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/050823b.jpg" width="353">
Existing home sales eased slightly in July, falling 2.6% to 7.16 million units from an upwardly revised 7.35 million in June. Single-family sales alone decreased by 2.3% to 6.24 million and condo and co-op sales by 4.2% to 920,000. (The condo and co-op sales we calculated ourselves by simple subtraction.) Total sales were a bit weaker than consensus expectations, which had called for 7.25 million. Even so, the July outturn was the third highest ever, behind only June&#39;s figure, which was the record, and April&#39;s 7.18 million, according to these compilations by the National Association of Realtors. The data cover sales closed in this and previous months, in contrast to new home sales data, which count sales at the signing of a contract. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050823c.jpg" width="353">
The median price of an existing single-family home increased 0.5% but June&#39;s price figure was revised downward, so the July result, at $217,900, is actually lower than the original June price median. Prices are not seasonally adjusted, and they tend to soften a bit as the summer winds down. Even so, the July number is still 14.1% ahead of a year ago, and the escalation should be plainly evident in our second graph. 
By region, total sales fell everywhere except in the South, where they were flat with June. The West saw a decrease of 7% in the month to a volume just 0.7% above July 2004. Sales in the Midwest eased 1.4%, making them 1.9% below last July, and those in the Northeast were off 2.3%, but still held a gain of 4.9% from the year earlier amount. 
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>7,160</td>
<td>7,350</td>
<td>1.3%</td>
<td>6,723</td>
<td>6,170</td>
<td>5,653</td>
</tr>
<tr>
<td class="firstcol">Single Family Home Sales</td>
<td>6,220</td>
<td>6,390</td>
<td>0.5%</td>
<td>5,913</td>
<td>5,441</td>
<td>4,995</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price ($,000) </td>
<td>$217.9 </td>
<td>$216.7 </td>
<td>14.6% </td>
<td>$182.8 </td>
<td>$169.1 </td>
<td>$157.6 </td>
</tr>
</tbody>
</table>
Chain Store Sales Down a 3rd Week 
by <a href="/comment/Stone.html">Carol Stone</a> August 23, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050823a.jpg" width="353">
Chain store sales fell for a third week, according to the International Council of Shopping Centers (ICSC)-UBS survey. A 0.3% decline in the week ended last Saturday, August 20, followed the prior week&#39;s 0.3% decrease. That puts the ICSC sales index in the first three weeks of August back virtually level with its July average, after a strong, but unsustainable jump the last week of that month. The latest week is 4.0% ahead of a year ago. 
A more hopeful sign came in the ICSC&#39;s leading indicator of chain store sales, which gained 0.5% in the August 13 week, a second consecutive rise, bringing it almost back up to its mid-July level. 
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>456.8</td>
<td>458.0</td>
<td>4.0%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
German Investor's Confidence Rises Sharply in August: GDP Release Shows Increased Domestic Activity 
by <a href="/comment/Curley.html">Louise Curley</a> August 23, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050823e.jpg" width="353">
The ZEW Center for European Research announced that the institutional investors and analysts who respond to their survey on current and future conditions in Germany turned surprisingly optimistic in August as shown in the first chart. The balance of those expecting improved conditions in the next six months over those expecting worsened conditions rose to 50% from 37% in July. This was well above consensus and was the highest balance of optimists since March 2004. The recent decline in the euro has been one factor in the increase in confidence but there is also some suggestion that domestic activity within the economy is stirring. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050823d.jpg" width="353">
Such evidence is found in the details of the second quarter German gross domestic product released today. Investment in real terms both in plant and equipment and inventories rose and managed to overcome a decline in net exports and continued sluggish consumption. Total GDP increased a mere 0.01% in the quarter. The strongest rise was in inventories. Inventory liquidation has long been a drag on the German economy and the recent accumulation is encouraging, suggesting as it does that businesses are beginning to be more optimistic about future prospects.
In the German national accounts, inventories are shown only in current dollars. We derived a series in chained 2000 euros, by subtracting fixed investment from total investment, both in chained 2000 euros. This is not a proper procedure when dealing with chained dollars, however, it may suffice to give a rough estimate of the actual trend in real terms. The result is shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/GERMANY.HTM">Germany</a></th>
<th scope="col">Aug 05</th>
<th scope="col">Jul&nbsp; 05</th>
<th scope="col">Aug 04</th>
<th scope="col">M/M dif </th>
<th scope="col">Y/Y dif</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">ZEW % balance</td>
<td>50.0</td>
<td>37.0</td>
<td>45.3</td>
<td>13.0</td>
<td>4.7</td>
<td>44.6</td>
<td>38.4</td>
<td>45.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Billions Chained 2000 Euros</td>
<td>Q2 05</td>
<td>Q1 05</td>
<td>Q2 04</td>
<td>M/M % </td>
<td>Y/Y %</td>
<td>2004 &nbsp; Quarterly Avg</td>
<td>2003&nbsp; Quarterly Avg</td>
<td>2002 Quarterly Avg</td>
</tr>
<tr>
<td class="firstcol">Total Gross Domestic Product</td>
<td>531.56</td>
<td>531.51</td>
<td>528.41</td>
<td>0.01</td>
<td>0.60</td>
<td>527.87</td>
<td>522.15</td>
<td>523.14</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Consumption</td>
<td>406.36</td>
<td>406.64</td>
<td>406.60</td>
<td>-0.07</td>
<td>-0.06</td>
<td>407.28</td>
<td>408.22</td>
<td>407.72</td>
</tr>
<tr>
<td class="firstcol">Total Investment</td>
<td>100.16</td>
<td>98.15</td>
<td>98.20</td>
<td>2.05</td>
<td>2.00</td>
<td>98.19</td>
<td>96.81</td>
<td>94.36</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Investment</td>
<td>97.40</td>
<td>97.23</td>
<td>97.90</td>
<td>0.17</td>
<td>-0.51</td>
<td>98.32</td>
<td>99.83</td>
<td>100.56</td>
</tr>
<tr>
<td class="firstcol">Inventory (derived)</td>
<td>2.76</td>
<td>0.92</td>
<td>0.30</td>
<td>1.84*</td>
<td>2.46*</td>
<td>-0.13</td>
<td>-3.02</td>
<td>-6.20</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>222.30</td>
<td>219.63</td>
<td>214.38</td>
<td>1.22</td>
<td>3.69</td>
<td>212.41</td>
<td>196.13</td>
<td>191.71</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>197.21</td>
<td>192.80</td>
<td>188.21</td>
<td>2.29</td>
<td>4.62</td>
<td>190.08</td>
<td>179.15</td>
<td>170.71</td>
</tr>
</tbody>
</table>


