Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027d.jpg" width="353">
New single-family home sales edged up 2.1% last month to 1.222M but that followed an 11.6% drop in August which was deeper than estimated initially. Consensus expectations had been for 1.25M sales in September.
Sales fell a sharp 11.8% (-16.2% y/y) in the Northeast, down hard for the fourth month in the last five and sales are 43.4% below the April peak. In the West sales also fell by 11.8% (-16.2% y/y). Sales in the Midwest bucked the trend and rose 24.9% (0.4% y/y) while sales in the South also rose 5.6% (14.1% y/y).
The median price of a new single family home fell 5.7% m/m (+1.9% y/y) after an upwardly revised 4.1% August gain.
The figures from the Census Department reflect home sales counted at the time of sales contract or deposit.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
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<td class="firstcol">New Single-Family</td>
<td>1,222</td>
<td>1,197</td>
<td>-0.1%</td>
<td>1,200</td>
<td>1,091</td>
<td>976</td>
</tr>
</tbody>
</table>
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New single-family home sales edged up 2.1% last month to 1.222M but that followed an 11.6% drop in August which was deeper than estimated initially. Consensus expectations had been for 1.25M sales in September. Sales fell a sharp [...]

New Home Sales Up, Northeast & West Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027b.jpg" width="353">
A 41.6% m/m decline in nondefense aircraft orders combined with a 3.5% drop in defense aircraft bookings to pull total orders for durable goods down 2.1% last month. The 3.8% rise in August orders was upwardly revised and Consensus expectations had been for a 1.2% September decline. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027a.jpg" width="353">
Less the transportation sector altogether, durable goods orders slipped 1.0% after an upwardly revised 5.1% September jump, however, the year to year gain in orders less transportation is the same 6.0% as the gain in the total.
Total nondefense capital goods orders dropped 8.1% m/m due to the drop in aircraft but less aircraft these orders slipped a modest 1.2% following an upwardly revised 4.0% August surge.
Machinery orders increased 1.0% (7.6% y/y) on top of a 4.0% August gain and though electrical equipment orders fell 3.5% (8.4% y/y). Orders for computers &amp; electronic products, down 3.6% (+0.9% y/y), fell hard for the second month in the last three. Computer orders fell 6.8% (+5.8% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027c.jpg" width="353">
Shipments of durable goods edged up 0.1% (5.3% y/y) in September and less transportation shipments rose 0.4% (6.3% y/y).
Order backlogs rose another 0.7% (10.4% y/y) and excluding transportation backlogs jumped 1.1% (8.9% y/y). The ratio of backlogs to shipments excluding transportation rose to the highest since early 2004.
Durable inventories fell 0.1% (+5.1% y/y) following a 0.2% August decline. The momentum behind durable inventory accumulation has waned sharply to the point where the y/y gain is now half what it was earlier this year. As a result the I/S ratio for durable goods has fallen for most of this year.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
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<td class="firstcol">Durable Goods Orders</td>
<td>-2.1%</td>
<td>3.8%</td>
<td>6.0%</td>
<td>9.5%</td>
<td>4.1%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.0%</td>
<td>5.1%</td>
<td>6.0%</td>
<td>11.7%</td>
<td>3.1%</td>
<td>-6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-8.1%</td>
<td>4.1%</td>
<td>8.5%</td>
<td>11.0%</td>
<td>4.2%</td>
<td>-9.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-1.2%</td>
<td>4.0%</td>
<td>5.4%</td>
<td>9.5%</td>
<td>4.8%</td>
<td>-10.5%</td>
</tr>
</tbody>
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A 41.6% m/m decline in nondefense aircraft orders combined with a 3.5% drop in defense aircraft bookings to pull total orders for durable goods down 2.1% last month. The 3.8% rise in August orders was upwardly revised and Consensus [...]

