Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101h.jpg" width="353">
The value of construction put in place matched Consensus expectations for the second month in a row and rose 0.5% in September following an upwardly revised 0.6% gain in August.
Private building activity increased 0.6%. Residential building jumped 1.0% as new single family building surged 1.4% (10.5% y/y) though the value of residential improvements fell 0.2% (-1.0% y/y), the seventh consecutive monthly decline.
Nonresidential building activity fell 0.3% after a 2.1% spike in August due to less commercial sector spending where auto industry outlays fell 4.4% (+9.6% y/y). Office construction surged 3.8% (12.2% y/y) after upwardly revised, small gains in the prior three months.
Public construction spending fell slightly due to a 0.9% (+19.7% y/y) decline in construction activity on highways &amp; streets, nearly one third of the value of public construction spending.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.6%</td>
<td>6.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.6%</td>
<td>0.7%</td>
<td>6.2%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>1.0%</td>
<td>0.1%</td>
<td>8.2%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.0%</td>
<td>0.4%</td>
<td>9.0%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place matched Consensus expectations for the second month in a row and rose 0.5% in September following an upwardly revised 0.6% gain in August. Private building activity increased 0.6%. Residential [...]

U.S. Construction Spending Rose Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101b.jpg" width="353">
The October Composite Index of activity in the manufacturing sector remained unexpectedly firm at 59.1, reported the Institute of Supply Management (ISM). The modest decline from 59.4 in September contrasted with Consensus expectations for a drop to 57.0. The last two months have been the highest for the index since the Summer of last year.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101c.jpg" width="353">
Three of the index&#39;s five components fell in October. New orders gave back 2.1 of the 7.4 point September rise but remained at the second highest level of the year. Production gave back just 1.1 of the 7.2 point spike in September, also to remain at the second highest level of 2005 and inventories also fell to the middle of recent months&#39; range.
Job creation in the factory sector improved as indicated by a rise in the employment index to the highest level since February. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101d.jpg" width="353">
The vendor deliveries index, indicating that the pace of vendor deliveries slowed, rose 2.4 points on top of an 8.8 point September rise to the highest level in over one year. During the last ten years there been an 82% correlation between the index and the three month change in the core PPI for intermediate materials.
Improved pricing power in the factory sector was further indicated by a 6.0 point rise in the prices paid index to the highest level since May of last year. Seventy percent of those surveyed indicated success in raising prices, the highest since May &#39;04, while just two percent reported lower prices. From the ISM&#39;s latest Report of Business, respondents indicated &quot;We are seeing an increase in the number of chemical products being placed on allocation and order control.&quot; (Chemicals), &quot;Concern over the price of oil and its effect on the future prices of commodities. Existing inventories are being depleted and we are seeing some significant price increases in some commodities.&quot; (Electronic Components &amp; Equipment), &quot;Most price increase letters I have ever seen.&quot; (Instruments &amp; Photographic Equipment) and &quot;Refrigerated freight a significant issue - unable to find available trucks. Sugar prices are skyrocketing.&quot; (Food)
The Global Saving Glut and the U.S. Current Account Deficit, an April 2005 speech by then Fed Governor Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050414/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/@EF02/@EF02.HTM">ISM Manufacturing 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 class="odd">
<td class="firstcol">Composite Index</td>
<td>59.1</td>
<td>59.4</td>
<td>57.5</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>61.7</td>
<td>63.8</td>
<td>59.3</td>
<td>63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>84.0</td>
<td>78.0</td>
<td>78.5</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
</body>
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The October Composite Index of activity in the manufacturing sector remained unexpectedly firm at 59.1, reported the Institute of Supply Management (ISM). The modest decline from 59.4 in September contrasted with Consensus [...]

