Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050708c.jpg" width="353">
Non-farm payrolls rose 146,000 last month following an upwardly revised 104,000 rise in May. While the latest increase disappointed Consensus expectations for a rise of 183,000, it continued the pace of job growth of roughly 1.5% in place for the last year.
The unemployment rate from the household survey fell to its lowest level since September 2001. At 5.0%, the rate reflected a 165,000 (1.8% y/y) rise in employment and a 1,000 (1.2% y/y) rise in the labor force. The labor force participation rate dipped slightly to 66.0% reflecting an increase in the number of dropouts from the force after two months of decline. Growth in dropouts rose, as a result, to 1.3% y/y though that remained down from the high of 3.7% late in 2003.
Factory sector payrolls fell 24,000 and suffered the worst month of job loss since January, led lower by an 18,000 (-2.6% y/y) worker decline in the motor vehicle industry. A 12,000 (-1.6% y/y) decline in nondurable goods reflected widespread industry declines but were notable at textile mills (-6.1% y/y) and in apparel (-10.5% y/y).
Private service producing industries payrolls rose a firm 148,000 (1.9% y/y) last month led by professional &amp; business services, up 56,000 (3.0% y/y), and education &amp; health services, up 38,000 (2.3% y/y).
Construction jobs rose 18,000 (4.1% y/y) and total government employment rose a modest 2,000 (0.8% y/y). Federal government jobs fell 7,000 (-0.7% y/y) but local gov&#39;t employment rose 7,000 (1.0% y/y).
The index of aggregate hours worked (employment times hours worked) rose 0.2% (2.6% y/y) and recovered a revised 0.2% decline in May. The level of hours worked in 2Q rose 2.8% (AR) from 1Q05.
Average hourly earnings rose the same 0.2% as during May and those gains were down from 0.3% during the prior two months.

<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/@EB/@EB01/@EB01.HTM">Employment</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">Payroll Employment</td>
<td>146,000</td>
<td>104,000</td>
<td>1.6%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-24,000</td>
<td>-6,000</td>
<td>-0.5%</td>
<td>-1.2%</td>
<td>-4.9%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>33.6</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.7%</td>
<td>2.1%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.0%</td>
<td>5.1%</td>
<td>5.6%</td>
<td>5.5%</td>
<td>6.0%</td>
<td>5.8%</td>
</tr>
</tbody>
</table>
Canadian Unemployment Rate Ties 29-Year Low in June, but Employment Growth Is Sluggish 
by <a href="/comment/Stone.html">Carol Stone</a> July 8, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050708b.jpg" width="353">
Six months ago, we wrote about labor market conditions in Canada, describing them as a bit shaky after three years of growth. Such hesitancy is still evident in an uneven pattern of employment gains, slow in the first quarter and picking up slightly in the second. Data for June were reported this morning by Statistics Canada. These latest employment increases are sufficient however, to cut the unemployment rate. It reached 6.7% in June, the lowest since June 2000, which in turn was the lowest since March 1976.
Among sectors of the economy, factory employment is continuing an uneven trend. June&#39;s modest increase follows a sizable monthly decline in May and the year-on-year performance, at -3.4%, is among the weakest since the recession in the early 1990s. Services are also remarkably sluggish, dragged down &#150; interestingly &#150; by health care and also accommodation and food services. The finance sector and business services, by contrast, are quite strong. Also strong is construction, with a remarkable 12-month increase of 7.6% through June. Persistently low interest rates in Canada, as in the United States, are facilitating considerable building. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050708a.jpg" width="353">
The low unemployment rate would be cause for greater enthusiasm, but for slow growth in the labor force. As evident in the table below and in the second graph, the total number of people working or available for work has shown progressive deceleration. Two of the last three months have seen 12-month percentage changes below 1%, the first time since 1996 that even a single month has been that low.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://http://www.haverselect.com/dlx/CANADA.HTM">Canada</a> Thousands</th>
<th scope="col">June 2005 </th>
<th scope="col">May 2005 </th>
<th scope="col">June 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">Employment </td>
<td>+14</td>
<td>+35</td>
<td>+1.3%</td>
<td>+1.8%</td>
<td>+2.3%</td>
<td>+2.4%</td>
</tr>
<tr>
<td class="firstcol">Manufacturing </td>
<td>+6</td>
<td>-19</td>
<td>-3.4%</td>
<td>+0.6%</td>
<td>-0.3%</td>
<td>+2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction </td>
<td>+21</td>
<td>-15</td>
<td>+7.6%</td>
<td>+5.1%</td>
<td>+5.0%</td>
<td>+4.7%</td>
</tr>
<tr>
<td class="firstcol">Services Producing </td>
<td>-19</td>
<td>+46</td>
<td>+1.5%</td>
<td>+1.9%</td>
<td>+2.7%</td>
<td>+2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Labor Force </td>
<td>-2</td>
<td>+41</td>
<td>+0.8%</td>
<td>+1.4%</td>
<td>+2.3%</td>
<td>+2.9%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate </td>
<td>6.7%</td>
<td>6.8%</td>
<td>7.2%</td>
<td>7.2%</td>
<td>7.6%</td>
<td>7.7%</td>
</tr>
</tbody>
</table>
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Non-farm payrolls rose 146,000 last month following an upwardly revised 104,000 rise in May. While the latest increase disappointed Consensus expectations for a rise of 183,000, it continued the pace of job growth of roughly 1.5% in [...]

