Sandy Batten

U.S. house prices were unchanged in October following an unrevised 0.1% m/m increase in September. Prices appear to have stabilized after falling in both July and August. Compared to a year ago, prices were up 9.8%, well off their peak of 19.3% reached in February. The aggressive rate hikes by the Federal Reserve have been reflected in markedly higher mortgage interest rates, which have taken their toll on the housing market.

For the nine census divisions, seasonally adjusted monthly house price changes from September to October ranged from -0.9% m/m in the Pacific division, the fifth monthly decline in the past six months, to +1.4% in the New England division following a 1.0% monthly drop in September. The 12-month changes were all positive, ranging from +4.5% in the Pacific division to +14.1% in the South Atlantic division. Annual rates of increase in every region are well off their highs that were generally reached early this year. However, for most regions, the annual gains are still considerably faster than they were in the seven years preceding the short 2020 recession induced by the COVID-related lockdown of the economy.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancings on the same kinds of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The **FHFA** data are available in Haver’s **USECON** database.

• FHFA HPI was unchanged in October following an unrevised slight +0.1% m/m increase in September after monthly declines in the preceding two months.

• House prices fell in five of the nine census divisions and rose in the other four.

• Largest decline in the Pacific region; largest increase in New England.

U.S. FHFA House Prices Unchanged in October

Winnie Tapasanun

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The advance estimate of the U.S. international trade deficit in goods narrowed to $83.35 billion in November from $98.80 billion in October, according to the U.S. Census Bureau. This was the first time since August in which the goods deficit had narrowed. The November deficit was smaller than a $97.17 billion shortfall last November and the smallest since December 2020. A $96.5 billion deficit had been expected by the Action Economics Forecast Survey. The deficit had reached a peak of $125.66 billion in March. The goods trade deficit shrank to $268.55 billion in Q3'22, the smallest shortfall since Q2'21, from $309.37 billion in Q2'22. The narrower deficit showed net exports added 2.9%-points to Q3 GDP growth after having added 1.2%-points in Q2.

Total exports fell 3.1% m/m (+8.5% y/y) in November, the third consecutive m/m fall, after a 2.0% decline in October. However, exports have risen 8.2% since January. Total imports slid 7.6% (-0.2% y/y) in November, the first m/m slide since August and the deepest since April 2020, after a 1.0% increase in October. Imports have fallen 4.2% since January.

The decline in exports in November reflected exports m/m drops of 5.8% (+14.2% y/y) in industrial supplies & materials, 5.7% (+16.6% y/y) in other goods, 4.6% (-10.0% y/y) in foods, feeds & beverages, and 2.2% (+9.3% y/y) in capital goods excluding autos. To the upside, exports of consumer goods excluding autos (4.0% m/m; -1.8% y/y) and automotive vehicles & parts (1.0% m/m; 14.6% y/y) registered their monthly gains.

The slide in imports in November reflected imports m/m declines in all the end-use imports categories. These included drops of 13.0% (-10.0% y/y) in consumer goods excluding autos, 8.9% (+13.8% y/y) in automotive vehicles & parts, 6.0% (-2.8% y/y) in industrial supplies & materials, 5.5% (+1.9% y/y) in foods, feeds & beverages, 5.1% (-15.5% y/y) in other goods, and 4.3% (+8.3% y/y) in capital goods excluding autos.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- $83.35 billion deficit in November, smaller than expected.

- Exports decline 3.1%, down for the third straight month.

- Imports fall 7.6% following two consecutive m/m rises.

U.S. Goods Trade Deficit Narrows in November; Lowest Since Dec. '20

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The Conference Board U.S. Consumer Confidence Index rose 6.8% (-6.0% y/y) to 108.3 in December, the first monthly rise since September to the highest level since April, after a 0.8% decline to 101.4 in November (-2.0%; 100.2 initially). The December reading was down from 115.2 last December and 16.0% below its recent high of 128.9 in June 2021. A reading of 101.0 had been expected in the Action Economics Forecast Survey.

Consumers' views of present and future economic conditions improved this month following two consecutive monthly drops. The Present Situation Index rose 6.4% (1.7% y/y) to 147.2 in December, the highest level since September, after a 0.3% decline to 138.3 in November. The index was slightly higher than 144.8 last December. The Expectations Index rose 7.4% (-13.6% y/y) to 82.4 this month, the highest level since January, after a 1.5% drop to 76.7 in November. It was below 95.4 last December and down 26.4% from its recent peak of 111.9 in March 2021.

