Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040220a.jpg" width="353">
The Consumer Price Index (CPI-U) rose 0.5% in January versus the Consensus expectation for a 0.3% gain. Less food &amp; energy prices rose 0.2%, slightly firmer than the 0.1% Consensus expectation.
Rising energy prices were the source of the upside surprise last month as they jumped 4.7%. Gasoline prices spiked 8.1% (+8.3% y/y) following three months of flat to lower prices. Fuel oil prices also were strong, up 6.8% (9.7% y/y).
Prices of core consumer goods were unchanged following more than a year of deflation. Much of that &quot;firming&quot; came as prices for household furnishings &amp; operation rose 0.4% (-1.6% y/y), only the second monthly increase since February. Apparel prices fell another 0.3% (-1.8% y/y) and new &amp; used motor vehicle prices edged 0.1% lower (-4.0% y/y).
Core services prices were again tame, rising just 0.2%. Shelter prices ticked up only 0.1% (2.0% y/y) and medical care services price inflation eased to 0.3% (4.3% y/y). Public transportation prices rose for the first month in three by 0.2% (2.0% y/y).
The chained CPI which adjusts for shifts in consumer buying behavior rose (0.5%) for the first month since September. It is similar to the PCE price deflator. The core price measure also rose (0.2%) for just the first month in three.
A working paper from the Federal Reserve Bank of Kansas City titled &quot;Disaggregate evidence on the persistence of consumer price inflation&quot; can be viewed <a href="http://www.kc.frb.org/Publicat/Reswkpap/RWP03-11.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM"> Consumer Price Index</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>2.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-2.2%</td>
<td>-2.0%</td>
<td>-1.1%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.5%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.7%</td>
<td>0.3%</td>
<td>7.7%</td>
<td>12.2%</td>
<td>-5.8%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.0%</td>
<td>0.5%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM"> Chained CPI: Total (NSA)</a></td>
<td>0.5%</td>
<td>-0.2%</td>
<td>1.6%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>&nbsp;2.0%</td>
</tr>
</tbody>
</table>
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The Consumer Price Index (CPI-U) rose 0.5% in January versus the Consensus expectation for a 0.3% gain. Less food & energy prices rose 0.2%, slightly firmer than the 0.1% Consensus expectation. Rising energy prices were the source of [...]

Consumer Prices Boosted by Energy, Core Tame

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/040219c.jpg" width="353">
On Tuesday, the US Treasury published its December &quot;TIC&quot; data, the compilation of securities transactions between foreign investors and US residents. [&quot;TIC&quot; is an acronym for Treasury International Capital.] The data are contained in Haver&#39;s USINT database in the section &quot;US International Investment Tables&quot;, shown by security type and country. Net foreign purchases of all kinds of securities were $75.7 billion in December and totaled $707.9 billion for 2003. This total is $133.3 billion larger than the previous record, $574.6 billion, set just in 2002.
In the aggregate, this substantial foreign participation in US securities markets clearly illustrates that those investors were not driven away by concerns over 9/11 or other terrorist threats; there was a brief dip in September 2001, but net purchases bounced back immediately. Nor have highly publicized scandals involving US companies and financial markets since mid-2002 discouraged foreign capital inflows.
One aspect that has undergone change is the mix of securities types. Initially, as seen in the graph, total foreign purchases seemed nearly synonymous with those of Treasury securities. However, since late 1996, the trends in the totals and in Treasuries have diverged. Foreigners diversified their portfolios, as they increased their acquisition of federal agency securities, corporate bonds and stocks. Interest in this last item turned down in 2000, with the general pullback in equity values. But purchases of corporate bonds have remained sizable, as indicated in the table below, implying a sustained appeal of corporate securities even through swings in exchange rates, interest rates and asset values.

