Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030116a.jpg" width="353">
The Consumer Price Index (CPI-U) rose less than expected last month. Excluding food and energy, prices rose as expected. The core CPI less tobacco rose 0.1% (1.9% y/y).
For the full year, the average gain in prices rivaled the 1.5% rise in 1998 and these were the lowest increases since 1965. The 2.3% average gain in core consumer prices was at the low end of the 2.3%-2.7% range in place since 1996.
Goods prices fell for the third consecutive month and for the eighth month of 2002. Household furnishings and operation prices fell 0.5% (-1.5% y/y). Apparel prices dropped 0.5% (-1.8% y/y). New and used vehicle prices fell 0.4% (-2.9% y/y), down for the third consecutive month.
Core services prices rose by the least amount in three months. Shelter prices rose just 0.2% (3.2% y/y). Medical care services prices rose 0.4% (5.6% y/y), the least since September. Education and communication prices rose 0.2% (2.2% y/y). Public transportation prices were relatively strong rising 0.7% (-0.9% y/y) following s strong November gain.
Energy prices fell last month led by a 1.5% decline in gasoline prices (+24.7% y/y), the second in a row. Fuel and utility prices rose 0.5% (1.5% y/y. Fuel oil prices rose 11.5% last year but piped gas &amp; electricity prices were up only 0.5%.
The chained CPI, which correlates closely with the PCE price deflator, fell for both the total and for the core measures.
For analysis of health care costs and coverage by the St. Louis Federal Reserve click <a href="http://research.stlouisfed.org/publications/net/2002/cover11.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a></th>
<th scope="col">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&nbsp;</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>1.6%</td>
<td>2.8%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-1.5%</td>
<td>-1.1%</td>
<td>0.3%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.5%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>3.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>-0.4%</td>
<td>-0.2%</td>
<td>11.0%</td>
<td>-5.8%</td>
<td>3.7%</td>
<td>16.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.3%</td>
<td>0.2%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>3.1%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>2.1%</td>
<td>1.2%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>1.4%</td>
<td>1.7%</td>
<td>&nbsp;1.9%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
Initial Claims for Unemployment Insurance Fell Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 16, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030116b.jpg" width="353">
Initial claims for unemployment insurance fell much more than expected last week. Claims fell 32,000 from the prior week&#39;s level which was revised slightly higher.
The four-week moving average of initial claims fell to 387,500, the lowest level since late November (-5.5% y/y).
Continuing claims for unemployment insurance fell a sharp 4.0%, also to the lowest level since late November. The prior week&#39;s level was revised down slightly. The recently announced program to extend unemployment insurance benefits will have no effect on these figures.
The insured rate of unemployment fell slightly to 2.6%.

<table border="0" cellspacing="0" width="100%">
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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">1/11/03</th>
<th scope="col">1/04/03</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">Initial Claims</td>
<td>360.0</td>
<td>392.0</td>
<td>-11.8%</td>
<td>405.0</td>
<td>405.8</td>
<td>299.8</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,293</td>
<td>-5.7%</td>
<td>3,587</td>
<td>3,021</td>
<td>2,114</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index About Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 16, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030116c.jpg" width="353">
The Philadelphia Fed&#146;s index of general business conditions was about unchanged in January versus the upwardly revised level of last month. The Business Activity Index was 11.2, down slightly from 11.3 in December. The figures reflect benchmark revisions which updated seasonal adjustment factors.
The reading contrasted with the sharp improvement reported yesterday in the Empire State General Conditions Index for January.
Amongst the sub indexes new orders and shipments rose but employment and inventories fell versus December.
The business conditions index reflects a separate survey question, not the components. 
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
During the last ten years there has been a 64% correlation between the level of the General Activity Index and annual growth in real GDP.
For a discussion of the Philadelphia Fed&#39;s Business Outlook Survey click <a href="http://www.phil.frb.org/files/bos/brso98mt.pdf">here</a>. 

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">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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</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>11.2</td>
<td>11.3</td>
<td>15.2</td>
<td>7.7</td>
<td>-17.2</td>
<td>8.3</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>11.6</td>
<td>17.7</td>
<td>-5.4</td>
<td>12.2</td>
<td>-0.9</td>
<td>27.2</td>
</tr>
</tbody>
</table>
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The Consumer Price Index (CPI-U) rose less than expected last month. Excluding food and energy, prices rose as expected. The core CPI less tobacco rose 0.1% (1.9% y/y). For the full year, the average gain in prices rivaled the 1.5% [...]

