Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115h.jpg" width="353">
Chain store sales gave back last week about half of the prior period&#39;s strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November remained 1.0% above October which rose 0.1% from the prior month
The average US retail price of regular gasoline fell another 8 cents last week to $2.30 per gallon (+16.6 y/y). Yesterday, the spot market price for gasoline was down another 3 cents from the prior week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115d.jpg" width="353">
During the last ten years there has been a 56% 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 gained 0.3% (-2.9% y/y) during the latest week following an upwardly revised 0.2% gain the prior week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/12/05</th>
<th scope="col">11/05/05</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>453.3</td>
<td>456.1</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales gave back last week about half of the prior period's strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November [...]

Chain Store Sales Backpedaled, Gas Prices Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115c.jpg" width="353">
US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because less autos, retail sales surged 0.9%. That increase was three times the Consensus expectation and the 1.4% September increase was upwardly revised.
Sales at gasoline service stations fell 0.8% after a 5.1% pop in September which was driven by a 16.8% rise in the retail price of gasoline. Gas prices reversed about half of that gain in October and have fallen another 14% so far in November.
Less gasoline, nonauto retail sales rose 1.1% (7.8% y/y) following an upwardly revised 0.8% gain in September. The increase was boosted again by strength in building material sales which jumped 2.1% (13.1% Y/Y) for the third consecutive month of strong gain.
Discretionary spending continued strong as evidenced by a 0.6% (8.2% y/y) rise in furniture &amp; electronics store sales which followed an upwardly revised 1.4% September surge. Sales of nonstore retailers (internet &amp; catalogue) jumped 1.2% (12.2% y/y) and general merchandise store sales rose 1.2% (7.1% y/y). Apparel store sales in October made up for the prior month&#39;s dip and ballooned 3.1% (6.5% y/y) even though apparel prices recently have been under pressure (-0.7% y/y thru September). 
Today&#39;s U.S. Senate Testimony of Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20051115/default.htm">here</a>.
Oil Prices and Consumer Spending from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/mehrapetersen.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">&nbsp;</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.9%</td>
<td>1.4%</td>
<td>9.9%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
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US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because [...]

U.S. Retail Sales Dip

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115g.jpg" width="353">
The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices.
The strength last month was led by a 12.3% (50.4% y/y) rise in home heating oil prices and a 12.7% (38.9% y/y) jump in natural gas which more than offset the 3.3% (+40.3% y/y) decline in gasoline.
Price inflation at the so called &quot;core&quot; level nevertheless eased a bit last month as a 0.3% decline in prices less food &amp; energy reversed all of the prior month&#39;s gain. Consensus expectations for a 0.2% increase.
Core finished consumer goods prices fell 0.2% (+2.0% y/y). Durable goods prices dropped 0.9% (+0.2% y/y) led by a 3.0% (-2.1% y/y) decline in passenger car prices as well as weakness in prices for home electronics (-2.0% y/y), carpets (+6.1% y/y) and home appliances (+1.7% y/y). Core consumer nondurable goods prices rose 0.2% (3.5% y/y) for the second consecutive month.
&quot;Spillover&quot; effects from the past strength in oil prices continued to be evident at the earlier stages of processing. Intermediate goods prices jumped 3.0% on top of the 2.5% September surge while core intermediate goods prices repeated their 1.2% spike of the prior month.
Crude energy prices gained 12.4% (69.4% y/y) as natural gas prices soared an unadjusted 20.3% (120.4% y/y). The gain lifted overall crude prices 6.7% though core crude prices reversed some of their September strength with a 1.2% decline. 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.

<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">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 class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.7%</td>
<td>1.9%</td>
<td>5.9%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>3.0%</td>
<td>2.5%</td>
<td>10.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2%</td>
<td>1.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>10.2%</td>
<td>31.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.2%</td>
<td>5.3%</td>
<td>0.9%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices. The strength last month was led by a 12.3% (50.4% y/y) rise [...]

