Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051021a.jpg" width="353">
As of last week the US average retail gasoline price fell to $2.73 per gallon, down 11.2% from the weekly high of $3.07 seen in early September. Moreover, yesterday&#39;s NY harbor spot price for regular unleaded gasoline was down twenty cents to $1.55 from the week previous, the lowest since July, and the seven day average price was off 21.6% from its high.
Father Guido Sarducci&#39;s axiom that in economics, all that matters is supply and demand is behind the recent price declines. US gasoline supplies have soared due to the surge in gasoline imports which have more than doubled versus last year. That has supplanted a shortfall in production which was limited by a sharp recovery last week to roughly -2% y/y. Demand, on the other hand, has responded to the higher prices and is down sharply, by roughly 8% versus the year ago level.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051021b.jpg" width="353">
Lower prices for crude oil have allowed for the gasoline price decline as WTI crude fell yesterday to $61.04 per barrel. That was off 13% from the late August high of $69.82.
The decline in wholesale natural gas prices has been limited versus the petroleum price declines. At $13.09/mmbtu yesterday and $13.42 last week, gas prices were off 13% from the daily high $15.00 one month ago, but trend prices remained elevated ahead of the Winter heating season.
Are Inflation Expectations Rising from the Ashes? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20051101/cover.pdf"> here</a>.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">10/17/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$2.73</td>
<td>$1.79</td>
<td>33.9%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr>
<td class="firstcol">Natural Gas, Henry Hub, LA ($/mmbtu)</td>
<td>$13.42</td>
<td>$6.35</td>
<td>139.6%</td>
<td>$5.89</td>
<td>$5.47</td>
<td>$3.35</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$63.21</td>
<td>$41.78</td>
<td>18.6%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
</tr>
</tbody>
</table>
</body>
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As of last week the US average retail gasoline price fell to $2.73 per gallon, down 11.2% from the weekly high of $3.07 seen in early September. Moreover, yesterday's NY harbor spot price for regular unleaded gasoline was down twenty [...]

Petroleum Prices Down, And Going Lower?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051021a.jpg" width="353">
As of last week the US average retail gasoline price fell to $2.73 per gallon, down 11.2% from the weekly high of $3.07 seen in early September. Moreover, yesterday&#39;s NY harbor spot price for regular unleaded gasoline was down twenty cents to $1.55 from the week previous, the lowest since July, and the seven day average price was off 21.6% from its high.
Father Guido Sarducci&#39;s axiom that in economics, all that matters is supply and demand is behind the recent price declines. US gasoline supplies have soared due to the surge in gasoline imports which have more than doubled versus last year. That has supplanted a shortfall in production which was limited by a sharp recovery last week to roughly -2% y/y. Demand, on the other hand, has responded to the higher prices and is down sharply, by roughly 8% versus the year ago level.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051021b.jpg" width="353">
Lower prices for crude oil have allowed for the gasoline price decline as WTI crude fell yesterday to $61.04 per barrel. That was off 13% from the late August high of $69.82.