ISM Index Firmer Than Expected, Pricing Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101a.jpg" width="353">
Lower gasoline prices helped raise spending at chain stores. Last week, the retail average price of regular gasoline in the U.S. fell 12 cents for the second consecutive week to $2.48 per gallon (+21.9 y/y). Since the early September peak of $3.07, retail prices are down 19.2% and a 12 cent decline in yesterday&#39;s spot market price for gasoline suggests another drop this week. 
With a 0.4% rise at the end of October, chain store sales rose for the fifth time in the last six weeks according to the International Council of Shopping Centers (ICSC)-UBS survey. The gains were enough to pull the month&#39;s average sales level up 0.1% from September which fell 1.7% from August. 
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 was unchanged w/w during the latest week (-2.2% y/y) following a 0.9% spurt 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.
Oil Price Shocks and Inflation from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-28.pdf"> here</a>.

<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">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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>451.6</td>
<td>449.7</td>
<td>4.4%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Lower gasoline prices helped raise spending at chain stores. Last week, the retail average price of regular gasoline in the U.S. fell 12 cents for the second consecutive week to $2.48 per gallon (+21.9 y/y). Since the early September [...]

Chain Store Sales Finish October Firm as Gasoline Prices Decline

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101g.jpg" width="353">
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>.

ISM Index Firmer Than Expected, Pricing Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101b.jpg" width="353">
The October Composite Index of activity in the manufacturing sector remained unexpectedly firm at 59.1, reported the Institute of Supply Management (ISM). The modest decline from 59.4 in September contrasted with Consensus expectations for a drop to 57.0. The last two months have been the highest for the index since the Summer of last year.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101c.jpg" width="353">
Three of the index&#39;s five components fell in October. New orders gave back 2.1 of the 7.4 point September rise but remained at the second highest level of the year. Production gave back just 1.1 of the 7.2 point spike in September, also to remain at the second highest level of 2005 and inventories also fell to the middle of recent months&#39; range.
Job creation in the factory sector improved as indicated by a rise in the employment index to the highest level since February. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101d.jpg" width="353">
The vendor deliveries index, indicating that the pace of vendor deliveries slowed, rose 2.4 points on top of an 8.8 point September rise to the highest level in over one year. During the last ten years there been an 82% correlation between the index and the three month change in the core PPI for intermediate materials.
Improved pricing power in the factory sector was further indicated by a 6.0 point rise in the prices paid index to the highest level since May of last year. Seventy percent of those surveyed indicated success in raising prices, the highest since May &#39;04, while just two percent reported lower prices. From the ISM&#39;s latest Report of Business, respondents indicated &quot;We are seeing an increase in the number of chemical products being placed on allocation and order control.&quot; (Chemicals), &quot;Concern over the price of oil and its effect on the future prices of commodities. Existing inventories are being depleted and we are seeing some significant price increases in some commodities.&quot; (Electronic Components &amp; Equipment), &quot;Most price increase letters I have ever seen.&quot; (Instruments &amp; Photographic Equipment) and &quot;Refrigerated freight a significant issue - unable to find available trucks. Sugar prices are skyrocketing.&quot; (Food)
The Global Saving Glut and the U.S. Current Account Deficit, an April 2005 speech by then Fed Governor Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050414/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/@EF02/@EF02.HTM">ISM Manufacturing 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 class="odd">
<td class="firstcol">Composite Index</td>
<td>59.1</td>
<td>59.4</td>
<td>57.5</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>61.7</td>
<td>63.8</td>
<td>59.3</td>
<td>63.5</td>
<td>57.9</td>
<td>56.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>84.0</td>
<td>78.0</td>
<td>78.5</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Rose Further  
by <a href="/comment/Moeller.html">Tom Moeller</a>  November 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101h.jpg" width="353">
The value of construction put in place matched Consensus expectations for the second month in a row and rose 0.5% in September following an upwardly revised 0.6% gain in August.
Private building activity increased 0.6%. Residential building jumped 1.0% as new single family building surged 1.4% (10.5% y/y) though the value of residential improvements fell 0.2% (-1.0% y/y), the seventh consecutive monthly decline.
Nonresidential building activity fell 0.3% after a 2.1% spike in August due to less commercial sector spending where auto industry outlays fell 4.4% (+9.6% y/y). Office construction surged 3.8% (12.2% y/y) after upwardly revised, small gains in the prior three months.
Public construction spending fell slightly due to a 0.9% (+19.7% y/y) decline in construction activity on highways &amp; streets, nearly one third of the value of public construction spending.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.6%</td>
<td>6.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.6%</td>
<td>0.7%</td>
<td>6.2%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>1.0%</td>
<td>0.1%</td>
<td>8.2%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.0%</td>
<td>0.4%</td>
<td>9.0%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
Chain Store Sales Finish October Firm as Gasoline Prices Decline 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051101a.jpg" width="353">
Lower gasoline prices helped raise spending at chain stores. Last week, the retail average price of regular gasoline in the U.S. fell 12 cents for the second consecutive week to $2.48 per gallon (+21.9 y/y). Since the early September peak of $3.07, retail prices are down 19.2% and a 12 cent decline in yesterday&#39;s spot market price for gasoline suggests another drop this week. 
With a 0.4% rise at the end of October, chain store sales rose for the fifth time in the last six weeks according to the International Council of Shopping Centers (ICSC)-UBS survey. The gains were enough to pull the month&#39;s average sales level up 0.1% from September which fell 1.7% from August. 
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 was unchanged w/w during the latest week (-2.2% y/y) following a 0.9% spurt 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.
Oil Price Shocks and Inflation from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-28.pdf"> here</a>.