CPI Weak in 2002

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030115c.jpg" width="353">
The Empire State Manufacturing Survey reported that the index of general business conditions rose more than expected this month. An unchanged reading versus December had been expected by some forecasters.
Diffusion indexes for shipments and employment rose. The orders index fell slightly but remained at a high level. The index of prices paid fell for the third consecutive month.
The figures reflect revisions to seasonal factors.
The survey includes measures of business expectations, six months ahead. The diffusion index for general business conditions fell again to the lowest level since February. Expectations for capital spending fell, but expectations for shipments and employment improved.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question, not the components.
For the latest Empire State Manufacturing Survey report, click <a href="http://www.newyorkfed.org/rmaghome/regional/mfg_survey/1_2003.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General business conditions (diffusion index)</td>
<td>20.72</td>
<td>12.32</td>
<td>14.26</td>
<td>7.07</td>
<td>-13.81</td>
</tr>
</tbody>
</table>
Producer Prices Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 15, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030115b.jpg" width="353">
Finished producer prices were weaker than expected last month, unchanged from November. Consensus expectations were for a 0.3% gain.
Excluding food and energy prices also were weaker than expectations. The 0.3% decline was the second in a row and the fourth decline in the last six months.
Just a modest 0.9% gain in finished energy prices was somewhat surprising (11.% y/y). Gasoline prices fell 6.7% (38.7% y/y) for the second consecutive monthly decline. Fuel oil prices rose a slight 1.7% following November&#39;s 10.7% slump (43.1% y/y). Residential gas prices also rose 1.5% following two strong gains in the months prior (9.0% y/y). These energy product price series are NSA.
Core finished consumer goods prices fell 0.3% for the second month (-0.1% y/y). Consumer durables prices dropped a sharp 0.8% (-1.7% y/y). Passenger car prices fell 2.6% (-4.7% y/y) and household appliance prices fell for the fourth consecutive month (-1.5% y/y). Many other consumer durables prices were either flat or down. Core nondurable goods prices were unchanged (1.2% y/y). Capital goods prices fell 0.4% (-0.9% y/y). Computer and communications equipment prices fell and prices for other machinery were tame or lower.
Intermediate goods prices fell for the second consecutive month as energy prices fell for a second consecutive month. Core intermediate prices fell 0.1%, the first decline since January. 
Crude goods prices were again strong reflecting higher energy prices. Other commodities prices reflected in the core crude price measure rose reflecting another rise in scrap copper and aluminum prices. Steel scrap prices fell sharply for the fourth consecutive month.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</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">Finished Goods</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>2.9%</td>
<td>-1.5%</td>
<td>0.4%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>1.9%</td>
<td>5.1%</td>
<td>26.0%</td>
<td>-10.6%</td>
<td>0.3%</td>
<td>22.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2%</td>
<td>0.4%</td>
<td>12.4%</td>
<td>3.8%</td>
<td>-9.9%</td>
<td>7.3%</td>
</tr>
</tbody>
</table>
Mortgage Applications Fell Just Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 15, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030115a.jpg" width="353">
The index of mortgage applications, compiled by the Mortgage Bankers Association, fell a slight 2.4% following the 24.3% in the opening week of 2003.
Mortgage applications to refinance also were down just a bit after the 29.1% gain the week prior.
Mortgage applications for home purchase also fell, but gains the week prior had not been as strong as for refinancing.
Interest rates on conventional 30 Year mortgages were about stable at 5.84%, up versus the lows of late December.
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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</table>
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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">1/10/03</th>
<th scope="col">1/03/03</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>1,154.3</td>
<td>1,182.3</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>358.0</td>
<td>376.2</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>5,786.4</td>
<td>5,871.1</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
Business Inventories Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 15, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030115d.jpg" width="353">
Total business inventories rose as expected in November. It was the seventh consecutive monthly gain in inventories. October&#39;s rise was revised down slightly due mostly to lowered figures for wholesale inventories.
Retail inventories (7.7% YTD, AR) rose strongly for the third consecutive month. Motor vehicle inventories jumped 1.7%, the third consecutive strong gain.
Nonauto retail inventories (2.3% YTD, AR) rose, continuing a rising trend started in April. Inventories of furniture &amp; home furnishings built on an upwardly revised October estimate (10.0% YTD, AR). Inventories of apparel mostly reversed an October decline (2.6% YTD, AR). At general merchandise stores inventories surged 1.4% (1.1% YTD, AR).
Overall business sales rose a modest 0.3% (4.3% YTD, AR).
The inventory-to-sales ratio was stable at a low 1.36.
For analysis by the Federal Reserve Bank of New York of how inventory dynamics recently have changed, click <a href="http://www.newyorkfed.org/rmaghome/staff_rp/2002/sr156.html">here</a>. 

