Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030206a.jpg" width="353">
Nonfarm labor productivity last quarter fell for the first quarter since 2Q01. Consensus estimates were for a rise of 1.0%. The annual gain of 4.7% in productivity was the strongest since 1950.
The slowdown in output growth to 0.8% from 5.2% in 3Q accounted for most of the decline in productivity. Hours worked rose 1.0% following six consecutive quarters of decline.
Unit Labor costs rose more than expectations for a 3.0% gain. The annual decline in unit costs was the first since 1983. Compensation growth moderated slightly from 3Q and for the year was just about equal to 2001 despite faster productivity growth.
Manufacturing sector productivity grew 0.7% following the strong 5.5% 3Q gain. The annual gain in factory sector productivity of 4.6% was the fastest since 1999 despite a 1.0% annual decline in output. Unit labor costs surged 4.6%, the strongest gain since 2Q01. For the year, unit labor costs in the factory sector fell 0.7%.
Analysis by the New York Federal Reserve detecting improvement in trend productivity growth can be found <a href="http://www.newyorkfed.org/rmaghome/staff_rp/2003/sr159.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR)</th>
<th scope="col">4Q &#39;02 Prelim</th>
<th scope="col">3Q &#39;02 Final</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>-0.2%</td>
<td>5.5%</td>
<td>3.8%</td>
<td>4.7%</td>
<td>1.1%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>4.6%</td>
<td>5.4%</td>
<td>4.2%</td>
<td>2.8%</td>
<td>2.7%</td>
<td>7.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>4.8%</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>-1.8%</td>
<td>1.6%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 6, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030206b.jpg" width="353">
Initial claims for unemployment insurance were about as expected last week. Claims fell 2.7% from the prior week&#39;s level which was revised up.
The four-week moving average of initial claims fell slightly to 384,750 (-4.1% y/y), the lowest level since late November.
Continuing claims for unemployment insurance rose 1.8% and the prior week&#39;s level was revised up.
The insured rate of unemployment was stable at 2.6% 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">2/01/03</th>
<th scope="col">1/25/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Initial Claims</td>
<td>391.0</td>
<td>402.0</td>
<td>0.5%</td>
<td>405.0</td>
<td>405.8</td>
<td>299.8</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,353</td>
<td>-1.7%</td>
<td>3,588</td>
<td>3,021</td>
<td>2,114</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm labor productivity last quarter fell for the first quarter since 2Q01. Consensus estimates were for a rise of 1.0%. The annual gain of 4.7% in productivity was the strongest since 1950. The slowdown in output growth to 0.8% [...]

Productivity Fell in 4Q, Annual Gain Strongest Since 1950

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030205a.jpg" width="353">
The index of mortgage applications, compiled by the Mortgage Bankers Association, fell a slight 2.5% last week (+101.2% y/y). For the month of January, applications rose 23.2% from December and were up 89.1% from last January.
Mortgage applications to refinance fell slightly for the week but were up by one third from December and were nearly triple last year&#39;s level.
Mortgage applications for home purchase rose for the second week and for the month were up 1.4% (1.8% y/y).
Interest rates on conventional 30 Year mortgages remained stable for the week at 5.72% and were down from 7.04% a year ago.
For analysis by the Federal Reserve of mortgage refinancing trends, click <a href="http://www.federalreserve.gov/pubs/bulletin/2002/1202lead.pdf">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">1/31/03</th>
<th scope="col">1/24/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>1,141.4</td>
<td>1,171.2</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>371.1</td>
<td>365.5</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>5,621.6</td>
<td>5,858.1</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Rose Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 5, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030205b.jpg" width="353">
The Institute for Supply Management business activity index of the nonmanufacturing sector rose last month from a downwardly revised December level. Consensus expectations were for a decline to 54.0.
Of the seasonally adjusted subgroups, the employment and new orders indexes rose modestly.
Business activity for the nonmanufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted index of prices rose slightly.
During the last five years, there has been a 66% correlation between the level of the Business Activity Index from the ISM nonmanufacturing survey and quarterly growth in real GDP in the service sector plus structures.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The nonmanufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

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<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</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Business Activity Index</td>
<td>54.5</td>
<td>54.2</td>
<td>49.5</td>
<td>55.1</td>
<td>49.0</td>
<td>59.3</td>
</tr>
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The index of mortgage applications, compiled by the Mortgage Bankers Association, fell a slight 2.5% last week (+101.2% y/y). For the month of January, applications rose 23.2% from December and were up 89.1% from last January. [...]

Mortgage Applications Still Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030204b.jpg" width="353">
Unit sales of light vehicles fell sharply in January. The 11.5% m/m decline reversed virtually all of the sharp gain the prior month. January sales were slightly below Consensus expectations for a 16.4 mil. unit sales rate.
Sales of domestically built vehicles fell 13.8% m/m. Auto sales fell a moderate 4.3% m/m (+8.1% y/y) but sales of light trucks plunged 20.4% (-4.3% y/y).
Imported vehicle sales were relatively strong, falling only 1.5% m/m. Imported auto sales fell 0.5% (+0.3% y/y) but truck sales fell 3.5% (+1.8% y/y).
Imports&#39; share of the US light vehicle market rose to 20.5% in January versus 19.5% for all of last year. 

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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">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total</td>
<td>16.21</td>
<td>18.32</td>
<td>1.0%</td>
<td>16.80</td>
<td>17.26</td>
<td>17.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>12.88</td>
<td>14.94</td>
<td>1.0%</td>
<td>13.54</td>
<td>14.19</td>
<td>14.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imported</td>
<td>3.33</td>
<td>3.38</td>
<td>0.7%</td>
<td>3.26</td>
<td>3.07</td>
<td>2.82</td>
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</tbody>
</table>
Factory Inventories Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030204c.jpg" width="353">
Manufacturing inventories rose last month for the third monthly gain in the last five months. The declines follow a brief two months of accumulation.
An end to factory inventory decumulation had been heralded by a rising ISM inventory index. Over the last five years there has been a 72% correlation between the level of the ISM inventory index and the month to month change in factory inventories.
Inventory decumulation in December was limited to the transportation sector (aircraft, light trucks and ships). Outside of transportation, inventories fell for the third straight month (-1.9% y/y) following three months of accumulation.
Inventory declines also continued in a broad range of durable goods industries including computers and electronic products, electrical equipment and furniture. Inventories of machinery rose for the first month since March of 2001.
Nondurable goods inventories fell 0.3% (+0.8% y/y).
Factory shipments fell sharply for the second consecutive month. Excluding transportation, shipments rose 0.2% (2.8% y/y) following a moderate 0.4% November decline.
Factory orders rose slightly. The advance report that durable goods orders rose 0.2% was revised to show a 0.2% decline.

