Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212a.jpg" width="353">
The Leading Index of the Major 7 OECD economies posted its fifth consecutive monthly increase in October with a 0.4% increase that doubled the gains of the prior two months. The increase raised the leaders&#39; six month growth rate to 1.7%, the best since August 2004 and gains were broad based amongst countries.
During the last ten years there has been a 66% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.
The leading index for Japan jumped 0.9% after a downwardly revised 0.5% September increase. Share prices and construction rose lifting the six month growth rate to a firm 3.0% and its correlation with real economic growth in Japan has been a meaningful 42% during the last ten years.
Leaders in the European Union (15 countries) rose 0.3%. This fifth consecutive monthly increase raised the six month growth rate to 2.5%. During the last ten years there has been a 60% correlation between the change in the leading index and the q/q change in the GDP volume index for the European Union.
German leaders increased for the six consecutive month and a 0.7% gain was the strongest since July. The six month growth rate improved to 4.4% as new orders rose to the highest since 1992. The correlation between the leaders and the change in the German GDP volume index has been a low 19% during the last ten years.
The French leaders increased 0.5% increase and the gain pulled the six month growth rate further into positive territory at 1.5%. Prospects for the industrial sector rose to the best level in a year. The correlation between the leaders&#39; growth and France&#39;s GDP volume index has been 43% during the last ten years. The Italian leading index were unchanged following two months of increase. Nevertheless, the six month growth rate improved to 0.3% though earlier growth rates were revised down. Its correlation with GDP growth has been a low 0.9% during the last ten years.
The U.S. leaders rose 0.2% following two months of decline and six month growth in the leaders improved to a modest 1.2%. The correlation between the leaders and real GDP growth has been a high 58% during the last ten years.
The UK leaders fell 0.1% for the second straight month. Declines in consumer confidence, new car registrations, share prices and the future tendency of production dropped the six month growth rate to -0.3% and its correlation with real GDP growth has been 29% during the last ten years. The Canadian leaders also fell for the second month and the 0.1% decline dropped six month growth to -0.8%. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/42/33/35826051.pdf"> here</a>.
Cross-Country Productivity Growth from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/iet/20051101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</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">Composite Leading Index&nbsp;</td>
<td>103.37</td>
<td>102.99</td>
<td>1.0%</td>
<td>102.36</td>
<td>97.84</td>
<td>96.45</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>1.7%</td>
<td>1.1%</td>
<td>&nbsp;</td>
<td>3.6%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
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The Leading Index of the Major 7 OECD economies posted its fifth consecutive monthly increase in October with a 0.4% increase that doubled the gains of the prior two months. The increase raised the leaders' six month growth rate to [...]

OECD Leaders Rose Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212a.jpg" width="353">
The Leading Index of the Major 7 OECD economies posted its fifth consecutive monthly increase in October with a 0.4% increase that doubled the gains of the prior two months. The increase raised the leaders&#39; six month growth rate to 1.7%, the best since August 2004 and gains were broad based amongst countries.
During the last ten years there has been a 66% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.
The leading index for Japan jumped 0.9% after a downwardly revised 0.5% September increase. Share prices and construction rose lifting the six month growth rate to a firm 3.0% and its correlation with real economic growth in Japan has been a meaningful 42% during the last ten years.
Leaders in the European Union (15 countries) rose 0.3%. This fifth consecutive monthly increase raised the six month growth rate to 2.5%. During the last ten years there has been a 60% correlation between the change in the leading index and the q/q change in the GDP volume index for the European Union.
German leaders increased for the six consecutive month and a 0.7% gain was the strongest since July. The six month growth rate improved to 4.4% as new orders rose to the highest since 1992. The correlation between the leaders and the change in the German GDP volume index has been a low 19% during the last ten years.
The French leaders increased 0.5% increase and the gain pulled the six month growth rate further into positive territory at 1.5%. Prospects for the industrial sector rose to the best level in a year. The correlation between the leaders&#39; growth and France&#39;s GDP volume index has been 43% during the last ten years. The Italian leading index were unchanged following two months of increase. Nevertheless, the six month growth rate improved to 0.3% though earlier growth rates were revised down. Its correlation with GDP growth has been a low 0.9% during the last ten years.
The U.S. leaders rose 0.2% following two months of decline and six month growth in the leaders improved to a modest 1.2%. The correlation between the leaders and real GDP growth has been a high 58% during the last ten years.
The UK leaders fell 0.1% for the second straight month. Declines in consumer confidence, new car registrations, share prices and the future tendency of production dropped the six month growth rate to -0.3% and its correlation with real GDP growth has been 29% during the last ten years. The Canadian leaders also fell for the second month and the 0.1% decline dropped six month growth to -0.8%. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/42/33/35826051.pdf"> here</a>.
Cross-Country Productivity Growth from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/iet/20051101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</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">Composite Leading Index&nbsp;</td>
<td>103.37</td>
<td>102.99</td>
<td>1.0%</td>
<td>102.36</td>
<td>97.84</td>
<td>96.45</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>1.7%</td>
<td>1.1%</td>
<td>&nbsp;</td>
<td>3.6%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
Households' Debt Usage Surged in 3Q  
by <a href="/comment/Moeller.html">Tom Moeller</a> December 12, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051212b.jpg" width="353">
Growth in credit market debt owed by the household sector jumped at a 13.3% rate last quarter, the strongest rate in a year. A 15.5% (13.2% y/y) jump in mortgage obligations lifted the figure but consumer credit also surged at an 8.7% rate (4.2% y/y), the strongest this year. These gains powered overall domestic nonfinancial debt growth to its fastest of the year, 9.8% (9.2% y/y)
Growth in the federal government debt also was firm at 6.9% y/y while non-financial corporations&#39; debt grew a faster 7.7% y/y.
Household sector asset values rose 12.8% y/y due to a 14.1% rise in the value of real estate holdings. Financial asset values rose 9.8% due to a 19.0% rise in the value of mutual fund shares but the value of corporate equities held directly rose just 3.0%.
The net worth of the US household sector in 3Q improved 2.6% (10.9% y/y) to a record $51.1 trillion. The gain lifted net worth to a historic 5.6 times income.

