Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030107x.jpg" width="353">
After improving slightly earlier in 2002, Euro-zone consumer confidence has weakened since mid year. Eurostat reported that the percent balance of respondents to their survey questions, reporting an increase less the percent reporting a decrease, fell from -14% in November to -16% in December, the lowest level since early 1997.
The overall balance of consumer confidence is based on consumers&#146; expectations, over the next twelve months, for the financial situation, general economic climate, unemployment and savings rate. From November to December, consumers reported no change in the outlook for their financial situation, a worsening in the economic climate, a rise in unemployment and a drop in savings rate. As can be seen in the attached chart, the overall index is heavily influenced by consumers&#146; expectations of unemployment.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol">&nbsp;Percent Balance</th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec/Nov</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">Consumer Confidence</td>
<td>-16</td>
<td>-14</td>
<td>-2</td>
<td>-5</td>
<td>-11</td>
<td>-5</td>
<td>1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Expectations:</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Financial Situation</td>
<td>-4</td>
<td>-4</td>
<td>0</td>
<td>-4</td>
<td>-1</td>
<td>2</td>
<td>4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; General Econ Climate</td>
<td>-19</td>
<td>-15</td>
<td>-4</td>
<td>-3</td>
<td>-12</td>
<td>-9</td>
<td>1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Unemployment</td>
<td>33</td>
<td>30</td>
<td>3</td>
<td>3</td>
<td>26</td>
<td>13</td>
<td>1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Savings</td>
<td>-9</td>
<td>-7</td>
<td>-2</td>
<td>-10</td>
<td>-3</td>
<td>1</td>
<td>0</td>
</tr>
</tbody>
</table>
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After improving slightly earlier in 2002, Euro-zone consumer confidence has weakened since mid year. Eurostat reported that the percent balance of respondents to their survey questions, reporting an increase less the percent reporting [...]

Euro-zone Consumer Confidence Weakens

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030107b.jpg" width="353">
Manufacturing inventories fell in November following a slight decline the month prior that initially was reported as no change. The declines follow a brief two months of accumulation.
The figures are broadly consistent with the ISM survey which indicated that inventories continued to run off, though at a rate slower than early in 2002 and 2001.
Inventory decumulation in November was significant in the transportation sector, but outside of automobiles which have risen for the last three months.
Inventory declines also continued in a broad range of durable goods industries including electrical equipment, machinery, fabricated metals. Inventories of computers and furniture rose.
Nondurable goods inventories fell 0.4% (0.4% y/y) following five months of gain.
For analysis by the Federal Reserve Bank of New York of how inventory dynamics have changed, click <a href="http://www.newyorkfed.org/rmaghome/staff_rp/2002/sr156.html">here</a>.
Factory shipments fell sharply, nearly reversing all of the prior month&#39;s gain. For the year shipments have risen 2.4%. Gains for the year have been dominated by increases in the primary metals and miscellaneous categories.
Factory orders fell 0.8%, slightly more than expectations based on the advance report that durable goods orders fell 1.4%. That decline was revised to -1.5% (1.3% YTD).

<table border="0" cellspacing="0" width="100%">
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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">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>
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<td class="firstcol">Inventories</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>
<tr>
<td class="firstcol">New Orders</td>
<td>-0.8%</td>
<td>1.4%</td>
<td>3.5%</td>
<td>-7.2%</td>
<td>5.2%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.8%</td>
<td>1.2%</td>
<td>2.7%</td>
<td>-5.3%</td>
<td>4.4%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
Chain Store Sales Fell Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 7, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030107a.jpg" width="353">
Chain store sales fell during the final week of last year, but gave back just 0.2% of the huge 2.1% gain during Christmas week, according to the BTM-UBSW survey.
December sales rose 0.1% (2.8% y/y) from the November average.
During the last ten years there has been a 48% correlation between the year-to-year percent change in monthly chain store sales and the change in GAF retail sales. That correlation rose to 63% during the last five years.

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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">1/04/03</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">Total Weekly Retail Chain Store Sales</td>
<td>408.0</td>
<td>409.0</td>
<td>3.3%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
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Manufacturing inventories fell in November following a slight decline the month prior that initially was reported as no change. The declines follow a brief two months of accumulation. The figures are broadly consistent with the ISM [...]

