Sandy Batten

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Real GDP growth in Q3 2021 was revised up slightly to 2.3% q/q SAAR in the third estimate from 2.1% in the second estimate and 2.0% in the advance estimate, still down markedly from the 6.7% increase in Q2. The Action Economics Forecast Survey had looked for no revision in this estimate for Q3. Compared to a year ago, GDP grew 4.9% in Q3, the same as in the second estimate and also in the advance report.

The lofty 4.3% q/q (not annualized) increase in corporate profits was revised down to a still-solid 3.4% gain and were up 19.7% y/y, revised down slightly from 20.7% in the first estimate. Profits from domestic nonfinancial industries were revised down while profits from abroad were revised up, extending their first quarterly gain in three quarters.

Personal consumption expenditures were revised up to a 2.0% q/q SAAR increase in the third estimate from 1.7% in the second and 1.6% in the advance report. Still, this was a significant slowdown from the 12.0% gain in Q2 and so remained the major factor behind the Q2 slowdown in overall GDP growth.

Business nonresidential fixed investment was revised up to 1.7% q/q SAAR from 1.5% in the second estimate. This reflected upward revisions to structures and spending on equipment (both smaller declines than previously reported) and another downward revision to spending on intellectual property products (+9.1 from +9.3%). The initially reported decline in inventories was revised slightly smaller such that their contribution to overall GDP growth was revised up marginally to 2.20%-points from 2.13%-points in the second estimate. The 8.3% q/q SAAR decline in residential investment reported in the second estimate was revised up to a 7.7% decline, the same pace of decline as in the advance report.

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The drop in exports in Q3 was revised even larger to -5.3% q/q SAAR from -3.0% q/q in the second estimate. The rise in imports was revised down to 4.7% from 5.8%. As a result the trade deficit was revised slightly wider, and it subtracted a little more from overall GDP growth than previously estimated (-1.26%-points versus -1.16%-points).

Government outlays growth was unrevised at 0.9% q/q SAAR but the drop in Federal government expenditures was revised deeper to -5.1% from -4.9% while the rise in spending by state and local governments was revised up to 4.9% from 4.7%.

Inflation as measured by the indexes in this report remained elevated and was revised up slightly in the third estimate. The GDP price index increased 6.0% q/q SAAR in the third estimate, up from 5.9% in the second estimate and 5.7% in the advance report. The revised Q3 reading was the second highest since Q4 1981, surpassed only by the 6.1% rise in Q2. The 5.3% q/q gain in the PCE price index was not revised in this estimate. However, the 4.5% q/q increase in the core PCE price index was revised up slightly to 4.6%. The increase in prices of nonresidential fixed investment was not revised at a 4.3% q/q increase while the rise in prices of residential investment was revised up to a 14.8% q/q gain from 14.4%. This was the third consecutive quarter in which prices of residential investment posted double-digit increases. The rise in export prices was revised down slightly while the gain in import prices were revised up slightly. Prices paid by governments rose an upwardly revised 6.1% from 6.0% in the second estimate and 5.4% in the advance report.

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**.

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- GDP growth revised up to 2.3% q/q SAAR from 2.1%.
- Upward revision to consumption with offsetting small revisions elsewhere.
- Price inflation revised up to second fastest quarterly rate in 40 years.
- Rise in Q3 corporate profits revised down to a still-solid 3.4% q/q from 4.3%.

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

Winnie Tapasanun

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Existing home sales rose 1.9% m/m (-2.0% y/y) to 6.460 million units (SAAR) in November after unrevised rises of 0.8% to 6.340 million in October and 7.0% to 6.290 million in September, according to the National Association of Realtors (NAR). November existing home sales were at the highest level since January, up 11.8% from a May low. The Action Economics Forecast Survey expected a rise in sales to 6.53 million units in November. These data are compiled when existing home sales close.

Existing single-family home sales rose 1.6% (-2.2% y/y) to 5.750 million units in November after a 1.3% increase to 5.660 million in October. That was the third successive m/m rise to the highest level since January. Sales of condos and co-ops rebounded 4.4% (0.0% y/y) to 710,000, the highest level since July, after a 2.9% decline to 680,000.

Sales patterns mostly improved last month. Sales in the South advanced 2.9% (1.1% y/y) to 2.850 million in November after holding steady at 2.770 million in October. Sales in the West rose 2.3% (-3.6% y/y) to 1.330 million, the highest level since February, following a 0.8% decline to 1.300 million. Sales in the Midwest grew 0.7% (-0.7% y/y) to 1.520 million, a 10-month high, on top of a 4.9% gain to 1.510 million. However, sales in the Northeast were unchanged (-11.6% y/y) at 760,000 in November after a 1.3% October drop.