<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/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a>&nbsp;</th>
<th scope="col">% of Total</th>
<th scope="col">3Q 05&nbsp; (AR)</th>
<th scope="col">2Q 05 &nbsp; (AR)</th>
<th scope="col">Y/Y</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 Credit Market Debt Outstanding</td>
<td></td>
<td>8.7%</td>
<td>8.8%</td>
<td>8.7%</td>
<td>8.4%</td>
<td>8.8%</td>
<td>7.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>6.6%</td>
<td>-3.7%</td>
<td>6.9%</td>
<td>9.0%</td>
<td>10.9%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>13.3%</td>
<td>12.0%</td>
<td>10.9%</td>
<td>11.2%</td>
<td>10.2%</td>
<td>9.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>6.5%</td>
<td>8.7%</td>
<td>7.7%</td>
<td>5.2%</td>
<td>3.4%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>6.1%</td>
<td>10.7%</td>
<td>7.5%</td>
<td>7.5%</td>
<td>10.1%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$51.1</td>
<td>$49.8</td>
<td></td>
<td>$48.2</td>
<td>$43.9</td>
<td>$39.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets</td>
<td></td>
<td>$20.8</td>
<td>$20.1</td>
<td>14.1%</td>
<td>$18.7</td>
<td>$16.4</td>
<td>$15.0</td>
</tr>
</tbody>
</table>
Japan's Second Preliminary Estimate of 3rdQ GDP Growth Rate Revised Down to 0.2% from 0.4%:  Inventory Liquidation the Cause 
by <a href="/comment/Curley.html">Louise Curley</a> December 12, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213c.jpg" width="353">
The second preliminary estimate of Japan&#39;s third quarter gross domestic product, which was published late last week, reduced the quarter-to-quarter growth rate from 0.4% to 0.2%. The major revision was a change in inventory accumulation. In the first preliminary estimate there was no change in inventories and, therefore no contribution to growth from that source, but the second preliminary estimate showed a substantial decline in inventories resulting in 0.4 percentage points being deducted from the growth rate.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213d.jpg" width="353"> The other changes were a 0.1 percentage point increase in nonresidential construction and a 0.1 percentage point reduction in the import of goods and service import which, of course, is positive in relation to growth. On a seasonally adjusted annual rate basis, Japan&#39;s GDP rose 1.0% in the third quarter, down from 5.0% in the second quarter and 5.7% in the first quarter as shown in the first chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051213e.jpg" width="353">
The fact that the lower estimate was due largely to a change in the estimate for inventories suggests that the deceleration in growth may not herald the specter of another false rise in Japanese growth. There are faint positive stirrings in consumer confidence. Although the diffusion index of consumer confidence is still below 50, indicating an excess of pessimists over optimists, the index has risen in both October and November suggesting that consumers may increase their spending in the fourth quarter. The Economic and Social Research Institute in the Cabinet Office now publishes monthly instead of quarterly indicators of consumer confidence, but the monthly data go back only to April, 2004. In the second chart we show the monthly data linked to the now discontinued quarterly series. While the gains in consumer confidence are tentative, there is little doubt that there has been a sharp decline in the yen this year as shown in the third chart. The lower yen has and is likely to continue to encourage exports.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J2/@J201/@J201.HTM">Japanese Gross Domestic Product&nbsp;</a> (Billions chained 2000 Yen)</th>
<th scope="col">Q3 05&nbsp; %</th>
<th scope="col">Q2 05 % </th>
<th scope="col">Q1 05 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
<th scope="col">2002&nbsp; %&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gross Domestic Product SA Annual Rate</td>
<td>1.00</td>
<td>4.96</td>
<td>5.67</td>
<td>2.26</td>
<td>1.82</td>
<td>0.14</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Q/Q %</td>
<td>0.25</td>
<td>1.22</td>
<td>1.39</td>
<td>2.26</td>
<td>1.82</td>
<td>0.14</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Consumption</td>
<td>0.37</td>
<td>0.32</td>
<td>1.21</td>
<td>1.91</td>
<td>0.57</td>
<td>1.11</td>
</tr>
<tr>
<td class="firstcol">Government Consumption</td>
<td>0.56</td>
<td>0.23</td>
<td>0.93</td>
<td>2.00</td>
<td>2.30</td>
<td>2.38</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Fixed Investment</td>
<td>1.33</td>
<td>1.40</td>
<td>1.81</td>
<td>0.95</td>
<td>0.47</td>
<td>-4.95</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>0.72</td>
<td>3.10</td>
<td>-0.14</td>
<td>13.93</td>
<td>9.00</td>
<td>7.45</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>3.34</td>
<td>2.15</td>
<td>-0.04</td>
<td>8.47</td>
<td>3.95</td>
<td>0.81</td>
</tr>
<tr>
<td class="firstcol">Change in Inventories (Billions chained 2000 Yen)&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Private</td>
<td>-1,915.3</td>
<td>1,539.2&nbsp;</td>
<td>727.3&nbsp;</td>
<td>-1,199.6&nbsp;</td>
<td>1,750.7</td>
<td>-2,055.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Government</td>
<td>&nbsp;32.9</td>
<td>-15.4&nbsp;</td>
<td>-48.4&nbsp;</td>
<td>&nbsp;&nbsp; 60.3&nbsp;</td>
<td>&nbsp; 11.2&nbsp;</td>
<td>&nbsp; 15.1&nbsp;</td>
</tr>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209a.gif" width="353">
Foreign trade developments are always interesting in the UK, since it is involved in so many different kinds of activities: manufacturing, shipping, insurance and oil, to name a few. In October, the balance on goods and services decreased by &pound;1 billion to &pound;2.9 billion as exports rose and imports fell from September amounts. The balance on fuel returned to a near neutral position after reaching unprecedented deficits in August and September. The balance on services was steady, reestablishing its old trend after a plunge in August due to Hurricane Katrina.
Among exports, manufactured goods maintained a firm trend for a third month, breaking a prior wide seesaw pattern. The value of crude oil exports surpassed &pound;2 billion for the first time, ironically even as oil prices actually fell slightly from September; the volume of crude shipped surged more than 33% after sagging in August and September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209j.jpg" width="353">
On the import side, widespread decreases in manufactured goods contributed to a &pound;681 million decline in total goods imports. Vehicles were down &pound;158 million and other finished goods &pound;256 million, the latter a second successive decrease that basically offset a jump in August. Oil imports also fell, with both a volume decrease and a slight drop in the unit value.
Insurance payments figured heavily in an earlier swing in the trade balance. According to the ONS, Lloyds of London paid out an estimated &pound;1.4 billion in benefits for Hurricane Katrina losses. The last time such a large negative flow (a negative export of services provided by a UK entity, not to be confused with an import of services, which would be provided by a foreign entity) occurred was in September 2001, and that was considerably more, at about &pound;2.3 billion. Both of these were one-time payments, so the broad service export total quickly reversed to its then-current amounts. The overall balance on services had thus been a mere &pound;457 million in August, but rebounded quickly to &pound;1.7 billion in September and was basically unchanged in October.

