Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103b.jpg" width="353">
Growth in non-farm labor productivity of 4.1% last quarter was nearly double the upwardly revised growth during the prior quarter and easily surpassed Consensus expectations for a 2.5% rise. The increase lifted the year on year growth in worker productivity to 3.0%, its strongest since 2Q &#39;04.
Output growth of 4.2% (4.2% y/y) was down slightly from a 4.4% increase during 2Q while hours worked grew a slight 0.1% (1.2% y/y).
The Bureau of labor Statistics indicated that the effects of Hurricanes Katrina &amp; Rita could not be separately identified but that the effects were imbedded in the 3Q figures covering output, hours and compensation.
Unit labor costs fell 0.5%, the first quarterly decline since 2Q &#39;04. The decline stemmed both from the strength in productivity as well as a moderate 3.6% (5.8% y/y) rise in compensation costs which was the slowest since 2Q &#39;04.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103a.jpg" width="353">
The implicit price deflator rose 3.3% (2.9% y/y) and the increase lifted the ratio of prices to unit labor costs to its highest since early last year. During the last ten years there has been a 58% correlation between the ratio and the y/y growth in corporate profits.
Factory sector productivity growth surged 4.5% (4.7% y/y) after a 3.6% rise during 2Q. Manufacturing compensation grew just 2.9% (7.2% y/y) which allowed unit labor costs to fall 1.6% (+2.5% y/y), the first decline since 2Q &#39;04.
Nonfinancial corporate sector productivity growth during 2Q was revised down to 6.3% (6.2% y/y) from 6.8% reported previously. Nevertheless, unit labor costs still fell 2.4% (+0.4% y/y) versus the initial estimate of a 2.6% decline. Output for this measure is gleaned from the income side of the National Income &amp; Product Accounts (NIPA) as opposed to the non-farm output figures which are derived from the output side of the NIPA. Factory sector output is derived from the industrial production measures compiled by the Federal Reserve Board.

<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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>4.1%</td>
<td>2.1%</td>
<td>3.0%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.6%</td>
<td>4.0%</td>
<td>5.8%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-0.5%</td>
<td>1.8%</td>
<td>2.7%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>


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Growth in non-farm labor productivity of 4.1% last quarter was nearly double the upwardly revised growth during the prior quarter and easily surpassed Consensus expectations for a 2.5% rise. The increase lifted the year on year growth [...]

3Q U.S. Productivity Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103b.jpg" width="353">
Growth in non-farm labor productivity of 4.1% last quarter was nearly double the upwardly revised growth during the prior quarter and easily surpassed Consensus expectations for a 2.5% rise. The increase lifted the year on year growth in worker productivity to 3.0%, its strongest since 2Q &#39;04.
Output growth of 4.2% (4.2% y/y) was down slightly from a 4.4% increase during 2Q while hours worked grew a slight 0.1% (1.2% y/y).
The Bureau of labor Statistics indicated that the effects of Hurricanes Katrina &amp; Rita could not be separately identified but that the effects were imbedded in the 3Q figures covering output, hours and compensation.
Unit labor costs fell 0.5%, the first quarterly decline since 2Q &#39;04. The decline stemmed both from the strength in productivity as well as a moderate 3.6% (5.8% y/y) rise in compensation costs which was the slowest since 2Q &#39;04.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103a.jpg" width="353">
The implicit price deflator rose 3.3% (2.9% y/y) and the increase lifted the ratio of prices to unit labor costs to its highest since early last year. During the last ten years there has been a 58% correlation between the ratio and the y/y growth in corporate profits.
Factory sector productivity growth surged 4.5% (4.7% y/y) after a 3.6% rise during 2Q. Manufacturing compensation grew just 2.9% (7.2% y/y) which allowed unit labor costs to fall 1.6% (+2.5% y/y), the first decline since 2Q &#39;04.
Nonfinancial corporate sector productivity growth during 2Q was revised down to 6.3% (6.2% y/y) from 6.8% reported previously. Nevertheless, unit labor costs still fell 2.4% (+0.4% y/y) versus the initial estimate of a 2.6% decline. Output for this measure is gleaned from the income side of the National Income &amp; Product Accounts (NIPA) as opposed to the non-farm output figures which are derived from the output side of the NIPA. Factory sector output is derived from the industrial production measures compiled by the Federal Reserve Board.

