Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040330a.jpg" width="353">
Chain store sales dropped 1.9% last week according to the International Council of Shopping Centers (ICSC)-UBS survey.The decline reversed all of the weekly gains during the prior two months.
The latest decline left sales so far in March 0.1% below the February average.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
During the last ten years there has been a 51% correlation between the year-to-year percent change in the ICSC-UBS measure of chain store sales and consumer sentiment.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/27/04</th>
<th scope="col">03/20/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>431.0</td>
<td>439.5</td>
<td>6.6%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Consumer Confidence Remained Depressed 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 30, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040330b.jpg" width="353">
The Conference Board&#146;s Index of Consumer Confidence for March slipped 0.2% to 88.3 versus February&#39;s level, revised up slightly to 88.5 from 87.3 .
In contrast, the March reading of Consumer Sentiment from the University of Michigan rose 1.5% from February. The drop in Confidence was more moderate than Consensus expectations for a decline to 86.0.
During the last ten years there has been a 67% correlation between the level of consumer confidence and the y/y % change in real PCE.
The present situation reading rose 1.0% to 84.1 (+37.0% y/y) and prior month&#39;s levels were revised up sharply. The index of consumer expectations fell by 1.0% (+48.2% y/y), the third consecutive monthly decline, and prior month&#39;s levels were revised down.
Jobs were viewed as hard to get by 30.0% of respondents, an increase from prior month&#39;s levels which were revised down. The low for this series was in 2000 when 11.2% of respondents viewed jobs as hard to get.
Expectations for business conditions in six months held steady in March but only 19.3% of respondents expected conditions to improve, the lowest since last April.
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1401/@EF1401.HTM"> Conference Board</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</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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<tbody>
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<td class="firstcol">Consumer Confidence</td>
<td>88.3</td>
<td>88.5</td>
<td>43.8%</td>
<td>79.8</td>
<td>96.6</td>
<td>106.6</td>
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Chain store sales dropped 1.9% last week according to the International Council of Shopping Centers (ICSC)-UBS survey.The decline reversed all of the weekly gains during the prior two months. The latest decline left sales so far in [...]

Chain Store Sales Flop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040329a.jpg" width="353">
Home prices as tallied by the Office of Federal Housing Enterprise Oversight (OFHEO) surged in 4Q 2003 by the most for any one period since 1Q 1979. The 3.7% jump last quarter pulled home price appreciation for the year to 6.9%.
The acceleration in home prices was notable versus the prior two years when prices rose an average of 1.6% each quarter. It was attributed to the economy&#39;s emergence from recession combined with the continued low level of interest rates. 
Home price appreciation accelerated across the country&#39;s regions. The greatest accelerations occurred in Vermont, New York and the District of Columbia.
The OFHEO house price index is a geometric weighted average based on more than 26.5 million repeat transactions over 29 years and 12,000 transactions annually.
View the latest OFHEO release <a href="http://www.ofheo.gov/media/pdf/4q03hpi.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E911/@E91101/@E91101.HTM"> OFHEO</a></th>
<th scope="col">4Q03</th>
<th scope="col">3Q03</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">House Price Index</td>
<td>3.7%</td>
<td>1.6%</td>
<td>8.0%</td>
<td>6.9%</td>
<td>7.1%</td>
<td>8.0%</td>
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</tbody>
</table>
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Home prices as tallied by the Office of Federal Housing Enterprise Oversight (OFHEO) surged in 4Q 2003 by the most for any one period since 1Q 1979. The 3.7% jump last quarter pulled home price appreciation for the year to 6.9%. The [...]

