Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050829d.jpg" width="353">
Last Friday, second quarter data for GDP and monthly data for the June Index of Distribution in the United Kingdom were released. The GDP data confirmed the slowdown in growth that has taken place over the past year. Real growth, on a year-over-year basis reached a recent peak of 3.72% in the second quarter of 2004 and has declined in each quarter since then. The deceleration in the domestic sector was even more marked, going from a 4.36% increase in the second quarter of 2004 to one of 1.49% in the second quarter of this year. The first chart shows the year-over-year growth in two major components of domestic demand--household consumption and gross fixed investment. Investment is more volatile than consumption, but both show a marked slowdown in the past year. The rise in exports and decline in imports helped to offset some on the deceleration in the second quarter. The year-over-year changes for the past year and a half in the total and major components of GDP are shown in the table below.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050829c.jpg" width="353">
The Index of Distribution, as its name implies, is a broad measure of trade. It includes both wholesale and retail trade and breaks out separately sales of motor vehicles. The total index is shown in the second chart, together with the Index of Industrial Production. The slight rise in the distribution index in contrast to a decline in the industrial production index in June is part of the longer term trends in the two sectors. Production has been declining while distribution has been rising.
The Index of Distribution for the United Kingdom is found in the National Accounts section of the UK data base under the heading Gross Value Added, Chained Volume Indexes, Monthly. In the same location, Industrial Production data are also shown.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/UK.HTM">United Kingdom</a> 2002=100</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">M/M&nbsp;%</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">Index of Distribution</td>
<td>109.2</td>
<td>108.2</td>
<td>108.5</td>
<td>0.92</td>
<td>0.65</td>
<td>107.9</td>
<td>102.9</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Motor Vehicles</td>
<td>108.4</td>
<td>108.4</td>
<td>109.9</td>
<td>0.00</td>
<td>-1.36</td>
<td>109.3</td>
<td>105.9</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Wholesale</td>
<td>106.0</td>
<td>105.2</td>
<td>104.6</td>
<td>0.76</td>
<td>1.34</td>
<td>104.6</td>
<td>100.2</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Retail</td>
<td>112.0</td>
<td>110.7</td>
<td>111.2</td>
<td>1.17</td>
<td>0.72</td>
<td>110.1</td>
<td>103.9</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Index of Industrial Production</td>
<td>99.2</td>
<td>99.3</td>
<td>101.1</td>
<td>-0.10</td>
<td>-1.88</td>
<td>100.3</td>
<td>95.9</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">Y/Y %</td>
<td>2Q O5</td>
<td>1Q O5</td>
<td>4Q O4</td>
<td>3Q O4</td>
<td>2Q O4</td>
<td>1Q O4</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Real GDP</td>
<td>1.77</td>
<td>2.13</td>
<td>2.71</td>
<td>3.08</td>
<td>3.72</td>
<td>3.43</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Domestic GDP</td>
<td>1.49</td>
<td>2.61</td>
<td>3.01</td>
<td>3.52</td>
<td>4.36</td>
<td>4.06</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Household Consumption</td>
<td>1.46</td>
<td>2.55</td>
<td>3.82</td>
<td>3.71</td>
<td>3.62</td>
<td>3.52</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Gross Fixed Investment</td>
<td>3.12</td>
<td>3.12</td>
<td>3.75</td>
<td>7.82</td>
<td>5.27</td>
<td>2.76</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>6.22</td>
<td>1.97</td>
<td>4.82</td>
<td>5.29</td>
<td>4.56</td>
<td>-0.75</td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>4.78</td>
<td>3.72</td>
<td>5.82</td>
<td>6.83</td>
<td>6.98</td>
<td>1.96</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
</html>

Last Friday, second quarter data for GDP and monthly data for the June Index of Distribution in the United Kingdom were released. The GDP data confirmed the slowdown in growth that has taken place over the past year. Real growth, on a [...]

UK: GDP Data Confirm Recent Slowdown in Growth; Index of Distribution Confirms Long Run Shift in Production & [...]

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050829a.jpg" width="353">
The leading index of the US economy published weekly by the Economic Cycle Research Institute (ECRI) stuttered in the last two periods but failed to reverse the sharp improvement in the measure since the low this past May.
Since the low, growth in the leaders has improved to 3.2% after having been slightly negative for a short period.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and the change in US real GDP growth during the following quarter. The correlation has risen to 72% during the last five years.
<a href="http://www.businesscycle.com/pdf_samples/BTBC_book_excerpt.pdf">&quot;But if recessions have historically been so hard to predict, why should you listen to us?&quot;</a> This quotefrom the book Beating the Business Cycle points out the difficulty of forecasting, especially when it concerns the future.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050829b.jpg" width="353">
&quot;To monitor just the U.S. economy, ECRI uses an array of 19 specialized leading indexes in the context of an &#147;economic cycle cube&#148; covering various sectors and aspects of the economy.&quot;
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.
Fed Chairman Greenspan&#39;s closing remarks from the Jackson Hole, Wyoming symposium can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/200508272/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">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">08/19/05</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>
<td class="firstcol">Weekly Leading Index</td>
<td>135.4</td>
<td>132.5</td>
<td>1.4%</td>
<td>132.6</td>
<td>124.9</td>
<td>119.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>3.2%</td>
<td>1.6%</td>
<td>&nbsp;</td>
<td>4.2%</td>
<td>6.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

The leading index of the US economy published weekly by the Economic Cycle Research Institute (ECRI) stuttered in the last two periods but failed to reverse the sharp improvement in the measure since the low this past May. Since the [...]

