Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021112a.jpg" width="353">
Chain store sales rose last week, according to the BTM-UBSW survey. The 0.5% rise was the third weekly gain in the last four weeks and followed a 1.1% gain in the prior week.
So far in November, sales were even with the average sales level in October which was down 1.5% from September.
During the last ten years there has been a 38% correlation between the year-to-year percent change in monthly chain store sales and the change in nonauto retail sales.

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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">11/09/02</th>
<th scope="col">11/02/02</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">Total Weekly Retail Chain Store Sales</td>
<td>402.0</td>
<td>399.9</td>
<td>2.7%</td>
<td>2.1%</td>
<td>3.4%</td>
<td>6.7%</td>
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</tbody>
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US Dollar Down as Fed Eased, Commodity Prices Flat 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 12, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021112b.jpg" width="353">
The trade weighted value of the US dollar has fallen sharply this month on anticipation and news of Fed ease, plus a weak US economy. The trade weighted value of the US dollar fell 1.0% during both last week and the week prior.
The dollar has now given back most of its gain earlier this year.
Commodity prices have continued to move sideways recently. Declines in petroleum prices have been offset by moderate increases in the prices of textiles and metals.

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Chain store sales rose last week, according to the BTM-UBSW survey. The 0.5% rise was the third weekly gain in the last four weeks and followed a 1.1% gain in the prior week. So far in November, sales were even with the average sales [...]

Weekly Chain Store Sales Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021111a.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) improved slightly in September, although the index remained negative.
The reading left the three-month moving average of the CFNAI at -0.25, a level much improved versus the lows of late last year.. A zero value indicates that the economy is expanding at its historical trend rate of growth.
During the last ten years there has been a 72% correlation between the level of the CFNAI and quarterly growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production &amp; income, the labor market, personal consumption &amp; housing, mfg. &amp; trade sales, and inventories &amp; orders.
For a complete discussion of the Chicago Fed&#39;s National Activity Index click <a href="http://www.chicagofed.org/economicresearchanddata/national/index.cfm">here</a>.
A discussion of the CFNAI and its role as a business cycle indicator can be found <a href="http://www.chicagofed.org/publications/economicperspectives/2002/3qepart2.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Sept &#39;01</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">CFNAI</td>
<td>-0.35</td>
<td>-0.45</td>
<td>-1.95</td>
<td>-1.10</td>
<td>-0.18</td>
<td>0.27</td>
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The Chicago Fed National Activity Index (CFNAI) improved slightly in September, although the index remained negative. The reading left the three-month moving average of the CFNAI at -0.25, a level much improved versus the lows of late [...]

Chicago Fed National Activity Index Gained Slightly in September

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021108b.jpg">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) fell another 0.9% last month, the fourth down month in a row.
The indicator&#39;s six-month growth rate fell to-3.4%. The y/y comparison still is positive due to weakness in 2001.
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. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM">ECRI</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</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">Weekly Leading Index</td>
<td>118.0</td>
<td>119.1</td>
<td>3.6%</td>
<td>-5.0%</td>
<td>0.8%</td>
<td>2.4%</td>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) fell another 0.9% last month, the fourth down month in a row. The indicator's six-month growth rate fell to-3.4%. The y/y comparison [...]

