Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050324b.jpg" width="353">
Durable goods orders rose 0.3% last month following a 1.1% decline in January that was deeper than initially estimated. Consensus expectations had been for a 0.8% gain.
Nondefense capital goods orders were about unchanged after an upwardly revised gain in January. Less aircraft orders fell 2.1% but the January increase was sharply higher than initially reported.
Higher orders for computers &amp; electronic paced the February gain with a 1.2% (10.9% y/y) rise. Orders for transportation equipment also rose 1.6% (-2.5% y/y).
Electrical equipment orders gave back 4.5% (+6.8% y/y) of a 13.7% jump in January and machinery orders fell 1.1% (+14.4% y/y). Primary metals orders ticked 0.6% (17.1% y/y) higher but orders for fabricated metals fell.
Inventories of durable goods added 0.6% (9.5% y/y) to an upwardly revised 1.6% jump in January. However, shipments fell 1.6% (8.5% y/y) and caused the I/S ratio to rise.
Unfilled orders rose 0.6% and pulled the ratio of backlogs to shipments to the highest level since November.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050324c.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050324a.jpg" width="353">

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>0.3%</td>
<td>-1.1%</td>
<td>7.7%</td>
<td>10.8%</td>
<td>2.6%</td>
<td>-1.7%</td>
</tr>
<tr>
<td class="firstcol">Nondefense Capital Goods</td>
<td>-0.0%</td>
<td>1.1%</td>
<td>15.2%</td>
<td>13.7%</td>
<td>5.6%</td>
<td>-7.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excluding Aircraft</td>
<td>-2.1%</td>
<td>4.4%</td>
<td>13.6%</td>
<td>11.7%</td>
<td>6.6%</td>
<td>-7.1%</td>
</tr>
</tbody>
</table>
New Home Sales Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 24, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050324f.jpg" width="353">
Sales of new single-family homes recovered 9.4% in February to 1.226M after the little revised 8.6% January decline. Consensus estimates had been for sales of 1.150M.
The rise in sales last month was led by a 9.9% recovery in the Midwest (-6.8% y/y) after the one-third drop in January. In the Northeast sales surged 20.3% (-3.5% y/y) and in the South sales jumped 9.0% (+15.5% y/y). In the West sales gained 7.4% (-1.7% y/y).
The median price of a new single family home jumped 9.6% to $230,700 (+5.1% y/y).
The figures from the Census Department reflect homes sold. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">New Single-Family</td>
<td>1,226</td>
<td>1,121</td>
<td>5.2%</td>
<td>1,198</td>
<td>1,089</td>
<td>976</td>
</tr>
</tbody>
</table>
U.S. Existing Home Sales Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 24, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050324e.jpg" width="353">
Sales of existing single family homes slipped 0.4% in February to 6.79M January. Consensus expectations had been for sales of 6.70M.
Improved methodology and better modeling led to monthly revisions back through 1999. The figures reflect closings of home sales in earlier months.
Sales were mixed m/m across the country&#39;s regions. In the Northeast sales rose 4.6% (+4.6% y/y) and in the Midwest sales rose 2.0% (+4.2% y/y). In the South sales fell 3.4% (+8.0% y/y) and in the West sales were unchanged (+6.7% y/y).
The median price of an existing home single family home rose m/m to $188,200 (+9.4% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;6,790</td>
<td>&nbsp;6,820</td>
<td>6.1%</td>
<td>6,723</td>
<td>6,170</td>
<td>5,653</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Back Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 24, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050324d.jpg" width="353">
Initial claims for unemployment insurance rose 3,000 to 324,000 last week and the level of claims during the prior two weeks was revised slightly higher. Consensus expectations had been for 315,000 claims.
The revisions raised the increase in claims during the March survey period for nonfarm payrolls to 18,000 (+5.9%) versus the February period.
During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment. There has been a (negative) 66% correlation with the level of continuing claims.
The four week moving average of initial claims rose to 321,750 (-5.4% y/y).
Continuing claims for unemployment insurance rose 31,000 from the prior week and the insured rate of unemployment remained at 2.1%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">03/19/05</th>
<th scope="col">03/12/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>324</td>
<td>321</td>
<td>-5.8%</td>
<td>343</td>
<td>402</td>
<td>404</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,673</td>
<td>-11.7%</td>
<td>2,926</td>
<td>3,531</td>
<td>3,570</td>
</tr>
</tbody>
</table>
Good Gains in Japanese Service Sector: Genuine or Just Statistical? 
by <a href="/comment/Stone.html">Carol Stone</a> March 24, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050324g.jpg" width="353">
Service sector activity in Japan advanced vigorously in January, according to the report on &quot;Tertiary Industry Activity&quot; published today by the Ministry of Economy, Trade and Industry (METI). The index for all industries rose from December&#39;s 104.7 (2002=100) to 107.0, or 2.2%; the gain from the year-earlier level was 2.5%.
Participation by various industry groups varied widely, as illustrated in the table below. Wholesale and retail trade was up 5.9% and financial services by 2.9%, but information and communication dropped 7.9%. Most other sectors showed some increase, generating the rise in the overall total.
Before we conclude that the Japanese economy has shifted onto a new vigorous growth path, we need to take account of what might be called the &quot;January effect&quot; regarding seasonality. As in many countries, economic activity in Japan strengthens in December and weakens significantly in January, with a commensurate rise in the seasonal factor for December and a steep decline in January. This means that a seasonally adjusted &quot;gain&quot; in January could actually be a statistical construct; in fact, the unadjusted all-industry index fell 11.3% from December, at a time when the seasonal factor presumes a 13.3% drop, so that after seasonal adjustment, the index increased on the order of 2%. The trade industries are a sub-sector where this occurs most distinctly; that seasonal factor declines about 23% in January, so that any year in which January sales activity falls by &quot;just&quot; 22% will show a nice seasonally adjusted rise for January. [&quot;Seasonal factor&quot; in this discussion is the implicit seasonal derived from dividing the unadjusted by the adjusted data. See the second graph for an example.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050324h.jpg" width="353">
This extreme movement in seasonality can easily exaggerate the strength of an activity that simply doesn&#39;t fall as much as the seasonal statistics anticipate. The low level of the seasonal factors then mean that the unadjusted data are magnified more than in other months, yielding out-sized gains. These may indeed indicate genuine progress in economic activity, but they might also be a fluke; if so, they will wash out, generally during the spring months when the seasonals expect a normal growth pace that may not be matched by the actual performance. Growth, supported in the winter, might then weaken noticeably during the spring. Such patterns occur often in the US, as well, particularly with housing and construction data.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol">Index, 2002=100, SA</th>
<th scope="col">Jan 2005</th>
<th scope="col">Dec 2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Industries</td>
<td>107.0</td>
<td>104.7</td>
<td>104.6</td>
<td>103.9</td>
<td>102.0</td>
<td>101.1</td>
</tr>
<tr>
<td class="firstcol">Information &amp; Communication</td>
<td>111.3</td>
<td>120.9</td>
<td>114.6</td>
<td>114.3</td>
<td>114.5</td>
<td>113.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale &amp; Retail Trade</td>
<td>100.4</td>
<td>94.8</td>
<td>97.5</td>
<td>95.1</td>
<td>94.5</td>
<td>94.5</td>
</tr>
<tr>
<td class="firstcol">Finance Services</td>
<td>111.7</td>
<td>108.5</td>
<td>108.0</td>
<td>109.2</td>
<td>104.2</td>
<td>102.7</td>
</tr>
</tbody>
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Durable goods orders rose 0.3% last month following a 1.1% decline in January that was deeper than initially estimated. Consensus expectations had been for a 0.8% gain. Nondefense capital goods orders were about unchanged after an [...]