The median price of an existing home increased 0.3% (13.9% y/y) to $353,900 in November, a three-month high, after a 0.4% rebound to $352,700 in October. Prices in the South rose 1.7% (18.4% y/y) to $318,900, a record high, after having recovered 2.7% to $313,600. In the Midwest, prices were up 0.2% (9.0% y/y) to $260,100 following four consecutive m/m drops. In contrast, prices in the Northeast fell 1.7% (+4.7% y/y) to $372,500 after a 2.1% drop to $379,100, registering the fifth straight m/m fall to the lowest level since March. In the West, prices held steady (+8.4% y/y) at $507,200 after a 0.2% October rise. The price data are not seasonally adjusted.

The number of existing homes on the market dropped 9.8% (NSA) in November to 1.110 million units (-13.3% y/y), the lowest level since March, after a 2.4% decline to 1.230 million in October. The supply of homes on the market fell to 2.1 months in November, an eight-month low, from 2.3 months in October. That was well below the high of 4.6 months in May 2020 but above the all-time low of 1.9 months reached last December. These figures date back to January 1999.

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

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- Sales increase for the fifth time in six months.
- November regional sales patterns are mostly positive.
- Median price at a three-month high; price in the South at a record high.

U.S. Existing Home Sales Rise in November to a 10-Month High

Tom Moeller

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The Mortgage Bankers Association's Loan Applications Index slipped 0.6% (-33.9% y/y) in the week ended December 17 following a 4.0% decline in the prior week. Applications for loans to purchase a house fell 3.3% (-8.6% y/y) after a 0.7% rise. Applications for loans to refinance gained 2.2% (-42.4% y/y) following a 6.4% decline in the prior week.

The share of applications for refinancing rose to 65.2% last week, the most in three months. The adjustable-rate mortgage (ARM) share of activity held w/w at 4.3%.

The effective interest rate on a 30-year mortgage eased to 3.39% last week from 3.41% in the prior week. The effective rate on a 15-year rate mortgage edged up to 2.67%. The effective rate for a 30-year Jumbo mortgage loan eased to 3.39% last week, while the rate on a 5-year adjustable-rate loan increased to 2.90%. The last two series date back only to January 2011, while the others begin in January 1990.

Applications for fixed-rate loans slipped 0.6% (-34.9% y/y) last week, after a 4.4% decline in the prior week. Applications for adjustable-rate mortgages eased 0.2% (+18.2% y/y) following a 7.6% rise in the previous week.

The average size of a mortgage loans was $348,200 in the week ending December 17 compared to $342,100 in the week prior. The average size of loans for purchase was $416,200 in the latest week versus $406,800 one week earlier. The average size of refinanced loans rose to $311,900, up from $3000 in the prior week.

This survey covers over 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 **SURVEYW** database.

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- Purchase applications decline as refinancings increase.
- 30-year mortgage rate slips.
- Purchase loan size increases.

U.S. Mortgage Applications Edge Lower As Rates Ease

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The Conference Board Consumer Confidence Index increased 3.5% (33.0% y/y) to 115.8 during December from 111.9 in November, revised from 109.5. It was the highest level since July. A December reading of 110.6 had been expected in the Action Economics Forecast Survey. During all of 2021, the confidence index improved to 112.8, its highest level since 2019.

The Consumer Expectations reading rose 7.4% (11.4% y/y) to 96.9 this month from 90.2 in November, revised from 87.6. The Present Situation index eased 0.2% (+65.3% y/y) to 144.1 from 144.4 in November, revised from 142.5.

The jobs gap, representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get, fell to 42.6% of respondents this month from 44.7% in November, revised from 46.9%. This series has had a 75% correlation with the unemployment rate over the last ten years. The jobs plentiful measure fell to 55.1% of respondents this month. The series dates back to February 1967. The jobs hard-to-get measure rose to 12.5% of redpondents, the highest level since September. The jobs-not-so-plentiful reading fell to 32.4% of respondents. The figure is down from 51.1% averaged in 2020.

Current business conditions were perceived as good by 19.9% of respondents in December, the highest level in four months. Expectations that business conditions would improve in six months rose modestly to 26.7% of respondents but remained well below the 2020 highs. More jobs were expected in six months by a greatly improved 25.1% of respondents, the most since July. The percentage expecting rising income fell slightly in December to 18.0% of respondents and remained well below the 2019 highs.

The expected inflation rate in twelve months fell sharply to 6.9% in December from an elevated 7.3% in November, but remained up from a 4.4% low in January of last year. The share of respondents planning to buy a new home within six months rose to 0.9%, the highest level in nine months but remained below a June 2020 high of 2.0%. Those planning to buy a major appliance also rose sharply to 50.8% of respondents, an eight-month high.

