Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040210d.jpg" width="353">
In the immediate aftermath of the G7 Finance Minister&#39;s meeting last week, the dollar fell against the Euro and the UK pound. Early on February 9th, the euro was equal to $1.28 and the pound, $1.86.
The decline in the dollar that started in early 2002 has largely been relative to the euro, the pound and the Canadian and Australian dollars. In terms of the US dollar, the Chinese Yuan, the Hong Kong dollar and the Malaysian ringgit have been virtually unchanged. The Korean won, the Thai baht and the Taiwan dollar have been slightly more flexible, but their year over year changes have been small compared to those of the euro.
Reading between the lines of the communiqu&eacute; released by the Finance Ministers, one suspects that the G7 may begin to exert pressure on Asian governments to appreciate their currencies.

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<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Exchange Rates and Appreciation(+) Depreciation (-)</th>
<th scope="col">Jan 04</th>
<th scope="col">Dec 03</th>
<th scope="col">Jan 03</th>
<th scope="col">Jan 02</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">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</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">Euro = $</td>
<td>1.2452</td>
<td>1.2597</td>
<td>1.0739</td>
<td>0.8594</td>
<td>-1.15</td>
<td>15.95</td>
<td>20.64</td>
<td>17.80</td>
<td>-5.19</td>
</tr>
<tr class="odd">
<td class="firstcol">Yen per $</td>
<td>105.84</td>
<td>107.15</td>
<td>119.96</td>
<td>134.06</td>
<td>1.21</td>
<td>13.34</td>
<td>10.35</td>
<td>-12.74</td>
<td>-10.66</td>
</tr>
<tr>
<td class="firstcol">UK pound =$</td>
<td>1.8215</td>
<td>1.7842</td>
<td>1.6448</td>
<td>1.412</td>
<td>2.09</td>
<td>10.74</td>
<td>10.85</td>
<td>10.67</td>
<td>-2.75</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong $ per $</td>
<td>7.78</td>
<td>7.76</td>
<td>7.80</td>
<td>7.79</td>
<td>-0.26</td>
<td>0.26</td>
<td>0.52</td>
<td>0.0</td>
<td>0.0</td>
</tr>
<tr>
<td class="firstcol">China yuan per $</td>
<td>8.277</td>
<td>8.277</td>
<td>8.277</td>
<td>8.277</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Korea won per $</td>
<td>1174</td>
<td>1192</td>
<td>1165</td>
<td>1314</td>
<td>1.53</td>
<td>-0.77</td>
<td>-0.48</td>
<td>10.72</td>
<td>-3.54</td>
</tr>
<tr>
<td class="firstcol">Thailand baht per $</td>
<td>39.25</td>
<td>39.63</td>
<td>42.72</td>
<td>44.05</td>
<td>0.97</td>
<td>8.97</td>
<td>9.01</td>
<td>2.41</td>
<td>-1.79</td>
</tr>
<tr class="odd">
<td class="firstcol">Singapore S$ =$</td>
<td>1.69</td>
<td>1.70</td>
<td>1.74</td>
<td>1.84</td>
<td>0.32</td>
<td>2.72</td>
<td>2.13</td>
<td>8.00</td>
<td>-7.60</td>
</tr>
<tr>
<td class="firstcol">Taiwan $ per $</td>
<td>33.39</td>
<td>33.99</td>
<td>34.61</td>
<td>34.99</td>
<td>1.80</td>
<td>3.65</td>
<td>2.09</td>
<td>0.86</td>
<td>-5.23</td>
</tr>
</tbody>
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In the immediate aftermath of the G7 Finance Minister's meeting last week, the dollar fell against the Euro and the UK pound. Early on February 9th, the euro was equal to $1.28 and the pound, $1.86. The decline in the dollar that [...]

Will Pressure Be Put on Asian Currencies to Appreciate?

