Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330c.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications recovered 2.4% last week following the 9.4% drop during the prior period. The average level in March 4.8% below February.
Purchase applications rose 5.5% to the highest level of the year. Purchase applications in March are 6.2% higher than in February.
Applications to refinance added 2.0% to the 16.5% decline the prior week. The decline pulled the March average down 16.1% versus February.
The effective interest rate on a conventional 30-year mortgage rose further to 6.34% from 6.19% the prior week and from 5.85% averaged in February. The effective rate on a 15-year mortgage also rose to 5.96%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<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/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/25/05</th>
<th scope="col">03/18/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>674.3</td>
<td>658.8</td>
<td>-38.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>470.9</td>
<td>446.4</td>
<td>6.1%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,857.2</td>
<td>1,894.2</td>
<td>-61.8%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
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The Mortgage Bankers Association reported that mortgage applications recovered 2.4% last week following the 9.4% drop during the prior period. The average level in March 4.8% below February. Purchase applications rose 5.5% to the [...]

Mortgage Applications Up A Bit

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330b.jpg" width="353">
US real GDP growth in 4Q04 was unrevised at 3.8% (AR). The Consensus expectation had been for a slight upward revision to 4.0% growth.
Reported for the first time, total U.S. operating corporate profits surged 13.5% (12.4% y/y) and the gain was held back by no change in profits earned abroad. Domestic profits grew 16.2% (18.3% y/y) and reflected a 30.1% rebound in financial sector profits which were depressed by hurricanes in 3Q.
Profits earned in the nonfinancial corporate sector grew 10.3% (24.2% y/y), the strongest gain since 2Q03 and were aided by continued profit margin expansion. Labor costs per unit of output fell for the first time in over a year as productivity remained strong. Non-labor costs continued the decline in place for nearly three years. Pricing power improved and real gross value added (output) grew a strong 1.6% (5.3% y/y).
Domestic demand growth was unrevised at 4.5% as growth in business fixed investment in equipment &amp; software held firm at 18.4% (14.5% y/y). Consumer spending growth also held solid at 4.2% (3.8% y/y). Less computers real GDP grew 3.3% (3.8% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330a.jpg" width="353">
Price inflation was revised up slightly to 2.3%. The price index for domestic demand was revised higher to 2.9% (2.9% y/y) and continued to reflect a strong 5.3% (4.8% y/y) rise at the state &amp; local government level.
Perspectives on Monetary Policy and Central Banking from New York Federal Reserve Bank President Timothy F. Geithner can be found <a href="http://www.newyorkfed.org/newsevents/speeches/2005/gei050329.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;04 (Final)</th>
<th scope="col">4Q &#39;04 (Prelim.</th>
<th scope="col">3Q &#39;04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.8%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.5%</td>
<td>0.6%</td>
<td>-1.0%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>3.4%</td>
<td>3.2%</td>
<td>5.0%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>3.1%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-1.4%</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.5%</td>
<td>4.5%</td>
<td>4.9%</td>
<td>4.2%</td>
<td>4.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
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US real GDP growth in 4Q04 was unrevised at 3.8% (AR). The Consensus expectation had been for a slight upward revision to 4.0% growth. Reported for the first time, total U.S. operating corporate profits surged 13.5% (12.4% y/y) and [...]