PPI Up Another 0.7%, Core Prices Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115g.jpg" width="353">
The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices.
The strength last month was led by a 12.3% (50.4% y/y) rise in home heating oil prices and a 12.7% (38.9% y/y) jump in natural gas which more than offset the 3.3% (+40.3% y/y) decline in gasoline.
Price inflation at the so called &quot;core&quot; level nevertheless eased a bit last month as a 0.3% decline in prices less food &amp; energy reversed all of the prior month&#39;s gain. Consensus expectations for a 0.2% increase.
Core finished consumer goods prices fell 0.2% (+2.0% y/y). Durable goods prices dropped 0.9% (+0.2% y/y) led by a 3.0% (-2.1% y/y) decline in passenger car prices as well as weakness in prices for home electronics (-2.0% y/y), carpets (+6.1% y/y) and home appliances (+1.7% y/y). Core consumer nondurable goods prices rose 0.2% (3.5% y/y) for the second consecutive month.
&quot;Spillover&quot; effects from the past strength in oil prices continued to be evident at the earlier stages of processing. Intermediate goods prices jumped 3.0% on top of the 2.5% September surge while core intermediate goods prices repeated their 1.2% spike of the prior month.
Crude energy prices gained 12.4% (69.4% y/y) as natural gas prices soared an unadjusted 20.3% (120.4% y/y). The gain lifted overall crude prices 6.7% though core crude prices reversed some of their September strength with a 1.2% decline. 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.