Home Prices Surged in 4Q03

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040326a.jpg" width="353">
Consumer spending rose just 0.2% in February following an upwardly revised 0.5% January increase. A 0.5% gain in total PCE had been the Consensus expectation.
Despite a modest increase in light vehicle sales last month, durable goods spending fell 0.2%. Spending on non-durables rose a slight 0.1% (6.5% y/y). After accounting for a 0.4% rise in the price deflator for non-durables, real non-durables spending fell 0.4% (+5.0% y/y). Services spending rose 0.4% (5.3% y/y).
Personal income rose 0.4% (+4.6% y/y) in February versus Consensus expectations for a 0.3% gain.
Wages &amp; salaries were strong with a 0.5% (+3.6% y/y) rise after an upwardly revised 0.7% January pop. Strength in wages was again spread evenly across industries.
Personal disposable income rose 0.4% (5.6% y/y) following an upwardly revised 0.9% January jump. Tax payments rose slightly (-3.6% y/y) after the 4.8% January skid. 
The PCE chain price index rose 0.2%. Less food &amp; energy prices rose 0.1% (1.1% y/y) last month after a like gain in January, but earlier figures were revised up slightly. 
The savings rate ticked up to 1.9%. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM"> Disposition of Personal Income</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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">Personal Income</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.6%</td>
<td>3.3%</td>
<td>2.3%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.2%</td>
<td>0.5%</td>
<td>5.8%</td>
<td>5.0%</td>
<td>4.8%</td>
<td>4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>1.9%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2%</td>
<td>0.3%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>1.4%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
Surprise Gain in U.S. Consumer Sentiment 
by <a href="/comment/Stone.html">Carol Stone</a> March 26, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040326d.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index rebounded unexpectedly in the latter part of March to give a 95.8 reading for the month as a whole. The mid- month index was 94.1, and Consensus expectations had called for further erosion to 93.2. Instead, the late March results put the month at the best level since mid-2002, apart from the unusual and unsustainable spurt in January.
The gain in sentiment may be related to the reduced number of claims for unemployment insurance. That recently favorable trend is probably the most positive sign about the labor market in many months. A comparison of the Michigan Index with monthly claims data shows 71%-83% correlation over various parts of the last 25 years. So if there are fewer layoffs, people &quot;feel better&quot; enough to push up the Michigan results. In turn, over the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real PCE. That correlation has risen to 84% during the last five years. While it might go without saying that better labor market conditions should lead to more spending, what we have in the latest jobless claims data and the Michigan Survey is a very early indication that labor markets are getting better and that people may be noticing that. Moreover, the higher sentiment readings are somewhat surprising in light of the sharp nationwide surge in gasoline prices, the recent lackluster stock market, and the renewed terrorist concerns.
Perceptions of both current economic conditions and expectations shared in the more positive economic picture. The assessment of current conditions improved by more than a point from the mid-month result, and expectations reversed their earlier decline to show a net gain for the month, albeit a small one.
The University of Michigan survey is not seasonally adjusted.It 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.

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<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">March</th>
<th scope="col">Mid- March</th>
<th scope="col">Feb</th>
<th scope="col">March 2003</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">Consumer Sentiment</td>
<td>95.8</td>
<td>94.1</td>
<td>94.4</td>
<td>77.6</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.8</td>
<td>105.7</td>
<td>103.6</td>
<td>90.0</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Expectations</td>
<td>88.8</td>
<td>86.6</td>
<td>88.5</td>
<td>69.6</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
</tr>
</tbody>
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Consumer spending rose just 0.2% in February following an upwardly revised 0.5% January increase. A 0.5% gain in total PCE had been the Consensus expectation. Despite a modest increase in light vehicle sales last month, durable goods [...]

