Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050421d.jpg" width="353">
The May Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed reversed all of the prior month&#39;s improvement and fell 18.0 points to 7.3, its lowest level since June 2003. Consensus expectations had been for a lesser decline to 17.3.
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 52% correlation with q/q growth in real GDP.
The shipments index reversed all of the prior month&#39;s sharp increase and about halved to the lowest level since 2003 while the number of employees index also fell sharply to the lowest since 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 improved moderately to the highest level this year.
The prices paid index slid sharply again and at 30.9 is less than half the peak level of January 2005. 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/bos0505.html">here</a>.
Modeling Inflation: A Policymaker&#39;s Perspective, today&#39;s speech by Federal Reserve Board Governor Donald L. Kohn is available <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2005/20050520/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">May</th>
<th scope="col">April</th>
<th scope="col">May &#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>7.3</td>
<td>25.3</td>
<td>27.9</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>30.9</td>
<td>50.5</td>
<td>56.4</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
French GDP Growth Slows in Q1; Data Rebased to 2000 Prices 
by <a href="/comment/Stone.html">Carol Stone</a> May 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050520c.jpg" width="353">
GDP growth in France slowed markedly in Q1 to 0.2% from 0.7% in Q4 2004. A smaller gain in household consumption and an outright decline in exports were responsible for the sluggish Q1 performance. Notably, however, fixed capital formation sustained its Q4 gain of 1.3%; of this, nonfinancial corporations&#39; capital investment grew 1.6%, making for a 4.0% advance year-on-year.
By industry, value added in manufacturing fell 0.2%, with declines in intermediate goods and automobile production. Among service-producing industries, overall growth was 0.3%, following 0.7% in Q4. Performances of individual service sectors was quite mixed, with declines, for instance, in transportation and personal services, but further sizable increases in finance and real estate.
The volume measures in this GDP report for France are the first using 2000 as a base year, moving from 1995. The data are all revised historically. The price measures still have fixed weights, with 2000 prices. Chain-weighting of price indexes is set to be introduced in May 2006. In the table below, we show total GDP growth at 1995 prices; a quick comparison of these few observations suggests that the switch in base years had little impact on basic growth patterns, although it did alter individual periods. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050520b.jpg" width="353">

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FRANCE/FRANCE.HTM">France</a></th>
<th scope="col">Q1 2005</th>
<th scope="col">Q4 2004</th>
<th scope="col">Year/Year</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 - 2000 Prices</td>
<td>0.2</td>
<td>0.7</td>
<td>1.7</td>
<td>2.1</td>
<td>0.9</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Memo: GDP - 1995 Prices</td>
<td>--</td>
<td>0.9</td>
<td>--</td>
<td>2.4</td>
<td>0.5</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Consumption</td>
<td>0.7</td>
<td>1.1</td>
<td>2.2</td>
<td>2.3</td>
<td>1.6</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">Gross Fixed Capital Formation</td>
<td>1.3</td>
<td>1.3</td>
<td>3.3</td>
<td>2.2</td>
<td>2.7</td>
<td>-1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>-0.1</td>
<td>0.9</td>
<td>2.1</td>
<td>2.4</td>
<td>-1.7</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>0.6</td>
<td>1.0</td>
<td>7.0</td>
<td>6.1</td>
<td>1.3</td>
<td>1.5</td>
</tr>
</tbody>
</table>
</body>
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The May Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed reversed all of the prior month's improvement and fell 18.0 points to 7.3, its lowest level since June 2003. Consensus expectations had [...]