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040209a.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) moved higher through much of January and earlier figures were revised up.
The six-month growth rate of the weekly leading index at 11.5% was near the series&#39; recent high. The double digit growth rates in place since July point toward robust growth ahead.
During the last ten years there has been a 68% correlation between the six-month growth in the leading index and the two quarter growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been a 75% correlation between the y/y percent change in the two series over the last 20 years.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months. The sideways movement of the leading index in 2002 may or may not signal something about the economy&#39;s growth rate.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM"> ECRI Leading Index</a></th>
<th scope="col"> 01/30/04</th>
<th scope="col"> 01/23/04</th>
<th scope="col"> Growth Rate</th>
<th scope="col"> 2003</th>
<th scope="col"> 2002</th>
<th scope="col"> 2001</th>
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">Weekly</td>
<td>132.6</td>
<td>132.8</td>
<td>11.5%</td>
<td>6.6%</td>
<td>1.1%</td>
<td>-5.3%</td>
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<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">&nbsp;</td>
<td> Jan</td>
<td> Dec</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Monthly</td>
<td>132.1</td>
<td>130.5</td>
<td>10.3%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) moved higher through much of January and earlier figures were revised up. The six-month growth rate of the weekly leading index at [...]

ECRI Leading Indicators Signal Economic Expansion

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040206a.jpg" width="353">
Growth in nonfarm payrolls again missed expectations. The 112,000 rise in January was versus Consensus expectations for a 175,000 gain. It was the fifth consecutive monthly rise in payrolls. Increases during prior months were raised somewhat but year to year payrolls remained down slightly.
From the separate household survey, the unemployment rate fell to 5.6% versus expectations for an unchanged 5.7%.
Household employment rose 87,000 (+0.8% y/y) following a 54,000 decline in December. The labor force fell 15,000 (+0.7% y/y), the second consecutive down month. The labor force participation rate remained low at 66.1% versus 67.1% averaged from 1997-2000.
Manufacturing sector payrolls fell 11,000 (-3.6% y/y) following a little revised 27,000 decline in December. The one-month diffusion index for factory payrolls remained low at 38.1, continuing to suggest declines in factory payrolls over the near term.
Service producing payrolls rose 105,000 (0.1% m/m, 0.4% y/y). Jobs in retail trade gained back all of the prior two months&#39; declines with a scattered 76,000 (0.1% y/y) increase. Jobs in the financial sector rose a paltry 2,000 (+0.8% y/y) following three months of decline. Temporary help services jobs fell 21,000 (6.0% y/y), the first monthly decline since April. Education &amp; health services jobs rose 22,000 (2.0% y/y).
Construction jobs rose 24,000 (1.4% y/y). Government jobs fell for the third consecutive month (-0.4% y/y). By sector; federal government jobs fell 2.2% y/y, state jobs fell 0.4% y/y and local jobs fell 0.1% y/y.
The index of aggregate hours worked rose 0.8% and recouped most of the prior month&#39;s decline. Aggregate hours started 1Q up slightly from the 4Q average.
The one-month diffusion index for private non-farm payrolls dropped to 47.7% from 48.5 in 4Q, suggesting minimal employment growth
Average hourly earnings rose 0.1% (2.0% y/y). Earnings in the factory sector fell 0.6% (+2.3% y/y) as did construction sector earnings for the third month in four (+1.8% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM"> Employment</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">Payroll Employment</td>
<td>112,000</td>
<td>16,000</td>
<td>-0.0%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-11,000</td>
<td>-27,000</td>
<td>-3.6%</td>
<td>-4.8%</td>
<td>-7.2%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.5</td>
<td>33.8</td>
<td>33.7</td>
<td>33.8</td>
<td>34.0</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.6%</td>
<td>5.7%</td>
<td>5.8%</td>
<td>6.0%</td>
<td>5.8%</td>
<td>4.8%</td>
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Growth in nonfarm payrolls again missed expectations. The 112,000 rise in January was versus Consensus expectations for a 175,000 gain. It was the fifth consecutive monthly rise in payrolls. Increases during prior months were raised [...]

