Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121a.jpg" width="353">
The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading of 25.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Lower readings for new orders and shipments were notable, both falling to the lowest levels in over a year. Conversely, the index for the number of employees improved moderately to the highest level since September.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months also fell sharply to the lowest level since March 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121b.jpg" width="353">
The prices paid index more than reversed the prior month&#39;s decline and rose to the highest level since 1980. During the last ten years there has been a 74% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 47% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0105.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>13.2</td>
<td>25.4</td>
<td>35.5</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>66.1</td>
<td>53.8</td>
<td>36.9</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
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The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading [...]

Philadelphia Fed Activity Index Fell Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121a.jpg" width="353">
The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading of 25.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Lower readings for new orders and shipments were notable, both falling to the lowest levels in over a year. Conversely, the index for the number of employees improved moderately to the highest level since September.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months also fell sharply to the lowest level since March 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121b.jpg" width="353">
The prices paid index more than reversed the prior month&#39;s decline and rose to the highest level since 1980. During the last ten years there has been a 74% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 47% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0105.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>13.2</td>
<td>25.4</td>
<td>35.5</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>66.1</td>
<td>53.8</td>
<td>36.9</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
Lower Expectations Dropped U.S. Consumer Sentiment in January 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in January fell to 95.8 versus Consensus expectations for little change m/m at 97.5. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations slumped 5.0% m/m and reversed nearly all of a 6.7% jump in December. The decline in expectations was to the lowest level since last May.
The reading of current conditions improved for the fourth consecutive month to the highest level since late 2000. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment.
Sentiment amongst families earning less than $50,000 per year reversed most of the surge in December (+5.3% y/y. Consumer sentiment amongst families earning more than $50,000 per year rose moderately (-8.9% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
This 2003 article from the Federal Reserve Bank of Richmond examines &quot;<a href="http://www.rich.frb.org/pubs/economic_quarterly/pdfs/fall2003/mehra.pdf">Why Does Consumer Sentiment Predict Household Spending?</a>&quot;

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>95.8</td>
<td>97.1</td>
<td>-7.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>106.7</td>
<td>0.8%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>86.4</td>
<td>90.0</td>
<td>-13.7%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
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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/050120e.jpg" width="353">
UK businesses experienced less widespread gains in domestic (or &quot;home&quot;) sales in Q4 than earlier in 2004, according to the quarterly survey of the British Chambers of Commerce (&quot;BCC&quot;). The UK economy experienced good growth from the middle of 2003 to the middle of 2004, but this survey hints that some slowing may be in process.
Manufacturers&#39; sales conditions stood at +16 in Q4, down from +20 in Q3 and below the year&#39;s average of +19. These data are percent balance figures, the percentage of firms reporting sales gains less the percentage with sales declines. Manufacturers also report weaker employment, down at only +3 in Q4. However, several items in the survey showed more strength, export sales in particular, which picked up to +20 from +12. Profitability expectations also firmed, although these tend to be steadier and more optimistic than other survey items. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120d.jpg" width="353">
The service sector -- almost five times larger than manufacturing in terms of value added -- saw roughly the same pattern of activity. Domestic sales gains edged down from +30 to +29 in the quarter and orders eased from +23 to +21. However, employment in that sector looks better, advancing from +18 to +20. Export sales and orders both firmed, and profit expectations gained 6 percentage points. These last, however, remain lower than earlier in 2004.
This is an interesting survey, including a number of descriptive items: among others, employment expectations as well as current levels of employment and the characteristics of recruitment that follow from those expectations. Further, as noted in the two graphs here, the domestic sales measures in both the manufacturing and service sectors correspond well to year-on-year growth patterns in the national accounts &quot;value added&quot; data, with the highest correlations for a one-quarter lead-time in the BCC series. In manufacturing the correlation ratio is 73% and in services it is 83%. Thus, these survey results would bear consideration by business planners and government policymakers alike. Obviously, the high correlation ratios don&#39;t guarantee a specific outturn in value-added growth, but they do suggest that continued slowing in UK growth must be deemed a reasonable contingency.