U.S. Personal Spending Growth Slowed

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/040325a.jpg" width="353">
The &quot;final&quot; release of U.S. GDP for Q4-2003 showed virtually no revision from the &quot;preliminary&quot; 4.1% growth. Upward revisions to PCE-services and nonresidential structures were offset by downward shifts in inventories and state and local government outlays.
This report brought the first reading on Q4 corporate profits; these had their third strong quarterly gain in a row, when measured to include inventory valuation and capital consumption adjustments. The resulting &quot;operating profits&quot; were up at quarterly rates of 10.3%, 9.9% and 7.2% in Q2, Q3 and Q4, respectively. Without the accounting adjustments, profits were also strong in Q3 and Q4, but had been soft in Q2, when a tax law change sharply increased depreciation charges calculated for tax purposes.
Whichever way profits are measured, they benefited from both volume gains and cost constraints in the second half of last year. As seen in the table below, value added by domestic non-financial corporations was even stronger than GDP in both Q3 and Q4. Prices increased modestly. But labor costs fell in both periods, and non-labor costs, especially &quot;interest and miscellaneous payments&quot;, were down in Q3 and flat in Q4. Unit profits, that is, profit &quot;margins&quot;, thus widened significantly. Indeed, at $0.122 per unit value added, operating profit margins were the largest since Q4 of 1997.

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<th scope="col" class="firstcol">SAAR, % Changes&nbsp;&nbsp;(except as noted)</th>
<th scope="col">Q4-2003</th>
<th scope="col">Q3-2003</th>
4th Qtr/4th Qtr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Real GDP</td>
<td>4.1</td>
<td>8.2</td>
<td>3.1</td>
<td>2.2</td>
<td>0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Real Value Added:&nbsp; Domestic Non-financial Corporations</td>
<td>5.0</td>
<td>9.3</td>
<td>5.4</td>
<td>3.5</td>
<td>-1.4</td>
</tr>
<tr>
<td class="firstcol">Price per Unit:&nbsp;&nbsp; Dollars</td>
<td>$1.019</td>
<td>$1.016</td>
<td>$1.015</td>
<td>$1.013</td>
<td>$1.012</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; % Change</td>
<td>1.2</td>
<td>0.8</td>
<td>0.5</td>
<td>-0.2</td>
<td>1.2</td>
</tr>
<tr>
<td class="firstcol">Compensation/Unit</td>
<td>-0.6</td>
<td>-4.2</td>
<td>-1.8</td>
<td>-2.8</td>
<td>0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-labor Cost/Unit</td>
<td>0.0</td>
<td>-3.2</td>
<td>-3.6</td>
<td>0.0</td>
<td>4.1</td>
</tr>
<tr>
<td class="firstcol">Profits*/Unit (Qtrly % Chg)</td>
<td>2.5</td>
<td>10.2</td>
<td>27.1</td>
<td>20.0</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Profits After Tax** (Qtrly % Chg)</td>
<td>12.4</td>
<td>9.4</td>
<td>20.7</td>
<td>24.1</td>
<td>-5.3</td>
</tr>
</tbody>
</table>
Jobless Claims Edge Upward, But Remain in 3-Year Low Ranges 
by <a href="/comment/Stone.html">Carol Stone</a> March 25, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040325b.jpg" width="353">
Initial claims for jobless insurance edged upward last week, interrupting a 3-week- long decline. Even so, the rise was only 1,000 and despite a 2,000 upward revision to the prior week, still allowed the 4-week moving average to decrease to 341,500, its lowest since the end of January 2001.
Continuing claims for unemployment insurance fell 46,000 in the March 13 week from a downwardly revised level in the the prior week, which now shows a 36,000 increase. The latest figure of 3.004 million continuing claims is the lowest since July 27, 2001, i.e., as the economy was experiencing that year&#39;s recessionary contraction.
The insured rate of unemployment was unchanged at 2.4% for a fifth consecutive week.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">3/20/04</th>
<th scope="col">3/13/04</th>
<th scope="col">3/06/04</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>
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<td class="firstcol">Initial Claims</td>
<td>&nbsp;&nbsp; 339</td>
<td>338</td>
<td>342</td>
<td>-15.9%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>&nbsp;&nbsp; --</td>
<td>3,004</td>
<td>3,050</td>
<td>-13.5%</td>
<td>3,533</td>
<td>3,573</td>
<td>3,023</td>
</tr>
</tbody>
</table>
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The "final" release of U.S. GDP for Q4-2003 showed virtually no revision from the "preliminary" 4.1% growth. Upward revisions to PCE-services and nonresidential structures were offset by downward shifts in inventories and state and [...]