U.S. Nonfarm Payrolls Disappoint Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040205b.jpg" width="353">
Initial claims for jobless insurance rose last week by 17,000 to 356,000. The prior week&#39;s level was revised down. Consensus expectations had been for claims of 342,000.
The four-week moving average of initial claims was unchanged at 345,250 (-10.7% y/y).
Continuing claims for unemployment insurance were unchanged w/w and the prior week&#39;s level was revised down to a smaller increase of 4,000 versus the initial report.
The insured rate of unemployment was stable at 2.5% for the fourth 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">01/31/04</th>
<th scope="col">01/24/04</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>356.0</td>
<td>339.0</td>
<td>-10.6%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,123</td>
<td>-9.1%</td>
<td>3,535</td>
<td>3,575</td>
<td>3,022</td>
</tr>
</tbody>
</table>
U.S. Productivity Grew in 4Q 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 5, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040205a.jpg" width="353">
Non-farm labor productivity grew 2.7% last quarter. That was a sharp slowdown from the 9.5% growth in 3Q but came despite a surge in hours and a slowdown in output. Consensus expectations had been for 2.7% growth.
Hours worked by all persons (employment times hours) rose 1.5% (-0.2% y/y), the strongest gain since early 2000. Output growth slowed considerably to 4.2% (5.2% y/y) from 10.4% in 3Q.
On an annual basis, the five-year growth in productivity rose to 3.3% through 2003, the fastest since the mid-1960s. Combined with 1.3% growth in the labor force over that period it suggests potential growth for the economy of 4.6%.
Unit labor costs fell 1.3% and for the year fell 1.2%. The back-to-back annual declines in costs were a record.
Manufacturing sector productivity growth rose 4.8% (5.2% y/y). Unit labor costs in the factory sector fell 3.1% (-0.9%).
&quot;Is There a Digital Divide&quot; from the Federal Reserve Bank of San Francisco discusses who uses computers in this <a href="http://www.frbsf.org/publications/economics/letter/2003/el2003-38.html">report</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col"> 4Q &#39;03</th>
<th scope="col">3Q &#39;03</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>
<tbody>
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<td class="firstcol">Output per Hour</td>
<td>2.7%</td>
<td>9.5%</td>
<td>5.3%</td>
<td>4.2%</td>
<td>4.9%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>1.3%</td>
<td>3.4%</td>
<td>3.3%</td>
<td>2.9%</td>
<td>2.2%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-1.3%</td>
<td>-5.6%</td>
<td>-2.0%</td>
<td>-1.2%</td>
<td>-2.5%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for jobless insurance rose last week by 17,000 to 356,000. The prior week's level was revised down. Consensus expectations had been for claims of 342,000. The four-week moving average of initial claims was unchanged at [...]

Initial Jobless Insurance Claims Up In Latest Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040204c.jpg" width="353">
Unit sales of light vehicles fell 9.1% m/m in January to 16.13M, the lowest level since October. Consensus expectations were for sales of 17.0M. Revised seasonal factors altered the monthly figures for 2003.
Car sales fell 7.4% m/m to 7.06M for the second consecutive monthly decline. The peak for car sales was in 1986 at 11.41M.
Sales of light trucks fell 10.5% to 9.07M and reversed all of the gain in December.
Domestic light vehicle sales fell 10.5% m/m to 13.11M (+1.9% y/y).
Imported vehicle sales fell 3.0% m/m to 3.02M (-8.7% y/y). Imports captured 18.7% of the US market for new vehicles in January versus 19.7% for all of 2003.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM"> Light Vehicle Sales (SAAR, Mil.Units)</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>16.13</td>
<td>17.75</td>
<td>-0.3%</td>
<td>16.69</td>
<td>16.81</td>
<td>17.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.06</td>
<td>7.63</td>
<td>-12.2%</td>
<td>7.63</td>
<td>8.07</td>
<td>8.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>9.07</td>
<td>10.12</td>
<td>11.4%</td>
<td>9.06</td>
<td>8.74</td>
<td>8.78</td>
</tr>
</tbody>
</table>
Mortgage Applications Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040204b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association fell 1.5% last week, adding to the 5.2% decline the prior week. For the month of January applications rose 27.0% from December due to a surge mid-month.
Applications to refinance fell a modest 1.4% after the 0.9% dip the prior week.
Purchase applications fell 1.7% w/w on top of the 10.0% decline the prior week. Purchase applications were up 9.6% in January versus December.
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-Year mortgage rose to 5.92% from 5.87% the prior week. The effective rate on a 15-year mortgage rose to 5.26%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">1/30/04</th>
<th scope="col">1/23/04</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>855.7</td>
<td>868.9</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>444.0</td>
<td>451.6</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>3,250.6</td>
<td>3,296.7</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
ISM Non-Manufacturing Index Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040204a.jpg" width="353">
The Business Activity Index for the non-manufacturing sector, reported by the Institute for Supply Management, surged last month to a record high for the series&#39; seven year history. The jump to 65.7 versus 58.0 in December was versus Consensus expectations for a moderate gain to 60.0.
New orders led the increase and jumped to 64.9 from 59.5 in December, a near record for the series.
The employment index fell to 53.4 versus 54.0 in December. It was the sixth month in seven above 50.
Since the series&#39; inception in 1997 there has been a 67% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing and construction industries.
Business activity for the non-manufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted prices index fell to 59.7 from 60.3 in December.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y Jan &#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">Business Activity Index</td>
<td>65.7</td>
<td>58.0</td>
<td>54.2</td>
<td>58.1</td>
<td>55.1</td>
<td>48.9</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>59.7</td>
<td>60.3</td>
<td>56.4</td>
<td>56.7</td>
<td>53.9</td>
<td>51.5</td>
</tr>
</tbody>
</table>
Factory Orders and Shipments Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040204d.jpg" width="353">
Factory orders jumped an unexpected 1.1% in December. The gain was led by a 2.0% (6.7% y/y) surge in orders for non-durables. Gains were logged across most non-durable industries. (Orders for non-durables equal shipments in this report.)
The advance report of a slight decline in durable goods orders in December was revised to a slight 0.3% increase.
Factory shipments jumped 1.5%, reflecting broad based strength, notably for machinery.
Manufacturing inventories fell just slightly for the second consecutive month.