ECRI Leading Index Suggests Economic Growth

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050829a.jpg" width="353">
The leading index of the US economy published weekly by the Economic Cycle Research Institute (ECRI) stuttered in the last two periods but failed to reverse the sharp improvement in the measure since the low this past May.
Since the low, growth in the leaders has improved to 3.2% after having been slightly negative for a short period.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and the change in US real GDP growth during the following quarter. The correlation has risen to 72% during the last five years.
<a href="http://www.businesscycle.com/pdf_samples/BTBC_book_excerpt.pdf">&quot;But if recessions have historically been so hard to predict, why should you listen to us?&quot;</a> This quotefrom the book Beating the Business Cycle points out the difficulty of forecasting, especially when it concerns the future.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050829b.jpg" width="353">
&quot;To monitor just the U.S. economy, ECRI uses an array of 19 specialized leading indexes in the context of an &#147;economic cycle cube&#148; covering various sectors and aspects of the economy.&quot;
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.
Fed Chairman Greenspan&#39;s closing remarks from the Jackson Hole, Wyoming symposium can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/200508272/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">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">08/19/05</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>
<td class="firstcol">Weekly Leading Index</td>
<td>135.4</td>
<td>132.5</td>
<td>1.4%</td>
<td>132.6</td>
<td>124.9</td>
<td>119.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>3.2%</td>
<td>1.6%</td>
<td>&nbsp;</td>
<td>4.2%</td>
<td>6.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
UK:  GDP Data Confirm Recent Slowdown in Growth; Index of Distribution Confirms Long Run Shift in Production & Distribution Trends  
by <a href="/comment/Curley.html">Louise Curley</a> August 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050829d.jpg" width="353">
Last Friday, second quarter data for GDP and monthly data for the June Index of Distribution in the United Kingdom were released. The GDP data confirmed the slowdown in growth that has taken place over the past year. Real growth, on a year-over-year basis reached a recent peak of 3.72% in the second quarter of 2004 and has declined in each quarter since then. The deceleration in the domestic sector was even more marked, going from a 4.36% increase in the second quarter of 2004 to one of 1.49% in the second quarter of this year. The first chart shows the year-over-year growth in two major components of domestic demand--household consumption and gross fixed investment. Investment is more volatile than consumption, but both show a marked slowdown in the past year. The rise in exports and decline in imports helped to offset some on the deceleration in the second quarter. The year-over-year changes for the past year and a half in the total and major components of GDP are shown in the table below.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050829c.jpg" width="353">
The Index of Distribution, as its name implies, is a broad measure of trade. It includes both wholesale and retail trade and breaks out separately sales of motor vehicles. The total index is shown in the second chart, together with the Index of Industrial Production. The slight rise in the distribution index in contrast to a decline in the industrial production index in June is part of the longer term trends in the two sectors. Production has been declining while distribution has been rising.
The Index of Distribution for the United Kingdom is found in the National Accounts section of the UK data base under the heading Gross Value Added, Chained Volume Indexes, Monthly. In the same location, Industrial Production data are also shown.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/UK.HTM">United Kingdom</a> 2002=100</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">M/M&nbsp;%</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">Index of Distribution</td>
<td>109.2</td>
<td>108.2</td>
<td>108.5</td>
<td>0.92</td>
<td>0.65</td>
<td>107.9</td>
<td>102.9</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Motor Vehicles</td>
<td>108.4</td>
<td>108.4</td>
<td>109.9</td>
<td>0.00</td>
<td>-1.36</td>
<td>109.3</td>
<td>105.9</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Wholesale</td>
<td>106.0</td>
<td>105.2</td>
<td>104.6</td>
<td>0.76</td>
<td>1.34</td>
<td>104.6</td>
<td>100.2</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Retail</td>
<td>112.0</td>
<td>110.7</td>
<td>111.2</td>
<td>1.17</td>
<td>0.72</td>
<td>110.1</td>
<td>103.9</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Index of Industrial Production</td>
<td>99.2</td>
<td>99.3</td>
<td>101.1</td>
<td>-0.10</td>
<td>-1.88</td>
<td>100.3</td>
<td>95.9</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">Y/Y %</td>
<td>2Q O5</td>
<td>1Q O5</td>
<td>4Q O4</td>
<td>3Q O4</td>
<td>2Q O4</td>
<td>1Q O4</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Real GDP</td>
<td>1.77</td>
<td>2.13</td>
<td>2.71</td>
<td>3.08</td>
<td>3.72</td>
<td>3.43</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Domestic GDP</td>
<td>1.49</td>
<td>2.61</td>
<td>3.01</td>
<td>3.52</td>
<td>4.36</td>
<td>4.06</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Household Consumption</td>
<td>1.46</td>
<td>2.55</td>
<td>3.82</td>
<td>3.71</td>
<td>3.62</td>
<td>3.52</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Gross Fixed Investment</td>
<td>3.12</td>
<td>3.12</td>
<td>3.75</td>
<td>7.82</td>
<td>5.27</td>
<td>2.76</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>6.22</td>
<td>1.97</td>
<td>4.82</td>
<td>5.29</td>
<td>4.56</td>
<td>-0.75</td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>4.78</td>
<td>3.72</td>
<td>5.82</td>
<td>6.83</td>
<td>6.98</td>
<td>1.96</td>
<td></td>
<td></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/050826b.jpg" width="353">
Perhaps it&#39;s not necessary to document energy prices so, ah, graphically. But their changes have been dramatic, and the reaction of the University of Michigan Consumer Sentiment survey (see above) is probably just the first obvious sign of their impact in a piece of economic data. &quot;Employee discount&quot; pricing by several major auto manufacturers is another response, as those firms seek to clear stocks particularly of larger, less gas- efficient models.
Gasoline demand has been strong. In our second graph, we show Department of Energy data on weekly gasoline consumption; this is contained in Haver&#39;s OILWKLY database, compiled and provided to us by the &quot;Oil &amp; Gas Journal&quot;. In this DLXVG3 graph, we&#39;ve used the lead-lag feature to shift the series back one year so as to compare weekly seasonal patterns. Earlier years saw a clear spike in gasoline consumption at about this time of the summer, a sharp rise followed by just as rapid a drop in early September. But 2004 was an exception, as you can see from different shape of the lagged curve compared with the &quot;normal&quot; development in 2003; consumption rose earlier in the season and stayed high all summer long before spiking and then dropping back in the autumn. But, over the winter, demand didn&#39;t fall as much as it had previously. This year, starting from a higher base, spring demand gained and has since sustained still higher volume over many weeks -- despite the surging cost.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050826c.jpg" width="353">
Another non-traditional development this summer has been an extraordinary rise in natural gas prices. Called to our attention by an ordinary news article in the Wall Street Journal, the recent surge in those prices is unprecedented. While some summers have seen a slight rise in August, previous experiences like this year&#39;s sharp price increase have only come in the winter, when heating demand is great. The Journal attributed this to a &quot;hot summer&quot; eliciting more electricity output from gas-fired power plants. Our casual examination of recent temperature patterns suggests that through July, this summer has not been especially hot, and this theory seems to bear more investigation.
The recent sizable energy price advances look likely to cause consumers and businesses to alter their budgetary priorities, and as we noted at the outset, the drop in consumer sentiment may be an early concrete signal that consumers realize they will have to implement such changes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Energy Prices</th>
<th scope="col">8/25</th>
<th scope="col">8/24</th>
<th scope="col">8/19</th>
<th scope="col">7/25</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">Crude Oil - WTI ($/barrel)</td>
<td>67.30</td>
<td>67.08</td>
<td>65.36</td>
<td>56.01</td>
<td>41.31</td>
<td>31.14</td>
<td>25.92</td>
</tr>
<tr>
<td class="firstcol">Natural Gas - Henry Hub ($/MMBTU)</td>
<td>9.68</td>
<td>9.98</td>
<td>9.32</td>
<td>7.43</td>
<td>5.869</td>
<td>5.504</td>
<td>3.348</td>
</tr>
<tr class="odd">
<td class="firstcol">Gasoline - Retail ($/gal)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>2.612&nbsp;(wk-8/22)</td>
<td>2.289 (wk-7/25)</td>
<td>1.880</td>
<td>1.591</td>
<td>1.358</td>
</tr>
</tbody>
</table>
</body>
</html>

