Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050505c.jpg" width="353">
Initial claims for unemployment insurance rose further last week. The 11,000 increase to 333,000 followed an upwardly revised gain of 23,000 the week prior. Consensus expectations had been for 325,000 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 nevertheless fell to 321,500 (-6.9% y/y).
Continuing claims for unemployment insurance gained back 38,000 of a deepened 80,000 drop the prior week.
The insured unemployment rate held at 2.0%.

<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">04/30/05</th>
<th scope="col">04/23/05</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>333</td>
<td>322</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>2,589</td>
<td>-11.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance rose further last week. The 11,000 increase to 333,000 followed an upwardly revised gain of 23,000 the week prior. Consensus expectations had been for 325,000 claims. During the last ten years [...]

Initial Unemployment Insurance Claims Higher Again

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In 1Q05, non-farm labor productivity rose 2.6% versus Consensus expectations for a 1.9% gain. The gain was the quickest in three quarters yet growth year to year slowed to 2.5% from its peak of 5.5% early last year.
The surprise stemmed from a slowdown in hours worked to 1.0% (1.4% y/y) versus 1.6% in 4Q and 2.8% growth in 3Q04. Output growth of 3.6% compared to 5.3% during all of 2004.
Unit labor costs accelerated to 2.2% versus annual growth of 0.4% last year. Compensation costs held steady at a strong 4.8% versus 4.5% growth during 2004.
A 2.9% rise in the implicit price deflator raised slightly the ratio of prices to unit labor costs, suggesting that profit margins remained firm.
Does Wage Inflation Cause Price Inflation? from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/PolicyDis/pd1.pdf"> here</a>. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050505a.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050505b.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;05</th>
<th scope="col">4Q &#39;04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>2.6%</td>
<td>2.1%</td>
<td>2.5%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>4.8%</td>
<td>3.8%</td>
<td>5.0%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.2%</td>
<td>1.7%</td>
<td>2.5%</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>-1.1%</td>
</tr>
</tbody>
</table>
</body>
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In 1Q05, non-farm labor productivity rose 2.6% versus Consensus expectations for a 1.9% gain. The gain was the quickest in three quarters yet growth year to year slowed to 2.5% from its peak of 5.5% early last year. The surprise [...]

U.S. Productivity Slightly Higher Than Expected

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In 1Q05, non-farm labor productivity rose 2.6% versus Consensus expectations for a 1.9% gain. The gain was the quickest in three quarters yet growth year to year slowed to 2.5% from its peak of 5.5% early last year.
The surprise stemmed from a slowdown in hours worked to 1.0% (1.4% y/y) versus 1.6% in 4Q and 2.8% growth in 3Q04. Output growth of 3.6% compared to 5.3% during all of 2004.
Unit labor costs accelerated to 2.2% versus annual growth of 0.4% last year. Compensation costs held steady at a strong 4.8% versus 4.5% growth during 2004.
A 2.9% rise in the implicit price deflator raised slightly the ratio of prices to unit labor costs, suggesting that profit margins remained firm.
Does Wage Inflation Cause Price Inflation? from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/PolicyDis/pd1.pdf"> here</a>. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050505a.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050505b.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;05</th>
<th scope="col">4Q &#39;04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>2.6%</td>
<td>2.1%</td>
<td>2.5%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>4.8%</td>
<td>3.8%</td>
<td>5.0%</td>
<td>4.5%</td>
<td>4.0%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.2%</td>
<td>1.7%</td>
<td>2.5%</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>-1.1%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Higher Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 5, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050505c.jpg" width="353">
Initial claims for unemployment insurance rose further last week. The 11,000 increase to 333,000 followed an upwardly revised gain of 23,000 the week prior. Consensus expectations had been for 325,000 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 nevertheless fell to 321,500 (-6.9% y/y).
Continuing claims for unemployment insurance gained back 38,000 of a deepened 80,000 drop the prior week.
The insured unemployment rate held at 2.0%.