<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/@ED01016/@ED01016.HTM"> Factory Survey</a> (NAICS)</th>
<th scope="col">Dec</th>
<th scope="col">Nov</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">Inventories</td>
<td>-0.0%</td>
<td>-0.1%</td>
<td>-1.4%</td>
<td>-1.4%</td>
<td>-1.8%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>1.1%</td>
<td>-0.9%</td>
<td>8.0%</td>
<td>3.6%</td>
<td>-1.9%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.5%</td>
<td>0.5%</td>
<td>7.2%</td>
<td>2.5%</td>
<td>-2.0%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.4%</td>
<td>0.7%</td>
<td>4.1%</td>
<td>4.1%</td>
<td>-6.1%</td>
<td>-5.9%</td>
</tr>
</tbody>
</table>


</html>

Unit sales of light vehicles fell 9.1% m/m in January to 16.13M, the lowest level since October. Consensus expectations were for sales of 17.0M. Revised seasonal factors altered the monthly figures for 2003. Car sales fell 7.4% m/m to [...]

U.S. Light Vehicle Sales Below Expectations

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040203d.jpg" width="353">
The Russian economy grew in real terms by 7.3% in 2003 according to the first estimate for 2003 released by the State Committee of the Russian Federation. Since the upheavals of 1996 and 1998 economic growth has proceeded at a good and relatively steady pace. Consumption, which currently accounts for 63% of the economy has averaged annual increases of between 5 and 7% since 2000. Gross fixed capital spending increased 12.9% in 2003 after a 3.0% rise in 2002. Exports rose 11.7% in 2003 and imports were up 16.6%.
Although well below the rates reached in the late nineties and in 2000, inflation, as measured by the GDP deflator, remains high. Only modest reductions have occurred in the past two year as the rate declined to 14.4% in 2003 from 16.5% in 2001.

<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">&nbsp;Percent Change in Russian GDP&nbsp;</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP in 2000 Prices</td>
<td>7.3</td>
<td>4.7</td>
<td>5.1</td>
<td>10.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption</td>
<td>6.1</td>
<td>7.3</td>
<td>7.3</td>
<td>5.6</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Gross Fixed Capital Formation&nbsp;</td>
<td>12.9</td>
<td>3.0</td>
<td>10.2</td>
<td>18.1</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>11.7</td>
<td>9.9</td>
<td>4.2</td>
<td>9.5</td>
<td>11.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports</td>
<td>16.6</td>
<td>14.5</td>
<td>19.8</td>
<td>32.4</td>
<td>-17.0</td>
</tr>
<tr>
<td class="firstcol">GDP in Current Prices</td>
<td>22.8</td>
<td>21.1</td>
<td>22.4</td>
<td>51.7</td>
<td>83.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Deflator 2000=100</td>
<td>14.4</td>
<td>15.7</td>
<td>16.5</td>
<td>37.1</td>
<td>72.71</td>
</tr>
</tbody>
</table>
</body>
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The Russian economy grew in real terms by 7.3% in 2003 according to the first estimate for 2003 released by the State Committee of the Russian Federation. Since the upheavals of 1996 and 1998 economic growth has proceeded at a good [...]

Russian Economy Grows Over 7% in 2003. Inflation Still High at Close to 15%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040203b.jpg" width="353">
Chain store sales fell 1.3% last week, according to the ICSC-UBS survey, and gave back all of the prior week&#39;s 1.1% pop.
Nevertheless, sales for the full month of January rose 1.6% versus December.
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.