U.S. Durable Goods Orders Up Slightly

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323d.jpg" width="353">
Consumer confidence is little changed this month in three European countries. In Sweden, the monthly &quot;CCI&quot; indicator, eased from +11.6% to +10.7%; Italy&#39;s index also decreased, by 0.3% to 104.1 from 104.4 in February. The balance indicator in the Netherlands edged &quot;up&quot; to -21 from -22. These three movements indicate moderate improvements in all three countries over the last year, but in the two for which buying plans are also reported, there is little willingness to increase spending.
In Sweden, the distinctive feature about the recent behavior of the &quot;CCI&quot; is the narrow range of its movement. Through the 1990s and up to 2002, this indicator moved down and up in wide cyclical swings, or in shorter oscillations. In contrast, over the last 18 months or so, it has held to a narrow range, maintaining similar, moderately positive readings from month to month. This pattern coincides with relative stability of the kronor against the euro. It also corresponds to a period of near stability in Swedish consumer prices (see graph). Since February 2004, year-on-year inflation in Sweden has hovered between 1.1% and 1.7%, gauged according to the so-called &quot;underlying&quot; rate. The steadiness of the price situation at such low inflation rates is most probably encouraging to consumers.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323e.jpg" width="353">
Dutch consumers seem encouraged by what they perceive as a better outlook for the Dutch economy as a whole, a component of this survey which has moved in parallel with overall confidence since the middle of 2003. However, this seems not to translate into ideas about spending more, as the &quot;willingness to buy&quot; component has hardly moved over the same time span. In the Netherlands, improvements in the economic climate are relative: the climate index is still negative, but less so. Similarly, employment is no longer falling, but it has been no more than holding its own in recent months. We&#39;d surmise that until employment actually turns consistently upward, the &quot;willingness to buy&quot; indicator will sustain its recent sluggish readings.
The improvement in Italian confidence is relative too. While the index based on 1980 values has gained since early last year, the components expressed as favorable-less-unfavorable balances remain mostly negative, some quite strongly so. Thus, hesitation and uncertainty seem to be the order of the day with the result that &quot;current intention to make major purchases&quot; is the most negative item in the survey.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">Sweden (% Balance)</td>
<td>10.7</td>
<td>11.6</td>
<td>5.1</td>
<td>8.7</td>
<td>0.9</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">Netherlands (% Balance)</td>
<td>-21</td>
<td>-22</td>
<td>-26</td>
<td>-25</td>
<td>-35</td>
<td>-20</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy (1980 = 100)</td>
<td>104.1</td>
<td>104.4</td>
<td>101.8</td>
<td>101.4</td>
<td>106.1</td>
<td>115.8</td>
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Consumer confidence is little changed this month in three European countries. In Sweden, the monthly "CCI" indicator, eased from +11.6% to +10.7%; Italy's index also decreased, by 0.3% to 104.1 from 104.4 in February. The balance [...]