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<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (bil $)</th>
<th scope="col"> Dec 2003 </th>
<th scope="col">Nov 2003 </th>
<th scope="col">Oct 2003 </th>
<th scope="col">Dec 2002</th>
Monthly Average
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
</tbody>
</table>
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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Total</th>
<th scope="col"><center></center></th>
<th scope="col">75.7</th>
<th scope="col">87.5</th>
<th scope="col">27.8</th>
<th scope="col">38.0</th>
<th scope="col">59.0</th>
<th scope="col">47.9</th>
<th scope="col">41.8</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Treasuries</td>
<td><center></center></td>
<td>29.8</td>
<td>33.4</td>
<td>12.0</td>
<td>13.5</td>
<td>22.8</td>
<td>10.0</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;)</td>
<td><center></center></td>
<td>17.3</td>
<td>10.6</td>
<td>9.4</td>
<td>15.8</td>
<td>13.6</td>
<td>16.3</td>
<td>13.7</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds</td>
<td><center></center></td>
<td>20.4</td>
<td>29.6</td>
<td>20.9</td>
<td>13.2</td>
<td>22.6</td>
<td>15.2</td>
<td>18.5</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks</td>
<td>13.3</td>
<td>8.8</td>
<td>-1.2</td>
<td>3.2</td>
<td>3.1</td>
<td>4.2</td>
<td>9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds</td>
<td>0.0</td>
<td>-3.7</td>
<td>-5.1</td>
<td>-5.0</td>
<td>2.1</td>
<td>2.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks</td>
<td>-5.0</td>
<td>8.8</td>
<td>-8.2</td>
<td>-2.6</td>
<td>-5.2</td>
<td>-0.1</td>
<td>-4.2</td>
</tr>
</tbody>
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On Tuesday, the US Treasury published its December "TIC" data, the compilation of securities transactions between foreign investors and US residents. ["TIC" is an acronym for Treasury International Capital.] The data are contained in [...]

Foreign Purchases of US Securities Set Record in 2003

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040219a.jpg" width="353">
Initial claims for jobless insurance dropped 24,000 (-6.5%) to 344,000 last week. Consensus expectations had been for higher claims of 355,000. The prior week&#39;s level was revised up slightly.
The latest figure is for the survey period for February non-farm payrolls and it is roughly unchanged from the January period. During the last ten years there has been a 79% (negative) correlation between the level of initial claims and the y/y change in non-farm payrolls.
The four-week moving average of initial claims was about unchanged at 352,000 (-10.7% y/y).
Continuing claims for unemployment insurance surged 106,000 w/w. The prior week&#39;s level was little revised.
The insured rate of unemployment ticked up w/w to 2.5%, the average level in January.

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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">2/14/04</th>
<th scope="col">2/07/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>344.0</td>
<td>368.0</td>
<td>-15.7%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,186</td>
<td>-7.1%</td>
<td>3,535</td>
<td>3,575</td>
<td>3,022</td>
</tr>
</tbody>
</table>
Leading Indicators Up Trend Firmed 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 19, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040219b.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board rose an expected 0.5% in January, the strongest monthly increase since October. December&#39;s 0.2% gain was unrevised.
One month gains amongst the leaders&#39; component series eased slightly to 60% but over a six-month span 90% of the series rose.
Longer weekly hours worked, fewer claims for jobless insurance, higher stock prices, improved vendor performance and higher consumer expectations made large positive contributions to the January gain in the leading index. A lower money supply, a narrower yield curve and lower building permits had slight negative contributions.
The Leading index is based on eight previously reported economic data series and two that are estimated.
The coincident indicators rose with all of the four components up over one and six month spans.
The ratio of coincident-to-lagging indicators rose to another record level. The ratio is an indicator of excess relative to actual economic performance.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM"> Business Cycle Indicators</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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">Leading</td>
<td>0.5%</td>
<td>0.2%</td>
<td>3.6%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>-2.9%</td>
<td>-2.2%</td>
<td>-2.8%</td>
<td>-1.4%</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 19, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040219d.jpg" width="353">
The Philadelphia Fed&#146;s February index of general business conditions in the manufacturing sector fell to 31.4 in February from 38.8 last month. Consensus expectations had been for less of a decline to 35.0.
Despite the decline, the last three months&#39; average of 33.5 is the highest since early 1984.
During the last twenty years there has been a 62% correlation between the level of the Philadelphia Fed Business Conditions Index and quarterly growth in real GDP. The correlation with quarterly growth in factory sector industrial production has been 76%.
Amongst the sub indexes, new orders fell to 27.5, the lowest level since November. Shipments (19.3) also dropped to the lowest level since September. The employment index fell to 12.5 but that level still is consistent with expanding factory sector employment.
The business conditions index reflects a separate survey question, not the sub indexes.
A separate survey of expected business conditions in six months dipped to 51.4, the lowest level since June.
The prices paid index surged 8.4 points to the highest level since February 1995.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0204.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM"> Philadelphia Fed Business Outlook</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">General Activity Index</td>
<td>31.4</td>
<td>38.8</td>
<td>0.7</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>43.7</td>
<td>35.3</td>
<td>16.8</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
</tr>
</tbody>
</table>
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Initial claims for jobless insurance dropped 24,000 (-6.5%) to 344,000 last week. Consensus expectations had been for higher claims of 355,000. The prior week's level was revised up slightly. The latest figure is for the survey period [...]