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Existing home sales eased slightly in July, falling 2.6% to 7.16 million units from an upwardly revised 7.35 million in June. Single-family sales alone decreased by 2.3% to 6.24 million and condo and co-op sales by 4.2% to 920,000. [...]

U.S. Existing Home Sales & Prices Moderate Slightly in July

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050822b.jpg" width="353">
The current account in the Euro zone&#39;s balance of payments turned negative in June. Except for two other small monthly deficits, the current account, on a seasonally adjusted basis, for the area has been in surplus since 2002 as can be seen in the first chart. The surplus on the current account has, however, been declining. The seasonally adjusted deficit for the month of June was 2.5 billion euros, compared with surplus in May of 1.9 billion euros and 3.8 billion euros in June, 2004. On a seasonally unadjusted basis the deterioration in the current account is starker. For the first half of this year, the non seasonally adjusted current account deficit was 14.5 billion euros, compared with a 19.5 billion euro surplus in the first half of 2004. With the decline in the current account, the financial account, representing the excess of capital outflows over inflows, has also declined.
Errors and omissions play a large role in the Euro zone&#39;s balance of payments. Over the past few years, this item has represented a capital outflow greater than the total of direct and indirect investment inflows. No doubt there are formidable problems of data collection regarding the investment flows of the twelve nations of the Euro zone that account for the large errors.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050822a.jpg" width="353">
The growing deficit on current account in the Euro zone, to say nothing of the growing U.S. deficit, implies that other areas must be piling up growing surpluses. The two areas that come to mind as benefiting from current conditions are the Middle East and China. The rise in the oil price has obviously made substantial improvements in the current accounts of the middle eastern countries and some African and Latin American countries. Since monthly balance of payments data for many of these countries are not available, the second chart shows the 2000-2004 current account balances of Saudi Arabia, as representative of the oil producers, and the current account of China. Final results for the current year should show a further substantial rise in both accounts.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Billions Euros</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun&nbsp; 04</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</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">Current Account&nbsp; SA</td>
<td>-2.5</td>
<td>1.9</td>
<td>3.8</td>
<td>-4.4</td>
<td>-6.3</td>
<td>43.5</td>
<td>20.9</td>
<td>65.2</td>
</tr>
<tr>
<td class="firstcol">Current Account NSA</td>
<td>-2.1</td>
<td>-3.0</td>
<td>4.7</td>
<td>0.9</td>
<td>-6.8</td>
<td>46.7</td>
<td>20.4</td>
<td>64.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Account&nbsp;&nbsp; &quot;</td>
<td>1.9</td>
<td>1.7</td>
<td>0.9</td>
<td>0.2</td>
<td>1.0</td>
<td>17.3</td>
<td>13.3</td>
<td>10.2</td>
</tr>
<tr>
<td class="firstcol">Financial Account &quot;</td>
<td>18.4</td>
<td>38.3</td>
<td>11.1</td>
<td>-17.9</td>
<td>7.3</td>
<td>-5.6</td>
<td>-5.8</td>
<td>-43.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Reserves&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;</td>
<td>0.9</td>
<td>2.6</td>
<td>-0.8</td>
<td>-1.7</td>
<td>1.7</td>
<td>12.3</td>
<td>30.0</td>
<td>-2.2</td>
</tr>
<tr>
<td class="firstcol">Errors and Omissions&nbsp;&nbsp; &quot;</td>
<td>-18.3</td>
<td>-34.9</td>
<td>-16.7</td>
<td>16.6</td>
<td>-1.6</td>
<td>-58.9</td>
<td>-27.7</td>
<td>-30.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Millions U.S. Dollars</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">China Current Account</td>
<td>68659</td>
<td>45857</td>
<td>35422</td>
<td>17401</td>
<td>20218</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Saudi Arabia Current Ac</td>
<td>51488</td>
<td>28048</td>
<td>11873</td>
<td>9353</td>
<td>14317</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
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The current account in the Euro zone's balance of payments turned negative in June. Except for two other small monthly deficits, the current account, on a seasonally adjusted basis, for the area has been in surplus since 2002 as can [...]

