Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050810a.jpg" width="353">
Total mortgage applications fell last week for the sixth decline in the last eight weeks according to the Mortgage Bankers Association. The 0.9% w/w decline lowered the starting level in August 5.8% below July which fell 1.4% from June.
Mortgage applications to refinance continued to decline as interest rates moved higher. The 3.3% w/w decline was the sixth in the last eight weeks and it lowered refi&#39;s 26.7% from the peak in early June.
During that period, the effective interest rate on a conventional 30-year mortgage rose to 6.16% from 5.87%. The effective rate on a 15-year mortgage also rose to 5.81%.
Purchase applications nevertheless continued to strengthen. Last week a 0.9% w/w gain lifted the starting level in August 0.6% above the July average which rose 0.9% versus June. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Monetary Policy and Asset Price Bubbles from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-18.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/05/05</th>
<th scope="col">07/29/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>745.0</td>
<td>752.1</td>
<td>20.9%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>498.8</td>
<td>494.5</td>
<td>13.4%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,176.5</td>
<td>2,250.3</td>
<td>32.7%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
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Total mortgage applications fell last week for the sixth decline in the last eight weeks according to the Mortgage Bankers Association. The 0.9% w/w decline lowered the starting level in August 5.8% below July which fell 1.4% from [...]

Mortgage Applications Down With Less Refinancing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050810a.jpg" width="353">
Total mortgage applications fell last week for the sixth decline in the last eight weeks according to the Mortgage Bankers Association. The 0.9% w/w decline lowered the starting level in August 5.8% below July which fell 1.4% from June.
Mortgage applications to refinance continued to decline as interest rates moved higher. The 3.3% w/w decline was the sixth in the last eight weeks and it lowered refi&#39;s 26.7% from the peak in early June.
During that period, the effective interest rate on a conventional 30-year mortgage rose to 6.16% from 5.87%. The effective rate on a 15-year mortgage also rose to 5.81%.
Purchase applications nevertheless continued to strengthen. Last week a 0.9% w/w gain lifted the starting level in August 0.6% above the July average which rose 0.9% versus June. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Monetary Policy and Asset Price Bubbles from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-18.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/05/05</th>
<th scope="col">07/29/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>745.0</td>
<td>752.1</td>
<td>20.9%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>498.8</td>
<td>494.5</td>
<td>13.4%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,176.5</td>
<td>2,250.3</td>
<td>32.7%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Singapore GDP Growth Moderately High at 3% in Q2, But Area Sees Erratic Moves, Possibly Tied to Oil 
by <a href="/comment/Stone.html">Carol Stone</a> August 10, 2005