<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">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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>451.6</td>
<td>449.7</td>
<td>4.4%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Inflation Surges in Indonesia after Government Reduced Fuel Subsidies  
by <a href="/comment/Curley.html">Louise Curley</a> November 1, 2005


<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>
</tr>
</tbody>
</table>


</html>

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?

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051031d.jpg" width="353">
Japan&#39;s third quarter growth in Gross Domestic Product is likely to decline and could even be slightly negative according to the Cabinet Office of Japan &#39;s monthly Synthetic Indexes. The monthly synthetic indexes, which cover consumption, business investment, housing investment, public investment, exports and import are based on a multitude of monthly demand and supply related data. They are reported on a nominal and real basis.
The real synthetic consumption index declined 2.7% in September and for the quarter was 0.46% below the second quarter. Since consumption is the largest component of GDP, the decline in the synthetic indicator by itself suggests lower growth in total GDP. The first chart shows the quarter-to-quarter changes in the synthetic consumption index and the quarter-to-quarter changes in total GDP. Although the growth in the synthetic consumption index is more volatile than that of GDP, it is a relatively good predictor of the trend in GDP growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051031c.jpg" width="353">
The synthetic business investment index was not available for September, but the data for July and August suggest little growth in this sector in the third quarter. The synthetic housing index showed strength throughout the quarter and was up 0.79% compared with a decline of 1.73% in the second quarter, and a decline of 1.28% in the first. The public investment synthetic index also showed improvement in the third quarter after declines in the first and second quarters. The synthetic indexes for exports and imports, which by the way, track the growth in the GDP components of exports and imports of goods and services almost perfectly (See the second chart, which shows the relationship for exports.), suggest that the increased contribution to growth from the export sector has been counteracted by a sharp increase in imports due largely to petroleum imports.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> Japanese Synthetic Indexes of GDP Components &amp; GDP (Percent Change Period to Period)&nbsp;</th>
<th scope="col">Sep 05&nbsp;</th>
<th scope="col">Aug 05</th>
<th scope="col">Jul 05</th>
<th scope="col">Q3 05</th>
<th scope="col">Q2 05</th>
<th scope="col">Q1 05</th>
<th scope="col">2004</th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumption</td>
<td>-2.69</td>
<td>4.81</td>
<td>-2.98</td>
<td>-0.46</td>
<td>3.39</td>
<td>2.59</td>
<td>7.29</td>
<td>7.40</td>
<td>-7.67</td>
</tr>
<tr>
<td class="firstcol">Business Investment</td>
<td>n.a,</td>
<td>0.44</td>
<td>-0.55</td>
<td></td>
<td>0.65</td>
<td>1.05</td>
<td>1.75</td>
<td>0.36</td>
<td>0.93</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing Investment</td>
<td>0.42</td>
<td>1.21</td>
<td>0.62</td>
<td>0.79</td>
<td>-1.73</td>
<td>-1.28</td>
<td>1.87</td>
<td>-1.53</td>
<td>-4.68</td>
</tr>
<tr>
<td class="firstcol">Public Investment</td>
<td>0.25</td>
<td>0.07</td>
<td>0.77</td>
<td>1.50</td>
<td>-1.31</td>
<td>-0.06</td>
<td>-13.46</td>
<td>-10.51</td>
<td>-4.23</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>0.50</td>
<td>3.56</td>
<td>-0.20</td>
<td>3.85</td>
<td>3.06</td>
<td>-0.20</td>
<td>14.40</td>
<td>9.12</td>
<td>7.16</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>-3.11</td>
<td>8.52</td>
<td>-3.39</td>
<td>3.42</td>
<td>1.65</td>
<td>0.69</td>
<td>8.84</td>
<td>3.82</td>
<td>1.35</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Gross Domestic Product</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;0.81</td>
<td>&nbsp;1.41</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumption</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>0.60</td>
<td>1.21&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Exports of Goods &amp; Services&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;2.90</td>
<td>-0.08&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
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Japan's third quarter growth in Gross Domestic Product is likely to decline and could even be slightly negative according to the Cabinet Office of Japan 's monthly Synthetic Indexes. The monthly synthetic indexes, which cover [...]