<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/UK/@U8/@U8.HTM">United Kingdom: Trade</a> SA, Bil.&pound;</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance: Goods &amp; Services</td>
<td>-2.88</td>
<td>-3.90</td>
<td>-5.49</td>
<td>-3.78</td>
<td>-3.26</td>
<td>-2.58</td>
<td>-2.63</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>27.24</td>
<td>26.82</td>
<td>25.14</td>
<td>24.68</td>
<td>24.26</td>
<td>23.52</td>
<td>22.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>30.12</td>
<td>30.72</td>
<td>30.63</td>
<td>28.46</td>
<td>27.52</td>
<td>26.10</td>
<td>25.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-4.55</td>
<td>-5.60</td>
<td>-5.95</td>
<td>-5.66</td>
<td>-5.04</td>
<td>-3.99</td>
<td>-3.92</td>
</tr>
<tr>
<td class="firstcol">Fuels</td>
<td>-0.08</td>
<td>-0.75</td>
<td>-0.59</td>
<td>-0.00</td>
<td>0.10</td>
<td>0.42</td>
<td>0.53</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>2.27</td>
<td>1.94</td>
<td>1.65</td>
<td>1.60</td>
<td>1.50</td>
<td>1.38</td>
<td>1.33</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>2.35</td>
<td>2.67</td>
<td>2.24</td>
<td>1.59</td>
<td>1.40</td>
<td>0.96</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.67</td>
<td>1.70</td>
<td>0.46</td>
<td>1.87</td>
<td>1.77</td>
<td>1.41</td>
<td>1.30</td>
</tr>
</tbody>
</table>
</body>
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Foreign trade developments are always interesting in the UK, since it is involved in so many different kinds of activities: manufacturing, shipping, insurance and oil, to name a few. In October, the balance on goods and services [...]