U.S. Durable Goods Orders Off

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027b.jpg" width="353">
A 41.6% m/m decline in nondefense aircraft orders combined with a 3.5% drop in defense aircraft bookings to pull total orders for durable goods down 2.1% last month. The 3.8% rise in August orders was upwardly revised and Consensus expectations had been for a 1.2% September decline. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027a.jpg" width="353">
Less the transportation sector altogether, durable goods orders slipped 1.0% after an upwardly revised 5.1% September jump, however, the year to year gain in orders less transportation is the same 6.0% as the gain in the total.
Total nondefense capital goods orders dropped 8.1% m/m due to the drop in aircraft but less aircraft these orders slipped a modest 1.2% following an upwardly revised 4.0% August surge.
Machinery orders increased 1.0% (7.6% y/y) on top of a 4.0% August gain and though electrical equipment orders fell 3.5% (8.4% y/y). Orders for computers &amp; electronic products, down 3.6% (+0.9% y/y), fell hard for the second month in the last three. Computer orders fell 6.8% (+5.8% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027c.jpg" width="353">
Shipments of durable goods edged up 0.1% (5.3% y/y) in September and less transportation shipments rose 0.4% (6.3% y/y).
Order backlogs rose another 0.7% (10.4% y/y) and excluding transportation backlogs jumped 1.1% (8.9% y/y). The ratio of backlogs to shipments excluding transportation rose to the highest since early 2004.
Durable inventories fell 0.1% (+5.1% y/y) following a 0.2% August decline. The momentum behind durable inventory accumulation has waned sharply to the point where the y/y gain is now half what it was earlier this year. As a result the I/S ratio for durable goods has fallen for most of this year.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">Durable Goods Orders</td>
<td>-2.1%</td>
<td>3.8%</td>
<td>6.0%</td>
<td>9.5%</td>
<td>4.1%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.0%</td>
<td>5.1%</td>
<td>6.0%</td>
<td>11.7%</td>
<td>3.1%</td>
<td>-6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-8.1%</td>
<td>4.1%</td>
<td>8.5%</td>
<td>11.0%</td>
<td>4.2%</td>
<td>-9.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-1.2%</td>
<td>4.0%</td>
<td>5.4%</td>
<td>9.5%</td>
<td>4.8%</td>
<td>-10.5%</td>
</tr>
</tbody>
</table>
New Home Sales Up, Northeast & West Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 27, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027d.jpg" width="353">
New single-family home sales edged up 2.1% last month to 1.222M but that followed an 11.6% drop in August which was deeper than estimated initially. Consensus expectations had been for 1.25M sales in September.
Sales fell a sharp 11.8% (-16.2% y/y) in the Northeast, down hard for the fourth month in the last five and sales are 43.4% below the April peak. In the West sales also fell by 11.8% (-16.2% y/y). Sales in the Midwest bucked the trend and rose 24.9% (0.4% y/y) while sales in the South also rose 5.6% (14.1% y/y).
The median price of a new single family home fell 5.7% m/m (+1.9% y/y) after an upwardly revised 4.1% August gain.
The figures from the Census Department reflect home sales counted at the time of sales contract or deposit.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</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>
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<tr>
<td class="firstcol">New Single-Family</td>
<td>1,222</td>
<td>1,197</td>
<td>-0.1%</td>
<td>1,200</td>
<td>1,091</td>
<td>976</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Edged Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 27, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027e.jpg" width="353">
The Index of Help-Wanted Advertising from the Conference Board edged up in September to 39 from 38 in August which was upwardly revised.
During the last ten years there has been a 61% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume rose to 39% from 22% in August.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Sept &#39;04</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>39</td>
<td>38</td>
<td>36</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Again Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 27, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027f.jpg" width="353">
Initial claims for unemployment insurance fell 28,000 to 328,000 last week versus a little revised 35,000 decline during the prior period. Consensus expectations had been for 340,000 claims.
The four-week moving average of initial claims fell to 366,500 (+7.8% y/y).
Continuing claims for unemployment insurance rose 42,000 following a downwardly revised 4,000 gain during the prior week.
The insured rate of unemployment rose to 2.3% from 2.2% during the prior four weeks. The low in early September was 2.0%.