Factory Inventories Resumed Decumulation

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030106a.jpg" width="353">
Unit sales of light vehicles surged in December to the highest level since August as zero percent financing incentives again took hold. Sales fell for the second consecutive calendar year since the high of 2000. December sales were much better than Consensus expectations for a 16.1M unit sales rate.
Sales of domestically built vehicles rose 17.7% m/m. Nevertheless, sales were well off the monthly high sales rate of 17.7M units in October 2001. Auto sales rose 10.0% m/m but sales of light trucks surged 23.8%.
Imported vehicle sales rose 0.9% m/m following the strong 14.7% gain in November. Imported auto sales fell 1.4% but truck sales rose 5.8%.
Imports&#39; share of the US light vehicle market fell to 18.4% in December. For the year, imports&#39; share of the US vehicle market averaged 19.5% versus 17.8% during 2001. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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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">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>18.32</td>
<td>16.04</td>
<td>10.7%</td>
<td>16.78</td>
<td>17.26</td>
<td>17.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>14.94</td>
<td>12.69</td>
<td>12.3%</td>
<td>13.51</td>
<td>14.19</td>
<td>14.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imported</td>
<td>3.38</td>
<td>3.35</td>
<td>4.2%</td>
<td>3.27</td>
<td>3.07</td>
<td>2.82</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Eased 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 6, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030106b.jpg" width="353">
The Institute for Supply Management business activity index of the nonmanufacturing sector fell last month but remained at the second highest level since June. Consensus expectations were for a decline to 55.5.
Of the seasonally adjusted subgroups, the employment index rose modestly to its highest level since August. The new orders index fell slightly to a still high 56.3 and imports fell.
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 not seasonally adjusted index of prices fell sharply to the lowest level since February.
During the last five years, there has been a 57% correlation between the level of the price index in the NAPM nonmanufacturing survey and the three month growth in the CPI for services less rent of shelter.
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">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">Business Activity Index</td>
<td>54.7</td>
<td>57.4</td>
<td>50.1</td>
<td>55.1</td>
<td>49.0</td>
<td>59.2</td>
</tr>
</tbody>
</table>
Challenger Survey Shows Layoffs Plunged in December 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 6, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030106c.jpg" width="353">
According to Challenger, Gray &amp; Christmas, announced job cuts plunged last month from the elevated levels of October and November.
Because of the earlier surge in layoffs, the three month moving average of job cut announcements rose again to 142,145, the highest level since March. Nevertheless, layoffs were still well below the highs of late 2001.
Announcements of job cuts varied greatly amongst industries with large decline in the electronics, entertainment and financial industries offset by huge increases in health care, pharmaceutical and retail.

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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">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>92,917</td>
<td>157,508</td>
<td>-42.5%</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
</table>
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Unit sales of light vehicles surged in December to the highest level since August as zero percent financing incentives again took hold. Sales fell for the second consecutive calendar year since the high of 2000. December sales were [...]

U.S. Light Vehicle Sales Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030103a.jpg" width="353">
The value of construction put in place rose about as expected in November, but the figures for October were revised up sharply due to raised estimates of residential construction.
In constant 1996 dollars, overall construction spending was unchanged and was down 1.4% YTD. Real residential spending was up 4.7% YTD but nonresidential activity fell 14.7% in real terms.
Residential building rose 0.9%, the fourth strong gain in five months. Spending on one-unit structures rose 1.6%, the third consecutive month of strong gain. 
Nonresidential building activity declined slightly following the October bounce. Spending here was down 13.9% YTD. Spending on industrial buildings fell 1.5% (-41.3% YTD).
Public construction rose led by broad based gains amongst categories.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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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">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>0.3%</td>
<td>1.0%</td>
<td>0.8%</td>
<td>2.5%</td>
<td>7.3%</td>
<td>8.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Residential</td>
<td>0.9%</td>
<td>1.2%</td>
<td>6.7%</td>
<td>3.3%</td>
<td>7.4%</td>
<td>11.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>-14.4%</td>
<td>-3.1%</td>
<td>7.1%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public</td>
<td>1.5%</td>
<td>-0.4%</td>
<td>5.6%</td>
<td>7.4%</td>
<td>5.4%</td>
<td>10.6%</td>
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The value of construction put in place rose about as expected in November, but the figures for October were revised up sharply due to raised estimates of residential construction. In constant 1996 dollars, overall construction [...]

