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/050330d.jpg" width="353">
Back at the turn of the year, business prospects were looking up in Germany. December and January saw an improvement in the Ifo Business Climate Index to the highest values in almost a year; this was reflected in production, the assessment of demand and orders. However, February and March have reversed this encouraging pattern, with some gauges falling rather precipitously.
The Business Climate Index has slumped 2.4 points in the two months to 94.0 (2000=100), with the corresponding diffusion index retreating to -12.9% from -8.1% in January. The &quot;business situation&quot;, the measure of current conditions, fell to -18.2%, a 5-percentage-pointing deterioration since December. Expectations also decreased, reaching down to -7.4% in March from -1.5% in January. Orders are a source of the worsening outlook, led by the domestic sector.
Most industry groups have participated in the renewed downturn. Among better readings, food processing increased to -6.2% from -7.0%; construction rose 3 percentage points, but, at -39.8%, this move can hardly be seen as an indication of better health in that sector. Other basic industries saw relative deteriorations: March values were generally less positive or more negative.
We can guess that rising energy prices have contributed to the erosion in business conditions; producer prices for energy were up 8.2% in the year to February, compared with a drop of 0.7% in the comparable year-ago period. Total producer prices rose 4.2% from February 2004; they had been basically unchanged in the 12-months ended in February 2004. The euro, after a pause last spring and summer, has been rising again. By contrast, other exogenous forces seem fairly supportive: German stock prices are firm or rising, some quite notably; interest rates are low. Perhaps, with this financial backstop, the current downtick in the Ifo survey will turn out to be short-lived or at least quite moderate.

<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/GERMANY/GERMANY.HTM">Germany: Ifo Survey</a></th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 2005</th>
<th scope="col">Jan 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Climate Index, 2000=100</td>
<td>94.0</td>
<td>95.4</td>
<td>96.4</td>
<td>95.7</td>
<td>91.7</td>
<td>89.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Balance</td>
<td>-12.9</td>
<td>-10.0</td>
<td>-8.1</td>
<td>-9.6</td>
<td>-17.5</td>
<td>-22.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Situation</td>
<td>-18.2</td>
<td>-16.0</td>
<td>-14.4</td>
<td>-16.9</td>
<td>-27.9</td>
<td>-33.9</td>
</tr>
<tr>
<td class="firstcol">Business Expectations</td>
<td>-7.4</td>
<td>-3.9</td>
<td>-1.5</td>
<td>-1.8</td>
<td>-6.5</td>
<td>-9.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders on Hand, Manufacturing</td>
<td>-20.8</td>
<td>-19.0</td>
<td>-13.4</td>
<td>-21.1</td>
<td>-33.2</td>
<td>-35.2</td>
</tr>
<tr>
<td class="firstcol">Foreign Orders on Hand, Manufacturing</td>
<td>-13.5</td>
<td>-10.1</td>
<td>-11.2</td>
<td>-16.2</td>
<td>-28.2</td>
<td>-26.8</td>
</tr>
</tbody>
</table>
</body>
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Back at the turn of the year, business prospects were looking up in Germany. December and January saw an improvement in the Ifo Business Climate Index to the highest values in almost a year; this was reflected in production, the [...]

Marked Erosion in German Business Climate, March Ifo Survey Says

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330c.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications recovered 2.4% last week following the 9.4% drop during the prior period. The average level in March 4.8% below February.
Purchase applications rose 5.5% to the highest level of the year. Purchase applications in March are 6.2% higher than in February.
Applications to refinance added 2.0% to the 16.5% decline the prior week. The decline pulled the March average down 16.1% versus February.
The effective interest rate on a conventional 30-year mortgage rose further to 6.34% from 6.19% the prior week and from 5.85% averaged in February. The effective rate on a 15-year mortgage also rose to 5.96%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<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">03/25/05</th>
<th scope="col">03/18/05</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>674.3</td>
<td>658.8</td>
<td>-38.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>470.9</td>
<td>446.4</td>
<td>6.1%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,857.2</td>
<td>1,894.2</td>
<td>-61.8%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
</body>
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The Mortgage Bankers Association reported that mortgage applications recovered 2.4% last week following the 9.4% drop during the prior period. The average level in March 4.8% below February. Purchase applications rose 5.5% to the [...]

