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/040623b.jpg" width="353">
Japanese trade flows are growing with some vigor. Exports rose a steep 7.3% in May to &yen;5.24 billion, a record high outstripping by 7.2% the previous record of &yen;4.89 billion, which was only just reached last December. Press reports accompanying this data release today highlighted this strong export gain and accompanying widening of the trade surplus to &yen;1.28 billion. Indeed, this performance implies that world demand is strengthening.
Japanese imports have also been strong in recent months, and this development has received less attention. The monthly increase in May wasn&#39;t so large, &quot;just&quot; 1.5%, but imports having been gaining at a double-digit pace, gauged on a year-on-year basis. Their May total of &yen;3.96 billion is the second highest ever, with the record barely higher at &yen;3.98 billion in December 2000.
The current growth in imports is not in petroleum, which is in fact down from a year ago. Instead, raw materials, especially metals, and machinery, particularly parts and audio/video equipment are rising rapidly, albeit somewhat erratically. Thus, manufacturers look to be stocking up in anticipation of further production gains; possibly, also, consumer demand for televisions and similar items is picking up, even as those latter products are now frequently imported into Japan from elsewhere in Asia. These are both signs of broadening economic recovery in Japan and elsewhere.

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<th scope="col" class="firstcol">Billion Yen, except as noted</th>
<th scope="col">May 2004</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">May 2003</th>
Monthly Average or December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>1.28</td>
<td>0.98</td>
<td>1.00</td>
<td>0.87</td>
<td>0.85</td>
<td>0.82</td>
<td>0.55</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>5.24</td>
<td>4.89</td>
<td>4.86</td>
<td>4.46</td>
<td>4.55</td>
<td>4.34</td>
<td>4.08</td>
</tr>
<tr>
<td class="firstcol">Year/Year %Change</td>
<td>9.8%</td>
<td>10.8%</td>
<td>13.2%</td>
<td>--</td>
<td>8.5%</td>
<td>15.3%</td>
<td>-14.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>3.96</td>
<td>3.90</td>
<td>3.86</td>
<td>3.59</td>
<td>3.70</td>
<td>3.52</td>
<td>3.53</td>
</tr>
<tr>
<td class="firstcol">Year/Year %Change</td>
<td>4.9%</td>
<td>6.6%</td>
<td>12.3%</td>
<td>--</td>
<td>17.%</td>
<td>14.3%</td>
<td>-13.4%</td>
</tr>
</tbody>
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Japanese trade flows are growing with some vigor. Exports rose a steep 7.3% in May to ¥5.24 billion, a record high outstripping by 7.2% the previous record of ¥4.89 billion, which was only just reached last December. Press reports [...]

Japanese Exports and Imports Both Grow in May

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040623a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association ticked up 0.1% (-61.3% y/y) last week. So far in June applications are 11.0% below the May average which fell 18.9% from April.
Applications to refinance mortgages fell 1.7% (-82.3% y/y) last week and so far in June are 11.6% below May. Purchase applications rose for the second consecutive week, up 1.1% (+10.5% y/y), but were down 4.1% from May.
During the last ten years there has been a 63% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-Year mortgage fell to 6.46% from 6.60% the week earlier and so far this month has averaged the same 6.53% as in May. The effective rate on a 15-year mortgage fell to 5.94%.
&quot;Mortgage Refinancing&quot; is a paper published last year by the Federal Reserve Bank of San Francisco. It can be viewed <a href="http://www.sf.frb.org/publications/economics/letter/2003/el2003-29.pdf"> here</a>.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">06/18/04</th>
<th scope="col">06/11/04</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>601.2</td>
<td>600.6</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>454.5</td>
<td>449.5</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,454.6</td>
<td>1,479.6</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
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The index of mortgage applications compiled by the Mortgage Bankers Association ticked up 0.1% (-61.3% y/y) last week. So far in June applications are 11.0% below the May average which fell 18.9% from April. Applications to refinance [...]

