Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041217b.jpg" width="353">
The average price for unleaded regular gasoline fell to $1.85 per gallon last week, putting it 6.7% below the November average.
At $41.83 per barrel, the price of West Texas Intermediate crude oil last week was 13.2% below the $48.20 averaged in November and was down 24.2% from the weekly high of $55.18 in late October.
Wholesale natural gas prices have been volatile, but relatively firm at $6.07/mmbtu last week.
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>.
&quot;Do Energy Price Price Spikes Cause Inflation?&quot; is 2003 research from the Federal Reserve Bank of Cleveland and is available <a href="http://www.clevelandfed.org/Research/Com2003/0401.pdf">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/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">12/13/04</th>
<th scope="col">12/31/03</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">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$1.85</td>
<td>$1.48</td>
<td>26.1%</td>
<td>$1.56</td>
<td>$1.35</td>
<td>$1.42</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$41.02</td>
<td>$32.55</td>
<td>23.6%</td>
<td>$32.78</td>
<td>$31.23</td>
<td>$19.38</td>
</tr>
</tbody>
</table>
</body>
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The average price for unleaded regular gasoline fell to $1.85 per gallon last week, putting it 6.7% below the November average. At $41.83 per barrel, the price of West Texas Intermediate crude oil last week was 13.2% below the $48.20 [...]

Gasoline Prices, Down in November, Fell Further in December

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041217a.jpg" width="353">
Consumer Prices (CPI-U) were tame last month, rose just 0.2% following the 0.6% spurt in October and were in line with Consensus expectations for a 0.2% rise. Prices less food &amp; energy also were in line with a 0.2% gain that matched the prior months increase.
Services prices less energy rose the same modest 0.2% as in October. Shelter prices rose .05% (2.7% y/y), the weakest for any month in over a year. The rental equivalence price measure was unchanged m/m (2.3% y/y) and prices for lodging away from home fell (+6.1% y/y). Health care services rose 0.3% (5.0% y/y) but tuition &amp; child care costs jumped 0.6% (6.8% y/y). Public transportation prices were strong for the second consecutive month and rose 2.4% (0.3% y/y).
&quot;Core&quot; commodities price inflation eased to 0.1% from the 0.4% strength of October. Household furnishings &amp; operation prices fell (+0.7% y/y) as did prices for used cars &amp; trucks (+3.6% y/y). New motor vehicle prices rose 0.7% (0.3% y/y) and apparel prices ticked 0.1% higher (-0.2% y/y).
Gasoline prices fell 1.8% (+31.0% y/y) but fuel oil prices were strong for seventh consecutive month, up 3.5% (38.3% y/y). Natural gas prices rebounded 2.4% (+6.8% y/y) after two months of decline.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, was unchanged. Similar to the PCE price deflator, core chain prices also were unchanged.
&quot;Are Home Prices the Next Bubble?&quot; from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/04v10n3/0412mcca.pdf">here</a>.

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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</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>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.6%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>1.5%</td>
<td>2.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>-2.0%</td>
<td>-1.1%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>0.2%</td>
<td>4.2%</td>
<td>19.0%</td>
<td>12.2%</td>
<td>-5.8%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.2%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>0.0%</td>
<td>0.5%</td>
<td>3.1%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.4%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>&nbsp;2.0%</td>
</tr>
</tbody>
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Consumer Prices (CPI-U) were tame last month, rose just 0.2% following the 0.6% spurt in October and were in line with Consensus expectations for a 0.2% rise. Prices less food & energy also were in line with a 0.2% gain that matched [...]