Mortgage Applications Up A Bit

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330b.jpg" width="353">
US real GDP growth in 4Q04 was unrevised at 3.8% (AR). The Consensus expectation had been for a slight upward revision to 4.0% growth.
Reported for the first time, total U.S. operating corporate profits surged 13.5% (12.4% y/y) and the gain was held back by no change in profits earned abroad. Domestic profits grew 16.2% (18.3% y/y) and reflected a 30.1% rebound in financial sector profits which were depressed by hurricanes in 3Q.
Profits earned in the nonfinancial corporate sector grew 10.3% (24.2% y/y), the strongest gain since 2Q03 and were aided by continued profit margin expansion. Labor costs per unit of output fell for the first time in over a year as productivity remained strong. Non-labor costs continued the decline in place for nearly three years. Pricing power improved and real gross value added (output) grew a strong 1.6% (5.3% y/y).
Domestic demand growth was unrevised at 4.5% as growth in business fixed investment in equipment &amp; software held firm at 18.4% (14.5% y/y). Consumer spending growth also held solid at 4.2% (3.8% y/y). Less computers real GDP grew 3.3% (3.8% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330a.jpg" width="353">
Price inflation was revised up slightly to 2.3%. The price index for domestic demand was revised higher to 2.9% (2.9% y/y) and continued to reflect a strong 5.3% (4.8% y/y) rise at the state &amp; local government level.
Perspectives on Monetary Policy and Central Banking from New York Federal Reserve Bank President Timothy F. Geithner can be found <a href="http://www.newyorkfed.org/newsevents/speeches/2005/gei050329.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;04 (Final)</th>
<th scope="col">4Q &#39;04 (Prelim.</th>
<th scope="col">3Q &#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">GDP</td>
<td>3.8%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.5%</td>
<td>0.6%</td>
<td>-1.0%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>3.4%</td>
<td>3.2%</td>
<td>5.0%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>3.1%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-1.4%</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.5%</td>
<td>4.5%</td>
<td>4.9%</td>
<td>4.2%</td>
<td>4.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

US real GDP growth in 4Q04 was unrevised at 3.8% (AR). The Consensus expectation had been for a slight upward revision to 4.0% growth. Reported for the first time, total U.S. operating corporate profits surged 13.5% (12.4% y/y) and [...]