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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">10/22/05</th>
<th scope="col">10/15/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>328</td>
<td>356</td>
<td>-3.5%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Hurricane Related Claims (000, NSA)</td>
<td>40</td>
<td>75</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,904</td>
<td>3.2%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
UK Mortgage Lending on the Upswing, According to September BBA Data 
by <a href="/comment/Stone.html">Carol Stone</a> October 27, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027g.jpg" width="353">
The mortgage market in the UK picked up some steam once again in September, according to data reported this morning by the British Bankers&#39; Association (BBA). The number of new mortgage loans approved for home purchase was 70,105, up 17% from the amount in September 2004. Loans for refinancing -- known as remortgaging in the UK -- were 72,485, up 3.2% from a year ago and the largest number since March 2004.
These BBA data cover &quot;major British banking groups&quot;, a subset of all UK mortgage lenders accounting for about 70% of total volume. Complete data on new and outstanding mortgages will be reported Monday, October 31 by the Bank of England. But the BBA figures are a good indicator of the overall direction and magnitude of this activity. As seen in the first chart, this activity has picked up dramatically in recent years, giving this sector added attention in the markets. Indeed, this data set was added to Haver&#39;s UK database some months ago in response to British clients&#39; requests for more extensive mortgage market coverage. We also carry the corresponding BOE tables and the Council of Mortgage Lenders&#39; monthly survey.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051027h.jpg" width="353">
As with mortgage lending in the US, the UK market is quite interest-rate sensitive -- perhaps even more so, since mortgage loans are generally shorter than those in the US. The key BOE base rate shows an 89% correlation with the net change in mortgage loans outstanding since 1995. This rate was at its recent lows in 2003 and mortgage lending was strong. As rates rose from late 2003 through the middle of 2004, lending slowed; the number of loan approvals fell steeply for both purchase and refinancing. Subsequently, and especially after the BOE&#39;s rate cut in August, the number of approvals and the net change in loans outstanding have picked up once again.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U1/@U106/@U106.HTM">United Kingdom:&nbsp; BBA Mortgage Lending Data</a></th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Sept 2004</th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Loans Approved:&nbsp; House Purchase (Number)</td>
<td>70,105</td>
<td>69,499</td>
<td>59,905</td>
<td>69,231</td>
<td>76,105</td>
<td>83,915</td>
</tr>
<tr class="odd">
<td class="firstcol">Loans Approved:&nbsp; Remortgaging (Number)</td>
<td>72,485</td>
<td>69,145</td>
<td>70,209</td>
<td>68,299</td>
<td>77,482</td>
<td>67,108</td>
</tr>
<tr>
<td class="firstcol">Net Change in Mortgage Loans Outstanding (SA, Bil.&pound;)</td>
<td>4.899</td>
<td>4.393</td>
<td>4.407</td>
<td>5.094</td>
<td>5.184</td>
<td>4.707</td>
</tr>
<tr class="odd">
<td class="firstcol">Bank of England Base Rate</td>
<td>4.50%</td>
<td>4.53%</td>
<td>4.75%</td>
<td>4.38%</td>
<td>3.69%</td>
<td>4.00%</td>
</tr>
</tbody>
</table>
</body>
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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/051026d.jpg" width="353">
