Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041221d.jpg" width="353">
After becoming more confident in each month from June through October, Italian consumers lost confidence in the last two months. Overall consumer confidence fell 0.38% in December after having fallen 1.61% in November.
At a level of 103.5 (1980=100) in December, consumer confidence was only 4.05% above the low reached in January and February of this year and was 17.66% below the peak of June 2001.
Consumers viewed their personal economic situation positively, on balance, but while they were positive about their current situation, they were pessimistic regarding their future situation.
One factor that may have affected the confidence of the Italian consumer is the slow growth in employment. Employment data for the third quarter, released yesterday, show that total employment declined 0.03% in the quarter and was only 0.76% above the level of the third quarter of 2003. The growth in employment and the level of consumer confidence are shown in the attached chart.

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<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">Consumer Confidence (1980=100)</th>
<th scope="col">Dec 04</th>
<th scope="col">Nov&nbsp;04</th>
<th scope="col">Dec 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">&nbsp;2004&nbsp;</th>
<th scope="col">&nbsp;2003&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2002&nbsp;</th>
<th scope="col">&nbsp; 2001&nbsp; &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Over all Indicator</td>
<td>103.5</td>
<td>103.9</td>
<td>104.9</td>
<td>-0.38</td>
<td>-1.32</td>
<td>101.5</td>
<td>106.2</td>
<td>115.8</td>
<td>122.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Gen. econ outlook</td>
<td>89.7</td>
<td>91.4</td>
<td>93.6</td>
<td>-1.86</td>
<td>-4.17</td>
<td>88.6</td>
<td>91.4</td>
<td>105.2</td>
<td>114.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Personal econ situation</td>
<td>109.9</td>
<td>109.4</td>
<td>110.0</td>
<td>0.46</td>
<td>-1.09</td>
<td>107.9</td>
<td>113.5</td>
<td>121.1</td>
<td>126.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current situation</td>
<td>102.1</td>
<td>101.4</td>
<td>103.3</td>
<td>0.69</td>
<td>-1.16</td>
<td>102.0</td>
<td>105.1</td>
<td>117.6</td>
<td>124.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Future situation</td>
<td>103.2</td>
<td>106.0</td>
<td>106.1</td>
<td>-2.17</td>
<td>-2.26</td>
<td>100.8</td>
<td>107.2</td>
<td>113.4</td>
<td>120.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Q3 04</td>
<td>Q2 O4</td>
<td>Q3 04</td>
<td>Q/Q %</td>
<td>Y/Y %</td>
<td>&nbsp;</td>
<td>&nbsp;2003&nbsp;&nbsp;</td>
<td>&nbsp;2002&nbsp;</td>
<td>&nbsp; 2001&nbsp; &nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment&nbsp; (Thousands)</td>
<td>22417</td>
<td>22424</td>
<td>22247</td>
<td>-0.03</td>
<td>0.76</td>
<td>&nbsp;</td>
<td>22231</td>
<td>21917</td>
<td>21632</td>
</tr>
</tbody>
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After becoming more confident in each month from June through October, Italian consumers lost confidence in the last two months. Overall consumer confidence fell 0.38% in December after having fallen 1.61% in November. At a level of [...]

Italian Consumers More Pessimistic in December

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041221c.jpg" width="353">
The November National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago fell to 0.12 from a downwardly revised 0.49 the prior month. The figure continues to suggest that the U.S. economy is expanding.
The decline lowered slightly the three-month moving average of the CFNAI to 0.13, the lowest level in a year. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_december2004.pdf"> here</a>.
The future was the topic at <a href="http://www.chicagofed.org/news_and_conferences/news/files/economic_outlook_news_release_2004.pdf"> this</a> Economic Outlook Symposium.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">CFNAI</td>
<td>0.12</td>
<td>0.49</td>
<td>0.85</td>
<td>-0.11</td>
<td>-0.40</td>
<td>-1.19</td>
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The November National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago fell to 0.12 from a downwardly revised 0.49 the prior month. The figure continues to suggest that the U.S. economy is expanding. The decline [...]

