Louise Curley

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050103e.jpg">
Real gross domestic product in India rose 4.6% in the third quarter of 2004. So far this year, real output has averaged 7.5% over the same period of 2003. 
The quarterly data on India&#39;s gross domestic product are available only by industry. Gross domestic product by expenditures is available only on a fiscal year basis. (India&#39;s fiscal year runs from April 1 to March 31.) 
Agriculture and forestry continue to play a larger role in the Indian economy than manufacturing, as shown in the first chart. In the third quarter, agriculture and forestry accounted for just over 20% of total output and manufacturing, for 17%. 
The fastest growing sectors are the two broad categories: (1) Finance, insurance, real estate and business services and (2) Trade, hotels, transportation and communications. <img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050103d.jpg">
In the second chart we show the sum of these two categories as &quot;Business Services&quot;. In the third quarter, &quot;Business Services&quot; amounted to almost 38% of GDP.
The tragic loss of life and devastation resulting from the tsunami has dimmed the short term outlook for the entire stricken area.

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<th scope="col" class="firstcol">Billions of FY &#39;93 Rupees</th>
<th scope="col">Q3 04</th>
<th scope="col">Q2 O4</th>
<th scope="col">Q3 04</th>
<th scope="col">Q/Q %</th>
<th scope="col">Y/Y %</th>
<th scope="col">% Chg 03&nbsp;&nbsp;</th>
<th scope="col">&nbsp;% Chg 02&nbsp;</th>
<th scope="col">&nbsp; % Chg 01&nbsp; &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gross Domestic Product</td>
<td>3836.43</td>
<td>3669.21</td>
<td>3597.89</td>
<td>4.56</td>
<td>6.63</td>
<td>7.00</td>
<td>4.76</td>
<td>4.47</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Agriculture &amp; Forestry</td>
<td>783.28</td>
<td>769.74</td>
<td>791.87</td>
<td>1.76</td>
<td>-1.08</td>
<td>4.55</td>
<td>-1.29</td>
<td>2.84</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>661.88</td>
<td>633.22</td>
<td>605.80</td>
<td>4.53</td>
<td>9.26</td>
<td>7.22</td>
<td>5.46</td>
<td>3.90&nbsp;&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Fin, Ins, Real Estate &amp; Bus&nbsp;&nbsp; Services</td>
<td>483.92</td>
<td>477.15</td>
<td>447.05</td>
<td>1.42</td>
<td>5.88</td>
<td>6.52</td>
<td>7.91</td>
<td>4.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trade, Hotels, Transport &amp; Communications.</td>
<td>962.96</td>
<td>919.85</td>
<td>862.96</td>
<td>4.69</td>
<td>11.62</td>
<td>9.58</td>
<td>7.57</td>
<td>7.40</td>
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Real gross domestic product in India rose 4.6% in the third quarter of 2004. So far this year, real output has averaged 7.5% over the same period of 2003. The quarterly data on India's gross domestic product are available only by [...]

India on a Strong Growth Trend before Tsunami Struck

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050103c.jpg" width="353">
The total value of construction put in place slipped 0.4% in November versus the Consensus expectation for a 0.5% rise.
Private residential building activity fell 0.6% due to a 0.7% (+10.7% y/y) decline in new single family building. This was the third consecutive monthly decline and building activity on single family homes is off 1.1% since the August peak.
Nonresidential building fell a sharp 1.2% due to a 2.1% decline in lodging (+38.0% y/y). Office building also fell sharply for the sixth month in seven (-4.8% y/y) but multi-retail building surged (26.6% y/y).
Public construction rose moderately though spending on highways &amp; streets, nearly one third of the value of public construction spending, fell 1.1% (-0.5% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4%</td>
<td>0.3%</td>
<td>6.9%</td>
<td>5.1%</td>
<td>1.5%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>7.8%</td>
<td>6.0%</td>
<td>-0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>10.0%</td>
<td>13.1%</td>
<td>8.4%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.2%</td>
<td>0.0%</td>
<td>2.5%</td>
<td>-7.1%</td>
<td>-12.8%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.4%</td>
<td>1.6%</td>
<td>4.3%</td>
<td>2.6%</td>
<td>7.0%</td>
<td>10.7%</td>
</tr>
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The total value of construction put in place slipped 0.4% in November versus the Consensus expectation for a 0.5% rise. Private residential building activity fell 0.6% due to a 0.7% (+10.7% y/y) decline in new single family building. [...]

