Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015e.jpg" width="353">
In September, industrial production rose just 0.2% following a downwardly revised 0.2% decline the prior month. Consensus expectations had been for a 0.4% September increase.
Production in the factory sector fell 0.3% (+5.3% y/y) last month following the modest 0.2% August gain.
Output fell broadly; motor vehicles (-0.4% m/m, -1.2% y/y), furniture (-0.6% m/m, +2.9% y/y), petroleum (-3.3% m/m, -0.3% y/y), and textiles (-0.9% m/m, -1.7% y/y).
The high tech sector was relatively firm posting a 1.0% (20.8% y/y) gain, however the prior month&#39;s strength was revised down and the sector&#39;s growth has been ebbing.Factory output excluding motor vehicles &amp; high tech fell 0.3% (+4.8% y/y), the third down month in the last four (August was revised to a 0.2% decline).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015f.jpg" width="353">
Total capacity utilization was stable at an upwardly revised 77.3%. Growth in capacity inched up to 1.4% y/y from 1.1% earlier this year.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM"> Production &amp; Capacity</a></th>
<th scope="col">Aug</th>
<th scope="col"> July</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">Industrial Production</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>4.7%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>77.2%</td>
<td>77.2%</td>
<td>74.9%(9/03)</td>
<td>74.8%</td>
<td>75.6%</td>
<td>77.4%</td>
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In September, industrial production rose just 0.2% following a downwardly revised 0.2% decline the prior month. Consensus expectations had been for a 0.4% September increase. Production in the factory sector fell 0.3% (+5.3% y/y) last [...]

Industrial Production Disappointing, Factory Output Down Broadly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015c.jpg" width="353">
The October Empire State Index of General Business Conditions in New York&#39;s manufacturing industries fell 9.8 points to 17.43 following a 14.04 point gain in September.
New orders and shipments both gave back some of the prior months&#39; gains.The employment measure also fell. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The prices paid jumped to a record high of 59.17.
Expectations for business conditions six months fell modestly as did expectations for capital expenditures. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015d.jpg" width="353">
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html"> here</a>.
&quot;What Can Regional Manufacturing Surveys Tell Us? - Lessons From the Tenth District&quot; from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/Pdf/3q04keet.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM"> Empire State Manufacturing Survey</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">10/03</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">General Business Conditions (diffusion index)</td>
<td>17.43</td>
<td>27.26</td>
<td>20.20</td>
<td>16.30</td>
<td>7.02</td>
<td>-13.57</td>
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The October Empire State Index of General Business Conditions in New York's manufacturing industries fell 9.8 points to 17.43 following a 14.04 point gain in September. New orders and shipments both gave back some of the prior months' [...]

Empire State Index Dropped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015a.jpg" width="353">
In September the finished goods PPI rose 0.1% and matched Consensus expectations. The gain followed slight decline in two of the prior three months. Less food &amp; energy prices were a bit stronger, up 0.3%, versus expectations for a 0.2% rise.
&quot;Core&quot; finished consumer goods prices jumped 0.4% (2.0% y/y) on the strength of higher durable &amp; nondurable goods prices. Finished capital goods prices also registered a firm 0.4% (1.8% y/y) gain reflecting strength in prices of textile machinery as well as ships.
Finished energy prices fell 0.9% (9.1% y/y). Residential gas prices dropped a not seasonally adjusted 2.4% (5.7% y/y) but they have recovered in October.Gasoline prices rose a not seasonally adjusted 1.9% m/m (+18.9% y/y).
Crude prices less food &amp; energy reversed some of the prior month&#39;s strength with a 2.5% decline. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of activity in the industrial sector. There has been a 51% correlation between the six month change in core crude prices and the change in factory sector industrial production. Overall crude prices fell 4.2%, dragged lower by the 6.6% decline in crude energy costs.
Intermediate goods prices ticked just 0.1% higher but core intermediate prices added 0.7% to the 1.0% August jump. Industrial chemical prices continued strong.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM"> Producer Price Index</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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">Finished Goods</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>3.3%</td>
<td>3.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
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<td class="firstcol">&nbsp; Core</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
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<td class="firstcol">Intermediate Goods</td>
<td>0.1%</td>
<td>1.0%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.7%</td>
<td>1.0%</td>
<td>7.8%</td>
<td>2.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-4.2%</td>
<td>-0.7%</td>
<td>14.2%</td>
<td>25.1%</td>
<td>-10.6%</td>
<td>0.3%</td>
</tr>
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<td class="firstcol">&nbsp; Core</td>
<td>-2.5%</td>
<td>4.5%</td>
<td>25.4%</td>
<td>12.4%</td>
<td>3.8%</td>
<td>-10.0%</td>
</tr>
</tbody>
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In September the finished goods PPI rose 0.1% and matched Consensus expectations. The gain followed slight decline in two of the prior three months. Less food & energy prices were a bit stronger, up 0.3%, versus expectations for a [...]