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<th scope="col" class="firstcol">% Balance</th>
<th scope="col">Q4 2004</th>
<th scope="col">Q3 2004</th>
<th scope="col">Q2 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
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<td colspan="7">Manufacturing</td>
</tr>
<tr>
<td class="firstcol">&quot;Home&quot; Sales</td>
<td>16</td>
<td>20</td>
<td>21</td>
<td>19</td>
<td>7</td>
<td>14</td>
</tr>
<tr class="odd">
<td class="firstcol">Export Sales</td>
<td>20</td>
<td>12</td>
<td>15</td>
<td>17</td>
<td>4</td>
<td>6</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>3</td>
<td>19</td>
<td>10</td>
<td>12</td>
<td>-3</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">Profitability Confidence</td>
<td>35</td>
<td>24</td>
<td>35</td>
<td>33</td>
<td>32</td>
<td>33</td>
</tr>
<tr>
<td colspan="7">Services</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Home&quot; Sales</td>
<td>29</td>
<td>30</td>
<td>38</td>
<td>32</td>
<td>21</td>
<td>24</td>
</tr>
<tr>
<td class="firstcol">Export Sales</td>
<td>17</td>
<td>13</td>
<td>11</td>
<td>12</td>
<td>1</td>
<td>5</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>21</td>
<td>18</td>
<td>20</td>
<td>19</td>
<td>9</td>
<td>13</td>
</tr>
<tr>
<td class="firstcol">Profitability Confidence</td>
<td>41</td>
<td>35</td>
<td>47</td>
<td>43</td>
<td>37</td>
<td>41</td>
</tr>
</tbody>
</table>
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UK businesses experienced less widespread gains in domestic (or "home") sales in Q4 than earlier in 2004, according to the quarterly survey of the British Chambers of Commerce ("BCC"). The UK economy experienced good growth from the [...]

UK's BCC Survey for Q4 Points to Slower Growth

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<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120c.jpg" width="353">
The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January.
Through December, the price of gasoline relative to the nonenergy Consumer Price Index had fallen 5.6% from the high in October. The relative gasoline price also was down nearly one third from the high averaged during 1981. However, the 58% increase in the &quot;real&quot; price of gasoline during the last three years rivals the increase into early 1981.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120b.jpg" width="353">
The price of oil also firmed with the price of West Texas Intermediate crude last week rising to $48.39 from the lows below $42 last month. This week, crude oil prices have firmed another dollar.
Wholesale natural gas prices have moderated some. At $6.02/mmbtu last week, natural gas prices were down from last year&#39;s weekly highs over $7.00 but remained up from year ago levels.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Hard &quot;Core&quot; Inflation from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050201/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">01/17/05</th>
<th scope="col">12/31/04</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>
<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$1.82</td>
<td>$1.79</td>
<td>14.0%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$48.39</td>
<td>$41.78</td>
<td>35.2%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
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The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January. Through December, the price of gasoline relative to the nonenergy Consumer Price Index [...]

Gasoline Prices Firmer

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120a.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during 2004.
Six-month growth in the leaders stabilized at -1.4%. Six month growth in the leaders deeper than -2.5% preceded past US recessions.
The breadth of one month gain amongst the 10 components of the leading index narrowed to 45% from a widened 70% in November. However, the six month breadth improved to 60%, the best since May. The largest positive contributions were made in December by consumer expectations, stock prices and the money supply.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
A longer leading indicator, the ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess rose again to a record high.
The coincident indicators rose 0.3% after an upwardly revised gain in November. The six-month growth rate rose to 0.5%. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
The latest Beige Book covering regional economic activity from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20050119/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-1.4%</td>
<td>2.8%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>-1.0%</td>
<td>-2.2%</td>
<td>-2.8%</td>
</tr>
</tbody>
</table>
</body>
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The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during [...]