Labor market readings showed more optimism this month. The jobs gap, representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get, rebounded to 35.8% in December, the first monthly rise since September, from 31.5% in November. But it was below a record 47.1% in March and 44.2% last December. Calculated by Haver Analytics, this series has had a 67% correlation with the unemployment rate over the last ten years. The jobs plentiful measure rose this month to a three-month-high 47.8% from 45.2% in November, but it remained below a record 56.7% in March and 55.9% last December. The jobs hard-to-get measure fell to 12.0% of respondents in December from 13.7% in November, but it was up from a 9.6% low in March and 11.7% last December.

Consumers viewed business conditions as more favorable compared to last month. Current business conditions were perceived as good by 19.0% of respondents in December, the highest since September, up from 17.8% in November but down from 19.4% last December and a 25.2% high in June 2021. Expectations that business conditions would improve in six months were 20.4% of respondents, up from 19.8% in November and a 13.7% low in July but down from 25.4% last December and a record 42.5% in May 2020. More jobs were expected in six months by 19.5% of respondents, slightly up from 18.5% in November but down from 24.2% last December and a record 41.2% in April 2020. The percentage expecting rising income declined to 16.7% of respondents in December, the lowest since August, from 17.1% in November and 17.5% last December. But it was slightly up from a 15.3% July low.

Inflation expectations eased this month but remained high. The expected inflation rate in twelve months declined to 6.7% in December, the lowest since September 2021, from 7.1% in November. The December reading was down from a 7.9% high in June and 6.9% last December but noticeably up from a 4.4% low in January 2020. A 64.3% of respondents expected that interest rates would rise over the next twelve months, slightly down from 65.9% in November but up from 61.0% last December.

The share of respondents planning to buy a home within six months fell to a three-month-low 6.2% in December from 6.5% in November. It was down from 6.9% last December and a 7.7% high in July 2020 but up from a 4.5% July low. Those planning to buy a major appliance declined to 43.1% of respondents in December from 44.9% in November. The December reading, while slightly above a 41.1% July low, was below 47.8% last December and a 53.9% high in July 2021.

The Consumer Confidence data are available in Haver's **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Up 6.9 pts. to a higher-than-expected 108.3 in Dec.; highest since April.

- Present Situation Index increases to a three-month-high 147.2 after two consecutive m/m declines.

- Expectations Index recovers to 82.4, the highest level since Jan., following two successive m/m decreases, but recession risks persist.

- Consumers more optimistic about the current business conditions and the short-term business conditions outlook; more upbeat about the present labor market and the short-term labor market outlook.

- Inflation expectations retreat to their lowest level since Sept. '21.

U.S. Consumer Confidence Rebounds in December After Two Straight M/M Drops

Carol Stone, CBE

Manufacturers tallied a 2.1% decline in new orders for durable goods in November (6.2% y/y) according to the latest Census Bureau data, after a 0.7% increase in October. That earlier tally was revised from a 1.0% advance reported initially. The Action Economics survey had projected November's move to be a 1.0% decrease.

The November decline in total new orders reflects a notable mix among industries. The largest decline was in nondefense aircraft, -57.3% (-8.2% y/y) after a 4.5% rise in October; defense aircraft orders were down 8.6% in the month (+9.2% y/y) after an 18.2% advance in October. There were also declines in primary metals orders, down 0.4% (1.9% y/y) following October's 0.7% decrease, and in motor vehicles and parts, down 0.07% (+14.1% y/y) after October's 0.8% increase. But November had gains in orders in several sectors: computers and electronic products, +0.6% (1.7% y/y) following a decrease of 0.2% in October, electrical equipment, 0.2% (+4.5% y/y) after October's 0.1% decrease, fabricated metals, 0.1% +3.0% y/y) after being unchanged in October, and “other durable goods,” 0.2% (+3.0%) following a 0.2% decrease in October. Total capital goods orders fell 5.5% (+5.2% y/y) in November following a 1.4% increase in October.