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<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">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
<tbody>
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<td class="firstcol">Inventories</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-8.0%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.4%</td>
<td>-0.8%</td>
<td>2.7%</td>
<td>-0.8%</td>
<td>-7.2%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.6%</td>
<td>-1.1%</td>
<td>-0.6%</td>
<td>-1.1%</td>
<td>-5.3%</td>
<td>4.4%</td>
</tr>
</tbody>
</table>
Chain Store Sales Down Last Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030204a.jpg" width="353">
Chain store sales fell last week following three consecutive weeks of gain according to the BTM-UBSW survey.
For the full month, January sales rose 2.3% (2.9% y/y) from December.
During the last ten years there has been a 56% correlation between the year-to-year percent change in monthly chain store sales and the change in nonauto retail sales less gasoline.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">2/01/03</th>
<th scope="col">1/25/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>408.8</td>
<td>412.7</td>
<td>2.7%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
Challenger Survey of Layoff Announcements Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030204d.jpg" width="353">
According to Challenger, Gray &amp; Christmas, announced job cuts surged last month.
The three month moving average of job cut announcements nevertheless fell 10.3% from the prior month and was 31.1% below the year ago level.
Job cut announcements differ from layoffs in that many are achieved through attrition or just never occur.
Announcements of job cuts rose sharply in the aerospace, media, commodities and retail industries. Job cut announcements in a wide range of other industries fell.

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<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">2002</th>
<th scope="col">2001</th>
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</thead>
<tbody>
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<td class="firstcol">Announced Job Cuts</td>
<td>132,222</td>
<td>92,917</td>
<td>-37.8%</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
</table>
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Unit sales of light vehicles fell sharply in January. The 11.5% m/m decline reversed virtually all of the sharp gain the prior month. January sales were slightly below Consensus expectations for a 16.4 mil. unit sales rate. Sales of [...]

U.S. Light Vehicle Sales Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030203a.jpg" width="353">
The ISM Composite Index of manufacturing sector activity fell modestly last month from an upwardly revised December level. It was the third consecutive month the index was above 50, thus indicating expansion in factory sector activity.
The level of the index was about as expected. Updated seasonal factors were the source of revision to past data.
Each of the five component series declined moderately.
The separate index of inflation pressure rose slightly but remained well off the Spring highs.
Over the last ten years there has been a 72% correlation between the ISM Composite Index and the three month growth in factory production.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>53.9</td>
<td>55.2</td>
<td>49.8</td>
<td>52.4</td>
<td>44.0</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>57.5</td>
<td>56.9</td>
<td>41.5</td>
<td>57.9</td>
<td>42.9</td>
<td>64.8</td>
</tr>
</tbody>
</table>
Construction Spending Up Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 3, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030203b.jpg" width="353">
The value of construction put in place rose much more than expected in December and November figures were revised up across the board. Consensus expectations were for a very slight rise.
In constant 1996 dollars, overall construction spending rose 0.7% (-0.2% y/y). Real residential spending surged 2.2% (7.2% y/y). Real nonresidential activity fell 2.3% (-15.2% y/y).
In nominal terms, residential building rose for the fifth month in six. Spending on one-unit structures surged 2.8% (12.2% y/y). 
Nonresidential building activity fell hard again, last month led lower by widespread category declines except industrial. Spending on industrial buildings rose for the third consecutive month (-34.8% y/y).
Public construction rose led by notable increases in housing &amp; redevelopment, industrial and highways &amp; streets.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.2%</td>
<td>0.9%</td>
<td>2.0%</td>
<td>0.7%</td>
<td>2.5%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Residential</td>
<td>2.9%</td>
<td>1.1%</td>
<td>10.0%</td>
<td>6.9%</td>
<td>3.3%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.9%</td>
<td>0.9%</td>
<td>-14.0%</td>
<td>-16.3%</td>
<td>-3.1%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public</td>
<td>1.0%</td>
<td>2.6%</td>
<td>4.7%</td>
<td>6.4%</td>
<td>7.4%</td>
<td>5.4%</td>
</tr>
</tbody>
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The ISM Composite Index of manufacturing sector activity fell modestly last month from an upwardly revised December level. It was the third consecutive month the index was above 50, thus indicating expansion in factory sector [...]

ISM Index Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030131a.jpg" width="353">
Personal income rose twice the Consensus expectation for a 0.2% gain last month.
Firm growth in nominal income and tax cuts lifted disposable income growth last year to 5.9%, 4.5% after inflation. These gains raised the personal savings rate to the highest full year level since 1998.
Further evidence of the consumers&#39; improved financial wherewithal was contained in the recent Survey of Consumer Finances from the Federal Reserve. The report indicated that between 1998 to 2001, &quot;the expansion in equities and the increased values of principal residences and other assets were sufficient to reduce debt as a pro portion of family assets.&quot; Click <a href="http://www.federalreserve.gov/pubs/bulletin/2003/03bulletin.htm#jan">here</a> to view the full report.
Wage and salary disbursements remained firm recently, up 0.3% during the last three months despite lower payroll employment in 4Q. There has been an 80% correlation between y/y changes in wages &amp; salaries and changes in payroll employment over the last twenty years.
Personal transfer payments have been strong of late with higher unemployment, up 0.8% in December and up 10% for the full year. Personal interest income fell for the sixth straight month and was down 1.3% for the full year.
For analysis by the Philadelphia Federal Reserve Bank which examines how technology seems to be the key to the widening wage gap, click <a href="http://www.phil.frb.org/files/br/brq402ks.pdf">here</a>.
Personal consumption expenditures rose more than expected last month. Durable goods purchases rose 6.1%, but for the quarter were down 9.4% (AR). Spending on nondurable goods rose a modest 0.2% and 5.5% (AR) for the quarter. Spending on services rose only 0.2% and 4.3% for the quarter, depressed by a decline in spending on household operation.
Disposable personal income rose 0.4% (7.9% y/y) for the fifth consecutive month. Personal tax payments rose slightly for only the second month all year. 
The PCE price deflator was unchanged, pulling the full year change in prices to the lowest level since 1998. Less food and energy, the price deflator also was unchanged last month and up 1.7% for the full year. 