The decline in wholesale natural gas prices has been limited versus the petroleum price declines. At $13.09/mmbtu yesterday and $13.42 last week, gas prices were off 13% from the daily high $15.00 one month ago, but trend prices remained elevated ahead of the Winter heating season.
Are Inflation Expectations Rising from the Ashes? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20051101/cover.pdf"> here</a>.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">10/17/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$2.73</td>
<td>$1.79</td>
<td>33.9%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr>
<td class="firstcol">Natural Gas, Henry Hub, LA ($/mmbtu)</td>
<td>$13.42</td>
<td>$6.35</td>
<td>139.6%</td>
<td>$5.89</td>
<td>$5.47</td>
<td>$3.35</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$63.21</td>
<td>$41.78</td>
<td>18.6%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
</tr>
</tbody>
</table>
UK GDP Rises 0.4%, Helped by Upturn in Manufacturing 
by <a href="/comment/Stone.html">Carol Stone</a> October 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051021c.jpg" width="353">
UK GDP grew 0.4% in Q3, according to Office of National Statistics &quot;Preliminary Estimate&quot;, following 0.5% in Q2. This early estimate is compiled from industrial production and other industry data. It shows that manufacturing gained 0.3% on the quarter, after Q2&#39;s 0.2% decrease. Services maintained their 0.6% quarterly pace for a third straight time. Mining, including oil and gas extraction, and utility output, both of which had been supports in Q2, fell by significant amounts in Q3, 6.7% and 1.8%, respectively.
The upturn in manufacturing was generated by a number of largely unrelated sectors. Wood products, petroleum output and electrical and optical equipment, for examples, all turned up after Q2 declines. Nonmetallic minerals stabilized after a steep decline and rubber and plastics have been virtually flat for about six months. Food and textiles fell in Q3 after rising in Q2. Thus, it&#39;s hard to characterize the performance of manufacturing as a whole and therefore to look for any sustaining force -- one direction or the other.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051021d.jpg" width="353">
Another sign of precariousness in these UK data comes from a look at the revisions for Q2 compared with its &quot;preliminary&quot; estimate. Three months ago, when we wrote about the Q2 preliminary report, we noted the support from the mining sector, but also that recent irregular downtrends there suggested that the 1.4% gain reported then might be transitory. Indeed. The growth there has now been revised to just 0.4% and the sector resumed a long-term contraction in this latest quarter. This change shouldn&#39;t be much of a surprise in this industry. But the broad manufacturing sector also seems to be subject to transitory forces. Already seen above to have a scattered performance reported so far for Q3, the sector experienced a notable revision of Q2 data. As seen in the table below, the &quot;preliminary&quot; Q2 report showed a 0.7% decline, which now has been recalculated at just 0.2%. This is a favorable revision, of course, but at the same time, it points out the skittishness in these data. The analysts at the UK Office of National Statistics include a warning in their press release about the preliminary GDP data, expressing their concern that users put too much store in the preliminary figures. Our examination here describes a couple of good reasons we might agree with that sentiment and suggests that caution is needed as business planners and investors apply them to decision-making and actions.

