Sandy Batten

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The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index was unchanged at 24 in December after having reached a record high of 31 in October. The series dates back to July 2001. The ISM-Adjusted Index (NSA) fell to 59.1 in December from 60.3 in November and 65.3 in October, but still well above the break-even level of 50 that separates expansion from contraction.

The new orders index rebounded to 27 in December from -4 in November, recouping all of its November decline. The shipments index increased to 20 from 2 in November. Supplier delivery times retreated to 44 from the record high of 57 reached in November, indicating that while deliveries remain very slow, their pace has moderated. The production index fell again in December to 10 from 17 in November and 25 in October. The order backlog measure edged up to 13 from 10 in November.

The employment measure declined for the second consecutive month—to 18 from 27 in November and the record level of 34 reached in October. The workweek index slid further to 8 from 10 in November and 15 in October. The high was reached in July at 31. The special questions in this survey centered on labor costs. Lack of available labor was the top risk facing respondents. For 2022, nearly 70% of firms are planning to increase wages between 2% and 6%, and no firms expected wages to decrease. Additionally, over 85% of firms expected a more than 2% increase in other labor costs, such as benefits, training, and time off.

Inflation pressures remained elevated but eased a bit in December. The prices received index for finished products fell to 43 from 50 in November, the first decline in three months and well below the record level of 61 in August. The raw materials index eased further to a still very high level of 73 in December from 77 in November and the record of 87 in October.

The expectations reading for six months ahead fell to 25 from 35 in November with expectations for all major categories posting declines. This was the largest monthly decline in expectations since March 2020.

The latest survey was conducted in the five-day period from December 8 to December 13 and included 96 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Data for the Kansas City Fed Survey can be found in Haver's **SURVEYS** database.

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- Factory growth was unchanged in December from November.
- Supplier delivery times slowed sharply from November's record high, but remained elevated.
- Pace of price increases slowed.

Kansas City Fed Manufacturing Index Unchanged

Carol Stone, CBE

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Initial claims for unemployment insurance rose 18,000 to 204,000 in the week ended December 11 (-76.4% y/y) from 188,000 in the prior week, revised from 184,000 reported initially. The prior week’s readings were the lowest since September 6, 1969, that is, just over 52 years ago. The Action Economics Forecast Survey expected 196,000 claims for the latest week. The 4-week moving average fell to 203,750 in the week ended December 11 from 219,750 the week before.

Initial claims for the federal Pandemic Unemployment Assistance (PUA) program in the December 11 week rose to 1,854 (-99.6% y/y) from 1,835 in the prior week. This program expired on September 4. These claims averaged 107,756 per week during August, the last full month of the program. The PUA program provided benefits to individuals who are not eligible for regular state unemployment insurance benefits, such as the self-employed. Given the brief history of this program, these and other COVID-related series are not seasonally adjusted.

Continued weeks claims for regular state unemployment insurance decreased to 1.845 million (-67.1% y/y) during the week ended December 4 from 1.999 million in the prior week, revised from 1.992 million. The insured unemployment rate fell back to 1.4% from 1.5%; just before the pandemic struck in March 2020, the rate was hovering at 1.2%.

In the week ended November 27, continued weeks claimed in the Pandemic Assistance Program (PUA) program rose to 194,189 from 124,536 (-98.0% y/y). The number of continued weeks claimed compares to 4.896 million in the last week of the program, September 4. Continued weeks claimed for Pandemic Emergency Unemployment Compensation (PEUC) increased to 136,413 in the November 27 week from 112,728 in the prior week and below the 3,644,555 claims during the last week of the program on September 4. This program covered people who had exhausted their state unemployment insurance benefits.

In the week ended November 27 the total number of all state, federal, PUA and PEUC continued claims was 2.458 million, up from 1.948 million the week before. These figures are not seasonally adjusted.

The state insured rates of unemployment in regular programs continue to vary. In the week ending November 27, the highest insured unemployment rates were in Alaska (3.15%), California (2.93%), New Jersey (2.55%), Hawaii (2.26%) and Illinois (2.25%). The lowest rates were Nebraska (0.30%), South Dakota (0.34%), Alabama (0.36), New Hampshire and Virginia (both 0.41%) Other state insured rates of unemployment in regular programs included Pennsylvania (1.96%), New York (1.83%), Texas (1.09%), and Florida (0.64%). These state rates are not seasonally adjusted.