U.S. Construction Spending Slipped in November

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050103a.jpg" width="353">
In line with the Consensus expectation, the Composite Index of activity in the manufacturing sector from the Institute of Supply Management rose last month to 58.6, the second month of gain after three months of decline.
During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The new orders component jumped to 67.4, its highest level since January and the inventories index rose as well. The separate index of export orders at 60.0 surged to the highest level since May but the imports index rose too.
Each of the other components fell with the employment index, at 52.7, off a sharp 4.9 points to the lowest level in over a year. During the last twenty years there has been a 69% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050103b.jpg" width="353">
The prices paid index slipped another two points and at 72.0 is down sixteen points from the high in April.
&quot;The US budget deficit. On an unsustainable path&quot; from the Brookings Institution is available <a href="http://www.brookings.edu/views/articles/20041201orszaggale.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;03</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 class="firstcol">Composite Index</td>
<td>58.6</td>
<td>57.8</td>
<td>63.4</td>
<td>60.5</td>
<td>53.3</td>
<td>52.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>67.4</td>
<td>61.5</td>
<td>73.1</td>
<td>&nbsp;63.5</td>
<td>58.1</td>
<td>56.6</td>
</tr>
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<td class="firstcol">Prices Paid Index (NSA)</td>
<td>72.0</td>
<td>74.0</td>
<td>66.0</td>
<td>79.8</td>
<td>59.6</td>
<td>57.6</td>
</tr>
</tbody>
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In line with the Consensus expectation, the Composite Index of activity in the manufacturing sector from the Institute of Supply Management rose last month to 58.6, the second month of gain after three months of decline. During the [...]

ISM Factory Index Nudged Up Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041231a.jpg" width="353">
Initial claims for unemployment insurance unexpectedly fell by 5,000 to 326,000 last week following a downwardly revised 15,000 rise the week prior. Consensus expectations had been for 335,000 claims.
The four week moving average of initial claims fell to 333,500 (-7.9% y/y).
During the last ten years there has been a (negative) 82% correlation between the level of initial claims and the y/y change in payroll employment.
Continuing claims for unemployment insurance jumped 29,000 but have drifted sideways for the last several weeks.
The insured rate of unemployment remained at 2.2%, where it&#39;s been since early October.
&quot;The Economy Gets Back on Track but Once Again Leaves Many Workers Behind&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2004/a/pages/econ_track.html"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/25/04</th>
<th scope="col">12/18/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>326</td>
<td>331</td>
<td>-6.6%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,755</td>
<td>-16.9%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
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Initial claims for unemployment insurance unexpectedly fell by 5,000 to 326,000 last week following a downwardly revised 15,000 rise the week prior. Consensus expectations had been for 335,000 claims. The four week moving average of [...]

Initial Claims For Jobless Insurance Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041231b.jpg" width="353">
The National Index of Help-Wanted Advertising published by the Conference Board fell to 36 in November, the bottom of the 36-40 range it has moved in since 2Q 2003.
During the last ten years there has been an 88% correlation between the level of help-wanted advertising and the year-to-year change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume dropped sharply to 37%, roughly half the prior month&#39;s strong reading.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;03</th>
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<td class="firstcol">National Help Wanted Index</td>
<td>36</td>
<td>37</td>
<td>38</td>
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The National Index of Help-Wanted Advertising published by the Conference Board fell to 36 in November, the bottom of the 36-40 range it has moved in since 2Q 2003. During the last ten years there has been an 88% correlation between [...]

Help-Wanted Advertising At Series' Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041231c.jpg" width="353">
The Chicago Purchasing Managers Business Barometer fell for the second consecutive month in December to 61.2, the lowest level since August. Consensus expectations had been for a decline to 62.3.
During the last ten years there has been a 73% correlation between the level of the Chicago Business Barometer and the three month change in factory sector industrial output. That correlation has risen to 86% during the last five years.
The employment index reversed all of the gains of the prior four months and fell 11.7 points to 49.1, the first month below 50 since July. During the last twenty years there has been an 80% correlation between the level of this employment index and the three month change in factory sector employment. The new orders index also fell to the lowest level since August and during the last two months is off 14.9 points.
The index of prices paid eased moderately to 84.4. During the last ten years there has been an 88% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec&nbsp;&#39;03</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 Barometer</td>
<td>61.2</td>
<td>65.2</td>
<td>61.2</td>
<td>62.9</td>
<td>54.7</td>
<td>52.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>64.5</td>
<td>70.0</td>
<td>66.1</td>
<td>67.1</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>84.4</td>
<td>89.8</td>
<td>57.3</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
</tr>
</tbody>
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The Chicago Purchasing Managers Business Barometer fell for the second consecutive month in December to 61.2, the lowest level since August. Consensus expectations had been for a decline to 62.3. During the last ten years there has [...]

