Tom Moeller

The Autodata Corporation reported that December light vehicle sales fell 5.6% (+5.3% y/y) to 13.59 million units (SAAR) after declining 6.1% in November. Sales remain significantly below the April 2021 peak of 18.37 million. Vehicle sales comprise about four percent of real consumer expenditures.

Auto sales fell 8.7% during December (+4.8% y/y) to 3.04 million units from 3.33 million in November. Purchases of domestically-made autos declined 10.8% in December (+9.7% y/y) to 2.15 million units following a 2.0% November decline. Sales of imported autos weakened 3.3% (-5.3% y/y) to 0.89 million units after rising 4.5% in November.

Sales of light trucks weakened 4.7% last month (+5.5% y/y) to 10.55 million after falling 7.7% in November to 11.07 million units. Purchases of domestically-produced light trucks weakened 5.1% last month (+2.7% y/y) to 8.02 million units after falling 8.2% in November. Sales of imported light trucks were off 3.1% (+16.1% y/y) to 2.53 million after weakening 6.5% in November.

Trucks' share of the light vehicle market rose to 77.6% in December, but remained below a 79.7% high in March 2022.

Imports' total share of the U.S. vehicle market improved to 25.2% last month after rising to 24.5% in November. It was the highest share since February 2022. Imports' share of the passenger car market rose to 29.3% last month but remained down from the September 2021 high of 37.9%. Imports' share of the light truck market edged higher to 24.0%, also the highest since September 2021.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

- Sales are lowest since August.

- Both light truck & auto sales fall.

- Imported vehicle sales ease.

U.S. Light Vehicle Sales Weaken at Yearend

Sandy Batten

The ISM U.S. manufacturing index slipped further into contraction territory in December, falling to 48.4 from 49.0 in November and 50.2 in October, according to the Institute for Supply Management. The December reading was the second consecutive one below the critical value of 50 that separates contraction in the manufacturing sector from expansion and stands at the lowest level since May 2020. ISM research indicates that a reading above 48.7 for the headline index is consistent with an expanding overall economy. Thus, the December reading indicates that the economy may have begun to contract in December. The Action Economics Forecast Survey expected a decline to 48.3 in December.

The new orders index fell to 45.2 in December from 47.2 in November, the sixth month in the last seven that this index was below the break-even level of 50. The percent of respondents reporting an increase in orders rose to 15.8% (NSA) in December from 12.7% in November, but the percent reporting a decrease rose even more, to 31.5% from 25.0%. The production index fell to 48.5 in December from 51.5 in November, its first time below the critical 50 level in 2-1/2 years.

Supplier delivery times continued to increase in December with the index declining to 45.1 from 47.2. This was the third consecutive monthly reading below 50. Recently, faster delivery times have been welcomed as they have been interpreted to indicate repairing supply chains. However, historically faster times have pointed to slowing demand, which is likely the case now. The inventories index rose to 51.8 in December from 50.9 in November.

The employment index increased to 51.4 from 48.4, indicating that employment rose during December. The percent of respondents reporting an increase in employment rose to 15.6% (NSA) from 12.8% while the percent reporting a decrease edged up to 16.9% from 16.6%.

The prices index fell sharply for the second consecutive month, to 39.4 (NSA) in December from 43.0 in November from 46.6 in October. It stands well below its high of 92.1 in June of last year, indicating that input prices are now falling, in marked contrast to their rapid increase in most of 2021 and the first half of 2022.

In other ISM series, the new export orders index fell to 46.2 in December from 48.4 in November. The imports index declined to 45.1 from 46.6 in November, the lowest point since May 2020. The order backlog index edged up to 41.4 from to 40.0 in November.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

- Production index fell into contraction territory for the first time in 2-1/2 years.

- New orders fell to the weakest level since May 2020.

- Raw materials prices fell for third straight month and delivery times were faster.

U.S. ISM Manufacturing Index Fell Further in December

Kathleen Stephansen, CBE

Mortgage applications decreased 13.2% from two weeks earlier in the week ended December 30. These data come from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey, with data for the weeks ending December 23 and 30 released simultaneously. Applications declined by 3.3% (-66.1% y/y) in the week ended December 23 and by 10.3% (-67.8% y/y) in the week ended December 30. Applications for loans to purchase a house declined 0.2% (-41.0% y/y) in the week ended December 23 and by 12.0% (-42.2% y/y) in the week ended December 30. Applications for refinancing a loan decreased by 12.4% (-86.5% y/y) in the December 23 week and by 4.4% (-86.8% y/y) in the December 30 week.

