Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721e.jpg" width="353">
The July Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered the prior month&#39;s drop and returned to positive territory. The 11.8 point m/m increase to 9.6 pulled the index to its highest since April. Consensus expectations had been for a reading of 9.0 in July.
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.
Improvement in shipments, unfilled orders and delivery lead times raised the July index. The orders index also did increase but just modestly while the index covering the number of employees fell to 3.4, the lowest since late 2003. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months halved versus June. At 15.3 the index was at its lowest level since early 2001.
The prices paid index rose slightly to 26.5 but remained at half the level of one year ago. 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/bos0705.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">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">General Activity Index</td>
<td>9.6</td>
<td>-2.2</td>
<td>35.5</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>26.5</td>
<td>23.5</td>
<td>50.2</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
June Leading Indicators Up, Revisions Suggest Improved Prospects 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721b.jpg" width="353">
The June Composite Index of Leading Economic Indicators reported by the Conference Board rose 0.9%. Revisions to the prior two months raised May to no change from a 0.5% decline reported initially and April to plus 0.2% from no change. Six-month growth in the leaders improved to 0.6%.
The method of calculating the contribution to the index from the interest rate yield spread was revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details could be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
Amongst the 10 components of the leading index the breadth of one month gain improved markedly to 80%, the highest since October 2003. In June, only a decline in new orders for nondefense capital goods made a negative contribution.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose by 0.2% (2.8% y/y), continuing the steady up trend in place since early 2003.
The June lagging indicators rose 0.3% and the prior month&#39;s gain was revised up to 0.4%.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Monetary Policy Report to the Congress from the US Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/hh/2005/july/fullreport.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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.9%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>7.7%</td>
<td>5.1%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>0.4%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.4%</td>
<td>5.8%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims At Four Month Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721a.jpg" width="353">
Initial claims for unemployment insurance dropped a sharp 34,000 to 303,000 last week after a 16,000 increase the week earlier which was little revised. The latest figure is the lowest since mid-April. Consensus expectations had been for 328,000 claims.
The latest also covers the survey period for July nonfarm payrolls and fell 13,000 (4.1%) from the June period.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment. There has been a (negative) 65% correlation with the level of continuing claims.
The four week moving average of initial claims dropped to 318,00 (-6.3% y/y), the lowest level since early March.
Continuing claims for unemployment insurance reversed about all of the prior week&#39;s increase with a 41,000 decline.
The insured unemployment rate fell back to the four year low of 2.0%.
Age and Education Effects on the Unemployment Rate from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-15.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">07/16/05</th>
<th scope="col">07/09/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>303</td>
<td>337</td>
<td>-11.9%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,577</td>
<td>-8.8%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
China Lets Yuan "Float" as Its Exports Comprise Bigger and Bigger Shares of World Trade 
by <a href="/comment/Stone.html">Carol Stone</a> Revised Commentary July 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721c.jpg" width="353">
After pegging its currency to the US dollar (a policy not without some irony) for almost exactly 10 years, the People&#39;s Bank of China announced this morning that it would allow the yuan to float against &quot;a basket of currencies&quot;. It immediately reduced the exchange rate with the dollar from 8.28 to 8.11; inverted, this means a single yuan, formerly worth 12.1&cent;, is now worth 12.3&cent;, an increase of 2.1%. The float will be &quot;managed&quot;, so presumably abrupt, large increases will be discouraged through intervention. This change took effect at 7:00PM in Beijing, after the close of Chinese markets. Importantly, the yuan is traded only in China, during China&#39;s trading hours. It does not trade in Western markets. So the &quot;official&quot; rate governing transactions in goods and services that take place in Western markets which are priced for value July 21 remains 8.2765. This is the rate that appears, for example, on the New York Fed&#39;s schedule of &quot;Noon Buying Rates&quot; that is dated today, July 21. The new rate will appear on quote sheets for tomorrow, July 22. Each day, the People&#39;s Bank of China will announce a rate at the close of Chinese trading which will apply for the following Chinese business day, a practice similar to the form of this announcement.
News stories cited pressure from governments in some major regions of the world as a reason the Chinese chose to act. The share of Chinese goods in world markets is growing rapidly, and there have already been efforts toward protectionism. The US, for one, continues to struggle to form a policy over Chinese textiles. The rapid inroads being made by Chinese goods are readily apparent in the table below.
It is perhaps no coincidence that the Chinese action was taken on the same day as the release of June trade data by Japan. Japan&#39;s trade surplus shrank to &yen;873 million from &yen;1.141 billion in June 2004. Some 45% of the deterioration involved trade with China. Chinese imports are now 21.0% of total Japanese imports, up a percentage point in market share over the past year and up 2.7 percentage points from the average for 2002.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050721d.jpg" width="353">
Other markets feel the same kind of penetration: in the US, imports from China were 14.1% of the total in May, up 1.4 percentage points from a year ago. In the Euro-Zone, the gain in share was 1.2 percentage points. Both of these regions are seeing a steep uptrend in the inflow of Chinese goods.
This has not been all bad. As we&#39;ve noted here earlier this week, one of the offsets to rising energy costs has been falling textile and clothing prices. Clothing has been ever more cheaper in many parts of the world, a boon to lower-income nations as well as those that are better off. Hopefully, this will not all disappear with this action, but the policy change should help rebalance global trade. Further, perhaps the Chinese believe that this will help them with the politics that are involved in their recently proposed direct investment transactions in the US and elsewhere.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Imports from China</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
<th scope="col">Year Ago</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">Japan: Bil &yen;, NSA</td>
<td>4606.8</td>
<td>4502.1</td>
<td>4148.6</td>
<td>4101.4</td>
<td>3696.8</td>
<td>3519.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>967.9</td>
<td>907.7</td>
<td>831.2</td>
<td>849.9</td>
<td>727.6</td>
<td>644.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Share (%)</td>
<td>21.0</td>
<td>20.2</td>
<td>20.0</td>
<td>20.6</td>
<td>19.7</td>
<td>18.3</td>
</tr>
<tr>
<td class="firstcol">US: Bil $, NSA</td>
<td>--</td>
<td>135.5</td>
<td>118.3</td>
<td>122.5</td>
<td>104.8</td>
<td>96.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; China</td>
<td>--</td>
<td>19.1</td>
<td>15.1</td>
<td>16.4</td>
<td>12.7</td>
<td>10.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Share (%)</td>
<td>--</td>
<td>14.1</td>
<td>12.7</td>
<td>13.3</td>
<td>12.1</td>
<td>10.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Zone: Bil &#128;, SA</td>
<td>--</td>
<td>97.5</td>
<td>86.9</td>
<td>89.4</td>
<td>82.4</td>
<td>82.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>--</td>
<td>9.3</td>
<td>7.3</td>
<td>7.7</td>
<td>6.2</td>
<td>5.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Share (%)</td>
<td>--</td>
<td>9.6</td>
<td>8.4</td>
<td>8.3</td>
<td>7.5</td>
<td>6.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The July Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed recovered the prior month's drop and returned to positive territory. The 11.8 point m/m increase to 9.6 pulled the index to its [...]