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050810b.jpg">
Singapore produces, refines and exports oil. Oil supports growth. But it may also make for a more volatile economy than a country with greater diversity. In Q2, Singapore&#39;s real GDP grew 3.0%, following a 1.2% decrease in Q1, and a gain of 5.2% since the year-ago quarter. Growth in 2004 was a strong 8.4%, with domestic spending sectors also running at just about that pace. Private consumption was up 2.1% in the latest quarter, but only 2.3% during the last year, a considerable moderation from 2004&#39;s 8.6% surge. Investment, called here &quot;GFCF&quot; -- Gross Fixed Capital Formation -- is similarly erratic, up in Q2, but otherwise tracing a zigzag pattern. Consumption has absorbed a fairly steady 42% of GDP in the last several years, but investment outlays have drifted down to 24% by Q2, a record low in the 30-year-long history of the Singapore national accounts.
Net exports, by contrast, are gaining. Five years ago, they were 18% of real GDP, and in Q2 2005, they were 34% of the total. Similarly, in current prices, oil exports were 13.6% of GDP five years ago, and in Q2, they were 27.5%, slightly more than twice as large a share. <img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050810c.jpg">
So what about this volatility? In the second graph, we see clearly that Singapore&#39;s GDP growth is both stronger and more erratic than that of the US, as indicated by a simple average of quarterly growth rates over a long span of years and the standard deviation accompanying them. Since the US is hardly representative of the world at large, we checked several other countries. The same holds for a diverse group including France, Australia and the Czech Republic: slower but steadier growth than Singapore. South Korea, which does not produce oil for export, nonetheless has as much growth and as much volatility as Singapore. Russia, an oil producer, has seen average quarterly growth similar to the US, but volatility higher than any other of these nations. Clearly the structures of all these economies are far more complex than our simple comparison here, but our result does suggest that reliance on oil can make for unsteady economic performance.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Singapore</th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
<th scope="col">Q2 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP</td>
<td>3.0%</td>
<td>-1.2%</td>
<td>5.2%</td>
<td>8.4%</td>
<td>2.5%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Private Consumption</td>
<td>2.1%</td>
<td>-0.1%</td>
<td>2.3%</td>
<td>8.6%</td>
<td>1.2%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">GFCF</td>
<td>1.2%</td>
<td>-1.0%</td>
<td>-4.5%</td>
<td>8.5%</td>
<td>-5.5%</td>
<td>-8.5%</td>
</tr>
<tr>
<td class="firstcol">Current Account</td>
<td>S$15.3</td>
<td>S$12.1</td>
<td>S$10.7</td>
<td>S$47.1</td>
<td>S$47.0</td>
<td>S$33.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports: Goods (current prices)</td>
<td>9.9%</td>
<td>-6.2%</td>
<td>11.4%</td>
<td>20.8%</td>
<td>12.3%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">Imports: Goods (current prices)</td>
<td>8.0%</td>
<td>-3.7%</td>
<td>9.8%</td>
<td>23.7%</td>
<td>7.9%</td>
<td>7.0%</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809f.jpg" width="353">
Germany released preliminary June data on the balance of payments and data on the trade in goods. The preliminary balance of payments data for June are: the total current account, the balance on goods, supplementary trade items, the balance on services, the balance on factor income and current transfers. These items are available only on seasonally unadjusted basis. No June data on the financial account are yet available. While June exports and imports of goods are not shown in the preliminary balance of payments, they are included in the report on trade in goods where they are shown on a seasonally adjusted and unadjusted basis.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809e.jpg" width="353">
The current account surplus on a seasonally unadjusted basis increased 2.3 billion euros to 10,4 billion euros in June 2005 from 8.1 billion in June 2004. Since late 2001, Germany has had a positive balance on current account. Typically, a large positive balance on trade in goods outweighs negative balances on services and factor incomes and supplementary trade items and transfer payments that also result in an outflow of funds. This pattern has changed slightly as the factor income balance became positive in 2004. The balance turned negative in April and May of this year but has become positive again in June. The balance on factor income is the difference between receipts of investment income and wages from foreign countries and German payments of these factors to foreign countries. The first chart shows the factor income balance together with the balance on goods. The shift to a positive balance on factor income in 2004 may be due in part to the increase in Germany&#39;s direct investment abroad.
The seasonally adjusted data show a trade in goods balance of 14.79 billion euros an increase of 2.63 billion euros from a year ago. While exports declined 0.4% from May, they were over 8% above June, 2004. Imports were down sharply in June--5.5%--but they were 6,3% above June 2004. The second chart shows exports and imports on a seasonally adjusted basis.