Even as new orders for nondefense aircraft dropped, that industry's shipments gained in November, rising 5.4% (+40.7% y/y) after increasing 2.2% in October. Total shipments of durable goods rose 0.2% (+8.8% y/y) after 0.4% in October, and total capital goods shipments rose 0.6% (+11.6% y/y) after 1.2% in October. Shipments of nondefense capital goods gained 0.8% (+12.8% y/y) in November following 1.6% the month before.

Manufacturers' orders and shipments of durable goods, as well as nondurable goods, are available in Haver's **USECON** database. Unfilled orders and inventories are also included. The Action Economics forecast data are in the **AS1REPNA** database.

- Sizable gains and declines in orders among industries.

- Nondefense aircraft orders post marked drop, but shipments advance.

- Orders for computers & electronic equipment also rise.

U.S. Durable Goods Orders Register a Notable Decline in November

Kathleen Stephansen, CBE

Personal income rose 0.4% (4.7% y/y) during November versus expectations for a 0.3% rise and following a 0.7% (4.8% y/y) in October. The gain reflected a 0.5% rise (6.2% y/y) in wages & salaries, corresponding to continued employment growth, and following a 0.5% rise in October. Proprietors' income eased 0.2% (3.7% y/y) following a similar retrenchment in October. Rental income eased 0.1% % (7.2% y/y) in November. Receipts on assets rose 0.5% (4.9% y/y) as interest income increased 0.6% (6.6% y/y) and dividend income rose 0.3 % (3.2% y/y). Personal transfer receipts increased 0.3% (1.1% y/y). Disposable income rose 0.4% (2.9% y/y) in November, following a rise of 0.7% (2.9% y/y) in October, while real disposable earnings rose 0.3% (-2.5% y/y) in November following an increase of 0.4% (-3.0% y/y) in October.

The personal saving rate edged up to 2.4% in November after the near record low of 2.2% in October, revised from 2.3%. The level of personal savings bounced back 10% last month from a decline of 5.2% in October and was 64.8% lower y/y.

Personal consumption expenditures (PCE) increased 0.1% (7.7% y/y) in November, after rising 0.9% (8.1% y/y) during October, initially reported as a 0.8% (7.9% y/y) rise. The Action Economics Forecast Survey had expected a 0.1% rise. In November, real PCE increased less than 0.1% (2.0% y/y), reflecting a decrease of 0.6% in spending on goods and an increase of 0.3% in spending on services. Real spending on durable goods declined 1.5% (+0.6% y/y) last month as spending on motor vehicle & parts decreased 4.3% (-1.5% y/y) after surging 5.2% in October. Real spending of furniture & appliances decreased 0.4% (-1.5% y/y) in November, after a 1.2% rise in October. Real spending on recreational goods & vehicles rose 0.5% (5.3% y/y) following a 0.4% increase in October.

Real spending on nondurable goods edged down 0.1% (-1.5% y/y) in November, after rising 0.2% (-1.5% y/y) in October. Outlays on gasoline & other energy products fell 1.5% (-4.2% y/y) following a 0.7% decline in October. Real apparel spending declined 0.6% (0.6% y/y) last month, after a 0.2% rise in October and real outlays on food & beverages gained 0.3% (-4.6% y/y) following a 0.2% rise the prior month.

Real spending on household consumer services improved rose 0.3% (3.3% y/y), after a 0.2% (3.1% y/y) rise in October. Real transportation services outlays dropped 1.0% (+1.7% y/y) after a 0.4% rise the prior month, while real housing & utilities expenditures rose 0.3% (1.2% y/y) after a similar 0.3% in October. Real healthcare spending gained 0.3% in last month (2.3% y/y) after a 0.3% rise in October. Recreation services buying declined 0.1% (3.8% y/y) in November following a 0.2% rise in October, while real food services and accommodations rose 0.8% (7.3% y/y) last month after a 0.4% rise in October. Real spending on financial services and insurance rose 0.3% (1.6% y/y) last month after a 0.2% gain in October.

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**.

- Personal income beat expectations in November.

- Wage increases remain firm.

- Real spending on goods declined while real spending on services increased during November.