Philadelphia Fed Activity Index Recovered, Expectations Dreary

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/050720b.jpg" width="353">
China&#39;s GDP remained strong in Q2, gaining 9.5% in real terms over Q2 2004, a pick-up from the 9.4% rate in Q1. Analysts in one leading forecast survey had looked for a slowing to 9.2%.
Manufacturing was a leading sector, as indicated in the advance in &quot;secondary industry&quot; shown in the table below, which similarly picked up in the quarter, rather than slowing down. It is not quite as vigorous as in 2003, but otherwise, factory and mining activity is maintaining the strongest trend since 1996. Data through May on nominal value added by industry indicate that so-called &quot;heavy&quot; industry is expanding at better than 35%, year-on-year, and &quot;light&quot; industry around 22% in recent months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720c.jpg" width="353">
Interestingly, by types of ownership, the fastest growing industrial firms are the &quot;share-holding enterprises&quot;, while value added by collectives and &quot;joint ventures&quot; actually decreased. State-owned and foreign-owned industrial firms are also showing sustained strength. A threshold of sorts was crossed in March 2004 when the value added by share-holding industrial enterprises surpassed that of state-owned firms; with a single exception. that has remained true every month since, and in May, the stock companies&#39; value added exceeded that of the state-owned firms by more than 22%.
Other economic sectors remain firm, but relatively less vigorous. Primary industry (mostly agriculture) is up 5.0% in Q2, more than the 4.6% in Q1, but noticeably below the 6.3% for all of 2004. Tertiary activity, that is, mostly services, grew 7.8% in Q2, basically the pace that has prevailed since 1995.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CHINA/CHINA.HTM">China</a></th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP, Bil RMN</td>
<td>3610.3</td>
<td>3131.9</td>
<td>3421.9</td>
<td>2934.8</td>
<td>2926.3</td>
</tr>
<tr>
<td class="firstcol">Real Growth, Yr/Yr</td>
<td>9.5</td>
<td>9.4</td>
<td>9.5</td>
<td>9.5</td>
<td>8.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Secondary Industry, Bil RMN</td>
<td>2131.7</td>
<td>1831.8</td>
<td>1809.7</td>
<td>1531.8</td>
<td>1324.5</td>
</tr>
<tr>
<td class="firstcol">Real Growth, Yr/Yr</td>
<td>11.2</td>
<td>11.1</td>
<td>11.1</td>
<td>12.7</td>
<td>9.8</td>
</tr>
</tbody>
</table>
</body>
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China's GDP remained strong in Q2, gaining 9.5% in real terms over Q2 2004, a pick-up from the 9.4% rate in Q1. Analysts in one leading forecast survey had looked for a slowing to 9.2%. Manufacturing was a leading sector, as indicated [...]