Volume Gains & Cost Cutting Lift Q4 Corporate Profits

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040324e.jpg" width="353">
The South Korean economy ended 2003 on a firm note as GDP grew 2.7% (seasonally adjusted) in the fourth quarter, that is, 11.3% annualized. It stood 3.9% above the fourth quarter of 2002 and for the year as a whole, GDP was 3.1% above 2002.
The Q4 performance is an encouraging sign after outright contraction early in 2003 and a modest increase in Q3. Private consumption remained weak throughout, but investment and net exports made important positive contributions. In particular, investment in machinery and equipment turned upward distinctly after three negative quarters, yielding its best outturn since early in 2000.
The upturn in growth toward year-end is reassuring for Korea, as 2003 otherwise had a lackluster performance by recent historical standards. Only 1998, in the aftermath of the Asian-wide currency crises, saw more weakness. In the absence of such cataclysmic events, 2003 was indeed sluggish, so the fourth quarter improvement is beneficial. It gives a firmer base now that the nation is beset with political uncertainty in the face of the impeachment of its president. [N.B. The Bank of Korea is revising these national accounts data, including rebasing them to 2000 prices from 1995. Not all the detail is available to us from this source yet, and the data in real terms presently begin only in 1995.]

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol">GDP &amp; Selected Components</th>
Seasonally&nbsp; Adjusted &nbsp;Quarterly % Chg
4th Qtr/4th Qtr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Q4-2003</td>
<td>Q3-2003 </td>
<td>Q2-2003</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">GDP&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>2.7</td>
<td>1.6</td>
<td>-0.1</td>
<td>3.9</td>
<td>7.5</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Year/Year</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>3.1</td>
<td>7.0</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">Private Consumption</td>
<td>-0.5</td>
<td>0.3</td>
<td>-0.8</td>
<td>-2.2</td>
<td>5.5</td>
<td>7.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Investment</td>
<td>3.2</td>
<td>-0.7</td>
<td>0.0</td>
<td>3.6</td>
<td>9.1</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>2.6</td>
<td>1.7</td>
<td>0.7</td>
<td>7.4</td>
<td>8.4</td>
<td>10.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Machinery &amp; Equipment</td>
<td>4.3</td>
<td>-4.9</td>
<td>-1.0</td>
<td>-2.4</td>
<td>9.6</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">Net Exports (Bil.won)</td>
<td>SKW14.1</td>
<td>SKW9.3</td>
<td>SKW7.3</td>
<td>SKW37.3</td>
<td>SKW19.4</td>
<td>SKW21.1</td>
</tr>
</tbody>
</table>
</body>
</html>

The South Korean economy ended 2003 on a firm note as GDP grew 2.7% (seasonally adjusted) in the fourth quarter, that is, 11.3% annualized. It stood 3.9% above the fourth quarter of 2002 and for the year as a whole, GDP was 3.1% above [...]