U.S. Personal Income Rose in November but Real Spending Was Flat

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New single-family home sales rose 5.8% m/m (-15.3% y/y) to 640,000 units at an annual rate in November after an 8.2% rise to 605,000 in October (632,000 initially) and a 13.5% decrease to 559,000 in September (588,000 previously), according to the U.S. Census Bureau. The November reading was the highest since August. Sales have fallen 38.2% from their peak of 1.036 million in August 2020. The Action Economics Forecast Survey expected 600,000 sales in November.

By region, sales in November reflected varied movements in the major regions. Sales in the West advanced 27.6% (-26.6% y/y) to 171,000 in November, the fourth m/m gain in five months to the highest level since May, on top of a 7.2% rise to 134,000 in October. Sales in the Midwest recovered 21.3% (3.6% y/y) to 57,000, the third m/m increase in four months, following a 30.9% drop to 47,000. In contrast, sales in the Northeast slid 8.5% (+26.5% y/y) to 43,000, the first m/m slide since June, after a 42.4% jump to 47,000. Sales in the South fell 2.1% (-15.0% y/y) to 369,000, the second m/m fall in three months, after a 13.2% increase to 377,000.

The median price of a new home declined 2.8% (+9.5% y/y) to $471,200 in November, the first m/m drop since August, following a 6.0% gain to $484,700 in October. The average sales price of a new home rose 1.9% (9.0% y/y) to $543,600, the highest since July, after a 1.6% October rebound to $533,400. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market decreased 1.7% (+18.2% y/y) to a seasonally adjusted 461,000 in November, the lowest level since August, after a 1.3% increase to 469,000 in October; these figures were up from 390,000 last November and the recent low of 281,000 in October 2020. The seasonally adjusted supply of new homes for sale declined to 8.6 months in November, a three-month low, from 9.3 months in October, but it was up from 6.2 months last November and a record-low of 3.3 months in August 2020. The median number of months a new home stayed on the market rose to 1.9 months in November from 1.5 months in October; these readings were down from 2.9 months last November and a high of 5.1 months in March 2021. These figures date back to January 1975.

New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- 640,000 units SAAR in Nov., a three-month high; downward revisions to Oct. and Sept.

- Month-on-month sales up in the West and the Midwest but down in the Northeast and the South.

- Median sales price declines following two consecutive m/m rises.

U.S. New Home Sales Rise for the Second Straight Month in November

Tom Moeller

The Conference Board's Composite Leading Economic Indicators Index fell 1.0% (-4.5% y/y) during November after a 0.9% October decline, revised from -0.8%. The Action Economics Forecast Survey expected a 0.4% decline in the index for November.

Six of the Leading Index's ten components made negative contributions to the index change in November. Declines came from the average workweek, initial unemployment insurance claims, the ISM new orders index, building permits, consumer expectations for business/economic conditions and the leading credit index.

The Index of Coincident Economic Indicators improved 0.1% last month (1.9% y/y) following an unrevised 0.2% October gain Three of the four index components rose minimally including payroll employment, personal income and business sales. Industrial production declined.

The Index of Lagging Economic Indicators increased 0.2% (6.9% y/y), revised from 0.1%, following no change in October. A rise in banks’ prime rate, a gain in C&I loans and the ratio of consumer credit/income were offset by declines in the average duration of unemployment, the change in unit labor costs and the 6-month change in the services CPI.

The ratio of the Coincident index to the Lagging index also is seen as a leading indicator. The ratio fell slightly last month and has been steadily declining since December of 2021, suggesting rising recession risks.

The Conference Board figures are available in Haver's **BCI** database; the components are available there, and most are also in **USECON**. The expectations are in the **AS1REPNA** database. Visit the Conference Board's site for coverage of leading indicator series from around the world.

- Index falls for ninth straight month.

- Coincident indicators rise minimally.

- Lagging indicators edge higher.

U.S. Leading Economic Indicators Decline in November

The third estimate of GDP is usually uneventful. However, the third estimate of Q3 GDP was an exception as GDP growth was unexpectedly revised up 0.3%-point to 3.2% with the upward revision spread across domestic demand components. The Action Economics Forecast Survey had looked for no revision. Real personal consumption expenditure growth was the major factor behind today’s upward revision. Its growth was revised up to a respectable 2.3% from 1.7%, boosting its contribution to overall GDP growth to 1.5%-points from 1.2%-points in the second estimate. The largest contribution to Q3 GDP growth was still provided by net exports. The narrowing of the trade deficit in Q3 was revised slightly smaller with the contribution to GDP growth from net exports revised down marginally to 2.86%-points from 2.93%-points. However, the September and October trade reports have shown that the trade deficit has begun to widen again and so, trade is unlikely to provide a boost to GDP in Q4.