UK Trade Balance Decreases in October with Exports Up and Imports Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209c.jpg" width="353">
Recent strength in commodity prices highlight the fear that inflation is about to surge. However the concern is based not just on the gains in metals prices, for example, but on a broader array of potentially inflationary indications.1) Real economic growth amongst OECD countries has doubled to (a still moderate) 2.5% versus 2001 and growth elsewhere in the world is blistering. Chinese economic growth at 14% is up from 4% in 1999 and growth in India has nearly doubled to 8% from a 2001 low of 4.5%. 2) Though US money growth recently has declined, the five year growth rate of 6.3% is triple the growth of ten years ago. Relationships between money and inflation are not what they used to be, but financial liquidity will always be viewed as integral to the equation. The issue is examined by the Federal Reserve Bank of St. Louis in <a href="http://research.stlouisfed.org/publications/review/05/09/Gavin.pdf">Monetary Instrument Matters</a><a href="http://research.stlouisfed.org/publications/review/05/09/Gavin.pdf">.</a> 3) Energy prices remain elevated. Oil prices are more than 20% higher than last year&#39;s average which rose 53% from 2003 and the cold weather that has gripped much of the US has recently pushed prices up further. Most notable has been the spike in natural gas prices which yesterday were over $14/mmbtu, a rough doubling of last year&#39;s level. Crude oil prices also rose over $60/bbl. for West Texas Intermediate for the first time in a month. That rise along with a rebound in the demand for gasoline promises an end to the recent fall in retail gasoline prices. (Gasoline has a 3.9% weight in the Consumer Price Index, electricity has a 2.4% weight and natural gas&#39; weight is 1.3%.). 
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209f.jpg" width="353"> <img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209i.jpg" width="353">4) Gold prices recently surged over $500 per ounce and into territory not plotted since 1981. During the last twenty years there has been a fairly high 52% correlation between the level of gold and the expected rate of inflation during the next year. Most of that correlation, however, seems to reflect current pricing power. Gold&#39;s correlation with next year&#39;s growth in the CPI has been negligible. The late Jude Wanniski&#39;s thoughts on the Gold Standard can be found <a href="http://www.gold-eagle.com/editorials/wanniski111897.html"> here</a> and the Federal Reserve Bank of Cleveland&#39;s 1998 research simply titled Gold Prices can be found <a href="http://www.clevelandfed.org/research/com98/0301.pdf"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209d.jpg" width="353">5) The latest jump in industrial commodity prices for many is the prima fascia indication of a pending inflation pickup, but the gain seems more to reflect better economic growth. In fact industrial commodity prices have had roughly a 50% correlation with the y/y change in factory sector output during the last ten years and only a 15% correlation with the change in core goods prices in the CPI. Though even here, individual performance has been mixed. Metals prices have recovered all of the early-year drop and on average are nearly double the 2001 low, the strength paced by a near four fold rise in copper prices during the last four years. Textile prices, however, are up just 10% over four years. Further obfuscation of the issue is provided by the strong 47% correlation between industrial materials prices and the change in the overall CPI.6) An inflationary threat from rising food prices depends on how much meat is part of the diet since livestock &amp; meat prices have rebounded strongly from the mid-year lows. That misses a near 60% price rise since 2002 which has been paced 40-50% gains in beef prices, 60% higher broiler prices and 50%+ gains in pork prices. Grain price increases have been relatively tame but even coffee prices are double the 2003 level. The latest Food Price Outlook from the USDA Food Institute can be found <a href="http://www.foodinstitute.com/outlook.cfm"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209j.jpg" width="353">

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D306/@D306.HTM">Commodity Prices</a></th>
<th scope="col">12/02/05</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 class="odd">
<td class="firstcol">JoC-ECRI All Industrials</td>
<td>116.52</td>
<td>111.55</td>
<td>2.8%</td>
<td>22.6%</td>
<td>15.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Textiles&nbsp;&nbsp;</td>
<td>67.70</td>
<td>64.35</td>
<td>5.1%</td>
<td>1.1%</td>
<td>9.0%</td>
<td>-2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Metals</td>
<td>127.20</td>
<td>124.55</td>
<td>-0.2%</td>
<td>39.7%</td>
<td>12.5%</td>
<td>-0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Miscellaneous</td>
<td>103.44</td>
<td>103.85</td>
<td>2.7%</td>
<td>10.8%</td>
<td>19.9%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Petroleum Products</td>
<td>267.70</td>
<td>216.50</td>
<td>6.6%</td>
<td>53.1%</td>
<td>22.9%</td>
<td>1.1%</td>
</tr>
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<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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<td class="firstcol">CRB Spot Commodity Foodstuffs</td>
<td>250.22</td>
<td>255.77</td>
<td>-8.6%</td>
<td>2.7%</td>
<td>4.6%</td>
<td>16.8%</td>
</tr>
<tr>
<td class="firstcol">CRB Spot Commodity Livestock &amp; Products</td>
<td>358.00</td>
<td>362.63</td>
<td>-7.8%</td>
<td>-0.7%</td>
<td>14.9%</td>
<td>23.9%</td>
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<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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<td class="firstcol">Gold (Handy &amp; Harmon, /Troy Oz.)</td>
<td>$504.25</td>
<td>$443.40</td>
<td>11.6%</td>
<td>6.5%</td>
<td>20.7%</td>
<td>23.7%</td>
</tr>
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<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$2.19</td>
<td>$1.79</td>
<td>12.6%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$52.04</td>
<td>$41.78</td>
<td>33.7%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
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Recent strength in commodity prices highlight the fear that inflation is about to surge. However the concern is based not just on the gains in metals prices, for example, but on a broader array of potentially inflationary [...]