Euro Zone Current Account Suffers from High Oil Prices and Chinese Competition

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050819b.jpg" width="353">
The Russian economy has maintained a firm uptrend through the summer, according to the &quot;Five Basic Indicators&quot;, measures of output in leading goods-related sectors. In June, the combined output gauge was up 6.4% from a year earlier, stronger than May&#39;s 4.1% and last year&#39;s 5.2%. The component items for July, although not the total index, were reported this week, several of them today by the Federal Service of State Statistics, and they suggest that the momentum may have slowed somewhat. These indicators cover agriculture, industrial production, retail trade, construction and transportation. The data, contained in Haver&#39;s EMERGECW database, are not seasonally adjusted and are reported as year-on-year percentage changes. The industrial production segment gained 4.9% in July, compared with 6.9% in June and 4.6% in 2004. Retailing kept up double-digit gains, although these are a bit slower than they were during 2004. Construction and agricultural activity, by contrast, picked up considerably in July after a sluggish pace in the spring. Transportation was quite vigorous in 2002 and 2003, but has had only modest increases since then.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050819c.jpg" width="353">
The volume increases in retail trade are perhaps most impressive. Russian consumers are evidently able to raise their purchasing, despite double-digit increases also in consumer prices. And since retailing is expanding so much more rapidly than industrial activity, we&#39;d surmise that inventories are tight and that imports are continuing to flow in rapidly. Through the second quarter, total imports of goods were up 28.5% from their year earlier pace (before adjustment for inflation).
The rapid inflation makes it difficult to be unabashedly optimistic about a sustained expansion for the Russian economy, but the persisting advances in goods-producing sector output volume are encouraging. Russia&#39;s status as an oil exporter also means that rising energy costs are partially offset by the support energy sales give to incomes and profits for those employed in that sector.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@EB/@EB.HTM">Russia:</a> Year/Year % Changes</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Output</td>
<td>--</td>
<td>6.4</td>
<td>4.1</td>
<td>5.2</td>
<td>8.9</td>
<td>3.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>4.9</td>
<td>6.9</td>
<td>1.4</td>
<td>4.6</td>
<td>7.9</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">Retail Trade</td>
<td>11.8</td>
<td>12.5</td>
<td>13.3</td>
<td>14.2</td>
<td>8.4</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>12.9</td>
<td>7.4</td>
<td>5.3</td>
<td>10.6</td>
<td>16.6</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">Transportation</td>
<td>2.8</td>
<td>2.0</td>
<td>4.1</td>
<td>3.4</td>
<td>9.4</td>
<td>9.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Agriculture</td>
<td>4.5</td>
<td>0.4</td>
<td>0.8</td>
<td>-0.7</td>
<td>0.6</td>
<td>-0.2</td>
</tr>
</tbody>
</table>
</body>
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The Russian economy has maintained a firm uptrend through the summer, according to the "Five Basic Indicators", measures of output in leading goods-related sectors. In June, the combined output gauge was up 6.4% from a year earlier, [...]