Leading Indicators Rose Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120a.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during 2004.
Six-month growth in the leaders stabilized at -1.4%. Six month growth in the leaders deeper than -2.5% preceded past US recessions.
The breadth of one month gain amongst the 10 components of the leading index narrowed to 45% from a widened 70% in November. However, the six month breadth improved to 60%, the best since May. The largest positive contributions were made in December by consumer expectations, stock prices and the money supply.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
A longer leading indicator, the ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess rose again to a record high.
The coincident indicators rose 0.3% after an upwardly revised gain in November. The six-month growth rate rose to 0.5%. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
The latest Beige Book covering regional economic activity from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20050119/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-1.4%</td>
<td>2.8%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>-1.0%</td>
<td>-2.2%</td>
<td>-2.8%</td>
</tr>
</tbody>
</table>
Gasoline Prices Firmer 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 20, 2005


<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120c.jpg" width="353">
The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January.
Through December, the price of gasoline relative to the nonenergy Consumer Price Index had fallen 5.6% from the high in October. The relative gasoline price also was down nearly one third from the high averaged during 1981. However, the 58% increase in the &quot;real&quot; price of gasoline during the last three years rivals the increase into early 1981.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120b.jpg" width="353">
The price of oil also firmed with the price of West Texas Intermediate crude last week rising to $48.39 from the lows below $42 last month. This week, crude oil prices have firmed another dollar.
Wholesale natural gas prices have moderated some. At $6.02/mmbtu last week, natural gas prices were down from last year&#39;s weekly highs over $7.00 but remained up from year ago levels.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Hard &quot;Core&quot; Inflation from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050201/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">01/17/05</th>
<th scope="col">12/31/04</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>
<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$1.82</td>
<td>$1.79</td>
<td>14.0%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$48.39</td>
<td>$41.78</td>
<td>35.2%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050119g.jpg" width="353">
Net purchases of securities by foreign investors in US markets surged to $81 billion in November, the largest in five months, and well above October&#39;s $48.3 billion. These increasingly prominent data are from the US Treasury&#39;s monthly Treasury International Capital (&quot;TIC&quot;) tabulation and were released yesterday. They are contained in Haver&#39;s USINT database in the section &quot;US International Investment Tables&quot;, shown by security type and country. They cover purchases and sales of securities with maturities longer than one year.
Foreign investors increased their net buying of every major type of domestic securities in November and reduced their liquidation of foreign bonds sold in US markets. The only sector where their net sales increased was foreign stocks traded in the US. Among countries, investors in several major regions increased their participation in US markets. Japanese net purchases were $19.8 billion, up from $4.8 billion in October. Chinese investors increased their purchases, mainly of Treasuries, to $13.9 billion from $6.4 billion the month before. UK investors bought on net $29.8 billion, heavily in equities.
These securities purchases have over long spans of time been highly correlated -- negatively -- with the current account balance. As seen in the graph, over the past 25 years, this correlation has stood at a substantial 95%! In one sense this is almost tautological: balance of payments accounting means a rising current account deficit must be accompanied by increasing foreign investment. But there are several other types of financial participation not covered by the TIC report: all short-term securities, bank loans, trade credit, direct investment and so on. So there are plenty of other ways to &quot;finance&quot; the current account. At the same time, some observers believe that a rising current account deficit is itself so indicative of fundamental imbalances in a country&#39;s economy, that it should discourage foreign participation in that nation&#39;s capital markets. There is some slight evidence that this might have occurred in 2004 as foreign securities purchases look to have interrupted their seemingly ever-expanding trend. However, as noted in the tight correlation ratio cited above, past performance suggests the current account per se has not bothered them before. Instead, they perhaps are asking the same kinds of questions that domestic investors ask: how will the US economy respond to the surge in energy prices? how is confidence impacted by the war in Iraq? are US consumers carrying too much debt? Before the election, uncertainty was even greater, and these November figures do indicate that once that question was answered, foreign investors resumed more vigorous activity in US financial markets. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$)</th>
<th scope="col">Nov 2004</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Last 12 Months Average </th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>81.0</td>
<td>48.3</td>
<td>61.1</td>
<td>69.0</td>
<td>57.0</td>
<td>47.9</td>
<td>41.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Treasuries</td>
<td>32.0</td>
<td>20.9</td>
<td>16.6</td>
<td>31.3</td>
<td>22.8</td>
<td>10.0</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;)</td>
<td>27.9</td>
<td>21.9</td>
<td>8.4</td>
<td>18.5</td>
<td>13.8</td>
<td>16.3</td>
<td>13.7</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds</td>
<td>25.3</td>
<td>19.1</td>
<td>43.6</td>
<td>23.4</td>
<td>22.4</td>
<td>15.2</td>
<td>18.5</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks</td>
<td>14.5</td>
<td>3.5</td>
<td>-2.9</td>
<td>2.7</td>
<td>3.2</td>
<td>4.2</td>
<td>9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds</td>
<td>-2.6</td>
<td>-4.5</td>
<td>-0.8</td>
<td>0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks</td>
<td>-16.1</td>
<td>-12.6</td>
<td>-3.8</td>
<td>-7.6</td>
<td>-6.9</td>
<td>-0.1</td>
<td>-4.2</td>
</tr>
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Net purchases of securities by foreign investors in US markets surged to $81 billion in November, the largest in five months, and well above October's $48.3 billion. These increasingly prominent data are from the US Treasury's monthly [...]