Initial Claims for Jobless Insurance Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040218e.jpg" width="353">
Japanese GDP jumped 1.7% in Q4, equal to 7.0% at an annual rate. Consensus forecasts had called for 4.3% annualized growth.
Business investment led the surge, up 5.1% (quarterly rate), contributing almost half of the quarter&#39;s total GDP gain. Exports were also strong, expanding by 4.2%.
Prices in Japan continue to fall sharply, down 2.6% year-over-year. Export prices declined 6.2% and those for nonresidential investment by 6.0% (price deflators are not seasonally adjusted). The strong yen accounts for at least some of the price deflation. Additionally, expectations are widespread that the strong yen will eventually hurt exports, weakening the economy anew. Thus, investors and commentators greeted today&#39;s vigorous GDP results with skepticism. The trend shown in the table below suggests that recent economic strength may be a lagged response to the yen weakness that prevailed until the middle of last year. However, as can be seen in the graph, over longer spans the relationship between the currency and growth appears not to be particularly reliable.

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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Percent Change in Japan GDP&nbsp;</th>
<th scope="col">4th Qtr 2003</th>
<th scope="col">3rd Qtr 2003</th>
<th scope="col">2nd Qtr 2003</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">GDP in 1995 Prices</td>
<td>1.7</td>
<td>0.6</td>
<td>0.8</td>
<td>3.6</td>
<td>2.7</td>
<td>-0.4</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Private Consumption*</td>
<td>0.9</td>
<td>0.5</td>
<td>0.3</td>
<td>2.1</td>
<td>0.9</td>
<td>0.6</td>
<td>1.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Nonresidential Investment</td>
<td>5.1</td>
<td>-0.2</td>
<td>4.4</td>
<td>12.4</td>
<td>8.8</td>
<td>-7.1</td>
<td>1.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Private Residential Investment</td>
<td>-1.0</td>
<td>2.9</td>
<td>-0.1</td>
<td>1.0</td>
<td>-0.6</td>
<td>-4.1</td>
<td>-5.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports: Goods/Services</td>
<td>4.2</td>
<td>3.2</td>
<td>1.6</td>
<td>10.9</td>
<td>9.9</td>
<td>8.0</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports: Goods/Services</td>
<td>1.4</td>
<td>2.6</td>
<td>-1.2</td>
<td>3.7</td>
<td>4.7</td>
<td>2.0</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP in Current Prices</td>
<td>0.7</td>
<td>0.3</td>
<td>0.6</td>
<td>1.2</td>
<td>0.2</td>
<td>-1.4</td>
<td>-1.0</td>
</tr>
<tr>
<td class="firstcol">Deflator (Year/Year)</td>
<td>-2.6</td>
<td>-2.1</td>
<td>-2.0</td>
<td>-2.6</td>
<td>-2.4</td>
<td>-1.2</td>
<td>-1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Real Effective Exchange Rate (BkJapan-Averages)</td>
<td>5.8</td>
<td>0.2</td>
<td>-0.6</td>
<td>5.5</td>
<td>0.5</td>
<td>-5.5</td>
<td>-10.9</td>
</tr>
</tbody>
</table>
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Japanese GDP jumped 1.7% in Q4, equal to 7.0% at an annual rate. Consensus forecasts had called for 4.3% annualized growth. Business investment led the surge, up 5.1% (quarterly rate), contributing almost half of the quarter's total [...]