Mortgage Applications Drift At Low Level

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040622c.jpg" width="353">
Inflation in producer prices in the Baltic States spiked up in the last two months. Data on producer prices for Estonia and Latvia were released yesterday and show year over year rates of increases in the seasonally unadjusted data for May 2004, of 3.05% for Estonia and 7.29% for Latvia. Lithuania had reported a 10.74% increase earlier this month.Oil prices increases appear to be the chief culprit in all three countries. In addition, Latvia reported that some administrative price adjustments associated with its entry into the European Union were made earlier in the year.
If we take the cumulative data for the January-May, 2004. compared with the comparable period of 2003, instead of just one month-to-month comparison, the result are much smaller increases for Estonia and Lithuania -- 1.45% and 1.87%, respectively. The year to date increase for Latvia remains high at almost 6.0%, suggesting that in addition to the oil price effect, the administrative price adjustments resulted in a one time upward shift in the producer price level. 

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<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol">Produce Price Index (NSA)</th>
<th scope="col">May 04</th>
<th scope="col">&nbsp;Apr 04</th>
<th scope="col">May&nbsp; 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %&nbsp;</th>
<th scope="col">Jan-May 04/ Jan-May 03 % &nbsp;</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
<th scope="col">&nbsp;2001 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Latvia (2000=100)</td>
<td>113.3</td>
<td>112.5</td>
<td>105.6</td>
<td>0.71</td>
<td>7.29</td>
<td>5.96</td>
<td>3.17</td>
<td>1.02</td>
<td>1.62</td>
</tr>
<tr>
<td class="firstcol">Estonia (1995=100)</td>
<td>141.45</td>
<td>140.42</td>
<td>137.27</td>
<td>0.73</td>
<td>3.05</td>
<td>1.45</td>
<td>0.21</td>
<td>0.41</td>
<td>4.42</td>
</tr>
<tr class="odd">
<td class="firstcol">Lithuania (2000=1000</td>
<td>104.1</td>
<td>101.2</td>
<td>94.0</td>
<td>2.87</td>
<td>10.74</td>
<td>&nbsp;1.87</td>
<td>-0.56</td>
<td>-0.73</td>
<td>-1.38</td>
</tr>
</tbody>
</table>
Signs of Increased Confidence Among German Investors and Italian Consumers 
by <a href="/comment/Curley.html">Louise Curley</a> June 22, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040622d.jpg" width="353">
Germany&#39;s institutional investors and financial analysts became a little more optimistic in June. The ZEW Financial Marketing Survey that polls some 350 investors and analysts reported that the percentage of optimists over the pessimists rose 1% from 46.4 in May to 47.4 in June. This was the first increase since last December. The outlook for continued strong export demand has apparently outweighed lackluster domestic prospects. The ZEW measure is based on a small sample and is volatile; however, it often gives an early indication of the results of the broader IFO index to be released this Friday.
Italian consumers also showed some increased confidence in June. The ISAE measure of consumer confidence rose 2.78% to 99.9 (1980=100) in June from 97.2 in May. However, confidence of the Italian consumer is still well below the ebullient levels of the pre September 11, 2001 days.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jun 04</th>
<th scope="col">May 04</th>
<th scope="col">Jun&nbsp; 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2001&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">ZEW (% Balance)&nbsp;</td>
<td>47.4</td>
<td>46.4</td>
<td>18.7</td>
<td>1.0</td>
<td>26.1</td>
<td>38.4</td>
<td>45.3</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">ISAE&nbsp; Consumer Confidence Indicator (1980=1000</td>
<td>99.9</td>
<td>97.2</td>
<td>105.8</td>
<td>2.78</td>
<td>-4.77</td>
<td>106.1</td>
<td>115.8</td>
<td>122.7</td>
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Inflation in producer prices in the Baltic States spiked up in the last two months. Data on producer prices for Estonia and Latvia were released yesterday and show year over year rates of increases in the seasonally unadjusted data [...]