Higher Commodity Prices: A Better Economy or Pending Inflation?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209h.jpg" width="353">
Consumer sentiment in early December rose more than generally expected, reported the University of Michigan. The 8.7% m/m rise to 88.7 added to a 10.0% rise in November and beat Consensus expectations for an increase to 85.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Consumers&#39; expectations again improved sharply and the index rose 11.1% on top of a 10.1% November gain. Expected business conditions during the next year rose sharply for the third straight month though the level remained down 21.3% versus last year. Expectations for personal finances also rose sharply m/m but here again the index level remained lower than last year by 3.1%. The mean expected inflation rate for the next twelve months held steady m/m at 4.2% though that was below the 5.5% expected in October &amp; September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209g.jpg" width="353">
The current conditions index added 6.4% to the 9.9% November gain but remained well depressed versus last year. The reading of personal finances surged 12.6% (+3.6% y/y) and the reading of buying conditions for large household goods added to November&#39;s 12.9% jump ((-3.0% y/y).Weighing on sentiment is consumers&#39; reading of gov&#39;t economic policy (-20.0% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Why Hasn&#39;t the Jump in Oil Prices Led to a Recession? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-31.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Dec (Prelim.)</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>88.7</td>
<td>81.6</td>
<td>-8.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.6</td>
<td>100.2</td>
<td>-0.1%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>77.3</td>
<td>69.6</td>
<td>-15.0%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
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Consumer sentiment in early December rose more than generally expected, reported the University of Michigan. The 8.7% m/m rise to 88.7 added to a 10.0% rise in November and beat Consensus expectations for an increase to 85.0. During [...]

U.S. Consumer Sentiment Stronger Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209h.jpg" width="353">
Consumer sentiment in early December rose more than generally expected, reported the University of Michigan. The 8.7% m/m rise to 88.7 added to a 10.0% rise in November and beat Consensus expectations for an increase to 85.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Consumers&#39; expectations again improved sharply and the index rose 11.1% on top of a 10.1% November gain. Expected business conditions during the next year rose sharply for the third straight month though the level remained down 21.3% versus last year. Expectations for personal finances also rose sharply m/m but here again the index level remained lower than last year by 3.1%. The mean expected inflation rate for the next twelve months held steady m/m at 4.2% though that was below the 5.5% expected in October &amp; September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051209g.jpg" width="353">
The current conditions index added 6.4% to the 9.9% November gain but remained well depressed versus last year. The reading of personal finances surged 12.6% (+3.6% y/y) and the reading of buying conditions for large household goods added to November&#39;s 12.9% jump ((-3.0% y/y).Weighing on sentiment is consumers&#39; reading of gov&#39;t economic policy (-20.0% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Why Hasn&#39;t the Jump in Oil Prices Led to a Recession? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-31.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Dec (Prelim.)</th>
<th scope="col">Nov</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">Consumer Sentiment</td>
<td>88.7</td>
<td>81.6</td>
<td>-8.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.6</td>
<td>100.2</td>
<td>-0.1%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>77.3</td>
<td>69.6</td>
<td>-15.0%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
UK Trade Balance Decreases in October with Exports Up and Imports Down 
by <a href="/comment/Stone.html">Carol Stone</a> December 9, 2005