<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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>4.1%</td>
<td>2.1%</td>
<td>3.0%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.6%</td>
<td>4.0%</td>
<td>5.8%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-0.5%</td>
<td>1.8%</td>
<td>2.7%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims At Two Month Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 3, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103c.jpg" width="353">
Initial claims for unemployment insurance fell 8,000 to 323,000 last week versus a little revised 26,000 decline during the prior period. Consensus expectations had been for 330,000 claims. The decline lowered the level of claims to the lowest since late August.
The four-week moving average of initial claims fell to 350,500 (+3.5% y/y).
Continuing claims for unemployment insurance fell 44,000 following a downwardly revised 5,000 increase during the prior week.
The insured rate of unemployment remained at 2.2% where it has been during the last six weeks.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/29/05</th>
<th scope="col">10/22/05</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>323</td>
<td>331</td>
<td>-3.6%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,823</td>
<td>1.2%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
ISM Non-Manufacturing Index Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 3, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103d.jpg" width="353">
The October Non-manufacturing Sector Business Activity Index from the Institute for Supply Management recovered more than half of its September decline with a 6.7 point increase to 60.0. Consensus expectations had been for a lesser recovery to 57.0.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
The orders index gained back just a piece of its September decline with a 1.6 point rise. Conversely, the employment index fell for the third month in the last four to the lowest level since January. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103e.jpg" width="353">
Pricing power reversed just some of the 14.3 point September surge to a record high with a 3.4 point decline. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP Services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
Today&#39;s testimony by Fed Chairman Alan Greenspan on the Economic Outlook before the Joint Economic committee can be found <a href="http://www.federalreserve.gov/BoardDocs/Testimony/2005/20051103/default.htm">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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#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">Business Activity Index</td>
<td>60.0</td>
<td>53.3</td>
<td>61.5</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>78.0</td>
<td>81.4</td>
<td>74.0</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>
U.S. Factory Inventories Slip 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 3, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103g.jpg" width="353">
Factory inventories fell another 0.1% in September following a deepened 0.2% decline in August even though higher prices recently have boosted petroleum inventories, (+24.9% y/y). Less petroleum, factory inventories fell 0.1% (+4.1% y/y) in September for the third decline in the last four months and have been virtually unchanged since March.
Inventory declines last month centered mostly in nondurables industries where textile products fell 0.9% (-0.1% y/y) and paper products fell 0.8% (+2.5% y/y). Plastics &amp; rubber products also fell a sharp 1.8% (+6.4% y/y) and paints &amp; coatings inventories fell 1.0% (+6.3% y/y).
Electrical equipment inventories rose 1.0% (3.2% y/y) after four months of declines while machinery inventories rose 0.2% (9.3% y/y). Computers &amp; electronic components rose 0.1% (-0.3% y/y) but electronic computer inventories rose 4.4% (0.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103f.jpg" width="353">
Factory shipments fell 0.5% after an upwardly revised 2.1% surge in August, however, less a 3.4% jump in shipments from petroleum refineries factory shipments fell 0.9% (3.9% y/y).
Factory sector orders fell 1.7%. The advance report of a 2.1% drop in durables goods orders was revised to -2.4%.
Unfilled orders jumped 0.7% on top of the 1.6% August spurt. Less the transportation sector backlogs surged 1.2% (8.9% y/y) and the ratio of unfilled orders to shipments jumped.<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>4.9%</td>
<td>7.7%</td>
<td>-1.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>-1.7%</td>
<td>2.9%</td>
<td>7.0%</td>
<td>9.3%</td>
<td>3.5%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.5%</td>
<td>2.1%</td>
<td>6.6%</td>
<td>9.5%</td>
<td>1.5%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.7%</td>
<td>1.6%</td>
<td>10.4%</td>
<td>8.4%</td>
<td>8.0%</td>
<td>-8.5%</td>
</tr>
</tbody>
</table>
PMI Surveys Around the World in October:  Europe Looks Better, China Does Not! 
by <a href="/comment/Stone.html">Carol Stone</a> November 3, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103j.jpg" width="353">
Purchasing manager surveys suggest economies in Europe and Japan are improving, while China might be showing signs of moderation. These monthly polls are published by NTC Research in London and conducted by local business organizations, such as Nomura in Japan and Reuters in the UK. The results are shown as diffusion indexes, which show the percentage of respondents that report increasing business for a given month. As with the ISM data in the US, manufacturing is reported on the first business day of the following month, with nonmanufacturing (mostly services) following two days later. The indexes are calculated as the percentage reporting rising business plus half of those reporting a flat performance. The resulting indexes are then seasonally adjusted.
In October, companies in the Euro-Zone saw business increase more broadly, with a manufacturing index of 52.69 and services, 54.95. Both show notable improvements from earlier in the year. European manufacturing faced a mild contraction (readings below 50%) in the spring and the service sector experienced sluggish growth in the year through August before picking up smartly in the last two months. Patterns in the UK recently have been somewhat similar, with a brief outright contraction in manufacturing during the spring, but some subsequent pickup; activity at UK service companies has held within a persistent and narrow range since the middle of 2004, indicating steady moderate growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103h.jpg" width="353">
In contrast, growth in Russia&#39;s manufacturing sector has slowed in the last two months. This PMI index has ranged from roughly 50 to 55 over the last several years, with September and October dropping into the lower end of the span. Services, though, are holding up well with some strengthening evident so far in 2005. Price behavior in these sectors varies as well: input prices for manufacturers show a trendless, but widely varying oscillation, while service companies&#39; input prices have risen at a dramatically larger number of firms recently.
Only manufacturing surveys are taken in Japan and China. Japanese factories appear to be doing better, with that index ratcheting upward all year long. This firming even includes employment; this index worked its way above 50% during 2004, and since March of this year, it has averaged 52.5. While not high by world standards, it looks good for Japan. The survey began in October 2001, and both the total index and the employment component were down around 40 at the time. Such improvement in manufacturing seems at odds with the Japanese government&#39;s synthetic indexes reported here Monday by Louise Curley, in which marked slowing or even decline is indicated for the Japanese economy in Q3. Clearly, at the least, various data may diverge over brief time periods. In this case, the synthetic indexes are meant to describe demand conditions, while the PMI survey looks at supply, and that in only one sector. This makes judging the prospects for even the direction of business in Japan a tough call.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051103i.jpg" width="353">
China is even more intriguing. Its manufacturing index has dropped steadily since its inception 18 months ago, and now stands just barely above 50%. The moderation appears in most of the survey components, including new orders and backlogs. Notably, output prices are below 50%, indicating declines at more companies than have increases. And in the last three months, employment at factories has been ever so slightly below 50%, basically indicating that it has stopped growing. These results feel odd for a country with GDP growth at about 9-1/2%, led by manufacturing. Perhaps the pattern is a relative one. With such a high growth trend, merely keeping up pace may give the impression of slowing, particularly from the high base that obtained in the spring of 2004 when the survey started. Asia is clearly full of interesting economic developments. We eagerly await more information on how they&#39;re doing.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">October 2005</th>
<th scope="col">September 2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro-Zone</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>52.69</td>
<td>51.74</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>54.92</td>
<td>54.65</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>51.72</td>
<td>51.52</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services</td>
<td>56.14</td>
<td>55.05</td>
</tr>
<tr class="odd">
<td class="firstcol">Russia</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>51.23</td>
<td>51.83</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>60.75</td>
<td>59.48</td>
</tr>
<tr>
<td class="firstcol">Japan</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>54.74</td>
<td>54.46</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>50.07</td>
<td>50.85</td>
</tr>
</tbody>
</table>


