Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219a.jpg" style="width: 353px; height: 265px;" align="right">Consumer
price inflation remains under wraps. That's the message from this
morning's report by the U.S. Bureau of Labor Statistics that the
January CPI rose 0.2% for the fifth consecutive month. The increase was
slightly lower than Consensus expectations for a 0.3% gain though it
was part of the CPI's accelerated y/y increase of 2.7% versus the -2.0%
reading as of last July. On Wednesday the seasonally adjusted CPI
figures were revised back to 2005.&nbsp;
The acceleration noted above is the result of higher energy prices
which rose 2.8% last month and by 19.8% during the last twelve. For
January the rise reflected a 4.4% spurt in gasoline prices which have
risen by one-half during the last twelve months. Fuel oil prices also
jumped 6.9% (13.6% y/y) but natural gas &amp; electricity prices
were roughly unchanged from December and down 4.6% y/y.&nbsp;
Food &amp;
beverage prices continued weak. They posted a moderate
0.2% January increase but a 0.2% decline versus last year. Dairy prices
jumped 2.1% in January yet remained down 5.1% y/y. Fruit &amp;
vegetable costs showed the same pattern. They rose 1.3% last month but
were off 1.2% y/y. In the same vein, prices for meats, poultry, fish
&amp; eggs rose 0.4% but were down 3.2% y/y. The restraint on the
monthly food price increase came from a 0.5% decline in cereal
&amp; bakery product prices (-1.5% y/y) and a modest 0.1% uptick
(1.6% y/y) in the cost of eating out. Alcoholic beverage prices also
rose just 0.1% (1.5% y/y) following strength during the last fifteen
years.&nbsp;
Core consumer
prices remained weak. They posted a 0.1% decline, the first negative
reading since 1982, as earlier strength in core goods prices
tapered off. Their 0.1% January uptick was part of a reduced 1.7% (AR)
increase during the last three months. That compares to a 5.4%
three-month gain as of last April. The monthly increase in tobacco
prices tapered off to 0.4% (29.5% y/y) and new &amp; used motor
vehicles prices rose just 0.2% (5.4% y/y). Also easing were apparel
prices which fell 0.1% (+1.7% y/y). It was the third decline in the
last four months. Continuing weak were prices for household furnishings
&amp; operation, off 0.1% (-1.2% y/y) for the ninth straight month
of decline.&nbsp;
Core services
prices continued weak with a 0.2% decline (+0.9% y/y), the
first drop since 1982. Weakness in the housing market caused a 0.5%
decline in shelter prices which are off 0.3% y/y. Owners equivalent
rent of primary residences, a measure not equivalent to other house
price measures, slipped further from a June peak and rose just 0.4%
during the last twelve months. Elsewhere in services, public
transportation prices fell 1.8% (+2.8% y/y) while medical care services
prices continued steadily upward by 0.5% (3.5% y/y). Finally, education
costs remained strong with a 0.3% increase (4.6% y/y) but recreation
prices slipped for the fifth straight month (0.4% y/y).&nbsp;
The chained CPI, which adjusts for shifts in consumption
patterns rose 0.4% last month and rose 3.6% year-to-year. Conversely,
chained prices less food &amp; energy slipped marginally (+1.5%
y/y).&nbsp;
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA database.

Modifications
to the terms of the discount window
lending programs by the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20100218a.htm">here</a>.&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> 
(%)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Jan. y/y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.2</td>
<td>0.2</td>
<td>0.2</td>
<td>2.7</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.0</td>
<td>1.5</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.1</td>
<td>0.1</td>
<td>0.2</td>
<td>3.0</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>-0.2</td>
<td>0.1</td>
<td>-0.0</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>2.8</td>
<td>0.8</td>
<td>2.2</td>
<td>19.8</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.2</td>
<td>-0.2</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.4</td>
<td>0.8</td>
<td>0.0</td>
<td>3.6</td>
<td>-0.4</td>
<td>3.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>-0.0</td>
<td>0.1</td>
<td>-0.2</td>
<td>1.5</td>
<td>1.3</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>


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Consumer price inflation remains under wraps. That's the message from this morning's report by the U.S. Bureau of Labor Statistics that the January CPI rose 0.2% for the fifth consecutive month. The increase was slightly lower than [...]