The Japanese trade balance continues to diminish, a direct reflection of its need to import nearly all of the petroleum it uses. In September, the surplus was &yen;556.5 billion (seasonally adjusted), down from &yen;610.6 in August, &yen;828.3 billion in September 2004 and nearly &yen;1 trillion on average for all of 2004. This is not the fault of Japan&#39;s exports performance. Foreign shipment are expanding nicely; in September they did edge down &yen;15 million from &yen;5.544 trillion (seasonally adjusted) in August, but that figure was a record, and up more than 9% from a year earlier.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026c.jpg" width="353">
But imports grew faster still. They were &yen;4.973 billion in September, up 17.4% from the year-ago month, following year-on-year growth of 21.2% in August. These are not the fastest growth rates for imports ever in Japan, far from it. But they show the sensitivity of Japan&#39;s import picture to petroleum. The last time there were sustained increases of this magnitude was the winter of 2000-2001 when petroleum and natural gas prices were accelerating rapidly. Excluding the mineral fuel category, other Japanese imports were up 8.3% in September. Imports from China are an important part of import growth as well; they were up 11.9% on the last 12 months. Chinese goods now hold a 29.5% share of imports excluding mineral fuels compared with 26.5% on average last year and 22.7% as recently as 2002.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026e.jpg" width="353">
At the same time, China is also a big market for exports of Japanese products. While it is not nearly as large a customer as the US, it seems to be working hard to catch up. As seen in the table below, its share of Japanese exports has increased by 4 percentage points since 2002, while the US share is down about 6-1/2 points. Other nations picking up market share for Japanese goods include India and Eastern Europe. So Japan&#39;s trading is clearly widespread and becoming more so all the time. Such diverse export gains can help it pay for the expensive oil it must buy.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J9/@J9.HTM">Japan:&nbsp;</a> Bil.&yen;&nbsp; NSA except as noted</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">July 2005</th>
<th scope="col">Sept 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance (SA)</td>
<td>556.5</td>
<td>610.6</td>
<td>604.3</td>
<td>828.3</td>
<td>996.5</td>
<td>843.9</td>
<td>823.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>5925.3</td>
<td>5220.6</td>
<td>5536.9</td>
<td>5445.8</td>
<td>5097.5</td>
<td>4545.7</td>
<td>4342.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; To US % of Total </td>
<td>22.0</td>
<td>21.3</td>
<td>22.6</td>
<td>22.7</td>
<td>22.4</td>
<td>24.6</td>
<td>28.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; To China % of Total</td>
<td>13.6</td>
<td>14.5</td>
<td>13.8</td>
<td>12.9</td>
<td>13.1</td>
<td>12.2</td>
<td>9.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Sum</td>
<td>35.6</td>
<td>35.8</td>
<td>36.4</td>
<td>35.6</td>
<td>35.5</td>
<td>36.8</td>
<td>38.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>4968.3</td>
<td>5106.8</td>
<td>4668.1</td>
<td>4232.6</td>
<td>4101.4</td>
<td>3696.8</td>
<td>3519.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Ex Mineral Fuels</td>
<td>3575.0</td>
<td>3722.1</td>
<td>3469.6</td>
<td>3300.1</td>
<td>3212.2</td>
<td>2917.7</td>
<td>2837.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; China % of Total</td>
<td>21.3</td>
<td>20.5</td>
<td>20.3</td>
<td>22.3</td>
<td>20.7</td>
<td>19.7</td>
<td>18.3</td>
</tr>
<tr>
<td class="firstcol">China % of Non- Min Fuel</td>
<td>29.5</td>
<td>28.1</td>
<td>27.3</td>
<td>28.6</td>
<td>26.5</td>
<td>24.9</td>
<td>22.7</td>
</tr>
</tbody>
</table>
</body>
</html>