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</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">Total</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>-6.3%</td>
<td>5.6%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.8%</td>
<td>0.7%</td>
<td>7.1%</td>
<td>-5.0%</td>
<td>6.1%</td>
<td>7.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.5%</td>
<td>-0.3%</td>
<td>1.9%</td>
<td>-2.0%</td>
<td>4.1%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>-1.7%</td>
<td>-5.5%</td>
<td>6.6%</td>
<td>6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>-3.6%</td>
<td>-8.0%</td>
<td>4.5%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Empire State Manufacturing Survey reported that the index of general business conditions rose more than expected this month. An unchanged reading versus December had been expected by some forecasters. Diffusion indexes for [...]

Empire State Factory Survey Up Again in January

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030114a.jpg" width="353">
Retail sales rose strongly last month but less than Consensus expectations for a 1.4% gain. Sales in November were revised down due to a lowered gain for nonauto sales. The 3.4% gain in retail sales for all of 2002 was the weakest yearly increase since the recession year of 1991. 
Sales excluding motor vehicles and parts dealers were quite a bit weaker than Consensus expectations for a 0.3% gain. The November increase had been previously reported as 0.5%.
Furniture and home furnishing store sales rose 0.3% (2.2% y/y) following a 0.8% November gain that was half the initially reported estimate. Furniture sales were unchanged. Sales at electronics and appliance stores rose 0.6%. Gains in both categories were revised lower for November.
Sales at general merchandise stores rose 0.3%, but the November increase was revised away to -0.9% (2.8% y/y).
Apparel store sales rose 0.8% (2.9% y/y) and reversed a 0.8% November drop that was shallower than initially reported.
Motor vehicle dealers&#39; sales rose 5.0% following an upwardly revised November estimate. Unit sales of light vehicles rose 14.2% last month to 18.32 mil.
Sales at gasoline service stations rose 0.7% (16.6% y/y) following an upwardly revised 0.9% November gain.

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<th scope="col" class="firstcol">&nbsp;</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>1.2%</td>
<td>0.9%</td>
<td>4.6%</td>
<td>3.4%</td>
<td>3.8%</td>
<td>6.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.0%</td>
<td>0.3%</td>
<td>4.3%</td>
<td>3.9%</td>
<td>3.4%</td>
<td>7.3%</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">

</table>
Import Prices Jumped Due To Higher Oil Prices 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 14, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030114b.jpg" width="353">
Prices for imported commodities rose in line with Consensus expectations for a 0.7% gain. Despite the recent strength in oil, overall import prices for 2002 fell for the fourth year in the last five.
Petroleum import prices rose sharply and by the most for any month since April. Prices were lifted by the labor strike in Venezuela and Mideast concerns. So far in January the price of Brent Crude Oil has been near $30.00/bbl. versus the $28.23/bbl averaged in December.
Nonpetroleum import prices rose slightly following the slight November drop which was revised down.
Prices of imported capital goods fell 0.1% (-2.5% y/y), the fourth down month in a row. Nonauto consumer goods prices rose a slight 0.1% (-0.7% y/y). Imported motor vehicle prices also were up just 0.1% (0.5% y/y).
Export prices fell for the second month in three. Price declines were across the board except for nonauto consumer goods which were unchanged and auto prices which rose 0.1%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</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">Import - All Commodities</td>
<td>0.7%</td>
<td>-1.0%</td>
<td>4.2%</td>
<td>-2.5%</td>
<td>-3.5%</td>
<td>6.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>7.4%</td>
<td>-9.2%</td>
<td>57.9%</td>
<td>2.9%</td>
<td>-17.2%</td>
<td>66.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>-2.4%</td>
<td>-1.5%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>-1.0%</td>
<td>-0.8%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
Chain Store Sales Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 14, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030114c.jpg" width="353">
Chain store sales rose a slight 0.3% following the slight decline of a week earlier according to the BTM-UBSW survey.
Sales so far in January were up 2.0% from the December average due to the huge sales gain during Christmas week.
During the last ten years there has been a 49% correlation between the year-to-year percent change in monthly chain store sales and the change in GAF retail sales. That correlation rose to 64% during the last five years.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">1/11/03</th>
<th scope="col">1/04/03</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>409.1</td>
<td>408.0</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
ECRI Future Inflation Gauge Strong in 2002 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 14, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030114e.jpg" width="353">
The Future Inflation Gauge (FIG) published by the Economic Cycle Research Institute (ECRI) continued it&#39;s rise of 2002 in December. The index rose 1.2% following gains in all but one of the months last year.
The indicator&#39;s six-month growth rate eased a bit to a still strong 21.2%.
The monthly FIG has a mean lead of 11 months and a median lead of 9 months at inflation cycle turns .
The eight components of the FIG are commodity prices, employment measures, capacity measures, import prices, the yield spread, real estate and debt.
For more on ECRI visit <a href="http://www.businesscycle.com">businesscycle.com</a>.