<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">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 class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.7%</td>
<td>1.9%</td>
<td>5.9%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>3.0%</td>
<td>2.5%</td>
<td>10.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2%</td>
<td>1.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>10.2%</td>
<td>31.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.2%</td>
<td>5.3%</td>
<td>0.9%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
U.S. Retail Sales Dip 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115c.jpg" width="353">
US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because less autos, retail sales surged 0.9%. That increase was three times the Consensus expectation and the 1.4% September increase was upwardly revised.
Sales at gasoline service stations fell 0.8% after a 5.1% pop in September which was driven by a 16.8% rise in the retail price of gasoline. Gas prices reversed about half of that gain in October and have fallen another 14% so far in November.
Less gasoline, nonauto retail sales rose 1.1% (7.8% y/y) following an upwardly revised 0.8% gain in September. The increase was boosted again by strength in building material sales which jumped 2.1% (13.1% Y/Y) for the third consecutive month of strong gain.
Discretionary spending continued strong as evidenced by a 0.6% (8.2% y/y) rise in furniture &amp; electronics store sales which followed an upwardly revised 1.4% September surge. Sales of nonstore retailers (internet &amp; catalogue) jumped 1.2% (12.2% y/y) and general merchandise store sales rose 1.2% (7.1% y/y). Apparel store sales in October made up for the prior month&#39;s dip and ballooned 3.1% (6.5% y/y) even though apparel prices recently have been under pressure (-0.7% y/y thru September). 
Today&#39;s U.S. Senate Testimony of Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20051115/default.htm">here</a>.
Oil Prices and Consumer Spending from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/mehrapetersen.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">&nbsp;</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.9%</td>
<td>1.4%</td>
<td>9.9%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
Chain Store Sales Backpedaled, Gas Prices Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115h.jpg" width="353">
Chain store sales gave back last week about half of the prior period&#39;s strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November remained 1.0% above October which rose 0.1% from the prior month
The average US retail price of regular gasoline fell another 8 cents last week to $2.30 per gallon (+16.6 y/y). Yesterday, the spot market price for gasoline was down another 3 cents from the prior week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115d.jpg" width="353">
During the last ten years there has been a 56% 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 gained 0.3% (-2.9% y/y) during the latest week following an upwardly revised 0.2% gain the prior week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/12/05</th>
<th scope="col">11/05/05</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>453.3</td>
<td>456.1</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Empire State Index Back Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115f.jpg" width="353">
The November Empire State Index of General Business Conditions in New York&#39;s manufacturing industries regained all of the prior month&#39;s decline and rose 10.7 points to 22.82, the highest level since August. Consensus expectations had been for less of an increase to 15.0.
Since the series&#39; inception in 2001 there has been a close 80% correlation between the index level and the three month change in factory sector production.
Shipments recovered most of the October decline and the employment index jumped to 7.7 points to the highest level in over a year. The new orders index also added a bit to the October 13 point surge while prices paid rose to a record high. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115e.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The index of expectations for business conditions in six months recovered sharply. The 14 point jump pulled the index level to its highest since August and expectations for future capital spending jumped. A nine point rise brought the index to the highest level since March.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04 </th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>22.82</td>
<td>12.08</td>
<td>19.78</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
</tr>
</tbody>
</table>
German Economic Growth Increases in the Third Quarter but ZEW Survey Raises Doubts About the Outlook 
by <a href="/comment/Curley.html">Louise Curley</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115a.jpg" width="353">
Preliminary data released today show that Germany&#39;s Real Gross Domestic Product increased 0.6% in the third quarter, compared with revised increases of 0.6% in the first quarter and 0.2% in the second quarter. The unrevised increases for the first and second quarters were 0.8% and 0.0% respectively. For the three quarters of this year, real GDP is only 0.87% above the three corresponding quarters of 2004, suggesting that growth in 2005 is unlikely to exceed 1.0%. Nominal GDP increased 0.38% in the third quarter, less than the real increase, as the deflator declined 0.24%. This was one of the few times, in the past five years, when the deflator declined, as can be seen in the first chart which shows the quarter-to-quarter growth in Real and Nominal GDP. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115b.jpg" width="353">
Information on the composition of GDP will not be available until November 22 when the more detailed release is scheduled to appear. However, the Federal Statistical Office offered some qualitative comments in the current release. A strong increase in exports and a considerable rise in capital formation had positive impacts on the quarter-to-quarter growth. Net exports were almost the only cause of year-to-year growth; domestic activity having made little contribution.
The ZEW Center for Economic Research released the results of its survey of institutional investors and financial analysts regarding the current economic situation and the outlook six months ahead. This was one of those rare times when the respondents were less pessimistic about the current situation than they were last month but less positive about the situation six months ahead as can be seem in the second chart. The decline in optimism about the future is generally attributed to doubts that the agreed upon economic program of the Grand Coalition scheduled to take office on November 22 may do little to encourage growth. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany</a></th>
<th scope="col">Q3 05&nbsp;</th>
<th scope="col">Q2 05</th>
<th scope="col">Q3 04</th>
<th scope="col">Q/Q&nbsp; %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004&nbsp;%&nbsp; </th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP (Bil. Euros)</td>
<td>561.05</td>
<td>558.90</td>
<td>557.16</td>
<td>0.38</td>
<td>1.61</td>
<td>1.88</td>
<td>0.84</td>
<td>1.55</td>
</tr>
<tr>
<td class="firstcol">GDP (Bil 2000 Chained Euros)&nbsp;</td>
<td>535.02</td>
<td>531.73</td>
<td>527.02</td>
<td>0.62</td>
<td>1.36</td>
<td>1.09</td>
<td>-.019</td>
<td>0.09</td>
</tr>
<tr class="odd">
<td class="firstcol">Deflator (2000 =100)</td>
<td>104.84</td>
<td>105.09</td>
<td>104.59</td>
<td>-0.24</td>
<td>0.24</td>
<td>0.79</td>
<td>1.03</td>
<td>1.45</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">ZEW Survey ( Percent Balance)</td>
<td>Nov 05&nbsp;</td>
<td>Oct 05</td>
<td>Nov 04</td>
<td>M/M&nbsp; Dif</td>
<td>Y/Y Dif</td>
<td>2004&nbsp; </td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td>-55.2</td>
<td>-58.0</td>
<td>-57.8</td>
<td>2.8</td>
<td>2.6</td>
<td>-67.7</td>
<td>92.6</td>
<td>83.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Situation 6 Months Ahead</td>
<td>38.7</td>
<td>39.4</td>
<td>13.9&nbsp;</td>
<td>-0.7&nbsp;</td>
<td>24.8&nbsp;</td>
<td>&nbsp; 44.6&nbsp;</td>
<td>&nbsp;38.4</td>
<td>&nbsp;45.3</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/051114b.jpg" width="353">
Preliminary data on Japan&#39;s Gross Domestic Product was released late last week. Total GDP rose at an annual rate of 1.7% in the third quarter, above the consensus estimate of 1.1%. Although the growth had slowed from 3.25% of the second quarter and the 6.29% of the first quarter, the report was well received by financial analysts and the stock market. The Nikkei 225 Average rose 0.5% or 74 points to 14,155.06 on last Friday, its highest close since May 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114c.jpg" width="353">
On Monday, the stock market gave back more than half of Friday&#39;s gains. While the Monday decline has been attributed to a falling off of demand for Japanese stocks by foreign investors, some of the decline may have been the result of different views on deflation expressed by the Governor of the Bank of Japan and the Prime Minister following the release of the GDP data. Toshihiko Fukui, governor of the Bank of Japan, hinted at a possible change in monetary policy. &quot;A shift in policy, conceptually, would be a cut in current account deposits (the liquidity target) followed by very low short-term interest rates and then an adjustment to rates to a level in line with economic conditions.&quot; Prime Minister Junichiro Koizumi warned the Bank that it was too early to change its easy monetary policy of fighting deflation. In the first chart the gap between real and nominal GDP, a measure of deflation, has yet to show meaningful signs of decline.
The deceleration in growth was due in part to a decline in net exports as imports, fueled by high oil prices, rose faster than exports. However, both private consumption and gross fixed investment also played a part in the deceleration of growth. The second chart shows the seasonally adjusted annual rate of change in private final consumption and in gross fixed investment. The one sector that showed higher growth was inventories as both public and private inventories rose. 