U.S. Payrolls Up, Unemployment Down

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/050707b.jpg" width="353">
Australian labor markets are showing marked strength, according to labor force data reported today by the Australian Bureau of Statistics. The unemployment rate fell to 5.0%, the lowest reading since monthly surveys began in February 1978. This result was unexpected, as forecasters had projected an uptick to 5.2%.
Accompanying employment data also reached a benchmark, with a 41,700 increase in the number employed to 10.023 million, the first tally surpassing 10 million. This is 3.8% larger than the year-ago figure. Further, the number of full-time employees rose more, by 60,200, while part-timers decreased 18,600. This development brought the proportion of full-time workers to 71.7% of total employment. For the first 25 years of this survey, that proportion trended consistently lower, but since the middle of 2003, the share has stabilized and tilted slightly upward, suggesting that employers have some confidence that their demand for workers will be sustained.
The month&#39;s results also extended a steep gain in labor force participation. The rate was 64.7% of the working-age population (15 years of age and older), a record high and up more than a full percentage point just since last August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050707c.jpg" width="353">
Analysts pointed out in press reports today that Australia is benefiting from increased sales to China and from a surge in commodity prices. Indeed, today&#39;s Wall Street Journal has an entire feature on traffic jams in Queensland ports as ships wait to load coal for export. Just a week ago, the Bureau of Statistics reported a gain in local retail sales after two monthly declines, leading some to conclude that the employment growth is beginning to prompt higher spending.

<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/ANZ/@A1/@A1.HTM">Australia</a> Seasonally Adjusted</th>
<th scope="col">June 2005</th>
<th scope="col">May 2005</th>
<th scope="col">June 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">Employed (thous)</td>
<td>10023</td>
<td>9981</td>
<td>9656</td>
<td>9682</td>
<td>9481</td>
<td>9270</td>
</tr>
<tr>
<td class="firstcol">Change (thous/%)</td>
<td>+42</td>
<td>+14</td>
<td>3.8</td>
<td>2.1</td>
<td>2.3</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployed (thous)</td>
<td>528</td>
<td>540</td>
<td>576</td>
<td>566</td>
<td>611</td>
<td>636</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>5.0</td>
<td>5.1</td>
<td>5.6</td>
<td>5.5</td>
<td>6.0</td>
<td>6.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>64.7</td>
<td>64.5</td>
<td>63.6</td>
<td>63.6</td>
<td>63.6</td>
<td>63.4</td>
</tr>
</tbody>
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Australian labor markets are showing marked strength, according to labor force data reported today by the Australian Bureau of Statistics. The unemployment rate fell to 5.0%, the lowest reading since monthly surveys began in February [...]