ECRI Leading Indicators Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021107a.jpg" width="353">
Nonfarm labor productivity grew as expected last quarter. Consensus estimates were for growth at a 4.1% rate. While growth was more than double the 2Q rate, it was roughly half the heated growth of 4Q01 and 1Q02.
Output in the nonfarm business sector rose a strong 4.0% (AR). That&#39;s versus 3.1% in real GDP last quarter. Hours worked were unchanged. Hours worked generally have been declining since early 2000.
Unit Labor costs rose at half the 2Q rate; up in the last two quarters after three consecutive quarters of decline. Compensation growth was strong the last three quarters.
Manufacturing sector productivity grew a strong 5.9% (5.9% y/y). Unit labor costs fell 1.3%, the fifth consecutive quarterly decline.
For analysis of the recent resurgence in US productivity growth by the Atlanta Fed, click <a href="http://www.frbatlanta.org/filelegacydocs/stiroh_jorgenson_q302.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;02</th>
<th scope="col">2Q &#39;02</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">Output per Hour</td>
<td>4.0%</td>
<td>1.7%</td>
<td>5.3%</td>
<td>1.1%</td>
<td>2.9%</td>
<td>2.4%</td>
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<td class="firstcol">Compensation</td>
<td>4.8%</td>
<td>3.9%</td>
<td>3.3%</td>
<td>2.7%</td>
<td>6.9%</td>
<td>4.4%</td>
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<td class="firstcol">Unit Labor Costs</td>
<td>0.8%</td>
<td>2.2%</td>
<td>-2.0%</td>
<td>1.6%</td>
<td>3.9%</td>
<td>2.0%</td>
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Initial Claims for Jobless Insurance Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 7, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021107b.jpg" width="353">
Initial claims for unemployment insurance fell more than expected in the latest week. Claims in the prior week were unrevised.
The four-week moving average of initial claims rose slightly to 402,00, down 13.4% y/y.
Continuing claims for unemployment insurance rose marginally, but the prior week&#39;s sharp increase was halved.
The insured rate of unemployment was stable at 2.8% for the third consecutive week.

<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">11/02/02</th>
<th scope="col">10/26/02</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">Initial Claims</td>
<td>390.0</td>
<td>410.0</td>
<td>-10.1%</td>
<td>405.8</td>
<td>299.8</td>
<td>297.7</td>
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<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,583</td>
<td>0.1%</td>
<td>3,021</td>
<td>2,114</td>
<td>2,186</td>
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</tbody>
</table>
Consumer Credit Growth Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 7, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021107c.jpg" width="353">
Consumer credit outstanding rose $9.9B (0.6%) in September, nearly double the prior month&#39;s growth and higher than Consensus expectations for a $6.0B rise. August figures were revised up due to sharply raised figures for revolving credit. So far this year, consumer credit outstanding has risen at a 5.3% annual rate. 
Revolving credit rose 0.8%, the same as in August which was revised from 0.5%. Revolving credit growth was 5.6% (AR) through September.
Nonrevolving credit grew 0.4% after falling slightly in August. Nonrevolving extension was up 5.0% (AR) YTD.

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<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">Sept m/m</th>
<th scope="col">Aug 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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<td class="firstcol">Total</td>
<td>$9.9B</td>
<td>$5.6B</td>
<td>6.3%</td>
<td>6.9%</td>
<td>10.2%</td>
<td>7.5%</td>
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<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$5.6B</td>
<td>$6.0B</td>
<td>4.4%</td>
<td>5.0%</td>
<td>11.5%</td>
<td>6.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$4.3B</td>
<td>$-0.4B</td>
<td>7.7%</td>
<td>8.3%</td>
<td>9.2%</td>
<td>8.4%</td>
</tr>
</tbody>
</table>
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Nonfarm labor productivity grew as expected last quarter. Consensus estimates were for growth at a 4.1% rate. While growth was more than double the 2Q rate, it was roughly half the heated growth of 4Q01 and 1Q02. Output in the nonfarm [...]

Nonfarm Productivity Growth Strong in 3Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021106b.jpg" width="353">
The Federal Reserve lowered the Federal Funds Target Rate more than expected to 1.25%, the lowest it&#39;s been since July 1961. The Board also lowered the discount rate 50 basis points to 0.75% 
The press release, which accompanied the Fed&#146;s action, contained the following statement. &quot;... incoming economic data have tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production, and employment. Inflation and inflation expectations remain well contained.&quot;
The complete text of the Fed&#39;s latest press release can be viewed <a href="http://www.federalreserve.gov/BoardDocs/Press/monetary/2002/20021106/default.htm">here</a>.
On October 31, the Fed issued revised rules for the usage of the discount window. The revision &quot;should eliminate the incentive for institutions to borrow for the purpose of exploiting the positive spread of money market rates over the discount rate.&quot; To view the Fed&#39;s press release on these changes, click <a href="http://www.federalreserve.gov/boarddocs/press/bcreg/2002/200210312/default.htm">here</a>.