CPI Firms With Energy Prices But Core Prices Decline

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219a.jpg" style="width: 353px; height: 265px;" align="right">Consumer
price inflation remains under wraps. That's the message from this
morning's report by the U.S. Bureau of Labor Statistics that the
January CPI rose 0.2% for the fifth consecutive month. The increase was
slightly lower than Consensus expectations for a 0.3% gain though it
was part of the CPI's accelerated y/y increase of 2.7% versus the -2.0%
reading as of last July. On Wednesday the seasonally adjusted CPI
figures were revised back to 2005.&nbsp;
The acceleration noted above is the result of higher energy prices
which rose 2.8% last month and by 19.8% during the last twelve. For
January the rise reflected a 4.4% spurt in gasoline prices which have
risen by one-half during the last twelve months. Fuel oil prices also
jumped 6.9% (13.6% y/y) but natural gas &amp; electricity prices
were roughly unchanged from December and down 4.6% y/y.&nbsp;
Food &amp;
beverage prices continued weak. They posted a moderate
0.2% January increase but a 0.2% decline versus last year. Dairy prices
jumped 2.1% in January yet remained down 5.1% y/y. Fruit &amp;
vegetable costs showed the same pattern. They rose 1.3% last month but
were off 1.2% y/y. In the same vein, prices for meats, poultry, fish
&amp; eggs rose 0.4% but were down 3.2% y/y. The restraint on the
monthly food price increase came from a 0.5% decline in cereal
&amp; bakery product prices (-1.5% y/y) and a modest 0.1% uptick
(1.6% y/y) in the cost of eating out. Alcoholic beverage prices also
rose just 0.1% (1.5% y/y) following strength during the last fifteen
years.&nbsp;
Core consumer
prices remained weak. They posted a 0.1% decline, the first negative
reading since 1982, as earlier strength in core goods prices
tapered off. Their 0.1% January uptick was part of a reduced 1.7% (AR)
increase during the last three months. That compares to a 5.4%
three-month gain as of last April. The monthly increase in tobacco
prices tapered off to 0.4% (29.5% y/y) and new &amp; used motor
vehicles prices rose just 0.2% (5.4% y/y). Also easing were apparel
prices which fell 0.1% (+1.7% y/y). It was the third decline in the
last four months. Continuing weak were prices for household furnishings
&amp; operation, off 0.1% (-1.2% y/y) for the ninth straight month
of decline.&nbsp;
Core services
prices continued weak with a 0.2% decline (+0.9% y/y), the
first drop since 1982. Weakness in the housing market caused a 0.5%
decline in shelter prices which are off 0.3% y/y. Owners equivalent
rent of primary residences, a measure not equivalent to other house
price measures, slipped further from a June peak and rose just 0.4%
during the last twelve months. Elsewhere in services, public
transportation prices fell 1.8% (+2.8% y/y) while medical care services
prices continued steadily upward by 0.5% (3.5% y/y). Finally, education
costs remained strong with a 0.3% increase (4.6% y/y) but recreation
prices slipped for the fifth straight month (0.4% y/y).&nbsp;
The chained CPI, which adjusts for shifts in consumption
patterns rose 0.4% last month and rose 3.6% year-to-year. Conversely,
chained prices less food &amp; energy slipped marginally (+1.5%
y/y).&nbsp;
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA database.

Modifications
to the terms of the discount window
lending programs by the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20100218a.htm">here</a>.&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> 
(%)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Jan. y/y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.2</td>
<td>0.2</td>
<td>0.2</td>
<td>2.7</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.0</td>
<td>1.5</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.1</td>
<td>0.1</td>
<td>0.2</td>
<td>3.0</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>-0.2</td>
<td>0.1</td>
<td>-0.0</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>2.8</td>
<td>0.8</td>
<td>2.2</td>
<td>19.8</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.2</td>
<td>-0.2</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.4</td>
<td>0.8</td>
<td>0.0</td>
<td>3.6</td>
<td>-0.4</td>
<td>3.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>-0.0</td>
<td>0.1</td>
<td>-0.2</td>
<td>1.5</td>
<td>1.3</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>


Disturbing Mixed Message From The
Markit PMIs In EMU 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 19, 2010



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219d.jpg" style="width: 353px; height: 265px;" align="left">The
Markit
PMIs are sensitive gauges measuring the breadth of the expansion in
manufacturing and services industries in the e-Zone. This month the MFG
PMI was above its neutral reading of 50 for the fifth month in a row.
In each of these five months MFG has accelerated improving its mark
above the neutral 50 readings.&nbsp;
Not so for services.
 For the
services, the index was also above 50 &#8211; and for the sixth consecutive
month. But the services gauge has now fallen for two months in a row.
It is not building momentum, it is losing momentum. The services
reading at 51.97 is now the weakest reading for this sector since
September 2009 when it first popped above the neutral 50 mark and began
to signal growth. Since this sector is the job-creating sector,
backtracking in services is very worrisome. 
 True, the services sector
still is expanding. At 51.97 it stands above the neutral mark of 50.
But momentum is being lost and the margin above 50 for services is
small. The services reading is below its lifetime average of 53.67 so
it is far below normal even though the sector it technically still
registering growth. Growth does not imply normalcy.&nbsp;
Compare that to
the manufacturing index which at 54.13 has been steadily accelerating
and stands above its lifetime average reading of 51.12. Manufacturing
seems to be pointing the way ahead.
 But from other reports we know
that one of the problems in the Zone is that it has benefitted from
export led growth, and that has favored the manufacturing sector. It&#8217;s
a problem because the very name suggests that the Zone has not
cultivated its own domestic demand. And we see that loud and clear in
this report. While some services do get exported, goods are far more
likely to be exported than are services. The strength in manufacturing
stems from some considerable strength in Euro-Area export orders.
Meanwhile, the weakness at home has held back domestic demand. Just
today the UK (an EU member not an EMU member) posted a sharp drop in
retail sales, although weather seems to have been a prime culprit
there. The overriding point for Europe is that it has not cultivated
domestic demand; it is living off of demand rebounds elsewhere. And
Europe is too big to be carried for long in that fashion by the global
economy.&nbsp;
The weakness in its own services sector reasonably leads us
to wonder if Europe&#8217;s export growth will be enough to sustain it until
job growth, the services sector and domestic demand- three highly
inter-linked factors - kick into gear.&nbsp;
Suffice it to say that
Europe&#8217;s report is not reassuring and its growth seems to be as much at
risk as at anytime in this nascent expansion period.
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="3" scope="col">FLASH
Readings
</th>
</tr>
<tr class="even">
<th colspan="3" scope="col">Markit PMIs for the
Euro-Area</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr>
<td class="firstcol">Feb-10</td>
<td>54.13</td>
<td>51.97</td>
</tr>
<tr>
<td class="firstcol">Jan-10</td>
<td>52.39</td>
<td>52.50</td>
</tr>
<tr>
<td class="firstcol">Dec-09</td>
<td>51.59</td>
<td>53.63</td>
</tr>
<tr>
<td class="firstcol">Nov-10</td>
<td>51.20</td>
<td>53.04</td>
</tr>
<tr class="odd">
<td colspan="3" class="firstcol">Segment
Averages</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>51.73</td>
<td>52.67</td>
</tr>
<tr>
<td class="firstcol">6-MO</td>
<td>50.57</td>
<td>52.36</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>44.78</td>
<td>48.47</td>
</tr>
<tr class="odd">
<td colspan="3" class="firstcol">136-Mo
Range</td>
</tr>
<tr>
<td class="firstcol">High</td>
<td>60.47</td>
<td>62.36</td>
</tr>
<tr>
<td class="firstcol">Low</td>
<td>33.55</td>
<td>39.24</td>
</tr>
<tr>
<td class="firstcol">% Range</td>
<td>76.4%</td>
<td>55.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Range</td>
<td>26.92</td>
<td>23.12</td>
</tr>
<tr class="odd">
<td class="firstcol">Q3-2007</td>
<td>51.12</td>
<td>53.67</td>
</tr>
</tbody>
</table>