Finished Producer Prices Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015b.jpg" width="353">
US retail sales jumped 1.5% last month following a little revised 0.2% decline in August. The gain far outpaced Consensus expectations for a 0.6% rise.
Higher sales of motor vehicles led the surge. A 4.2% jump in sales at motor vehicle &amp; parts dealers reflected the 5.5% m/m increase in unit sales of light vehicles
Excluding motor vehicles sales rose 0.6% after an unrevised 0.2% gain in August. Consensus expectations had been for a 0.4% increase.
Discretionary spending rebounded from a lackluster performance in August. Clothing &amp; accessory store sales rose 0.8% (4.0% y/y) following a 0.7% August drop that was half the decline initially reported.Sales at general merchandise stores surged 1.1% (+5.4% y/y) but sales of furniture/home furnishings &amp; electronics/appliances were unchanged (3.9% y/y) after a 1.1% decline in August that was deeper than the 0.4% decline initially reported.
Building materials, garden equipment &amp; supply dealers&#39; sales surged 1.4% (14.4% y/y).
Sales at gasoline service stations ticked up 0.1% (15.1% y/y) after two months of 0.1% decline. Retail gasoline prices fell in each of those months but in October they are up to $1.99/gallon versus an average $1.87 in September.
Today&#39;s remarks on oil by Fed Chairman Alan Greenspan can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/200410152/default.htm"> here</a>.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Sept</th>
<th scope="col">Aug</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>
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<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM"> Retail Sales &amp; Food Services</a></td>
<td>1.5%</td>
<td>-0.2%</td>
<td>7.7%</td>
<td>5.4%</td>
<td>2.5%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.6%</td>
<td>0.2%</td>
<td>7.8%</td>
<td>5.2%</td>
<td>3.2%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
</body>
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US retail sales jumped 1.5% last month following a little revised 0.2% decline in August. The gain far outpaced Consensus expectations for a 0.6% rise. Higher sales of motor vehicles led the surge. A 4.2% jump in sales at motor [...]