US GDP Growth Unrevised, Corporate Profits Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330b.jpg" width="353">
US real GDP growth in 4Q04 was unrevised at 3.8% (AR). The Consensus expectation had been for a slight upward revision to 4.0% growth.
Reported for the first time, total U.S. operating corporate profits surged 13.5% (12.4% y/y) and the gain was held back by no change in profits earned abroad. Domestic profits grew 16.2% (18.3% y/y) and reflected a 30.1% rebound in financial sector profits which were depressed by hurricanes in 3Q.
Profits earned in the nonfinancial corporate sector grew 10.3% (24.2% y/y), the strongest gain since 2Q03 and were aided by continued profit margin expansion. Labor costs per unit of output fell for the first time in over a year as productivity remained strong. Non-labor costs continued the decline in place for nearly three years. Pricing power improved and real gross value added (output) grew a strong 1.6% (5.3% y/y).
Domestic demand growth was unrevised at 4.5% as growth in business fixed investment in equipment &amp; software held firm at 18.4% (14.5% y/y). Consumer spending growth also held solid at 4.2% (3.8% y/y). Less computers real GDP grew 3.3% (3.8% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330a.jpg" width="353">
Price inflation was revised up slightly to 2.3%. The price index for domestic demand was revised higher to 2.9% (2.9% y/y) and continued to reflect a strong 5.3% (4.8% y/y) rise at the state &amp; local government level.
Perspectives on Monetary Policy and Central Banking from New York Federal Reserve Bank President Timothy F. Geithner can be found <a href="http://www.newyorkfed.org/newsevents/speeches/2005/gei050329.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;04 (Final)</th>
<th scope="col">4Q &#39;04 (Prelim.</th>
<th scope="col">3Q &#39;04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.8%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.5%</td>
<td>0.6%</td>
<td>-1.0%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>3.4%</td>
<td>3.2%</td>
<td>5.0%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>3.1%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-1.4%</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.5%</td>
<td>4.5%</td>
<td>4.9%</td>
<td>4.2%</td>
<td>4.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
Mortgage Applications Up A Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330c.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications recovered 2.4% last week following the 9.4% drop during the prior period. The average level in March 4.8% below February.
Purchase applications rose 5.5% to the highest level of the year. Purchase applications in March are 6.2% higher than in February.
Applications to refinance added 2.0% to the 16.5% decline the prior week. The decline pulled the March average down 16.1% versus February.
The effective interest rate on a conventional 30-year mortgage rose further to 6.34% from 6.19% the prior week and from 5.85% averaged in February. The effective rate on a 15-year mortgage also rose to 5.96%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<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/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/25/05</th>
<th scope="col">03/18/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>674.3</td>
<td>658.8</td>
<td>-38.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>470.9</td>
<td>446.4</td>
<td>6.1%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,857.2</td>
<td>1,894.2</td>
<td>-61.8%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Marked Erosion in German Business Climate, March Ifo Survey Says 
by <a href="/comment/Stone.html">Carol Stone</a> March 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330d.jpg" width="353">
Back at the turn of the year, business prospects were looking up in Germany. December and January saw an improvement in the Ifo Business Climate Index to the highest values in almost a year; this was reflected in production, the assessment of demand and orders. However, February and March have reversed this encouraging pattern, with some gauges falling rather precipitously.
The Business Climate Index has slumped 2.4 points in the two months to 94.0 (2000=100), with the corresponding diffusion index retreating to -12.9% from -8.1% in January. The &quot;business situation&quot;, the measure of current conditions, fell to -18.2%, a 5-percentage-pointing deterioration since December. Expectations also decreased, reaching down to -7.4% in March from -1.5% in January. Orders are a source of the worsening outlook, led by the domestic sector.
Most industry groups have participated in the renewed downturn. Among better readings, food processing increased to -6.2% from -7.0%; construction rose 3 percentage points, but, at -39.8%, this move can hardly be seen as an indication of better health in that sector. Other basic industries saw relative deteriorations: March values were generally less positive or more negative.
We can guess that rising energy prices have contributed to the erosion in business conditions; producer prices for energy were up 8.2% in the year to February, compared with a drop of 0.7% in the comparable year-ago period. Total producer prices rose 4.2% from February 2004; they had been basically unchanged in the 12-months ended in February 2004. The euro, after a pause last spring and summer, has been rising again. By contrast, other exogenous forces seem fairly supportive: German stock prices are firm or rising, some quite notably; interest rates are low. Perhaps, with this financial backstop, the current downtick in the Ifo survey will turn out to be short-lived or at least quite moderate.

<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/GERMANY/GERMANY.HTM">Germany: Ifo Survey</a></th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 2005</th>
<th scope="col">Jan 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Climate Index, 2000=100</td>
<td>94.0</td>
<td>95.4</td>
<td>96.4</td>
<td>95.7</td>
<td>91.7</td>
<td>89.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Balance</td>
<td>-12.9</td>
<td>-10.0</td>
<td>-8.1</td>
<td>-9.6</td>
<td>-17.5</td>
<td>-22.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Situation</td>
<td>-18.2</td>
<td>-16.0</td>
<td>-14.4</td>
<td>-16.9</td>
<td>-27.9</td>
<td>-33.9</td>
</tr>
<tr>
<td class="firstcol">Business Expectations</td>
<td>-7.4</td>
<td>-3.9</td>
<td>-1.5</td>
<td>-1.8</td>
<td>-6.5</td>
<td>-9.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders on Hand, Manufacturing</td>
<td>-20.8</td>
<td>-19.0</td>
<td>-13.4</td>
<td>-21.1</td>
<td>-33.2</td>
<td>-35.2</td>
</tr>
<tr>
<td class="firstcol">Foreign Orders on Hand, Manufacturing</td>
<td>-13.5</td>
<td>-10.1</td>
<td>-11.2</td>
<td>-16.2</td>
<td>-28.2</td>
<td>-26.8</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329d.jpg" width="353">
After strong economic data for Japan in January, the latest indicators are disappointing. Retail sales declined by almost 3% from January to February and were only 0.9% above February, 2004. Employment declined 0.4% in February and unemployment was up 2.7%, resulting in a 2 percentage point increase in the unemployment rate to 4.7%
In spite of lower employment, the average worker&#39;s household income increased by 4.5% in February and his disposable income was up 5%, suggesting an increase in wages. These data are, however, seasonally unadjusted. The seasonally adjusted index of worker&#39;s income actually shows a decline of 0.3%. Such a decline together with concern over employment prospects as a result of the rise in the unemployment rate may have been an important factor causing the average household to reduce living expenditures by almost 9% seasonally unadjusted or 4% seasonally adjusted in the month. The indexes of the worker household&#39;s expenditures and the broader retail sales series are shown in the attached chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Feb 05</th>
<th scope="col">Jan 05</th>
<th scope="col">Feb 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;%&nbsp;</th>
<th scope="col">&nbsp;2003%</th>
<th scope="col">&nbsp;2002%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (10,000)</td>
<td>6339</td>
<td>6357</td>
<td>6324</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.2</td>
<td>-0.2</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">Unemployment (10,000)</td>
<td>310</td>
<td>302</td>
<td>332</td>
<td>2.6</td>
<td>-6.6</td>
<td>-10.6</td>
<td>-2.4</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales (2000=1000</td>
<td>93.2</td>
<td>95.8</td>
<td>92.4</td>
<td>-2.7</td>
<td>0.9</td>
<td>-0.9</td>
<td>-1.7</td>
<td>-4.3</td>
</tr>
<tr>
<td class="firstcol">Worker&#39;s Household</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Income (1000 Yen)</td>
<td>469.9</td>
<td>119.7</td>
<td>472.8</td>
<td>4.5</td>
<td>-0.6</td>
<td>1.0</td>
<td>-2.6</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Income (2000=1000</td>
<td>95.6</td>
<td>95.9</td>
<td>96.3</td>
<td>-0.3</td>
<td>-0.7</td>
<td>1.3</td>
<td>-2.9</td>
<td>-2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Disposable Inc (1000 Yen)</td>
<td>400.1</td>
<td>381.1</td>
<td>403.9</td>
<td>5.0</td>
<td>-1.0</td>
<td>1.0</td>
<td>-2.7</td>
<td>-2.6</td>
</tr>
<tr>
<td class="firstcol">Living Expenditures (1000 Yen)</td>
<td>371.2</td>
<td>406.8</td>
<td>383.3</td>
<td>-8.7</td>
<td>-3.1</td>
<td>1.5</td>
<td>-1.6</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Living Expenditures(2000=100)</td>
<td>96.5</td>
<td>100.7</td>
<td>100.6</td>
<td>-4.2</td>
<td>-4.1</td>
<td>1.6</td>
<td>-1.5</td>
<td>-1.4</td>
</tr>
</tbody>
</table>
</body>
</html>