The Fed De-Eases Bank Lending Terms 
by <a href="/comment/Stone.html">Carol
Stone</a> February 19, 2010



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219e.jpg" style="width: 353px; height: 265px;" align="right">Yesterday,
February 18, the Federal Reserve Board announced several changes to the
extraordinary liquidity measures it instituted to help alleviate the
recent financial crisis. Just last week, Tom Moeller described here how
extensive those liquidity provisions have been for just one part of the
program, the Term Auction Facility. Even as that effort winds down &#8211; it
will be concluded altogether with a final auction on March 8,
yesterday&#8217;s announced said &#8211; the Fed Board is also pulling back or
diminishing some of its other emergency operations. In particular, the
old &#8220;discount window&#8221;, which is now also called &#8220;primary credit&#8221;, sees
its rate raised from 50 basis points (0.50%) to 75 basis points
(0.75%). · As the Fed&#8217;s statement explains, this move increases the
spread of the primary credit, or discount, rate to 50 basis points over
the high end of the FOMC&#8217;s target for the federal funds rate, as shown
in the chart. The chart also shows the altered treatment of the
discount window beginning in 2003. Previously, the discount rate
hovered just below coincident fed funds rates, but it was changed in
January that year to a penalty rate, pegged at some spread over the
funds rate. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100219f.jpg" style="width: 353px; height: 265px;" align="right">
Generally this has been 1 percentage point, 100 basis
points. Part of the emergency liquidity boost beginning in August 2007
was making these funds cheaper for borrowing banks by cutting the
spread, first to 50 basis points, and then in March 2008, to 25 basis
points, where it has been until today, when the hike to 50 took
effect.
The second graph shows the amount of this primary credit. This
is similar to, but not exactly the same as the old &#8220;adjustment credit&#8221;
in the pre-2003 procedures. The idea then was that banks avoided the
discount window like the plague, so there was rarely any use of it at
all. You can see the spike over the 9/11 period, which was, up to
mid-2008, by far the record amount of borrowing. The philosophy was
changing though; the rate was made higher than other sources of funds,
but banks theoretically wouldn&#8217;t be stigmatized by availing themselves
of it. In the easy-money period of those mid-2000s, hardly any ever
needed to anyway. All this changed in 2007 and 2008. The Fed Board cut
the spread with the express intention of helping banks get money. At
the peak in late October and early November 2008, banks were borrowing
more than $100 billion in this one facility alone. More recently, this
has shrunk markedly, to &#8220;just&#8221; $14.3 billion in the Fed&#8217;s statement
week ended this past Wednesday.
Some wonder if this action by the Fed
is a &#8220;tightening&#8221;, even though their statement argues that it is not.
It certainly is the first action involving a rate. But they have
already reined in their &#8220;quantitative&#8221; easing substantially, and this
newest can thus be seen as part of a progression toward non-emergency
conditions. They further indicated that the maturity of the primary
credit borrowing, which has been as long as 90 days, will be shortened
to the more typical overnight on March 18. So there are several steps
here, and in one sense, they are reactive, not pro-active. They seem to
be a response to smoother money market conditions rather that an
attempt to disrupt the markets and alter the underlying demand
conditions. So technically, this would not be a &#8220;tightening&#8221;. But it is
a &#8220;de-easing&#8221;, which must, by definition, come first.
The Fed&#8217;s
statement is&nbsp;<a href="http://www.federalreserve.gov/newsevents/press/monetary/20100218a.htm">here</a>
. The rates and borrowing amounts are contained in Haver&#8217;s DAILY and
WEEKLY databases, with monthly averages in USECON.