U.S. Consumer Spending Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015h.jpg" width="353">
US retail sales jumped 1.5% last month following a little revised 0.2% decline in August. The gain far outpaced Consensus expectations for a 0.6% rise.
Higher sales of motor vehicles led the surge. A 4.2% jump in sales at motor vehicle &amp; parts dealers reflected the 5.5% m/m increase in unit sales of light vehicles
Excluding motor vehicles sales rose 0.6% after an unrevised 0.2% gain in August. Consensus expectations had been for a 0.4% increase.
Discretionary spending rebounded from a lackluster performance in August. Clothing &amp; accessory store sales rose 0.8% (4.0% y/y) following a 0.7% August drop that was half the decline initially reported.Sales at general merchandise stores surged 1.1% (+5.4% y/y) but sales of furniture/home furnishings &amp; electronics/appliances were unchanged (3.9% y/y) after a 1.1% decline in August that was deeper than the 0.4% decline initially reported.
Building materials, garden equipment &amp; supply dealers&#39; sales surged 1.4% (14.4% y/y).
Sales at gasoline service stations ticked up 0.1% (15.1% y/y) after two months of 0.1% decline. Retail gasoline prices fell in each of those months but in October they are up to $1.99/gallon versus an average $1.87 in September.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Sept</th>
<th scope="col">Aug</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>
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<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM"> Retail Sales &amp; Food Services</a></td>
<td>1.5%</td>
<td>-0.2%</td>
<td>7.7%</td>
<td>5.4%</td>
<td>2.5%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.6%</td>
<td>0.2%</td>
<td>7.8%</td>
<td>5.2%</td>
<td>3.2%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
Finished Producer Prices Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015a.jpg" width="353">
In September the finished goods PPI rose 0.1% and matched Consensus expectations. The gain followed slight decline in two of the prior three months. Less food &amp; energy prices were a bit stronger, up 0.3%, versus expectations for a 0.2% rise.
&quot;Core&quot; finished consumer goods prices jumped 0.4% (2.0% y/y) on the strength of higher durable &amp; nondurable goods prices. Finished capital goods prices also registered a firm 0.4% (1.8% y/y) gain reflecting strength in prices of textile machinery as well as ships.
Finished energy prices fell 0.9% (9.1% y/y). Residential gas prices dropped a not seasonally adjusted 2.4% (5.7% y/y) but they have recovered in October.Gasoline prices rose a not seasonally adjusted 1.9% m/m (+18.9% y/y).
Crude prices less food &amp; energy reversed some of the prior month&#39;s strength with a 2.5% decline. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of activity in the industrial sector. There has been a 51% correlation between the six month change in core crude prices and the change in factory sector industrial production. Overall crude prices fell 4.2%, dragged lower by the 6.6% decline in crude energy costs.
Intermediate goods prices ticked just 0.1% higher but core intermediate prices added 0.7% to the 1.0% August jump. Industrial chemical prices continued strong.
Today&#39;s remarks on oil by Fed Chairman Alan Greenspan can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/200410152/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM"> Producer Price Index</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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">Finished Goods</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>3.3%</td>
<td>3.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.1%</td>
<td>1.0%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.7%</td>
<td>1.0%</td>
<td>7.8%</td>
<td>2.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-4.2%</td>
<td>-0.7%</td>
<td>14.2%</td>
<td>25.1%</td>
<td>-10.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-2.5%</td>
<td>4.5%</td>
<td>25.4%</td>
<td>12.4%</td>
<td>3.8%</td>
<td>-10.0%</td>
</tr>
</tbody>
</table>
Empire State Index Dropped 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015c.jpg" width="353">
The October Empire State Index of General Business Conditions in New York&#39;s manufacturing industries fell 9.8 points to 17.43 following a 14.04 point gain in September.
New orders and shipments both gave back some of the prior months&#39; gains.The employment measure also fell. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The prices paid jumped to a record high of 59.17.
Expectations for business conditions six months fell modestly as did expectations for capital expenditures. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015d.jpg" width="353">
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html"> here</a>.
&quot;What Can Regional Manufacturing Surveys Tell Us? - Lessons From the Tenth District&quot; from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/Pdf/3q04keet.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM"> Empire State Manufacturing Survey</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">10/03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>17.43</td>
<td>27.26</td>
<td>20.20</td>
<td>16.30</td>
<td>7.02</td>
<td>-13.57</td>
</tr>
</tbody>
</table>
Industrial Production Disappointing, Factory Output Down Broadly 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015e.jpg" width="353">
In September, industrial production rose just 0.2% following a downwardly revised 0.2% decline the prior month. Consensus expectations had been for a 0.4% September increase.
Production in the factory sector fell 0.3% (+5.3% y/y) last month following the modest 0.2% August gain.
Output fell broadly; motor vehicles (-0.4% m/m, -1.2% y/y), furniture (-0.6% m/m, +2.9% y/y), petroleum (-3.3% m/m, -0.3% y/y), and textiles (-0.9% m/m, -1.7% y/y).
The high tech sector was relatively firm posting a 1.0% (20.8% y/y) gain, however the prior month&#39;s strength was revised down and the sector&#39;s growth has been ebbing.Factory output excluding motor vehicles &amp; high tech fell 0.3% (+4.8% y/y), the third down month in the last four (August was revised to a 0.2% decline).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015f.jpg" width="353">
Total capacity utilization was stable at an upwardly revised 77.3%. Growth in capacity inched up to 1.4% y/y from 1.1% earlier this year.