<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/UK/@U2/@U2.HTM">United Kingdom:</a></th>
<th scope="col">Q3 2005 &quot;Prel&quot;</th>
Q2 2005
<th scope="col">Year/Year</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">Latest</td>
<td>&quot;Prel&quot;</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>0.4</td>
<td>0.5</td>
<td>0.4</td>
<td>1.6</td>
<td>3.2</td>
<td>2.5</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing </td>
<td>0.3</td>
<td>-0.2</td>
<td>-0.7</td>
<td>-0.1</td>
<td>1.9</td>
<td>0.1</td>
<td>-3.1</td>
</tr>
<tr>
<td class="firstcol">Mining inc Oil Extraction</td>
<td>-6.8</td>
<td>0.4</td>
<td>1.4</td>
<td>-9.9</td>
<td>-8.0</td>
<td>-5.2</td>
<td>-0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Electricity, Gas &amp; Water Supply</td>
<td>-1.8</td>
<td>1.0</td>
<td>1.1</td>
<td>-2.8</td>
<td>2.2</td>
<td>1.1</td>
<td>-0.4</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.6</td>
<td>0.6</td>
<td>0.6</td>
<td>2.2</td>
<td>3.7</td>
<td>2.7</td>
<td>2.7</td>
</tr>
</tbody>
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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/051020d.jpg" width="353">
Italian consumer confidence improved noticeably for October, but people also have a more uncertain inflation outlook. The overall confidence index, calculated by ISAE, the Institute for Studies and Economic Analysis, rose 2.4 points from September to 105.3, the highest in a year. Components covering sentiment about the &quot;general&quot; situation and the &quot;future&quot; situation were both up, by 3 and 4 points, respectively, in the month.
At the same time, several details of the survey appear more mixed than the broad indexes might suggest. Household finances are viewed modestly worse: the &quot;household financial situation&quot;, expressed as a favorable/unfavorable balance, is reported at -50 following -48 in September and -44 a year ago. Household budget conditions stand at +5, compared with +8 both a month and a year ago. However, financial expectations are marginally better, at -7 in October from -10 in September but -6 in October 2004. These mixed results imply that consumers are fairly unsure of their finances, but the small size of the moves indicate only hints of nervousness, not decisive moodswings.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020e.jpg" width="353">
Expectations on inflation have changed more, perhaps driven by energy prices. The portion of consumers looking for prices to remain stable has fallen sharply in recent months, as seen in the table below: October&#39;s reading is 41% from 58% in October 2004. Offsets occurred in the groups looking for &quot;large&quot; increases, to 11% from 4%, and &quot;medium&quot; increases, to 21% from 15%. The number &quot;unsure&quot; of what they believe about inflation moved to 8% from 4%.
Consumers&#39; nervousness over their finances and relative uncertainty over inflation are accompanied by a more distinct deterioration in the unemployment outlook. 17% of respondents expect unemployment to rise &quot;sharply&quot; in the coming year, up from just 6% a year ago. Those looking for a &quot;slight&quot; increase ticked down one percentage point to 33% from 34%. Thus, those anticipating that unemployment will go up now constitute exactly half of the survey, from 40% last October. So some parts of this consumer survey may indicate that people are in better moods, but other aspects suggest developing worry and uncertainty over the two major bugaboos in any economy: inflation and unemployment. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/@I07/@I07.HTM">Italy ISAE Survey</a></th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Overall Consumer Confidence, Index 1980 = 100, Seasonally Adjusted</td>
<td>105.3</td>
<td>102.9</td>
<td>100.9</td>
<td>101.1</td>
<td>101.4</td>
<td>106.2</td>
<td>115.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; General Situation</td>
<td>83.8</td>
<td>80.8</td>
<td>80.2</td>
<td>94.6</td>
<td>88.6</td>
<td>91.4</td>
<td>105.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Future Situation</td>
<td>101.8</td>
<td>97.8</td>
<td>97.0</td>
<td>104.3</td>
<td>100.8</td>
<td>107.2</td>
<td>113.4</td>
</tr>
<tr>
<td class="firstcol">Prices, Next 12 Mos: % Expecting Large Increase, Not Seasonally Adjusted</td>
<td>11</td>
<td>11</td>
<td>8</td>
<td>4</td>
<td>5</td>
<td>7</td>
<td>16</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Medium Increase</td>
<td>21</td>
<td>19</td>
<td>16</td>
<td>15</td>
<td>14</td>
<td>15</td>
<td>35</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Smaller Increase</td>
<td>17</td>
<td>16</td>
<td>14</td>
<td>17</td>
<td>21</td>
<td>20</td>
<td>13</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Stable</td>
<td>41</td>
<td>45</td>
<td>52</td>
<td>58</td>
<td>54</td>
<td>51</td>
<td>31</td>
</tr>
</tbody>
</table>
</body>
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Italian consumer confidence improved noticeably for October, but people also have a more uncertain inflation outlook. The overall confidence index, calculated by ISAE, the Institute for Studies and Economic Analysis, rose 2.4 points [...]