After strong economic data for Japan in January, the latest indicators are disappointing. Retail sales declined by almost 3% from January to February and were only 0.9% above February, 2004. Employment declined 0.4% in February and [...]

A Group of Disappointing Japanese Economic Indicators for February

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329c.jpg" width="353">
The March Index of Consumer Confidence published by the Conference Board fell 1.9% to 102.4 from an upwardly revised February level. Consensus expectations had been for a reading of 103.0 and the decline followed a 0.7% drop in February.
During the last twenty years there has been a 51% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.
The March index of consumer expectations fell for the third consecutive month (+2.6% y/y) following an 11.6% surge in December. The present situation index fell modestly (+37.0% y/y) after rising strongly in the prior four months.
Jobs were viewed as hard to get by 23.8% of survey participants, up slightly from the February low. Expectations for income in six months grew poorer as fewer respondents (16.7%) expected an increase and more expected a decrease (9.3%).
The Conference Board&#146;s survey isconducted 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">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>102.4</td>
<td>104.4</td>
<td>15.7%</td>
<td>96.1</td>
<td>79.8</td>
<td>96.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The March Index of Consumer Confidence published by the Conference Board fell 1.9% to 102.4 from an upwardly revised February level. Consensus expectations had been for a reading of 103.0 and the decline followed a 0.7% drop in [...]

Consumer Confidence Down Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329a.jpg" width="353">
Chain store sales fell 1.0% last week. Abundant rain, warm temperatures and, versus February, a 12% rise in gasoline prices to an average $2.15 per gallon may have caused the spending decline. The y/y gain in sales improved in part due to the early timing of Easter in 2005.
Consumers&#39; pause came after spending enough to lift the average of sales in March 1.1% ahead of February according to the International Council of Shopping Centers (ICSC)-UBS survey.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of nonauto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slipped 0.5% (-0.6% y/y) and gave back all of the moderate gains during the prior two weeks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329b.jpg" width="353">
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Consumer Sentiment, the Economy, and the News Media from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200451/200451abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/26/05</th>
<th scope="col">03/19/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>450.2</td>
<td>454.6</td>
<td>4.5%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales fell 1.0% last week. Abundant rain, warm temperatures and, versus February, a 12% rise in gasoline prices to an average $2.15 per gallon may have caused the spending decline. The y/y gain in sales improved in part [...]