<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">04/30/05</th>
<th scope="col">04/23/05</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>333</td>
<td>322</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>2,589</td>
<td>-11.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
Australian Trade Deficit Wider in March 
by <a href="/comment/Stone.html">Carol Stone</a> May 5, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050505e.jpg" width="353">
The Australian trade deficit widened distinctly in March. The A$2.7 billion gap, reported today by the Australian Bureau of Statistics, is the second largest monthly shortfall ever. In this latest month, both exports and imports moved adversely, with exports down 1.5% and imports up 3.3% from February.
At the same time, longer comparisons suggest that March&#39;s trade deficit widening, and the dip in exports in particular, is perhaps not representative of current trends. Exports, in fact, have expanded 12.4% over the past year, encompassing a 17.6% advance in &quot;non-rural goods&quot; shipments. These products appear quite vigorous, recovering markedly from a decline during 2003. Agricultural items, in contrast, have undergone extraordinarily wide cycles in the last several years, and have become less reliable as a prop to the Australian economy.
Imports, as in many countries, are being impacted by the rising cost of energy products, reflected here in the &quot;intermediate goods&quot; line item. Consumers continue to buy foreign products, while demand for capital goods from abroad is beginning to show signs of hesitation. This latter is notable, for, as seen in the second graph, imports of capital goods closely parallel the national accounts measure of investment in machinery and equipment. So the downturn in these imports in the opening months of 2005 may suggest slower investment demand in general in Australia.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050505d.jpg" width="353">

<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></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">Balance on Goods &amp; Services </td>
<td>-2,672</td>
<td>-2,238</td>
<td>-2,098</td>
<td>-25,434</td>
<td>-23,749</td>
<td>-10,325</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">Exports of Goods</td>
<td>10,151</td>
<td>10,302</td>
<td>8,870</td>
<td>118,427</td>
<td>108,321</td>
<td>119,478</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rural Goods</td>
<td>1,904</td>
<td>2,075</td>
<td>2,003</td>
<td>26,925</td>
<td>22,357</td>
<td>28,866</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-rural Goods</td>
<td>8,247</td>
<td>8,227</td>
<td>6,867</td>
<td>91,502</td>
<td>85,967</td>
<td>90,612</td>
</tr>
<tr>
<td class="firstcol">Imports of Goods</td>
<td>12,910</td>
<td>12,501</td>
<td>10,921</td>
<td>142,739</td>
<td>131,656</td>
<td>129,468</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>4,070</td>
<td>4,054</td>
<td>3,579</td>
<td>45,304</td>
<td>41,397</td>
<td>39,931</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>2,838</td>
<td>2,949</td>
<td>2,599</td>
<td>34,417</td>
<td>31,032</td>
<td>303,79</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate &amp; Other Goods</td>
<td>6,002</td>
<td>5,499</td>
<td>4,743</td>
<td>63,018</td>
<td>59,227</td>
<td>59,158</td>
</tr>
</tbody>
</table>
</body>
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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/050504e.jpg" width="353">
Business activity in European service industries maintained a stable rate of modest expansion in April, according to the purchasing manager surveys conducted by NTC Research and reported today by Reuters, Inc.
The overall services business activity index registered 52.76, off just slightly from March&#39;s 52.99. This index, a &quot;net balance&quot; indicator (% rising - % falling) has hovered around 53 for the last six months after slowing pretty consistently over the previous year. It had reached a peak of 57.5 in November 2003. Among the associated measures, new business and outstanding business both resemble the pattern in the &quot;business activity&quot; gauge, while employment has actually had a slight firming tendency over this general 18-month period.
An interesting facet of the European-wide information is an apparent worsening of profit margins. The index for prices charged narrowed by 1.9 points and fell below 50, showing that selling prices rose at fewer companies than they fell. But input prices increased on balance, from 57.72 to 57.98. This is not unusually high for this measure, but it does suggest that operating costs are exerting some pressure on these service producers. After five months of relative improvement in margins, in a single month this spread between selling prices and input prices lost some 45% of that improvement. The input prices, not surprisingly, are strongly influenced by import prices and other wholesale prices. In fact, correlation ratios between this services input price index and various price indicators, including the Euro-Zone import price index, producer price index and producer price index for energy, all run in a range of 80-90%. So rising energy prices as well as prices of other materials are weighing on service sector performance at the same time that these firms are unable to sustain rising selling prices to customers.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504f.jpg" width="353">
Among various countries, recent business activity performances have differed. As seen in the table below, Germany&#39;s business activity index fell by about half-a-point in April, while that in France rose more than 3 points. The Italian index was off 4.34 points and in fact, with a reading below 50, showed an outright contraction in its service sector.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PMI for Service Sector</th>
<th scope="col">April 2005</th>
<th scope="col">March 2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro-Zone*</td>
<td>52.76</td>
<td>52.99</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>51.32</td>
<td>51.80</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>57.69</td>
<td>55.44</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>48.35</td>
<td>52.69</td>
</tr>
</tbody>
</table>
</body>
</html>

Business activity in European service industries maintained a stable rate of modest expansion in April, according to the purchasing manager surveys conducted by NTC Research and reported today by Reuters, Inc. The overall services [...]