Consumer Prices Tame, As Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041217a.jpg" width="353">
Consumer Prices (CPI-U) were tame last month, rose just 0.2% following the 0.6% spurt in October and were in line with Consensus expectations for a 0.2% rise. Prices less food &amp; energy also were in line with a 0.2% gain that matched the prior months increase.
Services prices less energy rose the same modest 0.2% as in October. Shelter prices rose .05% (2.7% y/y), the weakest for any month in over a year. The rental equivalence price measure was unchanged m/m (2.3% y/y) and prices for lodging away from home fell (+6.1% y/y). Health care services rose 0.3% (5.0% y/y) but tuition &amp; child care costs jumped 0.6% (6.8% y/y). Public transportation prices were strong for the second consecutive month and rose 2.4% (0.3% y/y).
&quot;Core&quot; commodities price inflation eased to 0.1% from the 0.4% strength of October. Household furnishings &amp; operation prices fell (+0.7% y/y) as did prices for used cars &amp; trucks (+3.6% y/y). New motor vehicle prices rose 0.7% (0.3% y/y) and apparel prices ticked 0.1% higher (-0.2% y/y).
Gasoline prices fell 1.8% (+31.0% y/y) but fuel oil prices were strong for seventh consecutive month, up 3.5% (38.3% y/y). Natural gas prices rebounded 2.4% (+6.8% y/y) after two months of decline.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, was unchanged. Similar to the PCE price deflator, core chain prices also were unchanged.
&quot;Are Home Prices the Next Bubble?&quot; from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/04v10n3/0412mcca.pdf">here</a>.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</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>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.6%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>1.5%</td>
<td>2.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>-2.0%</td>
<td>-1.1%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>0.2%</td>
<td>4.2%</td>
<td>19.0%</td>
<td>12.2%</td>
<td>-5.8%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.2%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>0.0%</td>
<td>0.5%</td>
<td>3.1%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.4%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>&nbsp;2.0%</td>
</tr>
</tbody>
</table>
Gasoline Prices, Down in November, Fell Further in December 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 17, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041217b.jpg" width="353">
The average price for unleaded regular gasoline fell to $1.85 per gallon last week, putting it 6.7% below the November average.
At $41.83 per barrel, the price of West Texas Intermediate crude oil last week was 13.2% below the $48.20 averaged in November and was down 24.2% from the weekly high of $55.18 in late October.
Wholesale natural gas prices have been volatile, but relatively firm at $6.07/mmbtu last week.
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>.
&quot;Do Energy Price Price Spikes Cause Inflation?&quot; is 2003 research from the Federal Reserve Bank of Cleveland and is available <a href="http://www.clevelandfed.org/Research/Com2003/0401.pdf">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/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">12/13/04</th>
<th scope="col">12/31/03</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">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$1.85</td>
<td>$1.48</td>
<td>26.1%</td>
<td>$1.56</td>
<td>$1.35</td>
<td>$1.42</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$41.02</td>
<td>$32.55</td>
<td>23.6%</td>
<td>$32.78</td>
<td>$31.23</td>
<td>$19.38</td>
</tr>
</tbody>
</table>
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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/041216f.jpg" width="353">
The Bank of Japan today reported third quarter flow-of-funds for the Japanese economy. These data, as other recent Japanese statistics, showed some positive economic tendencies. Use of credit is trending higher.
A turnaround in financing activity began about the third quarter of last year as seen in the chart alongside, when the year-to-year change in the nonfinancial sector&#39;s use of funds turned positive after a three-year contraction. The decrease in those liabilities in the third quarter need not indicate a reversion to weakness. As also evident in the graph, in most years of these data&#39;s short history, the third quarter has been the weakest. The year-to-year gain remains on a generally firming trend. The same is true for private corporate business in Japan, which experienced a substantial decline in debt usage from 2000 through 2002.
The details of the flow-of-funds also highlight developments in the foreign sector. These data are a mirror image of the balance-of-payments; the BOP data use a domestic perspective, so Japanese investment abroad is viewed as an asset of Japanese investors. But in the flow-of-funds, the &quot;overseas sector&quot; is seen from its point-of-view. Thus, Japanese investment abroad is treated as the overseas economy&#39;s liabilities. In the third quarter, these liabilities continued to grow vigorously. The other side, overseas investment in Japan, that is, the overseas sector&#39;s &quot;assets&quot; in Japan, decreased in Q3, although this followed an outsized rise in Q2. This made the year-on-year expansion a quite substantial 15.7% and extended the strong 9.1% growth during 2003. These significant gains in capital holdings in both directions highlight the globalization of capital resources and once again call attention to the fact that capital flows are not just a passive response to a nation&#39;s current account position.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Change, Not Seasonally Adjusted</th>
<th scope="col">Q3 2004</th>
<th scope="col">Q2 2004</th>
<th scope="col">Year/ Year</th>
Year-End/Year-End
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total Liabilities: Domestic Nonfinancial Sector </td>
<td>-1.4</td>
<td>-0.2</td>
<td>3.4</td>
<td>2.8</td>
<td>-2.3</td>
<td>-2.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Nonfinancial Corporations</td>
<td>-3.0</td>
<td>-0.1</td>
<td>3.0</td>
<td>2.8</td>
<td>-8.1</td>
<td>-10.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Assets in Japan</td>
<td>-1.9</td>
<td>5.0</td>
<td>15.7</td>
<td>9.1</td>
<td>-4.0</td>
<td>-3.4</td>
</tr>
<tr>
<td class="firstcol">Overseas Liabilities to Japan</td>
<td>1.7</td>
<td>3.6</td>
<td>9.6</td>
<td>4.1</td>
<td>-3.3</td>
<td>11.2</td>
</tr>
</tbody>
</table>
</body>
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The Bank of Japan today reported third quarter flow-of-funds for the Japanese economy. These data, as other recent Japanese statistics, showed some positive economic tendencies. Use of credit is trending higher. A turnaround in [...]