Japan GDP Surges 1.7% in Q4

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040218c.jpg" width="353">
Housing starts dropped 7.9% last month as nationwide temperatures plummeted to the coldest since 2000. It was the first m/m decline since August.
December starts were revised slightly lower due to a lowered figure for multi-family starts. Consensus forecasts had been for 2.00 million starts in January.
Single family starts fell 8.0%. The shallow decline in December from the record level in November was lessened.
Multi-family starts fell 7.8% following a downwardly revised 4.2% gain in December.
Housing starts fell hard m/m in the Northeast (2.1% y/y) for the third month in four. In the Midwest starts also fell sharply for the third month in four (-8.6% y/y). Starts fell 5.2% m/m in the South (12.0% y/y) and in the West starts were off just 1.0% (+0.8% y/y).
Building permits fell 2.8% m/m (+6.9% y/y).

<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/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</a></th>
<th scope="col"> Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,903</td>
<td>2,067</td>
<td>4.1%</td>
<td>1,848</td>
<td>1,711</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,537</td>
<td>1,670</td>
<td>1.9%</td>
<td>1,501</td>
<td>1,364</td>
<td>1,272</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>366</td>
<td>397</td>
<td>14.7%</td>
<td>347</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,899</td>
<td>1,953</td>
<td>6.9%</td>
<td>1,831</td>
<td>1,750</td>
<td>1,637</td>
</tr>
</tbody>
</table>
Housing Market Index Down Again in February 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040218d.jpg" width="353">
The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) fell 5.8% in February to 65 (+4.8% y/y). It was the third decline in four months.
During the last fifteen years there has been a 79% correlation between the y/y change in the NAHB index and the change in single family housing starts.
The sub index which measures expected home sales in six months fell to the lowest level since June.
The index of current market conditions for home sales fell 5.3% m/m to 72 (+4.3% y/y), the lowest level since July.
Traffic of prospective buyers fell hard and is off 16.4% from the August peak.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the National Association of Home Builders using this <a href="http://www.nahb.org">link</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM"> Nat&#39;l Association of Home Builders</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">Composite Housing Market Index</td>
<td>65</td>
<td>69</td>
<td>62</td>
<td>64</td>
<td>61</td>
<td>56</td>
</tr>
</tbody>
</table>
Mortgage Applications Up With More Refinancing 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040218b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association rose 4.9% last week following a 6.8% decline the week prior. The index is up slightly in February from the January average.
Applications to refinance rose 6.4% w/w and are up 15.7% this month versus January.
The effective interest rate on a conventional 30-Year mortgage fell to 5.74% from 5.88% the prior week. The low for 30-year financing was last June at 5.41%. The effective rate on a 15-year mortgage fell to 5.11%. The low was 4.87% last June.
Purchase applications rose 2.0% w/w (+23.9% y/y) but the February average is off 9.1% from January.
During the last ten years there has been a 55% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
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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</table>
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<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">2/13/04</th>
<th scope="col">1/06/04</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>837.1</td>
<td>797.8</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>413.9</td>
<td>402.2</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>3,298.3</td>
<td>3,099.1</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
Chain Store Sales Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040218a.jpg" width="353">
Chain store sales surged another 1.4% last week following the prior week&#39;s 1.8% spurt, according to the ICSC-UBS survey.
Sales in February are up 1.7% versus the average January level.
During the last ten years there has been a 59% correlation between the year-to-year percent change in the ICSC-UBS measure of chain store sales and the change in non-auto retail sales less gasoline.
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.

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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">02/14/04</th>
<th scope="col">02/07/04</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>438.9</td>
<td>432.9</td>
<td>7.5%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
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Housing starts dropped 7.9% last month as nationwide temperatures plummeted to the coldest since 2000. It was the first m/m decline since August. December starts were revised slightly lower due to a lowered figure for multi-family [...]