Chain Store Sales Crimped By Higher Gas Prices & Inclement Weather

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329a.jpg" width="353">
Chain store sales fell 1.0% last week. Abundant rain, warm temperatures and, versus February, a 12% rise in gasoline prices to an average $2.15 per gallon may have caused the spending decline. The y/y gain in sales improved in part due to the early timing of Easter in 2005.
Consumers&#39; pause came after spending enough to lift the average of sales in March 1.1% ahead of February according to the International Council of Shopping Centers (ICSC)-UBS survey.
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of nonauto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slipped 0.5% (-0.6% y/y) and gave back all of the moderate gains during the prior two weeks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329b.jpg" width="353">
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Consumer Sentiment, the Economy, and the News Media from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200451/200451abs.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/26/05</th>
<th scope="col">03/19/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>450.2</td>
<td>454.6</td>
<td>4.5%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
Consumer Confidence Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329c.jpg" width="353">
The March Index of Consumer Confidence published by the Conference Board fell 1.9% to 102.4 from an upwardly revised February level. Consensus expectations had been for a reading of 103.0 and the decline followed a 0.7% drop in February.
During the last twenty years there has been a 51% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.
The March index of consumer expectations fell for the third consecutive month (+2.6% y/y) following an 11.6% surge in December. The present situation index fell modestly (+37.0% y/y) after rising strongly in the prior four months.
Jobs were viewed as hard to get by 23.8% of survey participants, up slightly from the February low. Expectations for income in six months grew poorer as fewer respondents (16.7%) expected an increase and more expected a decrease (9.3%).
The Conference Board&#146;s survey isconducted 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">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>102.4</td>
<td>104.4</td>
<td>15.7%</td>
<td>96.1</td>
<td>79.8</td>
<td>96.6</td>
</tr>
</tbody>
</table>
A Group of Disappointing Japanese Economic Indicators for February  
by <a href="/comment/Curley.html">Louise Curley</a> March 29, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050329d.jpg" width="353">
After strong economic data for Japan in January, the latest indicators are disappointing. Retail sales declined by almost 3% from January to February and were only 0.9% above February, 2004. Employment declined 0.4% in February and unemployment was up 2.7%, resulting in a 2 percentage point increase in the unemployment rate to 4.7%
In spite of lower employment, the average worker&#39;s household income increased by 4.5% in February and his disposable income was up 5%, suggesting an increase in wages. These data are, however, seasonally unadjusted. The seasonally adjusted index of worker&#39;s income actually shows a decline of 0.3%. Such a decline together with concern over employment prospects as a result of the rise in the unemployment rate may have been an important factor causing the average household to reduce living expenditures by almost 9% seasonally unadjusted or 4% seasonally adjusted in the month. The indexes of the worker household&#39;s expenditures and the broader retail sales series are shown in the attached chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Feb 05</th>
<th scope="col">Jan 05</th>
<th scope="col">Feb 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;%&nbsp;</th>
<th scope="col">&nbsp;2003%</th>
<th scope="col">&nbsp;2002%</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (10,000)</td>
<td>6339</td>
<td>6357</td>
<td>6324</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.2</td>
<td>-0.2</td>
<td>-1.3</td>
</tr>
<tr>
<td class="firstcol">Unemployment (10,000)</td>
<td>310</td>
<td>302</td>
<td>332</td>
<td>2.6</td>
<td>-6.6</td>
<td>-10.6</td>
<td>-2.4</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales (2000=1000</td>
<td>93.2</td>
<td>95.8</td>
<td>92.4</td>
<td>-2.7</td>
<td>0.9</td>
<td>-0.9</td>
<td>-1.7</td>
<td>-4.3</td>
</tr>
<tr>
<td class="firstcol">Worker&#39;s Household</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Income (1000 Yen)</td>
<td>469.9</td>
<td>119.7</td>
<td>472.8</td>
<td>4.5</td>
<td>-0.6</td>
<td>1.0</td>
<td>-2.6</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Income (2000=1000</td>
<td>95.6</td>
<td>95.9</td>
<td>96.3</td>
<td>-0.3</td>
<td>-0.7</td>
<td>1.3</td>
<td>-2.9</td>
<td>-2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Disposable Inc (1000 Yen)</td>
<td>400.1</td>
<td>381.1</td>
<td>403.9</td>
<td>5.0</td>
<td>-1.0</td>
<td>1.0</td>
<td>-2.7</td>
<td>-2.6</td>
</tr>
<tr>
<td class="firstcol">Living Expenditures (1000 Yen)</td>
<td>371.2</td>
<td>406.8</td>
<td>383.3</td>
<td>-8.7</td>
<td>-3.1</td>
<td>1.5</td>
<td>-1.6</td>
<td>-1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Living Expenditures(2000=100)</td>
<td>96.5</td>
<td>100.7</td>
<td>100.6</td>
<td>-4.2</td>
<td>-4.1</td>
<td>1.6</td>
<td>-1.5</td>
<td>-1.4</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050328e.jpg" width="353">
The seasonally adjusted index of Industrial production in Singapore declined 9.8% in February after a 6.9% decline in January. Some of the February decline may have been due to the plant shutdowns during the lunar year celebrations that occurred early in the month. However, the close correlation between the quarterly average of the industrial product index and real gross domestic product (see the first chart) suggests that the trend of industrial production so far this year may lead to a slow advance or even decline in the first quarter GDP, the first estimate of which is scheduled for April 12th. In the first quarter of 2004, a 2.8% increase in industrial production was associated with a 2.4% increase in GDP.
The Economic Development Board of Singapore publishes a seasonally adjusted index only for total industrial product. The EDB publishes unadjusted data for seven &quot;clusters&quot; of manufacturing businesses and their components. Haver seasonally adjusts all the indexes for the economic clusters and their components except the indexes for the Biomedical Manufacturing Cluster and its Pharmaceutical component. In the table below we have used Haver&#39;s seasonally adjusted data, except for the Biomedical manufacturing cluster. Also included in the table is the unadjusted index for electronics which we use in the second chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050328f.jpg" width="353">
On a seasonally adjusted basis, the indexes for the electronics and the transport clusters were the only ones to show a gain in February. The index for the precision engineering cluster was virtually unchanged while the indexes for the chemical, general manufacturing and biomedical manufacturing clusters all declined. The biomedical manufacturing index has been extremely erratic as pharmaceutical makers tend to switch the emphasis on certain drugs and have to shut down plants for changeovers. Also there has been considerable expansion in this cluster as the government has been encouraging the biomedical industry as a means of reducing Singapore&#39;s reliance on the electronics industry where growth has been slowing. The second chart compares the unadjusted indexes the electronics and biomedical clusters. Although erratic, the latter shows an upward trend while the former shows a more stable trend.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P4/@P4.HTM">Singapore: Manufacturing Clusters</a></th>
<th scope="col">Feb 05</th>
<th scope="col">Jan 05</th>
<th scope="col">Feb 04</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">&nbsp;2004&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2003</th>
<th scope="col">&nbsp; 2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Electronics&nbsp;</td>
<td>117.2</td>
<td>114.1</td>
<td>120.0</td>
<td>2.8</td>
<td>-2.3</td>
<td>14.8</td>
<td>4.5</td>
<td>5.2</td>
</tr>
<tr>
<td class="firstcol">Chemicals</td>
<td>109.2</td>
<td>112.8</td>
<td>107.9</td>
<td>-3.2</td>
<td>1.2</td>
<td>7.91</td>
<td>6.49</td>
<td>11.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Precisions Engineering</td>
<td>106.2</td>
<td>106.3</td>
<td>122.2</td>
<td>-0.1</td>
<td>-13.1</td>
<td>2.86</td>
<td>-0.7</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">Transport Engineering</td>
<td>140.8</td>
<td>138.3</td>
<td>111.1</td>
<td>1.8</td>
<td>26.7</td>
<td>24.0</td>
<td>-6.0</td>
<td>8.9</td>
</tr>
<tr class="odd">
<td class="firstcol">General Manufacturing Ind</td>
<td>94.2</td>
<td>98.9</td>
<td>106.4</td>
<td>-4.8</td>
<td>-11.5</td>
<td>-0.1</td>
<td>-3.6</td>
<td>-6.9</td>
</tr>
<tr>
<td class="firstcol">Biomedical Mfg (NAS)</td>
<td>42.2</td>
<td>173.3</td>
<td>116.1</td>
<td>-75.6</td>
<td>-63.6</td>
<td>29.8</td>
<td>13.4</td>
<td>48.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Industrial Production</td>
<td>107.8</td>
<td>119.5</td>
<td>108.8</td>
<td>-9.8</td>
<td>-0.92</td>
<td>13.94</td>
<td>3.06</td>
<td>8.42</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Addendum:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Electronics (NSA)</td>
<td>97.9</td>
<td>110.0</td>
<td>100.3</td>
<td>-11.0</td>
<td>-2.39</td>
<td>14.8</td>
<td>4.5</td>
<td>5.2</td>
</tr>
</tbody>
</table>
</body>
</html>