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

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- Initial claims increase just 18,000 from 52-year low.
- Continuing claims in regular programs ease.
- Insured jobless rate also eases, approaches pre-pandemic level.

U.S. Initial Unemployment Insurance Claims Rise Modestly

Kathleen Stephansen, CBE

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The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index plummeted to 15.4 in December from 39.0 in November. It was the lowest reading since December 2020, when the index stood at 11.1. A reading of 27.0 had been expected by the Action Economics Forecast Survey. The percentage of firms reporting improving conditions dropped to 26.8% from 41.8% in November, while the share reporting weaker conditions rose to 11.4% from 2.8% in November. The share reporting no change rose to 59.1% in December from 55.4% in November.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same methodology as the national ISM index. The reading declined to 60.2 in December from 65.4 in November.

Performance of the subindexes was mostly negative. The new orders index dropped to 13.7 this month from admittedly a multi-year high of 47.4 in November. The shipments index dropped to 15.3 from 32.1 in November. The unfilled orders index declined to 11.4 this month from 27.4 last month, while the delivery times index eased to 31.4 and the inventory index eased to 13.2.

The employment index rose 33.9 this month from 27.2 in November. Thirty-nine percent of respondents reported more hiring, while 5.2% lowered employment. The average workweek reading eased to 30.4 from the six-month high of 30.6 in November.

The index of prices paid declined to 66.1 in December from 80.0 the prior month. Sixty-eight percent of respondents reported paying higher prices, while 2.3% paid less. The index of prices received dropped to 50.4 this month from 62.9 last month.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity index fell to 19.0 in December from 28.5 in November. The reading reached a high of 69.2 in June of this year. Expected new orders, shipments and inventories all fell but employment and delivery times rose. The expected prices reading fell, as did the capital expenditures to 20.0 this month following a small decline in November.

The survey panel consists of 150 manufacturing companies in the third Federal Reserve District (which consists of southeastern Pennsylvania, southern New Jersey and Delaware). The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease in activity. The ISM-adjusted figure, calculated by Haver Analytics, is the average of five diffusion indexes: new orders, shipments, employment, delivery times and inventories with equal weights (20% each). Each ISM-adjusted index is the sum of the percent responding "higher" and one-half of the percent responding "no change".

The figures from the Philadelphia Federal Reserve dating back to 1968 can be found in Haver's **SURVEYS** database. The expectation from the Action Economics Forecast Survey is available in **AS1REPNA**.

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- Component declines were broad based.
- New orders dropped from the November multi-year high.
- Delivery times eased.

U.S. Philadelphia Fed Manufacturing Index Dropped Sharply in December

Tom Moeller

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Housing starts rose 11.8% (8.3% y/y) during November to 1.679 million units (SAAR) from 1.502 million in October, revised from 1.520 million. It was the highest level of housing starts since March. A November level of 1.570 million starts had been expected in the Action Economics Forecast Survey.

The rise in starts overall in November reflected an 11.3% gain (-0.8% y/y) in single-family starts to 1.173 million. The increase was to the highest level since March and followed four consecutive months of decline. Starts of multi-family homes improved 12.9% (37.1% y/y) to 506,000, the highest level since February 2020.

Building permits increased 3.6% (0.9% y/y) to 1.712 million from 1.653 million in October, revised from 1.650 million. It was the highest level of permits in three months. Permits to build single-family homes gained 2.7% (-4.5% y/y) to 1.103 million. Permits to build multi-family homes rose 5.2% (12.6% y/y) in November to 609,000.

By region, housing starts rose 27.5% in the Northeast (-9.1% y/y) in November to 130,000. Starts in the South improved 18.4% (15.8% y/y) to 933,000. Starts in the West increased 5.1% (-0.2% y/y) to 412,000. Partially offsetting these gains was a 7.3% decline (7.9% y/y) in starts in the Midwest to 204,000.

The housing starts and permits figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Both single- and multi-family starts increase.
- Regional changes are mostly positive.
- Building permits strengthen.