Japan's Third Quarter GDP Growth Likely to Decline: A Negative Rate of Growth?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051031b.jpg" width="353">
For the second consecutive month, the Chicago Purchasing Managers Business Barometer improved unexpectedly. The October Business Barometer rose to 62.9 after a huge gain in September and easily outpaced Consensus expectations for a slight decline to 58.
During the last ten years there has been a 65% correlation between the level of Chicago PMI and the three month change in factory sector industrial production.
The new orders index jumped 9.2 points to the highest level since March and the production index rose 5.9 points to its highest since July. Employment also rose by 2.9 points and gained back most of the September decline. During the last ten years there has been a 75% correlation between the level of the employment index and the three month change in factory sector employment.
The index of prices paid added another 3.3 points to the 13.4 point spike in September. During the last ten years there has been an 86% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

<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/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">&nbsp;Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Barometer</td>
<td>62.9</td>
<td>60.5</td>
<td>67.7</td>
<td>62.9</td>
<td>54.6</td>
<td>52.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>72.6</td>
<td>63.4</td>
<td>79.7</td>
<td>67.0</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>79.6</td>
<td>76.3</td>
<td>84.7</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
</tr>
</tbody>
</table>
</body>
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For the second consecutive month, the Chicago Purchasing Managers Business Barometer improved unexpectedly. The October Business Barometer rose to 62.9 after a huge gain in September and easily outpaced Consensus expectations for a [...]

Chicago Purchasing Agents' Index Again Rose Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051031a.jpg" width="353">
Insurance payments following hurricanes Katrina and Rita rose $120B (AR) and lifted personal income by 1.7% in September after a 0.9% August decline that was much deeper than initially reported. It was the largest monthly increase in income since a 3.7% jump last December and exceeded Consensus expectations for a 0.3% rise.
Wages &amp; salaries rose 0.3% (6.0% y/y) last month following a downwardly revised 0.1% August increase. Factory sector wages fell 0.5% (+3.4% y/y) and service sector wages rose 0.3% (6.9% y/y).
Disposable personal income jumped 1.9% (5.3% y/y) following a 1.1% drop in August that was initially reported at -0.1%. Adjusted for prices which rose 0.9%, take home pay rose 1.0% (1.5% y/y) after a 1.5% decline in August.
The PCE chain price index surged 0.9% last month as gasoline prices jumped 16.8% m/m, but gasoline prices have since retraced much of that increase. Less food &amp; energy prices rose 0.2% following a downwardly revised 0.1% rise in August.
Personal consumption expenditures recovered about all of the prior month&#39;s unrevised 0.5% decline even though a 2.4% m/m decline in light vehicle sales lowered spending on durables by 2.3% (+1.6% y/y). Nondurables outlays jumped 1.3% (9.8% y/y), however, adjusted for higher prices spending on nondurables fell 1.0% (+2.9% y/y). Services spending rose 0.6% (6.2% y/y).
The personal savings rate remained negative for the fourth consecutive month. The Federal Reserve indicated last week that household sector net worth (from the Flow of Funds Accounts) improved in 2Q to a four year high due to an increase in owners&#39; equity in real estate which has averaged 11.3% per year since 2001.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>1.7%</td>
<td>-0.9%</td>
<td>6.3%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.5%</td>
<td>-0.5%</td>
<td>6.7%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.4%</td>
<td>-1.8%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.9%</td>
<td>0.4%</td>
<td>3.8%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