The seasonally adjusted index of Industrial production in Singapore declined 9.8% in February after a 6.9% decline in January. Some of the February decline may have been due to the plant shutdowns during the lunar year celebrations [...]

Singapore's Industrial Production Down Again in February: An Omen for First Quarter GDP?

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

Announcement of snap French election is causing concern across Europe

The UK economy’s post-pandemic under-performance relative to its pre-pandemic trend

US Beveridge Curve back to near pre-pandemic levels

Negative economic surprises in the US but positive in Europe, especially the UK

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

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Andrew Cates

**Markets and data**
As noted, a soft landing narrative has continued to shape sentiment in financial markets in recent weeks. Incoming global growth data, most notably from the US, have been stronger than expected. And inflation outcomes have additionally been weaker-than-expected. As chart 1 below suggests that combination – stronger growth and weaker inflation – has typically been greeted positively by equity investors.

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**US bond yields** 
That being said there has also been an active debate in markets about the potential consequences of a US election. US bond yields, for example, have been climbing possibly because of market fears about the burgeoning US federal government deficit and debt. Still, as chart 2 below suggests, the increase in yields has unfolded at the same time as the incoming US (and broader global growth) data have been outperforming expectations. Inasmuch as that trend additionally led to some re-pricing of Fed policy, economic fundamentals have arguably been the dominant driver of the US Treasury market, not fears about politics and deficits.