Construction Spending Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030102b.jpg" width="353">
The ISM Composite Index of manufacturing sector activity rose more than expected last month. The index moved above 50 for the first month since August. The rise was in line with the improvement in the Philadelphia Fed and Empire State surveys, but ran counter to the decline in the Chicago purchasing managers index.
Each of the five component series rose with employment, new orders and inventories back to the levels of this past Spring.
The separate index of inflation pressure rose slightly but remained well off the Spring highs.
Over the last ten years there has been a 59% correlation between the ISM Composite Index and growth in real GDP in the next quarter. That correlation has risen to 67% 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/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</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">Composite Index</td>
<td>54.7</td>
<td>49.2</td>
<td>48.1</td>
<td>52.4</td>
<td>43.9</td>
<td>51.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>56.9</td>
<td>55.7</td>
<td>33.2</td>
<td>57.4</td>
<td>43.0</td>
<td>64.8</td>
</tr>
</tbody>
</table>
Mortgage Applications Rising Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030102c.jpg" width="353">
The index of mortgage applications, compiled by the Mortgage Bankers Association, rose in the latest week and seemed to establish a new uptrend versus the early December low.
Mortgage applications to refinance surged, rising to the highest level in five weeks.
Interest rates on conventional 30 Year mortgages fell to 5.69% from 6.00% five weeks earlier.
Mortgage applications for home purchase fell in the latest week to the lowest level since early April.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/27/02</th>
<th scope="col">11/22/02</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>950.9</td>
<td>1,131.0</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>332.4</td>
<td>350.2</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>4,548.8</td>
<td>5,672.3</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
Initial Claims for Unemployment Insurance Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 2, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030102a.jpg" width="353">
Initial claims for unemployment insurance were higher than expected during Christmas week. Claims rose 13,000 from the prior week&#39;s level which was revised slightly higher.
The four-week moving average of initial claims rose to 418,750, the highest level since late September and up 2.1% y/y.
Continuing claims for unemployment insurance fell 1.6%. The prior weeks level was revised up slightly. Continuing claims in the latest week were down nearly 11% from the highs this past Spring.
The insured rate of unemployment was stable at 2.7% for the third week.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/28/02</th>
<th scope="col">12/21/02</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>403.0</td>
<td>390.0</td>
<td>-4.3%</td>
<td>404.9</td>
<td>405.8</td>
<td>299.8</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,418</td>
<td>-4.2%</td>
<td>n.a.</td>
<td>3,021</td>
<td>2,114</td>
</tr>
</tbody>
</table>
</body>
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The ISM Composite Index of manufacturing sector activity rose more than expected last month. The index moved above 50 for the first month since August. The rise was in line with the improvement in the Philadelphia Fed and Empire State [...]

ISM Index Above 50

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021231a.jpg" width="353">
Chain store sales rose during Christmas week. The 2.1% w/w gain was the third consecutive weekly rise according to the BTM-UBSW survey.
The late month surge in sales finally recouped a sharp decline early in the month and pulled December sales to date 0.1% (2.8% y/y) above the November average. Sales in December fell slightly m/m last year after dropping 1.0% in 2000.
During the last ten years there has been a 48% correlation between the year-to-year percent change in monthly chain store sales and the change in GAF retail sales. That correlation rose to 63% during the last five years.

<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">12/28/02</th>
<th scope="col">12/21/02</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>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>409.0</td>
<td>400.4</td>
<td>2.9%</td>
<td>2.1%</td>
<td>3.4%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
Consumer Confidence Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 31, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021231b.jpg" width="353">
The Conference Board&#146;s Index of Consumer Confidence for December fell unexpectedly. Consensus expectations were for a reading of 86.0. November confidence was revised up slightly.
The 5.4% m/m decline in Consumer Confidence was the eighth of the year. The decline in Confidence ran counter to the December rise in Consumer Sentiment from the University of Michigan.
The decline in confidence reflected lower readings of both the present situation and consumer expectations. The decline in the present situation reading was sharp.
During the last ten years there has been a 52% 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">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">Consumer Confidence</td>
<td>80.3</td>
<td>84.9</td>
<td>-15.1%</td>
<td>96.6</td>
<td>106.6</td>
<td>139.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales rose during Christmas week. The 2.1% w/w gain was the third consecutive weekly rise according to the BTM-UBSW survey. The late month surge in sales finally recouped a sharp decline early in the month and pulled [...]