Philadelphia Fed Index Reversed Course

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/050519d.jpg" width="353">
Employment conditions in several countries are showing some improvement. After about three years of decline or sluggishness, uptrends are developing in the number of people employed. This is evident in Germany, where seasonally adjusted employment rose 38,000 in Q1, extending the recent string of gains to a fifth quarter. At 39.965 million, the level is the highest since the third quarter of 2002. Before seasonal adjustment, the figure is 39.579 million, up 0.5% from a year ago.
In Denmark, the lack of seasonal adjustment makes the comparisons less obvious, but gains are there, nonetheless. At 2.698 million in Q1, jobs are up 0.7% from a year ago and achieved the highest Q1 total since 1999. As seen in the first graph, the 4-quarter moving average has been rising since Q1 2004.
In both of these countries, it is the service sector where turnarounds are evolving. In Germany, this segment, represented by total employment less agriculture, industry and construction, was up in Q1 by 356,000 from a year ago, growth of 1.3%. Industry employment is still decreasing, down 1.2% in the same time span. This is, however, a slower pace of decline than was experienced from the beginning of 2002 to the middle of last year. Quarterly patterns are more erratic in Denmark, but recent 4-quarter growth rates in service industries have also averaged 1.3%. Industry employment is still weak, but looks to be trying to bottom out, maintaining a tight range around 440,000 for the last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519e.jpg" width="353">
Finally, in the Netherlands, total employment hit a new cyclical low of 7.001 million (seasonally adjusted) in February, but rebounded to 7.024 million in March. These data are expressed as three-month centered moving averages, so the good rise reported for March (average of February, March and April) suggests that the April figure alone probably had a more significant increase. As it stands, before seasonal adjustment, the March level is just barely below March 2004, the least weak reading since August 2003.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/INDUSTRIALDETAIL.HTM">Industrial Countries</a> Not Seasonally Adjusted</th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 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">Germany-Total Employment </td>
<td>38579*</td>
<td>&nbsp;</td>
<td>38376*</td>
<td>38861</td>
<td>38720</td>
<td>39092</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industry </td>
<td>7910*</td>
<td>&nbsp;</td>
<td>8009*</td>
<td>8018</td>
<td>8139</td>
<td>8356</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>27743*</td>
<td>&nbsp;</td>
<td>27387*</td>
<td>27708</td>
<td>27379</td>
<td>27392</td>
</tr>
<tr>
<td class="firstcol">Netherlands - Employment </td>
<td>7024</td>
<td>7001</td>
<td>7033</td>
<td>7036</td>
<td>7113</td>
<td>7123</td>
</tr>
<tr class="odd">
<td class="firstcol">Denmark - Employment </td>
<td>2698*</td>
<td>&nbsp;</td>
<td>2680*</td>
<td>2720</td>
<td>2693</td>
<td>2712</td>
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Employment conditions in several countries are showing some improvement. After about three years of decline or sluggishness, uptrends are developing in the number of people employed. This is evident in Germany, where seasonally [...]

Employment Gains in Germany, Denmark; Decline in Netherlands Is Moderating

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519a.jpg" width="353">
Following three weeks of increase, initial claims for unemployment insurance fell 20,000 last week to 321,000 and the prior period&#39;s gain was little revised. Consensus expectations had been for 330,000 claims.
The latest figure covers the survey period for May nonfarm payrolls and claims are up 22,000 (7.4%) from the April 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 rose to 329,750 (-2.6% y/y).
Continuing claims for unemployment insurance rose 5,000 and the prior week&#39;s gain was little revised.
The insured unemployment rate held at 2.0% for the fourth consecutive weeks.
This morning&#39;s speech titled Government-sponsored enterprises by Fed Chairman Alan Greenspan can be found <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2005/20050519/default.htm"> 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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">05/14/05</th>
<th scope="col">05/07/05</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>321</td>
<td>341</td>
<td>-8.0%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,601</td>
<td>-11.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
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</body>
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Following three weeks of increase, initial claims for unemployment insurance fell 20,000 last week to 321,000 and the prior period's gain was little revised. Consensus expectations had been for 330,000 claims. The latest figure covers [...]

Initial Claims for Jobless Insurance Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519b.jpg" width="353">
In April the National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago improved to 0.10 from a downwardly revised -0.04 in March.
The figures left the three-month moving average of the CFNAI at 0.08, its lowest since 2003. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_may2005.pdf">here</a>.
M2 and &quot;Reigniting Inflation&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050601/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.10</td>
<td>-0.04</td>
<td>0.47</td>
<td>0.39</td>
<td>-0.11</td>
<td>-0.40</td>
</tr>
</tbody>
</table>
</body>
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In April the National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago improved to 0.10 from a downwardly revised -0.04 in March. The figures left the three-month moving average of the CFNAI at 0.08, its lowest [...]