Perhaps it's not necessary to document energy prices so, ah, graphically. But their changes have been dramatic, and the reaction of the University of Michigan Consumer Sentiment survey (see above) is probably just the first obvious [...]

Energy Prices: Gasoline High, Natural Gas Takes Surprising Jump, Too

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050826a.jpg" width="353">
The University of Michigan Index of Consumer Sentiment for August was revised markedly in the final report issued this morning. Forecasters, already surprised by a decrease of 3.8 points in the preliminary figure, expected that level of 92.7 to hold for the month&#39;s final. But it came at 89.1, down 3.6 points more for a total drop in the month of 7.4 points. Normally there is little change from the preliminary to the final readings for a given month.
The index of current conditions was adjusted downward 2.2 points from the preliminary to put the entire month at 108.2, off 5.3 points from July. The index of consumer expectations came down another 4.4 points to 76.9, down 8.6 points from July.
The indexes are lower from July for both income brackets, below $50,000 and above $50,000, all four major Census regions of the country and all age groups.
Two weeks ago in this space, Tom Moeller graphed the total index with the price of crude oil. The energy price situation has worsened noticeably since then, and we&#39;d surmise, without much esoteric econometric analysis, that people are reacting negatively to the resulting record gasoline prices. A summary of those developments is contained in a separate story following.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August (final)</th>
<th scope="col">August (prel)</th>
<th scope="col">July</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">Consumer Sentiment</td>
<td>89.1</td>
<td>92.7</td>
<td>96.5</td>
<td>-7.1%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>108.2</td>
<td>110.4</td>
<td>113.5</td>
<td>0.3%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>76.9</td>
<td>81.3</td>
<td>85.5</td>
<td>-12.8%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan Index of Consumer Sentiment for August was revised markedly in the final report issued this morning. Forecasters, already surprised by a decrease of 3.8 points in the preliminary figure, expected that level [...]