Chicago Fed Nat'l Activity Index Down: Above Trend Growth Still Suggested

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041221a.jpg" width="353">
Chain store sales rose another 1.6% last week and added to the 1.2% rise during the first full week of December, according to the International Council of Shopping Centers (ICSC)-UBS.
The average of sales so far in December is 1.2% below November although strength during the last two weeks nearly recouped all of the declines of the prior two periods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041221b.jpg" width="353">
Consumers&#39; spending budgets benefited from another decline in gasoline prices. Last week, the average pump price for regular unleaded fell 3.2 cents to $1.815 per gallon (+22.2% y/y). The U.S. Energy Information Administration indicated that gas prices are down 10.8% from the peak in late October.
The leading indicator of chain store sales from ICSC surged 1.2% in the latest period, the first gain in six weeks.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
During the last ten years there has been a 60% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/18/04</th>
<th scope="col">12/11/04</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">Total Weekly Chain Store Sales</td>
<td>437.9</td>
<td>430.9</td>
<td>3.5%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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Chain store sales rose another 1.6% last week and added to the 1.2% rise during the first full week of December, according to the International Council of Shopping Centers (ICSC)-UBS. The average of sales so far in December is 1.2% [...]

Chain Store Sales Helped by Lower Gasoline Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041221c.jpg" width="353">
The November National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago fell to 0.12 from a downwardly revised 0.49 the prior month. The figure continues to suggest that the U.S. economy is expanding.
The decline lowered slightly the three-month moving average of the CFNAI to 0.13, the lowest level in a year. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_december2004.pdf"> here</a>.
The future was the topic at <a href="http://www.chicagofed.org/news_and_conferences/news/files/economic_outlook_news_release_2004.pdf"> this</a> Economic Outlook Symposium.

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<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.12</td>
<td>0.49</td>
<td>0.85</td>
<td>-0.11</td>
<td>-0.40</td>
<td>-1.19</td>
</tr>
</tbody>
</table>
Chain Store Sales Helped by Lower Gasoline Prices 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 21, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041214a.jpg" width="353">
Chain store sales rose another 1.6% last week and added to the 1.2% rise during the first full week of December, according to the International Council of Shopping Centers (ICSC)-UBS.
The average of sales so far in December is 1.2% below November although strength during the last two weeks nearly recouped all of the declines of the prior two periods.
Consumers&#39; spending budgets benefited from another decline in gasoline prices. Last week, the average pump price for regular unleaded fell 3.2 cents to $1.815 per gallon (+22.2% y/y). The U.S. Energy Information Administration indicated that gas prices are down 10.8% from the peak in late October.
The leading indicator of chain store sales from ICSC surged 1.2% in the latest period, the first gain in six weeks.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
During the last ten years there has been a 60% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/18/04</th>
<th scope="col">12/11/04</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">Total Weekly Chain Store Sales</td>
<td>437.9</td>
<td>430.9</td>
<td>3.5%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041220b.jpg" width="353">
Brazil reported a deficit of $242.2 million on its current account in November. However, for the eleven months of the year, there is a $10,564 million surplus. For the year as a whole Brazil is likely to chalk up a record surplus. For the first eleven months of 2003, Brazil had a surplus of $3,669 million and a surplus of $4018 million for the whole year.
Typically, an emerging country like Brazil tends to have a deficit on current account as a result of the inflow of foreign investment into the country. Indeed, except for the last two years, Brazil has generally, since 1980, run current account deficits.
Among the factors that may account for the recent change in the current account from deficits to surpluses is the faster growth in exports relative to imports, which could have some lasting significance, but capital flows may have had a greater impact. Capital flows, however, are apt to change significantly and capriciously from time to time as can be seen in the comparison of some of the major components of the financial account between the first eleven months of this year with the comparable period of 2003.
For the first eleven months of this year foreign direct investment in Brazil amounted to $15,014 million compared with $8733.8 million in the same period last year. At the same time Brazilians made direct investments of almost $9 billion abroad in the first eleven months of this year, a record amount, compared to a withdrawal of direct investment of $210.5 million in the same period last year. Foreigners sold off $4196.2 million of their portfolio investments in the first eleven months of this year after having purchased $4707.1 million in the same period of 2003. Brazilians bought $791.8 million of foreign stocks and bonds, in contrast to the sale of $190.6 million in 2003.