Q4 Pick-Up in Investment Helps South Korean Economy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040324a.jpg" width="353">
Durable goods orders rose 2.5% last month and recovered from a downwardly revised 2.7% decline in January. Consensus expectations had been for a 1.5% rise in February orders.
Non-defense capital goods orders rose 2.9% but the advance report of a 1.5% gain in January was reversed to show a 2.7% decline. Excluding aircraft and parts, orders rose 1.1% but January was revised down to a 0.3% decline versus the advance report of a 3.6% jump.
Orders for computers &amp; electronic products rose 1.2% (15.6% y/y) but that followed a 4.2% gain in January that was about half the rise in the advance report.
Machinery orders rose 1.3% (+14.2% y/y) but January was taken down to a 4.6% drop from a 1.9% decline reported initially. Orders for electrical equipment, appliances &amp; components fell 0.4% following a little-revised 3.6% January gain.
Excluding the transportation sector durable goods orders fell 0.3% (+10.4% y/y) after a 0.6% January gain, revised from 2.0%. Transportation equipment orders rose 9.9% following a little-revised 10.5% January drop. Aircraft orders rose 43.8% as both defense (27.6% y/y) and non-defense (29.8% y/y) orders soared m/m.
Shipments of durable goods recovered 0.8% (7.8% y/y) after the 1.0% January decline. Excluding transportation shipments fell 1.4% (8.2% y/y) but January was revised to slight decline.
Durable inventories rose for the fourth month in five, up 0.4% (-2.4% y/y).
&quot;Global Gain, Local Pain&quot; from the Federal Reserve Bank of Richmond examines the local costs of the Globalization of Manufacturing on this <a href="http://www.rich.frb.org/pubs/regionfocus/winter04/cover.htm">website</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/@ED/@ED01/@ED0101/@ED0101.HTM"> NAICS Classification</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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">Durable Goods Orders</td>
<td>2.5%</td>
<td>-2.7%</td>
<td>8.7%</td>
<td>2.6%</td>
<td>-1.7%</td>
<td>-10.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Non-defense Capital Goods</td>
<td>2.9%</td>
<td>-2.7%</td>
<td>13.0%</td>
<td>5.6%</td>
<td>-7.2%</td>
<td>-15.5%</td>
</tr>
</tbody>
</table>
New Home Sales Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 24, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040324d.jpg" width="353">
Sales of new single family homes jumped 5.8% m/m to 1.163M in February and were up 24.4% versus year ago sales that were socked by severe winter weather. Consensus estimates were for a smaller gain in sales to 1.100M. January sales were revised down slightly.
Sales were mixed m/m in the country&#39;s regions. Northeast sales jumped 12.0% and doubled the weather depressed &#39;03 level. In the West sales surged 28.5% (39.3% y/y). Lower sales were logged in the Midwest, down 10.6% m/m (+2.2% y/y), and in the South, down 1.2% (+15.4% y/y).
The median price of a new home jumped 4.8% m/m to $205,500 (9.9% y/y).
These new home sales data from the US Census Department reflect current sales versus the existing home sale figures which reflect closings on past sales.

<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/@E9/@E904/@E90401/@E90401.HTM"> Homes Sales (000s, AR)</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</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">New Single-Family</td>
<td>1,163</td>
<td>1,099</td>
<td>24.4%</td>
<td>1,091</td>
<td>977</td>
<td>907</td>
</tr>
</tbody>
</table>
Mortgage Applications Dipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 24, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040324b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association dipped 0.2% last week following the 25.6% jump the prior period. It was the first weekly decline since early February.
Purchase applications fell 0.8% w/w (+17.0% y/y) and in March are 6.7% ahead of the February average.
During the last ten years there has been a 56% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance nudged 0.1% higher (-38.7% y/y) following five weeks of strong gain.
The effective interest rate on a conventional 30-Year mortgage was unchanged at 5.62%. The effective rate on a 15-year mortgage dipped slightly to 4.99%.
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>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<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">03/19/04</th>
<th scope="col">03/12/04</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>1,114.9</td>
<td>1,117.1</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>448.9</td>
<td>452.4</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>4,988.7</td>
<td>4,983.7</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
Chicago Fed National Activity Index Again Positive 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 24, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040324c.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) was 0.39 in February, positive for the seventh month in the last eight.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
During the last twenty years there has been a 76% correlation between the level of the CFNAI and quarterly growth in real GDP.
The three-month moving average of the CFNAI dipped slightly to 0.29 but was still near the high of the last four years.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
For a complete discussion of the latest Chicago Fed&#39;s National Activity Index click <a href="http://www.chicagofed.org/economicresearchanddata/national/pdffiles/CFNAI_november2003.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM"> Chicago Fed</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.39</td>
<td>0.40</td>
<td>-0.93</td>
<td>-0.13</td>
<td>-0.39</td>
<td>-1.17</td>
</tr>
</tbody>
</table>
</body>
</html>

Durable goods orders rose 2.5% last month and recovered from a downwardly revised 2.7% decline in January. Consensus expectations had been for a 1.5% rise in February orders. Non-defense capital goods orders rose 2.9% but the advance [...]