Growth Continues through July in Russia's "Five Basic Indicators"

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050819a.jpg" width="353">
The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago has improved since the low this past March and suggests that US economic growth has strengthened. Despite a dip in July to 0.16 from 0.40 in June, the three-month moving average of the CFNAI improved to 0.23 versus the low near zero.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_August2005.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#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">CFNAI</td>
<td>0.16</td>
<td>0.40</td>
<td>0.61</td>
<td>0.39</td>
<td>-0.11</td>
<td>-0.41</td>
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The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago has improved since the low this past March and suggests that US economic growth has strengthened. Despite a dip in July to 0.16 from 0.40 in June, the [...]

Chicago Fed Nat'l Activity Index Suggests Above Trend Growth

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050627b.jpg" width="353">
The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago has improved since the low this past March and suggests that US economic growth has strengthened. Despite a dip in July to 0.16 from 0.40 in June, the three-month moving average of the CFNAI improved to 0.23 versus the low near zero.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_August2005.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#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">CFNAI</td>
<td>0.16</td>
<td>0.40</td>
<td>0.61</td>
<td>0.39</td>
<td>-0.11</td>
<td>-0.41</td>
</tr>
</tbody>
</table>
Growth Continues through July in Russia's "Five Basic Indicators" 
by <a href="/comment/Stone.html">Carol Stone</a> August 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050819b.jpg" width="353">
The Russian economy has maintained a firm uptrend through the summer, according to the &quot;Five Basic Indicators&quot;, measures of output in leading goods-related sectors. In June, the combined output gauge was up 6.4% from a year earlier, stronger than May&#39;s 4.1% and last year&#39;s 5.2%. The component items for July, although not the total index, were reported this week, several of them today by the Federal Service of State Statistics, and they suggest that the momentum may have slowed somewhat. These indicators cover agriculture, industrial production, retail trade, construction and transportation. The data, contained in Haver&#39;s EMERGECW database, are not seasonally adjusted and are reported as year-on-year percentage changes. The industrial production segment gained 4.9% in July, compared with 6.9% in June and 4.6% in 2004. Retailing kept up double-digit gains, although these are a bit slower than they were during 2004. Construction and agricultural activity, by contrast, picked up considerably in July after a sluggish pace in the spring. Transportation was quite vigorous in 2002 and 2003, but has had only modest increases since then.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050819c.jpg" width="353">
The volume increases in retail trade are perhaps most impressive. Russian consumers are evidently able to raise their purchasing, despite double-digit increases also in consumer prices. And since retailing is expanding so much more rapidly than industrial activity, we&#39;d surmise that inventories are tight and that imports are continuing to flow in rapidly. Through the second quarter, total imports of goods were up 28.5% from their year earlier pace (before adjustment for inflation).
The rapid inflation makes it difficult to be unabashedly optimistic about a sustained expansion for the Russian economy, but the persisting advances in goods-producing sector output volume are encouraging. Russia&#39;s status as an oil exporter also means that rising energy costs are partially offset by the support energy sales give to incomes and profits for those employed in that sector.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@EB/@EB.HTM">Russia:</a> Year/Year % Changes</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Output</td>
<td>--</td>
<td>6.4</td>
<td>4.1</td>
<td>5.2</td>
<td>8.9</td>
<td>3.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>4.9</td>
<td>6.9</td>
<td>1.4</td>
<td>4.6</td>
<td>7.9</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">Retail Trade</td>
<td>11.8</td>
<td>12.5</td>
<td>13.3</td>
<td>14.2</td>
<td>8.4</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>12.9</td>
<td>7.4</td>
<td>5.3</td>
<td>10.6</td>
<td>16.6</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">Transportation</td>
<td>2.8</td>
<td>2.0</td>
<td>4.1</td>
<td>3.4</td>
<td>9.4</td>
<td>9.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Agriculture</td>
<td>4.5</td>
<td>0.4</td>
<td>0.8</td>
<td>-0.7</td>
<td>0.6</td>
<td>-0.2</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818d.jpg" width="353">
The current extraordinary developments in the energy sector are teaching all of us new ideas and concepts. One of these recently called to our attention by a client is the refinery crack spread. Besides the surging price of crude oil, refiners are currently also able to increase the spread they receive from breaking the crude into its products, or &quot;cracking&quot; it. The common measure of this process assumes that a barrel of crude is broken two-thirds into gasoline and one-third into fuel oil -- or 3 barrels of crude make 2 barrels of gasoline and 1 barrel of fuel oil. This spread is thus called the &quot;3-2-1 crack spread&quot;. This is such a common measure that there is futures market for it on the NYMEX, alongside crude and gasoline futures. Haver carries data for this in its OILWKLY database, which is supplied by the &quot;Oil &amp; Gas Journal&quot;.
The table below shows 1-month futures information: the estimated value of the gasoline and fuel oil produced by refiners and the resulting crack spread compared with the nearby future for West Texas Intermediate crude oil. We see that through last week, crude oil prices have risen 43.4% from a year ago while the refiners&#39; crack spread has more than doubled from about $6.85/barrel to $14.06. The spread now adds a premium of 21.7% to the crude price compared with 15.1% a year ago. This is wide relative to the most recent past, but historical data show that this margin has been as high as nearly 49% with several periods sustained around 23-24%. So current values are hardly unprecedented, at least on a relative basis.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818e.jpg" width="353">
The other point clearly evident in both of our charts is the volatility of the crack spread from week to week. Such swings make it easy to see that refiners would want a futures market to hedge the spread, particularly given the substantial fixed costs of a refining plant. As refiners seek to cover these costs, plus labor and supplies, they face not only widely swinging crude oil prices, but also a margin on refining operations that is far from stable. One disclaimer: it is necessary to note also that relationships among these price measures are not exact. Other products come from the refining process -- residual fuel oil, jet fuel and gas oil are three notable ones -- so that the spread measure that includes only gasoline and distillate fuel oil is only a proxy, albeit a handy, easily understood one. Its recent widening indicates that demand for gasoline and fuel oil has been an important force supporting product prices: gasoline users have -- at least up to now -- been willing to pay these prices. With daily increases in gasoline, though, one wonders how long that will continue.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">1-Month Futures, $/Barrel</th>
<th scope="col">Aug 12, 2005</th>
<th scope="col">May 13, 2005</th>
Aug 13, 2004
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">$</td>
<td>Yr/Yr %</td>
</tr>
<tr>
<td class="firstcol">Crude Oil, WTI</td>
<td>64.91</td>
<td>50.35</td>
<td>45.25</td>
<td>43.4%</td>
<td>41.29</td>
<td>30.98</td>
<td>26.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Estimated Product Value</td>
<td>78.974</td>
<td>60.576</td>
<td>52.096</td>
<td>51.6%</td>
<td>48.985</td>
<td>36.755</td>
<td>30.580</td>
</tr>
<tr>
<td class="firstcol">Crack Spread</td>
<td>14.060</td>
<td>10.224</td>
<td>6.848</td>
<td>105.32%</td>
<td>7.690</td>
<td>5.782</td>
<td>4.537</td>
</tr>
<tr class="odd">
<td class="firstcol">Spread as % of Crude Price</td>
<td>21.7%</td>
<td>20.3%</td>
<td>15.1%</td>
<td>+6.6%</td>
<td>19.1%</td>
<td>18.7%</td>
<td>17.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