The share of applications for refinancing an existing loan was 28.8% in the week of December 23 and increased to 30.3% in the week of December 30. The percentage of applications that were ARMs was 7.9% in the December 23 week and 7.3% the following week.

The effective rate on a 30-year fixed-rate loan continued to rise over the latest two-week period, by 10bps to 6.61% in the week ended December 23 and to 6.79% in the week ended December 30. Similarly, the rate on 15-year fixed-rate mortgages rose 18bps to 6.12% in the week of December 23 and to 6.23% in the December 30 week, its highest since October 2008. The rate on 30-year Jumbo loan rose 10bps to 6.22% in the December 23 week and to 6.26% the following week. The rate on the 5-year ARM edged up 2bps to 5.80% in the week of December 23 and to 5.83% in the week of December 30.

The average loan size rose 1.1% w/w to $362,400 in the week ended December 23 but decreased 4.1% w/w to $347,600 in the week ended December 30. The series high of $401,900 was reached in the week ended May 6. The average size of a purchase loan decreased 0.1% w/w to $397,600 in the week ended December 23 and by 2.5% w/w to $387,600 in the week ended December 30. The average loan size to refinance a mortgage rose 1.6% w/w to $275,400 in the December 23 week but declined 7.3% to $255,400 in the week ended December 30.

The Mortgage Bankers Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver's **SURVEYS** database.

- Total mortgage applications dropped 13.2% in the week of December 30 from 2 weeks earlier.

- Applications for loans to purchase and to refinance dropped in the last two weeks of 2022.

- The average effective rates on fixed-rate loans remain at multi-year highs.

U.S. Mortgage Applications Dropped in the Latest Two-Week Period

Job openings slipped 0.5% (-4.2% y/y) to 10.458 million during November 2022 from 10.512 million in October, according to the Bureau of Labor Statistics' Job Openings and Labor Turnover report. The decline followed a 1.6% October drop and left openings 11.8% below the March 2022 high of 11.855 million. The job openings rate (job openings as a percentage of the sum of establishment employment plus openings) held m/m at 6.4% in November. The series high was 7.3% eight months earlier.

New hires weakened 0.9% (-9.7% y/y) to 6.055 million from 6.111 million in October. It left the level of new hires 11.4% below the February high of 6.832 million. The hiring rate eased to 3.9% from 4.0%. The hiring rate reached a peak of 4.5% in February 2022.

The total number of job separations increased 2.0% (-5.3% y/y) to 5.870 million from 5.756 million in October. Layoffs and discharges, involuntary separations, declined 6.6% in November (+4.2% y/y) to 1.350 from 1.445 million in October. They have been trending sideways since April 2021. The number of jobs quit rose 3.1% (-7.5% y/y) to 4.173 million. Fewer quits versus 2021 indicate that jobs became less readily available. The quit rate edged higher to 2.7% but remained below the December 2021 high of 3.0%.

Private-sector job openings eased 0.3% (-4.4% y/y) to 9.501 million following a 1.0% October decline. The private-sector job openings rate held m/m at 6.8% but remained down from the 7.7% high in March of last year. Leisure & hospitality job openings fell 8.8% y/y while factory sector openings weakened 3.3% y/y. Education & health services openings declined 1.6% y/y. Offsetting these declines was a 6.4% y/y rise in openings in the professional & business services sector.

Total hires in the private sector fell 1.3% (-10.5% y/y) to 5.645 million in October while total private-sector separations rose 2.2% (-5.3% y/y) to 5.503 million.

The Job Openings and Labor Turnover Survey (JOLTS) are available in Haver's **USECON** database.

• The number of job openings are well below March 2022 high.

• New hires continue to decline.

• Layoffs & discharges remain low.

JOLTS: Job Openings & Hiring Weaken in November

Retail gasoline prices increased last week to $3.22 per gallon (-1.8% y/y) after falling to $3.09 per gallon during the previous week. Prices had been declining since the mid-June peak of $5.01 per gallon. The retail cost of diesel fuel rose to $4.58 per gallon (26.8% y/y) last week from $4.54 in the prior week. The price reached a peak of $5.81per gallon in the third week of June.

West Texas Intermediate crude oil prices rose to an average $79.33 per barrel (4.3% y/y) in the week ended December 30 from $77.26 per barrel in the prior week. It was the highest price in four weeks, though prices remained down from a high of $120.46 in the second week of June. Yesterday, the price was $76.93 per barrel. The average price of Brent crude oil rose to $81.98 per barrel last week (4.9% y/y) from $80.68 in the prior week. The price peaked at $127.40 in mid-June. Yesterday, the price was $80.36 per barrel.