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>3.3%</td>
<td>8.0%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.9%</td>
<td>0.4%</td>
<td>5.2%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>4.1%</td>
<td>4.5%</td>
<td>1.3%</td>
<td>3.9%</td>
<td>2.3%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>0.0%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>2.5%</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030131b.jpg" width="353">
The Chicago Purchasing Manager&#146;s Index of Business activity rose more than expected in January. Consensus estimates were for a reading of 52.0.
The rise was right in line with the improvement in the Empire State Survey for January and bodes well for the National ISM Index to be released Monday.
Over the last ten years there has been an 86% correlation between the Chicago PMI and the ISM Composite Index.
The indexes of production, new orders and inventories rose, but employment fell. 
The prices paid index fell to the lowest level since June.
Visit the Chicago Purchasing Managers website at <a href="http://www.napm-chicago.org/">www.napm-chicago.org.</a>

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Barometer</td>
<td>56.0</td>
<td>51.7</td>
<td>46.6</td>
<td>52.7</td>
<td>41.4</td>
<td>51.8</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>54.2</td>
<td>61.8</td>
<td>40.4</td>
<td>56.9</td>
<td>50.4</td>
<td>65.6</td>
</tr>
</tbody>
</table>
Consumer Sentiment Down in January 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030131c.jpg" width="353">
The January reading of Consumer Sentiment from the University of Michigan fell 5.0% from December to a level of 82.4. That&#39;s versus a mid-month reading of 83.7
The index of current conditions rose slightly but the expectations index fell sharply to the lowest level since 1993.
Over the last 10 years there has been a 63% correlation between the level of consumer sentiment and the annual change real PCE. That correlation rose to 80% during the last five years.
The University of Michigan survey is not seasonally adjusted.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Sentiment</td>
<td>82.4</td>
<td>86.7</td>
<td>-11.4%</td>
<td>89.6</td>
<td>89.2</td>
<td>107.6</td>
</tr>
</tbody>
</table>
Chicago Fed National Activity Index Soft Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030131d.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) improved slightly last month, but remained below zero for the fifth consecutive month.
The improvement left the three-month moving average of the CFNAI at -0.61, a level consistent with roughly 2% growth in real GDP.. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
During the last ten years there has been a 72% correlation between the level of the CFNAI and quarterly growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production &amp; income, the labor market, personal consumption &amp; housing, mfg. &amp; trade sales, and inventories &amp; orders.
For a complete discussion of the Chicago Fed&#39;s National Activity Index click <a href="http://www.chicagofed.org/economicresearchanddata/national/index.cfm">here</a>.
A discussion of the CFNAI and its role as a business cycle indicator can be found <a href="http://www.chicagofed.org/publications/economicperspectives/2002/3qepart2.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;01</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.49</td>
<td>-0.55</td>
<td>-0.76</td>
<td>-0.29</td>
<td>-1.13</td>
<td>-0.16</td>
</tr>
</tbody>
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Personal income rose twice the Consensus expectation for a 0.2% gain last month. Firm growth in nominal income and tax cuts lifted disposable income growth last year to 5.9%, 4.5% after inflation. These gains raised the personal [...]

Personal Income Firm, Consumer Finances Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030130b.jpg" width="353">
Real GDP last quarter grew slightly less than expected. At 0.7% (AR) growth was the weakest since 3Q01. Consensus expectations were for 1.0% growth.
A slower rate of inventory accumulation subtracted from GDP growth for the first quarter since last year. In the first three quarters of 2002, businesses were increasing production to either slow the rate of inventory decumulation or shift to inventory accumulation. On average that increase added 1.2% percentage points to GDP growth. Production in 4Q fell.
Domestic final demand grew a subpar 1.3% last quarter led by the weakest growth in personal consumption expenditures (1.0%) in ten years. Spending on motor vehicles and parts fell for the third quarter in four and growth in services PCE was the weakest since 3Q01.
Capital spending rose 1.5%, the first quarterly increase since 3Q00. Business spending on structures fell for the seventh quarter in eight (-15.5% y/y). Spending on equipment and software rose 5.0%. Spending on information processing equipment &amp; software rose for the fourth straight quarter, up 9.2% y/y. The Federal Reserve Bank of St. Louis discusses the impact of Y2K on capital spending <a href="http://research.stlouisfed.org/publications/review/03/01/Kliesen.pdf">here</a> .
Residential investment grew 6.9% (6.1% y/y), the strongest growth since 1Q02.
The trade sector&#39;s contribution to growth was quite negative following little contribution in 3Q. Exports fell 1.7% (5.0% y/y) for the first decline of the year. Imports grew 3.7% (9.2% y/y).
Inflation was the strongest since 1Q02.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained &#39;96 $, % AR</a></th>
<th scope="col">4Q&#39;02 (Advance)</th>
<th scope="col">3Q&#39;02 (Final)</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>0.7%</td>
<td>4.0%</td>
<td>2.8%</td>
<td>2.4%</td>
<td>0.3%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.6%</td>
<td>0.6%</td>
<td>1.0%</td>
<td>0.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>1.3%</td>
<td>3.4%</td>
<td>1.8%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-0.7%</td>
<td>-0.0%</td>
<td>-0.6%</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>1.9%</td>
<td>3.3%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Deflator</td>
<td>1.7%</td>
<td>1.0%</td>
<td>1.3%</td>
<td>1.1%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Employment Cost Index Up Less Than Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030130c.jpg" width="353">
The employment cost index rose less than Consensus expectations for a 0.9% gain. The gain was only slightly stronger than in 3Q. The two increases are the slowest since 1Q 1999.
The gain in wages &amp; salaries was the same as in 3Q and together they are the slowest since 1Q99. The gain in benefit costs picked up a bit but the y/y gain was the slowest in three years. 
Compensation gains in white collar occupations was quite slow at 0.4% (3.2% y/y). Compensation in blue collar occupations also was the slowest in a year at 0.6% (3.6% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col">4Q&#39;02</th>
<th scope="col">3Q&#39;02</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.7%</td>
<td>0.6%</td>
<td>3.2%</td>
<td>3.2%</td>
<td>4.2%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.4%</td>
<td>0.4%</td>
<td>2.7%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.2%</td>
<td>1.0%</td>
<td>4.7%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>5.6%</td>
</tr>
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</table>
Initial Jobless Insurance Claims Rose Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030130a.jpg" width="353">
Initial claims for unemployment insurance rose more than expected last week. Claims rose 3.7% from the prior week&#39;s level which was revised up slightly.
The four-week moving average of initial claims fell to 384,000 (-4.8% y/y), the lowest level since late November.
Continuing claims for unemployment insurance fell 1.7% and the prior week&#39;s level was revised down.
The insured rate of unemployment was stable at 2.6%. The prior week&#39;s level was revised down.