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</table>
<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/@EF12/@EF12.HTM">ECRI</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">Future Inflation Gauge</td>
<td>116.6</td>
<td>115.2</td>
<td>17.8%</td>
<td>3.1%</td>
<td>-14.2%</td>
<td>6.5%</td>
</tr>
</tbody>
</table>
New Rules for the Fed's Discount Window 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 14, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030114f.jpg" width="353">
Effective last Thursday, revisions for the usage of the Federal Reserve&#39;s discount window went into effect.
The change has no effect on the stance of monetary policy, but it does raise the discount rate above the Federal funds rate.
For the Fed&#39;s release outlining the new rules which were issued this past fall, click <a href="http://www.federalreserve.gov/boarddocs/press/bcreg/2002/200210312/default.htm">here</a>.

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Retail sales rose strongly last month but less than Consensus expectations for a 1.4% gain. Sales in November were revised down due to a lowered gain for nonauto sales. The 3.4% gain in retail sales for all of 2002 was the weakest [...]

Retail Sales Lifted by Higher Vehicle Sales

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030114d.jpg" width="353">
The Bundesbank reported that industrial production in Germany increased 2.5% from October to November. The consensus estimate was an advance of only 0.6%.
While the month to month increase was surprising, a more realistic picture emerges when one takes a three month average of the data that tends to smooth the short term fluctuations. On this basis the recent increase was 0.2%. 
The trend of the three month moving average appears to have bottomed in early 2002 and is now rising.
Recent data on new orders and exports suggest further support for industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GERMANY</th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">M/M</th>
<th scope="col">Y/Y</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">Industrial Production (1995=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Actual</td>
<td>110.4</td>
<td>113.2</td>
<td>2.5</td>
<td>2.5</td>
<td>113.3</td>
<td>113.4</td>
<td>107.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; 3-Month Moving Average</td>
<td>111.6</td>
<td>111.8</td>
<td>0.2</td>
<td>0.3</td>
<td>113.3</td>
<td>113.4</td>
<td>107.7</td>
</tr>
<tr>
<td class="firstcol">New Orders (1995=100)</td>
<td>127.5</td>
<td>128.2</td>
<td>1.5</td>
<td>6.5</td>
<td>126.8</td>
<td>129.0</td>
<td>113.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports (Billions of Euros, Annual Rate)</td>
<td>651.6</td>
<td>672.0</td>
<td>3.1</td>
<td>10.0</td>
<td>641.0</td>
<td>596.7</td>
<td>506.3</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
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The Bundesbank reported that industrial production in Germany increased 2.5% from October to November. The consensus estimate was an advance of only 0.6%. While the month to month increase was surprising, a more realistic picture [...]

German Industrial Production Increased

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030113a.jpg" width="353">
The OECD Index of Leading Indicators rose in November for the first month since May as a result of improvement in Continental Europe and in the US. Leaders in the UK and Japan continued a recent decline.
Real economic growth in the Major Seven OECD countries improved in 3Q as a result of respectable growth in the UK, the US and in Japan.
In Germany, real GDP growth was modest as industrial production fell hard in October for the fourth month in five. Retail sales volumes staged a modest recovery in November (-1.9% y/y) from a sharp October drop and were flat in 3Q. Harmonized consumer prices fell 0.5% in November and are down 0.7% from a July peak.
In the UK, production was flat in October following two months of moderate decline. Retail sales values were unchanged in November (3.2% y/y). Consumer prices were flat in November following little change in the months prior.
Production in France was erratic last year and showed little change through October. The leading indicators rose in November following five months of decline. Retail sales volumes have been firm (+2.5% y/y) and consumer prices fell in November (+2.1% y/y).
Production in Japan fell in October (5.5% y/y) for the second consecutive month. Retail sales values rose 2.2% in November and have moved sideways since the Spring. Prices actually rose in November (-0.3% y/y) for the first month in five.