Consumer Confidence Up over Last Year in Sweden, Netherlands and Italy, But Consumers Still Seem Unwilling To Spend

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323b.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications dropped 9.5% last week and pulled the average level in March 4.1% below February.
Applications to refinance plummeted 16.5% leaving the February average off 13.5% from February.
Purchase applications fell for the first week in the last four. The 3.5% decline still left purchase applications 5.1% higher than in February.
The effective interest rate on a conventional 30-year mortgage rose to 6.19% from 6.16% the prior week and from 5.85% in February. The effective rate on a 15-year mortgage also rose to 5.81%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/18/05</th>
<th scope="col">03/11/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
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<td class="firstcol">Total Market Index</td>
<td>658.8</td>
<td>727.6</td>
<td>-40.9%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>446.4</td>
<td>462.8</td>
<td>-0.6%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,894.4</td>
<td>2,267.5</td>
<td>-62.0%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
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The Mortgage Bankers Association reported that mortgage applications dropped 9.5% last week and pulled the average level in March 4.1% below February. Applications to refinance plummeted 16.5% leaving the February average off 13.5% [...]

Mortgage Applications Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323a.jpg" width="353">
Consumer Prices (CPI-U) rose 0.4% in February, the strongest monthly increase since October and exceeded Consensus expectations for a 0.3% rise.
A 0.3% gain in prices less food &amp; energy also was the firmest since last September and beat expectations for a 0.2% increase.
Services price inflation firmed slightly last month and caused the acceleration. Less energy, services prices rose 0.3% versus 0.2% gains during the prior four months. Shelter price inflation moved slightly higher to 0.3% (3.0% y/y) and medical care services prices ramped to a 0.6% (5.0% y/y) gain after four months at 0.4%. Public transportation prices were unchanged (-1.0% y/y) following two months of decline but school tuition rose 0.5% (6.5% y/y).
Goods prices less energy were unchanged (0.7% y/y) after a 0.3% January gain despite a 0.4% (5.0% y/y) increase in tobacco prices. New vehicle prices rose just 0.1% (1.1% y/y) while apparel prices (0.0% y/y) and furniture prices (0.3% y/y) both fell 0.2%. Personal computer prices also fell 3.6% (NSA, -15.6% y/y).
Energy prices moved up 2.0%. Gasoline prices rose 3.2% (14.7% y/y) last month and so far in March gasoline prices have moved roughly another 10% higher to $2.11 per gallon. Fuel oil prices rose 1.4% (21.5% y/y) and natural gas &amp; electricity prices rose 0.8% (5.1% y/y).
Food prices rose 0.1% for the second month, the gain held back by another decline in fruit &amp; vegetable prices (+2.3% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases jumped 0.5%. Core chain prices also rose a strong 0.6%.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<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">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.1%</td>
<td>2.9%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.7%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>2.0%</td>
<td>-1.1%</td>
<td>10.3%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>0.5%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.6%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer Prices (CPI-U) rose 0.4% in February, the strongest monthly increase since October and exceeded Consensus expectations for a 0.3% rise. A 0.3% gain in prices less food & energy also was the firmest since last September and [...]