Producer Price Inflation in the Baltic Countries

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040622a.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales ticked up just 0.1% last week, but the gain followed small increases in the prior two weeks following three weeks of decline.
Sales improvement may have been related to the decline in the average retail price for unleaded regular gasoline which fell to $1.94 last week. Prices were down $0.13 (6.2%) from the peak in the third week of May.
Recent increases in chain store sales left the average so far in June 0.5% below May.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is based on same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040622b.jpg" width="353">
Lower spot crude oil prices have led the decline in gasoline prices with the price of West Texas Intermediate crude yesterday at $37.63 versus its peak of $41.88 on May 24th.
Moving in the other direction, wholesale natural gas prices moved higher to $6.49/mmbtu (+10.0% y/y), up 28% versus the daily low in February of $5.08/mmbtu.
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>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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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">06/21/04</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 class="odd">
<td class="firstcol">Unleaded Regular Gasoline, NY ($/Gal.)</td>
<td>$1.94</td>
<td>$1.48</td>
<td>29.5%</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>$37.63</td>
<td>$32.55</td>
<td>24.3%</td>
<td>$31.10</td>
<td>$26.17</td>
<td>$25.97</td>
</tr>
<tr class="odd">
<td class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></td>
<td>06/19/04</td>
<td>06/12/04</td>
<td>Y/Y</td>
<td> 2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>439.8</td>
<td>439.2</td>
<td>4.9%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales ticked up just 0.1% last week, but the gain followed small increases in the prior two weeks following three weeks of decline. Sales improvement [...]

Chain Store Sales Rose As Gasoline Prices Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040621a.jpg" width="353">
Decline through much of last month in the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) was followed by a gain in the latest period.
The declines lowered the six-month growth rate in the index to 3.6% from double digit growth that prevailed through much of 2H03 and into 1Q04.
During the last ten years there has been a 68% correlation between the six-month growth in ECRI&#39;s leading index of the US economy and two quarter growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. There has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM"> ECRI Leading Index</a></th>
<th scope="col"> 06/11/04</th>
<th scope="col"> 06/04/04</th>
<th scope="col"> Growth Rate</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">Weekly</td>
<td>132.7</td>
<td>132.1</td>
<td>3.6%</td>
<td>6.6%</td>
<td>1.1%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td> May</td>
<td> April</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>133.6</td>
<td>134.6</td>
<td>7.1%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
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Decline through much of last month in the Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) was followed by a gain in the latest period. The declines lowered the six-month growth rate in [...]

ECRI Leading Indicators Slow

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040618a.jpg" width="353">
Exchange rates matter. The latest data on Italian industry orders indicate that trends in orders from foreign customers and in the value of the euro tend to shift more or less at the same time. In our graph of year-on-year percent changes, the euro exchange rate slowed its rate of gain (inverted in the chart) at almost the same time that foreign orders turned toward a slower rate of decline. These orders are now rising rapidly and the exchange rate has fallen outright, although it remains higher than a year ago (and has stabilized over the last few weeks).
Domestic orders at Italian industry have also picked up somewhat since early last year, but not nearly as vigorously as foreign orders. In fact, in the latest month, April, domestic orders were barely above those in April 2003, although other recent months have seen stronger comparisons. Even so, while April&#39;s domestic orders stand 6.9% above their low last May, foreign orders are 11.4% above their low in March 2003.
Renewed growth in total orders over the past year has been spread across a number of industries. Textiles, wood products, furniture, metals and precision equipment are all rising. Specialized fibers and machinery are mixed and leather and paper are still weak.

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<colgroup><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">Index 2000=100</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">Feb 2004</th>
<th scope="col">Yr/Yr % Change</th>
Annual Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>99.6</td>
<td>98.5</td>
<td>99.2</td>
<td>3.4</td>
<td>94.9</td>
<td>99.0</td>
<td>97.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic</td>
<td>97.8</td>
<td>98.7</td>
<td>98.0</td>
<td>0.1</td>
<td>93.5</td>
<td>97.4</td>
<td>96.6</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>103.7</td>
<td>98.1</td>
<td>101.9</td>
<td>11.3</td>
<td>98.1</td>
<td>102.6</td>
<td>97.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: Euro ($/&#128;)</td>
<td>1.1989</td>
<td>1.2261</td>
<td>1.2640</td>
<td>10.4</td>
<td>1.1317</td>
<td>0.9453</td>
<td>0.8955</td>
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</tbody>
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</body>
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Exchange rates matter. The latest data on Italian industry orders indicate that trends in orders from foreign customers and in the value of the euro tend to shift more or less at the same time. In our graph of year-on-year percent [...]