Chicago Fed Nat'l Activity Index: Economic Growth Near Trend

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519c.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell for the fourth straight month in April. The 0.2% decline followed a downwardly revised 0.6% drop in March. Six-month growth in the leaders fell further to -1.0%. Growth in the leaders deeper than -2.5% preceded past US recessions.
During the last ten years there has been a 50% correlation between the six-month change in the leading indicators and the change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index improved markedly to 50% from just 10% in March. Higher building permits and lower claims for unemployment insurance offset negative contributions from stock prices, the yield curve and the money supply.
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 0.2% for the second month. Six-month growth in the index was 2.5% and during the last ten years there has been an 84% correlation between six month growth in the coincident indicators and two quarter growth in real GDP.
The lagging indicators rose 0.4% mostly due to higher C&amp;I loans.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess fell for the third month this year.
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.
New Economy-New Policy Rules? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/01/09/0109jb.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">April</th>
<th scope="col">March</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>-0.2%</td>
<td>-0.6%</td>
<td>-0.5%</td>
<td>2.9%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
</body>
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The Composite Index of Leading Economic Indicators reported by the Conference Board fell for the fourth straight month in April. The 0.2% decline followed a downwardly revised 0.6% drop in March. Six-month growth in the leaders fell [...]

Leading Indicators Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519c.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board fell for the fourth straight month in April. The 0.2% decline followed a downwardly revised 0.6% drop in March. Six-month growth in the leaders fell further to -1.0%. Growth in the leaders deeper than -2.5% preceded past US recessions.
During the last ten years there has been a 50% correlation between the six-month change in the leading indicators and the change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index improved markedly to 50% from just 10% in March. Higher building permits and lower claims for unemployment insurance offset negative contributions from stock prices, the yield curve and the money supply.
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 0.2% for the second month. Six-month growth in the index was 2.5% and during the last ten years there has been an 84% correlation between six month growth in the coincident indicators and two quarter growth in real GDP.
The lagging indicators rose 0.4% mostly due to higher C&amp;I loans.
The ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess fell for the third month this year.
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.
New Economy-New Policy Rules? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/01/09/0109jb.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">April</th>
<th scope="col">March</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>-0.2%</td>
<td>-0.6%</td>
<td>-0.5%</td>
<td>2.9%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.1%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-2.3%</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity Index: Economic Growth Near Trend 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519b.jpg" width="353">
In April the National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago improved to 0.10 from a downwardly revised -0.04 in March.
The figures left the three-month moving average of the CFNAI at 0.08, its lowest since 2003. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_may2005.pdf">here</a>.
M2 and &quot;Reigniting Inflation&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050601/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.10</td>
<td>-0.04</td>
<td>0.47</td>
<td>0.39</td>
<td>-0.11</td>
<td>-0.40</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519a.jpg" width="353">
Following three weeks of increase, initial claims for unemployment insurance fell 20,000 last week to 321,000 and the prior period&#39;s gain was little revised. Consensus expectations had been for 330,000 claims.
The latest figure covers the survey period for May nonfarm payrolls and claims are up 22,000 (7.4%) from the April 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 rose to 329,750 (-2.6% y/y).
Continuing claims for unemployment insurance rose 5,000 and the prior week&#39;s gain was little revised.
The insured unemployment rate held at 2.0% for the fourth consecutive weeks.
This morning&#39;s speech titled Government-sponsored enterprises by Fed Chairman Alan Greenspan can be found <a href="http://www.federalreserve.gov/BoardDocs/Speeches/2005/20050519/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">05/14/05</th>
<th scope="col">05/07/05</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>321</td>
<td>341</td>
<td>-8.0%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,601</td>
<td>-11.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
Employment Gains in Germany, Denmark; Decline in Netherlands Is Moderating 
by <a href="/comment/Stone.html">Carol Stone</a> May 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519d.jpg" width="353">
Employment conditions in several countries are showing some improvement. After about three years of decline or sluggishness, uptrends are developing in the number of people employed. This is evident in Germany, where seasonally adjusted employment rose 38,000 in Q1, extending the recent string of gains to a fifth quarter. At 39.965 million, the level is the highest since the third quarter of 2002. Before seasonal adjustment, the figure is 39.579 million, up 0.5% from a year ago.
In Denmark, the lack of seasonal adjustment makes the comparisons less obvious, but gains are there, nonetheless. At 2.698 million in Q1, jobs are up 0.7% from a year ago and achieved the highest Q1 total since 1999. As seen in the first graph, the 4-quarter moving average has been rising since Q1 2004.
In both of these countries, it is the service sector where turnarounds are evolving. In Germany, this segment, represented by total employment less agriculture, industry and construction, was up in Q1 by 356,000 from a year ago, growth of 1.3%. Industry employment is still decreasing, down 1.2% in the same time span. This is, however, a slower pace of decline than was experienced from the beginning of 2002 to the middle of last year. Quarterly patterns are more erratic in Denmark, but recent 4-quarter growth rates in service industries have also averaged 1.3%. Industry employment is still weak, but looks to be trying to bottom out, maintaining a tight range around 440,000 for the last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050519e.jpg" width="353">
Finally, in the Netherlands, total employment hit a new cyclical low of 7.001 million (seasonally adjusted) in February, but rebounded to 7.024 million in March. These data are expressed as three-month centered moving averages, so the good rise reported for March (average of February, March and April) suggests that the April figure alone probably had a more significant increase. As it stands, before seasonal adjustment, the March level is just barely below March 2004, the least weak reading since August 2003.