U.S. Housing Starts Improve Sharply in November

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Total retail sales including food service and drinking establishments increased 0.3% (18.2% y/y) during November following a 1.8% October rise, revised from 1.7%. A 0.8% rise in November sales had been expected in the Action Economics Forecast Survey. The gain in September sales was revised to 0.7% from 0.8% reported last month. Sales excluding motor vehicles and parts also rose 0.3% in November (19.5% y/y) following a 1.8% October gain, revised from 1.7%. A 0.9% increase had been expected. The gain in nonauto sales in September sales was revised to 0.6% from 0.7%.

Sales in the retail control group, which excludes autos, gas stations, building materials and food services, eased 0.1% last month (+13.7% y/y) following a 1.8% October rise, revised from 1.6%.

Motor vehicle sales eased 0.1% (+13.4% y/y) in November after a 1.7% October increase. Unit motor vehicle sales increased eased 0.2% last month (-18.5% y/y) following a 6.0% increase.

Retail purchases via the internet were unchanged (12.1% y/y) last month following a 4.1% strengthening. Furniture & home furnishing store sales also held steady in November (16.3% y/y) after rising 2.8% in October. Electronics & appliance store sales declined 4.6% in November (16.8% y/y) after rising 3.1% in the prior month. General merchandise store sales fell 1.2% last month (+14.2% y/y) and reversed most of the prior month's gain. Within that category, department store sales weakened 5.4% (+27.6% y/y) following a 2.5% rise. To the upside, sporting goods, hobby and book store sales were firm as a 1.3% rise (20.0% y/y) added to strength in the prior two months. Apparel store sales rose 0.5% last month (34.8% y/y) after a 0.2% rise.

Gasoline service station sales increased 1.7% (52.3% y/y) following a 3.7% October increase as gas prices continued to rise. The gain accompanied a 4.9% surge in gasoline prices (seasonally adjusted by Haver) which followed an 8.9% increase. Building materials & garden equipment sales rose 0.7% last month (9.3% y/y) after a 2.5% October increase.

In the nondiscretionary sales categories, grocery & beverage store sales increased 1.3% during November (8.6% y/y) after rising 1.0% in October. Health & personal care store sales declined 0.6% (+7.2% y/y), the third consecutive month of decline.

Sales at restaurants & drinking establishments rose 1.0% last month (37.4% y/y) after a 0.3% October increase. It was the largest increase since July.

The retail sales data can be found in Haver's **USECON** database. The Action Economics forecast is in the **AS1REPNA** database.

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* **Auto sales ease.**
* **Online sales hold steady.**
* **Gasoline sales strengthen with higher prices.**

U.S. Retail Sales Disappoint in November

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The Empire State Manufacturing Index of General Business Conditions edged higher to 31.9 in December from to 30.9 in November and 19.8 in October. A decline to 25.0 had been expected in the Action Economics Forecast Survey. An increased 45.2% of respondents reported improved business conditions in December, up from 43.0% last month, while 13.2% reported that conditions had worsened, up slightly from 12.1% in November. The latest survey was conducted between December 2 and December 9.

Haver Analytics constructs an ISM-adjusted Empire State diffusion index using methodology similar to the ISM series. The latest reading fell to 60.8 in December from 62.5 in November, indicating that activity remained robust in December though the pace slowed slightly. A reading above 50 signifies growth. Moreover, in contrast to the ISM index, the headline Empire Index reflects the answer to a single question and is not calculated from its components. The slight decline in the ISM-adjusted Empire Index indicates that readings on the components were not quite as strong as the headline index indicated.

The index's component series mostly declined slightly in December. The new orders measure slipped to 27.1 from 28.8. Shipments fell to 27.1 from 28.2. Inventories edged down to 9.1 from 9.3. The delivery time index declined for the second consecutive month—to 23.1 from 32.2. So, while delivery times remained historically quite long, they lengthened less in December. A lessened 34.7% of respondents reported increased delivery times versus 38.1% in November, while 11.6% reported shorter deliver times, up sharply from 5.9% in November. However, the unfilled orders series rose to 19.0 in December from 12.7 in November.

Employment indicators in the survey weakened in December. The number of employees index fell to 21.4 from 26.0 in November. However, the November reading was a record high for the series dating back to July 2001. The percentage of respondents reporting increases in employment fell to 26.7% in December from 29.2% in November while 5.3% reported a decline in employment, up from 3.2% in November. The average workweek series fell sharply to 12.1, its lowest reading in four months, from 23.1 in November.