Net Foreign Purchases of Securities in US Market Up Sharply in November

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050119f.jpg" width="353">
Mortgage applications rebounded 16.2% last week following three weeks of decline according to the Mortgage Bankers Association (MBA) Survey.
Refi&#39;s led the gain with a 19.1% rise and so far this year are 2.4% higher than in December.
Purchase applications also rose 14.0% w/w. Nevertheless, the level of purchase applications were 10.6% below the December average which fell 0.3% from November. During the last ten years there has been a 59% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-year mortgage slipped to 5.89% versus an average 6.05% during 2004 and 5.95% in December. The effective rate on a 15-year mortgage also fell to 5.44% last week.
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">01/14/05</th>
<th scope="col">01/07/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>682.9</td>
<td>587.8</td>
<td>-25.5%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>448.1</td>
<td>393.1</td>
<td>-10.7%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,048.6</td>
<td>1,720.5</td>
<td>-38.4%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
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Mortgage applications rebounded 16.2% last week following three weeks of decline according to the Mortgage Bankers Association (MBA) Survey. Refi's led the gain with a 19.1% rise and so far this year are 2.4% higher than in December. [...]

Mortgage Applications Rebound

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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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.

260401Z2.jpg

**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.

260401Z3.jpg

**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.

260401Z4.jpg

**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.

260401Z5.jpg

**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.

260401Z6.jpg

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).

Charts of the Week: Strait Stress

Sandy Batten

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Total retail sales rebounded in February, rising a larger-than-expected 0.6% m/m (+3.7% y/y) following an upwardly revised 0.1% monthly decline in January (previously -0.2% m/m), according to data from the U.S. Census Bureau. The Action Economics Forecast Survey expected a 0.4% monthly increase. Excluding autos, other sales were up 0.5% m/m (+3.6% y/y), the first monthly increase in three months. The Action Economics Forecast Survey looked for a 0.3% m/m increase.

The control group of sales (those categories that the BEA uses to construct PCE in the national accounts) increased 0.5% m/m in February following a 0.2% increase in January. The January/February average for this variable is 2.1% annualized above the Q4 average. In Q4, the control group rose 2.8% saar from Q3. So, today’s figures point to a slight slowdown in PCE growth in the first quarter. Note, however, that the data released today predates the escalation of the conflict between the US/Israel and Iran which has led to a marked rise in gasoline/energy prices. The increase in energy prices to date, if maintained, could stress household finances and thereby significantly slow consumer spending ahead.