<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/OECDMEI/OECDMEI.HTM">OECD Main Economic Indicators</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</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">OECD Total - Leading Index (Trend Restored)</td>
<td>120.1</td>
<td>119.8</td>
<td>4.2%</td>
<td>-2.1%</td>
<td>3.7%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>3Q02</td>
<td>2Q02</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD Total</td>
<td>3.1%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>0.8%</td>
<td>3.8%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Major Seven - GDP (Mil. 95 US$, SAAR)</td>
<td>3.1%</td>
<td>1.8%</td>
<td>2.2%</td>
<td>0.7%</td>
<td>3.4%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">European Union - GDP (Mil. 95 US$, SAAR)</td>
<td>1.7%</td>
<td>1.7%</td>
<td>1.1%</td>
<td>1.6%</td>
<td>3.6%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany - GDP (Bil. 95 Euros, SAAR)</td>
<td>1.1%</td>
<td>0.6%</td>
<td>0.4%</td>
<td>0.7%</td>
<td>3.1%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; United Kingdom - GDP (Mil. 95 Pounds, SAAR)</td>
<td>3.8%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>3.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Japan - GDP (Bil. 95 Yen, SAAR)</td>
<td>3.0%</td>
<td>4.2%</td>
<td>1.5%</td>
<td>-0.9%</td>
<td>2.2%</td>
<td>0.7%</td>
</tr>
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The OECD Index of Leading Indicators rose in November for the first month since May as a result of improvement in Continental Europe and in the US. Leaders in the UK and Japan continued a recent decline. Real economic growth in the [...]

OECD Leaders On the Mend?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030110a.jpg" width="353">
Nonfarm payrolls were quite weak last month, falling 101,000 instead of rising 20,000 as expected by Consensus estimates. The decline in November payrolls was about doubled (mostly due to lowered private services) but figures for October were revised up.
Last month&#39;s decline in payrolls was the third in four months, rounding out the weakest year for the US job market since 1991.
The one-month diffusion index for nonfarm payrolls was hardly changed at 45.5. November&#39;s level was revised down. The three month diffusion index fell to 42.8. These indices are leading indicators and suggest negative employment growth near term.
As expected, the unemployment rate held its high level of the month prior. Employment fell 273,000 (-0.1% y/y), the third consecutive large decline. The labor force fell 191,000 (0.2% y/y), also the third consecutive decline.
Amongst industries the number of factory sector jobs continued down, falling 65,000 (-3.5% y/y). It was the largest monthly percentage decline (0.4%) in manufacturing jobs since February. The one-month diffusion index for the factory sector dropped to 37.5, its lowest level since February and suggested further declines in factory sector jobs. Construction jobs rose a slight 3,000 (-1.4% y/y) following two months of decline. Jobs in service producing industries rose 42,000 (0.5% y/y), the second consecutive decline. Government employment rose 14,000 (1.2% y/y).
The length of the workweek fell slightly last month. For the quarter the workweek was up slightly versus 3Q. The index of aggregate hours worked (employment times hours worked) fell to the lowest level since July. The 4Q average was unchanged from 3Q.
Over the last ten years there has been a 53% correlation between the quarterly change in aggregate hours worked and real GDP. That correlation is down from 89% in the 1980s. The decline is due to the recent acceleration in productivity growth.
The 0.3% gain in average hourly earnings was as expected.
The nonfarm payroll employment figures are based on reports provided to the US Labor Department by businesses, while the figures from which the unemployment rate is derived are based on a survey of US households.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</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">Payroll Employment</td>
<td>-101,000</td>
<td>-88,000</td>
<td>-0.1%</td>
<td>-0.9%</td>
<td>0.2%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-65,000</td>
<td>-57,000</td>
<td>-3.5%</td>
<td>-5.5%</td>
<td>-4.2%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>34.1</td>
<td>34.2</td>
<td>34.1</td>
<td>34.2</td>
<td>34.2</td>
<td>34.4</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.0%</td>
<td>3.2%</td>
<td>4.0%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>6.0%</td>
<td>6.0%</td>
<td>5.8%</td>
<td>5.8%</td>
<td>4.8%</td>
<td>4.0%</td>
</tr>
</tbody>
</table>
ECRI Leading Indicators Recover 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 10, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030110b.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose sharply in the opening week of 2003.
The level of the leading index added to a slight gain in December. In November, the index rose meaningfully from the October low. Despite these gains, the six-month growth rate of the index remained negative at -2.4%.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been an 80% correlation between the annual percent change in the two over the last 20 years.
The components of the 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 click <a href="http://www.businesscycle.com/">here</a>.