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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/051102e.jpg" width="353">
German labor market data was largely favorable in the report issued this morning by the Federal Statistics Office and the Bundesbank. Employment of German residents rose 41,000 in September, following a 29,000 gain in August (seasonally adjusted). The number of workers remains below year-earlier levels but it started to rise, however hesitantly, in May. Another positive development is a marked increase in the number of job vacancies, which numbered 498,000 in October, up 27,000 in the month and 83% greater than a year ago (272,000).
The performance of unemployment depends on which measure is used. The standard German &quot;registered unemployment&quot; remains stubbornly high, at 11.6% in October after 11.7% in September. This is about where the rate has been throughout 2005. The ILO definition, by contrast, has come down sharply. Its latest reading is for September, when it fell to 8.4% from 9.3% in August. This latter, while appearing quite constructive, is not so attractive when labor force developments are considered. The labor force, according to the ILO definition, fell nearly 400,000 in September. Thus, unemployment declined not so much because job market conditions were better, but because people pulled away from it.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102d.jpg" width="353">
Further, the job opportunities that are available have shown most strength in the &quot;part-time&quot; segment. Among total vacancies, those for part-time work have hovered around an 18.6% share for several years. But in 2005, they have jumped dramatically and, accounting for more than half of the year-on-year increase in vacancies, reached 32.5% of the total in August, the latest reported figure.
So there are hesitant signs of improvement in the German labor market: some increase in jobs and at worst a stabilization of unemployment. The growing emphasis on part-time work is a two-edged sword: it can perhaps enhance the number of jobs, but each job would afford smaller wages and benefits than full-time work. Federal Reserve Chairman Alan Greenspan highlights the increased flexibility of US markets as a favorable development, which can help cushion the US economy from shocks. Seen in that light, greater flexibility in German labor markets, a topic of contention in their recent elections, could possibly also limit the harm from such negative forces as high energy costs.