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<th scope="col" class="firstcol"><a href="http://http://www.haverselect.com/dlx/GERMANY/@D7/@D7.HTM">Germany</a> Balance of&nbsp; Payments and Trade in Goods (Billions of Euros)</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004 Mo.&nbsp; Avg</th>
<th scope="col">2003 Mo.&nbsp; Avg</th>
<th scope="col">2002 Mo. Avg</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Not Seasonally Adjusted</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">Current Account</td>
<td>10.4</td>
<td>5.5</td>
<td>8.1</td>
<td>4.9</td>
<td>2.3</td>
<td>7.0</td>
<td>3.9</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>16.8</td>
<td>12.1</td>
<td>14.6</td>
<td>4.7</td>
<td>2.2</td>
<td>13.0</td>
<td>10.8</td>
<td>11.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>68.8</td>
<td>63.5</td>
<td>62.6</td>
<td>5.3</td>
<td>6.2</td>
<td>60.9</td>
<td>55.3</td>
<td>54.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>51.9</td>
<td>51.5</td>
<td>48.0</td>
<td>-0.4</td>
<td>2.9</td>
<td>48.0</td>
<td>44.6</td>
<td>43.2</td>
</tr>
<tr>
<td class="firstcol">Supplementary Trade Items</td>
<td>-1.3</td>
<td>-1.0</td>
<td>-1.1</td>
<td>-0.3</td>
<td>-2.0</td>
<td>-1.0</td>
<td>-0.7</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Services</td>
<td>-2.9</td>
<td>-2.5</td>
<td>-2.3</td>
<td>-0.4</td>
<td>-0.6</td>
<td>-2.6</td>
<td>-2.8</td>
<td>-3.0</td>
</tr>
<tr>
<td class="firstcol">Balance on Factor Income</td>
<td>0.7</td>
<td>-1.0</td>
<td>-0.1</td>
<td>1.7</td>
<td>0.8</td>
<td>6.4</td>
<td>-1.2</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Transfer Payments</td>
<td>-3.0</td>
<td>-2.1</td>
<td>-3.0</td>
<td>-0.9</td>
<td>0.0</td>
<td>-2.4</td>
<td>-2.4</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Seasonally Adjusted</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">Balance on Goods</td>
<td>14.79</td>
<td>12.16</td>
<td>12.98</td>
<td>2.63</td>
<td>1.81</td>
<td>12.8&nbsp;</td>
<td>10.9</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>M/M % </td>
<td>Y/Y&nbsp; %</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>64.39</td>
<td>64.63</td>
<td>59.63</td>
<td>-0.37</td>
<td>7.98</td>
<td>60.47</td>
<td>55.57</td>
<td>54.54</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>49.60</td>
<td>52.47</td>
<td>46.65</td>
<td>-5.47</td>
<td>6.32</td>
<td>47.65</td>
<td>44.66</td>
<td>43.85</td>
</tr>
</tbody>
</table>
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Germany released preliminary June data on the balance of payments and data on the trade in goods. The preliminary balance of payments data for June are: the total current account, the balance on goods, supplementary trade items, the [...]

German Preliminary Balance of Payment and Trade Data for June: The seasonally and not seasonally adjusted

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809d.jpg" width="353">
The Federal Open Market Committee increased the target rate for federal funds an expected 25 basis points to 3.50%. The discount rate also was raised 25 basis points to 4.50%. This latest increase is the tenth since last June.
The decision was unanimous.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;The Committee believes that, even after this action, the stance of monetary policy remains accommodative ...&quot;
The statement added that &quot;Aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually.&quot;
Constantly vigilant, the Committee succinctly stated that &quot;... pressures on inflation have stayed elevated.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050809/default.htm">here</a>.
Trends in Federal Funds Rate Volatility from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci11-7.pdf"> here</a>.
Additional Slack in the Economy: The Poor Recovery in Labor Force Participation During This Business Cycle from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/economic/ppb/2005/ppb052.pdf"> here</a>.

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The Federal Open Market Committee increased the target rate for federal funds an expected 25 basis points to 3.50%. The discount rate also was raised 25 basis points to 4.50%. This latest increase is the tenth since last June. The [...]

Fed Funds Rate Increased to 3.50%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809c.jpg" width="353">
Chain store sales stuttered during the opening week of August according to the International Council of Shopping Centers (ICSC)-UBS survey. The 0.8% w/w decline retraced virtually all of the prior week&#39;s strong gain and left sales just 0.2% ahead of the July average.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slid 0.8% (0.0% y/y), the third decline in the last four weeks.
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.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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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">08/06/05</th>
<th scope="col">07/30/05</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">Total Weekly Chain Store Sales</td>
<td>458.9</td>
<td>462.8</td>
<td>4.0%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
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Chain store sales stuttered during the opening week of August according to the International Council of Shopping Centers (ICSC)-UBS survey. The 0.8% w/w decline retraced virtually all of the prior week's strong gain and left sales [...]