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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">1/25/03</th>
<th scope="col">1/18/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>397.0</td>
<td>383.0</td>
<td>-2.7%</td>
<td>405.0</td>
<td>405.8</td>
<td>299.8</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,289</td>
<td>-6.5%</td>
<td>3,588</td>
<td>3,021</td>
<td>2,114</td>
</tr>
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</table>
Help Wanted Advertising Fell Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030130d.jpg" width="353">
The Conference Board&#39;s National Index of Help-Wanted Advertising fell in December to the lowest level since late 1963.
The proportion of labor markets with rising want-ad volume improved for the second month to 47% from a downwardly revised 43% in November.
In a separate Conference Board survey, only 12.3% of respondents viewed jobs as plentiful in December. That figure rose to a still low 14.5% in January.
Jobs were viewed as hard to get by 29.7% of respondents in December, a figure that fell to 28.8% in January.
During the last ten years there has been a 67% correlation between the level of help-wanted advertising and the monthly change in nonfarm payrolls. The correlation with the y/y change in employment has been 92%.
All of the figures mentioned above are seasonally adjusted.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">Dec02</th>
<th scope="col">Nov02</th>
<th scope="col">Dec &#39;01</th>
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<tbody>
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<td class="firstcol">National Help Wanted Index</td>
<td>39</td>
<td>40</td>
<td>47</td>
</tr>
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Real GDP last quarter grew slightly less than expected. At 0.7% (AR) growth was the weakest since 3Q01. Consensus expectations were for 1.0% growth. A slower rate of inventory accumulation subtracted from GDP growth for the first [...]

4Q GDP Growth Weak

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030129a.jpg" width="353">
The index of mortgage applications, compiled by the Mortgage Bankers Association, surged 6.4% last week (117.3% y/y) following two consecutive weeks of moderate decline.
Mortgage applications to refinance rose 7.8% (232.3% y/y) and recouped nearly all of the decline during the prior two weeks.
Mortgage applications for home purchase rose a moderate 2.9% (11.3% y/y).
Interest rates on conventional 30 Year mortgages fell slightly to 5.72% versus 7.04% a year ago. Rates on a 15 Year mortgage averaged 5.15% versus 6.49% a year earlier.
For analysis by the Federal Reserve of mortgage refinancing trends, click <a href="http://www.federalreserve.gov/pubs/bulletin/2002/1202lead.pdf">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">1/24/03</th>
<th scope="col">1/17/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
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<td class="firstcol">Total Market Index</td>
<td>1,171.2</td>
<td>1,100.3</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
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<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>365.5</td>
<td>355.3</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>5,858.1</td>
<td>5,433.4</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
CBO Updated Budget Projections 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 29, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030129b.jpg" width="353">
The US Congressional Budget Office issued an update of its outlook for the Federal Budget for the next ten years. For the complete report, go to <a href="http://www.cbo.gov/showdoc.cfm?index=4032&amp;sequence=0">www.cbo.gov</a>.
The baseline forecast (if current policies remain in place) is now for a FY 2003 deficit of $199 bil., or 1.9% of GDP. That&#39;s versus a deficit of $158 bil. last fiscal year.
The budget is projected to return to surplus in FY 2007, one year later than forecast in August.
For the ten years ended 2013, surpluses are expected to total $1,336 trillion. That&#39;s higher than the 10 Year estimate of $1,015 trillion made in August because of the dropping of FY 2002.

FOMC Leaves Interest Rates Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 29, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030129c.jpg" width="353">
The Federal Reserve left the Federal Funds Target Rate unchanged at 1.25%, the lowest level since 1961. The decision was unanimous and as expected by most economists. 
The discount rate remained unchanged with primary credit available at 2.25%. On January 9th the Fed changed the discount rate from a subsidized to a penalty rate. Primary borrowers are banks the Fed deems are financially healthy. 
The press release which accompanied the Fed&#146;s action contained the following statement. &quot;Oil price premiums and other aspects of geopolitical risks have reportedly fostered continued restraint on spending and hiring by businesses. However, the Committee believes that as those risks lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to an improving economic climate over time.&quot;
<a href="http://www.federalreserve.gov/boarddocs/press/monetary/2003/20030129/default.htm">Here</a> is the complete text of the Fed&#39;s latest press release.
For an analysis of the efficacy of US monetary policy by the Federal Reserve Bank of St. Louis go to <a href="http://research.stlouisfed.org/publications/mt/2003/cover1.pdf">frb.st.louis</a>.
Further discussion by the St. Louis Fed contrasting the structure and day-to-day operations of the US and European Central Banks can be found <a href="http://research.stlouisfed.org/publications/review/03/01/Pollard.pdf">here</a>.

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The index of mortgage applications, compiled by the Mortgage Bankers Association, surged 6.4% last week (117.3% y/y) following two consecutive weeks of moderate decline. Mortgage applications to refinance rose 7.8% (232.3% y/y) and [...]