Housing Starts Down With Temps

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040217c.jpg" width="353">
Industrial production in the Euro-zone, the U. S. and the UK has been essentially flat since 2000. The flat trend in the Euro-zone, as a whole, is the result of above average performance in some countries, notably Ireland and below average performance in others, notable Italy and the Netherlands.
While there has been no discernible trend in industrial production in western Europe and the US over the past three years, industrial production in Russia has forged ahead. Industrial production in December 2003 was 8.1% above the corresponding period of 2002. For all of 2003 the increase was 6.75%, which followed yearly increases of 3.80% and 5.05% in 2002 and 2001 respectively.

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</table>
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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production (2000=100)</th>
<th scope="col">Dec 04</th>
<th scope="col">Nov 04</th>
<th scope="col">Dec 03</th>
<th scope="col">M/M %</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">Euro-zone</td>
<td>101.45</td>
<td>101.28</td>
<td>99.23</td>
<td>0.17</td>
<td>2.24</td>
<td>100.35</td>
<td>99.94</td>
<td>100.52</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>100.70</td>
<td>100.40</td>
<td>98.70</td>
<td>0.30</td>
<td>2.03</td>
<td>99.58</td>
<td>99.89</td>
<td>101.18</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Germany</td>
<td>101.80</td>
<td>101.30</td>
<td>98.30</td>
<td>0.49</td>
<td>3.56</td>
<td>99.63</td>
<td>99.09</td>
<td>100.27</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>97.80</td>
<td>98.06</td>
<td>97.70</td>
<td>-0.20</td>
<td>0.10</td>
<td>97.46</td>
<td>97.96</td>
<td>99.33</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Spain</td>
<td>100.73</td>
<td>101.21</td>
<td>99.69</td>
<td>-0.47</td>
<td>1.04</td>
<td>100.62</td>
<td>99.29</td>
<td>99.18</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Ireland</td>
<td>130.45</td>
<td>134.31</td>
<td>111.63</td>
<td>-2.87</td>
<td>16.86</td>
<td>126.24</td>
<td>118.53</td>
<td>110.04</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Netherlands</td>
<td>95.10</td>
<td>97.40</td>
<td>98.90</td>
<td>-2.36</td>
<td>-3.84</td>
<td>97.33</td>
<td>99.51</td>
<td>100.51</td>
</tr>
<tr>
<td class="firstcol">United States (1997=100)</td>
<td>114.7</td>
<td>114.5</td>
<td>111.9</td>
<td>0.17</td>
<td>2.50</td>
<td>112.6</td>
<td>112.5</td>
<td>113.1</td>
</tr>
<tr class="odd">
<td class="firstcol">United Kingdom</td>
<td>94.6</td>
<td>94.70</td>
<td>95.40</td>
<td>-0.11</td>
<td>-0.84</td>
<td>95.03</td>
<td>95.74</td>
<td>98.43</td>
</tr>
<tr>
<td class="firstcol">Russia</td>
<td>118.4</td>
<td>116.9</td>
<td>109.5</td>
<td>1.28</td>
<td>8.13</td>
<td>115.7</td>
<td>108.4</td>
<td>104.4</td>
</tr>
</tbody>
</table>
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Industrial production in the Euro-zone, the U. S. and the UK has been essentially flat since 2000. The flat trend in the Euro-zone, as a whole, is the result of above average performance in some countries, notably Ireland and below [...]

Increases in Industrial Production in Russia Outpace Those in Western Europe and in the U.S.