The price of natural gas declined to $4.06/mmbtu (+14.0% y/y) in the week ended December 30 after easing to $6.35/mmbtu in the previous week, when prices were near a three-month high. Prices peaked at $9.56/mmbtu in the last week of August and were up from a low of $3.56/mmbtu in the last week of December, 2021. Yesterday, the price was $3.64/mmbtu.

In the four weeks ended December 23, gasoline demand declined 6.7% from a year earlier after falling 7.1% y/y during the prior four weeks. These declines compare to 15.2% y/y growth at the end of last year. Demand for all petroleum products weakened 2.8 y/y in the latest four weeks in contrast to the 14.4% growth at the end of 2021. Crude oil input to refineries increased 3.0% y/y.

Gasoline inventories edged 0.2% higher y/y in the week ended December 23, while crude oil inventories declined 21.8% y/y.

Measured in days' supply, gasoline inventories in the week ended December 23 slipped w/w to 25.7 days and remained lower than the 29.2 days in early-February. The supply of crude oil fell to 25.8 days and remained down from 41.8 days in early-March of last year.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price data can be found in Haver’s **WEEKLY** and **DAILY** databases. Greater detail on prices, as well as the demand, production and inventory data are in **USENERGY**.

- Gasoline prices rebound.

- Crude oil prices continue to rise.

- Natural gas prices fall sharply.

U.S. Gasoline and Crude Oil Prices Increase

The value of construction put-in-place improved 0.2% during November following a 0.2% October weakening. The 8.5% y/y gain compared to a February high of 11.7% y/y. A 0.5% November decline had been expected in the Action Economics Forecast Survey.

Private nonresidential building led the overall November gain in activity with a 1.7% increase (12.6% y/y) after a 0.6% October decline. Factory construction rose 6.5% (43.2% y/y) while power construction increased 1.2% (-11.0% y/y). Health care construction improved 0.1% (6.9% y/y). A 2.0% decline (+10.6% y/y) in amusement & recreation building offset these gains while office building eased 0.1% (+2.3% y/y).

Private residential construction declined 0.5% in November (+5.3% y/y), the sixth straight month of decline. Single-family construction fell 2.9% (-10.2% y/y) for the second straight month. Multi-family building rose 2.4% (10.7% y/y), also for the second consecutive month. Spending on improvements increased 1.3% (27.6% y/y).

The value of public building eased 0.1% in November (+10.4% y/y) after two straight 1.6% increases. Office building rose 3.0% (5.9% y/y) but commercial construction fell 1.4% (+17.8% y/y). Highways & streets building fell 1.0% (+14.5% y/y) but education building edged 0.1% higher (1.5% y/y). Water supply construction declined 2.0% (+31.6% y/y).

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

- Small increase reverses October decline.

- Nonresidential building leads improvement.

- Single-family construction weakens further.

U.S. Construction Spending Edges Higher in November

Carol Stone, CBE

The ISM-Chicago Purchasing Managers Business Barometer recovered moderately in December after its fall in November. The overall PMI index was 44.9, up from 37.2 which had marked a drop from October’s 45.2. Haver Analytics has constructed an ISM-adjusted index with methodology similar to the national ISM Composite Index; for December, that measure was 45.0, up from 44.7 in November. These overall indexes, which are below the break-even 50 level, still indicate that activity is decreasing, but by less than in November. The December improvement still leaves the survey results weaker than many months through September. However, the December result is better than had been expected in the Action Economics forecast survey, which called for a reading of 40.0.

The recovery in the overall December index reflects advances in several basic components, especially order backlogs, which registered 53.7, up from 36.1 in November and the highest since last June’s 55.2. The backlog increase was accompanied by increases in new orders from 30.7 to 44.1 and in production from 35.9 to 39.2. So clearly production remains relatively weak, but it didn’t slow as much in December has it had in November. Supply delivery times then lengthened to 52.7 from 49.9.

Three of the sub-indexes did slow in December. Inventories were 48.0, down from 59.8. Employment was 40.8, down from 47.1 and prices paid were 64.1 down from 66.2. This last item obviously still reflects substantial inflationary pressure, just somewhat less than in November and, indeed, markedly less than the recent high of 94.1 in October 2021. So there is still certainly inflationary pressure.