<table border="0" cellspacing="0" width="100%">

</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/@EA/@EA.HTM"> Production &amp; Capacity</a></th>
<th scope="col">Aug</th>
<th scope="col"> July</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">Industrial Production</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>4.7%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>77.2%</td>
<td>77.2%</td>
<td>74.9%(9/03)</td>
<td>74.8%</td>
<td>75.6%</td>
<td>77.4%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Plunged 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015g.jpg" width="353">
The Mid-October reading of consumer sentiment from the University of Michigan plunged 7.1% to 87.5 on the heels of declines during the prior two months. Consensus expectations for a reading of 95.0.
During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE.
The War in Iraq, the higher price of gasoline and several hurricanes which buffeted Florida are the likely culprits behind the fall in sentiment.
The reading of current economic conditions fell a sharp 4.0%, about the same as in September, but it was consumer expectations that took a powder with a 9.5% drop.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col"> Mid-Oct</th>
<th scope="col"> Sept</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">Consumer Sentiment</td>
<td>87.5</td>
<td>94.2</td>
<td>-2.3%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>99.6</td>
<td>103.7</td>
<td>-0.3%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>79.6</td>
<td>88.0</td>
<td>-4.1%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
</tr>
</tbody>
</table>
FY 2004 U.S. Budget Complete 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041015h.jpg" width="353">
The US budget deficit at $413B for FY 2004 came in slightly below the latest Congressional Budget Office estimate of $422. The latest CBO deficit estimate for FY05 is $348B.
For FY04 the deficit of $412.6B was 9.4% larger than a year earlier. According to the Fed&#39;s Flow of Funds figures, through 2Q04 the growth in outstanding liabilities of the Federal government grew 10.6% y/y versus 7.4% growth in nonfederal liabilities.
Growth in net receipts improved late in the fiscal year raising the year&#39;s growth to 5.5% versus a 3.8% decline in FY03. Individual tax receipts jumped in September, as they often do, and pulled the FY04 total up 1.9% versus a decline of 7.5% last year. Corporate tax receipts also surged in September and rose 43.7% in FY04.
Growth in Federal net expenditures for FY04 eased slightly to 6.2% versus 7.4% growth in FY03. Defense expenditures actually grew a lesser 12.7% versus 15.9% growth last year. Growth in Medicare outlays was stable at 8.0 and interest expense grew 4.8% versus a 10.5% decline during last year. Outlays for income security fell 0.4% after as 7.5% rise in FY03 and growth in education &amp; training outlays slowed to 6.8% from 16.5%.
&quot;The Budget and Economic Outlook: An Update&quot; from the Congressional Budget Office is available <a href="http://www.cbo.gov/ftpdocs/57xx/doc5773/08-24-BudgetUpdate.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/USECON/@E1/@E106/@E10602/@E10602.HTM"> US Government Finance</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Sept &#39;03</th>
<th scope="col">FY2004</th>
<th scope="col">FY2003</th>
<th scope="col">FY2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$24.4B</td>
<td>$-41.1B</td>
<td>$23.4B</td>
<td>$-412.6B</td>
<td>$-377.1B</td>
<td>$-157.8B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revenues</td>
<td>$207.4B</td>
<td>$137.7B</td>
<td>8.2%</td>
<td>5.5%</td>
<td>-3.8%</td>
<td>-6.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Outlays</td>
<td>$183.0B</td>
<td>$178.9B</td>
<td>8.8%</td>
<td>6.2%</td>
<td>7.4%</td>