U.S. Consumer Sentiment Drops Further in Final August Report

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050826a.jpg" width="353">
The University of Michigan Index of Consumer Sentiment for August was revised markedly in the final report issued this morning. Forecasters, already surprised by a decrease of 3.8 points in the preliminary figure, expected that level of 92.7 to hold for the month&#39;s final. But it came at 89.1, down 3.6 points more for a total drop in the month of 7.4 points. Normally there is little change from the preliminary to the final readings for a given month.
The index of current conditions was adjusted downward 2.2 points from the preliminary to put the entire month at 108.2, off 5.3 points from July. The index of consumer expectations came down another 4.4 points to 76.9, down 8.6 points from July.
The indexes are lower from July for both income brackets, below $50,000 and above $50,000, all four major Census regions of the country and all age groups.
Two weeks ago in this space, Tom Moeller graphed the total index with the price of crude oil. The energy price situation has worsened noticeably since then, and we&#39;d surmise, without much esoteric econometric analysis, that people are reacting negatively to the resulting record gasoline prices. A summary of those developments is contained in a separate story following.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August (final)</th>
<th scope="col">August (prel)</th>
<th scope="col">July</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">Consumer Sentiment</td>
<td>89.1</td>
<td>92.7</td>
<td>96.5</td>
<td>-7.1%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>108.2</td>
<td>110.4</td>
<td>113.5</td>
<td>0.3%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>76.9</td>
<td>81.3</td>
<td>85.5</td>
<td>-12.8%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
Energy Prices: Gasoline High, Natural Gas Takes Surprising Jump, Too 
by <a href="/comment/Stone.html">Carol Stone</a> August 26, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050826b.jpg" width="353">
Perhaps it&#39;s not necessary to document energy prices so, ah, graphically. But their changes have been dramatic, and the reaction of the University of Michigan Consumer Sentiment survey (see above) is probably just the first obvious sign of their impact in a piece of economic data. &quot;Employee discount&quot; pricing by several major auto manufacturers is another response, as those firms seek to clear stocks particularly of larger, less gas- efficient models.
Gasoline demand has been strong. In our second graph, we show Department of Energy data on weekly gasoline consumption; this is contained in Haver&#39;s OILWKLY database, compiled and provided to us by the &quot;Oil &amp; Gas Journal&quot;. In this DLXVG3 graph, we&#39;ve used the lead-lag feature to shift the series back one year so as to compare weekly seasonal patterns. Earlier years saw a clear spike in gasoline consumption at about this time of the summer, a sharp rise followed by just as rapid a drop in early September. But 2004 was an exception, as you can see from different shape of the lagged curve compared with the &quot;normal&quot; development in 2003; consumption rose earlier in the season and stayed high all summer long before spiking and then dropping back in the autumn. But, over the winter, demand didn&#39;t fall as much as it had previously. This year, starting from a higher base, spring demand gained and has since sustained still higher volume over many weeks -- despite the surging cost.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050826c.jpg" width="353">
Another non-traditional development this summer has been an extraordinary rise in natural gas prices. Called to our attention by an ordinary news article in the Wall Street Journal, the recent surge in those prices is unprecedented. While some summers have seen a slight rise in August, previous experiences like this year&#39;s sharp price increase have only come in the winter, when heating demand is great. The Journal attributed this to a &quot;hot summer&quot; eliciting more electricity output from gas-fired power plants. Our casual examination of recent temperature patterns suggests that through July, this summer has not been especially hot, and this theory seems to bear more investigation.
The recent sizable energy price advances look likely to cause consumers and businesses to alter their budgetary priorities, and as we noted at the outset, the drop in consumer sentiment may be an early concrete signal that consumers realize they will have to implement such changes.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Energy Prices</th>
<th scope="col">8/25</th>
<th scope="col">8/24</th>
<th scope="col">8/19</th>
<th scope="col">7/25</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">Crude Oil - WTI ($/barrel)</td>
<td>67.30</td>
<td>67.08</td>
<td>65.36</td>
<td>56.01</td>
<td>41.31</td>
<td>31.14</td>
<td>25.92</td>
</tr>
<tr>
<td class="firstcol">Natural Gas - Henry Hub ($/MMBTU)</td>
<td>9.68</td>
<td>9.98</td>
<td>9.32</td>
<td>7.43</td>
<td>5.869</td>
<td>5.504</td>
<td>3.348</td>
</tr>
<tr class="odd">
<td class="firstcol">Gasoline - Retail ($/gal)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>2.612&nbsp;(wk-8/22)</td>
<td>2.289 (wk-7/25)</td>
<td>1.880</td>
<td>1.591</td>
<td>1.358</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/050825b.jpg" width="353">
The German IFO Business Climate survey deteriorated anew this month after a hopeful improvement in July. The Business Climate Index eased to 94.6 (2000=100) from July&#39;s 95.0; forecasts had called for it to edge upward instead, to 95.2. The August result corresponds to a diffusion index of -11.7, down from July&#39;s -10.9.
By sector, wholesale trade, retail trade and manufacturing all declined, while construction managed to firm more than 4 points to -35.6, its best reading since early 2001. Commentators in press reports were most disappointed by the retail trade decline, which was the second in row. June had appeared to be establishing a good positive trend, but this was clearly unsustainable, possibly in the face of rising energy costs. Manufacturing, similarly, looked in July to be recovering from its weakness in Q2, but this did not extend into August. Even so, the -0.7 August figure remains much better than any in Q2.
Overall, companies saw marginal decreases in current conditions, from an index reading of 94.9 in July to 93.8 in August. The expectations component actually had a marginal improvement, to 95.4 from 95.1 in July and 92.9 in June. Thus, while headlines bemoan the negative move in the total, it is small, and companies hardly seem deeply distressed about their future prospects.