Japan Financing Trends Remain Favorable, Despite Q3 Decline

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041216d.jpg" width="353">
The Philadelphia Fed&#146;s index of general business conditions in the manufacturing sector improved in December to 29.6 from 20.7 the prior month. Only a slight rise to 21.1 had been the Consensus expectation.
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.
Each of the sub indexes improved m/m with the exception of the index for inventories as well as for the number of employees.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months reversed about half of the sharp improvement in November and fell to 41.2.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041216e.jpg" width="353">
The prices paid index fell for the second month, to 52.2, although expectations for prices surged. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the PPI for intermediate goods. The correlation with the finished goods PPI has been 41% and with the CPI it&#39;s been 45%.
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/bos1204.html">here</a>.

<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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>29.6</td>
<td>20.7</td>
<td>30.3</td>
<td>27.5</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>52.2</td>
<td>53.9</td>
<td>30.9</td>
<td>51.2</td>
<td>16.7</td>
<td>12.2</td>
</tr>
</tbody>
</table>
</body>
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The Philadelphia Feds index of general business conditions in the manufacturing sector improved in December to 29.6 from 20.7 the prior month. Only a slight rise to 21.1 had been the Consensus expectation. During the last ten years [...]

Philadelphia Fed Activity Index Improved

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Initial unemployment insurance claims dropped a sharp 43,000 to 317,000 and more than reversed all of the gains during the prior two weeks. The latest was the lowest claims level since early July and the prior week was revised up slightly. The Consensus expectation had been for 345,000 claims.
The four week moving average of initial claims fell to 337,750 (-8.2% 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 dropped 50,000 following a downwardly revised 69,000 rise the prior week.
The insured rate of unemployment remained at 2.2%, where it&#39;s been since early October.

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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">12/11/04</th>
<th scope="col">12/04/04</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>317</td>
<td>360</td>
<td>-12.4%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,737</td>
<td>-17.8%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
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Initial unemployment insurance claims dropped a sharp 43,000 to 317,000 and more than reversed all of the gains during the prior two weeks. The latest was the lowest claims level since early July and the prior week was revised up [...]

