</td>
<td>-31,493</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan</td>
<td>-2,631</td>
<td>-2,123</td>
<td>-1,458</td>
<td>-508</td>
<td>-1,173</td>
<td>-20,655</td>
<td>-14,750</td>
<td>-5,001&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Korea</td>
<td>-3,806</td>
<td>-4,047</td>
<td>-2,687</td>
<td>241</td>
<td>-1,119</td>
<td>-34,356</td>
<td>-23,056</td>
<td>-13,073</td>
</tr>
</tbody>
</table>
</body>
</html>

China's total balance of merchandise trade declined $328 million in November from $7,188 million in October to $6,860. China's trade balance with the United States, however, increased $267 million to $10,583 million from $10,315 [...]

China's Trade Balance with the U. S. Heading for More Than $100 billion This Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell 0.1% last week following a 0.1% gain the prior week. These muted changes underscore a pattern of sideways movement in the ECRI series since this past August. Growth in the index has since decelerated by more than half to 1.4%.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and US real GDP growth during the following quarter. The correlation has risen to 76% during the last five years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219b.jpg" width="353">
The recent deceleration in the leaders&#39; growth is part of a longer lived deceleration since early last year when growth was near its peak of 12%. That slowdown mirrors the pattern toward slower growth in the leading series from the Conference Board and the OECD.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.
The Bretton Woods System: Are We Experiencing a Revival? Symposium Summary from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-32.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">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">12/09/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Weekly Leading Index</td>
<td>135.4</td>
<td>132.5</td>
<td>2.9%</td>
<td>132.6</td>
<td>124.9</td>
<td>119.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>1.4%</td>
<td>1.6%</td>
<td>&nbsp;</td>
<td>4.2%</td>
<td>6.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell 0.1% last week following a 0.1% gain the prior week. These muted changes underscore a pattern of sideways movement in the ECRI [...]

ECRI Leading Index: Meandering Movement

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell 0.1% last week following a 0.1% gain the prior week. These muted changes underscore a pattern of sideways movement in the ECRI series since this past August. Growth in the index has since decelerated by more than half to 1.4%.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and US real GDP growth during the following quarter. The correlation has risen to 76% during the last five years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219b.jpg" width="353">
The recent deceleration in the leaders&#39; growth is part of a longer lived deceleration since early last year when growth was near its peak of 12%. That slowdown mirrors the pattern toward slower growth in the leading series from the Conference Board and the OECD.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.
The Bretton Woods System: Are We Experiencing a Revival? Symposium Summary from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-32.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">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">12/09/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Weekly Leading Index</td>
<td>135.4</td>
<td>132.5</td>
<td>2.9%</td>
<td>132.6</td>
<td>124.9</td>
<td>119.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>1.4%</td>
<td>1.6%</td>
<td>&nbsp;</td>
<td>4.2%</td>
<td>6.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
China's Trade Balance with the U. S. Heading for More Than $100 billion This Year 
by <a href="/comment/Curley.html">Louise Curley</a> December 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219c.jpg" width="353">
China&#39;s total balance of merchandise trade declined $328 million in November from $7,188 million in October to $6,860. China&#39;s trade balance with the United States, however, increased $267 million to $10,583 million from $10,315 million in October. Through November of this year, the cumulative over-all balance of trade was $92,049 million and that with the United States $103,348 million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219d.jpg" width="353">
China typically runs an even larger favorable balance of trade with Hong Kong. In 2004, the balance with Hong Kong was $89,326 million compared with $80,321 million for the United States. In both countries, a large part of the Chinese exports are the products of Hong Kong and U.S. factories built in China. Because of its special relationship with China, Hong Kong is much less concerned with the imbalance in its trade with China than is the United States. The other area where China has a significant positive balance of trade is Europe. Over the past five years, the balance of trade with the United States has almost always been larger than the total balance as shown in the first chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219e.jpg" width="353">
China does have substantial trade deficits on merchandise in many Asian countries. The largest of these are Taiwan, Korea and Japan. In the second and third charts, China&#39;s exports to and imports from Korea and Japan are shown. The deficit with Korea, as shown by the difference between the two series, has been growing steadily over the past several years. The deficit with Japan had been narrowing, but more recently has widened. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">China:&nbsp; Merchandise Trade Balances (Millions US$)&nbsp;</th>
<th scope="col">Nov 05&nbsp;&nbsp;</th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Nov 04&nbsp;</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004&nbsp; </th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6,860</td>
<td>7,188</td>
<td>7,531</td>
<td>-328</td>
<td>-671</td>
<td>32,569</td>
<td>25,389</td>
<td>30,426</td>
</tr>
<tr>
<td class="firstcol">With:&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>10,583</td>
<td>10,316</td>
<td>8,344</td>
<td>267</td>
<td>2,240</td>
<td>80,321</td>
<td>58,627</td>
<td>42,731</td>
</tr>
<tr>
<td class="firstcol">Europe</td>
<td>n.a.</td>
<td>5,976</td>
<td>4,817</td>
<td>n.a.</td>
<td>n.a.</td>
<td>33,648</td>
<td>18,401</td>
<td>5,770</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>n.a.</td>
<td>10,292</td>
<td>8,738</td>
<td>n.a.</td>
<td>n.a.</td>
<td>89,326</td>
<td>65,185</td>
<td>47,695</td>
</tr>
<tr>
<td class="firstcol">Taiwan</td>
<td>-5,378</td>
<td>-5,315</td>
<td>-4,140</td>
<td>-63</td>
<td>-1,238</td>
<td>-51,212</td>
<td>-40,350</td>
<td>-31,493</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan</td>
<td>-2,631</td>
<td>-2,123</td>
<td>-1,458</td>
<td>-508</td>
<td>-1,173</td>
<td>-20,655</td>
<td>-14,750</td>
<td>-5,001&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Korea</td>
<td>-3,806</td>
<td>-4,047</td>
<td>-2,687</td>
<td>241</td>
<td>-1,119</td>
<td>-34,356</td>
<td>-23,056</td>
<td>-13,073</td>
</tr>
</tbody>
</table>
</body>
</html>