CPI Gain The Strongest Since October

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323a.jpg" width="353">
Consumer Prices (CPI-U) rose 0.4% in February, the strongest monthly increase since October and exceeded Consensus expectations for a 0.3% rise.
A 0.3% gain in prices less food &amp; energy also was the firmest since last September and beat expectations for a 0.2% increase.
Services price inflation firmed slightly last month and caused the acceleration. Less energy, services prices rose 0.3% versus 0.2% gains during the prior four months. Shelter price inflation moved slightly higher to 0.3% (3.0% y/y) and medical care services prices ramped to a 0.6% (5.0% y/y) gain after four months at 0.4%. Public transportation prices were unchanged (-1.0% y/y) following two months of decline but school tuition rose 0.5% (6.5% y/y).
Goods prices less energy were unchanged (0.7% y/y) after a 0.3% January gain despite a 0.4% (5.0% y/y) increase in tobacco prices. New vehicle prices rose just 0.1% (1.1% y/y) while apparel prices (0.0% y/y) and furniture prices (0.3% y/y) both fell 0.2%. Personal computer prices also fell 3.6% (NSA, -15.6% y/y).
Energy prices moved up 2.0%. Gasoline prices rose 3.2% (14.7% y/y) last month and so far in March gasoline prices have moved roughly another 10% higher to $2.11 per gallon. Fuel oil prices rose 1.4% (21.5% y/y) and natural gas &amp; electricity prices rose 0.8% (5.1% y/y).
Food prices rose 0.1% for the second month, the gain held back by another decline in fruit &amp; vegetable prices (+2.3% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases jumped 0.5%. Core chain prices also rose a strong 0.6%.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><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">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.1%</td>
<td>2.9%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.7%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>2.0%</td>
<td>-1.1%</td>
<td>10.3%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a></td>
<td>0.5%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.6%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
Mortgage Applications Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 23, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323b.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications dropped 9.5% last week and pulled the average level in March 4.1% below February.
Applications to refinance plummeted 16.5% leaving the February average off 13.5% from February.
Purchase applications fell for the first week in the last four. The 3.5% decline still left purchase applications 5.1% higher than in February.
The effective interest rate on a conventional 30-year mortgage rose to 6.19% from 6.16% the prior week and from 5.85% in February. The effective rate on a 15-year mortgage also rose to 5.81%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/18/05</th>
<th scope="col">03/11/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>658.8</td>
<td>727.6</td>
<td>-40.9%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>446.4</td>
<td>462.8</td>
<td>-0.6%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,894.4</td>
<td>2,267.5</td>
<td>-62.0%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Consumer Confidence Up over Last Year in Sweden, Netherlands and Italy, But Consumers Still Seem Unwilling To Spend 
by <a href="/comment/Stone.html">Carol Stone</a> March 23, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323d.jpg" width="353">
Consumer confidence is little changed this month in three European countries. In Sweden, the monthly &quot;CCI&quot; indicator, eased from +11.6% to +10.7%; Italy&#39;s index also decreased, by 0.3% to 104.1 from 104.4 in February. The balance indicator in the Netherlands edged &quot;up&quot; to -21 from -22. These three movements indicate moderate improvements in all three countries over the last year, but in the two for which buying plans are also reported, there is little willingness to increase spending.
In Sweden, the distinctive feature about the recent behavior of the &quot;CCI&quot; is the narrow range of its movement. Through the 1990s and up to 2002, this indicator moved down and up in wide cyclical swings, or in shorter oscillations. In contrast, over the last 18 months or so, it has held to a narrow range, maintaining similar, moderately positive readings from month to month. This pattern coincides with relative stability of the kronor against the euro. It also corresponds to a period of near stability in Swedish consumer prices (see graph). Since February 2004, year-on-year inflation in Sweden has hovered between 1.1% and 1.7%, gauged according to the so-called &quot;underlying&quot; rate. The steadiness of the price situation at such low inflation rates is most probably encouraging to consumers.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323e.jpg" width="353">
Dutch consumers seem encouraged by what they perceive as a better outlook for the Dutch economy as a whole, a component of this survey which has moved in parallel with overall confidence since the middle of 2003. However, this seems not to translate into ideas about spending more, as the &quot;willingness to buy&quot; component has hardly moved over the same time span. In the Netherlands, improvements in the economic climate are relative: the climate index is still negative, but less so. Similarly, employment is no longer falling, but it has been no more than holding its own in recent months. We&#39;d surmise that until employment actually turns consistently upward, the &quot;willingness to buy&quot; indicator will sustain its recent sluggish readings.
The improvement in Italian confidence is relative too. While the index based on 1980 values has gained since early last year, the components expressed as favorable-less-unfavorable balances remain mostly negative, some quite strongly so. Thus, hesitation and uncertainty seem to be the order of the day with the result that &quot;current intention to make major purchases&quot; is the most negative item in the survey.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Mar 2005</th>
<th scope="col">Feb 2005</th>
<th scope="col">Year Ago</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sweden (% Balance)</td>
<td>10.7</td>
<td>11.6</td>
<td>5.1</td>
<td>8.7</td>
<td>0.9</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">Netherlands (% Balance)</td>
<td>-21</td>
<td>-22</td>
<td>-26</td>
<td>-25</td>
<td>-35</td>
<td>-20</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy (1980 = 100)</td>
<td>104.1</td>
<td>104.4</td>
<td>101.8</td>
<td>101.4</td>
<td>106.1</td>
<td>115.8</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050322c.jpg" width="353">
The Korean economy showed signs of continued improvement in the fourth quarter of last year as Real Gross Domestic Product (RGDP) rose 0.94% in the fourth quarter, compared with 0.81% in the third quarter. For the year 2004 as a whole, real GDP was up 4.66%, compared with 3.15% in the previous year.
Exports of goods and services in 2004 rose almost 20% in spite of a 15% appreciation of the won. Consumer expenditures remain subdued as consumers have been trying to restore their balance sheets after having gone on a buying spree during an earlier period of relaxed credit controls. At the end of last year, one in 13 persons was estimated to be three or more months behind on debt payments. The attached chart shows the divergent paths in the year to year increases in consumer spending and those in net exports.
Of the 30,768 billion 2000 won increase in RGDP between 2003 and 2004, 22,504 billion 2000 won, or 73% was accounted for by an increase in net exports. Consumption on the other hand, accounted for only 2.2% of the increase and while investment increased by 9,89l billion 2000 won, or 30.7%, more than half that, 18.1%, was due to inventory accumulation. Some of these figures may have been overstated as there was a statistical discrepancy in the total of -2,310.7 billion 2000 won, or -6.1%.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P2/@P2.HTM">Korea: Gross Domestic Product</a> (Billions of 2000 Korean Won)</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">Difference</th>
<th scope="col">% of Dif</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gross domestic product</td>
<td>693,420.0</td>
<td>662,654.9</td>
<td>30,769.1</td>
<td>100.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Final Consumption</td>
<td>430,768.9</td>
<td>430,077.0</td>
<td>691.9</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Investment</td>
<td>204,024.6</td>
<td>194,579</td>
<td>9,445.6</td>
<td>30.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Fixed</td>
<td>202,927.5</td>
<td>199,048.0</td>
<td>3,879.5</td>
<td>12.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Inventories</td>
<td>1097.1</td>
<td>-4,469.0</td>
<td>5,566.1</td>
<td>18.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Exports</td>
<td>58394.9</td>
<td>35,894.8</td>
<td>22,500.1</td>
<td>73.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Statistical discrepancy</td>
<td>235.9</td>
<td>2,104.3</td>
<td>-1,868.9</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Addendum:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>% Chg</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>359,995.2</td>
<td>300,824.5</td>
<td>59,170.7</td>
<td>19.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>301,600.3</td>
<td>264,929.7</td>
<td>36,670.6</td>
<td>13.8</td>
</tr>
</tbody>
</table>
</body>
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The Korean economy showed signs of continued improvement in the fourth quarter of last year as Real Gross Domestic Product (RGDP) rose 0.94% in the fourth quarter, compared with 0.81% in the third quarter. For the year 2004 as a [...]