<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/G10/@GA/@GA6/@GA6.HTM">German Labor Data</a> (Seasonally Adjusted)</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment: German Residents (Mil)</td>
<td>--</td>
<td>38.76</td>
<td>38.72</td>
<td>38.83</td>
<td>38.78</td>
<td>38.63</td>
<td>38.99</td>
</tr>
<tr>
<td class="firstcol">Change (Thous or %)</td>
<td>&nbsp;</td>
<td>+41</td>
<td>+29</td>
<td>-0.17%</td>
<td>0.38%</td>
<td>-0.92%</td>
<td>-0.56%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (ILO, Mil)</td>
<td>--</td>
<td>3.56</td>
<td>3.98</td>
<td>3.95</td>
<td>3.94</td>
<td>3.71</td>
<td>3.24</td>
</tr>
<tr>
<td class="firstcol">Total = Labor Force (Mil)</td>
<td>--</td>
<td>42.32</td>
<td>42.70</td>
<td>42.78</td>
<td>42.71</td>
<td>42.34</td>
<td>42.22</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (ILO, %)</td>
<td>--</td>
<td>8.4</td>
<td>9.3</td>
<td>9.2</td>
<td>9.2</td>
<td>8.8</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Registered Unemployment Rate (%)</td>
<td>11.6</td>
<td>11.7</td>
<td>11.6</td>
<td>10.7</td>
<td>10.5</td>
<td>10.5</td>
<td>9.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Job Vacancies (Thous)</td>
<td>498</td>
<td>471</td>
<td>445</td>
<td>272</td>
<td>284</td>
<td>351</td>
<td>447</td>
</tr>
</tbody>
</table>
</body>
</html>

German labor market data was largely favorable in the report issued this morning by the Federal Statistics Office and the Bundesbank. Employment of German residents rose 41,000 in September, following a 29,000 gain in August [...]

Modest Gains in German Employment; Unemployment Rates Up or Down, Depending on Definition

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102a.jpg" width="353">
The total number of mortgage applications fell a sharp 4.8% last week on the heels of a 7.9% decline the prior period according to the Mortgage Bankers Association. The decline pulled the average level of applications in October 7.8% below September.
Purchase applications fell especially hard last week, dropped 6.2% following a 7.4% decline the week earlier and pulled the October average 5.0% below September&#39;s. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance fell another 2.8% following an 8.5% decline the prior week. The October average fell 11.4% from September and the figure was 77.5% below the high during 2003.
The effective interest rate on a conventional 30-year mortgage rose to 6.46% from 6.30% the prior week and the effective rate on a 15-year mortgage rose to 6.06%, the highest since July 2002. The interest rate on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">10/28/05</th>
<th scope="col">10/21/05</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>646.7</td>
<td>679.1</td>
<td>-15.1%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>437.6</td>
<td>466.4</td>
<td>-11.9%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,862.8</td>
<td>1,916.8</td>
<td>-19.1%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications fell a sharp 4.8% last week on the heels of a 7.9% decline the prior period according to the Mortgage Bankers Association. The decline pulled the average level of applications in October 7.8% [...]