The Japanese trade balance continues to diminish, a direct reflection of its need to import nearly all of the petroleum it uses. In September, the surplus was ¥556.5 billion (seasonally adjusted), down from ¥610.6 in August, ¥828.3 [...]

Diversity in Japanese Trade

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026b.jpg" width="353">
The 3Q &#39;05 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell to 66 from 68 the prior quarter. The latest is the lowest level since 2Q &#39;03.
During the last ten years there has been a 66% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index continued lower to 81 and is down from the peak of 93, yet the index remained up sharply from the low of 30 during 2001.
The 3Q export orders index fell to 68 and earlier figures were revised lower. During the last ten years there has been a 73% correlation between the export orders index and the y/y change in real US exports.
The profit margins index slipped slightly to 60 from 61 in 2Q but was well off last year&#39;s highs of 73.Capital spending intentions for the coming year moved lower q/q but the trend continued the sideways movement in place since late 2003. During the last ten years there has been a 74% correlation between the capital spending index a y/y growth in business investment in equipment &amp; software.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2024">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/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">3Q &#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">Composite Business Index</td>
<td>66</td>
<td>68</td>
<td>75</td>
<td>76</td>
<td>67</td>
<td>60</td>
</tr>
</tbody>
</table>
</body>
</html>

The 3Q '05 Composite Business Index published by the Manufacturers' Alliance/MAPI fell to 66 from 68 the prior quarter. The latest is the lowest level since 2Q '03. During the last ten years there has been a 66% correlation between [...]

MAPI Business Outlook Survey Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026a.jpg" width="353">
The total number of mortgage applications reversed course last week and fell 7.9% after rising 6.1% the prior period according to the Mortgage Bankers Association. The decline pulled the average level in October 5.9% below September.
Purchase applications reversed more than all of the prior week&#39;s rise and fell 7.4%, placing the October average 2.8% below September&#39;s which rose 1.0% from August. 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 cratered 8.5% w/w to the lowest level since April and the October average is down 9.8% from September.
The effective interest rate on a conventional 30-year mortgage fell slightly to 6.30% from 6.35% the prior week. The low for 30 year financing was 5.71% in late June. The effective rate on a 15-year mortgage fell to 5.90%. 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>.
Cash-Out Refinancing: Check It Out Carefully from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2005/c/pages/cash-out.html"> 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">10/21/05</th>
<th scope="col">10/14/05</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>679.1</td>
<td>737.5</td>
<td>-3.5%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>466.4</td>
<td>503.9</td>
<td>5.8%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,916.8</td>
<td>2,095.7</td>
<td>-14.2%</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 reversed course last week and fell 7.9% after rising 6.1% the prior period according to the Mortgage Bankers Association. The decline pulled the average level in October 5.9% below September. [...]