Korean GDP up 4.6%: Exports Rise Outweighs Consumer Slump

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050323c.jpg" width="353">
The Federal Open Market Committee raised the target rate for federal funds an expected 25 basis points to 2.75%. The discount rate also was raised 25 basis points to 3.75%.
The decision to raise rates the seventh time since last June was unanimous.
Today&#39;s press release from the Fed continued to contain a comment suggesting that rates could be raised again. &quot;With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.&quot;
With regard to prices the press release indicated &quot;Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident. The rise in energy prices, however, has not notably fed through to core consumer prices.&quot;
For the complete text of the Fed&#39;s latest press release please click <a href="http://www.federalreserve.gov/BoardDocs/Press/monetary/2005/20050322/default.htm">here</a>.
Paul Samuelson and Monetary Analysis from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050401/cover.pdf">here</a>.

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The Federal Open Market Committee raised the target rate for federal funds an expected 25 basis points to 2.75%. The discount rate also was raised 25 basis points to 3.75%. The decision to raise rates the seventh time since last June [...]

Federal Funds Rate Raised to 2.75%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050322a.jpg" width="353">
Chain store sales last week added 0.2% to the prior week&#39;s 0.6% advance according to the International Council of Shopping Centers (ICSC)-UBS survey.
Sales so far in March are 1.2% ahead of the February average which rose 1.0% from January.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department.
The leading indicator of chain store sales from ICSC rose 0.3% in the latest week (0.2% y/y).
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/19/05</th>
<th scope="col">03/12/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>454.6</td>
<td>453.6</td>
<td>3.4%</td>
<td>4.6%</td>
<td>2.9%</td>
<td>3.6%</td>
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Chain store sales last week added 0.2% to the prior week's 0.6% advance according to the International Council of Shopping Centers (ICSC)-UBS survey. Sales so far in March are 1.2% ahead of the February average which rose 1.0% from [...]

Chain Store Sales Higher

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

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

Announcement of snap French election is causing concern across Europe

The UK economy’s post-pandemic under-performance relative to its pre-pandemic trend

US Beveridge Curve back to near pre-pandemic levels

Negative economic surprises in the US but positive in Europe, especially the UK

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

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Andrew Cates

**Markets and data**
As noted, a soft landing narrative has continued to shape sentiment in financial markets in recent weeks. Incoming global growth data, most notably from the US, have been stronger than expected. And inflation outcomes have additionally been weaker-than-expected. As chart 1 below suggests that combination – stronger growth and weaker inflation – has typically been greeted positively by equity investors.

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**US bond yields** 
That being said there has also been an active debate in markets about the potential consequences of a US election. US bond yields, for example, have been climbing possibly because of market fears about the burgeoning US federal government deficit and debt. Still, as chart 2 below suggests, the increase in yields has unfolded at the same time as the incoming US (and broader global growth) data have been outperforming expectations. Inasmuch as that trend additionally led to some re-pricing of Fed policy, economic fundamentals have arguably been the dominant driver of the US Treasury market, not fears about politics and deficits.