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CPI Firms With Energy Prices ButCore Prices Decline

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<body>
 




<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218k.jpg" style="width: 353px; height: 265px;" align="right">The
Philadelphia Federal Reserve Bank indicated that its index of regional
factory sector activity rose modestly this month and made up some of a
January decline. At 17.6 the index about matched Consensus expectations
and has been positive since the summer. The series was near its highest
level since early-2005 and compared to figures near -40.0 this past
fall and winter.During the last ten years there has been a 77%
correlation between the level of the Philadelphia Fed Business
Conditions Index and the three-month growth in factory sector
industrial production. There has been a 70% correlation with q/q growth
in real GDP. The latest survey from the Philadelphia Federal Reserve
Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0210.pdf">here.</a>
Amongst the components, new orders, shipments and inventories were
notably strong above break-even. The employment series also rose to its
highest since 2007. During the last ten years there has been a 91%
correlation between the index level and the three-month change in
manufacturing sector payrolls.&nbsp; The prices paid index rose sharply to
its highest level since August of last year and compares to negative
readings this past winter and spring. During the last ten years there
has been a 69% correlation between the prices paid index and the
three-month growth in the intermediate goods PPI. There has been an 80%
correlation with the change in core intermediate goods prices. The
separate index of expected business conditions in six months fell to
its lowest level since October 2008. Many of the index components
including orders, unfilled orders, delivery times and inventories fell
while shipments and capital expenditures rose.The figures from the
Philadelphia Federal Reserve can be found in Haver's SURVEYS
database. News About the Future and Economic Fluctuations from
the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q4/brq409_future-and-economic-fluctuations.pdf">here</a>.&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218l.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218m.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">February '09</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Activity Index</td>
<td>17.6</td>
<td>15.2</td>
<td>22.5</td>
<td>-36.1</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>22.7</td>
<td>3.2</td>
<td>8.3</td>
<td>-28.1</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Number of Employees</td>
<td>7.4</td>
<td>6.1</td>
<td>4.5</td>
<td>-41.1</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>3.2</td>
<td>-1.6</td>
<td>-5.7</td>
<td>-25.2</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index</td>
<td>32.4</td>
<td>33.2</td>
<td>36.6</td>
<td>-12.2</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
</body></html>

The Philadelphia Federal Reserve Bank indicated that its index of regional factory sector activity rose modestly this month and made up some of a January decline. At 17.6 the index about matched Consensus expectations and has been [...]

Philadelphia Fed Index Increases With Broad-Based Component Strength

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218h.jpg" style="width: 353px; height: 265px;" align="right">
Today's
Labor Department report that initial claims for jobless insurance moved
higher last week after falling during the prior period underscores a
sideways pattern in place since December. Jobless insurance rose 31,000
to 473,000 following a 41,000 decline that was less than reported
initially for the prior week. Down from the recession peak of 674,000
hit last March, claims remained near the lowest level since September
2008. The weekly rise in claims contrasted with Consensus expectations
for a decline to 430,000. The four-week moving average of initial
claims fell slightly to 467,500 and remained just above the cycle low.The latest initial claims figure covers the survey week for February
nonfarm payrolls. There were 3,000 (1.3%) fewer claims in February than
during the January period. During the last ten years there has been an
inverse 84% correlation between the change in payrolls and the level of
initial claims.Continuing claims for unemployment insurance during
the latest week were stable at the cycle low which left them down by
one-third since late-June. Continuing claims are at the lowest level
since early-January of last year. The overall decline is a function of
the improved job market but also reflects the exhaustion of 26 weeks of
unemployment benefits. Continuing claims provide an indication of
workers' ability to find employment. The four-week average of
continuing claims fell to a cycle low of 4,585,750. This series dates
back to 1966.&nbsp;Extended benefits for unemployment
insurance fell to a new cycle low of 205,744. They were down by
two-thirds from a peak of 597,688 reached in November.&nbsp;The
insured rate of unemployment remained stable for the fourth week at a
low of 3.5%. The rate reached a high of 5.2% during late-June. During
the last ten years, there has been a 93% correlation between the level
of the insured unemployment rate and the overall rate of unemployment
published by the Bureau of Labor Statistics.&nbsp; The highest
insured unemployment rates in the week ending January 30 were in Alaska
(7.3%), Wisconsin (6.4), Pennsylvania (6.4), Montana (6.3), Michigan
(5.7), Washington (5.5), North Carolina (5.3) and Connecticut (5.2).
The lowest insured unemployment rates were in Virginia (2.3), Texas
(2.4), Florida (3.4), Maryland (3.7), Wyoming (3.7), Mississippi (3.7),
Ohio (3.9), Indiana (4.0), New York (4.1) and Maine (4.5) These data
are not seasonally adjusted but the overall insured unemployment rate
is.The unemployment insurance claims data is available in Haver's WEEKLY
database and the state data is in the REGIONW
database.The Economy and Why the Federal Reserve Needs to
Supervise Banks from the Federal Reserve Bank of Minneapolis
is available&nbsp; <a href="http://www.minneapolisfed.org/news_events/pres/nrk02-16-10.pdf">here</a>.&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218h.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218j.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Unemployment Insurance (000s)</a></th>
<th scope="col">2/13/10</th>
<th scope="col">2/6/10</th>
<th scope="col">1/30/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>473</td>
<td>442</td>
<td>483</td>
<td>-25.0%</td>
<td>573</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,563</td>
<td>4,563</td>
<td>-7.8%</td>
<td>5,835</td>
<td>3,345</td>
<td>2,552</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.5</td>
<td>3.5</td>
<td>3.8 (2/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

Today's Labor Department report that initial claims for jobless insurance moved higher last week after falling during the prior period underscores a sideways pattern in place since December. Jobless insurance rose 31,000 to 473,000 [...]