Mortgage Applications Backed Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026a.jpg" width="353">
The total number of mortgage applications reversed course last week and fell 7.9% after rising 6.1% the prior period according to the Mortgage Bankers Association. The decline pulled the average level in October 5.9% below September.
Purchase applications reversed more than all of the prior week&#39;s rise and fell 7.4%, placing the October average 2.8% below September&#39;s which rose 1.0% from August. 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 cratered 8.5% w/w to the lowest level since April and the October average is down 9.8% from September.
The effective interest rate on a conventional 30-year mortgage fell slightly to 6.30% from 6.35% the prior week. The low for 30 year financing was 5.71% in late June. The effective rate on a 15-year mortgage fell to 5.90%. 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>.
Cash-Out Refinancing: Check It Out Carefully from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2005/c/pages/cash-out.html"> 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">10/21/05</th>
<th scope="col">10/14/05</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>679.1</td>
<td>737.5</td>
<td>-3.5%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>466.4</td>
<td>503.9</td>
<td>5.8%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,916.8</td>
<td>2,095.7</td>
<td>-14.2%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
MAPI Business Outlook Survey Fell Further   
by <a href="/comment/Moeller.html">Tom Moeller</a> October 26, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026b.jpg" width="353">
The 3Q &#39;05 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell to 66 from 68 the prior quarter. The latest is the lowest level since 2Q &#39;03.
During the last ten years there has been a 66% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index continued lower to 81 and is down from the peak of 93, yet the index remained up sharply from the low of 30 during 2001.
The 3Q export orders index fell to 68 and earlier figures were revised lower. During the last ten years there has been a 73% correlation between the export orders index and the y/y change in real US exports.
The profit margins index slipped slightly to 60 from 61 in 2Q but was well off last year&#39;s highs of 73.Capital spending intentions for the coming year moved lower q/q but the trend continued the sideways movement in place since late 2003. During the last ten years there has been a 74% correlation between the capital spending index a y/y growth in business investment in equipment &amp; software.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2024">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/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">3Q &#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">Composite Business Index</td>
<td>66</td>
<td>68</td>
<td>75</td>
<td>76</td>
<td>67</td>
<td>60</td>
</tr>
</tbody>
</table>
Diversity in Japanese Trade 
by <a href="/comment/Stone.html">Carol Stone</a> October 26, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026d.jpg" width="353">
The Japanese trade balance continues to diminish, a direct reflection of its need to import nearly all of the petroleum it uses. In September, the surplus was &yen;556.5 billion (seasonally adjusted), down from &yen;610.6 in August, &yen;828.3 billion in September 2004 and nearly &yen;1 trillion on average for all of 2004. This is not the fault of Japan&#39;s exports performance. Foreign shipment are expanding nicely; in September they did edge down &yen;15 million from &yen;5.544 trillion (seasonally adjusted) in August, but that figure was a record, and up more than 9% from a year earlier.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026c.jpg" width="353">
But imports grew faster still. They were &yen;4.973 billion in September, up 17.4% from the year-ago month, following year-on-year growth of 21.2% in August. These are not the fastest growth rates for imports ever in Japan, far from it. But they show the sensitivity of Japan&#39;s import picture to petroleum. The last time there were sustained increases of this magnitude was the winter of 2000-2001 when petroleum and natural gas prices were accelerating rapidly. Excluding the mineral fuel category, other Japanese imports were up 8.3% in September. Imports from China are an important part of import growth as well; they were up 11.9% on the last 12 months. Chinese goods now hold a 29.5% share of imports excluding mineral fuels compared with 26.5% on average last year and 22.7% as recently as 2002.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051026e.jpg" width="353">
At the same time, China is also a big market for exports of Japanese products. While it is not nearly as large a customer as the US, it seems to be working hard to catch up. As seen in the table below, its share of Japanese exports has increased by 4 percentage points since 2002, while the US share is down about 6-1/2 points. Other nations picking up market share for Japanese goods include India and Eastern Europe. So Japan&#39;s trading is clearly widespread and becoming more so all the time. Such diverse export gains can help it pay for the expensive oil it must buy.