<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/JAPAN/@J2/@J2.HTM">Japan:&nbsp;</a> Gross Domestic Product</th>
<th scope="col">Q3 2005 &nbsp;%</th>
<th scope="col">Q2 2005 %</th>
<th scope="col">Q1 2005 %</th>
<th scope="col">Q4 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">GDP Current Yen</td>
<td>0.69</td>
<td>2.05</td>
<td>3.15</td>
<td>0.89</td>
<td>1.40</td>
<td>-0.05</td>
<td>-1.56</td>
</tr>
<tr>
<td class="firstcol">GDP 2000 Chn Yen</td>
<td>1.70</td>
<td>3.25</td>
<td>6.29</td>
<td>0.72</td>
<td>2.61</td>
<td>1.41</td>
<td>-0.29</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Final Consumption&nbsp;</td>
<td>1.36</td>
<td>2.67</td>
<td>5.04</td>
<td>-1.09</td>
<td>1.47</td>
<td>0.24</td>
<td>0.53</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Gross Domestic Fixed Investment</td>
<td>3.66</td>
<td>6.42</td>
<td>7.10</td>
<td>0.62</td>
<td>1.34</td>
<td>1.05</td>
<td>-5.67</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports of Goods &amp; Services</td>
<td>11.43</td>
<td>13.03</td>
<td>-0.05</td>
<td>6.62</td>
<td>14.47</td>
<td>9.09</td>
<td>4.15</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports of Goods &amp; Services</td>
<td>16.66</td>
<td>9.40</td>
<td>0.30</td>
<td>10.33</td>
<td>8.92</td>
<td>3.82</td>
<td>1.25</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Q3 05 Bil. 2000.Chn Yen</td>
<td>Q2 05 Bil. 2000.Chn Yen</td>
<td>Q1 05 Bil.2000.Chn Yen</td>
<td>Q4 04 Bil. 2000.Chn Yen</td>
<td>2004 Bil. 2000.Chn Yen</td>
<td>2003 Bil. 2000.Chn Yen&nbsp;</td>
<td>2002 Bil. 2000.Chn Yen</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Inventory Change</td>
<td>2261.1</td>
<td>2046.3</td>
<td>2848.9</td>
<td>1128.9</td>
<td>839.6</td>
<td>-108.5</td>
<td>-983.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public Inventory Change</td>
<td>&nbsp;163.5</td>
<td>124.0&nbsp;</td>
<td>141.5&nbsp;</td>
<td>167.6&nbsp;</td>
<td>&nbsp;41.4</td>
<td>2.5&nbsp;</td>
<td>-6.6&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Preliminary data on Japan's Gross Domestic Product was released late last week. Total GDP rose at an annual rate of 1.7% in the third quarter, above the consensus estimate of 1.1%. Although the growth had slowed from 3.25% of the [...]