<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/INDUSTRIALDETAIL.HTM">Industrial Countries</a> Not Seasonally Adjusted</th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 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">Germany-Total Employment </td>
<td>38579*</td>
<td>&nbsp;</td>
<td>38376*</td>
<td>38861</td>
<td>38720</td>
<td>39092</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industry </td>
<td>7910*</td>
<td>&nbsp;</td>
<td>8009*</td>
<td>8018</td>
<td>8139</td>
<td>8356</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>27743*</td>
<td>&nbsp;</td>
<td>27387*</td>
<td>27708</td>
<td>27379</td>
<td>27392</td>
</tr>
<tr>
<td class="firstcol">Netherlands - Employment </td>
<td>7024</td>
<td>7001</td>
<td>7033</td>
<td>7036</td>
<td>7113</td>
<td>7123</td>
</tr>
<tr class="odd">
<td class="firstcol">Denmark - Employment </td>
<td>2698*</td>
<td>&nbsp;</td>
<td>2680*</td>
<td>2720</td>
<td>2693</td>
<td>2712</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050518c.jpg" width="353">
Perhaps it goes without saying that energy production is a major part of the Norwegian economy. But balance of trade data, which were reported today for April, underscore that fact dramatically. The total balance of trade is seen to be a surplus of NKr27.6 billion in April, up from March&#39;s NKr25.9 billion and a monthly average of NKr20.1 billion. The petroleum sector more than accounts for the surplus, as apart from it, the trade accounts run deficits, the latest at NKr7.3 billion. The energy sector exports were NKr22.0 billion in April, a little more than 61% of total exports.
&quot;Energy sector&quot; is a term we apply to the Central Statistics Bureau&#39;s listing of &quot;crude oil, natural gas, ships and oil platforms&quot;. Norway is unusual among oil exporting nations in also constructing the transportation equipment and the water-borne drilling rigs. In April, these exports were a mere NKr28 million, but when even a single rig or ship is delivered, these exports can spike to NKr2 or 3 billion.
The price of energy, of course, also plays a major role in the reported amount of energy-related exports and thence the overall trade surplus. In the second chart, the close comparison is readily apparent. There, we used the balance of trade converted to US$, plotted with the price of Brent crude. The correlation is a very tight 91%. The correlation with the balance expressed in Kroner is still 84%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050518d.jpg" width="353">
Data for Norway are included in Haver&#39;s &quot;NORDIC&quot; and &quot;G10&quot; databases. Conversions to US dollars and some seasonal adjustment is performed in the series contained in G10/Norway.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/NORDIC/@NN/@NN.HTM">Norway</a> Millions NKr</th>
<th scope="col">Apr 2005</th>
<th scope="col">Mar 2005</th>
<th scope="col">Apr 2004</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Trade Balance </td>
<td>27,605</td>
<td>25,943</td>
<td>20,326</td>
<td>20,133</td>
<td>16,639</td>
<td>16,377</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; ex Energy Sector*</td>
<td>-7,264</td>
<td>-6,632</td>
<td>-6,771</td>
<td>-7,876</td>
<td>-6,314</td>
<td>-5,751</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>57,081</td>
<td>54,166</td>
<td>44,956</td>
<td>47,298</td>
<td>40,245</td>
<td>39,413</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; ex Energy Sector*</td>
<td>22,045</td>
<td>21,433</td>
<td>17,816</td>
<td>18,809</td>
<td>16,800</td>
<td>16,663</td>
</tr>
<tr>
<td class="firstcol">Kroner/US$</td>
<td>6.3199</td>
<td>6.1972</td>
<td>6.9242</td>
<td>6.7412</td>
<td>7.0800</td>
<td>7.9839</td>
</tr>
</tbody>
</table>
</body>
</html>