<td>7.9%</td>
</tr>
</tbody>
</table>
</body>
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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/041014d.jpg" width="353">
The Economic and Social Research Institute of the Japanese Government Cabinet Office (ESRI) has reorganized its survey on consumer confidence. The new data began in April; some old data are still useful. In particular, the survey is now monthly instead of quarterly and combines the two former surveys of &quot;two-person-plus households&quot; and &quot;single-person households&quot;, yielding data for a new grouping, &quot;all households&quot;. The sampling for the old &quot;two-person-plus&quot; grouping is basically the same, but that for single-persons has been increased by some 300, about 25% larger than before.
&quot;Consumer confidence&quot; is now defined as the average of people&#39;s perceptions of four concepts: overall livelihood, income growth, employment and willingness to buy durable goods. Formerly, a price variable was also included, but now price expectations are measured quantitatively. The changes in the survey mean that for many items, only a few data points presently exist. Where comparability is maintained, ESRI has continued seasonal adjustment, but it applies only to the third month of each quarter, for which there are long series. New series will have to accumulate for several years before seasonal patterns will appear.
News services today gave the main emphasis to a decline in the confidence indexes for September. Indeed, they are down from July and August. The reading for 2+person households is 46.1 (not seasonally adjusted), compared with 49.2 in August and 48.7 in July. At the same time, the September data are far better than earlier periods. As recently as December 2003, we saw only 39.2 and an all-time low of 33.0 in December 2001. The last data having a magnitude similar to September&#39;s were in the first half of 1991, more than 13 years ago. The greatest spurs to recent strength have been the components covering the assessment of employment conditions and respondents&#39; willingness to buy durable goods. In the past, the desire to buy durable goods has often run ahead of the total confidence measure, so this is not so remarkable. But only in the late 1980s and very early 1990s was the employment item higher than the total. Even the backtracking in September still left employment looking slightly firmer than confidence in general. To us, this relatively favorable employment performance would seem to extend a generally hopeful outlook among consumers, albeit less buoyant than during the summer. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Diffusion Indexes, Not Seasonally Adjusted</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">July 2004</th>
<th scope="col">Sept 2003</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">2+Person Households: Consumer Confidence Index</td>
<td>46.1</td>
<td>49.2</td>
<td>48.7</td>
<td>39.9</td>
<td>37.7</td>
<td>37.0</td>
<td>36.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Overall Livelihood</td>
<td>45.1</td>
<td>47.5</td>
<td>47.1</td>
<td>40.8</td>
<td>38.8</td>
<td>39.0</td>
<td>39.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>46.9</td>
<td>50.7</td>
<td>50.2</td>
<td>35.8</td>
<td>31.5</td>
<td>27.7</td>
<td>25.3</td>
</tr>
<tr>
<td class="firstcol">Single-Person Households: Overall Livelihood</td>
<td>45.7</td>
<td>47.8</td>
<td>47.9</td>
<td>42.9</td>
<td>42.4</td>
<td>41.6</td>
<td>43.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The Economic and Social Research Institute of the Japanese Government Cabinet Office (ESRI) has reorganized its survey on consumer confidence. The new data began in April; some old data are still useful. In particular, the survey is [...]