Initial Claims for Unemployment Insurance Dropped Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041216c.jpg" width="353">
The US current account deficit deepened slightly in 3Q04 to a record $164.7B versus $164.4B the prior quarter, originally reported at $166.2B. Consensus expectations had been for a 3Q deficit of $171.0B. 
The deficit in merchandise trade deteriorated to $166.7B from an unrevised $163.6B in 2Q. A 14.8% y/y gain in exports lagged an 18.7% rise in imports.
The surplus on services fell to $11.4B from a downwardly revised to $12.5B in 2Q. Exports of services rose 9.7% y/y while imports rose 13.1%.
From the capital account, US foreign direct investment abroad fell to $43.5B (-3.8% y/y) and foreign direct investment in the US surged to $53.1B, the highest level since 2Q01. The balance of $9.6B was the first positive balance since 2Q01.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">3Q &#39;04</th>
<th scope="col">2Q &#39;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">Current Account Deficit</td>
<td>$164.7B</td>
<td>$164.4B</td>
<td>$133.9B</td>
<td>$530.7B</td>
<td>$473.9B</td>
<td>$385.7B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$150.1B</td>
<td>$146.0B</td>
<td>$115.0B</td>
<td>$463.2B</td>
<td>$414.6B</td>
<td>$339.1B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>2.7%</td>
<td>3.6%</td>
<td>16.1%</td>
<td>5.8%</td>
<td>-3.9%</td>
<td>-9.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>2.7%</td>
<td>6.7%</td>
<td>19.8%</td>
<td>7.3%</td>
<td>1.5%</td>
<td>-8.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$14.6B</td>
<td>$18.3B</td>
<td>$16.6B</td>
<td>$67.4</td>
<td>$59.4B</td>
<td>$46.6B</td>
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The US current account deficit deepened slightly in 3Q04 to a record $164.7B versus $164.4B the prior quarter, originally reported at $166.2B. Consensus expectations had been for a 3Q deficit of $171.0B. The deficit in merchandise [...]

U.S. Current Account Deficit Deepened

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041216a.jpg" width="353">
Housing starts in November fell a sharp 13.1% m/m to 1.771M, reversing all of a 7.0% rise in October.Consensus expectations had been for 1.98M starts. The latest was the lowest level of starts since May 2003.
Single-family starts fell 11.7% to 1.448M, also the lowest since May 2003, and multi-family starts dropped 19.0%.
Building permits fell 1.5% m/m to 1.988M after an upwardly revised gain October.
The Composite Housing Market Index from the National Association of Home Builders (NAHB) rose to 71 in December from a downwardly revised November level of 70.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
The index of current single family home sales was stable at its highest in over a year and the index of expected sales in six months rose.

<table border="0" cellspacing="0" width="100%">

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<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</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>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,771</td>
<td>2,039</td>
<td>-13.8%</td>
<td>1,8 53</td>
<td>1,7 10</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,448</td>
<td>1,640</td>
<td>-13.3%</td>
<td>1,505</td>
<td>1,3 63</td>
<td>1,272</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>3 23</td>
<td>399</td>
<td>-15.9%</td>
<td>348</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,988</td>
<td>2,018</td>
<td>3.5%</td>
<td>1,8 89</td>
<td>1,749</td>
<td>1,637</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts in November fell a sharp 13.1% m/m to 1.771M, reversing all of a 7.0% rise in October.Consensus expectations had been for 1.98M starts. The latest was the lowest level of starts since May 2003. Single-family starts fell [...]

Housing Starts Fell Sharply

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**.

260401X4.jpg

260401Y4.jpg

- 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

260401J35.jpg

260401K35.jpg

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

260401M35.jpg

- 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

260401E.jpg

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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Gasoline Prices, Down in November, Fell Further in December

Consumer Prices Tame, As Expected

Consumer Prices Tame, As Expected

Japan Financing Trends Remain Favorable, Despite Q3 Decline

Philadelphia Fed Activity Index Improved

Initial Claims for Unemployment Insurance Dropped Sharply

U.S. Current Account Deficit Deepened

Housing Starts Fell Sharply