Mortgage Applications Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030128a.jpg" width="353">
Durable goods orders rose about as expected last month. The gain was slight and followed a sharp November decline that was little revised. Consensus expectations had been for a 0.5% rise.
The rise in durable orders failed to match the sharp improvement in the ISM orders index in December. During the last ten years there has been a 47% correlation between the annual change in orders for durable goods and the level of the ISM orders index.
Orders for motor vehicles and parts fell 4.5% following a 6.1% November swoon. Orders excluding all transportation equipment rose 1.1% (1.8% y/y) but a sharp decline in November was revised deeper to -2.0%.
Orders for nondefense capital goods rose sharply and the steep decline in November was revised quite a bit shallower. The upward revision was due to a raised estimate of commercial aircraft orders. Capital goods orders excluding aircraft and parts orders fell 0.1% (0.2% y/y) following a 3.1% November decline.
Orders for computers and electronic products recouped a sharp November decline (-2.3% y/y). Machinery orders rose slightly after a steep November decline (-0.1% y/y). Orders for electrical equipment rose 1.0% (-0.3% y/y) for the first rise in three months.
Shipments of durable goods fell 1.5% (-0.2% y/y) for the fourth steep decline in the last five months. Falling shipments of motor vehicles has been leading the decline. Shipments excluding all transportation categories fell 0.3% (+1.8% y/y), also down for the fourth month in five.
Durable inventories rose a sharp 0.9% (-3.7% y/y) but the gain was mostly confined to a 6.0% rise in aircraft and parts. Excluding all transportation, inventories fell 0.1% (-4.2% 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/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Durable Goods Orders</td>
<td>0.2%</td>
<td>-1.3%</td>
<td>1.7%</td>
<td>-0.1%</td>
<td>-11.4%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nondefense Capital Goods</td>
<td>2.8%</td>
<td>-1.3%</td>
<td>1.0%</td>
<td>-5.3%</td>
<td>-16.5%</td>
<td>7.9%</td>
</tr>
</tbody>
</table>
Chain Store Sales Rose Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 28, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030128b.jpg" width="353">
Chain store sales rose for the third consecutive week according to the BTM-UBSW survey.
January sales to date were 2.3% above the December average.
During the last ten years there has been a 56% correlation between the year-to-year percent change in monthly chain store sales and the change in nonauto retail sales less gasoline.

<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">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">1/25/03</th>
<th scope="col">1/18/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>412.7</td>
<td>410.2</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
December New Home Sales Set the Record 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 28, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030128d.jpg" width="353">
Sales of new single family homes were stronger than expected last month. Sales unexpectedly rose 3.5% from November which was revised down slightly. Consensus expectations were for a 1.030 Mil. sales rate in December.
Sales in December set a new record and for the full year were also a record.
Sales were mixed across the country&#146;s regions. Sales in the Midwest rose 28.3% m/m and 17.8% for the full year. Sales in the South were flat for the second month and up 2.3% for the year. In the Northeast, sales fell 12.7% for the third monthly decline, -1.5% for the full year. In the West, sales fell for the second month but were up 14.6% for the year.
The median price of a new home surged 7.2% to $186,400 and prices for the year were up 6.1%, the strongest rate of gain since 1989.
The new home sales data reflect current sales versus the existing home sale figures which reflect closings on past sales.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">New Single-Family</td>
<td>1,082</td>
<td>1,045</td>
<td>10.5%</td>
<td>981</td>
<td>908</td>
<td>880</td>
</tr>
</tbody>
</table>
Consumer Confidence Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 28, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030128c.jpg" width="353">
The Conference Board&#146;s Index of Consumer Confidence for January equaled Consensus expectations were for a reading of 79.0. December confidence was revised up slightly
The 2.1% m/m decline pulled Consumer Confidence 45.4% below the peak of early 2000. The decline in Confidence was in line with the January decline Consumer Sentiment from the University of Michigan.
The decline in confidence reflected a lower reading of consumer expectations but a higher read of the present situation reading.
During the last ten years there has been a 50% correlation between the level of Consumer Confidence and the y/y percent change in real PCE. That correlation rose to 74% during the last five years. 
The Conference Board&#39;s survey is conducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1401/@EF1401.HTM">Conference Board</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>79.0</td>
<td>80.7</td>
<td>-19.2%</td>
<td>96.6</td>
<td>106.6</td>
<td>139.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Durable goods orders rose about as expected last month. The gain was slight and followed a sharp November decline that was little revised. Consensus expectations had been for a 0.5% rise. The rise in durable orders failed to match the [...]

Durable Goods Orders Up Slightly

Recent pickup in US defense orders could help support overall growth ahead

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

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Tian Yong Woon

In this week’s Letter, we continue to track developments in the Middle East and their implications for Asia. While the recent US–Iran ceasefire initially provided some relief to markets, subsequent complications have kept uncertainty elevated, with no conclusive resumption of trade flows yet through the Strait of Hormuz (chart 1)—flows that are critical to restoring the global energy system to more normal conditions.

Overall, our Blue Chip Economic Indicators panellists have broadly downgraded growth expectations for Asia this year, with the exceptions of China and Taiwan, while inflation forecasts have been revised higher across the board (chart 2). That said, the growth and inflation impact from the conflict are largely viewed as transitory, with most panellists expecting them to last between six and twelve months (chart 3). Nonetheless, central banks in the region appear increasingly reluctant to ease policy further. This is evident in the latest round of decisions, where India, South Korea, and New Zealand all held policy rates steady (chart 4), citing heightened uncertainty stemming from the ongoing conflict.

While inflationary pressures are beginning to build more broadly across the region, China had already been experiencing a pickup in recent months (chart 5). This has been supported by easing producer price deflation and improving industrial profits, alongside policy efforts to curb excessive price competition among producers. Attention now turns to China’s upcoming Q1 GDP release and the full slate of monthly data due later this week (chart 6).

**Middle east conflict developments**
Crude oil prices fell sharply earlier last week following news of a temporary US–Iran ceasefire. That said, the geopolitical backdrop remains highly fragile, as reflected in continued rhetoric from both sides, alongside the US announcement of a naval blockade over the strait after talks failed to yield an agreement. Compounding this, Iran has indicated that it cannot fully reopen the strait, citing uncertainty over the location of sea mines it had previously laid—further complicating any swift normalization of oil flows. Even prior to these latest developments, IMF-tracked shipping volumes had only begun to show tentative signs of recovery and remain well below pre-escalation levels. As such, while the ceasefire provides a welcome reprieve, meaningful economic relief will hinge on a sustained restoration of oil flows—crucially without additional frictions or costs that could impair global trade. Until then, crude prices are likely to remain elevated, albeit possibly off recent highs, weighing on growth while sustaining inflationary pressures. In Asia, where many economies are heavily reliant on oil imports, the region is likely to bear a disproportionate share of these effects.

260413T1.jpg

**The latest Blue Chip Economic Indicators survey**
In light of recent developments, our latest Blue Chip Economic Indicators (BCEI) survey provides a timely update. It is a monthly poll of forecasters covering key economic indicators across a wide range of economies. As shown in chart 2, panellists have generally trimmed their 2026 growth forecasts across most Asian economies. Taiwan is a notable exception, with growth expectations revised higher, likely continuing to be supported by the ongoing AI-driven expansion. Meanwhile, forecasts for China’s 2026 growth were left unchanged. On the inflation front, expectations for 2026 have been revised higher across all Asian economies, consistent with the pass-through from the recent surge in oil prices. The largest upward revision was seen in Australia (+0.7 ppts), while increases were more modest in economies such as Japan and China (+0.3 ppts each).