US GDP Growth Unrevised, Corporate Profits Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330b.jpg" width="353">
US real GDP growth in 4Q04 was unrevised at 3.8% (AR). The Consensus expectation had been for a slight upward revision to 4.0% growth.
Reported for the first time, total U.S. operating corporate profits surged 13.5% (12.4% y/y) and the gain was held back by no change in profits earned abroad. Domestic profits grew 16.2% (18.3% y/y) and reflected a 30.1% rebound in financial sector profits which were depressed by hurricanes in 3Q.
Profits earned in the nonfinancial corporate sector grew 10.3% (24.2% y/y), the strongest gain since 2Q03 and were aided by continued profit margin expansion. Labor costs per unit of output fell for the first time in over a year as productivity remained strong. Non-labor costs continued the decline in place for nearly three years. Pricing power improved and real gross value added (output) grew a strong 1.6% (5.3% y/y).
Domestic demand growth was unrevised at 4.5% as growth in business fixed investment in equipment &amp; software held firm at 18.4% (14.5% y/y). Consumer spending growth also held solid at 4.2% (3.8% y/y). Less computers real GDP grew 3.3% (3.8% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330a.jpg" width="353">
Price inflation was revised up slightly to 2.3%. The price index for domestic demand was revised higher to 2.9% (2.9% y/y) and continued to reflect a strong 5.3% (4.8% y/y) rise at the state &amp; local government level.
Perspectives on Monetary Policy and Central Banking from New York Federal Reserve Bank President Timothy F. Geithner can be found <a href="http://www.newyorkfed.org/newsevents/speeches/2005/gei050329.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;04 (Final)</th>
<th scope="col">4Q &#39;04 (Prelim.</th>
<th scope="col">3Q &#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">GDP</td>
<td>3.8%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.5%</td>
<td>0.6%</td>
<td>-1.0%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>3.4%</td>
<td>3.2%</td>
<td>5.0%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>3.1%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-1.4%</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.5%</td>
<td>4.5%</td>
<td>4.9%</td>
<td>4.2%</td>
<td>4.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
Mortgage Applications Up A Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330c.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications recovered 2.4% last week following the 9.4% drop during the prior period. The average level in March 4.8% below February.
Purchase applications rose 5.5% to the highest level of the year. Purchase applications in March are 6.2% higher than in February.
Applications to refinance added 2.0% to the 16.5% decline the prior week. The decline pulled the March average down 16.1% versus February.
The effective interest rate on a conventional 30-year mortgage rose further to 6.34% from 6.19% the prior week and from 5.85% averaged in February. The effective rate on a 15-year mortgage also rose to 5.96%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<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">03/25/05</th>
<th scope="col">03/18/05</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>674.3</td>
<td>658.8</td>
<td>-38.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>470.9</td>
<td>446.4</td>
<td>6.1%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,857.2</td>
<td>1,894.2</td>
<td>-61.8%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Marked Erosion in German Business Climate, March Ifo Survey Says 
by <a href="/comment/Stone.html">Carol Stone</a> March 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330d.jpg" width="353">
Back at the turn of the year, business prospects were looking up in Germany. December and January saw an improvement in the Ifo Business Climate Index to the highest values in almost a year; this was reflected in production, the assessment of demand and orders. However, February and March have reversed this encouraging pattern, with some gauges falling rather precipitously.
The Business Climate Index has slumped 2.4 points in the two months to 94.0 (2000=100), with the corresponding diffusion index retreating to -12.9% from -8.1% in January. The &quot;business situation&quot;, the measure of current conditions, fell to -18.2%, a 5-percentage-pointing deterioration since December. Expectations also decreased, reaching down to -7.4% in March from -1.5% in January. Orders are a source of the worsening outlook, led by the domestic sector.
Most industry groups have participated in the renewed downturn. Among better readings, food processing increased to -6.2% from -7.0%; construction rose 3 percentage points, but, at -39.8%, this move can hardly be seen as an indication of better health in that sector. Other basic industries saw relative deteriorations: March values were generally less positive or more negative.
We can guess that rising energy prices have contributed to the erosion in business conditions; producer prices for energy were up 8.2% in the year to February, compared with a drop of 0.7% in the comparable year-ago period. Total producer prices rose 4.2% from February 2004; they had been basically unchanged in the 12-months ended in February 2004. The euro, after a pause last spring and summer, has been rising again. By contrast, other exogenous forces seem fairly supportive: German stock prices are firm or rising, some quite notably; interest rates are low. Perhaps, with this financial backstop, the current downtick in the Ifo survey will turn out to be short-lived or at least quite moderate.