Sales of motor vehicles and parts jumped 1.2% m/m in February, their first monthly gain in three months and their largest monthly increase since last July. Furniture sales declined 1.0% m/m in February while sales of electronics and appliances rose 0.5% m/m. Sales of building materials increased 0.4% m/m, their fourth consecutive monthly gain. Sales at health and personal care stores jumped 2.3% m/m, their first monthly gain in five months. Sales at gasoline stations rose 0.9% m/m in February, their third monthly gain in the past four months, ahead of the sharp price increases that occurred in March. Clothing store sales jumped 2.0% m/m, their first monthly increase in three months. Department store sales gained 3.0% m/m, their first monthly increase in four months. Food sales slumped 1.0% m/m in February, their first monthly decline in three months. Sales of nonstore retailers increased 0.7% m/m in February on top of a 1.4% m/m jump in January. Eating out sales rose 0.4% m/m, their first monthly gain in three months.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total sales increased 0.6% m/m after a 0.1% m/m decline in January
- Excluding autos, sales increase 0.5% m/m in February after having been unchanged in January.
- Sales of the retail control group that is used to construct PCE rose 0.5% m/m in February.

U.S. Retail Sales Rebounded in February

Winnie Tapasanun

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U.S. nonfarm private sector payrolls rose a larger-than-expected 62,000 (0.3% y/y) in March after increases of 66,000 in February (+63,000 initially) and 11,000 in January (unrevised), according to the ADP National Employment Report. The three-month average change was +46,000 in March, up from +38,000 in February and +41,000 in January. The Action Economics Forecast Survey expected a 40,000 increase in March.

Small business hiring (less than 50 employees) climbed a solid 85,000 (0.7% y/y) in March—the ninth straight m/m increase and the largest since August—after a 61,000 gain in February (+60,000 initially), with employment in very small firms (1-19 employees) surging 112,000, the strongest m/m rise since February 2024, and employment in small firms (20-49 employees) down 27,000. Employment at medium-sized firms (50-499 employees) fell 20,000 (-0.4% y/y) in March following a 6,000 decline in February (-7,000 initially) and two consecutive m/m increases. Large business hiring (500+ employees) slipped 4,000 (+1.0% y/y) after an 11,000 February rebound (+10,000 initially).

Service-producing jobs rose 32,000 (0.5% y/y) in March, the 10th straight m/m gain, on top of a 50,000 advance in February (+47,000 initially). March’s rise was led by education & health services (+58,000), followed by information (+16,000), leisure & hospitality (+7,000), financial activities (+4,000), other services (+4,000), and professional & business services (+1,000). To the downside, m/m employment fell in trade, transportation & utilities (-58,000).

Goods-producing employment advanced 30,000 (-0.4% y/y) in March, the biggest m/m increase since October 2022, after a 16,000 rise in February (unrevised). March’s gain was led by construction (+30,000) and natural resources & mining (+11,000), while manufacturing (-11,000) continued to decline.

By region, nonfarm private payroll employment rose m/m in March in the South (+101,000; +0.5% y/y) and West (+16,000; +0.4% y/y). In contrast, employment fell m/m in the Northeast (-29,000; +0.4% y/y) and Midwest (-26,000; -0.1% y/y).

Wage growth for job changers accelerated to a three-month-high 6.6% y/y in March from 6.3% y/y in February, remaining well below a high of 16.1% in April 2022. Wage growth for job stayers held steady at 4.5% y/y for the third consecutive month in March, holding in a narrow 4.4%-4.5% range since April 2025. Pay growth also remained steady in major industries, including financial activities (5.2% y/y), manufacturing (4.9% y/y), construction (4.7% y/y), leisure & hospitality (4.6% y/y), education & health services (4.3% y/y), and professional & business services (4.3% y/y).

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

260401L35.jpg

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- Private payrolls +62K in March, ninth straight m/m gain.
- Hiring increase driven by small businesses (+85K), strongest since August.
- Service-sector jobs up (+32K), led by education & health svs. (+58K) and information (+16K), partly offset by trade, transp. & utilities (-58K).
- Goods-producing jobs up (+30K), driven by construction (+30K).
- Wage growth accelerates y/y for job changers (6.6%, a three-month high) but steady for job stayers (4.5%).

U.S. ADP Private Employment Growth in March Above Forecasts

Kathleen Stephansen, CBE

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Mortgage applications dropped 10.4% w/w (+14.2% y/y) in the week ending March 27, after declining 10.5% w/w (+25.5% y/y) in the week ending March 20, and by 10.9% w/w in the week ending March 13, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house declined 2.6% w/w (+0.8% y/y) in the latest week, after dropping 5.4% w/w (+5.0% y/y) in the week ending March 20.  Applications for loan refinancing plunged 17.3% w/w (+33.2% y/y) in the March 27 week, following a drop of 14.6% w/w (+52.2% y/y) in the week ending March 20, and a decline of 18.5% w/w in the week ending March 13.