<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/JAPAN/@J9/@J9.HTM">Japan:&nbsp;</a> Bil.&yen;&nbsp; NSA except as noted</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">July 2005</th>
<th scope="col">Sept 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance (SA)</td>
<td>556.5</td>
<td>610.6</td>
<td>604.3</td>
<td>828.3</td>
<td>996.5</td>
<td>843.9</td>
<td>823.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>5925.3</td>
<td>5220.6</td>
<td>5536.9</td>
<td>5445.8</td>
<td>5097.5</td>
<td>4545.7</td>
<td>4342.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; To US % of Total </td>
<td>22.0</td>
<td>21.3</td>
<td>22.6</td>
<td>22.7</td>
<td>22.4</td>
<td>24.6</td>
<td>28.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; To China % of Total</td>
<td>13.6</td>
<td>14.5</td>
<td>13.8</td>
<td>12.9</td>
<td>13.1</td>
<td>12.2</td>
<td>9.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Sum</td>
<td>35.6</td>
<td>35.8</td>
<td>36.4</td>
<td>35.6</td>
<td>35.5</td>
<td>36.8</td>
<td>38.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>4968.3</td>
<td>5106.8</td>
<td>4668.1</td>
<td>4232.6</td>
<td>4101.4</td>
<td>3696.8</td>
<td>3519.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Ex Mineral Fuels</td>
<td>3575.0</td>
<td>3722.1</td>
<td>3469.6</td>
<td>3300.1</td>
<td>3212.2</td>
<td>2917.7</td>
<td>2837.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; China % of Total</td>
<td>21.3</td>
<td>20.5</td>
<td>20.3</td>
<td>22.3</td>
<td>20.7</td>
<td>19.7</td>
<td>18.3</td>
</tr>
<tr>
<td class="firstcol">China % of Non- Min Fuel</td>
<td>29.5</td>
<td>28.1</td>
<td>27.3</td>
<td>28.6</td>
<td>26.5</td>
<td>24.9</td>
<td>22.7</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/051025e.jpg" width="353">
The healthy October rises in German and Dutch measures of business confidence following yesterday&#39;s report of continued rising business confidence in France are beginning to suggest a pickup in economic activity within the Euro Zone.
Although the pessimists still outweigh the optimists in Germany, the excess of pessimists declined in October to 3.5% from 8.9% in September according to the IFO measure of confidence. In the Netherlands, the optimists who had exceeded the pessimists in September by 1.3% increased their excess over the pessimists to 4.3% in October. The percent balances of the optimists over the pessimists for both German and Dutch business are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051025f.jpg" width="353">
In appraising current economic conditions in Germany, businessmen have generally been more pessimistic than optimistic. In the entire history of the IFO confidence data, from January, 1991 to date, the only time when the balance of opinion on current conditions was positive was the period from January 1991 to March 1992 and the month of May 2000.In their expectations of conditions six month ahead, German businessmen have generally been more optimistic, but even here, the times when the optimists outweighed the pessimists have been few and the positive balances small. The second chart shows the history of the IFO&#39;s percent balances of opinion of German businessmen for current conditions and expectations of conditions six months ahead. Because of this apparent bias in the IFO data, it is more useful to look at the changes in the data rather than the absolute values.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051025g.jpg" width="353">
In the third chart we show the year-to-year changes in the appraisals of current conditions and expectations of conditions six month ahead. Here we see a marked increase in confidence in October both in current conditions and expectations for conditions six month ahead.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Confidence Indicators (% Balance)</th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Sep&nbsp; 05</th>
<th scope="col">Oct 04</th>
<th scope="col">M/M&nbsp; Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004 &nbsp; </th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Producers&#39; Confidence</td>
<td>4.3</td>
<td>1.3</td>
<td>1.1</td>
<td>3.0</td>
<td>3.2</td>
<td>-0.1</td>
<td>-5.6</td>
<td>-1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany IFO&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Business Climate</td>
<td>-3.5</td>
<td>-8.9</td>
<td>-10.7</td>
<td>5.4</td>
<td>7.2</td>
<td>-9.6</td>
<td>-17.6</td>
<td>-22.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Business Situation</td>
<td>-7.4</td>
<td>-12.1</td>
<td>-16.1</td>
<td>4.7</td>
<td>8.7</td>
<td>-17.0</td>
<td>-27.9</td>
<td>-34.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Business Expectations</td>
<td>0.5</td>
<td>-5.6</td>
<td>-5.2</td>
<td>6.1</td>
<td>5.7</td>
<td>-1.8</td>
<td>-6.5</td>
<td>-9.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The healthy October rises in German and Dutch measures of business confidence following yesterday's report of continued rising business confidence in France are beginning to suggest a pickup in economic activity within the Euro Zone. [...]

Business Confidence Strengthens in the Euro Zone: German and Dutch Business Join the More Optimistic Groups

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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New Home Sales Up, Northeast & West Down

U.S. Durable Goods Orders Off

U.S. Durable Goods Orders Off

Diversity in Japanese Trade

MAPI Business Outlook Survey Fell Further

Mortgage Applications Backed Down

Mortgage Applications Backed Down

Business Confidence Strengthens in the Euro Zone: German and Dutch Business Join the More Optimistic Groups