Confidence of individuals under 35 years rose moderately this month to a five-month high. Confidence amongst those between 35 & 54 also surged (32.0% y/y) to an eight-month high. Confidence amongst individuals 55 and over has been relatively stable for five months, but is up 35.5% y/y.

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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- Expectations improve.
- Jobs are seen as harder to find.
- Price inflation expectations ease.

U.S. Consumer Confidence Strengthens in December

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The U.S. current account deficit widened to $214.8 billion in Q3'21 from $198.3 billion in Q2'21, revised from $190.3 billion. It was the deepest deficit since Q3 2006. The Action Economics Forecast Survey anticipated a $203.7 billion deficit. As a percent of GDP, the deficit rose to 3.71%, the deepest since Q4 2005 when it was 6.29% of GDP.

The deficit in goods trade rose to a record $274.8 billion as exports grew 1.1% (23.8% y/y) in Q3. Industrial supplies & materials exports increased 3.9% (46.1% y/y) and nonauto consumer goods rose 9.0% (28.5% y/y). Food, feeds and beverages exports declined 8.5% (+6.5% y/y), autos, parts and engines exports fell 1.4% (-5.7% y/y) and capital goods exports eased 0.7% (+16.8% y/y). Imports of goods rose 1.4% (19.0% y/y) in Q3. Imports of industrial supplies and materials increased 8.0% (63.3% y/y) as oil prices rose. Foods, feeds and beverage imports rose 2.7% (19.6% y/y) while capital goods imports strengthened 1.2% (16.7% y/y). Auto and parts imports fell 4.1% (-1.8% y/y) while nonauto consumer goods declined 1.8% (+11.5% y/y).

The surplus on services trade deteriorated sharply to $49.9 billion in Q3, the smallest surplus since Q4'11 and down from the peak $78.9 billion surplus in Q1'18. Services exports eased slightly (+14.7% y/y). Travel exports increased 1.6% (54.8% y/y) but export charges for the use of intellectual property declined 5.8% (+2.7% y/y). Imports of services improved 9.8% (30.3% y/y), reflecting a 47.3% rise (379.3% y/y) in travel imports. Import charges for the use of intellectual property increased 8.2% (6.6% y/y).

The surplus on primary income rose to $48.2 billion in Q3. Investment income receipts rose 6.8% (17.4% y/y) while investment income payments increased 3.7% (21.8% y/y). The deficit on secondary income deepened to $38.0 billion.

Balance of Payments data are in Haver's **USINT** database, with summaries available in **USECON**. The expectations figure is in the **AS1REPNA** database.

**A Hopeless and Imperative Endeavor: Lessons from the Pandemic for Economic Forecasters** by Fed Governor Christopher J. Waller is available [here](https://www.federalreserve.gov/newsevents/speech/waller20211217a.htm).

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- Deficit is largest in 15 years.
- Goods & services balances both deteriorate.

U.S. Current Account Deficit Deepens Further in Q3

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**Retail gasoline prices** fell to $3.30 per gallon (+48.2% y/y) in the week ended December 20 after declining to $3.32 per gallon in the previous week. Prices were at the lowest level since the second week of October. Haver Analytics adjusts the gasoline price series for normal seasonal variation. The seasonally adjusted price rose to $3.56 per gallon. Typically, gasoline prices decline this time of year.

The price of **West Texas Intermediate crude oil** edged 0.2% lower w/w (+48.4% y/y) to $71.17 per barrel in the week ended December 17 from $71.31 per barrel in the previous week. Yesterday, the price declined to $68.23 per barrel. The average price of **Brent crude oil** eased 1.1% w/w (+44.6% y/y) to $73.94 per barrel last week from $74.80 per barrel in the prior week. The price was $71.76 per barrel yesterday.

**Natural gas** prices rose 3.3% w/w to $3.79/mmbtu (+40.4% y/y) in the week ended December 17 after declining to $3.67/mmbtu in the prior week. Prices remained down from the $5.87/mmbtu high in the second week of October. Yesterday, the price improved to $3.91/mmbtu.

In the four weeks ended December 10, **gasoline demand** increased 15.4% y/y, up from 6.4% y/y growth early in October. Demand for **all petroleum products** rose an improved 12.6% y/y in the latest week. **Crude oil input to refineries** rose 10.2% y/y. **Gasoline inventories** fell 8.5% y/y, while **crude oil inventories** declined 9.8% y/y.