<img align="left" border="0" height="291" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209a.gif" width="387">
Foreign trade developments are always interesting in the UK, since it is involved in so many different kinds of activities: manufacturing, shipping, insurance and oil, to name a few. In October, the balance on goods and services decreased by &pound;1 billion to &pound;2.9 billion as exports rose and imports fell from September amounts. The balance on fuel returned to a near neutral position after reaching unprecedented deficits in August and September. The balance on services was steady, reestablishing its old trend after a plunge in August due to Hurricane Katrina.
Among exports, manufactured goods maintained a firm trend for a third month, breaking a prior wide seesaw pattern. The value of crude oil exports surpassed &pound;2 billion for the first time, ironically even as oil prices actually fell slightly from September; the volume of crude shipped surged more than 33% after sagging in August and September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209b.jpg" width="353">
On the import side, widespread decreases in manufactured goods contributed to a &pound;681 million decline in total goods imports. Vehicles were down &pound;158 million and other finished goods &pound;256 million, the latter a second successive decrease that basically offset a jump in August. Oil imports also fell, with both a volume decrease and a slight drop in the unit value.
Insurance payments figured heavily in an earlier swing in the trade balance. According to the ONS, Lloyds of London paid out an estimated &pound;1.4 billion in benefits for Hurricane Katrina losses. The last time such a large negative flow (a negative export of services provided by a UK entity, not to be confused with an import of services, which would be provided by a foreign entity) occurred was in September 2001, and that was considerably more, at about &pound;2.3 billion. Both of these were one-time payments, so the broad service export total quickly reversed to its then-current amounts. The overall balance on services had thus been a mere &pound;457 million in August, but rebounded quickly to &pound;1.7 billion in September and was basically unchanged in October.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">United Kingdom: Trade</a> SA, Bil.&pound;</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance: Goods &amp; Services</td>
<td>-2.88</td>
<td>-3.90</td>
<td>-5.49</td>
<td>-3.78</td>
<td>-3.26</td>
<td>-2.58</td>
<td>-2.63</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>27.24</td>
<td>26.82</td>
<td>25.14</td>
<td>24.68</td>
<td>24.26</td>
<td>23.52</td>
<td>22.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>30.12</td>
<td>30.72</td>
<td>30.63</td>
<td>28.46</td>
<td>27.52</td>
<td>26.10</td>
<td>25.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-4.55</td>
<td>-5.60</td>
<td>-5.95</td>
<td>-5.66</td>
<td>-5.04</td>
<td>-3.99</td>
<td>-3.92</td>
</tr>
<tr>
<td class="firstcol">Fuels</td>
<td>-0.08</td>
<td>-0.75</td>
<td>-0.59</td>
<td>-0.00</td>
<td>0.10</td>
<td>0.42</td>
<td>0.53</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>2.27</td>
<td>1.94</td>
<td>1.65</td>
<td>1.60</td>
<td>1.50</td>
<td>1.38</td>
<td>1.33</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>2.35</td>
<td>2.67</td>
<td>2.24</td>
<td>1.59</td>
<td>1.40</td>
<td>0.96</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.67</td>
<td>1.70</td>
<td>0.46</td>
<td>1.87</td>
<td>1.77</td>
<td>1.41</td>
<td>1.30</td>
</tr>
</tbody>
</table>
Higher Commodity Prices: A Better Economy or Pending Inflation? 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209c.jpg" width="353">
Recent strength in commodity prices highlight the fear that inflation is about to surge. However the concern is based not just on the gains in metals prices, for example, but on a broader array of potentially inflationary indications.1) Real economic growth amongst OECD countries has doubled to (a still moderate) 2.5% versus 2001 and growth elsewhere in the world is blistering. Chinese economic growth at 14% is up from 4% in 1999 and growth in India has nearly doubled to 8% from a 2001 low of 4.5%. 2) Though US money growth recently has declined, the five year growth rate of 6.3% is triple the growth of ten years ago. Relationships between money and inflation are not what they used to be, but financial liquidity will always be viewed as integral to the equation. The issue is examined by the Federal Reserve Bank of St. Louis in <a href="http://research.stlouisfed.org/publications/review/05/09/Gavin.pdf">Monetary Instrument Matters</a><a href="http://research.stlouisfed.org/publications/review/05/09/Gavin.pdf">.</a> 3) Energy prices remain elevated. Oil prices are more than 20% higher than last year&#39;s average which rose 53% from 2003 and the cold weather that has gripped much of the US has recently pushed prices up further. Most notable has been the spike in natural gas prices which yesterday were over $14/mmbtu, a rough doubling of last year&#39;s level. Crude oil prices also rose over $60/bbl. for West Texas Intermediate for the first time in a month. That rise along with a rebound in the demand for gasoline promises an end to the recent fall in retail gasoline prices. (Gasoline has a 3.9% weight in the Consumer Price Index, electricity has a 2.4% weight and natural gas&#39; weight is 1.3%.). 
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209f.jpg" width="353"> <img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209i.jpg" width="353">4) Gold prices recently surged over $500 per ounce and into territory not plotted since 1981. During the last twenty years there has been a fairly high 52% correlation between the level of gold and the expected rate of inflation during the next year. Most of that correlation, however, seems to reflect current pricing power. Gold&#39;s correlation with next year&#39;s growth in the CPI has been negligible. The late Jude Wanniski&#39;s thoughts on the Gold Standard can be found <a href="http://www.gold-eagle.com/editorials/wanniski111897.html"> here</a> and the Federal Reserve Bank of Cleveland&#39;s 1998 research simply titled Gold Prices can be found <a href="http://www.clevelandfed.org/research/com98/0301.pdf"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209d.jpg" width="353">5) The latest jump in industrial commodity prices for many is the prima fascia indication of a pending inflation pickup, but the gain seems more to reflect better economic growth. In fact industrial commodity prices have had roughly a 50% correlation with the y/y change in factory sector output during the last ten years and only a 15% correlation with the change in core goods prices in the CPI. Though even here, individual performance has been mixed. Metals prices have recovered all of the early-year drop and on average are nearly double the 2001 low, the strength paced by a near four fold rise in copper prices during the last four years. Textile prices, however, are up just 10% over four years. Further obfuscation of the issue is provided by the strong 47% correlation between industrial materials prices and the change in the overall CPI.6) An inflationary threat from rising food prices depends on how much meat is part of the diet since livestock &amp; meat prices have rebounded strongly from the mid-year lows. That misses a near 60% price rise since 2002 which has been paced 40-50% gains in beef prices, 60% higher broiler prices and 50%+ gains in pork prices. Grain price increases have been relatively tame but even coffee prices are double the 2003 level. The latest Food Price Outlook from the USDA Food Institute can be found <a href="http://www.foodinstitute.com/outlook.cfm"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/1051209j.jpg" width="353">