Japanese Gross Domestic Product Slows, but Exceeds Consensus Estimates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114a.jpg" width="353">
The U.S. federal government budget deficit continued lower during the opening month of FY06. The deficit of $47.2B fell 17.6% versus last October, about the same rate of decline as during FY05.
As a percentage of GDP the deficit fell to 2.6% last fiscal year versus 3.6% in FY04. The latest projection from the Congressional Budget Office is for a further decline to 2.4% in FY06.
Net receipt continued firm 9.2% y/y rate last month, powered by 16.0% growth in individual income tax receipts (44% of total receipts). That growth made up for an October shortfall in corporate income taxes (10% of total receipts) which left them 20.5% last October.
Total receipts accounted for 17.5% of GDP last fiscal year, up from 16.3% the prior year but down from 18.4% during the 1990s.
The improved job market continued to lift employment taxes (36% of total receipts) 6.4% y/y, a slowdown versus 8.8% growth during all of FY 2005 which was the strongest increase since 1988. 
U.S. net outlays grew 1.3% y/y last month despite a 28.0% gain in defense (19% of total outlays). Medicare spending (12% of total outlays) fell 11.4% y/y but spending on social security (21% of total outlays) rose 5.7%. Spending on health programs (10% of the total) rose 3.5% while spending on education &amp; training (4% of the total) fell 5.0% y/y after double digit gains during three of the last four fiscal years. Interest expense (8% of the total) grew 13.0% with higher interest rates after a 14.9% gain last fiscal year.
The latest projections from the US Congressional Budget Office are available <a href="http://www.cbo.gov/showdoc.cfm?index=1944&amp;sequence=0"> 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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-47.2B</td>
<td>$35.7B</td>
<td>$-57.3B (10/04)</td>
<td>$-318.6B</td>
<td>$-412.1B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$149.5B</td>
<td>$151.6B</td>
<td>9.2%</td>
<td>14.6%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$196.7B</td>
<td>$216.0B</td>
<td>1.3%</td>
<td>7.9%</td>
<td>6.1%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. federal government budget deficit continued lower during the opening month of FY06. The deficit of $47.2B fell 17.6% versus last October, about the same rate of decline as during FY05. As a percentage of GDP the deficit fell [...]