China GDP Strong at 9.5% Growth in Q2

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720a.jpg" width="353">
Total mortgage applications inched up 1.2% last week but remained down nearly 10% from the weekly high in early June, according to the Mortgage Bankers Association. For July so far, applications remained 1.7% ahead of the June average which rose 9.9% versus May.
Applications to refinance rose 2.5% and have been moving irregularly sideways since early last month. So far in July applications to refinance are 1.7% ahead of June when they rose 21.2% versus May.
Purchase applications slipped 0.1% w/w and marked the fourth decline in the last five weeks. So far in July purchase applications are 1.6% above June due to the large 9.1% jump during the first week of the month. 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 effective interest rate on a conventional 30-year mortgage rose to 5.94%, the highest level since mid-May. The effective rate on a 15-year mortgage also rose to 5.60%.
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>.
Today&#39;s Testimony of Fed Chairman Alan Greenspan, the semiannual Monetary Policy Report to the Congress, is available <a href="http://www.federalreserve.gov/boarddocs/hh/2005/july/testimony.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">07/15/05</th>
<th scope="col">07/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>801.1</td>
<td>791.9</td>
<td>29.6%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>488.7</td>
<td>489.0</td>
<td>11.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,618.2</td>
<td>2,554.3</td>
<td>58.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Total mortgage applications inched up 1.2% last week but remained down nearly 10% from the weekly high in early June, according to the Mortgage Bankers Association. For July so far, applications remained 1.7% ahead of the June average [...]