U.S. Initial Jobless Insurance Claims Move Back Up

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218e.jpg" style="width: 353px; height: 265px;" align="right">The uptrend
in the Conference Board's Index of Leading Economic Indicators
continued last month though it lost a little steam. The rise of 0.3%
followed stronger monthly gains dating back to April and the six-month
rate of increase at 9.8% (centered) was its weakest since May. The
leading index is based on actual reports for eight economic data
series. The Conference Board initially estimates two series, consumer
and capital goods orders.&nbsp; The breadth of increase amongst
the component series slipped last month to its lowest since last March.
Barely half of the ten components rose during January versus all of
them during December. During the most recent six months, however, a
stable 80% of the series rose. Prominent in last month's increase was a
steeper interest rate yield curve, vendor performance and weekly
hours.Continuing to suggest economic improvement was the coincident
indicator series which rose 0.2%. The gain lifted the six-month change
to 1.2%, up from -7.9% at its worst in January of last year. Increases
in industrial production, real personal income and business sales have
been modest but compare to sharp declines late in 2008. Declines in
payroll employment also have eased considerably.&nbsp; In a
continued sign that excesses in the U.S. economy are still falling, the
lagging index continues to drop as it has for a year. Leading the
decline have been shortened duration of unemployment, lower commercial
&amp; industrial loans outstanding and retrenchment in consumer
credit. The ratio of coincident-to-lagging indicators (another leading
indicator) also continued higher for the tenth straight month to the
highest level since September of 2008.The Conference
Board figures are available in Haver's BCI
database. Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world. The latest
U.S. Leading Indicators release can be found here <a href="http://www.conference-board.org/pdf_free/economics/bci/justrt.pdf">here</a>.&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218f.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218g.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/BCI/BCI.HTM" style="color: black;">Business Cycle Indicators</a>
(%)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Oct. 6-Month % (AR)</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.3</td>
<td>1.2</td>
<td>1.1</td>
<td>9.8</td>
<td>0.4</td>
<td>-2.8</td>
<td>-0.4</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2</td>
<td>0.0</td>
<td>0.3</td>
<td>1.2</td>
<td>-5.1</td>
<td>-1.2</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1</td>
<td>-0.3</td>
<td>-0.7</td>
<td>-4.6</td>
<td>-1.6</td>
<td>3.2</td>
<td>3.0</td>
</tr>
</tbody>
</table>
</body></html>

The uptrend in the Conference Board's Index of Leading Economic Indicators continued last month though it lost a little steam. The rise of 0.3% followed stronger monthly gains dating back to April and the six-month rate of increase at [...]

U.S. Leading Economic Indicators Suggest Continued Recovery

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218d.jpg" align="left" border="0" height="265" width="353">
Industrial orders in the UK rose to a reading of -36 in
February from -39 marking their best result Since December 2008. The
plus-seven reading for expected output volume is the best reading since
March of 2008.
Orders reside in the 20th percentile of their range a
still-low standing. But export orders stand above the mid point of
their range at a percentile of 51.6%. Similarly expected output volume
is in the 52nd percentile of its range and average prices expected are
in the top 35% of their range. The ranges are from early 1989 to date.
Two observations from these results lead us to the conclusion
first, that conditions are still severely impacted. Second,
expectations are in place that foresee or expect that the economy is
headed for normalcy. Having the three-month outlook variables above
their range mid-point is a sign that things are expected to get back to
normal in &#8216;three-months or so.&#8217; Yet the still very weak readings for
overall and export orders remind us that current conditions still are
under a lot of stress.
The UK industrial sector is making progress. Elsewhere the
housing sector is recovering and the budget deficit is ballooning. The
UK is making progress but still has some great challenges. For now the
news is that the progress continues.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">UK
Industrial Volume Data CBI Survey 
</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reported:</td>
<td>Feb 10</td>
<td>Jan 10</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Oct 09</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>-36</td>
<td>-39</td>
<td>-42</td>
<td>-45</td>
<td>-51</td>
<td>-52</td>
<td>34%</td>
<td>9</td>
<td>-59</td>
<td>68</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Export
Orders</td>
<td>-23</td>
<td>-33</td>
<td>-41</td>
<td>-37</td>
<td>-46</td>
<td>-45</td>
<td>53%</td>
<td>3</td>
<td>-52</td>
<td>55</td>
</tr>
<tr>
<td class="firstcol">Stocks:FinGds</td>
<td>12</td>
<td>13</td>
<td>15</td>
<td>20</td>
<td>10</td>
<td>21</td>
<td>42%</td>
<td>31</td>
<td>-2</td>
<td>33</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">Looking
ahead</td>
</tr>
<tr>
<td class="firstcol">Output Volume:Nxt
3M</td>
<td>7</td>
<td>4</td>
<td>-7</td>
<td>4</td>
<td>4</td>
<td>-16</td>
<td>72%</td>
<td>28</td>
<td>-48</td>
<td>76</td>
</tr>
<tr>
<td class="firstcol">Avg Prices 4Nxt 3m
</td>
<td>8</td>
<td>-6</td>
<td>-7</td>
<td>-5</td>
<td>-4</td>
<td>-10</td>
<td>52%</td>
<td>34</td>
<td>-20</td>
<td>54</td>
</tr>
</tbody>
</table>
</body></html>