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**Global growth momentum**
Still, although incoming US data have been outperforming expectations in recent weeks, latest forward looking business surveys suggest that global growth is losing momentum. October’s flash PMIs, for example, revealed that business activity contracted for a second consecutive month in the euro area and Australia, and slipped into a phase of decline in Japan as well. The UK additionally saw growth weaken sharply. And although the US continued to reveal resilience, that was primarily because of ongoing growth in the service sector - the manufacturing sector, in contrast, has been contracting for four consecutive months (see chart 3).

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**UK fiscal policy** 
One reason why UK businesses may have elicited weaker confidence in recent weeks concerns fears about this week’s Budget. Some of the details, for example, had been widely telegraphed in the UK press. The specifics that were announced on October 30th included a large rise in public spending (amounting to over 2% of GDP per year), and with only half of that being recouped in higher taxes. About two-thirds of that higher tax burden, moreover, falls on the corporate sector. The UK’s fiscal watchdog – the Office for Budget Responsibility – expects overall public sector borrowing to rise from £121.9 billion (4.5 per cent of GDP) last year to £127.5 billion this year, before falling steadily back to £70.6 billion (2.1 per cent) by 2029-30. That’s about 0.9 per cent of GDP a year higher on average over the forecast horizon compared to their last projections in March (see chart 4).

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**Japan’s politics**
Staying with policy and politics, Japan’s ruling party, the Liberal Democratic Party (LDP), faced an electoral upset over the weekend, losing its majority in the lower house of Parliament. Even with the support of its coalition partner, Komeito, the LDP is now unable to form a majority. This has put Prime Minister Ishiba's position in jeopardy, as he may need to seek support from parties outside his usual allies to advance his policy agenda, should he continue in office. In response to the news, the yen weakened further, reflecting the market's concerns, while equities experienced a slight increase.

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**China and US politics**
Ahead of next week’s US Presidential Elections there remains much uncertainty about the outlook for China (and the broader Asian region). Many observers are keen to assess the potential extent and nature of future policy actions toward China by an incoming president. Key concerns include the possibility of ongoing US efforts to curb China’s advancements in critical technologies, such as artificial intelligence, and trade-related restrictions aimed at addressing overcapacity in electric vehicles (EVs) and other sectors. Notably, presidential candidate and former President Trump, has proposed significantly raising tariffs on goods imported from China if elected. However, regardless of who takes office, it is likely that China will continue to face frictions with the US, as the latter has maintained a hawkish stance toward China over the past decade, irrespective of the sitting president.

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Some unexpected resilience in the US economy and particularly in the labour market has continued to reinforce soft landing narratives over the past few days. At the broader global level, weaker-than-expected inflation data have also been reinforcing the view that most major central banks will continue to loosen monetary policy in the period ahead. In our charts this week we illustrate how this soft landing narrative continues to shape sentiment in financial markets (see charts 1 and 2). But we illustrate too, that notwithstanding US resilience, latest forward looking business surveys suggest that global growth is losing momentum. Domestic policy and politics, however, have also been important in recent days with the new UK labour government’s first budget dominating the headlines (chart 4). Some uncertainty has additionally crept into Japan’s political scene and generated some financial market consequences (chart 5). Finally, and looking ahead to next week, US politics has continued to dominate the global headlines and may well be a key driver of economic and financial market outcomes in the period immediately ahead (chart 6).

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Charts of the Week: Data, Policy and Politics

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The PCE chain price index rose 0.2% in September following unrevised increases of 0.1% and 0.2% in August and July. The y/y rise continued its downward trend. The 2.1% annual rise compares to its 7.2% y/y peak in June 2022. The price index excluding food and energy, however, moved 0.3% higher last month after three straight months of 0.2% increase. The y/y rise was steady at 2.7% and remained half of its 5.6% peak in February and March of 2022. Durable goods prices rose 0.3% (-1.9% y/y), after declines in four of the prior five months. Motor vehicle & prices rose 0.3% (-2.4% y/y), after declining steadily since December. Recreational product prices eased 0.3% (-2.0% y/y) but home furnishings costs rose 0.5% (-2.7% y/y). Nondurable goods prices eased 0.4% (-0.8% y/y) in September, off for the fourth month in five, but clothing prices rose 0.7% (1.4% y/y) after a 0.5% gain. Services prices increased 0.3% (3.7% y/y) after rising 0.2%. Housing & utility prices rose 0.4% (4.9% y/y) after a 0.3% rise, and services prices excluding energy & healthcare increased 0.3% (3.9% y/y) in September for the fourth straight month. Healthcare prices rose 0.4% (3.0% y/y). Food & beverage prices rose 0.4% in September (1.2% y/y) while energy goods & services prices fell 2.0% (-8.1% y/y).

Personal consumption expenditures (PCE) increased 0.5% (5.3% y/y) in September, after a 0.3% rise during August. A 0.4% increase had been expected in the Action Economics Forecast Survey. When adjusted for price changes, PCE increased 0.4% last month (3.1% y/y) after increasing 0.2% during August.