U.S. Durable Goods Orders Up, Revisions Negative

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040323b.jpg" width="353">
The economic news announced today, relating to consumer spending and confidence in France, Italy and the Netherlands, adds fuel to the growing doubts about this year&#39;s growth prospects for the Euro Zone.
Consumer spending has yet to show any signs of accelerating. February data on household expenditures on manufactured goods, a good indicator of French consumer spending were practically unchanged from January. Growth in retail sales in Italy in December and January improved, but a decline in confidence suggests this trend may not hold up.
The seasonally adjusted consumer confidence index in Italy increased in March, but the ISAE reported that confidence weakened toward the end of the survey period after the Madrid bombings. On average, the Italian consumer confidence index in the first quarter of 2004 was 5% below that of the fourth quarter of last year.
In the Netherlands, where confidence had been generally improving since July, 2003, it declined in March by 4 points.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Consumption Indicators</th>
<th scope="col">Feb 04</th>
<th scope="col">Jan 04</th>
<th scope="col">Dec 03</th>
<th scope="col">Feb 03</th>
<th scope="col">Jan 03</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col">Y/Y&nbsp; %</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">French Household&nbsp; Expenditures on Mfg Goods (Bil 95 Euros)</td>
<td>17.9</td>
<td>17.8</td>
<td>&nbsp;</td>
<td>17.3</td>
<td></td>
<td>0.04</td>
<td>3.62</td>
<td>208.0</td>
<td>204.3</td>
<td>201.9</td>
</tr>
<tr>
<td class="firstcol">Italy Retail Sales (2000=100)</td>
<td></td>
<td>108.9</td>
<td>108.3</td>
<td></td>
<td>106.4</td>
<td>0.55</td>
<td>2.35</td>
<td>107.4</td>
<td>105.3</td>
<td>102.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Confidence Indicators</td>
<td>Mar 04</td>
<td>Feb 04</td>
<td>Mar 03&nbsp;</td>
<td></td>
<td></td>
<td>M/M&nbsp; %</td>
<td>Y/Y&nbsp; %</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy (1980=100)</td>
<td>101.9</td>
<td>98.9</td>
<td>99.0</td>
<td></td>
<td></td>
<td>3.03</td>
<td>-4.59</td>
<td>106.2</td>
<td>115.8</td>
<td>122.6</td>
</tr>
<tr>
<td class="firstcol">Netherlands (% balance)</td>
<td>-26</td>
<td>-22</td>
<td>-30</td>
<td></td>
<td></td>
<td>-4</td>
<td>+12</td>
<td>-36</td>
<td>-20</td>
<td>-1</td>
</tr>
</tbody>
</table>
</body>
</html>

The economic news announced today, relating to consumer spending and confidence in France, Italy and the Netherlands, adds fuel to the growing doubts about this year's growth prospects for the Euro Zone. Consumer spending has yet to [...]

Economic News from France, Italy and the Netherlands Suggests Lower Growth Prospects in the Euro Zone

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

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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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New orders for durable goods fell a more-than-expected 1.4% m/m in February, the fourth monthly fall in five months, after decreases of 0.5% in January (0.0% initially) and 0.9% in December (unrevised), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 1.0% m/m February decline. The year-on-year rate eased to 7.3% in February, the lowest since October, from 9.9% in January, though remaining positive since January 2025. Durable goods orders excluding the transportation sector rose 0.8% (6.0% y/y) in February, the 10th straight m/m rise, after a 0.3% increase in January. Durable goods orders excluding defense fell 1.2% (+7.3% y/y) following a 0.2% January rebound.