<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/GERMANY/GERMANY.HTM">Germany: Ifo Survey</a></th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 2005</th>
<th scope="col">Jan 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Climate Index, 2000=100</td>
<td>94.0</td>
<td>95.4</td>
<td>96.4</td>
<td>95.7</td>
<td>91.7</td>
<td>89.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Balance</td>
<td>-12.9</td>
<td>-10.0</td>
<td>-8.1</td>
<td>-9.6</td>
<td>-17.5</td>
<td>-22.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Situation</td>
<td>-18.2</td>
<td>-16.0</td>
<td>-14.4</td>
<td>-16.9</td>
<td>-27.9</td>
<td>-33.9</td>
</tr>
<tr>
<td class="firstcol">Business Expectations</td>
<td>-7.4</td>
<td>-3.9</td>
<td>-1.5</td>
<td>-1.8</td>
<td>-6.5</td>
<td>-9.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders on Hand, Manufacturing</td>
<td>-20.8</td>
<td>-19.0</td>
<td>-13.4</td>
<td>-21.1</td>
<td>-33.2</td>
<td>-35.2</td>
</tr>
<tr>
<td class="firstcol">Foreign Orders on Hand, Manufacturing</td>
<td>-13.5</td>
<td>-10.1</td>
<td>-11.2</td>
<td>-16.2</td>
<td>-28.2</td>
<td>-26.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329d.jpg" width="353">
After strong economic data for Japan in January, the latest indicators are disappointing. Retail sales declined by almost 3% from January to February and were only 0.9% above February, 2004. Employment declined 0.4% in February and unemployment was up 2.7%, resulting in a 2 percentage point increase in the unemployment rate to 4.7%
In spite of lower employment, the average worker&#39;s household income increased by 4.5% in February and his disposable income was up 5%, suggesting an increase in wages. These data are, however, seasonally unadjusted. The seasonally adjusted index of worker&#39;s income actually shows a decline of 0.3%. Such a decline together with concern over employment prospects as a result of the rise in the unemployment rate may have been an important factor causing the average household to reduce living expenditures by almost 9% seasonally unadjusted or 4% seasonally adjusted in the month. The indexes of the worker household&#39;s expenditures and the broader retail sales series are shown in the attached chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Feb 05</th>
<th scope="col">Jan 05</th>
<th scope="col">Feb 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;%&nbsp;</th>
<th scope="col">&nbsp;2003%</th>
<th scope="col">&nbsp;2002%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (10,000)</td>
<td>6339</td>
<td>6357</td>
<td>6324</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.2</td>
<td>-0.2</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">Unemployment (10,000)</td>
<td>310</td>
<td>302</td>
<td>332</td>
<td>2.6</td>
<td>-6.6</td>
<td>-10.6</td>
<td>-2.4</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales (2000=1000</td>
<td>93.2</td>
<td>95.8</td>
<td>92.4</td>
<td>-2.7</td>
<td>0.9</td>
<td>-0.9</td>
<td>-1.7</td>
<td>-4.3</td>
</tr>
<tr>
<td class="firstcol">Worker&#39;s Household</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Income (1000 Yen)</td>
<td>469.9</td>
<td>119.7</td>
<td>472.8</td>
<td>4.5</td>
<td>-0.6</td>
<td>1.0</td>
<td>-2.6</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Income (2000=1000</td>
<td>95.6</td>
<td>95.9</td>
<td>96.3</td>
<td>-0.3</td>
<td>-0.7</td>
<td>1.3</td>
<td>-2.9</td>
<td>-2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Disposable Inc (1000 Yen)</td>
<td>400.1</td>
<td>381.1</td>
<td>403.9</td>
<td>5.0</td>
<td>-1.0</td>
<td>1.0</td>
<td>-2.7</td>
<td>-2.6</td>
</tr>
<tr>
<td class="firstcol">Living Expenditures (1000 Yen)</td>
<td>371.2</td>
<td>406.8</td>
<td>383.3</td>
<td>-8.7</td>
<td>-3.1</td>
<td>1.5</td>
<td>-1.6</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Living Expenditures(2000=100)</td>
<td>96.5</td>
<td>100.7</td>
<td>100.6</td>
<td>-4.2</td>
<td>-4.1</td>
<td>1.6</td>
<td>-1.5</td>
<td>-1.4</td>
</tr>
</tbody>
</table>
</body>
</html>

After strong economic data for Japan in January, the latest indicators are disappointing. Retail sales declined by almost 3% from January to February and were only 0.9% above February, 2004. Employment declined 0.4% in February and [...]