The Chicago Business Barometer is considered to be a leading indicator of the U.S. economy. Readings above 50 indicate expansion while those below 50 suggest contraction. Summary data are contained in Haver’s **USECON** database with detail, including the ISM-style index, in the **SURVEYS** database. The expectation figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

- Order backlogs move up above 50, to 53.7.

- Production up modestly to 39.2.

- Employment down to 40.8.

U.S. Chicago Business Barometer Shows Some Recovery, but Still Under 50

Initial claims for unemployment insurance rose to 225,000 (6.6% y/y) during the week ended December 24 from the previous week's unrevised level of 216,000. A level of 220,000 had been expected in the Action Economics Forecast Survey.

The 4-week moving average of initial claims was 221,000, a decrease from the previous week's average of 221,250, revised from 221,750. It remained well below an early-August high of 249,500 but also well above an early-April low of 170,500.

In the week ended December 17, continued weeks claimed for unemployment insurance increased to 1.710 million (-4.6% y/y) from 1.669 million in the prior week, revised down from 1.672 million. The 4-week moving average was 1.680 million, a rise of 25,250 from the previous week's 1.654 million, revised from 1.657 million.

The insured unemployment rate in the week ended December 17 was steady at 1.2%. The insured unemployment rate edged up to 1.2% in late November from 1.0% in early that month. It had been as low as 0.9% between May and July.

In the week ended December 10, the total number of continued weeks claimed in all unemployment insurance programs was 1.620 million (-15.7% y/y) up from 1.528 million the week prior. This total includes federal employees, newly discharged veterans, extended benefits and other specialized programs and is not seasonally adjusted. Claims in the Pandemic Unemployment Assistance program and Pandemic Emergency Unemployment Compensation are no longer included in the main Labor Department press release, as both programs have expired.

The insured rates of unemployment in regular programs vary across states. The highest insured unemployment rates in the week ending December 10 were in Alaska (2.28%), California (2.06%), New Jersey (2.11%), Puerto Rico (1.99%), Minnesota (1.83%), Montana (1.78%), Rhode Island (1.67%), Massachusetts (1.62%), New York (1.61%), and Washington (1.57%). The lowest rates were in Alabama (0.24%), Virginia (0.25%), Kansas (0.30%), and New Hampshire (0.35%). Other state insured rates of unemployment in regular programs include Illinois (1.54%), Pennsylvania (1.39%), Texas (0.93%) and Florida (0.47%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims going back to 1967 are contained in Haver's **WEEKLY** database, and they are summarized monthly in **USECON**. Data for individual states are in **REGIONW**. The expectations figure is from the Action Economics Forecast Survey, carried in the **AS1REPNA** database.

- Claims rose 9,000 in the week ended December 24.

- Continued weeks claimed were up modestly.

- Insured unemployment rate holds steady.

U.S. Initial Claims for Unemployment Insurance Edged Up in Latest Week

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

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

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New orders for durable goods fell a more-than-expected 1.4% m/m in February, the fourth monthly fall in five months, after decreases of 0.5% in January (0.0% initially) and 0.9% in December (unrevised), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 1.0% m/m February decline. The year-on-year rate eased to 7.3% in February, the lowest since October, from 9.9% in January, though remaining positive since January 2025. Durable goods orders excluding the transportation sector rose 0.8% (6.0% y/y) in February, the 10th straight m/m rise, after a 0.3% increase in January. Durable goods orders excluding defense fell 1.2% (+7.3% y/y) following a 0.2% January rebound.

The m/m fall in February durable goods orders was led by a 28.6% m/m plunge in orders for nondefense aircraft & parts following decreases of 1.7% in January and 22.7% in December. Orders for defense aircraft & parts fell 3.8% after a 27.2% January slump and an 11.8% December jump. Orders excluding aircraft rose 1.2% (6.6% y/y), the seventh m/m rise in eight months, after a 0.3% January increase.

Durable goods orders for transportation generally fell 5.4% (+10.1% y/y) in February, the fourth m/m fall in five months, after a 1.9% decline in January. In addition to the drops in nondefense and defense aircraft orders, orders for motor vehicles & parts rose 3.1% (7.6% y/y), the third consecutive m/m rise, after a 0.7% January increase. Orders for electrical equipment, appliances & components slipped 0.1% (+5.0% y/y) following a 1.0% January decline, while orders for primary metals advanced 2.2% (10.2% y/y), the third successive m/m increase, after a 1.1% January rise. Machinery orders climbed 1.5% (9.2% y/y), the 10th straight m/m gain, on top of a 0.6% January increase. Orders for fabricated metal products rose 0.5% (5.4% y/y), the seventh m/m rise in eight months, following a flat January reading. Orders for all other durable goods rose 0.5% (1.3% y/y), up for the sixth consecutive month, after a 0.3% January increase. Meanwhile, orders for computers & electronic products were essentially unchanged (+7.5% y/y) after five straight m/m gains.