Euro-Zone Service Sector PMI Moves Narrowly in April, Maintaining Modest Growth

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504c.jpg" width="353">
Total mortgage applications ticked up 0.2% last week but the change left the average level in April down 0.9% from March and down a third from last year&#39;s peak level, according to the Mortgage Bankers Association.
Applications to purchase a home were about unchanged w/w. Still, the April average rose 2.7% from March which rose 6.1% from February. 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 ticked 0.4% higher and the average in April fell 5.5% from March which fell 16.1% from February.
The effective interest rate on a conventional 30-year mortgage fell to 5.98% from 6.01%, the lowest level since early March. The effective rate on a 15-year mortgage also fell to 5.62%.
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%">
<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">04/29/05</th>
<th scope="col">04/22/05</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>714.1</td>
<td>712.4</td>
<td>-8.6%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>482.5</td>
<td>482.0</td>
<td>0.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,061.2</td>
<td>2,052.5</td>
<td>-18.1%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Total mortgage applications ticked up 0.2% last week but the change left the average level in April down 0.9% from March and down a third from last year's peak level, according to the Mortgage Bankers Association. Applications to [...]

Mortgage Applications Lower Again in April

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504d.jpg" width="353">
The Institute for Supply Management reported that the April Business Activity Index for the non-manufacturing sector fell to 61.7 from 63.1 in March. The index had risen for two successive months but because of a sharp decline in January the average level so far this year of 61.0 is below the 2004 average. Consensus expectations had been for a reading of 61.0 in April.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders index dropped sharply to 58.8, its lowest in nearly two years, while the employment sub index also fell to the lowest level since January. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power fell again m/m to the lowest level in over a year.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</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">Business Activity Index</td>
<td>61.7</td>
<td>63.1</td>
<td>66.9</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>61.9</td>
<td>65.6</td>
<td>66.9</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>


</html>

The Institute for Supply Management reported that the April Business Activity Index for the non-manufacturing sector fell to 61.7 from 63.1 in March. The index had risen for two successive months but because of a sharp decline in [...]

ISM Non-Manufacturing Index Fell Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504a.jpg" width="353">
Sales of light vehicles in April managed to rise 3.7% versus March despite a meager 1.6% gain in sales of light trucks. According to Autodata Corporation total light vehicle sales rose to 17.46M.
Gasoline prices averaged a record $2.24 per gallon last month, up 25% versus a year earlier. In May, gasoline have backed off somewhat from last month&#39;s weekly high of $2.28 but the gain versus last year still is 21%.
The rise in sales of light trucks to 9.32M left the average of sales so far this year down 3.5% versus 9.06M during all of 2004. Sales of domestically made trucks rose 1.0% m/m (0.4% y/y) but sales of imported trucks jumped 5.6% (8.4% y/y).
Total auto sales rose 6.1% last month and the gain pulled the average level this year up 2.1% versus last.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504b.jpg" width="353">
Imports&#39; share of the US market for new vehicles rose to 20.6% in April and has averaged 20.2% this year versus 19.9% in 2004.

<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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>17.46</td>
<td>16.85</td>
<td>5.0%</td>
<td>16.88</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.14</td>
<td>7.68</td>
<td>9.6%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.32</td>
<td>9.17</td>
<td>1.4%</td>
<td>9.39</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
</body>
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Sales of light vehicles in April managed to rise 3.7% versus March despite a meager 1.6% gain in sales of light trucks. According to Autodata Corporation total light vehicle sales rose to 17.46M. Gasoline prices averaged a record [...]

U.S. Light Truck Sales Crimped by Higher Gasoline Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504a.jpg" width="353">
Sales of light vehicles in April managed to rise 3.7% versus March despite a meager 1.6% gain in sales of light trucks. According to Autodata Corporation total light vehicle sales rose to 17.46M.
Gasoline prices averaged a record $2.24 per gallon last month, up 25% versus a year earlier. In May, gasoline have backed off somewhat from last month&#39;s weekly high of $2.28 but the gain versus last year still is 21%.
The rise in sales of light trucks to 9.32M left the average of sales so far this year down 3.5% versus 9.06M during all of 2004. Sales of domestically made trucks rose 1.0% m/m (0.4% y/y) but sales of imported trucks jumped 5.6% (8.4% y/y).
Total auto sales rose 6.1% last month and the gain pulled the average level this year up 2.1% versus last.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504b.jpg" width="353">
Imports&#39; share of the US market for new vehicles rose to 20.6% in April and has averaged 20.2% this year versus 19.9% in 2004.