Rise in Mortgage Applications Due To Refinancing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050713c.jpg" width="353">
Total mortgage applications inched up 1.2% last week but remained down nearly 10% from the weekly high in early June, according to the Mortgage Bankers Association. For July so far, applications remained 1.7% ahead of the June average which rose 9.9% versus May.
Applications to refinance rose 2.5% and have been moving irregularly sideways since early last month. So far in July applications to refinance are 1.7% ahead of June when they rose 21.2% versus May.
Purchase applications slipped 0.1% w/w and marked the fourth decline in the last five weeks. So far in July purchase applications are 1.6% above June due to the large 9.1% jump during the first week of the month. 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 effective interest rate on a conventional 30-year mortgage rose to 5.94%, the highest level since mid-May. The effective rate on a 15-year mortgage also rose to 5.60%.
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>.
Today&#39;s Testimony of Fed Chairman Alan Greenspan, the semiannual Monetary Policy Report to the Congress, is available <a href="http://www.federalreserve.gov/boarddocs/hh/2005/july/testimony.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">07/15/05</th>
<th scope="col">07/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>801.1</td>
<td>791.9</td>
<td>29.6%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>488.7</td>
<td>489.0</td>
<td>11.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,618.2</td>
<td>2,554.3</td>
<td>58.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
China GDP Strong at 9.5% Growth in Q2 
by <a href="/comment/Stone.html">Carol Stone</a> July 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720b.jpg" width="353">
China&#39;s GDP remained strong in Q2, gaining 9.5% in real terms over Q2 2004, a pick-up from the 9.4% rate in Q1. Analysts in one leading forecast survey had looked for a slowing to 9.2%.
Manufacturing was a leading sector, as indicated in the advance in &quot;secondary industry&quot; shown in the table below, which similarly picked up in the quarter, rather than slowing down. It is not quite as vigorous as in 2003, but otherwise, factory and mining activity is maintaining the strongest trend since 1996. Data through May on nominal value added by industry indicate that so-called &quot;heavy&quot; industry is expanding at better than 35%, year-on-year, and &quot;light&quot; industry around 22% in recent months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050720c.jpg" width="353">
Interestingly, by types of ownership, the fastest growing industrial firms are the &quot;share-holding enterprises&quot;, while value added by collectives and &quot;joint ventures&quot; actually decreased. State-owned and foreign-owned industrial firms are also showing sustained strength. A threshold of sorts was crossed in March 2004 when the value added by share-holding industrial enterprises surpassed that of state-owned firms; with a single exception. that has remained true every month since, and in May, the stock companies&#39; value added exceeded that of the state-owned firms by more than 22%.
Other economic sectors remain firm, but relatively less vigorous. Primary industry (mostly agriculture) is up 5.0% in Q2, more than the 4.6% in Q1, but noticeably below the 6.3% for all of 2004. Tertiary activity, that is, mostly services, grew 7.8% in Q2, basically the pace that has prevailed since 1995.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CHINA/CHINA.HTM">China</a></th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP, Bil RMN</td>
<td>3610.3</td>
<td>3131.9</td>
<td>3421.9</td>
<td>2934.8</td>
<td>2926.3</td>
</tr>
<tr>
<td class="firstcol">Real Growth, Yr/Yr</td>
<td>9.5</td>
<td>9.4</td>
<td>9.5</td>
<td>9.5</td>
<td>8.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Secondary Industry, Bil RMN</td>
<td>2131.7</td>
<td>1831.8</td>
<td>1809.7</td>
<td>1531.8</td>
<td>1324.5</td>
</tr>
<tr>
<td class="firstcol">Real Growth, Yr/Yr</td>
<td>11.2</td>
<td>11.1</td>
<td>11.1</td>
<td>12.7</td>
<td>9.8</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/050719e.jpg" width="353">
The &quot;TIC&quot; data for May were reported yesterday by the US Treasury, showing some rebound in foreign purchases of securities in US markets after two slower months. &quot;TIC&quot; is an acronym for Treasury International Capital, a collection of monthly data on securities transactions and banking system assets and liabilities with foreign customers. The data show only the first transaction with a non-US resident, and may not indicate the nationality of the ultimate counterparty in the transaction. These data are contained in Haver&#39;s USINT database.
Last month (June 15), we noted that foreign net purchases of US securities were more modest in March and April than in prior months. May saw a somewhat larger figure, $60.0 billion, compared with $47.7 billion in April and $40.5 billion in March. In the weaker spring months, purchases of federal agency securities (&quot;GSEs&quot;) had been quite low, but they recouped nicely in May, to $22.7 billion from roundly $7 billion each in March and April. Treasuries, by contrast, have been fairly steady, with total foreign net purchases around $25 - $27 billion per month. Corporate bond purchases in May remained near their recent $20 billion amounts, but foreign investors made nearly offsetting purchases and sales of US stocks. Net foreign liquidation of foreign securities in US markets continued, with net sales of both bonds and stocks. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050719d.jpg" width="353">
Our table this month highlights several geographic areas, Japan, China, the UK and the Cayman Islands. Over the past year and in 2004, these four places accounted for just about 60% of foreigners&#39; net purchases in US markets. Japan remains active, but has slowed its purchases somewhat, reflected in reduced net buying of Treasuries; even so, it remains the largest foreign owner of Treasuries, according to other TIC data. China&#39;s purchases remain more modest both than Japan&#39;s and than the US bilateral trade position with China might imply. But in several months recently, China&#39;s buying has been larger than Japan&#39;s, and that could well continue. Also, these are transactions in long-term securities (maturity greater than 1 year) and still other TIC data show that China has increased its holdings of short-term Treasury securities.
<span style="font-size:10.0pt;font-family:Verdana;mso-fareast-font-family:&quot;MS Mincho&quot;;
mso-bidi-font-family:&quot;Times New Roman&quot;;mso-ansi-language:EN-US;mso-fareast-language:
JA;mso-bidi-language:AR-SA">UK activity has been a bit slower in the last two months, but longer comparisons show consistent net buying that averages around $14 billion monthly. This may reflect London&#39;s status as a world financial center and ultimate owners in many of these transactions could well live elsewhere. The same is also very likely to be the case for the Cayman Islands. Net purchases through that &quot;offshore&quot; financial center were $12.4 billion in May and have averaged $7.9 billion over the last year. Buyers from the Caymans are fairly consistent in their purchases of corporate bonds, while their activity in the Treasury market varies widely from purchase to sale in individual months.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$) </th>
<th scope="col">May 2005 </th>
<th scope="col">Apr 2005 </th>
<th scope="col">Mar 2005 </th>
<th scope="col">Last 12 Months Average </th>
Monthly Average 
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004 </td>
<td>2003 </td>
<td>2002 </td>
</tr>
<tr>
<td class="firstcol">Total </td>
<td>60.0 </td>
<td>47.7 </td>
<td>40.5 </td>
<td>62.7 </td>
<td>67.0 </td>
<td>54.4 </td>
<td>47.9 </td>
</tr>
<tr class="odd">
<td class="firstcol">Japan </td>
<td>6.5 </td>
<td>11.5</td>
<td>-4.0</td>
<td>9.5</td>
<td>18.9</td>
<td>11.6</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">China </td>
<td>8.1 </td>
<td>-0.1</td>
<td>3.6</td>
<td>5.6</td>
<td>4.2</td>
<td>5.7</td>
<td>5.2</td>
</tr>
<tr class="odd">
<td class="firstcol">United Kingdom </td>
<td>7.0 </td>
<td>7.8</td>
<td>14.2</td>
<td>13.9</td>
<td>12.5</td>
<td>12.5</td>
<td>16.0</td>
</tr>
<tr>
<td class="firstcol">Cayman Islands </td>
<td>12.4 </td>
<td>0.8</td>
<td>11.3</td>
<td>7.9</td>
<td>6.3</td>
<td>2.6</td>
<td>4.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The "TIC" data for May were reported yesterday by the US Treasury, showing some rebound in foreign purchases of securities in US markets after two slower months. "TIC" is an acronym for Treasury International Capital, a collection of [...]