October U.S. Budget Deficit Down Y/Y

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114a.jpg" width="353">
The U.S. federal government budget deficit continued lower during the opening month of FY06. The deficit of $47.2B fell 17.6% versus last October, about the same rate of decline as during FY05.
As a percentage of GDP the deficit fell to 2.6% last fiscal year versus 3.6% in FY04. The latest projection from the Congressional Budget Office is for a further decline to 2.4% in FY06.
Net receipt continued firm 9.2% y/y rate last month, powered by 16.0% growth in individual income tax receipts (44% of total receipts). That growth made up for an October shortfall in corporate income taxes (10% of total receipts) which left them 20.5% last October.
Total receipts accounted for 17.5% of GDP last fiscal year, up from 16.3% the prior year but down from 18.4% during the 1990s.
The improved job market continued to lift employment taxes (36% of total receipts) 6.4% y/y, a slowdown versus 8.8% growth during all of FY 2005 which was the strongest increase since 1988. 
U.S. net outlays grew 1.3% y/y last month despite a 28.0% gain in defense (19% of total outlays). Medicare spending (12% of total outlays) fell 11.4% y/y but spending on social security (21% of total outlays) rose 5.7%. Spending on health programs (10% of the total) rose 3.5% while spending on education &amp; training (4% of the total) fell 5.0% y/y after double digit gains during three of the last four fiscal years. Interest expense (8% of the total) grew 13.0% with higher interest rates after a 14.9% gain last fiscal year.
The latest projections from the US Congressional Budget Office are available <a href="http://www.cbo.gov/showdoc.cfm?index=1944&amp;sequence=0"> 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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$-47.2B</td>
<td>$35.7B</td>
<td>$-57.3B (10/04)</td>
<td>$-318.6B</td>
<td>$-412.1B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$149.5B</td>
<td>$151.6B</td>
<td>9.2%</td>
<td>14.6%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$196.7B</td>
<td>$216.0B</td>
<td>1.3%</td>
<td>7.9%</td>
<td>6.1%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
Japanese Gross Domestic Product Slows, but Exceeds Consensus Estimates 
by <a href="/comment/Curley.html">Louise Curley</a> November 14, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114b.jpg" width="353">
Preliminary data on Japan&#39;s Gross Domestic Product was released late last week. Total GDP rose at an annual rate of 1.7% in the third quarter, above the consensus estimate of 1.1%. Although the growth had slowed from 3.25% of the second quarter and the 6.29% of the first quarter, the report was well received by financial analysts and the stock market. The Nikkei 225 Average rose 0.5% or 74 points to 14,155.06 on last Friday, its highest close since May 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114c.jpg" width="353">
On Monday, the stock market gave back more than half of Friday&#39;s gains. While the Monday decline has been attributed to a falling off of demand for Japanese stocks by foreign investors, some of the decline may have been the result of different views on deflation expressed by the Governor of the Bank of Japan and the Prime Minister following the release of the GDP data. Toshihiko Fukui, governor of the Bank of Japan, hinted at a possible change in monetary policy. &quot;A shift in policy, conceptually, would be a cut in current account deposits (the liquidity target) followed by very low short-term interest rates and then an adjustment to rates to a level in line with economic conditions.&quot; Prime Minister Junichiro Koizumi warned the Bank that it was too early to change its easy monetary policy of fighting deflation. In the first chart the gap between real and nominal GDP, a measure of deflation, has yet to show meaningful signs of decline.
The deceleration in growth was due in part to a decline in net exports as imports, fueled by high oil prices, rose faster than exports. However, both private consumption and gross fixed investment also played a part in the deceleration of growth. The second chart shows the seasonally adjusted annual rate of change in private final consumption and in gross fixed investment. The one sector that showed higher growth was inventories as both public and private inventories rose. 