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**Global growth momentum**
Still, although incoming US data have been outperforming expectations in recent weeks, latest forward looking business surveys suggest that global growth is losing momentum. October’s flash PMIs, for example, revealed that business activity contracted for a second consecutive month in the euro area and Australia, and slipped into a phase of decline in Japan as well. The UK additionally saw growth weaken sharply. And although the US continued to reveal resilience, that was primarily because of ongoing growth in the service sector - the manufacturing sector, in contrast, has been contracting for four consecutive months (see chart 3).

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**UK fiscal policy** 
One reason why UK businesses may have elicited weaker confidence in recent weeks concerns fears about this week’s Budget. Some of the details, for example, had been widely telegraphed in the UK press. The specifics that were announced on October 30th included a large rise in public spending (amounting to over 2% of GDP per year), and with only half of that being recouped in higher taxes. About two-thirds of that higher tax burden, moreover, falls on the corporate sector. The UK’s fiscal watchdog – the Office for Budget Responsibility – expects overall public sector borrowing to rise from £121.9 billion (4.5 per cent of GDP) last year to £127.5 billion this year, before falling steadily back to £70.6 billion (2.1 per cent) by 2029-30. That’s about 0.9 per cent of GDP a year higher on average over the forecast horizon compared to their last projections in March (see chart 4).

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**Japan’s politics**
Staying with policy and politics, Japan’s ruling party, the Liberal Democratic Party (LDP), faced an electoral upset over the weekend, losing its majority in the lower house of Parliament. Even with the support of its coalition partner, Komeito, the LDP is now unable to form a majority. This has put Prime Minister Ishiba's position in jeopardy, as he may need to seek support from parties outside his usual allies to advance his policy agenda, should he continue in office. In response to the news, the yen weakened further, reflecting the market's concerns, while equities experienced a slight increase.

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**China and US politics**
Ahead of next week’s US Presidential Elections there remains much uncertainty about the outlook for China (and the broader Asian region). Many observers are keen to assess the potential extent and nature of future policy actions toward China by an incoming president. Key concerns include the possibility of ongoing US efforts to curb China’s advancements in critical technologies, such as artificial intelligence, and trade-related restrictions aimed at addressing overcapacity in electric vehicles (EVs) and other sectors. Notably, presidential candidate and former President Trump, has proposed significantly raising tariffs on goods imported from China if elected. However, regardless of who takes office, it is likely that China will continue to face frictions with the US, as the latter has maintained a hawkish stance toward China over the past decade, irrespective of the sitting president.

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Some unexpected resilience in the US economy and particularly in the labour market has continued to reinforce soft landing narratives over the past few days. At the broader global level, weaker-than-expected inflation data have also been reinforcing the view that most major central banks will continue to loosen monetary policy in the period ahead. In our charts this week we illustrate how this soft landing narrative continues to shape sentiment in financial markets (see charts 1 and 2). But we illustrate too, that notwithstanding US resilience, latest forward looking business surveys suggest that global growth is losing momentum. Domestic policy and politics, however, have also been important in recent days with the new UK labour government’s first budget dominating the headlines (chart 4). Some uncertainty has additionally crept into Japan’s political scene and generated some financial market consequences (chart 5). Finally, and looking ahead to next week, US politics has continued to dominate the global headlines and may well be a key driver of economic and financial market outcomes in the period immediately ahead (chart 6).

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Charts of the Week: Data, Policy and Politics

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The PCE chain price index rose 0.2% in September following unrevised increases of 0.1% and 0.2% in August and July. The y/y rise continued its downward trend. The 2.1% annual rise compares to its 7.2% y/y peak in June 2022. The price index excluding food and energy, however, moved 0.3% higher last month after three straight months of 0.2% increase. The y/y rise was steady at 2.7% and remained half of its 5.6% peak in February and March of 2022. Durable goods prices rose 0.3% (-1.9% y/y), after declines in four of the prior five months. Motor vehicle & prices rose 0.3% (-2.4% y/y), after declining steadily since December. Recreational product prices eased 0.3% (-2.0% y/y) but home furnishings costs rose 0.5% (-2.7% y/y). Nondurable goods prices eased 0.4% (-0.8% y/y) in September, off for the fourth month in five, but clothing prices rose 0.7% (1.4% y/y) after a 0.5% gain. Services prices increased 0.3% (3.7% y/y) after rising 0.2%. Housing & utility prices rose 0.4% (4.9% y/y) after a 0.3% rise, and services prices excluding energy & healthcare increased 0.3% (3.9% y/y) in September for the fourth straight month. Healthcare prices rose 0.4% (3.0% y/y). Food & beverage prices rose 0.4% in September (1.2% y/y) while energy goods & services prices fell 2.0% (-8.1% y/y).

Personal consumption expenditures (PCE) increased 0.5% (5.3% y/y) in September, after a 0.3% rise during August. A 0.4% increase had been expected in the Action Economics Forecast Survey. When adjusted for price changes, PCE increased 0.4% last month (3.1% y/y) after increasing 0.2% during August.