The current extraordinary developments in the energy sector are teaching all of us new ideas and concepts. One of these recently called to our attention by a client is the refinery crack spread. Besides the surging price of crude oil, [...]

"Crack Spread" Widens for Oil Refiners, But Percentage Premium in Gasoline and Oil Values Is Not "High"

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818f.jpg" width="353">
The Index of General Business Conditions in the manufacturing sector in August from the Philadelphia Fed added to the prior month&#39;s gain and rose to 17.5, the highest level since April. Consensus expectations had been for a lesser improvement to 14.0.
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 indexes measuring new orders and shipments led with gains to the highest levels since April. The index covering the number of employees also rose. 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050818g.jpg" width="353">
The separate index of expected business conditions in six months jumped to its best level this year led by expectations of increased hiring.
The prices paid index slipped and gave back a piece of the moderate improvement in July. 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/bos0805.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">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#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>17.5</td>
<td>9.6</td>
<td>29.2</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>25.9</td>
<td>26.5</td>
<td>54.3</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
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</body>
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The Index of General Business Conditions in the manufacturing sector in August from the Philadelphia Fed added to the prior month's gain and rose to 17.5, the highest level since April. Consensus expectations had been for a lesser [...]

Philadelphia Fed Index Improved Further

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

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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.

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.

260407.jpg

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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