260413T2.jpg

Digging deeper into this month’s BCEI survey, the special questions provide additional insight into panellists’ views. In particular, one question asked about the time horizon over which current energy supply chain disruptions are expected to materially affect global inflation and growth. Panellists largely view the impact as short term (chart 3), with most clustering around a six- to twelve-month window. Smaller shares see effects lasting either less than six months or extending between one and three years, while only a very small minority expect disruptions to persist beyond three years. Overall, while the recent oil price surge represents a clear shock to the global economy, it is widely seen as transitory—temporarily lifting inflation and weighing modestly on growth, but unlikely to drive a fundamental shift in the broader macroeconomic outlook.

260413T3.jpg

**The week’s central bank decisions**
Turning to last week’s key monetary policy decisions in the region, the central banks of India (RBI), South Korea (BoK), and New Zealand (RBNZ) all kept policy rates unchanged, with several common threads across their communications. Notably, each highlighted the considerable uncertainty stemming from the Middle East conflict, which has already begun to feed into global inflation via higher oil prices. This aligns with broader investor sentiment: the bar for further policy easing has risen given renewed inflationary pressures, while the threshold for a shift toward tightening remains high, as most economies are still far from overheating. On central bank–specific nuances, the RBI emphasized the delicate trade-off between anchoring inflation expectations and minimizing growth sacrifices. The BoK noted that its policy rate is around the neutral level, while flagging potential additional pressure on the won from elevated oil prices. Meanwhile, the RBNZ signalled that near-term inflation is likely to rise even as the economic recovery softens, citing significant supply chain disruptions linked to the Middle East conflict.

260413T4.jpg

**China and the week ahead**
Lastly, we turn to China and the week ahead. As shown in chart 5, even prior to the Middle East conflict, China had already begun to see a pickup in inflation—an early indication that it may be moving out of its prolonged period of chronically low, or even negative, price pressures. This recent firming in CPI inflation has been accompanied by more sustained growth in industrial profits and a steady improvement in producer price pressures, with PPI inflation recently turning positive after a multi-year stretch of deflation. Together, these trends point to gradually strengthening price dynamics. The shift in inflation also reflects underlying policy efforts to curb excessive price competition among producers, which had weighed on prices for an extended period. Looking ahead, the recent oil price shock could provide an additional boost to inflation, as higher energy costs begin to feed through into future readings.

260413T5.jpg

Looking ahead to the coming week, Asia faces a packed data calendar, with the spotlight firmly on China as its Q1 GDP release and the usual slate of monthly indicators are due (chart 6). A key focus will be how March data shapes overall Q1 growth, particularly given that activity in the first two months of the year largely surprised to the upside. Investors will also be watching for any early signs of spillovers from the Middle East conflict in the March prints. Retail sales will be closely monitored as a gauge of the effectiveness of policy support for consumption, while developments in house prices will remain in focus as the property downturn continues to unfold gradually.

260413T6.jpg

Asia

Economic Letter from Asia: A Shifting Consensus

Michael J. Moran

260410L.jpg

260410M.jpg

The Consumer Price Index rose 0.9% in March, easily the sharpest monthly rise since the inflation burst in 2022. Although pronounced in magnitude, the increase was not surprising, as essentially all analysts had built in pressure from the energy sector. Energy prices jumped 10.9%, led by a surge of 21.2% in gasoline prices. Other energy components wiggled: charges for electricity services rose 0.8%, offsetting declines in the prior two months; a drop 0.9% in the price of natural gas services followed sharp increases in the prior three months.

The press report from the Bureau of Labor Statistics showed food prices as unchanged, but calculating the shift to more than one decimal point showed a marginal decline (-0.005%) The dip was almost imperceptible, but it nevertheless was a welcome rarity. The decline occurred in the food-at-home component (i.e. grocery store prices, -0.2%); prices of food away from home (i.e. at restaurants and bars) rose 0.2%.

Core prices rose 0.2 percent, softer than the expected increase of 0.3%. Only two areas posted high-side readings. Apparel prices increased 1.0% after a jump of 1.3% in February, perhaps reflecting hope for an active spring selling season. Airfares jumped 2.7%, hardly surprising in light of recent energy developments. Sharper increases are likely in coming months because of higher fuel prices. Most other core items were contained, including declines of 1.0% in medical-care commodities and 0.4% in the prices of used motor vehicles. Prices of medical-care commodities have been quiet since the middle of 2024; the latest year-over-year change totaled only 0.3%. Prices of used cars and trucks have declined for four consecutive months, leaving a year-over-year decline of 3.2%.

Although core prices were well contained in March, the outlook is uncertain because of potential passthrough from higher energy prices. At the same time, recent trends in the inflation rates for core goods and core services offer a reason to be optimistic, as both are decelerating. As shown in the left chart below, core goods prices in the past six months have been subdued, which has pulled the year-over-year change from 1.5% last fall (August to October) to 1.2% in March. Core service prices, shown in the right chart below, have registered changes of 0.3% or 0.4% in the three months before the 0.2% reading in March. However, results for October and November were restrained, and changes in the past six months in total show deceleration. The year-over-year change of 3.0% in core service prices in March reflects an advance of 3.3% in the first six months of this span (annual rate) and 2.7% in the past six months. The pattern is choppy, but it traces a decelerating trend.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

260410N.jpg

260410O.jpg

- Gasoline prices drove the energy component higher; electricity prices also contributed.
- Food prices provided a surprise by posting a fractional decline.
- Core prices rose less than expected; both goods and services components were contained.