New Japanese Consumer Confidence Survey Shows Confidence Down in September, But Still Much Higher than Last Few Years

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041014a.jpg" width="353">
Initial claims for unemployment insurance rose 15,000 last week to 352,000 after a 35,000 decline the prior week that was little revised. Consensus expectations had been for 345,000 claims.
The increase may have reflected aberrant seasonal adjustment factors.
The 4-week moving average of initial claims rose to 353,000 (-9.7% y/y). During the last ten years there has been an 81% (negative) correlation between the monthly average of initial claims and the y/y change in payroll employment.
Ongoing claims for unemployment insurance continued lower by 11,000 following a decline the prior week that was revised deeper to 9,000.
The insured rate of unemployment remained at 2.3% where it has hovered since the end of April.

<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/WEEKLY/@W5/@W507/@W507.HTM"> Unemployment Insurance (000s)</a></th>
<th scope="col"> 10/09/04</th>
<th scope="col"> 10/02/04</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>352</td>
<td>337</td>
<td>-9.0%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,845</td>
<td>-20.4%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance rose 15,000 last week to 352,000 after a 35,000 decline the prior week that was little revised. Consensus expectations had been for 345,000 claims. The increase may have reflected aberrant [...]

Initial Jobless Insurance Claims Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041014c.jpg" width="353">
Import prices rose a modest 0.2% last month, just half the Consensus expectation. The prior month&#39;s surge of 1.7% was a bit lower than initially estimated due to a downwardly revised 0.3% gain in non-petroleum prices.
In September, non-petroleum import prices ticked up just 0.1%. Capital goods prices were unchanged (-1.4% y/y) for the sixth month this year. Excluding computers capital goods prices also were unchanged (+1.5% y/y). Non-auto consumer goods prices similarly were unchanged (+0.6% y/y) and have been flat or down in each of the last seven months due to lower durables prices.
Petroleum prices added 0.6% to the 8.3% August spike. The price of Brent crude oil in October has pushed above $50 per barrel versus the September average of $43.41.
During the last ten years there has been a (negative) 55% correlation between the level of the dollar and the y/y change in nonpetroleum import prices.
Export prices rose 0.4% due to a 1.6% (2.2% y/y) spike in agricultural prices. Nonagricultural prices rose a moderate 0.2% (4.3% y/y).
&quot;Measuring the Costs of Exchange Rate Volatility&quot; from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-22.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/USECON/@E8/@E807/@E807.HTM"> Import/Export Prices (NSA)</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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">Import - All Commodities</td>
<td>0.2%</td>
<td>1.4%</td>
<td>7.8%</td>
<td>2.9%</td>
<td>-2.5%</td>
<td>-3.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>0.6%</td>
<td>8.3%</td>
<td>48.7%</td>
<td>21.0%</td>
<td>3.0%</td>
<td>-17.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.9%</td>
<td>1.1%</td>
<td>-2.4%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>4.0%</td>
<td>1.6%</td>
<td>-1.0%</td>
<td>-0.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

Import prices rose a modest 0.2% last month, just half the Consensus expectation. The prior month's surge of 1.7% was a bit lower than initially estimated due to a downwardly revised 0.3% gain in non-petroleum prices. In September, [...]

Import Prices Up Just 0.2%

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

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Michael J. Moran

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The report on payroll employment for March was impressive when viewed in isolation. Job growth was strong at 178,000, and the advance was broadly based. The construction and manufacturing sectors both posted solid gains, and the service-producing sector registered its firmest performance in more than a year. However, the gain might be viewed as a continuation of an unusual bout of random volatility. The March advance followed a notable drop in February (-133,000, revised down from -92,000), which followed an upside surprise in January (160,000, revised up from 126,000).

To be sure, statistical noise has been a factor in the past three months, but the results also represent an encouraging shift in job growth from that in the second half of last year, when employment rose only marginally in the third quarter and fell in the fourth. The net change in the past three months seems to signal that job growth is not drying up. The net advance so far this year is far from brisk, but it is clearly in the plus column and noticeably better than results in late 2025.

The unemployment rate also might be viewed as favorable, as it dipped 0.1 percentage point to 4.3%, although it was a “soft” decline. That is, employment as measured by the household survey declined 64,000, but the size of the labor force fell by a larger amount (off 396,000). Still, the jobless rate has climbed only modestly higher since the labor market started to ease in 2023, and it has inched lower in the past few months.

Unemployment has been contained despite modest hiring because layoffs also have been light. Initial claims for unemployment benefits have moved sideways in the past few years, indicating no change in the pace of layoffs. This pattern is confirmed by terminations data in the report on job openings and labor turnover (JOLTs) from the Bureau of Labor Statistics.

A supply-side shift in the labor market also has helped to contain the unemployment rate. Growth in the size of the labor force has slowed, and with fewer individuals seeking employment, those searching are more easily absorbed. Measures of the size of the labor force can be difficult to assess because there are breaks in the series every year. The Bureau of Labor Statistics adjusts the population controls used in its estimating procedure every January without revising past data to align with the new estimates. Thus, every January involves a discontinuity in the series, which will distort year-over-year changes.

However, Haver Analytics maintains a smoothed series originally developed by BLS to eliminate the breaks in the labor force data. As shown in the chart below, the smoothed series on the size of the labor force had been growing at a pace centered on 1.2% through 2022, but it has slowed irregularly since then (an observation for October is not available because of limited data collection during the government shutdown). The overall labor force is still growing, but the slower pace means fewer individuals looking for work, which most likely results in fewer being counted as unemployed.

The BLS collects data every month on both native-born and foreign-born individuals in the labor force. The breaks in these series are an issue, and Haver does not maintain smoothed series. However, the use of moving averages achieves enough smoothing to provide a sense of underlying changes. The native-born labor force has moved erratically in the past couple of years, but it has continued to advance. The foreign-born labor force, in contrast, seems to have peaked in mid-2025 and has generally declined since then.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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

Payroll Employment: Another Surprise in March, The Third Consecutive

Robert Brusca

260403E.jpg

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

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

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

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

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

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

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

France

French IP Waffles

Kathleen Stephansen, CBE

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

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

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

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

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

U.S. Initial Unemployment Claims Edged Down in the Week of March 28

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The S&P manufacturing PMIs for March showed improvements in 44.4% of the 18 reporters. The median reading for the month was at 50.9, indicating that expanding output was the median reading through the period. The median change showed a small step back of 0.1 diffusion points month-to-month.