Capital goods orders fell 6.6% (+11.5% y/y) in February, the fourth m/m fall in five months, after a 3.0% drop in January. Nondefense capital goods orders slid 7.4% (+9.5% y/y), the fifth m/m slide in six months, after a 1.0% January decrease. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rebounded 0.6% (5.1% y/y), the seventh m/m rise in eight months, following a 0.4% January decline. Defense capital goods orders fell 1.1% (+25.1% y/y), down for the fourth time in five months, after a 14.2% January drop. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 0.9% (5.7% y/y), the fifth m/m increase in six months, after no change in January.

Shipments of all manufactured goods advanced 1.4% (3.5% y/y) in February, the fourth m/m gain in five months, after a 0.7% increase in January. Durable goods shipments rose 1.3% (6.8% y/y), up for the fifth time in six months, after a 0.9% January gain. Nondurable goods shipments climbed 1.4% (0.1% y/y), the third straight m/m rise, after a 0.5% January increase.

Unfilled orders of durable goods edged up 0.1% (11.1% y/y) in February, the seventh straight m/m gain, after a 0.6% rise in January. Excluding transportation, unfilled orders increased 0.2% (1.9% y/y), also up for the seventh consecutive month, following a 0.3% January rise.

Manufacturing inventories inched up 0.1% (0.8% y/y) in February, the fourth straight m/m increase, after a 0.1% uptick in December. Durable goods inventories edged up 0.1% (1.8% y/y) in February, the fifth consecutive m/m increase, after a 0.2% rise in January, while nondurable goods inventories were virtually unchanged (-0.8% y/y) following two successive m/m declines.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Headline orders -1.4% (+7.3% y/y) in Feb., fourth m/m decline in five mths.
- Nondefense aircraft & parts -28.6% m/m following January’s -1.7%.
- Transportation orders -5.4%, down for the fourth time in five mths.; orders ex transportation +0.8%, 10th straight m/m rise.
- Core capital goods shipments +0.9%, fifth m/m gain in six mths.
- Durable goods shipments +1.3%; unfilled orders +0.1%; inventories +0.1%.

U.S. Durable Goods Orders Fall in February, Led by a Plunge in Nondefense Aircraft Orders

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The U.S. ISM Services PMI decreased to 54.0 in March following a 2.3-point rise to 56.1 in February (the highest reading since July 2022), according to today’s report by the Institute for Supply Management, indicating expansion in the services sector for the 21st consecutive month but at a slower pace. The March index, while above 50.8 in March 2025 and a low of 49.4 in June 2024, remained below a high of 55.5 in October 2024 and a record-high 67.5 in November 2021. The 12-month average was 52.3, pointing to continued growth in the U.S. services sector. The Action Economics Forecast Survey had expected 54.9 for March.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index fell to 53.8 in March after a 2.0-point increase to 55.7 in February, signaling expansion for the 10th straight month, albeit at a slower rate. The latest reading was above 50.6 in March 2025 and a low of 49.3 in June 2024, while remaining below a record-high 66.7 in November 2021. These series date back to July 1997.

In the latest services survey, the business activity index declined to 53.9 in March after rising to 59.9 in February, indicating continued expansion in business activity for 21 consecutive months, though at the slowest pace since September. The index was above a low of 50.0 in June 2024 but below a record-high 70.9 in November 2021. In March, 22.8% of respondents (NSA) reported higher activity while 14.6% reported an activity decline. The new orders index rose to 60.6 in March after increasing to 58.6 in February, reflecting expansion in new orders for the 10th straight month and the highest level since February 2023. The index was above its recent low of 47.2 in May 2025 but below a high of 61.0 in February 2023 and a record-high 69.2 in October 2021. In March, 32.0% of respondents (NSA) reported higher new orders while a lessened 12.6% reported declines. Meanwhile, the supplier deliveries index (NSA) increased to 56.2 in March from 53.9 in February, indicating slower supplier delivery performance for the 16th straight month after one month in faster territory in November 2024.

On the labor front, the employment index fell to 45.2 in March after rising to 51.8 in February, showing employment activity in the services sector contracted for the first time since November and at the lowest level since December 2023. The latest reading was above a low of 43.5 in December 2023 but below a high of 54.1 in June 2023 and a high of 58.9 in April 2021. A reduced 10.7% of respondents (NSA) indicated higher employment in March while an increased 18.4% reported declines.