<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/daily/@D3/@D306/@D306.HTM">Commodity Prices</a></th>
<th scope="col">12/02/05</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 class="odd">
<td class="firstcol">JoC-ECRI All Industrials</td>
<td>116.52</td>
<td>111.55</td>
<td>2.8%</td>
<td>22.6%</td>
<td>15.6%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Textiles&nbsp;&nbsp;</td>
<td>67.70</td>
<td>64.35</td>
<td>5.1%</td>
<td>1.1%</td>
<td>9.0%</td>
<td>-2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Metals</td>
<td>127.20</td>
<td>124.55</td>
<td>-0.2%</td>
<td>39.7%</td>
<td>12.5%</td>
<td>-0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Miscellaneous</td>
<td>103.44</td>
<td>103.85</td>
<td>2.7%</td>
<td>10.8%</td>
<td>19.9%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Petroleum Products</td>
<td>267.70</td>
<td>216.50</td>
<td>6.6%</td>
<td>53.1%</td>
<td>22.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">CRB Spot Commodity Foodstuffs</td>
<td>250.22</td>
<td>255.77</td>
<td>-8.6%</td>
<td>2.7%</td>
<td>4.6%</td>
<td>16.8%</td>
</tr>
<tr>
<td class="firstcol">CRB Spot Commodity Livestock &amp; Products</td>
<td>358.00</td>
<td>362.63</td>
<td>-7.8%</td>
<td>-0.7%</td>
<td>14.9%</td>
<td>23.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Gold (Handy &amp; Harmon, /Troy Oz.)</td>
<td>$504.25</td>
<td>$443.40</td>
<td>11.6%</td>
<td>6.5%</td>
<td>20.7%</td>
<td>23.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$2.19</td>
<td>$1.79</td>
<td>12.6%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$52.04</td>
<td>$41.78</td>
<td>33.7%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</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/051208b.jpg" width="353">
The dramatic impact of Hurricane Katrina on local Gulf Coast economies is starting to be quantified by various government statistics. These numbers do not, of course, begin to describe the devastation in the region, but they give it some relative context. The unemployment rate in Louisiana doubled in September and October, for instance, even as the national rate was fairly steady. Employment in Louisiana plunged 13.3% between August and October, and in Mississippi, by 6.5%. Unemployment for that state rose from 6.9% of the labor force in August to about 10% in September and October. [The state figures for October were published November 22; some metropolitan area data came out last week and smaller local areas, just yesterday, which occasions our commentary today.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051208c.jpg" width="353">
Notably, there are no data for the New Orleans metropolitan area for these two months. BLS&#39;s release of November 30 explains that the quality of the data was &quot;severely compromised by the hurricane&quot;. People in the area simply had other priorities than responding to the Current Population Survey in those months. BLS obviously determined that this effect did not carry over to the state as a whole. Further, for the Gulfport/Biloxi/Pascagoula area, reporting was not harmed enough to undermine the figures that were obtained in the interviewing. They are still seen as a fair representation of actual employment conditions in the area.
The differential impact of the storm, and Rita that followed, are shown in the divergence between Louisiana and Mississippi of labor market behavior in October. Employment continued to decline in Louisiana, falling another 44,500, while it stabilized in Mississippi. The unemployment rates in Mississippi and in the Gulfport/Biloxi area fell markedly in October, though these remain outsized. Further in Louisiana, the labor force itself continued to shrink; after a decline of 115,600 in September, it went down another 52,900 in October. People were still leaving the state. The impact of Rita is shown by the behavior of the labor force in Lake Charles; it went up slightly in September as it became a place of refuge from New Orleans. But the later storm resulted in a noticeable decrease in October as people fled from there as well.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051208d.jpg" width="353">
Some of these went to Texas. Data for Texas as a whole seem to show little change, but the impact is somewhat evident in the Houston Consolidated area. As seen below, the unemployment rate went up to 5.9% in September; the labor force gained 24,300 but employment went up only 6,600. In October, the labor force stabilized and jobs began to catch up, so unemployment fell back. We should issue a disclaimer here; it is perhaps asking too much of the CPS survey methods to capture this effect so quickly, although BLS says they altered population controls among states to try to account for the massive interstate migration.
Clearly this was an unprecedented period in many ways, not the least of which is data collection. It is important to be able to gauge these massive changes. Further, the labor force data received different treatment than the payroll data did. BLS&#39;s &quot;CES&quot; survey was carefully calibrated to generate numbers for New Orleans establishment employment; the number of payroll jobs there fell 217,300 in September, about 35%, and rose 10,600 in October. By comparison, the average monthly change in the five years to August was zero.
These labor force data are contained in Haver&#39;s EMPLR database, and payroll employment is in the LABORR database, both part of Haver&#39;s extensive regional data offerings. 