<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/GERMANY/GERMANY.HTM">Germany</a></th>
<th scope="col">Aug 2005</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Climate Index, 2000=100</td>
<td>94.6</td>
<td>95.0</td>
<td>93.3</td>
<td>95.7</td>
<td>91.7</td>
<td>89.4</td>
</tr>
<tr>
<td class="firstcol">Diffusion Index</td>
<td>-11.7</td>
<td>-10.9</td>
<td>-14.2</td>
<td>-9.6</td>
<td>-17.5</td>
<td>-22.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>-0.7</td>
<td>-0.1</td>
<td>-5.3</td>
<td>4.5</td>
<td>-7.9</td>
<td>-10.3</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-35.6</td>
<td>-39.9</td>
<td>-42.0</td>
<td>-42.7</td>
<td>-42.9</td>
<td>-44.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale Trade</td>
<td>-17.9</td>
<td>-13.6</td>
<td>-18.1</td>
<td>-17.2</td>
<td>-25.0</td>
<td>-29.8</td>
</tr>
<tr>
<td class="firstcol">Retail Trade</td>
<td>-27.3</td>
<td>-24.8</td>
<td>-21.0</td>
<td>-27.6</td>
<td>-25.5</td>
<td>-40.2</td>
</tr>
</tbody>
</table>
</body>
</html>

The German IFO Business Climate survey deteriorated anew this month after a hopeful improvement in July. The Business Climate Index eased to 94.6 (2000=100) from July's 95.0; forecasts had called for it to edge upward instead, to [...]

German IFO Index Decreases in August, But Expectations Edge Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050825a.jpg" width="353">
Initial claims for unemployment insurance fell by 4,000 in the week ended August 20 to 315,000, partially reversing the prior week&#39;s revised 8,000 increase. This latest figure was right in line with Consensus expectations.
The four-week moving average of initial claims rose to 315,000 (-6.7% y/y).
Continuing claims for unemployment insurance fell 9,000 in the August 13 week; the previous week&#39;s number was revised to a 22,000 increase from 28,000 reported initially.
The insured unemployment rate remained at its four-year low of 2.0% for a sixth consecutive week.
Initial claims are highly sensitive to the forces generating economic growth. Indeed, quarterly average claims have an 82% negative correlation with 4-quarter GDP growth. So in our chart, we have plotted weekly claims with those 4-quarter growth rates. We have used the &quot;horizontal reference&quot; feature of DLXVG3 to draw a line at 3.5%; the bar feature then points the individual bars up or down relative to that reference line instead of zero. There we see that turning points in claims appear to be roughly associated with shifts in growth above and below 3.5%. Four-quarter growth has been 3.6% throughout the first half of 2005 -- and initial unemployment insurance claims have hovered in a tight range of 315,000 to 330,000. The lower end of this range has held now since mid-July; this suggests good growth for Q3 as well -- or at least a firm foundation from which to meet the increasing burden of high energy costs.

<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">08/20/05</th>
<th scope="col">08/13/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>315</td>
<td>319</td>
<td>-7.9%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,578</td>
<td>-10.3%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance fell by 4,000 in the week ended August 20 to 315,000, partially reversing the prior week's revised 8,000 increase. This latest figure was right in line with Consensus expectations. The four- [...]

Unemployment Insurance Claims Ease, Hover in Tight Range

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

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

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Winnie Tapasanun

260407V35.jpg

260407W35.jpg

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.

260407X35.jpg

260407Y35.jpg

- 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%.

U.S. Durable Goods Orders Fall in February, Led by a Plunge in Nondefense Aircraft Orders

Robert Brusca

260407E.jpg

The S&P composite PMIs in March weakened decisively across the board, with only four of 25 reporters showing an improvement in March compared to February. February had been a strong month, with only 10 of 25 monthly composite indicators weaker on a month-to-month basis. In January, 11 of the composite indicators weakened month-to-month. So, between January and March, the proportion of countries showing composite indicators as weaker month-to-month went up from 40% to 44% and then all the way up to 80%, a huge shift for the worse.