Mortgage Applications Off Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102c.jpg" width="353">
According to the Autodata Corporation, US sales of light vehicles in October fell another 10.0% m/m to 14.75M under the weight of higher gasoline prices and lower consumer sentiment. The decline was the third in as many months and dropped sales to the lowest monthly level since 1998.
Consumer sentiment dropped 3.5% (-19.1% y/y) last month according to the University of Michigan which indicated that current buying conditions for vehicles was especially poor.
In October, US gasoline prices dropped 6.4% versus the September average but prices were up 35.9% versus last year at $2.72 per gallon.
Last month&#39;s skid in vehicle sales additionally reflected payback from the earlier success of discount pricing programs. The average of sales during the last six months has been 17.20M, up 2.0% from all of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102b.jpg" width="353">
As of September, strong sales had lowered inventories of US autos to the lowest level since late 2001 (-17.9% y/y). At 1.61, the inventory to sales ratio was roughly half the level in January. Inventories of domestic &amp; imported trucks also was down 10.2% y/y though increases in August &amp; September left the level up versus 2002 and 2003.
Sales of US made cars &amp; trucks fell 12.0% (-14.3% y/y). Domestic truck sales dropped 14.0% (-22.8% y/y) and car sales fell 9.3% (-0.9% y/y).
The decline in sales of imported cars &amp; trucks was limited to a moderate 2.7% m/m (-8.6% y/y) as sales of imported trucks rose 4.9% (-12.9% y/y). Sales of imported autos fell 6.1% (-6.2% y/y).
Import&#39;s share of the US light vehicle market jumped m/m to 22.5%, the highest monthly level since 1990.
Oil Price Volatility and U.S. Macroeconomic Activity from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/05/11/KliesenGuo.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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">Total</td>
<td>14.75</td>
<td>16.39</td>
<td>-13.1%</td>
<td>16.87</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.32</td>
<td>7.99</td>
<td>-2.6%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>7.42</td>
<td>8.40</td>
<td>-21.4%</td>
<td>9.37</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the Autodata Corporation, US sales of light vehicles in October fell another 10.0% m/m to 14.75M under the weight of higher gasoline prices and lower consumer sentiment. The decline was the third in as many months and [...]