Italy Industrial Orders Gain as Euro Softens

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040617e.jpg" width="353">
The labor market in Hong Kong looks to be improving gradually. Employment is rising month by month and has done so six of the last seven months. This is a distinct turnaround from declines that spanned most of the previous nine months. Hong Kong reports its labor market data as trailing three-month averages, so the turn to a new trend is more impressive.
This employment growth has been accompanied by a slowly falling trend in unemployment. At 7.0% in May, the unemployment rate is still historically high, but is well off a peak of 8.7% in July 2003. An accompanying measure of underutilization, so-called &quot;underemployment&quot; is more stubborn. It too is down from a peak last June and July, but has drifted back upward this spring. &quot;Underemployment&quot; represents employed workers who work involuntarily fewer than 35 hours per week. The comparable US concept is &quot;part-time for economic reasons&quot;. Thus, even though employment is growing, a sizable share of workers -- near an all-time large share -- are forced to work an abbreviated workweek.
In the accompanying graph, we see that the recent peak in these &quot;underutilization rates&quot; (our term) was likely related to the protracted recession in Japan. Now that that economy has started to expand more definitively, both unemployment and underemployment in Hong Kong may well dissipate more consistently.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Select Labor Market Indicators (%, except where noted)</th>
<th scope="col">May 2004</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">May 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">Employment, Mo/MoChange (Thous)</td>
<td>2.7</td>
<td>5.3</td>
<td>11.7</td>
<td>40.2</td>
<td>-20.0</td>
<td>14.6</td>
<td>-11.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % change</td>
<td>1.2</td>
<td>0.7</td>
<td>0.4</td>
<td>--</td>
<td>-0.6</td>
<td>0.5</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Underemployment&nbsp; % of Employment</td>
<td>3.6</td>
<td>3.8</td>
<td>3.7</td>
<td>4.0</td>
<td>3.8</td>
<td>3.3</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Underemployment Rate&nbsp; &nbsp; % of Labor Force</td>
<td>3.4</td>
<td>3.5</td>
<td>3.4</td>
<td>3.6</td>
<td>3.5</td>
<td>3.0</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate </td>
<td>7.0</td>
<td>7.1</td>
<td>7.2</td>
<td>8.3</td>
<td>7.9</td>
<td>7.3</td>
<td>5.1</td>
</tr>
<tr>
<td class="firstcol">Underutilized Labor Force (Sum of Unemployment and Underemployment)</td>
<td>10.4</td>
<td>10.6</td>
<td>10.6</td>
<td>11.9</td>
<td>11.4</td>
<td>10.3</td>
<td>7.6</td>
</tr>
</tbody>
</table>
</body>
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The labor market in Hong Kong looks to be improving gradually. Employment is rising month by month and has done so six of the last seven months. This is a distinct turnaround from declines that spanned most of the previous nine [...]

Hong Kong Employment Rises, But Underemployment Still High

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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Winnie Tapasanun

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The U.S. ISM Services PMI decreased to 54.0 in March following a 2.3-point rise to 56.1 in February (the highest reading since July 2022), according to today’s report by the Institute for Supply Management, indicating expansion in the services sector for the 21st consecutive month but at a slower pace. The March index, while above 50.8 in March 2025 and a low of 49.4 in June 2024, remained below a high of 55.5 in October 2024 and a record-high 67.5 in November 2021. The 12-month average was 52.3, pointing to continued growth in the U.S. services sector. The Action Economics Forecast Survey had expected 54.9 for March.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index fell to 53.8 in March after a 2.0-point increase to 55.7 in February, signaling expansion for the 10th straight month, albeit at a slower rate. The latest reading was above 50.6 in March 2025 and a low of 49.3 in June 2024, while remaining below a record-high 66.7 in November 2021. These series date back to July 1997.