TIC Data Show Larger Foreign Purchases of US Securities in May

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050719b.jpg" width="353">
Chain store sales rose 0.3% last week for the third consecutive weekly rise, according to the International Council of Shopping Centers (ICSC)-UBS survey. So far this month sales are 0.4% higher than during June when sales fell 0.4% versus May.
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 fell a sharp 1.1% w/w (-0.2% y/y) following a downwardly revised 0.3% rise during the week prior.
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%">
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<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">07/16/05</th>
<th scope="col">07/09/05</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>456.9</td>
<td>455.7</td>
<td>4.0%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
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Chain store sales rose 0.3% last week for the third consecutive weekly rise, according to the International Council of Shopping Centers (ICSC)-UBS survey. So far this month sales are 0.4% higher than during June when sales fell 0.4% [...]

Chain Store Sales Again Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050719c.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell to 70 in July from the upwardly revised record level one month prior. The index this year has averaged 70, up slightly versus 2004.
During the last twenty years, annual changes in the composite index had an 85% correlation with the change in single family housing starts.
The July index for current sales of single family homes fell 2.6% y/y but remained up 1.4% versus a year ago. The index of expected sales in six months retraced all of the prior month&#39;s increase but was up 4.1% y/y.
Traffic of prospective home buyers remained at June&#39;s record high level.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<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/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</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">Composite Housing Market Index</td>
<td>70</td>
<td>72</td>
<td>67</td>
<td>68</td>
<td>64</td>
<td>61</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Home Builders' (NAHB) Composite Housing Market Index fell to 70 in July from the upwardly revised record level one month prior. The index this year has averaged 70, up slightly versus 2004. During the last [...]

NAHB Housing Market Index Fell from Record High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050719a.jpg" width="353">
Housing starts were unchanged last month at 2.004M units.Consensus expectations had been for 2.05M starts.
Single-family starts slipped 2.5% after rising 4.2% in May which was a slightly weaker gain than reported initially. The June decline in single family starts occurred in the Midwest (-10.0% m/m, +13.4% y/y) and in the West (-10.2% m/m, +4.8% y/y). In the Northeast starts rose to the second highest level on record (5.1% m/m, 7.5% y/y) and in the South single family starts rose as well (4.0% m/m, 10.4% y/y).
Multi family starts gained back about half of the prior month&#39;s decline with a 14.2% rise.
Building permits rose 2.4% and generally have moved sideways this year.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">June</th>
<th scope="col">May</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</td>
<td>2,004</td>
<td>2,004</td>
<td>9.7%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,667</td>
<td>1,709</td>
<td>9.2%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>337</td>
<td>295</td>
<td>12.0%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,111</td>
<td>2,062</td>
<td>4.8%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
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Housing starts were unchanged last month at 2.004M units.Consensus expectations had been for 2.05M starts. Single-family starts slipped 2.5% after rising 4.2% in May which was a slightly weaker gain than reported initially. The June [...]