U.S. Vehicle Sales Lowest Since 1998, Inventories Lower As Well

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102c.jpg" width="353">
According to the Autodata Corporation, US sales of light vehicles in October fell another 10.0% m/m to 14.75M under the weight of higher gasoline prices and lower consumer sentiment. The decline was the third in as many months and dropped sales to the lowest monthly level since 1998.
Consumer sentiment dropped 3.5% (-19.1% y/y) last month according to the University of Michigan which indicated that current buying conditions for vehicles was especially poor.
In October, US gasoline prices dropped 6.4% versus the September average but prices were up 35.9% versus last year at $2.72 per gallon.
Last month&#39;s skid in vehicle sales additionally reflected payback from the earlier success of discount pricing programs. The average of sales during the last six months has been 17.20M, up 2.0% from all of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102b.jpg" width="353">
As of September, strong sales had lowered inventories of US autos to the lowest level since late 2001 (-17.9% y/y). At 1.61, the inventory to sales ratio was roughly half the level in January. Inventories of domestic &amp; imported trucks also was down 10.2% y/y though increases in August &amp; September left the level up versus 2002 and 2003.
Sales of US made cars &amp; trucks fell 12.0% (-14.3% y/y). Domestic truck sales dropped 14.0% (-22.8% y/y) and car sales fell 9.3% (-0.9% y/y).
The decline in sales of imported cars &amp; trucks was limited to a moderate 2.7% m/m (-8.6% y/y) as sales of imported trucks rose 4.9% (-12.9% y/y). Sales of imported autos fell 6.1% (-6.2% y/y).
Import&#39;s share of the US light vehicle market jumped m/m to 22.5%, the highest monthly level since 1990.
Oil Price Volatility and U.S. Macroeconomic Activity from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/05/11/KliesenGuo.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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">Total</td>
<td>14.75</td>
<td>16.39</td>
<td>-13.1%</td>
<td>16.87</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.32</td>
<td>7.99</td>
<td>-2.6%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>7.42</td>
<td>8.40</td>
<td>-21.4%</td>
<td>9.37</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
Mortgage Applications Off Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102a.jpg" width="353">
The total number of mortgage applications fell a sharp 4.8% last week on the heels of a 7.9% decline the prior period according to the Mortgage Bankers Association. The decline pulled the average level of applications in October 7.8% below September.
Purchase applications fell especially hard last week, dropped 6.2% following a 7.4% decline the week earlier and pulled the October average 5.0% below September&#39;s. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance fell another 2.8% following an 8.5% decline the prior week. The October average fell 11.4% from September and the figure was 77.5% below the high during 2003.
The effective interest rate on a conventional 30-year mortgage rose to 6.46% from 6.30% the prior week and the effective rate on a 15-year mortgage rose to 6.06%, the highest since July 2002. The interest rate on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">10/28/05</th>
<th scope="col">10/21/05</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>646.7</td>
<td>679.1</td>
<td>-15.1%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>437.6</td>
<td>466.4</td>
<td>-11.9%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,862.8</td>
<td>1,916.8</td>
<td>-19.1%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Modest Gains in German Employment; Unemployment Rates Up or Down, Depending on Definition 
by <a href="/comment/Stone.html">Carol Stone</a> November 2, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102e.jpg" width="353">
German labor market data was largely favorable in the report issued this morning by the Federal Statistics Office and the Bundesbank. Employment of German residents rose 41,000 in September, following a 29,000 gain in August (seasonally adjusted). The number of workers remains below year-earlier levels but it started to rise, however hesitantly, in May. Another positive development is a marked increase in the number of job vacancies, which numbered 498,000 in October, up 27,000 in the month and 83% greater than a year ago (272,000).
The performance of unemployment depends on which measure is used. The standard German &quot;registered unemployment&quot; remains stubbornly high, at 11.6% in October after 11.7% in September. This is about where the rate has been throughout 2005. The ILO definition, by contrast, has come down sharply. Its latest reading is for September, when it fell to 8.4% from 9.3% in August. This latter, while appearing quite constructive, is not so attractive when labor force developments are considered. The labor force, according to the ILO definition, fell nearly 400,000 in September. Thus, unemployment declined not so much because job market conditions were better, but because people pulled away from it.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051102d.jpg" width="353">
Further, the job opportunities that are available have shown most strength in the &quot;part-time&quot; segment. Among total vacancies, those for part-time work have hovered around an 18.6% share for several years. But in 2005, they have jumped dramatically and, accounting for more than half of the year-on-year increase in vacancies, reached 32.5% of the total in August, the latest reported figure.
So there are hesitant signs of improvement in the German labor market: some increase in jobs and at worst a stabilization of unemployment. The growing emphasis on part-time work is a two-edged sword: it can perhaps enhance the number of jobs, but each job would afford smaller wages and benefits than full-time work. Federal Reserve Chairman Alan Greenspan highlights the increased flexibility of US markets as a favorable development, which can help cushion the US economy from shocks. Seen in that light, greater flexibility in German labor markets, a topic of contention in their recent elections, could possibly also limit the harm from such negative forces as high energy costs.