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<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">Millions of US $ NAS</th>
<th scope="col">Jan-Nov 04</th>
<th scope="col">Jan-Nov 03</th>
<th scope="col">&nbsp;2003&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2002&nbsp;</th>
<th scope="col">&nbsp; 2001&nbsp; &nbsp;</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>10563.6</td>
<td>3669.3</td>
<td>4015.3</td>
<td>-7676.0</td>
<td>-23214.3</td>
<td>-24224.4</td>
</tr>
<tr>
<td class="firstcol">Financial Account</td>
<td>-10802.9</td>
<td>11101.5</td>
<td>4605.5</td>
<td>8357.4</td>
<td>27088.0</td>
<td>19053.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Direct Investment</td>
<td>6059.9</td>
<td>8944.3</td>
<td>9894.2</td>
<td>14083.9</td>
<td>24715.0</td>
<td>30497.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Foreign Investment in Brazil</td>
<td>15014.4</td>
<td>8733.8</td>
<td>10142.8</td>
<td>16566.4</td>
<td>22457.4</td>
<td>32449.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Brazilian Investment Abroad</td>
<td>-8954.5</td>
<td>210.5</td>
<td>-249.5</td>
<td>-2482.2</td>
<td>2257.7</td>
<td>-2281.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Portfolio Investment</td>
<td>-4988.0</td>
<td>4897.7</td>
<td>5306.7</td>
<td>5118.7</td>
<td>77.2</td>
<td>6955.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Foreign Investment in Brazil</td>
<td>-4196.2</td>
<td>4707.1</td>
<td>5129.1</td>
<td>-4797.0</td>
<td>872.2</td>
<td>8650.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Brazilian Investment Abroad</td>
<td>-791.8</td>
<td>190.6</td>
<td>180.6</td>
<td>-320.9</td>
<td>-795.2</td>
<td>-1695.9</td>
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</tbody>
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Brazil reported a deficit of $242.2 million on its current account in November. However, for the eleven months of the year, there is a $10,564 million surplus. For the year as a whole Brazil is likely to chalk up a record surplus. For [...]

Brazil Posts a Current Account Deficit in November, but Should Record a Big Surplus for the Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041220a.jpg" width="353">
The Composite Index of Leading Economic Indicators from the Conference Board rose in November by 0.2%, the first up month since May. October was downwardly revised to a 0.4% decline. The Consensus expectation had been for a 0.1% increase in November.
Six-month growth in the leaders continued to weaken to -2.2%. While it&#39;s getting close to call, recession in the U.S. still is not suggested. Negative growth in the leaders exceeding 2.5% preceded past recessionary periods.
Further tempering any negative suggestion is that 60% of the 10 components of the leading index rose over a one month span; the widest breadth of gain since May and the six month breadth rose to 50% versus 30% during the prior two months. The largest positive contributions were made in November by 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.
In addition, the ratio of the coincident to the lagging indicators (a measure of actual economic performance relative to economic excess) rose for the third month in four to a record high.
The coincident indicators rose by just 0.1% and the six-month growth rate fell to 1.9%, down from the high of 3.3% early this year. 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 Federal Reserve Bank of St. Louis examines &quot;Gasoline Affordability&quot;in <a href="http://research.stlouisfed.org/publications/net/20041101/cover.pdf"> this</a> report.