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The Federal Reserve lowered the Federal Funds Target Rate more than expected to 1.25%, the lowest it's been since July 1961. The Board also lowered the discount rate 50 basis points to 0.75% The press release, which accompanied the [...]

Fed Cuts Funds Rate 50 Basis Points

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021105b.jpg" width="353">
Chain store sales rose sharply last week, according to the BTM-UBSW survey, but the rise did not recover all the prior week&#39;s sharp decline. Sales rose 1.1% after falling 1.9% the week prior.
For all of October, sales were 1.5% below the average for September. September sales fell 1.1% vs. August which were down 0.9% from July.
Weak sales during November last year caused the y/y comparison to 2002 to improve slightly.
During the last ten years there has been a 38% correlation between the year-to-year percent change in monthly chain store sales and the change in nonauto retail sales.

<table border="0" cellspacing="0" width="100%">
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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">11/02/02</th>
<th scope="col">10/26/02</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>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>399.9</td>
<td>395.5</td>
<td>2.8%</td>
<td>2.1%</td>
<td>3.4%</td>
<td>6.7%</td>
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</tbody>
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Challenger Survey Indicates Layoffs Surged in October 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 5, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021105a.jpg" width="353">
According to Challenger, Gray &amp; Christmas, announced job cuts more than doubled in October versus the depressed September level.
While the three month moving average of job cut announcements rose, it remained down 45.8% versus the high of late last year.
Announced job cuts rose m/m in most industries.

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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">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
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<td class="firstcol">Announced Job Cuts</td>
<td>176,010</td>
<td>70,057</td>
<td>-27.3%</td>
<td>1,956,876</td>
<td>613,980</td>
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</tbody>
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ISM Nonmanufacturing Index Fell Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 5, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021105c.jpg" width="353">
The Institute for Supply Management business activity index of the nonmanufacturing sector fell less than expected last month. Consensus expectations were for a decline to 51.5. 
The overall index has remained above 50, the dividing line for expansion and contraction, since February.
Of the seasonally adjusted subgroups, new orders and employment fell, but imports rose . 
The not seasonally adjusted index of prices rose slightly but remained down versus the highs of earlier this year. 
During the last five years, there has been a 54% correlation between the level of the NAPM nonmanufacturing index and quarterly growth in real GDP in the service sector.
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.
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">Oct</th>
<th scope="col">Sept</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">Business Activity Index</td>
<td>53.1</td>
<td>53.9</td>
<td>48.5</td>
<td>49.0</td>
<td>59.2</td>
<td>59.1</td>
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Chain store sales rose sharply last week, according to the BTM-UBSW survey, but the rise did not recover all the prior week's sharp decline. Sales rose 1.1% after falling 1.9% the week prior. For all of October, sales were 1.5% below [...]