**Sequential trends**
Sequentially, looking at 12-months compared to 12-months ago, six-months compared to 12-months, and three-months compared to six-months, we see a similar progression. Over 12 months, 43.5% of the reporters were weaker; over six months, 39.1% of them were weaker period-to-period. And then over three months, that proportion jumped to 65.2% that were weaker month-to-month.

The war in Iran has been reflected in these numbers. We see it very clearly for the March data, the first full month after the attack. The average and median total PMI readings deteriorated from February to March: the average readings fell from 52.6 in February to 50.7 in March, and the median readings fell from 52.1 to 51.4.

The number of reporters with PMI values below 50, indicating contraction, jumped to 9 in March from 4 in February and 5 in January.

The data show that there has been broad weakening among these reporters. In addition, there has been a sharp rise in the number of them reporting outright economic contraction. The composite indexes are showing not just weakness month-to-month, but actual stepped-up contraction.

The queue percentile standings are also substantially degraded, with only eight of the 25 queue metrics that are reported above their historic medians on data back to January 2022. And the countries that are reporting good performance are often very small countries. Ghana and Zambia show very strong queue percentile standings. Sweden shows a high percentile standing. However, Japan and Hong Kong also show percentile standings in their 90th percentile, and Germany's standing has gotten to its 70th percentile. However, if oil prices climb and shortages in a variety of supply chains begin to be impacted because of the lack of oil, and in some cases, fertilizer and other commodities, we are going to start to see weakness spread.

In some developing countries, there's already a more generalized economic weakness being caused by fuel rationing because prices are so high. If the Strait of Hormuz is not open soon, these conditions are going to get demonstrably worse. Even though the U.S. economy has done relatively well and is unaffected by oil supply shortages—although prices in the U.S. certainly have risen—the U.S. composite PMI index has only a 19.6 percentile standing, not a terribly good place to say that the economy is largely unaffected by these events. The U.S. composite PMI has fallen for two months in a row.

Not surprisingly, three countries have reported the lowest composite PMI readings since 2022 when these rankings began. They are Saudi Arabia, Qatar, and the United Arab Emirates, all of whom are in the middle of this Middle East conflict.

The European Monetary Union posted a queue standing above its 50th percentile, at 54.9. And its diffusion reading on the month at 50.5 is similar to the U.S. at 50.3, indicating that economic activity is still expanding in the community—but barely. Both France and Italy logged composite PMI readings below 50; France has generated three sub-50 diffusion readings in a row, and in addition, three more of them sequentially over three months, six months, and 12 months. The queue standings may overstate the case for resiliency in some instances. There was plenty of weakness to go around across economies in March.

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Composite PMIs Retreat Broadly

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The U.S. ISM Services PMI decreased to 54.0 in March following a 2.3-point rise to 56.1 in February (the highest reading since July 2022), according to today’s report by the Institute for Supply Management, indicating expansion in the services sector for the 21st consecutive month but at a slower pace. The March index, while above 50.8 in March 2025 and a low of 49.4 in June 2024, remained below a high of 55.5 in October 2024 and a record-high 67.5 in November 2021. The 12-month average was 52.3, pointing to continued growth in the U.S. services sector. The Action Economics Forecast Survey had expected 54.9 for March.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index fell to 53.8 in March after a 2.0-point increase to 55.7 in February, signaling expansion for the 10th straight month, albeit at a slower rate. The latest reading was above 50.6 in March 2025 and a low of 49.3 in June 2024, while remaining below a record-high 66.7 in November 2021. These series date back to July 1997.

In the latest services survey, the business activity index declined to 53.9 in March after rising to 59.9 in February, indicating continued expansion in business activity for 21 consecutive months, though at the slowest pace since September. The index was above a low of 50.0 in June 2024 but below a record-high 70.9 in November 2021. In March, 22.8% of respondents (NSA) reported higher activity while 14.6% reported an activity decline. The new orders index rose to 60.6 in March after increasing to 58.6 in February, reflecting expansion in new orders for the 10th straight month and the highest level since February 2023. The index was above its recent low of 47.2 in May 2025 but below a high of 61.0 in February 2023 and a record-high 69.2 in October 2021. In March, 32.0% of respondents (NSA) reported higher new orders while a lessened 12.6% reported declines. Meanwhile, the supplier deliveries index (NSA) increased to 56.2 in March from 53.9 in February, indicating slower supplier delivery performance for the 16th straight month after one month in faster territory in November 2024.

On the labor front, the employment index fell to 45.2 in March after rising to 51.8 in February, showing employment activity in the services sector contracted for the first time since November and at the lowest level since December 2023. The latest reading was above a low of 43.5 in December 2023 but below a high of 54.1 in June 2023 and a high of 58.9 in April 2021. A reduced 10.7% of respondents (NSA) indicated higher employment in March while an increased 18.4% reported declines.