A Group of Disappointing Japanese Economic Indicators for February

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329c.jpg" width="353">
The March Index of Consumer Confidence published by the Conference Board fell 1.9% to 102.4 from an upwardly revised February level. Consensus expectations had been for a reading of 103.0 and the decline followed a 0.7% drop in February.
During the last twenty years there has been a 51% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.
The March index of consumer expectations fell for the third consecutive month (+2.6% y/y) following an 11.6% surge in December. The present situation index fell modestly (+37.0% y/y) after rising strongly in the prior four months.
Jobs were viewed as hard to get by 23.8% of survey participants, up slightly from the February low. Expectations for income in six months grew poorer as fewer respondents (16.7%) expected an increase and more expected a decrease (9.3%).
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<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/@EF14/@EF1401/@EF1401.HTM">Conference Board</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</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">Consumer Confidence</td>
<td>102.4</td>
<td>104.4</td>
<td>15.7%</td>
<td>96.1</td>
<td>79.8</td>
<td>96.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The March Index of Consumer Confidence published by the Conference Board fell 1.9% to 102.4 from an upwardly revised February level. Consensus expectations had been for a reading of 103.0 and the decline followed a 0.7% drop in [...]

Consumer Confidence Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329a.jpg" width="353">
Chain store sales fell 1.0% last week. Abundant rain, warm temperatures and, versus February, a 12% rise in gasoline prices to an average $2.15 per gallon may have caused the spending decline. The y/y gain in sales improved in part due to the early timing of Easter in 2005.
Consumers&#39; pause came after spending enough to lift the average of sales in March 1.1% ahead of February according to the International Council of Shopping Centers (ICSC)-UBS survey.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of nonauto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slipped 0.5% (-0.6% y/y) and gave back all of the moderate gains during the prior two weeks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329b.jpg" width="353">
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Consumer Sentiment, the Economy, and the News Media from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200451/200451abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/26/05</th>
<th scope="col">03/19/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>450.2</td>
<td>454.6</td>
<td>4.5%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales fell 1.0% last week. Abundant rain, warm temperatures and, versus February, a 12% rise in gasoline prices to an average $2.15 per gallon may have caused the spending decline. The y/y gain in sales improved in part [...]