The **supply of gasoline** inventories in the week ending December 10 of 23.9 days remained down sharply from the recent high of 32.9 days in the third week of February. The supply of crude oil fell to 27.3 days, the lowest level in seven weeks. It stood well below the recent high of 41.8 days in the second week of March.

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**.

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- Gasoline prices slip.
- Crude oil prices ease.
- Natural gas prices improve.

U.S. Energy Product Prices Are Little-Changed

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The Conference Board's Composite Leading Economic Indicators index rose 1.1% (9.8% y/y) during November following an unrevised 0.9% October increase. The 0.3% September rise also was unrevised. It was the largest increase in six months and outpaced a 0.9% rise expected in the Action Economics Forecast Survey. The Leading Index is comprised of 10 components which tend to precede changes in overall economic activity.

Eight of the ten index components contributed positively to the November increase including the length of the average workweek, unemployment insurance claims, the ISM orders index, building permits, the interest rate spread between 10-year Treasuries and Fed funds as well as the leading credit index. Orders for consumer goods and materials as well as stock prices also contributed positively. The index of consumer expectations for business & economic conditions fell while real nondefense capital goods orders excluding aircraft held steady.

The Index of Coincident Economic Indicators rose 0.3% (3.6% y/y) in November after an unrevised 0.5% October increase. Stability in September also was unrevised. All four of the component series rose including nonagricultural employment, personal income less transfers, industrial production and real manufacturing & trade sales.

The Index of Lagging Indicators eased 0.1% during November (+0.8% y/y) following a 0.5% October rise, revised from 0.4%. September's increase was revised to 0.9% from 1.0%. The average duration of unemployment, the change in labor costs per unit of output slipped as did the six-month change in the services CPI. The business inventory/sales ratio, commercial & industrial loans outstanding and the consumer installment credit/personal income ratio rose. The banks' prime rate held steady.

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](http://www.conference-board.org/) for coverage of leading indicator series from around the world.

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- Most leading index components improve.
- Coincident indicators rise again.
- Lagging indicators ease modestly.

U.S. Leading Economic Indicators Strengthen in November

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Industrial production increased 0.5% (5.3% y/y) during November following a 1.7% October rise, revised from 1.6%. Motor vehicle parts shortages and recovery from Hurricane Ida affected production last month. A 0.7% rise had been expected in the Action Economics Forecast Survey. Manufacturing output rose 0.7% last month (4.6% y/y) following a 1.4% increase during October, revised from 1.2%.

Durable goods production rose 0.8% (4.9% y/y) last month after a 1.4% October gain. Motor vehicle production rose 2.2% (-5.4% y/y) following a 10.1% rise. Excluding the motor vehicle sector, factory output rose 0.6% (5.5% y/y) after a 0.8% gain. Elsewhere in the durable goods sector, high-tech product production rose 0.7% (6.3% y/y) after a 0.3% rise in October. Production of electrical equipment, appliances & components improved 0.2% (4.9% y/y) in November after falling 0.9% in October. Machinery output weakened 0.7% (+8.0% y/y) and reversed the prior month's gain. Output of computers & electronic products improved 0.8% (7.5% y/y) in November after falling in the prior two months. Primary metals production rose 0.5% (8.4% y/y) after a 1.6% gain while fabricated metals output rose 0.6% (5.0% y/y) last month, about the same as in each of the prior three months.

In the nondurable goods sector, production improved 0.5% (4.7% y/y) after rising 1.3% in October. Chemical production rose 0.5% (6.9% y/y) after a 2.1% rise. Petroleum & coal product output declined 1.2% (+12.7% y/y) after October's 3.8% recovery. Food, beverage & tobacco output rose 0.8% (0.2% y/y) after two months of 0.4% increase, but textile production rose 1.2% (5.7% y/y) in November and reversed the prior month's decline. Apparel production fell 0.5% (+5.3% y/y) after a 1.6% October decline.

Electric & gas utilities production declined 0.8% (+5.1% y/y) in November following October's 0.6% increase. Electric power output fell 1.9% (+4.2% y/y) but natural gas distribution rose 6.1% (11.7% y/y). Mining output rose 0.7% (9.2% y/y) after a 4.3% gain.

Capacity utilization rose to 76.8% in November from 76.5% in October. A utilization rate of 76.8% had been expected. In manufacturing, the utilization rate increased to 77.3% last month, the highest level since December 2018.

Industrial production and capacity are located in Haver's **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- Factory output stands at highest level since January 2019.
- Durable & nondurable goods output slows.
- Capacity utilization increases.

U.S. Industrial Production Increases Moderately in November

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

Kathleen Stephansen, CBE

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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%.

U.S. Initial Unemployment Claims Edged Down in the Week of March 28