Housing Starts Unchanged, Single Family Slipped

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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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.

Payroll Employment: Another Surprise in March, The Third Consecutive

Robert Brusca

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French manufacturing industrial production was flat in February after a January rebound; output rose by 0.2% following a 0.8% decline in December.

The components of industrial production in February showed 2.6% increase in consumer durables, a 0.4% increase in consumer nondurables, flat output from capital goods, and a 0.7% month to month decline in intermediate output.

Sequentially, French output had been growing at a slow, steady pace of 0.8% at an annual rate over both 12 months and six months, but then slipped to a 6.1% contraction at an annual rate over three months. Consumer durable goods output on this span shows consistent increases, but there are no trends to clear acceleration or deceleration. Consumer nondurables trace an accelerating path of moderate means from -1.8% over 12 months, to -0.4% over six months, and then rising at a 5.5% annual rate over three months. Capital goods output is moving in the opposite direction, growing by 3.4% over 12 months, slowing to a 0.7% annual pace over six months, and then contracting at a 9.5% annual rate over three months. Intermediate goods output is falling at 0.8% pace over 12 months, but then it switches to an expansion rate of 0.8% over six months and 0.6% and over three months. There's nothing remarkable about these patterns, except there's some acceleration, some deceleration, and a lot of mulling about at low growth rates.

As a separate item, French auto production is slipping and decelerating, falling by 7.1% at an annual rate over 12 months, falling at a 7.9% pace over six months, and then plunging at a 19.3% annual rate over three months. On these same horizons, motor vehicle registrations fall by 14.7% over 12 months; the weakness pares back to an 11.2% annual rate decline over six months, and then it steps up to a 22.1% decline at an annual rate over three months. French demand for autos is not in good shape.

In the quarter to date—now two months into the first quarter—manufacturing industrial production is falling at a 0.8% annual rate. That pace is boosted by 9.4% annual rate gain in consumer durables output but restrained by just a 0.2% annual rate increase in consumer nondurable goods. Capital goods output is falling at a 1.9% annual rate, while intermediate goods output is falling at a 1% annual rate. Also in the quarter to date, automobile production is plunging at a 24.3% annual rate, while on the demand side, motor vehicle registrations are falling at a 15% annual rate.

French manufacturing data are somewhat confusing. The chart shows that the industrial production trend has been showing consistent increases over 12 months, but it has recently been pulling back relatively sharply. On the other hand, the manufacturing PMI for France has been consistently negative going back to mid-2022 and only in early 2026 has the manufacturing PMI been posting some values above the 50% mark, indicating that output was starting to actually expand. In March, the PMI reading for manufacturing has slipped back by the thinnest margin below the 50% mark.

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Of course, events in the Middle East make everything more speculative, with the war effectively closing the Strait of Hormuz and no certainty about how or when that is going to be sorted out. In the meantime, the potential threat of ongoing oil price pressures has put both the ECB and the Bank of England in a position to be more wary with policy, and they warned markets about the potential for rate hikes as soon as their next meetings are engaged. That also raises questions about the outlook for growth. But we continue to track and chronicle trends in the data. It's also quite clear that we could have events that will play out that could completely undermine these trends before they get a chance to run to conclusion. It's an important time to be wary and watch all developments—a lot is in play.

France

French IP Waffles

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined by 9,000 to 202,000 in the week ending March 28, from 211,000 in the week ending March 21, revised from 210,000. The four-week average declined 3,000 to 207,750 in the week ending March 28, from 210,750 the March 21 week, revised from 210,500. The Forecast Survey looked for 212,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 25,000 to 1.841 million in the week ending March 21, from 1.816 million in the week ending March 14. The four-week moving average declined to 1.839 million in the latest week from 1.846 million in the March 14 week. This is the lowest level for this average since September 28, 2024 when it was 1.834 million. The insured unemployment rate remained at 1.2% in the week of March 21. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending March 14, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.73%), Massachusetts (2.66%), Washington (2.39%), Minnesota (2.31%), California (2.17%), and New York (2.01%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas (0.36%), Alabama (0.38%), and North Carolina (0.40%). Rates in other notable states include Illinois (1.99%), Connecticut (1.82%), Pennsylvania (1.72%), and Texas (1.07%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims declined by 9,000 to 202,000.
- Continuing claims rose by 25,000 to 1.841 million.
- The insured unemployment rate remained at 1.2%.

Economy in Brief

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