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<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/@W8/@W801/@W801.HTM">ECRI</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">Leading Index</td>
<td>118.2</td>
<td>118.1</td>
<td>-1.1%</td>
<td>0.9%</td>
<td>-5.2%</td>
<td>1.0%</td>
</tr>
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Nonfarm payrolls were quite weak last month, falling 101,000 instead of rising 20,000 as expected by Consensus estimates. The decline in November payrolls was about doubled (mostly due to lowered private services) but figures for [...]

Nonfarm Payrolls Again Fell Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030109a.jpg" width="353">
Initial claims for unemployment insurance were lower than expected during New Year&#39;s week. Claims fell 19,000 from the prior week&#39;s level which was revised slightly higher. The incidence of two holidays in back to back weeks historically has generated volatility in these seasonally adjusted figures.
The four-week moving average of initial claims fell to 406,000, down 0.2% y/y.
Continuing claims for unemployment insurance rose 1.0%. The prior week&#39;s level was revised down slightly.
The insured rate of unemployment was 2.7% for the fifth week in six.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">1/04/03</th>
<th scope="col">12/28/02</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>
<td class="firstcol">Initial Claims</td>
<td>389.0</td>
<td>408.0</td>
<td>-2.3%</td>
<td>405.0</td>
<td>405.8</td>
<td>299.8</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,445</td>
<td>0.0%</td>
<td>3,588</td>
<td>3,021</td>
<td>2,114</td>
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Initial claims for unemployment insurance were lower than expected during New Year's week. Claims fell 19,000 from the prior week's level which was revised slightly higher. The incidence of two holidays in back to back weeks [...]

Initial Claims for Unemployment Insurance Fell Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030108a.jpg" width="353">
The index of mortgage applications, compiled by the Mortgage Bankers Association, jumped 24.3% in the opening week of 2003.
Mortgage applications to refinance popped 29.1%, up 55% from four weeks earlier. Through 3Q02, Freddie Mac reported that 45% of mortgage refinancings were for a loan amount that was 5% higher.
Interest rates on conventional 30 Year mortgages rose to 5.85% from the low of 5.69% one week earlier.
Mortgage applications for home purchase also rose strongly following two weeks of decline.
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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<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">1/03/03</th>
<th scope="col">12/06/02</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>1,182.3</td>
<td>862.7</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>376.2</td>
<td>358.8</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>5,871.1</td>
<td>3,793.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
Consumer Credit Outstanding Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 8, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030108b.jpg" width="353">
Consumer credit outstanding fell unexpectedly in November. Consensus expectations were for roughly a $4.0B rise. October figures were little revised. So far this year, consumer credit outstanding has risen at a 3.5% annual rate.
Nonrevolving credit fell for the second consecutive month and for the third month in four. Nonrevolving extension was up 3.6% (AR) YTD.
Revolving credit also fell for the first time since February. Revolving credit growth was 3.5% (AR) through November.

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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E103/@E10308/@E10308.HTM">Consumer Credit Outstanding</a></th>
<th scope="col">Nov m/m</th>
<th scope="col">Oct m/m</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>$-2.2B</td>
<td>$1.6B</td>
<td>3.5%</td>
<td>6.9%</td>
<td>10.2%</td>
<td>7.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$-1.6B</td>
<td>$2.4B</td>
<td>2.4%</td>
<td>5.0%</td>
<td>11.5%</td>
<td>6.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$-0.7B</td>
<td>$-0.9B</td>
<td>4.2%</td>
<td>8.3%</td>
<td>9.2%</td>
<td>8.4%</td>
</tr>
</tbody>
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The index of mortgage applications, compiled by the Mortgage Bankers Association, jumped 24.3% in the opening week of 2003. Mortgage applications to refinance popped 29.1%, up 55% from four weeks earlier. Through 3Q02, Freddie Mac [...]

Mortgage Applications Surged

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.

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**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).

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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

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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.

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- 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

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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.

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- 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.

260409Z3.jpg

**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.

260409Z4.jpg

**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

260409Z5.jpg

**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.

260409Z6.jpg

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.