Weekly Chain Store Sales Recover, Again Just Some

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021104a.jpg" width="353">
Unit sales of light vehicles fell in October to the lowest pace since December 2000. Consensus expectations had been for a 16.4 M sales rate. Year to date sales have averaged 16.7 M units, about equal to the first ten months of 2001.
Sales of domestically built vehicles fell 3.4% m/m following the 16.3% decline in September. Auto and light truck sales fell evenly.
Imported vehicle sales fell a sharper 12.9% vs. September after a 5.7% rise during that month. Imported auto sales fell 16.5% and truck sales were down 4.7%.
Imports&#39; share of the US light vehicle market fell to 18.9% following the surge to 20.6% in September. Imports&#39; share averaged 17.8% last year. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil.Units)</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</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>
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<td class="firstcol">Total</td>
<td>15.45</td>
<td>16.33</td>
<td>-27.4%</td>
<td>17.27</td>
<td>17.40</td>
<td>16.95</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>12.53</td>
<td>12.97</td>
<td>-29.3%</td>
<td>14.20</td>
<td>14.58</td>
<td>14.47</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imported</td>
<td>2.92</td>
<td>3.36</td>
<td>-17.8%</td>
<td>3.07</td>
<td>2.82</td>
<td>2.48</td>
</tr>
</tbody>
</table>
Factory Inventories Flat 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 4, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021104b.jpg" width="353">
Manufacturing inventories were unchanged in September after rising slightly in August versus the initial report of a slight decline. During the last four months, factory inventories have been about flat.
Excluding the transportation sector inventories rose slightly for the third straight month and are up 0.6% during that period. The decline in transportation sector inventories was led by lower inventories of light trucks and nondefense aircraft. Factory inventories of automobiles rose sharply.
Increases in inventories have been led by the nondurable goods sector, up 2.0% during the last four months. Gains have been strong for petroleum, textile products, plastics and basic chemicals.
Decumulation in the durable goods sector continued unabated, down 0.3% m/m and 4.4% YTD. Declines have been widespread amongst industries.
Shipments fell 0.1% but for the year have risen 2.3%. Again, gains have been strongest in nondurable goods industries (3.0% YTD), notably petroleum. Less petroleum, nondurable shipments were up 1.7% YTD in September. Shipments of durable goods were up 1.7% YTD.
Factory orders fell 2.3% led by a 4.9% drop in orders for durable goods, revised from the advance report of a 5.9% decline. The decline in nondefense capital goods was lessened to -10.6% from -12.6%. Excluding aircraft the decline in capital goods orders was revised to -4.3% from -6.6%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Inventories</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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">Mfg Inventories</td>
<td>0.0%</td>
<td>0.1%</td>
<td>-5.2%</td>
<td>-8.0%</td>
<td>4.5%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

Unit sales of light vehicles fell in October to the lowest pace since December 2000. Consensus expectations had been for a 16.4 M sales rate. Year to date sales have averaged 16.7 M units, about equal to the first ten months of 2001. [...]

U.S. Light Vehicle Sales Plummet

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021101a.jpg" width="353">
Nonfarm payrolls fell about as expected last month, down 5,000. Figures for September and August were revised up slightly as a result of raised private service sector &amp; construction figures.
Amongst industries, factory sector jobs fell 49,000 (-2.7% YTD), continuing a decline that began in early 1998. The one-month diffusion index for the factory sector fell to 40.4, suggesting future declines in manufacturing sector jobs. Construction jobs fell 27,000 (-1.4% YTD). Jobs in service producing industries rose 70,000 (0.5% YTD). Government employment rose 24,000 (0.9% YTD).
The length of the workweek dipped back to the 3Q average. As a result, the index of aggregate hours worked (employment times hours worked) fell 0.4% and began 4Q slightly below the average for 3Q. That followed a 0.2% 3Q decline.
The one-month diffusion index for nonfarm payrolls fell slightly to 47.3 from an upwardly revised September level of 50.7. The three month diffusion index rose to 48.7.These levels suggest little or no employment growth near term. 
The gain in average hourly earnings (2.3% YTD) was slightly less than expected and September&#39;s gain was revised down.
The unemployment rate rose less than expected. Employment fell 271,000 (0.6% YTD) and the labor force fell 154,000 (0.6% YTD).
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.