March CPI: Pressure in the Energy Sector (as Expected); Tame Elsewhere (Surprisingly)

Winnie Tapasanun

260410F.jpg

260410G.jpg

Total factory orders were virtually unchanged m/m in February following a flat reading in January and a 0.4% decline in December, data from the U.S. Census Bureau showed. The Action Economics Forecast Survey had expected a 0.2% m/m February increase. The year-on-year growth rate eased to 3.7% in February, the lowest since October, from 4.2% in January (+3.0% in February 2025), remaining far below the April 2021 peak of 39.6%. Notably, orders for nondefense aircraft & parts plunged 28.6% m/m in February following decreases of 1.7% in January and 22.7% in December, while orders for defense aircraft & parts fell 2.1% after a 26.9% January slump and an 11.8% December jump. Factory orders excluding defense edged up 0.1% (3.6% y/y), the third m/m increase in four months, following a 0.4% January rebound. Factory orders excluding the transportation sector rose 1.2% (2.5% y/y), the strongest of four consecutive m/m gains, after a 0.5% January increase.

Durable goods orders fell 1.3% (+7.4% y/y) in February after a 0.4% decline in January (in line with a 1.4% m/m decrease in the advance report on April 7), marking the fourth m/m decline in five months. The February m/m fall reflected a 5.3% orders drop (+10.2% y/y) in transportation equipment following a 1.9% January decrease, alongside m/m declines of 0.5% (+2.4% y/y) in furniture & related products and 0.3% (+4.9% y/y) in electrical equipment, appliances & components. Other major durable goods orders categories rose m/m in February, led by a 2.4% gain (10.5% y/y) in primary metals, followed by increases of 1.7% (9.5% y/y) in machinery, 0.5% (5.4% y/y) in fabricated metal products, and 0.2% (7.7% y/y) in computers & electronic products.

Nondurable goods orders, which equal nondurable goods shipments, advanced 1.5% (0.1% y/y) in February, the biggest of three successive m/m gains, after a 0.5% increase in January. The February m/m rise was led by a 6.2% jump (-6.4% y/y) in petroleum & coal products, followed by gains of 5.9% (-5.8% y/y) leather & allied products, 1.2% (-2.8% y/y) in textile mills, 1.0% (1.6% y/y) in paper products, 0.9% (1.2% y/y) in plastics & rubber products, 0.6% (3.7% y/y) in beverage & tobacco products, 0.5% (3.2% y/y) in chemical products, 0.4% (3.2% y/y) in apparel, and 0.2% (0.5% y/y) in food products. To the downside, nondurable goods shipments for textile products (-1.4%; -1.5% y/y) and printing (-0.4%; -0.9% y/y) fell m/m in February following their January increases.

Total shipments rose 1.4% (3.5% y/y) in February after gains of 0.7% in January and December, registering the fourth m/m rise in five months. Excluding transportation, shipments advanced 1.4% (2.3% y/y), the fifth m/m gain in six months, after a 0.5% January increase. Shipments of durable goods industries also rose 1.4% (6.9% y/y), up for the fifth time in six months, after a 0.9% January gain. This reflected m/m increases across nearly all durable goods shipments categories, led by a 2.5% rise (10.1% y/y) in primary metals, followed by gains of 1.7% (5.5% y/y) in electrical equipment, appliances & components, 1.7% (4.0% y/y) in furniture & related products, 1.6% (9.7% y/y) in transportation equipment, 1.4% (7.6% y/y) in machinery, 1.3% (3.8% y/y) in nonmetallic mineral products, 1.0% (6.1% y/y) in computers & electronic products, 1.0% (2.5% y/y) in miscellaneous durable goods, and 0.9% (5.4% y/y) in fabricated metal products. In contrast, durable goods shipments for wood products were the only category with a monthly decline in February, easing 0.1% (-2.9% y/y) following a flat January reading.

Unfilled orders edged up 0.1% (11.1% y/y) in February, the smallest of seven consecutive m/m increases, following a 0.6% rise in January. Excluding transportation, unfilled orders grew 0.2% (1.9% y/y), up for the seventh straight month, after a 0.3% January increase. Backlogs of durable goods ticked up 0.1% (11.1% y/y) in February, led by gains of 0.5% (2.0% y/y) in machinery and 0.2% (4.9% y/y) in electrical equipment, appliances & components, partially offset by declines of 0.7% (+1.5% y/y) in furniture & related products and 0.1% (+2.3% y/y) in primary metals.

Inventories inched up 0.1% (0.8% y/y) in February, the fourth successive m/m increase, following matching 0.1% gains in January and December. Excluding transportation, inventories edged up 0.1% (1.0% y/y) after no change in January. Durable goods inventories increased 0.1% (1.8% y/y) in February after rising 0.2% for four straight months, while nondurable goods inventories were virtually unchanged (-0.8% y/y) after declining 0.3% in January and December.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

260410H.jpg

260410I.jpg

- Factory orders virtually unchanged (+3.7% y/y) in Feb. for second straight month; still 7.6% above the Jan. ’24 low.
- Durable goods orders (-1.3%), fourth m/m fall in five mths.; nondurable goods orders (+1.5%), largest of three successive m/m gains; shipments (+1.4%), fourth m/m rise in five mths.
- Transportation orders -5.3% m/m, led by a 28.6% plunge in nondefense aircraft orders.
- Unfilled orders +0.1%, smallest of seven straight m/m increases.
- Inventories +0.1%, holding within a narrow 0.1%-0.2% range for four consecutive mths.

U.S. Factory Orders Flat in February on Weak Nondefense Aircraft Orders

Andrew Cates

**Positive Growth Surprises, Negative Inflation Surprises—For Now**
The global macro backdrop heading into the latest Middle East shock was, by recent standards, relatively constructive. As the chart shows, growth data had been consistently surprising to the upside, while inflation surprises have been in negative territory—an unusually benign combination suggesting resilient activity alongside easing price pressures. What is striking, however, is that—at least through March and into early April—this pattern has not yet been meaningfully dislodged. For now, the data flow still reflects a world that was stabilising rather than deteriorating. That said, this is almost certainly a lagging signal. Supply-side shocks of this nature—particularly those centred on energy—tend to work with a delay but can be highly disruptive once they feed through. The risk, therefore, is that the current “goldilocks” surprise dynamic proves short-lived as higher energy costs, supply chain frictions and rising uncertainty begin to reshape the incoming data in the weeks ahead.

260409Z1.jpg

**Monetary Policy Expectations Shift as Easing Bets Are Repriced**
How policymakers respond to the evolving situation in the Middle East will be critical in shaping both market dynamics and the broader global outlook. This chart, based on the latest April Blue Chip Financial Forecasts survey, suggests that expectations are already beginning to shift. Forecasters are now less inclined to anticipate policy easing in the period ahead—particularly in the euro area, where expectations for rate cuts have been scaled back. Similarly, some of the easing previously priced for the Federal Reserve and the Bank of England has been pared back over the next 12 months. While this is not yet a full pivot toward tightening, it does point to a more cautious policy backdrop, reflecting the risk that renewed energy-driven inflation pressures could constrain central banks’ ability to support growth.