<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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>17.46</td>
<td>16.85</td>
<td>5.0%</td>
<td>16.88</td>
<td>16.63</td>
<td>16.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.14</td>
<td>7.68</td>
<td>9.6%</td>
<td>7.49</td>
<td>7.62</td>
<td>8.07</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.32</td>
<td>9.17</td>
<td>1.4%</td>
<td>9.39</td>
<td>9.01</td>
<td>8.74</td>
</tr>
</tbody>
</table>
ISM Non-Manufacturing Index Fell Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 4, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504d.jpg" width="353">
The Institute for Supply Management reported that the April Business Activity Index for the non-manufacturing sector fell to 61.7 from 63.1 in March. The index had risen for two successive months but because of a sharp decline in January the average level so far this year of 61.0 is below the 2004 average. Consensus expectations had been for a reading of 61.0 in April.
Since the series&#39; inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders index dropped sharply to 58.8, its lowest in nearly two years, while the employment sub index also fell to the lowest level since January. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power fell again m/m to the lowest level in over a year.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</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">Business Activity Index</td>
<td>61.7</td>
<td>63.1</td>
<td>66.9</td>
<td>62.4</td>
<td>58.2</td>
<td>55.1</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>61.9</td>
<td>65.6</td>
<td>66.9</td>
<td>69.0</td>
<td>56.8</td>
<td>54.0</td>
</tr>
</tbody>
</table>
Mortgage Applications Lower Again in April 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 4, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504c.jpg" width="353">
Total mortgage applications ticked up 0.2% last week but the change left the average level in April down 0.9% from March and down a third from last year&#39;s peak level, according to the Mortgage Bankers Association.
Applications to purchase a home were about unchanged w/w. Still, the April average rose 2.7% from March which rose 6.1% from February. 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 ticked 0.4% higher and the average in April fell 5.5% from March which fell 16.1% from February.
The effective interest rate on a conventional 30-year mortgage fell to 5.98% from 6.01%, the lowest level since early March. The effective rate on a 15-year mortgage also fell to 5.62%.
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%">
<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">04/29/05</th>
<th scope="col">04/22/05</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>714.1</td>
<td>712.4</td>
<td>-8.6%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>482.5</td>
<td>482.0</td>
<td>0.0%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,061.2</td>
<td>2,052.5</td>
<td>-18.1%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Euro-Zone Service Sector PMI Moves Narrowly in April, Maintaining Modest Growth 
by <a href="/comment/Stone.html">Carol Stone</a> May 4, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504e.jpg" width="353">
Business activity in European service industries maintained a stable rate of modest expansion in April, according to the purchasing manager surveys conducted by NTC Research and reported today by Reuters, Inc.
T he overall services business activity index registered 52.76, off just slightly from March&#39;s 52.99. This index, a &quot;net balance&quot; indicator (% rising - % falling) has hovered around 53 for the last six months after slowing pretty consistently over the previous year. It had reached a peak of 57.5 in November 2003. Among the associated measures, new business and outstanding business both resemble the pattern in the &quot;business activity&quot; gauge, while employment has actually had a slight firming tendency over this general 18-month period.
An interesting facet of the European-wide information is an apparent worsening of profit margins. The index for prices charged narrowed by 1.9 points and fell below 50, showing that selling prices rose at fewer companies than they fell. But input prices increased on balance, from 57.72 to 57.98. This is not unusually high for this measure, but it does suggest that operating costs are exerting some pressure on these service producers. After five months of relative improvement in margins, in a single month this spread between selling prices and input prices lost some 45% of that improvement. The input prices, not surprisingly, are strongly influenced by import prices and other wholesale prices. In fact, correlation ratios between this services input price index and various price indicators, including the Euro-Zone import price index, producer price index and producer price index for energy, all run in a range of 80-90%. So rising energy prices as well as prices of other materials are weighing on service sector performance at the same time that these firms are unable to sustain rising selling prices to customers.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050504f.jpg" width="353">
Among various countries, recent business activity performances have differed. As seen in the table below, Germany&#39;s business activity index fell by about half-a-point in April, while that in France rose more than 3 points. The Italian index was off 4.34 points and in fact, with a reading below 50, showed an outright contraction in its service sector.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PMI for Service Sector</th>
<th scope="col">April 2005</th>
<th scope="col">March 2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro-Zone*</td>
<td>52.76</td>
<td>52.99</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>51.32</td>
<td>51.80</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>57.69</td>
<td>55.44</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>48.35</td>
<td>52.69</td>
</tr>
</tbody>
</table>


</html>

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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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.

260402C5.jpg

260402D5.jpg

- 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

260402E.jpg

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).

Economy in Brief

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