On the inflation front, the prices index jumped to 70.7 in March from 63.0 in February, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 and at the fastest pace since October 2022. The index was above a low of 53.9 in March 2024 and a low of 55.1 in June 2023 but significantly below a peak of 83.7 in March 2022. An increased 45.7% of respondents (NSA) reported higher prices in March while only 1.2% reported price declines.

Additionally, the new export orders index dropped to 50.7 in March from 57.2 in February, showing new export orders expanded for the third time in four months but at a slower rate. The imports index rose to 55.2 in March from 51.8 in February, registering the third expansion in four months and the highest level since January 2024. The inventories index declined to 54.8 in March from 56.4 in February, indicating inventories expanded for the fourth time in five months but at a slower pace. The inventory sentiment index slipped to 54.3 in March from 55.3 in February, showing continued expansion since May 2023. The backlog of orders index fell to 53.6 in March from 55.9 in February, marking the second successive month of expansion following 11 straight months of contraction. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- ISM Services PMI at 54.0 in Mar., down 2.1 pts. from Feb.; below forecasts but above the 12-month avg. of 52.3.
- Business Activity (53.9, 21st straight month of expansion); New Orders (60.6, 10th consecutive month of expansion and fastest since Feb. ’23); Employment (45.2, first contraction since Nov.); Supplier Deliveries (56.2 vs. 53.9).
- Prices Index (70.7) indicates prices rising since June ’17, the fastest pace since Oct. ’22.

U.S. ISM Services PMI Slips in March, Still Indicating Expansion for the 21st Straight Month

Tian Yong Woon

In this week’s Letter, we examine the first-round price impacts of the surge in oil prices stemming from the ongoing Middle East conflict in Asia. Despite recent rhetoric and reports suggesting a potentially swift resolution, the conflict continues to unfold, with a ceasefire hanging in the balance, and with some measures of shipping volumes through the Strait of Hormuz still reduced to a trickle. At the same time, crude oil prices have been whipsawing amid shifting market perceptions about the persistence of the current supply shock (chart 1). The initial effects of higher oil prices are already showing up in hard data, particularly in energy- and fuel-related inflation across Indonesia, South Korea, and Vietnam (chart 2). In response, several governments have rolled out sizeable subsidy programmes to cushion rising energy costs, though these measures come with significant fiscal strain.

We also assess recent consumer inflation expectations in South Korea and Taiwan, which show early signs of edging higher (chart 3), although there is as yet no clear evidence of a meaningful unanchoring. To add further nuance, our latest Blue Chip survey suggests that most panellists expect only a limited and temporary pass-through from higher energy prices to core inflation, though a non-trivial minority anticipate a more persistent effect (chart 4). On the policy front, respondents broadly expect central banks to delay easing while avoiding outright tightening, with outcomes likely to diverge across regions (chart 5). In the near term, upcoming policy decisions in India, New Zealand, and South Korea—alongside other key data releases—will provide a useful test of these expectations (chart 6).

**The Middle East conflict**
The Middle East conflict continues to rage, with IMF-tracked shipping volumes through the Strait of Hormuz still reduced to a trickle. Meanwhile, crude oil prices remain volatile, gyrating alongside shifting perceptions over how soon normal oil flows might resume. In reality, there is still little sign of a substantive resolution, and no agreement to fully reopen the strait appears imminent, suggesting that oil flows are likely to remain constrained at low levels in the near term. That said, some investors are closely monitoring developments following reports of discussions around a potential 45-day ceasefire, which could pave the way toward a more lasting resolution. Until then, and absent any meaningful supply relief, crude oil prices—and by extension, energy-related inflation—are likely to face continued upward pressure, particularly for oil-dependent, importing economies.

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**Initial price impacts**
The initial inflation concerns among policymakers and investors stemming from the surge in oil prices are now beginning to show up in the data, as illustrated in chart 2. The latest March readings—capturing the period after the onset of the Middle East conflict—already point to a sharp acceleration in energy-related prices on a year-ago basis. Indonesia’s energy CPI basket has risen by around 9%, while diesel prices in South Korea have jumped 17%. Vietnam’s retail gasoline prices have seen an even more pronounced increase, at roughly 25.6%. Given the scale of these price surges, and their direct impact on everyday essentials—particularly fuel for daily commutes and broader economic activity—governments across Asia have begun rolling out sizeable subsidy programmes. These measures, often implemented at significant fiscal cost, aim to cushion the burden on households and firms. For instance, South Korea’s finance ministry proposed a supplementary budget of around $17.3 billion in late March to support low-income households, youth, and businesses amid higher oil prices, with approval expected by April 10. Meanwhile, Indonesia has allocated approximately $22.4 billion toward energy subsidies and support for selected energy and utilities firms to help keep prices affordable.

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**Consumer inflation expectations**
What policymakers are likely to focus on—beyond the immediate price impacts—is how the recent surge in oil prices feeds into inflation expectations. If left unanchored, these expectations could pose a far greater challenge than the supply-driven price shock itself, including reduced monetary policy effectiveness in reining in inflation and the risk of a self-fulfilling inflation cycle—though it is worth noting that such dynamics are not yet close to materialising. So far, there are some early, albeit inconclusive, signs that near-term consumer inflation expectations are beginning to drift higher in certain economies. As shown in chart 3, one-year-ahead inflation expectations edged up to 2.7% in March, while in Taiwan, consumer sentiment regarding domestic price trends over the next six months has turned notably more pessimistic relative to overall confidence.