Australia Unemployment Falls; Employment Passes 10 Million

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050707a.jpg" width="353">
Initial claims for unemployment insurance ticked up 7,000 to 319,000 last week after a 4,000 drop the week earlier that was slightly shallower than the decline initially indicated. Consensus expectations had been for an increase to 318,000 claims.
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 fell to 320,500 (-5.7% y/y).
Continuing claims for unemployment insurance dropped 16,000 following a revised 1,000 up tick during the prior week.
The insured unemployment rate remained at 2.0%, the low for this cycle.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">07/02/05</th>
<th scope="col">06/25/05</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>319</td>
<td>312</td>
<td>-1.2%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,581</td>
<td>-10.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance ticked up 7,000 to 319,000 last week after a 4,000 drop the week earlier that was slightly shallower than the decline initially indicated. Consensus expectations had been for an increase to [...]

Initial Claims for Unemployment Insurance Ticked Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706f.jpg" width="353">
Net rates of return for UK corporations have run strong in the last several quarters. The first quarter&#39;s outcome, 13.3%, was the third highest in the 16-year history of these quarterly data. These figures on corporate profitability were reported yesterday, July 5, by the UK Office of National Statistics and have just recently been added to Haver&#39;s UK database. The information, called &quot;Profitability of UK Companies&quot;, is listed in both the Financial Data and National Accounts menus.
The rates of return are defined as the ratio of the net operating surplus to net capital employed. [The values in &quot;gross&quot; terms, i.e., before the deduction of capital consumption, are also published, but the &quot;net&quot; data get far more attention.] The factors in the ratio, net operating surplus and net capital employed, are published annually; rates of return are available quarterly for all private non-financial corporations and three categories: &quot;Continental Shelf&quot; companies, manufacturing firms and service sector companies. &quot;Continental Shelf&quot; refers to the UK petroleum industry.
In the first quarter, the 13.3% overall return represented a pick-up from the fourth quarter&#39;s 13.1% and was equal to the 2004 average of 13.3%. As might be expected, the Continental Shelf firms saw a boost in their return, to 29.6%, up from the prior quarter; the last five years have averaged 30.8%, the highest ever, with a range among individual quarters of 25.6%, right after 9/11, to 38.1% at the end of 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706g.jpg" width="353">
Non-financial service industries experienced their strongest returns in the late 1990s. We&#39;d speculate that computer software developers, internet companies and other tech firms led this high-profit time in the UK, when returns on capital peaked at 19.5% in the second quarter of 1998. The recent period, while lower, isn&#39;t &quot;bad&quot;, with profitability still running at about 16.5% on average and this latest quarter at 17.5%.
Manufacturing returns have lagged. This has been so for a long time, throughout the history of these data back to 1970. The worst performance was during the energy &quot;crisis&quot;/stagflation recessions of the late 1970s and early 1980s, when, for instance, the net return dipped to just 1.5% in 1981. More currently, manufacturing firms saw good results from 1994 to 1999, but since then have fallen back to single-digits. The 6.0% in Q1 is among the lowest since the 1991 recession. The ONS suggests that the lower returns in manufacturing reflect their higher capital intensity, compared with service firms. This is certainly true, but perhaps their greater cyclicality and variability also restrain their overall performance. 