On the inflation front, the prices index jumped to 70.7 in March from 63.0 in February, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 and at the fastest pace since October 2022. The index was above a low of 53.9 in March 2024 and a low of 55.1 in June 2023 but significantly below a peak of 83.7 in March 2022. An increased 45.7% of respondents (NSA) reported higher prices in March while only 1.2% reported price declines.

Additionally, the new export orders index dropped to 50.7 in March from 57.2 in February, showing new export orders expanded for the third time in four months but at a slower rate. The imports index rose to 55.2 in March from 51.8 in February, registering the third expansion in four months and the highest level since January 2024. The inventories index declined to 54.8 in March from 56.4 in February, indicating inventories expanded for the fourth time in five months but at a slower pace. The inventory sentiment index slipped to 54.3 in March from 55.3 in February, showing continued expansion since May 2023. The backlog of orders index fell to 53.6 in March from 55.9 in February, marking the second successive month of expansion following 11 straight months of contraction. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- ISM Services PMI at 54.0 in Mar., down 2.1 pts. from Feb.; below forecasts but above the 12-month avg. of 52.3.
- Business Activity (53.9, 21st straight month of expansion); New Orders (60.6, 10th consecutive month of expansion and fastest since Feb. ’23); Employment (45.2, first contraction since Nov.); Supplier Deliveries (56.2 vs. 53.9).
- Prices Index (70.7) indicates prices rising since June ’17, the fastest pace since Oct. ’22.

U.S. ISM Services PMI Slips in March, Still Indicating Expansion for the 21st Straight Month

Tian Yong Woon

In this week’s Letter, we examine the first-round price impacts of the surge in oil prices stemming from the ongoing Middle East conflict in Asia. Despite recent rhetoric and reports suggesting a potentially swift resolution, the conflict continues to unfold, with a ceasefire hanging in the balance, and with some measures of shipping volumes through the Strait of Hormuz still reduced to a trickle. At the same time, crude oil prices have been whipsawing amid shifting market perceptions about the persistence of the current supply shock (chart 1). The initial effects of higher oil prices are already showing up in hard data, particularly in energy- and fuel-related inflation across Indonesia, South Korea, and Vietnam (chart 2). In response, several governments have rolled out sizeable subsidy programmes to cushion rising energy costs, though these measures come with significant fiscal strain.

We also assess recent consumer inflation expectations in South Korea and Taiwan, which show early signs of edging higher (chart 3), although there is as yet no clear evidence of a meaningful unanchoring. To add further nuance, our latest Blue Chip survey suggests that most panellists expect only a limited and temporary pass-through from higher energy prices to core inflation, though a non-trivial minority anticipate a more persistent effect (chart 4). On the policy front, respondents broadly expect central banks to delay easing while avoiding outright tightening, with outcomes likely to diverge across regions (chart 5). In the near term, upcoming policy decisions in India, New Zealand, and South Korea—alongside other key data releases—will provide a useful test of these expectations (chart 6).

**The Middle East conflict**
The Middle East conflict continues to rage, with IMF-tracked shipping volumes through the Strait of Hormuz still reduced to a trickle. Meanwhile, crude oil prices remain volatile, gyrating alongside shifting perceptions over how soon normal oil flows might resume. In reality, there is still little sign of a substantive resolution, and no agreement to fully reopen the strait appears imminent, suggesting that oil flows are likely to remain constrained at low levels in the near term. That said, some investors are closely monitoring developments following reports of discussions around a potential 45-day ceasefire, which could pave the way toward a more lasting resolution. Until then, and absent any meaningful supply relief, crude oil prices—and by extension, energy-related inflation—are likely to face continued upward pressure, particularly for oil-dependent, importing economies.

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**Initial price impacts**
The initial inflation concerns among policymakers and investors stemming from the surge in oil prices are now beginning to show up in the data, as illustrated in chart 2. The latest March readings—capturing the period after the onset of the Middle East conflict—already point to a sharp acceleration in energy-related prices on a year-ago basis. Indonesia’s energy CPI basket has risen by around 9%, while diesel prices in South Korea have jumped 17%. Vietnam’s retail gasoline prices have seen an even more pronounced increase, at roughly 25.6%. Given the scale of these price surges, and their direct impact on everyday essentials—particularly fuel for daily commutes and broader economic activity—governments across Asia have begun rolling out sizeable subsidy programmes. These measures, often implemented at significant fiscal cost, aim to cushion the burden on households and firms. For instance, South Korea’s finance ministry proposed a supplementary budget of around $17.3 billion in late March to support low-income households, youth, and businesses amid higher oil prices, with approval expected by April 10. Meanwhile, Indonesia has allocated approximately $22.4 billion toward energy subsidies and support for selected energy and utilities firms to help keep prices affordable.