Real spending on durable goods rose 0.4% (3.4% y/y) last month after a 0.2% August decline. Real spending on motor vehicles rose 1.4% (0.2% y/y), after a 2.3% decline. Real outlays on furnishings & durable household equipment declined 0.3% (+4.8% y/y) following a 0.1% uptick while real spending on recreational goods & vehicles rose 0.2% (5.3% y/y) last month, after a 1.3% August jump. Spending on other durable goods eased 0.3% (+5.3% y/y) after strengthening 1.3% in August.

Real spending on nondurable goods surged 0.8% (2.5% y/y) during September, after holding steady in August. Real clothing and footwear purchases edged 0.1% higher (1.5% y/y) last month following a 0.5% decline. Real food & beverage purchases rebounded 0.6% (1.8% y/y) after slipping 0.2%. Real outlays on gasoline & other energy products rose 0.3% (0.7% y/y) last month after declining 1.7% in August. Real spending on other nondurable goods improved 1.3% (4.0% y/y) after a rise of 0.8% in August.

Real spending on services edged up 0.2% (3.2% y/y) in September, following a 0.3% rise in August. Real spending on housing & utilities rose 0.2% (1.1% y/y), after ticking 0.1% higher, while real healthcare spending rose 0.2% (4.9% y/y) following a 0.1% August rise. Real spending on food services & accommodations strengthened 0.8% (1.7% y/y) after a 0.4% rise in August, while real spending on financial services & insurance gained 0.2% (2.8% y/y) last month, after rising 0.5%. Real spending on transportation services fell 0.7% (+4.6% y/y) in September after rising 1.0% in August. Recreation spending fell 0.4% (+2.7% y/y) after rising 0.6% while other services spending gained 0.1% (3.2% y/y) for the second straight month.

Personal income rose 0.3% (5.5% y/y) in September, after rising of 0.2% in August. A 0.4% gain was expected. Wages & salaries rose 0.5% (6.4% y/y) for the second straight month. Rental income rose 0.5% (5.8% y/y) in September, the same as in August. Proprietors’ income weakened 0.4% (+2.2% y/y) following a 0.1% August increase. Income from assets weakened 0.2% (+1.4% y/y), off for the third straight month, and current transfer receipts rose 0.4% (7.6% y/y) in September after rising 0.3% in August. Government social benefits increased 0.4% (7.5% y/y), after a 0.3% rise in August.

Disposable personal income increased 0.3% (5.3% y/y) in September following a 0.2% August increase. After adjusting for price changes, disposable income improved 0.1% (3.1% y/y) for the fourth straight month.

The personal saving rate dipped to 4.6% in September from 4.8% in August. The rate was down from a January high of 5.5%. Personal saving fell 4.7% (+10.3% y/y) in September after falling 1.7% in August.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Monthly gain in core prices is highest in six months.
- Improvement in real spending is concentrated in goods.
- Disposable income firms as wages maintain strength.

U.S. Core PCE Price Gain Picks Up, but Real Spending Posts Solid Increase in September

Sandy Batten

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The employment cost index (ECI) for civilian workers rose 0.8% q/q (3.9% y/y) in this year’s third quarter following a 0.9% quarterly gain in Q2, according to the Bureau of Labor Statistics. This is the smallest quarterly increase since Q2 2021 and the smallest annual increase since Q4 2021. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 4.1% y/y gain.

Wages and salaries for civilian workers also rose 0.8% q/q (3.9% y/y) in Q3 versus a 0.9% quarterly increase in Q2 and three consecutive 1.1% quarterly gains. This was the smallest quarterly gain and the smallest annual increase since Q2 2021. Benefits increased 0.8% q/q (3.7% y/y) in Q3 versus 1.0% q/q in Q2. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing meaningfully.

Private industry workers’ compensation rose 0.7% q/q (3.7% y/y) in Q3, down from 0.9% q/q (3.9% y/y) in Q2. Wages and salaries for private industry workers increased 0.8% q/q (3.8% y/y) in Q3, the same quarterly increase as in Q2. The quarterly gains in Q2 and Q3 were the smallest since Q4 2020. Benefits for private industry workers rose 0.7% q/q (3.3% y/y) in Q3 versus 0.8% q/q (3.4% y/y) in Q2.

By industrial sector, total compensation in goods-producing industries rose 0.9% q/q (3.5% y/y) in Q3 following an outsized slowdown to 0.5% q/q in Q2. Compensation in construction jumped up 1.1% q/q following a 0.3% q/q decline in Q2 while manufacturing compensation slowed to 0.8% q/q from 0.9% in Q2. In service-producing industries, total compensation increased 0.8% q/q (3.9% y/y) following a 1.0% quarterly gain in Q2. Compensation in private service-producing industries increased 0.7% q/q (3.6% y/y). Information compensation surged 1.4% q/q in Q3 following a rare 02% quarterly decline in Q2. Growth of education and health services compensation remained elevated, rising 1.2% q/q after a 1.0% q/q gain in Q2. Professional and business services compensation slowed to 0.2% q/q in Q3 from 0.8%, while the rise in leisure and hospitality compensation slowed to 0.6% q/q in Q3 after a 1.4% q/q jump in Q2.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- The pace of growth in employment costs slowed to multiyear lows in Q3.
- While still elevated relative to pre-pandemic readings, the trend in employment costs is clearly down.