October Consumer Confidence Rises in Italy, But Nascent Inflation and Unemployment Concerns Raise Questions, Too

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020f.jpg" width="353">
The October Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered just about all of the prior month&#39;s loss. A surge to 17.3 from 2.2 in September compared to Consensus expectations for a lesser gain to 10.0.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub index measuring new orders led the improvement and rose to 18.6 from -0.5 while the shipments index improved moderately to 19.5 from 13.2. The index covering the number of employees surged to 17.0 and landed at the highest level since January. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months recovered more than half of the prior month&#39;s decline and rose to 22.0.
The prices paid index jumped to the highest level since January. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos1005.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>17.3</td>
<td>2.2</td>
<td>27.2</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
</tbody>
</table>
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The October Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered just about all of the prior month's loss. A surge to 17.3 from 2.2 in September compared to Consensus expectations for a [...]

Philadelphia Fed Activity Index Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020b.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.7% in September following declines of 0.1% during the prior two months. The initial effects of the Gulf hurricanes as well as earlier weakening amongst the leaders&#39; components left the index&#39;s six-month growth at a low 0.9%. Consensus expectations had been for a 0.5% September decline.
The breadth of one month gain amongst the 10 components of the leading index fell to 45%, down from a high of 85% during June. Higher claims for unemployment insurance and lower consumer expectations had the largest negative effects on the leader&#39;s one month change.
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020c.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators fell 0.1% following a downwardly revised 0.1% decline during August. The decline was due mostly to lower industrial output in September although over the prior six months, all of the component series were up.
The lagging indicators rose 0.2% with much of the rise due to a longer average duration of unemployment. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell to its lowest level since late 2003.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world. 

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">6 Month Chg., AR</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">Leading</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.9%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
</body>
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The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.7% in September following declines of 0.1% during the prior two months. The initial effects of the Gulf hurricanes as well as earlier weakening [...]

Leading Economic Indicators Fell for Third Month

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020a.jpg" width="353">
Initial claims for unemployment insurance dropped 35,000 to 355,000 last week versus a little revised level of 389,000 during the prior period. Consensus expectations had been for 370,000 claims.
The Labor Department indicated that 40,000 initial claims last week were linked to Hurricanes Katrina &amp; Rita.
The latest figure covers the survey period for October nonfarm payrolls and initial claims fell 80,000 (18.4%) from the September period.
The four-week moving average of initial claims fell to 376,000 (+9.3% y/y) from 396,000 during the prior four weeks.
Continuing claims for unemployment insurance rose 35,000 following a deepened 12,000 worker decline during the prior week.
The insured rate of unemployment rose to 2.3% from 2.2% during the prior three weeks. The low in early September was 2.0%.
The latest Beige Book covering US regional economic conditions from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20051019/default.htm"> here</a>.
Remarks by Fed Governor Donald L. Kohn titled The Economic Outlook are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051019/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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/15/05</th>
<th scope="col">10/08/05</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">Initial Claims</td>
<td>355</td>
<td>389</td>
<td>6.0%</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>2,370</td>
<td>3.4%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
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Initial claims for unemployment insurance dropped 35,000 to 355,000 last week versus a little revised level of 389,000 during the prior period. Consensus expectations had been for 370,000 claims. The Labor Department indicated that [...]

Initial Claims for Jobless Insurance Down Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020f.jpg" width="353">
The October Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered just about all of the prior month&#39;s loss. A surge to 17.3 from 2.2 in September compared to Consensus expectations for a lesser gain to 10.0.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub index measuring new orders led the improvement and rose to 18.6 from -0.5 while the shipments index improved moderately to 19.5 from 13.2. The index covering the number of employees surged to 17.0 and landed at the highest level since January. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months recovered more than half of the prior month&#39;s decline and rose to 22.0.
The prices paid index jumped to the highest level since January. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos1005.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>17.3</td>
<td>2.2</td>
<td>27.2</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Fell for Third Month 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020b.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell 0.7% in September following declines of 0.1% during the prior two months. The initial effects of the Gulf hurricanes as well as earlier weakening amongst the leaders&#39; components left the index&#39;s six-month growth at a low 0.9%. Consensus expectations had been for a 0.5% September decline.
The breadth of one month gain amongst the 10 components of the leading index fell to 45%, down from a high of 85% during June. Higher claims for unemployment insurance and lower consumer expectations had the largest negative effects on the leader&#39;s one month change.
The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020c.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators fell 0.1% following a downwardly revised 0.1% decline during August. The decline was due mostly to lower industrial output in September although over the prior six months, all of the component series were up.
The lagging indicators rose 0.2% with much of the rise due to a longer average duration of unemployment. The ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell to its lowest level since late 2003.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world. 