<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/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/31/04</th>
<th scope="col">01/24/04</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>425.3</td>
<td>430.9</td>
<td>4.0%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Gasoline Prices Up After Brief Dip 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040203a.jpg" width="353">
Retail gasoline prices held onto recent gains last week and settled at $1.62 per gallon. That was versus an average price of $1.57 in January and $1.48 in December.
Through the Fall, gasoline prices fell versus the peak of $1.75/gallon in late August.
Crude oil prices also backed up through yesterday to $34.98 for West Texas Intermediate crude (6.7% y/y) versus a low in late September below $27.00.
Wholesale natural gas prices remained higher at $6.11/mmbtu (13.4% y/y) in January versus a drop to $4.49 in November.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W4/@W403/@W40303/@W40303.HTM"> US Retail Gasoline Prices</a></th>
<th scope="col">02/02/04</th>
<th scope="col">12/29/03</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">All Formulations ($/Gal.)</td>
<td>$1.62</td>
<td>$1.48</td>
<td>5.8%</td>
<td>$1.56</td>
<td>$1.34</td>
<td>$1.42</td>
</tr>
</tbody>
</table>
Challenger Layoffs Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040203c.jpg" width="353">
Announced job cuts in January rose 26.4% m/m according to Challenger, Gray &amp; Christmas. Large increases in layoffs have often occurred in January, but this year announcements were lower than during January of 2003.
The three month moving average of job cut announcements fell to 103,343 (-19.0% y/y).
The increase in announced layoffs m/m was dominated by the financial, food, retail and transportation industries. Job cut announcements fell in most other industries.
Job cut announcements differ from layoffs in that many are achieved through attrition or just never occur.
During the last ten years there has been an 83% (inverse) correlation between the three month average level of announced job cuts and the y/y percent change payroll employment.

<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/@S3/@S301/@S301.HTM"> Challenger, Gray &amp; Christmas</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">Announced Job Cuts</td>
<td>117,556</td>
<td>93,020</td>
<td>-11.1%</td>
<td>1,236,426</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales fell 1.3% last week, according to the ICSC-UBS survey, and gave back all of the prior week's 1.1% pop. Nevertheless, sales for the full month of January rose 1.6% versus December. During the last ten years there has [...]

Chain Store Sales Backpedal

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040202d.jpg" width="353">
Manufacturing in the Euro-zone continued to expand in January according to the 2000 purchasing managers surveyed by the NTC Research Ltd. for Reuters Group Plc. The rise of 0.25% in January marked the fifth successive month of increase and was at the highest level since January, 2001. Rising demand for Euro-zone products from the US and Asia has apparently offset the negative impact of the increasing Euro. Although the upward trend in manufacturing activity has been uneven in some countries, all but Greece of the Euro-zone countries, for which data are available, have been in the expansion phase since September 2003.
The rise in manufacturing activity has improved business confidence. Business confidence was at -7 in January, compared with a low in 2003 of -14 in July. In spite of the improvement in confidence, however, more business men currently view the outlook negatively than those who view it positively.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Purchasing Managers Survey and Confidence</th>
<th scope="col">Jan 04</th>
<th scope="col">Dec 03</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">PMI (50+ Indicates Expansion)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Euro-zone</td>
<td>52.54</td>
<td>52.41</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Germany</td>
<td>53.00</td>
<td>52.97</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>53.50</td>
<td>51.92</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy&nbsp;</td>
<td>51.06</td>
<td>51.88</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Netherlands</td>
<td>51.65</td>
<td>52.30</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Spain</td>
<td>51.88</td>
<td>51.83</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Ireland</td>
<td>52.24</td>
<td>52.63</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Austria</td>
<td>55.09</td>
<td>55.34</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Greece</td>
<td>50.26</td>
<td>49.87</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Confidence (% Bal)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Euro-zone</td>
<td>-7</td>
<td>-8</td>
</tr>
</tbody>
</table>
</body>
</html>

Manufacturing in the Euro-zone continued to expand in January according to the 2000 purchasing managers surveyed by the NTC Research Ltd. for Reuters Group Plc. The rise of 0.25% in January marked the fifth successive month of [...]

Euro-zone Manufacturing Activity Continues Expansion

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

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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 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.

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

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.