<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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Leading</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>-2.2%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.4%</td>
<td>1.9%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>1.4%</td>
<td>-2.2%</td>
<td>-2.8%</td>
<td>-1.4%</td>
</tr>
</tbody>
</table>
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The Composite Index of Leading Economic Indicators from the Conference Board rose in November by 0.2%, the first up month since May. October was downwardly revised to a 0.4% decline. The Consensus expectation had been for a 0.1% [...]

Leading Indicators Gain First in Six Months

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/041217c.jpg" width="353">
Argentina&#39;s economy continues to expand, as Q3 GDP grew 2.9% (quarterly rate), a tenth consecutive quarter of growth after the 2001-2002 contraction and devaluation. In peso terms, real GDP is back now very near its prior peak; in Q3, it was 281.6 billion pesos, compared with a high of 291.7 billion pesos in early 1998. Both consumer spending and fixed investment have grown vigorously, as noted in the table below, although investment looks to be moderating after its initial leap when the economy turned upward in the second half of 2002.
There is still considerable inflation in Argentina, however. The implicit price deflator surged, of course, in 2002 when the peso was de-linked from the US dollar and then dropped sharply. In Q2 2002, the implicit deflator gained 25.9%; it then slowed dramatically, led by export prices, which fell 11.1% in Q1 2003. In the latest quarter, the overall deflator fell 4.0%, but the year-on-year pace has been 10.9% for the last two quarters. Rebounds in prices in the public consumption, investment and export sectors have raised total inflation. On its devaluation at the beginning of 2002, the peso jumped from 1 peso/$1 to 3.80 pesos/$1 by June. Over the following several months it settled back to just about 2.95/$1 in the middle of 2003, and it has hovered there since. The accompanying chart shows what happened to nominal GDP when the de-linking occurred. 
The real growth helps the labor market, of course, with the employment rate reaching a recent high of 40.1% in Q3 (% of population), up from a low of 36.3% in early 2003. Unemployment was down to 13.2% in Q3 (% of labor force). While the employment rate is low by standards of mature industrial countries, the unemployment rate doesn&#39;t seem particularly high. Yes, it&#39;s much larger than in the US, but only a few percentage points more than France and Germany, both just under 10%. Among similar national economies, unemployment is nearly 28% in South Africa, 10.5% in Turkey and just over 11% in the cities of neighboring Brazil. So the situation in Argentina is not particularly attractive, but for all the stresses, the labor market is improving and most fundamentally, the nation&#39;s National Bureau of Statistics and Census is not shy about publishing current data. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Change</th>
<th scope="col">Q3 2004</th>
<th scope="col">Q2 2004</th>
<th scope="col">Year Ago</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">GDP</td>
<td>2.9</td>
<td>0.8</td>
<td>8.3</td>
<td>8.8</td>
<td>-10.9</td>
<td>-4.4</td>
</tr>
<tr>
<td class="firstcol">Private Consumption</td>
<td>2.9</td>
<td>1.0</td>
<td>8.8</td>
<td>8.2</td>
<td>-14.4</td>
<td>-5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Investment</td>
<td>5.8</td>
<td>2.1</td>
<td>33.1</td>
<td>38.2</td>
<td>-36.4</td>
<td>-15.7</td>
</tr>
<tr>
<td class="firstcol">Implicit Price Deflator</td>
<td>-4.0</td>
<td>8.0</td>
<td>10.9</td>
<td>5.0</td>
<td>39.8</td>
<td>-1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment Rate (% of population)</td>
<td>40.1</td>
<td>39.4</td>
<td>38.2</td>
<td>37.8</td>
<td>36.6</td>
<td>NA</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (% of labor force)</td>
<td>13.2</td>
<td>14.8</td>
<td>16.3</td>
<td>17.3</td>
<td>22.4</td>
<td>NA</td>
</tr>
</tbody>
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Argentina's economy continues to expand, as Q3 GDP grew 2.9% (quarterly rate), a tenth consecutive quarter of growth after the 2001-2002 contraction and devaluation. In peso terms, real GDP is back now very near its prior peak; in Q3, [...]

Argentina Recovery Continues

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.

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

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.

Economy in Brief

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