In the latest services survey, the business activity index declined to 53.9 in March after rising to 59.9 in February, indicating continued expansion in business activity for 21 consecutive months, though at the slowest pace since September. The index was above a low of 50.0 in June 2024 but below a record-high 70.9 in November 2021. In March, 22.8% of respondents (NSA) reported higher activity while 14.6% reported an activity decline. The new orders index rose to 60.6 in March after increasing to 58.6 in February, reflecting expansion in new orders for the 10th straight month and the highest level since February 2023. The index was above its recent low of 47.2 in May 2025 but below a high of 61.0 in February 2023 and a record-high 69.2 in October 2021. In March, 32.0% of respondents (NSA) reported higher new orders while a lessened 12.6% reported declines. Meanwhile, the supplier deliveries index (NSA) increased to 56.2 in March from 53.9 in February, indicating slower supplier delivery performance for the 16th straight month after one month in faster territory in November 2024.

On the labor front, the employment index fell to 45.2 in March after rising to 51.8 in February, showing employment activity in the services sector contracted for the first time since November and at the lowest level since December 2023. The latest reading was above a low of 43.5 in December 2023 but below a high of 54.1 in June 2023 and a high of 58.9 in April 2021. A reduced 10.7% of respondents (NSA) indicated higher employment in March while an increased 18.4% reported declines.

On the inflation front, the prices index jumped to 70.7 in March from 63.0 in February, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 and at the fastest pace since October 2022. The index was above a low of 53.9 in March 2024 and a low of 55.1 in June 2023 but significantly below a peak of 83.7 in March 2022. An increased 45.7% of respondents (NSA) reported higher prices in March while only 1.2% reported price declines.

Additionally, the new export orders index dropped to 50.7 in March from 57.2 in February, showing new export orders expanded for the third time in four months but at a slower rate. The imports index rose to 55.2 in March from 51.8 in February, registering the third expansion in four months and the highest level since January 2024. The inventories index declined to 54.8 in March from 56.4 in February, indicating inventories expanded for the fourth time in five months but at a slower pace. The inventory sentiment index slipped to 54.3 in March from 55.3 in February, showing continued expansion since May 2023. The backlog of orders index fell to 53.6 in March from 55.9 in February, marking the second successive month of expansion following 11 straight months of contraction. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- ISM Services PMI at 54.0 in Mar., down 2.1 pts. from Feb.; below forecasts but above the 12-month avg. of 52.3.
- Business Activity (53.9, 21st straight month of expansion); New Orders (60.6, 10th consecutive month of expansion and fastest since Feb. ’23); Employment (45.2, first contraction since Nov.); Supplier Deliveries (56.2 vs. 53.9).
- Prices Index (70.7) indicates prices rising since June ’17, the fastest pace since Oct. ’22.

U.S. ISM Services PMI Slips in March, Still Indicating Expansion for the 21st Straight Month

Tian Yong Woon

In this week’s Letter, we examine the first-round price impacts of the surge in oil prices stemming from the ongoing Middle East conflict in Asia. Despite recent rhetoric and reports suggesting a potentially swift resolution, the conflict continues to unfold, with a ceasefire hanging in the balance, and with some measures of shipping volumes through the Strait of Hormuz still reduced to a trickle. At the same time, crude oil prices have been whipsawing amid shifting market perceptions about the persistence of the current supply shock (chart 1). The initial effects of higher oil prices are already showing up in hard data, particularly in energy- and fuel-related inflation across Indonesia, South Korea, and Vietnam (chart 2). In response, several governments have rolled out sizeable subsidy programmes to cushion rising energy costs, though these measures come with significant fiscal strain.

We also assess recent consumer inflation expectations in South Korea and Taiwan, which show early signs of edging higher (chart 3), although there is as yet no clear evidence of a meaningful unanchoring. To add further nuance, our latest Blue Chip survey suggests that most panellists expect only a limited and temporary pass-through from higher energy prices to core inflation, though a non-trivial minority anticipate a more persistent effect (chart 4). On the policy front, respondents broadly expect central banks to delay easing while avoiding outright tightening, with outcomes likely to diverge across regions (chart 5). In the near term, upcoming policy decisions in India, New Zealand, and South Korea—alongside other key data releases—will provide a useful test of these expectations (chart 6).