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">6 Month Chg., AR</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">Leading</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.9%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020a.jpg" width="353">
Initial claims for unemployment insurance dropped 35,000 to 355,000 last week versus a little revised level of 389,000 during the prior period. Consensus expectations had been for 370,000 claims.
The Labor Department indicated that 40,000 initial claims last week were linked to Hurricanes Katrina &amp; Rita.
The latest figure covers the survey period for October nonfarm payrolls and initial claims fell 80,000 (18.4%) from the September period.
The four-week moving average of initial claims fell to 376,000 (+9.3% y/y) from 396,000 during the prior four weeks.
Continuing claims for unemployment insurance rose 35,000 following a deepened 12,000 worker decline during the prior week.
The insured rate of unemployment rose to 2.3% from 2.2% during the prior three weeks. The low in early September was 2.0%.
The latest Beige Book covering US regional economic conditions from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20051019/default.htm"> here</a>.
Remarks by Fed Governor Donald L. Kohn titled The Economic Outlook are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051019/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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/15/05</th>
<th scope="col">10/08/05</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">Initial Claims</td>
<td>355</td>
<td>389</td>
<td>6.0%</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>2,370</td>
<td>3.4%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
October Consumer Confidence Rises in Italy, But Nascent Inflation and Unemployment Concerns Raise Questions, Too 
by <a href="/comment/Stone.html">Carol Stone</a> October 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020d.jpg" width="353">
Italian consumer confidence improved noticeably for October, but people also have a more uncertain inflation outlook. The overall confidence index, calculated by ISAE, the Institute for Studies and Economic Analysis, rose 2.4 points from September to 105.3, the highest in a year. Components covering sentiment about the &quot;general&quot; situation and the &quot;future&quot; situation were both up, by 3 and 4 points, respectively, in the month.
At the same time, several details of the survey appear more mixed than the broad indexes might suggest. Household finances are viewed modestly worse: the &quot;household financial situation&quot;, expressed as a favorable/unfavorable balance, is reported at -50 following -48 in September and -44 a year ago. Household budget conditions stand at +5, compared with +8 both a month and a year ago. However, financial expectations are marginally better, at -7 in October from -10 in September but -6 in October 2004. These mixed results imply that consumers are fairly unsure of their finances, but the small size of the moves indicate only hints of nervousness, not decisive moodswings.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051020e.jpg" width="353">
Expectations on inflation have changed more, perhaps driven by energy prices. The portion of consumers looking for prices to remain stable has fallen sharply in recent months, as seen in the table below: October&#39;s reading is 41% from 58% in October 2004. Offsets occurred in the groups looking for &quot;large&quot; increases, to 11% from 4%, and &quot;medium&quot; increases, to 21% from 15%. The number &quot;unsure&quot; of what they believe about inflation moved to 8% from 4%.
Consumers&#39; nervousness over their finances and relative uncertainty over inflation are accompanied by a more distinct deterioration in the unemployment outlook. 17% of respondents expect unemployment to rise &quot;sharply&quot; in the coming year, up from just 6% a year ago. Those looking for a &quot;slight&quot; increase ticked down one percentage point to 33% from 34%. Thus, those anticipating that unemployment will go up now constitute exactly half of the survey, from 40% last October. So some parts of this consumer survey may indicate that people are in better moods, but other aspects suggest developing worry and uncertainty over the two major bugaboos in any economy: inflation and unemployment. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ITALY/@I07/@I07.HTM">Italy ISAE Survey</a></th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005</th>
<th scope="col">Oct 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Overall Consumer Confidence, Index 1980 = 100, Seasonally Adjusted</td>
<td>105.3</td>
<td>102.9</td>
<td>100.9</td>
<td>101.1</td>
<td>101.4</td>
<td>106.2</td>
<td>115.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; General Situation</td>