<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/EMPLOYMENT.HTM">Household Employment (Thous) &amp; Unemployment Rates:</a> Selected Areas</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sep 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</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">Louisiana (Seas Adj): Employment </td>
<td>1733.1</td>
<td>1777.6</td>
<td>1999.1</td>
<td>1949.8</td>
<td>1940.3</td>
<td>1914.6</td>
<td>1903.0</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>11.3</td>
<td>11.4</td>
<td>5.8</td>
<td>5.8</td>
<td>5.7</td>
<td>6.3</td>
<td>5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orleans/ Metairie/Kenner&nbsp; (SA) Employment</td>
<td>--</td>
<td>--</td>
<td>602.9</td>
<td>586.7</td>
<td>585.2</td>
<td>580.0</td>
<td>579.4</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>--</td>
<td>--</td>
<td>5.5</td>
<td>4.4</td>
<td>4.6</td>
<td>5.3</td>
<td>5.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Mississippi &nbsp; (SA) Employment</td>
<td>1173.5</td>
<td>1173.0</td>
<td>1255.0</td>
<td>1247.4</td>
<td>1248.1</td>
<td>1237.2</td>
<td>1219.1</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>9.6</td>
<td>10.3</td>
<td>6.9</td>
<td>6.9</td>
<td>6.2</td>
<td>6.4</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Gulfport/Biloxi/- Pascagoula CSA (NSA) Employment</td>
<td>138.0</td>
<td>135.7</td>
<td>180.9</td>
<td>177.0</td>
<td>179.2</td>
<td>177.8</td>
<td>174.6</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>20.8</td>
<td>25.2</td>
<td>6.1</td>
<td>6.5</td>
<td>5.5</td>
<td>5.7</td>
<td>6.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Houston/Baytown/- Huntsville CSA (NSA) Employment</td>
<td>2543.2</td>
<td>2533.3</td>
<td>2526.7</td>
<td>2469.1</td>
<td>2451.8</td>
<td>2417.6</td>
<td>2395.6</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>5.5</td>
<td>5.9</td>
<td>5.3</td>
<td>6.0</td>
<td>6.3</td>
<td>6.8</td>
<td>6.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The dramatic impact of Hurricane Katrina on local Gulf Coast economies is starting to be quantified by various government statistics. These numbers do not, of course, begin to describe the devastation in the region, but they give it [...]

Labor Force Data and Hurricanes

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051208a.jpg" width="353">
Initial claims for unemployment insurance rose 6,000 to 327,000 last week following a revised 16,000 drop the prior week. Consensus expectations had been for 315,000 claims.
Hurricane related claims dropped to 8,000 and brought the total of the three storms during the last fourteen weeks to 600,000.
The four-week moving average of initial claims was about unchanged at 322,500 (-4.8% y/y).
Continuing unemployment insurance claims fell 137,000 following a 57,000 decline the prior week which was deeper than initially reported.
The insured rate of unemployment fell to 2.0% from a downwardly revised 2.1% the prior week.
Monetary Policy with Imperfect Knowledge, a working paper from economists at the Federal Reserve board, is available <a href="http://www.federalreserve.gov/pubs/feds/2005/200551/200551pap.pdf"> here</a>.
Can Financial Innovation Help to Explain the Reduced Volatility of Economic Activity? is another working paper published by the Federal Reserve Board and can be found <a href="http://www.federalreserve.gov/pubs/feds/2005/200554/200554pap.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/03/05</th>
<th scope="col">11/26/05</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">Initial Claims</td>
<td>327</td>
<td>321</td>
<td>-6.3%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,603</td>
<td>-5.9%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance rose 6,000 to 327,000 last week following a revised 16,000 drop the prior week. Consensus expectations had been for 315,000 claims. Hurricane related claims dropped to 8,000 and brought the [...]

Initial Unemployment Insurance Claims Up Modestly

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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OECD Leaders Rose Further

OECD Leaders Rose Further

UK Trade Balance Decreases in October with Exports Up and Imports Down

Higher Commodity Prices: A Better Economy or Pending Inflation?

U.S. Consumer Sentiment Stronger Than Expected

U.S. Consumer Sentiment Stronger Than Expected

Labor Force Data and Hurricanes

Initial Unemployment Insurance Claims Up Modestly