Chicago Purchasing Agents' Index Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041231c.jpg" width="353">
The Chicago Purchasing Managers Business Barometer fell for the second consecutive month in December to 61.2, the lowest level since August. Consensus expectations had been for a decline to 62.3.
During the last ten years there has been a 73% correlation between the level of the Chicago Business Barometer and the three month change in factory sector industrial output. That correlation has risen to 86% during the last five years.
The employment index reversed all of the gains of the prior four months and fell 11.7 points to 49.1, the first month below 50 since July. During the last twenty years there has been an 80% correlation between the level of this employment index and the three month change in factory sector employment. The new orders index also fell to the lowest level since August and during the last two months is off 14.9 points.
The index of prices paid eased moderately to 84.4. During the last ten years there has been an 88% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec&nbsp;&#39;03</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 Barometer</td>
<td>61.2</td>
<td>65.2</td>
<td>61.2</td>
<td>62.9</td>
<td>54.7</td>
<td>52.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>64.5</td>
<td>70.0</td>
<td>66.1</td>
<td>67.1</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>84.4</td>
<td>89.8</td>
<td>57.3</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising At Series' Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 30, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041231b.jpg" width="353">
The National Index of Help-Wanted Advertising published by the Conference Board fell to 36 in November, the bottom of the 36-40 range it has moved in since 2Q 2003.
During the last ten years there has been an 88% correlation between the level of help-wanted advertising and the year-to-year change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume dropped sharply to 37%, roughly half the prior month&#39;s strong reading.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;03</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>36</td>
<td>37</td>
<td>38</td>
</tr>
</tbody>
</table>
Initial Claims For Jobless Insurance Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 30, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041231a.jpg" width="353">
Initial claims for unemployment insurance unexpectedly fell by 5,000 to 326,000 last week following a downwardly revised 15,000 rise the week prior. Consensus expectations had been for 335,000 claims.
The four week moving average of initial claims fell to 333,500 (-7.9% y/y).
During the last ten years there has been a (negative) 82% correlation between the level of initial claims and the y/y change in payroll employment.
Continuing claims for unemployment insurance jumped 29,000 but have drifted sideways for the last several weeks.
The insured rate of unemployment remained at 2.2%, where it&#39;s been since early October.
&quot;The Economy Gets Back on Track but Once Again Leaves Many Workers Behind&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2004/a/pages/econ_track.html"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/25/04</th>
<th scope="col">12/18/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>326</td>
<td>331</td>
<td>-6.6%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,755</td>
<td>-16.9%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041229a.jpg" width="353">
According to the Mortgage Bankers Association (MBA) Survey, total mortgage applications fell 1.7% last week to a level 39.4% below the peak in early March.
Purchase applications rose 2.7%, the first increase in three weeks. That pulled the average level in December 2.5% ahead of 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.
Applications to refinance mortgages fell 7.9% w/w. Refis have been falling erratically since the weekly peak during the Spring of 2003. Since then applications to refinance have fallen 82%.
The effective interest rate on a conventional 30-year mortgage rose slightly to 5.99% and so far in December has averaged 5.95% versus 5.97% in November and 6.53% during May. The effective rate on a 15-year mortgage also rose slightly to 5.45%.
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>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/24/04</th>
<th scope="col">12/17/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>677.4</td>
<td>689.3</td>
<td>18.0%</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>483.8</td>
<td>471.1</td>
<td>24.0%</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,803.9</td>
<td>1,958.2</td>
<td>9.7%</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
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According to the Mortgage Bankers Association (MBA) Survey, total mortgage applications fell 1.7% last week to a level 39.4% below the peak in early March. Purchase applications rose 2.7%, the first increase in three weeks. That [...]

Mortgage Applications Down

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.

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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.

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.

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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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