Perhaps it goes without saying that energy production is a major part of the Norwegian economy. But balance of trade data, which were reported today for April, underscore that fact dramatically. The total balance of trade is seen to [...]

Huge Role for Oil & Equipment in Norway Trade

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050518b.jpg" width="353">
Total mortgage applications dropped 10.5% last week and reversed more than all of the prior week&#39;s increase according to the Mortgage Bankers Association. Nevertheless, applications so far in May are 8.0% ahead of the April average.
Applications to purchase a home slumped 10.8% w/w but in May are 5.8% ahead of April. 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 fell 10.0% w/w but are 11.0% higher than in April.
The effective interest rate on a conventional 30-year mortgage fell back below 6.0% to 5.97%. The effective rate on a 15-year mortgage was 5.59%.
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>.
Credit Risk Management Guidance for Home Equity Lending from the Federal Reserve Board and other agencies is available <a href="http://www.federalreserve.gov/boarddocs/press/bcreg/2005/20050516/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/13/05</th>
<th scope="col">05/06/05</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>699.2</td>
<td>781.0</td>
<td>6.9%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>469.3</td>
<td>526.2</td>
<td>3.3%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,036.7</td>
<td>2,263.3</td>
<td>12.1%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Total mortgage applications dropped 10.5% last week and reversed more than all of the prior week's increase according to the Mortgage Bankers Association. Nevertheless, applications so far in May are 8.0% ahead of the April average. [...]

Mortgage Applications Dropped

Cost of transporting crude oil has soared to series high

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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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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.

260403C.jpg

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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

260403E.jpg

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.

260403.jpg

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%.

U.S. Initial Unemployment Claims Edged Down in the Week of March 28

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The S&P manufacturing PMIs for March showed improvements in 44.4% of the 18 reporters. The median reading for the month was at 50.9, indicating that expanding output was the median reading through the period. The median change showed a small step back of 0.1 diffusion points month-to-month.

Sequentially, looking at average yearly activity compared to a year ago, six months compared to 12 months, and three months compared to six months, we see progress in train. For three months compared to six months, the proportion of reporters showing improvement is 72.2%. For these reporters, over six months compared to 12 months, there is a 61.1% improvement proportion, while for 12 months compared to 12 months ago, there is only a 27.8% improvement.

The median reading over three months on average is 50.7, while the median reading over six months is 50.0 and the median reading over 12 months is 49.4. These readings show a very slow but steady improvement in manufacturing over this horizon.