Another meaningful upward revision to business investment in structures also contributed to the overall upward revision. Business spending on structures fell a much more modest 3.6% q/q saar versus -6.9% in the second estimate and -15.3% in the advance report. By contrast, the drag from the slowdown in inventory investment was revised slightly larger. Inventories rose a revised $38.7 billion (2012$) in Q3, down from $49.6 billion in the second estimate and $61.9 billion in the advance report. This increased their drag on Q3 GDP growth to 1.2%-points from the second estimate of 1.0%-point. The previously reported 26.8% quarterly drop in residential investment was little revised to -27.1% and still subtracted 1.4%-points from overall GDP growth as the Federal Reserve’s aggressive increase in interest rates continues to take its toll on the housing sector. Government spending growth was revised up to 3.7% from the second estimate of 3.0% with the revision mostly accounted for by an upward revision to spending by state and local governments.

Private domestic demand was considerably stronger in Q3 upon the third estimate though it remained anemic. Growth of final sales to private domestic purchasers was revised up meaningfully to a 1.1% q/q saar increase from 0.5% in the second estimate and an extremely weak 0.1% in the advance report.

The third estimate of quarterly GDP contains the second estimate of quarterly corporate profits. They were revised up to unchanged in Q3 from the initially reported 1.1% q/q fall (not annualized). The upward revision was more than accounted for by an upward revision to domestic profits. Domestic profits edged up 0.6% q/q in Q3 upon revision versus the initially reported 1.1%quarterly fall. By contrast, the initially reported 1.0% q/q decline in foreign profits was revised to a 3.4% fall. Annual growth in corporate profits continued to slow under the weight of rising interest rates and a slowing global economy, though this growth was revised slightly higher in the second estimate. Compared to a year ago, total corporate profits were revised to +5.5% versus the first estimate of 4.4%, but still down from 7.7% y/y in Q2 and 10.9% y/y in Q1.

Inflation as measured by the GDP price index was revised slightly higher in the third estimate—to 4.4% q/q saar from 4.3% in the second estimate and 4.1% in the advance report, still down sharply from the 40-year high of 9.0% in Q2. The Action Economics Forecast Survey had expected no revision. The previously reported 4.3% increase in the PCE price index was not revised in the third estimate.

The GDP figures can be found in Haver's **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in **AS1REPNA**.

- The second estimate of a 2.9% q/q saar increase in real GDP in Q3 was revised up to 3.2%.

- Upward revision spread across domestic demand components; inventories a larger drag.

- Corporate profits revised to unchanged in Q3 from initially reported 1.1% q/q decline, led by big upward revision to domestic profits.

- Quarterly rise in GDP price index revised up a tick to 4.4% from 4.3%.

U.S. Q3 GDP Growth Revised Up Further in Third Estimate

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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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.

France

French IP Waffles

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Initial claims for unemployment insurance declined by 9,000 to 202,000 in the week ending March 28, from 211,000 in the week ending March 21, revised from 210,000. The four-week average declined 3,000 to 207,750 in the week ending March 28, from 210,750 the March 21 week, revised from 210,500. The Forecast Survey looked for 212,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 25,000 to 1.841 million in the week ending March 21, from 1.816 million in the week ending March 14. The four-week moving average declined to 1.839 million in the latest week from 1.846 million in the March 14 week. This is the lowest level for this average since September 28, 2024 when it was 1.834 million. The insured unemployment rate remained at 1.2% in the week of March 21. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending March 14, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.73%), Massachusetts (2.66%), Washington (2.39%), Minnesota (2.31%), California (2.17%), and New York (2.01%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas (0.36%), Alabama (0.38%), and North Carolina (0.40%). Rates in other notable states include Illinois (1.99%), Connecticut (1.82%), Pennsylvania (1.72%), and Texas (1.07%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, 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.

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- New claims declined by 9,000 to 202,000.
- Continuing claims rose by 25,000 to 1.841 million.
- The insured unemployment rate remained at 1.2%.