<td>83.8</td>
<td>80.8</td>
<td>80.2</td>
<td>94.6</td>
<td>88.6</td>
<td>91.4</td>
<td>105.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Future Situation</td>
<td>101.8</td>
<td>97.8</td>
<td>97.0</td>
<td>104.3</td>
<td>100.8</td>
<td>107.2</td>
<td>113.4</td>
</tr>
<tr>
<td class="firstcol">Prices, Next 12 Mos: % Expecting Large Increase, Not Seasonally Adjusted</td>
<td>11</td>
<td>11</td>
<td>8</td>
<td>4</td>
<td>5</td>
<td>7</td>
<td>16</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Medium Increase</td>
<td>21</td>
<td>19</td>
<td>16</td>
<td>15</td>
<td>14</td>
<td>15</td>
<td>35</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Smaller Increase</td>
<td>17</td>
<td>16</td>
<td>14</td>
<td>17</td>
<td>21</td>
<td>20</td>
<td>13</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Stable</td>
<td>41</td>
<td>45</td>
<td>52</td>
<td>58</td>
<td>54</td>
<td>51</td>
<td>31</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019e.jpg" width="353">
Yesterday&#39;s report by the US Treasury of net purchases of securities by foreign investors indicated the third largest monthly amount ever in August, $91.3 billion. This followed two other sizable amounts, $87.5 billion in July and $81.8 billion in June, making a record large three-month total, $260.6 billion, nearly $20 billion more than the prior record cumulative volume in July 2003.
In one sense, the August data are quirky and may not be sustained. The big total resulted from enormous net purchases of foreign bonds in US markets. Although partly offset by sales of foreign equities, the foreign investor activity in &quot;Yankee&quot; bonds and stocks swung to $3.4 billion in net purchases after 17 consecutive months of net sales.The spurt in foreign bond acquisition to $17 billion is far out of line with prior experience, so it will be interesting to see whether it continues or is quickly reversed.Otherwise, transactions in US securities actually moderated a bit in August. They totaled $87.8 billion, down from $101.2 billion in July. Purchases of federal agencies, so-called &quot;GSEs&quot; (government-sponsored enterprises) dropped back, while corporate bond buying picked up and Treasury purchases continue near their 12-month average of $25.3 billion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019f.jpg" width="353">
Among countries, that swing in foreign securities apparently came from UK investors. It&#39;s important to point out here that these Treasury data represent transactions with the first non-US counterparty, regardless of the nationality of the final owner or seller. Since London is a major global financial center, it could well be investors from elsewhere -- perhaps the Middle East -- who moved out of foreign stocks and into bonds that trade in US markets.China&#39;s participation in US markets decreased to $5.7 billion in net purchases in August, but $13.8 billion in July and $14.7 billion in June made the largest two-month period by far; China&#39;s activity is quite erratic, and the let-up in August is actually fairly moderate compared with a sharp saw-tooth pattern that is frequently in evidence. Japan&#39;s net investments, by contrast, have slowed markedly the last several months after a large increase in 2004 and were only $1.2 billion in August.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$)</th>
<th scope="col">Aug 2005 </th>
<th scope="col">July 2005 </th>
<th scope="col">June 2005 </th>
<th scope="col">Last 12 Months&#39; Average </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">Total </td>
<td>91.3</td>
<td>87.5</td>
<td>81.8</td>
<td>66.3</td>
<td>63.6</td>
<td>55.3</td>
<td>47.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Treasuries </td>
<td>28.1</td>
<td>28.5</td>
<td>15.8</td>
<td>25.3</td>
<td>29.3</td>
<td>22.0</td>
<td>10.0</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;) </td>
<td>15.6</td>
<td>37.8</td>
<td>20.3</td>
<td>19.8</td>
<td>18.9</td>
<td>13.0</td>
<td>16.3</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds </td>
<td>40.3</td>
<td>24.9</td>
<td>54.4</td>
<td>29.6</td>
<td>25.1</td>
<td>22.1</td>
<td>15.2</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks </td>
<td>3.8</td>
<td>10.0</td>
<td>4.4</td>
<td>5.1</td>
<td>2.4</td>
<td>2.9</td>
<td>4.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds </td>
<td>17.0</td>
<td>-5.1</td>
<td>-1.2</td>
<td>-4.3</td>
<td>-5.6</td>
<td>2.7</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks </td>
<td>-13.5</td>
<td>-8.7</td>
<td>-11.8</td>
<td>-9.4</td>
<td>-7.1</td>
<td>-7.4</td>
<td>-0.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Yesterday's report by the US Treasury of net purchases of securities by foreign investors indicated the third largest monthly amount ever in August, $91.3 billion. This followed two other sizable amounts, $87.5 billion in July and [...]