<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/JAPAN/@J2/@J2.HTM">Japan:&nbsp;</a> Gross Domestic Product</th>
<th scope="col">Q3 2005 &nbsp;%</th>
<th scope="col">Q2 2005 %</th>
<th scope="col">Q1 2005 %</th>
<th scope="col">Q4 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">GDP Current Yen</td>
<td>0.69</td>
<td>2.05</td>
<td>3.15</td>
<td>0.89</td>
<td>1.40</td>
<td>-0.05</td>
<td>-1.56</td>
</tr>
<tr>
<td class="firstcol">GDP 2000 Chn Yen</td>
<td>1.70</td>
<td>3.25</td>
<td>6.29</td>
<td>0.72</td>
<td>2.61</td>
<td>1.41</td>
<td>-0.29</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Final Consumption&nbsp;</td>
<td>1.36</td>
<td>2.67</td>
<td>5.04</td>
<td>-1.09</td>
<td>1.47</td>
<td>0.24</td>
<td>0.53</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Gross Domestic Fixed Investment</td>
<td>3.66</td>
<td>6.42</td>
<td>7.10</td>
<td>0.62</td>
<td>1.34</td>
<td>1.05</td>
<td>-5.67</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports of Goods &amp; Services</td>
<td>11.43</td>
<td>13.03</td>
<td>-0.05</td>
<td>6.62</td>
<td>14.47</td>
<td>9.09</td>
<td>4.15</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports of Goods &amp; Services</td>
<td>16.66</td>
<td>9.40</td>
<td>0.30</td>
<td>10.33</td>
<td>8.92</td>
<td>3.82</td>
<td>1.25</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Q3 05 Bil. 2000.Chn Yen</td>
<td>Q2 05 Bil. 2000.Chn Yen</td>
<td>Q1 05 Bil.2000.Chn Yen</td>
<td>Q4 04 Bil. 2000.Chn Yen</td>
<td>2004 Bil. 2000.Chn Yen</td>
<td>2003 Bil. 2000.Chn Yen&nbsp;</td>
<td>2002 Bil. 2000.Chn Yen</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Inventory Change</td>
<td>2261.1</td>
<td>2046.3</td>
<td>2848.9</td>
<td>1128.9</td>
<td>839.6</td>
<td>-108.5</td>
<td>-983.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public Inventory Change</td>
<td>&nbsp;163.5</td>
<td>124.0&nbsp;</td>
<td>141.5&nbsp;</td>
<td>167.6&nbsp;</td>
<td>&nbsp;41.4</td>
<td>2.5&nbsp;</td>
<td>-6.6&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051111a.jpg" width="353">
The modest 0.2% increase in the September Leading Index of the Major 7 OECD economies marked the fourth consecutive gain and it improved the leaders&#39; six month growth rate to 1.1%, the best in twelve months.The increase reflected improvement in Japan &amp; Europe but declines in North America.
During the last ten years there has been a 68% 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 1.0%, the most for any month since early 2002, as share prices increased and the interest rate yield spread widened. The six month growth rate surged to 2.3%, the best since early 2004, and its correlation with real growth in Japan has been a meaningful 42% during the last ten years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051111b.jpg" width="353">
Leaders in the European Union (15 countries) rose for the fourth month and the 0.5% increase lifted the six month growth rate to 2.3%, the highest in a year. 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 fifth consecutive month. A 0.5% gain raised six month growth to 3.3% as new orders bounced back from an August drop and the business climate improved. 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 rose for the third consecutive month. The 0.5% increase pulled the six month growth rate into positive territory for the first time since March with a 0.3% growth rate and the correlation between the leaders with growth in France&#39;s GDP volume index has been a higher 43% during the last ten years. The Italian leading index showed perhaps the most meaningful monthly improvement with a 0.8% gain that followed an upwardly revised 0.9% August increase. The six month growth rate improved to 1.9%, the best since early 2004, although its correlation with GDP growth has been a low 0.9% during the last ten years.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051111c.jpg" width="353">
The UK leaders increased just 0.1% but it was the fourth rise in as many months. The gain raised the six month growth rate to 0.2% and its correlation with real GDP growth has been 29% during the last ten years.
The U.S. leaders fell for the second consecutive month and the 0.3% decline lowered the six month growth rate to 0.3%, the worst since May. The correlation between the leaders and real GDP growth has been a high 58% during the last ten years. The Canadian leaders also fell and the 0.5% decline dropped six month growth to -1.0%. The leaders&#39; growth also has been highly correlated with Canadian real GDP growth, to the tune of 49% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/33/31/35645542.pdf">here</a>.
What Caused The Great Moderation? Some Cross-Country Evidence from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q05summ.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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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<td class="firstcol">Composite Leading Index&nbsp;</td>
<td>102.51</td>
<td>102.31</td>
<td>0.6%</td>
<td>102.03</td>
<td>97.59</td>
<td>96.30</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>1.1%</td>
<td>0.8%</td>
<td>&nbsp;</td>
<td>3.5%</td>
<td>2.6%</td>
<td>2.2%</td>
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The modest 0.2% increase in the September Leading Index of the Major 7 OECD economies marked the fourth consecutive gain and it improved the leaders' six month growth rate to 1.1%, the best in twelve months.The increase reflected [...]