Chain Store Sales Crimped By Higher Gas Prices & Inclement Weather

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329a.jpg" width="353">
Chain store sales fell 1.0% last week. Abundant rain, warm temperatures and, versus February, a 12% rise in gasoline prices to an average $2.15 per gallon may have caused the spending decline. The y/y gain in sales improved in part due to the early timing of Easter in 2005.
Consumers&#39; pause came after spending enough to lift the average of sales in March 1.1% ahead of February according to the International Council of Shopping Centers (ICSC)-UBS survey.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of nonauto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slipped 0.5% (-0.6% y/y) and gave back all of the moderate gains during the prior two weeks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329b.jpg" width="353">
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Consumer Sentiment, the Economy, and the News Media from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200451/200451abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/26/05</th>
<th scope="col">03/19/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>450.2</td>
<td>454.6</td>
<td>4.5%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Consumer Confidence Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329c.jpg" width="353">
The March Index of Consumer Confidence published by the Conference Board fell 1.9% to 102.4 from an upwardly revised February level. Consensus expectations had been for a reading of 103.0 and the decline followed a 0.7% drop in February.
During the last twenty years there has been a 51% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.
The March index of consumer expectations fell for the third consecutive month (+2.6% y/y) following an 11.6% surge in December. The present situation index fell modestly (+37.0% y/y) after rising strongly in the prior four months.
Jobs were viewed as hard to get by 23.8% of survey participants, up slightly from the February low. Expectations for income in six months grew poorer as fewer respondents (16.7%) expected an increase and more expected a decrease (9.3%).
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<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/@EF14/@EF1401/@EF1401.HTM">Conference Board</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</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">Consumer Confidence</td>
<td>102.4</td>
<td>104.4</td>
<td>15.7%</td>
<td>96.1</td>
<td>79.8</td>
<td>96.6</td>
</tr>
</tbody>
</table>
A Group of Disappointing Japanese Economic Indicators for February  
by <a href="/comment/Curley.html">Louise Curley</a> March 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329d.jpg" width="353">
After strong economic data for Japan in January, the latest indicators are disappointing. Retail sales declined by almost 3% from January to February and were only 0.9% above February, 2004. Employment declined 0.4% in February and unemployment was up 2.7%, resulting in a 2 percentage point increase in the unemployment rate to 4.7%
In spite of lower employment, the average worker&#39;s household income increased by 4.5% in February and his disposable income was up 5%, suggesting an increase in wages. These data are, however, seasonally unadjusted. The seasonally adjusted index of worker&#39;s income actually shows a decline of 0.3%. Such a decline together with concern over employment prospects as a result of the rise in the unemployment rate may have been an important factor causing the average household to reduce living expenditures by almost 9% seasonally unadjusted or 4% seasonally adjusted in the month. The indexes of the worker household&#39;s expenditures and the broader retail sales series are shown in the attached chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Feb 05</th>
<th scope="col">Jan 05</th>
<th scope="col">Feb 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;%&nbsp;</th>
<th scope="col">&nbsp;2003%</th>
<th scope="col">&nbsp;2002%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (10,000)</td>
<td>6339</td>
<td>6357</td>
<td>6324</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.2</td>
<td>-0.2</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">Unemployment (10,000)</td>
<td>310</td>
<td>302</td>
<td>332</td>
<td>2.6</td>
<td>-6.6</td>
<td>-10.6</td>
<td>-2.4</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales (2000=1000</td>
<td>93.2</td>
<td>95.8</td>
<td>92.4</td>
<td>-2.7</td>
<td>0.9</td>
<td>-0.9</td>
<td>-1.7</td>
<td>-4.3</td>
</tr>
<tr>
<td class="firstcol">Worker&#39;s Household</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Income (1000 Yen)</td>
<td>469.9</td>
<td>119.7</td>
<td>472.8</td>
<td>4.5</td>
<td>-0.6</td>
<td>1.0</td>
<td>-2.6</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Income (2000=1000</td>
<td>95.6</td>
<td>95.9</td>
<td>96.3</td>
<td>-0.3</td>
<td>-0.7</td>
<td>1.3</td>
<td>-2.9</td>
<td>-2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Disposable Inc (1000 Yen)</td>
<td>400.1</td>
<td>381.1</td>
<td>403.9</td>
<td>5.0</td>
<td>-1.0</td>
<td>1.0</td>
<td>-2.7</td>
<td>-2.6</td>
</tr>
<tr>
<td class="firstcol">Living Expenditures (1000 Yen)</td>
<td>371.2</td>
<td>406.8</td>
<td>383.3</td>
<td>-8.7</td>
<td>-3.1</td>
<td>1.5</td>
<td>-1.6</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Living Expenditures(2000=100)</td>
<td>96.5</td>
<td>100.7</td>
<td>100.6</td>
<td>-4.2</td>
<td>-4.1</td>
<td>1.6</td>
<td>-1.5</td>
<td>-1.4</td>
</tr>
</tbody>
</table>
</body>
</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

260403A.jpg

260403B.jpg

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

260403D.jpg

- The jump of 178,000 in payroll employment in March easily exceeded the expected gain of 51,000.
- Following a net gain in January and February, the employment setting seems to have brightened slightly.
- A dip in the unemployment rate continued the recent pattern of marginal changes.

Payroll Employment: Another Surprise in March, The Third Consecutive

Robert Brusca

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

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

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

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

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

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

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

France

French IP Waffles

Kathleen Stephansen, CBE

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

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

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

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

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

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).

Economy in Brief

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