In addition, we calculate the queue percentile standings for each reporter—that is, the level of the current diffusion index compared to all of the observations back to January 2022, expressing the final number as the percentile standing for the current month in that queue. On that basis, the median percentile standing for this group of reporters is 76.5%. It tells us that the median standing is in the top 25 percentile of all the readings since January 2022 to date. That's a reasonably good result. For the euro area, the queue percentile standing is at the 89.8 percentile, while for Germany it's at its 91.8 percentile. For the Monetary Union and for Germany, the current numbers are some of the best we've seen during this period. However, that doesn't mean that they're necessarily stellar readings.

**PMI diffusion vs. PMI rank standings**
German diffusion in manufacturing is 52.2 in March; for the EMU it is 51.6. Germany posts the fourth-highest PMI rank standing and the fifth highest raw standing in March. The highest standing among all reporters is 52.6 from South Korea. This is a period in which no country was posting very strong manufacturing results. In fact, the United States, with a manufacturing PMI rank standing of 79.6, has a diffusion reading in March just a tick below Germany’s whose queue standing at 91.8 seems miles ahead of the U.S.—but it isn’t. Remember that the queue standings are about relative positioning.

Looking at the details, we see that below-median rank readings were logged by Mexico, Russia, India, Brazil, Indonesia, and Turkey. The Asian markets and developing economies seem to have a harder time working up to the standards achieved by other countries.

We also have averages by certain groups of countries. For example, the U.S., the U.K., the Monetary Union, Canada, and Japan—an expanded G10 groping—had an average reading of 51.3 in March, and for that group of countries, the improvements have been steady from 12 months to six months to three months. For the BRIC countries in March, the average standing was 50.4, and for that group there has been a very slight ongoing erosion. For the Asian group, on average, the March reading is 51.2, and there has been a progression to stronger readings from 49.9 over 12 months to 50.5 over six months and to 50.8 over three months.

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On balance, manufacturing was quite uneven in March; however, there's a progression of improvement that is still in place. But with rising oil prices, war in Iran, and lots of knock-on effects to supply trains, it's likely that these readings are going to fall on harder times in the months ahead—unless the Iran war can be wrapped up in very, very, short order. According to the Baltic Dry index, there hasn't been much reduction in global shipping of dry goods. That index excludes oil and other wet goods shipments that clearly have been impeded. However, giving it more time, we may see that the dry index begins to show some difficulties.

Global Manufacturing PMIs Stall—Will It Get Worse?

Andrew Cates

**Global shipping costs**
The Baltic Dirty Tanker Index has surged to multi-year highs, reflecting a sharp tightening in global oil shipping markets. The primary driver is the escalation in Middle East tensions, particularly the effective disruption to flows through the Strait of Hormuz—a critical artery for roughly a fifth of global oil trade. Heightened security risks, including missile and drone attacks on vessels and port infrastructure, have forced rerouting, increased insurance premia and reduced effective tanker supply. At the same time, longer voyage distances—especially for Gulf exports diverted around the Cape—are tying up capacity and amplifying rate pressures. The result is a classic squeeze: constrained supply of available ships meeting elevated demand for transport, pushing freight costs sharply higher.

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**Supply Chain Bottlenecks**
Flash PMI data point to a renewed build-up of supply chain pressures across the major economies. Supplier delivery times—where readings below 50 indicate slower deliveries—have deteriorated in both the US and UK, with the latter showing a particularly sharp decline. The euro area, while more stable, is also drifting in the same direction. This broad-based softening suggests that the disruptions visible in energy and shipping markets are now feeding into the real economy. Longer delivery times are typically an early indicator of tightening supply conditions, rising input costs and, ultimately, renewed pipeline inflation pressures. While not yet at the extremes seen during the pandemic, the direction of travel is clear: supply chains are becoming less efficient just as geopolitical risks intensify.