Rise of U.S. Employment Cost Index Slows Further in Q3

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Initial claims for unemployment insurance were 216,000 seasonally adjusted in the week ended October 26, down from 228,000 in the October 19 week; that earlier number was revised slightly from 227,000 reported before. The 216,000 amount was lower than the Action Economics Forecast Survey expectation of 233,000. The four-week moving average of these initial claims was 236,500 in the week ended October 26, down from 238,750 the week before.

In the week ended October 19, the total number of unemployment insurance beneficiaries was 1.862 million, seasonally adjusted, down from 1.888 million the prior week. That earlier week was revised down from 1.897 million previously reported. The four-week moving average of these beneficiaries was 1.869 million in the October 19 week, up from 1.858 million the previous week.

The associated insured unemployment rate, that is, the number of beneficiaries as a percent of covered employment, was back to 1.2% and the prior week was revised down from 1.3% to 1.2%. So, this rate has returned to the 1.2% amount that has been in place since March 2013, and the hurricane effects of early October were not so widespread as to raise the overall rate.

Economic conditions vary widely across states and territories. In the week ended October 12, the highest unemployment rates were in New Jersey (2.15%), California (1.92%), Puerto Rico (1.84%), Washington (1.78%) and Nevada (1.58%). The lowest rates were in South Dakota (0.23%), North Dakota (0.35%), Virginia (0.41%), Nebraska, Florida and Alabama (each 0.43%) and Kentucky (0.44%). Rates in other notable states include New York (1.44%), Illinois (1.43%), Pennsylvania (1.34%) and Texas (1.02%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor, 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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- Initial claims down 12,000 in latest week.
- Total unemployment insurance beneficiaries decrease 26,000 in October 19 week.
- Insured unemployment rate revised down, maintaining 1.2% amount even during hurricanes.

U.S.  Unemployment Insurance Claims Ease to 216,000 in October 26 Week

Robert Brusca

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Inflation in the European Monetary Union turned flat in September with the headline flat and the core flat month-to-month. Over 12 months, headline inflation is rising at a 1.7% annual rate, the same as over six months; over three months, that pace steps down to 1.6%. Headline inflation is across the board consistent with the European central bank’s target of inflation of around 2%. Core inflation is higher. Over 12 months, the core runs hot at a 2.8% pace, rising over six months at a stronger 3.2% annual rate and then dipping to a 2.3% annual rate over three months. The three-month pace is coming much closer to the ECB's target for inflation.

The four largest economies in the EMU also had inflation fall in September. In Germany, prices dropped by 0.2%, the same as in Spain. Headline prices fell 0.7% in France and just ticked lower by 0.1% in Italy. Price dropping across the board is a special sign; in this case, it signals dropping oil prices.

Sequential inflation rates for headline inflation in large economies also are looking good. Germany and Spain have the highest 12-month inflation rates at 1.7%. France is next at 1.4% and then Italy logs a 0.7% 12-month inflation rate. However, over six months, inflation picks up above target for Italy and Germany to 2.7%; it cruises at a 1.9% annual rate in France and at 1% annual rate in Spain. Over three months, prices are flat in Germany, rising at a 0.2% annual rate in France, rising at a 0.3% annual rate in Spain, and rising at a 2.3% annual rate in Italy. The results we see for headline inflation clearly echoed across the large economies of the European Monetary Union.

However, as having been the case for some time, the sticking point for inflation is the core. This is because Brent oil prices fell by 8.1% in September and fell by 7.6% in August after rising by 0.1% in July. In fact, Brent oil prices are falling to a 47.7% annual rate over three months, falling at a 29.3% annual rate over six months, and falling at a 24% annual rate over 12 months. This helps to explain why headline inflation is doing so well. Core inflation is showing more signs of being stuck at a too-high level.

Core (ex-energy) inflation in the case of Germany is at a 2.6% annual rate over 12 months. Spain’s core pace is at a 2.4% annual rate, Italy logs a 1.9% annual rate, and France checks in at a 1.5% annual rate. For France and Italy, core inflation over 12 months is very much in the fold of the target pace, while in the case of Spain and Germany, the departures aren't so great as they both hover around 2.5% at an annual rate. However over six months, German inflation is still up by 2.4%, the same as in Italy. Spain logs in at a 2.2% annual rate. France stays with the low 1.5% annual rate. Over three months, inflation runs at a 2.8% annual rate for ex-energy in Germany; it's at a 2.4% annual rate for the core in Spain and 2.1% for the core in Italy, compared to an even weaker 0.4% annual rate in France.

Even with core inflation getting stuck in the EMU economy overall at 2.8%, inflation is still not very far from the ECB's goal and is broadly behaving for the large economies. And if economic data are deemed weak enough, inflation doesn't seem to be that far from the ECB's target nor is it misbehaving enough to keep ECB rate cuts off the table.

Economy in Brief: March 2005

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