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**Consumer inflation expectations**
What policymakers are likely to focus on—beyond the immediate price impacts—is how the recent surge in oil prices feeds into inflation expectations. If left unanchored, these expectations could pose a far greater challenge than the supply-driven price shock itself, including reduced monetary policy effectiveness in reining in inflation and the risk of a self-fulfilling inflation cycle—though it is worth noting that such dynamics are not yet close to materialising. So far, there are some early, albeit inconclusive, signs that near-term consumer inflation expectations are beginning to drift higher in certain economies. As shown in chart 3, one-year-ahead inflation expectations edged up to 2.7% in March, while in Taiwan, consumer sentiment regarding domestic price trends over the next six months has turned notably more pessimistic relative to overall confidence.

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**The latest Blue Chip survey**
Turning to investor perspectives on how higher energy prices may feed into inflation, our special questions in the latest Blue Chip Financial Forecasts (BCFF) survey offer some useful nuance. As shown in chart 4, around two-thirds of panellists expect only a limited and temporary pass-through from higher oil prices to core inflation. That said, a non-trivial minority (31%) anticipate a more moderate and persistent pass-through. This is notable given the focus on core inflation, and underscores how energy prices can generate second-round effects even in typically non-energy components, reflecting the pervasive role of energy in everyday economic activity—from manufacturing to the upkeep of a wide range of goods and services.

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Delving deeper, we also asked panellists about their views on the prospective path of central bank policy should energy-driven inflation prove persistent. As shown in chart 5, responses broadly coalesce around two themes: central banks are likely to delay easing rather than tighten, and policy responses will vary meaningfully across regions. The former is already playing out to some extent in recent central bank decisions across Asia, with several explicitly citing the ongoing Middle East conflict as a reason to remain vigilant on inflation and refrain from easing policy prematurely. As for the latter, there are already signs of divergence in how different central banks are approaching the situation.

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**The week ahead**
Looking to the week ahead, there will be ample opportunities to assess whether investor expectations for central bank policy moves play out across Asia, with several rate decisions due—most notably in India, New Zealand, and South Korea. Also on the docket are China’s March CPI print and a range of Japan-related releases. Policymakers are likely to remain focused on balancing inflation control with supporting growth and maintaining currency stability. For now, and absent offsetting domestic factors, expectations for further near-term easing have been tempered by rising inflation risks. In China, recent CPI readings point to a modest pickup, while producer price deflation has begun to ease after a prolonged period of weak or negative inflation.

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Asia

Economic Letter from Asia: First-Round Effects

Michael J. Moran

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The report on payroll employment for March was impressive when viewed in isolation. Job growth was strong at 178,000, and the advance was broadly based. The construction and manufacturing sectors both posted solid gains, and the service-producing sector registered its firmest performance in more than a year. However, the gain might be viewed as a continuation of an unusual bout of random volatility. The March advance followed a notable drop in February (-133,000, revised down from -92,000), which followed an upside surprise in January (160,000, revised up from 126,000).

To be sure, statistical noise has been a factor in the past three months, but the results also represent an encouraging shift in job growth from that in the second half of last year, when employment rose only marginally in the third quarter and fell in the fourth. The net change in the past three months seems to signal that job growth is not drying up. The net advance so far this year is far from brisk, but it is clearly in the plus column and noticeably better than results in late 2025.

The unemployment rate also might be viewed as favorable, as it dipped 0.1 percentage point to 4.3%, although it was a “soft” decline. That is, employment as measured by the household survey declined 64,000, but the size of the labor force fell by a larger amount (off 396,000). Still, the jobless rate has climbed only modestly higher since the labor market started to ease in 2023, and it has inched lower in the past few months.

Unemployment has been contained despite modest hiring because layoffs also have been light. Initial claims for unemployment benefits have moved sideways in the past few years, indicating no change in the pace of layoffs. This pattern is confirmed by terminations data in the report on job openings and labor turnover (JOLTs) from the Bureau of Labor Statistics.