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**Policy Uncertainty Versus Market Volatility**
A striking divergence is emerging between policy uncertainty and financial market volatility. The US Economic Policy Uncertainty Index has risen sharply, reflecting the intensifying geopolitical backdrop, trade disruptions and an increasingly complex policy environment. By contrast, the VIX—while off its lows—remains relatively contained by historical standards. This gap suggests that financial markets may be underpricing the scale and persistence of current risks. Either uncertainty begins to recede, or market volatility has further to rise. For now, the message is clear: policymakers are operating in a far more uncertain world than markets appear to be discounting.

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**Oil Prices and Monetary Policy** 
The sharp rise in oil prices is once again feeding directly into short-term interest rate expectations, with a strong positive correlation evident between WTI and US 2-year Treasury yields. As energy prices surge, markets are reassessing the near-term inflation outlook and the likely policy response, pushing yields higher. This reflects a familiar dynamic: energy shocks tighten financial conditions not just directly, but via expectations of more restrictive monetary policy. That said, there are important caveats. Medium-term market-based inflation expectations remain relatively well contained, suggesting credibility in central banks’ ability to anchor inflation over time. Moreover, recent communication from Fed Chair Powell indicates that the Federal Reserve is in no immediate hurry to raise rates, pointing instead to a more cautious, data-dependent approach in the face of heightened uncertainty.

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**Loose Labour Markets**
Wage growth across the US, UK and euro area continues to moderate, pointing to a gradual loosening in labour market conditions. The sharp post-pandemic surge in wage pressures—particularly pronounced in the US—has clearly faded, with all three regions now on a downward trajectory. This matters in the current context: while the oil shock is pushing headline inflation higher and complicating the near-term outlook, easing wage dynamics reduce the risk of persistent second-round effects. In turn, this lessens the urgency for central banks to respond aggressively with tighter policy. The result is a more nuanced policy backdrop—one where energy-driven inflation pressures are rising, but underlying domestic cost pressures are moving in the opposite direction.

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**Headline Inflation in Advanced Economies**
Despite the recent energy shock, broader inflation dynamics across advanced economies remain relatively well behaved. The euro area HICP flash estimate rose from 1.9% in February to 2.5% in March, driven largely by higher energy prices. However, core inflation edged down to 2.3% from 2.4%, suggesting that pass-through into underlying price pressures remains limited for now. More generally, inflation across many advanced economies continues to hover close to central bank targets—a marked contrast to the peaks seen in 2022. While higher oil prices will almost certainly continue to lift headline inflation in the near term, and the risk is clearly tilted toward further upside, the broader picture for now remains one of relatively contained underlying pressures. This suggests the current shock is more likely to complicate the disinflation process—potentially slowing or interrupting it—rather than decisively reversing it, though the balance of risks has become less favourable.

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Amid tentative signs of de-escalation from the US administration over the past 48 hours—including suggestions that the conflict with Iran could conclude relatively quickly—financial markets have begun to retrace some of last week’s sharp repricing of Middle East risk. Oil prices have come off their highs, while equities and bonds have rallied as risk premia ease. That said, the earlier phase of the week saw a decisive adjustment: oil surged, front-end yields moved higher, and uncertainty rose as investors grappled with the implications of disrupted energy flows. Even now, the overall adjustment has been uneven—volatility has picked up, but not to levels typically associated with sustained geopolitical stress—raising questions about how fully markets are internalising both the risks and the rapidly shifting outlook. Our charts this week capture these cross-currents. Tanker rates have spiked as shipping routes are disrupted and capacity tightens (chart 1), while PMI delivery times point to early signs of supply chain strain feeding into the real economy (chart 2). At the same time, the divergence between elevated policy uncertainty and relatively contained market volatility suggests there could have been a degree of complacency (chart 3). The rise in oil prices is already feeding into higher short-term yields, though this is being tempered by cooling labour markets, anchored inflation expectations and more cautious central bank signalling (charts 4 and 5). Meanwhile, euro area flash CPI has picked up, but core inflation remains relatively benign, suggesting underlying price pressures are still contained for now (chart 6).

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