Real spending on durable goods rose 0.4% (3.4% y/y) last month after a 0.2% August decline. Real spending on motor vehicles rose 1.4% (0.2% y/y), after a 2.3% decline. Real outlays on furnishings & durable household equipment declined 0.3% (+4.8% y/y) following a 0.1% uptick while real spending on recreational goods & vehicles rose 0.2% (5.3% y/y) last month, after a 1.3% August jump. Spending on other durable goods eased 0.3% (+5.3% y/y) after strengthening 1.3% in August.

Real spending on nondurable goods surged 0.8% (2.5% y/y) during September, after holding steady in August. Real clothing and footwear purchases edged 0.1% higher (1.5% y/y) last month following a 0.5% decline. Real food & beverage purchases rebounded 0.6% (1.8% y/y) after slipping 0.2%. Real outlays on gasoline & other energy products rose 0.3% (0.7% y/y) last month after declining 1.7% in August. Real spending on other nondurable goods improved 1.3% (4.0% y/y) after a rise of 0.8% in August.

Real spending on services edged up 0.2% (3.2% y/y) in September, following a 0.3% rise in August. Real spending on housing & utilities rose 0.2% (1.1% y/y), after ticking 0.1% higher, while real healthcare spending rose 0.2% (4.9% y/y) following a 0.1% August rise. Real spending on food services & accommodations strengthened 0.8% (1.7% y/y) after a 0.4% rise in August, while real spending on financial services & insurance gained 0.2% (2.8% y/y) last month, after rising 0.5%. Real spending on transportation services fell 0.7% (+4.6% y/y) in September after rising 1.0% in August. Recreation spending fell 0.4% (+2.7% y/y) after rising 0.6% while other services spending gained 0.1% (3.2% y/y) for the second straight month.

Personal income rose 0.3% (5.5% y/y) in September, after rising of 0.2% in August. A 0.4% gain was expected. Wages & salaries rose 0.5% (6.4% y/y) for the second straight month. Rental income rose 0.5% (5.8% y/y) in September, the same as in August. Proprietors’ income weakened 0.4% (+2.2% y/y) following a 0.1% August increase. Income from assets weakened 0.2% (+1.4% y/y), off for the third straight month, and current transfer receipts rose 0.4% (7.6% y/y) in September after rising 0.3% in August. Government social benefits increased 0.4% (7.5% y/y), after a 0.3% rise in August.

Disposable personal income increased 0.3% (5.3% y/y) in September following a 0.2% August increase. After adjusting for price changes, disposable income improved 0.1% (3.1% y/y) for the fourth straight month.

The personal saving rate dipped to 4.6% in September from 4.8% in August. The rate was down from a January high of 5.5%. Personal saving fell 4.7% (+10.3% y/y) in September after falling 1.7% in August.

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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- Monthly gain in core prices is highest in six months.
- Improvement in real spending is concentrated in goods.
- Disposable income firms as wages maintain strength.

U.S. Core PCE Price Gain Picks Up, but Real Spending Posts Solid Increase in September

Sandy Batten

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The employment cost index (ECI) for civilian workers rose 0.8% q/q (3.9% y/y) in this year’s third quarter following a 0.9% quarterly gain in Q2, according to the Bureau of Labor Statistics. This is the smallest quarterly increase since Q2 2021 and the smallest annual increase since Q4 2021. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 4.1% y/y gain.

Wages and salaries for civilian workers also rose 0.8% q/q (3.9% y/y) in Q3 versus a 0.9% quarterly increase in Q2 and three consecutive 1.1% quarterly gains. This was the smallest quarterly gain and the smallest annual increase since Q2 2021. Benefits increased 0.8% q/q (3.7% y/y) in Q3 versus 1.0% q/q in Q2. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing meaningfully.

Private industry workers’ compensation rose 0.7% q/q (3.7% y/y) in Q3, down from 0.9% q/q (3.9% y/y) in Q2. Wages and salaries for private industry workers increased 0.8% q/q (3.8% y/y) in Q3, the same quarterly increase as in Q2. The quarterly gains in Q2 and Q3 were the smallest since Q4 2020. Benefits for private industry workers rose 0.7% q/q (3.3% y/y) in Q3 versus 0.8% q/q (3.4% y/y) in Q2.

By industrial sector, total compensation in goods-producing industries rose 0.9% q/q (3.5% y/y) in Q3 following an outsized slowdown to 0.5% q/q in Q2. Compensation in construction jumped up 1.1% q/q following a 0.3% q/q decline in Q2 while manufacturing compensation slowed to 0.8% q/q from 0.9% in Q2. In service-producing industries, total compensation increased 0.8% q/q (3.9% y/y) following a 1.0% quarterly gain in Q2. Compensation in private service-producing industries increased 0.7% q/q (3.6% y/y). Information compensation surged 1.4% q/q in Q3 following a rare 02% quarterly decline in Q2. Growth of education and health services compensation remained elevated, rising 1.2% q/q after a 1.0% q/q gain in Q2. Professional and business services compensation slowed to 0.2% q/q in Q3 from 0.8%, while the rise in leisure and hospitality compensation slowed to 0.6% q/q in Q3 after a 1.4% q/q jump in Q2.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- The pace of growth in employment costs slowed to multiyear lows in Q3.
- While still elevated relative to pre-pandemic readings, the trend in employment costs is clearly down.