**The Middle East conflict**
The Middle East conflict continues to rage, with IMF-tracked shipping volumes through the Strait of Hormuz still reduced to a trickle. Meanwhile, crude oil prices remain volatile, gyrating alongside shifting perceptions over how soon normal oil flows might resume. In reality, there is still little sign of a substantive resolution, and no agreement to fully reopen the strait appears imminent, suggesting that oil flows are likely to remain constrained at low levels in the near term. That said, some investors are closely monitoring developments following reports of discussions around a potential 45-day ceasefire, which could pave the way toward a more lasting resolution. Until then, and absent any meaningful supply relief, crude oil prices—and by extension, energy-related inflation—are likely to face continued upward pressure, particularly for oil-dependent, importing economies.

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**Initial price impacts**
The initial inflation concerns among policymakers and investors stemming from the surge in oil prices are now beginning to show up in the data, as illustrated in chart 2. The latest March readings—capturing the period after the onset of the Middle East conflict—already point to a sharp acceleration in energy-related prices on a year-ago basis. Indonesia’s energy CPI basket has risen by around 9%, while diesel prices in South Korea have jumped 17%. Vietnam’s retail gasoline prices have seen an even more pronounced increase, at roughly 25.6%. Given the scale of these price surges, and their direct impact on everyday essentials—particularly fuel for daily commutes and broader economic activity—governments across Asia have begun rolling out sizeable subsidy programmes. These measures, often implemented at significant fiscal cost, aim to cushion the burden on households and firms. For instance, South Korea’s finance ministry proposed a supplementary budget of around $17.3 billion in late March to support low-income households, youth, and businesses amid higher oil prices, with approval expected by April 10. Meanwhile, Indonesia has allocated approximately $22.4 billion toward energy subsidies and support for selected energy and utilities firms to help keep prices affordable.

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**Consumer inflation expectations**
What policymakers are likely to focus on—beyond the immediate price impacts—is how the recent surge in oil prices feeds into inflation expectations. If left unanchored, these expectations could pose a far greater challenge than the supply-driven price shock itself, including reduced monetary policy effectiveness in reining in inflation and the risk of a self-fulfilling inflation cycle—though it is worth noting that such dynamics are not yet close to materialising. So far, there are some early, albeit inconclusive, signs that near-term consumer inflation expectations are beginning to drift higher in certain economies. As shown in chart 3, one-year-ahead inflation expectations edged up to 2.7% in March, while in Taiwan, consumer sentiment regarding domestic price trends over the next six months has turned notably more pessimistic relative to overall confidence.

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**The latest Blue Chip survey**
Turning to investor perspectives on how higher energy prices may feed into inflation, our special questions in the latest Blue Chip Financial Forecasts (BCFF) survey offer some useful nuance. As shown in chart 4, around two-thirds of panellists expect only a limited and temporary pass-through from higher oil prices to core inflation. That said, a non-trivial minority (31%) anticipate a more moderate and persistent pass-through. This is notable given the focus on core inflation, and underscores how energy prices can generate second-round effects even in typically non-energy components, reflecting the pervasive role of energy in everyday economic activity—from manufacturing to the upkeep of a wide range of goods and services.

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Delving deeper, we also asked panellists about their views on the prospective path of central bank policy should energy-driven inflation prove persistent. As shown in chart 5, responses broadly coalesce around two themes: central banks are likely to delay easing rather than tighten, and policy responses will vary meaningfully across regions. The former is already playing out to some extent in recent central bank decisions across Asia, with several explicitly citing the ongoing Middle East conflict as a reason to remain vigilant on inflation and refrain from easing policy prematurely. As for the latter, there are already signs of divergence in how different central banks are approaching the situation.

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**The week ahead**
Looking to the week ahead, there will be ample opportunities to assess whether investor expectations for central bank policy moves play out across Asia, with several rate decisions due—most notably in India, New Zealand, and South Korea. Also on the docket are China’s March CPI print and a range of Japan-related releases. Policymakers are likely to remain focused on balancing inflation control with supporting growth and maintaining currency stability. For now, and absent offsetting domestic factors, expectations for further near-term easing have been tempered by rising inflation risks. In China, recent CPI readings point to a modest pickup, while producer price deflation has begun to ease after a prolonged period of weak or negative inflation.

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Asia

Economic Letter from Asia: First-Round Effects

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

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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 will play out that could completely undermine these trends before they get a chance to run to conclusion. 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%.

Economy in Brief

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