Industrial orders in the UK rose to a reading of -36 in February from -39 marking their best result Since December 2008. The plus-seven reading for expected output volume is the best reading since March of 2008. Orders reside in the [...]

Industrial Trends In UK Continue Turning Higher

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218a.jpg" style="width: 353px; height: 265px;" align="right">Producer
prices continued strong
last month led by another jump in fuel costs. In addition, food price
inflation has picked up considerably. Together, this strength lifted
the finished goods PPI by 1.4% last month and increased the 12-month
change to 5.0%; the strongest since late-2008. Finally, the January
increase exceeded Consensus expectations for a 0.8% rise.&nbsp;
 Higher
energy costs led the strength in the PPI last month. The 5.1% m/m gain
raised the y/y increase to 21.5%, its strongest since September 2008.
Gasoline prices increased 10.4% (69.5% y/y) and fuel oil costs rose
11.0% (28.4% y/y). But elsewhere, the gain in energy prices was more
moderate. Natural gas prices increased a lesser 2.4% and were down
12.5% from 12 months ago. Food prices were another source of price
strength last month. They posted a 0.4% gain which raised the y/y
change to 1.5% versus the low of -4.0% last summer. Fresh fruit
&amp;
vegetable prices ballooned 43.8% y/y while pork prices jumped 11.8%.
Also to the upside were dairy product prices by 5.1% and coffee prices
by 2.3% y/y versus a 0.1% uptick last year..&nbsp;&nbsp;
Producer
prices excluding food &amp; energy rose 0.3%. That was enough to
stabilize the y/y change at 1.0% but it still was down from a 3.4% 2008
increase. The m/m increase in the core PPI also exceeded expectations
for a modest 0.1% gain. The PPI for finished consumer goods less food
&amp; energy rose 0.4% (1.6% y/y) and was up from a 0.1% December
gain.
Finished durables prices increased 0.3% (0.7% y/y) while core finished
consumer nondurable goods prices rose 0.4% (2.4% y/y). Capital
equipment prices increased 0.3% which left prices up 0.1% y/y.
 Prices
for intermediate goods jumped 1.7% reflecting the strength in energy
prices. The increase in core prices was, however, stable at 0.5%. Food
prices fell 0.3% but the y/y gain at 1.7% was up from 8.2% price
deflation during all of last year. Copper prices (55.3% y/y) and
nonferrous wire &amp; cable prices (25.1% y/y) have been notably
strong. The crude materials PPI jumped again with the strength in
energy prices. The 9.6% m/m increase was the strongest since 2006 and
raised prices by one-quarter versus last January. Core prices also
jumped. The 6.6% gain lifted prices by more than one-third y/y as
economic growth strengthened following the recession.
The producer
price data is available in Haver's USECON database.
More detailed data is in the PPI and in the PPIR
databases.
The minutes to the latest meeting of the Federal
Open Market Committee can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20100127.pdf">here</a>.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100218c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM" style="color: rgb(255, 255, 255);">Producer Price Index</a>(%)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>1.4</td>
<td>0.4</td>
<td>1.5</td>
<td>5.0</td>
<td>-2.5</td>
<td>6.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Food &amp;
Energy</td>
<td>0.3</td>
<td>0.0</td>
<td>0.5</td>
<td>1.0</td>
<td>2.6</td>
<td>3.4</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.7</td>
<td>0.6</td>
<td>1.2</td>
<td>4.9</td>
<td>-8.4</td>
<td>10.3</td>
<td>4.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core Less Food
&amp; Energy</td>
<td>0.5</td>
<td>0.5</td>
<td>0.3</td>
<td>1.1</td>
<td>-4.2</td>
<td>7.4</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>9.6</td>
<td>0.8</td>
<td>5.1</td>
<td>25.1</td>
<td>-30.4</td>
<td>21.4</td>
<td>11.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core Less Food
&amp; Energy</td>
<td>6.6</td>
<td>4.5</td>
<td>-1.0</td>
<td>35.1</td>
<td>-23.5</td>
<td>14.8</td>
<td>15.6</td>
</tr>
</tbody>
</table>


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Producer prices continued strong last month led by another jump in fuel costs. In addition, food price inflation has picked up considerably. Together, this strength lifted the finished goods PPI by 1.4% last month and increased the [...]