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**The latest Blue Chip survey**
Turning to investor perspectives on how higher energy prices may feed into inflation, our special questions in the latest Blue Chip Financial Forecasts (BCFF) survey offer some useful nuance. As shown in chart 4, around two-thirds of panellists expect only a limited and temporary pass-through from higher oil prices to core inflation. That said, a non-trivial minority (31%) anticipate a more moderate and persistent pass-through. This is notable given the focus on core inflation, and underscores how energy prices can generate second-round effects even in typically non-energy components, reflecting the pervasive role of energy in everyday economic activity—from manufacturing to the upkeep of a wide range of goods and services.

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Delving deeper, we also asked panellists about their views on the prospective path of central bank policy should energy-driven inflation prove persistent. As shown in chart 5, responses broadly coalesce around two themes: central banks are likely to delay easing rather than tighten, and policy responses will vary meaningfully across regions. The former is already playing out to some extent in recent central bank decisions across Asia, with several explicitly citing the ongoing Middle East conflict as a reason to remain vigilant on inflation and refrain from easing policy prematurely. As for the latter, there are already signs of divergence in how different central banks are approaching the situation.

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**The week ahead**
Looking to the week ahead, there will be ample opportunities to assess whether investor expectations for central bank policy moves play out across Asia, with several rate decisions due—most notably in India, New Zealand, and South Korea. Also on the docket are China’s March CPI print and a range of Japan-related releases. Policymakers are likely to remain focused on balancing inflation control with supporting growth and maintaining currency stability. For now, and absent offsetting domestic factors, expectations for further near-term easing have been tempered by rising inflation risks. In China, recent CPI readings point to a modest pickup, while producer price deflation has begun to ease after a prolonged period of weak or negative inflation.

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Asia

Economic Letter from Asia: First-Round Effects

Michael J. Moran

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The report on payroll employment for March was impressive when viewed in isolation. Job growth was strong at 178,000, and the advance was broadly based. The construction and manufacturing sectors both posted solid gains, and the service-producing sector registered its firmest performance in more than a year. However, the gain might be viewed as a continuation of an unusual bout of random volatility. The March advance followed a notable drop in February (-133,000, revised down from -92,000), which followed an upside surprise in January (160,000, revised up from 126,000).

To be sure, statistical noise has been a factor in the past three months, but the results also represent an encouraging shift in job growth from that in the second half of last year, when employment rose only marginally in the third quarter and fell in the fourth. The net change in the past three months seems to signal that job growth is not drying up. The net advance so far this year is far from brisk, but it is clearly in the plus column and noticeably better than results in late 2025.

The unemployment rate also might be viewed as favorable, as it dipped 0.1 percentage point to 4.3%, although it was a “soft” decline. That is, employment as measured by the household survey declined 64,000, but the size of the labor force fell by a larger amount (off 396,000). Still, the jobless rate has climbed only modestly higher since the labor market started to ease in 2023, and it has inched lower in the past few months.

Unemployment has been contained despite modest hiring because layoffs also have been light. Initial claims for unemployment benefits have moved sideways in the past few years, indicating no change in the pace of layoffs. This pattern is confirmed by terminations data in the report on job openings and labor turnover (JOLTs) from the Bureau of Labor Statistics.

A supply-side shift in the labor market also has helped to contain the unemployment rate. Growth in the size of the labor force has slowed, and with fewer individuals seeking employment, those searching are more easily absorbed. Measures of the size of the labor force can be difficult to assess because there are breaks in the series every year. The Bureau of Labor Statistics adjusts the population controls used in its estimating procedure every January without revising past data to align with the new estimates. Thus, every January involves a discontinuity in the series, which will distort year-over-year changes.

However, Haver Analytics maintains a smoothed series originally developed by BLS to eliminate the breaks in the labor force data. As shown in the chart below, the smoothed series on the size of the labor force had been growing at a pace centered on 1.2% through 2022, but it has slowed irregularly since then (an observation for October is not available because of limited data collection during the government shutdown). The overall labor force is still growing, but the slower pace means fewer individuals looking for work, which most likely results in fewer being counted as unemployed.

The BLS collects data every month on both native-born and foreign-born individuals in the labor force. The breaks in these series are an issue, and Haver does not maintain smoothed series. However, the use of moving averages achieves enough smoothing to provide a sense of underlying changes. The native-born labor force has moved erratically in the past couple of years, but it has continued to advance. The foreign-born labor force, in contrast, seems to have peaked in mid-2025 and has generally declined since then.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- The jump of 178,000 in payroll employment in March easily exceeded the expected gain of 51,000.
- Following a net gain in January and February, the employment setting seems to have brightened slightly.
- A dip in the unemployment rate continued the recent pattern of marginal changes.

Economy in Brief

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