Chain Store Sales Stuttered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809b.jpg" width="353">
Non-farm labor productivity increased 2.2% last quarter and about matched Consensus expectations for a 2.0% rise. Downward revisions to output growth from 2002 to 2004 (mostly due to upwardly revised estimates of inflation) lowered average growth in productivity during the period to 3.7% from 4.2%.
Unit labor costs slowed in 2Q to 1.3% from a 3.6% rate of growth in 1Q. The average rate of growth during the prior three years was revised up to 0.3% from -0.2%. Compensation costs decelerated to 3.5% from 6.9% growth in 1Q and the average during the prior three years was unchanged at a 4.0% rate of growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809a.jpg" width="353">
In the factory sector, productivity held steady at 4.1% (4.7% y/y) versus 4.2% growth in 1Q. The average rate of growth during the prior three years was unrevised at 6.0%.
Unit Labor costs in manufacturing rose 2.3% (3.7% y/y) following 2.8% growth in 1Q. The average of the prior three years was lowered to -0.1% from 0.7% mostly due to a much sharper decline during 2004 of 2.9% versus a 0.5% decline estimated earlier.
The implicit price deflator for nonfarm business rose 2.3% (2.3% y/y) and raised the ratio of prices to unit labor costs to the highest level since 3Q04, suggesting higher profit margins. During the last ten years there has been a 59% correlation between the ratio and the y/y growth in operating corporate profits.
Long-Term Yields Fall as Industrial Output Decelerates from the Federal Reserve Bank of Dallas is available <a href="http://www.dallasfed.org/eyi/usecon/archived/0507update.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/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">1Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>2.2%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.5%</td>
<td>6.9%</td>
<td>6.7%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.3%</td>
<td>3.6%</td>
<td>4.3%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

Non-farm labor productivity increased 2.2% last quarter and about matched Consensus expectations for a 2.0% rise. Downward revisions to output growth from 2002 to 2004 (mostly due to upwardly revised estimates of inflation) lowered [...]

2Q U.S. Productivity As-Expected, Revisions Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809d.jpg" width="353">
The Federal Open Market Committee increased the target rate for federal funds an expected 25 basis points to 3.50%. The discount rate also was raised 25 basis points to 4.50%. This latest increase is the tenth since last June.
The decision was unanimous.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;The Committee believes that, even after this action, the stance of monetary policy remains accommodative ...&quot;
The statement added that &quot;Aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually.&quot;
Constantly vigilant, the Committee succinctly stated that &quot;... pressures on inflation have stayed elevated.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050809/default.htm">here</a>.
Trends in Federal Funds Rate Volatility from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci11-7.pdf"> here</a>.
Additional Slack in the Economy: The Poor Recovery in Labor Force Participation During This Business Cycle from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/economic/ppb/2005/ppb052.pdf"> here</a>.