Chain Store Sales Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021230a.jpg" width="353">
The Chicago Purchasing Manager&#146;s Index of Business activity fell more than expected in December. Consensus estimates were for a reading of 53.0.
The decline ran counter to the moderate improvement in the Philadelphia Fed and the Empire State Surveys for December.
Over the last ten years there has been an 86% correlation between the Chicago PMI and the ISM Composite Index. That is higher than a 71% correlation between the Philadelphia Fed General Activity Index and the ISM Composite, to be released Thursday.
The indexes of new orders, inventories and production fell, but employment rose and order backlogs. 
The prices paid index rose and recouped all of the November decline.
Visit the Chicago Purchasing Managers website at <a href="http://www.napm-chicago.org/">www.napm-chicago.org.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</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>
<td class="firstcol">Business Barometer</td>
<td>51.3</td>
<td>54.3</td>
<td>41.5</td>
<td>41.4</td>
<td>51.8</td>
<td>56.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>62.1</td>
<td>57.2</td>
<td>47.0</td>
<td>50.5</td>
<td>65.6</td>
<td>57.6</td>
</tr>
</tbody>
</table>
Existing Home Sales Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 30, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021230b.jpg" width="353">
Sales of existing single family homes fell more than expected last month. Sales in October were little revised.
Sales in November were up 6.9% versus last December. During the first eleven months of 2002 sales were up 5.3% versus 2001.
Home sales fell in each of the country&#39;s regions except the West where they were unchanged.
The median price of an existing home rose 1.3% to $161,400 (9.7% y/y).
The figures reflect closings of past home sales. 
The average rate on a conventional 30-year mortgage fell slightly last month versus October to 6.07%. The decline this year in mortgage rates has combined with strong growth in disposable income to offset higher home prices and thus raise home affordability.

<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/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</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>
<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;5,560</td>
<td>&nbsp;5,760</td>
<td>5.9%</td>
<td>5,291</td>
<td>5,159</td>
<td>5,193</td>
</tr>
</tbody>
</table>
</body>
</html>

The Chicago Purchasing Managers Index of Business activity fell more than expected in December. Consensus estimates were for a reading of 53.0. The decline ran counter to the moderate improvement in the Philadelphia Fed and the [...]

Chicago Purchasing Agents' Index Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021227b.jpg" width="353">
Sales of new single family homes were slightly stronger than expected last month. Sales rose 5.7% from October when sales were revised up slightly. Consensus expectations were for a 1.000 Mil. sales rate.
Sales were mixed across the country&#146;s regions. In the Midwest, sales rose 41.2% m/m following two months of decline. Sales in the South also rose moderately following two down months. In the Northeast, sales fell 26.7% following a 36.8% October drop. In the West, sales fell 3.9% but remained near the record.
The median price of a new home fell 6.5% to $167,300 (-0.5% y/y).
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">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>
<td class="firstcol">New Single-Family</td>
<td>1,069</td>
<td>1,011</td>
<td>14.0%</td>
<td>908</td>
<td>880</td>
<td>879</td>
</tr>
</tbody>
</table>
Help Wanted Advertising Stayed Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 27, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021227a.jpg" width="353">
The Conference Board&#39;s National Index of Help-Wanted Advertising in November remained at the lowest level since 1964.
The proportion of labor markets with rising want-ad volume improved somewhat to 47% from 24% in October.
Job opportunities remained weak in most regions of the country, but were strongest in the South.
During the last five years there has been a 74% 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 98%.
The figures are seasonally adjusted.
For analysis of recent trends in unemployment duration by the San Francisco Federal Reserve, click <a href="http://www.frbsf.org/publications/economics/letter/2002/el2002-35.html">here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;01</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>40</td>
<td>40</td>
<td>45</td>
</tr>
</tbody>
</table>
</body>
</html>

Sales of new single family homes were slightly stronger than expected last month. Sales rose 5.7% from October when sales were revised up slightly. Consensus expectations were for a 1.000 Mil. sales rate. Sales were mixed across the [...]

New Home Sales Rose

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.

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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.

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**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.

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**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.