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/051216e.jpg" width="353">
Business is looking better in Germany. Just three days ago, Louise Curley discussed the ZEW Investor Survey, which showed a surprising gain. Now we have the parallel business confidence data compiled by Ifo, a German economic research institute, from a survey of 7,000 business firms in manufacturing, construction and trade. This survey, too, as the ZEW, turned in a favorable performance for December, better than market expectations. The &quot;Business Climate Index&quot; is 99.6 (2000=100), with the component &quot;Business Situation&quot; and Business Expectations also both at 99.6. All three indicators improved from 97.8 in November. The improvement was shared by all major industry segments in the survey, manufacturing, construction, wholesale and retail trade.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051216f.jpg" width="353">
Accompanying these indexes are diffusion measures showing the balance of better and worse conditions. These diffusion gauges have generally been negative, that is, more business managers continue to experience deterioration than growth. Still, there is considerably less deterioration than in the recent past. The overall business climate gauge is -1.7% in December, its best level since August 2000 and up from -14.9% last May. Current conditions are -6.0%, the best since January 2001 and much better than April&#39;s -18.7%. Expectations are +2.6. This last, reflecting business leaders&#39; persistent hopes for better times, has frequently been positive, most recently in late 2003 and early 2004.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051216g.jpg" width="353">
These improvements seem stronger than some views expressed recently -- prompted perhaps by the riots in neighboring France, by recent political uncertainty and by high energy costs -- that Germany is mired in a distressing economic morass. But the upturns in these confidence measures began about mid-year and survived all those negative weights on the economy. Offsetting these factors has been the weaker euro and commensurate advance in German competitiveness. Further, even employment has been increasing. Since bottoming in April, employment has risen 164,000 and the locally defined unemployment rate has eased from 12.0% in March to 11.5% in November, still high but well below the peak. Thus, the German economy looks better, and this week investors in the ZEW survey and business leaders in the Ifo poll have agreed with that perspective.

<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/GERMANY/@D8/@D8.HTM">Ifo Indexes</a>, 2000=100, SA</th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Climate</td>
<td>99.6</td>
<td>97.8</td>
<td>98.8</td>
<td>96.0</td>
<td>95.7</td>
<td>91.7</td>
<td>89.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Diffusion %</td>
<td>-1.7</td>
<td>-5.3</td>
<td>-3.4</td>
<td>-8.8</td>
<td>-9.6</td>
<td>-17.5</td>
<td>-22.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Situation</td>
<td>99.6</td>
<td>97.8</td>
<td>98.9</td>
<td>95.8</td>
<td>94.0</td>
<td>88.3</td>
<td>85.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Diffusion %</td>
<td>-6.0</td>
<td>-9.5</td>
<td>-7.3</td>
<td>-13.4</td>
<td>-17.0</td>
<td>-27.9</td>
<td>-34.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Expectations</td>
<td>99.6</td>
<td>97.8</td>
<td>98.6</td>
<td>96.3</td>
<td>97.4</td>
<td>95.1</td>
<td>93.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Diffusion %</td>
<td>+2.6</td>
<td>-1.1</td>
<td>+0.6</td>
<td>-4.1</td>
<td>-1.8</td>
<td>-6.5</td>
<td>-9.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Business is looking better in Germany. Just three days ago, Louise Curley discussed the ZEW Investor Survey, which showed a surprising gain. Now we have the parallel business confidence data compiled by Ifo, a German economic research [...]

German Ifo Business Climate Index Approaches Balance in December as Business Confidence Improves

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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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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