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040217a.jpg" width="353">
Industrial production jumped 0.8% in January and about matched Consensus expectations for a 0.7% rise. December&#39;s slight gain in output was revised to no change.
Cold winter weather boosted the production gain by raising utility output 5.2% (4.3% y/y).
Production in the factory sector increased a moderate 0.4% and the December output gain was revised to 0.1% from 0.3% (2.3% y/y).
Output in selected high-technology industries continued to pace the figures in January and jumped 2.6% (24.6% y/y). Prior months&#39; gains were revised lower. Output of computers and peripheral equipment rose 1.9% (14.2% y/y). Output of semiconductors &amp; related equipment surged 3.2% (42.7% y/y) and output of communications equipment rose for the first month in three, up 2.0% (+4.2% y/y).
Excluding high-tech, factory output rose by 0.1% for the second month (0.8% y/y). Electrical equipment &amp; appliance outputrose 0.4% for the second month (3.1% y/y). Furniture output also rose 0.4% for the third consecutive monthly gain (-2.4% y/y). Machinery output rose 0.7% but metals production fell. Output of nondurables was unchanged (-0.2% y/y).
Total capacity utilization moved up to 76.2%, the highest level since June &#39;02. Y/Y growth in capacity was a low 1.1%, the slowest since early 1989.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM"> Production &amp; Capacity</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Industrial Production</td>
<td>0.8%</td>
<td>0.0%</td>
<td>2.3%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>76.2%</td>
<td>75.6%</td>
<td>75.2%(1/03)</td>
<td>74.9%</td>
<td>75.6%</td>
<td>77.4%</td>
</tr>
</tbody>
</table>
Empire State Index Rose Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 17, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040217b.jpg" width="353">
The Empire State Index of General Business Conditions for February rose three points to 42.05, another record high. A decline in the index to 37.5 had been the Consensus expectation. January&#39;s level was revised slightly lower.
The new orders index improved to 34.93 following a slight January decline (revised down). The shipments index slumped 15 points to 26.61 from the January record. The employment index also slid to 16.54, a five month low.
The index of prices strengthened further to 33.62, a series&#39; record.
The February index of expectations for business conditions six months ahead fell for the second month to 53.93, the lowest level since July. Expectations for capital expenditures improved moderately following a sharp drop in January.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question, not the components.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM"> Empire State Manufacturing Survey</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y (2/03) </th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col"> 2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>42.05</td>
<td>38.85</td>
<td>1.71</td>
<td>16.30</td>
<td>7.02</td>
<td>-13.57</td>
</tr>
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Industrial production jumped 0.8% in January and about matched Consensus expectations for a 0.7% rise. December's slight gain in output was revised to no change. Cold winter weather boosted the production gain by raising utility [...]

U.S. Industrial Production Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040216a.jpg" width="353">
The Israeli economy rose 1.23% in 2003 after two years of decline. Increases in private consumption and exports and a decline in imports offset declines in fixed investment and government consumption during the year.
The increase is, however, not large enough to stem the decline in real per capita income which began in 2001. A rise in real per capita income can only be achieved with economic growth greater than the increase in population, which is currently rising close to 2% a year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Gross Domestic Product Percent Change</th>
<th scope="col">&nbsp;2003 4Q</th>
<th scope="col">2003 3Q</th>
<th scope="col">2003 2Q</th>
<th scope="col">2003 1Q</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.63</td>
<td>0.69</td>
<td>-0.36</td>
<td>0.82</td>
<td>1.23</td>
<td>-1.04</td>
<td>-0.76</td>
</tr>
<tr>
<td class="firstcol">Private Consumption</td>
<td>0.84</td>
<td>1.63</td>
<td>3.07</td>
<td>-1.29</td>
<td>1.99</td>
<td>-0.39</td>
<td>3.28</td>
</tr>
<tr class="odd">
<td class="firstcol">Government Consumption</td>
<td>-0.99</td>
<td>0.37</td>
<td>-2.54</td>
<td>0.30</td>
<td>-1.20</td>
<td>5.57</td>
<td>4.05</td>
</tr>
<tr>
<td class="firstcol">Fixed Investment</td>
<td>1.63</td>
<td>-3.80</td>
<td>-0.15</td>
<td>-1.14</td>
<td>-4.60</td>
<td>-9.59</td>
<td>-4.30</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>-3.0</td>
<td>7.59</td>
<td>-2.70</td>
<td>2.61</td>
<td>5.73</td>
<td>-3.21</td>
<td>-10.91</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>0.26</td>
<td>4.27</td>
<td>1.39</td>
<td>-5.47</td>
<td>-1.97</td>
<td>-2.73</td>
<td>-4.14</td>
</tr>
<tr class="odd">
<td class="firstcol">Units</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Real GDP in Bil. Shekels</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>465.6</td>
<td>460.0</td>
<td>464.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Population (millions)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>6.75</td>
<td>6.63</td>
<td>6.51</td>
</tr>
<tr>
<td class="firstcol">Per capita GDP in Shekels</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>69000</td>
<td>69301</td>
<td>71418</td>
</tr>
</tbody>
</table>
</body>
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The Israeli economy rose 1.23% in 2003 after two years of decline. Increases in private consumption and exports and a decline in imports offset declines in fixed investment and government consumption during the year. The increase is, [...]