OECD Leaders Up Again

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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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

260409Z5.jpg

**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.

260409Z6.jpg

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

Michael J. Moran

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260409B.jpg

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**.

260409C.jpg

260409D.jpg

- 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.

U.S. Q4 2025 Real GDP Growth Revised Slower

Robert Brusca

260409E.jpg

Germany’s industrial production slipped in February, driven lower by dropping output of consumer goods. Sequential growth rates over 12 months, six months, and three months show a confusing array of patterns, except for intermediate goods, where annualized growth rates for output sequentially weaken and show declines on each horizon. All German sector growth rates for the quarter-to-date are showing declines, and the growth rankings by sector are below 50% across the broad, indicating below median performance across German sectors.  It’s a very unimpressive report.

Real manufacturing orders rose modestly in February against the backdrop of a very sharp drop in January. Real manufacturing sales have been erratic.

German output and industrial gauges, ranked on annual sales growth against historic norms, have been very weak. Only real orders post a standing above 50%, which represents the median.
 
France, Spain, Portugal, Sweden, and Norway provide some perspective on European growth. The northern European non-EMU member countries are much stronger than the EMU reporters, two of which have standings below their median levels (rankings below 50).

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Germany

German IP Is Weak in February

Kathleen Stephansen, CBE

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Mortgage applications declined 0.8% w/w (-5.6% y/y) in the week ending April 3. The weekly decline eased relative to the prior three weeks, when mortgage applications dropped by 10.4% w/w (+14.2% y/y) in the week ending March 27, and by 10.5% and 10.9% in the March 20 and 13 weeks, respectively, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house rose 1.1% w/w (-6.7% y/y) in the April 3 week, after declining 2.6% w/w (+0.8% y/y) in the week ending March 27.  Applications for loan refinancing dropped by a smaller 2.8% w/w (-4.3% y/y) in the latest week, following weekly declines of 17.3% (+33.2% y/y) in the March 27 week, 14.6% in the March 20 week, and of 18.5% in the week ending March 13.

The effective interest rate on a 30-year fixed-rate loan declined 8bps to 6.68% in the week ending April 3 from 6.76% in the week ending March 27 and after having risen by 52bps since the February 27 week. The rate on 15-year fixed-rate mortgages rose 1bp to 6.09% in the latest week from 6.08% in the prior week. The 30-year Jumbo rate declined 6bps to 6.65% in the week ending April 3 from 6.71% in the March 27 week. The rate on a 5-year ARM eased 3bps to 5.85% in the latest week from 5.88% in the week ending March 27.

The share of applications for refinancing an existing loan declined to 44.3% of total applications in the week of April 3, from 45.3% in the March 27 week. The adjustable-rate mortgage (ARM) share of activity rose to 8.6% in the week ending April 3 from 8.0% in the week ending March 27.

The average size of a mortgage loan edged up 0.2% w/w (-9.1% y/y) to $390,100 in the week ending April 3, after declining 1.3% w/w (-1.9% y/y) to $389,200 in the week ending March 27. The average size of a purchase loan edged down 0.3% w/w (-0.9% y/y) to $448,100 in the latest week, following a decline of 0.8% w/w (+0.4% y/y) to $449,400 in the March 27 week. The average size of a loan to refinance a mortgage edged up 0.1% w/w (-20.7% y/y) to $317,000 in the week ending April 3 after declining 5.5% w/w (+0.3% y/y) to $316,600 in the March 27 week. From the week ending February 27 to the week ending March 27, the average size of a loan to refinance a mortgage had declined 21.8%.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Signs of stabilization in mortgage applications emerged in the latest week.
- Applications for loans to purchase posted a small increase, while applications for loan refinancing posted a small decline in the latest week.
- Interest rate on 30-year fixed-rate loans eased 8bps to 6.68%. 
- Average loan size edged up.

Economy in Brief

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October U.S. Budget Deficit Down Y/Y

OECD Leaders Up Again