A supply-side shift in the labor market also has helped to contain the unemployment rate. Growth in the size of the labor force has slowed, and with fewer individuals seeking employment, those searching are more easily absorbed. Measures of the size of the labor force can be difficult to assess because there are breaks in the series every year. The Bureau of Labor Statistics adjusts the population controls used in its estimating procedure every January without revising past data to align with the new estimates. Thus, every January involves a discontinuity in the series, which will distort year-over-year changes.

However, Haver Analytics maintains a smoothed series originally developed by BLS to eliminate the breaks in the labor force data. As shown in the chart below, the smoothed series on the size of the labor force had been growing at a pace centered on 1.2% through 2022, but it has slowed irregularly since then (an observation for October is not available because of limited data collection during the government shutdown). The overall labor force is still growing, but the slower pace means fewer individuals looking for work, which most likely results in fewer being counted as unemployed.

The BLS collects data every month on both native-born and foreign-born individuals in the labor force. The breaks in these series are an issue, and Haver does not maintain smoothed series. However, the use of moving averages achieves enough smoothing to provide a sense of underlying changes. The native-born labor force has moved erratically in the past couple of years, but it has continued to advance. The foreign-born labor force, in contrast, seems to have peaked in mid-2025 and has generally declined since then.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- The jump of 178,000 in payroll employment in March easily exceeded the expected gain of 51,000.
- Following a net gain in January and February, the employment setting seems to have brightened slightly.
- A dip in the unemployment rate continued the recent pattern of marginal changes.

Payroll Employment: Another Surprise in March, The Third Consecutive

Robert Brusca

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French manufacturing industrial production was flat in February after a January rebound; output rose by 0.2% following a 0.8% decline in December.

The components of industrial production in February showed 2.6% increase in consumer durables, a 0.4% increase in consumer nondurables, flat output from capital goods, and a 0.7% month to month decline in intermediate output.

Sequentially, French output had been growing at a slow, steady pace of 0.8% at an annual rate over both 12 months and six months, but then slipped to a 6.1% contraction at an annual rate over three months. Consumer durable goods output on this span shows consistent increases, but there are no trends to clear acceleration or deceleration. Consumer nondurables trace an accelerating path of moderate means from -1.8% over 12 months, to -0.4% over six months, and then rising at a 5.5% annual rate over three months. Capital goods output is moving in the opposite direction, growing by 3.4% over 12 months, slowing to a 0.7% annual pace over six months, and then contracting at a 9.5% annual rate over three months. Intermediate goods output is falling at 0.8% pace over 12 months, but then it switches to an expansion rate of 0.8% over six months and 0.6% and over three months. There's nothing remarkable about these patterns, except there's some acceleration, some deceleration, and a lot of mulling about at low growth rates.

As a separate item, French auto production is slipping and decelerating, falling by 7.1% at an annual rate over 12 months, falling at a 7.9% pace over six months, and then plunging at a 19.3% annual rate over three months. On these same horizons, motor vehicle registrations fall by 14.7% over 12 months; the weakness pares back to an 11.2% annual rate decline over six months, and then it steps up to a 22.1% decline at an annual rate over three months. French demand for autos is not in good shape.

In the quarter to date—now two months into the first quarter—manufacturing industrial production is falling at a 0.8% annual rate. That pace is boosted by 9.4% annual rate gain in consumer durables output but restrained by just a 0.2% annual rate increase in consumer nondurable goods. Capital goods output is falling at a 1.9% annual rate, while intermediate goods output is falling at a 1% annual rate. Also in the quarter to date, automobile production is plunging at a 24.3% annual rate, while on the demand side, motor vehicle registrations are falling at a 15% annual rate.

French manufacturing data are somewhat confusing. The chart shows that the industrial production trend has been showing consistent increases over 12 months, but it has recently been pulling back relatively sharply. On the other hand, the manufacturing PMI for France has been consistently negative going back to mid-2022 and only in early 2026 has the manufacturing PMI been posting some values above the 50% mark, indicating that output was starting to actually expand. In March, the PMI reading for manufacturing has slipped back by the thinnest margin below the 50% mark.

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Of course, events in the Middle East make everything more speculative, with the war effectively closing the Strait of Hormuz and no certainty about how or when that is going to be sorted out. In the meantime, the potential threat of ongoing oil price pressures has put both the ECB and the Bank of England in a position to be more wary with policy, and they warned markets about the potential for rate hikes as soon as their next meetings are engaged. That also raises questions about the outlook for growth. But we continue to track and chronicle trends in the data. It's also quite clear that we could have events that will play out that could completely undermine these trends before they get a chance to run to conclusion. It's an important time to be wary and watch all developments—a lot is in play.