Insurance payments following hurricanes Katrina and Rita rose $120B (AR) and lifted personal income by 1.7% in September after a 0.9% August decline that was much deeper than initially reported. It was the largest monthly increase in [...]

U.S. Personal Income Lifted By Insurance Payments

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051031a.jpg" width="353">
Insurance payments following hurricanes Katrina and Rita rose $120B (AR) and lifted personal income by 1.7% in September after a 0.9% August decline that was much deeper than initially reported. It was the largest monthly increase in income since a 3.7% jump last December and exceeded Consensus expectations for a 0.3% rise.
Wages &amp; salaries rose 0.3% (6.0% y/y) last month following a downwardly revised 0.1% August increase. Factory sector wages fell 0.5% (+3.4% y/y) and service sector wages rose 0.3% (6.9% y/y).
Disposable personal income jumped 1.9% (5.3% y/y) following a 1.1% drop in August that was initially reported at -0.1%. Adjusted for prices which rose 0.9%, take home pay rose 1.0% (1.5% y/y) after a 1.5% decline in August.
The PCE chain price index surged 0.9% last month as gasoline prices jumped 16.8% m/m, but gasoline prices have since retraced much of that increase. Less food &amp; energy prices rose 0.2% following a downwardly revised 0.1% rise in August.
Personal consumption expenditures recovered about all of the prior month&#39;s unrevised 0.5% decline even though a 2.4% m/m decline in light vehicle sales lowered spending on durables by 2.3% (+1.6% y/y). Nondurables outlays jumped 1.3% (9.8% y/y), however, adjusted for higher prices spending on nondurables fell 1.0% (+2.9% y/y). Services spending rose 0.6% (6.2% y/y).
The personal savings rate remained negative for the fourth consecutive month. The Federal Reserve indicated last week that household sector net worth (from the Flow of Funds Accounts) improved in 2Q to a four year high due to an increase in owners&#39; equity in real estate which has averaged 11.3% per year since 2001.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>1.7%</td>
<td>-0.9%</td>
<td>6.3%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.5%</td>
<td>-0.5%</td>
<td>6.7%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.4%</td>
<td>-1.8%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.9%</td>
<td>0.4%</td>
<td>3.8%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Again Rose Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 31, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051031b.jpg" width="353">
For the second consecutive month, the Chicago Purchasing Managers Business Barometer improved unexpectedly. The October Business Barometer rose to 62.9 after a huge gain in September and easily outpaced Consensus expectations for a slight decline to 58.
During the last ten years there has been a 65% correlation between the level of Chicago PMI and the three month change in factory sector industrial production.
The new orders index jumped 9.2 points to the highest level since March and the production index rose 5.9 points to its highest since July. Employment also rose by 2.9 points and gained back most of the September decline. During the last ten years there has been a 75% correlation between the level of the employment index and the three month change in factory sector employment.
The index of prices paid added another 3.3 points to the 13.4 point spike in September. During the last ten years there has been an 86% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