U.S. PPI Jumps Again With Energy Price Strength

U.S. PPI Jumps Again With EnergyPrice Strength

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

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

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Nonfarm labor productivity fell 0.8% (SAAR) during Q1’25 after increasing 1.7% in Q4’24, revised from 1.5%. A 0.6% decline had been expected in the Action Economics Forecast Survey. It was the first productivity decline since Q2’22. The y/y increase during Q1 fell to 1.4% from 2.1% in Q4. It was below a 3.3% high in the first quarter of last year. Productivity fell as real value-added output dropped 0.3% last quarter (+2.2% y/y) after increasing 2.5% in Q4, and hours worked lengthened 0.6% (0.8% y/y) following a 0.8% gain.

Compensation per hour increased 4.8% last quarter following a 3.7% Q4 rise. Despite the strength of these last two increases, y/y growth decelerated to 2.7% from a 6.8% high one year earlier. Nevertheless, the productivity decline raised unit labor costs by 5.7% (1.3% y/y) in Q1 versus expectations for a 5.2% increase. It followed a 2.0% gain during Q4 and was the strongest quarterly increase in a year.

Factory sector productivity surged 4.5% (1.5% y/y) during Q1’25 following three consecutive increases of roughly 0.5%. This strength was accompanied by a 6.2% rise (2.2% y/y) in hourly compensation which came after two consecutive increases of approximately 4.1%. The strength in productivity lowered the rise in unit labor costs to 1.6% from 3.8% in Q4. The y/y gain fell to 0.7% from 2.0% in Q4 and stood below the 6.2% y/y increase in Q1’24.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Productivity declines with lower output.
- Compensation surge exacerbates labor market stress.
- Factory sector productivity surge lessens cost pressure.

U.S. Productivity Declines in Q1’25; Unit Labor Costs Surge

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) rose 0.6% (3.2% y/y) in March to 103.2 after rising 0.9% to 102.6 in February and rising 0.8% in January to 101.7. The level of home affordability has risen 14.8% from its low of 89.9 in October 2023. It remains 42.4% below the high of 179.2 in April 2020.

The rise in affordability in March occurred as the median price of an existing single-family home rose 1.8% (2.9% y/y) to $408,000 which was offset by a decline in mortgage rates to 6.73% from 6.92% in February. The price compared to the record $432,900 in June 2024. The decline in mortgage rates compared to a recent low of 6.26% in September of last year and a 7.70% high during October of 2023. It remained well above a December 2020 low of 2.73%. These changes lowered the principal & interest payment by 0.2% (+1.1% y/y) to $2,113 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a lessened 24.2% of income during March. They remained up from a low of 14.0% of income in April 2020.

The rise in housing costs in March was accompanied by improvement in median family income. It increased 0.4% (4.4% y/y) to a record $104,705 after rising 0.4% in February and 0.7% in January.

Housing affordability improved m/m across the country in March. The index edged 0.1% higher (2.8% y/y) to 134.5 in the Midwest. It remains the most affordable region of the country. In the South, the index 0.9% (5.4% y/y) to 106.6 and the affordability index in the Northeast increased 2.1% (-2.6% y/y) to 95.7. In the West, where homes are the least affordable, the index rose 0.8% (3.3% y/y) to 71.8 in March.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Home prices rise but mortgage rates decline.
- Median income improves.
- Affordability increases across the country.

U.S. Housing Affordability Improves Slightly in March

Carol Stone, CBE

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Initial claims for unemployment insurance were 228,000 seasonally adjusted in the week ended May 3, down from 241,000 in the previous week, which was unrevised. For the latest week, the Action Economics Forecast Survey had expected a smaller decline to 233,000.

In the week ended April 26, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – was 1.879 million, down from 1.908 million in the April 19 week.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, returned to its longstanding rate of 1.2% in the April 26 week; this rate has held that amount since continuously since the week of January 6, 2024, except for the prior week’s 1.3%.

As we do highlight in every week’s discussion, economic conditions vary widely across individual states and territories. In the week ended April 19, the highest unemployment rates were in New Jersey and Rhode Island (both at 2.48%), California (2.26%), Washington (2.14%) and New York (1.85%). The lowest were in Florida (0.36%), South Dakota (0.37%), Alabama (0.41%), Virginia (0.45%) and Nebraska (0.47%). Rates in other notable states include Illinois (1.78%), Pennsylvania (1.53%) and Texas (1.14%). 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. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Continued claims for unemployment insurance decreased 29, 000 in the week ended April 26.
- Insured unemployment rate returns to longstanding 1.2%.
- Across the states, the insured unemployment rate ranges from 0.36% to 2.48%.

U.S. Initial Unemployment Insurance Claims Ease 13,000 in the May 3 Week

Andrew Cates

**The global business cycle** 
The recent sharp decline in the Future Output Balance in the global composite PMI survey reflects a sudden deterioration in global business expectations. The sweeping tariffs, introduced in April 2025, have generated heightened uncertainty around trade policy and sparked fears of retaliatory actions from key trading partners. As a result, businesses worldwide are scaling back their expectations for future output, wary of rising costs, disrupted demand flows, and a broader shift toward protectionism that could undermine global economic momentum.

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Note: The extreme declines in the Future Output Balance that were recorded in the early months of 2020 (at the height of the COVID pandemic) have been removed from this chart.