<table border="0" cellspacing="0" width="100%">

</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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</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">Payroll Employment</td>
<td>-5,000</td>
<td>-13,000</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-49,000</td>
<td>-39,000</td>
<td>-4.0%</td>
<td>-4.2%</td>
<td>-0.4%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>34.1</td>
<td>34.2</td>
<td>34.0</td>
<td>34.2</td>
<td>34.4</td>
<td>34.5</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.7%</td>
<td>5.6%</td>
<td>5.4%</td>
<td>4.8%</td>
<td>4.0%</td>
<td>4.2%</td>
</tr>
</tbody>
</table>
Personal Income Up, Spending Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021101c.jpg" width="353">
Personal income (4.5% AR, YTD) rose slightly less than expected last month. August&#39;s figure was revised down slightly. Consensus expectations were for a 0.5% gain.
Wage and salary disbursements rose 0.6% (3.3% AR, YTD) following the strong 0.5% August gain. Strength centered in the service industries where wages rose 0.9% (4.4% YTD, AR). Manufacturing wages were unchanged m/m and down 1.2% YTD (AR). Personal transfer payments rose 0.6% (10.2% YTD, AR). Personal interest income fell for the third straight month (1.0% YTD, AR).
Personal consumption expenditures fell more than expected. Durable goods purchases fell 5.1%, reflecting a 12.6% decline in light vehicle unit sales. Spending on nondurable goods also fell, down 0.1% (4.4% YTD, AR). Spending on services rose 0.4% (5.6% YTD, AR).
Disposable personal income rose 0.5% (8.9% AR, YTD). Personal tax payments were unchanged m/m but were down 19.2% YTD (AR). 
The PCE price deflator rose 0.2% following a 0.2% rise in August. Prices were up 2.3% YTD (AR). Less food and energy, the price deflator rose 0.2% (1.9% YTD, AR). 

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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">Personal Income</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.7%</td>
<td>3.3%</td>
<td>8.0%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>6.0%</td>
<td>4.5%</td>
<td>7.0%</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>4.2%</td>
<td>3.4%</td>
<td>4.6%</td>
<td>2.3%</td>
<td>2.8%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.0%</td>
<td>2.5%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
ISM Index Again Below 50 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021101b.jpg" width="353">
The ISM Composite Index of manufacturing sector activity remained below 50 for the second month. The decline to 48.5 was about as expected and consistent with yesterday&#39;s report from the Chicago purchasing managers. Before that report, Consensus expectations were for a decline in the ISM to 49.0. 
Production, inventories and the supplier delivery indexes fell while new orders and employment rose just slightly.
Inflation pressure fell to the lowest level since March. The percentage (NSA) of companies reporting higher prices fell for the third straight month.
Over the last ten years there has been a 45% correlation between the ISM Composite Index and quarterly growth in real GDP.

<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/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</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">Composite Index</td>
<td>48.5</td>
<td>49.5</td>
<td>39.5</td>
<td>43.9</td>
<td>51.6</td>
<td>54.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>58.3</td>
<td>62.5</td>
<td>33.3</td>
<td>43.0</td>
<td>64.8</td>
<td>54.2</td>
</tr>
</tbody>
</table>
Construction Spending Strong Due to Gov't Building 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021101d.jpg" width="353">
The value of construction put in place rose more than expected in September due to a surge in public sector spending. Figures for August were revised down but were revised up for July.
Residential building rose but the level of activity has been flat since February. Single family has been relatively strong but building on multi-unit structures has been down. 
Nonresidential building activity fell hard for the seventh month this year and was down 15.3% YTD. The decline was again paced by lower industrial and office building.
Spending by governments rose sharply due to broad based increases amongst categories, notably a 10.3% gain in military facilities.

<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/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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>0.6%</td>
<td>-0.8%</td>
<td>0.1%</td>
<td>2.5%</td>
<td>7.3%</td>
<td>8.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Residential</td>
<td>0.7%</td>
<td>-0.8%</td>
<td>5.1%</td>
<td>3.3%</td>
<td>7.4%</td>
<td>11.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.7%</td>
<td>-2.9%</td>
<td>-18.8%</td>
<td>-3.1%</td>
<td>7.1%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public</td>
<td>2.2%</td>
<td>0.7%</td>
<td>11.0%</td>
<td>7.4%</td>
<td>5.4%</td>
<td>10.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm payrolls fell about as expected last month, down 5,000. Figures for September and August were revised up slightly as a result of raised private service sector & construction figures. Amongst industries, factory sector jobs [...]