Rise of U.S. Employment Cost Index Slows Further in Q3

Carol Stone, CBE

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Initial claims for unemployment insurance were 216,000 seasonally adjusted in the week ended October 26, down from 228,000 in the October 19 week; that earlier number was revised slightly from 227,000 reported before. The 216,000 amount was lower than the Action Economics Forecast Survey expectation of 233,000. The four-week moving average of these initial claims was 236,500 in the week ended October 26, down from 238,750 the week before.

In the week ended October 19, the total number of unemployment insurance beneficiaries was 1.862 million, seasonally adjusted, down from 1.888 million the prior week. That earlier week was revised down from 1.897 million previously reported. The four-week moving average of these beneficiaries was 1.869 million in the October 19 week, up from 1.858 million the previous week.

The associated insured unemployment rate, that is, the number of beneficiaries as a percent of covered employment, was back to 1.2% and the prior week was revised down from 1.3% to 1.2%. So, this rate has returned to the 1.2% amount that has been in place since March 2013, and the hurricane effects of early October were not so widespread as to raise the overall rate.

Economic conditions vary widely across states and territories. In the week ended October 12, the highest unemployment rates were in New Jersey (2.15%), California (1.92%), Puerto Rico (1.84%), Washington (1.78%) and Nevada (1.58%). The lowest rates were in South Dakota (0.23%), North Dakota (0.35%), Virginia (0.41%), Nebraska, Florida and Alabama (each 0.43%) and Kentucky (0.44%). Rates in other notable states include New York (1.44%), Illinois (1.43%), Pennsylvania (1.34%) and Texas (1.02%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims down 12,000 in latest week.
- Total unemployment insurance beneficiaries decrease 26,000 in October 19 week.
- Insured unemployment rate revised down, maintaining 1.2% amount even during hurricanes.

U.S.  Unemployment Insurance Claims Ease to 216,000 in October 26 Week

Robert Brusca

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Inflation in the European Monetary Union turned flat in September with the headline flat and the core flat month-to-month. Over 12 months, headline inflation is rising at a 1.7% annual rate, the same as over six months; over three months, that pace steps down to 1.6%. Headline inflation is across the board consistent with the European central bank’s target of inflation of around 2%. Core inflation is higher. Over 12 months, the core runs hot at a 2.8% pace, rising over six months at a stronger 3.2% annual rate and then dipping to a 2.3% annual rate over three months. The three-month pace is coming much closer to the ECB's target for inflation.

The four largest economies in the EMU also had inflation fall in September. In Germany, prices dropped by 0.2%, the same as in Spain. Headline prices fell 0.7% in France and just ticked lower by 0.1% in Italy. Price dropping across the board is a special sign; in this case, it signals dropping oil prices.

Sequential inflation rates for headline inflation in large economies also are looking good. Germany and Spain have the highest 12-month inflation rates at 1.7%. France is next at 1.4% and then Italy logs a 0.7% 12-month inflation rate. However, over six months, inflation picks up above target for Italy and Germany to 2.7%; it cruises at a 1.9% annual rate in France and at 1% annual rate in Spain. Over three months, prices are flat in Germany, rising at a 0.2% annual rate in France, rising at a 0.3% annual rate in Spain, and rising at a 2.3% annual rate in Italy. The results we see for headline inflation clearly echoed across the large economies of the European Monetary Union.

However, as having been the case for some time, the sticking point for inflation is the core. This is because Brent oil prices fell by 8.1% in September and fell by 7.6% in August after rising by 0.1% in July. In fact, Brent oil prices are falling to a 47.7% annual rate over three months, falling at a 29.3% annual rate over six months, and falling at a 24% annual rate over 12 months. This helps to explain why headline inflation is doing so well. Core inflation is showing more signs of being stuck at a too-high level.

Core (ex-energy) inflation in the case of Germany is at a 2.6% annual rate over 12 months. Spain’s core pace is at a 2.4% annual rate, Italy logs a 1.9% annual rate, and France checks in at a 1.5% annual rate. For France and Italy, core inflation over 12 months is very much in the fold of the target pace, while in the case of Spain and Germany, the departures aren't so great as they both hover around 2.5% at an annual rate. However over six months, German inflation is still up by 2.4%, the same as in Italy. Spain logs in at a 2.2% annual rate. France stays with the low 1.5% annual rate. Over three months, inflation runs at a 2.8% annual rate for ex-energy in Germany; it's at a 2.4% annual rate for the core in Spain and 2.1% for the core in Italy, compared to an even weaker 0.4% annual rate in France.

Even with core inflation getting stuck in the EMU economy overall at 2.8%, inflation is still not very far from the ECB's goal and is broadly behaving for the large economies. And if economic data are deemed weak enough, inflation doesn't seem to be that far from the ECB's target nor is it misbehaving enough to keep ECB rate cuts off the table.

Economy in Brief: March 2005

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