**Global supply chain pressures**
Still, despite the marked deterioration in global business expectations, this second chart below provides a reassuring counterpoint: as of now, there is little evidence that global supply chain pressures have materially intensified. Both the New York Fed’s Global Supply Chain Pressure Index and the Baltic Exchange Dry Index remain relatively subdued, especially compared to the pandemic-era spikes of 2020–2022. While there has been heightened concern following the April 2025 US tariff announcements, these trade policy shifts have yet to translate into measurable physical disruption in logistics or freight rates. The stability of these indices suggests that although sentiment has taken a hit, global shipping networks and supply flows are, for now, absorbing the shock. However, this calm may prove fragile if the policy environment hardens further or retaliatory trade actions begin to compound the strain.

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**Expectations for central banks’ policy rates** 
Adding to the picture of mounting economic caution, the latest Blue Chip Financial Forecasts survey reveals that expectations for policy easing over the next 12 months have become even more pronounced than in previous months. While earlier surveys had already pointed to a further extension of the global rate-cutting cycle, the latest results suggest forecasters now anticipate a deeper and more aggressive round of monetary easing—most notably from the US Federal Reserve, which is now expected to deliver nearly a full percentage point in rate cuts over the next 12 months. The sharp deterioration in business sentiment is reshaping the macro narrative: central banks are no longer simply guiding inflation lower, but are instead preparing to confront the risk of a deeper, demand-driven slowdown.

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**Energy prices and inflation** 
Adding further context to the growing expectations for policy easing, oil prices have dropped sharply in recent weeks—driven by mounting concerns over global growth, as reflected in weakening business sentiment and softer demand indicators. The chart below provides a longer-run perspective on why this matters: energy prices have historically played a central role in shaping the global inflation trajectory. The strong positive correlation (r = 0.83) between median world energy price inflation and median core consumer price inflation underscores the powerful pass-through effects energy costs can have on broader price dynamics. While core inflation tends to be stickier, this historical relationship makes clear that sustained declines in energy prices often foreshadow broader disinflationary trends.

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**Intangibles versus tangibles** 
Shifting focus from short-term cyclical risks to longer-term structural dynamics, the next chart below underscores a fundamental transformation in the composition of US investment: the economy has increasingly been built on intangibles. Over the past several decades, investment in intangible assets—such as software, intellectual property, R&D, and brand equity—has steadily climbed and, since the mid-2010s, has overtaken investment in both structures and equipment as a share of GDP. This shift reflects the rise of a knowledge-based, innovation-driven economy, but it also introduces new forms of vulnerability. Unlike physical capital, intangible assets rely heavily on trust, reputation, legal protections, and global openness. In this context, escalating trade frictions and a more confrontational US economic stance—as signalled by the recent tariff wave—risk eroding the goodwill and institutional credibility that underpin much of the value created by intangibles. If geopolitical uncertainty undermines the perceived reliability of US intellectual property protections or weakens global collaboration, it could pose a deeper structural challenge to future growth than any immediate cyclical downturn.

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**Investment in Artificial Intelligence**
The centrality of intangibles to the US growth model is nowhere more evident than in the explosion of private investment in artificial intelligence. As this chart illustrates, global AI investment has surged over the past decade—reaching new highs in 2024—and the United States has consistently accounted for the lion’s share of that spending. This reflects not only America’s previous leadership in frontier technologies but also its dependence on intangible capital, from algorithms and data infrastructure to human expertise and institutional trust. However, this dominance also underscores the strategic stakes of current policy choices. In an environment of rising trade tensions and potential fragmentation, the foundations of US leadership in AI—cross-border collaboration, data openness, and global market access—could be at risk.

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Financial market sentiment has rebounded in recent weeks, buoyed by signs of de-escalation in the US-led trade war and growing confidence that central banks—particularly the Federal Reserve—will step in with more rate cuts to cushion any fallout. Yet beneath the surface, a more sobering picture of the global economy persists. For example, latest PMI surveys reveal that global business expectations have slumped to their lowest levels since the pandemic, reflecting widespread unease about the growth outlook (chart 1). While supply chain pressures have so far remained contained, suggesting no repeat of the logistical chaos seen during the pandemic (chart 2), the latest Blue Chip Financial Forecasts survey reveals that forecasters are now pencilling in deeper and more widespread monetary easing than previously anticipated—an acknowledgment that demand is faltering (chart 3). Falling oil prices further reinforce this view: they are both a symptom of weakening global demand and a potential source of disinflation, reducing the urgency for central banks to maintain tight policy (chart 4). At the structural level, the US economy's increasing reliance on intangible assets—ranging from intellectual property to reputation—has made it more vulnerable to geopolitical frictions and the erosion of global trust (chart 5). This risk is compounded by America's dominant role in AI investment, a sector symbolic of both its economic strengths and its exposure to international perceptions (chart 6). The longer-term challenge, then, is not just navigating the current downturn, but ensuring that the institutional goodwill and cross-border openness that support the modern US economy are not sacrificed in a more fragmented and uncertain global order.

Charts of the Week: Relief Rally Meets Recession Risk

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At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was left unchanged at 4.25% to 4.50%. This followed reductions at three consecutive meetings in the fall of 2024. Rates remain below the high of 5.25% to 5.50% in place in mid-September. Today’s target range matched expectations in the Action Economics Forecast Survey.

The statement following the meeting indicated that, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”

“The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

The Fed continued, “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.”

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- FOMC holds funds rate target at late-December level.
- Risk assessments include higher unemployment & inflation.

Economy in Brief: February 2010

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