Nonfarm Payrolls Fell Again

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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Winnie Tapasanun

260413F44.jpg

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Existing home sales fell 3.6% m/m (-1.0% y/y) to 3.98 million units (SAAR) in March, the lowest level since June 2025, following a 2.7% rebound to 4.13 million in February (previously +1.7%; 4.09 mil.), according to the National Association of Realtors (NAR). The Action Economics Forecast Survey had expected March sales of 4.08 million units. Sales remained 38.1% below a high of 6.43 million in January 2022 and 39.7% below a peak of 6.60 million in January 2021. The March fall coincided with an increase in the average 30-year fixed mortgage rate to a three-month-high 6.18% in March after declining to 6.05% in February, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales fell 3.5% (-0.3% y/y) to 3.63 million units in March, the second m/m fall in three months and the weakest reading since June 2025, after a 3.3% increase to 3.76 million in February. Sales of condos and co-ops slid 5.4% (-7.9% y/y) to 350,000, the fourth m/m slide in five months and the lowest level since May 2020, on top of a 2.6% February fall to 370,000.

By region, March existing home sales declined m/m across all major regions. Sales in the Northeast dropped 8.5% (-12.2% y/y) to 430,000 in March after a 6.0% decrease in February, marking the third consecutive m/m fall and a record low. Sales in the Midwest fell 4.2% (-3.2% y/y) to 920,000, the lowest reading since September 2024, reversing a 3.2% February increase. Sales in the South slid 3.1% (+2.2% y/y) to 1.86 million after a 3.2% February rise. Sales in the West fell 1.3% (+1.3% y/y) to 770,000 following a 6.8% February rebound. The Midwest, South, and West each posted the second m/m decline in three months. Notably, the South remained the dominant region, accounting for 46.7% of total U.S. existing home sales.

The median price of all existing homes (NSA) rose 2.7% (1.4% y/y) to $408,800 in March, the highest since November, following a 0.8% increase to $398,000 in February (unrevised) and three successive m/m declines. Prices were 5.5% below a high of $432,700 in June 2025 but 13.3% above a low of $360,800 in January 2023. The median price of an existing single-family home grew 2.5% (1.3% y/y) to $412,400 in March, the highest since November, after a 1.0% rebound to $402,300 in February. The median price of condos and co-ops, up for the third time in four months, climbed 4.8% (2.3% y/y) to $371,500, the highest since June 2025, following a 2.9% February drop to $354,400. Regionally, overall prices rose m/m in March in the Midwest (+3.8%; +4.9% y/y), Northeast (+3.5%; +5.7% y/y), West (+2.7%; -1.3% y/y), and South (+1.7%; +0.8% y/y).

Inventories of homes for sale increased for the third consecutive in March. The number of existing homes for sale (NSA) rose 3.0% (2.3% y/y) to 1.36 million units, the highest level since November, following a 4.8% February rise to 1.32 million. The supply of homes on the market at the current selling rate (NSA) rose to 4.1 months, the highest in four months, after holding at 3.8 months in February and January. The recent high of 4.6 months was in August 2025, while a record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

260413H44.jpg

260413I44.jpg

- March sales -3.6% m/m to lower-than-expected 3.98 mil.; -1.0% y/y, fifth straight y/y decrease.
- Broad-based regional m/m declines: Northeast (-8.5%), Midwest (-4.2%), South (-3.1%), West (-1.3%); y/y sales up in the South and West but down in the Northeast and Midwest.
- Median sales price +2.7% (+1.4% y/y) to $408,800, highest since November.
- Unsold inventory +3.0% (+2.3% y/y) to four-month-high 1.36 mil. units; 4.1 months' supply.

U.S. Existing Home Sales Drop in March to a Nine-Month Low

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.

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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.

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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)

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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.

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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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