Sequentially, looking at average yearly activity compared to a year ago, six months compared to 12 months, and three months compared to six months, we see progress in train. For three months compared to six months, the proportion of reporters showing improvement is 72.2%. For these reporters, over six months compared to 12 months, there is a 61.1% improvement proportion, while for 12 months compared to 12 months ago, there is only a 27.8% improvement.

The median reading over three months on average is 50.7, while the median reading over six months is 50.0 and the median reading over 12 months is 49.4. These readings show a very slow but steady improvement in manufacturing over this horizon.

In addition, we calculate the queue percentile standings for each reporter—that is, the level of the current diffusion index compared to all of the observations back to January 2022, expressing the final number as the percentile standing for the current month in that queue. On that basis, the median percentile standing for this group of reporters is 76.5%. It tells us that the median standing is in the top 25 percentile of all the readings since January 2022 to date. That's a reasonably good result. For the euro area, the queue percentile standing is at the 89.8 percentile, while for Germany it's at its 91.8 percentile. For the Monetary Union and for Germany, the current numbers are some of the best we've seen during this period. However, that doesn't mean that they're necessarily stellar readings.

**PMI diffusion vs. PMI rank standings**
German diffusion in manufacturing is 52.2 in March; for the EMU it is 51.6. Germany posts the fourth-highest PMI rank standing and the fifth highest raw standing in March. The highest standing among all reporters is 52.6 from South Korea. This is a period in which no country was posting very strong manufacturing results. In fact, the United States, with a manufacturing PMI rank standing of 79.6, has a diffusion reading in March just a tick below Germany’s whose queue standing at 91.8 seems miles ahead of the U.S.—but it isn’t. Remember that the queue standings are about relative positioning.

Looking at the details, we see that below-median rank readings were logged by Mexico, Russia, India, Brazil, Indonesia, and Turkey. The Asian markets and developing economies seem to have a harder time working up to the standards achieved by other countries.

We also have averages by certain groups of countries. For example, the U.S., the U.K., the Monetary Union, Canada, and Japan—an expanded G10 groping—had an average reading of 51.3 in March, and for that group of countries, the improvements have been steady from 12 months to six months to three months. For the BRIC countries in March, the average standing was 50.4, and for that group there has been a very slight ongoing erosion. For the Asian group, on average, the March reading is 51.2, and there has been a progression to stronger readings from 49.9 over 12 months to 50.5 over six months and to 50.8 over three months.

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On balance, manufacturing was quite uneven in March; however, there's a progression of improvement that is still in place. But with rising oil prices, war in Iran, and lots of knock-on effects to supply trains, it's likely that these readings are going to fall on harder times in the months ahead—unless the Iran war can be wrapped up in very, very, short order. According to the Baltic Dry index, there hasn't been much reduction in global shipping of dry goods. That index excludes oil and other wet goods shipments that clearly have been impeded. However, giving it more time, we may see that the dry index begins to show some difficulties.

Global Manufacturing PMIs Stall—Will It Get Worse?

Andrew Cates

**Global shipping costs**
The Baltic Dirty Tanker Index has surged to multi-year highs, reflecting a sharp tightening in global oil shipping markets. The primary driver is the escalation in Middle East tensions, particularly the effective disruption to flows through the Strait of Hormuz—a critical artery for roughly a fifth of global oil trade. Heightened security risks, including missile and drone attacks on vessels and port infrastructure, have forced rerouting, increased insurance premia and reduced effective tanker supply. At the same time, longer voyage distances—especially for Gulf exports diverted around the Cape—are tying up capacity and amplifying rate pressures. The result is a classic squeeze: constrained supply of available ships meeting elevated demand for transport, pushing freight costs sharply higher.