2Q U.S. Productivity As-Expected, Revisions Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809b.jpg" width="353">
Non-farm labor productivity increased 2.2% last quarter and about matched Consensus expectations for a 2.0% rise. Downward revisions to output growth from 2002 to 2004 (mostly due to upwardly revised estimates of inflation) lowered average growth in productivity during the period to 3.7% from 4.2%.
Unit labor costs slowed in 2Q to 1.3% from a 3.6% rate of growth in 1Q. The average rate of growth during the prior three years was revised up to 0.3% from -0.2%. Compensation costs decelerated to 3.5% from 6.9% growth in 1Q and the average during the prior three years was unchanged at a 4.0% rate of growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809a.jpg" width="353">
In the factory sector, productivity held steady at 4.1% (4.7% y/y) versus 4.2% growth in 1Q. The average rate of growth during the prior three years was unrevised at 6.0%.
Unit Labor costs in manufacturing rose 2.3% (3.7% y/y) following 2.8% growth in 1Q. The average of the prior three years was lowered to -0.1% from 0.7% mostly due to a much sharper decline during 2004 of 2.9% versus a 0.5% decline estimated earlier.
The implicit price deflator for nonfarm business rose 2.3% (2.3% y/y) and raised the ratio of prices to unit labor costs to the highest level since 3Q04, suggesting higher profit margins. During the last ten years there has been a 59% correlation between the ratio and the y/y growth in operating corporate profits.
Long-Term Yields Fall as Industrial Output Decelerates from the Federal Reserve Bank of Dallas is available <a href="http://www.dallasfed.org/eyi/usecon/archived/0507update.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/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;05</th>
<th scope="col">1Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>2.2%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.5%</td>
<td>6.9%</td>
<td>6.7%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.3%</td>
<td>3.6%</td>
<td>4.3%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
Chain Store Sales Stuttered 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809c.jpg" width="353">
Chain store sales stuttered during the opening week of August according to the International Council of Shopping Centers (ICSC)-UBS survey. The 0.8% w/w decline retraced virtually all of the prior week&#39;s strong gain and left sales just 0.2% ahead of the July average.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slid 0.8% (0.0% y/y), the third decline in the last four weeks.
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.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">08/06/05</th>
<th scope="col">07/30/05</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">Total Weekly Chain Store Sales</td>
<td>458.9</td>
<td>462.8</td>
<td>4.0%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
German Preliminary Balance of Payment and Trade Data for June: The seasonally and not seasonally adjusted 
by <a href="/comment/Curley.html">Louise Curley</a> August 9, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809f.jpg" width="353">
Germany released preliminary June data on the balance of payments and data on the trade in goods. The preliminary balance of payments data for June are: the total current account, the balance on goods, supplementary trade items, the balance on services, the balance on factor income and current transfers. These items are available only on seasonally unadjusted basis. No June data on the financial account are yet available. While June exports and imports of goods are not shown in the preliminary balance of payments, they are included in the report on trade in goods where they are shown on a seasonally adjusted and unadjusted basis.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050809e.jpg" width="353">
The current account surplus on a seasonally unadjusted basis increased 2.3 billion euros to 10,4 billion euros in June 2005 from 8.1 billion in June 2004. Since late 2001, Germany has had a positive balance on current account. Typically, a large positive balance on trade in goods outweighs negative balances on services and factor incomes and supplementary trade items and transfer payments that also result in an outflow of funds. This pattern has changed slightly as the factor income balance became positive in 2004. The balance turned negative in April and May of this year but has become positive again in June. The balance on factor income is the difference between receipts of investment income and wages from foreign countries and German payments of these factors to foreign countries. The first chart shows the factor income balance together with the balance on goods. The shift to a positive balance on factor income in 2004 may be due in part to the increase in Germany&#39;s direct investment abroad.
The seasonally adjusted data show a trade in goods balance of 14.79 billion euros an increase of 2.63 billion euros from a year ago. While exports declined 0.4% from May, they were over 8% above June, 2004. Imports were down sharply in June--5.5%--but they were 6,3% above June 2004. The second chart shows exports and imports on a seasonally adjusted basis.