The m/m fall in February durable goods orders was led by a 28.6% m/m plunge in orders for nondefense aircraft & parts following decreases of 1.7% in January and 22.7% in December. Orders for defense aircraft & parts fell 3.8% after a 27.2% January slump and an 11.8% December jump. Orders excluding aircraft rose 1.2% (6.6% y/y), the seventh m/m rise in eight months, after a 0.3% January increase.

Durable goods orders for transportation generally fell 5.4% (+10.1% y/y) in February, the fourth m/m fall in five months, after a 1.9% decline in January. In addition to the drops in nondefense and defense aircraft orders, orders for motor vehicles & parts rose 3.1% (7.6% y/y), the third consecutive m/m rise, after a 0.7% January increase. Orders for electrical equipment, appliances & components slipped 0.1% (+5.0% y/y) following a 1.0% January decline, while orders for primary metals advanced 2.2% (10.2% y/y), the third successive m/m increase, after a 1.1% January rise. Machinery orders climbed 1.5% (9.2% y/y), the 10th straight m/m gain, on top of a 0.6% January increase. Orders for fabricated metal products rose 0.5% (5.4% y/y), the seventh m/m rise in eight months, following a flat January reading. Orders for all other durable goods rose 0.5% (1.3% y/y), up for the sixth consecutive month, after a 0.3% January increase. Meanwhile, orders for computers & electronic products were essentially unchanged (+7.5% y/y) after five straight m/m gains.

Capital goods orders fell 6.6% (+11.5% y/y) in February, the fourth m/m fall in five months, after a 3.0% drop in January. Nondefense capital goods orders slid 7.4% (+9.5% y/y), the fifth m/m slide in six months, after a 1.0% January decrease. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rebounded 0.6% (5.1% y/y), the seventh m/m rise in eight months, following a 0.4% January decline. Defense capital goods orders fell 1.1% (+25.1% y/y), down for the fourth time in five months, after a 14.2% January drop. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 0.9% (5.7% y/y), the fifth m/m increase in six months, after no change in January.

Shipments of all manufactured goods advanced 1.4% (3.5% y/y) in February, the fourth m/m gain in five months, after a 0.7% increase in January. Durable goods shipments rose 1.3% (6.8% y/y), up for the fifth time in six months, after a 0.9% January gain. Nondurable goods shipments climbed 1.4% (0.1% y/y), the third straight m/m rise, after a 0.5% January increase.

Unfilled orders of durable goods edged up 0.1% (11.1% y/y) in February, the seventh straight m/m gain, after a 0.6% rise in January. Excluding transportation, unfilled orders increased 0.2% (1.9% y/y), also up for the seventh consecutive month, following a 0.3% January rise.

Manufacturing inventories inched up 0.1% (0.8% y/y) in February, the fourth straight m/m increase, after a 0.1% uptick in December. Durable goods inventories edged up 0.1% (1.8% y/y) in February, the fifth consecutive m/m increase, after a 0.2% rise in January, while nondurable goods inventories were virtually unchanged (-0.8% y/y) following two successive m/m declines.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

260407X35.jpg

260407Y35.jpg

- Headline orders -1.4% (+7.3% y/y) in Feb., fourth m/m decline in five mths.
- Nondefense aircraft & parts -28.6% m/m following January’s -1.7%.
- Transportation orders -5.4%, down for the fourth time in five mths.; orders ex transportation +0.8%, 10th straight m/m rise.
- Core capital goods shipments +0.9%, fifth m/m gain in six mths.
- Durable goods shipments +1.3%; unfilled orders +0.1%; inventories +0.1%.

U.S. Durable Goods Orders Fall in February, Led by a Plunge in Nondefense Aircraft Orders

260406N15.jpg

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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.

Economy in Brief

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