Inflation pressures remain intense though the pace of price increases slowed. The prices paid index dipped to 80.2 in December from 83.0 in November. The record high was 83.5 in May. A lower 81.8% of respondents paid higher prices for inputs in December, down from 83.1% in November while only 1.7% paid less (though this was up from zero in November). The prices received measure fell to 44.6 from a record 50.8 in November.

The index of business conditions in six months slipped to 36.4 in December from 36.9 in November and 52.0 in October. It was the lowest reading in seven months. Expectations for new orders, shipments, prices paid and delivery times fell while expectations for unfilled orders, inventories, prices received, employment and the average workweek rose. Expectations for both capital spending and technology spending also rose slightly.

The Empire State data, reported by the Federal Reserve Bank of New York, reflect business conditions in the manufacturing sector in New York, northern New Jersey and southern Connecticut. The headline measure is constructed from the answer to a single question on business conditions. The Empire State figures are diffusion indexes, which are calculated by subtracting the percent of respondents reporting declines from the percent reporting gains. The data are available in Haver's **SURVEYS** database. The ISM-adjusted headline index dates back to 2001. The Action Economics Forecasts can be found in Haver's **AS1REPNA** database.

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- Activity posted solid growth for second consecutive month.
- Components a little weaker than headline index.
- Still substantial increases in both input and selling prices though pace of increase slowed.
- Expectations slip again but components mostly stronger.

U.S. Empire State Index Edges Up in December

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At today's meeting of the Federal Open Market Committee (FOMC), the Fed indicated it will further scale back the stimulus it has been providing to a pandemic-stricken economy.

Beginning next month the Fed will reduce its planned purchases of Treasury securities to $40 billion per month from $70 billion as indicated in the last meeting and to pare purchases of agency securities to $20 billion per month from $30 billion.

The Federal funds rate target, however, will remain in a range of 0.0% to 0.25%, where it has been since March 2020.

The Fed stated "With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses."

Concern regarding price inflation was again expressed. "Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation."

The statement issued following today's meeting can be found [here](https://www.federalreserve.gov/newsevents/pressreleases/monetary20211215a.htm).

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FOMC Will Reduce Securities Purchases; Holds Rates Steady

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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo rose 1.2% (-2.3% y/y) to 84 in December after a 3.8% gain to 83 in November. It was the fourth consecutive monthly increase to the highest level since February. During all of this year, the index rose 16.0% versus 2020. The latest monthly increase matched expectations in the INFORMA Global Markets survey.

The index of present sales conditions increased 1.1% (-2.2% y/y) to 90 in December. It was the highest level also since February after a 3.5% November rise to 89. For all of 2021 the index rose 14.7% versus 2020. The index measuring traffic of prospective buyers rose 1.4% (-4.1% y/y) to 70, the highest level in six months. The index rose 22.8% during all of 2021. The index of expected sales over the next six months held steady m/m (-1.2% y/y) at 84 in December. During all of 2021, the expected sales index rose 11.0% y/y.

This month's regional movement was mixed m/m. The index for the Northeast rose 14.5% (1.3% y/y) following a 5.5% November decline. For all of 2021, the index rose 22.0% from 2020 to 76.0. In the South, the home builder index increased 2.3% both m/m and y/y to 89 after a 3.6% November increase. For all of last year, the index improved 15.5% to 83. Elsewhere in the country, the home builder index declined during December. In the Midwest, it fell 1.3% (-9.8% y/y) to 74. For 2021 as a whole, the index rose 15.2% from 2020 to 73.0. The index for the West declined 1.1% (-9.4% y/y) to 87 after a 3.5% gain in November. For all of last year the index rose 12.2% to 87. These regional series begin in December 2004.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low." The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's **SURVEYS** database. The Informa Global Markets survey is in Haver's **MMSAMER** database.

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- Index increases for fourth consecutive month.
- Present sales & traffic increase but expected sales hold steady.
- Strength in Northeast & South account for the overall increase.

U.S. Home Builder Index Edges Higher in December

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Economic policy uncertainty, while still elevated, is declining

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Largest October layoffs since 2003, led by technology

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Winnie Tapasanun

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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%.

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