Foreign Buying of Securities in US Markets 3rd Largest in August

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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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

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

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.

Europe

EMU PPI Trends Are Chaotic; It Could Get Worse

Winnie Tapasanun

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New orders for durable goods fell a more-than-expected 1.4% m/m in February, the fourth monthly fall in five months, after decreases of 0.5% in January (0.0% initially) and 0.9% in December (unrevised), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 1.0% m/m February decline. The year-on-year rate eased to 7.3% in February, the lowest since October, from 9.9% in January, though remaining positive since January 2025. Durable goods orders excluding the transportation sector rose 0.8% (6.0% y/y) in February, the 10th straight m/m rise, after a 0.3% increase in January. Durable goods orders excluding defense fell 1.2% (+7.3% y/y) following a 0.2% January rebound.

The m/m fall in February durable goods orders was led by a 28.6% m/m plunge in orders for nondefense aircraft & parts following decreases of 1.7% in January and 22.7% in December. Orders for defense aircraft & parts fell 3.8% after a 27.2% January slump and an 11.8% December jump. Orders excluding aircraft rose 1.2% (6.6% y/y), the seventh m/m rise in eight months, after a 0.3% January increase.

Durable goods orders for transportation fell 5.4% (+10.1% y/y) in February, the fourth m/m fall in five months, after a 1.9% decline in January. In addition to February m/m drops in nondefense and defense aircraft orders, motor vehicles & parts orders rose 3.1% (7.6% y/y), the third consecutive m/m rise, after a 0.7% January gain. Orders for electrical equipment, appliances & components slipped 0.1% (+5.0% y/y) following a 1.0% January decline, while orders for primary metals advanced 2.2% (10.2% y/y), the third successive m/m increase, after a 1.1% January rise. Machinery orders climbed 1.5% (9.2% y/y), the 10th straight m/m gain, on top of a 0.6% January increase. Orders for fabricated metal products rose 0.5% (5.4% y/y), the seventh m/m rise in eight months, following a flat January reading. Orders for all other durable goods rose 0.5% (1.3% y/y), up for the sixth consecutive month, after a 0.3% January rise. Meanwhile, orders for computers & electronic products were essentially unchanged (+7.5% y/y) after five straight m/m gains.

Capital goods orders fell 6.6% (+11.5% y/y) in February, the fourth m/m fall in five months, after a 3.0% drop in January. Nondefense capital goods orders slid 7.4% (+9.5% y/y), the fifth m/m slide in six months, after a 1.0% January decrease. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rebounded 0.6% (5.1% y/y), the seventh m/m rise in eight months, following a 0.4% January decline. Defense capital goods orders fell 1.1% (+25.1% y/y), down for the fourth time in five months, after a 14.2% January drop. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 0.9% (5.7% y/y), the fifth m/m increase in six months, after no change in January.

Shipments of all manufactured goods advanced 1.4% (3.5% y/y) in February, the fourth m/m gain in five months, after a 0.7% increase in January. Durable goods shipments rose 1.3% (6.8% y/y), up for the fifth time in six months, after a 0.9% January gain. Nondurable goods shipments climbed 1.4% (0.1% y/y), the third straight m/m rise, after a 0.5% January increase.

Unfilled orders of durable goods edged up 0.1% (11.1% y/y) in February, the seventh straight m/m gain, after a 0.6% rise in January. Excluding transportation, unfilled orders increased 0.2% (1.9% y/y), also up for the seventh consecutive month, following a 0.3% January rise.

Manufacturing inventories inched up 0.1% (0.8% y/y) in February, the fourth straight m/m increase, after a 0.1% uptick in January. Durable goods inventories edged up 0.1% (1.8% y/y) in February, the fifth consecutive m/m increase, after a 0.2% rise in January, while nondurable goods inventories were virtually unchanged (-0.8% y/y) following two successive m/m declines.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Headline orders -1.4% (+7.3% y/y) in Feb., fourth m/m decline in five mths.
- Nondefense aircraft & parts -28.6% m/m following January’s -1.7%.
- Transportation orders -5.4%, down for the fourth time in five mths.; orders ex transportation +0.8%, 10th straight m/m rise.
- Core capital goods shipments +0.9%, fifth m/m gain in six mths.
- Durable goods shipments +1.3%; unfilled orders +0.1%; inventories +0.1%.

Economy in Brief

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