260409Z2.jpg

**Delay, Don’t Tighten: Central Banks’ Likely Playbook**
If the previous chart highlights a shift in policy expectations, this one gives a clearer sense of the reaction function underpinning it. When asked how central banks would respond if energy-driven inflation proves more persistent, most panellists point not to renewed tightening, but to a more cautious delay in easing. In other words, the hurdle for rate cuts has risen, even if the bar for  hikes remains relatively high. This distinction matters. It suggests that policymakers are likely to treat the shock as a supply-driven inflation impulse—one that complicates the outlook but does not automatically warrant aggressive tightening. At the same time, the responses underscore a second important theme: divergence. A sizeable share of forecasters expect policy paths to vary significantly across regions, reflecting differences in energy exposure, inflation dynamics and domestic growth conditions. Taken together, the message is one of constrained flexibility. Central banks may want to support growth, but persistent energy pressures could keep them on hold for longer than previously anticipated—reinforcing the more cautious policy outlook already evident in market pricing.

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**Markets Signal Fiscal Concern, Not Inflation Panic**
If central banks are likely to proceed cautiously, financial markets are already beginning to draw their own conclusions. This chart shows that the recent adjustment in US Treasury markets has been driven primarily by a rise in real yields rather than a meaningful increase in inflation expectations. In other words, markets are not yet pricing a loss of monetary policy credibility or a sharp unanchoring of inflation expectations. Instead, the move points more toward concerns around the broader policy mix—particularly the fiscal backdrop and the potential for increased borrowing needs in an environment of heightened geopolitical risk. This distinction is important. A rise in inflation expectations would suggest fears of central banks falling behind the curve. What we are seeing instead is a repricing of real rates, consistent with tighter financial conditions and a higher risk premium. For now, at least, markets appear to view the shock less as a classic inflation spiral and more as a development that complicates the growth outlook and places greater strain on policy frameworks—especially on the fiscal side.

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**Electricity Prices Reflect Energy Dependence**
The initial response in electricity markets since the Middle East disruption has followed a familiar pattern. Economies with greater domestic energy capacity—such as Scandinavia and, to a lesser extent, the US—have seen relatively contained electricity prices. By contrast, those more reliant on imported energy—most notably the UK and parts of Europe—continue to face significantly higher costs

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**Generation Capacity Determines Energy Resilience**
These price dynamics are closely linked to underlying differences in electricity generation capacity. As the sixth chart shows, countries with higher per capita electricity production—again including Scandinavia and the US—are structurally better positioned to absorb external shocks. In contrast, economies with more limited domestic generation capacity, such as the UK and Germany, are inherently more exposed to fluctuations in global energy markets. This structural divide is likely to prove increasingly important in the period ahead, influencing not just near-term inflation outcomes but also the relative resilience of growth across economies as energy costs remain volatile.

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Amid further tentative signs of de-escalation—most notably President Trump’s decision on April 7th to step back from further escalation—financial markets have stabilised somewhat, but the macroeconomic implications of the Middle East crisis remain highly uncertain. As our charts show, the global economy entered this shock from a position of relative strength, with positive growth surprises and easing inflation pressures still evident in the data (chart 1). However, that benign backdrop now looks vulnerable. Central banks are already reassessing the outlook, with expectations for policy easing being pared back (chart 2) and a growing consensus that any response to persistent energy-driven inflation will likely involve delaying cuts rather than tightening aggressively—albeit with significant regional divergence (chart 3). Financial markets, for their part, are not yet signalling a loss of inflation control, but the rise in real yields suggests increasing concern around the broader policy mix, particularly fiscal pressures (chart 4). Finally, the adjustment to the shock is unlikely to be uniform. Structural differences in domestic energy capacity are already driving wide divergences in electricity prices, leaving more import-dependent economies exposed to higher costs and sharper trade-offs between growth and inflation (charts 5 and 6). Taken together, the message is clear: even if geopolitical tensions ease, the economic aftershocks are likely to be uneven, persistent and increasingly shaped by structural constraints.

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Charts of the Week: From Oil Shock to Policy Dilemma

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This monthly report is always packed with information relating to the household sector. At this time, most observers will probably be most interested in price developments, and the results for February were a bit unsettling. The headline price index rose 0.4%, influenced by a jump of 0.8% in energy prices. This increase was largely anticipated and not especially troubling when viewed in isolation. Energy prices have shown little net change in the past two years, and the latest reading of the index was comfortably within the recent range of observations. However, given developments in the Middle East, energy prices undoubtedly will surge out of that recent range in the months ahead.

Core PCE prices also rose 0.4%, a touch firmer than the expected increase of 0.3%. An increase of 0.4% in core inflation is a quick pace even when viewed in Isolation, but this advance followed a similar increase in January, and the December reading almost rounded to 0.4%. These recent changes pulled the year-over-year increase in core prices to 3.0%, a full percentage point above the Federal Reserve’s target.

Nominal personal income dipped 0.1% in February, which translated to a decline of 0.4% after adjusting for inflation (almost rounding to -0.5%). The softness is striking, but a review of the detail suggests that special factors played a role. Much of the weakness reflected a decline of 1.7% in dividend income, which followed a jump of 1.9% in January. Dividend payments in the prior two years followed the same pattern, leaving one to suspect that seasonal adjustment has gone awry. Government transfer payments also declined, with the miscellaneous category accounting for most of the drop. Medicaid payments also fell, marking the fifth consecutive decline, most likely driven by the tightening of provisions included in the One Big Beautiful Bill Act.

Nominal consumer expenditures rose 0.5%, a seemingly strong result, but the change amounted to only 0.1% in real terms. The small increase followed a flat reading in January and increases of only 0.1% in November and December. Consumers spent actively in the second and third quarters of last year, but they have become cautious recently. The data in hand suggest real outlay growth of approximately 1.0% in the first quarter, slower than the average pace of 3.0% in the middle of last year and 1.9% in 2025-Q4.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- The energy component contributed to a high-side reading on the price index for personal consumption expenditures; the core component was firm as well.
- Consumer spending showed signs of slowing.