<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/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">&nbsp;Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Barometer</td>
<td>62.9</td>
<td>60.5</td>
<td>67.7</td>
<td>62.9</td>
<td>54.6</td>
<td>52.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>72.6</td>
<td>63.4</td>
<td>79.7</td>
<td>67.0</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>79.6</td>
<td>76.3</td>
<td>84.7</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
</tr>
</tbody>
</table>
Japan's Third Quarter GDP Growth Likely to Decline:  A Negative Rate of Growth? 
by <a href="/comment/Curley.html">Louise Curley</a> October 31, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051031d.jpg" width="353">
Japan&#39;s third quarter growth in Gross Domestic Product is likely to decline and could even be slightly negative according to the Cabinet Office of Japan &#39;s monthly Synthetic Indexes. The monthly synthetic indexes, which cover consumption, business investment, housing investment, public investment, exports and import are based on a multitude of monthly demand and supply related data. They are reported on a nominal and real basis.
The real synthetic consumption index declined 2.7% in September and for the quarter was 0.46% below the second quarter. Since consumption is the largest component of GDP, the decline in the synthetic indicator by itself suggests lower growth in total GDP. The first chart shows the quarter-to-quarter changes in the synthetic consumption index and the quarter-to-quarter changes in total GDP. Although the growth in the synthetic consumption index is more volatile than that of GDP, it is a relatively good predictor of the trend in GDP growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051031c.jpg" width="353">
The synthetic business investment index was not available for September, but the data for July and August suggest little growth in this sector in the third quarter. The synthetic housing index showed strength throughout the quarter and was up 0.79% compared with a decline of 1.73% in the second quarter, and a decline of 1.28% in the first. The public investment synthetic index also showed improvement in the third quarter after declines in the first and second quarters. The synthetic indexes for exports and imports, which by the way, track the growth in the GDP components of exports and imports of goods and services almost perfectly (See the second chart, which shows the relationship for exports.), suggest that the increased contribution to growth from the export sector has been counteracted by a sharp increase in imports due largely to petroleum imports.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> Japanese Synthetic Indexes of GDP Components &amp; GDP (Percent Change Period to Period)&nbsp;</th>
<th scope="col">Sep 05&nbsp;</th>
<th scope="col">Aug 05</th>
<th scope="col">Jul 05</th>
<th scope="col">Q3 05</th>
<th scope="col">Q2 05</th>
<th scope="col">Q1 05</th>
<th scope="col">2004</th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumption</td>
<td>-2.69</td>
<td>4.81</td>
<td>-2.98</td>
<td>-0.46</td>
<td>3.39</td>
<td>2.59</td>
<td>7.29</td>
<td>7.40</td>
<td>-7.67</td>
</tr>
<tr>
<td class="firstcol">Business Investment</td>
<td>n.a,</td>
<td>0.44</td>
<td>-0.55</td>
<td></td>
<td>0.65</td>
<td>1.05</td>
<td>1.75</td>
<td>0.36</td>
<td>0.93</td>
</tr>
<tr class="odd">
<td class="firstcol">Housing Investment</td>
<td>0.42</td>
<td>1.21</td>
<td>0.62</td>
<td>0.79</td>
<td>-1.73</td>
<td>-1.28</td>
<td>1.87</td>
<td>-1.53</td>
<td>-4.68</td>
</tr>
<tr>
<td class="firstcol">Public Investment</td>
<td>0.25</td>
<td>0.07</td>
<td>0.77</td>
<td>1.50</td>
<td>-1.31</td>
<td>-0.06</td>
<td>-13.46</td>
<td>-10.51</td>
<td>-4.23</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>0.50</td>
<td>3.56</td>
<td>-0.20</td>
<td>3.85</td>
<td>3.06</td>
<td>-0.20</td>
<td>14.40</td>
<td>9.12</td>
<td>7.16</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>-3.11</td>
<td>8.52</td>
<td>-3.39</td>
<td>3.42</td>
<td>1.65</td>
<td>0.69</td>
<td>8.84</td>
<td>3.82</td>
<td>1.35</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Gross Domestic Product</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;0.81</td>
<td>&nbsp;1.41</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumption</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>0.60</td>
<td>1.21&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Exports of Goods &amp; Services&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;2.90</td>
<td>-0.08&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

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.

260409Z2.jpg

**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.

260409Z4.jpg

**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

260409N1.jpg

260409C1.jpg

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.

260409O1.jpg

260409P1.jpg

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**.

260409Q1.jpg

260409S1.jpg

- 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

260408A0.jpg

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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

260408E.jpg

**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.

260408.jpg

**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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