<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/G10/@GA/@GA6/@GA6.HTM">German Labor Data</a> (Seasonally Adjusted)</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment: German Residents (Mil)</td>
<td>--</td>
<td>38.76</td>
<td>38.72</td>
<td>38.83</td>
<td>38.78</td>
<td>38.63</td>
<td>38.99</td>
</tr>
<tr>
<td class="firstcol">Change (Thous or %)</td>
<td>&nbsp;</td>
<td>+41</td>
<td>+29</td>
<td>-0.17%</td>
<td>0.38%</td>
<td>-0.92%</td>
<td>-0.56%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (ILO, Mil)</td>
<td>--</td>
<td>3.56</td>
<td>3.98</td>
<td>3.95</td>
<td>3.94</td>
<td>3.71</td>
<td>3.24</td>
</tr>
<tr>
<td class="firstcol">Total = Labor Force (Mil)</td>
<td>--</td>
<td>42.32</td>
<td>42.70</td>
<td>42.78</td>
<td>42.71</td>
<td>42.34</td>
<td>42.22</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (ILO, %)</td>
<td>--</td>
<td>8.4</td>
<td>9.3</td>
<td>9.2</td>
<td>9.2</td>
<td>8.8</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Registered Unemployment Rate (%)</td>
<td>11.6</td>
<td>11.7</td>
<td>11.6</td>
<td>10.7</td>
<td>10.5</td>
<td>10.5</td>
<td>9.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Job Vacancies (Thous)</td>
<td>498</td>
<td>471</td>
<td>445</td>
<td>272</td>
<td>284</td>
<td>351</td>
<td>447</td>
</tr>
</tbody>
</table>
</body>
</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/051101e.jpg" width="353">
Inflation in Indonesia rose almost 18% in October largely as a result of government action on October 1, reducing subsidies on petroleum related products. Kerosene prices, for example, almost tripled and diesel prices doubled. The hardest hit components of the consumer price index were transportation and communication, showing a year-over-year rise of almost 45% and foodstuffs, 18%. The first chart shows the year-over-year change in the total index and in the transportation and communication component.
A major reason for the government&#39;s action in reducing the subsidies was the growing cost and its impact on the budget balance. In the first nine months of this year expenditures were about 20% above those of the corresponding period of last year. This increase follows one of 16.2% for all of 2004 and 14.5% for 2002 and only 1.3% for 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101f.jpg" width="353">
Following the announcement of the spike in inflation, the Central Bank raised the one month bill rate 125 basis points from 11% to 12.25%. The real base interest rate (nominal value less the rate of inflation) is shown in the second chart. The real rate has declined substantially over the past five years, from 12% in 2000 to zero or slightly negative values in several recent months. The October real rate is almost -7% in spite of the hefty rise in the nominal rate.

<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/EMERGEPR/@P7/@P7.HTM">Indonesia</a></th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Sep 05</th>
<th scope="col">Oct 04</th>
<th scope="col">M/M&nbsp; %</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">Consumer Price Index (2002=100)</td>
<td>136.16</td>
<td>125.23</td>
<td>115.20</td>
<td>8.73</td>
<td>17.90</td>
<td>6.06</td>
<td>6.79</td>
<td>11.91</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foodstuffs</td>
<td>128.58</td>
<td>120.84</td>
<td>108.97</td>
<td>6.41</td>
<td>18.00</td>
<td>5.89</td>
<td>0.90</td>
<td>11.21</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Transportation and&nbsp;&nbsp;&nbsp; Communication</td>
<td>164.61</td>
<td>127.40</td>
<td>113.73</td>
<td>29.21</td>
<td>44.74</td>
<td>4.78</td>
<td>6.95</td>
<td>17.61</td>
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Inflation in Indonesia rose almost 18% in October largely as a result of government action on October 1, reducing subsidies on petroleum related products. Kerosene prices, for example, almost tripled and diesel prices doubled. The [...]

Inflation Surges in Indonesia after Government Reduced Fuel Subsidies

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The Federal Open Market Committee&#39;s unanimous decision to increase the target rate for federal funds 25 basis points to 4.00% was widely expected by analysts. The discount rate also was raised 25 basis points to 5.00%. This latest increase was the twelfth since June of 2004.
Today&#39;s press release from the Fed focused on the effects of higher energy prices. &quot;Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment.&quot;
The FOMC statement further indicated, as it did in September, that &quot;The cumulative rise in energy and other costs have the potential to add to inflation pressures ...&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20051101/default.htm">here</a>.
Implementing Monetary Policy, a March 2005 speech by then Fed Governor Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050330/default.htm"> here</a>.

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The Federal Open Market Committee's unanimous decision to increase the target rate for federal funds 25 basis points to 4.00% was widely expected by analysts. The discount rate also was raised 25 basis points to 5.00%. This latest [...]

Fed Funds Rate Raised to 4.00% and Going Higher?

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

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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

Michael J. Moran

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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.