The effective interest rate on a 30-year fixed-rate loan rose 14bps to 6.76% in the week ending March 27 from 6.62% in the week ending March 20. The rate on the 30-year fixed-rate loan has risen 52bps since the February 27 week. The rate on 15-year fixed-rate mortgages rose 5bps to 6.08% in the latest week from 6.03% in the prior week. The 30-year Jumbo rate rose 10bps to 6.71% in the March 27 week from 6.61% in the week ending March 20. The rate on a 5-year ARM dropped 12bps to 5.88% in the latest week from 6.00% in the week ending March 20.

The share of applications for refinancing an existing loan dropped to 45.3% of total applications in the week of March 27 from 49.6% in the March 20 week. The adjustable-rate mortgage (ARM) share of activity eased to 8.0% in the week ending March 27 from 8.1% in the week ending March 20.

The average size of a mortgage loan declined 1.3% w/w (-1.9% y/y) to $389,200 in the week ending March 27, after declining 2.4% w/w (-0.9% y/y) to $394,500 in the week ending March 20. The average size of a purchase loan edged down 0.8% w/w (+0.4% y/y) to $449,400 in the latest week, after declining 0.5% w/w (+2.3% y/y) to $453,200 in the March 20 week. The average size of a loan to refinance a mortgage declined 5.5% w/w (+0.3% y/y) to $316,600 in the March 27 week following a drop of 6.3% w/w (+1.0% y/y) to $334,900 in the March 20 week. Since the week of February 27, the average size of a loan to refinance a mortgage has declined 21.8%.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Both applications for loans to purchase and for loan refinancing dropped in the latest week.
- Interest rate on 30-year fixed-rate loans rose 14bps to 6.76% 
- Average loan size declined.

U.S. Mortgage Applications Dropped in the March 27 Week

Robert Brusca

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The unemployment rate in the European monetary union picked up to 6.2% in February from 6.1% in January, when it had declined from 6.2% in December. The 6.1% reading is the all-time low, so at 6.2% the unemployment rate remains extremely low in the monetary union.

The number of unemployed in February rose by about 1% in both the EU and the monetary union; however, over broader spans of three months, six months, and 12 months, the number of unemployed is still falling.

February is a low month for the number of reporters on the table showing a decline in the unemployment rate. Among the 12 member reporters listed in the table, only Spain had a lower unemployment rate in February than in January, and Spain continues to show declines in unemployment as it also saw its unemployment rate drop in January and December, as well as on balance over three months, six months, and 12 months. Spain is the only country in the monetary union showing this kind of ongoing progress in reducing unemployment.

For the most part, unemployment rates seem to be stuck at relatively low levels among these 12 monetary union reporters. Four show net declines over 12 months, while six show declines over six months and four show declines over three months. Only three—Austria, Finland, and Luxembourg—report unemployment rates that rank above their respective medians, above a ranking of 50% on data back to 2000.

Although the EMU unemployment rate ticked up in February, it remains exceptionally low. Unemployment in Italy also ticked higher and has the exceptionally low ranking of 0.2%, having just moved up from its all-time low. Country-reported unemployment rates are in the bottom 10 percentile of their range over this period in Spain and Greece. You will remember these as the countries with the structurally highest unemployment rates typically in double digits prior to the formation of the European Union; now the Greek unemployment rate is 8.5% and the Spanish unemployment rate is 9.8%, and they are gradually folding into the community norms.

Despite the uptick in the unemployment rate, it's another excellent unemployment report for the monetary union, with unemployment rates below the medians up and down the line with few exceptions and with both countries brandishing unemployment rates that are substantially below their historic medians. Inflation rate in the monetary union remains broadly controlled, and the progress on the unemployment rate has been spectacular. Despite the other problems that the monetary union has encountered, these are true successes of the formation of the monetary union.

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