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/UK.HTM">UK</a>:&nbsp; % except as noted</th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4 2004</th>
<th scope="col">Q3 2003</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">Net Rate of Return: All PNFCs*</td>
<td>13.3</td>
<td>13.1</td>
<td>13.4</td>
<td>13.3</td>
<td>12.9</td>
<td>12.5</td>
</tr>
<tr>
<td class="firstcol">Net Operating Surplus (&pound; Billions)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>152.2</td>
<td>140.2</td>
<td>132.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Capital Employed (&pound; Billions)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>1146.4</td>
<td>1089.4</td>
<td>1056.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Continental Shelf Companies**</td>
<td>29.6</td>
<td>27.6</td>
<td>30.5</td>
<td>29.1</td>
<td>29.2</td>
<td>30.4</td>
</tr>
<tr>
<td class="firstcol">Manufacturing </td>
<td>6.0</td>
<td>7.7</td>
<td>5.8</td>
<td>6.9</td>
<td>6.9</td>
<td>7.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Service Sector</td>
<td>17.5</td>
<td>15.9</td>
<td>16.4</td>
<td>16.5</td>
<td>16.5</td>
<td>16.1</td>
</tr>
</tbody>
</table>
</body>
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Net rates of return for UK corporations have run strong in the last several quarters. The first quarter's outcome, 13.3%, was the third highest in the 16-year history of these quarterly data. These figures on corporate profitability [...]

UK Corporations Achieve High Profitability in Q1, Led by Oil Companies and Service Industries

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706a.jpg" width="353">
Total mortgage applications surged 9.6% in the opening week of July, according to the Mortgage Bankers Association, and began the month 6.4% above the June average which rose 9.9% versus May.
Purchase applications jumped 9.1% w/w and began the month 6.0% above June which rose 1.3% from May. During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance recovered 10.2% w/w following two weeks of decline and opened the month 6.9% ahead of June.
The effective interest rate on a conventional 30-year mortgage rose to 5.81% following several weeks of decline from the peak of 6.34% in late March. The effective rate on a 15-year mortgage also rose to 5.47% after falling from the peak of 5.96%.
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>.

<table border="0" cellspacing="0" width="100%">
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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">07/01/05</th>
<th scope="col">06/24/05</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>853.4</td>
<td>778.4</td>
<td>24.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>520.8</td>
<td>477.4</td>
<td>4.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,788.2</td>
<td>2,529.2</td>
<td>57.6%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Total mortgage applications surged 9.6% in the opening week of July, according to the Mortgage Bankers Association, and began the month 6.4% above the June average which rose 9.9% versus May. Purchase applications jumped 9.1% w/w and [...]

Mortgage Applications Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706b.jpg" width="353">
Chain store sales rose 0.5% during the opening week of July following a like-sized drop the prior week, according to the International Council of Shopping Centers (ICSC)-UBS survey. Sales began the month 0.2% above the June average which 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 ticked 0.1% higher w/w (+2.2% y/y) following a 0.2% decline 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.

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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">07/02/05</th>
<th scope="col">06/25/05</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>455.2</td>
<td>453.0</td>
<td>3.8%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
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Chain store sales rose 0.5% during the opening week of July following a like-sized drop the prior week, according to the International Council of Shopping Centers (ICSC)-UBS survey. Sales began the month 0.2% above the June average [...]

Chain Store Sales: July Began Firmer

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Job cut announcements jumped by more than one third in June and added to a sharp gain in May raising the level to the highest since January 2004. The three month average of job cut announcements also rose but just moderately.
During the last ten years there has been an 84% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements in the automotive industry increased roughly ten-fold m/m. Outside of autos job cut announcement fell m/m (+6.6% y/y). In June job cuts did rise sharply in the retail and pharmaceutical industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans improved sharply to the highest level since February. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706d.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050706c.jpg" width="353">

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</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>
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<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>110,996</td>
<td>82,283</td>
<td>72.5%</td>
<td>1,039,175</td>
<td>1,236,426</td>
<td>1,431,052</td>
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Job cut announcements jumped by more than one third in June and added to a sharp gain in May raising the level to the highest since January 2004. The three month average of job cut announcements also rose but just moderately. During [...]

Challenger Layoffs Jumped

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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U.S. Payrolls Up, Unemployment Down

Australia Unemployment Falls; Employment Passes 10 Million

Initial Claims for Unemployment Insurance Ticked Up

Initial Claims for Unemployment Insurance Ticked Up

UK Corporations Achieve High Profitability in Q1, Led by Oil Companies and Service Industries

Mortgage Applications Surged

Chain Store Sales: July Began Firmer

Challenger Layoffs Jumped