Israeli Economy Increases in 2003 after Two Years of Decline

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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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 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 February m/m drops in nondefense and defense aircraft orders, motor vehicles & parts orders rose 3.1% (7.6% y/y), the third consecutive m/m rise, after a 0.7% January gain. 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 rise. 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 January. 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.

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- 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

Robert Brusca

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The S&P composite PMIs in March weakened decisively across the board, with only four of 25 reporters showing an improvement in March compared to February. February had been a strong month, with only 10 of 25 monthly composite indicators weaker on a month-to-month basis. In January, 11 of the composite indicators weakened month-to-month. So, between January and March, the proportion of countries showing composite indicators as weaker month-to-month went up from 40% to 44% and then all the way up to 80%, a huge shift for the worse.

**Sequential trends**
Sequentially, looking at 12-months compared to 12-months ago, six-months compared to 12-months, and three-months compared to six-months, we see a similar progression. Over 12 months, 43.5% of the reporters were weaker; over six months, 39.1% of them were weaker period-to-period. And then over three months, that proportion jumped to 65.2% that were weaker month-to-month.

The war in Iran has been reflected in these numbers. We see it very clearly for the March data, the first full month after the attack. The average and median total PMI readings deteriorated from February to March: the average readings fell from 52.6 in February to 50.7 in March, and the median readings fell from 52.1 to 51.4.

The number of reporters with PMI values below 50, indicating contraction, jumped to 9 in March from 4 in February and 5 in January.

The data show that there has been broad weakening among these reporters. In addition, there has been a sharp rise in the number of them reporting outright economic contraction. The composite indexes are showing not just weakness month-to-month, but actual stepped-up contraction.

The queue percentile standings are also substantially degraded, with only eight of the 25 queue metrics that are reported above their historic medians on data back to January 2022. And the countries that are reporting good performance are often very small countries. Ghana and Zambia show very strong queue percentile standings. Sweden shows a high percentile standing. However, Japan and Hong Kong also show percentile standings in their 90th percentile, and Germany's standing has gotten to its 70th percentile. However, if oil prices climb and shortages in a variety of supply chains begin to be impacted because of the lack of oil, and in some cases, fertilizer and other commodities, we are going to start to see weakness spread.

In some developing countries, there's already a more generalized economic weakness being caused by fuel rationing because prices are so high. If the Strait of Hormuz is not open soon, these conditions are going to get demonstrably worse. Even though the U.S. economy has done relatively well and is unaffected by oil supply shortages—although prices in the U.S. certainly have risen—the U.S. composite PMI index has only a 19.6 percentile standing, not a terribly good place to say that the economy is largely unaffected by these events. The U.S. composite PMI has fallen for two months in a row.

Not surprisingly, three countries have reported the lowest composite PMI readings since 2022 when these rankings began. They are Saudi Arabia, Qatar, and the United Arab Emirates, all of whom are in the middle of this Middle East conflict.

The European Monetary Union posted a queue standing above its 50th percentile, at 54.9. And its diffusion reading on the month at 50.5 is similar to the U.S. at 50.3, indicating that economic activity is still expanding in the community—but barely. Both France and Italy logged composite PMI readings below 50; France has generated three sub-50 diffusion readings in a row, and in addition, three more of them sequentially over three months, six months, and 12 months. The queue standings may overstate the case for resiliency in some instances. There was plenty of weakness to go around across economies in March.

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Composite PMIs Retreat Broadly

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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.