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**Supply Chain Bottlenecks**
Flash PMI data point to a renewed build-up of supply chain pressures across the major economies. Supplier delivery times—where readings below 50 indicate slower deliveries—have deteriorated in both the US and UK, with the latter showing a particularly sharp decline. The euro area, while more stable, is also drifting in the same direction. This broad-based softening suggests that the disruptions visible in energy and shipping markets are now feeding into the real economy. Longer delivery times are typically an early indicator of tightening supply conditions, rising input costs and, ultimately, renewed pipeline inflation pressures. While not yet at the extremes seen during the pandemic, the direction of travel is clear: supply chains are becoming less efficient just as geopolitical risks intensify.

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**Policy Uncertainty Versus Market Volatility**
A striking divergence is emerging between policy uncertainty and financial market volatility. The US Economic Policy Uncertainty Index has risen sharply, reflecting the intensifying geopolitical backdrop, trade disruptions and an increasingly complex policy environment. By contrast, the VIX—while off its lows—remains relatively contained by historical standards. This gap suggests that financial markets may be underpricing the scale and persistence of current risks. Either uncertainty begins to recede, or market volatility has further to rise. For now, the message is clear: policymakers are operating in a far more uncertain world than markets appear to be discounting.

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**Oil Prices and Monetary Policy** 
The sharp rise in oil prices is once again feeding directly into short-term interest rate expectations, with a strong positive correlation evident between WTI and US 2-year Treasury yields. As energy prices surge, markets are reassessing the near-term inflation outlook and the likely policy response, pushing yields higher. This reflects a familiar dynamic: energy shocks tighten financial conditions not just directly, but via expectations of more restrictive monetary policy. That said, there are important caveats. Medium-term market-based inflation expectations remain relatively well contained, suggesting credibility in central banks’ ability to anchor inflation over time. Moreover, recent communication from Fed Chair Powell indicates that the Federal Reserve is in no immediate hurry to raise rates, pointing instead to a more cautious, data-dependent approach in the face of heightened uncertainty.

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

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**Headline Inflation in Advanced Economies**
Despite the recent energy shock, broader inflation dynamics across advanced economies remain relatively well behaved. The euro area HICP flash estimate rose from 1.9% in February to 2.5% in March, driven largely by higher energy prices. However, core inflation edged down to 2.3% from 2.4%, suggesting that pass-through into underlying price pressures remains limited for now. More generally, inflation across many advanced economies continues to hover close to central bank targets—a marked contrast to the peaks seen in 2022. While higher oil prices will almost certainly continue to lift headline inflation in the near term, and the risk is clearly tilted toward further upside, the broader picture for now remains one of relatively contained underlying pressures. This suggests the current shock is more likely to complicate the disinflation process—potentially slowing or interrupting it—rather than decisively reversing it, though the balance of risks has become less favourable.

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Amid tentative signs of de-escalation from the US administration over the past 48 hours—including suggestions that the conflict with Iran could conclude relatively quickly—financial markets have begun to retrace some of last week’s sharp repricing of Middle East risk. Oil prices have come off their highs, while equities and bonds have rallied as risk premia ease. That said, the earlier phase of the week saw a decisive adjustment: oil surged, front-end yields moved higher, and uncertainty rose as investors grappled with the implications of disrupted energy flows. Even now, the overall adjustment has been uneven—volatility has picked up, but not to levels typically associated with sustained geopolitical stress—raising questions about how fully markets are internalising both the risks and the rapidly shifting outlook. Our charts this week capture these cross-currents. Tanker rates have spiked as shipping routes are disrupted and capacity tightens (chart 1), while PMI delivery times point to early signs of supply chain strain feeding into the real economy (chart 2). At the same time, the divergence between elevated policy uncertainty and relatively contained market volatility suggests there could have been a degree of complacency (chart 3). The rise in oil prices is already feeding into higher short-term yields, though this is being tempered by cooling labour markets, anchored inflation expectations and more cautious central bank signalling (charts 4 and 5). Meanwhile, euro area flash CPI has picked up, but core inflation remains relatively benign, suggesting underlying price pressures are still contained for now (chart 6).

Economy in Brief

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Industrial Production Disappointing, Factory Output Down Broadly

Empire State Index Dropped

Finished Producer Prices Up Slightly

U.S. Consumer Spending Firm

U.S. Consumer Spending Firm

New Japanese Consumer Confidence Survey Shows Confidence Down in September, But Still Much Higher than Last Few Years

Initial Jobless Insurance Claims Rose

Import Prices Up Just 0.2%