<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://http://www.haverselect.com/dlx/GERMANY/@D7/@D7.HTM">Germany</a> Balance of&nbsp; Payments and Trade in Goods (Billions of Euros)</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">M/M Dif </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004 Mo.&nbsp; Avg</th>
<th scope="col">2003 Mo.&nbsp; Avg</th>
<th scope="col">2002 Mo. Avg</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Not Seasonally Adjusted</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">Current Account</td>
<td>10.4</td>
<td>5.5</td>
<td>8.1</td>
<td>4.9</td>
<td>2.3</td>
<td>7.0</td>
<td>3.9</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>16.8</td>
<td>12.1</td>
<td>14.6</td>
<td>4.7</td>
<td>2.2</td>
<td>13.0</td>
<td>10.8</td>
<td>11.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>68.8</td>
<td>63.5</td>
<td>62.6</td>
<td>5.3</td>
<td>6.2</td>
<td>60.9</td>
<td>55.3</td>
<td>54.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>51.9</td>
<td>51.5</td>
<td>48.0</td>
<td>-0.4</td>
<td>2.9</td>
<td>48.0</td>
<td>44.6</td>
<td>43.2</td>
</tr>
<tr>
<td class="firstcol">Supplementary Trade Items</td>
<td>-1.3</td>
<td>-1.0</td>
<td>-1.1</td>
<td>-0.3</td>
<td>-2.0</td>
<td>-1.0</td>
<td>-0.7</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Services</td>
<td>-2.9</td>
<td>-2.5</td>
<td>-2.3</td>
<td>-0.4</td>
<td>-0.6</td>
<td>-2.6</td>
<td>-2.8</td>
<td>-3.0</td>
</tr>
<tr>
<td class="firstcol">Balance on Factor Income</td>
<td>0.7</td>
<td>-1.0</td>
<td>-0.1</td>
<td>1.7</td>
<td>0.8</td>
<td>6.4</td>
<td>-1.2</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Transfer Payments</td>
<td>-3.0</td>
<td>-2.1</td>
<td>-3.0</td>
<td>-0.9</td>
<td>0.0</td>
<td>-2.4</td>
<td>-2.4</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Seasonally Adjusted</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">Balance on Goods</td>
<td>14.79</td>
<td>12.16</td>
<td>12.98</td>
<td>2.63</td>
<td>1.81</td>
<td>12.8&nbsp;</td>
<td>10.9</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>M/M % </td>
<td>Y/Y&nbsp; %</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>64.39</td>
<td>64.63</td>
<td>59.63</td>
<td>-0.37</td>
<td>7.98</td>
<td>60.47</td>
<td>55.57</td>
<td>54.54</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>49.60</td>
<td>52.47</td>
<td>46.65</td>
<td>-5.47</td>
<td>6.32</td>
<td>47.65</td>
<td>44.66</td>
<td>43.85</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808d.jpg" width="353">
June industrial production figures for Turkey, Malaysia, Slovakia and Italy were released today. The pace of industrial production in the faster growing emerging markets has slowed up this year. In Turkey, industrial production for the first half of this year is only 4.6% above the first half of 2004. In the past three years industrial production in Turkey had grown by 9% or better. In Malaysia, growth in industrial production was 11.29% in 2004, 9.3% in 2003 and 4.6% in 2002. In the first six months of this year, industrial production in Malaysia is up only 3.8% over the corresponding period of 2004. The year to year changes in industrial production in Turkey and Malaysia are shown in the first chart. The deceleration in growth is clear.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050808e.jpg" width="353">
The figures for Slovakia are less dramatic than those for Turkey and Malaysia but show the same trend. Growth in the past six months over the same period of last year was 2.1% compared with growth of 6.4%, 5.0% and 4.2% in the past three years. The second chart contrasts the year to year growth in industrial production in Slovakia with that of Italy. Italy&#39;s economy has been one of the most sluggish in the Euro Zone. In fact the economy was in recession in the first half of this year, according to the two quarter decline in GDP definition of a recession. Italy is the only country reporting today that shows a year to year decline in industrial production in the first half of this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production</th>
<th scope="col">Jun 05</th>
<th scope="col">May 05</th>
<th scope="col">Jun 04</th>
<th scope="col">1H/1H %</th>
<th scope="col">&nbsp;2004&nbsp; %</th>
<th scope="col">&nbsp;2003&nbsp; %</th>
<th scope="col">&nbsp;2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Turkey (1997=100)</td>
<td>130.6</td>
<td>129.5</td>
<td>128.5</td>
<td>4.57</td>
<td>9.78</td>
<td>8.76</td>
<td>9.43</td>
</tr>
<tr>
<td class="firstcol">Malaysia (1993=100)</td>
<td>239.3</td>
<td>230.2</td>
<td>231.3</td>
<td>3.83</td>
<td>11.29</td>
<td>9.30</td>
<td>4.59</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia (2000=100)</td>
<td>127.3</td>
<td>127.8</td>
<td>125.2</td>
<td>2.05</td>
<td>4.20</td>
<td>4.08</td>
<td>6.40</td>
</tr>
<tr>
<td class="firstcol">Italy (2000=100)</td>
<td>94.7</td>
<td>95.4</td>
<td>97.0</td>
<td>-2.01</td>
<td>-0.58</td>
<td>-0.60</td>
<td>-1.62</td>
</tr>
</tbody>
</table>
</body>
</html>

June industrial production figures for Turkey, Malaysia, Slovakia and Italy were released today. The pace of industrial production in the faster growing emerging markets has slowed up this year. In Turkey, industrial production for [...]

Industrial Production: Turkey, Malaysia, Slovakia and Italy

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

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

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

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

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

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

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

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

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

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

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

Robert Brusca

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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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