U.S. Q4 2025 Real GDP Growth Revised Slower

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.

U.S. Mortgage Applications Edged Down in the April 3 Week

Robert Brusca

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**Chaotic trends**
Producer price trends for the European Monetary Union in February show great deal of weakness. The headline measure in February for total PPI prices (excluding construction) fell 0.5% after rising 0.5% in January. The three-month annualized change was -1.3%, over six months it was -0.7%, and year-over-year it was -3.1%. The trend is not particularly conclusive although the table also produces the trend for the HICP-core on the same timeline where there is acceleration in train. Despite this report and any trends, it may show that the risk to inflation in the PPI is now through elevated Brent crude prices, which we see in the chart has been historically well correlated with changes in the PPI.

**The past may not be prologue**
The chart offers some insight into this matter as we see that recently the spike in Brent crude is substantial—and the chart doesn't even take us up-to-date to what we're dealing with in the markets today! We can see that in 2021 when all prices went up sharply, that preceded a spike in the PPI as well. However, in 2017 when there was a short-lived spike, there wasn't much impact on producer prices at all. Then, later in 2018, when prices spiked not quite so high or suddenly, but had a bit more sustained growth, there also was a very small knock-on impact on producer prices. One of the key features for whether the Brent rise gets into producer prices or not is how long-lived the spike remains in force and how people perceive it. In this case, there's closing of the Strait of Hormuz and a war in place; there's a good chance that investors are going to treat this as a real event and one with potential longevity. That means that this spike will elevate producer prices.

**Overall PPI is tempered but, by country...not so much**
However, the table is based on data through February, and so oil spiking prices really haven't entered the picture as far as the table is concerned. On that basis, we're seeing a lot of price declines: an annualized three-month decline of 7.9% in Spain, 7.3% in Portugal, 3.6% in Germany, and so on. These figures clearly do not reflect what will be the lasting effect on oil prices as we get deeper into 2026. Even despite this weakness in headline inflation across countries in the monetary union, and in Europe generally, inflation is tempered year-over-year where it only rises compared to a year earlier for 7.7% of the reporters, but then over six months inflation accelerates for all of the reporters compared to its 12-month pace, and then, over three months it accelerates for about 70% of the reporters compared to the six-month pace.

**PPI headline vs. core... where available**
There are two observations at the bottom of the table for the PPI excluding energy—for France and Germany. In both cases, the difference between the excluding energy price and the headline price is remarkable. For Germany, the ex-energy price is rising and clearly accelerating; in contrast, the headline trends show prices declining or a tendency toward deceleration. For France, the ex-energy prices are rising and sustaining larger increases over six months and three months than over 12 months. However, for France, in the table, the total PPI headline inflation rate declines on all horizons although the pace of decline is undergoing erosion. Once we set aside the weighting scheme for the monetary union, the PPI is looking instead at the average result of the countries in the table (an average that includes some non-monetary union members) where the inflation rate is clearly headed higher, not lower.

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**The trend and the future**
Despite the controversies implicit in these data, at its last meeting the European Central Bank put markets on notice that, if the war were still ongoing, there was a high likelihood that the ECB would raise interest rates at its next meeting. It's easy to see why since the inflation picture isn't particularly glowing. Even before the new oil price impact is factored in, there is evidence of acceleration in producer prices.

**War! And price trends**
War creates a lot of uncertainty. In addition to oil prices, there are going to be knock-on effects for weakness across the global economy and also a tendency for oil prices to spread increases since the oil price increase is high enough that it's likely to have a significant impact on transportation costs for all goods. Central banks are clearly going to be on notice and wary. Even so, it's also true that spiking oil prices, even if they spread inflation, tend to spread economic weakness. Policymaking in 2026 is going to be far more contentious and difficult than it was in 2025, everywhere globally.

Economy in Brief

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3Q U.S. Productivity Strong

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Mortgage Applications Off Again

U.S. Vehicle Sales Lowest Since 1998, Inventories Lower As Well

U.S. Vehicle Sales Lowest Since 1998, Inventories Lower As Well

Inflation Surges in Indonesia after Government Reduced Fuel Subsidies

Fed Funds Rate Raised to 4.00% and Going Higher?